FCCO 10-K & 10-Q changes, risk factors and insider trading

Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer and whose success we rely on to drive our growth, is highly dependent upon the business environment in the primary markets where we operate and in the U.S. as a whole. Unlike larger banks that are more geographically diversified, we are a regional bank that provides banking and financial services to customers primarily in South Carolina and Georgia. The economic conditions in these local markets may be different from, and in some instances worse than, the economic conditions in the U.S. as a whole. In 20242025 and early 2025,2026, continued regional economic uncertainty—exacerbated by persistent inflation, supplyelevated chaininterest disruptions,rates, geopolitical developments, and subdued consumer spending—hasmay further increasedincrease the risks in our primary markets.

In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with China, the war in Ukraine, and the Middle East conflict, all of which may have a destabilizing effect on financial markets and economic activity. Economic pressure on consumers and overall economic uncertainty may result in changes in consumer and business spending, borrowing, and saving habits. These economic conditions and/or other negative developments in the domestic or international credit markets or economies may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs, and profitability. Declines in real estate values and sales volumes and high unemployment or underemployment may also result in higher than expectedhigher-than-expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.

In 2023 and 2024, concerns about the financial condition of certain U.S. banking institutions led to multiple bank failures, including Silicon Valley Bank, Signature Bank, New York, NY, First Republic Bank, and most recently, Republic First Bank in April 2024.2024, and most recently, The Santa Anna National Bank (June 27, 2025), Pulaski Savings Bank (January 17, 2025), and Metropolitan Capital Bank & Trust (January 30, 2026). The FDIC intervened in each case, transferringincluding assetsthrough toresolution acquiringtransactions institutions.(such as purchase and assumption transactions). While our business and depositor profile differ from these banks, financial sector volatility, particularly in times of stress, may impact our stock price and operations. The long-term regulatory and market consequences of these failures remain uncertain but could include increased FDIC assessments and further bank closures. To date,As of December 31, 2025, these events have not materially affected our deposit balances.

There is no precise method of predicting credit losses; therefore, we face the risk that charge-offs in future periods will exceed our allowance for credit losses and that additional increases in the allowance for credit losses will be required. Economic uncertainty could remain elevated entering 2026, driven by persistent inflationary pressures, elevated interest rates, geopolitical conflicts, and the potential for continued volatility in global markets—despite forecasts for moderate growth in the U.S. and abroad. Additions to the allowance for credit losses would result in a decrease of our net income, and possibly our capital.

Our actual credit losses could exceed our allowance for credit losses. Our average loan size continues to increase and reliance on our historic allowance for credit losses may not be adequate. As of December 31, 2024,2025, approximately 84.8%84.5% of our loan portfolio (excluding loans held for sale) is composed of construction (12.5%11.6%), commercial mortgage (65.2%65.9%) and commercial and industrial (7.1%7.0%) loans. Repayment of such loans is generally considered more subject to market risk than residential mortgage loans. Industry experience shows that a portion of loans will become delinquent, and a portion of loans will require partial or entire charge-off. Regardless of the underwriting criteria utilized, losses may be experienced as a result of various factors beyond our control, including,including changes changes in market conditions affecting the value of loan collateral and problems affecting the credit of our borrowers. If we suffer credit losses that exceed our allowance for credit losses, our financial condition, liquidity, or results of operations could be materially and adversely affected.

Our commercial real estate loans have grown 3.5%,6.2%, or $31.2$57.5 million, since December 31, 2023.2024. The banking regulators give commercial real estate lending greater scrutiny, and they may require banks with higher levels of commercial real estate loans to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for credit losses and capital levels as a result of commercial real estate lending growth and exposures. We have expertise and a long history in originating and managing commercial real estate loans. We have a strong credit underwriting process, which includes management and board oversight. We perform rigorous monitoring, stress testing, and reporting of these portfolios at the management and board levels, and we continue to monitor the level of the concentration in commercial real estate loans within the Bank’s loan portfolio monthly. Regulatory expectations relating to commercial real estate underwriting, portfolio management and capital may continue to evolve, which could require us to enhance our risk management practices and/or constrain future growth.

The 2006 “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”) provides that a bank’s commercial real estate lending exposure could receive increased supervisory scrutiny where (i) total non-owner-occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans, represent 300% or more of an institution’s total risk-based capital, and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months, or (ii) construction and land development loans exceed 100% of total risk-based capital. Our total non-owner-occupied commercial real estate loans represented 305%307% of the Bank’s total risk-based capital at December 31, 2024,2025, and our construction and land development loans represented 82%71% of the Bank’s total risk-based capital at December 31, 2024.2025. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 46%37% from December 31, 20212022 to December 31, 2024.2025. WeWhile havethese expertiselevels andwere abelow the long historyCRE Guidance’s numerical screening criteria as of December 31, 2025, changes in originatingportfolio andcomposition, managinggrowth commercial real estate loans. We have a strong rates, credit underwritingperformance, process,or whichregulatory includes managementexpectations andcould board oversight. We perform rigorous monitoring, stress testing, and reporting of these portfolios at the management and board levels, and we continue to monitor the level of the concentrationresult in commercialincreased realsupervisory estate loans within our loan portfolio monthly.scrutiny.

While we generally underwrite the loans in our portfolio in accordance with our own internal underwriting guidelines and regulatory supervisory guidelines, in certain circumstances we have made loans which exceed either our internal underwriting guidelines, supervisory guidelines, or both. As of December 31, 2024,2025, approximately $16.6$23.1 million of our loans, or 9.3%11.9% of the Bank’s regulatory capital (Tier 1 Capital plus allowance for credit losses), had loan-to-value ratios that exceeded regulatory supervisory guidelines, of which one three loansloan totaling approximately $606$350 thousand had a loan-to-value ratiosratio of 100% or more. In addition, supervisory limits on commercial loan-to-value exceptions are set at 30% of the Bank’s tier 1 capital plus allowance for credit losses. At December 31, 2024, $5.52025, $11.2 million of our commercial loans, or 3.1%5.8% of the Bank’s regulatory capital, exceeded the supervisory loan-to-value loan-to-value ratio. The number of loans in our portfolio with loan-to-value ratios in excess of supervisory guidelines, our internal guidelines, guidelines, or both could increase the risk of delinquencies and defaults in our portfolio, which could have a material adverse effect on our financial condition and results of operations.

Our investment securities portfolio is a significant component of our total earning assets. Total investment securities averaged $491.0$499.7 million in 2024,2025, as compared to $541.1$491.0 million in 2023.2024. This represents 27.5%25.9% and 33.2%27.5% of the average earning assets for the years ended December 31, 20242025 and 2023,2024, respectively. At December 31, 2024,2025, the portfolio was 26.6%25.2% of earning assets compared to 29.6%26.6% of earning assets at December 31, 2023.2024. Turmoil in the financial markets could impair the market value of our investment portfolio, which could adversely affect our net income and possibly our capital. Market volatility, increased regulatory scrutiny of financial institutions, or adverse perceptions regarding the banking industry could further constrain capital availability and liquidity, including access to wholesale funding sources.

During the three months ended September 2023, we sold $39.9 million of book value U.S. Treasuries in our available-for-sale investment securities portfolio. While this sale created a one-time pre-tax loss of $1.2 million, it provided additional liquidity which was used to pay down borrowings and fund loan growth. The weighted average book yield of the securities sold was 1.75% and the projected earn back period was 1.6 years. SuchWe measuresmay transitionedfrom thetime to time reposition or sell investment securities for liquidity, interest rate risk management or balance sheet toobjectives; behowever, moresuch efficient,actions improvedcould net interest margin, and positioned us for higher earningsresult in therealized future.losses and could adversely affect our earnings and capital.

Our HTM investments totaled $209.4$195.1 million and represented approximately 42.6%39.6% of our total investments at December 31, 2024.2025. Our AFS investments totaled $279.6$294.1 million, or approximately 56.9%59.8% of our total investments at December 31, 2024.2025. Investments at cost totaled $2.7$2.9 million, or approximately 0.5%0.6% of our total investments at December 31, 2024.2025. The effective duration on our total investment securities portfolio was 3.5approximately 3.1 at December 31, 2024.2025.

Securities which have unrealized losses were not considered to be credit loss impaired at December 31, 20242025 or at December 31, 20232024 and we believe it is more likely than not we will be able to hold these until they mature or recover our current book value. We currently maintain adequate liquidity whichresources supportsand contingency funding sources that we believe support our ability to hold these investments until they mature, or until there is a market price recovery. However, if we were to cease to have the ability and intent to hold these investments until maturity or the market prices do not recover, and we were to sell these securities at a loss, it could adversely affect our net income and our capital. Likewise, recent bank failures and heightened sensitivity to liquidity risk have increased regulatory and market focus on contingency funding planning and liquidity stress testing and could increase our funding costs or reduce the availability of certain funding sources.

The Company and the Bank are each required by federal regulatory authorities to maintain adequate levels of capital to support their operations and to comply with evolving regulatory capital expectations, including stress testing, capital planning, and concentration risk considerations. In addition, the Bank is subject to regulatory requirements specifying minimum amounts and types of capital that we must maintain and an additional capital conservation buffer. From time to time, the regulators change these regulatory capital adequacy guidelines. If we fail to meet these capital guidelines and other regulatory requirements, we or our subsidiaries may be restricted in the types of activities we may conduct and we may be prohibited from taking certain capital actions, such as paying dividends, repurchasing or redeeming capital securities, and paying certain bonuses. In particular, the capital requirements applicable under Basel III require the Bank to satisfy additional, more stringent,minimum capital adequacy standards thanand itrelated hadbuffer in the past.requirements. Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our financial condition and results of operations. In addition, these requirements could have a negative impact on our ability to lend, grow deposit balances, make acquisitions, make capital distributions in the form of dividends or share repurchases, or pay certain bonuses needed to attract and retain key personnel. Higher capital levels could also lower our return on equity.

In 2021 through 2022, inflation rose to levels not seen for over 40 years, reaching 7.0% and 6.5%,6.5% (based on CPI-U annual percent change), respectively. The annual inflation rate decreased to 3.4% in 2023 and to 2.9% in 2024; however, during the latter part of 20242024, and into early 2025, the annual inflation rate averagedwas approximately 4.2%, although some moderation has been observed2.7% in early 2025. Nonetheless, persistently higher input costs, wage pressures, and ongoing supply chain disruptions or other cost pressures may challenge our customers’ ability to service their debt, thereby potentially increasing our credit risk. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligationsobligations, increasing our credit risk. Sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic economic activity. A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, which, in turn, would adversely affect our business, financial condition and results of operations.

The high-profile bank failures in 2023 and 2024 involving Silicon Valley Bank, Signature Bank, New York, NY, First Republic Bank, and Republic First Bank caused general uncertainty and concern regarding the liquidity adequacy of the banking sector. Although we were not directly affected by these bank failures, the resulting speed and ease in which news, including social media commentary, led depositors to withdraw or attempt to withdraw their funds from these and other financial institutions, which then caused the stock prices of many financial institutions to become volatile. In 2024 and into 2025, continued concerns regarding the stability of certain regional banks and potential liquidity risks have further contributed to market volatility and investor caution. The failure of the Santa Anna National Bank and Pulaski Savings Bank in 2025, and Metropolitan Capital Bank & Trust in early 2026 has only added to this uncertainty. Additional bank failures could have an adverse effect on our financial condition and results of operations, either directly or through an adverse impact on certain of our customers. Further, with the risk of any additional bank failures, we may face the potential for reputational risk, deposit outflows, increased costs and competition for liquidity, and increased credit risk which, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

We could experience a loss due to competition with other financial institutions or nonbanknon-bank companies.

We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many many of which are larger and may have more financial resources. Such competitors primarily include national, regional, community, and internet banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative and regulatory changes and continued consolidation. In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for banks to offer products and services in more areas in which they do not have a physical location and for nonbanks,non-bank such as FinTech companies, to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Banks, securities firms, and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for for those products and services than we can. Likewise, rapid adoption of AI by competitors, either in financial services or FinTech, could create significant pressure on pricing, automation, or client satisfaction. If we fail to keep pace with AI-enabled analytics and customer offerings, our competitive positioning could be detrimentally impacted.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. In addition, we depend on internal and outsourced technology to support all aspects of our business operations. Failure to successfully keep pace with technological changes could have a material adverse impact on our business, financial condition, and results of operations. In 2024 and early 2025, the pace of technological change has accelerated, and the rapid evolution of cybersecurity threats, threats, as well as the need to integrate new digital platforms, has increased the risks associated with failure to adapt.

The development and use of AI by us or our third-party vendors poses significant risks. The evolving legal and regulatory landscape—covering intellectual property, privacy, consumer protection, employment, and more—could force costly changes and heighten non-compliance risks. AI models, especially generative ones, might produce biased, inaccurate, harmful, or harmfulotherwise ‘hallucinated’ outputs, disclose confidential information, or infringe on intellectual property rights. Moreover, their inherent complexity limits transparency, transparency,thus complicating oversight and error reduction. Reliance on third-party models further exposes us to risks associated with unauthorized training data and their risk management practices. Any of these issues could lead to legal liabilities, reputational harm, and adverse impacts on our business.

Further,If, if, as a result of competitive pressures, changes in market interest rates, alternative investment opportunities that present more attractive returns to customers,opportunities, general economic conditions or other events, the balance offactors, our depositsdeposit decreasesbalances relativedecrease toor ourshift overall bankingtoward operations,higher-cost products, we may need to rely more heavily on onbrokered deposits and other wholesale or otherfunding sources of external funding, or mayraise have to increase deposit rates to maintain deposit levelslevels. Any increase in theour funding future.costs, Anyreduced suchaccess increased reliance on wholesaleto funding, or increasesincreased volatility in our funding rates in general,sources could have a negative impact onreduce our net interest income and and,adversely consequently, onaffect our liquidity, financial condition and results of operations and financial condition.operations.

From time to time, we may seek to acquire other financial institutions or parts of those institutions. We may also expand into new markets, like we did in York County, South Carolina, which we refer to as the Piedmont Region, in 2022, or into lines of business or offer new new products or services. These activities would involve a number of risks, including:

We may not be able to fully achieve the strategic objectives and operating efficiencies that we anticipate in our acquisition activities. Inherent uncertainties exist in integrating the operations of an acquired business. In addition, the markets and industries in which we and our potential acquisition targets operate are highly competitive. We may lose customers or the customers of acquired entities as a result of an acquisition. We also may lose key personnel from the acquired entity as a result of an acquisition. We may not discover all known and unknown factors when examining a company for acquisition during the due diligence period. These factors could produce unintended and unexpected consequences. Undiscovered factors asarising afrom resultan of acquisitions, pursued by non-related third party entities,acquisition could bring civil, criminal, and financial liabilities against us, our management, and the management of those entitiesthe acquired.acquired entity. These factors could contribute to us not achieving the expected benefits from acquisitions within desired time frames.

Michael C. Crapps, our president and chief executive officer, and Mr.J. Ted Nissen, the Bank’s president and chief executive officer, each have extensive and long-standing ties within our primary market area and substantial experience with our operations, and each has contributed significantly to our business. If we lose the services of Mr. Crapps or Mr. Nissen, each would be difficult to replace, and our business and development could be materially and adversely affected. Our success also depends, in part, on our continued ability to attract and retain experienced loan originators, as well as other management personnel. Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel. Our failure to compete for these personnel, or the loss of the services of several of such key personnel, could adversely affect our business strategy and materially and adversely affect our business, results of operations, and financial condition.

A failure in or breach of our operational or security systems or infrastructure, or those of our third partythird-party vendors and other service providers or other third parties, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs, and cause losses.

We rely heavily on communications and information systems to conduct our business. Information security risks for financial institutions such as ours have increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, and terrorists,state-sponsored activists,actors, hacktivists, and other external parties. As customer, public, and regulatory expectations regarding operational and and information security have increased, our operating systems and infrastructure must continue to be safeguarded and monitored for for potential failures, disruptions, and breakdowns. Our business, financial, accounting, and data processing systems, or other operating operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors, including including events that are wholly or partially beyond our control. For example, there could be electrical or telecommunication outages, natural disasters such as earthquakes, tornadoes, and hurricanes, diseasepublic pandemics,health events, events arising from local or larger scale political or social matters, including terrorist acts, and as described below, cyber attacks.

As noted above, our business relies on our digital technologies, computer and email systems, software, and networks to conduct its operations. Although we have information security procedures and controls in place, our technologies, systems, networks, and our customers’ devices may become the target of cyber attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of our or our customers’ or other third parties’ confidential information. Third parties with whom we do business or that facilitate our business activities, including financial intermediaries, or vendors that provide service orproviders securityand solutionsother for our operations,vendors, and other unaffiliated third parties, could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints.

While we have disaster recovery and other policies, plans and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. Our risk and exposure to these matters remains heightened because of the evolving nature of these threats. As a result, cybersecurity and the continued development and enhancement of our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage or unauthorized access remain a focus for us. As threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities. Disruptions or failures in the physical infrastructure or operating systems that support our businesses and clients, or cyber attacks or security breaches of the networks, systems or devices that our clients use to access our products and services could result in client attrition, regulatory fines, penalties or intervention, remediation and notification costs, reputation damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could have a material effect on our results of operations or financial condition.

In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. Any failure, interruption or breach in security of these systems could result in significant disruption to our operations. Information security breaches and cybersecurity-related incidents include, but are not limited to, attempts to access information, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, theft, misuse, loss, release or destruction of data (including confidential customer information), account takeovers, unavailability of service or other events. These types of threats may derive from human error, fraud or malice on the part of external or internal parties or may result from accidental technological failure. Our technologies, systems, networks and software have been and continue to be subject to cybersecurity threats and attacks, which range from uncoordinated individual attempts to sophisticated and targeted measures directedaimed at us. Any failures related to upgrades and maintenance of our technology and information systems could further increase our information and system security risk. Our increased use of cloud and other technologies also increases our risk of being subject to a cyber-attack. The risk of a security breach or disruption, particularly through cyber-attack or cyber-intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our customers, employees and third parties that we do business with have been, and will continue to be, targeted by parties using fraudulent emails and other communications in attempts to misappropriate passwords, bank account information or other personal information or to introduce viruses or other malware programs to our information systems, the information systems of our merchants or third-party service providers and/or our customers’ personal devices, which are beyond our security control systems. Though we endeavor to mitigate these threats through product improvements, use of encryption and authentication technology and customer and employee education, such cyber-attacks against us, our merchants, our third-party service providers and our customers remain a serious issue.

Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risks of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even well protected information, networks, systems and facilities remain potentially vulnerable to attempted security breaches or disruptions because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement zerofully riskeffective security barriers or other preventative measures, and thus it is virtually impossible for us to entirely entirely mitigate this risk. Furthermore, in the event of a cyber-attack, we may be delayed in identifying or responding to the attack, attack, which could increase the negative impact of the cyber-attack on our business, financial condition and results of operations. While While we maintain specific “cyber” insurance coverage, which would apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage. A security breachcoverage or othermay be subject significantto disruptionexclusions, of our information systemsdeductibles or thosecoverage related to our customers, merchants or our third-party vendors, including as a result of cyber-attacks, could (i) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of our customers; (ii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers; (iii) result in a violation of applicable privacy, data breach and other laws, subjecting us to additional regulatory scrutiny and exposing us to civil litigation, enforcement actions, governmental fines and possible financial liability; (iv) require significant management attention and resources to remedy the damages that result; or (v) harm our reputation or cause a decrease in the number of customers that choose to do business with us. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.limits.

Our use of thirdthird-party party vendors and our other ongoing third partythird-party business relationships are subject to increasing regulatory requirements and attention.

We regularly use third party vendors as part of our business and have substantial ongoing business relationships with other third parties. These types of third partythird-party relationships are subject to increasingly demanding regulatory requirements and attention by our bank regulators. RecentRegulatory regulationguidance requiresand supervisory expectations require us to enhance our due diligence, ongoing monitoring and control over our third partythird-party vendors and other ongoing third partythird-party business relationships. We expect that our regulators will hold us responsible for deficiencies in our oversight and control of our third partythird-party relationships and in the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third party vendors or other ongoing third party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect on our business, financial condition or results of operations. Our reliance on third-party vendors for critical systems and services, operations.likewise, increases our exposure to cybersecurity risks.

We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by various regulatory agencies. We are subject to Federal Reserve regulation. The Bank is subject to extensive regulation, supervision, and examination by our primary federal regulator, the FDIC, the regulating authority that insures customer deposits; and by our state regulator, the S.C. Board. Also, as a member of the Federal Home Loan Bank (the “FHLB”), the Bank must comply with applicable regulations of the Federal Housing Finance BoardAgency (“FHFA”) and the FHLB. Regulation by these agencies is intended primarily for the protection of our depositors and the deposit insurance fund and not for the benefit of our shareholders. The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit, and other activities. A sufficient claim against us under these laws could have a material adverse effect on our results of operations. Regulatory developments in 2023 and early 2024 have led to enhanced expectations in areas such as cybersecurity, data privacy, digital asset management, and anti-money laundering. laundering.Regulators could also limit capital distributions, including dividends or share repurchases. These evolving requirements are increasing our compliance costs and the complexity of our regulatory obligations.

Federal, state, and local consumerConsumer lending laws may restrict our ability to originate certain mortgage loans or increase our risk of liability with respect to such loans and could increase our cost of doing business.

We are subject to federalfair and state fair lending laws, and failure to comply with these laws could lead to material penalties.

InThe 2025, the U.S. political landscape remains uncertain,fluid, withand the Republicans holding the majoritychanges in bothCongressional thecomposition, U.S.presidential Houseadministration, of Representatives and theagency U.S.leaders Senate.may A unified Republican Congress has created conditions for potentialresult in shifts in policy,regulatory thoughpriorities partisanand division maypolicy still result in challenges to enacting sweeping reforms.direction. Under the Biden Administration, Congressional committees with jurisdiction over the banking sector pursued oversight and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other Environmental, Social, and Governance matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight of pandemic responses and economic recovery. TheSubsequent Trumpchanges in Administration, alongsideadministration aand unifiedCongressional Republican Congress,leadership may pursueresult policiesin efforts to reverse, suspend, or changesmodify thatregulatory (i)initiatives reverseadopted in orprior suspend key actions implemented under the Biden Administration, (ii)periods, promote deregulation by easing regulatory burdens on financial institutions, (iii) adopt a technology-forward regulatory approach, and (iv)or take a more favorable stance on bank mergers and acquisitions,acquisitions. potentiallyFor streamliningexample, in June 2025, the approvalPresident processsigned into tolaw encourageS.J. consolidationRes. within13 under the bankingCongressional sector.Review TheAct, disapproving a Biden-era OCC rule relating to Bank Merger Act application review, and in July 2025, Congress enacted the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, establishing a federal framework for payment stablecoins and prompting implementing rulemakings by financial regulators. Because of this kind of oscillation in regulation, the prospects for the enactment of major banking reform legislation remain unclear unclear at this time.

Furthermore, leadership changes within federal banking agencies and financial regulators continue to shape the regulatory environment. Since the changechanges in presidential administration in 2020,administration, key positions across agencies—including the Comptroller of the Currency, CFPB, CFTC, SEC, and the U.S. Treasury—have experienced significantturnover turnover.and Whiletransition somefrom leadershiptime positionsto were filled, others remained vacant,time, leading to ongoing shifts in regulatory priorities and enforcement approaches. InThese earlyshifts 2025,can additionalcreate turnover andperiods policy realignments within these agencies have further contributed toof regulatory uncertaintyuncertainty, including changes in thesupervisory emphasis, financialrulemaking services sector. The unified Republican government could further alter the composition of these agencies, introducing new leadershipagendas, and newenforcement policies and rules that could significantly impact the banking sector.posture. The potential impact of the unified Republican government on additional changes in government leadership and agency structure, personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be fully predicted at this time. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us. Any future changes in federal and state laws and regulations, as well as the interpretation and implementation of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations.

Many aspects of the banking business involve a substantial risk of legal liability. From time to time, we are, or may become, the subject of information-gathering requests, reviews, investigations and proceedings, and other forms of regulatory inquiry, including by bank regulatory agencies, self-regulatory agencies, the SEC and law enforcement authorities. The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgements,judgments, settlements, fines, injunctions, restrictions on the way we conduct our business or reputational harm.

Our ability to pay cash dividends may be limited by regulatory restrictions, by our Bank’s ability to pay cash dividends to the Company and by our need to maintain sufficient capital to support our operations. As a South Carolina-chartered bank, the Bank is subject to limitations on the amount of dividends that it is permitted to pay. Unless otherwise instructed by the S.C. Board, the Bank is generally permitted under South Carolina state banking regulations to pay cash dividends of up to 100% of net income in any calendar year without obtaining the prior approval of the S.C. Board. In addition, the FDIC and the S.C. Board may restrict dividends if they determine payment would be unsafe or unsound or would cause the Bank to fall below applicable capital requirements. If our Bank is not permitted to pay cash dividends to us, it is unlikely that we would be able to pay cash dividends on our common stock. Moreover, holders of our common stock are entitled to receive dividends only when, and if declared by our board of directors. Although we have historically paid cash dividends on our common stock, we are not required to do so and our board of directors could reduce or eliminate our common stock dividend in the future.

Our stock price has been volatile in the past and several factors could cause the price to fluctuate substantially in the future. These factors include but are not limited to: actual or anticipated variations in earnings, changes in analysts’ recommendations or projections, our announcement of developments related to our businesses, operations and stock performance of other companies deemed to be peers, new technology used or services offered by traditional and non-traditional competitors, news reports of trends, irrationalchanges exuberancein oninvestor thesentiment, partmarket of investors,speculation, new federal banking regulations, and other issues related to the financial services services industry. Our stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance. General market declines or market volatility in the future, especially in the financial institutions sector, could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices. Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Moreover, in the past, securities class action lawsuits have been instituted against some companies following periods of volatility in the market price of its securities. We could in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources from our normal business.

We may need to incur additional debt or equity financing in the future to make strategic acquisitions or investments or to strengthen our capital position. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control and our financial performance. We cannot provide assurance that such financing will be available to us on acceptable terms or at all, or if we do raise additional capitalcapital, that it will not be dilutive to existing shareholders.

If we determine, for any reason, that we need to raise capital, subject to applicable NASDAQ rules, our board generally has the authority, without action by or vote of the shareholders, to issue all or part of any authorized but unissued shares of stock for any corporate purpose, including issuance of equity-based incentives under or outside of our equity compensation plans. Any issuance would also be subject to applicable banking regulatory considerations (including, as applicable, regulatory notice/approval requirements). Additionally, we are not restricted from issuing additional common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market price of our common stock could decline as a result of sales by us of a large number of shares of common stock or preferred stock or similar securities in the market or from the perception that such sales could occur. If we issue preferred stock that has a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if we issue preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the market price of our common stock could be adversely affected. Any issuance of additional shares of stock will dilute the percentage ownership interest of our shareholders and may dilute the book value per share of our common stock. Shares we issue in connection with any such offering will increase the total number of shares and may dilute the economic and voting ownership ownership interest of our existing shareholders.

Our articles of incorporation and bylaws could delay, defer, or prevent a third partythird-party takeover, despite possible benefit to the shareholders, or otherwise adversely affect the price of our common stock. Our governing documents:

Finally, the Change in Bank Control Act and the Bank Holding Company Act generally require filings and approvals prior to certain transactions that would result in a party acquiring control of the Company or the Bank. These requirements can delay, restrict, or prevent a change of control.

Regulatory, investor, and stakeholder expectations around environmental, social, and governance (“ESG”) practices continue to evolve, potentially increasing compliance costs and operational burdens. Recent shifts in U.S. policies have altered the landscape of ESG practices. TheFor Trumpexample, Administrationin hasearly rolled2025 backthe severalUnited climateStates initiativesannounced andthat withdrawnit would again withdraw from international agreements, such as the Paris ClimateAgreement and Accord.has taken other actions that may reduce certain federal climate-related initiatives or change supervisory and disclosure priorities. These changesdevelopments may reduce certain compliance requirements but also introduce uncertainty regarding future regulations.regulations and enforcement priorities. Stakeholders, including investors and customers, continue to scrutinize corporate ESG practices, and failure to meet their evolving expectations could impact our reputation and financial performance. Additionally, state-level regulations and international standards may impose differing ESG requirements, leading to potential operational complexities.

The risks associated with climate change are rapidly changing and evolving, making them difficult to assess due to limited data and other uncertainties. We could experience increased expenses resulting from strategic planning, litigation, and technology and market changes, and reputational harm as a result of negative public sentiment, regulatory scrutiny, and reduced investor and stakeholder confidence due to our response to climate change and our climate change strategy, which, in turn, could have a material negative impact on our business, results of operations, and financial condition. In addition, changes in federal policy and supervisory priorities could shift the timing, scope, or content of climate-related expectations, increasing uncertainty and compliance complexity.

Recent developments have heightened concerns about the U.S. credit rating and its potential impact on our business. In August 2023, Fitch Ratings downgraded the U.S. long-term credit rating from “AAA” to “AA+”, citing expected fiscal deterioration, a high and growing government debt burden, and erosion of governance standards. Subsequently, inIn November 2023, Moody’s Investors Service revisedchanged its outlook on onthe U.S. ratingssovereign rating to negative, reflecting largesimilar fiscal deficitsdeficit and debt affordability concerns. In May 2025, Moody’s downgraded the U.S. sovereign credit rating from “Aaa” to “Aa1.” As a declineresult, inall three major credit rating agencies have rated U.S. sovereign debt affordability.below the highest rating level. These downgrades underscore the potential risks associated with U.S. fiscal policy, including political polarization and challenges in managing the national debt. Such factors could lead to increased borrowing costs, market volatility, and a potential decline in investor confidence. These conditions may adversely affect our business operations, financial condition, and results.

There are risks inherent in all loans, so we maintain an allowance for credit losses to absorb expected losses in 2024 and probable losses in 2023 and 2022 on existing loans that may become uncollectible.losses. We establish and maintain this allowance by charging a provision for credit losses against our operating earnings. In the following section, we have included a detailed discussion of this process, as well as several tables describing our allowance for credit losses and the allocation of this allowance among our our various categories of loans.

Certain accounting policies inherently involve a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. We consider these accounting policies and estimates to be critical accounting policies. We have identified the determination of the allowance for credit losses, income taxes and deferred tax assets and liabilities, goodwill and other intangible assets, and derivative instruments to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest ratesrates. Therefore, management has reviewed and approved these critical accounting policies and estimates and has discussed these policies with our Audit and Compliance Committee.

The allowance for credit losses represents an amount which we believe will be adequate to absorb expected losses (2024 and 2023) and probable losses (2022) on existing financial assets that may become uncollectible. Our judgment as to the adequacy of the allowance for credit losses is based on assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. There can be no assurance that charge-offs of financial assets in future periods will not exceed the allowance for credit losses as estimated at any point in time or that provisions for credit losses will not be significant to a particular accounting period.

The allowance for credit losses represents management’s best estimate for our expected losses at December 31, 20242025 and 2023 and probable losses at December 31, 2022,2024, but significant downturns in circumstances relating to asset quality and economic conditions could result in a requirement for additional allowance for credit losses. Likewise, an upturn in asset quality and improved economic conditions may allow a reduction in the required allowance for credit losses. In either instance, unanticipated changes could have a significant impact on results of operations. In addition, regulatory agencies, as an integral part of their examination process, periodically review our allowance for credit losses. Such agencies may require us to recognize additions to the allowance for credit losses based on their judgments about information available to them at the time of their examination.

Goodwill represents the cost in excess of fair value of the net assets we acquired (including identifiable intangibles) in purchase transactions. Other intangible assets represent premiums paid for acquisitions of core deposits (core deposit intangibles) We test our goodwill for impairment by evaluating whether the carrying amount exceeds the asset’s fair value. This test is done annually or more frequently if events and circumstances indicate the asset might be impaired..

Accounting for derivatives differs significantly depending on whether a derivative is designated as an accounting hedge, which is a transaction intended to reduce a risk associated with a specific asset or liability or future expected cash flow at the time it is purchased. In In order to qualify as an accounting hedge, a derivative must be designated as such at inception by management and meet certain criteria. criteria. Management must also continue to evaluate whether the instrument effectively reduces the risk associated with that item. To determine if a derivative instrument continues to be an effective hedge, we must make assumptions and judgments about the continued effectiveness effectiveness of the hedging strategies and the nature and timing of forecasted transactions. If our hedging strategy was to become ineffective, hedge accounting would no longer applyapply, and the reported results of operations or financial condition could be materially affected.

Certain financial financial information presented above is determined by methods other than in accordance with GAAP. These non-GAAP financial measures include “efficiency ratio,” “tangible book value at period end,” “return on average tangible common equity” and “tangible common shareholders’ equity to tangible assets.” The “efficiency ratio” is defined as non-interest expense less merger expenses divided by net interest income on a tax equivalent basis and non-interest income, excluding loss on sale of securities, gain on sale of other assets, loss on early extinguishment of debt, and other non-recurring noninterest income. The efficiency ratio is a measure of the relationship between operating expenses and net revenue. “Tangible book value at period end” is defined as total equity reduced by recorded intangible assets divided by total common shares outstanding. “Return on average tangible common equity” is defined as net income on an annualized basis divided by average total equity reduced by average recorded intangible assets. “Tangible common shareholders’ equity to tangible assets” is defined as total common equity reduced by recorded intangible assets divided by total assets reduced by recorded intangible assets. Our management believes that these non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare our operating results from period-to-period in a meaningful manner. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. The risk of loss can be measured by in either diminished current market values or reduced current and potential net income. Our primary market risk is interest rate risk. We have established an Asset/Liability Committee of the board of directors (the “ALCO”), which has members from our board of directors and management to monitor and manage interest rate risk. Our ALCO:

We employ a monitoring technique to measure our interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Simulation modeling is performed to assess the impact of varying interest rates and balance sheet mix assumptions will have on net interest income. We model the impact on net interest income for several different changes in the yield curve. We model the impact on net interest income in an increasing and decreasing rate environment of 100, 200, 300, and 400 basis points. We also periodically stress certain assumptions such as loan prepayment rates, average lives, interest rate betas, and deposit migration to evaluate our overall sensitivity to changes in interest rates. Policies have been established in an effort to maintain the maximum anticipated negative impact of these modeled changes in net interest income at no more than 10%, 15%, 20%, and 20%, respectively, in a 100, 200, 300, and 400 basis point change in interest rates over the first 12-month period subsequent to interest rate changes. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity, by adjusting the interest rate during the life of an asset or liability, or by the use of derivatives such as interest rate swaps and other hedging instruments. Managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates. Neither the “gap” analysis ornor asset/liability modeling areis precise indicators of our interest sensitivity position due to the many factors that affect net interest income including,including the timing, magnitude, and frequency of interest rate changes as well as changes in the volume and mix of earning assets and interest-bearing liabilities.

On January 1, 2023, we adopted CECL, which resulted in a day one reduction of $14 thousand to the allowance for credit losses on loans offset by increases of $398 thousand to the allowance for credit losses on unfunded commitments and $43.5 thousand to the allowance for credit losses on held-to-maturity investments. Furthermore, deferred tax assets increased $90 thousand and retained earnings declined $337 thousand. During the twelve months ended December 31, 2024, the allowance for credit losses on loans increased $868 thousand to $13.1 million, the allowance for credit losses on unfunded commitments declined $117 thousand to $480 thousand, and the allowance for credit loss on held-to-maturity investments declined $7 thousand to $23 thousand.thousand Comparedcompared to the day one CECL results, the allowance for credit losses on loans increased $945 thousand to $12.3 million at December 31, 2023 from $11.3 million at January 1, 2023; the allowance for credit losses on unfunded commitments increased $199 thousand to $597 thousand as of December 31, 2023 from $398 thousand as of January 1, 2023; and the allowance for credit losses on held-to-maturity investments declined $14 thousand to $30 thousand at December 31, 2023 from $43.5 thousand at January 1, 2023. At December 31, 2024, the combined allowance for credit losses for loans, unfunded commitments, and investments was $13.6 million compared to $12.9 million at December 31, 2023 and $11.8 million at January 1, 2023.

The total ACL is composed of three parts: the ACL for loans, the ACL for unfunded commitments, and the ACL for HTM investments. The ACL for loans is further composed of the allowance for individually assessed loans, the allowance for collectively assessed expected losses, the allowance for collectively assessed qualitative adjustments, and the allowance for collectively assessed additional allowance. The allowance for collectively assessed qualitative adjustments is calculated using a set of qualitative factors, which at December 31, 2024 and 2023 included changes in lending policies and procedures, changes in staff, markets, and products, change in total of 30-89 days past due and other loans especially mentioned, changes in the followingloan factors:review system, changes in collateral value for non-collateral dependent loans, changes in concentration of credits, changes in the legal or regulatory requirements and competition, data limitations, model imprecision, and reasonable and supportable forecast alternative scenarios.

The non-performing asset asset ratio was 0.04% of total assets with the nominal level of $810 thousand in non-performing assets at December 31, 2024 compared to 0.05% and $864 thousand at December 31, 2023. Non-accrualNonaccrual loans increaseincreased to $219 thousand at December 31, 2024 from $27 thousand at December 31, 2023. We had $48 thousand in accruing loans past due 90 days or more at December 31, 2024 compared to $215 thousand at December 31, 2023. Loans past due 30 days or more represented 0.05% of the loan portfolio at December 31, 2024 compared to 0.06% at December 31, 2023. The ratio of classified loans plus OREO and repossessed assets declined to 1.06% of total bank regulatory risk-based capital at December 31, 2024 from 1.25% at December 31, 2023. During the twelve months ended December 31, 2024, we experienced net loan recoveries of $6 thousand (charge-offs of $97 thousand less recoveries of $103 thousand) and net overdraft charge-offs of $71 thousand (charge-offs of $87 thousand less recoveries of $16 thousand). In comparison, we experienced net loan recoveries of $55 thousand and net overdraft charge-offs of $49 thousand during the twelve months ended December 31, 2023.

There were five loans loans totaling $267 thousand (0.02% of total loans) included on non-performing status (non-accrualnonaccrual loans and loans past due 90 days and still accruing) at December 31, 2024. Two of these loans were on non-accrualnonaccrual status. The largest loan of the two is $217 thousand and is secured by a first lien mortgage. The balance of the remaining loan on non-accrualnonaccrual status is $2 thousandthousand, and it is secured by a second lien mortgage. We had two loans totaling $215 thousand that were accruing loans past due 90 days or more at December 31, 2023. At December 31, 2024 and December 31, 2023, we considered loan relationships exceeding $500 thousand and on non-accrualnonaccrual status as individually assessed loans for the allowance for credit losses. At December 31, 2024 and December 31, 2023, we had no individually assessed loans. The specific allowance for individually assessed loans is based on the fair value of collateral method or present value of expected cash flows method. For collateral dependent loans, the fair value of collateral method is usedused, and the fair value is determined by an independent appraisal less estimated selling costs. There were no specific allowances for credit losses on our individually assessed loans at December 31, 2024 and December 31, 2023. At December 31, 2024, we had $554 thousand in loans that were delinquent 30 days to 89 days representing 0.05% of total loans compared to $498 thousand or 0.04% of total loans at December 31, 2023.

This report, including information included or incorporated by reference in this report, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of our company.company, including statements regarding the anticipated timing and benefits of leadership transitions, consulting arrangements with former executives, and the expected roles and responsibilities of the company’s executive officers. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “approximately,” “is likely,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” “positions,” “forward,” “future,” and “estimate,” as well as similar expressions, expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to to differ materially from those anticipated in our forward-looking statements include, without limitation, those described under the the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2026 and the following:

The following discussion describes our results of operations for the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended March 31,June 30, 2025, and analyzes our financial condition as of MarchJune 31,30, 2026 as compared to December 31, 2025. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary sources of funds for making these loans and investments are our deposits and borrowings, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. There are risks inherent in all loans, so we maintain an allowance for credit losses to absorb our estimate of expected credit losses on existing loans that may become uncollectible. We establish and maintain this allowance by recording a provision for or release of credit losses against our earnings. In the following section, we have included a detailed discussion of this process.

We have adopted various various accounting policies that govern the application of accounting principles generally accepted in the United States and with general practices within the banking industry in the preparation of our financial statements. Our significant accounting policies are described in the notes to our unaudited consolidated financial statements as of MarchJune 31,30, 2026 and our notes included in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC on March 16, 2026.

Comparison of Results of Operations for the Three Months Ended MarchJune 31,30, 2026 to the Three Months Ended MarchJune 31,30, 2025

Our net income income for the three months ended MarchJune 31,30, 2026 increased $1.5$2.4 million to $5.5$7.6 million, or $0.59$0.80 diluted earnings per common share, as compared to $4.0$5.2 million, or $0.51$0.67 diluted earnings per common share, for the three months ended MarchJune 31,30, 2025. The increase in net income between the two periods is primarily due to a $4.0$4.2 million increase in net interest income,income and a $244,000$1.4 decreasemillion increase in non-interest income, partially offset by a $363,000 increase in provision for credit losses, a $808,000$2.2 million increase in non-interest income, expense, and a $747,000$646,000 decreaseincrease in income tax expense, partially offset by a $4.3 million increase in non-interest expense.

Net interest income increased $4.0$4.2 million, or 27.7%,27.3%, to $18.4$19.5 million for the three months ended MarchJune 31,30, 2026 from $14.4$15.3 million for the three three months ended MarchJune 31,30, 2025. Our net interest margin improved 2331 basis points to 3.35%3.50% during the three months ended March 31,June 30, 2026 compared to 3.12%3.19% during the three months ended MarchJune 31,30, 2025. Our net interest margin, on a taxable equivalent basis, was 3.37% for the three months ended March 31, 2026 compared to 3.13%3.51% for the three months ended MarchJune 31,30, 2026 compared to 3.21% for the three months ended June 30, 2025. Average earning assets were $2.2 billion for the three months ended MarchJune 31,30, 2026 and $1.9 billion in the same period of 2025.

Average loans increased $272.3 $309.5 million, or 22.0%,24.5%, to $1.5$1.6 billion for the three months ended MarchJune 31,30, 2026 from $1.2$1.3 billion for the same period in 2025. Our loan (including loans held-for-sale) to deposit ratio on average during the three months ended MarchJune 31,30, 2026 was 76.0%,77.9%, as compared to 73.0%72.7% during the same period in 2025. The yield on loans increased 2325 basis points to 5.94%6.02% during the three months ended MarchJune 31, 30, 2026 from 5.71%5.77% during the same period in 2025 due to higher rates on new and renewed loans during the period compared to interest rates on loans maturing during the period.

Average securities for for the three months ended MarchJune 31,30, 2026 increased $11.4$4.6 million, or 2.3%,0.9%, to $503.6$510.1 million from $492.2$505.5 million during the same period period in 2025. Interest-bearing deposits in other banks and fed funds sold increaseddecreased $65.4$3.5 million to $206.0$152.4 million during the three months ended MarchJune 31,30, 2026 from $140.5$155.9 million during the same period in 2025. The increasedecrease in interest-bearing deposits in other banks and fed funds sold was due to additionalloan cashgrowth fromoutpacing ourdeposit acquisition of SGBG and our decision to hold excess liquidity in interest bearing deposits at the Federal Reserve Bank.growth. The yield on our securities portfolio declined to 3.32%3.33% for the three months ended MarchJune 31,30, 2026 from 3.42%3.43% for the same period in 2025. The yield on our interest-bearing deposits in other banks and fed funds sold was 3.51%3.54% for the three months ended MarchJune 31,30, 2026 compared to 4.29%4.32% during the same period in 2025. Average fed funds sold increased to $213,000 during the three months ended March 31, 2026 from $150,000 during the same period in 2025. The yield on fed funds sold declined to 3.81% during the three months ended March 31, 2026 from 6.44% during the same period in 2025.

The cost of interest-bearing liabilities was 2.45%2.42% during the three months ended MarchJune 31,30, 2026 compared to 2.58%2.56% during the same period in 2025. The cost of deposits, deposits, including demand deposits, was 1.80%1.76% during the three months ended MarchJune 31,30, 2026 compared to 1.85%1.82% during the same period in 2025. The cost of funds, including demand deposits, was 1.85%1.82% during the three months ended MarchJune 31,30, 2026 compared to 1.94% 1.91% during the same period in 2025. This decline was driven by a decrease in the market interest rates for deposits during the period. We continue to focus on growing our pure deposits (demand deposits, interest-bearing transaction accounts, savings deposits, money market accounts, and IRAs) plus customer cash management repurchase agreements as these accounts tend to be low-cost funding and assist us in controlling our overall cost of funds. We had $1.8 billion, $1.5 billion, and $1.5 billion in pure deposits plus customer cash management repurchase agreements at March 31,June 30, 2026, December 31, 2025 and MarchJune 31,30, 2025, respectively. As of March 31, 2026, we had no brokered certificates of deposit.

Non-interest income income during the three months ended MarchJune 31,30, 2026 increased $808,000$1.4 million to $4.8$5.6 million from $4.0$4.2 million during the same period in 2025. The $1.4 million increase in non-interest income was primarily related to increases of $465,000$191,000 in mortgage banking income, $535,000 in investment advisory fees and non-deposit commissions commissions, and $395,000$704,000 in government guaranteed lending income, partially offset by a reductiondecline of $78,000$127,000 in mortgagegain bankingon income.sale of other assets. The government guaranteed lending income came from a new segment, government guaranteed lending, acquired from SGBG.

Mortgage banking income income decreasedincreased $78,000$191,000 to $681,000$1.1 million during the three months ended MarchJune 31,30, 2026 from $759,000$879,000 during the same period in 2025. Total production in the mortgage line of business in the firstsecond quarter of 2026 was $42.0$53.8 million, which was comprised of $25.4 $38.3 million in secondary market loans, $1.9$2.3 million in adjustable-rateadjustable rate mortgages (ARMs), and $14.7$13.2 million in construction loans. Total fee revenue in the mortgage line of business was $681,000$1.1 million in the firstthree quartermonths ofended June 30, 2026, which includes $673,000$1.1 million associated with the secondary market loans, with a gain-on-sale margin of 2.65%.2.78%. This compares to production year-over-year of $43.9$62.9 million, which was comprised of $25.8$31.9 million in secondary market loans, $4.0$5.7 million in ARMs, and $14.1$25.3 million in construction loans during the firstsame quarterperiod of 2025. Fee revenue associated with the secondary market loans in the firstthree quartermonths ofended June 30, 2025 was $755,000$876,000 with a gain-on-sale margin of 2.93%.2.74%.

Investment advisory fees rose $465,000$535,000 to $2.3 million during the three months ended MarchJune 31,30, 2026 from $1.8 million during the same period in 2025. Total assets under management declinedincreased to $1.1$1.4 billion at MarchJune 31,30, 2026 from $1.2 billion at December 31, 2025, but increased from $892.8 million at March 31, 2025. Our net new assets under management were $7.9$10.4 million during the three months ended MarchJune 31,30, 2026. Furthermore, our investment performance for the three months ended MarchJune 31,30, 2026 was negative 3.6%21.0% compared to negative 4.6%14.9% for the S&P 500. Our customers’ assets under management are allocated across a range of asset classes, including equities, bonds, and cash.

Fee revenue from the the new Government Guaranteed Lending line of business was $395,000$704,000 induring the firstthree quartermonths ofended June 30, 2026. Production in this line of business in the firstsecond quarter of 2026 included $2.36$16.1 million in SBA loans. During the quarter, we sold $2.0$8.9 million in loans, which resulted in a premium of $194,000$671,000 and a gain-on-sale margin of 9.59%. Loan volume was temporarily impacted by the federal government shutdowns and Small Business Administration processing delays, which affected the processing of loans in the pipeline.

Other non-interest income income increased $24,000$139,000 to $1.2$1.4 million during the three months ended MarchJune 31,30, 2026 from $1.2 million during the same period in 2025. The $24,000 $139,000 increase was primarily due to increases in other non-recurring income (gain on insurance proceeds) of $80,000, rental income of $20,000, and wire transfer fees of $18,000 and rental income of $15,000, partially offset by a decline of $22,000 in ATM debit card income.$16,000.

The following table table shows the components of non-interest income for the three-month periods ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025.

Non-interest expense expense increased $4.3$2.2 million during the three months ended MarchJune 31,30, 2026 to $17.0$15.3 million compared to $12.8$13.1 million during the same period in 2025. The increase in non-interest expense was primarily due to increases of $1.8$1.5 million in salaries and employee benefits, $57,000 in amortization of intangibles, $1.6 million$121,000 in mergeroccupancy, expenses,$269,000 in merger, and $765,000$168,000 in other expenses.non-interest expense.

The following table shows the components of non-interest expense for the three-month periods ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025.

We incurred income tax expense of $437,000$2.1 million and $1.2$1.5 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. Our effective tax rate was 7.4% 22.01% and 22.9%22.41% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. TheDuring decreasethe second quarter of 2026, we purchased $900,000 in the2026 effectiveSouth Carolina Low-Income Housing Tax Credits, which resulted in an income tax rate was due to an adjustmentbenefit of $878,000 due to tax credits purchased during the three months ended March 31, 2026.$114,000.

The total allowance for credit losses (ACL) is composed of three parts: the ACL for loans, the ACL for unfunded commitments, and the ACL for HTM investments. The ACL for loans is further composed of the allowance for individually assessed loans, the allowance for collectively assessed expected expected losses, the allowance for collectively assessed qualitative adjustments, and the allowance for collectively assessed additional allowance. The allowance for collectively assessed qualitative adjustments is calculated using a set of qualitative factors which as of MarchJune 31, 30, 2026 and December 31, 2025 included changes in lending policies and procedures, changes in staff, markets, and products, change in total of 30-89 days past due and other loans especially mentioned, changes in the loan review system, changes in collateral value for non-collateral dependent loans, changes in concentration of credits, changes in the legal or regulatory requirements and competition, data limitations, model imprecision, and reasonable and supportable forecast alternative scenarios. The qualitative factors, combined with the allowance for individually assessed loans, the allowance for collectively assessed expected losses, and the collectively assessed additional allowance, are used to calculate the total allowance for credit losses on loans. The following table summarizes the activity related to our allowance for credit losses for loans:

We have a significant portion of our loan portfolio with real estate as the underlying collateral. As of MarchJune 31,30, 2026 and December 31, 2025, approximately 92.4%91.7% and 91.5%, respectively, of the loan portfolio had real estate collateral. When loans, whether commercial or personal, are granted, granted, they are based on the borrower’s ability to generate repayment cash flows from income sources sufficient to service the debt. Real estate is generally taken to reinforce the likelihood of the ultimate repayment and as a secondary source of repayment. We work closely with all our borrowers who experience cash flow or other economic problems, and we believe that we have the appropriate processes in place to monitor and identify problem credits. There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for credit losses as estimated at any point in time or that provisions for credit losses will not be significant to a particular accounting period. The allowance for credit losses is also subject to examination and testing for adequacy by regulatory agencies, which may consider such factors as the methodology used to determine adequacy of the allowance and the size of the allowance relative to that of peer institutions. Such regulatory agencies could require us to adjust our allowance for credit losses based on information available to them at the time of their examination.

The non-performing asset asset ratio was 0.04% of total assets with the nominal level of $853,000$887,000 in non-performing assets at MarchJune 31,30, 2026 compared to 0.02% and $372,000 at December 31, 2025. Non-accrual loans increased to $311,000$300,000 at MarchJune 31,30, 2026 from $202,000 at December 31, 2025. We had onefour accruing loan loans past due 90 days or more totaling $374,000$419,000 at MarchJune 31,30, 2026 compared to $2,000 at December 31, 2025. Loans past due 30 days or more represented 0.14%0.26% of the loan portfolio at MarchJune 31,30, 2026 compared to 0.07% at December 31, 2025. The ratio of classified loans plus OREO and repossessed assets increased to 1.83%2.55% of total bank regulatory risk-based capital at MarchJune 31,30, 2026 from 0.76% at December 31, 2025.

During the threesix months months ended MarchJune 31,30, 2026, we experienced net charge-offs, including overdrafts, of $5,000$26,000 and net loan recoveries, excluding overdrafts, overdrafts, of $4,000.$3,000. In comparison, during the threesix months ended MarchJune 31,30, 2025, we experienced net recoveries, including overdrafts, of of $11,000$1,000 and net loan recoveries, excluding overdrafts, of $14,000.$19,000.

There were fiveeight loans loans totaling $685,000$719,000 (0.04%0.05% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing) at MarchJune 31,30, 2026. Four of these loans were on non-accrual status. The largest loan of the four is $196,000 $193,000 and is secured by real estate. The balance of the remaining loans on non-accrual status is $115,000.$107,000. These loans are secured by business assets. At MarchJune 31,30, 2026, we had onefour accruing loanloans that waswere past due 90 days or more. At both MarchJune 31,30, 2026 and December 31, 2025, we considered loan relationships exceeding $500,000 and on non-accrual status as individually assessed loans for the allowance for credit losses. In addition to the loans meeting the criteria above, purchased loans with a specific credit mark are also individually assessed. At MarchJune 31,30, 2026 we have onefive individually assessed loanloans fortotaling $2.4$2.8 millionmillion. and atAt December 31, 2025, we had no individually assessed loans. The specific allowance for individually assessed loans is based on the fair value of collateral method or present value of expected cash flows method. For collateral dependent loans, the fair value of collateral method is used and the fair value is determined by an independent appraisal less estimated selling costs. There was $2.0$2.4 million allowance for credit losses on our individually assessed loans at MarchJune 31,30, 2026 and none at December 31, 2025. At MarchJune 31,30, 2026, we had $2.2$3.7 million in loans that were delinquent 30 days to 89 days representing 0.14%0.24% of total loans compared to $934,000 or 0.07% of total loans at December 31, 2025.

Assets increased $314.6 $333.8 million, or 16.2%15.3% (65.8%30.8% annualized), to $2.4 billion at MarchJune 31,30, 2026 from $2.1 billion at December 31, 2025. The increase in assets was primarily due to increases in cash and due from banks of $11.6 million, interest-bearing bank balances of $45.3$7.8 million, investment securities available for sale of $26.6$28.5 million, loans held-for-investment of $238.1$267.3 million, goodwill of $14.8 million, intangible assets of $2.5$2.4 million, and other assets of $8.7$13.3 million, partially offset by a decrease in interest-bearing bank balances of $6.7 million and investment securities held-to-maturity of $6.4$10.2 million, and an increase in allowance for credit losses of $4.7 million. As discussed elsewhere, $195.7 million of the growth in loans held-for-investment and all of the growth in goodwill and intangible assets came from the acquisition of Signature Bank of Georgia.

Loans held-for-sale decreasedincreased to $6.9$11.9 million at MarchJune 31,30, 2026 from $10.7 million at December 31, 2025. Loans (excluding loans held-for-sale) increased $238.1$267.3 million, or 18.2%20.4% (73.7%41.1% annualized), to $1.5$1.6 billion at MarchJune 31,30, 2026 from $1.3 billion at December 31, 2025. Total loan production, production, excluding mortgage secondary market and new construction residential real estate, was $91.2$151.5 million during the three six months ended March 31,June 30, 2026 compared to $53.6$99.9 million during the same period in 2025. Advances from unfunded commercial construction loans available for draws were $10.2$35.1 million during the threesix months ended MarchJune 31,30, 2026 compared to $9.0$23.8 million during the same period in 2025. Payoffs and paydowns totaled $95.1 million during the six months ended June 30, 2026 compared to $60.7 million during the same period in 2025. Payoffs and paydowns totaled $43.7 million during the three months ended March 31, 2026 compared to $18.6 million during the same period in 2025.

Total production in the mortgage line of business in the firstsix quartermonths ofended June 30, 2026 was $42.0$95.8 million which was comprised of $25.4$63.7 million in secondary market loans, $1.9$4.2 million in adjustable rate mortgages (ARMs), and $14.7$27.9 million in construction loans. Total mortgage production induring the mortgagesix line ofmonths businessended inJune the first quarter of30, 2025 was $43.9$106.7 million, $57.7 million whichof the production was comprisedoriginated to be sold in the secondary market, $9.6 million of $25.8the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $39.4 million inof secondarythe marketloan loans,production $4.0was million incommitments ARMs,for and $14.1 million innew construction residential real estate loans. As these ARM and new construction residential real estate loans are being held on our balance sheet as loans held-for-investment, the result is additive to loan growth and interest income but results in less gain on sale fee income, which is reported in noninterest income as mortgage banking income.

The loan-to-deposit ratio (including loans held-for-sale) at MarchJune 31,30, 2026 and December 31, 2025 was 76.0%78.5% and 75.6%, respectively. The loan-to-deposit ratio (excluding loans held-for-sale) at MarchJune 31,30, 2026 and December 31, 2025 was 75.6%77.9% and 74.9%, respectively.

One of our goals as as a community bank has been, and continues to be, to grow our assets through quality loan growth by providing credit to small and mid-size businesses and individuals within the markets we serve. We remain committed to meeting the credit needs of our local markets. Based on our loan portfolio as of MarchJune 31,30, 2026, the non-owner occupied commercial real estate loans and the construction and land development loans were approximately 314% and 67%70% of total risk-based capital, respectivelyrespectively, compared to 307% and 71% at December 31, 2025. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 62%55% from March 31,June 30, 2023 to MarchJune 31,30, 2026. We have expertise and a long history in originating and managing commercial real estate loans. We have a strong credit underwriting process, which includes management and board oversight. We perform rigorous monitoring, stress testing, and reporting of these portfolios at the management and board levels, and we continue to monitor the level of the concentration in commercial real estate loans within our loan portfolio monthly.

The repayment of loans in the loan portfolio as they mature is a source of liquidity. The following table sets forth the loans maturing within specified intervals at MarchJune 31,30, 2026.

Investment securities increased $20.2$18.6 million to $512.6$510.8 million, net of allowance for credit losses on investments of $16,000,$14,000, at MarchJune 31,30, 2026 from $492.2 $492.2 million, net of allowance for credit losses on investments of $19,000, at December 31, 2025. The increase was driven primarily by by purchases of mortgage-backed securities in the available-for-sale portfolio, and a reduction in unrealized losses on our available-for-sale securities portfolio, partially offset by normal principal cash flows.

On June 1, 2022, we we reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS). These securities were transferred at fair value at the time of the transfer, which became the new cost basis for the securities held to maturity. The pretax unrealized net holding loss on the available-for-sale securities on the date of transfer totaled approximately $16.7 million and continued to be reported as a component of accumulated other comprehensive loss. This net unrealized loss is being amortized to interest income over the remaining life of the securities as a yield adjustment. There were no gains or losses recognized as a result of this transfer. The remaining pretax unrealized net holding loss on these investments was $10.2$9.8 million ($8.0$7.7 million net of tax) at MarchJune 31,30, 2026.

Our HTM investments totaled $188.7$185.0 million and represented approximately 37%36% of our total investments at MarchJune 31,30, 2026. Our AFS investments totaled $322.6 $320.7 million or approximately 62%63% of our total investments at MarchJune 31,30, 2026. Our investments at cost totaled $3.2$3.3 million or approximately approximately 1% of our total investments at MarchJune 31,30, 2026. The unrealized losses on our investment securities are related to an increase in market interest rates, which has a temporary negative impact on the fair value of our investment securities portfolio and on accumulated other comprehensive loss, which is included in shareholders’ equity.

At MarchJune 30, 31, 2026, the estimated weighted average life of our total investment portfolio was 4.95.1 years, the modified duration was 4.1, 4.2, the effective duration was 3.3,3.4, and the weighted average tax equivalent book yield was 3.66%.