What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-13 compared with 2022-03-04 · 1564 added, 902 removed, 485 unchanged (84% of the section changed)

Financial Statements and Supplementary Data

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Financial Statements

and Supplementary Data

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER

FINANCIAL REPORTING

Management of Southern First Bancshares, Inc.

is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S.

The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and disposition of the Company’s assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with the authorizations of the Company’s management and directors;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material impact on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013.

Based on this evaluation under the COSO criteria, management concluded that the internal control over financial reporting was effective as of December 31, 2021.

The effectiveness of the internal control structure over financial reporting as of December 31, 2021 has been audited by Elliott Davis, LLC, an independent registered public accounting firm, as stated in their report included in this Annual Report on Form 10-K, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021.

is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the

Securities Exchange Act of 1934, as amended.

The Company’s internal control over financial reporting is a process designed to provide

reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes

in accordance with accounting principles generally accepted in the U.S.

The Company’s internal control over financial reporting

includes those policies and procedures that (1) pertain to the maintenance of records, that in reasonable detail, accurately and

fairly reflect the transactions and disposition of the Company’s assets;

(2) provide reasonable assurance that transactions

are recorded as necessary to permit the preparation of the financial statements in accordance with generally accepted accounting principles

and that receipts and expenditures of the Company are being made only in accordance with the authorizations of the Company’s management

and directors;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or

disposition of the Company’s assets that could have a material impact on the financial statements.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with

the policies and procedures may deteriorate.

Management conducted an evaluation of the effectiveness

of the internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued

by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013.

Based on this evaluation under the

COSO criteria, management concluded that the internal control over financial reporting was effective as of December 31, 2022.

The effectiveness of the internal control structure

over financial reporting as of December 31, 2022 has been audited by Elliott Davis, LLC, an independent registered public accounting

firm, as stated in their report included in this Annual Report on Form 10-K, which expresses an unqualified opinion on the effectiveness

of the Company’s internal control over financial reporting as of December 31, 2022.

Arthur Seaver, Jr.

4 unchanged sentences

Southern First Bancshares, Inc.

Report of Independent Registered Public Accounting Firm (PCAOB ID 149 )

Report of Independent Registered Public Accounting

Firm (PCAOB ID 149)

To the Shareholders and Board of Directors of

1 unchanged sentence

and Subsidiary

Opinion on the Internal Control Over Financial Reporting

Opinion on the

Internal Control Over Financial Reporting

We have audited Southern First Bancshares, Inc.

and Subsidiary's (the “Company”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020 and the related consolidated statements of income, comprehensive income, shareholders’

equity, and cash flows for each of the three years in the period ended December 31, 2021 of the Company and our report dated March 4, 2022 expressed an unqualified opinion.

and Subsidiary’s (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established

in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting

as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee

of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards

of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December

31, 2022 and 2021 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows

for each of the three years in the period ended December 31, 2022 of the Company and our report dated February 13, 2023 expressed an

unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

The Company’s management is responsible

for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over

financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is

to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting

firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective

internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal

control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating

effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered

necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Definition and Limitations of Internal Control

Over Financial Reporting

A company’s internal control over financial reporting

is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial

reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately

and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions

are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and

that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition

of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

/s/ Elliott Davis, LLC

Greenville, South Carolina

March 4, 2022

Report of Independent Registered Public Accounting Firm (PCAOB ID 149 )

February 13, 2023

Report of Independent Registered Public Accounting

Firm (PCAOB ID 149 )

To the Shareholders and Board of Directors of

2 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Southern First Bancshares, Inc.

and Subsidiary (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’

equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the consolidated financial statements (collectively, the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 4, 2022, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

We have audited the accompanying consolidated

balance sheets of Southern First Bancshares, Inc.

and Subsidiary (the “Company”) as of December 31, 2022 and 2021, the related

consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period

ended December 31, 2022, and the related notes to the consolidated financial statements (collectively, the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December

31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022,

in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards

of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial

reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated

Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February

13, 2023, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements,

the Company has changed its method of accounting for credit losses effective January 1, 2022 due to the adoption of Financial Accounting

Standards Board Accounting Standards Codification No.

326, Financial Instruments – Credit Losses (ASC 326).

The Company adopted

the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be

reported in accordance with previously applicable generally accepted accounting principles.

The adoption of the new credit loss standard

and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks

of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall

presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loan Losses

As described in Note 4 to the Company’s consolidated financial statements, the Company has a gross loan portfolio of $2.5 billion and related allowance for loan losses of $30.4 million as of December 31, 2021.

As described by the Company in Note 1, the evaluation of the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance for loan losses is evaluated on a regular basis and is based upon the Company’s review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.

We identified the Company’s estimate of the allowance for loan losses as a critical audit matter.

The principal considerations for our determination of the allowance for loan losses as a critical audit matter related to the high degree of subjectivity in the Company’s judgments in determining the qualitative factors.

Auditing these complex judgments and assumptions by the Company involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included the following:

We tested the design and operating effectiveness of controls relating to the Company’s determination of the allowance for loan losses, including controls over qualitative factors.  

We evaluated the relevance and the reasonableness of assumptions related to evaluation of the loan portfolio, current economic conditions, and other risk factors used in development of the qualitative factors for collectively evaluated loans.  

We evaluated the reasonableness of assumptions and data used by the Company in developing the qualitative factors by comparing these data points to internally developed and third-party sources, and other audit evidence gathered.  

/s/ Elliott Davis, LLC

We have served as the Company’s auditor since 1999.

Greenville, South Carolina

March 4, 2022

The critical audit matters communicated below

are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to

the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our

especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses

As described in Note 4 to the Company’s

financial statements, the Company has a gross loan portfolio of $3.3 billion and related allowance for credit losses of $38.6 million

as of December 31, 2022.

As described by the Company in Note 1, the Company calculates lifetime probability of default and loss given

default rates based on historical loss experience, which is used to calculate expected losses based on the pool’s loss rate and

the age of loans in the pool.

Management also considers further adjustments to historical loss information for current conditions and

reasonable and supportable

forecasts that differ from the conditions that

exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered

in the quantitative analyses.

The qualitative categories and the measurements used to quantify the risks within each of these categories

are subjectively selected by management but measured by objective measurements period over period.

The data for each measurement may be

obtained from internal or external sources.

These adjustments are based upon quarterly trend assessments in certain economic factors as

well as associate retention and turnover, portfolio concentrations, and growth characteristics.

We identified the Company’s estimate of

the allowance for credit losses as a critical audit matter.

The principal considerations for our determination of the allowance for credit

losses as a critical audit matter related to the high degree of subjectivity in the Company’s judgments in determining the qualitative

Auditing these complex judgments and assumptions by the Company involves especially challenging auditor judgment due to the nature

and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures

we performed to address this critical audit matter included the following:

tested the design and operating effectiveness of controls relating to the Company’s determination of the allowance for credit losses,

including controls over qualitative factors.

evaluated the relevance and the reasonableness of assumptions related to evaluation of the loan portfolio, current and forecasted economic

conditions, and other risk factors used in development of the qualitative factors.

evaluated the reasonableness of assumptions and data used by the Company in developing the qualitative factors by comparing these data

points to internally developed and third-party sources, and other audit evidence gathered.

/s/ Elliott Davis,

We have served as

the Company’s auditor since 1999.

Greenville, South

February 13, 2023

SOUTHERN FIRST BANCSHARES, INC.

12 unchanged sentences

Mortgage loans held for sale

Less allowance for loan losses

Less allowance for credit losses

Bank owned life insurance

5 unchanged sentences

Total liabilities

SHAREHOLDERS’

Preferred stock, par value $.

01 per share, 10,000,000 shares authorized

Common stock, par value $.

01 per share, 10,000,000 shares authorized, 7,925,819 and

7,772,748 shares issued and outstanding at December 31, 2021 and 2020, respectively

SHAREHOLDERS’ EQUITY

Preferred stock, par value $ .01 per share, 10,000,000 shares authorized

Common stock, par value $ .01 per share, 10,000,000 shares authorized, 8,011,045 and 7,925,819 shares issued and outstanding at December 31, 2022 and 2021, respectively

Nonvested restricted stock

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Retained earnings

Total shareholders’

Total liabilities and shareholders’

See notes to consolidated financial statements that are an integral part of these consolidated statements.

Total shareholders’ equity

Total liabilities and shareholders’ equity

See notes to consolidated financial statements that

are an integral part of these consolidated statements.

SOUTHERN FIRST BANCSHARES, INC.

3 unchanged sentences

(dollars in thousands, except per share data)

Interest income

Investment securities

4 unchanged sentences

Net interest income

Provision for (reversal of) loan losses

Net interest income after provision for loan losses

Provision for (reversal of) credit losses

Net interest income after provision for credit losses

Noninterest income

3 unchanged sentences

Income from bank owned life insurance

Gain on sale of investment securities, net

Loss on extinguishment of debt

Net lender fees on PPP loan sale

2 unchanged sentences

Compensation and benefits

Mortgage production costs

Other real estate owned (income) expenses, net

Other real estate owned expenses, net

Outside service and data processing costs

6 unchanged sentences

Weighted average common shares outstanding

See notes to consolidated financial statements that are an integral part of these consolidated statements.

See notes to consolidated financial statements that

are an integral part of these consolidated statements.

SOUTHERN FIRST BANCSHARES, INC.

2 unchanged sentences

For the years ended December 31,

(dollars in thousands)

Other comprehensive income:

in thousands)

Other comprehensive income (loss):

Unrealized gain (loss) on securities available for sale:

4 unchanged sentences

Comprehensive income

See notes to consolidated financial statements that are an integral part of these consolidated statements.

See notes to consolidated

financial statements that are an integral part of these consolidated statements.

SOUTHERN FIRST BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020

comprehensive

Preferred stock

(dollars in thousands, except share data)

December 31, 2018

Proceeds from exercise of stock options  

Issuance of restricted stock, net of forfeitures

Compensation expense related to restricted stock, net of tax  

Compensation expense related to stock options, net of tax  

Other comprehensive income

December 31, 2019

Proceeds from exercise of stock options  

Issuance of restricted stock, net of forfeitures

Compensation expense related to restricted stock, net of tax  

Compensation expense related to stock options, net of tax  

Other comprehensive income

December 31, 2020

Proceeds from exercise of stock options  

Issuance of restricted stock, net of forfeitures

Compensation expense related to restricted stock, net of tax  

Compensation expense related to stock options, net of tax  

Other comprehensive loss

December 31, 2021

See notes to consolidated financial statements that are an integral part of these consolidated statements.

in thousands, except share data)

from exercise of stock options

of restricted stock, net of forfeitures

expense related to restricted stock, net of tax

expense related to stock options, net of tax

comprehensive income

from exercise of stock options

of restricted stock, net of forfeitures

expense related to restricted stock, net of tax

expense related to stock options, net of tax

comprehensive loss

of ASU 2016-13

from exercise of stock options

of restricted stock, net of forfeitures

expense related to restricted stock, net of tax

expense related to stock options, net of tax

comprehensive loss

See notes to consolidated financial statements that

are an integral part of these consolidated statements.

SOUTHERN FIRST BANCSHARES, INC.

2 unchanged sentences

For the years ended December 31,

(dollars in thousands)

Operating activities

Adjustments to reconcile net income to cash provided by operating activities:

Provision for (reversal of) loan losses

in thousands)

to reconcile net income to cash provided by operating activities:

Provision for (reversal of) credit losses

Depreciation and other amortization

3 unchanged sentences

(Gain) loss on sale of investment securities available for sale

Gain on sale of fixed assets

(Gain) loss on sale of fixed assets

Net change in operating leases

8 unchanged sentences

Net cash provided by operating activities

Investing activities

Increase (decrease) in cash realized from:

11 unchanged sentences

Proceeds from sale of other real estate owned

Net cash used for investing activities

cash used for investing activities

Financing activities

Increase (decrease) in cash realized from:

(decrease) in cash realized from:

Increase in deposits, net

Increase (decrease) in Federal Home Loan Bank advances and other borrowings

Increase of subordinated debt

Proceeds from the exercise of stock options

3 unchanged sentences

Cash and cash equivalents, end of year

Supplemental information

Cash paid for

Schedule of non-cash transactions

of non-cash transactions

Foreclosure of other real estate

1 unchanged sentence

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

See notes to consolidated financial statements that are an integral part of these consolidated statements.

NOTE 1 –

Summary of Significant Accounting Policies and Activities

See notes to consolidated financial statements that

are an integral part of these consolidated statements.

NOTE 1 – Summary of Significant

Accounting Policies and Activities

Southern First Bancshares, Inc.

(the "Company") is a South Carolina corporation that owns all of the capital stock of Southern First Bank (the "Bank") and all of the stock of Greenville First Statutory Trust I and II (collectively, the "Trusts").

The Trusts are special purpose non-consolidated entities organized for the sole purpose of issuing trust preferred securities.

The Bank's primary federal regulator is the Federal Deposit Insurance Corporation (the "FDIC").

The Bank is also regulated and examined by the South Carolina Board of Financial Institutions.

The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the FDIC, and providing commercial, consumer and mortgage loans to the general public.

(the “Company”) is a South Carolina corporation that owns all of the capital stock of Southern First Bank (the “Bank”)

and all of the stock of Greenville First Statutory Trust I and II (collectively, the “Trusts”).

The Trusts are special purpose

non-consolidated entities organized for the sole purpose of issuing trust preferred securities.

The Bank’s primary federal regulator is

the Federal Deposit Insurance Corporation (the “FDIC”).

The Bank is also regulated and examined by the South Carolina Board

of Financial Institutions.

The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by

the FDIC, and providing commercial, consumer and mortgage loans to the general public.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Southern First Bank.

In consolidation, all significant intercompany transactions have been eliminated.

The accounting and reporting policies conform to accounting principles generally accepted in the United States of America.

In accordance with guidance issued by the Financial Accounting Standards Board (“FASB”), the operations of the Trusts have not been consolidated in these financial statements.

The accompanying consolidated financial

statements include the accounts of the Company and its wholly owned subsidiary, Southern First Bank.

In consolidation, all significant

intercompany transactions have been eliminated.

The accounting and reporting policies conform to accounting principles generally accepted

in the United States of America.

In accordance with guidance issued by the Financial Accounting Standards Board (“FASB”),

the operations of the Trusts have not been consolidated in these financial statements.

Business Segments

ASC Topic 280-10, “Segment Reporting,”

requires selected segment information of operating segments based on a management approach.

The Company’s three reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning by management.

Please refer to “Note 24 –

Reportable Segments”

for further information on the reporting for the Company’s three business segments.

The Company, through the Bank, provides

a broad range of financial services to individuals and companies in South Carolina, North Carolina, and Georgia.

These services include

demand, time and savings deposits;

lending services;

ATM processing and mortgage banking services.

While the Company’s management

periodically reviews limited production information for these revenue streams, that information is not complete as it does not include

a full allocation of revenue, costs and capital from key corporate functions.

Management will continue to evaluate these lines of business

for separate reporting as facts and circumstances change.

Accordingly, the Company’s various banking operations are not considered

by management to constitute more than one reportable operating segment.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods.

Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, derivatives, real estate acquired in settlement of loans, fair value of financial instruments, evaluating other-than-temporary-impairment of investment securities and valuation of deferred tax assets.

The preparation of consolidated financial

statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the

date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods.

Actual results

could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate

to the determination of the allowance for credit losses, derivatives, real estate acquired in settlement of loans, fair value of financial

instruments, evaluating investment securities for credit impairment and valuation of deferred tax assets.

Risks and Uncertainties

In the normal course of its business, the Company encounters two significant types of risks:

In the normal course of its business,

the Company encounters two significant types of risks:

economic and regulatory.

There are three main components of economic risk:

interest rate risk, credit risk and market risk.

The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different bases, than its interest-earning assets.

Credit risk is the risk of default within the Company’s loan portfolio that results from borrowers’

inability or unwillingness to make contractually required payments.

rate risk, credit risk and market risk.

The Company is subject to interest rate risk to the degree that its interest-bearing liabilities

mature or reprice at different speeds, or on different bases, than its interest-earning assets.

Credit risk is the risk of default within

the Company’s loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments.

Market risk reflects changes in the value of collateral underlying loans receivable and the valuation of real estate held by the Company.

The Company is subject to the regulations of various governmental agencies.

The Company is subject to the regulations

of various governmental agencies.

These regulations can and do change significantly from period to period.

The Company also undergoes periodic examinations by the regulatory agencies, which may subject it to changes with respect to valuation of assets, amount of required loan loss allowance and operating restrictions resulting from the regulators’

judgments based on information available to them at the time of their examinations.

The Bank makes loans to individuals and businesses in the Upstate, Midlands, and Lowcountry regions of South Carolina as well as the Triangle, Triad and Charlotte regions of North Carolina and Atlanta, Georgia for various personal and commercial purposes.

The Bank’s loan portfolio has a concentration of real estate loans.

The Company also undergoes

periodic examinations by the regulatory agencies, which may subject it to changes with respect to valuation of assets, amount of required

loan loss allowance and operating restrictions resulting from the regulators’ judgments based on information available to them at

the time of their examinations.

The Bank makes loans to individuals

and businesses in the Upstate, Midlands, and Lowcountry regions of South Carolina as well as the Triangle, Triad and Charlotte regions

of North Carolina and Atlanta, Georgia for various personal and commercial purposes.

The Bank’s loan portfolio has a concentration

of real estate loans.

As of December 31, 2022 and 2021, real estate loans represented 84.8 % and 85.5 %, respectively, of total loans.

However, borrowers’

ability to repay their loans is not dependent upon any specific economic sector.

The impact of the coronavirus (COVID-19) pandemic is fluid and continues to evolve, adversely affecting many of the Bank’s clients.

The unprecedented and rapid spread of COVID-19 and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets, and has had an adverse effect on the Company’s business, financial condition and results of operations.

The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including governmental and private sector initiatives, the effect of the recent rollout of vaccinations for the virus, whether such vaccinations will be effective against any resurgence of the virus, including any new strains, and the ability for customers and businesses to return to their pre-pandemic routine.

The Company’s business, financial condition and results of operations generally rely upon the ability of the Bank’s borrowers to repay their loans, the value of collateral underlying the Bank’s secured loans, and demand for loans and other products and services the Bank offers, which are highly dependent on the business environment in the Bank’s primary markets where it operates and in the United States as a whole.

On March 3, 2020, the Federal Reserve reduced the target federal funds rate by 50 basis points, followed by an additional reduction of 100 basis points on March 16, 2020.

These reductions in interest rates and other effects of the COVID-19 pandemic have had, and are expected to continue to have, possibly materially, an adverse effect on Company’s business, financial condition and results of operations.

For instance, the pandemic has had negative effects on the Bank’s interest income, provision for loan losses, and certain transaction-based line items of noninterest income.

Other financial impacts could occur though such potential impact is unknown at this time.

As of December 31, 2021, the Company’s and the Bank’s capital ratios were in excess of all regulatory requirements.

While management believes that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios could be adversely impacted by further credit losses.

The Company maintains access to multiple sources of liquidity, including a $ 15.0 million holding company line of credit with another bank which could be used to support capital ratios at the subsidiary bank.

borrowers’ ability to repay their loans is not dependent upon any specific economic sector.

As of December 31, 2022, the Company’s

and the Bank’s capital ratios were in excess of all regulatory requirements.

While management believes that we have sufficient capital

to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by further credit

The Company maintains access to multiple

sources of liquidity, including a $ 15.0 million holding company line of credit with another bank which could be used to support capital

ratios at the subsidiary bank.

As of December 31, 2022, the $ 15.0 million line was unused.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued.

Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.

Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.

Management performed an evaluation to determine whether there have been any subsequent events since the balance sheet date and determined that no subsequent events occurred requiring accrual or disclosure.

Subsequent events are events or transactions

that occur after the balance sheet date but before financial statements are issued.

Recognized subsequent events are events or transactions

that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the

process of preparing financial statements.

Non-recognized subsequent events are events that provide evidence about conditions that did

not exist at the date of the balance sheet but arose after that date.

Management performed an evaluation to determine whether there have

been any subsequent events since the balance sheet date and determined that no subsequent events occurred requiring accrual or disclosure.

Reclassifications

Certain amounts, previously reported, have been reclassified to state all periods on a comparable basis and had no effect on shareholders’

equity or net income.

Certain amounts, previously reported,

have been reclassified to state all periods on a comparable basis and had no effect on shareholders’ equity or net income.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, interest bearing deposits and federal funds sold.

Cash and cash equivalents have original maturities of three months or less, and federal funds sold are generally purchased and sold for one-day periods.

Accordingly, the carrying value of these instruments is deemed to be a reasonable estimate of fair value.

At December 31, 2021 and 2020, included in cash and cash equivalents was $ 5.2 million and $ 12.6 million, respectively, on deposit with the Federal Reserve Bank.

Cash and cash equivalents include cash

and due from banks, interest bearing deposits and federal funds sold.

Cash and cash equivalents have original maturities of three months

or less, and federal funds sold are generally purchased and sold for one-day periods.

Accordingly, the carrying value of these instruments

is deemed to be a reasonable estimate of fair value.

At December 31, 2022 and 2021, included in cash and cash equivalents was $ 5.8

million and $ 5.2 million, respectively, on deposit with the Federal Reserve Bank.

Investment Securities

We classify our investment securities as held to maturity securities, trading securities and available for sale securities as applicable.

Investment securities are designated as held to maturity if we have the intent and the ability to hold the securities to maturity.

Held to maturity securities are carried at amortized cost, adjusted for the amortization of any related premiums or the accretion of any related discounts into interest income using a methodology which approximates a level yield of interest over the estimated remaining period until maturity.

Unrealized losses on held to maturity securities, reflecting a decline in value judged by us to be other than temporary, are charged to income in the Consolidated Statements of Income.

Investment securities that are purchased and held principally for the purpose of selling in the near term are reported as trading securities.

Trading securities are carried at fair value with unrealized holding gains and losses included in earnings.

We classify investment securities as available for sale when at the time of purchase we determine that such securities may be sold at a future date or if we do not have the intent or ability to hold such securities to maturity.

We classify our investment securities

as held to maturity securities, trading securities and available for sale securities as applicable.

Investment securities are designated

as held to maturity if we have the intent and the ability to hold the securities to maturity.

Held to maturity securities are carried

at amortized cost, adjusted for the amortization of any related premiums or the accretion of any related discounts into interest income

using a methodology which approximates a level yield of interest over the estimated remaining period until maturity.

Investment securities that are purchased

and held principally for the purpose of selling in the near term are reported as trading securities.

Trading securities are carried at

fair value with unrealized holding gains and losses included in earnings.

We classify investment securities as

available for sale when at the time of purchase we determine that such securities may be sold at a future date or if we do not have the

intent or ability to hold such securities to maturity.

Securities designated as available for sale are recorded at fair value.

Changes in the fair value of available for sale debt securities are included in shareholders’

equity as unrealized gains or losses, net of the related tax effect.

Unrealized losses on available for sale securities, reflecting a decline in value judged to be other than temporary, are charged to income in the Consolidated Statements of Income.

in the fair value of available for sale debt securities are included in shareholders’ equity as unrealized gains or losses, net

of the related tax effect.

Realized gains or losses on available for sale securities are computed on the specific identification basis.

Other Investments

Other investments include stock acquired for membership and regulatory purposes, such as Federal Home Loan Bank of Atlanta (“FHLB”) stock, investments in unconsolidated subsidiaries and other nonmarketable securities.

FHLB stock is generally pledged against any borrowings from the FHLB and cash dividends on our FHLB stock are recorded in investment income.

Other nonmarketable securities consist of investments in funds related to the Small Business Investment Company (“SBIC”) and Rural Business Investment Company (“RBIC”) Programs.

No ready market exists for these stocks and they have no quoted market value.

As a result, these securities are carried at cost and are periodically evaluated for impairment.

Loans are stated at the principal balance outstanding.

Unamortized net loan fees and the allowance for possible loan losses are deducted from total loans on the balance sheets.

Other investments include stock acquired

for membership and regulatory purposes, such as Federal Home Loan Bank of Atlanta (“FHLB”) stock, investments in unconsolidated

subsidiaries and other nonmarketable securities.

FHLB stock is generally pledged against any borrowings from the FHLB and cash dividends

on our FHLB stock are recorded in investment income.

Other nonmarketable securities consist of investments in funds related to the Small

Business Investment Company (“SBIC”) and Rural Business Investment Company (“RBIC”) programs.

No ready market

exists for these stocks and they have no quoted market value.

As a result, these securities are carried at cost and are periodically evaluated

for impairment.

Loans are stated at the principal balance

Unamortized net loan fees and the allowance for possible credit losses are deducted from total loans on the balance sheets.

Interest income is recognized over the term of the loan based on the principal amount outstanding.

The net of loan origination fees received and direct costs incurred in the origination of loans is deferred and amortized to interest income over the contractual life of the loans adjusted for actual principal prepayments using a method approximating the interest method.

The net of loan origination fees received

and direct costs incurred in the origination of loans is deferred and amortized to interest income over the contractual life of the loans

adjusted for actual principal prepayments using a method approximating the interest method.

Nonaccrual and Past Due Loans

Loans are generally placed on nonaccrual status when principal or interest becomes 90 days past due, or when payment in full is not anticipated.

When a loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income.

Cash receipts on nonaccrual loans are not recorded as interest income, but are used to reduce the loan’s principal balance.

A nonaccrual loan is generally returned to accrual status and accrual of interest is resumed when payments have been made according to the terms and conditions of the loan for a continuous six month period.

Our loans are considered past due when contractually required principal or interest payments have not been made on the due dates.

Loans are generally placed on nonaccrual

status when principal or interest becomes 90 days past due, or when payment in full is not anticipated.

When a loan is placed on nonaccrual

status, interest accrued but not received is generally reversed against interest income.

Cash receipts on nonaccrual loans are not recorded

as interest income, but are used to reduce the loan’s principal balance.

A nonaccrual loan is generally returned to accrual status

and accrual of interest is resumed when payments have been made according to the terms and conditions of the loan for a continuous six

month period.

Our loans are considered past due when contractually required principal or interest payments have not been made on the due

Nonperforming Assets

Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure, loans on nonaccrual status and loans past due 90 days or more and still accruing interest.

Loans are placed on nonaccrual status when, in the opinion of management, the collection of additional interest is uncertain.

Thereafter no interest is taken into income until such time as the borrower demonstrates the ability to pay both principal and interest.

Impaired Loans

Our impaired loans include loans on nonaccrual status and loans modified in a troubled debt restructuring (“TDR”), whether on accrual or nonaccrual status.

For loans that are classified as impaired, an allowance is established when the fair value (discounted cash flows, collateral value, or observable market price) of the impaired loan less costs to sell, are lower than the carrying value of that loan.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due, among other factors.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including, without limitation, the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan by loan basis for commercial and consumer loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Nonperforming assets include real estate

acquired through foreclosure or deed taken in lieu of foreclosure, loans on nonaccrual status and loans past due 90 days or more and still

accruing interest.

Loans are placed on nonaccrual status when, in the opinion of management, the collection of additional interest is

Thereafter no interest is taken into income until such time as the borrower demonstrates the ability to pay both principal

and interest.

Individually Evaluated Loans

Our individually evaluated loans include

loans on nonaccrual status and loans modified in a troubled debt restructuring (“TDR”), whether on accrual or nonaccrual status.

For loans that are classified as individually evaluated, an allowance is established when the fair value (discounted cash flows, collateral

value, or observable market price) of the individually evaluated loan less costs to sell, are lower than the carrying value of that loan.

A loan is considered individually evaluated when, based on current information and events, it is probable that the Company will be unable

to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled

principal and interest payments when due, among other factors.

Loans that experience insignificant payment delays and payment shortfalls

generally are not classified as individually evaluated.

Management determines the significance of payment delays and payment shortfalls

on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including, without

limitation, the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in

relation to the principal and interest owed.

Impairment is measured on a loan by loan basis for commercial and consumer loans by either

the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price,

or the fair value of the collateral if the loan is collateral dependent.

Loan Charge-off Policy

For commercial loans, we generally fully charge off or charge collateralized loans down to net realizable value when management determines the loan to be uncollectible;

repayment is deemed to be projected beyond reasonable time frames;

the loan has been classified as a loss by either our internal loan review process or our banking regulatory agencies;

For commercial loans, we generally fully

charge off or charge collateralized loans down to net realizable value when management determines the loan to be uncollectible;

is deemed to be projected beyond reasonable time frames;

the loan has been classified as a loss by either our internal loan review process

or our banking regulatory agencies;

the client has filed bankruptcy and the loss becomes evident owing to a lack of assets;

or the loan is 120 days past due unless both well-secured and in the process of collection.

For consumer loans, we generally charge down to net realizable value when the loan is 180 days past due.

is 120 days past due unless both well-secured and in the process of collection.

For consumer loans, we generally charge down to net realizable

value when the loan is 180 days past due.

Troubled Debt Restructuring (TDRs)

The Company considers a loan to be a TDR when the debtor experiences financial difficulties and the Company provides concessions such that we will not collect all principal and interest in accordance with the original terms of the loan agreement.

Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note.

As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment.

In accordance with the CARES Act, the Company implemented loan modification programs in response to the COVID-19 pandemic, and the Company elected the accounting policy in the CARES Act to not apply TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic.

In 2020, the Company granted short-term loan deferrals to six client relationships which were considered TDRs due to the client experiencing financial difficulty before the pandemic.

Our policy with respect to accrual of interest on loans restructured in a TDR follows relevant supervisory guidance.

That is, if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms;

continued accrual of interest at the restructured interest rate is likely.

If a borrower was materially delinquent on payments prior to the restructuring, but shows capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward.

Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status.

We will continue to closely monitor these loans and will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms.

If, after previously being classified as a TDR, a loan is restructured a second time and the borrower continues to experience financial difficulties, then that loan is automatically placed on nonaccrual status.

Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments of principal and interest in accordance with the loan terms before that loan can be placed back on accrual status.

Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.

In addition, our policy, in accordance with supervisory guidance, also provides for a loan to be removed from TDR status if the loan is modified or renewed at terms consistent with current market rates and the loan has been performing under modified terms for an extended period of time or under certain circumstances.

In the determination of the allowance for loan losses, management considers TDRs on commercial and consumer loans and subsequent defaults in these restructurings by measuring impairment, on a loan by loan basis, based on either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent.

Allowance for Loan Losses

The allowance for loan losses is management’s estimate of credit losses inherent in the loan portfolio.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.

Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and prevailing economic conditions.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

We have an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in our portfolio.

While we attribute portions of the allowance to specific portfolio segments, the entire allowance is available to absorb credit losses inherent in the total loan portfolio.

Our process involves procedures to appropriately consider the unique risk characteristics of our commercial and consumer loan portfolio segments.

For each portfolio segment, impairment is measured individually for each impaired loan.

Our allowance levels are influenced by loan volume, loan grade or delinquency status, historic loss experience and other economic conditions.

See Note 4 to the Consolidated Financial Statements for additional information on the allowance for loan losses.

considers a loan to be a TDR when the debtor experiences financial difficulties and the Company provides concessions such that we will

not collect all principal and interest in accordance with the original terms of the loan agreement.

Concessions can relate to the contractual

interest rate, maturity date, or payment structure of the note.

As part of our workout plan for individual loan relationships, we may

restructure loan terms to assist borrowers facing challenges in the current economic environment.

by the CARES Act, we do not consider loan modifications to borrowers affected by COVID-19 to be TDRs unless the borrower was 30 days or

more past due as of December 31, 2019, (ii) the modifications were related to COVID-19, and (iii) the modification occurred between March

1, 2020 and January 1, 2022.

with respect to accrual of interest on loans restructured in a TDR follows relevant supervisory guidance.

That is, if a borrower has demonstrated

performance under the previous loan terms and shows capacity to perform under the restructured loan terms;

continued accrual of interest

at the restructured interest rate is likely.

If a borrower was materially delinquent on payments prior to the restructuring, but shows

capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward.

Lastly, if the borrower does

not perform under the restructured terms, the loan is placed on nonaccrual status.

We will continue to closely monitor these loans and

will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note

If, after previously being classified as a TDR, a loan is restructured a second time and the borrower continues to experience financial

difficulties, then that loan is automatically placed on nonaccrual status.

Our policy with respect to nonperforming loans requires the

borrower to make a minimum of six consecutive payments of principal and interest in accordance with the loan terms before that loan can

be placed back on accrual status.

Further, the borrower must show capacity to continue performing into the future prior to restoration

of accrual status.

In addition, our policy, in accordance with supervisory guidance, also provides for a loan to be removed from TDR status

if the loan is modified or renewed at terms consistent with current market rates and the loan has been performing under modified terms

for an extended period of time or under certain circumstances.

In the determination

of the allowance for credit losses, management considers TDRs on commercial and consumer loans and subsequent defaults in these restructurings

by measuring impairment, on a loan by loan basis, based on either the present value of expected future cash flows discounted at the loan’s

effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less costs to sell, if the loan is collateral

Other Real Estate Owned

Real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value less selling costs.

Subsequent to the date of acquisition, it is carried at the lower of cost or fair value, adjusted for net selling costs.

Fair values of real estate owned are reviewed regularly and write-downs are recorded when it is determined that the carrying value of real estate exceeds the fair value less estimated costs to sell.

Costs relating to the development and improvement of such property are capitalized, whereas those costs relating to holding the property are expensed.

Real estate acquired through foreclosure

is initially recorded at the lower of cost or estimated fair value less selling costs.

Subsequent to the date of acquisition, it is carried

at the lower of cost or fair value, adjusted for net selling costs.

Fair values of real estate owned are reviewed regularly and write-downs

are recorded when it is determined that the carrying value of real estate exceeds the fair value less estimated costs to sell.

Costs relating

to the development and improvement of such property are capitalized, whereas those costs relating to holding the property are expensed.

Property and Equipment

Property and equipment are stated at cost.

Property and equipment are stated at

Major repairs are charged to operations, while major improvements are capitalized.

Depreciation is computed using the straight-line method over the estimated useful lives of the related assets.

Upon retirement, sale, or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts, and gain or loss is included in income from operations.

Construction in progress is stated at cost, which includes the cost of construction and other direct costs attributable to the construction.

No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put into use.

Depreciation is computed using the straight-line

method over the estimated useful lives of the related assets.

Upon retirement, sale, or other disposition of property and equipment, the

cost and accumulated depreciation are eliminated from the accounts, and gain or loss is included in income from operations.

Construction in progress is stated at

cost, which includes the cost of construction and other direct costs attributable to the construction.

No provision for depreciation is

made on construction in progress until such time as the relevant assets are completed and put into use.

Operating Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)”

which requires for all operating leases the recognition of a right-of-use (“ROU”) asset and a corresponding lease liability, in the balance sheet.

Upon adoption, the Company elected practical expedients including existing leases retaining their classification as operating leases and combining lease and non-lease components.

The Company also elected to not recognize right-of-use assets and lease liabilities arising from short-term leases.

Effective January 1, 2019, the Company

adopted ASU 2016-02, “Leases (Topic 842)” which requires for all operating leases the recognition of a right-of-use (“ROU”)

asset and a corresponding lease liability, in the balance sheet.

Upon adoption, the Company elected practical expedients including existing

leases retaining their classification as operating leases and combining lease and non-lease components.

The Company also elected to not

recognize right-of-use assets and lease liabilities arising from short-term leases.

Bank Owned Life Insurance Policies

Bank owned life insurance policies represent the cash value of policies on certain officers of the Company.

Bank owned life insurance policies represent

the cash value of policies on certain officers of the Company.

Comprehensive Income

Comprehensive income (loss) consists of net income and net unrealized gains (losses) on securities and is presented in the statements of shareholders’

equity and comprehensive income.

Comprehensive income (loss) consists

of net income and net unrealized gains (losses) on securities and is presented in the statements of shareholders’ equity and comprehensive

The statement requires only additional disclosures in the consolidated financial statements;

it does not affect our results of operations.

it does not affect our results of

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers”

(“Topic 606”).

Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation.

Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606.

The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary.

The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed;

The Company records revenue from contracts

with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic

Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract,

determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue

when (or as) the Company satisfies a performance obligation.

Significant revenue has not been recognized in the current reporting period

that results from performance obligations satisfied in previous periods.

The Company’s primary sources

of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not

within the scope of Topic 606.

The Company has evaluated the nature of its contracts with customers and determined that further disaggregation

of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income

was not necessary.

The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered

and the transaction prices are typically fixed;

charged either on a periodic basis or based on activity.

Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, the Company has made no significant judgments in applying the revenue guidance prescribed in Topic 606 that affect the determination of the amount and timing of revenue from contracts with customers.

The financial statements have been prepared on the accrual basis.

When income and expenses are recognized in different periods for financial reporting purposes versus for the purposes of computing income taxes currently payable, deferred taxes are provided on such temporary differences.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or tax returns.

Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled.

The Company believes that its income tax filing positions taken or expected to be taken on its tax returns will more likely than not be sustained upon audit by the taxing authorities and does not anticipate any adjustments that will result in a material adverse impact on the Company’s financial condition, results of operations, or cash flow.

Because performance obligations

are satisfied as services are rendered and the transaction prices are fixed, the Company has made no significant judgments in applying

the revenue guidance prescribed in Topic 606 that affect the determination of the amount and timing of revenue from contracts with customers.

The financial statements have been prepared

on the accrual basis.

When income and expenses are recognized in different periods for financial reporting purposes versus for the purposes

of computing income taxes currently payable, deferred taxes are provided on such temporary differences.

Deferred tax assets and liabilities

are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or

Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years

in which those temporary differences are expected to be realized or settled.

The Company believes that its income tax filing positions

taken or expected to be taken on its tax returns will more likely than not be sustained upon audit by the taxing authorities and does

not anticipate any adjustments that will result in a material adverse impact on the Company’s financial condition, results of operations,

or cash flow.

Therefore, no reserves for uncertain income tax positions have been recorded.

The Company’s federal and state income tax returns are open and subject to examination from the 2018 tax return year and forward.

The Company’s federal and state income

tax returns are open and subject to examination from the 2019 tax return year and forward.

Stock-Based Compensation

The Company has a stock-based employee compensation plan.

Compensation cost is recognized for all stock options granted and for any outstanding unvested awards as if the fair value method had been applied to those awards as of the date of grant.

Newly Issued, But Not yet Effective Accounting Standards

ASU 2016-13 –

Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The standard will replace the current incurred loss approach with an expected loss model, referred to as the current expected credit loss (“CECL”) model.

The new standard will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees.

ASU 2016-13 simplifies the accounting for purchased credit-impaired debt securities and loans and expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for loan and lease losses.

In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

For public business entities that meet the definition of a smaller reporting company, such as the Company, the ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2022.

Early adoption is permitted in any interim period as long as the Company has adopted to the amendments in ASU 2016-13.

Upon adoption, ASU 2016-13 provides for a modified retrospective transition by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance is effective.

The Company is finalizing its evaluation of the adoption of this ASU and plans to early adopt as of January 1, 2022.

The Company to date has selected the software vendor of choice for implementation, sourced and tested required data from the Company’s loan systems, tested data feeds to the model, contracted for and received results from independent third parties of model validation of the CECL model and process, determined appropriate segmentations of its portfolio, selected a preliminary forecast period for reasonable and supportable forecasts, and has performed parallel runs of the model.

The Company is currently finalizing its assessment of current and forecasted macroeconomic factors and assumptions and testing and finalization of internal controls.

The Company currently estimates the allowance for loan losses will increase by a range of $ 1 million and $ 3 million.

In addition, the Company expects to recognize a liability for unfunded commitments between $ 2.5 million and $ 4 million upon adoption.

The Company will finalize the adoption during the first quarter of 2022.

In October 2020, the FASB updated various Topics of the Accounting Standards Codification to align the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules.

The amendments were effective upon issuance and did not have a material effect on the financial statements.

In August 2021, the FASB issued amendments to update SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Release No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.

The amendments are effective upon issuance.

The Company does not expect these amendments to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 2 –

The Company has a stock-based employee

compensation plan.

Compensation cost is recognized for all stock options granted and for any outstanding unvested awards as if the fair

value method had been applied to those awards as of the date of grant.

Adoption of New Accounting Standard

In June 2016, the FASB issued ASU 2016-13,

Financial Instruments – Credit Losses (Topic 326).

The ASU introduced a new credit loss methodology, the Current Expected Credit

Loss (“CECL”) methodology, which requires earlier recognition of credit losses, while also providing additional transparency

about credit risk.

Since its original issuance in 2016, the FASB has issued several updates to the original ASU.

The CECL methodology utilizes a lifetime

“expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities,

and other receivables at the time the financial asset is originated or acquired.

It also applies to off-balance sheet credit exposures,

such as unfunded commitments to extend credit.

The expected credit losses are adjusted each period for changes in expected lifetime credit

The methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred

before it is recognized.

For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized

through an allowance for credit losses and adjusted each period for changes in credit risk.

On January 1, 2022, the Company adopted

the guidance prospectively with a cumulative adjustment to retained earnings.

Results for reporting periods beginning after January 1,

2022 are presented under CECL while prior period amounts continue to be reported in accordance with the previously applicable incurred

loss accounting methodology.

The transition adjustment for the adoption of CECL included an increase in the allowance for credit losses

on loans of $ 1.5 million and an increase in the reserve for unfunded loan commitments of $ 2.0 million, which is recorded within

other liabilities.

The adoption of CECL had an insignificant impact on the Company’s investment securities portfolio.

The Company recorded

a net decrease to retained earnings of $ 2.8 million as of January 1, 2022 for the cumulative effect of adopting CECL, which reflects

the transition adjustments noted above, net of the applicable deferred tax assets recorded.

Federal banking regulatory agencies provided

optional relief to delay the adverse regulatory capital impact of CECL at adoption.

The Company did not elect to use this optional relief.

Significant Accounting Policy

Upon adoption of Topic 326, the Company

revised the accounting policy for the Allowance for Credit Losses as detailed below.

Allowance for Credit Losses –

Investment Securities

The amortized costs and fair value of investment securities are as follows:

December 31, 2021

Gross Unrealized

(dollars in thousands)

Available for sale

Corporate bonds

For available for sale debt securities

in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be

required to sell the security before recovery of the 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 with the establishment of an allowance under

CECL compared to a direct write down of the security under Incurred Loss.

For debt securities available for sale that do not meet the

aforementioned criteria, the Company evaluates whether any decline in fair value is due to credit loss factors.

In making this assessment,

management considers any changes to 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 the 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 for the credit loss, 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

under CECL are recorded as provision for (or reversal of) credit loss expense.

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.

At December 31, 2022, there was no allowance for credit losses related to the available-for-sale portfolio.

In addition, the Company had no held to maturity securities at December 31, 2022.

Accrued interest receivable on available

for sale debt securities totaled $ 382,000 at December 31, 2022 and was excluded from the estimate of credit losses.

Allowance for Credit Losses - Loans

Under the current expected credit loss

model, the allowance for credit losses on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP

that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Management assesses the adequacy of the

allowance on a quarterly basis.

This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness

of the resulting balance.

The level of the allowance is based upon management’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, industry

and peer bank loan quality indications and other pertinent factors, including regulatory recommendations.

Management believes the level

of the allowance for credit losses is adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet

The allowance is increased through provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously

The allowance for credit losses is measured

on a collective basis for pools of loans with similar risk characteristics.

The Company has identified the following pools of financial

assets with similar risk characteristics for measuring expected credit losses:

Commercial loans

occupied real estate - Owner occupied commercial mortgages consist of loans to purchase or re-finance owner occupied nonresidential

This includes office buildings, other commercial facilities, and farmland.

Commercial mortgages secured by owner occupied

properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination.

While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral

will not fully satisfy the obligation.

occupied real estate - Non-owner occupied commercial mortgages consist of loans to purchase or refinance investment nonresidential

This includes office buildings and other facilities rented or leased to unrelated parties, as well as farmland and multifamily

The primary risk associated with income producing commercial mortgage loans is the ability of the income-producing property

that collateralizes the loan to produce adequate cash flow to service the debt.

While these loans are collateralized by real property

in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.

● Construction

- Construction loans consist of loans to finance land for development of commercial or residential real property and construction

of multifamily apartments or other commercial properties.

These loans are highly dependent on the supply and demand for commercial real

estate as well as the demand for newly constructed residential homes and lots acquired for development.

Deterioration in demand could

result in decreased collateral values, which could make repayments of outstanding loans difficult for customers.

business - Commercial business loans consist of loans or lines of credit to finance accounts receivable, inventory or other general

business needs, business credit cards, and lease financing agreements for equipment, vehicles, or other assets.

The primary risk associated

with commercial and industrial and lease financing loans is the ability of borrowers to achieve business results consistent with those

projected at origination.

Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent

with the contractual terms of the loan.

Consumer loans

estate - Residential mortgages consist of loans to purchase or refinance the borrower’s primary dwelling, second residence

or vacation home and are often secured by 1-4 family residential property.

Significant and rapid declines in real estate values can result

in borrowers having debt levels in excess of the current market value of the collateral.

equity – Home equity loans consist of home equity lines of credit and other lines of credit secured by first or second liens

on the borrower’s primary residence.

These loans are secured by both senior and junior liens on the residential real estate and

are particularly susceptible to declining collateral values.

This risk is elevated for loans secured by junior lines as a substantial

decline in value could render the junior lien position effectively unsecured.

● Construction

- Construction loans consist of loans to construct a borrower’s primary or secondary residence or vacant land upon which the

owner intends to construct a dwelling at a future date.

These loans are typically secured by undeveloped or partially developed land

in anticipation of completing construction of a 1-4 family residential property.

There is risk these construction and development projects

can experience delays and cost overruns exceeding the borrower’s financial ability to complete the project.

Such cost overruns

can result in foreclosure of partially completed and unmarketable collateral.

- Consumer loans consist of loans to finance unsecured home improvements, student loans, automobiles and revolving lines of credit

that can be secured or unsecured.

The value of the underlying collateral within this class is at risk of potential rapid depreciation

which could result in unpaid balances in excess of the collateral.

For all loan pools, the Company uses

a lifetime probability of default and loss given default modeling approach to estimate the allowance for credit losses on loans.

method uses historical correlations between default experience and the age of loans to forecast defaults and losses, assuming that a loan

in a pool shares similar risk characteristics such as loan product type, risk rating and loan age, and demonstrates similar default characteristics

as other loans in that pool, as the loan progresses through its lifecycle.

The Company calculates lifetime probability of default and

loss given default rates based on historical loss experience, which is used to calculate expected losses based on the pool’s loss

rate and the age of loans in the pool.

Management believes that the Company’s historical loss experience provides the best basis

assessment of expected credit losses to determine the allowance for credit losses.

The Company uses its own internal data to measure

historical credit loss experience within the pools with similar risk characteristics over an economic cycle.

The probability of default

and loss given default method also includes assumptions of observed migration over the lifetime of the underlying loan data.

Management also considers further adjustments

to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist

for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered

in the quantitative analyses.

The Company generally utilizes a four-quarter forecast period in evaluating the appropriateness of the reasonable

and supportable forecast scenarios which are incorporated through qualitative adjustments.

There is immediate reversion to historical

The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively

selected by management but measured by objective measurements period over period.

The data for each measurement may be obtained from internal

or external sources.

The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative

to past measurements over time.

The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools.

adjustments are based upon quarterly trend assessments in certain economic factors such as labor, inflation, consumer sentiment and real

disposable income, as well as associate retention and turnover, portfolio concentrations, and growth characteristics.

The qualitative

analysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above.

Loans that do not share similar risk

characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated

Individual loan evaluations are generally performed for individually evaluated loans, which includes nonaccrual loans and

loans modified in a troubled debt restructuring (“TDR”).

Such loans are evaluated for credit losses based on either discounted

cash flows or the fair value of collateral.

The Company has elected the practical expedient under ASC 326 to estimate expected credit

losses based on the fair value of collateral, which considers selling costs in the event sale of the collateral is expected.

which terms have been modified in a TDR are evaluated using these same individual evaluation methods.

In the event the discounted cash

flow method is used for a TDR, the original interest rate is used to discount expected cash flows.

While the Company’s policies and

procedures used to estimate the allowance for credit losses, as well as the resultant provision for credit losses charged to income, are

considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily

approximate and imprecise.

There are factors beyond the Company’s control, such as changes in projected economic conditions, real

estate markets or particular industry conditions which may materially impact asset quality and the adequacy of the allowance for credit

losses and thus the resulting provision for credit losses.

Accrued Interest Receivable

Accrued interest receivable related to

loans totaled $ 8.9 million at December 31, 2022 and was reported in accrued interest receivable on the consolidated balance sheets.

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest

income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier

if the Company believes the collection of interest is doubtful.

The Company has concluded that this policy results in the timely reversal

of uncollectable interest.

Unfunded Commitments

Effective with the adoption of CECL,

the Company estimates expected credit losses on commitments to extend credit over the contractual period in which the Company is exposed

to credit risk on the underlying commitments, unless the obligation is unconditionally cancelable by the Company.

The allowance for off-balance

sheet credit exposures, which is reflected within other liabilities on the consolidated balance sheet, is adjusted for as an increase

or decrease to the provision for credit losses.

The estimate includes consideration of the likelihood that funding will occur and an estimate

of expected credit losses on commitments expected to be funded over its estimated life.

The allowance is calculated using the same aggregate

reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to fund.

The Company’s CECL allowances will fluctuate

over time due to macroeconomic conditions and forecasts as well as the size and composition of the loan portfolios.

Issued, But Not Yet Effective Accounting Standards

In March 2022, the FASB amended the

Receivables–Troubled Debt Restructuring by Creditors subtopic and Financial Instruments–Credit Losses subtopic to the Accounting

Standards Codification.

The amendments eliminate the accounting guidance for TDRs by creditors while enhancing disclosure requirements

for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

In addition, for public

business entities, the amendments require disclosure of current-period gross write-offs by year of origination for financing receivables

and net investments in leases within the scope of Subtopic 326-20.

The amendments are effective as of January 1, 2023 and will not have

a material effect on the Company’s financial statements.

NOTE 2 – Investment Securities

The amortized costs and fair value of investment

securities are as follows:

in thousands)

US treasuries

US government agencies

SBA securities

State and political subdivisions

Asset-backed securities

US government

and political subdivisions

Mortgage-backed

mortgage-backed securities

Total mortgage-backed securities

December 31, 2020

Gross Unrealized

(dollars in thousands)

Available for sale

US government agencies

in thousands)

US treasuries

US government

SBA securities

State and political subdivisions

Asset-backed securities

and political subdivisions

Mortgage-backed

mortgage-backed securities

Total mortgage-backed securities

During 2021, approximately $ 770,000 of investment securities were either sold or called, subsequently resulting in a loss on sale of investment securities of $ 3,000 .

During 2020, approximately $ 2.0 million of investment securities were either sold or called, resulting in a gain on sale of investment securities of $ 3,000 .

The amortized costs and fair values of investment securities available for sale at December 31, 2021 and 2020, by contractual maturity, are shown below.

Expected maturities may differ from contractual maturities because issuers have the right to prepay the obligations.

During 2022, approximately $ 12.6 million

of investment securities were either sold or called, subsequently resulting in a gross gain on sale of investment securities of $ 83,000

and a gross loss on sale of investment securities of $ 71,000 .

During 2021, approximately $ 770,000 of investment securities were either

sold or called, resulting in a gross gain on sale of investment securities of $ 6,000 and a gross loss on sale of investment securities

During 2020, approximately $ 2.0 million of investment securities were either sold or called, resulting in a gross gain on sale

of investment securities of $ 4,000 and a gross loss on sale of investment securities of $ 1,000 .

The amortized costs and fair values

of investment securities available for sale at December 31, 2022 and 2021, by contractual maturity, are shown below.

Expected maturities

may differ from contractual maturities because issuers have the right to prepay the obligations.

(dollars in thousands)

4 unchanged sentences

Due after ten years

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2021 and 2020.

Less than 12 months

12 months or longer

The tables below summarize gross unrealized

losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time

that individual securities have been in a continuous unrealized loss position, at December 31, 2022 and 2021.

December 31, 2022

(dollars in thousands)

6 unchanged sentences

Mortgage-backed

Less than 12 months

12 months or longer

December 31, 2021

(dollars in thousands)

1 unchanged sentence

Available for sale

Corporate bonds

US treasuries

US government agencies

SBA securities

State and political subdivisions

Mortgage-backed

At December 31, 2021, the Company had 43 individual investments with a fair market value of $ 53.0 million that were in an unrealized loss position for less than 12 months and 28 individual investments with a fair market value of $ 27.6 million that were in an unrealized loss position for 12 months or longer.

The unrealized losses were primarily attributable to changes in interest rates, rather than deterioration in credit quality.

At December 31, 2022, the Company had

117 individual investments that were in an unrealized loss position.

The unrealized losses were primarily attributable to changes in interest

rates, rather than deterioration in credit quality.

The individual securities are each investment grade securities.

The Company considers the length of time and extent to which the fair value of available-for-sale debt securities have been less than cost to conclude that such securities were not other-than-temporarily impaired.

We also consider other factors such as the financial condition of the issuer including credit ratings and specific events affecting the operations of the issuer, volatility of the security, underlying assets that collateralize the debt security, and other industry and macroeconomic conditions.

As the Company has no intent to sell securities with unrealized losses and it is not more-likely-than-not that the Company will be required to sell these securities before recovery of amortized cost, we have concluded that the securities are not impaired on an other-than-temporary basis.

Other investments are comprised of the following and are recorded at cost which approximates fair value:

The Company considers

factors such as the financial condition of the issuer including credit ratings and specific events affecting the operations of the issuer,

volatility of the security, underlying assets that collateralize the debt security, and other industry and macroeconomic conditions.

Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities

before recovery of the amortized cost.

Other investments are comprised of the following and

are recorded at cost which approximates fair value:

(dollars in thousands)

3 unchanged sentences

Total other investments

The Company has evaluated other investments for impairment and determined that the other investments are not other than temporarily impaired as of December 31, 2021 and ultimate recoverability of the par value of this investment is probable.

The Company has evaluated other investments

for impairment and determined that the other investments are not other than temporarily impaired as of December 31, 2022 and ultimate

recoverability of the par value of this investment is probable.

All of the FHLB stock is used to collateralize advances with the FHLB.

At December 31, 2021 and 2020, there were no securities pledged as collateral for repurchase agreements from brokers.

NOTE 3 –

Mortgage Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are reported as loans held for sale and carried at fair value under the fair value option with changes in fair value recognized in current period earnings.

Loans held for sale include mortgage loans which are saleable into the secondary mortgage markets and their fair values are estimated using observable quoted market or contracted prices or market price equivalents, which would be used by other market participants.

At the date of funding of the mortgage loan held for sale, the funded amount of the loan, the related derivative asset or liability of the associated interest rate lock commitment, less direct loan costs becomes the initial recorded investment in the loan held for sale.

At December 31, 2022 and 2021, there

were no securities pledged as collateral for repurchase agreements from brokers.

NOTE 3 – Mortgage Loans Held

Mortgage loans originated and intended

for sale in the secondary market are reported as loans held for sale and carried at fair value under the fair value option with changes

in fair value recognized in current period earnings.

Loans held for sale include mortgage loans which are saleable into the secondary

mortgage markets and their fair values are estimated using observable quoted market or contracted prices or market price equivalents,

which would be used by other market participants.

At the date of funding of the mortgage loan held for sale, the funded amount of the

loan, the related derivative asset or liability of the associated interest rate lock commitment, less direct loan costs becomes the initial

recorded investment in the loan held for sale.

Such amount approximates the fair value of the loan.

At December 31, 2021, mortgage loans held for sale totaled $ 13.6 million compared to $ 60.2 million at December 31, 2020.

Mortgage loans held for sale are considered de-recognized, or sold, when the Company surrenders control over the financial assets.

Control is considered to have been surrendered when the transferred assets have been isolated from the Company, beyond the reach of the Company and its creditors;

the purchaser obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets;

and the Company does not maintain effective control over the transferred assets through an agreement that both entitles and obligates the Company to repurchase or redeem the transferred assets before their maturity or the ability to unilaterally cause the holder to return specific assets.

Gains and losses from the sale of mortgage loans are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale and are recorded in mortgage banking income in the statement of income.

Mortgage banking income also includes the unrealized gains and losses associated with the loans held for sale and the realized and unrealized gains and losses from derivatives.

Mortgage loans sold to investors by the Company, and which were believed to have met investor and agency underwriting guidelines at the time of sale, may be subject to repurchase or indemnification in the event of specific default by the borrower or subsequent discovery that underwriting standards were not met.

At December 31, 2022, mortgage loans

held for sale totaled $ 3.9 million compared to $ 13.6 million at December 31, 2021.

Mortgage loans held for sale are considered

de-recognized, or sold, when the Company surrenders control over the financial assets.

Control is considered to have been surrendered

when the transferred assets have been isolated from the Company, beyond the reach of the Company and its creditors;

the purchaser obtains

the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets;

the Company does not maintain effective control over the transferred assets through an agreement that both entitles and obligates the

Company to repurchase or redeem the transferred assets before their maturity or the ability to unilaterally cause the holder to return

specific assets.

Gains and losses from the sale of mortgage

loans are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale and are recorded

in mortgage banking income in the statement of income.

Mortgage banking income also includes the unrealized gains and losses associated

with the loans held for sale and the realized and unrealized gains and losses from derivatives.

Mortgage loans sold to investors by the

Company, and which were believed to have met investor and agency underwriting guidelines at the time of sale, may be subject to repurchase

or indemnification in the event of specific default by the borrower or subsequent discovery that underwriting standards were not met.

The Company may, upon mutual agreement, agree to repurchase the loans or indemnify the investor against future losses on such loans.

In such cases, the Company bears any subsequent credit loss on the loans.

As appropriate, the Company establishes mortgage repurchase reserves related to various representations and warranties that reflect management’s estimate of losses.

NOTE 4 –

Loans and Allowance for Loan Losses

The Company makes loans to individuals and small businesses for various personal and commercial purposes primarily in the Upstate, Midlands, and Lowcountry regions of South Carolina, the Triangle and Triad regions of North Carolina as well as Atlanta, Georgia.

The Company’s loan portfolio is not concentrated in loans to any single borrower or a relatively small number of borrowers.

The Company focuses its lending activities primarily on the professional markets in these regions including doctors, dentists, and small business owners.

The principal component of the loan portfolio is loans secured by real estate mortgages which account for 85.5 % of total loans at December 31, 2021.

Commercial loans comprise 57.3 % of total real estate loans and consumer loans account for 42.7 %.

Commercial real estate loans are further categorized into owner occupied which represents 19.6 % of total loans and non-owner occupied loans represent 26.8 %.

Commercial construction loans represent only 2.6 % of the total loan portfolio.

In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, management monitors exposure to credit risk from concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g.

such cases, the Company bears any subsequent credit loss on the loans.

As appropriate, the Company establishes mortgage repurchase reserves

related to various representations and warranties that reflect management’s estimate of losses.

NOTE 4 – Loans and Allowance

for Credit Losses

The Company makes loans to individuals

and small businesses for various personal and commercial purposes primarily in the Upstate, Midlands, and Lowcountry regions of South

Carolina, the Triangle and Triad regions of North Carolina as well as Atlanta, Georgia.

The Company’s loan portfolio is not concentrated

in loans to any single borrower or a relatively small number of borrowers.

The Company focuses its lending activities primarily on the

professional markets in these regions including doctors, dentists, and small business owners.

The principal component of the loan portfolio

is loans secured by real estate mortgages which account for 84.8 % of total loans at December 31, 2022.

Commercial loans comprise 57.1 %

of total real estate loans and consumer loans account for 42.9 %.

Commercial real estate loans are further categorized into owner occupied

which represents 18.7 % of total loans and non-owner occupied loans which represents 26.3 %.

Commercial construction loans represent only

3.4 % of the total loan portfolio.

In addition to monitoring potential

concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, management monitors exposure

to credit risk from concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases

principal deferral periods, loans with initial interest-only periods, etc.), and loans with high loan-to-value ratios.

Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life.

For example, the Company makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e.

Additionally,

there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course

of a loan’s life.

For example, the Company makes variable rate loans and fixed rate principal-amortizing loans with maturities prior

to the loan being fully paid (i.e.

balloon payment loans).

The various types of loans are individually underwritten and monitored to manage the associated risks.

The allowance for loan losses is management's estimate of credit losses inherent in the loan portfolio at the balance sheet date.

We have an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in our portfolio.

While we attribute portions of the allowance to specific portfolio segments, the entire allowance is available to absorb credit losses inherent in the total loan portfolio.

Our process involves procedures to appropriately consider the unique risk characteristics of our commercial and consumer loan portfolio segments.

For each portfolio segment, impairment is measured individually for each impaired loan.

Our allowance levels are influenced by loan volume, loan grade or delinquency status, historic loss experience and other economic conditions.

Paycheck Protection Program (“PPP”)

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES”

Act or the “Act”) to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic.

The Small Business Administration (“SBA”) received funding and authority through the Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency.

The Act temporarily permits the SBA to guarantee 100 % of certain loans under a new program titled the “Paycheck Protection Program”

and also provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP.

In an effort to assist our clients as best we could through the pandemic, we became an approved SBA lender in March 2020 and processed 853 loans under the PPP for a total of $ 97.5 million, receiving SBA lender fee income of $ 3.9 million.

As the regulations and guidance for PPP loans and the forgiveness process continued to change and evolve, management recognized the operational risk and complexity associated with this portfolio and decided to pursue the sale of the PPP loan portfolio to a third party better suited to support and serve our PPP clients through the loan forgiveness process.

The loan sale allowed our team to focus on serving our clients and proactively monitoring and addressing credit risk brought on by the pandemic.

On June 26, 2020, we completed the sale of our PPP loan portfolio to The Loan Source Inc., together with its servicing partner, ACAP SME LLC, and immediately recognized SBA lender fee income of $ 2.2 million, net of sale and processing costs, which is included in other noninterest income in the consolidated financial statements.

The SBA offered a second round of PPP loans through May 31, 2021;

The various types of loans are individually underwritten and monitored to manage

the associated risks.

Paycheck Protection Program (“PPP”)

On March 27, 2020, President Trump signed

the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act or the “Act”) to provide emergency assistance

and health care response for individuals, families, and businesses affected by the coronavirus pandemic.

The Small Business Administration

(“SBA”) received funding and authority through the Act to modify existing loan programs and establish a new loan program to

assist small businesses nationwide adversely impacted by the COVID-19 emergency.

The Act temporarily permits the SBA to guarantee 100 %

of certain loans under a new program titled the “Paycheck Protection Program” and also provides for forgiveness of up to the

full principal amount of qualifying loans guaranteed under the PPP.

In an effort to assist our clients as

best we could through the pandemic, we became an approved SBA lender in March 2020 and processed 853 loans under the PPP for a total of

$ 97.5 million, receiving SBA lender fee income of $ 3.9 million.

As the regulations and guidance for PPP loans and the forgiveness process

continued to change and evolve, management recognized the operational risk and complexity associated with this portfolio and decided to

pursue the sale of the PPP loan portfolio to a third party better suited to support and serve our PPP clients through the loan forgiveness

The loan sale allowed our team to focus on serving our clients and proactively monitoring and addressing credit risk brought

on by the pandemic.

On June 26, 2020, we completed the sale of our PPP loan portfolio to The Loan Source Inc., together with its servicing

partner, ACAP SME LLC, and immediately recognized SBA lender fee income of $ 2.2 million, net of sale and processing costs, which is included

in other noninterest income in the consolidated financial statements.

The SBA offered a second round of PPP

loans through May 31, 2021;

however, we did not originate any new PPP loans.

We did, however, receive referral fees of approximately $ 268,000 during the three months ended June 30, 2021 from The Loan Source Inc.

We did, however, receive referral fees of approximately $ 268,000

during the three months ended June 30, 2021 from The Loan Source Inc.

for PPP loans they originated to our clients.

Portfolio Segment Methodology

Commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews.

The Company applies historic grade-specific loss factors to each loan class.

In the development of statistically derived loan grade loss factors, the Company observes historical losses over 20 quarters for each loan grade.

These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends.

The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a TDR, whether on accrual or nonaccrual status.

For consumer loans, the Company determines the allowance on a collective basis utilizing historical losses over 20 quarters to represent its best estimate of inherent loss.

The Company pools loans, generally by loan class with similar risk characteristics.

The allowance also includes an amount for the estimated impairment on nonaccrual consumer loans and consumer loans modified in a TDR, whether on accrual or nonaccrual status.

The following table summarizes the composition of our loan portfolio.

Total gross loans are recorded net of deferred loan fees and costs, which totaled $ 5.0 million and $ 3.9 million as of December 31, 2021 and December 31, 2020, respectively.

The following table summarizes the composition

of our loan portfolio.

Total gross loans are recorded net of deferred loan fees and costs, which totaled $ 7.3 million and $ 5.0 million

as of December 31, 2022 and December 31, 2021, respectively.

(dollars in thousands)

4 unchanged sentences

Total gross loans, net of deferred fees

Less –

allowance for loan losses

Less – allowance for credit losses

Total loans, net

The composition of gross loans by rate type is as follows:

The composition of gross loans by rate

type is as follows:

(dollars in thousands)

1 unchanged sentence

Fixed rate loans

At December 31, 2021, approximately $936.9 million of the Company’s mortgage loans were pledged as collateral for advances from the FHLB, as set forth in Note 10.

At December 31, 2022, approximately

$ 1.05 billion of the Company’s mortgage loans were pledged as collateral for advances from the FHLB, as set forth in Note 10.

Credit Quality Indicators

We manage a consistent process for assessing commercial loan credit quality by monitoring our loan grading trends and past due statistics.

All loans are subject to individual risk assessment.

Our risk categories include Pass, Special Mention, Substandard, and Doubtful, each of which is defined by banking regulatory agencies.

We manage a consistent process for assessing

commercial loan credit quality by monitoring our loan grading trends and past due statistics.

All loans are subject to individual risk

Our risk categories include Pass, Watch, Special Mention, and Substandard, each of which is defined by banking regulatory

Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for credit losses.

We categorize our loans into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

A description of the general characteristics of the risk grades is as follows:

Pass—These loans range from minimal credit risk to average however still acceptable credit risk.  

Special mention—A special mention loan has potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.  

Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

We categorize our loans into risk categories

based on relevant information about the ability of the borrower to service their debt such as current financial information, historical

payment experience, credit documentation, public information, and current economic trends, among other factors.

A description of the general

characteristics of the risk grades is as follows:

loans range from minimal credit risk to average however still acceptable credit risk.

watch loan exhibits above average risk due to minor weaknesses and warrants closer scrutiny by management.

mention—A special mention loan has potential weaknesses that deserve management’s close attention.

If left uncorrected, these

potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at

some future date.

● Substandard—A

substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged,

Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt.

A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.  

Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.  

The following tables provide past due information for outstanding commercial loans and include loans on nonaccrual status.

December 31, 2021

(dollars in thousands)

30-59 days past due

60-89 days past due

Greater than 90 days

December 31, 2020

30-59 days past due

60-89 days past due

Greater than 90 days

As of December 31, 2021 and 2020, loans 30 days or more past due represented 0.09 % and 0.17 % of our total loan portfolio, respectively.

Commercial loans 30 days or more past due were 0.00 % and 0.08 % as of December 31, 2021 and 2020, respectively.

The tables below provide a breakdown of outstanding commercial loans by risk category.

December 31, 2021

(dollars in thousands)

A substandard

loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make

collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

The following table presents loan balances classified

by credit quality indicators by year of origination as of December 31, 2022.

in thousands)

Converted to Term

Owner occupied RE

Special Mention

December 31, 2020

Total Owner occupied RE

Non-owner occupied RE

Special Mention

Total Non-owner occupied RE

Special Mention

Total Construction

Special Mention

Total Business

Total Commercial loans

Special Mention

Total Real estate

Special Mention

Total Home equity

Special Mention

Total Construction

Special Mention

Total Consumer loans

The following table presents loan balances classified

by credit quality indicators and loan categories as of December 31, 2021.

(dollars in thousands)

Special mention

We manage a consistent process for assessing consumer loan credit quality by monitoring our loan grading trends and past due statistics.

All loans are subject to individual risk assessment.

Our risk categories include Pass, Special Mention, Substandard, and Doubtful, which are defined above.

Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for loan losses.

The following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status.

December 31, 2021

The following tables present loan balances by payment

(dollars in thousands)

1 unchanged sentence

60-89 days past due

Greater than 90 days

December 31, 2020

90 days or more past due

Owner occupied RE

Non-owner occupied RE

(dollars in thousands)

30-59 days past due

60-89 days past due

Greater than 90 days

Consumer loans 30 days or more past due were 0.09 % as of December 31, 2021 and 2020, respectively.

The tables below provide a breakdown of outstanding consumer loans by risk category.

December 31, 2021

(dollars in thousands)

Special Mention

December 31, 2020

(dollars in thousands)

Special Mention

Nonperforming assets

The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans.

Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful.

A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received.

(dollars in thousands)

90 days or more past due

Owner occupied RE

Non-owner occupied RE

Nonaccruing troubled debt restructurings

As of December

31, 2022 and December 31, 2021, loans 30 days or more past due represented 0.11 % and 0.09 % of the Company’s total loan portfolio,

respectively.

Commercial loans 30 days or more past due were 0.03 % and 0.00 % of the Company’s total loan portfolio as of December

31, 2022 and December 31, 2021, respectively.

Consumer loans 30 days or more past due were 0.08 % and 0.09 % of total loans as of December

31, 2022 and December 31, 2021, respectively.

Nonperforming assets

The following table shows the nonperforming

assets and the related percentage of nonperforming assets to total assets and gross loans.

Generally, a loan is placed on nonaccrual status

when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and

collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on

the loan is doubtful.

A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when

in thousands)

Nonaccrual loans

Nonaccruing TDRs

Total nonaccrual loans, including nonaccruing TDRs

4 unchanged sentences

Loans over 90 days past due and still accruing

Accruing TDRs

Foregone interest income on the nonaccrual loans for the year ended December 31, 2021 was approximately $ 55,000 and approximately $ 61,000 for the same period in 2020.

Impaired Loans

The table below summarizes key information for impaired loans.

Our impaired loans include loans on nonaccrual status and loans modified in a TDR, whether on accrual or nonaccrual status.

These impaired loans may have estimated impairment which is included in the allowance for loan losses.

Our commercial and consumer impaired loans are evaluated individually to determine the related allowance for loan losses.

December 31, 2021

Recorded investment

Impaired loans

with no related

allowance for

Accruing troubled debt restructurings

The table below

summarizes nonaccrual loans by major categories for the periods presented.

(dollars in thousands)

3 unchanged sentences

Total consumer

December 31, 2020

Recorded investment

Foregone interest income on the nonaccrual

loans for the year ended December 31, 2022 was approximately $ 28,000 and approximately $ 55,000 for the same period in 2021.

The table below summarizes key information for

loans individually evaluated for impairment loans under the incurred loss methodology.

These loans include loans on nonaccrual status

and loans modified in a TDR, whether on accrual or nonaccrual status.

These loans may have estimated impairment which is included in the

allowance for credit losses.

Impaired loans

9 unchanged sentences

Total consumer

The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class.

Year ended December 31,

The following table provides the average recorded

investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and

class under the incurred loss methodology.

(dollars in thousands)

3 unchanged sentences

Total consumer

Allowance for Loan Losses

The following table summarizes the activity related to our allowance for loan losses:

Year ended December 31,

Allowance for Credit Losses

The following table summarizes the activity related

to the allowance for credit losses for the year ended December 31, 2022 under the CECL methodology.

On January 1, 2022, we adopted

the Current Expected Credit Loss (CECL) methodology for estimating credit losses, which resulted in an increase of $ 1.5 million in our

allowance for credit losses.

The $ 5.4 million provision for credit losses for the 12 months ended December 31, 2022 was driven primarily

by $ 783.5 million in loan growth for the year.

In addition to loan growth, the provision for credit losses was impacted by slightly lower

expected loss rates due to historically low charge-offs during 2022, while minor adjustments to two internal qualitative factors increased

the qualitative component of the allowance and related provision expense.

months ended December 31, 2022

(dollars in thousands)

Owner occupied

Balance, beginning of period

Provision for loan losses

Adjustment for CECL

Provision for credit losses

Loan charge-offs

Owner occupied RE

Non-owner occupied RE

Total commercial

Total consumer

Total loan charge-offs

Loan recoveries

Owner occupied RE

Non-owner occupied RE

Total commercial

Total consumer

Total recoveries

Net loan charge-offs

Net loan recoveries (charge-offs)

Balance, end of period

The following tables summarize the activity in the allowance for loan losses by our commercial and consumer portfolio segments.

Year ended December 31, 2021

Net recoveries to average loans (annualized)

Allowance for credit losses to gross loans

Allowance for credit losses to nonperforming loans

Prior to the adoption of ASC 326 on January 1,

2022, the Company calculated the allowance for loan losses under the incurred loss methodology.

The following table summarizes the activity

related to the allowance for loan losses in prior periods under this methodology.

months ended December 31, 2021

(dollars in thousands)

Owner occupied

Balance, beginning of period

Provision for credit losses

Loan charge-offs

Loan recoveries

Net loan charge-offs

Net loan recoveries (charge-offs)

Balance, end of period

Year ended December 31, 2020

months ended December 31, 2020

(dollars in thousands)

Owner occupied

Balance, beginning of period

Provision for credit losses

Loan charge-offs

Loan recoveries

Net loan recoveries (charge-offs)

Balance, end of period

The following tables summarize the activity

in the allowance for loan losses by our commercial and consumer portfolio segments under the incurred loss methodology.

(dollars in thousands)

Balance, beginning of period

Loan charge-offs

Loan recoveries

Net loan charge-offs

Balance, end of period

The following table disaggregates our allowance for loan losses and recorded investment in loans by method of impairment evaluation.

December 31, 2021

Allowance for loan losses

Recorded investment in loans

The following table disaggregates the allowance

for loan losses and recorded investment in loans by impairment methodology under the incurred loss methodology.

for loan losses

investment in loans

(dollars in thousands)

1 unchanged sentence

Collectively evaluated

December 31, 2020

Allowance for loan losses

Recorded investment in loans

Individually evaluated

Collectively evaluated

NOTE 5 –

Troubled Debt Restructurings

At December 31, 2021, we had 14 loans totaling $ 6.3 million and at December 31, 2020 we had 20 loans totaling $ 8.4 million, which we considered as TDRs.

The Company considers a loan to be a TDR when the debtor experiences financial difficulties and the Company grants a concession to the debtor that it would not normally consider.

Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note.

As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment.

A restructuring that results in only a delay in payments that is insignificant is not considered an economic concession.

Under the CARES Act, the Company granted short-term loan deferrals to 864 loan clients, of which all had returned to normal payments as of December 31, 2021.

In addition, short-term loan deferrals were granted to six clients with loans totaling $ 3.2 million at December 31, 2020, which were considered TDRs due to the client experiencing financial difficulty before the pandemic.

Three loans totaling $443,000 were renewed during 2021 and considered TDRs at the time of renewal.

The following table summarizes the concession at the time of modification and the recorded investment in our TDRs before and after their modification.

For the year ended December 31, 2021

Collateral dependent loans are loans for which

the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing

financial difficulty.

The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other

loans that management of the Company designates as having higher risk.

These loans do not share common risk characteristics and are not

included within the collectively evaluated loans for determining the allowance for credit losses.

The following table presents an analysis of collateral-dependent

loans of the Company as of December 31, 2022.

(dollars in thousands)

For the year ended December 31, 2020

As of December 31, 2021 and 2020 there were no loans modified as TDRs for which there was a payment default (60 days past due) within 12 months of the restructuring date.

NOTE 6 –

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.

Owner occupied RE

Non-owner occupied RE

Total commercial

Total consumer

Under CECL, for collateral dependent loans, the

Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral.

The allowance

for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which

is adjusted for liquidation costs/discounts, and amortized cost.

If the fair value of the collateral exceeds the amortized cost, no allowance

Allowance for Credit Losses - Unfunded Loan

The allowance for credit losses for unfunded loan

commitments was $ 2.8 million at December 31, 2022 and is separately classified on the balance sheet within other liabilities.

to the adoption of CECL, the Company’s reserve for unfunded

commitments was not material.

The following table presents the

balance and activity in the allowance for credit losses for unfunded loan commitments for the twelve months ended December 31, 2022.

Twelve months ended

(dollars in thousands)

Balance, beginning of period

Adjustment for adoption of CECL

Provision for credit losses

Balance, end of period

Unfunded Loan Commitments

Reserve for Unfunded Commitments to Unfunded Loan Commitments

NOTE 5 – Troubled Debt Restructurings

31, 2022, our TDRs included 13 loans totaling $ 6.3 million with a specific allowance for credit losses of $ 1.2 million.

At December 31,

2021 we had 14 loans totaling $ 6.3 million which we considered as TDRs.

The Company considers a loan to be a TDR when the debtor experiences

financial difficulties and the Company grants a concession to the debtor that it would not normally consider.

Concessions can relate to

the contractual interest rate, maturity date, or payment structure of the note.

As part of our workout plan for individual loan relationships,

we may restructure loan terms to assist borrowers facing challenges in the current economic environment.

There were three loans considered new

TDRs during the twelve months ended December 31, 2022.

There was one consumer real estate loan with a pre-modification and post-modification

balance of $ 885,000 , and there were two commercial business loans with a pre-modification and post-modification balance totaling $ 1.1

For the twelve months ended December 31, 2021, there were two consumer real estate loans with a pre-modification balance of $ 259,000

and a post-modification balance of $ 262,000 , and there was one consumer home equity loan with a pre-modification and post-modification

balance of $ 181,000 that were renewed and considered TDRs at the time of renewal.

As of December 31, 2022 and 2021, there were no

loans modified as a TDR for which there was a payment default (60 days past due) within 12 months of the restructuring date.

by the CARES Act, we do not consider loan modifications to borrowers affected by COVID-19 to be TDRs unless the borrower was 30 days or

more past due as of December 31, 2019, (ii) the modifications were related to COVID-19, and (iii) the modification occurred between March

1, 2020 and January 1, 2022.

Under the CARES

Act, the Company granted short-term loan deferrals to 864 loan clients, of which all had returned to normal payments as of December 31,

NOTE 6 – Property and Equipment

Property and equipment are stated at

cost less accumulated depreciation.

Components of property and equipment included in the consolidated balance sheets are as follows:

6 unchanged sentences

Total property and equipment

On October 9, 2020 we sold two of our office locations in Columbia, South Carolina and recognized a gain of $ 180,000 in the transaction.

Construction in process at December 31, 2021 and 2020 primarily included costs associated with the new bank headquarters building located in Greenville, South Carolina.

Construction in process at December 31,

2022 and 2021 consisted primarily of costs associated with the new bank headquarters building located in Greenville, South Carolina which

was officially opened in June 2022.

The move into the new building, and subsequent disposal of assets, resulted in a $ 439,000 loss for

the twelve months ended December 31,

In addition in October 2020 we sold two of our office locations in Columbia, South Carolina

and recognized a gain of $ 180,000 in the transaction.

The loss and gain are reported in other noninterest income on the consolidated statements

Depreciation and amortization expense for the years ended December 31, 2022 and 2021 was $ 3.7 million and $ 2.2 million, respectively.

2 unchanged sentences

Type of Asset

Life in Years

Furniture and equipment

Leasehold improvements

NOTE 7 –

As of December 31, 2021, the Company leased seven of our offices under various operating lease agreements.

The lease agreements have maturity dates ranging from February 2022 to February 2032, some of which include options for multiple five-year extensions.

The weighted average remaining life of the lease term for these leases was 7.92 years and 7.30 years as of December 31, 2021 and 2020, respectively.

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered in to.

The weighted average discount rate for leases was 2.28 % and 2.70 % as of December 31, 2021 and 2020, respectively.

Total operating lease costs were $ 3.0 million and $ 2.4 million for the years ended December 31, 2021 and 2020, respectively.

The ROU asset, included in property and equipment, and lease liability, included in other liabilities, were $ 26.6 million and $ 28.0 million as of December 31, 2021, respectively, compared to $ 18.8 million and $ 19.5 million as of December 31, 2020, respectively.

The ROU asset and lease liability are recognized at lease commencement by calculating the present value of lease payments over the lease term.

Maturities of lease liabilities as of December 31, 2021 were as follows:

NOTE 7 – Leases

The Company had operating right-of-use

assets, included in property and equipment, of $ 23.6 million and $ 26.6 million as of December 31, 2022 and 2021, respectively.

Company had lease liabilities, included in other liabilities, of $ 25.8 million and $ 28.0 million as of December 31, 2022 and 2021, respectively.

We maintain operating leases on land and buildings for various office spaces.

The lease agreements have maturity dates ranging from April

2025 to February 2032, some of which include options for multiple five-year extensions.

The weighted average remaining life of the lease

term for these leases was 6.89 years and 7.92 years as of December 31, 2022 and 2021, respectively.

The ROU asset and lease

liability are recognized at lease commencement by calculating the present value of lease payments over the lease term.

The discount rate used in determining

the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January

1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered in to.

average discount rate for leases was 2.86 % and 2.28 % as of December 31, 2022 and 2021, respectively.

Total operating lease costs were $ 2.7

million and $ 3.0 million for the years ended December 31, 2022 and 2021, respectively.

Maturities of lease liabilities as of December 31,

2022 were as follows:

(dollars in thousands)

2 unchanged sentences

Total lease liability

NOTE 8 –

Other Real Estate Owned

Other real estate owned is comprised of real estate acquired in settlement of loans and is included in other assets on the balance sheet.

At December 31, 2021 there was no commercial property owned compared to one commercial property owned totaling $ 1.2 million at December 31, 2020.

The following summarizes the activity in the real estate acquired in settlement of loans portion of other real estate owned:

For the year ended December 31,

(dollars in thousands)

NOTE 8 – Other Real Estate Owned

Other real estate owned is comprised

of real estate acquired in settlement of loans and is included in other assets on the balance sheet.

At December 31, 2022 and December

31, 2021 there was no commercial property owned.

The following summarizes the activity in the real estate acquired in settlement of loans

portion of other real estate owned:

the year ended December 31,

in thousands)

Balance, beginning of year

1 unchanged sentence

Balance, end of year

NOTE 9 –

The following is a detail of the deposit accounts:

(dollars in thousands)

NOTE 9 – Deposits

The following is a detail

of the deposit accounts:

in thousands)

Noninterest bearing

3 unchanged sentences

Total deposits

At December 31, 2021 and 2020, time deposits greater than $250,000 were $ 84.4 million and $ 130.9 million, respectively.

Also, at December 31, 2021, the Company had no deposits that were obtained outside of the Company’s primary market, while at December 31, 2020 these balances were $ 22.0 million.

Interest expense on time deposits greater than $100,000 was $ 1.1 million for the year ended December 31, 2021, $ 4.6 million for the year ended December 31, 2020, and $ 6.9 million for the year ended December 31, 2019.

At December 31, 2021 the scheduled maturities of time deposits are as follows:

(dollars in thousands)

2026 and after

NOTE 10 –

Federal Home Loan Bank Advances and Other Borrowings

At December 31, 2021, the Company had no FHLB Advances, while at December 31, 2020 there were $25.0 million in FHLB Advances.

Listed below is a summary of the terms and maturities of the advances outstanding at December 31, 2021 and 2020.

The $25.0 million outstanding at December 31, 2020 was at a variable rate.

(dollars in thousands)

December 31, 2021

The Company also has an unsecured, interest only line of credit for $ 15 million with another financial institution which was unused at December 31, 2021.

The line was renewed on December 21, 2021, bearing interest at One Month CME Term SOFR plus 3.50 % and maturing on December 20, 2023 .

The loan agreement contains various financial covenants related to capital, earnings and asset quality.

NOTE 11 –

Subordinated Debentures

On June 26, 2003, Greenville First Statutory Trust I (a non-consolidated subsidiary) issued $ 6.0 million floating rate trust preferred securities with a maturity of June 26, 2033 .

At December 31, 2021, the interest rate was 3.32 % and is indexed to the 3-month LIBOR rate plus 3.10 % and adjusted quarterly.

The Company received from the Trust the $ 6.0 million proceeds from the issuance of the securities and the $ 186,000 initial proceeds from the capital investment in the Trust, and accordingly has shown the funds due to the Trust as $ 6.2 million junior subordinated debentures.

On December 22, 2005, Greenville First Statutory Trust II (a non-consolidated subsidiary) issued $ 7.0 million floating rate trust preferred securities with a maturity of December 22, 2035 .

At December 31, 2022 and 2021, time

deposits greater than $250,000 were $ 374.8 million and $ 84.4 million, respectively.

Also, at December 31, 2022, the Company

had $ 236.2 million deposits in brokered deposits, or deposits that were obtained outside the Company’s primary market, while at

December 31, 2021 the Company had no brokered deposits.

Interest expense on time deposits greater than $250,000 was $ 3.2 million for the

year ended December 31, 2022, $ 786,000 for the year ended December 31, 2021, and $ 3.5 million for the year ended December 31, 2020.

At December 31, 2022 the scheduled

maturities of time deposits are as follows:

in thousands)

NOTE 10 – Federal Home Loan Bank Advances

and Other Borrowings

At December 31, 2022, the Company had

a $ 175.0 million FHLB Advance at a variable rate of 4.57 %, while at December 31, 2021 the Company had no FHLB Advances outstanding.

FHLB advance was secured with approximately $ 1.05 billion of mortgage loans and $ 9.3 million of stock in the FHLB at December 31, 2022

and matures on February 16, 2023 .

NOTE 11 – Subordinated

On June 26, 2003, Greenville

First Statutory Trust I (a non-consolidated subsidiary) issued $ 6.0 million floating rate trust preferred securities with a maturity

of June 26, 2033 .

At December 31, 2022, the interest rate was 7.82 % and is indexed to the 3-month LIBOR rate plus 3.10 % and adjusted

The Company received from the Trust the $ 6.0 million proceeds from the issuance of the securities and the $ 186,000 initial

proceeds from the capital investment in the Trust, and accordingly has shown the funds due to the Trust as $ 6.2 million junior subordinated

On December 22, 2005, Greenville First

Statutory Trust II (a non-consolidated subsidiary) issued $ 7.0 million floating rate trust preferred securities with a maturity of December

At December 31, 2022, the interest rate was 6.17 % and is indexed to the 3-month LIBOR rate plus 1.44 % and adjusted quarterly.

The Company received from the Trust the $ 7.0 million proceeds from the issuance of the securities and the $ 217,000 initial proceeds from the capital investment in the Trust, and accordingly has shown the funds due to the Trust as $ 7.2 million junior subordinated debentures.

The current regulatory rules allow certain amounts of junior subordinated debentures to be included in the calculation of regulatory capital.

However, provisions within the Dodd-Frank Act prohibit institutions that had more than $15 billion in assets on December 31, 2009 from including trust preferred securities as Tier 1 capital beginning in 2013, with one-third phased out over the two years ending in 2015.

Financial institutions with less than $15 billion in total assets, such as the Bank, may continue to include their trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, but cannot include in Tier 1 capital trust preferred securities issued after such date.

On September 30, 2019, the Company entered into Subordinated Note Purchase Agreements (collectively, the “Purchase Agreement”) with certain qualified institutional buyers and accredited investors (the “Purchasers”) pursuant to which the Company sold and issued $ 23.0 million in aggregate principal amount of its 4.75 % Fixed-to-Floating Rate Subordinated Notes due 2029 (the “Notes”).

The Notes were offered and sold by the Company to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and the provisions of Regulation D promulgated thereunder (the “Private Placement”).

The Notes have a ten -year term and, from and including the date of issuance to but excluding September 30, 2024, will bear interest at a fixed annual rate of 4.75%, payable semi-annually in arrears, for the first five years of the term.

From and including September 30, 2024 to but excluding the maturity date or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate (which is expected to be Three-Month Term SOFR) plus 340.8 basis points, payable quarterly in arrears.

As provided in the Notes, the interest rate on the Notes during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR.

The Notes are redeemable, in whole or in part, on September 30, 2024, on any interest payment date thereafter, and at any time upon the occurrence of certain events.

The Purchase Agreement contains certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand.

On September 30, 2019, in connection with the sale and issuance of the Notes, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Purchasers.

Under the terms of the Registration Rights Agreement, the Company has agreed to take certain actions to provide for the exchange of the Notes for subordinated notes that are registered under the Securities Act and have substantially the same terms as the Notes (the “Exchange Notes”).

Under certain circumstances, if the Company fails to meet its obligations under the Registration Rights Agreement, it would be required to pay additional interest to the holders of the Notes.

The Notes were issued under an Indenture, dated September 30, 2019 (the “Indenture”), by and between the Company and UMB Bank, National Association, as trustee.

The Notes are not subject to any sinking fund and are not convertible into or, other than with respect to the Exchange Notes, exchangeable for any other securities or assets of the Company or any of its subsidiaries.

The Notes are not subject to redemption at the option of the holder.

The Notes are unsecured, subordinated obligations of the Company only and are not obligations of, and are not guaranteed by, any subsidiary of the Company.

The Notes rank junior in right to payment to the Company’s current and future senior indebtedness.

The Company received from the Trust the $ 7.0 million proceeds from the issuance of the securities and the $ 217,000 initial proceeds from

the capital investment in the Trust, and accordingly has shown the funds due to the Trust as $ 7.2 million junior subordinated debentures.

The current regulatory rules allow

certain amounts of junior subordinated debentures to be included in the calculation of regulatory capital.

However, provisions within

the Dodd-Frank Act prohibit institutions that had more than $15 billion in assets on December 31, 2009 from including trust preferred

securities as Tier 1 capital beginning in 2013, with one-third phased out over the two years ending in 2015.

Financial institutions with

less than $15 billion in total assets, such as the Bank, may continue to include their trust preferred securities issued prior to May

19, 2010 in Tier 1 capital, but cannot include in Tier 1 capital trust preferred securities issued after such date.

On September 30, 2019, the Company

entered into Subordinated Note Purchase Agreements (collectively, the “Purchase Agreement”) with certain qualified institutional

buyers and accredited investors (the “Purchasers”) pursuant to which the Company sold and issued $ 23.0 million in aggregate

principal amount of its 4.75 % Fixed-to-Floating Rate Subordinated Notes due 2029 (the “Notes”).

The Notes were offered and

sold by the Company to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section

4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and the provisions of Regulation D promulgated thereunder

(the “Private Placement”).

The Notes have a ten -year term and,

from and including the date of issuance to but excluding September 30, 2024, will bear interest at a fixed annual rate of 4.75 %, payable

semi-annually in arrears, for the first five years of the term.

From and including September 30, 2024 to but excluding the maturity date

or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate (which is expected

to be Three-Month Term SOFR) plus 340.8 basis points, payable quarterly in arrears.

As provided in the Notes, the interest rate on the

Notes during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR.

The Notes are redeemable, in whole

or in part, on September 30, 2024, on any interest payment date thereafter, and at any time upon the occurrence of certain events.

Purchase Agreement contains certain customary representations, warranties and covenants made by the Company, on the one hand, and the

Purchasers, severally and not jointly, on the other hand.

On September 30, 2019, in connection

with the sale and issuance of the Notes, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”)

with the Purchasers.

Under the terms of the Registration Rights Agreement, the Company has agreed to take certain actions to provide for

the exchange of the Notes for subordinated notes that are registered under the Securities Act and have substantially the same terms as

the Notes (the “Exchange Notes”).

Under certain circumstances, if the Company fails to meet its obligations under the Registration

Rights Agreement, it would be required to pay additional interest to the holders of the Notes.

The Notes were issued under an Indenture,

dated September 30, 2019 (the “Indenture”), by and between the Company and UMB Bank, National Association, as trustee.

Notes are not subject to any sinking fund and are not convertible into or, other than with respect to the Exchange Notes, exchangeable

for any other securities or assets of the Company or any of its subsidiaries.

The Notes are not subject to redemption at the option of

The Notes are unsecured, subordinated obligations of the Company only and are not obligations of, and are not guaranteed by,

any subsidiary of the Company.

The Notes rank junior in right to payment to the Company’s current and future senior indebtedness.

The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes for the Company.

NOTE 12 –

Unused Lines of Credit

At December 31, 2021, the Company had five lines of credit to purchase federal funds that totaled $ 118.5 million which were unused at December 31, 2021.

The lines of credit are available on a one to 14 day basis for general corporate purposes of the Company.

The lender has reserved the right to withdraw the line at their option.

NOTE 12 – Unused Lines of

At December 31, 2022, the Company had

five lines of credit to purchase federal funds that totaled $ 118.5 million which were unused at December 31, 2022.

The lines of credit

are available on a one to 14 day basis for general corporate purposes of the Company.

The lender has reserved the right to withdraw the

line at their option.

The Company has an additional line of credit with the FHLB to borrow funds, subject to a pledge of qualified collateral.

The Company has collateral that would support approximately $ 515.8 million in additional borrowings with the FHLB at December 31, 2022.

NOTE 13 –

Derivative Financial Instruments

The Company utilizes derivative financial instruments primarily to hedge its exposure to changes in interest rates.

All derivative financial instruments are recognized as either assets or liabilities and measured at fair value.

The Company accounts for all of its derivatives as free-standing derivatives and does not designate any of these instruments for hedge accounting.

Therefore, the gain or loss resulting from the change in the fair value of the derivative is recognized in the Company’s statement of income during the period of change.

The Company enters into commitments to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time, with clients who have applied for a loan and meet certain credit and underwriting criteria (interest rate lock commitments).

These interest rate lock commitments (“IRLCs”) meet the definition of a derivative financial instrument and are reflected in the balance sheet at fair value with changes in fair value recognized in current period earnings.

Unrealized gains and losses on the IRLCs are recorded as derivative assets and derivative liabilities, respectively, and are measured based on the value of the underlying mortgage loan, quoted mortgage-backed securities (“MBS”) prices and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of estimated commission expenses.

The Company manages the interest rate and price risk associated with its outstanding IRLCs and mortgage loans held for sale by entering into derivative instruments such as forward sales of MBS.

Management expects these derivatives will experience changes in fair value opposite to changes in fair value of the IRLCs and mortgage loans held for sale, thereby reducing earnings volatility.

The Company takes into account various factors and strategies in determining the portion of the mortgage pipeline (IRLCs and mortgage loans held for sale) it wants to economically hedge.

The following table summarizes the Company’s outstanding financial derivative instruments at December 31, 2021 and December 31, 2020.

December 31, 2021

(dollars in thousands)

Balance Sheet Location

The Company also has an unsecured, interest

only line of credit for $ 15 million with another financial institution which was unused at December 31, 2022.

The line bears interest

at One Month CME Term SOFR plus 3.50 % and maturing on December 20, 2023.

The loan agreement contains various financial covenants related

to capital, earnings and asset quality.

NOTE 13 – Derivative Financial

The Company utilizes derivative financial

instruments primarily to hedge its exposure to changes in interest rates.

All derivative financial instruments are recognized as either

assets or liabilities and measured at fair value.

The Company accounts for all of its derivatives as free-standing derivatives and does

not designate any of these instruments for hedge accounting.

Therefore, the gain or loss resulting from the change in the fair value of

the derivative is recognized in the Company’s statement of income during the period of change.

The Company enters into commitments

to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time, with clients

who have applied for a loan and meet certain credit and underwriting criteria (interest rate lock commitments).

These interest rate lock

commitments (“IRLCs”) meet the definition of a derivative financial instrument and are reflected in the balance sheet at fair

value with changes in fair value recognized in current period earnings.

Unrealized gains and losses on the IRLCs are recorded as derivative

assets and derivative liabilities, respectively, and are measured based on the value of the underlying mortgage loan, quoted mortgage-backed

securities (“MBS”) prices and an estimate of the probability that the mortgage loan will fund within the terms of the interest

rate lock commitment, net of estimated commission expenses.

The Company manages the interest rate

and price risk associated with its outstanding IRLCs and mortgage loans held for sale by entering into derivative instruments such as

forward sales of MBS.

Management expects these derivatives will experience changes in fair value opposite to changes in fair value of

the IRLCs and mortgage loans held for sale, thereby reducing earnings volatility.

The Company takes into account various factors and strategies

in determining the portion of the mortgage pipeline (IRLCs and mortgage loans held for sale) it wants to economically hedge.

The following table summarizes the Company’s

outstanding financial derivative instruments at December 31, 2022 and December 31, 2021.

in thousands)

Sheet Location

Asset/(Liability)

1 unchanged sentence

MBS forward sales commitments

Other liabilities

Total derivative financial instruments

December 31, 2021

Balance Sheet Location

Sheet Location

Asset/(Liability)

3 unchanged sentences

Total derivative financial instruments

NOTE 14 –

Fair Value Accounting

FASB ASC 820, “Fair Value Measurement and Disclosures Topic,”

defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair value:

Level 1 –

NOTE 14 – Fair Value

FASB ASC 820, “Fair

Value Measurement and Disclosures Topic,” defines fair value as the exchange price that would be received for an asset or paid

to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction

between market participants on the measurement date.

FASB ASC 820 also establishes a fair value hierarchy which requires an entity to

maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three

levels of inputs that may be used to measure fair value:

1 – Quoted market price in active markets

Quoted prices in active markets for identical assets or liabilities.

Level 1 assets and liabilities include certain debt and equity securities that are traded in an active exchange market.

Level 2 –

prices in active markets for identical assets or liabilities.

Level 1 assets and liabilities include certain debt and equity securities

that are traded in an active exchange market.

2 – Significant other observable inputs

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;

inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Company’s available-for-sale portfolio and valued by a third-party pricing service, as well as certain impaired loans.

Level 3 –

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or

Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Company’s

available-for-sale portfolio and valued by a third-party pricing service, as well as certain individually evaluated loans.

3 – Significant unobservable inputs

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

These methodologies may result in a significant portion of the fair value being derived from unobservable data.

Unobservable inputs that are supported by little

or no market activity and that are significant to the fair value of the assets or liabilities.

Level 3 assets and liabilities include

financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well

as instruments for which the determination of fair value requires significant management judgment or estimation.

These methodologies

may result in a significant portion of the fair value being derived from unobservable data.

Fair Value of Financial Instruments

Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value.

A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash.

Certain items are specifically excluded from the disclosure requirements, including the Company’s common stock, premises and equipment and other assets and liabilities.

The following is a description of valuation methodologies used to estimate fair value for assets recorded at fair value.

Fair value approximates carrying value for the following financial instruments due to the short-term nature of the instrument:

cash and due from banks, federal funds sold, other investments, federal funds purchased, and securities sold under agreement to repurchase.

Financial instruments require

disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate

the fair value.

A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation

which requires the exchange of cash.

Certain items are specifically excluded from the disclosure requirements, including the Company’s

common stock, premises and equipment and other assets and liabilities.

The following is a description of valuation

methodologies used to estimate fair value for assets recorded at fair value.

Fair value approximates carrying value for the following

financial instruments due to the short-term nature of the instrument:

cash and due from banks, federal funds sold, other investments,

federal funds purchased, and securities sold under agreement to repurchase.

Investment Securities

Securities available for sale are valued on a recurring basis at quoted market prices where available.

If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange or U.S.

Securities available for sale are valued

on a recurring basis at quoted market prices where available.

If quoted market prices are not available, fair values are based on

quoted market prices of comparable securities.

Level 1 securities include those traded on an active exchange, such as the New York

Stock Exchange or U.S.

Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds.

Level 2 securities include mortgage-backed securities and debentures issued by government sponsored entities, municipal bonds and corporate debt securities.

In certain cases where there is limited activity or less transparency around inputs to valuations, securities are classified as Level 3 within the valuation hierarchy.

Securities held to maturity are valued at quoted market prices or dealer quotes similar to securities available for sale.

The carrying value of Other Investments, such as Federal Reserve Bank and FHLB stock, approximates fair value based on their redemption provisions.

Level 2 securities include mortgage-backed securities and debentures issued by government sponsored entities, municipal bonds and corporate

debt securities.

In certain cases where there is limited activity or less transparency around inputs to valuations, securities are

classified as Level 3 within the valuation hierarchy.

Securities held to maturity are valued at quoted market prices or dealer quotes

similar to securities available for sale.

The carrying value of Other Investments, such as Federal Reserve Bank and FHLB stock,

approximates fair value based on their redemption provisions.

Mortgage Loans Held for Sale

Loans held for sale include mortgage

loans which are saleable into the secondary mortgage markets and their fair values are estimated using observable quoted market or contracted

prices or market price equivalents, which would be used by other market participants.

These saleable loans are considered Level 2.

Impaired Loans

The Company does not record loans at fair value on a recurring basis.

However, from time to time, a loan may be considered impaired and an allowance for loan losses may be established.

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.

Once a loan is identified as individually impaired, management measures the impairment in accordance with FASB ASC 310, “Receivables.”

The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows.

Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

In accordance with FASB ASC 820, “Fair Value Measurement and Disclosures,”

impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.

When the fair value of the collateral is based on an observable market price or a current appraised value, the Company considers the impaired loan as nonrecurring Level 2.

The Company’s current loan and appraisal policies require the Company to obtain updated appraisals on an “as is”

basis at renewal, or in the case of an impaired loan, on an annual basis, either through a new external appraisal or an appraisal evaluation.

When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company considers the impaired loan as nonrecurring Level 3.

The fair value of impaired loans may also be estimated using the present value of expected future cash flows to be realized on the loan, which is also considered a Level 3 valuation.

These fair value estimates are subject to fluctuations in assumptions about the amount and timing of expected cash flows as well as the choice of discount rate used in the present value calculation.

Individually Evaluated Loans

The Company does not record loans at

fair value on a recurring basis.

However, from time to time, a loan may be considered individually evaluated and an allowance for credit

losses may be established.

Loans for which it is probable that payment of interest and principal will not be made in accordance

with the contractual terms of the loan agreement are considered individually evaluated.

Once a loan is identified as individually evaluated,

management measures the impairment in accordance with FASB ASC 326.

The fair value of individually evaluated loans is estimated using

one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash

Those individually evaluated loans not requiring an allowance represent loans for which the fair value of the expected repayments

or collateral exceed the recorded investments in such loans.

In accordance with FASB ASC 820, “Fair Value Measurement and

Disclosures,” individually evaluated loans where an allowance is established based on the fair value of collateral require classification

in the fair value hierarchy.

When the fair value of the collateral is based on an observable market price or a current appraised

value, the Company considers the individually evaluated loan as nonrecurring Level 2.

The Company’s current loan and appraisal policies

require the Company to obtain updated appraisals on an “as is” basis at renewal, or in the case of an individually evaluated

loan, on an annual basis, either through a new external appraisal or an appraisal evaluation.

When an appraised value is not available

or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market

price, the Company considers the individually evaluated loan as nonrecurring Level 3.

The fair value of individually

evaluated loans may

also be estimated using the present value of expected future cash flows to be realized on the loan, which is also considered a Level 3

These fair value estimates are subject to fluctuations in assumptions about the amount and timing of expected cash flows as

well as the choice of discount rate used in the present value calculation.

Other Real Estate Owned

OREO, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2).

At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses.

Gains or losses on sale and generally any subsequent adjustments to the value are recorded as a component of real estate owned activity.

OREO, consisting of properties obtained

through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals,

comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level

At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated

as a charge against the allowance for credit losses.

Gains or losses on sale and generally any subsequent adjustments to the value

are recorded as a component of real estate owned activity.

When an appraised value is not available or management determines the fair

value of the collateral is further impaired below the appraised value and there is no observable market price, the Company considers the

OREO as nonrecurring Level 3.

Derivative Financial Instruments

The Company estimates the fair value of IRLCs based on the value of the underlying mortgage loan, quoted MBS prices and an estimate of the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expenses (Level 2).

The Company estimates the fair value of forward sales commitments based on quoted MBS prices (Level 2).

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.

December 31, 2021

(dollars in thousands)

The Company estimates the fair value

of IRLCs based on the value of the underlying mortgage loan, quoted MBS prices and an estimate of the probability that the mortgage loan

will fund within the terms of the IRLC, net of commission expenses (Level 2).

The Company estimates the fair value of forward sales commitments

based on quoted MBS prices (Level 2).

Assets and Liabilities Recorded at Fair Value

on a Recurring Basis

The tables below present the recorded

amount of assets and liabilities measured at fair value on a recurring basis.

in thousands)

Securities available for sale:

2 unchanged sentences

US government agencies

SBA securities

State and political subdivisions

3 unchanged sentences

Mortgage loan interest rate lock commitments

Total assets measured at fair value on a recurring basis

MBS forward sales commitments

Total liabilities measured at fair value on a recurring basis

December 31, 2020

(dollars in thousands)

Total assets measured at fair value on a recurring basis

The Company had no liabilities recorded

at fair value on a recurring basis as of December 31, 2022.

in thousands)

Securities available for sale:

Corporate bonds

US treasuries

US government agencies

8 unchanged sentences

Total liabilities measured at fair value on a recurring basis

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company is predominantly an asset based lender with real estate serving as collateral on approximately 86% of loans as of December 31, 2021.

Loans which are deemed to be impaired are valued net of the allowance for loan losses, and other real estate owned is valued at the lower of cost or net realizable value of the underlying real estate collateral.

Such market values are generally obtained using independent appraisals, which the Company considers to be level 2 inputs.

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis.

December 31, 2021

(dollars in thousands)

Impaired loans

Assets and Liabilities Recorded at Fair Value

on a Nonrecurring Basis

The Company is predominantly an asset

based lender with real estate serving as collateral on approximately 85 % of loans as of December 31, 2022.

Loans which are deemed to be

individually evaluated are valued net of the allowance for credit losses, and other real estate owned is valued at the lower of cost or

net realizable value of the underlying real estate collateral.

Such market values are generally obtained using independent appraisals,

which the Company considers to be level 2 inputs.

The tables below present the recorded amount of assets and liabilities measured at fair

value on a nonrecurring basis.

in thousands)

Individually evaluated

Total assets measured at fair value on a nonrecurring basis

December 31, 2020

Impaired loans

Other real estate owned

Total assets measured at fair value on a nonrecurring basis

The Company had no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2021 and 2020, the significant unobservable inputs used in the fair value measurements were as follows:

Valuation Technique

Significant Unobservable Inputs

Range of Inputs

Impaired loans

Company had no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2022 and 2021, the significant

unobservable inputs used in the fair value measurements were as follows:

Unobservable Inputs

Individually evaluated loans

Appraised Value/ Discounted Cash Flows

Discounts to appraisals or cash flows for estimated holding and/or selling costs or age of appraisal

Other real estate owned

Appraised Value/Comparable Sales

Discounts to appraisals for estimated holding or selling costs

Fair Value of Financial Instruments

Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value.

A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash.

Certain items are specifically excluded from the disclosure requirements, including the Company’s common stock, premises and equipment and other assets and liabilities.

The following is a description of valuation methodologies used to estimate fair value for certain other financial instruments.

Fair value approximates carrying value for the following financial instruments due to the short-term nature of the instrument:

cash and due from banks, federal funds sold, other investments, federal funds purchased, and securities sold under agreement to repurchase.

Loans –

The valuation of loans held for investment is estimated using the exit price notion which incorporates factors, such as enhanced credit risk, illiquidity risk and market factors that sometimes exist in exit prices in dislocated markets.

This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction.

The Company’s loan portfolio is initially fair valued using a segmented approach, using the eight categories as disclosed in Note 4 –

Loans and Allowance for Loan Losses.

Financial instruments require disclosure

of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value.

A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the

exchange of cash.

Certain items are specifically excluded from the disclosure requirements, including the Company’s common stock,

premises and equipment and other assets and liabilities.

The following is a description of valuation

methodologies used to estimate fair value for certain other financial instruments.

Fair value approximates carrying value

for the following financial instruments due to the short-term nature of the instrument:

cash and due from banks, federal funds sold, other

investments, federal funds purchased, and securities sold under agreement to repurchase.

Loans – The valuation of

loans held for investment is estimated using the exit price notion which incorporates factors, such as enhanced credit risk, illiquidity

risk and market factors that sometimes exist in exit prices in dislocated markets.

This credit risk assumption is intended to approximate

the fair value that a market participant would realize in a hypothetical orderly transaction.

The Company’s loan portfolio is initially

fair valued using a segmented approach, using the eight categories as disclosed in Note 4 – Loans and Allowance for Credit Losses.

Loans are considered a Level 3 classification.

Deposits –

Fair value for demand deposit accounts and interest-bearing accounts with no fixed maturity date is equal to the carrying value.

The fair value of certificate of deposit accounts are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments.

FHLB Advances and Other Borrowings –

Fair value for FHLB advances and other borrowings are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments.

Subordinated debentures –

Fair value for subordinated debentures are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments.

The Company has used management’s best estimate of fair value based on the above assumptions.

Thus, the fair values presented may not be the amounts that could be realized in an immediate sale or settlement of the instrument.

In addition, any income taxes or other expenses, which would be incurred in an actual sale or settlement, are not taken into consideration in the fair value presented.

The estimated fair values of the Company’s financial instruments at December 31, 2021 and 2020 are as follows:

December 31, 2021

Deposits – Fair value for

demand deposit accounts and interest-bearing accounts with no fixed maturity date is equal to the carrying value.

The fair value of certificate

of deposit accounts are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments.

FHLB Advances and Other Borrowings

– Fair value for FHLB advances and other borrowings are estimated by discounting cash flows from expected maturities using current

interest rates on similar instruments.

Subordinated debentures –

Fair value for subordinated debentures are estimated by discounting cash flows from expected maturities using current interest rates on

similar instruments.

The Company has used management’s

best estimate of fair value based on the above assumptions.

Thus, the fair values presented may not be the amounts that could be realized

in an immediate sale or settlement of the instrument.

In addition, any income taxes or other expenses, which would be incurred in an actual

sale or settlement, are not taken into consideration in the fair value presented.

The estimated fair values of the Company’s

financial instruments at December 31, 2022 and 2021 are as follows:

(dollars in thousands)

Financial Assets:

Other investments, at cost

Financial Liabilities:

Subordinated debentures

December 31, 2020

(dollars in thousands)

Financial Assets:

Other investments, at cost

Financial Liabilities:

FHLB and other borrowings

Subordinated debentures

(1) Carrying amount is net of the allowance for loan losses and previously presented impaired loans.

NOTE 15 –

Carrying amount is net of the allowance for credit losses and individually

evaluated loans.

15 – Earnings Per Common Share

The following schedule reconciles the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 2021, 2020 and 2019.

Dilutive common shares arise from the potentially dilutive effect of the Company’s stock options and warrants that are outstanding.

The following schedule reconciles the

numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 2022, 2021 and 2020.

Dilutive common shares arise from the potentially dilutive effect of the Company’s stock options and warrants that are outstanding.

The assumed conversion of stock options and warrants can create a difference between basic and dilutive net income per common share.

At December 31, 2021, 2020 and 2019, options totaling 9,000 , 318,825 , and 94,885 , respectively, were anti-dilutive in the calculation of earnings per share as their exercise price exceeded the fair market value.

At December 31, 2022, 2021 and 2020,

options totaling 131,433 , 9,000 , and 318,825 , respectively, were anti-dilutive in the calculation of earnings per share as their exercise

price exceeded the fair market value.

These options were therefore excluded from the diluted earnings per share calculation.

(dollars in thousands, except share data)

in thousands, except share data)

Net income available to common shareholders

3 unchanged sentences

Earnings per common share:

NOTE 16 –

Commitments and Contingencies

The Company has entered into a three year employment agreement with its chief executive officer and a two year employment agreement with 13 executive vice presidents.

These agreements also include a) an incentive program, b) a stock option plan, c) a one-year non-compete agreement upon termination and a severance payment equal to one year of compensation.

NOTE 16 – Commitments and Contingencies

The Company has entered into a three

year employment agreement with its chief executive officer and a two year employment agreement with 14 executive vice presidents.

agreements also include a) an incentive program, b) a stock option plan, c) a one-year non-compete agreement upon termination and a severance

payment equal to one year of compensation.

The total estimated aggregate salary commitment is approximately $ 3.7 million.

The Company has an agreement with a data processor which expires in 2023 to provide certain item processing, electronic banking, and general ledger processing services.

Components of this contract vary based on transaction and account volume, monthly charges and certain termination fees.

At December 31, 2021, the Company has a contract with a construction company for $ 30.3 million to construct a new bank headquarters in Greenville, South Carolina of which $ 21.8 million had been paid.

The Company has commitments with various investment partners under the Small Business Investment Company (“SBIC”) and the Rural Business Investment Company (“RBIC”) Programs for which we have committed to make capital contributions from time to time.

These commitments totaled $ 2.25 million at December 31, 2021.

The Company may be subject to litigation and claims in the normal course of business.

The Company has an agreement with a

data processor which expires in 2028 to provide certain item processing, electronic banking, and general ledger processing services.

of this contract vary based on transaction and account volume, monthly charges and certain termination fees.

The Company has commitments with various

investment partners under the Small Business Investment Company (“SBIC”) and the Rural Business Investment Company (“RBIC”)

programs for which we have committed to make capital contributions from time to time.

These commitments totaled approximately $ 1.7 million

at December 31, 2022.

The Company may be subject to litigation

and claims in the normal course of business.

As of December 31, 2022, management believes there is no material litigation pending.

NOTE 17 –

The components of income tax expense were as follows:

For the years ended December 31,

(dollars in thousands)

NOTE 17 – Income Taxes

The components of income tax expense

were as follows:

the years ended December 31,

in thousands)

Current income taxes:

2 unchanged sentences

Income tax expense

The following is a summary of the items that caused recorded income taxes to differ from taxes computed using the statutory tax rate:

For the years ended December 31,

(dollars in thousands)

The following is a summary of the items

that caused recorded income taxes to differ from taxes computed using the statutory tax rate:

the years ended December 31,

in thousands)

Tax expense at statutory rate

3 unchanged sentences

Income tax expense

The components of the deferred tax assets and liabilities are as follows:

(dollars in thousands)

Deferred tax assets:

Allowance for loan losses

The components of the deferred tax assets and liabilities

are as follows:

in thousands)

Allowance for credit losses

Reserve for unfunded commitments

Unrealized loss on securities available for sale

1 unchanged sentence

Deferred compensation

Write-down of real estate owned

Lease liabilities

1 unchanged sentence

Property and equipment

Unrealized gain on securities available for sale

Hedging transactions

1 unchanged sentence

Net deferred tax asset

The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability related to uncertain tax positions.

NOTE 18 –

Related Party Transactions

Certain directors, executive officers, and companies with which they are affiliated, are clients of and have banking transactions with the Company in the ordinary course of business.

These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons not related to the lender.

A summary of loan transactions with directors and executive officers, including their affiliates is as follows:

For the years ended December 31,

(dollars in thousands)

The Company has analyzed the tax positions taken or expected to be

taken in its tax returns and concluded it has no liability related to uncertain tax positions.

NOTE 18 – Related Party Transactions

Certain directors, executive officers,

and companies with which they are affiliated, are clients of and have banking transactions with the Company in the ordinary course of

These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time

for comparable transactions with persons not related to the lender.

A summary of loan transactions with

directors and executive officers, including their affiliates is as follows:

the years ended December 31,

in thousands)

Balance, beginning of year

1 unchanged sentence

Balance, end of year

Deposits by executive officers and directors and their related interests at December 31, 2021 and 2020, were $ 2.5 million and $ 5.1 million, respectively.

The Company has a land lease with a director on the property for a branch office, with monthly payments of $ 9,311 .

In addition, the Company periodically enters into various consulting agreements with the director for development, administration and advisory services related to the purchase of property and construction of current and future branch office sites, including the development of the new bank headquarters in Greenville, South Carolina.

Payments totaling $ 300,000 and $ 600,000 were made to the director for these services during the years ended December 31, 2021 and 2020, respectively.

The Company is of the opinion that the lease payments and consulting fees represent market costs that could have been obtained in similar “arms length”

transactions.

NOTE 19 –

Financial Instruments With Off-Balance Sheet Risk

In the ordinary course of business, and to meet the financing needs of its clients, the Company is a party to various financial instruments with off-balance sheet risk.

These financial instruments, which include commitments to extend credit and standby letters of credit, involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheets.

The contract amount of those instruments reflects the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any material condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee.

At December 31, 2021, unfunded commitments to extend credit were approximately $ 618.7 million, of which $ 205.4 million is at fixed rates and $ 413.3 million is at variable rates.

At December 31, 2020, unfunded commitments to extend credit were approximately $ 480.1 million, of which $ 114.6 million is at fixed rates and $ 365.5 million is at variable rates.

The Company evaluates each client’s credit-worthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower.

Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

At December 31, 2021 and 2020, there was a $ 10.2 million and $ 8.7 million commitment, respectively, under letters of credit.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients.

Collateral varies but may include accounts receivable, inventory, equipment, marketable securities and property.

Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.

The fair value of off balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing.

Deposits by executive officers and

directors and their related interests at December 31, 2022 and 2021, were $ 6.5 million and $ 11.8 million, respectively.

The Company has a land lease with a

director on the property for a branch office, with monthly payments of $ 9,120 .

In addition, the Company periodically enters into various

consulting agreements with the director for development, administration and advisory services related to the purchase of property and

construction of current and future branch office sites, including the development of the new bank headquarters in Greenville, South Carolina.

There were no payments to the director for these services during 2022 and payments totaling $ 300,000 were made to the director for these

services during the year ended December 31, 2021.

The Company received rent payments

from a company of which a director is a private investor and chairman of the board.

Rent received totaled $ 79,000 and $ 104,000 for the

twelve months ended December 31, 2022 and December 31, 2021, respectively.

As part of the lease agreement with the company, $ 86,000 was

paid to the company for a tenant upfit allowance during the twelve months ended December 31, 2022.

The Company is of the opinion that

the lease payments and consulting fees represent market costs that could have been obtained in similar “arms length” transactions.

NOTE 19 – Financial Instruments

With Off-Balance Sheet Risk

In the ordinary course of business,

and to meet the financing needs of its clients, the Company is a party to various financial instruments with off-balance sheet risk.

financial instruments, which include commitments to extend credit and standby letters of credit, involve, to varying degrees, elements

of credit and interest rate risk in excess of the amounts recognized in the balance sheets.

The contract amount of those instruments reflects

the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit

loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters

of credit is represented by the contractual amounts of those instruments.

The Company uses the same credit policies in making commitments

and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements

to lend to a client as long as there is no violation of any material condition established in the contract.

Commitments generally have

fixed expiration dates or other termination clauses and may require the payment of a fee.

At December 31, 2022, unfunded commitments to

extend credit were approximately $ 878.3 million, of which $ 318.9 million is at fixed rates and $ 559.4 million is at variable rates.

December 31, 2021, unfunded commitments to extend credit were approximately $ 618.7 million, of which $ 205.4 million is at fixed rates

and $ 413.3 million is at variable rates.

The Company evaluates each client’s credit-worthiness on a case-by-case basis.

of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation

of the borrower.

Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential

See Note 4 – Loans and Allowance for Credit Losses for additional information on unfunded commitments.

At December 31, 2022 and 2021, there

was a $ 14.3 million and $ 10.2 million commitment, respectively, under letters of credit.

The credit risk involved in issuing letters of

credit is essentially the same as that involved in extending loan facilities to clients.

Collateral varies but may include accounts receivable,

inventory, equipment, marketable securities and property.

Since most of the letters of credit are expected to expire without being drawn

upon, they do not necessarily represent future cash requirements.

The fair value of off balance sheet lending commitments are based on

fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties

credit standing.

The total fair value of such instruments is not material.

NOTE 20 –

Employee Benefit Plan

On January 1, 2000, the Company adopted the Southern First Bancshares, Inc.

NOTE 20 – Employee Benefit Plan

On January 1, 2000, the Company adopted

the Southern First Bancshares, Inc.

Profit Sharing and 401(k) Plan for the benefit of all eligible employees.

The Company contributes to the Plan annually upon approval by the Board of Directors.

Contributions made to the Plan for the years ended December 31, 2021, 2020, and 2019 amounted to $ 905,000 , $ 881,000 , and $ 693,000 , respectively.

The Company also provides a nonqualified deferred compensation plan for 24 executive officers in the form of a Supplemental Executive Retirement Plan (“SERP”).

The SERP provides retirement income for these officers.

As of December 31, 2021 and 2020, the Company had an accrued benefit obligation of $ 9.2 million and $ 8.2 million, respectively.

The Company incurred expenses related to this plan of $ 1.0 million, $ 1.6 million, and $ 657,000 in 2021, 2020, and 2019, respectively.

NOTE 21 –

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees and non-employee directors.

Compensation cost is measured as the fair value of these awards on their date of grant.

A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used as the fair value of restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option and restricted stock awards.

The Company’s stock incentive programs are long-term retention programs intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options and restricted stock.

Stock-based compensation expense was recorded as follows:

For the years ended December 31,

(dollars in thousands)

The Company contributes

to the Plan annually upon approval by the Board of Directors.

Contributions made to the Plan for the years ended December 31, 2022, 2021,

and 2020 amounted to $ 995,000 , $ 905,000 , and $ 881,000 , respectively.

The Company also provides a nonqualified

deferred compensation plan for 22 executive officers in the form of a Supplemental Executive Retirement Plan (“SERP”).

SERP provides retirement income for these officers.

As of December 31, 2022 and 2021, the Company had an accrued benefit obligation of

$ 8.4 million and $ 9.2 million, respectively.

The Company had a $ 284,000 reversal of expenses related to this plan for the twelve months

ended December 31, 2022 and incurred expenses related to this plan of $ 1.0 million and $ 1.6 million in 2021 and 2020, respectively.

NOTE 21 – Stock-Based

Compensation cost is recognized for

stock options and restricted stock awards issued to employees and non-employee directors.

Compensation cost is measured as the fair value

of these awards on their date of grant.

A Black-Scholes model is utilized to estimate the fair value of stock options, while the market

price of the Company’s common stock at the date of grant is used as the fair value of restricted stock awards.

Compensation cost

is recognized over the required service period, generally defined as the vesting period for stock option and restricted stock awards.

The Company’s stock incentive

programs are long-term retention programs intended to attract, retain, and provide incentives for key employees and non-employee directors

in the form of incentive and non-qualified stock options and restricted stock.

Stock-based compensation expense was recorded as

the years ended December 31,

in thousands)

Stock option expense

2 unchanged sentences

Stock Options

The Company’s 2010 Incentive Plan, as amended, had available for issuance a total of 566,025 shares (adjusted for the 10 % stock dividends in 2013, 2012, and 2011).

The Plan expired on March 16, 2020 and no further shares may be issued from the plan.

On March 15, 2016, the Company adopted the 2016 Equity Incentive Plan, making available for issuance 400,000 stock options.

The Company’s 2010 Incentive

Plan, as amended, had available for issuance a total of 566,025 shares (adjusted for the 10 % stock dividends in 2013, 2012, and 2011).

The Plan expired on March 16, 2020 and no further shares may be issued from the plan.

On March 17, 2020, the Company adopted the 2020 Equity Incentive Plan, making available for issuance up to 450,000 stock options.

The options may be exercised at an exercise price per share based on the fair market value and determined on the date of grant and expire 10 years from the grant date.

On March 15, 2016, the Company adopted

the 2016 Equity Incentive Plan, making available for issuance 400,000 stock options.

The Plan expired on March 15, 2021 and no further

shares may be issued from the plan.

On March 17, 2020, the Company

adopted the 2020 Equity Incentive Plan, making available for issuance up to 450,000 stock options.

The options may be exercised at an

exercise price per share based on the fair market value and determined on the date of grant and expire 10 years from the grant date.

As of December 31, 2022, there were 370,824 shares available for grant under the 2020 Equity Incentive Plan.

A summary of the status of the stock option plan and changes for the period is presented below:

For the years ended December 31,

Outstanding at beginning of year  

A summary of the status of the stock

option plan and changes for the period is presented below:

the years ended December 31,

at beginning of year

Forfeited or expired

Outstanding at end of year

Options exercisable at year-end  

Weighted average fair value of options granted during the year

Shares available for grant

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of in-the-money options) of 464,724 and 495,570 stock options outstanding at December 31, 2021 and 2020 was $ 13.3 million and $ 3.7 million, respectively.

The aggregate intrinsic value of 239,340 and 287,548 stock options exercisable at December 31, 2021 and 2020 was $ 7.9 million and $ 3.3 million, respectively.

The fair value of the option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

The aggregate intrinsic value (the

difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the

number of in-the-money options) of 427,224 and 464,724 stock options outstanding at December 31, 2022 and 2021 was $ 4.9 million and $ 13.3

million, respectively.

The aggregate intrinsic value of 287,902 and 239,340 stock options exercisable at December 31, 2022 and 2021 was

$ 3.9 million and $ 7.9 million, respectively.

The fair value of the option

grant is estimated on the date of grant using the Black-Scholes option-pricing model.

The following assumptions were used for grants:

3 unchanged sentences

Risk-free interest rate

At December 31, 2021, there was $ 2.1 million of total unrecognized compensation cost related to nonvested stock option grants.

The cost is expected to be recognized over a weighted-average period of 2.7 years.

The fair value of stock option grants that vested during 2021, 2020, and 2019 was $ 1.1 million, $ 1.2 million and $ 1.2 million, respectively.

December 31, 2022, there was $ 1.1 million of total unrecognized compensation cost related to nonvested stock option grants.

expected to be recognized over a weighted-average period of 1.9 years.

The fair value of stock option grants that vested during 2022,

2021, and 2020 was $ 1.1 million, $ 1.1 million and $ 1.2 million, respectively.

Restricted Stock Grants

On May 17, 2016, the Company adopted the 2016 Equity Incentive Plan which included a provision for the issuance of 50,000 shares of common stock to be issuable as restricted stock grants.

On May 17, 2016, the Company adopted

the 2016 Equity Incentive Plan which included a provision for the issuance of 50,000 shares of common stock to be issuable as restricted

stock grants.

The Plan expired on March 17, 2021 and no further shares may be issued from the plan.

On May 12, 2020, the Company adopted the 2020 Equity Incentive Plan which included a provision for the issuance of 450,000 shares of common stock to be issuable as either stock options or restricted stock grants.

As of December 31, 2021, there were 422,550 shares available for grant under the 2020 Equity Incentive Plan.

Shares of restricted stock granted to employees under the stock plans are subject to restrictions as to continuous employment for a specified time period following the date of grant.

On May 12, 2020, the Company adopted

the 2020 Equity Incentive Plan which included a provision for the issuance of 450,000 shares of common stock to be issuable as either

stock options or restricted stock grants.

As of December 31, 2022, there were 370,824 shares available for grant under the 2020 Equity

Incentive Plan.

Shares of restricted stock granted

to employees under the stock plans are subject to restrictions as to continuous employment for a specified time period following the date

During this period, the holder is entitled to full voting rights and dividends.

A summary of the status of the Company’s nonvested restricted stock and changes for the years ended December 31, 2021, 2020, and 2019 is as follows:

A summary of the status of the Company’s nonvested

restricted stock and changes for the years ended December 31, 2022, 2021, and 2020 is as follows:

Nonvested at beginning of year

Nonvested at end of year

At December 31, 2021, there was $ 1.4 million of total unrecognized compensation cost related to nonvested restricted stock grants.

The cost is expected to be recognized over a weighted-average period of 3.0 years.

NOTE 22 –

The ability of the Company to pay cash dividends is dependent upon receiving cash in the form of dividends from the Bank.

The dividends that may be paid by the Bank to the Company are subject to legal limitations and regulatory capital requirements.

Also, the payment of cash dividends on the Company's common stock by the Company in the future will be subject to certain other legal and regulatory limitations (including the requirement that the Company’s capital be maintained at certain minimum levels) and will be subject to ongoing review by banking regulators.

December 31, 2022, there was $ 3.3 million of total unrecognized compensation cost related to nonvested restricted stock grants.

is expected to be recognized over a weighted-average period of 3.1 years.

NOTE 22 – Dividends

The ability of the Company to pay cash

dividends is dependent upon receiving cash in the form of dividends from the Bank.

The dividends that may be paid by the Bank to the Company

are subject to legal limitations and regulatory capital requirements.

Also, the payment of cash dividends

on the Company’s common stock by the Company in the future will be subject to certain other legal and regulatory limitations (including

the requirement that the Company’s capital be maintained at certain minimum levels) and will be subject to ongoing review by banking

The Federal Reserve has issued a policy statement regarding the payment of dividends by bank holding companies.

In general, the Federal Reserve’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition.

NOTE 23 –

Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.

The capital rules require banks and bank holding companies (other than bank holding companies, such as the Company, that qualify under the Federal Reserve’s Small Bank Holding Company Policy Statement) to maintain a minimum total risked-based capital ratio of at least 8%, a total Tier 1 capital ratio of at least 6%, a minimum common equity Tier 1 capital ratio of at least 4.5%, and a leverage ratio of at least 4%.

Bank holding companies and banks are also required to hold a capital conservation buffer of common equity Tier 1 capital of 2.5% to avoid limitations on capital distributions and discretionary executive compensation payments.

The capital conservation buffer was phased in incrementally over time, becoming fully effective on January 1, 2019, and consists of an additional amount of common equity equal to 2.5% of risk-weighted assets.

To be considered “well-capitalized”

for purposes of certain rules and prompt corrective action requirements, the Bank must maintain a minimum total risked-based capital ratio of at least 10%, a total Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of at least 6.5%, and a leverage ratio of at least 5%.

As of December 31, 2021, our capital ratios exceed these ratios and we remain “well capitalized.”

The following table summarizes the capital amounts and ratios of the Bank and the Company and the regulatory minimum requirements at December 31, 2021 and 2020.

the Federal Reserve’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate

of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall

financial condition.

NOTE 23 – Regulatory

The Bank is subject to various regulatory

capital requirements administered by the federal banking agencies.

The capital rules require banks and bank holding companies to maintain

a minimum total risked-based capital ratio of at least 8%, a total Tier 1 capital ratio of at least 6%, a minimum common equity Tier 1

capital ratio of at least 4.5%, and a leverage ratio of at least 4%.

Bank holding companies and banks are also required to hold a capital

conservation buffer of common equity Tier 1 capital of 2.5% to avoid limitations on capital distributions and discretionary executive

compensation payments.

The capital conservation buffer was phased in incrementally over time, becoming fully effective on January 1, 2019,

and consists of an additional amount of common equity equal to 2.5% of risk-weighted assets.

To be considered “well-capitalized”

for purposes of certain rules and prompt corrective action requirements, the Bank must maintain a minimum total risked-based capital ratio

of at least 10%, a total Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of at least 6.5%, and a leverage ratio

of at least 5%.

As of December 31, 2022, our capital ratios exceed these ratios and we remain “well capitalized.”

The following table summarizes the capital amounts

and ratios of the Bank and the Company and the regulatory minimum requirements at December 31, 2022 and 2021.

adequacy purposes

corrective action

provisions minimum

(dollars in thousands)

As of December 31, 2021

in thousands)

of December 31, 2022

Total Capital (to risk weighted assets)

2 unchanged sentences

Tier 1 Capital (to average assets)

The Company (1)

Total Capital (to risk weighted assets)

2 unchanged sentences

Tier 1 Capital (to average assets)

adequacy purposes

corrective action

provisions minimum

(dollars in thousands)

in thousands)

As of December 31, 2021

8 unchanged sentences

Tier 1 Capital (to average assets)

Under the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not subject to the minimum capital adequacy and capital conservation buffer capital requirements at the holding company level, unless otherwise advised by the Federal Reserve (such capital requirements are applicable only at the Bank level).

Although the minimum regulatory capital requirements are not applicable to the Company, we calculate these ratios for our own planning and monitoring purposes.

NOTE 24 –

Reportable Segments

The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning purposes by management.

The three segments include Commercial and Retail Banking, Mortgage Banking, and Corporate Operations.

The following schedule presents financial information for each reportable segment.

Year ended December 31, 2021

(dollars in thousands)

Commercial and Retail Banking

Mortgage Banking

Corporate Operations

Interest income

Interest expense

Net interest income (loss)

Provision for loan losses

Noninterest income

Noninterest expense

Net income (loss) before taxes

Income tax provision (benefit)

Net income (loss)

Year ended December 31, 2020

Interest income

Interest expense

Net interest income (loss)

Provision for loan losses

Noninterest income

Noninterest expense

Net income (loss) before taxes

Income tax expense (benefit)

Net income (loss)

Commercial and retail banking.

The Company’s primary business is to provide traditional deposit and lending products and services to its commercial and retail banking clients.

Mortgage banking.

The mortgage banking segment provides mortgage loan origination services for loans that will be sold in the secondary market to investors.

Corporate operations.

Corporate operations is comprised primarily of compensation and benefits for certain members of management and interest on parent company debt.

NOTE 25 –

Parent Company Financial Information

Following is condensed financial information of Southern First Bancshares, Inc.

(1) Under the Federal Reserve’s

Small Bank Holding Company Policy Statement, in 2021, the Company was not subject to the minimum capital adequacy and capital conservation

buffer capital requirements at the holding company level.

Although the minimum regulatory capital requirements were not applicable to

the Company in 2021, we calculated these ratios for our own planning and monitoring purposes.

NOTE 24 – Parent Company Financial Information

Following is condensed financial

information of Southern First Bancshares, Inc.

(parent company only):

Condensed Balance Sheets

(dollars in thousands)

Condensed Balance

in thousands)

Cash and cash equivalents

Investment in subsidiaries

Liabilities and Shareholders’

Liabilities and Shareholders’ Equity

Accounts payable and accrued expenses

Subordinated debentures

Shareholders’

Total liabilities and shareholders’

Shareholders’ equity

Total liabilities and shareholders’ equity

Condensed Statements of Income

For the years ended December 31,

(dollars in thousands)

the years ended December 31,

in thousands)

Interest income

7 unchanged sentences

Condensed Statements of Cash Flows

For the years ended December 31,

(dollars in thousands)

the years ended December 31,

in thousands)

Operating activities

Adjustments to reconcile net income to cash provided by (used for) operating activities

to reconcile net income to cash provided by (used for) operating activities

Equity in undistributed net income of subsidiaries

13 unchanged sentences

Cash and cash equivalents, end of year

NOTE 26 –

Selected Condensed Quarterly Financial Data (Unaudited)

For the quarters ended

(dollars in thousands, except share data)

NOTE 25 – Selected Condensed Quarterly Financial

Data (Unaudited)

the quarters ended

in thousands, except share data)

Interest income

1 unchanged sentence

Net interest income

Provision for loan losses

Provision for credit losses

Noninterest income

5 unchanged sentences

Weighted average common shares outstanding

For the quarters ended

the quarters ended

Interest income

1 unchanged sentence

Net interest income

Provision for loan losses

Provision for credit losses

Noninterest income

5 unchanged sentences

Weighted average common shares outstanding

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Changes in and Disagreements

with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data