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

The following list identifies and briefly summarizes the material risk factors known to us as of the date of this Form 10-K. Our business, financial condition andcondition, results of operations and prospectus and ability to pay dividends could be materially harmed by any of the following risks or by other risks identified in this Form 10-K, as well as by other risks we may not have anticipated or viewed as material as of the date of this Form 10-K. Such risks and uncertainties could cause actual results to differ materially from those contained in forward-looking statements presented elsewhere by management. See also “Cautionary Note Regarding Forward-Looking Statements.”

We are dependent on the services of our management teamteam, key employees and Board of Directors, and the unexpected loss of key officers or directors may adversely affect our business and operations.Directors

We are subject to heightenednumerous regulatoryrisks requirements.related to real estate.

As of December 31, 2024,2025, 64.8%65.8% of our loan portfolio was composed of commercial and consumer real estate loans, of which 31.7%32.2% was owner-occupied commercial or 1-4 family mortgage loans. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower, but could deteriorate in value after the time the credit is initially extended. A decline in real estate values, either in the regions we serve or across the country, could impair the value of our collateral and our ability to sell the collateral upon foreclosure, which would likely require us to re-value the collateral and increase our provision for credit losses. In the event of a default with respect to any of these loans, the amounts we receive upon sale of the collateral may be insufficient to recover the outstanding principal and interest on the loan. If we are required to re-value the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our allowance for credit losses, our profitability could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

As of December 31, 2024,2025, our 10 largest borrowing relationships totaled $816.3$823.9 million in commitments (including unfunded commitments), or approximately 6.5%6.0% of our total loan portfolio. The concentration risk associated with having a small number of relatively large loan relationships is that, ifIf one or more of these relationships were to become delinquent or suffer default, we could be at risk of material losses. The allowance for credit losses may not be adequate to cover losses associated with any of these relationships, and anywe lossmay orbe required to increase in the allowance couldor havesuffer a materialloss adversein effectconnection on our business, financial condition, results of operations and prospects.therewith.

Our decisions regarding credit risk could be inaccurate and our allowance for credit losses may be inadequate, which could have a material adverse effect on our business, financial condition, results of operations and future prospects.inadequate.

If our assumptions and judgments are inaccurate, particularly with respect to creditworthiness of borrowers and value of collateral, we may incur loan losses in excess of our current allowance for credit losses and be required to make material additions to our allowance for credit losses, which could have a material adverse effect on our business, financial condition, results of operations and prospects.losses. Furthermore, federal and state regulators periodically review our allowance for credit losses and could require us to materially increase our allowance for credit losses or recognize further loan charge-offs based on judgments different than those of our management.

Any material increase in our allowance for credit losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our business, financial condition, results of operations and prospects. For more information, see Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report.report

The internal controls that we have implemented in order to mitigate risks inherent to the business of banking might fail or be circumvented, which could have a material adverse effect on our business, financial condition, results of operations and prospects.circumvented.

Management regularly reviews and updates our internal controls and procedures that are designed to identify, measure, monitor, report and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, legal risk, compliance risk, strategic risk, cybersecurity risk, reputational risk and operational risk related to our employees, systems and vendors, among others. Any system of control and any system to reduce risk exposure, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. A failure or circumvention in our internal controls could have a significant negative impact not only on our earnings,Company but also onand our reputation with our customers, regulators and investors. In addition, a failure of our internal controls, or a circumvention of such controls, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our corporate structure provides for decision-making authority by our regional chief executive officers and banking teams. Our business, financial condition, results of operations and prospects could be negatively affected if our employees do not follow our internal policies or are negligent in their decision-making.

We attract and retain our management talent by empowering them to make certain business decisions on a local level, subject to certain exceptions that require approval by our centralized credit administration department in Birmingham, Alabama or our senior management team. Our local bankers may not follow our internal proceduresprocedures, whether intentionally or negligently, or otherwise act in our best interests with respect to their decision-making. A failure of our employees to follow our internal policies, or actions taken by our employees that are negligent could have a material adverse effect on our business, financial condition, results of operations and prospects.

OurWe business, financial condition, results of operations and prospects could be negatively affected if wemay fail to grow or fail to manage our growth effectively.

We have opened new offices in Auburn,several Alabama,new Fort Walton, Florida, Venice, Florida, Sarasota, Florida, Orlando, Florida, Tallahassee, Florida, Columbus, Georgia, Charlotte and Asheville, North Carolina, Memphis, Tennessee, and Virginia Beach, Virginiamarkets in the past five years. Our current strategy is to grow organically and, if appropriate, supplement that growth with select acquisitions.

CompetitionWe face competition from financial institutions and other financial service providers may adversely affect our profitability.providers.

Increased competition could require us to increase the rates that we pay on deposits or lower the rates that we offer on loans, which could reduce our profitability. Our failure to compete effectively in our markets could restrain our growth or cause us to lose market share, which could have a material adverse effect on our business, financial condition, results of operations and prospects.share.

Our operations and financial performance could be adversely affected by natural disasters,disasters and climate change can increase those risks while adding regulatory, compliance, reputational and other risks.weather.

Natural disasters could have a material adverse effect on our financial position and results of operations. Natural disasters, such as hurricanes, tornados, earthquakesflooding, drought, fires, and earthquakes, and other similar unpredictable weather events,events such as heat waves, freezes, temperature changes, and changing weather patterns could affect us directly (by interrupting our systems, damaging our offices or otherwise preventing us from operating our business in the ordinary course)course. orThose events may also impact indirectly (by damaging or destroying the businesses or properties of our customers or otherwisecustomers, impairing our customers’ ability to make loan payments on a timely basis orbasis, destroying property pledged as collateral for loans). Ouror entryincreasing intocosts variousin response to changes. Certain of our coastal markets inmay Floridabe even more susceptible to hurricanes, flooding and the Mobile, Alabama and Charleston, South Carolina markets increased our exposure to potential losses associated with hurricanes and similarother natural disasters that are more common into coastal areasareas. thanWe may further be impacted by any increased burdens or costs to comply with increased environmental regulations or laws, market shifts and changing investor perception in ourresponse otherto markets.the weather events described above.

The banking and financial services industries are undergoing rapid technological changes, with frequent introductions of new technology-driven products and services, including those of artificial intelligence. Our success will depend in part on our ability to address our customers’ needs by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have greater resources to invest in technological improvements, and we may not be able to implement new technology-driven products and services, which could reduce our ability to effectively compete or increase our overall expenses and have a material adverse effect on our net income.expenses.

We rely heavily on communications and information systems to conduct our business. Any failure or interruption in the operation of these systems could impair or prevent the effective operation of our customer relationship management, general ledger, deposit, lending, or other functions. While we have policies and procedures designed to prevent or limit the effect of a failure or interruption in the operation of our information systems, there can be no assurance that any such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed. We will from time to time convert from one system to another in the normal course of business. Ineffective conversions could cause failure or interruption in the operation of our information systems. The occurrence of any failures or interruptions impacting our information systems could damage our reputation, result in a loss of customer business, and expose us to additional regulatory scrutiny, civil litigation, and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.liability.

We use information technology in our operations and offer online banking services to our customers.customers, Any unauthorized access to our or our customers’ confidential or proprietary informationwhich exposes us to reputationalthe harmrisk andof litigationunauthorized and could adversely affect our ability to attract and retain customers.access.

We rely on software developed and operated by third-party vendors to process various transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf. These systems include, but are not limited to, general ledger, payroll, employee benefits, loan and deposit processing, and securities portfolio accounting. While we perform a review of controls instituted by the applicable vendors over these programs in accordance with industry standards and perform our own testing of user controls, we must rely on the continued maintenance of controls by these third-party vendors, including safeguards over the security of customer data. In addition, we maintain, or contract with third parties to maintain daily backups of key processing outputs in the event of a failure on the part of any of these systems. Nonetheless, we may incur a temporary disruption in our ability to conduct business or process transactions, or incur damage to our reputation, if the third-party vendor fails to adequately maintain internal controls or institute necessary changes to systems. SuchOur agreements with outside third parties include indemnification obligations in the event of any such security breaches; however, there is no assurance that such third-parties will have sufficient resources to provide full indemnification of all of their customers in the event such a disruption orsecurity breach of security may have a material adverse effect on our business.occurs.

Our recent results may not be indicative of our future results and may not provide guidance to assess the risk of an investment in our common stock.results.

WeSubstantially all of our borrowers and depositors are individuals and businesses located and doing business in our markets, which may notsubject be ableus to sustaingeographic, ourindustry, historicalborrower rateand ofcollateral growthconcentration. We have been, and may notin the future be, negatively impacted by general business and economic conditions in our markets, including due to interest rates, housing conditions, real estate values, inflation, labor market issues, recession, tariffs, trade wars, pandemics, political issues, regulatory issues and changes local economies, that differ from the broader U.S. or global economies. Our credit risk and credit losses could increase if our loans are concentrated to borrowers engaged in the same or similar activities or to borrowers who as a group may be able to further expand our business. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may impedeuniquely or prohibitdisproportionately ouraffected abilityby tounique expandgeographic, ourindustry or market presence.conditions. We lend primarily to small to medium-sized businesses within our communities, whichThis may expose us to greater lending risks than those faced by other banks that lend to different markets, industries, or to larger, better-capitalized and more diversified businesses with longer operating histories. We manage our credit exposure through careful monitoring of loan applicants and loan concentrations in particular industries, and through our loan approval and review procedures. Our use of historical and objective information in determining and managing credit exposure may not be accurate in assessing our risk. Our failure to sustain our historical rate of growth or adequately manage the factors that have contributed to our growth could have a material adverse effect on our business, financial condition, results of operations and prospects.

The federal bank regulatory agencies have indicated their view that banks with high concentrations of loans secured by commercial real estate are subject to increased risk and should hold higher capital than regulatory minimums to maintain an appropriate cushion against loss that is commensurate with the perceived risk. Because a significant portion of our loan portfolio is dependent on commercial real estate, a change in the regulatory capital requirements applicable to us as a result of these policies could limit our ability to leverage our capital, which could have a material adverse effect on our business, financial condition, results of operations and prospects.capital.

In addition, an increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations. These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also necessitate further increases to the allowance for credit losses which could have a material adverse effect on our business, results of operations, financial condition and prospects.losses.

Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding. As can be seen from events in 2023 regarding the operations and failures of other banks in the U.S., anAn inability to raise funds through deposits, borrowings, correspondent banks, the sale of loans and other sources could have a substantial negative effect on our liquidity. The highly-publicized failures of Silicon Valley Bank, Signature Bank and First Republic Bank during the first half of 2023 caused significant disruptions in the banking industry. These industry developments negatively impacted overall customer confidence in the safety of their deposits, particularly uninsured deposits, at some regional banks. As a result, some customers moved deposits to, or maintained deposits with, larger financial institutions or moved funds to investment alternatives outside the banking industry. The rapid failures of these large banks highlighted risks associated with advances in technology that increase the speed at which information, concerns and rumors can spread through traditional and new media and increase the speed at which deposits can be moved from bank to bank or outside the banking system, heightening liquidity concerns of traditional banks. Approximately 70%73% of the Bank’s liabilities as of December 31, 20242025 were checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, 73%77% of the assets of the Bank were loans, which cannot be called or sold in the same time frame. Our continued access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Market conditions or other events could also negatively affect the level or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, satisfy regulatory capital requirements, and fund asset growth and new business transactions at a reasonable cost, in a timely manner and without adverse consequences. Any substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on our ability to meet deposit withdrawals and other customer needs, which could have a material adverse effect on our business, financial condition, results of operations and prospects.needs.

As of December 31, 2024,2025, the fair value of our investment securities portfolio was approximately $1.88$1.69 billion. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest rates or instability in the capital markets. Any of these factors, among others, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects.income. The process for determining whether impairment of a security is other-than-temporary usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Our failure to assess any currency impairments or losses with respect to our securities could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition to causing economic and financial market disruptions, any future downgrade, failure to continue to raise the U.S. statutory debt limit as needed, or deterioration in the fiscal outlook of the U.S. federal government, could, among other things, materially adversely affect the market value of the U.S. and other government and governmental agency securities that we hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms. In particular, it could increase interest rates and disrupt payment systems, money markets, and long-term or short-term fixed income markets, adversely affecting the cost and availability of funding, which could negatively affect our profitability. Also, the adverse consequences of any downgrade could extend to those to whom we extend credit and could adversely affect their ability to repay their loans. Any of these developments could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including correspondent banks, brokers and dealers, commercial banks, investment banks, and other institutional clients. Our transactions with other financial institutions expose us to credit risk in the event of a default of a counterparty. The soundness of many financial services companies may be closely interrelated as a result of credit, trading, clearing and other relationships between such financial services companies. AsAlso as a result, defaultswe have credit risk exposure to different industries and counterparties, including correspondent banks, brokers and dealers, commercial banks, investment banks, and other institutional clients. Defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. These losses or defaults could have a material adverse effect on our business, financial condition, results of operations and prospects.

As a bank holding company, we and the Bank are subject to federal regulation, and the examination and reporting requirements of various federal and state agencies, including the Federal Reserve, FDIC, CFPB, and the Alabama Banking Department. Federal and state regulation of the banking industry, along with tax and accounting laws, regulations, rules, and standards, may limit our operations significantly and control the methods by which we conduct business, as they limit those of other banking organizations.business. Banking regulations are primarily intended to protect depositors, deposit insurance funds, and the banking system as a whole, and not stockholders or other creditors. These regulations affect lending practices, capital structure, investment practices, dividend policy, and overall growth, among other things. For example, federal and state consumer protection laws and regulations limit the manner in which we may offer and extend credit. In addition, the laws governing bankruptcy generally favor debtors, making it more expensive and more difficult to collect from customers who become subject to bankruptcy proceedings.

Changes to statutes, regulations, accounting standards or regulatory policies, including changes in their interpretation or implementation by regulators, could affect us in substantial and unpredictable ways. For example, in February 2025, the Trump administration directed the CFPB to, among other things, suspend rule implementations and cease supervision activities. We cannot predict what other changes, if any, will be made to the legal and regulatory regime, whether the changes will be retained or the effect that such changes may have. Such changes could, among other things, subject us to additional costs and lower revenues, limit the types of financial services and products that we may offer, ease restrictions on non-banks and thereby enhance their ability to offer competing financial services and products, increase compliance costs, and require a significant amount of management’s time and attention. Changes in accounting standards could materially impact, potentially even retroactively, how we report our financial condition and results of our operations. Failure to comply with statutes, regulations, or policies could result in sanctions by regulatory agencies, civil monetary penalties, or reputational damage, each of which could have a material adverse effect on our business, financial condition, and results of operations.damage.

Additionally, like all regulated financial institutions, we are affected by monetary policies implemented by the Federal Reserve and other federal instrumentalities. A primary instrument of monetary policy employed by the Federal Reserve is the restriction or expansion of the money supply through open market operations. This instrument of monetary policy frequently causes volatile fluctuations in interest rates, and it can have a direct, material adverse effect on the operating results of financial institutions including our business.rates. Borrowings by the United States government to finance government debt may also cause fluctuations in interest rates and have similar effects on the operating results of such institutions.rates. We do not have any control over monetary policiespolicies, or changes in those policies, implemented by the Federal Reserve or otherwise and any changes in these policies could have a material adverse effect on our business, financial condition, results of operations and prospects.otherwise.

We are a bank holding company within the meaning of the BHC Act headquartered in Birmingham, Alabama. Through our wholly-owned subsidiary bank, we operate full service banking offices located in Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee,Tennessee and Virginia. We also operate a loan production office in Florida. Our principal business is to accept deposits from the public and to make loans and other investments. Our principal source of funds for loans and investments are demand, time, savings, and other deposits and the amortization and prepayment of loans and borrowings. Our principal sources of income are interest and fees collected on loans, interest and dividends collected on other investments and service charges. Our principal expenses are interest paid on savings and other deposits, interest paid on our other borrowings, employee compensation, office expenses, and other overhead expenses. Our business is conducted through a single reportable segment. For additional information regarding our segment reporting, refer to (Note 2322) - “Segment Reporting” in the Notes to the Consolidated Financial Statements.

Net income available to common stockholders was $276.5 million for the year ended December 31, 2025, compared to $227.2 million for the year ended December 31, 2024, compared to $206.8 million for the year ended December 31, 2023.2024. The increase in net income was primarily attributable to an increase in net interest income. Basic and diluted net income per common share waswere both $5.06 for the year ended December 31, 2025, compared to $4.17 and $4.16, respectively, for the year ended December 31, 2024, compared to $3.80 and $3.79, respectively, for the year ended December 31, 2023.2024. Return on average assets was 1.56% in 2025, compared to 1.39% in 2024, compared to 1.37% in 2023, and return on average common stockholders’ equity was 14.98%16.05% in 2024,2025, compared to 15.13%14.98% in 2023.2024.

Net interest income increased 8.7%19.8% for the year ended December 31, 20242025 from the year ended December 31, 2023.2024. TheNet increaseinterest income increased primarily due to a larger decline in the average rate paid on interest-bearing liabilities than the decline in the average yield on interest-earning assets, resulting in a wider net interest income was mostly attributable to increases in both the average balance and rate on our interest earning assets. While interest-bearing liabilities average balance and rate both increased, the growth in our interest-earning assets outpaced those of our interest-bearing liabilities, which resulted in increased net interest income.spread.

From 20232024 to 2024,2025, our volume component was favorable as asset volumes increased primarily as a result of the growth in loan balances as well as an increase in taxable debt securities, whileboth the volume changeand fromrate ourcomponents were favorable, as average asset and liability balances increased while rates on both assets and liabilities wasdeclined, driven primarily driven by growththree reductions in moneythe marketFederal balances.Reserve’s target rate during 2025. The rate component wasbenefited favorablefrom a greater decrease in the cost of funds, as averageinterest-bearing liabilities repriced downward more quickly than earning asset yields. As a result, our net interest margin expanded. Average rates paid on interest-bearing liabilities increaseddecreased 3969 basis points over this period, while yields on average earning assets increaseddecreased 4119 basis points.

Our average interest-earning assets for the year ended December 31, 20242025 increased $1.23$1.30 billion, or 8.4%,8.2%, to $15.85$17.15 billion from $14.62$15.85 billion for the year ended December 31, 2023.2024. Average loans grew $548.0$958.9 million, or 4.7%,7.9%, average debt securities increaseddecreased $76.7$47.1 million, or 4.1%,2.4%, and average federal funds sold andsold, interest-bearing balances with banksbanks, and securities purchased with agreement to resell increased $599.2$389.3 million, or 53.5%.22.7%.

Our average interest-bearing liabilities increased $1.32$1.12 billion, or 12.3%,9.3%, to $13.22 billion for the year ended December 31, 2025 from $12.10 billion for the year ended December 31, 2024 from $10.78 billion for the year ended December 31, 2023.2024. The ratio of our average interest-earning assets to average interest-bearing liabilities decreased from 135.6% for the year ended December 31, 2023 to 130.9% for the year ended December 31, 2024,2024 to 129.7% for the year ended December 31, 2025, as average noninterest-bearing deposits and stockholders’ equity decreasedincreased by a combined $107.8$227.3 million, or 2.52%,5.45%, from 20232024 to 2024.2025.

The provision expense for credit losses for the year ended December 31, 20242025 increased compared to the year-ended December 31, 2023.2024. The increase in provision expense iswas primarily the result of loan growth during 20242025 compared to 2023.2024. Nonperforming loans increased to $168.8 million, or 1.23% of total loans, at December 31, 2025 from $42.5 million, or 0.34% of total loans, at December 31, 20242024. fromThe $21.5year-over-year million,increase orwas 0.18%attributable ofto totala loans,large, atreal-estate Decembersecured 31, 2023.relationship. During 2024,2025, we had net charged-off loans totaling $10.4$28.1 million, compared to net charged-off loans of $11.7$10.4 million for 2023.2024. The ratio of net charged-off loans to average loans was 0.09%0.21% for 20242025 compared to 0.10%0.09% for 2023.2024. The ACL for December 31, 20242025 totaled $171.7 million, or 1.25% of loans, net of unearned income. The ACL totaled $164.5 million, or 1.30% of loans, net of unearned income. The ACL totaled $153.3 million, or 1.32% of loans, net of unearned income, at December 31, 2023.2024.

Noninterest income increaseddecreased $4.6$7.8 million, or 15.3%,22.3%, to $35.1$27.2 million for the year ended December 31, 20242025 compared to $30.4$35.1 million for the same period in 2023.2024. Service charges on deposit accounts increased $1.0$2.5 million, or 12.0%,26.0%, to $9.4$11.9 million for the year ended December 31, 20242025 compared to $8.4$9.4 million for the same period in 2023.2024. Credit card income decreasedremained $351,000,flat at $8.3 million during 2025 compared to 2024. Mortgage banking income increased $542,000, or 4.1%,11.0%, to $8.3$5.5 million for the year ended December 31, 20242025 compared to $8.6$4.9 million for the same period in 2023.2024. MortgageBank-owned bankinglife insurance income increased $2.2$5.3 million, or 78.7%,55.4%, to $4.9$14.8 million for the year ended December 31, 20242025 compared to $2.8$9.5 million for the same period in 2023.2024. ClosedThe loanscash surrender value increased 49.9%$1.0 million and we recognized $4.3 million of income attributed to a BOLI policy during 20242025 compared to 2023.2024. Bank-ownedOther life insuranceoperating income increased $2.0 million,$218,000, or 25.9%,7.6%, to $9.5$3.1 million for the year ended December 31, 20242025 compared to $7.6$2.9 million for the same period in 2023. The cash surrender value increased $1.6 million during 2024 compared to 2023. Other operating income decreased $150,000, or 4.9%, to $2.9 million for the year ended December 31, 2024 compared to $3.0 million for the same period in 2023.2024. Merchant service revenue increased $63,000,$59,000, or 2.9%,2.6%, to $2.3 million for the year ended December 31, 20242025 compared to $2.2$2.3 million for the same period in 2023.2024.

Noninterest expenses increased $3.1$3.8 million, or 1.7%,2.1%, to $181.1$185.0 million for the year ended December 31, 20242025 compared to $178.1$181.1 million for the same period in 2023. Increased salaries and employee benefits expenses were the primary drivers of the increase in noninterest expense.2024. Salary and employee benefits expenses increaseddecreased $15.4$1.5 million, or 19.0%,1.6%, to $96.3$94.8 million for the year ended December 31, 20242025 compared to $81.0$96.3 million for the same period in 2023.2024, mainly due to a $3 million credit adjustment to our annual Incentive Plan expense during the second quarter of 2025. We had 630666 full-time equivalent employees as of December 31, 20242025 compared to 591630 as of December 31, 20232024. Equipment and occupancy expense increased $224,000,$78,000, or 1.6%,.5%, to $14.5$14.6 million for the year ended December 31, 20242025 compared to $14.3$14.5 million for the same period in 2023.2024. Third party processing and other services increased $3.3 million,$436,000, or 11.9%,1.4%, to $31.2$31.6 million for the year ended December 31, 20242025 compared to $27.9$31.2 million for the same period in 2023.2024. Professional services expense increased $985,000,$274,000, or 16.6%,4.0%, to $6.9$7.2 million for the year ended December 31, 20242025 compared to $5.9$6.9 million for the same period in 2023.2024. FDIC assessments decreasedincreased $4.9 million,$303,000, or 31.6%,2.8%, to $10.7$11.0 million for the year ended December 31, 20242025 compared to $15.6$10.7 million for the same period in 2023.2024. The FDIC implemented a special assessment to recapitalize the Deposit Insurance Fund resulting in an expense ofadditional $1.8 million during 2024, and $7.2 million during 2023.2024. Other operating expenses decreasedincreased $12.0$4.3 million, or 36.0%,20.1%, to $21.3$25.6 million for the year ended December 31, 20242025 compared to $33.3$21.3 million for the same period in 2023.2024. The increase was mainly due to an operational loss and an increase in loan credit expenses. We adopted the proportional amortization method of accounting for investments in certain tax credit partnerships during 2024. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the consolidated income statement as a component of income tax expense. Previously the amortization of the investment was included in other non-interest expenses. Changes in other operating expenses from 20232024 to 20242025 are detailed in Note 1514 - “Other Operating Income and Expenses,” to the Consolidated Financial Statements.

Income tax expense was $51.7$65.5 million for the year ended December 31, 20242025 compared to $37.7$51.7 million in 2023.2024. Our effective tax rates for 20242025 and 20232024 were 18.5%19.15% and 15.4%,18.61%, respectively. The increase in our effective tax rates reflect our adoption of the proportional amortization of accounting for investment tax credits during the first quarter of 2024.credits. We recognized $15.4$44.5 million in credits during 20242025 and $17.7$15.4 million during 2023,2024, related to new investments in Federal New Market Tax Credits. We also recognized excess tax benefits as an income tax credit to our income tax expense from the exercise and vesting of stock options and restricted stock during 20242025 of $1.3 million,$798,000, compared to $1.5$1.3 million during 2023.2024. Our primary permanent differences are related to tax exempt income on debt securities, state income tax benefit on real estate investment trust dividends, various qualifying tax credits and change in cash surrender value of bank-owned life insurance.

Total assets as of December 31, 2024,2025, were $17.35$17.73 billion, an increase of $1.22$375.5 billion,million, or 7.6%,2.2%, from total assets of $16.13$17.35 billion as of December 31, 2023.2024. Average assets for the year ended December 31, 20242025 were $16.33$17.75 billion, an increase of $1.27$1.41 billion, or 8.40%,8.65%, over average assets of $15.07$16.33 billion for the year ended December 31, 2023.2024. Growth in loans and interest-bearing balances with banks were the primary reasons for the increase in ending and average total assets. Year-end 20242025 total loans were $12.61$13.70 billion, an increase of $947.0$1.09 million,billion, or 8.1%,8.7%, over year-end 20232024 total loans of $11.66$12.61 billion.

Earning assets include loans, securities, short-term investments and bank-owned life insurance contracts. We maintain a higher level of earning assets in our business model than do our peers because we allocate fewer of our resources to brick and mortar facilities, ATMs, and cash and due-from-bank accounts used for transaction processing. Earning assets as of December 31, 2025 were $16.91 billion, or 95.37% of total assets of $17.73 billion. Earning assets as of December 31, 2024 were $17.05 billion, or 98.27% of total assets of $17.35 billion. Earning assets as of December 31, 2023 were $15.85 billion, or 98.25% of total assets of $16.13 billion. We believe this ratio is expected to generally continue at these levels, although it may be affected by economic factors beyond our control.

The allowance for credit losses (“ACL”) for December 31, 20242025 and 20232024 was calculated under the CECL methodology and totaled $164.5$171.7 million and $153.3$164.5 million, or 1.30%1.25% and 1.32%1.30% of loans, net of unearned income, respectively. The decrease in the ACL as a percentage of total loans from December 31, 2023,2024, to December 31, 2024,2025, was primarily driven by ahigher morenet favorablecredit economiccharge-offs outlook,during including lower unemployment rates2025 and projectedthe grossrelease domesticof producta (“GDP”)special growthreserve comparedthat had been included in the 2024 balance, as well as updates to 2023.loss Additionally,drivers adjustments toand qualitative factors within our CECL model were made to reflect these improved economic conditions.model. Net credit charge-offs to average loans were 0.09%0.21% for the year ended December 31, 2024,2025, compared to 0.10%0.09% and 0.08%0.10% for the years ended December 31, 20232024 and 2022,2023, respectively. Nonaccrual loans increased to $168.4 million, or 1.23% of total loans, at December 31, 2025 from $39.5 million, or 0.31% of total loans, at December 31, 20242024, fromand were $19.3 million, or 0.17% of total loans, at December 31, 2023,2023. andThe wereyear-over-year $12.5nonaccrual million,increase orfrom 0.11%the ofyear total loans, atended December 31, 2022.2024 Atto the year ended December 31, 2024, the nonaccrual increase2025 was drivenattributable byto a commercial,large, financialreal-estate and agricultural relationship and a owner-occupied commercialsecured relationship.

We maintain an ACL on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a similar methodology to the one used to determine the ACL, modified to account for the probability of a drawdown on the commitment. The ACL on unfunded loan commitments is classified as a liability account on the balance sheet within other liabilities, while the corresponding provision for these credit losses is recorded as a component of otherprovision expense.of credit loss. The allowance for credit losses on unfunded commitments was $572,000 as of December 31, 2025 and $608,000 as of December 31, 2024 and $575,000 as of December 31, 2023.2024.

The Company assesses the adequacy of its ACL at the end of each calendar quarter. The level of ACL is based on the Company’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio and other relevant factors. The ACL is increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs, net of recoveries. The ACL is believed adequate to absorb all expected future losses to be recognized over the contractual life of the loans in the portfolio. At December 31, 2025, we forecasted a moderately higher national GDP and national unemployment rate unchanged compared to December 31, 2024. At December 31, 2024, we forecasted a slightly lower national unemployment rate and moderately higher national GDP compared to December 31, 2023. At December 31, 2023, we forecasted a slightly lower national unemployment rate and moderately higher national GDP compared to December 31, 2022.

Commitments to extend credit beyond current fundings are agreements to lend to a customer as long asif there is no violation of any condition established in the contract. Such commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by us upon extension of credit is based on our management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Liquidity is managed at two levels. The first is the liquidity of the Company. The second is the liquidity of the bank.Bank. The management of liquidity at both levels is critical because the Company and the Bank have different funding needs and sources, and each are subject to regulatory guidelines and requirements. We are subject to general FDIC guidelines whichthat require a minimum level of liquidity. Management believes our liquidity ratios meet or exceed these guidelines. Our management is not currently aware of any trends or demands that are reasonably likely to result in liquidity increasing or decreasing in any material manner.

The Bank’s main source of liquidity is customer interest-bearing and noninterest bearing deposit accounts. Our regular sources of funding are from the growth of our deposit base, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits. Liquidity is also available from funding sources consisting primarily of federal funds purchased, Federal Home Loan Bank (“FHLB”) loan advances and available-for-sale securities. The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. In the event of compression in liquidity due to a run-off in deposits, we have a liquidity policy and procedure that provides for certain actions under varying liquidity conditions. These actions include borrowing from existing correspondent banks, selling or participating loans and the curtailment of loan commitments and funding. As of December 31, 2024,2025, our liquid assets, represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $2.73$2.12 billion. The Bank had loans pledged to both the FHLB and the Federal Reserve Bank of Atlanta, which provided approximately $3.07$3.20 billion and $2.11$2.30 billion, respectively, in available funding. The Bank’s policy limits on brokered deposits would allow for up to $4.34$4.43 billion in available funding for brokered deposits. Additionally, we had available to us approximately $537$472 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements, to meet short term funding needs.

We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. The accounting estimate related to the Company’s ACL is considered to be a critical accounting estimate because considerable judgment and estimation is applied by management.

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified these risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, which should be taken into consideration when reviewing the information contained in this report. ThereExcept as described below, there have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

The following discussion and analysis is designed to provide a better understanding of various factors relating to the results of operations and financial condition of ServisFirst Bancshares, Inc. (the “Company”) and its wholly ownedwholly-owned subsidiary, ServisFirst Bank (the “Bank”). This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated balance sheets as of MarchJune 31,30, 2026 and December 31, 2025 and consolidated statements of income for the three and six months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025.

Statements in this document that are not historical facts, including, but not limited to, statements concerning future operations, results or performance, are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended.amended (the “Securities Act”). The words “believe,” “expect,” “anticipate,” “project,” “plan,” “intend,” “will,” “could,” “would,” “might” and similar expressions often signify forward-looking statements. Such statements involve inherent risks and uncertainties. The Company cautions that such forward-looking statements, wherever they occur in this quarterly report or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’s senior management and involveare subject to risks and uncertainties that could cause actual results to differ materially from those suggestedcontemplated by the forward-looking statements. SuchA forwardnumber lookingof factors could cause actual results to differ materially from those contemplated by the forward-looking statements should, therefore, be considered in lightthis document. Many of variousthose factors thatare couldbeyond affectour theability accuracyto ofcontrol suchor forward-lookingpredict. statements,These including,factors include, but are not limited to: general economic conditions, especially in the credit markets and in the Southeast; the impact of tariffs, trade wars and other conflicts on general economic conditions, theconditions; performance of the capital markets; changes in interest rates, yield curves and interest rate spread relationships; changes in accounting and tax principles, policies or guidelines; changes in legislation or regulatory requirements; changes as a result of our reclassification as a large financial institution by the FDIC; changes in our loan portfolio and the deposit base; possible changes in laws and regulations and governmental monetary and fiscal policies, including, but not limited to, Federal Reserve policies in connection with continued or re-emerging inflationary pressures and the ability of the U.S. Congress to increase the U.S. statutory debt limit as needed; computer hacking or cyber-attacks resulting in unauthorized access to confidential or proprietary information; substantial, unexpected or prolonged changes in the level or cost of liquidity; the cost and other effects of legal and administrative cases and similar contingencies; possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans and the value of collateral; the effect of natural disasters, such as hurricanes and tornados, in our geographic markets; and increased competition from both banks and nonbank financial institutions. The foregoing list of factors is not exhaustive. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” in our most recent Annual Report on Form 10-K10-K, “Forward-Looking Statements” and “Risk Factors” in our subsequent Quarterly Reports on Form 10-Q and our other U.S. Securities and Exchange Commission (“SEC”) filings. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made. The Company assumes no obligation to update or revise any forward-looking statements that are made from time to time.

We are a bank holding company under the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama. Our wholly-owned subsidiary, ServisFirst Bank, an Alabama banking corporation, provides commercial banking services through full-service banking offices located in Alabama, Florida, Georgia, North and South Carolina, Tennessee, Texas,Texas and Virginia. The Bank recently entered the Houston, Texas market with plans of opening a new office there in the coming weeks. Through the Bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.

FirstSecond Quarter Highlights

As of MarchJune 31,30, 2026, we had consolidated total assets of $18.17$18.35 billion, an increase of $444.1$618.3 million, or 2.5%,3.5%, from $17.73 billion at December 31, 2025. Total loans were $13.95$14.48 billion,billion at June 30, 2026, an increase of $249.0$781.6 million, or 1.8%,5.7%, from $13.70 billion at December 31, 2025. Total deposits were $14.49$14.55 billion,billion at June 30, 2026, an increase of $267.3$329.7 million, or 1.9%,2.3%, from $14.22 billion at December 31, 2025. Noninterest-bearing demand deposits comprised most of the increase in deposits, increasing by $311.1 million.

NetWe reported net income and net income available to common stockholders wasof $83.0$85.8 million for the quarter ended MarchJune 31,30, 2026, compared to net income and net income available to common stockholders of $63.2$61.4 million for the firstsecond quarter of 2025. Basic and diluted earnings per common share were both $1.52$1.57 for the three months ended MarchJune 31,30, 20262026, compared to $1.16$1.12 in the corresponding period in 2025. Changes in income and expenses are more fully explained in “Results of Operations” below.

The following table presents selectedselect ratios of our results of operations for the three and six months ended MarchJune 31,30, 2026, and 2025:2025.

At MarchJune 31,30, 2026, we had $18.7$1.0 million in federal funds sold, compared to $6.1 million at December 31, 2025. We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. At MarchJune 31,30, 2026, we had $1.21$1.08 billion in balances at the Federal Reserve, compared to $1.00 billion at December 31, 2025. At June 30, 2026, we had $250.4 million in securities purchased under agreements to resell, compared to $498.9 million at December 31, 2025.

Investment Securities

Debt securities available-for-sale totaled $1.04$995.1 billionmillion at MarchJune 31,30, 2026 and $1.07 billion at December 31, 2025. During the three months ended June 30, 2025, the Company sold available-for-sale mortgage-backed securities with an amortized cost base of $70.5 million, and recorded a pre-tax loss of $8.6 million as a result of our portfolio restructuring during 2025. Debt securities held-to-maturityheld to maturity totaled $647.3$635.5 million at MarchJune 31,30, 2026 and $660.1 million at December 31, 2025. We had paydowns of $21.9$44.6 million on mortgage-backed securities and government agencies, maturities of $90.4 million on municipal bonds and treasury securities, and calls of $500,000 on corporate debt, and maturities of $50.0$47.5 million on U.S. Treasurycorporate securities during the threesix months ended MarchJune 31,30, 2026. We purchased $28.7$50.0 million in mortgage-backed securities and $33.7 million in corporate debt securities during the first threesix months ofended June 30, 2026. For a tabular presentation of debt securities available-for-saleavailable for sale and held to maturity at MarchJune 31,30, 2026 and December 31, 2025, see “Note 4 – Securities” in our Notes to Consolidated Financial Statements.

All investmentdebt securities in an unrealized loss position as of MarchJune 31,30, 2026 continue to perform as scheduled. We have evaluated the securities and have determined that the decline in fair value, relative to its amortized cost, is not due to credit-related factors. In addition, we have the ability to hold these securities within the portfolio until maturity or until the value recovers, and we believe that it is not likely that we will be required to sell these securities prior to recovery. We continue to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

TheWe Company doesdo not invest in collateralized debt obligations. As of MarchJune 31,30, 2026, we had $432.5$392.2 million of bank and bank holding companycompany-issued subordinateddebt. notes. If rated, allAll such bondsbonds, if rated, were rated BBB or better by Kroll Bond Rating Agency at the time of our initial investment.investment, Alland all other corporate bonds hadheld awere rated A‑1 or better by Standard and& Poor’s or Moody’s ratingat the time of A-1 or better when purchased.purchase The total investment portfolio has a combined average credit rating of AA as of MarchJune 31,30, 2026.

The carrying value of investmentdebt securities pledged to secure public funds on deposit and for other purposes as required by law was $1.20$1.17 billion and $1.23 billion as of MarchJune 31,30, 2026 and December 31, 2025, respectively.

WeAt June 30, 2026, we had total loans of $13.95$14.48 billion at March 31, 2026,billion, an increase of $249.0$781.6 million, or 1.8%5.7%, from $13.70 billion at December 31, 2025. Non-ownerThe majority of this growth occurred in non-owner occupied commercial loansloans, increasedincreasing $136.3$520.2 millionmillion, andor Real11.3% estatesince –December construction31, loans increased $73.4 million during the quarter, making up 55% and 29% respectively of total loan growth. Our loan pipeline has expanded and indicates that loan demand is improving in our market areas.2025.

The following table details our loan portfolio and the percentage composition by type at MarchJune 31,30, 2026 and December 31, 2025:

The table below summarizes the Company’s commercial real estate portfolio at MarchJune 31,30, 2026 as segregated by industry concentrations based on North American Industry Classification System:

The table below summarizes the Company’s commercial real estate portfolio at MarchJune 31,30, 2026 as segregated by geographic region in which the property is located:

TheWe Company assessesassess the adequacy of itsour ACL at the end of each calendar quarter. The level of ACL is based on the Company’sour evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’borrowers' ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio and other relevant factors. The ACL is increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs, net of recoveries. We believe the ACL is adequate to absorb all expected future losses to be recognized over the contractual life of the loans in the portfolio.

Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, thewe Company utilizesutilize a DCF,discounted PDcash flow, probability of default /LGD loss given default or remaining life method. The historical loss experience estimate by pool is then adjusted by forecast factors that are quantitatively related to the Company’s historical credit loss experience, such as national unemployment rates and gross domestic product. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long-term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by the Company and are dependent on the current economic environment among other factors. See “Note 1 – General” in the Notes to Consolidated Financial Statements included in Item 1. Consolidated Financial Statements elsewhere in this report.

The expected credit losses for each loan pool are then adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. TheWe Company considersconsider factors that are relevant within the qualitative framework, which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.

Loans that no longer share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and expected credit losses are estimated on an individual basis. Individual evaluations are performed for nonaccrual loans, loans rated substandard, and certain modified loans. The allowance for credit losses on these individually evaluated loans is calculated using methodsmethods, such as the estimated fair value of underlying collateral, observable market prices of comparable debt, or the present value of expected future cash flows.

The following table presents a summary of the allowance for credit losses, net charge-offs and certain credit ratios as of and for the three and six months ended MarchJune 31,30, 2026 and 2025:2025.

Total nonperforming loans at MarchJune 31,30, 2026, which include nonaccrual loans and loans 90 or more days past due and still accruing, increased $9.1$2.1 million, or 5.4%,1.3%, to $177.9$171.0 million from $168.8 million at December 31, 2025. Of this total, nonaccrual loans of $176.6$169.7 million at MarchJune 31,30, 2026 represented a net increase of $8.3$1.4 million from nonaccrual loans at December 31, 2025. The majority of the increase in non-performing assets is attributable to two relationships, both of which are secured by real estate. Excluding credit card accounts, there waswere afour loan of $1.13 million,loans 90 or more days past due and still accruing totaling $1.1 million at MarchJune 31,30, 2026, compared to two loans totaling $323,000 at December 31, 2025. Loans made to borrowers experiencing financial difficulty that were modified during the three months ended MarchJune 31,30, 2026 and 2025 were $15.4$1.5 million and $11.1 million,$494,000, respectively.

The following table summarizesdetails our nonperforming assets at MarchJune 31,30, 2026 and December 31, 2025:

We rely on increasing our deposit base to fund loan and other asset growth. Each of our markets is highly competitive. We compete for local deposits by offering attractive products with competitive rates. We expect to have a higher average cost of funds for local deposits than competitor banks due to our lack of an extensive branch network. Our management’s strategy is to offset the higher cost of funding with a lower level of operating expense and firm pricing discipline for loan products. We have promoted electronic banking services by providing them without charge and by offering in-bank customer training. OurAt June 30, 2026, our total deposits at March 31, 2026 were $14.49$14.55 billion, an increase of $267.3$329.7 million, or 1.9%,2.3%, from $14.22 billion at December 31, 2025. The increase in total deposits was primarily due to organic growth across nine of our eleven markets, with most of that increase attributable to money market products.

The following table summarizes balances of our deposits and the percentage of each type to the total at MarchJune 31,30, 2026 and December 31, 2025:

At MarchJune 31,30, 2026,2026 and December 31, 2025, we estimate that we had approximately $9.61$9.68 billion and $9.69 billion, respectively, in uninsured deposits.deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit. The uninsured deposit data for 2026 and 2025 reflects the deposit insurance impact of “combined ownership segregation” of escrow and other accounts at an aggregate level but does not reflect an evaluation of all of the account styling distinctions that would determine the availability of deposit insurance to individual accounts based on FDIC regulations.

Other Borrowings

Our borrowings consist of federal funds purchased and subordinated notes payable. We had $1.55$1.58 billion and $1.47 billion at MarchJune 31,30, 2026 and December 31, 2025, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit. The average rate paid on these borrowings was 4.50%3.74% for the quarter ended MarchJune 31,30, 2026. Other borrowings consist of $34.75 million of the Company’s 4% Subordinated Notes due October 21, 2030, which were issued in a private placement in October 2020 and pay interest semi-annually. The Notes can be prepaid at any time.

The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. If our liquidity was to decline due to deposit withdrawals, we have procedures that provide for certain actions under varying liquidity conditions. These actions include borrowing from existing correspondent banks, selling or participating loans, and curtailing loan commitments and funding. At MarchJune 31,30, 2026, our liquid assets, represented by cash and due from banks, federal funds soldsold, securities purchased with agreements to resell and unpledged available-for-sale and held-to-maturity debt securities, totaled $2.31$1.72 billion. The Bank had loans pledged to both the FHLBFederal Home Loan Bank and the Federal Reserve Bank of Atlanta, which provided approximately $3.11$3.40 billion and $2.02$2.56 billion, respectively, in available funding. The Bank’s policy limits on brokered deposits would allow for up to $4.54$4.59 billion in available funding for brokered deposits. Additionally, the Bank had approximately $150.0$312.0 million in available unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements, to meet short term funding needs.

Our management meets on a quarterly basis to review sources and uses of funding to determine the appropriate strategy to ensure an appropriate level of liquidity. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Our regular sources of funding are from the growth of our deposit base, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits. In addition, we have issued debt as described above under “BorrowingsOther borrowings” and have various other sources of liquidity as discussed herein. We believe these sources of funding are adequate to meet both our immediate (within the next 12 months) and our longer term anticipated funding needs. However, we may need additional funding if we are able to maintain our current growth rate into the future.

The following table illustrates, during the periods presented, the mix of our funding sources and the assets in which those funds are invested as a percentage of our average total assets for the period indicated. Average assets totaled $17.77$18.01 billion and $17.71$17.89 billionbillion, respectively, for the quartersthree and six months ended MarchJune 31,30, 2026 and 2025, respectively.2026.

Total stockholders’stockholders' equity attributable to us at MarchJune 31,30, 2026 was $1.91$1.98 billion, or 10.53%10.78% of total assets. At December 31, 2025, total stockholders’stockholders' equity attributable to us was $1.85 billion, or 10.44% of total assets.

As of MarchJune 31,30, 2026, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action. To remain categorized as well-capitalized, the Bankwe must maintain minimum commonCommon equityEquity Tier 1, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as disclosed in the table below, and not be subject to any written agreement, order, or directive from the FDIC requiring us to maintain a specific capital level for any capital measure.below. Our management believes that we are well-capitalized under the prompt corrective action provisions as of MarchJune 31,30, 2026.

The following table sets forth (i) the capital ratios required by Baselthe IIIFDIC and promptthe correctiveAlabama actionBanking Department’s leverage ratio requirement and (ii) our actual ratios, not including the applicable 2.5% capital conservation buffer, of capital to total regulatory or risk-weighted assets, as of MarchJune 31,30, 2026, December 31, 2025 and MarchJune 31,30, 2025:

* This column reflects the minimum capital ratios under Basel III and does not include the 2.5% capital conservation buffer We are a legal entity separate and distinct from the Bank. Our principal source of cash flow, including cash flow to pay dividends to our stockholders, is dividends the Bank pays to us as the Bank’s sole shareholder. Statutory and regulatory limitations apply to the Bank’s payment of dividends to us as well as to our payment of dividends to our stockholders. The requirement that a bank holding company must serve as a source of strength to its subsidiary banks also results in the position of the Federal Reserve that a bank holding company should not maintain a level of cash dividends to its stockholders that places undue pressure on the capital of its bank subsidiaries or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength. Our ability to pay dividends is also subject to the provisions of Delaware corporate law.

In the normal course of business, we are a party to financial credit arrangementsinstruments with off-balance sheet risk to meet the financing needs of our customers. These financial credit arrangementsinstruments include commitments to extend credit beyond current fundings, credit card arrangements, standby letters of creditcredit, and financial guarantees. Those credit arrangementsinstruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in theour balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement we have in those particular financial credit arrangements. All such creditfinancial arrangementsinstruments bear interest at variable rates and we have no such creditfinancial arrangementsinstruments that bear interest at fixed rates.

Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, credit card arrangements and standby letters of credit is represented by the contractual or notional amount of thosethese instruments.instruments in the event of non-performance by the other party to such financial instrument. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

Financial instruments whose unfunded contract amounts represent credit risk at MarchJune 31,30, 2026 are as follows:

Commitments to extend credit beyond current funded amounts are agreements to lend to a customer as long as there is no violation of any condition established in the applicable loan agreement. Such commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by us upon extension of credit is based on our management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment,equipment and income-producing commercial properties.

Basic and diluted earnings per common share were both $1.52$1.57 for the three months ended MarchJune 31,30, 2026, compared to $1.16$1.12 in the corresponding period in 2025. Basic and diluted earnings per common share were both $3.09 for the six months ended June 30, 2026, compared to $2.28 for both in the corresponding period in 2025. Return on average assets for the three and six months ended MarchJune 31,30, 2026 was 1.89%1.91% and 1.90% compared to 1.45%1.40% and 1.42%, respectively, for the corresponding periodperiods in 2025,2025. and returnReturn on average common stockholders’stockholders' equity for the three and six months ended MarchJune 31,30, 2026 was 17.91%17.71% and 17.81%, respectively, compared to 15.63%14.56% and 15.08%, respectively, for the corresponding periodperiods in 2025.

Net Interest Income and Net Interest Margin Analysis

The Federal Reserve Bank decreased theirBank’s targeted federal funds rate fromwas 4.25 – 4.50% at MarchJune 31,30, 2025 compared to its current range as of MarchJune 31,30, 2026 of 3.50 – 3.75%. Our cost of funding has decreased as a result of the decrease in the targeted federal funds rate.

The following tabletables shows,show, for the three and six months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025, the average balances of each principal category of our assets, liabilities and stockholders’stockholders' equity, and an analysis of net interest revenue. The accompanying tabletables reflectsreflect changes in our net interest margin as a result of changes in the volume and rate of our interest-earning assets and interest-bearing liabilities for the same periods. Changes as a result of mix or the number of days in the periods have been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. BothThe tables are presented on a taxable-equivalent basis where applicable:

Our growth in loans continuesand tointerest-bearing drivebalances with banks drove the favorable volume component change. The rate component was favorable as loan yields decreased 14 basis points and average rates paid on interest-bearing liabilities decreased 6359 basis points whilefor loanthe yieldsthree decreasedmonths 10ended basisJune points.30, An increase in average equity contributed to a favorable volume component accompanied by an increase in average non-interest-bearing deposits.2026.