SOUTHERN FIRST BANCSHARES INC 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission file number 000-27719 Southern First Bancshares, Inc. (Exact name of registrant as specified in its charter) South Carolina 58-2459561 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 6 Verdae Boulevard Greenville , S.C. 29607 (Address of principal executive offices) (Zip Code) 864 - 679-9000 (Registrant’s telephone number, including area code) Not Applicable (Former name, former address, and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock SFST The Nasdaq Global Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller Reporting Company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 8,180,715 shares of common stock, par value $0.01 per share, were issued and outstanding as of July 24, 2025. Table of Contents SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY June 30, 2025 Form 10-Q INDEX Page PART I – CONSOLIDATED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Shareholders’ Equity 6 Consolidated Statements of Cash Flows 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 3. Quantitative and Qualitative Disclosures about Market Risk 45 Item 4. Controls and Procedures 46 PART II – OTHER INFORMATION Item 1. Legal Proceedings 46 Item 1A. Risk Factors 46 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 46 Item 3. Defaults upon Senior Securities 47 Item 4. Mine Safety Disclosures 47 Item 5. Other Information 47 Item 6. Exhibits 47 2 Table of Contents PART I. CONSOLIDATED FINANCIAL INFORMATION Item 1. CONSOLIDATED FINANCIAL STATEMENTS SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June 30, December 31, (dollars in thousands, except share data) 2025 2024 (Unaudited) (Audited) ASSETS Cash and cash equivalents: Cash and due from banks $ 25,184 22,553 Federal funds sold 180,834 128,452 Interest-bearing deposits with banks 65,014 11,858 Total cash and cash equivalents 271,032 162,863 Investment securities: Investment securities available for sale 128,867 132,127 Other investments 19,906 19,490 Total investment securities 148,773 151,617 Mortgage loans held for sale 10,739 4,565 Loans 3,746,841 3,631,767 Less allowance for credit losses ( 41,285 ) ( 39,914 ) Loans, net 3,705,556 3,591,853 Bank owned life insurance 54,886 54,070 Property and equipment, net 85,921 88,794 Deferred income taxes, net 12,971 13,467 Other assets 18,189 20,364 Total assets $ 4,308,067 4,087,593 LIABILITIES Deposits $ 3,636,329 3,435,765 FHLB advances and related debt 240,000 240,000 Subordinated debentures 24,903 24,903 Other liabilities 61,373 56,481 Total liabilities 3,962,605 3,757,149 SHAREHOLDERS’ EQUITY Preferred stock, par value $ .01 per share, 10,000,000 shares authorized - - Common stock, par value $ .01 per share, 20,000,000 shares authorized, 8,180,715 shares issued and outstanding at June 30, 2025; 20,000,000 shares authorized, 8,164,872 shares issued and outstanding at December 31, 2024. 82 82 Nonvested restricted stock ( 2,774 ) ( 3,884 ) Additional paid-in capital 124,839 124,641 Accumulated other comprehensive loss ( 9,609 ) ( 11,472 ) Retained earnings 232,924 221,077 Total shareholders’ equity 345,462 330,444 Total liabilities and shareholders’ equity $ 4,308,067 4,087,593 See notes to consolidated financial statements that are an integral part of these consolidated statements. 3 Table of Contents SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the three months For the six months ended June 30, ended June 30, (dollars in thousands, except share data) 2025 2024 2025 2024 Interest income Loans $ 48,992 46,545 96,077 92,150 Investment securities 1,357 1,418 2,760 2,896 Federal funds sold and interest-bearing deposits with banks 1,969 2,583 3,128 3,863 Total interest income 52,318 50,546 101,965 98,909 Interest expense Deposits 24,300 28,216 47,869 55,148 Borrowings 2,723 2,802 5,418 5,588 Total interest expense 27,023 31,018 53,287 60,736 Net interest income 25,295 19,528 48,678 38,173 Provision for credit losses 700 500 1,450 325 Net interest income after provision for credit losses 24,595 19,028 47,228 37,848 Noninterest income Mortgage banking income 1,569 1,923 2,993 3,087 Service fees on deposit accounts 567 416 1,106 810 ATM and debit card income 586 587 1,138 1,131 Income from bank owned life insurance 413 384 816 762 Other income 199 213 394 397 Total noninterest income 3,334 3,523 6,447 6,187 Noninterest expenses Compensation and benefits 11,674 11,290 22,978 22,147 Occupancy 2,523 2,552 5,071 5,109 Outside service and data processing 2,189 1,962 4,226 3,808 Insurance 910 965 1,919 1,920 Professional fees 609 582 1,118 1,200 Marketing 397 389 771 758 Other 1,034 903 2,088 1,801 Total noninterest expenses 19,336 18,643 38,171 36,743 Income before income tax expense 8,593 3,908 15,504 7,292 Income tax expense 2,012 909 3,657 1,771 Net income $ 6,581 2,999 11,847 5,521 Earnings per common share Basic $ 0.81 0.37 1.46 0.68 Diluted 0.81 0.37 1.46 0.68 Weighted average common shares outstanding Basic 8,118,895 8,125,869 8,098,737 8,118,059 Diluted 8,133,789 8,140,822 8,122,215 8,141,371 See notes to consolidated financial statements that are an integral part of these consolidated statements. 4 Table of Contents SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) For the three months ended June 30, For the six months ended June 30, (dollars in thousands) 2025 2024 2025 2024 Net income $ 6,581 2,999 11,847 5,521 Other comprehensive income (loss): Unrealized gain (loss) on securities available for sale: Unrealized holding gain (loss) arising during the period, pretax 516 ( 86 ) 2,358 ( 664 ) Tax benefit (expense) ( 109 ) 17 ( 495 ) 140 Other comprehensive income (loss) 407 ( 69 ) 1,863 ( 524 ) Comprehensive income $ 6,988 2,930 13,710 4,997 See notes to consolidated financial statements that are an integral part of these consolidated statements. 5 Table of Contents SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) For the three months ended June 30, Accumulated other comprehensive income (loss) Common stock Preferred stock Nonvested restricted Additional paid-in Accumulated other comprehensive Retained (dollars in thousands, except share data) Shares Amount Shares Amount stock capital income (loss) earnings Total March 31, 2024 8,156,109 $ 82 - $ - $ ( 5,257 ) $ 124,159 $ ( 11,797 ) $ 208,069 $ 315,256 Net income Additional paid-in capital - - - - - - - 2,999 2,999 Proceeds from exercise of stock options - - - - - - - - - Issuance of restricted stock, net of forfeitures ( 1,012 ) - - - 78 ( 78 ) - - - Compensation expense related to restricted stock, net of tax Preferred stock - - - - 469 - - - 469 Compensation expense related to stock options, net of tax Common stock - - - - - 93 - - 93 Other comprehensive loss - - - - - - ( 69 ) - ( 69 ) June 30, 2024 8,155,097 $ 82 - $ - $ ( 4,710 ) $ 124,174 $ ( 11,866 ) $ 211,068 $ 318,748 March 31, 2025 8,168,865 $ 82 - $ - $ ( 3,372 ) $ 124,561 $ ( 10,016 ) $ 226,343 $ 337,598 Net income Nonvested restricted stock - - - - - - - 6,581 6,581 Proceeds from exercise of stock options 13,000 - - - - 306 - - 306 Restricted shares withheld for taxes ( 1,150 ) - - - - ( 35 ) - - ( 35 ) Share based compensation expense, net of forfeitures Retained earnings - - - - 598 7 - - 605 Other comprehensive income - - - - - - 407 - 407 June 30, 2025 8,180,715 $ 82 - $ - $ ( 2,774 ) $ 124,839 $ ( 9,609 ) $ 232,924 $ 345,462 For the six months ended June 30, Common stock Preferred stock Nonvested restricted Additional paid-in Accumulated other comprehensive Retained (dollars in thousands, except share data) Shares Amount Shares Amount stock capital income (loss) earnings Total December 31, 2023 8,088,186 $ 81 - - $ ( 3,596 ) $ 121,777 $ ( 11,342 ) $ 205,547 $ 312,467 Net income - - - - - - - 5,521 5,521 Proceeds from exercise of stock options 11,000 - - - - 167 - - 167 Issuance of restricted stock, net of forfeitures 55,911 1 - - ( 2,035 ) 2,034 - - - Compensation expense related to restricted stock, net of tax - - - - 921 - - - 921 Compensation expense related to stock options, net of tax - - - - - 196 - - 196 Other comprehensive loss - - - - - - ( 524 ) - ( 524 ) June 30, 2024 8,155,097 $ 82 - $ - $ ( 4,710 ) $ 124,174 $ ( 11,866 ) $ 211,068 $ 318,748 December 31, 2024 8,164,872 $ 82 - $ - $ ( 3,884 ) $ 124,641 $ ( 11,472 ) $ 221,077 $ 330,444 Net income - - - - - - - 11,847 11,847 Proceeds from exercise of stock options 25,500 - - - - 516 - - 516 Restricted shares withheld for taxes ( 9,657 ) - - - - ( 350 ) - - ( 350 ) Share based compensation expense, net of forfeitures - - - - 1,110 32 - - 1,142 Other comprehensive income - - - - - - 1,863 - 1,863 June 30, 2025 8,180,715 $ 82 - $ - $ ( 2,774 ) $ 124,839 $ ( 9,609 ) $ 232,924 $ 345,462 See notes to consolidated financial statements that are an integral part of these consolidated statements. 6 Table of Contents SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the six months ended June 30, (dollars in thousands) 2025 2024 Operating activities Net income $ 11,847 5,521 Adjustments to reconcile net income to cash provided by operating activities: Provision for credit losses 1,450 325 Depreciation and other amortization 2,297 2,418 Accretion and amortization of securities discounts and premium, net 221 281 Net change in operating leases 48 78 Stock-based compensation expense 1,142 1,117 Gain on sale of loans held for sale ( 2,813 ) ( 2,757 ) Loans originated and held for sale ( 102,716 ) ( 100,884 ) Proceeds from sale of loans held for sale 99,355 96,076 Increase in cash surrender value of bank owned life insurance ( 816 ) ( 762 ) Decrease in deferred tax asset 1 - Decrease (increase) in other assets 2,450 ( 3,921 ) Increase in other liabilities 5,591 3,543 Net cash provided by operating activities 18,057 1,035 Investing activities Increase (decrease) in cash realized from: Increase in loans, net ( 115,378 ) ( 21,169 ) Purchase of property and equipment ( 221 ) ( 372 ) Purchase of investment securities: Available for sale - ( 5,191 ) Other investments ( 24 ) ( 4,301 ) Payments and maturities, calls and repayments of investment securities: Available for sale 5,397 17,596 Other investments ( 392 ) 5,587 Net cash used for investing activities ( 110,618 ) ( 7,850 ) Financing activities Increase (decrease) in cash realized from: Increase in deposits, net 200,564 80,305 Decrease in Federal Home Loan Bank advances and other borrowings, net - ( 35,000 ) Proceeds from the exercise of stock options 516 167 Restricted shares withheld for taxes ( 350 ) - Net cash provided by financing activities 200,730 45,472 Net increase in cash and cash equivalents 108,169 38,657 Cash and cash equivalents at beginning of the period 162,863 156,170 Cash and cash equivalents at end of the period $ 271,032 194,827 Supplemental information Cash paid for Interest $ 52,945 57,297 Income taxes 4,654 1,190 Schedule of non-cash transactions Unrealized gain (loss) on securities, net of income taxes 1,863 ( 524 ) Foreclosure of other real estate 275 - See notes to consolidated financial statements that are an integral part of these consolidated statements. 7 Table of Contents SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – Summary of Significant Accounting Policies Nature of Business Southern First Bancshares, Inc. (the “Company”) is a South Carolina corporation that owns all of the capital stock of Southern First Bank (the “Bank”) and all of the stock of Greenville First Statutory Trusts I and II (collectively, the “Trusts”). The Trusts are special purpose non-consolidated entities organized for the sole purpose of issuing trust preferred securities. The Bank’s primary federal regulator is the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is also regulated and examined by the South Carolina Board of Financial Institutions. The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the FDIC, and providing commercial, consumer and mortgage loans to the general public. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 3, 2025. The consolidated financial statements include the accounts of the Company and the Bank. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation,” the financial statements related to the Trusts have not been consolidated. Risk and Uncertainties In the normal course of its business, the Company encounters two significant types of risks: economic and regulatory. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different bases, than its interest-earning assets. Credit risk is the risk of default within the Company’s loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable and the valuation of real estate held by the Company. There were several notable bank failures in 2023, driven primarily by liquidity challenges as depositors rapidly withdrew funds. These failures were exacerbated by the impact of rising interest rates, which left affected banks unable to sell long-term investment securities without incurring significant losses. In response, regulators took steps to stabilize the banking system, including ensuring that losses to the Deposit Insurance Fund used to support uninsured depositors would be recovered through a special assessment on banks, as mandated by law. While the banking disruptions seen in 2023 have largely stabilized, the financial environment remains uncertain, shaped by ongoing inflationary pressures, and persistent concerns around commercial real estate values and refinancing risks. In early 2025, the Federal Reserve began lowering interest rates in response to easing inflation and slowing growth. While lower rates can support loan demand, they may also compress net interest margins. The Federal Reserve is also continuing balance sheet reduction, contributing to some funding and market volatility. The long-term impact of these developments on the economy, financial institutions, and regulatory frameworks remains uncertain. The Company is subject to the regulations of various governmental agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by the regulatory agencies, which may subject the Company to changes with respect to the valuation of assets, the amount of required credit loss allowance and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations. 8 Table of Contents The Bank makes loans to individuals and businesses in the Upstate, Midlands, and Lowcountry regions of South Carolina as well as the Triangle, Triad and Charlotte regions of North Carolina and Atlanta, Georgia for various personal and commercial purposes. The Bank’s loan portfolio has a concentration of real estate loans. As of June 30, 2025 and December 31, 2024, real estate loans represented 83.2 % and 83.5 % , respectively, of total loans. However, borrowers’ ability to repay their loans is not dependent upon any specific economic sector. As of June 30, 2025, the Company’s and the Bank’s capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by future credit losses. The Company maintains access to multiple sources of liquidity, including a $ 15.0 million holding company line of credit with another bank which could be used to support capital ratios at the subsidiary bank. As of June 30, 2025, the $ 15.0 million line was unused. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, real estate acquired in the settlement of loans, fair value of financial instruments, and valuation of deferred tax assets. Reclassifications Certain amounts, previously reported, have been reclassified to state all periods on a comparable basis and had no effect on shareholders’ equity or net income. Subsequent Events Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA extends or makes permanent a number of provisions originally enacted in the 2017 Tax Cuts and Jobs Act and introduces new items affecting both individuals and businesses. Topic 740, Income Taxes, of the FASB Accounting Standards Codification requires the effects of newly enacted tax law to be recognized in the period of enactment. Because enactment occurred after the quarter-end date of June 30, 2025, we are evaluating OBBBA’s impact on our deferred tax assets and liabilities, effective tax rate, and tax-related processes (e.g., payroll reporting for qualifying wage items). Based on preliminary analysis, we do not currently expect the OBBBA to have a material impact on our 2025 estimated annual effective tax rate or on our consolidated financial statements, but our evaluation is ongoing. Newly Issued, But Not Yet Effective Accounting Standards In November 2024, the FASB amended the Income Statement – Reporting Comprehensive Income topic in the Accounting Standards Codification to require public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to the financial statements. The amendments are effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company will apply the amendments retrospectively to all prior periods presented in the financial statements. The Company does not expect these amendments to have a material effect on its financial statements. 9 Table of Contents Operating Segments The Company adopted Accounting Standards Update 2023-07 “Segment Reporting (Topic 280) – Improvement to Reportable Segment Disclosures” on January 1, 2024. The Company, through the Bank, provides a broad range of financial services to individuals and companies in South Carolina, North Carolina, and Georgia. The Company operates through a single operating and reporting segment, primarily as a bank through services including demand, time and savings deposits; lending services; ATM processing and mortgage banking services. The Company’s chief operating decision maker, the Company’s Chief Executive Officer, assesses performance for the Company and decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income. The measure of segment assets is reported on the balance sheet as total consolidated assets. While the chief operating decision maker monitors the operating results of its lines of business, operations are managed and financial performance is evaluated on a consolidated basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment. Change in Accounting Estimate During the first quarter of 2025, the Company refined its methodology for estimating the allowance for credit losses (“ACL”) on loans by transitioning from a lifetime probability of default and loss given default model to a discounted cash flow (“DCF”) approach. The Company transitioned to the DCF method as it allows for a better estimation of credit losses through customization among the various inputs by loan segmentation. The DCF model uses regression techniques that relate one or more economic factors to the default rate of various portfolios to build reasonable and supportable forecasts to estimate future losses. The Company determined that the national gross domestic product and unemployment rate were the two economic factors which had the greatest correlation to historical performance for use in the forecasted portion of the model. In addition, the transition to the DCF model allowed the Company to reduce its reliance on qualitative factors and to analyze them on a more granular level, such as by segment. The refinement represents a change in accounting estimate under ASC Topic 250, Accounting Changes and Error Corrections , with prospective application beginning in the period of change. This change in accounting estimate did not have a material effect on the Company’s financial statements. NOTE 2 – Investment Securities The amortized costs and fair value of investment securities are as follows: Schedule of amortized costs and fair value of investment securities June 30, 2025 Amortized Gross Unrealized Fair (dollars in thousands) Corporate bonds [Member] Cost Gains Losses Value Available for sale Asset-backed securities [Member] Corporate bonds US treasuries [Member] $ 2,109 - 147 1,962 US treasuries 999 - 63 936 US government agencies US government agencies [Member] 16,861 27 1,323 15,565 State and political subdivisions State and political subdivisions [Member] 22,261 - 2,759 19,502 Asset-backed securities Mortgage-backed securities [Member] 34,603 24 293 34,334 Mortgage-backed securities 64,197 11 7,640 56,568 Total investment securities available for sale $ 141,030 62 12,225 128,867 December 31, 2024 Amortized Gross Unrealized Fair Cost Gains Losses Value Available for sale Corporate bonds $ 2,121 - 194 1,927 US treasuries 999 - 91 908 US government agencies 17,540 1 1,746 15,795 State and political subdivisions 22,387 - 3,065 19,322 Asset-backed securities 36,613 36 111 36,538 Mortgage-backed securities 66,988 19 9,370 57,637 Total investment securities available for sale $ 146,648 56 14,577 132,127 10 Table of Contents Contractual maturities and yields on the Company’s investment securities at June 30, 2025 and December 31, 2024 are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Schedule of maturities and yields on the company’s investment securities June 30, 2025 Less than one year One to five years Five to ten years Over ten years Total (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Available for sale Corporate bonds $ - - $ 1,962 2.03 % $ - - $ - - $ 1,962 2.03 % US treasuries - - 936 1.27 % - - - - 936 1.27 % US government agencies - - 5,196 1.10 % 10,369 4.11 % - - 15,565 3.11 % State and political subdivisions 466 2.13 % 2,995 1.64 % 4,558 2.23 % 11,483 2.14 % 19,502 2.09 % Asset-backed securities - - - - 3,449 5.23 % 30,885 5.51 % 34,334 5.48 % Mortgage-backed securities - - 6,635 1.28 % 8,865 2.86 % 41,068 2.39 % 56,568 2.34 % Total investment securities $ 466 2.13 % $ 17,724 1.37 % $ 27,241 3.53 % $ 83,436 3.51 % $ 128,867 3.22 % December 31, 2024 Less than one year One to five years Five to ten years Over ten years Total (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Available for sale Corporate bonds $ - - $ 1,927 2.02 % $ - - $ - - $ 1,927 2.02 % US treasuries - - 908 1.27 % - - - - 908 1.27 % US government agencies - - 5,021 1.10 % 10,774 4.51 % - - 15,795 3.43 % State and political subdivisions 461 2.13 % 1,726 1.61 % 5,049 2.10 % 12,086 2.13 % 19,322 2.08 % Asset-backed securities - - 23 6.14 % 3,420 5.25 % 33,095 5.87 % 36,538 5.81 % Mortgage-backed securities - - 6,549 1.28 % 7,548 3.00 % 43,540 2.45 % 57,637 2.39 % Total investment securities $ 461 2.13 % $ 16,154 1.35 % $ 26,791 3.73 % $ 88,721 3.68 % $ 132,127 3.40 % The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at June 30, 2025 and December 31, 2024, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position. Schedule of gross unrealized losses on investment securities and fair market value of related securities June 30, 2025 Total investment securities[Member] Less than 12 months 12 months or longer Total (dollars in thousands) # Fair value Unrealized losses # Fair value Unrealized losses # Fair value Unrealized losses Available for sale Corporate bonds - $ - $ - 1 $ 1,962 $ 147 1 $ 1,962 $ 147 US treasuries - - - 1 936 63 1 936 63 US government agencies - - - 9 10,693 1,323 9 10,693 1,323 State and political subdivisions 2 945 107 31 18,557 2,652 33 19,502 2,759 Asset-backed 10 21,352 134 5 8,400 159 15 29,752 293 Mortgage-backed securities 8 11,319 197 59 44,283 7,443 67 55,602 7,640 Total investment securities 20 $ 33,616 $ 438 106 $ 84,831 $ 11,787 126 $ 118,447 $ 12,225 December 31, 2024 Less than 12 months 12 months or longer Total (dollars in thousands) # Fair value Unrealized losses # Fair value Unrealized losses # Fair value Unrealized losses Available for sale Corporate bonds - $ - $ - 1 $ 1,927 $ 194 1 $ 1,927 $ 194 US treasuries - - - 1 908 91 1 908 91 US government agencies 1 2,694 1 9 10,269 1,745 10 12,963 1,746 State and political subdivisions 3 1,436 153 30 17,886 2,912 33 19,322 3,065 Asset-backed 6 15,828 83 5 5,344 28 11 21,172 111 Mortgage-backed securities 6 8,226 409 61 45,360 8,961 67 53,586 9,370 Total investment securities 16 $ 28,184 $ 646 107 $ 81,694 $ 13,931 123 $ 109,878 $ 14,577 11 Table of Contents At June 30, 2025, the Company had 126 individual investments that were in an unrealized loss position. The unrealized losses were primarily attributable to changes in interest rates, rather than deterioration in credit quality. The individual securities are each investment grade securities. The Company considers factors such as the financial condition of the issuer including credit ratings and specific events affecting the operations of the issuer, volatility of the security, underlying assets that collateralize the debt security, and other industry and macroeconomic conditions. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. As such, there is no allowance for credit losses on available for sale securities recognized as of June 30, 2025 . Other investments are comprised of the following and are recorded at cost which approximates fair value. Schedule of other investments (dollars in thousands) June 30, 2025 December 31, 2024 Federal Home Loan Bank stock $ 14,540 14,516 Other nonmarketable investments 4,963 4,571 Investment in Trust Preferred subsidiaries 403 403 Total other investments $ 19,906 19,490 The Company has evaluated other investments for impairment and determined that the other investments are not impaired as of June 30, 2025 and that ultimate recoverability of the par value of the investments is probable. All of the FHLB stock is used to collateralize advances with the FHLB. At June 30, 2025, there were no securities pledged as collateral for repurchase agreements from brokers. NOTE 3 – Mortgage Loans Held for Sale Mortgage loans originated and intended for sale in the secondary market are reported as loans held for sale and carried at fair value under the fair value option with changes in fair value recognized in current period earnings. At the date of funding of the mortgage loan held for sale, the funded amount of the loan, the related derivative asset or liability of the associated interest rate lock commitment, less direct loan costs becomes the initial recorded investment in the loan held for sale. Such amount approximates the fair value of the loan. At June 30, 2025, mortgage loans held for sale totaled $ 10.7 million compared to $ 4.6 million at December 31, 2024. NOTE 4 – Loans and Allowance for Credit Losses The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $ 5.8 million as of June 30, 2025 and $ 6.2 million as of December 31, 2024. Schedule of composition of our loan portfolio   June 30, 2025 December 31, 2024 (dollars in thousands) Commercial [Member] Amount % of Total Amount % of Total Commercial Owner occupied RE Owner occupied RE [Member] $ 686,424 18.3 % $ 651,597 17.9 % Non-owner occupied RE 939,163 25.1 % 924,367 25.5 % Construction Construction [Member] 68,421 1.8 % 103,204 2.8 % Business Consumer [Member] 589,661 15.7 % 556,117 15.3 % Total commercial loans 2,283,669 60.9 % 2,235,285 61.5 % Consumer Real estate Real estate [Member] 1,164,187 31.1 % 1,128,629 31.1 % Home equity Home equity [Member] 234,608 6.3 % 204,897 5.6 % Construction Non-owner occupied RE [Member] 25,210 0.6 % 20,874 0.6 % Other Other [Member] 39,167 1.1 % 42,082 1.2 % Total consumer loans 1,463,172 39.1 % 1,396,482 38.5 % Total gross loans, net of deferred fees 3,746,841 100.0 % 3,631,767 100.0 % Less—allowance for credit losses ( 41,285 ) ( 39,914 ) Total loans, net $ 3,705,556 $ 3,591,853 12 Table of Contents Maturities and Sensitivity of Loans to Changes in Interest Rates The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties. Schedule of loan maturity distribution by type and related interest rate June 30, 2025 (dollars in thousands) One year or less After one but within five years After five but within fifteen years After fifteen years Total Commercial Owner occupied RE $ 29,789 246,900 378,099 31,636 686,424 Non-owner occupied RE 130,079 590,968 199,968 18,148 939,163 Construction 20,805 37,712 9,904 - 68,421 Business 125,294 324,197 136,484 3,686 589,661 Total commercial loans 305,967 1,199,777 724,455 53,470 2,283,669 Consumer Real estate 30,212 115,579 232,412 785,984 1,164,187 Home equity 4,992 41,507 183,826 4,283 234,608 Construction 15,289 1,168 8,753 - 25,210 Other 6,128 31,119 1,194 726 39,167 Total consumer loans 56,621 189,373 426,185 790,993 1,463,172 Total gross loans, net of deferred fees $ 362,588 1,389,150 1,150,640 844,463 3,746,841 December 31, 2024 (dollars in thousands) One year or less After one but within five years After five but within fifteen years After fifteen years Total Commercial Owner occupied RE $ 21,235 220,648 369,748 39,966 651,597 Non-owner occupied RE 129,269 547,864 227,987 19,247 924,367 Construction 6,479 77,636 19,089 - 103,204 Business 129,978 277,830 144,056 4,253 556,117 Total commercial loans 286,961 1,123,978 760,880 63,466 2,235,285 Consumer Real estate 20,982 82,896 281,091 743,660 1,128,629 Home equity 3,454 36,722 160,380 4,341 204,897 Construction 5,849 2,133 10,427 2,465 20,874 Other 7,660 30,633 3,040 749 42,082 Total consumer loans 37,945 152,384 454,938 751,215 1,396,482 Total gross loans, net of deferred fees $ 324,906 1,276,362 1,215,818 814,681 3,631,767 13 Table of Contents The following table summarizes the loans due after one year by category. Schedule of loans due after one year by category June 30, 2025 December 31, 2024 Interest Rate Interest Rate (dollars in thousands) Fixed Floating or Adjustable Fixed Floating or Adjustable Commercial Owner occupied RE $ 609,739 46,896 $ 599,179 31,183 Non-owner occupied RE 711,042 98,042 701,297 93,801 Construction 25,916 21,700 63,019 33,706 Business 293,806 170,561 281,316 144,823 Total commercial loans 1,640,503 337,199 1,644,811 303,513 Consumer Real estate 1,133,975 - 1,107,647 - Home equity 9,355 220,261 9,899 191,544 Construction 9,921 - 15,025 - Other 7,264 25,775 8,038 26,384 Total consumer loans 1,160,515 246,036 1,140,609 217,928 Total gross loans, net of deferred fees $ 2,801,018 583,235 $ 2,785,420 521,441 Credit Quality Indicators The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type. A description of the general characteristics of the risk grades is as follows: · Pass— A pass loan ranges from minimal to average credit risk; however, still has acceptable credit risk. · Watch—A watch loan exhibits above average credit risk due to minor weaknesses and warrants closer scrutiny by management. · Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date. · Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, which may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. · Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable. 14 Table of Contents The following table presents loan balances classified by credit quality indicators by year of origination as of June 30, 2025. Schedule of classified by credit quality indicators by year of origination June 30, 2025 (dollars in thousands) 2025 2024 2023 2022 2021 Prior Revolving Revolving Converted to Term Total Commercial Owner occupied RE Pass $ 36,179 63,271 41,591 192,649 119,822 202,274 85 - 655,871 Watch 1,725 456 5,863 5,990 2,309 10,569 - - 26,912 Special Mention - - - 152 - 3,489 - - 3,641 Total Owner occupied RE 37,904 63,727 47,454 198,791 122,131 216,332 85 - 686,424 Non-owner occupied RE Pass 46,511 56,537 63,173 311,548 141,985 266,655 1,034 467 887,910 Watch - 129 2,239 4,100 17,885 9,854 - - 34,207 Special Mention - - - - 192 7,660 - - 7,852 Substandard - - - 2,253 - 6,941 - - 9,194 Total Non-owner occupied RE 46,511 56,666 65,412 317,901 160,062 291,110 1,034 467 939,163 Construction Pass 3,784 20,933 13,235 22,361 2,432 - - - 62,745 Watch - - 2,498 1,170 2,008 - - - 5,676 Total Construction 3,784 20,933 15,733 23,531 4,440 - - - 68,421 Business Pass 66,768 50,566 51,579 110,431 32,082 58,200 193,411 1,518 564,555 Watch 476 833 900 4,063 2,330 5,356 6,579 406 20,943 Special Mention 83 1,027 - 639 - 603 643 - 2,995 Substandard 180 - - - - 613 375 - 1,168 Total Business 67,507 52,426 52,479 115,133 34,412 64,772 201,008 1,924 589,661 Current period gross write-offs - - - - - ( 78 ) ( 63 ) - ( 141 ) Total Commercial loans 155,706 193,752 181,078 655,356 321,045 572,214 202,127 2,391 2,283,669 Consumer Real estate Pass 87,205 69,031 135,777 267,699 255,257 297,284 - - 1,112,253 Watch 100 667 4,259 6,802 8,555 8,134 - - 28,517 Special Mention 151 818 1,728 5,143 2,636 7,066 - - 17,542 Substandard - 649 853 994 733 2,646 - - 5,875 Total Real estate 87,456 71,165 142,617 280,638 267,181 315,130 - - 1,164,187 Home equity Pass - - - - - - 218,079 - 218,079 Watch - - - - - - 9,004 - 9,004 Special Mention - - - - - - 5,995 - 5,995 Substandard - - - - - - 1,530 - 1,530 Total Home equity - - - - - - 234,608 - 234,608 Construction Pass 10,153 6,259 - 6,815 - - - - 23,227 Watch - - 1,983 - - - - - 1,983 Total Construction 10,153 6,259 1,983 6,815 - - - - 25,210 Other Pass 969 1,041 678 1,233 469 2,961 30,469 - 37,820 Watch - 165 42 33 354 119 107 - 820 Special Mention 5 32 6 320 58 44 32 - 497 Substandard 30 - - - - - - - 30 Total Other 1,004 1,238 726 1,586 881 3,124 30,608 - 39,167 Current period gross write-offs - - - - - - ( 5 ) - ( 5 ) Total Consumer loans 98,613 78,662 145,326 289,039 268,062 318,254 265,216 - 1,463,172 Total loans $ 254,319 272,414 326,404 944,395 589,107 890,468 467,343 2,391 3,746,841 Total Current period gross write-offs - - - - - ( 78 ) ( 68 ) - ( 146 ) 15 Table of Contents The following table presents loan balances classified by credit quality indicators by year of origination as of December 31, 2024. December 31, 2024 (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Revolving Converted to Term Total Commercial Owner occupied RE Pass $ 51,338 47,997 186,361 122,306 66,561 145,743 160 238 620,704 Watch 480 1,180 3,638 1,962 8,828 11,012 - - 27,100 Special Mention - - 162 - - 2,840 - - 3,002 Substandard - - - - - 791 - - 791 Total Owner occupied RE 51,818 49,177 190,161 124,268 75,389 160,386 160 238 651,597 Non-owner occupied RE Pass 50,685 70,517 321,726 145,658 95,994 183,723 360 220 868,883 Watch - 954 6,081 10,238 4,705 8,435 - - 30,413 Special Mention - - - 7,579 - 8,882 - - 16,461 Substandard - - 969 - - 7,641 - - 8,610 Total Non-owner occupied RE 50,685 71,471 328,776 163,475 100,699 208,681 360 220 924,367 Current period gross write-offs - - - - - ( 1,029 ) - - ( 1,029 ) Construction Pass 24,076 26,501 34,067 15,000 - - - - 99,644 Watch - 2,420 1,140 - - - - - 3,560 Total Construction 24,076 28,921 35,207 15,000 - - - - 103,204 Business Pass 54,814 41,743 129,450 38,312 15,716 51,566 196,246 803 528,650 Watch - 132 5,353 2,174 1,423 5,243 8,776 389 23,490 Special Mention 660 95 805 - 65 533 - 206 2,364 Substandard 28 - - - 385 630 570 - 1,613 Total Business 55,502 41,970 135,608 40,486 17,589 57,972 205,592 1,398 556,117 Current period gross write-offs - - - ( 143 ) ( 347 ) ( 18 ) ( 72 ) - ( 580 ) Total Commercial loans 182,081 191,539 689,752 343,229 193,677 427,039 206,112 1,856 2,235,285 Consumer Real estate Pass 78,287 144,487 277,854 263,079 160,007 153,584 - - 1,077,298 Watch 671 2,409 6,961 8,573 4,147 4,632 - - 27,393 Special Mention 817 1,536 5,987 2,664 2,804 5,181 - - 18,989 Substandard 212 508 967 746 821 1,695 - - 4,949 Total Real estate 79,987 148,940 291,769 275,062 167,779 165,092 - - 1,128,629 Home equity Pass - - - - - - 188,451 - 188,451 Watch - - - - - - 9,114 - 9,114 Special Mention - - - - - - 6,173 - 6,173 Substandard - - - - - - 1,159 - 1,159 Total Home equity - - - - - - 204,897 - 204,897 Current period gross write-offs - - - - - - ( 45 ) - ( 45 ) Construction Pass 7,700 3,636 9,222 316 - - - - 20,874 Total Construction 7,700 3,636 9,222 316 - - - - 20,874 Other Pass 2,732 836 1,521 1,593 1,229 2,609 29,660 - 40,180 Watch 167 61 12 366 - 129 595 - 1,330 Special Mention 36 35 325 66 - 65 45 - 572 Total Other 2,935 932 1,858 2,025 1,229 2,803 30,300 - 42,082 Current period gross write-offs - - - - - ( 38 ) ( 42 ) - ( 80 ) Total Consumer loans 90,622 153,508 302,849 277,403 169,008 167,895 235,197 - 1,396,482 Total loans $ 272,703 345,047 992,601 620,632 362,685 594,934 441,309 1,856 3,631,767 Total Current period gross write-offs - - - ( 143 ) ( 347 ) ( 1,085 ) ( 159 ) - ( 1,734 ) 16 Table of Contents The following tables present loan balances by age and payment status. Schedule of loan balances by age and payment status June 30, 2025 (dollars in thousands) Accruing 30-59 days past due Accruing 60-89 days past due Accruing 90 days or more past due Nonaccrual loans Accruing current Total Commercial Owner occupied RE $ 1,445 - - - 684,979 686,424 Non-owner occupied RE - - 204 6,941 932,018 939,163 Construction - - - - 68,421 68,421 Business 348 35 - 717 588,561 589,661 Consumer Real estate 1,384 1,037 - 3,028 1,158,738 1,164,187 Home equity 545 - - 708 233,355 234,608 Construction - - - - 25,210 25,210 Other 58 63 - - 39,046 39,167 Total loans $ 3,780 1,135 204 11,394 3,730,328 3,746,841 December 31, 2024 (dollars in thousands) Accruing 30-59 days past due Accruing 60-89 days past due Accruing 90 days or more past due Nonaccrual loans Accruing current Total Commercial Owner occupied RE $ 292 - - - 651,305 651,597 Non-owner occupied RE - - - 7,641 916,726 924,367 Construction - - - - 103,204 103,204 Business 1,319 - - 1,016 553,782 556,117 Consumer Real estate 3,839 938 - 1,908 1,121,944 1,128,629 Home equity 41 - - 312 204,544 204,897 Construction - - - - 20,874 20,874 Other - - - - 42,082 42,082 Total loans $ 5,491 938 - 10,877 3,614,461 3,631,767 As of June 30, 2025 and December 31, 2024, accruing loans 30 days or more past due represented 0.14 % and 0.18 % of the Company’s total loan portfolio, respectively. Commercial loans accruing 30 days or more past due were 0.06 % and 0.05 % of the Company’s total loan portfolio as of June 30, 2025 and December 31, 2024, respectively. Consumer loans accruing 30 days or more past due were 0.08 % and 0.13 % of total loans as of June 30, 2025 and December 31, 2024, respectively. The table below summarizes nonaccrual loans by major categories for the periods presented. Schedule of nonaccrual loans by major categories June 30, 2025 December 31, 2024 Nonaccrual Nonaccrual Nonaccrual Nonaccrual loans loans Total loans loans Total with no with an nonaccrual with no with an nonaccrual (dollars in thousands) allowance allowance loans allowance allowance loans Commercial Non-owner occupied RE $ 5,156 1,785 6,941 $ 5,844 1,797 7,641 Business - 717 717 - 1,016 1,016 Total commercial 5,156 2,502 7,658 5,844 2,813 8,657 Consumer Real estate 2,030 998 3,028 1,526 382 1,908 Home equity 708 - 708 312 - 312 Total consumer 2,738 998 3,736 1,838 382 2,220 Total nonaccrual loans $ 7,894 3,500 11,394 $ 7,682 3,195 10,877 The Company did not recognize interest income on nonaccrual loans for the three months ended June 30, 2025 and June 30, 2024. The accrued interest reversed during the three months ended June 30, 2025 and June 30, 2024 17 Table of Contents was not material. Foregone interest income on the nonaccrual loans for the three month period ended June 30, 2025 was $ 126,000 , while foregone interest income on the nonaccrual loans for the three month period ended June 30, 2024 was not material. 0 We did not recognize interest income on nonaccrual loans for the six months ended June 30, 2025 and June 30, 2024. Accrued interest of $ 47,000 was reversed during the six months ended June 30, 2025 and $ 82,000 was reversed during the six months ended June 30, 2024. Foregone interest income on the nonaccrual loans for the six month period ended June 30, 2025 was $ 200,000 , while foregone interest income on the nonaccrual loans for the six month period ended June 30, 2024 was not material. 0 The table below summarizes information regarding nonperforming assets. Schedule of nonperforming assets (dollars in thousands) June 30, 2025 December 31, 2024 Nonaccrual loans $ 11,394 10,877 Other real estate owned 275 - Total nonperforming assets $ 11,669 10,877 Nonperforming assets as a percentage of: Total assets 0.27 % 0.27 % Gross loans 0.31 % 0.30 % Total loans over 90 days past due $ 2,027 2,641 Loans over 90 days past due and still accruing 204 - Modifications to Borrowers Experiencing Financial Difficulty The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a discounted cash flow model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses due to the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Loan modifications to borrowers experiencing financial difficulty were not material for the three and six months ended June 30, 2025 and June 30, 2024. Allowance for Credit Losses The Company maintains an allowance for credit losses to provide for expected credit losses. Losses are charged against the allowance when management believes that the principal is uncollectable. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance are made for specific loans and for pools of similar types of loans, although the entire allowance is available for any loan that, in management’s judgment, should be charged against the allowance. A provision for credit losses is taken based on management’s ongoing evaluation of the appropriate allowance balance. A formal evaluation of the adequacy of the ACL is conducted quarterly. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Management believes the level of the ACL is adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased through provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off. 18 Table of Contents On January 1, 2025, the Company transitioned to the DCF modeling approach to estimate the ACL on loans as it allows for a better estimation of credit losses through customization among the various inputs by loan segmentation. The DCF methodology is applied on a segment-by-segment basis at the loan level with a one-year reasonable and supportable forecast period, followed by a one-year reversion to the long-term average. The Company considers economic forecasts of national gross domestic product (“GDP”) and unemployment rates as reported by Fannie Mae to inform the model for loss estimation. Historical loss rates used in the quantitative model were derived using both the Bank's and peer bank data obtained from publicly-available sources (i.e., federal call reports) encompassing an economic cycle. The peer group utilized by the Bank is comprised of financial institutions of relatively similar size (i.e., $1-$15 billion of total assets) and in similar markets. In addition, the DCF methodology considers the weighted average life of the portfolio, impacting the reaction time and the exposure to potential loss based on changes in the interest rate environment. Management also considers qualitative adjustments when estimating loan losses to take into account the model's quantitative limitations. Qualitative adjustments to quantitative loss factors, either negative or positive, may include changes in lending policies; international, national, regional, and local conditions; volume and terms of loans; experience and depth of management; volume and severity of past due loans; effects of changes in lending policy; concentrations of credit; and loan review results. The Company enhanced its qualitative factor framework to better address risks that are not reflected in the quantitative loss factors. Prior to January 1, 2025, the Company used a lifetime probability of default and loss given default modeling approach to estimate the allowance for credit losses on loans. This method used historical correlations between default experience and the age of loans to forecast defaults and losses, assuming that a loan in a pool shares similar risk characteristics such as loan product type, risk rating and loan age, and demonstrates similar default characteristics as other loans in that pool, as the loan progresses through its lifecycle. The Company calculated lifetime probability of default and loss given default rates based on historical loss experience, which is used to calculate expected losses based on the pool’s loss rate and the age of loans in the pool. The Company used its own internal data to measure historical credit loss experience within the pools with similar risk characteristics over an economic cycle. The probability of default and loss given default method also includes assumptions of observed migration over the lifetime of the underlying loan data. Loans that do not share risk characteristics were evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. The following tables summarize the activity related to the allowance for credit losses for the three and six months ended June 30, 2025 and June 30, 2024. Schedule of activity related to the allowance for credit losses Three months June 30, 2025 Commercial Consumer (dollars in thousands) Owner occupied RE Non- owner occupied RE Construction Business Real Estate Home Equity Construction Other Total Balance, beginning of period $ 3,934 7,333 582 11,131 15,193 1,549 487 478 40,687 Provision for credit losses for loans 69 84 ( 120 ) 213 340 96 ( 32 ) - 650 Loan charge-offs - - - ( 63 ) - - - ( 5 ) ( 68 ) Loan recoveries - - - 12 - 4 - - 16 Net loan recoveries (charge-offs) - - - ( 51 ) - 4 - ( 5 ) ( 52 ) Balance, end of period $ 4,003 7,417 462 11,293 15,533 1,649 455 473 41,285 Net charge-offs to average loans (annualized) 0.01 % Allowance for credit losses to gross loans 1.10 % Allowance for credit losses to nonperforming loans 362.35 % 19 Table of Contents Three months ended June 30, 2024 Commercial Consumer (dollars in thousands) Owner occupied RE Non- owner occupied RE Construction Business Real Estate Home Equity Construction Other Total Balance, beginning of period $ 6,118 11,167 1,594 7,054 10,647 2,719 677 465 40,441 Provision for credit losses for loans ( 651 ) 424 ( 263 ) 190 1,750 ( 244 ) ( 399 ) ( 57 ) 750 Loan charge-offs - ( 1,029 ) - ( 19 ) - - - ( 1 ) ( 1,049 ) Loan recoveries - - - 11 - 4 - - 15 Net loan recoveries (charge-offs) - ( 1,029 ) - ( 8 ) - 4 - ( 1 ) ( 1,034 ) Balance, end of period $ 5,467 10,562 1,331 7,236 12,397 2,479 278 407 40,157 Net charge-offs to average loans (annualized) 0.11 % Allowance for credit losses to gross loans 1.11 % Allowance for credit losses to nonperforming loans 357.95 % Six months ended June 30, 2025 Commercial Consumer (dollars in thousands) Owner occupied RE Non- owner occupied RE Construction Business Real Estate Home Equity Construction Other Total Balance, beginning of period $ 5,482 10,219 940 7,745 12,359 2,655 115 399 39,914 Provision for credit losses ( 1,479 ) ( 2,802 ) ( 478 ) 3,615 3,174 ( 1,014 ) 340 44 1,400 Loan charge-offs - - - ( 141 ) - - - ( 5 ) ( 146 ) Loan recoveries - - - 74 - 8 - 35 117 Net loan recoveries (charge-offs) - - - ( 67 ) - 8 - 30 ( 29 ) Balance, end of period $ 4,003 7,417 462 11,293 15,533 1,649 455 473 41,285 Net charge-offs to average loans (annualized) 0.00 % Allowance for credit losses to gross loans 1.10 % Allowance for credit losses to nonperforming loans 362.35 % Six months ended June 30, 2024 Commercial Consumer (dollars in thousands) Owner occupied RE Non- owner occupied RE Construction Business Real Estate Home Equity Construction Other Total Balance, beginning of period $ 6,118 11,167 1,594 7,385 10,647 2,600 677 494 40,682 Provision for credit losses ( 651 ) 424 ( 263 ) 190 1,750 ( 244 ) ( 399 ) ( 57 ) 750 Loan charge-offs - ( 1,029 ) - ( 365 ) - - - ( 79 ) ( 1,473 ) Loan recoveries - - - 26 - 123 - 49 198 Net loan recoveries (charge-offs) - ( 1,029 ) - ( 339 ) - 123 - ( 30 ) ( 1,275 ) Balance, end of period $ 5,467 10,562 1,331 7,236 12,397 2,479 278 407 40,157 Net charge-offs to average loans (annualized) 0.07 % Allowance for credit losses to gross loans 1.11 % Allowance for credit losses to nonperforming loans 357.95 % There was a provision for credit losses of $ 650,000 and $ 750,000 for the three months ended June 30, 2025 and June 30, 2024, respectively. In addition, the provision for credit losses was $ 1.4 million and $ 750,000 for the six months ended June 30, 2025 and June 30, 2024, respectively. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an 20 Table of Contents individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The following tables present an analysis of collateral-dependent loans of the Company as of June 30, 2025 and December 31, 2024. Schedule of analysis of collateral-dependent loans June 30, 2025 Real Business (dollars in thousands) estate assets Other Total Commercial Non-owner occupied RE $ 6,941 - - 6,941 Business 178 539 - 717 Total commercial 7,119 539 - 7,658 Consumer Real estate 3,028 - - 3,028 Home equity 708 - - 708 Total consumer 3,736 - - 3,736 Total $ 10,855 539 - 11,394 December 31, 2024 Real Business (dollars in thousands) estate assets Other Total Commercial Non-owner occupied RE $ 7,641 - - 7,641 Business 460 556 - 1,016 Total commercial 8,101 556 - 8,657 Consumer Real estate 1,908 - - 1,908 Home equity 312 - - 312 Total consumer 2,220 - - 2,220 Total $ 10,321 556 - 10,877 Allowance for Credit Losses - Unfunded Loan Commitments The allowance for credit losses for unfunded loan commitments was $ 1.5 million at June 30, 2025 and December 31, 2024, and is separately classified on the balance sheet within other liabilities. The following table presents the balance and activity in the ACL for unfunded loan commitments for the three and six months ended June 30, 2025 and June 30, 2024. Schedule of allowance for credit losses for unfunded loan commitments Three months ended Three months ended (dollars in thousands) June 30, 2025 June 30, 2024 Balance, beginning of period $ 1,456 1,656 Provision for (reversal of) credit losses 50 ( 250 ) Balance, end of period $ 1,506 1,406 Unfunded Loan Commitments $ 791,253 694,524 Reserve for Unfunded Commitments 0.19 % 0.20 % Six months ended Six months ended (dollars in thousands) June 30, 2025 June 30, 2024 Balance, beginning of period $ 1,456 1,831 Provision for (reversal of) credit losses 50 ( 425 ) Balance, end of period $ 1,506 1,406 Unfunded Loan Commitments $ 791,253 694,524 Reserve for Unfunded Commitments 0.19 % 0.20 % 21 Table of Contents NOTE 5 – Derivative Financial Instruments The Company utilizes derivative financial instruments primarily to manage its exposure to changes in interest rates. All derivative financial instruments are recognized as either assets or liabilities and measured at fair value. The Company enters into commitments to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time, with clients who have applied for a loan and meet certain credit and underwriting criteria (interest rate lock commitments). These interest rate lock commitments (“IRLCs”) meet the definition of a derivative financial instrument and are reflected in the balance sheet at fair value with changes in fair value recognized in current period earnings. Unrealized gains and losses on the IRLCs are recorded as derivative assets and derivative liabilities, respectively, and are measured based on the value of the underlying mortgage loan, quoted mortgage-backed securities (“MBS”) prices and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of estimated commission expenses. The Company manages the interest rate and price risk associated with its outstanding IRLCs and mortgage loans held for sale by entering into derivative instruments such as forward sales of MBS. These derivatives are free-standing derivatives and are not designated as instruments for hedge accounting. Management expects these derivatives will experience changes in fair value opposite to changes in fair value of the IRLCs and mortgage loans held for sale, thereby reducing earnings volatility. The Company takes into account various factors and strategies in determining the portion of the mortgage pipeline (IRLCs and mortgage loans held for sale) it wants to economically hedge. The gain or loss resulting from the change in the fair value of the derivative is recognized in the Company’s statement of income during the period of change. The Company entered into a pay-fixed portfolio layer method (“PLM”) fair value swap, designated as a hedging instrument, with a total notional amount of $ 200 .0 million in the second quarter of 2023. The hedging instrument matures on May 25, 2028 . The Company entered into a second pay-fixed PLM fair value swap, designated as a hedging instrument, with a total notional amount of $ 100 .0 million in the third quarter of 2024. The hedging instrument matures on August 27, 2027 . Under the PLM method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period. Adjustments are made to record the swap at fair value on the consolidated balance sheets, with changes in fair value recognized in interest income. The carrying value of the fair value swap on the consolidated balance sheets will also be adjusted through interest income, based on changes in fair value attributable to changes in the hedged risk. The following table represents the carrying value of the PLM hedged asset and liability and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset as of June 30, 2025 and December 31, 2024. Schedule of carrying value of the PLM hedged asset and liability and the cumulative fair value hedging adjustment June 30, 2025 December 31, 2024 (dollars in thousands) Carrying Amount Hedge Basis Adjustment Carrying Amount Hedge Basis Adjustment Fixed Rate Asset/Liability 1 $ 301,572 1,572 296,361 ( 3,638 ) 1 These amounts included the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of the assets in the closed portfolio anticipated to be outstanding for the designated hedged period. As of June 30, 2025, the amortized cost basis of the closed portfolio used in this hedging relationship was $ 638.5 million, the cumulative basis adjustment associated with this hedging relationship was $ 1.6 million, and the amount of the designated hedged item was $ 300 .0 million. 22 Table of Contents The following table summarizes the Company’s outstanding financial derivative instruments at June 30, 2025 and December 31, 2024. Schedule of outstanding financial derivative instruments June 30, 2025 Fair Value (dollars in thousands) Notional Balance Sheet Location Asset/(Liability) Derivatives designated as hedging instruments: Fair value swap Fair value swap [Member] $ 300,000 Other liabilities $ ( 1,457 ) Derivatives not designated as hedging instruments: Mortgage loan interest rate lock commitments Mortgage loan interest rate lock commitments [Member] 23,213 Other assets 376 MBS forward sales commitments MBS forward sales commitments [Member] 14,000 Other liabilities ( 133 ) Total derivative financial instruments Total derivative financial instruments [Member] $ 337,213 $ ( 1,214 ) December 31, 2024 Fair Value (dollars in thousands) Notional Balance Sheet Location Asset/(Liability) Derivatives designated as hedging instruments: Fair value swap $ 300,000 Other assets $ 3,698 Derivatives not designated as hedging instruments: Mortgage loan interest rate lock commitments 15,841 Other assets 188 MBS forward sales commitments 10,500 Other assets 40 Total derivative financial instruments $ 326,341 $ 3,926 Accrued interest receivable related to the interest rate swap as of June 30, 2025 totaled $ 190,000 and is excluded from the fair value presented in the table above. The Company assesses the effectiveness of the fair value swap hedge with a regression analysis that compares the changes in forward curves to determine the value. The effective portion of changes in fair value of derivatives designated as fair value hedges is recorded through interest income. The Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes. The following table summarizes the effect of the fair value hedging relationship recognized in the consolidated statements of income for the three and six months ended June 30, 2025 and June 30, 2024. Schedule of summarize the effect of fair value hedging relationship recognized in the consolidated statements of income Three months ended June 30, Six months ended June 30, (dollars in thousands) 2025 2024 2025 2024 Gain (loss) on fair value hedging relationship: Hedged asset/(liability) $ 1,769 ( 741 ) 5,210 ( 4,479 ) Fair value derivative designated as hedging instrument ( 1,714 ) 780 ( 5,155 ) 4,468 Total gain (loss) recognized in interest income on loans $ 55 39 55 ( 11 ) NOTE 6 – Fair Value Accounting FASB ASC 820, “Fair Value Measurement and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: 23 Table of Contents Level 1 – Quoted market price in active markets Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include certain debt and equity securities that are traded in an active exchange market. Level 2 – Significant other observable inputs Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Company’s available-for-sale portfolio and valued by a third-party pricing service, as well as certain individually evaluated loans. Level 3 – Significant unobservable inputs Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. These methodologies may result in a significant portion of the fair value being derived from unobservable data. The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 12 of the Company’s 2024 Annual Report on Form 10-K. See Note 5 for how the derivative asset fair value is determined. The Company’s loan portfolio is initially fair valued using a segmented approach, using the eight categories of loans as disclosed in Note 4 – Loans and Allowance for Credit Losses. Loans are considered a Level 3 classification. Assets and Liabilities Recorded at Fair Value on a Recurring Basis The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of June 30, 2025 and December 31, 2024. Schedule of assets and liabilities measured at fair value on a recurring basis June 30, 2025 (dollars in thousands) Level 1 Level 2 Level 3 Total Assets Securities available for sale Level 1 [Member] Corporate bonds $ - 1,962 - 1,962 US treasuries Level 2 [Member] - 936 - 936 US government agencies Level 3 [Member] - 15,565 - 15,565 State and political subdivisions - 19,502 - 19,502 Asset-backed securities - 34,334 - 34,334 Mortgage-backed securities - 56,568 - 56,568 Mortgage loans held for sale - 10,739 - 10,739 Mortgage loan interest rate lock commitments - 376 - 376 Total assets measured at fair value on a recurring basis $ - 139,982 - 139,982 Liabilities MBS forward sales commitments $ - 133 - 133 Derivative liability - 1,457 - 1,457 Total liabilities measured at fair value on a recurring basis $ - 1,590 - 1,590 24 Table of Contents December 31, 2024 (dollars in thousands) Level 1 Level 2 Level 3 Total Assets Securities available for sale: Corporate bonds $ - 1,927 - 1,927 US treasuries - 908 - 908 US government agencies - 15,795 - 15,795 State and political subdivisions - 19,322 - 19,322 Asset-backed securities - 36,538 - 36,538 Mortgage-backed securities - 57,637 - 57,637 Mortgage loans held for sale - 4,565 - 4,565 Mortgage loan interest rate lock commitments - 188 - 188 Derivative asset - 3,698 - 3,698 MBS forward sales commitments - 40 - 40 Total assets measured at fair value on a recurring basis $ - 140,618 - 140,618 The Company had no liabilities recorded at fair value on a recurring basis as of December 31, 2024. Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2025 and December 31, 2024. Schedule of assets and liabilities measured at fair value on a nonrecurring basis As of June 30, 2025 (dollars in thousands) Level 1 Level 2 Level 3 Total Assets Individually evaluated loans $ - 9,963 1,086 11,049 Total assets measured at fair value on a nonrecurring basis $ - 9,963 1,086 11,049 As of December 31, 2024 (dollars in thousands) Level 1 Level 2 Level 3 Total Assets Individually evaluated loans $ - 9,139 1,127 10,266 Total assets measured at fair value on a nonrecurring basis $ - 9,139 1,127 10,266 The Company had no liabilities carried at fair value or measured at fair value on a nonrecurring basis as of June 30, 2025 and December 31, 2024. For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows: Schedule of unobservable inputs used in the fair value measurements Valuation Technique Significant Unobservable Inputs Range of Inputs Individually evaluated loans Appraised Value/ Discounted Cash Flows Discounts to appraisals or cash flows for estimated holding and/or selling costs or age of appraisal 0 - 25 % Fair Value of Financial Instruments Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the disclosure requirements, including the Company’s common stock, premises and equipment and other assets and liabilities. 25 Table of Contents The estimated fair values of the Company’s financial instruments at June 30, 2025 and December 31, 2024 are as follows: Schedule of estimated fair values of the company’s financial instruments June 30, 2025 (dollars in thousands) Carrying Amount Fair Value Level 1 Level 2 Level 3 Financial Assets: Other investments, at cost $ 19,906 19,906 - - 19,906 Loans 1 3,692,840 3,457,034 - - 3,457,034 Financial Liabilities: Deposits 3,636,329 3,388,043 - 3,388,043 - Subordinated debentures 24,903 27,408 - 27,408 - December 31, 2024 (dollars in thousands) Carrying Amount Fair Value Level 1 Level 2 Level 3 Financial Assets: Other investments, at cost $ 19,490 19,490 - - 19,490 Loans 1 3,579,640 3,319,602 - - 3,319,602 Financial Liabilities: Deposits 3,435,765 3,158,893 - 3,158,893 - Subordinated debentures 24,903 27,539 - 27,539 - 1 Carrying amount is net of the allowance for credit losses and individually evaluated loans. NOTE 7 – Leases The Company had operating right-of-use (“ROU”) assets, included in property and equipment, of $ 19.8 million and $ 20.6 million as of June 30, 2025 and December 31, 2024, respectively. The Company had lease liabilities, included in other liabilities, of $ 22.5 million and $ 23.2 million as of June 30, 2025 and December 31, 2024, respectively. We maintain operating leases on land and buildings for various office spaces. The lease agreements have maturity dates ranging from July 2025 to February 2032, some of which include options for multiple five-year extensions. The weighted average remaining life of the lease term for these leases was 4.76 years and 4.95 years as June 30, 2025 and December, 31, 2024, respectively. The ROU asset and lease liability are recognized at lease commencement by calculating the present value of lease payments over the lease term. The ROU assets also include any initial direct costs incurred and lease payments made at or before commencement date and are reduced by any lease incentives. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term at implementation of the accounting standard and as of the lease commencement date for leases subsequently entered into. The weighted average discount rate for leases was 2.27 % and 2.28 % as of June 30, 2025 and December 31, 2024, respectively. The total operating lease costs were $ 617,000 and $ 604,000 for the three months ended June 30, 2025 and 2024, respectively, and $ 1.2 million for the six months ended June 30, 2025 and 2024. 26 Table of Contents Operating lease payments due as of June 30, 2025 were as follows: Schedule of operating lease payments Operating (dollars in thousands) Leases 2025 $ 1,083 2026 2,210 2027 2,267 2028 2,015 2029 1,501 Thereafter 18,686 Total undiscounted lease payments 27,762 Discount effect of cash flows 5,284 Total lease liability $ 22,478 NOTE 8 – Earnings Per Common Share The following schedule reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three and six month periods ended June 30, 2025 and 2024. Dilutive common shares arise from the potentially dilutive effect of the Company’s stock options and unvested restricted stock that were outstanding at June 30, 2025. The assumed conversion of stock options can create a difference between basic and dilutive net income per common share. At June 30, 2025 and 2024, there were 210,017 and 266,974 options, respectively, that were not considered in computing diluted earnings per common share because they were anti-dilutive. Schedule of earnings per common share Three months ended June 30, Six months ended June 30, (dollars in thousands, except share data) 2025 2024 2025 2024 Numerator: Net income available to common shareholders $ 6,581 2,999 11,847 5,521 Denominator: Weighted-average common shares outstanding – basic 8,118,895 8,125,869 8,098,737 8,118,059 Common stock equivalents 14,894 14,953 23,478 23,312 Weighted-average common shares outstanding – diluted 8,133,789 8,140,822 8,122,215 8,141,371 Earnings per common share: Basic $ 0.81 0.37 1.46 0.68 Diluted 0.81 0.37 1.46 0.68 Item 2. MANAGEMENT’S DISCUSSION AND Analysis of Financial Condition and Results of Operations. The following discussion reviews our results of operations for the three and six month periods ended June 30, 2025 as compared to the three and six month periods ended June 30, 2024 and assesses our financial condition as of June 30, 2025 as compared to December 31, 2024. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements and the related notes and the consolidated financial statements and the related notes for the year ended December 31, 2024 included in our Annual Report on Form 10-K for that period. Results for the three and six month periods ended June 30, 2025 are not necessarily indicative of the results for the year ending December 31, 2025 or any future period. Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” or similar references mean Southern First Bancshares, Inc. and its consolidated subsidiary. References to the “Bank” refer to Southern First Bank. 27 Table of Contents Cautionary Warning Regarding forward-looking statements This report contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements may relate to our financial condition, results of operations, plans, objectives, or future performance. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “seek to,” “strive,” “focus,” “expect,” “anticipate,” “predict,” “project,” “potential,” “believe,” “continue,” “assume,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited to: · Restrictions or conditions imposed by our regulators on our operations; · Increases in competitive pressure in the banking and financial services industries; · Changes in access to funding or increased regulatory requirements with regard to funding, which could impair our liquidity; · Changes in deposit flows, which may be negatively affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to clients on alternative investments and general economic or industry conditions; · Credit losses as a result of declining real estate values, increasing interest rates, increasing unemployment, changes in payment behavior or other factors; · Credit losses due to loan concentration; · Changes in the amount of our loan portfolio collateralized by real estate and weaknesses in the real estate market; · Our ability to successfully execute our business strategy; · Our ability to attract and retain key personnel; · The success and costs of our expansion into the Charlotte, North Carolina, Greensboro, North Carolina and Atlanta, Georgia markets and into potential new markets; · Risks with respect to future mergers or acquisitions, including our ability to successfully expand and integrate the businesses and operations that we acquire and realize the anticipated benefits of the mergers or acquisitions; · Changes in the interest rate environment which could reduce anticipated or actual margins; · Changes in political conditions or the legislative or regulatory environment, including new governmental initiatives affecting the financial services industry; · Changes in economic conditions resulting in, among other things, a deterioration in credit quality; · Changes occurring in business conditions and inflation; · Increased cybersecurity risk, including potential business disruptions or financial losses; · Changes in technology; · The adequacy of the level of our allowance for credit losses and the amount of loan loss provisions required in future periods; · Examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses or write-down assets; · Changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the value of our assets and liabilities; · Any increase in FDIC assessments which will increase our cost of doing business; 28 Table of Contents · Risks associated with complex and changing regulatory environments, including, among others, with respect to data privacy, artificial intelligence (“AI”), information security, climate change or other environmental, social and governance matters, and labor matters, relating to our operations; · The rate of delinquencies and amounts of loans charged-off; · The rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio; · Our ability to maintain appropriate levels of capital and to comply with our capital ratio requirements; · Adverse changes in asset quality and resulting credit risk-related losses and expenses; · Changes in accounting standards, rules and interpretations and the related impact on our financial statements; · Risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others; · Adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed; · The potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as trade disputes and tariffs, epidemics and pandemics, war or terrorist activities, such as the war in Ukraine, the Middle East conflict, and the conflict between China and Taiwan, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs; and disruptions caused from widespread cybersecurity incidents; and · Other risks and uncertainties detailed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024, in Part II, Item 1A, “Risk Factors” of our Quarterly Reports on Form 10-Q, and in our other filings with the SEC. If any of these risks or uncertainties materialize, or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by, such forward-looking statements. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. We make these forward-looking statements as of the date of this document and we do not intend, and assume no obligation, to update the forward-looking statements or to update the reasons why actual results could differ from those expressed in, or implied or projected by, the forward-looking statements, except as required by law. OVERVIEW Our business model continues to be client-focused, utilizing relationship teams to provide our clients with a specific banker contact and support team responsible for all of their banking needs. The purpose of this structure is to provide a consistent and superior level of professional service, and we believe it provides us with a distinct competitive advantage. We consider exceptional client service to be a critical part of our culture, which we refer to as "ClientFIRST." At June 30, 2025, we had total assets of $4.31 billion, a 5.4% increase from total assets of $4.09 billion at December 31, 2024. The largest component of our total assets is loans which were $3.75 billion and $3.63 billion at June 30, 2025 and December 31, 2024, respectively. Our liabilities and shareholders’ equity at June 30, 2025 totaled $3.96 billion and $345.5 million, respectively, compared to liabilities of $3.76 billion and shareholders’ equity of $330.4 million at December 31, 2024. The principal component of our liabilities is deposits which were $3.64 billion and $3.44 billion at June 30, 2025 and December 31, 2024, respectively. Like most community banks, we derive the majority of our income from interest received on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is called our net interest spread. In addition to earning interest on our loans and investments, we earn income through fees and other charges to our clients. 29 Table of Contents Our net income to common shareholders was $6.6 million and $3.0 million for the three months ended June 30, 2025 and 2024, respectively. Diluted earnings per share (“EPS”) was $0.81 for the second quarter of 2025 as compared to $0.37 for the same period in 2024. The increase in net income was primarily driven by an increase in net interest income. Our net income to common shareholders was $11.8 million and $5.5 million for the six months ended June 30, 2025 and 2024, respectively. Diluted earnings per share (“EPS”) was $1.46 for the second quarter of 2025 as compared to $0.68 for the same period in 2024. The increase in net income was primarily driven by an increase in net interest income. results of operations Net Interest Income and Margin Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. Our net interest income was $25.3 million for the second quarter of 2025, a 29.5% increase over net interest income of $19.5 million for the second quarter of 2024, driven primarily by a $3.9 million decrease in interest expense on our interest-bearing deposits combined with a $1.8 million increase in interest income on our interest-earning assets. In addition, our net interest margin, on a tax-equivalent (TE) basis, was 2.50% for the second quarter of 2025 compared to 1.98% for the same period in 2024. We have included a number of tables to assist in our description of various measures of our financial performance. For example, the “Average Balances, Income and Expenses, Yields and Rates” table reflects the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during the three and six month periods ended June 30, 2025 and 2024. A review of this table shows that our loans typically provide higher interest yields than do other types of interest-earning assets, which is why we direct a substantial percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” tables demonstrate the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning accounts and interest-bearing accounts. The following tables entitled “Average Balances, Income and Expenses, Yield and Rates” set forth information related to our average balance sheets, average yields on assets, and average costs of liabilities. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. During the same periods, we had no securities purchased with agreements to resell. All investments owned have an original maturity of over one year. Nonaccrual loans are included in the following tables. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. The net of capitalized loan costs and fees are amortized into interest income on loans. 30 Table of Contents Average Balances, Income and Expenses, Yields and Rates For the Three Months Ended June 30, 2025 2024 (dollars in thousands) Average Balance Income/ Expense Yield/ Rate (1) Average Balance Income/ Expense Yield/ Rate (1) Interest-earning assets Federal funds sold and interest-bearing deposits with banks $ 179,095 $ 1,969 4.41 % $ 186,584 $ 2,583 5.57 % Investment securities, taxable 141,898 1,315 3.72 % 133,507 1,376 4.15 % Investment securities, nontaxable (2) 7,740 55 2.83 % 8,027 55 2.73 % Loans (3) 3,724,064 48,992 5.28 % 3,645,595 46,545 5.14 % Total interest-earning assets 4,052,797 52,331 5.18 % 3,973,713 50,559 5.12 % Noninterest-earning assets 154,051 165,093 Total assets $ 4,206,848 $ 4,138,806 Interest-bearing liabilities NOW accounts $ 331,811 752 0.91 % $ 302,881 621 0.82 % Savings & money market 1,566,345 13,398 3.43 % 1,611,991 16,324 4.07 % Time deposits 942,880 10,150 4.32 % 898,878 11,271 5.04 % Total interest-bearing deposits 2,841,036 24,300 3.43 % 2,813,750 28,216 4.03 % FHLB advances and other borrowings 240,000 2,270 3.79 % 240,000 2,247 3.77 % Subordinated debentures 24,903 453 7.30 % 36,360 555 6.14 % Total interest-bearing liabilities 3,105,939 27,023 3.49 % 3,090,110 31,018 4.04 % Noninterest-bearing liabilities 758,626 731,843 Shareholders’ equity 342,283 316,853 Total liabilities and shareholders’ equity $ 4,206,848 $ 4,138,806 Net interest spread 1.69 % 1.08 % Net interest income (tax equivalent) / margin $ 25,308 2.50 % $ 19,541 1.98 % Less: tax-equivalent adjustment (2) 13 13 Net interest income $ 25,295 $ 19,528 (1) Annualized for the three month period. (2) The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis. (3) Includes mortgage loans held for sale. Our net interest margin (TE) increased by 52 basis points to 2.50% during the second quarter of 2025, compared to the second quarter of 2024, primarily due to a decrease in the cost of our interest-bearing liabilities resulting from the 100 basis point decrease in the Fed Funds rate during the latter part of 2024. Our average interest-bearing liabilities grew by only $15.8 million during the second quarter of 2025 from the prior year, while the rate on these liabilities decreased 55 basis points to 3.49%. Our average interest-earning assets grew by $79.1 million during the second quarter of 2025 from the prior year, while the average yield on these assets increased by six basis points to 5.18%. Our interest-bearing deposits were the primary driver of the decrease in interest expense with a weighted average rate of 3.43% for the second quarter of 2025, a 60 basis point decrease from the second quarter of 2024. The increase in average interest-earning assets for the second quarter of 2025 related primarily to an increase of $78.5 million in our average loan balances from the prior year. The six basis point increase in yield on our interest-earning assets was driven by a 14 basis point increase in loan yield, offset by a 116 basis point decrease in yield on federal funds sold and interest-bearing deposits with banks, as a result of the decrease in the Fed Funds rate. Our net interest spread was 1.69% for the second quarter of 2025 compared to 1.08% for the same period in 2024. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. The six basis point increase in yield on our interest-earning assets, combined with the 55 basis point decrease in the rate on our interest-bearing liabilities, resulted in a 61 basis point increase in our net interest spread for the 2025 period. We anticipate continued pressure on our net interest spread and net interest margin in future periods based on the competitive rate environment around our deposits. 31 Table of Contents Average Balances, Income and Expenses, Yields and Rates For the Six Months Ended June 30, 2025 2024 (dollars in thousands) Average Balance Income/ Expense Yield/ Rate (1) Average Balance Income/ Expense Yield/ Rate (1) Interest-earning assets Federal funds sold and interest-bearing deposits with banks $ 143,655 $ 3,128 4.39 % $ 140,502 $ 3,863 5.53 % Investment securities, taxable 123,076 2,677 4.39 % 127,084 2,812 4.45 % Investment securities, nontaxable (2) 7,827 108 2.78 % 16,367 109 1.34 % Loans (3) 3,699,127 96,077 5.24 % 3,634,284 92,150 5.10 % Total interest-earning assets 3,973,685 101,990 5.18 % 3,918,237 98,934 5.08 % Noninterest-earning assets 175,216 160,227 Total assets $ 4,148,901 $ 4,078,464 Interest-bearing liabilities NOW accounts $ 319,328 1,350 0.85 % $ 299,328 1,283 0.86 % Savings & money market 1,543,614 26,149 3.42 % 1,616,256 32,642 4.06 % Time deposits 936,617 20,370 4.39 % 850,305 21,223 5.02 % Total interest-bearing deposits 2,799,559 47,869 3.45 % 2,765,889 55,148 4.01 % FHLB advances and other borrowings 240,000 4,514 3.79 % 240,659 4,476 3.74 % Subordinated debentures 24,903 904 7.32 % 36,346 1,112 6.15 % Total interest-bearing liabilities 3,064,462 53,287 3.51 % 3,042,894 60,736 4.01 % Noninterest-bearing liabilities 745,766 719,868 Shareholders’ equity 338,673 315,702 Total liabilities and shareholders’ equity $ 4,148,901 $ 4,078,464 Net interest spread 1.67 % 1.06 % Net interest income (tax equivalent) / margin $ 48,703 2.47 % $ 38,198 1.96 % Less: tax-equivalent adjustment (2) 25 25 Net interest income $ 48,678 $ 38,173 (1) Annualized for the six month period. (2) The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis. (3) Includes mortgage loans held for sale. During the first six months of 2025, our net interest margin (TE) increased by 51 basis points to 2.47%, compared to 1.96% for the first six months of 2024, primarily due to a decrease in the cost of our interest-bearing liabilities. Our average interest-bearing liabilities grew by only $21.6 million from prior year, while the rate of these liabilities decreased by 50 basis points to 3.51%. In addition, our average interest-earning assets grew by $55.4 million, while the average yield increased by 10 basis points to 5.18%. The increase in average interest-bearing liabilities for the first half of 2025 was driven by an increase in interest-bearing deposits of $33.7 million, partially offset by a $11.4 million decrease in subordinated debentures. The primary driver of our decrease in interest expense was a 56 basis point decrease in the cost of our interest-bearing deposits. The increase in average interest-earning assets for the first half of 2025 related primarily to a $64.8 million increase in our average loan balances. The increase in yield on our interest-earning assets was driven by a 14 basis point increase on our loan yield, partially offset by a 114 basis point decrease in the yield on Federal Funds sold and interest-bearing deposits with banks. Our net interest spread was 1.67% for the first half of 2025 compared to 1.06% for the same period in 2024. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. The 10 basis point increase in yield on our interest-earning assets, combined with the 50 basis point decrease in the rate on our interest-bearing liabilities, resulted in a 61 basis point increase in our net interest spread for 2025. 32 Table of Contents Rate/Volume Analysis Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following tables set forth the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented. Three Months Ended June 30, 2025 vs. 2024 June 30, 2024 vs. 2023 Increase (Decrease) Due to Increase (Decrease) Due to (dollars in thousands) Volume Rate Rate/ Volume Total Volume Rate Rate/ Volume Total Interest income Loans $ 48 2,348 51 2,447 $ 1,572 3,741 143 5,456 Investment securities (4 ) (54 ) (3 ) (61 ) 254 337 121 712 Federal funds sold and interest-bearing deposits with banks 125 (827 ) 88 (614 ) 1,450 92 150 1,692 Total interest income 169 1,467 136 1,772 3,276 4,170 414 7,860 Interest expense Deposits (87 ) (3,769 ) (60 ) (3,916 ) 1,139 4,886 254 6,279 FHLB advances and other borrowings - 22 - 22 1,058 (109 ) (84 ) 865 Subordinated debentures 51 (222 ) 70 (101 ) (2 ) 15 - 13 Total interest expense (36 ) (3,969 ) 10 (3,995 ) 2,195 4,792 170 7,157 Net interest income $ 205 5,436 126 5,767 $ 1,081 (622 ) 244 703 Net interest income, the largest component of our income, was $25.3 million for the second quarter of 2025 and $19.5 million for the second quarter of 2024, a $5.8 million, or 29.5%, increase year over year. The increase during 2025 was driven by a $4.0 million decrease in interest expense primarily due to lower rates on our interest-bearing deposits as well as higher yields on our loan portfolio. Six Months Ended June 30, 2025 vs. 2024 June 30, 2024 vs. 2023 Increase (Decrease) Due to Increase (Decrease) Due to (dollars in thousands) Volume Rate Rate/ Volume Total Volume Rate Rate/ Volume Total Interest income Loans $ 64 3,795 68 3,927 $ 4,883 8,883 547 14,313 Investment securities (7 ) (123 ) (6 ) (136 ) 557 719 302 1,578 Federal funds sold and interest-bearing deposits with banks 83 (880 ) 62 (735 ) 1,479 292 232 2,003 Total interest income 140 2,792 124 3,056 6,919 9,894 1,081 17,894 Interest expense Deposits (174 ) (6,983 ) (122 ) (7,279 ) 1,605 13,865 563 16,033 FHLB advances and other borrowings - 38 - 38 3,351 (147 ) (310 ) 2,894 Subordinated debentures 105 (456 ) 143 (208 ) 3 39 1 43 Total interest expense (69 ) (7,401 ) 21 (7,449 ) 4,959 13,757 254 18,970 Net interest income $ 209 10,193 103 10,505 $ 1,960 (3,863 ) 827 (1,076 ) Net interest income for the first half of 2025 was $48.7 million compared to $38.2 million for 2024, a $10.5 million, or 27.5%, increase. The increase in net interest income during 2025 was driven by a $7.5 million decrease in interest expense, related primarily to lower rates on our interest-bearing deposits as well as an increase in average balance and yield on our loan portfolio. Provision for Credit Losses The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses and reserve for unfunded commitments at levels consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. We review the adequacy of the allowance for credit losses on a quarterly basis. Please see the discussion included in Note 4 – Loans and Allowance for Credit Losses for a description of the factors we consider in determining the amount of 33 Table of Contents the provision we expense each period to maintain this allowance. Based on the transition to the DCF methodology for calculating the ACL, management analyzed the risk level associated with factors such as the global, national and local economy, which includes the potential impact of tariffs, changes in the experience and depth of management, as well as changes in the risk ratings and volume and severity of past due loans in the consideration of the qualitative portion of the ACL. We recorded a provision for credit losses of $700,000 during the second quarter of 2025, compared to a $500,000 provision for credit losses in the second quarter of 2024. The $700,000 provision in 2025, which included a $650,000 provision for credit losses and a $50,000 reserve for unfunded commitments was driven primarily by growth in our loan portfolio. The $500,000 provision in 2024, which included a $750,000 provision for credit losses and a $250,000 reversal for unfunded commitments, was driven by an increase in the level of charge-offs we experienced during the second quarter, combined with an increase in the specific reserve on individually assessed loans. During the second quarter of 2024, we charged-off $1.0 million related to one relationship associated with the assisted living industry. The reversal of the reserve for unfunded commitments was due to a decrease in the balance of unfunded commitments at June 30, 2024. We recorded a provision expense of $1.5 million and $325,000 for the six months ended June 30, 2025 and June 30, 2024, respectively. The $1.5 million provision expense for the first half of 2025 included $1.4 provision for credit losses and a $50,000 reserve for unfunded commitments. The increase in provision expense was primarily due to loan growth during the first half of the year. The $325,000 provision expense for the first half of 2024 included $750,000 provision for credit losses and a $425,000 reversal for unfunded commitments. Noninterest Income The following table sets forth information related to our noninterest income. Three months ended June 30, Six months ended June 30, (dollars in thousands) 2025 2024 2025 2024 Mortgage banking income $ 1,569 1,923 2,993 3,087 Service fees on deposit accounts 567 416 1,106 810 ATM and debit card income 586 587 1,138 1,131 Income from bank owned life insurance 413 384 816 762 Other income 199 213 394 397 Total noninterest income $ 3,334 3,523 6,447 6,187 Noninterest income was $3.3 million for the second quarter of 2025, a $189,000, or 5.4%, decrease from noninterest income of $3.5 million for the second quarter of 2024. Mortgage banking income continues to be the largest component of our noninterest income at $1.6 million for the second quarter of 2025, a decrease of $354,000, or 18.4%, over the prior year which was driven by lower mortgage volume during the second quarter of 2025. Service fees on deposit accounts increased $151,000, or 36.3%, over the prior year, driven by fee income on our commercial credit cards and additional wire fee income. Noninterest income was $6.4 million for the first half of 2025, a $260,000, or 4.2%, increase from noninterest income of $6.2 million for the second half of 2024. Service fees on deposit account increased by $296,000, or 36.5% over the prior year, while mortgage banking income decreased by $94,000, or 3.0%, from the first half of 2024. 34 Table of Contents Noninterest expenses The following table sets forth information related to our noninterest expenses. Three months ended June 30, Six months ended June 30, (dollars in thousands) 2025 2024 2025 2024 Compensation and benefits $ 11,674 11,290 22,978 22,147 Occupancy 2,523 2,552 5,071 5,109 Outside service and data processing costs 2,189 1,962 4,226 3,808 Insurance 910 965 1,919 1,920 Professional fees 609 582 1,118 1,200 Marketing 397 389 771 758 Other 1,034 903 2,088 1,801 Total noninterest expense $ 19,336 18,643 38,171 36,743 Noninterest expense was $19.3 million for the second quarter of 2025, a $693,000, or 3.7%, increase from noninterest expense of $18.6 million for the second quarter of 2024. The increase in noninterest expense was driven primarily by the following: · Compensation and benefits expense increased $384,000, or 3.4%, relating primarily to an increase in salaries and other employee benefits expenses. · Outside service and data processing costs increased $227,000, or 11.6%, relating primarily to increases in software licensing and maintenance costs, item processing, electronic banking, and other services we provide to our clients. · Other noninterest expenses increased $131,000, or 14.5%, relating primarily to an increase in employee travel expenses and other employee related expenses. Partially offsetting the above increases was a decrease in insurance expense of $55,000, or 5.7% due to lower FDIC insurance premiums. Noninterest expense was $38.2 million for the first half of 2025, a $1.4 million, or 3.9%, increase from noninterest expense of $36.7 million for the first half of 2024. The increase in noninterest expense was driven primarily by the following: · Compensation and benefits expense increased $831,000, or 3.8%, relating primarily to annual salary increases, commissions, and other employee benefit expenses. · Outside service and data processing costs increased $418,000, or 11.0%, relating primarily to increases in software licensing and maintenance costs, ATM card related expenses, and other business electronic banking services we provide to our clients. · Other noninterest expenses increased $287,000, or 15.9%, relating primarily to an increase in fraud losses, employee travel and other employee expenses. Partially offsetting these increases, professional fees decreased $82,000, or 6.8%, relating primarily to decreases in legal fees, consulting fees, and other professional fees. Our efficiency ratio was 67.5% for the second quarter of 2025, compared to 80.9% for the second quarter of 2024. The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue and is computed by dividing noninterest expense by the sum of net interest income and noninterest income. The improvement during the 2025 period was driven primarily by the increase in net interest income. We incurred income tax expense of $2.0 million and $909,000 for the three months ended June 30, 2025 and 2024, respectively, and $3.7 million and $1.8 million for the six months ended June 30, 2025 and 2024. Our effective tax rate was 23.6% and 24.3% for the six months ended June 30, 2025 and 2024, respectively. The decrease in the 35 Table of Contents effective tax rate was driven by the effect of equity compensation transactions in comparison to our income before income tax expense. Balance Sheet Review Investment Securities At June 30, 2025, the $148.8 million in our investment securities portfolio represented approximately 3.5% of our total assets. Our available for sale investment portfolio included corporate bonds, US treasuries, US government agency securities, state and political subdivisions, asset-backed securities and mortgage-backed securities with a fair value of $128.9 million and an amortized cost of $141.0 million, resulting in an unrealized loss of $12.2 million. At December 31, 2024, the $151.6 million in our investment securities portfolio represented approximately 3.7% of our total assets, including investment securities with a fair value of $132.1 million and an amortized cost of $146.6 million for an unrealized loss of $14.5 million. In addition, other investments, which include FHLB Stock and other nonmarketable investments, increased $416,000 from December 31, 2024 to $19.9 million at June 30, 2025. Loans Since loans typically provide higher interest yields than other types of interest earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Average loans, excluding mortgage loans held for sale, for the six months ended June 30, 2025 and 2024 were $3.69 billion and $3.63 billion, respectively. Before the allowance for credit losses, total loans outstanding at June 30, 2025 and December 31, 2024 were $3.75 billion and $3.63 billion, respectively. The principal component of our loan portfolio is loans secured by real estate mortgages. As of June 30, 2025, our loan portfolio included $3.12 billion, or 83.2%, of real estate loans, compared to $3.03 billion, or 83.5%, at December 31, 2024. Most of our real estate loans are secured by residential or commercial property. We obtain a security interest in real estate, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans to coincide with the appropriate regulatory guidelines. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral and business types. Home equity lines of credit totaled $234.6 million as of June 30, 2025, of which approximately 49% were in a first lien position, while the remaining balance was second liens. At December 31, 2024, our home equity lines of credit totaled $204.9 million, of which approximately 46% were in first lien positions, while the remaining balance was in second liens. The average home equity loan had a balance of approximately $104,000 and a loan to value of 72% as of June 30, 2025, compared to an average loan balance of $92,000 and a loan to value of approximately 74% as of December 31, 2024. Further, 0.49% and 0.12% of our total home equity lines of credit were over 30 days past due as of June 30, 2025 and December 31, 2024, respectively. Following is a summary of our loan composition at June 30, 2025 and December 31, 2024. During the first six months of 2025, our loan portfolio increased by $115.1 million, or 6.39% annualized, primarily driven by a $69.6 million increase in consumer loans secured by real estate and a $33.5 million increase in commercial business loans. Our consumer real estate portfolio grew by $35.6 million and includes high quality 1-4 family consumer real estate loans. Our average consumer real estate loan currently has a principal balance of $476,000, a term of 23 years, and an average rate of 4.51% as of June 30, 2025, compared to a principal balance of $468,000, a term of 23 years, and an average rate of 4.36% as of December 31, 2024. 36 Table of Contents June 30, 2025 December 31, 2024 (dollars in thousands) Amount % of Total Amount % of Total Commercial Owner occupied RE $ 686,424 18.3 % $ 651,597 17.9 % Non-owner occupied RE 939,163 25.1 % 924,367 25.5 % Construction 68,421 1.8 % 103,204 2.8 % Business 589,661 15.7 % 556,117 15.3 % Total commercial loans 2,283,669 60.9 % 2,235,285 61.5 % Consumer Real estate 1,164,187 31.1 % 1,128,629 31.1 % Home equity 234,608 6.3 % 204,897 5.6 % Construction 25,210 0.6 % 20,874 0.6 % Other 39,167 1.1 % 42,082 1.2 % Total consumer loans 1,463,172 39.1 % 1,396,482 38.5 % Total gross loans, net of deferred fees 3,746,841 100.0 % 3,631,767 100.0 % Less—allowance for credit losses (41,285 ) (39,914 ) Total loans, net $ 3,705,556 $ 3,591,853 We have included the table below to provide additional clarity on our commercial real estate exposure. We have not identified any geographic concentrations within these collateral types. Our level of non-owner occupied commercial real estate loans represents 241.1% of the Bank’s total risk-based capital at June 30, 2025. The table below presents the majority of our commercial real estate exposure by collateral type which are included in the commercial business, construction, and non-owner occupied segments. June 30, 2025 (dollars in thousands) Outstanding % of Loan Portfolio Average Loan Size Weighted Average LTV Collateral Office $ 221,081 5.90 % $ 1,351 55 % Retail 186,452 4.98 % 1,653 51 % Hotel 142,716 3.81 % 7,115 50 % Multifamily 97,717 2.61 % 2,502 44 % December 31, 2024 (dollars in thousands) Outstanding % of Loan Portfolio Average Loan Size Weighted Average LTV Collateral Office $ 214,048 5.89 % $ 1,364 57 % Retail 170,601 4.70 % 1,543 52 % Hotel 125,557 3.46 % 7,250 48 % Multifamily 96,735 2.66 % 2,385 45 % Nonperforming assets Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms and to show capacity to continue performing into the future before that loan can be placed back on accrual status. As of June 30, 2025 we had one loan that was 37 Table of Contents 90 days past due and still accruing. At December 31, 2024 we had no loans that were 90 days past due and still accruing. Following is a summary of our nonperforming assets. (dollars in thousands) June 30, 2025 December 31, 2024 Commercial $ 7,658 8,657 Consumer 3,736 2,220 Total nonaccrual loans 11,394 10,877 Other real estate owned 275 - Total nonperforming assets $ 11,669 10,877 At June 30, 2025, nonperforming assets were $11.7 million, or 0.27% of total assets and 0.31% of gross loans. Comparatively, nonperforming assets were $10.9 million, or 0.27% of total assets and 0.30% of gross loans at December 31, 2024. The amount of foregone interest income on nonaccrual loans in the second quarter of 2025 and 2024 was $126,000 and $13,000, respectively. At June 30, 2025 and December 31, 2024, the allowance for credit losses represented 362.35% and 366.94% of the total amount of nonperforming loans, respectively. A significant portion of the nonperforming loans at June 30, 2025 were secured by real estate. We have evaluated the underlying collateral on these loans and believe that the collateral on these loans is sufficient to minimize future losses. As a general practice, most of our commercial loans and a portion of our consumer loans are originated with relatively short maturities of less than ten years. As a result, when a loan reaches its maturity we frequently renew the loan and thus extend its maturity using similar credit standards as those used when the loan was first originated. Due to these loan practices, we may, at times, renew loans which are classified as nonaccrual after evaluating the loan’s collateral value and financial strength of its guarantors. Nonaccrual loans are renewed at terms generally consistent with the ultimate source of repayment and rarely at reduced rates. In these cases, we will generally seek additional credit enhancements, such as additional collateral or additional guarantees to further protect the loan. When a loan is no longer performing in accordance with its stated terms, we will typically seek performance under the guarantee. In addition, at June 30, 2025, 83.2% of our loans were collateralized by real estate and 95.8% of our individually evaluated loans were secured by real estate. We utilize third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require us to obtain updated appraisals on an annual basis, either through a new external appraisal or an appraisal evaluation. Individually evaluated loans are reviewed on a quarterly basis to determine the level of credit loss. As of June 30, 2025, we did not have any individually evaluated real estate loans carried at a value in excess of the appraised value. We typically charge-off a portion or create a specific reserve for individually evaluated loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement. At June 30, 2025, individually evaluated loans totaled $12.7 million, for which $4.8 million of these loans had a reserve of approximately $1.7 million allocated in the allowance for credit losses. Comparatively, individually evaluated loans totaled $12.2 million at December 31, 2024 for which $4.5 million of these loans had a reserve of approximately $1.9 million allocated in the allowance for credit losses. Allowance for Credit Losses The allowance for credit losses was $41.3 million, representing 1.10% of outstanding loans and providing coverage of 362.35% of nonperforming loans at June 30, 2025 compared to $39.9 million, or 1.10% of outstanding loans and 366.94% of nonperforming loans at December 31, 2024. At June 30, 2024, the ACL was $40.2 million, or 1.11% of outstanding loans and 357.95% of nonperforming loans. 38 Table of Contents During the first quarter of 2025, the Company refined its methodology for estimating the allowance for credit losses on loans by transitioning from a lifetime probability of default and loss given default model (“lifetime PD/LGD”) to a discounted cash flow (“DCF”) approach. The Company transitioned to the DCF method as it allows for a better estimation of credit losses through customization among the various inputs by loan segmentation. The DCF model uses regression techniques that relate one or more economic factors to the default rate of various portfolios to build reasonable and supportable forecasts to estimate future losses. The Company determined that the national gross domestic product and unemployment rate were the two economic factors which had the greatest correlation to historical performance to use in the forecasted portion of the model. In addition, the transition to the DCF model allowed the Company to reduce its reliance on qualitative factors and to analyze them on a more granular level, such as by segment. The refinement represents a change in accounting estimate under ASC Topic 250, Accounting Changes and Error Corrections , with prospective application beginning in the period of change. This change in accounting estimate did not have a material effect on the Company’s financial statements. Under the DCF methodology, the expected loss rates are evaluated at an individual loan level, incorporating a forecast for certain economic conditions, prepayment assumptions, weighted average life of loan and peer loss experience into the credit loss calculation. In addition, the model no longer considers risk rating as a key factor in the calculation of expected credit losses. This factor drove the decrease in expected loss under the DCF model for the commercial non-owner occupied category as loans with a risk rating less than “pass” were assigned a higher expected loss rate under the lifetime PD/LGD model. In addition, loan categories such as commercial business and consumer real estate loans were highly impacted by the incorporation of prepayment rates and a regression analysis under the DCF method. Higher prepayment rates shortened the recovery period for expected losses, resulting in an increased expected loss rate while the regression analysis, which includes a forecasted gross national product (“GDP”) and unemployment rate, increased the probability of default for both of these loan categories and consequently resulted in a higher expected loss rate. Finally, the incorporation of the weighted average life of loan into the calculation was a key driver of the change in the overall allocation between our commercial portfolio and our consumer portfolio as the weighted average life of our consumer loans is generally longer than that of our commercial loans, thus driving the changes in the expected loss rate to correlate to the expected life of the loan. As a result, the allocation of the ACL shifted among loan categories, reducing the ACL allotted to the commercial portfolio and increasing the ACL allotted to the consumer portfolio. The following table summarizes the allocation of the allowance for credit losses among the various loan categories. June 30, 2025 December 31, 2024 (dollars in thousands) Amount % (1) Amount % (1) Commercial Owner occupied RE $ 4,003 18.3 % $ 5,482 17.9 % Non-owner occupied RE 7,417 25.1 % 10,219 25.5 % Construction 462 1.8 % 940 2.8 % Business 11,293 15.7 % 7,745 15.3 % Total commercial 23,175 60.9 % 24,386 61.5 % Consumer Real estate 15,533 31.1 % 12,359 31.1 % Home equity 1,649 6.3 % 2,655 5.6 % Construction 455 0.6 % 115 0.6 % Other 473 1.1 % 399 1.2 % Total consumer 18,110 39.1 % 15,528 38.5 % Total allowance for credit losses $ 41,285 100.0 % $ 39,914 100.0 % (1) Percentage of loans in each category to total loans Deposits and Other Interest-Bearing Liabilities Our primary source of funds for loans and investments is our deposits and advances from the FHLB. In the past, we have chosen to obtain a portion of our certificates of deposits from areas outside of our market in order to obtain longer term deposits than are readily available in our local market. Our internal guidelines regarding the use of brokered CDs limit our brokered CDs to 30% of total deposits, which allows us to take advantage of the attractive terms that wholesale funding can offer while mitigating the related inherent risk. Our retail deposits represented $3.08 billion, or 84.6% of total deposits, while our wholesale deposits represented $560.7 million, or 15.4%, of total deposits at June 30, 2025. At December 31, 2024, retail deposits represented $2.89 billion, or 84.0%, of our total deposits and wholesale deposits were $550.3 million, representing 16.0% of our total deposits. Our loan-to-deposit ratio was 103% at June 30, 2025 and 106% at December 31, 2024. 39 Table of Contents The following is a detail of our deposit accounts: June 30, December 31, (dollars in thousands) 2025 2024 Non-interest bearing $ 761,492 683,081 Interest bearing: NOW accounts 341,903 314,588 Money market accounts 1,537,400 1,438,530 Savings 32,334 31,976 Time deposits 963,200 967,590 Total deposits $ 3,636,329 3,435,765 Our primary focus is on increasing core deposits, which exclude out-of-market deposits and time deposits of $250,000 or more, in order to provide a relatively stable funding source for our loan portfolio and other earning assets. In addition, at June 30, 2025 and December 31, 2024, we estimate that we have approximately $1.4 billion and $1.3 billion, or 38.1% and 37.1% of total deposits, respectively, in uninsured deposits, including related interest accrued and unpaid. Since it is not reasonably practicable to provide a precise measure of uninsured deposits, the amounts above are estimates and are based on the same methodologies and assumptions used by the FDIC for the Bank’s regulatory reporting requirements. The following table shows the average balance amounts and the average rates paid on deposits. Six months ended June 30, 2025 2024 (dollars in thousands) Amount Rate Amount Rate Noninterest-bearing demand deposits $ 690,017 0.00 % $ 663,447 0.00 % Interest-bearing demand deposits 319,328 0.85 % 299,328 0.86 % Money market accounts 1,511,760 3.48 % 1,585,544 4.12 % Savings accounts 31,854 0.31 % 30,712 0.20 % Time deposits less than $250,000 185,203 3.84 % 149,995 4.49 % Time deposits greater than $250,000 751,414 4.52 % 700,310 5.12 % Total deposits $ 3,489,576 2.77 % $ 3,429,336 3.23 % During the first six months of 2025, our average transaction account balances decreased by $26.1 million, or 1.0%, from the prior year, while our average time deposit balances increased by $86.3 million, or 10.2%. All of our time deposits are certificates of deposits. The maturity distribution of our time deposits $250,000 or more at June 30, 2025 was as follows: (dollars in thousands) June 30, 2025 Three months or less $ 157,095 Over three through six months 170,001 Over six through twelve months 204,721 Over twelve months 237,319 Total time deposits $ 769,136 Time deposits that meet or exceed the FDIC insurance limit of $250,000 at June 30, 2025 and December 31, 2024 were $769.1 million and $774.0 million, respectively. We have a relationship with IntraFi Promontory Network, allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000. This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious customers. With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network. 40 Table of Contents At June 30, 2025 and December 31, 2024, we had $240.0 million of convertible fixed rate FHLB advances with a weighted average rate of 3.74%. At June 30, 2025, the $240.0 million was secured with approximately $1.32 billion of mortgage loans and $14.5 million of stock in the FHLB. At December 31, 2024, the $240.0 million was secured with approximately $1.29 billion of mortgage loans and $14.5 million of stock in the FHLB. Listed below is a summary of the terms and maturities of the advances outstanding at June 30, 2025 and December 31, 2024. (dollars in thousands) June 30, 2025 December 31, 2024 Maturity Amount Rate Amount Rate April 28, 2028 $ 40,000 3.51 % $ 40,000 3.51 % June 28, 2028 40,000 3.54 % 40,000 3.54 % July 10, 2028 40,000 3.87 % 40,000 3.87 % July 10, 2028 40,000 3.96 % 40,000 3.96 % May 15, 2029 35,000 3.90 % 35,000 3.90 % July 10, 2029 45,000 3.69 % 45,000 3.69 % Total FHLB Advances $ 240,000 3.74 % $ 240,000 3.74 % Liquidity and Capital Resources Liquidity is our ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments. Our liquidity principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. The several large bank failures across the United States in the first five months of 2023 exemplify the potential serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control. At June 30, 2025 and December 31, 2024, our cash and cash equivalents totaled $271.0 million and $162.9 million, respectively, or 6.3% and 4.0% of total assets, respectively. Our investment securities at June 30, 2025 and December 31, 2024 amounted to $148.8 million and $151.6 million, respectively, or 3.5% and 3.7% of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner. Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, loan payoffs, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. We maintain six federal funds purchased lines of credit with correspondent banks totaling $128.5 million for which there were no borrowings against the lines of credit at June 30, 2025. We also had $199.7 million pledged and available with the Federal Reserve Discount Window at June 30, 2025. Comparatively, at December 31, 2024, we had $210.8 million pledged and available with the Federal Reserve Discount Window. We are also a member of the FHLB, from which applications for borrowings can be made. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the Bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at June 30, 2025 was $824.4 million, based primarily on the Bank’s qualifying mortgages available to secure any future borrowings. However, we 41 Table of Contents are able to pledge additional securities to the FHLB in order to increase our available borrowing capacity. In addition, at June 30, 2025 and December 31, 2024 we had $223.1 million and $205.4 million, respectively, of letters of credit outstanding with the FHLB to secure client deposits. We have a relationship with IntraFi Promontory Network, allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000. This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious customers. With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network. Additionally, subject to certain limits, the Bank can use IntraFi to purchase cost-effective funding without collateralization and in lieu of generating funds through traditional brokered CDs or the FHLB. In this manner, IntraFi can provide us with another funding option. Thus, it serves as a deposit-gathering tool and an additional liquidity management tool. Under the Economic Growth, Regulatory Relief, and Consumer Protection Act, a well capitalized bank with a CAMELS rating of 1 or 2 may hold reciprocal deposits up to the lesser of 20% of its total liabilities or $5 billion without those deposits being treated as brokered deposits. We also have a line of credit with another financial institution for $15.0 million, which was unused at June 30, 2025. The line of credit was renewed on February 28, 2025 at an interest rate of the U.S. Prime Rate plus 0.25% and matures on March 5, 2026. On September 30, 2024, in conjunction with the semi-annual interest payment, we redeemed $11.5 million of our outstanding subordinated debt. Beginning September 30, 2024, the interest rate on our remaining $11.5 million of outstanding subordinated debt reset to an interest rate per annum equal to the Three-Month Term SOFR plus 340.8 basis points (8.00% at June 30, 2025), payable quarterly in arrears. We believe that our existing stable base of core deposits, federal funds purchased lines of credit with correspondent banks, availability with the Federal Reserve Discount Window, and borrowings from the FHLB will enable us to successfully meet our long-term liquidity needs. However, as short-term liquidity needs arise, we have the ability to sell a portion of our investment securities portfolio to meet those needs. Total shareholders’ equity was $345.5 million at June 30, 2025 and $330.4 million at December 31, 2024. The $15.0 million increase from December 31, 2024 is primarily related to net income of $11.8 million during the first six months of 2025, stock option exercises and equity compensation expenses of $1.7 million, and a $1.9 million increase in other comprehensive income related to our available for sale securities. The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), equity to assets ratio (average equity divided by average assets), and tangible common equity ratio (total equity less preferred stock divided by total assets) annualized for the six months ended June 30, 2025 and the year ended December 31, 2024. Since our inception, we have not paid cash dividends. June 30, 2025 December 31, 2024 Return on average assets 0.58 % 0.38 % Return on average equity 7.05 % 4.84 % Return on average common equity 7.05 % 4.84 % Average equity to average assets ratio 8.16 % 7.83 % Tangible common equity to assets ratio 8.02 % 8.08 % Under the capital adequacy guidelines, regulatory capital is classified into two tiers. These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for credit losses, subject to certain 42 Table of Contents limitations. We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio. Regulatory capital rules, which we refer to as Basel III, impose minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies other than “small bank holding companies,” generally holding companies with consolidated assets of less than $3 billion. In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a “capital conservation buffer” on top of our minimum risk-based capital requirements. This buffer must consist solely of common equity Tier 1, but the buffer applies to all three measurements (common equity Tier 1, Tier 1 capital and total capital). The capital conservation buffer consists of an additional amount of CET1 equal to 2.5% of risk-weighted assets. To be considered “well capitalized” for purposes of certain rules and prompt corrective action requirements, the Bank must maintain a minimum total risked-based capital ratio of at least 10%, a total Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of at least 6.5%, and a leverage ratio of at least 5%. As of June 30, 2025 our capital ratios exceed these ratios and we remain “well capitalized.” The following table summarizes the capital amounts and ratios of the Bank and the regulatory minimum requirements. June 30, 2025 Actual For capital adequacy purposes minimum plus the capital conservation buffer To be well capitalized under prompt corrective action provisions minimum (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets) $ 416,867 12.58 % $ 265,137 8.00 % $ 331,421 10.00 % Tier 1 Capital (to risk weighted assets) 375,582 11.33 % 198,853 6.00 % 265,137 8.00 % Common Equity Tier 1 Capital (to risk weighted assets) 375,582 11.33 % 149,140 4.50 % 215,424 6.50 % Tier 1 Capital (to average assets) 375,582 8.90 % 168,745 4.00 % 210,932 5.00 % December 31, 2024 Actual For capital adequacy purposes minimum plus the capital conservation buffer To be well capitalized under prompt corrective action provisions minimum (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets) $ 402,629 12.66 % $ 254,412 8.00 % $ 318,015 10.00 % Tier 1 Capital (to risk weighted assets) 362,875 11.41 % 190,809 6.00 % 254,412 8.00 % Common Equity Tier 1 Capital (to risk weighted assets) 362,875 11.41 % 143,107 4.50 % 206,709 6.50 % Tier 1 Capital (to average assets) 362,875 8.75 % 165,941 4.00 % 207,426 5.00 % The following table summarizes the capital amounts and ratios of the Company and the minimum regulatory requirements. 43 Table of Contents June 30, 2025 Actual For capital adequacy purposes minimum plus the capital conservation buffer (1) To be well capitalized under prompt corrective action provisions minimum (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets) $ 418,556 12.63 % $ 265,137 8.00 % N/A N/A Tier 1 Capital (to risk weighted assets) 368,071 11.11 % 198,853 6.00 % N/A N/A Common Equity Tier 1 Capital (to risk weighted assets) 355,071 10.71 % 149,140 4.50 % N/A N/A Tier 1 Capital (to average assets) 368,071 8.72 % 168,765 4.00 % N/A N/A December 31, 2024 Actual For capital adequacy purposes minimum plus the capital conservation buffer To be well capitalized under prompt corrective action provisions minimum (1) (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets) $ 403,867 12.70 % 254,392 8.00 % N/A N/A Tier 1 Capital (to risk weighted assets) 354,916 11.16 % 190,794 6.00 % N/A N/A Common Equity Tier 1 Capital (to risk weighted assets) 341,916 10.75 % 143,096 4.50 % N/A N/A Tier 1 Capital (to average assets) 354,916 8.55 % 165,963 4.00 % N/A N/A (1) The prompt corrective action provisions are only applicable at the Bank level. The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.” The ability of the Company to pay cash dividends to shareholders is dependent upon receiving cash in the form of dividends from the Bank. The dividends that may be paid by the Bank to the Company are subject to legal limitations and regulatory capital requirements. Since our inception, we have not paid cash dividends to shareholders. Effect of Inflation and Changing Prices The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements. Rather, our financial statements have been prepared on an historical cost basis in accordance with generally accepted accounting principles. Unlike most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude. As discussed previously, we seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation. Off-Balance Sheet Risk Commitments to extend credit are agreements to lend money to a client as long as the client has not violated any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. At June 30, 2025 unfunded commitments to extend credit were $791.3 million, of which $80.8 million were at fixed rates and $710.4 million were at variable rates. At December 31, 2024, unfunded commitments to extend credit were $719.1 million, of which approximately $57.5 million were at fixed rates and $661.6 million were at variable rates. A significant portion of the unfunded commitments related to commercial business loans and consumer home equity lines of credit. We evaluate each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. The type of collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate. As of June 30, 2025 and December 31, 2024, the reserve for unfunded commitments was $1.5 million or 0.19% and 0.20%, respectively, of total unfunded commitments. 44 Table of Contents At June 30, 2025 and December 31, 2024, there were commitments under letters of credit for $20.4 million and $16.2 million, respectively. The credit risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements. Except as disclosed in this report, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that significantly impact earnings. Critical Accounting Estimates We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and with general practices within the banking industry in the preparation of our financial statements. Certain accounting policies inherently involve a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2024, for a description our significant accounting policies that use critical accounting estimates. Accounting, Reporting, and Regulatory Matters See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our consolidated financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk is the risk of loss from adverse changes in market prices and rates, which principally arises from interest rate risk inherent in our lending, investing, deposit gathering, and borrowing activities. Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not generally arise in the normal course of our business. We actively monitor and manage our interest rate risk exposure to seek to control the mix and maturities of our assets and liabilities utilizing a process we call asset/liability management. The essential purposes of asset/liability management are to seek to ensure adequate liquidity and to maintain an appropriate balance between interest sensitive assets and liabilities in order to minimize potentially adverse impacts on earnings from changes in market interest rates. Our asset/liability management committee (“ALCO”) monitors and considers methods of managing exposure to interest rate risk by repricing assets or liabilities, selling securities available for sale, replacing an asset or liability at maturity, by adjusting the interest rate during the life of an asset or liability, or by the use of derivatives such as interest rate swaps and other hedging instruments. Managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates. We have both an internal ALCO consisting of senior management that meets no less than quarterly and a board risk committee that meets quarterly, and both committees are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits. 45 Table of Contents As of June 30, 2025, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward and downward movements in interest rates of 100, 200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal interest rates and loan and deposit repricing rates. Estimates are based on current economic conditions, historical interest rate cycles and other factors deemed to be relevant. However, underlying assumptions may be impacted in future periods which were not known to management at the time of the issuance of the Consolidated Financial Statements. Therefore, management’s assumptions may or may not prove valid. No assurance can be given that changing economic conditions and other relevant factors impacting our net interest income will not cause actual occurrences to differ from underlying assumptions. In addition, this analysis does not consider any strategic changes to our balance sheet which management may consider as a result of changes in market conditions. Interest rate scenario Change in net interest income from base Up 300 basis points (7.07 )% Up 200 basis points (4.03 )% Up 100 basis points (1.64 )% Base - Down 100 basis points 1.67 % Down 200 basis points 5.78 % Down 300 basis points 15.43 % Item 4. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting There has been no change in the Company’s internal control over financial reporting during the three months ended June 30, 2025, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. We are a party to claims and lawsuits arising in the course of normal business activities. Management is not aware of any material pending legal proceedings against the Company which, if determined adversely, would have a material adverse impact on the company’s financial position, results of operations or cash flows. Item 1A. RISK FACTORS. Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Cautionary Warning Regarding Forward-Looking Statements” set forth in Part I, Item 2 of this Form 10-Q, risks and matters described elsewhere in this Form 10-Q, and in our other filings with the SEC. There have been no material changes to the risk factors previously disclosed in the Company’s (i) Annual Report on Form 10-K for fiscal year ended December 31, 2024. Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (a) Sales of Unregistered Securities - None 46 Table of Contents (b) Use of Proceeds – Not applicable (c) Issuer Purchases of Securities The following table reflects share repurchase activity during the second quarter of 2025: (d) Maximum (c) Total Number (or Number of Approximate Shares (or Dollar Value) of Units) Shares (or (a) Total Purchased as Units) that May Number of Part of Publicly Yet Be Shares (or (b) Average Announced Purchased Units) Price Paid per Plans or Under the Plans Period Purchased Share (or Unit) Programs or Programs June 17, 2025 – June 30, 2025 - - - $ 5,000,000 Total - - - $ 5,000,000 * On June 17, 2025, the Company announced a share repurchase plan allowing us to repurchase up to $5.0 million of shares of our common stock (the “Repurchase Plan”). As of June 30, 2025, we have not repurchased any of the shares authorized for repurchase under the Repurchase Plan. The Company is not obligated to purchase any such shares under the Repurchase Plan, and the Repurchase Plan may be discontinued, suspended or restarted at any time; however, repurchases under the Repurchase Plan after May 22, 2026 would require additional approval of our Board of Directors and the Federal Reserve. Item 3. DEFAULTS UPON SENIOR SECURITIES. None. Item 4. MINE SAFETY DISCLOSURES. Not applicable. Item 5. OTHER INFORMATION. Trading Plans During the six months ended June 30, 2025, no director or “officer” of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K of the Securities Act of 1933. Item 6. EXHIBITS. The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Index to Exhibits attached hereto and are incorporated herein by reference. 47 Table of Contents INDEX TO EXHIBITS Exhibit Number Description 31.1 Rule 13a-14(a) Certification of the Principal Executive Officer. 31.2 Rule 13a-14(a) Certification of the Principal Financial Officer. 32 Section 1350 Certifications. 101 The following materials from the Quarterly Report on Form 10-Q of Southern First Bancshares, Inc. for the quarter ended June 30, 2025, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Unaudited Consolidated Financial Statements. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) ______ ________________________________________________ 48 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHERN FIRST BANCSHARES, INC. Registrant Date: August 1, 2025 /s/R. Arthur Seaver, Jr. R. Arthur Seaver, Jr. Chief Executive Officer (Principal Executive Officer) Date: August 1, 2025 /s/Christian J. Zych Christian J. Zych Chief Financial Officer (Principal Financial Officer) 49