[10-Q] Southern First Bancshares, Inc. Quarterly Earnings Report
Southern First Bancshares (SFST) posted a strong rebound in Q2 2025. Net income jumped to $6.6 m (EPS $0.81) versus $3.0 m (EPS $0.37) a year ago, driven by a 30% YoY rise in net interest income to $25.3 m and a 13% drop in total interest expense. For the first six months, net income more than doubled to $11.8 m (EPS $1.46).
Total assets expanded 5.4% since year-end to $4.31 bn; loan balances increased 3.2% to $3.75 bn while deposits grew 5.8% to $3.64 bn, keeping the loan-to-deposit ratio near 103%. The allowance for credit losses edged up to $41.3 m (≈1.1% of loans) after a $0.7 m quarterly provisioning.
Non-interest income slipped 5% YoY, mainly from softer mortgage banking fees, and operating costs rose 4%, but efficiency improved as revenue growth outpaced expenses. Unrealized losses on the AFS portfolio narrowed to $9.6 m, boosting other comprehensive income by $0.4 m in the quarter.
Capital remained solid: shareholders’ equity increased to $345 m, and management reports all regulatory ratios exceed well-capitalized thresholds. Liquidity strengthened with cash & equivalents up 66% to $271 m; the $15 m parent LOC is undrawn.
Southern First Bancshares (SFST) ha registrato una forte ripresa nel secondo trimestre del 2025. L'utile netto è salito a 6,6 milioni di dollari (EPS 0,81) rispetto a 3,0 milioni di dollari (EPS 0,37) dell'anno precedente, grazie a un aumento del 30% su base annua del reddito netto da interessi a 25,3 milioni di dollari e a una riduzione del 13% delle spese totali per interessi. Nei primi sei mesi, l'utile netto è più che raddoppiato raggiungendo 11,8 milioni di dollari (EPS 1,46).
Gli attivi totali sono cresciuti del 5,4% rispetto alla fine dell'anno, arrivando a 4,31 miliardi di dollari; i prestiti sono aumentati del 3,2% a 3,75 miliardi di dollari mentre i depositi sono cresciuti del 5,8% a 3,64 miliardi di dollari, mantenendo il rapporto prestiti/depositi vicino al 103%. L'accantonamento per perdite su crediti è salito a 41,3 milioni di dollari (circa l'1,1% dei prestiti) dopo una dotazione trimestrale di 0,7 milioni di dollari.
I ricavi non da interessi sono diminuiti del 5% su base annua, principalmente a causa di minori commissioni bancarie ipotecarie, mentre i costi operativi sono aumentati del 4%, ma l'efficienza è migliorata poiché la crescita dei ricavi ha superato le spese. Le perdite non realizzate sul portafoglio disponibile per la vendita (AFS) si sono ridotte a 9,6 milioni di dollari, incrementando il reddito complessivo complessivo di 0,4 milioni di dollari nel trimestre.
Il capitale è rimasto solido: il patrimonio netto degli azionisti è salito a 345 milioni di dollari e la direzione riferisce che tutti i rapporti regolamentari superano le soglie di adeguatezza patrimoniale. La liquidità si è rafforzata con la liquidità e equivalenti in aumento del 66% a 271 milioni di dollari; la linea di credito genitore da 15 milioni di dollari non è stata utilizzata.
Southern First Bancshares (SFST) registró una fuerte recuperación en el segundo trimestre de 2025. La utilidad neta aumentó a 6,6 millones de dólares (EPS 0,81) frente a 3,0 millones (EPS 0,37) del año anterior, impulsada por un aumento interanual del 30% en los ingresos netos por intereses hasta 25,3 millones de dólares y una caída del 13% en los gastos totales por intereses. En los primeros seis meses, la utilidad neta más que se duplicó alcanzando 11,8 millones de dólares (EPS 1,46).
Los activos totales crecieron un 5,4% desde fin de año hasta 4,31 mil millones de dólares; los saldos de préstamos aumentaron un 3,2% a 3,75 mil millones de dólares, mientras que los depósitos crecieron un 5,8% a 3,64 mil millones de dólares, manteniendo la relación préstamos-depósitos cerca del 103%. La provisión para pérdidas crediticias subió a 41,3 millones de dólares (aproximadamente 1,1% de los préstamos) tras una provisión trimestral de 0,7 millones de dólares.
Los ingresos no relacionados con intereses disminuyeron un 5% interanual, principalmente debido a menores comisiones por banca hipotecaria, y los costos operativos aumentaron un 4%, pero la eficiencia mejoró ya que el crecimiento de ingresos superó a los gastos. Las pérdidas no realizadas en la cartera disponible para la venta (AFS) se redujeron a 9,6 millones de dólares, aumentando otros ingresos comprensivos en 0,4 millones de dólares en el trimestre.
El capital se mantuvo sólido: el patrimonio de los accionistas aumentó a 345 millones de dólares, y la gerencia informa que todos los índices regulatorios superan los umbrales de capitalización adecuada. La liquidez se fortaleció con efectivo y equivalentes subiendo un 66% a 271 millones de dólares; la línea de crédito principal de 15 millones de dólares no ha sido utilizada.
Southern First Bancshares (SFST)는 2025년 2분기에 강한 반등을 기록했습니다. 순이익은 전년 동기 300만 달러(EPS 0.37)에서 660만 달러(EPS 0.81)로 급증했으며, 이는 순이자수익이 전년 대비 30% 증가한 2,530만 달러와 총 이자 비용이 13% 감소한 데 힘입은 결과입니다. 상반기 순이익은 1,180만 달러(EPS 1.46)로 두 배 이상 증가했습니다.
총 자산은 연말 대비 5.4% 증가한 43억 1천만 달러에 달했으며, 대출 잔액은 3.2% 증가한 37억 5천만 달러, 예금은 5.8% 증가한 36억 4천만 달러로 대출 대비 예금 비율은 약 103%를 유지했습니다. 대손충당금은 분기별 70만 달러의 적립 후 4,130만 달러(대출의 약 1.1%)로 소폭 증가했습니다.
비이자 수익은 주로 모기지 은행 수수료 감소로 전년 대비 5% 감소했고, 운영비용은 4% 증가했으나 수익 증가가 비용을 앞서면서 효율성은 개선되었습니다. 매도가능증권(AFS) 포트폴리오의 미실현 손실은 960만 달러로 축소되어 분기 중 기타 포괄손익이 40만 달러 증가했습니다.
자본은 견고하게 유지되었습니다: 주주 지분은 3억 4,500만 달러로 증가했으며, 경영진은 모든 규제 비율이 충분한 자본 기준을 상회한다고 보고했습니다. 현금 및 현금성 자산은 66% 증가한 2억 7,100만 달러로 유동성이 강화되었으며, 1,500만 달러 규모의 모회사 신용한도는 미사용 상태입니다.
Southern First Bancshares (SFST) a enregistré un fort rebond au deuxième trimestre 2025. Le bénéfice net a bondi à 6,6 millions de dollars (BPA 0,81) contre 3,0 millions (BPA 0,37) un an plus tôt, porté par une hausse de 30 % en glissement annuel du produit net d’intérêts à 25,3 millions de dollars et une baisse de 13 % des charges d’intérêts totales. Sur les six premiers mois, le bénéfice net a plus que doublé pour atteindre 11,8 millions de dollars (BPA 1,46).
Le total des actifs a augmenté de 5,4 % depuis la fin d’année pour atteindre 4,31 milliards de dollars ; les encours de prêts ont progressé de 3,2 % à 3,75 milliards de dollars tandis que les dépôts ont crû de 5,8 % à 3,64 milliards de dollars, maintenant le ratio prêts/dépôts proche de 103 %. La provision pour pertes sur crédits a légèrement augmenté à 41,3 millions de dollars (environ 1,1 % des prêts) après une dotation trimestrielle de 0,7 million.
Les revenus hors intérêts ont diminué de 5 % en glissement annuel, principalement en raison d’une baisse des commissions de banque hypothécaire, et les coûts d’exploitation ont augmenté de 4 %, mais l’efficacité s’est améliorée car la croissance des revenus a dépassé les dépenses. Les pertes latentes sur le portefeuille disponible à la vente (AFS) se sont réduites à 9,6 millions de dollars, augmentant le résultat global autre de 0,4 million au cours du trimestre.
Le capital est resté solide : les capitaux propres des actionnaires ont augmenté à 345 millions de dollars, et la direction indique que tous les ratios réglementaires dépassent les seuils de bonne capitalisation. La liquidité s’est renforcée avec une trésorerie et équivalents en hausse de 66 % à 271 millions de dollars ; la ligne de crédit parentale de 15 millions de dollars n’a pas été utilisée.
Southern First Bancshares (SFST) verzeichnete im zweiten Quartal 2025 eine starke Erholung. Der Nettogewinn stieg auf 6,6 Mio. USD (EPS 0,81) im Vergleich zu 3,0 Mio. USD (EPS 0,37) im Vorjahr, angetrieben durch einen 30%igen Anstieg der Nettozinserträge auf 25,3 Mio. USD und einen Rückgang der gesamten Zinsaufwendungen um 13%. Im ersten Halbjahr verdoppelte sich der Nettogewinn auf 11,8 Mio. USD (EPS 1,46).
Die Gesamtaktiva wuchsen seit Jahresende um 5,4% auf 4,31 Mrd. USD; die Kreditbestände stiegen um 3,2% auf 3,75 Mrd. USD, während die Einlagen um 5,8% auf 3,64 Mrd. USD zunahmen, wodurch das Kredit-Einlagen-Verhältnis nahe bei 103% blieb. Die Rückstellung für Kreditverluste stieg nach einer quartalsweisen Bildung von 0,7 Mio. USD auf 41,3 Mio. USD (ca. 1,1% der Kredite).
Die zinsertragsunabhängigen Einnahmen sanken im Jahresvergleich um 5%, hauptsächlich aufgrund geringerer Gebühren aus dem Hypothekengeschäft, während die Betriebskosten um 4% stiegen. Die Effizienz verbesserte sich jedoch, da das Umsatzwachstum die Kosten übertraf. Nicht realisierte Verluste im AFS-Portfolio verringerten sich auf 9,6 Mio. USD, was das sonstige Gesamtergebnis im Quartal um 0,4 Mio. USD steigerte.
Das Kapital blieb solide: Das Eigenkapital der Aktionäre stieg auf 345 Mio. USD, und das Management berichtet, dass alle regulatorischen Kennzahlen die Schwellenwerte für eine solide Kapitalausstattung übertreffen. Die Liquidität verbesserte sich mit einem Anstieg der liquiden Mittel um 66% auf 271 Mio. USD; die 15 Mio. USD umfassende Kreditlinie der Muttergesellschaft blieb ungenutzt.
- Net income up 119% YoY, EPS $0.81 vs $0.37, reflecting stronger core profitability.
- Net interest income rose 29.6% as deposit costs declined, signalling margin recovery.
- Deposits increased $200 m YTD, boosting on-balance-sheet liquidity.
- AFS unrealized loss improved by $1.9 m, lifting tangible equity.
- Capital ratios remain above ‘well-capitalized’ thresholds with equity up 4.5% since year-end.
- Non-interest expenses climbed 4% YoY, partly offsetting revenue gains.
- Mortgage banking income fell 18%, weighing on fee revenue diversification.
- AFS portfolio still carries $9.6 m accumulated loss, exposing capital to rate volatility.
- Commercial real-estate loans represent 25% of total loans, posing concentration risk amid CRE uncertainty.
Insights
TL;DR: Earnings more than doubled; margin recovery and deposit growth are key positives.
Quarterly profitability rebounded as funding costs finally eased, lifting NII by $5.8 m YoY. Deposit inflows of $201 m YTD show franchise stickiness despite rate cuts. Credit trends remain benign with ACL at ≈1.1% of loans and no meaningful uptick in problem asset categories. Mark-to-market drag on securities is shrinking, improving tangible capital. Near-term catalysts: additional NIM expansion as legacy high-cost CDs reprice and operating leverage from modest expense discipline. Risks: lingering AFS losses, elevated commercial real-estate exposure (≈25% of loans) and possibility that rate cuts compress asset yields faster than deposit repricing.
TL;DR: Credit metrics stable; liquidity and capital buffers comfortable.
Loan growth of 3.2% YTD is balanced between commercial and consumer books; CRE concentration is high but watch/substandard classifications remain low. Provisioning is modest and coverage stays flat. Liquidity profile improved—cash now 6% of assets and unused FHLB capacity plus a $15 m parent LOC offer additional flexibility. Unrealized AFS losses (−$12.2 m gross) still warrant monitoring but have declined 16% since year-end. Overall risk posture unchanged; no red flags detected.
Southern First Bancshares (SFST) ha registrato una forte ripresa nel secondo trimestre del 2025. L'utile netto è salito a 6,6 milioni di dollari (EPS 0,81) rispetto a 3,0 milioni di dollari (EPS 0,37) dell'anno precedente, grazie a un aumento del 30% su base annua del reddito netto da interessi a 25,3 milioni di dollari e a una riduzione del 13% delle spese totali per interessi. Nei primi sei mesi, l'utile netto è più che raddoppiato raggiungendo 11,8 milioni di dollari (EPS 1,46).
Gli attivi totali sono cresciuti del 5,4% rispetto alla fine dell'anno, arrivando a 4,31 miliardi di dollari; i prestiti sono aumentati del 3,2% a 3,75 miliardi di dollari mentre i depositi sono cresciuti del 5,8% a 3,64 miliardi di dollari, mantenendo il rapporto prestiti/depositi vicino al 103%. L'accantonamento per perdite su crediti è salito a 41,3 milioni di dollari (circa l'1,1% dei prestiti) dopo una dotazione trimestrale di 0,7 milioni di dollari.
I ricavi non da interessi sono diminuiti del 5% su base annua, principalmente a causa di minori commissioni bancarie ipotecarie, mentre i costi operativi sono aumentati del 4%, ma l'efficienza è migliorata poiché la crescita dei ricavi ha superato le spese. Le perdite non realizzate sul portafoglio disponibile per la vendita (AFS) si sono ridotte a 9,6 milioni di dollari, incrementando il reddito complessivo complessivo di 0,4 milioni di dollari nel trimestre.
Il capitale è rimasto solido: il patrimonio netto degli azionisti è salito a 345 milioni di dollari e la direzione riferisce che tutti i rapporti regolamentari superano le soglie di adeguatezza patrimoniale. La liquidità si è rafforzata con la liquidità e equivalenti in aumento del 66% a 271 milioni di dollari; la linea di credito genitore da 15 milioni di dollari non è stata utilizzata.
Southern First Bancshares (SFST) registró una fuerte recuperación en el segundo trimestre de 2025. La utilidad neta aumentó a 6,6 millones de dólares (EPS 0,81) frente a 3,0 millones (EPS 0,37) del año anterior, impulsada por un aumento interanual del 30% en los ingresos netos por intereses hasta 25,3 millones de dólares y una caída del 13% en los gastos totales por intereses. En los primeros seis meses, la utilidad neta más que se duplicó alcanzando 11,8 millones de dólares (EPS 1,46).
Los activos totales crecieron un 5,4% desde fin de año hasta 4,31 mil millones de dólares; los saldos de préstamos aumentaron un 3,2% a 3,75 mil millones de dólares, mientras que los depósitos crecieron un 5,8% a 3,64 mil millones de dólares, manteniendo la relación préstamos-depósitos cerca del 103%. La provisión para pérdidas crediticias subió a 41,3 millones de dólares (aproximadamente 1,1% de los préstamos) tras una provisión trimestral de 0,7 millones de dólares.
Los ingresos no relacionados con intereses disminuyeron un 5% interanual, principalmente debido a menores comisiones por banca hipotecaria, y los costos operativos aumentaron un 4%, pero la eficiencia mejoró ya que el crecimiento de ingresos superó a los gastos. Las pérdidas no realizadas en la cartera disponible para la venta (AFS) se redujeron a 9,6 millones de dólares, aumentando otros ingresos comprensivos en 0,4 millones de dólares en el trimestre.
El capital se mantuvo sólido: el patrimonio de los accionistas aumentó a 345 millones de dólares, y la gerencia informa que todos los índices regulatorios superan los umbrales de capitalización adecuada. La liquidez se fortaleció con efectivo y equivalentes subiendo un 66% a 271 millones de dólares; la línea de crédito principal de 15 millones de dólares no ha sido utilizada.
Southern First Bancshares (SFST)는 2025년 2분기에 강한 반등을 기록했습니다. 순이익은 전년 동기 300만 달러(EPS 0.37)에서 660만 달러(EPS 0.81)로 급증했으며, 이는 순이자수익이 전년 대비 30% 증가한 2,530만 달러와 총 이자 비용이 13% 감소한 데 힘입은 결과입니다. 상반기 순이익은 1,180만 달러(EPS 1.46)로 두 배 이상 증가했습니다.
총 자산은 연말 대비 5.4% 증가한 43억 1천만 달러에 달했으며, 대출 잔액은 3.2% 증가한 37억 5천만 달러, 예금은 5.8% 증가한 36억 4천만 달러로 대출 대비 예금 비율은 약 103%를 유지했습니다. 대손충당금은 분기별 70만 달러의 적립 후 4,130만 달러(대출의 약 1.1%)로 소폭 증가했습니다.
비이자 수익은 주로 모기지 은행 수수료 감소로 전년 대비 5% 감소했고, 운영비용은 4% 증가했으나 수익 증가가 비용을 앞서면서 효율성은 개선되었습니다. 매도가능증권(AFS) 포트폴리오의 미실현 손실은 960만 달러로 축소되어 분기 중 기타 포괄손익이 40만 달러 증가했습니다.
자본은 견고하게 유지되었습니다: 주주 지분은 3억 4,500만 달러로 증가했으며, 경영진은 모든 규제 비율이 충분한 자본 기준을 상회한다고 보고했습니다. 현금 및 현금성 자산은 66% 증가한 2억 7,100만 달러로 유동성이 강화되었으며, 1,500만 달러 규모의 모회사 신용한도는 미사용 상태입니다.
Southern First Bancshares (SFST) a enregistré un fort rebond au deuxième trimestre 2025. Le bénéfice net a bondi à 6,6 millions de dollars (BPA 0,81) contre 3,0 millions (BPA 0,37) un an plus tôt, porté par une hausse de 30 % en glissement annuel du produit net d’intérêts à 25,3 millions de dollars et une baisse de 13 % des charges d’intérêts totales. Sur les six premiers mois, le bénéfice net a plus que doublé pour atteindre 11,8 millions de dollars (BPA 1,46).
Le total des actifs a augmenté de 5,4 % depuis la fin d’année pour atteindre 4,31 milliards de dollars ; les encours de prêts ont progressé de 3,2 % à 3,75 milliards de dollars tandis que les dépôts ont crû de 5,8 % à 3,64 milliards de dollars, maintenant le ratio prêts/dépôts proche de 103 %. La provision pour pertes sur crédits a légèrement augmenté à 41,3 millions de dollars (environ 1,1 % des prêts) après une dotation trimestrielle de 0,7 million.
Les revenus hors intérêts ont diminué de 5 % en glissement annuel, principalement en raison d’une baisse des commissions de banque hypothécaire, et les coûts d’exploitation ont augmenté de 4 %, mais l’efficacité s’est améliorée car la croissance des revenus a dépassé les dépenses. Les pertes latentes sur le portefeuille disponible à la vente (AFS) se sont réduites à 9,6 millions de dollars, augmentant le résultat global autre de 0,4 million au cours du trimestre.
Le capital est resté solide : les capitaux propres des actionnaires ont augmenté à 345 millions de dollars, et la direction indique que tous les ratios réglementaires dépassent les seuils de bonne capitalisation. La liquidité s’est renforcée avec une trésorerie et équivalents en hausse de 66 % à 271 millions de dollars ; la ligne de crédit parentale de 15 millions de dollars n’a pas été utilisée.
Southern First Bancshares (SFST) verzeichnete im zweiten Quartal 2025 eine starke Erholung. Der Nettogewinn stieg auf 6,6 Mio. USD (EPS 0,81) im Vergleich zu 3,0 Mio. USD (EPS 0,37) im Vorjahr, angetrieben durch einen 30%igen Anstieg der Nettozinserträge auf 25,3 Mio. USD und einen Rückgang der gesamten Zinsaufwendungen um 13%. Im ersten Halbjahr verdoppelte sich der Nettogewinn auf 11,8 Mio. USD (EPS 1,46).
Die Gesamtaktiva wuchsen seit Jahresende um 5,4% auf 4,31 Mrd. USD; die Kreditbestände stiegen um 3,2% auf 3,75 Mrd. USD, während die Einlagen um 5,8% auf 3,64 Mrd. USD zunahmen, wodurch das Kredit-Einlagen-Verhältnis nahe bei 103% blieb. Die Rückstellung für Kreditverluste stieg nach einer quartalsweisen Bildung von 0,7 Mio. USD auf 41,3 Mio. USD (ca. 1,1% der Kredite).
Die zinsertragsunabhängigen Einnahmen sanken im Jahresvergleich um 5%, hauptsächlich aufgrund geringerer Gebühren aus dem Hypothekengeschäft, während die Betriebskosten um 4% stiegen. Die Effizienz verbesserte sich jedoch, da das Umsatzwachstum die Kosten übertraf. Nicht realisierte Verluste im AFS-Portfolio verringerten sich auf 9,6 Mio. USD, was das sonstige Gesamtergebnis im Quartal um 0,4 Mio. USD steigerte.
Das Kapital blieb solide: Das Eigenkapital der Aktionäre stieg auf 345 Mio. USD, und das Management berichtet, dass alle regulatorischen Kennzahlen die Schwellenwerte für eine solide Kapitalausstattung übertreffen. Die Liquidität verbesserte sich mit einem Anstieg der liquiden Mittel um 66% auf 271 Mio. USD; die 15 Mio. USD umfassende Kreditlinie der Muttergesellschaft blieb ungenutzt.
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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 |
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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 | $ | |||||||
| Federal funds sold | ||||||||
| Interest-bearing deposits with banks | ||||||||
| Total cash and cash equivalents | ||||||||
| Investment securities: | ||||||||
| Investment securities available for sale | ||||||||
| Other investments | ||||||||
| Total investment securities | ||||||||
| Mortgage loans held for sale | ||||||||
| Loans | ||||||||
| Less allowance for credit losses | ( | ) | ( | ) | ||||
| Loans, net | ||||||||
| Bank owned life insurance | ||||||||
| Property and equipment, net | ||||||||
| Deferred income taxes, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | |||||||
| LIABILITIES | ||||||||
| Deposits | $ | |||||||
| FHLB advances and related debt | ||||||||
| Subordinated debentures | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, par value $ per share, shares authorized | ||||||||
| Common stock, par value $ per share, shares authorized, shares issued and outstanding at June 30, 2025; shares authorized, shares issued and outstanding at December 31, 2024. | ||||||||
| Nonvested restricted stock | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | |||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
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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 | $ | |||||||||||||||
| Investment securities | ||||||||||||||||
| Federal funds sold and interest-bearing deposits with banks | ||||||||||||||||
| Total interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Deposits | ||||||||||||||||
| Borrowings | ||||||||||||||||
| Total interest expense | ||||||||||||||||
| Net interest income | ||||||||||||||||
| Provision for credit losses | ||||||||||||||||
| Net interest income after provision for credit losses | ||||||||||||||||
| Noninterest income | ||||||||||||||||
| Mortgage banking income | ||||||||||||||||
| Service fees on deposit accounts | ||||||||||||||||
| ATM and debit card income | ||||||||||||||||
| Income from bank owned life insurance | ||||||||||||||||
| Other income | ||||||||||||||||
| Total noninterest income | ||||||||||||||||
| Noninterest expenses | ||||||||||||||||
| Compensation and benefits | ||||||||||||||||
| Occupancy | ||||||||||||||||
| Outside service and data processing | ||||||||||||||||
| Insurance | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Marketing | ||||||||||||||||
| Other | ||||||||||||||||
| Total noninterest expenses | ||||||||||||||||
| Income before income tax expense | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income | $ | |||||||||||||||
| Earnings per common share | ||||||||||||||||
| Basic | $ | |||||||||||||||
| Diluted | ||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
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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 | $ | |||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Unrealized gain (loss) on securities available for sale: | ||||||||||||||||
| Unrealized holding gain (loss) arising during the period, pretax | ( | ) | ( | ) | ||||||||||||
| Tax benefit (expense) | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Comprehensive income | $ | |||||||||||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
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SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
For the three 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 | |||||||||||||||||||||||||||
| March 31, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | - | |||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
| Compensation expense related to restricted stock, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Compensation expense related to stock options, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| March 31, 2025 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | - | |||||||||||||||||||||||||||||||||||
| Restricted shares withheld for taxes | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Share based compensation expense, net of forfeitures | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||||||
| June 30, 2025 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| 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 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | - | |||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | - | ( | ) | |||||||||||||||||||||||||||||||||
| Compensation expense related to restricted stock, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Compensation expense related to stock options, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| December 31, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | - | |||||||||||||||||||||||||||||||||||
| Restricted shares withheld for taxes | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Share based compensation expense, net of forfeitures | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||||||
| June 30, 2025 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
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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 | $ | |||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
| Provision for credit losses | ||||||||
| Depreciation and other amortization | ||||||||
| Accretion and amortization of securities discounts and premium, net | ||||||||
| Net change in operating leases | ||||||||
| Stock-based compensation expense | ||||||||
| Gain on sale of loans held for sale | ( | ) | ( | ) | ||||
| Loans originated and held for sale | ( | ) | ( | ) | ||||
| Proceeds from sale of loans held for sale | ||||||||
| Increase in cash surrender value of bank owned life insurance | ( | ) | ( | ) | ||||
| Decrease in deferred tax asset | ||||||||
| Decrease (increase) in other assets | ( | ) | ||||||
| Increase in other liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Increase (decrease) in cash realized from: | ||||||||
| Increase in loans, net | ( | ) | ( | ) | ||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of investment securities: | ||||||||
| Available for sale | ( | ) | ||||||
| Other investments | ( | ) | ( | ) | ||||
| Payments and maturities, calls and repayments of investment securities: | ||||||||
| Available for sale | ||||||||
| Other investments | ( | ) | ||||||
| Net cash used for investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Increase (decrease) in cash realized from: | ||||||||
| Increase in deposits, net | ||||||||
| Decrease in Federal Home Loan Bank advances and other borrowings, net | ( | ) | ||||||
| Proceeds from the exercise of stock options | ||||||||
| Restricted shares withheld for taxes | ( | ) | - | |||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of the period | ||||||||
| Cash and cash equivalents at end of the period | $ | |||||||
| Supplemental information | ||||||||
| Cash paid for | ||||||||
| Interest | $ | |||||||
| Income taxes | ||||||||
| Schedule of non-cash transactions | ||||||||
| Unrealized gain (loss) on securities, net of income taxes | ( | ) | ||||||
| Foreclosure of other real estate | ||||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
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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.
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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
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 $
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.
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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:
| June 30, 2025 | ||||||||||||||||
| Amortized | Gross Unrealized | Fair | ||||||||||||||
| (dollars in thousands) | Cost | Gains | Losses | Value | ||||||||||||
| Available for sale | ||||||||||||||||
| Corporate bonds | $ | |||||||||||||||
| US treasuries | ||||||||||||||||
| US government agencies | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Total investment securities available for sale | $ | |||||||||||||||
| December 31, 2024 | ||||||||||||||||
| Amortized | Gross Unrealized | Fair | ||||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| Available for sale | ||||||||||||||||
| Corporate bonds | $ | |||||||||||||||
| US treasuries | ||||||||||||||||
| US government agencies | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Total investment securities available for sale | $ | |||||||||||||||
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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.
| 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 | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||||||||||
| US treasuries | % | % | ||||||||||||||||||||||||||||||||||||||
| US government agencies | % | % | % | |||||||||||||||||||||||||||||||||||||
| State and political subdivisions | % | % | % | % | % | |||||||||||||||||||||||||||||||||||
| Asset-backed securities | % | % | % | |||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | % | % | % | % | ||||||||||||||||||||||||||||||||||||
| Total investment securities | $ | % | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
| 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 | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||||||||||
| US treasuries | % | % | ||||||||||||||||||||||||||||||||||||||
| US government agencies | % | % | % | |||||||||||||||||||||||||||||||||||||
| State and political subdivisions | % | % | % | % | % | |||||||||||||||||||||||||||||||||||
| Asset-backed securities | % | % | % | % | ||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | % | % | % | % | ||||||||||||||||||||||||||||||||||||
| Total investment securities | $ | % | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
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.
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| US treasuries | ||||||||||||||||||||||||||||||||||||
| US government agencies | ||||||||||||||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||||||||||||||
| Asset-backed | ||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||
| Total investment securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| US treasuries | ||||||||||||||||||||||||||||||||||||
| US government agencies | ||||||||||||||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||||||||||||||
| Asset-backed | ||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||
| Total investment securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
11
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At June 30, 2025, the Company had
Other investments are comprised of the following and are recorded at cost which approximates fair value.
| (dollars in thousands) | June 30, 2025 | December 31, 2024 | ||||||
| Federal Home Loan Bank stock | $ | |||||||
| Other nonmarketable investments | ||||||||
| Investment in Trust Preferred subsidiaries | ||||||||
| Total other investments | $ | |||||||
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 $
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 $
| June 30, 2025 | December 31, 2024 | |||||||||||||||
| (dollars in thousands) | Amount | % of Total | Amount | % of Total | ||||||||||||
| Commercial | ||||||||||||||||
| Owner occupied RE | $ | % | $ | % | ||||||||||||
| Non-owner occupied RE | % | % | ||||||||||||||
| Construction | % | % | ||||||||||||||
| Business | % | % | ||||||||||||||
| Total commercial loans | % | % | ||||||||||||||
| Consumer | ||||||||||||||||
| Real estate | % | % | ||||||||||||||
| Home equity | % | % | ||||||||||||||
| Construction | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total consumer loans | % | % | ||||||||||||||
| Total gross loans, net of deferred fees | % | % | ||||||||||||||
| Less—allowance for credit losses | ( | ) | ( | ) | ||||||||||||
| Total loans, net | $ | $ | ||||||||||||||
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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.
| 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 | $ | |||||||||||||||||||
| Non-owner occupied RE | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Business | ||||||||||||||||||||
| Total commercial loans | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Real estate | ||||||||||||||||||||
| Home equity | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total consumer loans | ||||||||||||||||||||
| Total gross loans, net of deferred fees | $ | |||||||||||||||||||
| 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 | $ | |||||||||||||||||||
| Non-owner occupied RE | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Business | ||||||||||||||||||||
| Total commercial loans | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Real estate | ||||||||||||||||||||
| Home equity | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total consumer loans | ||||||||||||||||||||
| Total gross loans, net of deferred fees | $ | |||||||||||||||||||
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The following table summarizes the 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 | $ | $ | ||||||||||||||
| Non-owner occupied RE | ||||||||||||||||
| Construction | ||||||||||||||||
| Business | ||||||||||||||||
| Total commercial loans | ||||||||||||||||
| Consumer | ||||||||||||||||
| Real estate | ||||||||||||||||
| Home equity | ||||||||||||||||
| Construction | ||||||||||||||||
| Other | ||||||||||||||||
| Total consumer loans | ||||||||||||||||
| Total gross loans, net of deferred fees | $ | $ | ||||||||||||||
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.
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving | Revolving Converted to Term | Total | |||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||
| Owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Total Owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Non-owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Non-owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Total Construction | ||||||||||||||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Business | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Total Commercial loans | ||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||
| Real estate | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Real estate | ||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Home equity | ||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Total Construction | ||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Total Consumer loans | ||||||||||||||||||||||||||||||||||||
| Total loans | $ | |||||||||||||||||||||||||||||||||||
Total Current period gross write-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
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 | $ | |||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Non-owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Non-owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Total Construction | ||||||||||||||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Business | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Total Commercial loans | ||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||
| Real estate | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Real estate | ||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Home equity | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Total Construction | ||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Total Consumer loans | ||||||||||||||||||||||||||||||||||||
| Total loans | $ | |||||||||||||||||||||||||||||||||||
Total Current period gross write-offs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
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The following tables present 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 | $ | |||||||||||||||||||||||
| Non-owner occupied RE | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Real estate | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Total loans | $ | |||||||||||||||||||||||
| 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 | $ | |||||||||||||||||||||||
| Non-owner occupied RE | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Real estate | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Total loans | $ | |||||||||||||||||||||||
As of
June 30, 2025 and December 31, 2024, accruing loans 30 days or more past due represented
The table below summarizes nonaccrual loans by major categories for the periods presented.
| 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 | $ | $ | ||||||||||||||||||||||
| Business | ||||||||||||||||||||||||
| Total commercial | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Real estate | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||
| Total nonaccrual loans | $ | $ | ||||||||||||||||||||||
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 $
We did not recognize interest income on nonaccrual
loans for the six months ended June 30, 2025 and June 30, 2024. Accrued interest of $
The table below summarizes information regarding nonperforming assets.
| (dollars in thousands) | June 30, 2025 | December 31, 2024 | ||||||
| Nonaccrual loans | $ | |||||||
| Other real estate owned | ||||||||
| Total nonperforming assets | $ | |||||||
| Nonperforming assets as a percentage of: | ||||||||
| Total assets | % | % | ||||||
| Gross loans | % | % | ||||||
| Total loans over 90 days past due | $ | |||||||
| Loans over 90 days past due and still accruing | ||||||||
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.
| 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 | $ | |||||||||||||||||||||||||||||||||||
| Provision for credit losses for loans | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Loan charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Loan recoveries | ||||||||||||||||||||||||||||||||||||
| Net loan recoveries (charge-offs) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, end of period | $ | |||||||||||||||||||||||||||||||||||
| Net charge-offs to average loans (annualized) | % | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses to gross loans | % | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses to nonperforming loans | % | |||||||||||||||||||||||||||||||||||
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 | $ | |||||||||||||||||||||||||||||||||||
| Provision for credit losses for loans | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Loan charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Loan recoveries | ||||||||||||||||||||||||||||||||||||
| Net loan recoveries (charge-offs) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, end of period | $ | |||||||||||||||||||||||||||||||||||
| Net charge-offs to average loans (annualized) | % | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses to gross loans | % | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses to nonperforming loans | % | |||||||||||||||||||||||||||||||||||
| 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 | $ | |||||||||||||||||||||||||||||||||||
| Provision for credit losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Loan charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Loan recoveries | ||||||||||||||||||||||||||||||||||||
| Net loan recoveries (charge-offs) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, end of period | $ | |||||||||||||||||||||||||||||||||||
| Net charge-offs to average loans (annualized) | % | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses to gross loans | % | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses to nonperforming loans | % | |||||||||||||||||||||||||||||||||||
| 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 | $ | |||||||||||||||||||||||||||||||||||
| Provision for credit losses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Loan charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Loan recoveries | ||||||||||||||||||||||||||||||||||||
| Net loan recoveries (charge-offs) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, end of period | $ | |||||||||||||||||||||||||||||||||||
| Net charge-offs to average loans (annualized) | % | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses to gross loans | % | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses to nonperforming loans | % | |||||||||||||||||||||||||||||||||||
There was a provision for credit losses of $
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
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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.
| June 30, 2025 | ||||||||||||||||
| Real | Business | |||||||||||||||
| (dollars in thousands) | estate | assets | Other | Total | ||||||||||||
| Commercial | ||||||||||||||||
| Non-owner occupied RE | $ | |||||||||||||||
| Business | ||||||||||||||||
| Total commercial | ||||||||||||||||
| Consumer | ||||||||||||||||
| Real estate | ||||||||||||||||
| Home equity | ||||||||||||||||
| Total consumer | ||||||||||||||||
| Total | $ | |||||||||||||||
| December 31, 2024 | ||||||||||||||||
| Real | Business | |||||||||||||||
| (dollars in thousands) | estate | assets | Other | Total | ||||||||||||
| Commercial | ||||||||||||||||
| Non-owner occupied RE | $ | |||||||||||||||
| Business | ||||||||||||||||
| Total commercial | ||||||||||||||||
| Consumer | ||||||||||||||||
| Real estate | ||||||||||||||||
| Home equity | ||||||||||||||||
| Total consumer | ||||||||||||||||
| Total | $ | |||||||||||||||
Allowance for Credit Losses - Unfunded Loan Commitments
The allowance for credit losses for unfunded loan
commitments was $
| Three months ended | Three months ended | |||||||
| (dollars in thousands) | June 30, 2025 | June 30, 2024 | ||||||
| Balance, beginning of period | $ | |||||||
| Provision for (reversal of) credit losses | ( | ) | ||||||
| Balance, end of period | $ | |||||||
| Unfunded Loan Commitments | $ | |||||||
| Reserve for Unfunded Commitments | % | % | ||||||
| Six months ended | Six months ended | |||||||
| (dollars in thousands) | June 30, 2025 | June 30, 2024 | ||||||
| Balance, beginning of period | $ | |||||||
| Provision for (reversal of) credit losses | ( | ) | ||||||
| Balance, end of period | $ | |||||||
| Unfunded Loan Commitments | $ | |||||||
| Reserve for Unfunded Commitments | % | % | ||||||
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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 $
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.
| June 30, 2025 | December 31, 2024 | |||||||||||||||
| (dollars in thousands) | Carrying Amount | Hedge Basis Adjustment | Carrying Amount | Hedge Basis Adjustment | ||||||||||||
| Fixed Rate Asset/Liability1 | $ | ( | ) | |||||||||||||
| 1 |
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The following table summarizes the Company’s outstanding financial derivative instruments at June 30, 2025 and December 31, 2024.
| June 30, 2025 | ||||||||||
| Fair Value | ||||||||||
| (dollars in thousands) | Notional | Balance Sheet Location | Asset/(Liability) | |||||||
| Derivatives designated as hedging instruments: | ||||||||||
| Fair value swap | $ | $ | ( | ) | ||||||
| Derivatives not designated as hedging instruments: | ||||||||||
| Mortgage loan interest rate lock commitments | ||||||||||
| MBS forward sales commitments | ( | ) | ||||||||
| Total derivative financial instruments | $ | $ | ( | ) | ||||||
| December 31, 2024 | ||||||||||
| Fair Value | ||||||||||
| (dollars in thousands) | Notional | Balance
Sheet Location | Asset/(Liability) | |||||||
| Derivatives designated as hedging instruments: | ||||||||||
| Fair value swap | $ | $ | ||||||||
| Derivatives not designated as hedging instruments: | ||||||||||
| Mortgage loan interest rate lock commitments | ||||||||||
| MBS forward sales commitments | ||||||||||
| Total derivative financial instruments | $ | $ | ||||||||
Accrued interest
receivable related to the interest rate swap as of June 30, 2025 totaled $
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.
| 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) | $ | ( | ) | ( | ) | |||||||||||
| Fair value derivative designated as hedging instrument | ( | ) | ( | ) | ||||||||||||
| Total gain (loss) recognized in interest income on loans | $ | ( | ) | |||||||||||||
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:
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| 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.
| June 30, 2025 | ||||||||||||||||
| (dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets | ||||||||||||||||
| Securities available for sale | ||||||||||||||||
| Corporate bonds | $ | |||||||||||||||
| US treasuries | ||||||||||||||||
| US government agencies | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Mortgage loans held for sale | ||||||||||||||||
| Mortgage loan interest rate lock commitments | ||||||||||||||||
| Total assets measured at fair value on a recurring basis | $ | |||||||||||||||
| Liabilities | ||||||||||||||||
| MBS forward sales commitments | $ | |||||||||||||||
| Derivative liability | ||||||||||||||||
| Total liabilities measured at fair value on a recurring basis | $ | |||||||||||||||
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| December 31, 2024 | ||||||||||||||||
| (dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets | ||||||||||||||||
| Securities available for sale: | ||||||||||||||||
| Corporate bonds | $ | |||||||||||||||
| US treasuries | ||||||||||||||||
| US government agencies | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Mortgage loans held for sale | ||||||||||||||||
| Mortgage loan interest rate lock commitments | ||||||||||||||||
| Derivative asset | ||||||||||||||||
| MBS forward sales commitments | ||||||||||||||||
| Total assets measured at fair value on a recurring basis | $ | |||||||||||||||
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.
| As of June 30, 2025 | ||||||||||||||||
| (dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets | ||||||||||||||||
| Individually evaluated loans | $ | |||||||||||||||
| Total assets measured at fair value on a nonrecurring basis | $ | |||||||||||||||
| As of December 31, 2024 | ||||||||||||||||
| (dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets | ||||||||||||||||
| Individually evaluated loans | $ | |||||||||||||||
| Total assets measured at fair value on a nonrecurring basis | $ | |||||||||||||||
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:
| Valuation Technique | Significant Unobservable Inputs | Range of Inputs | |
| Individually evaluated loans |
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.
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The estimated fair values of the Company’s financial instruments at June 30, 2025 and December 31, 2024 are as follows:
| June 30, 2025 | ||||||||||||||||||||
| (dollars in thousands) | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Financial Assets: | ||||||||||||||||||||
| Other investments, at cost | $ | |||||||||||||||||||
| Loans1 | ||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||
| Deposits | ||||||||||||||||||||
| Subordinated debentures | ||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| (dollars in thousands) | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Financial Assets: | ||||||||||||||||||||
| Other investments, at cost | $ | |||||||||||||||||||
| Loans1 | ||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||
| Deposits | ||||||||||||||||||||
| Subordinated debentures | ||||||||||||||||||||
| 1 |
NOTE 7 – Leases
The Company had operating right-of-use (“ROU”)
assets, included in property and equipment, of $
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
The total operating lease costs were $
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Operating lease payments due as of June 30, 2025 were as follows:
| Operating | ||||
| (dollars in thousands) | Leases | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total undiscounted lease payments | ||||
| Discount effect of cash flows | ||||
| Total lease liability | $ | |||
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 and options, respectively, that were not considered in computing diluted earnings per common share because they were anti-dilutive.
| 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 | $ | |||||||||||||||
| Denominator: | ||||||||||||||||
| Weighted-average common shares outstanding – basic | ||||||||||||||||
| Common stock equivalents | ||||||||||||||||
| Weighted-average common shares outstanding – diluted | ||||||||||||||||
| Earnings per common share: | ||||||||||||||||
| Basic | $ | |||||||||||||||
| Diluted | ||||||||||||||||
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.
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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; |
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| · | 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.
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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.
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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.
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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.
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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
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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.
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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
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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.
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| 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
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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.
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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.
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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.
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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
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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
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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.
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| 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.
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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.
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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 |
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| (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
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.
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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) | |
| ______ | ________________________________________________ |
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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) | |||
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FAQ
How did Southern First Bancshares (SFST) earnings perform in Q2 2025?
What drove the improvement in SFST’s net interest income?
How much did deposits and loans grow year-to-date?
What is the current level of unrealized losses on SFST’s AFS securities?
Is SFST adequately capitalized after the quarter?
What credit provisions did SFST record in Q2 2025?
