# Southern First Bancshares (SFST) 10-Q SEC filing - Q3 FY2025

- Filed: Oct 31, 2025
- Fiscal quarter: Q3 FY2025
- Calendar quarter: Q3 2025
- Accession: 0001206774-25-000738
- OpenCapital page: https://www.opencapital.sh/filings/0001206774-25-000738
- Markdown URL: https://www.opencapital.sh/filings/0001206774-25-000738.md
- Official SEC filing index: https://www.sec.gov/Archives/edgar/data/1090009/0001206774-25-000738-index.htm

## Filing documents

- [10-Q (sfst4552801-10q.htm)](https://www.sec.gov/Archives/edgar/data/1090009/000120677425000738/sfst4552801-10q.htm)
- [RULE 13A-14(A) CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER. (sfst4552801-ex311.htm)](https://www.sec.gov/Archives/edgar/data/1090009/000120677425000738/sfst4552801-ex311.htm)
- [RULE 13A-14(A) CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER. (sfst4552801-ex312.htm)](https://www.sec.gov/Archives/edgar/data/1090009/000120677425000738/sfst4552801-ex312.htm)
- [SECTION 1350 CERTIFICATIONS. (sfst4552801-ex32.htm)](https://www.sec.gov/Archives/edgar/data/1090009/000120677425000738/sfst4552801-ex32.htm)

---

## 10-Q

SEC source: [sfst4552801-10q.htm](https://www.sec.gov/Archives/edgar/data/1090009/000120677425000738/sfst4552801-10q.htm)

**UNITED STATES  
SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

☒ **QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the Quarterly Period Ended September 30, 2025  
OR**

☐ **TRANSITION REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the Transition Period from
to  
Commission file number 000-27719**

**Southern First Bancshares, Inc.**

(Exact name of registrant as specified in its charter)

| South Carolina | 58-2459561 |
| --- | --- |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 6 Verdae Boulevard |  |
| Greenville, S.C. | 29607 |
| (Address of principal executive offices) | (Zip Code) |

**864-679-9000**  
(Registrant’s telephone number, including area code)

**Not Applicable**  
(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

**Title of each class** **Trading Symbol(s)** **Name of each exchange on which registered**

Common Stock SFST The Nasdaq Global Market

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒

Non-accelerated filer ☐ Smaller Reporting Company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of
each of the issuer’s classes of common stock, as of the latest practicable date: 8,189,177 shares of common stock, par value
$0.01 per share, were issued and outstanding as of October 27, 2025.

*SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY*  
September 30, 2025 Form 10-Q

INDEX

**Page**

[**PART I – CONSOLIDATED FINANCIAL INFORMATION**](#a_001)

[Item 1.](#a_002) [Consolidated Financial Statements](#a_002)

[Consolidated Balance Sheets](#a_003) [3](#a_003)

[Consolidated Statements of Income](#a_004) [4](#a_004)

[Consolidated Statements of Comprehensive Income](#a_005) [5](#a_005)

[Consolidated Statements of Shareholders’ Equity](#a_006) [6](#a_006)

[Consolidated Statements of Cash Flows](#a_007) [7](#a_007)

[Notes to Unaudited Consolidated Financial Statements](#a_008) [8](#a_008)

[Item 2.](#a_009) [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#a_009) [27](#a_009)

[Item 3.](#a_010) [Quantitative and Qualitative Disclosures about Market Risk](#a_010) [45](#a_010)

[Item 4.](#a_011) [Controls and Procedures](#a_011) [46](#a_011)

[**PART II – OTHER INFORMATION**](#a_012)

[Item 1.](#a_013) [Legal Proceedings](#a_013) [46](#a_013)

[Item 1A.](#a_014) [Risk Factors](#a_014) [46](#a_014)

[Item 2.](#a_015) [Unregistered Sales of Equity Securities and Use of Proceeds](#a_015) [47](#a_015)

[Item 3.](#a_016) [Defaults upon Senior Securities](#a_016) [47](#a_016)

[Item 4.](#a_017) [Mine Safety Disclosures](#a_017) [47](#a_017)

[Item 5.](#a_018) [Other Information](#a_018) [47](#a_018)

[Item 6.](#a_019) [Exhibits](#a_019) [47](#a_019)

PART I. CONSOLIDATED FINANCIAL INFORMATION

## Item 1. CONSOLIDATED FINANCIAL STATEMENTS

***SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY  
CONSOLIDATED BALANCE SHEETS***  

_(Unaudited) · (Audited)_

| (dollars in thousands, except share data) | September 30, 2025 | December 31, 2024 |
| --- | --- | --- |
| ASSETS |  |  |
| Cash and cash equivalents: |  |  |
| Cash and due from banks | $24,600 | 22,553 |
| Federal funds sold | 178,534 | 128,452 |
| Interest-bearing deposits with banks | 79,769 | 11,858 |
| Total cash and cash equivalents | 282,903 | 162,863 |
| Investment securities: |  |  |
| Investment securities available for sale | 131,040 | 132,127 |
| Other investments | 20,066 | 19,490 |
| Total investment securities | 151,106 | 151,617 |
| Mortgage loans held for sale | 6,906 | 4,565 |
| Loans | 3,789,021 | 3,631,767 |
| Less allowance for credit losses | (41,799) | (39,914) |
| Loans, net | 3,747,222 | 3,591,853 |
| Bank owned life insurance | 55,324 | 54,070 |
| Property and equipment, net | 84,586 | 88,794 |
| Deferred income taxes, net | 12,657 | 13,467 |
| Other assets | 17,885 | 20,364 |
| Total assets | $4,358,589 | 4,087,593 |
| LIABILITIES |  |  |
| Deposits | $3,676,417 | 3,435,765 |
| FHLB advances and related debt | 240,000 | 240,000 |
| Subordinated debentures | 24,903 | 24,903 |
| Other liabilities | 60,921 | 56,481 |
| Total liabilities | 4,002,241 | 3,757,149 |
| SHAREHOLDERS’ EQUITY |  |  |
| Preferred stock, par value $.01 per share, 10,000,000 shares authorized | - | - |
| Common stock, par value $.01 per share, 20,000,000 shares authorized, 8,189,177 shares issued and outstanding at September 30, 2025; 20,000,000 shares authorized, 8,164,872 shares issued and outstanding at December 31, 2024. | 82 | 82 |
| Nonvested restricted stock | (1,929) | (3,884) |
| Additional paid-in capital | 125,035 | 124,641 |
| Accumulated other comprehensive loss | (8,426) | (11,472) |
| Retained earnings | 241,586 | 221,077 |
| Total shareholders’ equity | 356,348 | 330,444 |
| Total liabilities and shareholders’ equity | $4,358,589 | 4,087,593 |

See notes to consolidated financial statements that are an integral
part of these consolidated statements.

*SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY  
CONSOLIDATED STATEMENTS OF INCOME*  (Unaudited)

| (dollars in thousands, except share data) | For the three months / ended September 30, 2025 | For the three months / ended September 30, 2024 | For the nine months / ended September 30, 2025 | For the nine months / ended September 30, 2024 |
| --- | --- | --- | --- | --- |
| Interest income |  |  |  |  |
| Loans | $50,999 | 47,550 | 147,077 | 139,700 |
| Investment securities | 1,342 | 1,412 | 4,102 | 4,308 |
| Federal funds sold and interest-bearing deposits with banks | 2,645 | 2,209 | 5,773 | 6,072 |
| Total interest income | 54,986 | 51,171 | 156,952 | 150,080 |
| Interest expense |  |  |  |  |
| Deposits | 24,703 | 27,725 | 72,572 | 82,873 |
| Borrowings | 2,754 | 2,855 | 8,172 | 8,443 |
| Total interest expense | 27,457 | 30,580 | 80,744 | 91,316 |
| Net interest income | 27,529 | 20,591 | 76,208 | 58,764 |
| Provision for credit losses | 850 | - | 2,300 | 325 |
| Net interest income after provision for credit losses | 26,679 | 20,591 | 73,908 | 58,439 |
| Noninterest income |  |  |  |  |
| Mortgage banking income | 1,600 | 1,449 | 4,593 | 4,536 |
| Service fees on deposit accounts | 625 | 455 | 1,731 | 1,265 |
| ATM and debit card income | 601 | 599 | 1,739 | 1,730 |
| Income from bank owned life insurance | 439 | 401 | 1,254 | 1,162 |
| Other income | 335 | 271 | 729 | 669 |
| Total noninterest income | 3,600 | 3,175 | 10,046 | 9,362 |
| Noninterest expenses |  |  |  |  |
| Compensation and benefits | 11,299 | 10,789 | 34,277 | 32,936 |
| Occupancy | 2,447 | 2,595 | 7,517 | 7,704 |
| Outside service and data processing | 2,158 | 1,930 | 6,383 | 5,738 |
| Insurance | 961 | 1,025 | 2,881 | 2,945 |
| Professional fees | 605 | 548 | 1,723 | 1,748 |
| Marketing | 412 | 319 | 1,183 | 1,077 |
| Other | 1,064 | 833 | 3,153 | 2,634 |
| Total noninterest expenses | 18,946 | 18,039 | 57,117 | 54,782 |
| Income before income tax expense | 11,333 | 5,727 | 26,837 | 13,019 |
| Income tax expense | 2,671 | 1,345 | 6,328 | 3,116 |
| Net income | $8,662 | 4,382 | 20,509 | 9,903 |
| Earnings per common share |  |  |  |  |
| Basic | $1.08 | 0.54 | 2.55 | 1.22 |
| Diluted | 1.07 | 0.54 | 2.54 | 1.22 |
| Weighted average common shares outstanding |  |  |  |  |
| Basic | 8,030,944 | 8,064,283 | 8,048,426 | 8,100,003 |
| Diluted | 8,080,459 | 8,089,176 | 8,080,678 | 8,123,846 |

See notes to consolidated financial statements that are an integral
part of these consolidated statements.

*SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY  
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME*  (Unaudited)

| (dollars in thousands) | For the three months ended September 30, 2025 | For the three months ended September 30, 2024 | For the nine months ended September 30, 2025 | For the nine months ended September 30, 2024 |
| --- | --- | --- | --- | --- |
| Net income | $8,662 | 4,382 | 20,509 | 9,903 |
| Other comprehensive income: |  |  |  |  |
| Unrealized gain on securities available for sale: |  |  |  |  |
| Unrealized holding gain arising during the period, pretax | 1,498 | 3,548 | 3,855 | 2,884 |
| Tax expense | (315) | (745) | (809) | (605) |
| Other comprehensive income | 1,183 | 2,803 | 3,046 | 2,279 |
| Comprehensive income | $9,845 | 7,185 | 23,555 | 12,182 |

See notes to consolidated financial statements that are an integral
part of these consolidated statements.

*SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY  
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY*  
(Unaudited)

| Accumulated other comprehensive income (loss) / (dollars in thousands, except share data) | For the three months ended September 30, / Common stock / Shares | For the three months ended September 30, / Common stock / Amount | For the three months ended September 30, / Preferred stock / Shares | For the three months ended September 30, / Preferred stock / Amount | For the three months ended September 30, / Nonvested restricted / stock | For the three months ended September 30, / Additional paid-in / capital | For the three months ended September 30, / Accumulated other comprehensive / income (loss) | For the three months ended September 30, / Retained / earnings | For the three months ended September 30, / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| June 30, 2024 | 8,155,097 | $82 | - | - | $(4,710) | $124,174 | $(11,866) | $211,068 | $318,748 |
| Net incomeAdditional paid-in capital | - | - | - | - | - | - | - | 4,382 | 4,382 |
| Proceeds from exercise of stock options | 1,000 | - | - | - | - | 23 | - | - | 23 |
| Compensation expense related to restricted stock, net of tax | - | - | - | - | 491 | - | - | - | 491 |
| Compensation expense related to stock options, net of taxPreferred stock | - | - | - | - | - | 91 | - | - | 91 |
| Other comprehensive income | - | - | - | - | - | - | 2,803 | - | 2,803 |
| September 30, 2024 | 8,156,097 | $82 | - | - | $(4,219) | $124,288 | $(9,063) | $215,450 | $326,538 |
| June 30, 2025 | 8,180,715 | $82 | - | - | $(2,774) | $124,839 | $(9,609) | $232,924 | $345,462 |
| Net incomeNonvested restricted stock | - | - | - | - | - | - | - | 8,662 | 8,662 |
| Proceeds from exercise of stock options | 17,750 | - | - | - | - | 581 | - | - | 581 |
| Restricted shares withheld for taxes | (2,094) | - | - | - | - | (79) | - | - | (79) |
| Restricted stock awards (forfeitures) | (7,194) | - | - | - | 306 | (306) | - | - | - |
| Share based compensation expense, net of forfeituresRetained earnings | - | - | - | - | 539 | - | - | - | 539 |
| Other comprehensive incomeCommon stock | - | - | - | - | - | - | 1,183 | - | 1,183 |
| September 30, 2025 | 8,189,177 | $82 | - | - | $(1,929) | $125,035 | $(8,426) | $241,586 | $356,348 |
|  | For the nine months ended September 30, |  |  |  |  |  |  |  |  |
|  | Common stock |  | Preferred stock |  | Nonvested restricted | Additional paid-in | Accumulated other comprehensive | Retained |  |
| (dollars in thousands, except share data) | Shares | Amount | Shares | Amount | stock | capital | income (loss) | earnings | Total |
| December 31, 2023 | 8,088,186 | $81 | - | - | $(3,596) | $121,777 | $(11,342) | $205,547 | $312,467 |
| Net income | - | - | - | - | - | - | - | 9,903 | 9,903 |
| Proceeds from exercise of stock options | 12,000 | - | - | - | - | 190 | - | - | 190 |
| Issuance of restricted stock, net of forfeitures | 55,911 | 1 | - | - | (2,035) | 2,034 | - | - | - |
| Compensation expense related to restricted stock, net of tax | - | - | - | - | 1,412 | - | - | - | 1,412 |
| Compensation expense related to stock options, net of tax | - | - | - | - | - | 287 | - | - | 287 |
| Other comprehensive income | - | - | - | - | - | - | 2,279 | - | 2,279 |
| September 30, 2024 | 8,156,097 | $82 | - | - | $(4,219) | $124,288 | $(9,063) | $215,450 | $326,538 |
| December 31, 2024 | 8,164,872 | $82 | - | - | $(3,884) | $124,641 | $(11,472) | $221,077 | $330,444 |
| Net income | - | - | - | - | - | - | - | 20,509 | 20,509 |
| Proceeds from exercise of stock options | 43,250 | - | - | - | - | 1,097 | - | - | 1,097 |
| Restricted shares withheld for taxes | (11,751) | - | - | - | - | (429) | - | - | (429) |
| Restricted stock awards (forfeitures) | (7,194) | - | - | - | 307 | (307) | - | - | - |
| Share based compensation expense, net of forfeitures | - | - | - | - | 1,648 | 33 | - | - | 1,681 |
| Other comprehensive income | - | - | - | - | - | - | 3,046 | - | 3,046 |
| September 30, 2025 | 8,189,177 | $82 | - | - | $(1,929) | $125,035 | $(8,426) | $241,586 | $356,348 |

See notes to consolidated financial statements that are an integral
part of these consolidated statements.

*SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY  
CONSOLIDATED STATEMENTS OF CASH FLOWS*

(Unaudited)

| (dollars in thousands) | For the nine months ended September 30, 2025 | For the nine months ended September 30, 2024 |
| --- | --- | --- |
| Operating activities |  |  |
| Net income | $20,509 | $9,903 |
| Adjustments to reconcile net income to cash provided by operating activities: |  |  |
| Provision for credit losses | 2,300 | 325 |
| Depreciation and other amortization | 3,319 | 3,623 |
| Accretion and amortization of securities discounts and premium, net | 336 | 437 |
| Net change in operating leases | 69 | 114 |
| Stock-based compensation expense | 1,681 | 1,699 |
| Gain on sale of loans held for sale | (4,552) | (4,354) |
| Loans originated and held for sale | (154,847) | (148,745) |
| Proceeds from sale of loans held for sale | 157,058 | 151,691 |
| Increase in cash surrender value of bank owned life insurance | (1,254) | (1,162) |
| Decrease in other assets | 2,755 | 426 |
| Increase in other liabilities | 5,169 | 13,408 |
| Net cash provided by operating activities | 32,543 | 27,365 |
| Investing activities |  |  |
| Increase (decrease) in cash realized from: |  |  |
| Increase in loans, net | (157,544) | (18,195) |
| Purchase of property and equipment | (309) | (567) |
| Purchase of investment securities: |  |  |
| Available for sale | (3,220) | (20,513) |
| Other investments | (576) | (4,301) |
| Payments and maturities, calls and repayments of investment securities: |  |  |
| Available for sale | 7,826 | 23,065 |
| Other investments | - | 4,600 |
| Net cash used for investing activities | (153,823) | (15,911) |
| Financing activities |  |  |
| Increase (decrease) in cash realized from: |  |  |
| Increase in deposits, net | 240,652 | 139,261 |
| Decrease in Federal Home Loan Bank advances and other borrowings, net | - | (35,000) |
| Decrease in subordinated debentures | - | (11,500) |
| Proceeds from the exercise of stock options | 1,097 | 190 |
| Restricted shares withheld for taxes | (429) | - |
| Net cash provided by financing activities | 241,320 | 92,951 |
| Net increase in cash and cash equivalents | 120,040 | 104,405 |
| Cash and cash equivalents at beginning of the period | 162,863 | 156,170 |
| Cash and cash equivalents at end of the period | $282,903 | $260,575 |
| Supplemental information |  |  |
| Cash paid for |  |  |
| Interest | $79,536 | $87,129 |
| Income taxes | 7,255 | 2,235 |
| Schedule of non-cash transactions |  |  |
| Unrealized gain on securities, net of income taxes | 3,046 | 2,279 |
| Foreclosure of other real estate | 275 | - |

See notes to consolidated financial statements that are an
integral part of these consolidated statements.

*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 nine month periods ended September 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 late 2024, 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.

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 September 30, 2025 and December 31, 2024, real estate loans represented 83.0% and 83.5%, respectively, of total loans. However,
borrowers’ ability to repay their loans is not dependent upon any specific economic sector.

As of September 30, 2025, the Company’s and
the Bank’s capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital
to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by future credit losses.

The Company maintains access to multiple sources
of liquidity, including a $15.0 million holding company line of credit with another bank which could be used to support capital ratios
at the subsidiary bank. As of September 30, 2025, the $15.0 million line was unused.

Use of Estimates

The preparation of consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of
income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination of the allowance for credit losses, real estate acquired
in the settlement of loans, fair value of financial instruments, and valuation of deferred tax assets.

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.

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.

*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.

### **NOTE 2 – Investment Securities**

The amortized costs and fair value of investment
securities are as follows:

_September 30, 2025_

| Schedule of amortized costs and fair value of investment securities / (dollars in thousands) Corporate bonds [Member] | Schedule of amortized costs and fair value of investment securities / Amortized / Cost | Gross Unrealized / Gains | Gross Unrealized / Losses | Fair / Value |
| --- | --- | --- | --- | --- |
| Available for sale Asset-backed securities [Member] |  |  |  |  |
| Corporate bonds US treasuries [Member] | $2,102 | - | 143 | 1,959 |
| US treasuries | 1,000 | - | 56 | 944 |
| US government agencies US government agencies [Member] | 16,361 | 20 | 1,216 | 15,165 |
| State and political subdivisions State and political subdivisions [Member] | 22,199 | - | 2,298 | 19,901 |
| Asset-backed securities Mortgage-backed securities [Member] | 33,842 | 67 | 135 | 33,774 |
| Mortgage-backed securities | 66,202 | 14 | 6,919 | 59,297 |
| Total investment securities available for sale | $141,706 | 101 | 10,767 | 131,040 |

_December 31, 2024_

| Line item | Amortized / Cost | Gross Unrealized / Gains | Gross Unrealized / Losses | Fair / Value |
| --- | --- | --- | --- | --- |
| Available for sale |  |  |  |  |
| Corporate bonds | $2,121 | - | 194 | 1,927 |
| US treasuries | 999 | - | 91 | 908 |
| US government agencies | 17,540 | 1 | 1,746 | 15,795 |
| State and political subdivisions | 22,387 | - | 3,065 | 19,322 |
| Asset-backed securities | 36,613 | 36 | 111 | 36,538 |
| Mortgage-backed securities | 66,988 | 19 | 9,370 | 57,637 |
| Total investment securities available for sale | $146,648 | 56 | 14,577 | 132,127 |

Contractual maturities and yields on the Company’s
investment securities at September 30, 2025 and December 31, 2024 are shown in the following table. Expected maturities may differ from
contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

| Schedule of maturities and yields on the company’s investment securities / (dollars in thousands) | Less than one year / Amount | Less than one year / Yield | One to five years / Amount | One to five years / Yield | Five to ten years / Amount | Five to ten years / Yield | September 30, 2025 / Over ten years / Amount | September 30, 2025 / Over ten years / Yield | September 30, 2025 / Total / Amount | September 30, 2025 / Total / Yield |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Available for sale |  |  |  |  |  |  |  |  |  |  |
| Corporate bonds | - | - | $1,959 | 2.03% | - | - | - | - | $1,959 | 2.03% |
| US treasuries | - | - | 944 | 1.27% | - | - | - | - | 944 | 1.27% |
| US government agencies | - | - | 7,348 | 1.25% | 7,817 | 4.64% | - | - | 15,165 | 2.99% |
| State and political subdivisions | 469 | 2.13% | 3,020 | 1.64% | 5,244 | 2.15% | 11,168 | 2.18% | 19,901 | 2.09% |
| Asset-backed securities | - | - | - | - | 3,463 | 5.21% | 30,311 | 5.52% | 33,774 | 5.49% |
| Mortgage-backed securities | - | - | 6,633 | 1.27% | 9,557 | 2.76% | 43,107 | 2.61% | 59,297 | 2.48% |
| Total investment securities | $469 | 2.13% | $19,904 | 1.39% | $26,081 | 3.52% | $84,586 | 3.60% | $131,040 | 3.24% |

| (dollars in thousands) | Less than one year / Amount | Less than one year / Yield | One to five years / Amount | One to five years / Yield | Five to ten years / Amount | Five to ten years / Yield | December 31, 2024 / Over ten years / Amount | December 31, 2024 / Over ten years / Yield | December 31, 2024 / Total / Amount | December 31, 2024 / Total / Yield |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Available for sale |  |  |  |  |  |  |  |  |  |  |
| Corporate bonds | - | - | $1,927 | 2.02% | - | - | - | - | $1,927 | 2.02% |
| US treasuries | - | - | 908 | 1.27% | - | - | - | - | 908 | 1.27% |
| US government agencies | - | - | 5,021 | 1.10% | 10,774 | 4.51% | - | - | 15,795 | 3.43% |
| State and political subdivisions | 461 | 2.13% | 1,726 | 1.61% | 5,049 | 2.10% | 12,086 | 2.13% | 19,322 | 2.08% |
| Asset-backed securities | - | - | 23 | 6.14% | 3,420 | 5.25% | 33,095 | 5.87% | 36,538 | 5.81% |
| Mortgage-backed securities | - | - | 6,549 | 1.28% | 7,548 | 3.00% | 43,540 | 2.45% | 57,637 | 2.39% |
| Total investment securities | $461 | 2.13% | $16,154 | 1.35% | $26,791 | 3.73% | $88,721 | 3.68% | $132,127 | 3.40% |

The tables below summarize gross unrealized losses
on investment securities and the fair market value of the related securities at September 30, 2025 and December 31, 2024, aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss position.

**Schedule of gross unrealized losses on investment securities and fair market value of related securities**

| Line item |  |  |  |  |  |  |  |  | September 30, 2025 | September 30, 2025 | September 30, 2025 | September 30, 2025 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Total investment securities [Member] | Less than 12 months |  |  |  | 12 months or longer |  |  |  | Total |  |  |  |
| (dollars in thousands) | # |  | Fair value | Unrealized losses | # |  | Fair value | Unrealized losses | # |  | Fair value | Unrealized losses |
| Available for sale |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate bonds |  | - | - | - |  | $1 | $1,959 | 143 |  | $1 | $1,959 | 143 |
| US treasuries |  | - | - | - |  | 1 | 944 | 56 |  | 1 | 944 | 56 |
| US government agencies |  | - | - | - |  | 9 | 10,801 | 1,216 |  | 9 | 10,801 | 1,216 |
| State and political subdivisions |  | 2 | 953 | 95 |  | 31 | 18,948 | 2,203 |  | 33 | 19,901 | 2,298 |
| Asset-backed securities |  | 3 | 7,877 | 74 |  | 5 | 8,328 | 61 |  | 8 | 16,205 | 135 |
| Mortgage-backed securities |  | 4 | 6,147 | 49 |  | 65 | 52,369 | 6,870 |  | 69 | 58,516 | 6,919 |
| Total investment securities |  | $9 | $14,977 | 218 |  | $112 | $93,349 | 10,549 |  | $121 | $108,326 | 10,767 |

| Line item |  |  |  |  |  |  |  |  |  |  | December 31, 2024 | December 31, 2024 | December 31, 2024 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Less than 12 months |  |  |  | 12 months or longer |  |  |  | Total |  |  |  |  |
| (dollars in thousands) | # |  | Fair value | Unrealized losses | # |  | Fair value | Unrealized losses | # |  | Fair value |  | Unrealized losses |
| Available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate bonds |  | - | - | - |  | $1 | $1,927 | 194 |  | 1 | $ | $$1,927 | 194 |
| US treasuries |  | - | - | - |  | 1 | 908 | 91 |  | 1 |  | 908 | 91 |
| US government agencies |  | 1 | 2,694 | 1 |  | 9 | 10,269 | 1,745 |  | 10 |  | 12,963 | 1,746 |
| State and political subdivisions |  | 3 | 1,436 | 153 |  | 30 | 17,886 | 2,912 |  | 33 |  | 19,322 | 3,065 |
| Asset-backed securities |  | 6 | 15,828 | 83 |  | 5 | 5,344 | 28 |  | 11 |  | 21,172 | 111 |
| Mortgage-backed securities |  | 6 | 8,226 | 409 |  | 61 | 45,360 | 8,961 |  | 67 |  | 53,586 | 9,370 |
| Total investment securities |  | $16 | $28,184 | 646 |  | $107 | $81,694 | 13,931 |  | 123 | $ | $$109,878 | 14,577 |

At September 30, 2025, the Company had 121 individual
investments that were in an unrealized loss position. The unrealized losses were primarily attributable to changes in interest rates,
rather than deterioration in credit quality. The individual securities are each investment grade securities. The Company considers factors
such as the financial condition of the issuer including credit ratings and specific events affecting the operations of the issuer, volatility
of the security, underlying assets that collateralize the debt security, and other industry and macroeconomic conditions. The Company
does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities
before recovery of the amortized cost. The issuers of these securities continue to make timely principal
and interest payments under the contractual terms of the securities. As such, there is no allowance
for credit losses on available for sale securities recognized as of September 30, 2025.

Other investments are comprised of the following
and are recorded at cost which approximates fair value.

| Schedule of other investments / (dollars in thousands) | September 30, 2025 | December 31, 2024 |
| --- | --- | --- |
| Federal Home Loan Bank stock | $14,540 | 14,516 |
| Other nonmarketable investments | 5,123 | 4,571 |
| Investment in Trust Preferred subsidiaries | 403 | 403 |
| Total other investments | $20,066 | 19,490 |

As of September 30, 2025 and December 31, 2024,
there was no ACL for the Company’s securities AFS portfolio. Any credit loss that has not been recorded through an ACL is recognized
in accumulated other comprehensive income (loss). All of the FHLB stock is used to collateralize advances with the FHLB.

At September 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 September 30, 2025, mortgage loans
held for sale totaled $6.9 million compared to $4.6 million at December 31, 2024.

### NOTE 4 – Loans and Allowance for Credit Losses

The following table summarizes the composition
of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $5.7 million as of September
30, 2025 and $6.2 million as of December 31, 2024.

| Schedule of composition of our loan portfolio / (dollars in thousands)Commercial [Member] | September 30, 2025 / Amount | September 30, 2025 / % of Total | December 31, 2024 / Amount | December 31, 2024 / % of Total |
| --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |
| Owner occupied REOwner occupied RE [Member] | $705,383 | 18.6% | $651,597 | 17.9% |
| Non-owner occupied RE | 943,304 | 24.9% | 924,367 | 25.5% |
| ConstructionConstruction [Member] | 71,928 | 1.9% | 103,204 | 2.8% |
| Business | 604,411 | 16.0% | 556,117 | 15.3% |
| Total commercial loans | 2,325,026 | 61.4% | 2,235,285 | 61.5% |
| ConsumerConsumer [Member] |  |  |  |  |
| Real estateReal estate [Member] | 1,159,693 | 30.6% | 1,128,629 | 31.1% |
| Home equityHome equity [Member] | 239,996 | 6.3% | 204,897 | 5.6% |
| ConstructionNon-owner occupied RE [Member] | 25,842 | 0.7% | 20,874 | 0.6% |
| OtherOther [Member] | 38,464 | 1.0% | 42,082 | 1.2% |
| Total consumer loans | 1,463,995 | 38.6% | 1,396,482 | 38.5% |
| Total gross loans, net of deferred fees | 3,789,021 | 100.0% | 3,631,767 | 100.0% |
| Less—allowance for credit losses | (41,799) |  | (39,914) |  |
| Total loans, net | $3,747,222 |  | $3,591,853 |  |

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarize
the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans,
including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval,
as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers
have the right to prepay obligations with or without prepayment penalties.

| Schedule of loan maturity distribution by type and related interest rate / (dollars in thousands) | One year or less | September 30, 2025 / After one but within five years | September 30, 2025 / After five but within fifteen years | September 30, 2025 / After fifteen years | September 30, 2025 / Total |
| --- | --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |  |
| Owner occupied RE | $39,707 | 265,726 | 374,989 | 24,961 | 705,383 |
| Non-owner occupied RE | 145,791 | 578,899 | 200,798 | 17,816 | 943,304 |
| Construction | 22,802 | 34,011 | 15,115 | - | 71,928 |
| Business | 149,210 | 325,022 | 126,524 | 3,655 | 604,411 |
| Total commercial loans | 357,510 | 1,203,658 | 717,426 | 46,432 | 2,325,026 |
| Consumer |  |  |  |  |  |
| Real estate | 28,929 | 114,413 | 222,671 | 793,680 | 1,159,693 |
| Home equity | 5,516 | 37,676 | 192,731 | 4,073 | 239,996 |
| Construction | 18,043 | 568 | 7,231 | - | 25,842 |
| Other | 5,648 | 30,673 | 1,397 | 746 | 38,464 |
| Total consumer loans | 58,136 | 183,330 | 424,030 | 798,499 | 1,463,995 |
| Total gross loans, net of deferred fees | $415,646 | 1,386,988 | 1,141,456 | 844,931 | 3,789,021 |

| (dollars in thousands) | One year or less | After one but within five years | December 31, 2024 / After five but within fifteen years | December 31, 2024 / After fifteen years | December 31, 2024 / Total |
| --- | --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |  |
| Owner occupied RE | $21,235 | 220,648 | 369,748 | 39,966 | 651,597 |
| Non-owner occupied RE | 129,269 | 547,864 | 227,987 | 19,247 | 924,367 |
| Construction | 6,479 | 77,636 | 19,089 | - | 103,204 |
| Business | 129,978 | 277,830 | 144,056 | 4,253 | 556,117 |
| Total commercial loans | 286,961 | 1,123,978 | 760,880 | 63,466 | 2,235,285 |
| Consumer |  |  |  |  |  |
| Real estate | 20,982 | 82,896 | 281,091 | 743,660 | 1,128,629 |
| Home equity | 3,454 | 36,722 | 160,380 | 4,341 | 204,897 |
| Construction | 5,849 | 2,133 | 10,427 | 2,465 | 20,874 |
| Other | 7,660 | 30,633 | 3,040 | 749 | 42,082 |
| Total consumer loans | 37,945 | 152,384 | 454,938 | 751,215 | 1,396,482 |
| Total gross loans, net of deferred fees | $324,906 | 1,276,362 | 1,215,818 | 814,681 | 3,631,767 |

The following
table summarizes the loans due after one year by category.

| Schedule of loans due after one year by category / (dollars in thousands) | September 30, 2025 / Interest Rate / Fixed | September 30, 2025 / Interest Rate / Floating or Adjustable | December 31, 2024 / Fixed | December 31, 2024 / Interest Rate / Floating or Adjustable |
| --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |
| Owner occupied RE | $616,874 | 48,802 | $599,179 | 31,183 |
| Non-owner occupied RE | 694,257 | 103,256 | 701,297 | 93,801 |
| Construction | 23,200 | 25,926 | 63,019 | 33,706 |
| Business | 284,688 | 170,513 | 281,316 | 144,823 |
| Total commercial loans | 1,619,019 | 348,497 | 1,644,811 | 303,513 |
| Consumer |  |  |  |  |
| Real estate | 979,075 | 151,689 | 1,023,593 | 84,054 |
| Home equity | 8,889 | 225,591 | 9,899 | 191,544 |
| Construction | 7,799 | - | 15,025 | - |
| Other | 6,653 | 26,163 | 8,038 | 26,384 |
| Total consumer loans | 1,002,416 | 403,443 | 1,056,555 | 301,982 |
| Total gross loans, net of deferred fees | $2,621,435 | 751,940 | $2,701,366 | 605,495 |

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.

The following table presents loan balances classified by credit quality
indicators by year of origination as of September 30, 2025.

| Schedule of classified by credit quality indicators by year of origination / (dollars in thousands) | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | September 30, 2025 / Revolving | September 30, 2025 / Revolving Converted to Term | September 30, 2025 / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |  |  |  |  |  |
| Owner occupied RE |  |  |  |  |  |  |  |  |  |
| Pass | $59,743 | 63,053 | 40,074 | 190,168 | 122,283 | 197,552 | 85 | - | 672,958 |
| Watch | 4,016 | 440 | 5,848 | 5,801 | 2,277 | 10,325 | - | - | 28,707 |
| Special Mention | - | - | - | - | - | 3,456 | - | - | 3,456 |
| Substandard | - | - | - | 262 | - | - | - | - | 262 |
| Total Owner occupied RE | 63,759 | 63,493 | 45,922 | 196,231 | 124,560 | 211,333 | 85 | - | 705,383 |
| Non-owner occupied RE |  |  |  |  |  |  |  |  |  |
| Pass | 60,224 | 61,653 | 64,117 | 302,806 | 149,628 | 257,611 | 471 | 467 | 896,977 |
| Watch | - | 618 | 2,228 | 5,970 | 10,666 | 9,723 | - | - | 29,205 |
| Special Mention | - | 146 | - | - | 191 | 7,627 | - | - | 7,964 |
| Substandard | - | - | - | 2,247 | - | 6,911 | - | - | 9,158 |
| Total Non-owner occupied RE | 60,224 | 62,417 | 66,345 | 311,023 | 160,485 | 281,872 | 471 | 467 | 943,304 |
| Construction |  |  |  |  |  |  |  |  |  |
| Pass | 14,053 | 20,451 | 12,004 | 22,011 | 58 | - | - | - | 68,577 |
| Watch | - | - | - | 1,170 | 2,181 | - | - | - | 3,351 |
| Total Construction | 14,053 | 20,451 | 12,004 | 23,181 | 2,239 | - | - | - | 71,928 |
| Business |  |  |  |  |  |  |  |  |  |
| Pass | 85,947 | 46,287 | 47,430 | 107,471 | 30,003 | 55,049 | 204,217 | 474 | 576,878 |
| Watch | 704 | 778 | 1,220 | 3,177 | 2,264 | 4,194 | 10,971 | 387 | 23,695 |
| Special Mention | 77 | 655 | 635 | 630 | - | 589 | 160 | 386 | 3,132 |
| Substandard | 165 | - | - | - | - | 74 | 467 | - | 706 |
| Total Business | 86,893 | 47,720 | 49,285 | 111,278 | 32,267 | 59,906 | 215,815 | 1,247 | 604,411 |
| Current period gross write-offs | - | - | - | - | - | (78) | (63) | - | (141) |
| Total Commercial loans | 224,929 | 194,081 | 173,556 | 641,713 | 319,551 | 553,111 | 216,371 | 1,714 | 2,325,026 |
| Consumer |  |  |  |  |  |  |  |  |  |
| Real estate |  |  |  |  |  |  |  |  |  |
| Pass | 117,871 | 64,687 | 130,511 | 258,945 | 250,683 | 283,170 | - | - | 1,105,867 |
| Watch | 1,200 | 665 | 4,539 | 6,379 | 8,474 | 9,577 | - | - | 30,834 |
| Special Mention | 149 | 817 | 1,720 | 5,174 | 2,621 | 7,564 | - | - | 18,045 |
| Substandard | - | 641 | 844 | 986 | 720 | 1,756 | - | - | 4,947 |
| Total Real estate | 119,220 | 66,810 | 137,614 | 271,484 | 262,498 | 302,067 | - | - | 1,159,693 |
| Home equity |  |  |  |  |  |  |  |  |  |
| Pass | - | - | - | - | - | - | 223,850 | - | 223,850 |
| Watch | - | - | - | - | - | - | 8,880 | - | 8,880 |
| Special Mention | - | - | - | - | - | - | 5,757 | - | 5,757 |
| Substandard | - | - | - | - | - | - | 1,509 | - | 1,509 |
| Total Home equity | - | - | - | - | - | - | 239,996 | - | 239,996 |
| Construction |  |  |  |  |  |  |  |  |  |
| Pass | 15,623 | 4,507 | - | 3,089 | - | - | 648 | - | 23,867 |
| Watch | - | - | 1,975 | - | - | - | - | - | 1,975 |
| Total Construction | 15,623 | 4,507 | 1,975 | 3,089 | - | - | 648 | - | 25,842 |
| Other |  |  |  |  |  |  |  |  |  |
| Pass | 1,586 | 658 | 614 | 1,121 | 394 | 1,775 | 31,018 | - | 37,166 |
| Watch | 25 | 156 | 38 | 29 | 327 | 115 | 131 | - | 821 |
| Special Mention | 14 | 29 | 5 | 318 | 51 | 41 | 19 | - | 477 |
| Total Other | 1,625 | 843 | 657 | 1,468 | 772 | 1,931 | 31,168 | - | 38,464 |
| Current period gross write-offs | (30) | - | - | - | (21) | - | (9) | - | (60) |
| Total Consumer loans | 136,468 | 72,160 | 140,246 | 276,041 | 263,270 | 303,998 | 271,812 | - | 1,463,995 |
| Total loans | $361,397 | 266,241 | 313,802 | 917,754 | 582,821 | 857,109 | 488,183 | 1,714 | 3,789,021 |
| Total Current period gross write-offs | (30) | - | - | - | (21) | (78) | (72) | - | (201) |

The following table presents loan balances classified by credit quality
indicators by year of origination as of December 31, 2024.

| (dollars in thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | December 31, 2024 / Revolving | December 31, 2024 / Revolving Converted to Term | December 31, 2024 / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |  |  |  |  |  |
| Owner occupied RE |  |  |  |  |  |  |  |  |  |
| Pass | $51,338 | 47,997 | 186,361 | 122,306 | 66,561 | 145,743 | 160 | 238 | 620,704 |
| Watch | 480 | 1,180 | 3,638 | 1,962 | 8,828 | 11,012 | - | - | 27,100 |
| Special Mention | - | - | 162 | - | - | 2,840 | - | - | 3,002 |
| Substandard | - | - | - | - | - | 791 | - | - | 791 |
| Total Owner occupied RE | 51,818 | 49,177 | 190,161 | 124,268 | 75,389 | 160,386 | 160 | 238 | 651,597 |
| Non-owner occupied RE |  |  |  |  |  |  |  |  |  |
| Pass | 50,685 | 70,517 | 321,726 | 145,658 | 95,994 | 183,723 | 360 | 220 | 868,883 |
| Watch | - | 954 | 6,081 | 10,238 | 4,705 | 8,435 | - | - | 30,413 |
| Special Mention | - | - | - | 7,579 | - | 8,882 | - | - | 16,461 |
| Substandard | - | - | 969 | - | - | 7,641 | - | - | 8,610 |
| Total Non-owner occupied RE | 50,685 | 71,471 | 328,776 | 163,475 | 100,699 | 208,681 | 360 | 220 | 924,367 |
| Current period gross write-offs | - | - | - | - | - | (1,029) | - | - | (1,029) |
| Construction |  |  |  |  |  |  |  |  |  |
| Pass | 24,076 | 26,501 | 34,067 | 15,000 | - | - | - | - | 99,644 |
| Watch | - | 2,420 | 1,140 | - | - | - | - | - | 3,560 |
| Total Construction | 24,076 | 28,921 | 35,207 | 15,000 | - | - | - | - | 103,204 |
| Business |  |  |  |  |  |  |  |  |  |
| Pass | 54,814 | 41,743 | 129,450 | 38,312 | 15,716 | 51,566 | 196,246 | 803 | 528,650 |
| Watch | - | 132 | 5,353 | 2,174 | 1,423 | 5,243 | 8,776 | 389 | 23,490 |
| Special Mention | 660 | 95 | 805 | - | 65 | 533 | - | 206 | 2,364 |
| Substandard | 28 | - | - | - | 385 | 630 | 570 | - | 1,613 |
| Total Business | 55,502 | 41,970 | 135,608 | 40,486 | 17,589 | 57,972 | 205,592 | 1,398 | 556,117 |
| Current period gross write-offs | - | - | - | (143) | (347) | (18) | (72) | - | (580) |
| Total Commercial loans | 182,081 | 191,539 | 689,752 | 343,229 | 193,677 | 427,039 | 206,112 | 1,856 | 2,235,285 |
| Consumer |  |  |  |  |  |  |  |  |  |
| Real estate |  |  |  |  |  |  |  |  |  |
| Pass | 78,287 | 144,487 | 277,854 | 263,079 | 160,007 | 153,584 | - | - | 1,077,298 |
| Watch | 671 | 2,409 | 6,961 | 8,573 | 4,147 | 4,632 | - | - | 27,393 |
| Special Mention | 817 | 1,536 | 5,987 | 2,664 | 2,804 | 5,181 | - | - | 18,989 |
| Substandard | 212 | 508 | 967 | 746 | 821 | 1,695 | - | - | 4,949 |
| Total Real estate | 79,987 | 148,940 | 291,769 | 275,062 | 167,779 | 165,092 | - | - | 1,128,629 |
| Home equity |  |  |  |  |  |  |  |  |  |
| Pass | - | - | - | - | - | - | 188,451 | - | 188,451 |
| Watch | - | - | - | - | - | - | 9,114 | - | 9,114 |
| Special Mention | - | - | - | - | - | - | 6,173 | - | 6,173 |
| Substandard | - | - | - | - | - | - | 1,159 | - | 1,159 |
| Total Home equity | - | - | - | - | - | - | 204,897 | - | 204,897 |
| Current period gross write-offs | - | - | - | - | - | - | (45) | - | (45) |
| Construction |  |  |  |  |  |  |  |  |  |
| Pass | 7,700 | 3,636 | 9,222 | 316 | - | - | - | - | 20,874 |
| Total Construction | 7,700 | 3,636 | 9,222 | 316 | - | - | - | - | 20,874 |
| Other |  |  |  |  |  |  |  |  |  |
| Pass | 2,732 | 836 | 1,521 | 1,593 | 1,229 | 2,609 | 29,660 | - | 40,180 |
| Watch | 167 | 61 | 12 | 366 | - | 129 | 595 | - | 1,330 |
| Special Mention | 36 | 35 | 325 | 66 | - | 65 | 45 | - | 572 |
| Total Other | 2,935 | 932 | 1,858 | 2,025 | 1,229 | 2,803 | 30,300 | - | 42,082 |
| Current period gross write-offs | - | - | - | - | - | (38) | (42) | - | (80) |
| Total Consumer loans | 90,622 | 153,508 | 302,849 | 277,403 | 169,008 | 167,895 | 235,197 | - | 1,396,482 |
| Total loans | $272,703 | 345,047 | 992,601 | 620,632 | 362,685 | 594,934 | 441,309 | 1,856 | 3,631,767 |
| Total Current period gross write-offs | - | - | - | (143) | (347) | (1,085) | (159) | - | (1,734) |

The following tables present loan balances by age and payment status.

_September 30, 2025_

| Schedule of loan balances by age and payment status / (dollars in thousands) | Accruing 30-59 days past due | Accruing 60-89 days past due | Accruing 90 days or more past due | Nonaccrual loans | Accruing current | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |  |  |
| Owner occupied RE | $1,974 | - | - | 262 | 703,147 | 705,383 |
| Non-owner occupied RE | 491 | - | - | 6,911 | 935,902 | 943,304 |
| Construction | - | - | - | - | 71,928 | 71,928 |
| Business | 914 | - | - | 195 | 603,302 | 604,411 |
| Consumer |  |  |  |  |  |  |
| Real estate | 2,078 | 685 | - | 3,394 | 1,153,536 | 1,159,693 |
| Home equity | 703 | - | - | 705 | 238,588 | 239,996 |
| Construction | - | - | - | - | 25,842 | 25,842 |
| Other | 51 | - | - | - | 38,413 | 38,464 |
| Total loans | $6,211 | 685 | - | 11,467 | 3,770,658 | 3,789,021 |

_December 31, 2024_

| (dollars in thousands) | Accruing 30-59 days past due | Accruing 60-89 days past due | Accruing 90 days or more past due | Nonaccrual loans | Accruing current | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |  |  |
| Owner occupied RE | $292 | - | - | - | 651,305 | 651,597 |
| Non-owner occupied RE | - | - | - | 7,641 | 916,726 | 924,367 |
| Construction | - | - | - | - | 103,204 | 103,204 |
| Business | 1,319 | - | - | 1,016 | 553,782 | 556,117 |
| Consumer |  |  |  |  |  |  |
| Real estate | 3,839 | 938 | - | 1,908 | 1,121,944 | 1,128,629 |
| Home equity | 41 | - | - | 312 | 204,544 | 204,897 |
| Construction | - | - | - | - | 20,874 | 20,874 |
| Other | - | - | - | - | 42,082 | 42,082 |
| Total loans | $5,491 | 938 | - | 10,877 | 3,614,461 | 3,631,767 |

As of September
30, 2025 and December 31, 2024, accruing loans 30 days or more past due represented 0.18% of the Company’s total loan portfolio.
Commercial loans accruing 30 days or more past due were 0.09% and 0.05% of the Company’s total loan portfolio as of September 30,
2025 and December 31, 2024, respectively. Consumer loans accruing 30 days or more past due were 0.09% and 0.13% of total loans as of September
30, 2025 and December 31, 2024, respectively.

The table
below summarizes nonaccrual loans by major categories for the periods presented.

| Schedule of nonaccrual loans by major categories / (dollars in thousands) | September 30, 2025 / Nonaccrual / loans / with no / allowance | September 30, 2025 / Nonaccrual / loans / with an / allowance | September 30, 2025 / Total / nonaccrual / loans | Nonaccrual / loans / with no / allowance | December 31, 2024 / Nonaccrual / loans / with an / allowance | December 31, 2024 / Total / nonaccrual / loans |
| --- | --- | --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |  |  |
| Owner occupied RE | $262 | - | 262 | - | - | - |
| Non-owner occupied RE | 5,122 | 1,789 | 6,911 | 5,844 | 1,797 | 7,641 |
| Business | - | 195 | 195 | - | 1,016 | 1,016 |
| Total commercial | 5,384 | 1,984 | 7,368 | 5,844 | 2,813 | 8,657 |
| Consumer |  |  |  |  |  |  |
| Real estate | 2,412 | 982 | 3,394 | 1,526 | 382 | 1,908 |
| Home equity | 705 | - | 705 | 312 | - | 312 |
| Total consumer | 3,117 | 982 | 4,099 | 1,838 | 382 | 2,220 |
| Total nonaccrual loans | $8,501 | 2,966 | 11,467 | $7,682 | 3,195 | 10,877 |

The Company did not recognize interest income on
nonaccrual loans for the three months ended September 30, 2025 and September 30, 2024. The accrued interest reversed during the three
months ended September 30, 2025 and September 30, 2024 was not material. Foregone interest income on the nonaccrual loans for the three
month period ended September 30, 2025 was $28,000, while foregone interest income on the nonaccrual loans for the three month period ended
September 30, 2024 was $111,000.

The Company did not recognize interest income on
nonaccrual loans for the nine months ended September 30, 2025 and September 30, 2024. Accrued interest of $63,000 was reversed during
the nine months ended September 30, 2025 and $94,000 was reversed during the nine months ended September 30, 2024. Foregone interest income
on the nonaccrual loans for the nine month period ended September 30, 2025 was $229,000, while foregone interest income on the nonaccrual
loans for the nine month period ended September 30, 2024 was $134,000.

The table below summarizes information regarding nonperforming assets.

| Schedule of nonperforming assets / (dollars in thousands) | September 30, 2025 | December 31, 2024 |
| --- | --- | --- |
| Nonaccrual loans | $11,467 | 10,877 |
| Other real estate owned | 275 | - |
| Total nonperforming assets | $11,742 | 10,877 |
| Nonperforming assets as a percentage of: |  |  |
| Total assets | 0.27% | 0.27% |
| Gross loans | 0.31% | 0.30% |
| Total loans over 90 days past due | $1,480 | 2,641 |
| 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 nine months ended September 30, 2025 and September
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.

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.

During the quarter ended September 30, 2025, the risk weightings associated with certain qualitative factors were revised based on new
information reflecting the current economic and market environment. The result of these changes was immaterial as it relates to the allowance
for credit loss balance.

The following tables summarize the activity related
to the allowance for credit losses for the three and nine months ended September 30, 2025 and September 30, 2024.

| Schedule of activity related to the allowance for credit losses / (dollars in thousands) | Commercial / Owner occupied RE | Commercial / Non- owner occupied RE | Commercial / Construction | Three months September 30, 2025 / Commercial / Business | Three months September 30, 2025 / Real Estate | Three months September 30, 2025 / Home Equity | Three months September 30, 2025 / Construction | Three months September 30, 2025 / Other | Three months September 30, 2025 / Consumer / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, beginning of period | $4,003 | 7,417 | 462 | 11,293 | 15,533 | 1,649 | 455 | 473 | 41,285 |
| Provision for credit losses for loans | (469) | (751) | 140 | 769 | 451 | 115 | 177 | 68 | 500 |
| Loan charge-offs | - | - | - | - | - | - | - | (55) | (55) |
| Loan recoveries | - | - | - | 30 | 36 | 3 | - | - | 69 |
| Net loan recoveries (charge-offs) | - | - | - | 30 | 36 | 3 | - | (55) | 14 |
| Balance, end of period | $3,534 | 6,666 | 602 | 12,092 | 16,020 | 1,767 | 632 | 486 | 41,799 |
| Net recoveries to average loans (annualized) |  |  |  |  |  |  |  |  | 0.00% |
| Allowance for credit losses to gross loans |  |  |  |  |  |  |  |  | 1.10% |
| Allowance for credit losses to nonperforming loans |  |  |  |  |  |  |  |  | 364.50% |

| (dollars in thousands) | Commercial / Owner occupied RE | Commercial / Non- owner occupied RE | Commercial / Construction | Three months ended September 30, 2024 / Commercial / Business | Three months ended September 30, 2024 / Real Estate | Three months ended September 30, 2024 / Home Equity | Three months ended September 30, 2024 / Construction | Three months ended September 30, 2024 / Other | Three months ended September 30, 2024 / Consumer / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, beginning of period | $5,467 | 10,562 | 1,331 | 7,236 | 12,397 | 2,479 | 278 | 407 | 40,157 |
| Provision for credit losses for loans | - | - | - | - | - | - | - | - | - |
| Loan charge-offs | - | - | - | (72) | - | (45) | - | (1) | (118) |
| Loan recoveries | - | - | - | 73 | - | 4 | - | 50 | 127 |
| Net loan recoveries (charge-offs) | - | - | - | 1 | - | (41) | - | 49 | 9 |
| Balance, end of period | $5,467 | 10,562 | 1,331 | 7,237 | 12,397 | 2,438 | 278 | 456 | 40,166 |
| Net recoveries to average loans (annualized) |  |  |  |  |  |  |  |  | 0.00% |
| Allowance for credit losses to gross loans |  |  |  |  |  |  |  |  | 1.11% |
| Allowance for credit losses to nonperforming loans |  |  |  |  |  |  |  |  | 346.78% |

| (dollars in thousands) | Commercial / Owner occupied RE | Commercial / Non- owner occupied RE | Commercial / Construction | Nine months ended September 30, 2025 / Commercial / Business | Nine months ended September 30, 2025 / Consumer / Real Estate | Nine months ended September 30, 2025 / Consumer / Home Equity | Nine months ended September 30, 2025 / Consumer / Construction | Nine months ended September 30, 2025 / Consumer / Other | Nine months ended September 30, 2025 / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, beginning of period | $5,482 | 10,219 | 940 | 7,745 | 12,359 | 2,655 | 115 | 399 | 39,914 |
| Provision for credit losses | (1,948) | (3,553) | (338) | 4,384 | 3,625 | (899) | 517 | 112 | 1,900 |
| Loan charge-offs | - | - | - | (141) | - | - | - | (60) | (201) |
| Loan recoveries | - | - | - | 104 | 36 | 11 | - | 35 | 186 |
| Net loan recoveries (charge-offs) | - | - | - | (37) | 36 | 11 | - | (25) | (15) |
| Balance, end of period | $3,534 | 6,666 | 602 | 12,092 | 16,020 | 1,767 | 632 | 486 | 41,799 |
| Net charge-offs to average loans (annualized) |  |  |  |  |  |  |  |  | 0.00% |
| Allowance for credit losses to gross loans |  |  |  |  |  |  |  |  | 1.10% |
| Allowance for credit losses to nonperforming loans |  |  |  |  |  |  |  |  | 364.50% |

| (dollars in thousands) | Commercial / Owner occupied RE | Commercial / Non- owner occupied RE | Commercial / Construction | Nine months ended September 30, 2024 / Commercial / Business | Nine months ended September 30, 2024 / Consumer / Real Estate | Nine months ended September 30, 2024 / Consumer / Home Equity | Nine months ended September 30, 2024 / Consumer / Construction | Nine months ended September 30, 2024 / Consumer / Other | Nine months ended September 30, 2024 / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, beginning of period | $6,118 | 11,167 | 1,594 | 7,385 | 10,647 | 2,600 | 677 | 494 | 40,682 |
| Provision for credit losses | (651) | 424 | (263) | 190 | 1,750 | (244) | (399) | (57) | 750 |
| Loan charge-offs | - | (1,029) | - | (437) | - | (45) | - | (80) | (1,591) |
| Loan recoveries | - | - | - | 99 | - | 127 | - | 99 | 325 |
| Net loan recoveries (charge-offs) | - | (1,029) | - | (338) | - | 82 | - | 19 | (1,266) |
| Balance, end of period | $5,467 | 10,562 | 1,331 | 7,237 | 12,397 | 2,438 | 278 | 456 | 40,166 |
| Net charge-offs to average loans (annualized) |  |  |  |  |  |  |  |  | 0.05% |
| Allowance for credit losses to gross loans |  |  |  |  |  |  |  |  | 1.11% |
| Allowance for credit losses to nonperforming loans |  |  |  |  |  |  |  |  | 346.78% |

There was a provision for credit losses of $500,000 for the three months ended September 30, 2025 and no provision for credit losses for the three months ended September 30, 2024. In addition,
the provision for credit losses was $1.9 million and $750,000 for the nine months ended September 30, 2025 and September 30, 2024, respectively.0

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 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 September 30, 2025 and December 31, 2024.

| Schedule of analysis of collateral-dependent loans / (dollars in thousands) | Real / estate | Business / assets | September 30, 2025 / Other | September 30, 2025 / Total |
| --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |
| Owner occupied RE | $262 | - | - | 262 |
| Non-owner occupied RE | 6,911 |  |  | 6,911 |
| Business | 171 | 24 | - | 195 |
| Total commercial | 7,344 | 24 | - | 7,368 |
| Consumer |  |  |  |  |
| Real estate | 3,394 | - | - | 3,394 |
| Home equity | 705 | - | - | 705 |
| Total consumer | 4,099 | - | - | 4,099 |
| Total | $11,443 | 24 | - | 11,467 |

| (dollars in thousands) | Real / estate | Business / assets | December 31, 2024 / Other | December 31, 2024 / Total |
| --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |
| Non-owner occupied RE | $7,641 | - | - | 7,641 |
| Business | 460 | 556 | - | 1,016 |
| Total commercial | 8,101 | 556 | - | 8,657 |
| Consumer |  |  |  |  |
| Real estate | 1,908 | - | - | 1,908 |
| Home equity | 312 | - | - | 312 |
| Total consumer | 2,220 | - | - | 2,220 |
| Total | $10,321 | 556 | - | 10,877 |

**Allowance for Credit Losses - Unfunded Loan Commitments**

The allowance for credit losses for unfunded loan
commitments was $1.9 million and $1.5 million at September 30, 2025 and December 31, 2024, respectively, and is separately classified
on the balance sheet within other liabilities. The following table presents the balance and activity in the ACL for unfunded loan commitments
for the three and nine months ended September 30, 2025 and September 30, 2024.

| Schedule of allowance for credit losses for unfunded loan commitments / (dollars in thousands) | Three months ended / September 30, 2025 | Three months ended / September 30, 2024 |
| --- | --- | --- |
| Balance, beginning of period | $1,506 | 1,406 |
| Provision for credit losses | 350 | - |
| Balance, end of period | $1,856 | 1,406 |
| Unfunded Loan Commitments | $836,396 | 699,888 |
| Reserve for Unfunded Commitments | 0.22% | 0.20% |

| (dollars in thousands) | Nine months ended / September 30, 2025 | Nine months ended / September 30, 2024 |
| --- | --- | --- |
| Balance, beginning of period | $1,456 | 1,831 |
| Provision for (reversal of) credit losses | 400 | (425) |
| Balance, end of period | $1,856 | 1,406 |
| Unfunded Loan Commitments | $836,396 | 699,888 |
| Reserve for Unfunded Commitments | 0.22% | 0.20% |

### **NOTE 5 – Derivative Financial Instruments**

The Company utilizes
derivative financial instruments primarily to manage its exposure to changes in interest rates. All derivative financial instruments are
recognized as either assets or liabilities and measured at fair value.

The Company enters into commitments to originate
residential mortgage loans held for sale, at specified interest rates and within a specified period of time, with clients who have applied
for a loan and meet certain credit and underwriting criteria (interest rate lock commitments). These interest rate lock commitments (“IRLCs”)
meet the definition of a derivative financial instrument and are reflected in the balance sheet at fair value with changes in fair value
recognized in current period earnings. Unrealized gains and losses on the IRLCs are recorded as derivative assets and derivative liabilities,
respectively, and are measured based on the value of the underlying mortgage loan, quoted mortgage-backed securities (“MBS”)
prices and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net
of estimated commission expenses.

The Company manages the interest rate and price
risk associated with its outstanding IRLCs and mortgage loans held for sale by entering into derivative instruments such as forward sales
of MBS. These derivatives are free- standing derivatives and are not designated as instruments for hedge accounting. Management expects
these derivatives will experience changes in fair value opposite to changes in fair value of the IRLCs and mortgage loans held for sale,
thereby reducing earnings volatility. The Company takes into account various factors and strategies in determining the portion of the
mortgage pipeline (IRLCs and mortgage loans held for sale) it wants to economically hedge. The gain or loss resulting from the change
in the fair value of the derivative is recognized in the Company’s statement of income during the period of change.

The Company entered into a pay-fixed portfolio
layer method (“PLM”) fair value swap, designated as a hedging instrument, with a total notional amount of $200.0 million in
the second quarter of 2023. The hedging instrument matures on May 25, 2028. The Company entered into a second pay-fixed PLM fair value
swap, designated as a hedging instrument, with a total notional amount of $100.0 million in the third quarter of 2024. The hedging instrument
matures on August 27, 2027. Under the PLM method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans
that is anticipated to remain outstanding for the designated hedged period. Adjustments are made to record the swap at fair value on the
consolidated balance sheets, with changes in fair value recognized in interest income. The carrying value of the fair value swap on the
consolidated balance sheets will also be adjusted through interest income, based on changes in fair value attributable to changes in the
hedged risk.

The following table represents the carrying value
of the PLM hedged asset and liability and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset
as of September 30, 2025 and December 31, 2024.

| Schedule of carrying value of the PLM hedged asset and liability and the cumulative fair value hedging adjustment / (dollars in thousands) | September 30, 2025 / Carrying Amount | September 30, 2025 / Hedge Basis Adjustment | December 31, 2024 / Carrying Amount | December 31, 2024 / Hedge Basis Adjustment |
| --- | --- | --- | --- | --- |
| Fixed Rate Asset/Liability1 | $301,844 | 1,844 | 296,361 | (3,638) |

1 These amounts included the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of the assets in the closed portfolio anticipated to be outstanding for the designated hedged period. As of September 30, 2025, the amortized cost basis of the closed portfolio used in this hedging relationship was $620.6 million, the cumulative basis adjustment associated with this hedging relationship was $1.8 million, and the amount of the designated hedged item was $300.0 million.

The following table summarizes the Company’s
outstanding financial derivative instruments at September 30, 2025 and December 31, 2024.

| Schedule of outstanding financial derivative instruments / (dollars in thousands) | Notional | September 30, 2025 / Balance Sheet Location | September 30, 2025 / Fair Value / Asset/(Liability) |
| --- | --- | --- | --- |
| Derivatives designated as hedging instruments: |  |  |  |
| Fair value swapFair value swap [Member] | $300,000 | Other liabilities | $(1,664) |
| Derivatives not designated as hedging instruments: |  |  |  |
| Mortgage loan interest rate lock commitmentsMortgage loan interest rate lock commitments [Member] | 26,446 | Other assets | 366 |
| MBS forward sales commitmentsMBS forward sales commitments [Member] | 17,000 | Other liabilities | (8) |
| Total derivative financial instrumentsTotal derivative financial instruments [Member] | $343,446 |  | $(1,306) |

| (dollars in thousands) | Notional | December 31, 2024 / Balance Sheet Location | December 31, 2024 / Fair Value / Asset/(Liability) |
| --- | --- | --- | --- |
| Derivatives designated as hedging instruments: |  |  |  |
| Fair value swap | $300,000 | Other assets | $3,698 |
| Derivatives not designated as hedging instruments: |  |  |  |
| Mortgage loan interest rate lock commitments | 15,841 | Other assets | 188 |
| MBS forward sales commitments | 10,500 | Other assets | 40 |
| Total derivative financial instruments | $326,341 |  | $3,926 |

Accrued interest
receivable related to the interest rate swap as of September 30, 2025 totaled $193,000 and is excluded from the fair value presented in
the table above.

The Company assesses
the effectiveness of the fair value swap hedge with a regression analysis that compares the changes in forward curves to determine the
value. The effective portion of changes in fair value of derivatives designated as fair value hedges is recorded through interest income.
The Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes.

The following table summarizes the effect of the fair value hedging
relationship recognized in the consolidated statements of income for the three and nine months ended September 30, 2025 and September
30, 2024.

| Schedule of summarize the effect of fair value hedging relationship recognized in the consolidated statements of income / (dollars in thousands) | Three months ended September 30, 2025 | Three months ended September 30, 2024 | Nine months ended September 30, 2025 | Nine months ended September 30, 2024 |
| --- | --- | --- | --- | --- |
| Gain on fair value hedging relationship: |  |  |  |  |
| Hedged asset/(liability) | $272 | 7,151 | 5,482 | 2,671 |
| Fair value derivative designated as hedging instrument | (207) | (7,050) | (5,362) | (2,581) |
| Total gain recognized in interest income on loans | $65 | 101 | 120 | 90 |

### 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:

**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.<br>

**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.<br>

**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 September 30, 2025 and December 31, 2024.

| Schedule of assets and liabilities measured at fair value on a recurring basis / (dollars in thousands) | Level 1 | Level 2 | September 30, 2025 / Level 3 | September 30, 2025 / Total |
| --- | --- | --- | --- | --- |
| Assets |  |  |  |  |
| Securities available for saleLevel 1 [Member] |  |  |  |  |
| Corporate bonds | - | 1,959 | - | 1,959 |
| US treasuriesLevel 2 [Member] | - | 944 | - | 944 |
| US government agencies | - | 15,165 | - | 15,165 |
| State and political subdivisionsLevel 3 [Member] | - | 19,901 | - | 19,901 |
| Asset-backed securities | - | 33,774 | - | 33,774 |
| Mortgage-backed securities | - | 59,297 | - | 59,297 |
| Mortgage loans held for sale | - | 6,906 | - | 6,906 |
| Mortgage loan interest rate lock commitments | - | 366 | - | 366 |
| Total assets measured at fair value on a recurring basis | - | 138,312 | - | 138,312 |
| Liabilities |  |  |  |  |
| MBS forward sales commitments | - | 8 | - | 8 |
| Derivative liability | - | 1,664 | - | 1,664 |
| Total liabilities measured at fair value on a recurring basis | - | 1,672 | - | 1,672 |

_December 31, 2024_

| (dollars in thousands) | Level 1 | Level 2 | Level 3 | Total |
| --- | --- | --- | --- | --- |
| Assets |  |  |  |  |
| Securities available for sale: |  |  |  |  |
| Corporate bonds | - | 1,927 | - | 1,927 |
| US treasuries | - | 908 | - | 908 |
| US government agencies | - | 15,795 | - | 15,795 |
| State and political subdivisions | - | 19,322 | - | 19,322 |
| Asset-backed securities | - | 36,538 | - | 36,538 |
| Mortgage-backed securities | - | 57,637 | - | 57,637 |
| Mortgage loans held for sale | - | 4,565 | - | 4,565 |
| Mortgage loan interest rate lock commitments | - | 188 | - | 188 |
| Derivative asset | - | 3,698 | - | 3,698 |
| MBS forward sales commitments | - | 40 | - | 40 |
| Total assets measured at fair value on a recurring basis | - | 140,618 | - | 140,618 |

The Company had no liabilities
recorded at fair value on a recurring basis as of December 31, 2024.

*Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis*

The tables below present the recorded amount of
assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2025 and December 31, 2024.

| Schedule of assets and liabilities measured at fair value on a nonrecurring basis / (dollars in thousands) | Level 1 | Level 2 | As of September 30, 2025 / Level 3 | As of September 30, 2025 / Total |
| --- | --- | --- | --- | --- |
| Assets |  |  |  |  |
| Individually evaluated loans | - | 10,512 | 1,063 | 11,575 |
| Other real estate owned | - | 275 | - | 275 |
| Total assets measured at fair value on a nonrecurring basis | - | 10,787 | 1,063 | 11,850 |

| (dollars in thousands) | Level 1 | Level 2 | As of December 31, 2024 / Level 3 | As of December 31, 2024 / Total |
| --- | --- | --- | --- | --- |
| Assets |  |  |  |  |
| Individually evaluated loans | - | 9,139 | 1,127 | 10,266 |
| Total assets measured at fair value on a nonrecurring basis | - | 9,139 | 1,127 | 10,266 |

The Company had no liabilities carried at fair
value or measured at fair value on a nonrecurring basis as of September 30, 2025 and December 31, 2024.

For Level 3 assets and liabilities measured at
fair value on a recurring or nonrecurring basis as of September 30, 2025 and December 31, 2024, the significant unobservable inputs used
in the fair value measurements were as follows:

Schedule of unobservable inputs used in the fair value measurements

**Valuation Technique** **Significant Unobservable Inputs** **Range of Inputs**

Individually evaluated loans Appraised Value/ Discounted Cash Flows Discounts to appraisals or cash flows for estimated holding and/or selling costs or age of appraisal 0-25%

Fair Value of Financial Instruments

Financial instruments require disclosure of fair
value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial
instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange
of cash. Certain items

are specifically excluded from the disclosure requirements,
including the Company’s common stock, premises and equipment and other assets and liabilities.

The estimated fair values of the Company’s financial instruments
at September 30, 2025 and December 31, 2024 are as follows:

| Schedule of estimated fair values of the company’s financial instruments / (dollars in thousands) | Carrying Amount | Fair Value | September 30, 2025 / Level 1 | September 30, 2025 / Level 2 | September 30, 2025 / Level 3 |
| --- | --- | --- | --- | --- | --- |
| Financial Assets: |  |  |  |  |  |
| Other investments, at cost | $20,066 | 20,066 | - | - | 20,066 |
| Loans1 | 3,734,452 | 3,517,817 | - | - | 3,517,817 |
| Financial Liabilities: |  |  |  |  |  |
| Deposits | 3,676,417 | 3,444,304 | - | 3,444,304 | - |
| Subordinated debentures | 24,903 | 27,030 | - | 27,030 | - |

| (dollars in thousands) | Carrying Amount | Fair Value | December 31, 2024 / Level 1 | December 31, 2024 / Level 2 | December 31, 2024 / Level 3 |
| --- | --- | --- | --- | --- | --- |
| Financial Assets: |  |  |  |  |  |
| Other investments, at cost | $19,490 | 19,490 | - | - | 19,490 |
| Loans1 | 3,579,640 | 3,319,602 | - | - | 3,319,602 |
| Financial Liabilities: |  |  |  |  |  |
| Deposits | 3,435,765 | 3,158,893 | - | 3,158,893 | - |
| Subordinated debentures | 24,903 | 27,539 | - | 27,539 | - |

1 Carrying amount is net of the allowance for credit losses and individually evaluated loans.

### NOTE 7 – Leases

The Company had operating right-of-use (“ROU”)
assets, included in property and equipment, of $19.4 million and $20.6 million as of September 30, 2025 and December 31, 2024, respectively.
 The Company had lease liabilities, included in other liabilities, of $22.1 million and $23.2 million as of September 30, 2025 and
December 31, 2024, respectively. We maintain operating leases on land and buildings for various office spaces. The lease agreements have
maturity dates ranging from September 2027 to February 2032, some of which include options for multiple five-year extensions. The weighted
average remaining life of the lease term for these leases was 4.55 years and 4.95 years as September 30, 2025 and December, 31, 2024,
respectively. The ROU asset and lease liability are recognized at lease commencement by calculating the present value of lease payments
over the lease term. The ROU assets also include any initial direct costs incurred and lease payments made at or before commencement
date and are reduced by any lease incentives.

The discount rate used in determining the lease
liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term at implementation
of the accounting standard and as of the lease commencement date for leases subsequently entered into. The weighted average discount rate
for leases was 2.27% and 2.28% as of September 30, 2025 and December 31, 2024, respectively.

The total operating lease costs were $613,000 and $604,000 for the three months ended September 30, 2025 and 2024, respectively, and $1.8 million for the nine months ended September
30, 2025 and 2024, respectively.

Operating lease payments due as of September 30, 2025 were as follows:

| Schedule of operating lease payments / (dollars in thousands) | Operating / Leases |
| --- | --- |
| 2025 | $544 |
| 2026 | 2,210 |
| 2027 | 2,267 |
| 2028 | 2,015 |
| 2029 | 1,501 |
| Thereafter | 18,686 |
| Total undiscounted lease payments | 27,223 |
| Discount effect of cash flows | 5,125 |
| Total lease liability | $22,098 |

### NOTE 8 – Earnings Per Common Share

The following schedule reconciles the numerators
and denominators of the basic and diluted earnings per share computations for the three and nine month periods ended September 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 September 30, 2025. The assumed conversion of stock options can create a difference between basic and dilutive
net income per common share. At September 30, 2025 and 2024, there were 45,662 and 263,387 options, respectively, that were not considered
in computing diluted earnings per common share because they were anti-dilutive.

| Schedule of earnings per common share / (dollars in thousands, except share data) | Three months ended September 30, 2025 | Three months ended September 30, 2024 | Nine months ended September 30, 2025 | Nine months ended September 30, 2024 |
| --- | --- | --- | --- | --- |
| Numerator: |  |  |  |  |
| Net income available to common shareholders | $8,662 | 4,382 | 20,509 | 9,903 |
| Denominator: |  |  |  |  |
| Weighted-average common shares outstanding – basic | 8,030,944 | 8,064,283 | 8,048,426 | 8,100,003 |
| Common stock equivalents | 49,515 | 24,893 | 32,252 | 23,843 |
| Weighted-average common shares outstanding – diluted | 8,080,459 | 8,089,176 | 8,080,678 | 8,123,846 |
| Earnings per common share: |  |  |  |  |
| Basic | $1.08 | 0.54 | 2.55 | 1.22 |
| Diluted | 1.07 | 0.54 | 2.54 | 1.22 |

## 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 nine month periods ended September 30, 2025 as compared to the three and nine month periods ended September
30, 2024 and assesses our financial condition as of September 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 nine month periods ended September 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.*

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, including due to the Federal Reserve lowering interest rates to incent economic growth;
- 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;
- 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;
- 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, government shutdowns, 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 September 30, 2025, we had total assets of $4.36
billion, a 6.6% increase from total assets of $4.09 billion at December 31, 2024. The largest component of our total assets is loans which
were $3.79 billion and $3.63 billion at September 30, 2025 and December 31, 2024, respectively. Our liabilities and shareholders’
equity at September 30, 2025 totaled $4.00 billion and $356.3 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 $3.68 billion and $3.44
billion at September 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.

Our net income to common shareholders was $8.7
million and $4.4 million for the three months ended September 30, 2025 and 2024, respectively. Diluted earnings per share (“EPS”)
was $1.07 for the third quarter of 2025 as compared to $0.54 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 $20.5
million and $9.9 million for the nine months ended September 30, 2025 and 2024, respectively. Diluted earnings per share (“EPS”)
was $2.54 for the nine months ended September 30, 2025 as compared to $1.22 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 $27.5 million for the third
quarter of 2025, a 33.7% increase over net interest income of $20.6 million for the third quarter of 2024, driven primarily by a $3.8
million increase in interest income on our interest-earning assets combined with a $3.1 million decrease in interest expense on our interest-bearing
liabilities. In addition, our net interest margin, on a tax-equivalent (TE) basis, was 2.62% for the third quarter of 2025 compared to
2.08% 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 nine month periods ended September 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.

**Average Balances, Income and Expenses, Yields and Rates**

| (dollars in thousands) | For the Three Months Ended September 30, 2025 / Average Balance | For the Three Months Ended September 30, 2025 / Income/ Expense | For the Three Months Ended September 30, 2025 / Yield/ Rate(1) | For the Three Months Ended September 30, 2024 / Average Balance | For the Three Months Ended September 30, 2024 / Income/ Expense | For the Three Months Ended September 30, 2024 / Yield/ Rate(1) |
| --- | --- | --- | --- | --- | --- | --- |
| Interest-earning assets |  |  |  |  |  |  |
| Federal funds sold and interest-bearing deposits with banks | $238,552 | $2,645 | 4.40% | $158,222 | $2,209 | 5.55% |
| Investment securities, taxable | 141,143 | 1,307 | 3.67% | 137,087 | 1,370 | 3.98% |
| Investment securities, nontaxable(2) | 7,811 | 45 | 2.31% | 8,047 | 55 | 2.70% |
| Loans(3) | 3,783,885 | 50,999 | 5.35% | 3,629,050 | 47,550 | 5.21% |
| Total interest-earning assets | 4,171,391 | 54,996 | 5.23% | 3,932,406 | 51,184 | 5.18% |
| Noninterest-earning assets | 150,552 |  |  | 158,550 |  |  |
| Total assets | $4,321,943 |  |  | $4,090,956 |  |  |
| Interest-bearing liabilities |  |  |  |  |  |  |
| NOW accounts | $329,301 | 746 | 0.90% | $314,669 | 835 | 1.06% |
| Savings & money market | 1,599,710 | 13,509 | 3.35% | 1,523,834 | 15,287 | 3.99% |
| Time deposits | 984,078 | 10,448 | 4.21% | 909,192 | 11,603 | 5.08% |
| Total interest-bearing deposits | 2,913,089 | 24,703 | 3.36% | 2,747,695 | 27,725 | 4.01% |
| FHLB advances and other borrowings | 240,087 | 2,296 | 3.79% | 240,065 | 2,297 | 3.81% |
| Subordinated debentures | 24,903 | 458 | 7.30% | 36,261 | 558 | 6.12% |
| Total interest-bearing liabilities | 3,178,079 | 27,457 | 3.43% | 3,024,021 | 30,580 | 4.02% |
| Noninterest-bearing liabilities | 792,575 |  |  | 744,025 |  |  |
| Shareholders’ equity | 351,289 |  |  | 322,910 |  |  |
| Total liabilities and shareholders’ equity | $4,321,943 |  |  | $4,090,956 |  |  |
| Net interest spread |  |  | 1.80% |  |  | 1.16% |
| Net interest income (tax equivalent) / margin |  | $27,539 | 2.62% |  | $20,604 | 2.08% |
| Less: tax-equivalent adjustment(2) |  | 10 |  |  | 13 |  |
| Net interest income |  | $27,529 |  |  | $20,591 |  |

(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 54 basis
points to 2.62% during the third quarter of 2025, compared to the third quarter of 2024, primarily due to a decrease in the cost of our
interest-bearing liabilities resulting from the 125 basis point decrease in the Fed Funds rate during the last twelve months. Our average
interest-bearing liabilities grew by $154.1 million during the third quarter of 2025 from the prior year, while the rate on these liabilities
decreased 59 basis points to 3.43%. Our average interest-earning assets grew by $239.0 million during the third quarter of 2025 from the
prior year, while the average yield on these assets increased by five basis points to 5.23%.

The increase in average interest-bearing liabilities
for the third quarter of 2025 related primarily to an increase of $165.4 million in our average interest-bearing deposits, partially offset
by a $11.4 million decrease in subordinated debentures. The primary driver of the decrease in interest expense was a 65 basis point decrease
in the cost of our interest-bearing deposits.

The increase in average interest-earning assets
for the third quarter of 2025 related primarily to an increase of $154.8 million in our average loan balances from the prior year. The
five basis point increase in yield on our interest-earning assets was driven by a 14 basis point increase in loan yield, offset by a 115
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 1.80% for the third
quarter of 2025 compared to 1.16% 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 five basis point increase in yield on our interest-earning
assets, combined with the 59 basis point decrease in the rate on our interest-bearing liabilities, resulted in a 64 basis point increase
in our net interest spread for the 2025 period. We seek to fund increased loan volumes by growing our core deposits,

but, subject to internal policy limits on the amount
of wholesale funding we may maintain, will utilize wholesale funding to fund shortfalls, if any, or provide additional liquidity. To the
extent that our dependence on wholesale funding sources increases, our net interest margin would likely be negatively impacted as we may
not be able to reduce the rates we pay on these deposits as quickly as we can on core deposits as rates have and may continue to decline.
We continue to deploy various asset liability management strategies to manage our risk to interest rate fluctuations.

**Average Balances, Income and Expenses, Yields and Rates**

| (dollars in thousands) | For the Nine Months Ended September 30, 2025 / Average Balance | For the Nine Months Ended September 30, 2025 / Income/ Expense | For the Nine Months Ended September 30, 2025 / Yield/ Rate(1) | For the Nine Months Ended September 30, 2024 / Average Balance | For the Nine Months Ended September 30, 2024 / Income/ Expense | For the Nine Months Ended September 30, 2024 / Yield/ Rate(1) |
| --- | --- | --- | --- | --- | --- | --- |
| Interest-earning assets |  |  |  |  |  |  |
| Federal funds sold and interest-bearing deposits with banks | $175,635 | $5,773 | 4.39% | $146,452 | $6,072 | 5.54% |
| Investment securities, taxable | 142,237 | 3,976 | 3.74% | 131,828 | 4,183 | 4.24% |
| Investment securities, nontaxable(2) | 7,792 | 164 | 2.81% | 12,188 | 162 | 1.78% |
| Loans(3) | 3,727,690 | 147,077 | 5.28% | 3,632,527 | 139,700 | 5.14% |
| Total interest-earning assets | 4,053,354 | 156,990 | 5.18% | 3,922,995 | 150,117 | 5.11% |
| Noninterest-earning assets | 153,861 |  |  | 159,663 |  |  |
| Total assets | $4,207,215 |  |  | $4,082,658 |  |  |
| Interest-bearing liabilities |  |  |  |  |  |  |
| NOW accounts | $322,689 | 2,096 | 0.87% | $304,479 | 2,117 | 0.93% |
| Savings & money market | 1,562,519 | 39,658 | 3.39% | 1,585,224 | 47,930 | 4.04% |
| Time deposits | 952,610 | 30,818 | 4.33% | 870,078 | 32,826 | 5.04% |
| Total interest-bearing deposits | 2,837,818 | 72,572 | 3.42% | 2,759,781 | 82,873 | 4.01% |
| FHLB advances and other borrowings | 240,029 | 6,810 | 3.79% | 240,460 | 6,772 | 3.76% |
| Subordinated debentures | 24,903 | 1,362 | 7.31% | 36,318 | 1,671 | 6.15% |
| Total interest-bearing liabilities | 3,102,750 | 80,744 | 3.48% | 3,036,559 | 91,316 | 4.02% |
| Noninterest-bearing liabilities | 761,540 |  |  | 727,977 |  |  |
| Shareholders’ equity | 342,925 |  |  | 318,122 |  |  |
| Total liabilities and shareholders’ equity | $4,207,215 |  |  | $4,082,658 |  |  |
| Net interest spread |  |  | 1.70% |  |  | 1.09% |
| Net interest income (tax equivalent) / margin |  | $76,246 | 2.51% |  | $58,801 | 2.00% |
| Less: tax-equivalent adjustment(2) |  | 38 |  |  | 37 |  |
| Net interest income |  | $76,208 |  |  | $58,764 |  |

(1) Annualized for the nine 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 nine months of 2025, our net interest
margin (TE) increased by 51 basis points to 2.51%, compared to 2.00% for the first nine months of 2024, primarily due to a decrease in
the cost of our interest-bearing liabilities. Our average interest-bearing liabilities grew by only $66.2 million from the prior year,
while the rate of these liabilities decreased by 54 basis points to 3.48%. In addition, our average interest-earning assets grew by $130.4
million, while the average yield increased by seven basis points to 5.18%.

The increase in average interest-bearing liabilities
for the first nine months of 2025 was driven by an increase in interest-bearing deposits of $78.0 million, partially offset by a $11.4
million decrease in subordinated debentures. The primary driver of our decrease in interest expense was a 59 basis point decrease in the
cost of our interest-bearing deposits.

The increase in average interest-earning assets
for the first nine months of 2025 related primarily to a $95.2 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 115 basis point decrease
in the yield on Federal Funds sold and interest-bearing deposits with banks.

Our net interest spread was 1.70% for the first
nine months of 2025 compared to 1.09% 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 seven basis point increase in yield on our
interest-earning assets, combined with the 54 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.

*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.

| (dollars in thousands) | Three Months Ended / September 30, 2025 vs. 2024 / Increase (Decrease) Due to / Volume | Three Months Ended / September 30, 2025 vs. 2024 / Increase (Decrease) Due to / Rate | Three Months Ended / September 30, 2025 vs. 2024 / Increase (Decrease) Due to / Rate/ Volume | Three Months Ended / September 30, 2025 vs. 2024 / Increase (Decrease) Due to / Total | Three Months Ended / September 30, 2024 vs. 2023 / Increase (Decrease) Due to / Volume | Three Months Ended / September 30, 2024 vs. 2023 / Increase (Decrease) Due to / Rate | Three Months Ended / September 30, 2024 vs. 2023 / Increase (Decrease) Due to / Rate/ Volume | Three Months Ended / September 30, 2024 vs. 2023 / Increase (Decrease) Due to / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Interest income |  |  |  |  |  |  |  |  |
| Loans | $2,114 | 1,280 | 55 | 3,449 | $1,047 | 2,891 | 70 | 4,008 |
| Investment securities | 35 | (102) | (3) | (70) | (103) | 48 | (3) | (58) |
| Federal funds sold and interest-bearing deposits with banks | 1,140 | (467) | (237) | 436 | (315) | 102 | (13) | (226) |
| Total interest income | 3,289 | 711 | (185) | 3,815 | 629 | 3,041 | 54 | 3,724 |
| Interest expense |  |  |  |  |  |  |  |  |
| Deposits | 1,719 | (4,459) | (282) | (3,022) | 295 | 2,273 | 27 | 2,595 |
| FHLB advances and other borrowings | - | (1) | - | (1) | (220) | 112 | (10) | (118) |
| Subordinated debentures | (173) | 106 | (33) | (100) | - | 1 | - | 1 |
| Total interest expense | 1,546 | (4,354) | (315) | (3,123) | 75 | 2,386 | 17 | 2,478 |
| Net interest income | $1,743 | 5,065 | 130 | 6,938 | $554 | 655 | 37 | 1,246 |

Net interest income, the largest component of our
income, was $27.5 million for the third quarter of 2025 and $20.6 million for the third quarter of 2024, a $6.9 million, or 33.7%, increase
year over year. The increase during 2025 was driven by a $3.8 million increase in interest income primarily due to an increase in average
loan balances and higher yields on our loan portfolio, as well as a $3.1 million decrease in interest expense primarily due to lower rates
on our interest-bearing deposits.

| (dollars in thousands) | Nine Months Ended / September 30, 2025 vs. 2024 / Increase (Decrease) Due to / Volume | Nine Months Ended / September 30, 2025 vs. 2024 / Increase (Decrease) Due to / Rate | Nine Months Ended / September 30, 2025 vs. 2024 / Increase (Decrease) Due to / Rate/ Volume | Nine Months Ended / September 30, 2025 vs. 2024 / Increase (Decrease) Due to / Total | Nine Months Ended / September 30, 2024 vs. 2023 / Increase (Decrease) Due to / Volume | Nine Months Ended / September 30, 2024 vs. 2023 / Increase (Decrease) Due to / Rate | Nine Months Ended / September 30, 2024 vs. 2023 / Increase (Decrease) Due to / Rate/ Volume | Nine Months Ended / September 30, 2024 vs. 2023 / Increase (Decrease) Due to / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Interest income |  |  |  |  |  |  |  |  |
| Loans | $91 | 7,100 | 186 | 7,377 | $6,121 | 11,617 | 582 | 18,320 |
| Investment securities | (5) | (193) | (8) | (206) | 573 | 786 | 161 | 1,520 |
| Federal funds sold and interest-bearing deposits with banks | (33) | (222) | (44) | (299) | 1,262 | 398 | 117 | 1,777 |
| Total interest income | 53 | 6,685 | 134 | 6,872 | 7,956 | 12,801 | 860 | 21,617 |
| Interest expense |  |  |  |  |  |  |  |  |
| Deposits | (212) | (9,766) | (323) | (10,301) | 1,981 | 16,151 | 496 | 18,628 |
| FHLB advances and other borrowings | - | 38 | - | 38 | 2,857 | (47) | (34) | 2,776 |
| Subordinated debentures | 68 | (550) | 173 | (309) | 3 | 41 | - | 44 |
| Total interest expense | (144) | (10,278) | (150) | (10,572) | 4,841 | 16,145 | 462 | 21,448 |
| Net interest income | $197 | 16,963 | 284 | 17,444 | $3,115 | (3,344) | 398 | 169 |

Net interest
income for the first nine months of 2025 was $76.2 million compared to $58.8 million for 2024, a $17.4 million, or 29.7%, increase. The
increase in net interest income during 2025 was driven by a $10.6 million decrease in interest expense, related primarily to lower rates
on our interest-bearing deposits, as well as an increase in the 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 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. During the quarter ended September 30, 2025, the risk weightings associated with certain qualitative factors were revised based on new
information reflecting the current economic and market environment. The result of these changes was immaterial as it relates to the allowance
for credit loss balance.

We recorded a provision for credit losses of $850,000
during the third quarter of 2025, compared to no provision for credit losses in the third quarter of 2024. The $850,000 provision in 2025,
which included a $500,000 provision for credit losses and a $350,000 reserve for unfunded commitments was driven primarily by changes
in qualitative factors related to an increase in past due loans and risk migration among our commercial business and non-owner occupied
loans. No provision was recorded in the third quarter of 2024 due to low charge-offs and insignificant loan growth.

We recorded a provision expense of $2.3 million
and $325,000 for the nine months ended September 30, 2025 and September 30, 2024, respectively. The $2.3 million provision expense for
the first nine months of 2025 included $1.9 provision for credit losses and a $400,000 reserve for unfunded commitments. The increase
in provision expense was primarily due to loan growth and changes in qualitative factors related to delinquency status, risk migration
and collateral values on commercial real estate during the first nine months of the year. The $325,000 provision expense for the first
nine months of 2024 included a $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.

| (dollars in thousands) | Three months ended September 30, 2025 | Three months ended September 30, 2024 | Nine months ended September 30, 2025 | Nine months ended September 30, 2024 |
| --- | --- | --- | --- | --- |
| Mortgage banking income | $1,600 | 1,449 | 4,593 | 4,536 |
| Service fees on deposit accounts | 625 | 455 | 1,731 | 1,265 |
| ATM and debit card income | 601 | 599 | 1,739 | 1,730 |
| Income from bank owned life insurance | 439 | 401 | 1,254 | 1,162 |
| Other income | 335 | 271 | 729 | 669 |
| Total noninterest income | $3,600 | 3,175 | 10,046 | 9,362 |

Noninterest income was $3.6 million for the third
quarter of 2025, a $425,000, or 13.4%, increase from noninterest income of $3.2 million for the third quarter of 2024. Mortgage banking
income continues to be the largest component of our noninterest income at $1.6 million for the third quarter of 2025, an increase of $151,000,
or 10.4%, over the prior year. Service fees on deposit accounts increased $170,000, or 37.4%, over the prior year, driven by fee income
on our commercial credit cards and additional wire fee income.

Noninterest income was $10.0 million for the first
nine months of 2025, a $684,000, or 7.3%, increase from noninterest income of $9.4 million for the first nine months of 2024. Service
fees on deposit account increased by $466,000, or 36.8% over the prior year and income from bank owned life insurance increased by $92,000,
or 7.9%, from the first nine months of 2024.

*Noninterest expenses*

The following table sets forth
information related to our noninterest expenses.

| (dollars in thousands) | Three months ended September 30, 2025 | Three months ended September 30, 2024 | Nine months ended September 30, 2025 | Nine months ended September 30, 2024 |
| --- | --- | --- | --- | --- |
| Compensation and benefits | $11,299 | 10,789 | 34,277 | 32,936 |
| Occupancy | 2,447 | 2,595 | 7,517 | 7,704 |
| Outside service and data processing costs | 2,158 | 1,930 | 6,383 | 5,738 |
| Insurance | 961 | 1,025 | 2,881 | 2,945 |
| Professional fees | 605 | 548 | 1,723 | 1,748 |
| Marketing | 412 | 319 | 1,183 | 1,077 |
| Other | 1,064 | 833 | 3,153 | 2,634 |
| Total noninterest expense | $18,946 | 18,039 | 57,117 | 54,782 |

Noninterest expense was $18.9 million for the third
quarter of 2025, a $907,000, or 5.0%, increase from noninterest expense of $18.0 million for the third quarter of 2024. The increase in
noninterest expense was driven primarily by the following:

- Compensation and benefits expense increased $510,000, or 4.7%, relating primarily to an increase in salaries, commissions, and other employee benefits expenses.
- Outside service and data processing costs increased $228,000, or 11.8%, relating primarily to increases in software licensing and maintenance costs, electronic banking, and other services we provide to our clients.
- Other noninterest expenses increased $231,000, or 27.7%, relating primarily to an increase in employee travel expenses and other employee related expenses.

Partially offsetting the above increases was a
decrease in occupancy of $148,000, or 5.7% due to lower depreciation expense as several larger items were fully depreciated during the
third quarter of 2025.

Noninterest expense was $57.1 million for the first
nine months of 2025, a $2.3 million, or 4.3%, increase from noninterest expense of $54.8 million for the first nine months of 2024. The
increase in noninterest expense was driven primarily by the following:

- Compensation and benefits expense increased $1.3 million, or 4.1%, relating primarily to annual salary increases, commissions, and other employee benefit expenses.
- Outside service and data processing costs increased $645,000, or 11.2%, 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 $519,000, or 19.7%, relating primarily to an increase in fraud losses, employee travel and other employee expenses.

Partially offsetting these increases, occupancy
decreased $187,000, or 2.4%, relating primarily to a decrease in depreciation expense as several larger items became fully depreciated.

Our efficiency ratio was 66.2% for the third quarter
of 2025, compared to 75.9% for the third 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 $2.7 million
and $1.3 million for the three months ended September 30, 2025 and 2024, respectively, and $6.3 million and $3.1 million for the nine
months ended September 30, 2025 and 2024. Our effective tax rate was 23.6% and 23.9% for the nine months ended September 30, 2025 and
2024, respectively.

The decrease in the 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 September 30, 2025, the $151.1 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 $131.0 million and an amortized cost of $141.7 million, resulting in an unrealized loss of $10.7 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 $576,000 from December 31, 2024
to $20.1 million at September 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 nine months ended September 30, 2025 and 2024 were $3.72 billion and $3.62 billion,
respectively. Before the allowance for credit losses, total loans outstanding at September 30, 2025 and December 31, 2024 were $3.79 billion
and $3.63 billion, respectively.

The principal component of our loan portfolio is
loans secured by real estate mortgages. As of September 30, 2025, our loan portfolio included $3.14 billion, or 83.0%, 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 $240.0 million as of September 30, 2025, of which approximately
48% 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 $105,000 and a loan to value of 73% as of September 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, 0.59% and 0.12% of our total home equity
lines of credit were over 30 days past due as of September 30, 2025 and December 31, 2024, respectively.

Following is a summary of our loan composition
at September 30, 2025 and December 31, 2024. During the first nine months of 2025, our loan portfolio increased by $157.3 million, or
4.33% annualized, primarily driven by a $71.1 million increase in consumer loans secured by real estate and a $53.8 million increase in
commercial owner occupied loans. In addition, commercial business loans increased by $48.3 million during the first nine months of 2025.
Our consumer real estate portfolio grew by $31.1 million and includes high quality 1-4 family consumer real estate loans. Our average
consumer real estate loan currently has a principal balance of $472,000, a term of 24 years, and an average rate of 4.54% as of September
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.

| (dollars in thousands) | September 30, 2025 / Amount | September 30, 2025 / % of Total | December 31, 2024 / Amount | December 31, 2024 / % of Total |
| --- | --- | --- | --- | --- |
| Commercial |  |  |  |  |
| Owner occupied RE | $705,383 | 18.6% | $651,597 | 17.9% |
| Non-owner occupied RE | 943,304 | 24.9% | 924,367 | 25.5% |
| Construction | 71,928 | 1.9% | 103,204 | 2.8% |
| Business | 604,411 | 16.0% | 556,117 | 15.3% |
| Total commercial loans | 2,325,026 | 61.4% | 2,235,285 | 61.5% |
| Consumer |  |  |  |  |
| Real estate | 1,159,693 | 30.6% | 1,128,629 | 31.1% |
| Home equity | 239,996 | 6.3% | 204,897 | 5.6% |
| Construction | 25,842 | 0.7% | 20,874 | 0.6% |
| Other | 38,464 | 1.0% | 42,082 | 1.2% |
| Total consumer loans | 1,463,995 | 38.6% | 1,396,482 | 38.5% |
| Total gross loans, net of deferred fees | 3,789,021 | 100.0% | 3,631,767 | 100.0% |
| Less—allowance for credit losses | (41,799) |  | (39,914) |  |
| Total loans, net | $3,747,222 |  | $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 237.4% of the Bank’s total risk-based capital at September 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.

| (dollars in thousands) | Outstanding | September 30, 2025 / % of Loan Portfolio | September 30, 2025 / Average Loan Size | September 30, 2025 / Weighted Average LTV |
| --- | --- | --- | --- | --- |
| Collateral |  |  |  |  |
| Office | $219,658 | 5.80% | $1,377 | 54% |
| Retail | 189,982 | 5.01% | 1,631 | 51% |
| Hotel | 143,152 | 3.78% | 7,803 | 49% |
| Multifamily | 99,834 | 2.63% | 2,500 | 43% |

| (dollars in thousands) | Outstanding | December 31, 2024 / % of Loan Portfolio | December 31, 2024 / Average Loan Size | December 31, 2024 / 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 September 30, 2025 and 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) | September 30, 2025 | December 31, 2024 |
| --- | --- | --- |
| Commercial | $7,368 | 8,657 |
| Consumer | 4,099 | 2,220 |
| Total nonaccrual loans | 11,467 | 10,877 |
| Other real estate owned | 275 | - |
| Total nonperforming assets | $11,742 | 10,877 |

At September 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 third quarter
of 2025 and 2024 was $28,000 and $111,000, respectively.

At September 30, 2025 and December 31, 2024, the
allowance for credit losses represented 364.50% and 366.94% of the total amount of nonperforming loans, respectively. A significant portion
of the nonperforming loans at September 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 September 30, 2025, 83.0% of our
loans were collateralized by real estate and 99.8% 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 September 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 September 30, 2025, individually evaluated loans
totaled $12.8 million, for which $4.3 million of these loans had a reserve of approximately $1.2 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 $41.8 million,
representing 1.10% of outstanding loans and providing coverage of 364.50% of nonperforming loans at September 30, 2025 compared to $39.9
million, or 1.10% of outstanding loans and 366.94% of nonperforming loans at December 31, 2024. At September 30, 2024, the ACL was $40.2
million, or 1.11% of outstanding loans and 346.78% of nonperforming loans.

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.

| Line item | September 30, 2025 | December 31, 2024 |
| --- | --- | --- |
| (dollars in thousands) | %(1) | %(1) |
| Commercial |  |  |
| Owner occupied RE | $18.6% | $17.9% |
| Non-owner occupied RE | 24.9% | 25.5% |
| Construction | 1.9% | 2.8% |
| Business | 16.0% | 15.3% |
| Total commercial | 61.4% | 61.5% |
| Consumer |  |  |
| Real estate | 30.6% | 31.1% |
| Home equity | 6.3% | 5.6% |
| Construction | 0.7% | 0.6% |
| Other | 1.0% | 1.2% |
| Total consumer | 38.6% | 38.5% |
| Total allowance for credit losses | $100.0% | $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 $3.11 billion,
or 84.6% of total deposits, while our wholesale deposits represented $568.0 million, or 15.4%, of total deposits at September 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 September 30, 2025 and 106% at December 31, 2024.

The following is a detail of our deposit accounts:

| (dollars in thousands) | September 30, 2025 | December 31, 2024 |
| --- | --- | --- |
| Non-interest bearing | $736,518 | 683,081 |
| Interest bearing: |  |  |
| NOW accounts | 343,615 | 314,588 |
| Money market accounts | 1,572,738 | 1,438,530 |
| Savings | 29,381 | 31,976 |
| Time deposits | 994,165 | 967,590 |
| Total deposits | $3,676,417 | 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 September 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.

| (dollars in thousands) | Nine months ended September 30, 2025 / Amount | Nine months ended September 30, 2025 / Rate | Nine months ended September 30, 2024 / Amount | Nine months ended September 30, 2024 / Rate |
| --- | --- | --- | --- | --- |
| Noninterest-bearing demand deposits | $705,114 | 0.00% | $669,911 | 0.00% |
| Interest-bearing demand deposits | 322,689 | 0.87% | 304,479 | 0.93% |
| Money market accounts | 1,530,981 | 3.46% | 1,555,198 | 4.10% |
| Savings accounts | 31,538 | 0.33% | 30,026 | 0.23% |
| Time deposits less than $250,000 | 189,564 | 3.80% | 213,748 | 4.66% |
| Time deposits greater than $250,000 | 763,046 | 4.46% | 656,330 | 5.14% |
| Total deposits | $3,542,932 | 2.74% | $3,429,692 | 3.22% |

During the first nine months of 2025, our average
transaction account balances increased by $30.7 million, or 1.2%, from the prior year, while our average time deposit balances increased
by $82.5 million, or 9.5%.

All of our time deposits are certificates of deposits.
The maturity distribution of our time deposits $250,000 or more at September 30, 2025 was as follows:

| (dollars in thousands) | September 30, 2025 |
| --- | --- |
| Three months or less | $204,579 |
| Over three through six months | 128,852 |
| Over six through twelve months | 277,678 |
| Over twelve months | 180,703 |
| Total time deposits | $791,812 |

Time deposits that meet or exceed the FDIC insurance
limit of $250,000 at September 30, 2025 and December 31, 2024 were $791.8 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.

At September 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 September 30, 2025, the $240.0 million
was secured with approximately $1.37 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 September 30, 2025 and December 31, 2024.

| (dollars in thousands) / Maturity | September 30, 2025 / Amount | September 30, 2025 / Rate | December 31, 2024 / Amount | December 31, 2024 / 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 September 30, 2025 and December 31, 2024, our
cash and cash equivalents totaled $282.9 million and $162.9 million, respectively, or 6.5% and 4.0% of total assets, respectively. Our
investment securities at September 30, 2025 and December 31, 2024 amounted to $151.1 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 September 30, 2025.
We also had $189.8 million pledged and available with the Federal Reserve Discount Window

at September 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 September 30, 2025 was $828.9
million, based primarily on the Bank’s qualifying mortgages available to secure any future borrowings. However, we are able to pledge
additional securities to the FHLB in order to increase our available borrowing capacity. In addition, at September 30, 2025 and December
31, 2024 we had $224.0 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 September 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 (7.65% at September 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 $356.3 million
at September 30, 2025 and $330.4 million at December 31, 2024. The $25.9 million increase from December 31, 2024 is primarily related
to net income of $20.5 million during the first nine months of 2025, stock option exercises and equity compensation expenses of $2.3 million,
and a $3.0 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 nine months ended September 30, 2025 and the year ended December 31, 2024. Since our inception, we have not
paid cash dividends.

| Line item | September 30, 2025 | December 31, 2024 |
| --- | --- | --- |
| Return on average assets | 0.65% | 0.38% |
| Return on average equity | 8.00% | 4.84% |
| Return on average common equity | 8.00% | 4.84% |
| Average equity to average assets ratio | 8.15% | 7.83% |
| Tangible common equity to assets ratio | 8.18% | 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 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 risk-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 September 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.

| (dollars in thousands) | Actual / Amount | Actual / Ratio | September 30, 2025 / For capital adequacy purposes minimum plus the capital conservation buffer / Amount | September 30, 2025 / For capital adequacy purposes minimum plus the capital conservation buffer / Ratio | September 30, 2025 / To be well capitalized under prompt corrective action provisions minimum / Amount | September 30, 2025 / To be well capitalized under prompt corrective action provisions minimum / Ratio |
| --- | --- | --- | --- | --- | --- | --- |
| Total Capital (to risk weighted assets) | $426,464 | 12.72% | $268,285 | 8.00% | $335,356 | 10.00% |
| Tier 1 Capital (to risk weighted assets) | 384,665 | 11.47% | 201,214 | 6.00% | 268,285 | 8.00% |
| Common Equity Tier 1 Capital (to risk weighted assets) | 384,665 | 11.47% | 150,910 | 4.50% | 217,981 | 6.50% |
| Tier 1 Capital (to average assets) | 384,665 | 8.88% | 173,328 | 4.00% | 216,660 | 5.00% |

| (dollars in thousands) | Actual / Amount | Actual / Ratio | December 31, 2024 / For capital adequacy purposes minimum plus the capital conservation buffer / Amount | December 31, 2024 / For capital adequacy purposes minimum plus the capital conservation buffer / Ratio | December 31, 2024 / To be well capitalized under prompt corrective action provisions minimum / Amount | December 31, 2024 / To be well capitalized under prompt corrective action provisions minimum / 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.

| (dollars in thousands) | Actual / Amount | Actual / Ratio | September 30, 2025 / For capital adequacy purposes minimum plus the capital conservation buffer (1) / Amount | September 30, 2025 / For capital adequacy purposes minimum plus the capital conservation buffer (1) / Ratio | September 30, 2025 / To be well capitalized under prompt corrective action provisions minimum / Amount | September 30, 2025 / To be well capitalized under prompt corrective action provisions minimum / Ratio |
| --- | --- | --- | --- | --- | --- | --- |
| Total Capital (to risk weighted assets) | $428,773 | 12.79% | $268,285 | 8.00% | N/A | N/A |
| Tier 1 Capital (to risk weighted assets) | 377.774 | 11.26% | 201,213 | 6.00% | N/A | N/A |
| Common Equity Tier 1 Capital (to risk weighted assets) | 364,774 | 10.88% | 150,910 | 4.50% | N/A | N/A |
| Tier 1 Capital (to average assets) | 377,774 | 8.72% | 173,344 | 4.00% | N/A | N/A |

| (dollars in thousands) | Actual / Amount | Actual / Ratio | December 31, 2024 / For capital adequacy purposes minimum plus the capital conservation buffer / Amount | December 31, 2024 / For capital adequacy purposes minimum plus the capital conservation buffer / Ratio | December 31, 2024 / To be well capitalized under prompt corrective action provisions minimum(1) / Amount | December 31, 2024 / To be well capitalized under prompt corrective action provisions minimum(1) / 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 a 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 September 30, 2025 unfunded commitments
to extend credit were $836.4 million, of which $99.9 million were at fixed rates and $736.5 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 September
30, 2025 and December 31, 2024, the reserve for unfunded commitments was $1.9 million or 0.22% and 0.20%, respectively, of total unfunded
commitments.

At September 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.

On October 24, 2023, the federal banking agencies
released a final rule significantly revising the framework that the agencies use to evaluate banks’ records of meeting the credit
needs of their entire communities under the Community Reinvestment Act (CRA). On July 16, 2025, the agencies issued a notice of proposed
rulemaking to rescind the October 2023 final rule and restore the 1995 CRA framework that existed previously, which has remained in effect
due to a preliminary injunction that stayed implementation of the October 2023 rule. Southern First received a “satisfactory”
rating in its most recent CRA performance evaluation, which was conducted using the CRA framework which existed prior to the October 2023
final rule.

## 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.

As of September 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 | (6.96 |
| Up 200 basis points | (3.84 |
| Up 100 basis points | (1.51 |
| Base | - |
| Down 100 basis points | (0.07 |
| Down 200 basis points | 1.36% |
| Down 300 basis points | 3.02% |

## 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 September 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 5. OTHER INFORMATION.

Trading Plans

During the nine months ended September 30, 2025, no director or “officer”
of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,”
as each term is defined in Item 408 of Regulation S-K of the Securities Act of 1933.

## Item 6. EXHIBITS.

The exhibits required to be filed as part of
this Quarterly Report on Form 10-Q are listed in the Index to Exhibits attached hereto and are incorporated herein by reference.

**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 September 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) |
| ______ | ________________________________________________ |

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: October 31, 2025 /s/
 R. Arthur Seaver, Jr.
- R. Arthur Seaver, Jr.
- Chief Executive Officer (Principal Executive
 Officer)
- Date: October 31, 2025 /s/ Christian
 J. Zych
- Christian J. Zych
- Chief Financial Officer (Principal Financial
 Officer)

49

## 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.

---

## RULE 13A-14(A) CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER.

SEC source: [sfst4552801-ex311.htm](https://www.sec.gov/Archives/edgar/data/1090009/000120677425000738/sfst4552801-ex311.htm)

**Exhibit 31.1**

Rule 13a-14(a) Certification
of the Principal Executive Officer.

**Exhibit 31.1**

|  |  |  |
| --- | --- | --- |
| 1. | I have reviewed this quarterly report on Form 10-Q of Southern First Bancshares, Inc.; |  |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |  |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |  |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |  |
|  | a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|  | b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|  | c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and |
|  | d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |  |
|  | a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|  | b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |

---

## RULE 13A-14(A) CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER.

SEC source: [sfst4552801-ex312.htm](https://www.sec.gov/Archives/edgar/data/1090009/000120677425000738/sfst4552801-ex312.htm)

**Exhibit 31.2**

Rule 13a-14(a) Certification
of the Principal Financial Officer.

**Exhibit 31.2**

|  |  |  |
| --- | --- | --- |
| 1. | I have reviewed this quarterly report on Form 10-Q of Southern First Bancshares, Inc.; |  |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |  |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |  |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |  |
|  | a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|  | b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|  | c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and |
|  | d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |  |
|  | a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|  | b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |

Date: October 31, 2025 By: /s/  Christian J. Zych

Christian J. Zych

Principal Financial Officer

---

## SECTION 1350 CERTIFICATIONS.

SEC source: [sfst4552801-ex32.htm](https://www.sec.gov/Archives/edgar/data/1090009/000120677425000738/sfst4552801-ex32.htm)

**Exhibit 32**

Section 1350 Certifications.

**Exhibit 32**

**CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,  

AS ADOPTED PURSUANT TO  

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

The undersigned, the Chief Executive Officer and the Principal
Financial Officer of Southern First Bancshares, Inc. (the "Company"), each certify that, to his knowledge on the date of this
certification:

1. The quarterly report of the Company for the period ended September 30, 2025 as filed with the Securities and Exchange Commission on this date (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ R. Arthur Seaver, Jr.

R. Arthur Seaver, Jr.

Chief Executive Officer

Date: October 31, 2025

/s/ Christian J. Zych

Christian J. Zych

Principal Financial Officer

Date: October 31, 2025