CoastalSouth Bancshares, Inc.: Form 10-Q for the period ended Sep 30, 2025

The purpose of this discussion and analysis of financial condition and results of operations, also referred to hereafter as this MD&A, is to aid in understanding significant changes in the financial condition of CoastalSouth Bancshares, Inc. and our wholly owned subsidiary, Coastal States Bank, from December 31, 2024 through September 30, 2025 and on our results of operations for the three and nine months ended September 30, 2025 and 2024. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2024 included in our Form S-1 that was declared effective by the Securities and Exchange Commission on July 1, 2025, relating to the IPO (the “Registration Statement”), and information presented elsewhere in this Quarterly Report on Form 10‑Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10‑Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including the following:

• business and general economic conditions, particularly those affecting the financial services industry either nationally or within our primary market areas;
• the occurrence of significant natural disasters, including hurricanes;
• our ability to successfully execute our business strategy to achieve profitable growth;
• our ability to implement and adapt to changes our business strategies;
• the impact of adverse developments in the banking industry, on client confidence, liquidity, and regulatory responses to these developments (including increases in the cost of our deposit insurance assessments and increased regulatory scrutiny), our ability to effectively manage our liquidity risk and any growth plans, and the availability of capital and funding;
• our ability to manage growth and to increase operating efficiency;
• our ability to access cost-effective funding in the future;
• restrictions or limitations on access to funds from historical and alternative sources of liquidity could adversely affect our overall liquidity, which could restrict our ability to make payments on our obligations and our ability to support asset growth and sustain our operations and the operations of the Bank;
• our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses (“ACL”);
• the adequacy of our reserves (including ACL), including the appropriateness of our methodology for calculating such reserves;
• factors that may impact the performance of our loan portfolio, including real estate values and liquidity in our primary service market areas, the financial health of our borrowers and the success of various projects that we finance;
• inflation and changes in the interest rate environment that can reduce our margins or reduce the fair value of the financial instruments due to changes in consumer spending, borrowing and savings habits;
• our ability to attract and maintain business banking relationships with well-qualified businesses, real estate developers and investors with proven track records in the market areas that we serve;
• our ability to retain our existing customers and attract and retain new customers relationships;
• our focus on small and mid-sized businesses;
• our capital requirements as an insured depository institution;
• concentration of our loan portfolio in real estate loans, changes in the prices, values and sales volumes of commercial and residential real estate;
• credit and lending risks associated with our construction and development, commercial real estate, commercial and industrial, residential real estate and Small Business Administration ("SBA") loan portfolios;
• a breach in security of our information systems, including the occurrence of a cyber-attack incidents or a deficiencies in cyber security;
• political instability or civil unrest and/or acts of war or terrorism;
• changes or new fiscal and monetary policies of the federal government and its agencies;
• our ability to comply with consumer protection laws, including the CRA and fair lending laws;
• our ability to comply with various governmental and regulatory requirements, including supervisory actions by federal and state banking agencies;
• other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this prospectus.
• changes in the quality or composition of our loan or investment portfolios;
• our hedging strategies to mitigate risks associated with changes in interest rates;
• our dependence on third-party service providers;
• inaccuracies or other failures from the use of models, including the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit conditions;
• continued or increasing competition and innovation from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;
• our ability to attract and retain skilled people;
• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the FASB, the SEC or the Public Company Accounting Oversight Board;
• risks related to potential acquisitions;
• changes in the scope and cost of FDIC insurance and other coverage;
• restraints on the ability of the Bank to pay dividends to us, which could limit our liquidity;
• our ability to maintain adequate internal controls over financial reporting;
• potential claims, damages, penalties, fines, costs and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions;
• the makeup of our asset mix and investments;
• our ability to manage our growth;
• our ability to increase our operating efficiency;
• the risk that balance sheet, revenue growth, and loan growth expectations may differ from actual results;
• a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the federal budget and economic policy, including the impact of tariffs and trade policies; and
• other risks and factors identified in the Registration Statement that was filed with the SEC under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward-looking statements in this Quarterly Report on Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. These forward-looking statements represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. However, the events and circumstances reflected in the forward-looking statements may not be achieved or occur. For example, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Any forward-looking statement speaks only as of the date on which it is made, and except as required by applicable law, we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

These statements are inherently uncertain, and we cannot guarantee future results, performance or achievements. For a discussion of these and other risks that may cause actual results to differ from expectations, refer to the section entitled “Risk Factors” and other information contained in our Registration Statement and our other periodic filings, including quarterly reports on Form 10-Q and current reports on Form 8-K, that we file from time to time with the SEC.

Overview

CoastalSouth Bancshares, Inc. is a bank holding company headquartered in Atlanta, Georgia. We currently operate 11 retail banking branches in three primary markets, including the Lowcountry of South Carolina, Savannah, Georgia, and metro Atlanta, Georgia. CSB also operates four specialty lines of business each of which operates on a national platform, including Senior Housing, Marine Lending, Government Guaranteed Lending, and Mortgage Banker Finance. The deposits of CSB are insured by the FDIC. CSM, a wholly owned subsidiary of CSB, is a mortgage company focused on originating and selling residential mortgages to investors, some of which are retained in the portfolio.

The following discussion and analysis is intended to assist readers in their analysis and understanding of our consolidated financial statements and summary historical financial information appearing in this Quarterly Report on Form 10-Q and should be read in conjunction therewith. This discussion and analysis presents our financial condition and results of operations on a consolidated basis, unless otherwise specified.

Critical Accounting Policies and Estimates

Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. Application of these principles requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and the accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Estimates, assumptions or judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon future events. Carrying assets and liabilities at fair value results in more financial statement volatility. The fair values and the information used to record the valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources.

Certain policies inherently have a greater reliance on the use of estimates, assumptions or judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the determination of our ACL, fair value measurements, stock-based compensation, and income taxes to be the accounting areas that require the most subjective or complex judgments, estimates and assumptions, and where changes in those judgments, estimates and assumptions (based on new or additional information, changes in the economic environment and/or market interest rates, etc.) could have a significant effect on our financial statements. Therefore, we consider these policies, discussed below, to be critical accounting estimates and discuss them directly with the Audit Committee of our Board.

Our most significant accounting policies are presented in Note 1 of the consolidated financial statements as of December 31, 2024 included in our Registration Statement that was filed with the SEC. These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. There have been no significant changes to the accounting policies, estimates, and assumptions, or the judgments affecting the application of these estimates and assumptions from those disclosed in the Registration Statement.

Allowance for Credit Losses

The ACL represents management’s current estimate of credit losses for the remaining estimated life of financial instruments, with particular applicability on our balance sheet to loans held-for-investment and unfunded loan commitments. Estimating the amount of the ACL requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts, and the value of collateral on collateral-dependent loans. The loan portfolio also represents the largest asset type on our consolidated balance sheet. Credit losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

There are many factors affecting the ACL; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes are worse than management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.

Additional information on the loan portfolio and ACL can be found in the sections of this MD&A titled “Loans,” “Allowance for Credit Losses on Loans,” “Allowance for Credit Losses for Unfunded Commitments,” and “Nonperforming Loans.” Note 1 to the consolidated financial statements as of December 31, 2024 included our Registration Statement that was filed with the SEC includes additional information on accounting policies related to the ACL.

Emerging Growth Company

Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), as an emerging growth company, we can elect to opt out of the extended transition period for adopting any new or revised accounting standards. We have elected to take advantage of the extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we may adopt the standard on the application date for private companies. We have elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an emerging growth company.

Selected Financial Data

The following table sets forth unaudited selected financial data for the most recent five quarters and the nine months ended September 30, 2025 and 2024. This data should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Item 1 and the information contained in this Item 2.

(dollars in thousands except

(1) We calculate our adjusted net income as net income excluding items that are not part of core business operations, net of income taxes, which incorporate impacts to noninterest income and noninterest expense. This measure helps management and users of the financial statements to understand how core business operations are performing. This is a non-GAAP financial measure. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."

(2) This is a non-GAAP financial measure. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."

(3) We calculate tangible book value per common share as total shareholders' equity less goodwill and other intangibles, excluding mortgage servicing rights, divided by the outstanding number of our shares of common stock at the end of the relevant period. Tangible book value per common share is a non-GAAP financial measure, and, as we calculate tangible book value per common share, the most comparable GAAP measure is book value per common share. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."

(4) We did not have securities held to maturity in any of the periods presented.

(dollars in thousands)

(5) This is a non-GAAP financial measure. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."

(6) Represent annualized data.

(7) Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities for the periods.

(8) Net interest margin represents net interest income as a percent of average interest-earning assets for the periods.

(9) The efficiency ratio represents noninterest expense divided by sum of net interest income and noninterest income.

(10) The efficiency ratio, as adjusted, represents noninterest expense divided by the sum of net interest income and noninterest income, excluding net of tax, gains or losses on available-for-sale securities, gain on hedge termination, Merger expenses and bargain purchase gain. This is a non-GAAP financial measure. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."

(11) We calculate revenue as net interest income plus noninterest income, excluding net of tax, gains or losses on available-for-sale securities, gain on hedge termination bargain purchase gain and Merger expenses. This is a non-GAAP financial measure. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."

(12) We calculate tangible common equity as total shareholders' equity less goodwill and other intangibles, excluding mortgage servicing rights, we calculate tangible assets as total assets less goodwill and other intangibles, excluding mortgage servicing rights. This is a non-GAAP financial measure. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."

(13) Ratios are for Coastal States Bank only.

Results of Operations — Comparison of Results of Operations for the Three Months Ended September 30, 2025 and 2024

The following discussion of our results of operations compares the three months ended September 30, 2025 and 2024. We reported net income for the three months ended September 30, 2025 of $6.7 million compared to net income of approximately $7.9 million for the three months ended September 30, 2024. The decrease of approximately $1.1 million was principally attributable to a lower noninterest income, primarily gain on sale of government guaranteed loans ("GGL"), coupled with a higher effective tax rate albeit with a higher taxable income.

Net Interest Income

The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. The income and yield from non-taxable investment securities was not adjusted for tax equivalency.

(dollars in thousands)

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing interest rates and volumes on our net interest income during the periods indicated. The information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Change applicable to both volumes and rate have been allocated to volume.

(dollars in thousands)

Net interest income for the three months ended September 30, 2025 was $19.2 million compared to $17.0 million for the three months ended September 30, 2024, an increase of $2.2 million, or 13.1%. This increase was primarily due to an increase in the average balance of our total interest-earning assets coupled with a decrease in the average rate paid on interest-bearing liabilities. The increase in the average balance for the interest-earning assets was primarily due to an increase in average loans outstanding. The yield on total earning assets and interest-bearing liabilities decreased by 23 and 58 basis points, respectively, during the same period.

Total interest income for the three months ended September 30, 2025 was $32.9 million compared to $32.6 million for the three months ended September 30, 2024, an increase of $336 thousand, or 1.0%. This increase was primarily due to growth in our loans portfolio albeit with lower yields.

Interest and fees on LHFI were $24.6 million for the three months ended September 30, 2025 compared to $24.2 million for the three months ended September 30, 2024, an increase of $384 thousand, or 1.6%. This increase was primarily attributable to an increase in average LHFI of $103.5 million, or 7.2%, albeit with a decrease in yield. The yield on gross LHFI decreased by 37 basis points compared to the same period in 2024. Interest and fees on LHFS were $3.4 million for the three months ended September 30, 2025 compared to $3.0 million for the three months ended September 30, 2024. This increase was primarily due to an increase in the average balance of LHFS outstanding although the yield decreased by 26 basis points compared to the same period in 2024.

Interest income on investment securities was $4.1 million for the three months ended September 30, 2025 compared to $4.2 million for the three months ended September 30, 2024. This decrease was primarily due to the fact that the average balance decreased by $13.5 million even though the the yield on investment securities increased by 12 basis points during the period.

Interest expense for the three months ended September 30, 2025 was $13.7 million compared to $15.6 million for the three months ended September 30, 2024. This decrease was primarily attributable to lower average borrowings, specifically the payoff of a $70.0 million Bank Term Funding Program ("BTFP") that was outstanding during the third quarter of 2024, coupled with a 58 basis point decrease in the average cost of overall total interest-bearing liabilities, primarily in money market and time deposit accounts as the rates were adjusted to align with the market. Average borrowings outstanding decreased from September 30, 2024 to September 30, 2025 by $84.2 million, or 87.1%, primarily due to the aforementioned BTFP payoff, while the cost increased by 797 basis points during the same period, which was principally due to a $236 thousand debt issuance costs which were accelerated due to calling of the Company's subordinated debt.

Net interest margin for the three months ended September 30, 2025 and 2024 was 3.58% and 3.32%, respectively. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve. This increase in our net interest margin was primarily due to a combination of average total earning assets growth and a decrease in yield for average total interest-bearing liabilities. Average earning assets for the three months ended September 30, 2025 increased by $91.9 million compared to the three months ended September 30, 2024, principally due to growth of our loan portfolio. Average interest-bearing liabilities for the three months ended September 30, 2025 increased by $51.8 million compared to the three months ended September 30, 2024, driven by growth in average interest-bearing deposits.

Provision for Credit Losses

Provision (recovery) for credit losses for the three months ended September 30, 2025 was $653 thousand compared to ($1.0) million for the three months ended September 30, 2024, an increase of $1.7 million. This increase was primarily due to a reduction in reserves on individually-analyzed collateral-dependent loans during three months ended September 30, 2024 coupled with provision for the three months ended September 30, 2025 driven by increased production of LHFI, current period net charge-offs, and changes to loan mix and other loss rate changes between the periods. Our allowance for credit losses as a percentage of gross LHFI at September 30, 2025 and 2024 was 1.16% and 1.11%, respectively.

Noninterest Income

Noninterest income for the three months ended September 30, 2025 was $2.1 million, a decrease of $861 thousand or 29.1%, compared to $3.0 million for the three months ended September 30, 2024. This decrease was primarily in gain on sale of GGL and a net decrease in other categories of noninterest income, primarily in other noninterest income.

The following table sets forth the various components of our noninterest income for the periods indicated:

(dollars in thousands)

Income from bank-owned life insurance policies ("BOLI") increased by $24 thousand to $461 thousand for the three months ended September 30, 2025 compared to $437 thousand for the three months ended September 30, 2024. This increase was primarily attributable to an overall increase in total cash surrender value over time.

Mortgage banking related income increased by $23 thousand to $299 thousand for the three months ended September 30, 2025 compared to $276 thousand for the three months ended September 30, 2024. This increase was primarily due to slightly higher secondary market mortgage production which is comprised primarily of activity related to the sale of consumer mortgage loans as well as loan origination fees such as closing charges, document review fees, application fees, other loan origination fees, and loan processing fees.

Gain on sale of GGL decreased by $698 thousand to $613 thousand for the three months ended September 30, 2025 compared to $1.3 million for the three months ended September 30, 2024. The Company had fewer GGL that were able to be sold during the three months ended September 30, 2025 than during the three months ended September 30, 2024.

Interchange and card fee income increased by $22 thousand to $238 thousand for the three months ended September 30, 2025 compared to $216 thousand for the three months ended September 30, 2024. This increase was attributable to interchange fees from debit cardholder transactions conducted through a payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are earned on a daily basis.

Service charges on deposit accounts were flat at $208 thousand for the three months ended September 30, 2025 and 2024. These service charges are mostly comprised of wire, non-sufficient funds ("NSF"), and overdraft fees.

Other noninterest income decreased by $222 thousand to $291 thousand for the three months ended September 30, 2025 compared to $513 thousand for the three months ended September 30, 2024. This decrease was primarily due to a nonrecurring $186.8 thousand other gain on OREO during three months ended September 30, 2024 and a net decrease in other categories within other noninterest income.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2025 was $11.9 million compared to $10.8 million for the three months ended September 30, 2024, an increase of $1.0 million, or 9.5%. This increase was across all noninterest expense categories primarily in salaries and employee benefits, other professional services, software and other technology expense, and other noninterest expense.

The following table sets forth the major components of our noninterest expense for the three months ended September 30, 2025 and 2024:

(dollars in thousands)

Salaries and employee benefits expense for the three months ended September 30, 2025 was $7.0 million compared to $6.7 million for the three months ended September 30, 2024, an increase of $258 thousand, or 3.8%. This increase was attributable to hiring new employees with skills and experience necessary to support our strategic goals. The average number of full-time equivalent employees was 194 for the three months ended September 30, 2025 compared to 181 for three months ended September 30, 2024.

Occupancy and equipment expense for the three months ended September 30, 2025 was $850 thousand compared to $754 thousand for the three months ended September 30, 2024, an increase of $96 thousand, or 12.7%. This increase was primarily due to new leases and rental increases, property taxes and depreciation, and upkeep related to the properties.

Software and technology expense for the three months ended September 30, 2025 was $788 thousand compared to $671 thousand for the three months ended September 30, 2024, an increase of $117 thousand, or 17.4%. This expense was primarily comprised of our information technology services, software licenses and maintenance and commensurate with the Company growth.

Other professional services expense for the three months ended September 30, 2025 was $571 thousand compared to $358 thousand for the three months ended September 30, 2024, an increase of $213 thousand, or 59.5%. This increase was across multiple categories, primarily due to higher accounting fees, recruiting fees and consultant fees; offset by a net decrease in other categories, primarily loan collection related expense.

Data processing expense for the three months ended September 30, 2025 was $647 thousand compared to $548 thousand for the three months ended September 30, 2024, an increase of $99 thousand, or 18.1%. The data processing expense increase was due to increased wire and account processing volumes and other processing costs and is commensurate with growth, generally.

FDIC insurance and regulatory assessment expense for the three months ended September 30, 2025 was $419 thousand compared to $344 thousand for the three months ended September 30, 2024, an increase of $75 thousand, or 21.8%. This increase was primarily attributable to changes in the Bank's asset mix and growth rates.

Marketing and advertising expense for the three months ended September 30, 2025 was $245 thousand compared to $243 thousand for the three months ended September 30, 2024 and remained relatively flat. Marketing and advertising costs are associated with digital advertising, mailings, and sponsorship. Marketing and advertising expense is included in Other noninterest expenses in our Company’s Consolidated Statements of Operations.

Other noninterest expenses, excluding marketing and advertising expense, for the three months ended September 30, 2025 were $1.4 million compared to $1.2 million for the three months ended September 30, 2024, an increase of $166 thousand, or 14.0%. This increase was primarily attributable to increases in board of directors fees paid in cash, as no equity awards were granted to the Board of Directors in 2025, and general and administrative expense. Included in other noninterest expense for the three months ended September 30, 2025 and 2024 were directors’ fees paid in cash of $176 thousand and $79 thousand, respectively.

Income Tax Expense

Income tax expense for the three months ended September 30, 2025 and 2024 was $2.0 million and $2.2 million, respectively. Effective tax rates were 23.2% and 22.1% for the three months ended September 30, 2025 and 2024, respectively. The increase in effective tax rate compared to the three months ended September 30, 2024 was due to a lower recognition of low income housing tax credits during the three months ended September 30, 2025.

Results of Operations — Comparison of Results of Operations for the Nine Months Ended September 30, 2025 and 2024

The following discussion of our results of operations compares the nine months ended September 30, 2025 and 2024. We reported net income for the nine months ended September 30, 2025 of $17.8 million compared to net income of $16.2 million for the nine months ended September 30, 2024. The increase of $1.6 million was primarily due to a nonrecurring previously disclosed strategic repositioning of approximately $42.6 million of AFS securities that resulted in an approximately $2.7 million loss on sale, net of tax, during the nine months ended September 30, 2024 and an overall better performance during the nine months ended September 30, 2025.

Net Interest Income

The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. The income and yield from non-taxable investment securities was not adjusted for tax equivalency.

(dollars in thousands)

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing interest rates and volumes on our net interest income during the periods indicated. The information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Change applicable to both volumes and rate have been allocated to volume.

(dollars in thousands)

Net interest income for the nine months ended September 30, 2025 was $54.0 million compared to $49.1 million for the nine months ended September 30, 2024, an increase of $5.0 million, or 10.1%. This increase was primarily due to an increase in the average balance of our total interest-earning assets while the yield decreased at a lower rate compared the decrease in the average rate paid on interest-bearing liabilities despite growth in average interest-bearing liabilities. The increase in the average balance for the total interest-earning assets was primarily due to an increase in average loans outstanding. The yield on total earning assets and interest-bearing liabilities decreased by 21 and 48 basis points, respectively, during the same period.

Total interest income for the nine months ended September 30, 2025 was $94.7 million compared to $93.1 million for the nine months ended September 30, 2024, an increase of $1.6 million, or 1.7%. This increase was primarily due to growth in our average total earning assets by $104.7 million principally in the average loans portfolio, notwithstanding a decrease in yields by 21 basis points from the comparable period.

Interest and fees on LHFI were $70.7 million for the nine months ended September 30, 2025 compared to $70.9 million for the nine months ended September 30, 2024, a decrease of $181 thousand, or 0.3%. This decrease was primarily attributable to the yield decrease on gross LHFI by 32 basis points compared to the same period last year. Interest and fees on LHFS were $9.5 million for the nine months ended September 30, 2025 compared to $6.9 million for the nine months ended September 30, 2024. This increase was primarily due to an increase in the average balance of LHFS outstanding, notwithstanding a decrease in yields by 46 basis points.

Interest income on investment securities was $11.8 million for the nine months ended September 30, 2025 compared to $12.1 million for the nine months ended September 30, 2024, a decrease of $252 thousand, or 2.1%. This decrease was primarily due to a decrease in the average balance by $13.8 million despite the yield on investment securities increasing by 9 basis points.

Interest expense for the nine months ended September 30, 2025 was $40.7 million compared to $44.1 million for the nine months ended September 30, 2024, a decrease of $3.4 million, or 7.7%. This decrease was primarily attributable to a 48 basis point decrease in the average yield on overall total interest-bearing liabilities, primarily in money markets and time deposits, due to rates adjustments. Average borrowings outstanding decreased from September 30, 2024 to September 30, 2025 by $74.4 million, or 76.5%, principally due to payoff of a $70.0 million BTFP that was outstanding during the nine months ended September 30, 2024, while the yield increased by 210 basis points, primarily due to a $236 thousand debt issuance costs which were accelerated due to calling of the Company's subordinated debt.

Net interest margin for the nine months ended September 30, 2025 and 2024 was 3.48% and 3.32%, respectively. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve. This increase in our net interest margin was primarily due to the increase in average interest-earning assets coupled with a decrease in yield on total earning assets at a lower pace as compared the decrease in yield for total interest-earning liabilities as discussed above.

Provision for Credit Losses

Provision (recovery) for credit losses for the nine months ended September 30, 2025 was $2.0 million compared to ($687) thousand for the nine months ended September 30, 2024, an increase of $2.7 million. This increase was primarily attributable to increased production of LHFI and unfunded commitments, changes in economic factors, and current period net charge-offs, and an increase in reserves of individually analyzed collateral-dependent loans, offset by other changes in loss rates, coupled with a nonrecurring recapture of $1.0 million of unfunded commitments ACL during nine months ended September 30, 2024. Our allowance for credit losses as a percentage of gross LHFI at September 30, 2025 and 2024 was 1.16% and 1.11%, respectively.

Noninterest Income

Noninterest income for the nine months ended September 30, 2025 was $5.8 million, an increase of $3.2 million or 126.0%, compared to $2.6 million for the nine months ended September 30, 2024. This increase was primarily attributable to the previously disclosed loss on sale of AFS securities of $3.5 million, pre-tax, due to an AFS portfolio strategic repositioning during the nine months ended September 30, 2024, offset by a net decrease in other noninterest income categories, principally in gain on sale of GGL.

The following table sets forth the various components of our noninterest income for the periods indicated:

(dollars in thousands)

BOLI income increased by $126 thousand to $1.4 million for the nine months ended September 30, 2025 compared to $1.2 million for the nine months ended September 30, 2024. This increase was primarily attributable to an overall increase in total cash surrender value over time.

Mortgage banking related income increased by $33 thousand to $846 thousand for the nine months ended September 30, 2025 compared to $813 thousand for the nine months ended September 30, 2024. This increase was primarily due to higher revenue from mortgage production which is comprised primarily of activity related to the sale of consumer mortgage loans as well as loan origination fees such as closing charges, document review fees, application fees, other loan origination fees, and loan processing fees, albeit slightly lower secondary market volume.

Gain on sale of GGL decreased by $788 thousand to $878 thousand for the nine months ended September 30, 2025 compared to $1.7 million for the same period during 2024. The Company's gain on the sale of GGL volume increases or decreases based on the attractiveness of market premiums and the amount of inventory of loans that are saleable.

Interchange and card fee income increased by $103 thousand to $761 thousand for the nine months ended September 30, 2025 compared to $658 thousand for the nine months ended September 30, 2024. This increase was attributable to an increase in interchange fees from debit cardholder transactions conducted through a payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are earned on a daily basis.

Service charges on deposit accounts increased by $17 thousand to $634 thousand for the nine months ended September 30, 2025 compared to $617 thousand for the nine months ended September 30, 2024. This increase was attributable to higher number of NSF and overdraft fees charged during 2025.

Losses on sale of AFS securities were $10 thousand during the nine months ended September 30, 2025 compared to $3.5 million for the nine months ended September 30, 2024. The losses on sale of AFS securities during the nine months ended September 30, 2024 were due to a previously disclosed nonrecurring AFS portfolio strategic repositioning in 2024.

Other noninterest income increased by $274 thousand to $1.3 million for the nine months ended September 30, 2025 compared to $1.0 million for the nine months ended September 30, 2024. This increase was primarily due to a $438 thousand of income recognized from a Small Business Investment Company ("SBIC") partnership investment related to the sale of one of the fund's underlying investments; offset by a net decrease in other noninterest income, primarily other gain related to an OREO property. Apart from this SBIC partnership related income, the largest component of other non-interest income generally consists of SBA loan servicing fees. SBA loan servicing fees increased by $47 thousand during the nine months ended September 30, 2025 compared to the same period in 2024.

Noninterest Expense

Noninterest expense for the nine months ended September 30, 2025 was $35.4 million compared to $31.7 million for the nine months ended September 30, 2024, an increase of $3.6 million, or 11.5%. This increase was across all noninterest expense categories but primarily in salaries and employee benefits, due to Company's growth and compensation adjustments, other professional services and other noninterest expense.

The following table sets forth the major components of our noninterest expense for the nine months ended September 30, 2025 and 2024:

(dollars in thousands)

Salaries and employee benefits expense for the nine months ended September 30, 2025 was $20.7 million compared to $19.4 million for the nine months ended September 30, 2024, an increase of $1.2 million, or 6.4%. This increase was attributable to hiring new employees with skills and experience necessary to support our strategic goals and annual salary adjustments. The average number of full-time equivalent employees was 187 for the nine months ended September 30, 2025 compared to 180 for the nine months ended September 30, 2024.

Occupancy and equipment expense for the nine months ended September 30, 2025 was $2.5 million compared to $2.2 million for the nine months ended September 30, 2024, an increase of $219 thousand, or 9.8%. This increase was primarily due to rental increments, property taxes and depreciation, and upkeep related to the properties.

Software and technology expense for the nine months ended September 30, 2025 was $2.2 million compared to $2.0 million for the nine months ended September 30, 2024, an increase of $242 thousand, or 12.3%. This expense was primarily comprised of our information technology services, software licenses and maintenance and were commensurate with Company growth, generally.

Other professional services expense for the nine months ended September 30, 2025 was $2.2 million compared to $1.6 million for the nine months ended September 30, 2024, an increase of $687 thousand, or 44.3%. This increase was across multiple categories, but primarily in loan collection related expenses, employees recruiting fees, accounting fees and consultant fees.

Data processing expense for the nine months ended September 30, 2025 was $1.9 million compared to $1.6 million for the nine months ended September 30, 2024, an increase of $316 thousand, or 19.7%. Data processing expense increase was in line with the Company's increased wire and account processing volumes and other processing costs that were commensurate with growth, generally.

FDIC insurance and regulatory assessment expense for the nine months ended September 30, 2025 was $1.1 million compared to $955 thousand for the nine months ended September 30, 2024, an increase of $169 thousand, or 17.7%. This increase was primarily attributable to increases in capital and changes in asset mix and asset growth rates from 2024 to 2025.

Marketing and advertising expense for the nine months ended September 30, 2025 was $747 thousand compared to $619 thousand for the nine months ended September 30, 2024, an increase of $128 thousand, or 20.7%. This increase was primarily attributable to higher marketing and advertising costs associated with increased digital advertising, mailings, and sponsorships during 2025. Marketing and advertising expense is included in other noninterest expenses in our Company’s Consolidated Statements of Operations.

Other noninterest expenses, excluding marketing and advertising expense, for the nine months ended September 30, 2025 were $4.0 million compared to $3.4 million for the nine months ended September 30, 2024, an increase of $625 thousand, or 18.5%. This increase was across multiple categories but primarily was attributable to increases in board of directors fees paid in cash, as no equity award were granted to the Board of Directors in 2025, general and administrative, and OREO writedowns. Included in other noninterest expenses for the nine months ended September 30, 2025 and 2024 were directors’ fees paid in cash of $527 thousand and $238 thousand, respectively.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2025 and 2024 was $4.6 million and $4.4 million, respectively. Effective tax rates were 20.7% and 21.2% for the nine months ended September 30, 2025 and 2024, respectively. The decrease in effective tax rate compared to the nine months ended September 30, 2024 was due to a higher recognition of tax credits during the nine months ended September 30, 2025. We carried a net deferred tax asset of $16.3 million and $16.8 million at September 30, 2025 and 2024, respectively.

Financial Condition

Total Assets

Total assets increased $156.7 million, or 7.5%, to $2.26 billion at September 30, 2025 compared to $2.10 billion at December 31,

2024. The increasing trend in total assets was primarily attributable to growth of our loans held for investment portfolio.

Loans

Loans represent the largest portion of our earning assets, substantially greater than the securities portfolio or any other of our asset category.

Average loans, including both LHFI and LHFS, were 79.4% and 77.7% of average earning assets as of September 30, 2025 and December 31, 2024, respectively. Therefore, the quality and diversification of our loan portfolio is an important consideration when reviewing our financial condition. The Company has established systematic procedures for approving and monitoring loans that vary depending on the size and nature of the loan and applies these procedures in a disciplined manner. Total gross loans of $1.78 billion at September 30, 2025 represent an increase of $201.1 million or 12.7% as compared to December 31, 2024.

LHFS are comprised of loans acquired through mortgage warehouse lending activities and origination of mortgage loans. We act as a warehouse lender by purchasing loans originated by third-party mortgage originators and selling these loans to other third-party investors. We also originate mortgage loans with customers through CSM and sell these loans to third-party investors. LHFS at September 30, 2025 were $231.6 million compared to $174.0 million at December 31, 2024. The growth in LHFS was due to increased mortgage refinance volume and growth in customers that originate higher volumes of loans.

Gross LHFI increased $143.5 million, or 10.2%, to $1.55 billion as of September 30, 2025 compared to $1.41 billion at December 31, 2024. There was a higher market demand for our commercial and retail loan products during the nine months ended September 30, 2025 from December 31, 2024 as the Company experienced strong loan demand and has been able to close many deals in the pipeline.

The Company engages in a full complement of lending activities, including CRE loans, construction loans, C&I, and consumer purpose loans. Our loan portfolio has concentrations of over 10% of LHFI in income producing CRE, senior housing, marine vessels loans, and residential mortgages with the remaining balance in other categories within commercial and retail loans categories.

The following table presents the balance and associated percentage of each major category in our loan portfolio as of September 30, 2025 and December 31, 2024:

(dollars in thousands)

The Company has established a policy for managing concentration limits in the loan portfolio for commercial real estate, senior housing, and marine lending, among other loan types. All loan types are within established limits. We use underwriting guidelines to assess the borrowers’ historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending agreements, when appropriate, to allow us to react to a borrower’s deteriorating financial condition, should that occur.

The following tables presents the maturity distribution of our loans as of September 30, 2025 and December 31, 2024. The tables show the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates:

(dollars in thousands)

(dollars in thousands)

The following is a discussion of the Company's segments and classes of LHFI:

Commercial Loans

As of September 30, 2025, our total commercial loans comprised of $933.5 million or 60.1%, of loans, compared to $864.4 million, or 61.3% of loans, as of December 31, 2024. Our total commercial loans balances increased by $69.1 million, or 8.0% at September 30, 2025 compared to December 31, 2024.

Following below are our principal commercial loans portfolio categories:

Acquisition, Development, and Construction – ADC loans include both loans and credit lines for the purpose of purchasing, carrying, and developing land into residential subdivisions or various types of commercial developments, such as industrial, hospitality, warehouse, retail, office, and multi-family. This category also includes loans and credit lines for construction of residential developments, multi-family buildings, and commercial buildings. The Company generally engages in ADC lending primarily in local markets served by its branches, and through our homebuilder finance and government guaranteed lending lines of business. The Company recognizes that risks are inherent in the financing of commercial real estate development and construction. These risks include location, market conditions and price volatility, change in interest rates, demand for developed land, lots and buildings, desirability of features and styling of completed developments and buildings, competition from other developments and builders, traffic patterns, remote work patterns, governmental jurisdiction, tax structure, availability of utilities, roads, public transportation and schools, availability of permanent financing for homebuyers, zoning, environmental restrictions, lawsuits, economic and business cycle, labor, and reputation of the builder or developer.

Each ADC loan is underwritten to address: (i) the desirability of the project, its market viability and projected absorption period; (ii) the creditworthiness of the borrower and the guarantor as to liquidity, cash flow and assets available to ensure performance of the loan; (iii) equity contribution to the project; (iv) the developer’s experience and success with similar projects; and (v) the value of the collateral. ADC loans are inspected periodically to ensure that the project is on schedule and eligible for requested draws. Inspections may be performed by construction inspectors hired by the Company or by appropriate loan officers and are conducted periodically to monitor the progress of a particular project. These inspections may also include discussions with project managers and engineers. Rising interest rates and the potential for slowing economic conditions could negatively impact borrowers’ and guarantors’ ability to repay their debt which could make more of the Company’s loans collateral-dependent.

The following table presents the balance and associated percentage of each category in our ADC loan portfolio as of September 30, 2025 and December 31, 2024:

(dollars in thousands)

As of September 30, 2025, our ADC loans comprised of $106.8 million, or 6.9%, of loans, compared to $72.5 million, or 5.2% of loans, as of December 31, 2024. Our ADC loans balances increased $34.3 million or 47.3% since December 31, 2024 due to continued demand of the ADC loans in our markets.

Income Producing CRE – Income producing CRE loans include loans to finance income-producing commercial and multifamily properties. Lending in this category is generally limited to properties located in the Company’s market area with only limited exposure to properties located elsewhere but owned by in-market borrowers. Loans in this category include loans for neighborhood retail centers, medical and professional offices, single retail stores, warehouses and apartments leased generally to local businesses and residents. The underwriting of these loans takes into consideration the occupancy, rental rates, and local market demand as well as the financial health of the borrower. The primary risk associated with loans secured with income producing property is the inability of that property to produce adequate cash flow to service the debt. High unemployment, significant increases to interest rates, generally weak economic conditions and/or an oversupply in the market may result in our customers having difficulty achieving adequate occupancy and/or rental rates. Payments on such loans are often dependent on successful operation or management of the properties. The Company's income producing CRE portfolio is diverse, with exposure spread across multiple real estate purposes.

The following table presents the balance and associated percentage of each category in our income producing CRE loan portfolio as of September 30, 2025 and December 31, 2024:

(dollars in thousands)

As of September 30, 2025, our income producing CRE loans comprised of $371.7 million, or 23.9%, of loans, compared to $321.6 million, or 22.8% of loans, as of December 31, 2024. The weighted average original or renewal loan-to-value ("LTV") of income producing CRE loans with an outstanding balance of greater than $500 thousand, which makes up 96.2% of the CRE balances was 61.7% and 63.0% as of September 30, 2025 and December 31, 2024, respectively. Our income producing CRE loans balances increased $50.1 million, or 15.6% since December 31, 2024 due to a steady demand in our markets and the reclassification of certain ADC loans to this category that completed construction during the period.

Owner-Occupied CRE – Owner-occupied CRE loans include loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized enterprises. These include both lines of credit and term loans which are amortized over the useful life of the assets financed. Personal guarantees, if applicable, are generally required for these loans. The Company recognizes that risk from economic cycles, pandemics, government regulation, supply chain disruptions, product innovations or obsolescence, operational errors, lawsuits, natural disasters, losses due to theft or embezzlement, health or loss of key personnel, or competitive situations may adversely affect the scheduled repayment of business loans.

The following table presents the balance and associated percentage of each category in our owner-occupied CRE loan portfolio as of September 30, 2025 and December 31, 2024:

(dollars in thousands)

As of September 30, 2025, our owner-occupied CRE loans comprised of $96.3 million, or 6.2%, of loans, compared to $94.6 million, or 6.7% of loans, as of December 31, 2024. The weighted average original or renewal LTV of owner-occupied CRE loans with an outstanding balance of greater than $500 thousand, which makes up 74.7% of the balances at September 30, 2025, was 76.7% and 76.1% as of September 30, 2025 and December 31, 2024, respectively. Our owner-occupied CRE loans balances increased $1.7 million or 1.8% since December 31, 2024 as competition remains fierce for this loan type.

Senior Housing – Senior housing loans support senior adults facilities, including loans for independent living communities, assisted living and memory care communities, nursing homes or skilled nursing facilities, and continuing care retirement communities. The Company recognizes that risk from high resident turnover, pandemics, government regulation, operator risk, increases in acuity, availability and cost of qualified staffing resources, technology risk, and other risks such as liability, insurance, reimbursement and regulatory changes may impact repayment of these loans. Underwriting focuses primarily on operator quality and business operations rather than income producing CRE property quality metrics.

As of September 30, 2025, our Senior housing loans comprised of $223.7 million or 14.4%, of loans, compared to $234.1 million, or 16.6% of loans as of December 31, 2024. The weighted average original or renewal LTV of Senior housing loans was 62.0% and 62.4% as of September 30, 2025 and December 31, 2024, respectively. Our Senior housing loans were comprised of 48.8% non-owner occupied CRE, 43.2% owner-occupied CRE and 8.0% construction loans as of September 30, 2025, and were comprised of 64.7% non-owner occupied CRE, 30.9% owner-occupied CRE and 4.4% construction loans at December 31, 2024. Our Senior housing loans balances decreased $10.4 million or 4.4% since December 31, 2024 as the Company continues monitoring its concentration of Senior housing loans.

Commercial and Industrial – C&I loans are loans and lines of credit to finance business operations, equipment and other non-real estate collateral primarily for small and medium-sized enterprises. These include both lines of credit and term loans which are amortized over the useful life of the assets financed. Personal and/or corporate guarantees are generally obtained where available and prudent. The Company recognizes that risk from economic cycles, commodity prices, pandemics, government regulation, supply-chain disruptions, product innovations or obsolescence, operational errors, lawsuits, natural disasters, losses due to theft or embezzlement, health or loss of key personnel or competitive situations may adversely affect the scheduled repayment of business loans.

As of September 30, 2025, our C&I loans comprised of $135.0 million, or 8.7% of loans, compared to $141.6 million, or 10.0% of loans, as of December 31, 2024. Our C&I loans balances decreased by $6.6 million or 4.7% since December 31, 2024 due to lower production.

Retail Loans

As of September 30, 2025, our total retail loans comprised of $619.5 million, or 39.9% of loans, compared to $545.1 million, or 38.7% of loans, as of December 31, 2024. Our total retail loans balances increased $74.4 million or 13.6% since December 31, 2024 due to a higher production and demand for our retail products, primarily marine vessels and residential mortgages loans.

Following below are our principal retail loans portfolio categories:

Residential Mortgages – Residential mortgages are first or second-lien loans secured by a primary residence or second home. This category includes permanent mortgage financing, construction loans to individual consumers, and home equity lines of credit. The loans are generally secured by properties located within the local market area of the Bank's retail footprint which originates and services the loan. These loans are underwritten in accordance with the Company’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history, and property value. In addition to loans originated through the Company’s branches, the Company originates and services residential mortgages sold in the secondary market which are underwritten and closed pursuant to investor and agency guidelines. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral.

As of September 30, 2025, our residential mortgage loans comprised of $190.2 million, or 12.2% of loans, compared to $174.1 million, or 12.4% of loans, as of December 31, 2024. Our residential mortgage loans balances increased $16.1 million or 9.3% since December 31, 2024 due to continued demand for our residential mortgage products.

During the nine months ended September 30, 2025, we originated $67.2 million and sold $33.2 million in home mortgage loans. During the year ended December 31, 2024, we originated $86.0 million and sold $49.5 million in home mortgage loans.

Marine Vessels – Marine vessel loans are a type of consumer loan used to finance the purchase of a boat or another marine craft. Functioning similarly to auto loans and personal loans, these installment loans come with a repayment term, fixed monthly payments and variable-or-fixed interest rates. These loans are underwritten in accordance with the Company’s general loan policies and procedures and are generally secured with title or preferred ships' mortgage on the marine vessel. The Company recognizes that risk from economic cycles, pandemics, government regulation, natural disasters, losses due to theft, or changes to customer's ability to meet the scheduled repayment of the marine vessel.

As of September 30, 2025, our marine vessels loans comprised of $318.2 million or 20.5%, of loans, compared to $263.7 million, or 18.6% of loans, as of December 31, 2024. Our marine vessels loans balances increased $54.6 million or 20.7% since December 31, 2024 due to higher demand for our marine vessels loans product.

Cash Value Life Insurance Line of Credit – Cash value life insurance ("CVLI") encompasses multiple types of life insurance that contain a cash value account. This cash value component typically earns interest or other investment gains and grows tax deferred. CVLI loans are generally lines of credit secured by cash value life insurance of the debtor and can be originated for personal or business purposes. Upon the delinquency of the loan or lapse of an insurance policy premium payment, the Company pursues liquidation of the policy cash value in order to satisfy the loan.

As of September 30, 2025, our CVLI loans comprised of $90.1 million, or 5.8% of loans, compared to $86.8 million, or 6.2% of loans, as of December 31, 2024. Our CVLI loans balances increased modestly by $3.3 million or 3.8% since December 31, 2024 as higher interest rates have softened demand for the product.

As of September 30, 2025, our other consumer loans comprised of $20.9 million, or 1.4% of loans, compared to $20.5 million, or 1.5% of loans, as of December 31, 2024. Our other consumer loans balances increased $408 thousand or 2.0% since December 31, 2024 as higher interest rates have softened demand for the product.

Internally Assigned Grades on LHFI

The Company utilizes an internal loan classification system for the Commercial portfolio that is updated to perpetually grade loans according to certain credit quality indicators. These credit quality indicators include, but are not limited to, recent credit performance, delinquency, liquidity, cash flows, debt coverage ratios, collateral type and LTV ratio. The Company determines its risk rating classification of the Retail lending portfolio based on nonaccrual and delinquency status in accordance with the Uniform Retail Credit Classification guidance and industry norms. See Note 3 to the consolidated financial statements.

The following tables provides details of the Company’s loan and lease portfolio by segment, class, and internally

assigned grade at September 30, 2025 and December 31, 2024:

(dollars in thousands)

(1) Retail loans are not risk rated but are classified as performing or nonperforming. Performing loans are presented in the Pass category and nonperforming loans are in the Substandard category.

(dollars in thousands)

(1) Retail loans are not risk rated but are classified as performing or nonperforming. Performing loans are presented in the Pass category and nonperforming loans are in the Substandard category.

Pass rated loans were 97.7% of total LHFI at September 30, 2025 as compared to 96.0% at December 31, 2024. Special mention rated loans were 1.2% of total LHFI at September 30, 2025 as compared to 1.8% at December 31, 2024. Substandard loans were 1.1% of total LHFI at September 30, 2025 as compared to 2.2% at December 31, 2024. The primary cause of the decrease in special mention and substandard loans during the comparative periods is a combination of payoffs, paydowns, and improved business performance within the Senior Housing loan portfolio.

Nonperforming Loans

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. Loans are placed on nonaccrual status when it becomes probable that interest is not fully collectable generally when the loan becomes 90 days past due. Once loans are placed on nonaccrual status, previously accrued but unpaid interest is reversed from interest income, and the accrual of interest income is suspended. Future payments received are applied to the principal balance of the loan. If and when borrowers demonstrate the sustained ability to repay such loans in accordance with the loan’s contractual terms, the loan may be returned to accrual status. Loans which become 90 days past due are reviewed for collectability of principal. Principal amounts deemed uncollectible are charged off against the provision for credit losses on loans, unless such loans are in the process of modification, collection through repossession, or foreclosure. Certain consumer loans are not placed on nonaccrual but are monitored and charged-off at 120 days past due.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned until sold and is recorded at the lower of cost or fair value, minus estimated costs to sell. Subsequent to foreclosure, losses resulting from the periodic revaluation of the property are charged to loss on OREO, net and a new carrying value is established. Any gains or losses realized at the time of disposal or subsequent write-downs are reflected in the Consolidated Statements of Operations. Expenses to maintain such assets are included in net cost of operation of OREO.

Nonperforming loans include loans 90 days or more past due and still accruing and loans accounted for on a nonaccrual basis. Nonperforming assets consist of nonperforming loans in addition to OREO.

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of September 30, 2025 and December 31, 2024:

(dollars in thousands)

(1) Nonaccrual loans include balances of approximately $4.5 million and $4.8 million that are covered by government guarantees at September 30, 2025 and December 31, 2024, respectively.

Nonperforming loans were $14.2 million and $15.0 million at September 30, 2025 and December 31, 2024, respectively. The decrease in nonperforming loans from December 31, 2024 to September 30, 2025 was primarily due to the sale of other real estate owned and payments collected on nonaccrual loans during the period.

The following table sets forth the major classifications of nonaccrual loans as of September 30, 2025 and December 31, 2024:

(dollars in thousands)

Allowance for Credit Losses on Loans

The ACL on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The ACL represents management's best estimate of credit losses expected over the life of the loan, adjusted for expected contractual payments and the impact of prepayment expectations. ACL is not required for LHFS and is only recorded for LHFI.

The Company estimates the ACL on loans based on the underlying loans’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. It is the Company's policy to write off uncollectible interest receivable of LHFI when it is considered uncollectible, which is generally when an asset is placed on nonaccrual and exclude it from the ACL.

Expected credit losses are reflected in the ACL through a charge to Provision for credit losses. When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. Loans are charged off against the ACL when management believes the collection of the principal is unlikely. Subsequent recoveries of previously charged off amounts, if any, are credited to the ACL when received. See Note 1 of our consolidated financial statements as of December 31, 2024 for additional information regarding ACL policy.

It is management's policy to maintain the ACL at a level adequate for risks inherent in the loan portfolio. Based on the information currently available, management believes that our ACL is adequate. However, the loan portfolio can be adversely affected if economic conditions or the real estate market in our market areas were to weaken. The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and increased loan losses, which could adversely affect our future growth and profitability. No assurance of the ultimate level of credit losses can be given with any certainty.

The allowance for credit losses on loans was $18.0 million at September 30, 2025 compared to $17.1 million at December 31, 2024, an increase of $910 thousand, or 5.3% primarily attributed to increased production of LHFI, offset by changes in loss rates and a decrease in reserves on individually analyzed collateral-dependent loans.

Analysis of the Allowance for Credit Losses on Loans. The following table provides an analysis of the ACL on loans and net charge-offs for the periods presented:

(dollars in thousands)

(1) Excludes allowance for credit losses for unfunded loans commitments.

At September 30, 2025, the ACL on loans totaled $18.0 million, or 1.16% of LHFI, compared to $17.1 million, or 1.21% of LHFI, at December 31, 2024. The decrease in the ACL on loans as a percentage of loans compared to December 31, 2024 was primarily attributed to changes in loan volume and mix and changes in economic factors offset by other changes in loss rates and a decrease in reserves on individually analyzed collateral-dependent loans.

For the nine months ended September 30, 2025, our net charge-off ratio as a percentage of average loans, as annualized, was 0.03%, compared to 0.01% for the year ended December 31, 2024. Originating and maintaining high quality loans is a top priority for the management.

As of September 30, 2025, our ratio of nonperforming assets to total assets was 0.63%, compared to 0.76% as of December 31, 2024. The decrease was due to the sale of other real estate owned and payments collected on nonaccrual loans during the period.

The following table allocates the allowance for credit losses on loans by loan category for the periods presented:

(dollars in thousands)

Allowance for Credit Losses for Unfunded Commitments

The Company records an ACL for unfunded loan commitments, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s Consolidated Statements of Operations. The ACL for unfunded commitment exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur. The ACL for unfunded commitments is included in Other liabilities on the Company’s Consolidated Balance Sheets.

As of September 30, 2025, the ACL for unfunded commitments was $3.5 million compared to $2.7 million at December 31, 2024. The increase in the ACL for unfunded commitments was primarily due to production of new loan commitments.

Net Charge-offs

The following table summarizes net charge-offs to average loans for the nine months ended September 30, 2025, as annualized, and for the year ended December 31, 2024:

(dollars in thousands)

(1) Represents annualized September 30, 2025 data.

Net charge-offs were $348 thousand and $96 thousand as of September 30, 2025 and December 31, 2024, respectively.

Deposits

Deposits represent our Bank’s primary source of funds. We gather deposits primarily through our branch locations and targeting new deposits relationships by our bankers. We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts, and certificate of deposits. We put continued effort into gathering noninterest demand deposits accounts through marketing to our existing and new loan customers, customer referrals, and expansion into new markets. As the Company wins new loan customers and targets new deposit relationships with competitive rates on interest bearing accounts, our bankers are focused on ensuring that we win the entire relationship, including operating accounts, so that we can preserve our attractive mix of deposits.

Total deposits increased $114.9 million, or 6.3%, to $1.95 billion at September 30, 2025 compared to $1.83 billion at December 31, 2024. As of September 30, 2025, 16.1% of total deposits were comprised of noninterest-bearing deposits accounts and 83.9% of interest-bearing deposit accounts compared to 16.5% and 83.5% as of December 31, 2024, respectively. These increases were due to a continued result of pursuing and winning new relationships as well as maintaining our existing relationships.

At September 30, 2025, we had total brokered CDs of $294.9 million, or 15.1% of total deposits, compared to $274.9 million, or 15.0% of total deposits, at December 31, 2024. We selectively use brokered CDs, subject to certain well defined limits, to support targeted loan growth, manage liquidity, and manage interest rate risk. Our level of brokered CDs varies from time to time depending on competitive interest rate conditions and other factors and tends to increase as a percentage of total deposits when the brokered CDs are less costly than issuing internet certificates of deposit or borrowing from the FHLBA.

At September 30, 2025, our uninsured deposits were $697.9 million, or 35.8% of total deposits, compared to $667.4 million, or 36.4% of total deposits, at December 31, 2024.

The following table summarizes our average deposit balances and weighted average rates as of September 30, 2025 and December 31, 2024:

(dollars in thousands)

(1) Annualized weighted average rate for September 30, 2025.

The following tables set forth the maturity of time deposits as of September 30, 2025:

(dollars in thousands)

Commercial Mortgage Servicing Rights

As of September 30, 2025 and December 31, 2024, we serviced $119.3 million and $120.4 million, respectively, of SBA and United States Department of Agriculture loans for others. The size of this loan servicing portfolio has grown over the last few years as we consistently originated and sold portions of these loans that we originate while retaining loan servicing rights. Activity for commercial mortgage servicing rights was as follows:

(dollars in thousands)

(1) Comprised of amortization.

Our commercial mortgage servicing rights are included in intangible assets on our consolidated balance sheets and are reported net of amortization and impairment, if any.

Other Borrowings

The Company utilizes FHLBA advances as a supplementary funding source to finance our operations. These FHLBA advances are collateralized by securities owned by the Company and held in safekeeping by the FHLBA, FHLBA stock owned by the Company, and certain qualifying loans secured by real estate, including residential mortgage loans, home equity lines of credit and commercial real estate loans.

At September 30, 2025 and December 31, 2024, we had a maximum borrowing capacity from the FHLBA of $178.0 million and $162.8 million, respectively. We had 25.0 million and $15.0 million of FHLBA advances outstanding as of September 30, 2025 and December 31, 2024, respectively.

The Company had no line of credit outstanding as of September 30, 2025, and a $12.0 million line of credit outstanding, net of debt costs, as of December 31, 2024 with a maximum commitment availability of $24.0 million at September 30, 2025 and December 31, 2024.

As of September 30, 2025, the Company had no subordinated debt outstanding. As of December 31, 2024, the Company had $14.7 million of subordinated debt, net of debt costs, outstanding.

Investment Portfolio

The securities portfolio is the second largest component of our interest earning assets. The portfolio serves the following purposes: (i) to optimize the Bank’s income consistent with the investment portfolio’s liquidity and risk objectives; (ii) to balance market and credit risks of other assets and the Bank’s liability structure; (iii) to profitably deploy funds which are not needed to fulfill loan demand, deposit redemptions or other liquidity purposes; and (iv) provide collateral which the Bank is required to pledge against public funds.

We classify our securities as either available-for-sale or held-to-maturity at the time of purchase. Investment securities not classified as either held-to-maturity or trading are classified as available-for-sale. All of the securities in our investment portfolio were classified as available-for-sale as of September 30, 2025 and December 31, 2024. Investment securities available-for-sale are stated at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of AOCI in the Consolidated Statements of Comprehensive Income. Monthly adjustments are made to reflect changes in the fair value of our available-for-sale securities.

Securities available-for-sale consist primarily of U.S. Treasuries, municipal obligations, mortgage-backed securities, asset-backed securities, and corporate debt securities. No issuer of the available-for-sale securities comprised more than ten percent of our shareholders’ equity as of September 30, 2025 and December 31, 2024, except Federal Home Loan Mortgage Corp ("FHLMC"), Federal National Mortgage Association ("FNMA') and Government National Mortgage Association ("Ginnie Mae") within those periods.

The following table summarizes the fair value of the available-for-sale securities portfolio as of September 30, 2025 and December 31, 2024:

(dollars in thousands)

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At September 30, 2025, we evaluated securities available-for-sale which had an unrealized loss to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value with a charge to earnings. We do not intend to sell these securities, and it is not more likely than not that we will be required to sell them before recovery of the amortized cost basis, which may be at maturity.

The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of September 30, 2025. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Yields were computed using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, considering the expected life of each security. The weighted average yield for each maturity range was computed using the amortized cost of each security within the applicable maturity range. The yield on non-taxable investments was not adjusted for tax equivalency.

(dollars in thousands)

We utilize interest rate swaps agreements for some of our AFS securities as part of our asset-liability management strategy to help mitigate its interest rate risk. As of September 30, 2025 and December 31, 2024, the carrying amount of our hedged securities available for sale related to cumulative basis adjustment for the fair value hedges was $23.7 million and $22.6 million, respectively.

Liquidity

The term liquidity refers to the measure of our ability to meet cash flow requirements of our depositors and borrowers, while at the same time meeting our operational, capital, and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities in order to meet the return on investment objectives of our shareholders.

The Bank’s Asset and Liability Committee, as well as the Credit and Risk Committee of the Board of Directors are the primary groups responsible for monitoring the Bank’s liquidity position. We have identified various liquidity metrics and ratios, including the volatile funds ratio, non-core funding dependency ratio and loan to deposit ratio that these committees use to monitor the Bank’s liquidity position. Further, these groups are also responsible for reviewing and monitoring the stress testing of the Bank's overall liquidity under multiple liquidity stress scenarios. As of September 30, 2025 the Bank was in compliance with all internal policies and guidelines.

Our liquidity position is supported by management of our liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLBA advances, and the Federal Reserve discount window.

Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and new customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.

As part of our liquidity management strategy, we open federal funds lines with our correspondent banks. As of September 30, 2025 and December 31, 2024, we had $69.5 million of unsecured federal funds lines with no amounts advanced.

As of September 30, 2025 and December 31, 2024, we had access to the Federal Reserve’s discount window in the amount of $29.7 million and $30.4 million, respectively. There were no borrowings outstanding as of September 30, 2025 and December 31, 2024 for the Federal Reserve’s discount window. We had pledged investment securities at September 30, 2025 and December 31, 2024 totaling $9.0 million and $8.5 million, respectively, as collateral for federal funds purchased. In addition, we also had pledged investment securities at September 30, 2025 and December 31, 2024, totaling $31.4 million and $32.1 million, respectively, as collateral at the Federal Reserve Bank.

At September 30, 2025 and December 31, 2024, we had $25.0 million and $15.0 million of outstanding advances from the FHLBA, respectively. Based on the values of collateral pledged, we had $145.0 million and $141.8 million as of September 30, 2025 and December 31, 2024, respectively, of additional borrowing availability with the FHLBA. We had no pledged investment securities at September 30, 2025 or December 31, 2024 pledged as collateral for the FHLBA advances. We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts.

Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the Federal Banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct adverse material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios. These include a CET1 risk-based capital ratio, a Tier 1 risk-based capital ratio, which includes CET1 and additional Tier 1 capital, and a total risk-based capital ratio, which includes Tier 1 and Tier 2 capital. CET1 is primarily comprised of the sum of common stock instruments and related surplus net of treasury stock plus retained earnings less certain adjustments and deductions, including with respect to goodwill, intangible assets, mortgage servicing assets, and deferred tax assets subject to temporary timing differences. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock. Tier 2 capital consists of instruments disqualified from Tier 1 capital, including qualifying subordinated debt and a limited amount of loan loss reserves up to a maximum of 1.25% of risk-weighted assets, subject to certain eligibility criteria. The capital rules also define the risk-weights assigned to assets and off-balance sheet items to determine the risk-weighted asset components of the risk-based capital rules, including, for example, certain “high volatility” commercial real estate, past due assets, structured securities, and equity holdings.

The Bank is also required to maintain capital at a minimum level based on total assets, which is known as the Tier 1 leverage ratio. The leverage capital ratio is the ratio of Tier 1 capital to quarterly average assets net of goodwill, certain other intangible assets, and certain required deduction items require the Bank to maintain:

(i) a minimum leverage ratio of Tier 1 capital to average total assets, after certain adjustments, of 4.0%,

(ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%,

(iii) a minimum ratio of total-capital to risk-weighted assets of 8.0% and,

(iv) a minimum ratio of CET1 to risk-weighted assets of 4.5%.

In addition, the capital rules require a capital conservation buffer of 2.5% above each of the minimum risk-based capital ratio requirements (CET1, Tier 1, and total capital), comprised of CET1, which is designed to absorb losses during periods of economic stress. These buffer requirements must be met for a bank or bank holding company to be able to pay dividends, engage in share buybacks, or make discretionary bonus payments to executive management without restriction. The capital conservation buffer in effect as of September 30, 2025 and December 31, 2024 was 4.90% and 4.97%, respectively.

Prompt Corrective Action — The Federal Banking agencies have broad powers with which to require companies to take prompt corrective action to resolve problems of insured depository institutions that do not meet minimum capital requirements. The law establishes five capital categories for this purpose:

(i) well-capitalized;

(ii) adequately capitalized;

(iii) undercapitalized;

(iv) significantly undercapitalized; and

(v) critically undercapitalized.

To be well-capitalized, the Bank must maintain at least the following capital ratios:

• 6.5% CET1 to risk-weighted assets;
• 8.0% Tier 1 capital to risk-weighted assets;
• 10.0% Total capital to risk-weighted assets; and
• 5.0% Tier 1 leverage ratio.

The table below summarizes the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Bank’s capital ratios as of September 30, 2025 and December 31, 2024. Because the Company is a small bank holding company under the guidelines of the Federal Reserve and is not required to report consolidated capital ratios for regulatory purposes, capital ratios are presented for the Bank only.

The Bank exceeded all regulatory capital requirements and was considered to be “well-capitalized” as of the dates reflected per the table below.

There have been no conditions or events since September 30, 2025 that management believes would change this classification.

The following table summarizes the capital amounts and ratios of CSB and the regulatory minimum requirements at September 30, 2025 and December 31, 2024:

58

Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations at September 30, 2025 and December 31, 2024:

(dollars in thousands)

(1) $25 million FHLB of Atlanta advance outstanding.

(dollars in thousands)

(1) $27 million due within one year includes a gross revolving commercial line of credit of $12 million and an FHLB of Atlanta advance of $15 million outstanding; $15 million due after five years represents gross subordinated debt outstanding.

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit and standby letters of credit.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the contractual notional amount of the instrument. Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company uses the same credit policies in making commitments to extend credit as it does for on-balance-sheet instruments.

Letters of credit are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as other lending facilities. Collateral held for commitments to extend credit and letters of credit varies but may include accounts receivable, inventory, property, plant, equipment and income-producing commercial properties.

See Note 4 of our consolidated financial statements as of September 30, 2025, included elsewhere in this Form 10-Q, for more information regarding our off-balance sheet arrangements as of September 30, 2025 and December 31, 2024.

Non-GAAP Financial Measure Reconciliations

The measures entitled return on average tangible book value per share, adjusted nonperforming assets to total assets, adjusted net income, adjusted basic earnings per share, adjusted diluted earnings per share, pre-tax, pre-provision net revenue, adjusted return on average assets, adjusted return on average equity, efficiency ratio, as adjusted, return on average tangible common equity, adjusted return on average tangible common equity, adjusted noninterest income to total revenue, and tangible common equity to tangible assets are not measures recognized under accounting principles generally accepted in the United States of America (“GAAP”) and therefore are considered non-GAAP financial measures. The most comparable GAAP measures to these measures are return on book value per share, total nonperforming assets to total assets, net income, basic earnings per share, diluted earnings per share, net income, return on average assets, return on average equity, the efficiency ratio, return on average equity, noninterest income to total revenue, total common equity to total assets, respectively.

Management believes that that these non-GAAP financial measures and the information they provide are useful to investors since these measures permit investors to view the Company’s performance using the same tools that management uses to evaluate the Company’s past performance and prospects for future performance. While management believes that these non-GAAP financial measures are useful in evaluating our performance, this information should be considered as supplemental and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Additionally, these non-GAAP financial measures should be considered as additional views of the way the Company’s financial measures are affected by significant items and other factors, and since they are not required to be uniformly applied, they may not be comparable to other similarly titled measures at other companies.

The following table reconciles, as of the dates set forth below, shareholders’ equity (on a GAAP basis) to tangible equity and total assets (on a GAAP basis) to tangible assets and calculates our tangible book value per share.

(dollars in thousands)

The efficiency ratio, as adjusted, is a non-GAAP measure of expense control relative to adjusted revenue. We calculate the efficiency ratio, adjusted, by dividing total noninterest expenses, as determined under GAAP but excluding merger related expenses, by the sum of total net interest income and total noninterest income, each as determined under GAAP, but excluding net gains or losses on the sale of securities and other nonrecurring income sources, if applicable, from this calculation, which we refer to below as adjusted revenue. We believe that this provides one reasonable measure of core expenses relative to core revenue.

For the noninterest income to total revenue ratio, we calculate revenue as net interest income plus noninterest income but excluding net gains or losses on the sale of securities and other nonrecurring income sources, if applicable, from this calculation, which we refer to below as adjusted revenue. We believe that this provides one reasonable measure of core noninterest income relative to core total revenue.

The following table reconciles our efficiency ratio, as adjusted, and noninterest income to total revenue ratio for the periods set forth below.

(dollars in thousands)

(1) For the nine months ended September 30, 2024 consists of loss on sale of available-for-sale securities due to non-routine strategic portfolio restructuring.

Management will often make adjustments to our results of operations when completing analysis of our operations in order to exclude certain items that we do not consider to be indicative of our core banking operations. For the tables below, net income is adjusted to remove merger related expenses as well as gains or losses on sales of securities and other nonrecurring income sources, if applicable. While we acknowledge that these items are likely to recur in future periods, they are not considered to be indicative of our core banking operations, and therefore, management often excludes them from our analysis of our return on average assets and our return on average equity to better understand our core operating performance.

The following table reconciles our adjusted net income, adjusted basic earnings per share, and adjusted diluted earnings per share, as adjusted, for the periods set forth below.

(dollars in thousands)

(1) For the nine months ended September 30, 2024 consists of loss on sale of available-for-sale securities due to non-routine strategic portfolio restructuring.

The following table reconciles our adjusted net income and return on average assets, as adjusted, for the periods set forth below.

(dollars in thousands)

(1) Represents annualized data.

(2) For the nine months ended September 30, 2024 consists of loss on sale of available-for-sale securities due to non-routine strategic portfolio restructuring.

The following table reconciles our adjusted net income and return on average equity, as adjusted, for the periods set forth below.

(dollars in thousands)

(1) Represents annualized data.

(2) For the nine months ended September 30, 2024 consists of loss on sale of available-for-sale securities due to non-routine strategic portfolio restructuring.

The following table reconciles, as of the dates set forth below, the calculation of the return on average equity (on a GAAP basis) to the calculation of the return on average tangible equity and the calculation of the adjusted return on average tangible equity.

(dollars in thousands)

(1) Represents annualized data.

(2) For the nine months ended September 30, 2024 consists of loss on sale of available-for-sale securities due to non-routine strategic portfolio restructuring.

The following table reconciles, as of the dates set forth below, the calculation of the nonperforming assets to total assets ratio (on a GAAP basis) and the calculation of the adjusted nonperforming assets to total assets ratio. Adjusted nonperforming assets to total assets ratio is calculated by adjusting for the guaranteed portions of nonaccrual loans from the total nonperforming assets.

(dollars in thousands)

The following table reconciles net income (on a GAAP basis), as of the dates set forth below, to the calculation of the pre-tax, pre-provision net revenue ("PPNR"). PPNR is calculated by adjusting for the income tax expense and the provision for credit losses to the net income.

(dollars in thousands)

The following table reconciles total deposits, as of the dates set forth below, to the calculation of the Company's core deposits.

(dollars in thousands)

(1) The Company defines its core deposits as total deposits less brokered certificates of deposits.

Market Risk

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Company’s market risk is composed primarily of interest rate risk inherent in the normal course of lending and deposit-taking activities. We are also exposed to market risk in our investing activities.

Interest Rate Risk Management

Net interest income is our most significant component of earnings and we consider interest rate risk to be our most significant market risk. Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings. When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics and which can negatively impact net interest income.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect the average duration of our loan portfolio, investment securities and other interest-earning assets.

Our goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital in either a rising or declining interest rate environment. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may impact our earnings adversely because the interest rates of the underlying assets and liabilities do not change at the same speed, to the same extent or on the same basis.

One of the tools management uses to estimate and manage the sensitivity of net interest revenue to changes in interest rates is an asset/liability simulation model. Resulting estimates are based upon multiple assumptions for each scenario, including loan and deposit re-pricing characteristics and the rate of prepayments. The ALCO periodically reviews the assumptions for reasonableness based on historical data and future expectations; however, actual net interest revenue may differ from model results. The primary objective of the simulation model is to measure the potential change in net interest revenue over time using multiple interest rate scenarios. The base scenario assumes rates remain flat and is the scenario to which all others are compared, in order to measure the change in net interest revenue. Policy limits are based on immediate rate shock scenarios which are compared to the base scenario. Other scenarios analyzed may include ramped rate shocks, delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements. While the primary policy scenarios focus on a 12-month time frame, longer time horizons are also modeled.

Our policy is based on the 12-month impact on net interest revenue of interest rate shocks. Our shock scenario assumes rates immediately change the full amount at the scenario onset. The following table presents our interest sensitivity position at September 30, 2025 and December 31, 2024:

There has been no significant change in the Company's estimated net interest income sensitivity position from December 31, 2024. From a net interest income perspective, the Company generally has an asset sensitive rate position. With the current inverted interest rate yield curve, modeling of net interest income in changing rate environments presents particular challenges. A flat or inverted interest rate yield curve is an unfavorable interest rate environment for many financial institutions, including the Bank, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing. When these rates converge or invert, the profit spread we realize between loan yields and deposit rates narrows, which pressures our NIM.

Economic Value of Equity

We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the yield curve increases or decreases instantaneously, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the yield curve at September 30, 2025 and December 31, 2024:

As previously noted, these assumptions are inherently uncertain, and actual results may differ from simulated results. The current interest rate path is less certain for 2025, and further rate decreases are contingent upon improving inflationary conditions. Further changes to interest rates and monetary policy are dependent upon the Federal Reserve's assessment of economic data as it becomes available. We would expect net interest income to decline somewhat in a decreasing interest rate environment and to increase in an increasing interest rate environment, as our model reflects that interest-earning assets reprice faster than interest-bearing deposits which is attributable to assumed deposit betas and repricing lags as there is continued strong market competition for core deposits.

Evaluation of Disclosure Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2025. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2025.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2025, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a‑15 or 15d‑15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition to the other information set forth in this report, you should carefully consider the factors discussed under the section entitled “Risk Factors” in the Registration Statement. These factors could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Please be aware that these risks may change over time and other risks may prove to be important in the future.

There are no material changes during the period covered by this report to the risk factors previously disclosed in the Registration Statement.