First US Bancshares Inc.

03/12/2026 | Press release | Distributed by Public on 03/12/2026 11:02

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

You should read the following discussion of our financial condition and results of operations in conjunction with the "Selected Financial Data" and our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2025. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, and our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed under Item 1A "Risk Factors" and elsewhere in this Annual Report.

Selected Financial Data

The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the consolidated financial statements and related notes, appearing elsewhere herein.

Year Ended December 31,

2025

2024

2023

2022

2021

(Dollars in Thousands, except Per Share Amounts)

Results of Operations:

Interest income

$

59,415

$

58,260

$

52,806

$

41,197

$

39,921

Interest expense

21,957

22,111

15,456

4,256

2,950

Net interest income

37,458

36,149

37,350

36,941

36,971

Provision for credit losses

4,031

622

319

3,308

2,010

Non-interest income

3,579

3,583

3,381

3,451

3,521

Non-interest expense

29,070

28,356

29,141

28,072

32,756

Income before income taxes

7,936

10,754

11,271

9,012

5,726

Provision for income taxes

1,944

2,584

2,786

2,148

1,275

Net income

$

5,992

$

8,170

$

8,485

$

6,864

$

4,451

Per Share Data:

Basic net income per share

$

1.03

$

1.40

$

1.42

$

1.13

$

0.70

Diluted net income per share

$

1.00

$

1.33

$

1.33

$

1.06

$

0.66

Dividends per share

$

0.28

$

0.22

$

0.20

$

0.14

$

0.12

Common stock price - High

$

14.79

$

14.30

$

10.44

$

12.00

$

12.50

Common stock price - Low

$

10.30

$

8.66

$

6.54

$

6.46

$

7.54

Period end price per share

$

13.97

$

12.59

$

10.31

$

8.68

$

10.57

Period end shares outstanding (in thousands)

5,700

5,696

5,735

5,812

6,172

Period-End Balance Sheet:

Total assets

$

1,154,785

$

1,101,086

$

1,072,940

$

994,667

$

958,302

Total loans

853,018

823,039

821,791

773,873

708,350

Allowance for credit losses on loans

10,704

10,184

10,507

9,422

8,320

Investment securities, net

168,540

168,570

136,669

132,657

134,319

Total deposits

1,027,962

972,557

950,191

870,025

838,126

Short-term borrowings

-

10,000

10,000

20,038

10,046

Long-term borrowings

10,945

10,872

10,799

10,726

10,653

Total shareholders' equity

105,648

98,624

90,593

85,135

90,064

Book value per share

18.53

17.31

15.80

14.65

14.59

Performance Ratios:

Total loans to deposits

83.0

%

84.6

%

86.5

%

88.9

%

84.5

%

Net interest margin

3.54

%

3.59

%

3.87

%

4.07

%

4.23

%

Return on average assets

0.53

%

0.76

%

0.82

%

0.70

%

0.47

%

Return on average common equity

5.86

%

8.62

%

9.88

%

7.99

%

5.01

%

Asset Quality:

Allowance for credit losses as % of loans

1.25

%

1.24

%

1.28

%

1.22

%

1.17

%

Nonperforming assets as % of loans and other real estate

0.19

%

0.66

%

0.37

%

0.30

%

0.59

%

Nonperforming assets as % of total assets

0.14

%

0.50

%

0.28

%

0.24

%

0.43

%

Net charge-offs as a % of average loans

0.41

%

0.14

%

0.14

%

0.30

%

0.16

%

Capital Adequacy:

Common equity tier 1 risk-based capital ratio

10.88

%

11.31

%

10.88

%

11.07

%

11.36

%

Tier 1 risk-based capital ratio

10.88

%

11.31

%

10.88

%

11.07

%

11.36

%

Total risk-based capital ratio

12.05

%

12.47

%

12.11

%

12.19

%

12.44

%

Tier 1 leverage ratio

9.03

%

9.50

%

9.36

%

9.39

%

9.17

%

DESCRIPTION OF THE BUSINESS

First US Bancshares, Inc., a Delaware corporation ("Bancshares" and, together with its subsidiary, the "Company"), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Bancshares operates one wholly-owned banking subsidiary, First US Bank, an Alabama banking corporation (the "Bank"). Bancshares and the Bank are headquartered in Birmingham, Alabama.

The Bank conducts a general commercial banking business and offers banking services such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services and remote deposit capture. The Bank operates and serves its customers through 15 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as loan production offices in Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 17 states, including Alabama, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Bank is the Company's only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance.

The following discussion and financial information are presented to aid in an understanding of the Company's consolidated financial position, changes in financial position, results of operations and cash flows and should be read in conjunction with the consolidated financial statements and notes thereto included herein. The emphasis of the discussion is on the years 2025 and 2024. All yields and ratios presented and discussed herein are recorded and presented on the accrual basis and not on the tax-equivalent basis, unless otherwise indicated.

RECENT MARKET CONDITIONS

During the year ended December 31, 2025, the banking industry continued to be impacted by economic uncertainty driven by a rebound in U.S. economic growth following a first-quarter contraction, inflation remaining above the Federal Reserve's 2% objective, rising unemployment levels, and heightened uncertainty related to domestic and global policy developments. U.S. gross domestic product ("GDP") contracted during the first quarter of 2025 but rebounded during the remainder of the year, as real GDP increased at an annualized rate of 3.8% in the second quarter, 4.4% in the third quarter, and 1.4% in the fourth quarter. Inflation, as measured by the consumer price index, was 2.7% on a year-over-year basis in December 2025, and remained above the Federal Reserve's long-term objective. The U.S. unemployment rate increased modestly during 2025, reaching 4.4% in December.

Throughout much of 2025, the Federal Open Market Committee maintained the federal funds rate at elevated levels; however, in September, October, and December 2025, the federal funds rate was reduced by an aggregate of 75 basis points. Treasury yields were volatile during the year and declined from mid-year levels into year-end, reflecting market expectations for additional monetary policy easing. The combination of continued GDP growth, inflation remaining above the Federal Reserve's objective, and rising unemployment levels created a challenging environment in which to predict future interest rate movements.

As 2025 progressed, uncertainty increased related to the ultimate impact of U.S. trade and economic policies, including tariffs implemented by the Trump administration, the passage of the One Big Beautiful Bill Act, and the potential for additional tariffs. Geopolitical uncertainty, including ongoing unrest in the Middle East and Ukraine, also persisted during the year. In addition, a partial shutdown of nonessential U.S. government functions occurred during the fourth quarter of 2025, contributing to the reduction in GDP in the fourth quarter and to broader economic uncertainty.

Competitive pressures related to both loan and deposit pricing remained elevated during 2025. In the Company's local markets, competition for deposits continued to constrain the Company's ability to reduce funding costs despite declining market interest rates. Commercial lending activity remained cautious as business customers assessed the potential impact of trade policies and interest rate uncertainty on their operations. While consumer spending slowed on a macroeconomic basis, the Company experienced growth in consumer indirect lending during the year, primarily within higher credit quality segments. The competitive environment, combined with ongoing economic and policy uncertainty, presents a challenging operating environment for maintaining and improving the Company's net interest margin. Management continues to closely monitor these conditions and believes the Company remains well positioned to respond to a range of economic outcomes; however, adverse changes in economic conditions, credit quality, competitive dynamics, or interest rate movements could negatively impact the Company's financial condition and results of operations.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the Company's consolidated financial statements requires management to make subjective judgments associated with estimates. These estimates are necessary to comply with accounting principles generally accepted in the United States of America ("U.S. GAAP") and general banking practices. The estimates include accounting for the allowance for credit losses, goodwill and other intangible assets, other real estate owned, valuation of deferred tax assets and fair value measurements.

Allowance for Credit Losses on Loans and Leases

The allowance for credit losses is a contra-asset valuation account that is deducted from the amortized cost basis of the loans to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. The allowance for credit losses on loans and leases is adjusted through the provision for credit losses.

Management estimates the allowance by using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in loan-specific risk characteristics such as changes in economic and business conditions, underwriting standards, portfolio mix, and delinquency level. Considerations related to environmental conditions include reasonable and supportable current and forecasted data related to economic factors such as inflation, unemployment levels, and interest rates.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty as of the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for estimated selling costs as appropriate.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company, or management has a reasonable expectation at the reporting date that a loan modification will be made to a borrower experiencing financial difficulty.

Allowance for Credit Losses on Unfunded Lending Commitments

Off-balance sheet credit exposures include unfunded lending commitments that represent unconditional commitments of the Company to lend to a borrower. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The following categories of off-balance sheet credit exposures have been identified: unfunded loan commitments, standby letters of credit, and financial guarantees (collectively, "unfunded lending commitments"). The allowance for credit losses on unfunded lending commitments is included in other liabilities on the Company's consolidated balance sheet and is adjusted through the provision for credit losses. The estimate may include consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, as well as reasonable practical expedients or industry practices to assist in the evaluation of estimated funding amounts.

Allowance for Credit Losses on Investment Securities Held-to-Maturity

Expected credit losses on held-to-maturity debt securities are measured on a collective basis by major security type. Accrued interest receivable on held-to-maturity securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses on investment securities held-to-maturity is adjusted through the provision for credit losses.

Allowance for Credit Losses on Investment Securities Available-for-Sale

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes in the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded in the provision for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.

Goodwill and Other Intangible Assets

Goodwill arises from business combinations and is generally determined as the excess of cost over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is determined to have an indefinite useful life and is not amortized, but is tested for impairment at least annually or more frequently if events or circumstances exist that indicate that a goodwill impairment test should be performed. The Company performs its annual goodwill impairment test as of October 1. Impairment exists when a reporting unit's carrying amount of goodwill exceeds its implied fair value. In testing goodwill for impairment, U.S. GAAP permits the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In this qualitative assessment, the Company evaluates events and circumstances that may include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance of the Company, the performance of the Company's common stock, the key financial performance metrics of the Company's reporting units and events affecting the reporting units to determine if it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, the Company performs the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. A recognized impairment loss cannot be reversed in future periods even if the fair value of the reporting unit subsequently recovers. Goodwill impairment was neither indicated nor recorded during the years ended December 31, 2025 or 2024. In both years, the Company identified one reporting unit (the "Bank reporting unit") for goodwill impairment testing. As of October 1, 2025, the date of the Company's most recent impairment test, the Bank reporting unit had a fair value that was in excess of its carrying value. Variability in the market and changes in assumptions or subjective measurements used to estimate fair value are reasonably possible and may have a material impact on our consolidated financial statements or results of operations.

Other intangible assets consist of core deposit intangible assets arising from acquisitions. Core deposit intangible assets have definite useful lives and are amortized on an accelerated basis over their estimated useful lives. The Company's core deposit intangibles have estimated useful lives of seven years. Intangible assets are evaluated for impairment whenever events or circumstances exist that indicate that the carrying amount should be reevaluated. During 2025, the balance of the Company's other intangible assets was amortized to zero.

Other Real Estate Owned

Other real estate owned ("OREO") consists of properties obtained through foreclosure or in satisfaction of loans, as well as closed Bank and ALC branches. It is reported at the net realizable value of the property, less estimated costs to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management's knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically unobservable inputs for determining fair value.

Deferred Tax Asset Valuation

Income tax expense and current and deferred tax assets and liabilities reflect management's best estimate of current and future taxes to be paid. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future. Deferred tax assets may also arise from the carryforward of operating loss or tax credit carryforwards as allowed by applicable federal or state tax jurisdictions. In addition, there may be transactions and calculations for which the ultimate tax outcomes are uncertain and the Company's tax returns are subject to audit by various tax authorities. Although we believe that estimates related to income taxes are reasonable, no assurance can be given that the final tax outcome will not be materially different than that which is reflected in the consolidated financial statements. In evaluating the ability to recover deferred tax assets in the tax jurisdictions from which they arise, management considers all available positive and negative evidence, including the Company's historical earnings and, in particular, the results of recent operations, expected reversals of temporary differences, the ability to utilize tax planning strategies and the expiration dates of any operating loss and tax credit carryforwards. A valuation allowance is recognized for a deferred tax asset if, based on the weight of all available evidence, it is more likely than not that some portion of or the entire deferred tax asset will not be realized. The assumptions about the amount of future taxable income require the use of significant judgment and are consistent with the plans and estimates that management uses in the underlying business. At this time, management considers it to be more likely than not that the Company will have sufficient taxable income in the future to allow all deferred tax assets to be realized. Accordingly, a valuation allowance was not established for deferred tax assets as of either December 31, 2025 or 2024.

Fair Value Measurements

Portions of the Company's assets and liabilities are carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss). These assets and liabilities include securities available-for-sale, impaired loans and derivative instruments. Additionally, other real estate and certain other assets acquired in foreclosure are reported at the lower of the recorded investment or fair value of the property, less estimated cost to sell. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. While management uses judgment when determining the price at which willing market participants would transact when there has been a significant decrease in the volume or level of activity for the asset or liability in relation to "normal" market activity, management's objective is to determine the point within the range of fair value estimates that is most representative of a sale to a third party under current market conditions. The value to the Company if the asset or liability were held to maturity is not included in the fair value estimates.

A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Fair value is measured based on a variety of inputs that the Company utilizes. Fair value may be based on quoted market prices for identical assets or liabilities traded in active markets (Level 1 valuations). If market prices are not available, the Company may use quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 valuations). Where observable market data is not available, the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but that are observable based on Company-specific data (Level 3 valuations). These unobservable assumptions reflect the Company's own estimates for assumptions that market participants would use in pricing the asset or liability. The valuation of financial instruments when quoted market prices are not available (Levels 2 and 3) may require significant management judgment to assess assumptions and observable inputs. Detailed information regarding fair value measurements can be found in Note 19, "Fair Value of Financial Instruments," in the consolidated financial statements contained herein.

Other Significant Accounting Policies

Other significant accounting policies, not involving the same level of measurable uncertainties as those discussed above, are nevertheless important to an understanding of the consolidated financial statements. Policies related to the right of use asset and lease liability, revenue recognition, and long-lived assets require difficult judgments on complex matters that are often subject to multiple and recent changes in the authoritative guidance. See Note 2, "Summary of Significant Accounting Policies," in the consolidated financial statements, which discusses accounting policies that we have selected from acceptable alternatives.

EXECUTIVE OVERVIEW

For the year ended December 31, 2025, the Company earned net income of $6.0 million, or $1.00 per diluted common share, compared to net income of $8.2 million, or $1.33 per diluted common share, for the year ended December 31, 2024. Summarized condensed consolidated statements of operations are included below for the years ended December 31, 2025 and 2024, respectively.

Year Ended December 31,

2025

2024

(Dollars in Thousands)

Interest income

$

59,415

$

58,260

Interest expense

21,957

22,111

Net interest income

37,458

36,149

Provision for credit losses

4,031

622

Net interest income after provision for credit losses

33,427

35,527

Non-interest income

3,579

3,583

Non-interest expense

29,070

28,356

Income before income taxes

7,936

10,754

Provision for income taxes

1,944

2,584

Net income

$

5,992

$

8,170

Basic net income per share

$

1.03

$

1.40

Diluted net income per share

$

1.00

$

1.33

Dividends per share

$

0.28

$

0.22

The discussion that follows summarizes the most significant activity that impacted changes in the Company's operations during 2025 as compared to 2024, as well as significant changes in the Company's balance sheet comparing December 31, 2025 to December 31, 2024.

Net Interest Income and Margin

Net interest income increased by $1.3 million, or 3.6%, comparing the year ended December 31, 2025 to the year ended December 31, 2024. The increase was primarily attributable to growth in average interest-earning assets, both loans and investment securities, which more than offset the impact of lower average yields on interest-earning assets during the year. Average loans during the year ended December 31, 2025 increased to $856.0 million, compared to $818.5 million during the year ended December 31, 2024.

Net interest margin totaled 3.54% in 2025, compared to 3.59% in 2024. The decrease in net interest margin, comparing 2025 to 2024, was driven primarily by rate compression resulting from declining short-term market interest rates and the timing of asset and liability repricing, as interest-earning assets repriced downward more quickly than interest-bearing liabilities. The rate-based pressure on net interest margin was partially offset by increased volume in interest-earning assets, as well as by improved yield on the investment portfolio.

Provision for Credit Losses

The provision for credit losses was $4.0 million for the year ended December 31, 2025, compared to $0.6 million during the year ended December 31, 2024. The increase in the provision for credit losses in 2025 compared to 2024 resulted primarily from credit-related activity associated with specific commercial loan relationships, including charge-off activity occurring during the second and third quarters of 2025. In addition, significant growth in the indirect consumer loan portfolio, together with elevated charge-offs within that portfolio, contributed to higher provision expense during the year. Net charge-offs on loans totaled $3.5 million, or 0.41% of average loans, for 2025, and $1.1 million, or 0.14%, for 2024. As of December 31, 2025, the Company's allowance for credit losses was 1.25% of total loans, compared to 1.24% as of December 31, 2024.

Non-interest Income

Non-interest income remained consistent at $3.6 million for both the years ended December 31, 2025 and 2024.

Non-interest Expense

Non-interest expense increased to $29.1 million for the year ended December 31, 2025, compared to $28.4 million for the year ended December 31, 2024, an increase of $0.7 million, or 2.5%.

Total Assets

As of December 31, 2025, the Company's assets totaled $1,154.8 million, compared to $1,101.1 million as of December 31, 2024, an increase of 4.9%.

Loan Growth

Total loans increased by $30.0 million, or 3.6%, as of December 31, 2025, compared to December 31, 2024. Loan volume increases during 2025 were driven by substantial growth in the consumer indirect category, and to a lesser extent, the multi-family residential and C&I categories. This growth was partially offset by decreases in non-residential commercial real estate, construction and 1-4 family residential categories.

Asset Quality

Nonperforming assets, including loans in non-accrual status and OREO, totaled $1.6 million as of December 31, 2025, compared to $5.5 million as of December 31, 2024. As a percentage of total assets, nonperforming assets decreased to 0.14% as of December 31, 2025, compared to 0.50% as of December 31, 2024. For the year ended December 31, 2025, annualized net charge-offs as a percentage of average loans totaled 0.41%, compared to 0.14% for the year ended December 31 2024.

Deposit Growth

Deposits totaled $1,028.0 million as of December 31, 2025, compared to $972.6 million as of December 31, 2024. The growth in 2025 included an increase of $54.3 million in money market and savings deposits and an increase in brokered deposits of $65.6 million, partially offset by decreases of $21.9 million in interest-bearing demand deposits, $40.5 million in certificates of deposit and $2.1 million in non-interest bearing deposits. The shift to money market and savings deposits is consistent with deposit holders seeking to maximize interest earnings on their accounts, while also maintaining liquidity. The majority of the brokered deposits

acquired by the Company during the year were obtained in conjunction with interest rate derivative instruments that are intended to support the Company's overall interest rate hedging strategy. As of December 31, 2025, core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $838.3 million, or 81.6% of total deposits, compared to $837.7 million, or 86.1% of total deposits, as of December 31, 2024.

Short-term Borrowings

As of December 31, 2025, the Company did not have any short-term borrowings outstanding, compared to $10.0 million in outstanding short-term borrowings as of December 31, 2024. As of December 31, 2024, all outstanding short-term borrowings had remaining maturities of less than 30 days and were borrowed exclusively from the Federal Home Loan Bank of Atlanta (FHLB).

Cash and Investment Securities

As of December 31, 2025, the Company held cash, federal funds sold and securities purchased under reverse repurchase agreements totaling $78.4 million, or 6.8% of total assets, compared to $52.9 million, or 4.8% of total assets, as of December 31, 2024. Investment securities, including both the available-for-sale and held-to-maturity portfolios, totaled $168.5 million as of December 31, 2025, compared to $168.6 million as of December 31, 2024. As of December 31, 2025, the expected average life of securities in the investment portfolio was 3.7 years compared to 3.6 years as of December 31, 2024. During the years ended December 31, 2025 and 2024, the Company purchased $43.6 million and $58.0 million, respectively, of investment securities at market rates in existence at the time of purchase. These purchases, combined with the maturity and paydown of investment securities at lower rates, have led to continued improvement in yield on the portfolio.

Shareholders' Equity

As of December 31, 2025, shareholders' equity totaled $105.6 million, or 9.15% of total assets, compared to $98.6 million, or 8.96% of total assets, as of December 31, 2024. The increase in shareholders' equity during the year ended December 31, 2025 resulted primarily from earnings, net of dividends paid and repurchases of shares of the Company's common stock. In addition, shareholders' equity was positively impacted during the period by reductions in the Company's accumulated other comprehensive loss resulting from changes in market interest rates, the maturity of lower yielding investment securities, and purchases of investment securities at higher yields.

Cash Dividends

The Company declared cash dividends totaling $0.28 per share on its common stock during 2025, compared to cash dividends totaling $0.22 per share on its common stock during 2024.

Share Repurchases

During 2025, the Company completed share repurchases totaling 128,000 shares of its common stock at a weighted average price of $13.76 per share. The repurchases were completed under the Company's previously announced share repurchase program, which was expanded in 2025 to authorize the purchase of 1,000,000 additional shares. As of December 31, 2025, a total of 1,784,813 shares remained available for repurchase under the program.

Regulatory Capital

During 2025, the Bank continued to maintain capital ratios at higher levels than required to be considered a "well-capitalized" institution under applicable banking regulations. As of December 31, 2025, the Bank's common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 10.88%. Its total capital ratio was 12.05%, and its Tier 1 leverage ratio was 9.03%.

Liquidity

As of December 31, 2025, the Company continued to maintain excess funding capacity sufficient to provide adequate liquidity for loan growth, capital expenditures and ongoing operations. The Company benefits from a strong core deposit base, a liquid investment securities portfolio and access to funding from a variety of sources, including federal funds lines, FHLB advances, brokered deposits, funding capacity with the FRB, and brokered deposits.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is calculated as the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest-bearing liabilities, can materially impact net interest income. The Company's earning assets consist of loans, taxable and tax-exempt investments, Federal Home Loan Bank stock, federal funds sold by the Bank and interest-bearing deposits in banks. Interest-bearing liabilities consist of interest-bearing demand deposits and savings and time deposits, as well as borrowings.

The following table shows the average balances of each principal category of assets, liabilities and shareholders' equity for the years ended December 31, 2025 and 2024. Additionally, the table provides an analysis of interest revenue or expense associated with each category, along with the accompanying yield or rate percentage. Net interest margin is calculated for each period presented as net interest income divided by average total interest-earning assets.

Year Ended December 31,

2025

2024

Average
Balance

Interest

Annualized
Yield/
Rate %

Average
Balance

Interest

Annualized
Yield/
Rate %

(Dollars in Thousands)

ASSETS

Interest-earning assets:

Loans (1)

$

856,035

$

51,846

6.06

%

$

818,524

$

51,469

6.29

%

Investment securities

160,272

5,761

3.59

%

145,523

4,400

3.02

%

Federal Home Loan Bank stock

1,388

97

6.99

%

891

69

7.74

%

Federal funds sold

4,850

209

4.31

%

6,930

366

5.28

%

Interest-bearing deposits in banks

34,859

1,502

4.31

%

36,399

1,956

5.37

%

Total interest-earning assets

1,057,404

59,415

5.62

%

1,008,267

58,260

5.78

%

Noninterest-earning assets

64,133

65,931

Total assets

$

1,121,537

$

1,074,198

LIABILITIES AND SHAREHOLDERS'
EQUITY

Interest-bearing liabilities:

Demand deposits

$

202,661

$

1,712

0.84

%

$

205,581

$

1,779

0.87

%

Money market/savings deposits

285,624

7,413

2.60

%

251,772

6,856

2.72

%

Time deposits

341,986

11,779

3.44

%

346,541

12,914

3.73

%

Total interest-bearing deposits

830,271

20,904

2.52

%

803,894

21,549

2.68

%

Noninterest-bearing demand deposits

155,320

-

-

152,252

-

-

Total deposits

985,591

20,904

2.12

%

956,146

21,549

2.25

%

Borrowings

24,180

1,053

4.35

%

13,404

562

4.19

%

Total funding liabilities

1,009,771

21,957

2.17

%

969,550

22,111

2.28

%

Other noninterest-bearing liabilities

9,534

9,898

Shareholders' equity

102,232

94,750

Total liabilities and shareholders' equity

$

1,121,537

$

1,074,198

Net interest income (2)

$

37,458

$

36,149

Net interest margin

3.54

%

3.59

%

(1) For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. Non-accruing loans averaged $2.5 million and $3.1 million for the years ended December 31, 2025 and 2024, respectively.

(2) Loan fees are included in the interest amounts presented. Loan fees totaled $0.7 million for both the years ended December 31, 2025 and December 31, 2024.

The following table summarizes the impact of variances in volume and rate of interest-earning assets and interest-bearing liabilities on components of net interest income.

2025 Compared to 2024
Increase (Decrease)
Due to Change In:

2024 Compared to 2023
Increase (Decrease)
Due to Change In:

Volume

Average
Rate

Net

Volume

Average
Rate

Net

(Dollars in Thousands)

Interest earned on:

Loans

$

2,359

$

(1,982

)

$

377

$

1,385

$

2,335

$

3,720

Investment securities

446

915

1,361

377

1,152

1,529

Federal Home Loan Bank stock

38

(10

)

28

(27

)

3

(24

)

Federal funds sold

(110

)

(47

)

(157

)

263

8

271

Interest-bearing deposits in banks

(83

)

(371

)

(454

)

(90

)

48

(42

)

Total interest-earning assets

2,650

(1,495

)

1,155

1,908

3,546

5,454

Interest expense on:

Demand deposits

(25

)

(42

)

(67

)

(24

)

1,026

1,002

Money market/savings deposits

922

(365

)

557

492

1,357

1,849

Time deposits

(170

)

(965

)

(1,135

)

1,140

3,208

4,348

Borrowings

452

39

491

(541

)

(3

)

(544

)

Total interest-bearing liabilities

1,179

(1,333

)

(154

)

1,067

5,588

6,655

Increase (decrease) in net interest income

$

1,471

$

(162

)

$

1,309

$

841

$

(2,042

)

$

(1,201

)

Note: Changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates.

Interest income increased by $1.2 million for the year ended 2025 compared to 2024. The increase was primarily driven by a $2.7 million increase attributable to growth in average interest-earning assets, reflecting higher average loan balances during the period. This volume-driven increase was partially offset by a $1.5 million decrease attributable to lower average yields on interest-earning assets, as rate compression and changes in asset mix reduced overall earning-asset yields.

Interest expense decreased by $0.2 million for the year ended December 31, 2025 compared to 2024. The decrease reflected a $1.3 million reduction attributable to lower average rates paid on interest-bearing liabilities, primarily interest-bearing demand deposits and time deposits. This rate-related decrease was partially offset by a $1.2 million increase attributable to growth in average interest-bearing liabilities, driven primarily by higher balances of interest-bearing demand deposits and short-term borrowings. Significant competitive pressure remains to acquire and maintain deposit balances in the current environment. The increase in average short-term borrowings was attributable to the Company's efforts to maintain on-balance sheet liquidity while repricing deposits at lower rates.

The interest rate environment has been characterized by declining short-term market interest rates and increased volatility, which has had, and continues to have, a significant impact on the Company and the banking industry in general. Changes in net interest income and net interest margin during 2025 compared to 2024 were primarily driven by movements in short-term market interest rates and the timing of asset and liability repricing. Following reductions in the federal funds rate in both late 2024 and late 2025, the Company experienced downward repricing of variable-rate interest-earning assets, while reductions in the cost of interest-bearing liabilities occurred more gradually. As a result, interest-earning assets generally repriced downward more quickly than interest-bearing liabilities during portions of both 2025 and 2024. Competition for both loans and deposits remains intense and continues to place pressure on net interest margin. Future changes in market interest rates, whether increases or decreases, could adversely affect the Company's net interest income and net interest margin.

Provision for Credit Losses

The provision for credit losses was $4.0 million for the year ended December 31, 2025, compared to $0.6 million for the year ended December 31, 2024. The increase in the provision for credit losses in 2025 compared to 2024 resulted primarily from credit-related activity associated with specific commercial loan relationships, including charge-off activity occurring during the second and third quarters of 2025. In addition, significant growth in the indirect consumer loan portfolio, together with elevated charge-offs within that portfolio, contributed to higher provision expense during the year. During the fourth quarter of 2025, credit metrics related to the loan portfolio generally improved; however, uncertainty continues to exist pertaining to the ultimate impact on the Company's

loan portfolio of economic matters, including prospective inflation, unemployment levels, tariffs, and consumer affordability. Net charge-offs on loans totaled $3.5 million, or 0.41% of average loans, for 2025 and $1.1 million, or 0.14% of average loans, for 2024. Of the net charge-offs recorded during 2025, $2.2 million was associated with one individually evaluated commercial loan and $1.9 million was associated with the consumer indirect loan portfolio. The individually evaluated commercial loan had been partially reserved during 2024. These amounts were partially offset by $0.6 million in net recoveries associated with other loan categories during 2025. As of December 31, 2025, the Company's allowance for credit losses was 1.25% of total loans, compared to 1.24% as of December 31, 2024.

Non-Interest Income

Non-interest income represents fees and income derived from sources other than interest-earning assets. The following table presents the major components of non-interest income for the periods indicated:

Year Ended December 31,

2025

2024

$ Change

% Change

(Dollars in Thousands)

Service charges and other fees on deposit accounts

$

1,140

$

1,232

$

(92

)

(7.5

)%

Bank-owned life insurance

556

538

18

3.3

%

Lease income

1,082

1,033

49

4.7

%

ATM fee income

367

381

(14

)

(3.7

)%

Other income

434

399

35

8.8

%

Total non-interest income

$

3,579

$

3,583

$

(4

)

(0.1

)%

The Company's non-interest income remained relatively consistent at $3.6 million comparing 2025 to 2024. Decreases in service charges and ATM fee income were partially offset by increases in lease income, bank-owned life insurance, and other miscellaneous revenue sources. Management continues to evaluate opportunities to add non-interest revenue streams; however, significant variation in non-interest income is not expected in the near term.

Non-Interest Expense

Non-interest expense represents expenses incurred from sources other than interest-bearing liabilities. The following table presents the major components of non-interest expense for the periods indicated:

Year Ended December 31,

2025

2024

$ Change

% Change

(Dollars in Thousands)

Salaries and employee benefits

$

15,273

$

15,460

$

(187

)

(1.2

)%

Net occupancy and equipment

3,796

3,761

35

0.9

%

Computer services

1,707

1,687

20

1.2

%

Insurance expense and assessments

1,409

1,510

(101

)

(6.7

)%

Fees for professional services

1,349

1,184

165

13.9

%

Postage, stationery and supplies

581

560

21

3.8

%

Telephone/data communication

795

779

16

2.1

%

Collection and recoveries

293

169

124

73.4

%

Directors fees

404

380

24

6.3

%

Software amortization

454

356

98

27.5

%

Other real estate/foreclosure expense, net

269

230

39

17.0

%

Outside services

405

299

106

35.5

%

Other expense

2,335

1,981

354

17.9

%

Total non-interest expense

$

29,070

$

28,356

$

714

2.5

%

Non-interest expense increased to $29.1 million for the year ended December 31, 2025, compared to $28.4 million for the year ended December 31, 2024, an increase of $0.7 million, or 2.5%. The increase was driven primarily by higher fees for professional and outside services, increased collection expenses, and the impact of fraud expense recoveries that occurred in 2024, but were not repeated in 2025. These increases were partially offset by decreases in salaries and employee benefits and insurance expense and assessments comparing 2025 to 2024.

Provision for Income Taxes

The provision for income taxes was $1.9 million and $2.6 million for the years ended December 31, 2025 and 2024, respectively. The Company's effective tax rate was 24.5% and 24.0%, respectively, for the same periods.

The effective tax rate is impacted by recurring items, such as changes in tax-exempt interest income earned from bank-qualified municipal bonds and loans and the cash surrender value of bank-owned life insurance. Management makes decisions about whether to invest in tax-exempt instruments on a case-by-case basis after considering a number of factors, including investment return, credit quality and the consistency of such investments with the Company's overall strategy. The Company's effective tax rate is expected to fluctuate commensurate with the level of these investments as compared to total pre-tax income.

BALANCE SHEET ANALYSIS

Investment Securities

The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 3.7 years and 3.6 years as of December 31, 2025 and 2024, respectively.

Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive loss, a separate component of shareholders' equity. As of December 31, 2025, available-for-sale securities totaled $168.1 million, or 99.7% of the total investment portfolio, compared to $167.9 million, or 99.6% of the total investment portfolio, as of December 31, 2024. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate notes, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.

Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of December 31, 2025, held-to-maturity securities totaled $0.5 million, or 0.3% of the total investment portfolio, compared to $0.7 million, or 0.4% of the total investment portfolio, as of December 31, 2024. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies and obligations of states and political subdivisions.

Net unrealized losses in the available-for-sale portfolio totaled $1.0 million as of December 31, 2025, compared to $6.7 million as of December 31, 2024. Net unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.

As of December 31, 2025, the Company evaluated both the available-for-sale and held-to-maturity portfolios for credit losses and concluded that no credit losses were included in either portfolio and that the unrealized losses in both portfolios resulted from the prevailing interest rate environment.

During the year ended December 31, 2025, the Company purchased $43.6 million in taxable U.S. agency-sponsored securities that are included in the available-for-sale portfolio. The purchased securities partially offset $50.0 million in proceeds received by the Company associated with maturities, calls and prepayments in the portfolio. These purchases, combined with the maturity, calls and paydown of investment securities at lower rates, have led to continued improvement in yield on the portfolio. For the year ended December 31, 2025, the yield on investment securities totaled 3.59%, compared to 3.02% for the year ended December 31, 2024.

Investment Securities Maturity Schedule

The following tables summarize the carrying values and weighted average yield of the available-for-sale and held-to-maturity securities portfolios as of December 31, 2025, according to contractual maturity. Available-for-sale securities are stated at fair value. Held-to-maturity securities are stated at amortized cost. The calculations of the weighted average yields for each maturity category are based upon yield weighted by the respective costs of the securities.

Available-for-Sale

Stated Maturity as of December 31, 2025

Within One
Year

After One But
Within Five
Years

After Five But
Within Ten
Years

After
Ten Years

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

(Dollars in Thousands)

Investment securities available-for-sale:

Mortgage-backed securities:

Residential

$

161

2.29

%

$

1,322

2.12

%

$

30,354

2.77

%

$

73,941

4.76

%

Commercial

21

1.61

%

924

1.81

%

264

2.47

%

6,374

4.88

%

Obligations of U.S. government-sponsored agencies

-

-

-

-

12,750

3.76

%

3,754

5.24

%

Obligations of states and political subdivisions

298

1.12

%

-

3.72

%

930

5.77

%

522

5.96

%

Corporate notes

-

-

2,110

7.14

%

14,916

3.38

%

-

-

U.S. Treasury securities

9,921

0.95

%

9,513

1.24

%

-

0.00

%

-

-

Total

$

10,401

0.97

%

$

13,869

2.21

%

$

59,214

3.12

%

$

84,591

4.81

%

Total securities with stated maturity

$

168,075

3.74

%

Held-to-Maturity

Stated Maturity as of December 31, 2025

Within One
Year

After One But
Within Five
Years

After Five But
Within Ten
Years

After
Ten Years

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

(Dollars in Thousands)

Investment securities held-to-maturity:

Mortgage-backed securities:

Residential

$

-

-

$

-

0.00

%

$

-

-

$

-

-

Commercial

-

-

88

2.79

%

-

-

75

1.90

%

Obligations of U.S. government-sponsored agencies

-

-

80

2.40

%

222

2.21

%

-

-

Obligations of states and political subdivisions

-

-

-

0.00

%

-

-

-

-

Total

$

-

-

$

168

2.60

%

$

222

2.21

%

$

75

1.90

%

Total securities with stated maturity

$

465

2.30

%

Condensed Investment Portfolio Maturity Schedule

Maturity Summary as of December 31, 2025

Dollar
Amount

Portfolio
Percentage

(Dollars in Thousands)

Maturing in three months or less

$

2

0.00

%

Maturing after three months to one year

10,399

6.17

%

Maturing after one year to three years

11,853

7.03

%

Maturing after three years to five years

2,184

1.30

%

Maturing after five years to fifteen years

93,346

55.38

%

Maturing in more than fifteen years

50,756

30.12

%

Total

$

168,540

100.00

%

Loans and Leases

The Company's total loan portfolio increased by $30.0 million, or 3.6%, as of December 31, 2025, compared to December 31, 2024. The table below summarizes loan balances by portfolio category at the end of each of the most recent five years as of December 31, 2025:

Year Ended December 31,

2025

2024

2023

2022

2021

(Dollars in Thousands)

Real estate loans:

Construction, land development and other land loans

$

32,618

$

65,537

$

88,140

$

53,914

$

67,393

Secured by 1-4 family residential properties

66,996

69,999

76,200

87,995

72,670

Secured by multi-family residential properties

117,769

101,057

62,397

67,852

46,021

Secured by non-residential commercial real estate

200,699

227,751

213,586

200,156

198,000

Commercial and industrial loans

48,360

44,238

60,515

73,546

73,865

Consumer loans:

Direct

4,844

4,774

5,938

9,851

20,090

Indirect

381,732

309,683

315,015

280,559

230,311

Total loans

$

853,018

$

823,039

$

821,791

$

773,873

$

708,350

Allowance for credit losses

10,704

10,184

10,507

9,422

8,320

Net loans

$

842,314

$

812,855

$

811,284

$

764,451

$

700,030

In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with unrelated parties. Management believes that such loans do not represent more than a normal risk of collectability, nor do they present other unfavorable features. The aggregate balances of such related party loans and commitments as of December 31, 2025 and 2024 were $22.9 million and $11.4 million, respectively. During the year ended December 31, 2025, there were new loans of $11.5 million to these parties, and no repayments made by active related parties. During the year ended December 31, 2024, there were new loans of $1.4 million to these parties, and repayments made of $1.4 million by active related parties.

As of December 31, 2025 and December 31, 2024, the composition of the non-residential commercial real estate loan portfolio was as follows:

December 31, 2025

December 31, 2024

Owner Occupied

Non-Owner Occupied

Total

Owner Occupied

Non-Owner Occupied

Total

(Dollars in Thousands)

Office

$

7,141

$

33,170

$

40,311

$

10,093

$

36,811

$

46,904

Industrial

5,194

42,522

47,716

5,696

45,477

51,173

Nursing homes

17,965

-

17,965

17,961

-

17,961

Retail services

14,381

-

14,381

15,031

-

15,031

Retail single credit tenant

603

39,028

39,631

-

41,357

41,357

Retail with anchor

2,619

3,486

6,105

3,075

13,628

16,703

Storage

727

15,645

16,372

780

14,835

15,615

Other

10,222

7,996

18,218

11,989

11,018

23,007

Total loans

$

58,852

$

141,847

$

200,699

$

64,625

$

163,126

$

227,751

As of December 31, 2025 and December 31, 2024, the composition of the construction, land development, and other land loans loan portfolio was as follows:

December 31, 2025

December 31, 2024

Owner Occupied

Non-Owner Occupied

Total

Owner Occupied

Non-Owner Occupied

Total

(Dollars in Thousands)

Apartments

$

-

$

22,722

$

22,722

$

-

$

61,118

$

61,118

Farmland

2,322

-

2,322

3,057

-

3,057

Retail

-

7,445

7,445

-

-

-

Other

-

129

129

440

922

1,362

Total loans

$

2,322

$

30,296

$

32,618

$

3,497

$

62,040

$

65,537

The following table classifies the Company's fixed and variable rate loans as of December 31, 2025 according to contractual maturities of: (1) one year or less, (2) after one year through five years, (3) after five years through fifteen years, and (4) after fifteen years:

December 31, 2025

One Year or Less

After One Year Through Five Years

After Five Years Through Fifteen Years

After Fifteen Years

Total

(Dollars in Thousands)

Total loans:

Real estate loans:

Construction, land development and other land loans

$

22

$

32,596

$

-

$

-

$

32,618

Secured by 1-4 family residential properties

3,247

11,356

25,062

27,331

66,996

Secured by multi-family residential properties

59,920

55,544

443

1,862

117,769

Secured by non-residential commercial real estate

40,092

112,780

47,827

-

200,699

Commercial and industrial loans

8,960

32,377

7,023

-

48,360

Consumer loans:

Direct

1,690

3,154

-

-

4,844

Indirect

481

17,327

363,924

-

381,732

Total loans

$

114,412

$

265,134

$

444,279

$

29,193

$

853,018

Loans with fixed interest rates:

Real estate loans:

Construction, land development and other land loans

$

22

$

2,429

$

-

$

-

$

2,451

Secured by 1-4 family residential properties

2,116

4,206

4,173

13,371

23,866

Secured by multi-family residential properties

7,317

27,401

443

776

35,937

Secured by non-residential commercial real estate

10,347

74,519

31,723

-

116,589

Commercial and industrial loans

3,702

15,134

6,904

-

25,740

Consumer loans:

Direct

1,676

3,154

-

-

4,830

Indirect

481

17,327

363,924

-

381,732

Total loans with fixed interest rates

$

25,661

$

144,170

$

407,167

$

14,147

$

591,145

Loans with variable interest rates:

Real estate loans:

Construction, land development and other land loans

$

-

$

30,167

$

-

$

-

$

30,167

Secured by 1-4 family residential properties

1,131

7,150

20,889

13,960

43,130

Secured by multi-family residential properties

52,603

28,143

-

1,086

81,832

Secured by non-residential commercial real estate

29,745

38,261

16,104

-

84,110

Commercial and industrial loans

5,258

17,243

119

-

22,620

Consumer loans:

Direct

14

-

-

-

14

Indirect

-

-

-

-

-

Total loans with variable interest rates

$

88,751

$

120,964

$

37,112

$

15,046

$

261,873

Allowance for Credit Losses on Loans and Leases

The table below summarizes changes in the allowance for credit losses ("ACL") on loans and leases for each of the most recent five years as of December 31, 2025. For years ended December 31, 2022 and prior, information presented is as determined in accordance with Accounting Standards Codification ("ASC") 310, Receivables, prior to the adoption of ASC 326, Financial Instruments - Credit losses:

Year Ended December 31,

2025

2024

2023

2022

2021

(Dollars in Thousands)

Balance at beginning of period

$

10,184

$

10,507

$

9,422

$

8,320

$

7,470

Impact of adopting ASC 326 accounting guidance

-

-

2,123

-

-

Charge-offs:

Real estate loans:

Construction, land development and other loan loans

-

-

-

-

(23

)

Secured by 1-4 family residential properties

-

(2

)

(97

)

(40

)

(12

)

Secured by multi-family residential properties

-

-

-

-

-

Secured by non-residential commercial real estate

-

(248

)

-

-

-

Commercial and industrial loans

(2,215

)

(121

)

-

-

(6

)

Consumer loans:

Direct

(9

)

(62

)

(571

)

(1,958

)

(1,230

)

Indirect

(1,892

)

(1,381

)

(1,377

)

(1,015

)

(860

)

Total charge-offs

(4,116

)

(1,814

)

(2,045

)

(3,013

)

(2,131

)

Recoveries

Construction, land development and other loan loans

-

20

-

2

22

Secured by 1-4 family residential properties

29

56

54

39

14

Secured by multi-family residential properties

-

-

-

-

-

Secured by non-residential commercial real estate

49

-

-

5

5

Commercial and industrial loans

165

2

-

-

21

Consumer loans:

Direct

191

300

619

565

626

Indirect

200

298

292

196

283

Total recoveries

634

676

965

807

971

Net charge-offs

(3,482

)

(1,138

)

(1,080

)

(2,206

)

(1,160

)

Provision for credit losses

4,002

815

42

3,308

2,010

Ending balance

$

10,704

$

10,184

$

10,507

$

9,422

$

8,320

Ending balance as a percentage of loans

1.25

%

1.24

%

1.28

%

1.22

%

1.17

%

Net charge-offs as a percentage of average loans

0.41

%

0.14

%

0.14

%

0.30

%

0.16

%

Allowance for Credit Losses on Unfunded Lending Commitments

Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. ASC 326 guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection. As of both December 31, 2025 and 2024, the Company's allowance for credit losses on unfunded commitments, which is recorded in other liabilities in the Company's consolidated balance sheets, totaled $0.4 million.

Allocation of Allowance for Credit Losses on Loans and Leases

While no portion of the allowance is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table shows an allocation of the allowance for credit losses as of December 31, 2025 and 2024.

2025

2024

Allowance Allocation

Allowance as Percentage of Total Loans

Net Charge-offs as a Percentage of Average Loans

Allocation
Allowance

Allowance as Percentage of Total Loans

Net Charge-offs as a Percentage of Average Loans

(Dollars in Thousands)

Real estate loans:

Construction, land development and other land loans

$

222

0.68

%

-

$

352

0.54

%

-0.03

%

Secured by 1-4 family residential properties

371

0.55

%

-0.04

%

406

0.58

%

-0.07

%

Secured by multi-family residential properties

666

0.57

%

-

546

0.54

%

-

Secured by non-residential commercial real estate

1,420

0.71

%

-0.02

%

1,428

0.63

%

0.11

%

Commercial and industrial loans

399

0.83

%

4.55

%

1,531

3.46

%

0.22

%

Consumer loans:

Direct

50

1.03

%

-3.78

%

49

1.03

%

-4.09

%

Indirect

7,576

1.98

%

0.50

%

5,872

3.17

%

-0.69

%

Total

$

10,704

1.25

%

0.41

%

$

10,184

1.24

%

0.14

%

Nonperforming Assets

Nonperforming assets at the end of the five most recent years as of December 31, 2025 were as follows:

Year Ended December 31,

2025

2024

2023

2022

2021

(Dollars in Thousands)

Non-accrual loans

$

1,373

$

3,949

$

2,400

$

1,651

$

2,008

Other real estate owned

256

1,509

602

686

2,149

Total

$

1,629

$

5,458

$

3,002

$

2,337

$

4,157

Nonperforming assets as a percentage of total loans and other real estate

0.19

%

0.66

%

0.37

%

0.30

%

0.59

%

Nonperforming assets as a percentage of total assets

0.14

%

0.50

%

0.28

%

0.24

%

0.43

%

Non-accrual loans as a percentage of total loans

0.16

%

0.48

%

0.29

%

0.21

%

0.28

%

ACL as a percentage of non-accrual loans

779.61

%

257.89

%

437.79

%

570.68

%

414.34

%

Summarized below is information concerning income on those loans with deferred interest or principal payments resulting from deterioration in the financial condition of the borrower.

December 31,

2025

2024

(Dollars in Thousands)

Total loans accounted for on a non-accrual basis

$

1,373

$

3,949

Interest income that would have been recorded under original
terms

46

120

Interest income reported and recorded during the year

16

471

Deposits

Deposits totaled $1,028.0 million as of December 31, 2025, compared to $972.6 million as of December 31, 2024. The growth in 2025 included an increase of $54.3 million in money market and savings deposits and an increase in brokered deposits of $65.6 million, partially offset by decreases of $21.9 million in interest-bearing demand deposits, $40.5 million in certificates of deposit and $2.1 million in non-interest bearing deposits. The shift to money market and savings deposits is consistent with deposit holders seeking to maximize interest earnings on their accounts, while also maintaining liquidity. The majority of the brokered deposits acquired by the Company during the year were obtained in conjunction with interest rate derivative instruments that are intended to support the Company's overall interest rate hedging strategy. As of December 31, 2025, core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $838.3 million, or 81.6% of total deposits, compared to $837.7 million, or 86.1% of total deposits, as of December 31, 2024.

Core deposits have historically been the Company's primary source of funding and have enabled the Company to successfully meet both short-term and long-term liquidity needs. Management anticipates that core deposits will continue to be the Company's primary source of funding in the future. Management will continue to monitor core deposit levels closely to help ensure an adequate level of funding for the Company's activities. However, various economic and competitive factors could affect this funding source in the future, including increased competition from other financial institutions in deposit gathering, national and local economic conditions, and interest rate policies adopted by the FRB and other central banks.

Average Daily Amount of Deposits and Rates

The average daily amount of deposits and rates paid on such deposits are summarized for the periods indicated in the following table:

2025

2024

Average
Amount

Rate

Average
Amount

Rate

(Dollars in Thousands)

Non-interest-bearing demand deposit accounts

$

155,320

-

$

152,252

-

Interest-bearing demand deposit accounts

202,661

0.84

%

205,581

0.87

%

Savings deposits

285,624

2.60

%

251,772

2.72

%

Time deposits

341,986

3.44

%

346,541

3.73

%

Total deposits

$

985,591

2.12

%

$

956,146

2.25

%

Total interest-bearing deposits

$

830,271

2.52

%

$

803,894

2.68

%

Maturities of time deposits of greater than $250 thousand, as well as brokered deposits, outstanding as of December 31, 2025 and 2024 are summarized in the following table:

Maturities

December 31,

2025

2024

(Dollars in Thousands)

Three months or less

$

97,847

$

43,397

Over three through six months

51,564

23,865

Over six through twelve months

26,538

43,362

Over twelve months

13,694

24,267

Total

$

189,643

$

134,891

Maturities of time certificates of deposit of greater than $100 thousand and less than $250 thousand outstanding as of December 31, 2025 and 2024 are summarized as follows:

Maturities

December 31,

2025

2024

(Dollars in Thousands)

Three months or less

$

24,658

$

37,606

Over three through six months

18,916

22,148

Over six through twelve months

19,189

25,912

Over twelve months

13,962

9,708

Total

$

76,725

$

95,374

Other Interest-Bearing Liabilities

Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances and subordinated debt that are used by the Company as alternative sources of funds. As of December 31, 2025 and 2024, these liabilities represented 1.2% and 2.5%, respectively, of interest-bearing liabilities. The table below summarizes short- and long-term liabilities and related interest rate data as of and for the years ended December 31, 2025 and 2024.

Short-Term
Borrowings
(Maturity
Less Than
One Year)

Long-Term
Borrowings
(Maturity
One Year
or Greater)

(Dollars in Thousands)

Other interest-bearing liabilities outstanding at year-end:

2025

$

-

$

10,945

2024

$

10,000

10,872

Weighted average interest rate at year-end:

2025

-

4.20

%

2024

4.57

%

4.20

%

Maximum amount outstanding at any month end:

2025

$

45,000

$

10,945

2024

15,000

10,872

Average amount outstanding during the year:

2025

13,271

10,909

2024

$

2,568

$

10,836

Weighted average interest rate during the year:

2025

4.48

%

4.20

%

2024

4.05

%

4.20

%

Shareholders' Equity

As of December 31, 2025, shareholders' equity totaled $105.6 million, or 9.1% of total assets, compared to $98.6 million, or 9.0% of total assets, as of December 31, 2024. The increase in shareholders' equity during the year ended December 31, 2025 resulted primarily from earnings, net of dividends paid and repurchases of shares of the Company's common stock. In addition, shareholders' equity was positively impacted during the period by reductions in the Company's accumulated other comprehensive loss resulting from the maturity of lower yielding investment securities combined with purchases of investment securities at higher yields.

During the year ended December 31, 2025, the Company completed repurchases of 128,000 shares of its common stock at a weighted average price of $13.76 per share, or $1.8 million in aggregate. The repurchased shares were allocated to treasury stock under the Company's previously announced share repurchase program, which was expanded in 2025 to authorize the purchase of 1,000,000 additional shares. Share repurchases under the program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate, subject to applicable regulatory requirements. The repurchase program does not obligate the Company to acquire any particular number of shares and may be suspended at any time at the Company's discretion. As of December 31, 2025, 1,784,813 shares remained available for repurchase under the program.

During the year ended December 31, 2025, the Company declared dividends totaling $0.28 per common share, or approximately $1.6 million in aggregate amount, compared to $0.22 per common share, or approximately $1.3 million in aggregate amount, during the year ended December 31, 2024. Bancshares' Board of Directors evaluates dividend payments based on the Company's level of earnings and the desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends.

Liquidity and Capital Resources

The asset portion of the balance sheet provides liquidity primarily from the following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and (4) principal payments and maturities from the investment portfolio. Loans maturing or repricing in one year or less amounted to $274.7 million as of December 31, 2025 and $279.0 million as of December 31, 2024. Investment securities forecasted to mature or reprice in one year or less were estimated to be $27.5 million and $29.6 million of the investment portfolio as of December 31, 2025 and 2024, respectively.

Although some securities in the investment portfolio have legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consists of securities that are readily marketable and easily convertible into cash on short notice. The investment securities portfolio had an estimated average life of 3.7 years and 3.6 years as of December 31, 2025 and 2024, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.

The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest-bearing deposit accounts, which represent the Company's primary sources of funds. In addition, federal funds purchased, FHLB advances, securities sold under agreements to repurchase and short-term and long-term borrowings are additional sources of available liquidity. Liquidity management involves the continual monitoring of the sources and uses of funds to maintain an acceptable cash position. Long-term liquidity management focuses on considerations related to the total balance sheet structure. The Bank manages the pricing of its deposits to maintain a desired deposit balance.

The Company had no outstanding short-term borrowings as of December 31, 2025. As of December 31, 2024, the Company had $10.0 million in outstanding short-term borrowings under FHLB advances. The Company's use of FHLB advances varies depending on fluctuations in deposits and other funding sources, as well as their use in interest rate hedging strategies. In addition, the Company had $48.0 million in unused established federal funds lines with other financial institutions as of both December 31, 2025 and 2024.

The Company also has access to the FRB's discount window. The discount window allows borrowing on pledged collateral that includes eligible investment securities and loans. Including the pledging of these eligible investment securities and loans, the Company had $210.9 million and $165.1 million in borrowing capacity as of December 31, 2025 and December 31, 2024, respectively.

On October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031. Net of unamortized debt issuance costs, the subordinated notes were recorded as long-term borrowings totaling $10.9 million as of both December 31, 2025 and 2024.

The table below provides information on the Company's on-balance sheet liquidity, as well as readily available off-balance sheet sources of liquidity as of both December 31, 2025 and 2024.

December 31,
2025

December 31,
2024

(Dollars in Thousands)

(Unaudited)

(Unaudited)

Liquidity from cash, federal funds sold and securities purchased under reverse repurchase agreements:

Cash and cash equivalents

$

73,547

$

47,216

Federal funds sold and securities purchased under reverse repurchase agreements

4,850

5,727

Total liquidity from cash, federal funds sold and securities purchased under reverse repurchase agreements

78,397

52,943

Liquidity from pledgable investment securities:

Investment securities available-for sale, at fair value

168,075

167,888

Investment securities held-to-maturity, at amortized cost

465

682

Less: securities pledged

(58,497

)

(72,110

)

Less: estimated collateral value discounts

(10,671

)

(10,164

)

Total liquidity from pledgable investment securities

99,372

86,296

Liquidity from unused lendable collateral (loans) at FHLB

30,504

45,388

Liquidity from unused lendable collateral (loans and securities) at FRB

210,921

165,061

Unsecured lines of credit with banks

48,000

48,000

Total readily available liquidity

$

467,194

$

397,688

The table above calculates readily available liquidity by combining cash and cash equivalents, federal funds sold, securities purchased under reverse repurchase agreements and unencumbered investment security values on the Company's consolidated balance sheet with off-balance sheet liquidity that is readily available through unused collateral pledged to the FHLB and FRB, as well as unsecured lines of credit with other banks. Liquidity from pledgable investment securities and total readily available liquidity are non-GAAP measures used by management and regulators to analyze a portion of the Company's liquidity. Management uses these

measures to evaluate the Company's liquidity position. Management believes that these non-GAAP measures are beneficial to the reader as they enhance the overall understanding of the Company's liquidity position and can be used as a supplement to GAAP-based measures of liquidity, but they should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.

Pledgable investment securities are considered by management as a readily available source of liquidity since the Company has the ability to pledge the securities with the FHLB or FRB to obtain immediate funding. Both available-for-sale and held-to-maturity securities may be pledged at fair value with the FHLB and through the FRB discount window. The amounts shown as liquidity from pledgable investment securities represent total investment securities as recorded on the consolidated balance sheets, less reductions for securities already pledged and discounts expected to be taken by the lender to determine collateral value.

The unused lendable collateral value at the FHLB presented in the table above represents only the amount immediately available to the Company from loans already pledged by the Company to the FHLB as of each consolidated balance sheet date presented. As of December 31, 2025 and December 31, 2024, the Company's total remaining credit availability with the FHLB was $324.1 million and $319.9 million, respectively, subject to the pledging of additional collateral which may include eligible investment securities and loans. In addition, the Company has access to additional sources of liquidity that generally could be obtained over a period of time, including access to unsecured brokered deposits through the wholesale funding markets. Management believes the Company's on-balance sheet and other readily available liquidity provide strong indicators of the Company's ability to fund obligations in a stressed liquidity environment.

Excluding wholesale brokered deposits, as of December 31, 2025, the Company had approximately 28 thousand deposit accounts with an average balance of approximately $32.0 thousand per account. Estimated uninsured deposits (calculated as deposit amounts per deposit holder in excess of $250 thousand, the maximum amount of federal deposit insurance, and excluding deposits secured by pledged assets) totaled $218.0 million, or 21.2% of total deposits, as of December 31, 2025. As of December 31, 2024, estimated uninsured deposits totaled $216.8 million, or 22.3% of total deposits.

Management believes that the Company has adequate sources of liquidity to cover its contractual obligations and commitments over the next twelve months.

Regulatory Capital

The Bank is subject to the revised capital requirements as described in the section captioned "Supervision and Regulation - Capital Adequacy" included in Part I, Item I of this report. Under these requirements, the Bank is subject to minimum risk-based capital and leverage capital requirements, which are administered by the federal banking regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Failure to meet minimum capital requirements can result in mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Bancshares and the Bank, and could impact Bancshares' ability to pay dividends. As of both December 31, 2025 and 2024, the Bank exceeded all applicable minimum capital standards, and met applicable regulatory guidelines to be considered well-capitalized. No significant conditions or events have occurred since December 31, 2025 that management believes would affect the Bank's classification as well-capitalized for regulatory purposes.

Refer to the section captioned "Regulatory Capital" included in Note 14, "Shareholders' Equity," in the Notes to the consolidated financial statements for an illustration of the Bank's actual regulatory capital amounts and ratios under regulatory capital standards in effect as of both December 31, 2025 and 2024. Additionally, refer to the section captioned "Dividend Restrictions" included in Note 14 for a discussion regarding restrictions that could materially influence the Bank's, and therefore Bancshares', ability to pay dividends.

Asset/Liability Management

Market risk reflects the potential risk of loss arising from adverse changes in interest rates and market prices. The Company has risk management policies and procedures in place to monitor and limit exposure to market risk. The Company's primary market risk is interest rate risk created by core banking activities. Interest rate risk is the potential variability of the Company's income that results from changes in various market interest rates. The Bank's Asset/Liability Committee routinely reassesses the Company's strategies to manage interest rate risk in accordance with policies established by the Company's Board of Directors. A key objective of the asset/liability management program is to quantify, monitor and manage interest rate risk and to assist management in maintaining stability in net interest margin under varying interest rate environments.

As part of interest rate risk management, the Company may use derivative financial instruments in accordance with policies established by the Board of Directors. Derivative financial instruments may include the use of interest rate swaps or option products such as caps and floors. As of December 31, 2025, the Company held the following derivative financial instruments:

•
Two interest rate cap contracts designated as cash flow hedges that were intended to mitigate the Company's exposure to increases in short-term interest rates on an aggregate notional amount of $80.0 million in short-term fixed rate liabilities.
•
One interest rate floor contract not designated as a hedging instrument that was intended to mitigate the Company's risk of loss associated with downward shifts in the SOFR on a notional amount of $25.0 million.
•
One interest rate floor contract designated as a cash flow hedge that was intended to mitigate the Company's risk of loss associated with downward shifts in the SOFR on a $20.0 million notional amount of variable interest rate loans.
•
Two customer-related interest rate swap arrangements with borrowers and a third-party counterparty. Each arrangement consists of a receive-fixed/pay-floating swap with the borrower and an offsetting swap with a third-party counterparty. These derivatives are not designated as hedging instruments.
•
Three credit risk participation agreements with lead participant banks with which the Company shares participation loans. For participating in the agreements, the Company received one-time fees which were included in other liabilities. These derivatives are not eligible for hedge accounting treatment.

As of December 31, 2024, the Company held the following derivative financial instruments:

•
Three forward interest rate swap contracts designated as fair value hedges that were intended to mitigate risk associated with rising interest rates by converting a $30.0 million aggregate notional amount of fixed rate loans to a variable rate.
•
Two forward starting interest rate swap contracts designated as cash flow hedges with the objective of protecting the Company against variability in expected future cash flows attributed to changes in the SOFR interest rate on a $40.0 million aggregate notional amount of interest-bearing liabilities.
•
Two interest rate floor contracts not designated as hedging instruments that were intended to mitigate the Company's risk of loss associated with downward shifts in the SOFR on an aggregate notional amount of $50.0 million.
•
Three credit risk participation agreements with lead participant banks with which the Company shares participation loans. For participating in the agreements, the Company received one-time fees which were included in other liabilities. These derivatives are not eligible for hedge accounting treatment.

The value of all derivative financial instruments totaled a net asset position of $0.9 million and $0.6 million as of December 31, 2025 and 2024, respectively.

On a net basis, derivative financial instruments (including gains recognized on terminated instruments) increased the Company's income before income taxes by $0.3 million and $1.5 million during the years ended December 31, 2025 and 2024, respectively. See Note 16, "Derivative Financial Instruments," in the consolidated financial statements for additional information related to these derivative instruments.

Contractual Obligations

The Company has contractual obligations to make future payments under debt and lease agreements. Long-term debt and operating lease obligations are reflected on the consolidated balance sheets. The Company has not entered into any unconditional purchase obligations or other long-term obligations, other than as included below. These types of obligations are further discussed in Note 9, "Borrowings," and Note 15, "Leases," in the Notes to consolidated financial statements.

Many of the Bank's lending relationships, including those with commercial and consumer customers, contain both funded and unfunded elements. The unfunded component of these commitments is not recorded in the consolidated balance sheets. These commitments are further discussed in Note 18, "Guarantees, Commitments and Contingencies," in the consolidated financial statements.

The following table summarizes the Company's contractual obligations as of December 31, 2025:

Payment Due by Period

Contractual Obligations

Total

Less than
One Year

One to
Three Years

Three to
Five Years

More than
Five Years

(Dollars in Thousands)

Time deposits

$

360,161

$

313,050

$

42,198

$

4,705

$

208

Commitments to extend credit

122,365

122,365

-

-

-

Subordinated notes (1)

11,385

385

-

-

11,000

Operating leases

1,925

419

577

370

559

Standby letters of credit

722

722

-

-

-

Total

$

496,558

$

436,941

$

42,775

$

5,075

$

11,767

(1)
Contractual obligations for the subordinated notes include the contractual fixed interest payments during the first five years of the note, as well as the final principal payment at the end of the 10-year term of the note. The note is callable by the Company after the first five years. If not called, the interest rate becomes variable. Since interest payments under a variable rate cannot be forecasted with certainty, contractual interest during the variable period is not included in the table above.

Off-Balance Sheet Obligations

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources other than as described in Note 15 "Leases," Note 16 "Derivative Financial Instruments" and Note 18 "Guarantees, Commitments and Contingencies" in the consolidated financial statements.

First US Bancshares Inc. published this content on March 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 12, 2026 at 17:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]