ServisFirst Bancshares, Inc. (SFBS)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 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 March 31, 2026 and December 31, 2025 and consolidated statements of income for the three months ended March 31, 2026 and March 31, 2025.

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Forward-Looking Statements

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. 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 involve risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward looking statements should, therefore, be considered in light of various factors that could affect the accuracy of such forward-looking statements, including, but 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, the 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-K and our other 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.

Business

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, and Virginia. 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.

Our principal business is to accept deposits from the public and to make loans and other investments. Our principal sources of funds for loans and investments are demand, time, savings, and other deposits. 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.

First Quarter Highlights

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Overview

As of March 31, 2026, we had consolidated total assets of $18.17 billion, an increase of $444.1 million, or 2.5%, from $17.73 billion at December 31, 2025. Total loans were $13.95 billion, an increase of $249.0 million, or 1.8%, from $13.70 billion at December 31, 2025. Total deposits were $14.49 billion, an increase of $267.3 million, or 1.9%, from $14.22 billion at December 31, 2025.

Net income and net income available to common stockholders was $83.0 million for the quarter ended March 31, 2026, compared to net income and net income available to common stockholders of $63.2 million for the first quarter of 2025. Basic and diluted earnings per common share were both $1.52 for the three months ended March 31, 2026 compared to $1.16 in the corresponding period in 2025. Changes in income and expenses are more fully explained in “Results of Operations” below.

Performance Ratios

The following table presents selected ratios of our results of operations for the three months ended March 31, 2026, and 2025:

Financial Condition

Cash and Cash Equivalents

At March 31, 2026, we had $18.7 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 March 31, 2026, we had $1.21 billion in balances at the Federal Reserve, compared to $1.00 billion at December 31, 2025.

Investment Securities

Debt securities available-for-sale totaled $1.04 billion at March 31, 2026 and $1.07 billion at December 31, 2025. Debt securities held-to-maturity totaled $647.3 million at March 31, 2026 and $660.1 million at December 31, 2025. We had paydowns of $21.9 million on mortgage-backed securities, calls of $500,000 on corporate debt, and maturities of $50.0 million on U.S. Treasury securities during the three months ended March 31, 2026. We purchased $28.7 million in corporate debt securities during the first three months of 2026. For a tabular presentation of debt securities available-for-sale and held to maturity at March 31, 2026 and December 31, 2025, see “Note 4 – Securities” in our Notes to Consolidated Financial Statements.

The objective of our investment policy is to invest funds not otherwise needed to meet our loan demand to earn the maximum return, yet still maintain sufficient liquidity to meet fluctuations in our loan demand and deposit structure. In doing so, we seek to balance the market and credit risks against the potential investment return, make investments compatible with the pledge requirements of any deposits of public funds, maintain compliance with regulatory investment requirements, and assist certain public entities with their financial needs. The investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities. The entire portfolio, along with all investment transactions occurring since the previous board of directors meeting, is reviewed by the board at each monthly meeting. The investment policy allows portfolio holdings to include short-term securities purchased to provide us with needed liquidity and longer-term securities purchased to generate level income for us over periods of interest rate fluctuations.

All investment securities in an unrealized loss position as of March 31, 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.

The Company does not invest in collateralized debt obligations. As of March 31, 2026, we had $432.5 million of bank holding company subordinated notes. If rated, all such bonds were rated BBB or better by Kroll Bond Rating Agency at the time of our initial investment. All other corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or bette

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This section of the Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the Company’s financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. In certain instances, parenthetical references are made to relevant sections of the Notes to Consolidated Financial Statements to direct the reader to a further detailed discussion. This section should be read in conjunction with the Consolidated Financial Statements included in this Form 10-K.

Overview

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 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 22) - “Segment Reporting” Notes to the Consolidated Financial Statements.

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Results of Operations

The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2025 and 2024 and results of operations for each of the years then ended. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on March 1, 2025 for a discussion and analysis of the more significant factors that affected periods prior to 2024.

Net Income Available to Common Stockholders

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. The increase in net income was primarily attributable to an increase in net interest income. Basic and diluted net income per common share were 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. Return on average assets was 1.56% in 2025, compared to 1.39% in 2024, and return on average common stockholders’ equity was 16.05% in 2025, compared to 14.98% in 2024.

The following tables present a summary of our statements of income, including the percent change in each category, for the years ended December 31, 2025 compared to 2024, and for the years ended December 31, 2024 compared to 2023, respectively:

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Performance Ratios

The following table presents selected ratios of our results of operations for the years ended December 31, 2025, 2024 and 2023:

Net Interest Income

Net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets. Net interest income is the single largest component of operating revenues. Management seeks to optimize this revenue while balancing interest rate, credit, and liquidity risks. The major factors that affect net interest income are changes in volumes, the yield on interest-earning assets and the cost of interest-bearing liabilities. Our management’s ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings.

Net interest income increased 19.8% for the year ended December 31, 2025 from the year ended December 31, 2024. Net interest 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 spread.

Average earning assets increased 8.2% in 2025 from 2024, which was primarily driven by an increase of 7.9% in average loans. A majority of our regional markets grew loans during 2025.

Average interest-bearing liabilities increased 9.3% in 2025 from 2024. The increase in interest-bearing deposits was mostly attributable to the organic growth of our deposit base.

Net Interest Margin Analysis

The banking industry uses two key ratios to measure relative profitability of net interest revenue, which are the net interest spread and the net interest margin. The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest spread eliminates the effect of noninterest-earning assets as well as noninterest-bearing deposits and other noninterest-bearing funding sources and gives a direct perspective on the effect of market interest rate movements. The net interest margin is an indication of the profitability of a company’s balance sheet and is defined as net interest income as a percentage of total average interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with noninterest-bearing deposits and stockholders’ equity.

The net interest margin is impacted by the average volumes of interest-sensitive assets and interest-sensitive liabilities and by the difference between the yield on interest-sensitive assets and the cost of interest-sensitive liabilities (spread). Loan fees collected at origination represent an additional adjustment to the yield on loans. Net interest spread can be affected by economic conditions, the competitive environment, loan demand, and deposit flows. The net yield on earning assets is an indicator of effectiveness of our ability to manage the net interest margin by managing the overall yield on assets and cost of funding those assets.

The following table shows, for the years ended December 31, 2025, 2024 and 2023, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest income, and the change in interest income and interest expense segregated into amounts attributable to changes in volume and changes in rates. This table is presented on a taxable equivalent basis, if applicable.

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Average Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Year Ended December 31,

(In thousands, except Average Yields and Rates)

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The following table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-bearing assets and liabilities:

* The rate/volume variance is allocated on a pro rata basis between the volume variance and the rate variance in the table above.

In the table above, changes in net interest income are attributable to (a) changes in average balances (volume variance), (b) changes in rates (rate variance), or (c) changes in rate and average balances (rate/volume variance). The volume variance is calculated as the change in average balances multiplied by the previous period average balance. The rate variance is calculated as the change in rates multiplied by the previous period average balance. The rate/volume variance is calculated as the change in rates multiplied by the change in average balances.

From 2024 to 2025, both the volume and rate components were favorable, as average asset and liability balances increased while rates on both assets and liabilities declined, driven primarily by three reductions in the Federal Reserve’s target rate during 2025. The rate component benefited from a greater decrease in the cost of funds, as interest-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 decreased 69 basis points over this period, while yields on average earning assets decreased 19 basis points.

The two primary factors that make up the spread are the interest rates received on loans and the interest rates paid on deposits. Our net interest spread and net interest margin were 2.34% and 3.12%, respectively, for the year ended December 31, 2025, compared to 1.84% and 2.82%, respectively, for the year ended December 31, 2024. The increase in net interest spread and net interest margin was primarily attributable to increases in the average balance and the interest earned from loans, which increased $958.9 million and $40.7 million, respectively, in 2025.

Our average interest-earning assets for the year ended December 31, 2025 increased $1.30 billion, or 8.2%, to $17.15 billion from $15.85 billion for the year ended December 31, 2024. Average loans grew $958.9 million, or 7.9%, average debt securities decreased $47.1 million, or 2.4%, and average federal funds sold, interest-bearing balances with banks, and securities purchased with agreement to resell increased $389.3 million, or 22.7%.

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

Our average interest-earning assets produced a taxable equivalent yield of 5.78% for the year ended December 31, 2025, compared to 5.97% for the year ended December 31, 2024. The average rate paid on interest-bearing liabilities was 3.44% for the year ended December 31, 2025, compared to 4.13% for the year ended December 31, 2024.

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Provision for Credit Losses

The provision for credit losses represents the amount determined by management to be necessary to maintain the allowance for credit losses (“ACL”) at a level capable of absorbing expected credit losses over the contractual life of loans in the loan portfolio. See the section captioned “Allowance for Credit Losses” located elsewhere in this item for additional discussion related to provision for credit losses.

The provision expense for credit losses for the year ended December 31, 2025 increased compared to the year-ended December 31, 2024. The increase in provision expense was primarily the result of loan growth during 2025 compared to 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, 2024. The year-over-year increase was attributable to a large, real-estate secured relationship. During 2025, we had net charged-off loans totaling $28.1 million, compared to net charged-off loans of $10.4 million for 2024. The ratio of net charged-off loans to average loans was 0.21% for 2025 compared to 0.09% for 2024. The ACL for December 31, 2025 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, at December 31, 2024.

Noninterest Income

Noninterest income for the years ended December 31, 2025 and 2024 was as follows:

Noninterest income decreased $7.8 million, or 22.3%, to $27.2 million for the year ended December 31, 2025 compared to $35.1 million for the same period in 2024. Service charges on deposit accounts increased $2.5 million, or 26.0%, to $11.9 million for the year ended December 31, 2025 compared to $9.4 million for the same period in 2024. Credit card income remained flat at $8.3 million during 2025 compared to 2024. Mortgage banking income increased $542,000, or 11.0%, to $5.5 million for the year ended December 31, 2025 compared to $4.9 million for the same period in 2024. Bank-owned life insurance income increased $5.3 million, or 55.4%, to $14.8 million for the year ended December 31, 2025 compared to $9.5 million for the same period in 2024. The cash surrender value increased $1.0 million and we recognized $4.3 million of income attributed to a BOLI policy during 2025 compared to 2024. Other operating income increased $218,000, or 7.6%, to $3.1 million for the year ended December 31, 2025 compared to $2.9 million for the same period in 2024. Merchant service revenue increased $59,000, or 2.6%, to $2.3 million for the year ended December 31, 2025 compared to $2.3 million for the same period in 2024.

Noninterest Expense

Noninterest expense for the years ended December 31, 2025 and 2024 was as follows:

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Noninterest expenses increased $3.8 million, or 2.1%, to $185.0 million for the year ended December 31, 2025 compared to $181.1 million for the same period in 2024. Salary and employee benefits expenses decreased $1.5 million, or 1.6%, to $94.8 million for the year ended December 31, 2025 compared to $96.3 million for the same period in 2024, mainly due to a $3 million credit adjustment to our annual Incentive Plan expense during the second quarter of 2025. We had 666 full-time equivalent employees as of December 31, 2025 compared to 630 as of December 31, 2024. Equipment and occupancy expense increased $78,000, or .5%, to $14.6 million for the year ended December 31, 2025 compared to $14.5 million for the same period in 2024. Third party processing and other services increased $436,000, or 1.4%, to $31.6 million for the year ended December 31, 2025 compared to $31.2 million for the same period in 2024. Professional services expense increased $274,000, or 4.0%, to $7.2 million for the year ended December 31, 2025 compared to $6.9 million for the same period in 2024. FDIC assessments increased $303,000, or 2.8%, to $11.0 million for the year ended December 31, 2025 compared to $10.7 million for the same period in 2024. The FDIC implemented a special assessment to recapitalize the Deposit Insurance Fund resulting in an additional $1.8 million during 2024. Other operating expenses increased $4.3 million, or 20.1%, to $25.6 million for the year ended December 31, 2025 compared to $21.3 million for the same period in 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 2024 to 2025 are detailed in Note 14 - “Other Operating Income and Expenses,” to the Consolidated Financial Statements.

Income Tax Expense

Income tax expense was $65.5 million for the year ended December 31, 2025 compared to $51.7 million in 2024. Our effective tax rates for 2025 and 2024 were 19.15% and 18.61%, respectively. The increase in our effective tax rates reflect the proportional amortization of accounting for investment tax credits. We recognized $44.5 million in credits during 2025 and $15.4 million during 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 2025 of $798,000, compared to $1.3 million during 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.

We have invested $435.3 million in bank-owned life insurance for certain officers of the Bank. The periodic increases in cash surrender value of those policies are tax exempt and therefore contribute to a larger permanent difference between book income and taxable income.

We own real estate investment trusts for the purpose of holding and managing participations in residential mortgages and commercial real estate loans originated by the Bank. The trusts are majority-owned subsidiaries of a trust holding company, which in turn is an indirect, wholly-owned subsidiary of the Bank. The trusts earn interest income on the loans they hold and incur operating expenses related to their activities. They pay their net earnings, in the form of dividends, to the Bank, which receives a deduction for state income taxes.

Financial Condition

Assets

Total assets as of December 31, 2025, were $17.73 billion, an increase of $375.5 million, or 2.2%, from total assets of $17.35 billion as of December 31, 2024. Average assets for the year ended December 31, 2025 were $17.75 billion, an increase of $1.41 billion, or 8.65%, over average assets of $16.33 billion for the year ended December 31, 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 2025 total loans were $13.70 billion, an increase of $1.09 billion, or 8.7%, over year-end 2024 total loans of $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 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. We believe this ratio is expected to generally continue at these levels, although it may be affected by economic factors beyond our control.

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Investment Portfolio

We view the investment portfolio as a source of income and liquidity. Our investment strategy is to accept a lower immediate yield in the investment portfolio by targeting shorter term investments. At December 31, 2025, mortgage-backed securities represented 29.8% of the investment portfolio, corporate debt represented 23.9% of the investment portfolio, state and municipal securities represented 1.1% of the investment portfolio, and U.S. Treasury securities represented 45.3% of the investment portfolio.

All of our investments in mortgage-backed securities are pass-through mortgage-backed securities. We generally do not hold, and did not have at December 31, 2025, any structured investment vehicles or any private-label mortgage-backed securities. The amortized cost of securities in our portfolio totaled $1.73 billion at December 31, 2025, compared to $1.92 billion at December 31, 2024.

The following table presents the amortized cost and weighted average yield of our securities as of December 31, 2025 by their stated maturities (this maturity schedule excludes security prepayment and call features):

As of December 31, 2025, we had $6.1 million in federal funds sold, compared with $1.0 million at December 31, 2024. At year-end 2025, there were no holdings of securities of any issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

The objective of our investment policy is to invest funds not otherwise needed to meet our loan demand to earn the maximum return, yet still maintain sufficient liquidity to meet fluctuations in our loan demand and deposit structure. In doing so, we balance the market and credit risks against the potential investment return, make investments compatible with the pledge requirements of any deposits of public funds, maintain compliance with regulatory investment requirements, and assist certain public entities with their financial needs. The investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities. The entire portfolio, along with all investment transactions occurring since the previous Board of Directors meeting, is reviewed by the board at each monthly meeting. The investment policy allows portfolio holdings to include short-term securities purchased to provide us with needed liquidity and longer-term securities purchased to generate level income for us over periods of interest rate fluctuations.

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Loan Portfolio

The following is a condensed overview of changes in our loan portfolio. Please see Note 3 - “Loans” in the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report for a more detailed analysis of our loan portfolio by type of loan.

We had total loans of approximately $13.70 billion at December 31, 2025. A large majority of our loan customers are located within our market areas, as is the collateral for their loans. With our loan portfolio concentrated in a limited number of markets, there is a risk that our borrowers’ ability to repay their loans from us could be affected by changes in local and regional economic conditions.

The following table details our loans at December 31, 2025, 2024 and 2023:

The following table details the percentage composition of our loan portfolio by type at December 31, 2025, 2024 and 2023:

The table below summarizes the Company’s commercial real estate portfolio at December 31, 2025 as segregated by industry concentrations based on North American Industry Classification System:

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The table below summarizes the Company’s commercial real estate portfolio at December 31, 2025 as segregated by geographic region in which the property is located:

The following table details maturities and sensitivity to interest rate changes for our loan portfolio at December 31, 2025:

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Asset Quality

The following table presents a summary of the allowance for credit losses, net charge-offs and certain credit ratios for the years ended December 31, 2025, 2024 and 2023:

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The allowance for credit losses (“ACL”) for December 31, 2025 and 2024 was calculated under the CECL methodology and totaled $171.7 million and $164.5 million, or 1.25% and 1.30% of loans, net of unearned income, respectively. The decrease in the ACL as a percentage of total loans from December 31, 2024, to December 31, 2025, was primarily driven by higher net credit charge-offs during 2025 and the release of a special reserve that had been included in the 2024 balance, as well as updates to loss drivers and qualitative factors within our CECL model. Net credit charge-offs to average loans were 0.21% for the year ended December 31, 2025, compared to  0.09% and 0.10% for the years ended December 31, 2024 and 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, 2024, and were $19.3 million, or 0.17% of total loans, at December 31, 2023. The year-over-year nonaccrual increase from the year ended December 31, 2024 to the year ended December 31, 2025 was attributable to a large, real-estate secured 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 provision 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.

The following table presents the allocation of the allowance for credit losses for each respective loan category with the corresponding percent of loans in each category to total loans:

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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.

Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method. For all loans utilizing the DCF 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.

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. The Company considers 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.

Expected credit losses for loans that no longer share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and estimated on an individual basis. Individual evaluations are performed for nonaccrual loans, loans rated substandard, and certain modified loans. Specific allocations of the ACL are estimated on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows.

The Bank has procedures and processes in place intended to ensure that losses do not exceed the potential amounts documented in the Bank’s analysis of loans individually evaluated and reduce potential losses in the remaining performing loans within our real estate construction portfolio. These include the following:

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Nonperforming Assets

The table below summarizes our nonperforming assets at December 31, 2025, 2024 and 2023: