What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-05 compared with 2023-02-13 · 1119 added, 960 removed, 1089 unchanged (66% of the section changed)

Financial Statements

and Supplementary Data

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER

FINANCIAL REPORTING

Financial Statements and Supplementary

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL

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.

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

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Arthur Seaver, Jr.

/s/ Michael D.

Andrew Borrmann

Chief Executive Officer

Chief Financial Officer & Chief Operating Officer

Chief Financial Officer

Southern First Bancshares, Inc.

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Report of Independent Registered Public Accounting

Firm (PCAOB ID 149)

To the Shareholders and Board of Directors of

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and Subsidiary

Opinion on the

Internal Control Over Financial Reporting

Opinion on the Internal Control Over Financial

We have audited Southern First Bancshares, Inc.

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

Subsidiary's (the “Company”) internal control over financial reporting as of December 31, 2023, based on criteria established

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

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31, 2023 and 2022 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.

for each of the three years in the period ended December 31, 2023 of the Company and our report dated March 5, 2024 expressed an unqualified

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.

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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.

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

February 13, 2023

March 5, 2024

Report of Independent Registered Public Accounting

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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, 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 audited the accompanying consolidated balance

sheets of Southern First Bancshares, Inc.

and Subsidiary (the “Company”) as of December 31, 2023 and 2022, 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, 2023, and the related notes to the consolidated financial statements (collectively, the “financial statements”).

opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023

and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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.

reporting as of December 31, 2023, 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 5, 2024, expressed an unqualified

opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

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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.

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

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

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.

As described in Note 4 to the Company’s financial

statements, the Company has a gross loan portfolio of $3.6 billion and related allowance for credit losses of $40.7 million as of December

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

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

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

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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

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 credit losses, including controls over qualitative

· We tested the design and operating

effectiveness of controls relating to management’s review of reliability and accuracy of data used to calculate and estimate the

various components of the allowance for credit losses, including accuracy of the calculation and validation procedures over the models.

· We 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.

· 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.

· We assessed the overall trends

in credit quality, including adjustments for the qualitative factors by comparing the overall allowance for credit losses to those recorded

by the Company’s peer institutions.

· We evaluated subsequent events

and transactions and considered whether they corroborated or contradicted the Company’s conclusion.

/s/ Elliott Davis, LLC

We have served as the Company's

auditor since 1999.

Greenville, South Carolina

March 5, 2024

SOUTHERN FIRST BANCSHARES, INC.

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Total liabilities and shareholders’ equity

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.

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CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31,

(dollars in thousands, except per share data)

the years ended December 31,

in thousands, except per share data)

Interest income

Investment securities

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Net lender fees on PPP loan sale

Gain (loss) on disposal of fixed assets

Gain (loss) on sale of securities

Total noninterest income

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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.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31,

in thousands)

years ended December 31,

(dollars in thousands)

Other comprehensive income (loss):

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Reclassification of realized (gain) loss

Tax expense (benefit)

Other comprehensive income (loss)

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FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Accumulated other comprehensive income (loss)

comprehensive

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.

December 31, 2020

Net income Common stock

Proceeds from exercise of stock options Preferred stock

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

Adoption of ASU 2016-13

Net income Additional paid-in capital

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 Retained

Other comprehensive loss

December 31, 2022

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, 2023

See notes to consolidated financial statements that are

an integral part of these consolidated statements.

SOUTHERN FIRST BANCSHARES, INC.

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For the years ended December 31,

in thousands)

to reconcile net income to cash provided by operating activities:

(dollars in thousands)

Operating activities

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

Provision for (reversal of) credit losses

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Accretion and amortization of securities discounts and premiums, net

Write-down of real estate owned

Loss on sale of other real estate owned

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Net cash provided by operating activities

Investing activities

Increase (decrease) in cash realized from:

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Other investments

Proceeds from sale of investment securities available for sale

Proceeds from maturities of investment securities available for sale

Purchase of bank owned life insurance policies

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Proceeds from sale of other real estate owned

cash used for investing activities

Net cash used for investing activities

Financing activities

(decrease) in cash realized from:

Increase (decrease) in cash realized from:

Increase in deposits, net

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Cash and cash equivalents, end of year

of non-cash transactions

Supplemental information

Cash paid for

Schedule of non-cash transactions

Foreclosure of other real estate

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

See notes to consolidated financial statements that

are an integral part of these consolidated statements.

Operating leases

See notes to consolidated financial statements that are

an integral part of these consolidated statements.

NOTE 1 – Summary of Significant

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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.

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

There were three significant bank failures in the first five months of 2023, primarily due to the failed banks’ lack of liquidity

as depositors sought to withdraw their deposits.

Due to rising interest rates, the failed banks were unable to sell investment securities

held to meet liquidity needs without realizing substantial losses.

As a result of the recent bank failures and in an effort to strengthen

public confidence in the banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to

support uninsured depositors will be recovered by a special assessment on banks, as required by law, which has and could continue to increase

the cost of our FDIC insurance assessments.

The continued impact of these bank failures on the economy, financial institutions and their

depositors, as well as any governmental regulatory responses or actions resulting from the same, is difficult to predict at this time.

The Company is subject to the regulations

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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.

credit 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.

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

As of December 31, 2023 and 2022, real estate loans represented 84.8 % of total loans.

However, borrowers’

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

As of December 31, 2023, the Company’s

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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

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

The Company maintains access to multiple

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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

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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.

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

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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 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.

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.

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

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

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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.

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, as well as an investment in a South Carolina not-for-profit corporation.

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

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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.

loans on nonaccrual status and certain loans modified to borrowers experiencing financial difficulty, whether on accrual or nonaccrual

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.

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 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.

The allowance for credit loss 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

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value when the loan is 180 days past due.

Troubled Debt Restructuring (TDRs)

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

Loan Modifications to Borrowers Experiencing

Financial Difficulty

Loans that are

modified are reviewed by the Company to identify if the modification was due to a borrower experiencing financial difficulty.

be modified to fit the ability of the borrower to repay in line with its current financial status.

The modification of the terms of such

loans includes one or a combination of the following:

a reduction of the stated interest rate of the loan, an extension of the maturity

date, a permanent reduction of the recorded investment of the loan, or an other-than-insignificant payment delay.

The adoption of Accounting

Standards Update (“ASU”) 2022-02 on January 1, 2023 eliminated the recognition and measurement of troubled debt restructurings

(“TDRs”) and enhanced disclosures for modifications to loans related to borrowers experiencing financial difficulties.

Other Real Estate Owned (“OREO”)

Real estate acquired through foreclosure

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Property and Equipment

Property and equipment are stated at

Property and equipment are stated at cost.

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.

The Company maintains operating leases

on land and buildings for various office spaces.

The operating right-of-use asset is included in property and equipment and the operating

right-of-use liability is included in other liabilities on the balance sheet.

The right-of-use asset and lease liability are recognized

at lease commencement by calculating the net present value of the lease payments over the lease term.

Bank Owned Life Insurance Policies

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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

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;

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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’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

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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.

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

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The Company did not elect to use this optional relief.

Significant Accounting Policy

In January 2023, the Company adopted ASU

2022-02, “Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures” (“ASU

2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure

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

for public business entities, the guidance requires 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 Company adopted the guidance using the modified retrospective

Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing

financial difficulty.

Instead, these modifications are included in their respective cohort and a historical loss rate is applied to the

current loan balance to arrive at the quantitative baseline portion of the allowance.

The difference

between the allowance previously determined

and the current allowance was not material to the Company’s financial statements.

In January 2023, the Company adopted ASU

2022-01, “Derivatives and Hedging (Topic 815):

Fair Value Hedging – Portfolio Layer Method”, which intended to better

align hedge accounting with an organization’s risk management strategies.

The ASU became applicable to the Company in the second

quarter of 2023 when we entered into a fair value hedge using the portfolio layer method.

Significant Accounting Policy Changes

Upon adoption of Topic 326, the Company

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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.

At December 31, 2023 and 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, 2023 and 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.

for sale debt securities totaled $ 530,000 and $ 382,000 at December 31, 2023 and December 31, 2022, respectively, and was excluded from

the estimate of credit losses.

Allowance for Credit Losses - Loans

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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.

occupied real estate - Owner occupied commercial mortgages consist of loans to purchase

or re-finance owner occupied nonresidential properties.

This includes office buildings, other

commercial facilities, and

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 properties.

This includes office buildings and other

facilities rented or leased to unrelated parties, as well as farmland and multifamily properties.

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.

- Construction loans consist of loans to finance land for development of commercial

or residential real property and construction of multifamily apartments or other commercial

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.

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

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.

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.

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

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.

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

- 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

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 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.

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.

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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.

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

The Company uses its own internal data to measure

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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.

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 loan pools.

Individual loan evaluations are generally performed for nonaccrual loans and other loans as considered necessary.

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.

Loans for which terms have been modified are evaluated using these same individual evaluation methods.

In the event the discounted cash flow method is used for a loan modification, the original interest rate is used to discount expected

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

procedures used to estimate the allowance for credit losses, as well as the resulting 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

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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.

loans totaled $ 11.6 million and $ 8.9 million at December 31, 2023 and December 31, 2022, respectively, and was reported in other

assets 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.

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

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

or decrease to the provision for credit losses.

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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.

December 2022, the FASB issued amendments to defer the sunset date of the Reference Rate Reform Topic of the Accounting Standards Codification

from December 31, 2022 to December 31, 2024, because the current relief in Reference

Reform Topic may not cover a period of time during which a significant number of modifications may take place.

The amendments were effective

upon issuance.

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

December 2023, the FASB amended the Income Taxes topic in the Accounting Standards Codification to improve the transparency of income

tax disclosures.

The amendments are effective for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual

financial statements that have not yet been issued or made available for issuance.

The Company does not expect these amendments to have

a material effect on its financial statements.

NOTE 2 – Investment Securities

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securities are as follows:

in thousands)

US treasuries

US government

and political subdivisions

Mortgage-backed

mortgage-backed securities

in thousands)

Schedule of amortized costs and fair value of investment securities

December 31, 2023

securities [Member]

Gross Unrealized

(dollars in thousands)

Available for sale

Corporate bonds Corporate bonds [Member]

US treasuries US treasuries [Member]

US government agencies US government agencies [Member]

State and political subdivisions State and political

subdivisions [Member]

Asset-backed securities

Mortgage-backed securities Mortgage-backed securities [Member]

FHLMC FHLMC [Member]

FNMA FNMA [Member]

GNMA GNMA [Member]

Total mortgage-backed securities

December 31, 2022

Gross Unrealized

(dollars in thousands)

Available for sale

Corporate bonds

US treasuries

US government

SBA securities

and political subdivisions

Mortgage-backed

US government agencies

State and political subdivisions

Asset-backed securities

Mortgage-backed securities

Total mortgage-backed securities

During 2023, $ 16.5 million of investment

securities matured.

No gain or loss was recognized on the maturity of the investment securities.

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.

of investment securities were either sold or called, 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 of $ 9,000 .

The amortized costs and fair values of

investment securities available for sale at December 31, 2023 and 2022, by contractual maturity, are shown below.

Expected maturities

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

Schedule of amortized costs and fair values of investment securities available for sale by contractual maturity

December 31, 2023

December 31, 2022

(dollars in thousands)

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that individual securities have been in a continuous unrealized loss position, at December 31, 2023 and 2022.

December 31, 2022

(dollars in thousands)

Schedule of gross unrealized losses on investment securities and fair market value of related securities

than 12 months

months or longer

in thousands)

As of December 31, 2023

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December 31, 2022

Less than 12 months

12 months or longer

(dollars in thousands)

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Mortgage-backed

FNMA Mortgage-backed securities [Member]

At December 31, 2023, the Company had 123

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are recorded at cost which approximates fair value:

Schedule of other investments

(dollars in thousands)

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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.

for impairment and determined that the other investments are not impaired as of December 31, 2023 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, 2022 and 2021, there

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

At December 31, 2023 and 2022, there were

no securities pledged as collateral for repurchase agreements from brokers.

NOTE 3 – Mortgage Loans Held

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

As of December 31, 2023, the repurchase

reserve was immaterial to the financial statements.

NOTE 4 – Loans and Allowance

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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.

Carolina, the Triangle,Triad, and Charlotte 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

on businesses and individuals that reside in the markets that we serve.

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, 2023.

Commercial loans comprise 56.5 % of total real estate

loans and consumer loans account for 43.5 %.

Commercial real estate loans are further categorized into owner occupied which represents

17.5 % of total loans and non-owner occupied loans which represents 26.2 %.

Commercial construction loans represent only 4.2 % 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.

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

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.

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.

for PPP loans they originated to our clients.

The various types of loans are individually underwritten

and monitored to manage the associated risks.

Loan Portfolio Composition

The following table summarizes the composition

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as of December 31, 2023 and December 31, 2022, respectively.

(dollars in thousands)

Owner occupied RE

Non-owner occupied RE

Total commercial loans

Schedule of composition of our loan portfolio

in thousands) Commercial [Member]

Owner occupied RE Owner

occupied RE [Member]

Non-owner occupied RE Non-owner occupied RE [Member]

Construction Construction [Member]

Business Business [Member]

Total commercial loans Consumer [Member]

Real estate Real estate [Member]

Home equity Home equity [Member]

Construction Construction [Member]

Other Other [Member]

Total consumer loans

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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:

Schedule of composition of gross loans by rate type

(dollars in thousands)

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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

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:

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.

The Company tracks credit quality based

on its internal risk ratings.

Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors

such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc.

After loans are initially graded, they

are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and

changes in collateral value.

Loans can be downgraded or upgraded depending on management’s evaluation of these factors.

risk-grading policies are consistent throughout each loan type.

A description of the general characteristics

of the risk grades is as follows:

A pass loan ranges from minimal to average credit risk;

however, still has acceptable credit

A watch loan exhibits above average credit 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

● 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.

Loans so classified must have a well-defined

weakness, or weaknesses, which 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 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.

loan is characterized by the distinct possibility that the Bank will sustain some loss if

the deficiencies are not corrected.

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 table presents loan balances classified

by credit quality indicators by year of origination as of December 31, 2023.

Schedule of classified by credit quality indicators by year of origination

in thousands)

19 unchanged sentences

Total Consumer loans

Current period gross write-offs

The following table presents loan balances classified

by credit quality indicators and loan categories as of December 31, 2022.

December 31, 2022

(dollars in thousands)

Owner occupied RE

Special Mention

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

Current period gross write-offs

The following tables present loan balances by payment

(dollars in thousands)

Schedule of loan balances by payment status

in thousands)

days past due

90 days or more past due

Owner occupied RE

Non-owner occupied RE

(dollars in thousands)

in thousands)

days past due

90 days or more past due

Owner occupied RE

Non-owner occupied RE

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.

of December 31, 2023 and December 31, 2022, loans 30 days or more past due represented 0.37 % and 0.11 % of the Company’s total loan

portfolio, respectively.

Commercial loans 30 days or more past due were 0.27 % and 0.03 % of the Company’s total loan portfolio as

of December 31, 2023 and December 31, 2022, respectively.

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

as of December 31, 2023 and December 31, 2022, respectively.

The increase in accruing 30-59 days past due at December 31, 2023 primarily

relates to one commercial relationship totaling $ 8.1 million.

Nonperforming assets

6 unchanged sentences

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

Schedule of nonperforming assets, including nonaccruing TDRs

in thousands)

10 unchanged sentences

summarizes nonaccrual loans by major categories for the periods presented.

(dollars in thousands)

Schedule nonaccrual loans by major categories

in thousands)

Owner occupied RE

2 unchanged sentences

Total consumer

Total nonaccrual loans

Foregone interest income on the nonaccrual

loans for the year ended December 31, 2023 was approximately $ 73,000 and approximately $ 28,000 for the same period in 2022.

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

with no related

allowance for

(dollars in thousands)

Owner occupied RE

Non-owner occupied RE

Total commercial

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 under the incurred loss methodology.

Interest income

recognized on nonaccrual loans was insignificant during the years ended December 31, 2023 and 2022.

Modifications to Borrowers Experiencing

Financial Difficulty

The Company adopted Accounting Standards

Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures

(“ASU 2022-02”) effective January 1, 2023.

The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled

debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The allowance for credit losses incorporates

an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition.

The starting point for the

estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to

borrowers experiencing financial difficulty.

Company uses a probability of default/loss

given default model to determine the allowance for credit losses.

An assessment of whether a borrower is experiencing financial difficulty

is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is

already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change

to the allowance for credit losses is generally not recorded upon modification.

The following table shows the amortized

cost basis of the loans modified to borrowers experiencing financial difficulty during the twelve months ended December 31, 2023, disaggregated

by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing

financial difficulty.

Schedule of amortized cost basis

Term Extension

(dollars in thousands)

Owner occupied RE

Non-owner occupied RE

Total commercial

Total consumer

Amortized Cost Basis

% of Total Loan Type

Financial Effect

Commercial Business

Added a 1-year term to both of the loans modified.

One loan was granted an extended amortization due to the inability to pay on a 3-year amortization.

The other loan was given an interest only period due to the ability to pay only interest to get the loan renewed.

Neither of the two loans modified had a

payment default during the period.

The Company closely monitors the performance of the loans that are modified for borrowers experiencing

financial difficulty to understand the effectiveness of its modification efforts.

Both loans are in current payment status since the loan

modification occurred in the third quarter of 2023.

There have been no commitments to lend additional funds to the borrowers experiencing

financial difficulty as of December 31, 2023.

Prior to the adoption

of ASU 2022-02, the Company considered a loan to be a TDR when a debtor experienced financial difficulty and the Company granted a concession

to the debtor that it would not normally consider.

Concessions related to the contractual interest rate, maturity date, or payment structure

As part of our prior workout plan for individual loan relationships, we restructured loan terms to assist borrowers facing

challenges in the current economic environment.

At December 31, 2022, our TDRs included

13 loans totaling $ 6.3 million with a specific allowance for credit losses of $ 1.2 million.

One consumer real estate loan with a pre-modification

and post-modification balance of $ 885,000 and two commercial business loans with a pre-modification and post-modification balance totaling

$ 1.1 million were considered new TDRs during the twelve months ended December 31, 2022.

As of December 31, 2022, 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.

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

to the allowance for credit losses for the year ended December 31, 2023 and December 31, 2022 under the CECL methodology.

1, 2022, we adopted the CECL methodology for estimating credit losses, which resulted in an increase of $ 1.5 million in our allowance

for credit losses.

The $ 2.2 million provision for credit losses for the 12 months ended December 31, 2023 was driven primarily by $ 329.3

million in loan growth for the year combined with lower expected loss rates due to historically low charge-offs during the year.

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, as well as slightly lower expected loss rates and minor adjustments to two internal qualitative factors which increased the

qualitative component of the allowance and related provision expense in 2022.

Schedule of activity related to the allowance for credit losses

Twelve months ended December 31, 2023

in thousands)

Balance, beginning of period

Adjustment for CECL

Provision for credit losses

3 unchanged sentences

Balance, end of period

Net recoveries to average loans (annualized)

Net charge-offs 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

Twelve months ended December 31, 2022

(dollars in thousands)

Owner occupied

Balance, beginning of period

Adjustment for CECL

Provision for credit losses

3 unchanged sentences

Balance, end of period

months ended December 31, 2020

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.

Twelve months ended December 31, 2021

(dollars in thousands)

Owner occupied

Balance, beginning of period

4 unchanged sentences

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 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)

Individually evaluated

Collectively evaluated

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

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.

3 unchanged sentences

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

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.

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 is required.

The following table presents an analysis of collateral-dependent

loans of the Company as of December 31, 2022.

(dollars in thousands)

loans of the Company as of December 31, 2023 and December 31, 2022.

Schedule of analysis of collateral-dependent loans

in thousands)

Owner occupied RE

2 unchanged sentences

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

in thousands)

Owner occupied RE

Non-owner occupied RE

Total commercial

Total consumer

Allowance for Credit Losses - Unfunded Loan Commitments

The allowance for credit losses for unfunded

loan commitments was $ 1.8 million and $ 2.8 million at December 31, 2023 and 2022, respectively, and is separately classified on the

balance sheet within other liabilities.

Prior to the adoption of CECL, the Company’s reserve for unfunded commitments was not material.

following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the twelve months

ended December 31, 2023 and December 31, 2022.

Schedule of allowance for credit losses for unfunded loan commitments

(dollars in thousands)

Twelve months ended

December 31, 2023

Twelve months ended

December 31, 2022

Balance, beginning of period

4 unchanged sentences

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 5 – Property and Equipment

Property and equipment are stated at

cost less accumulated depreciation.

Property and equipment are stated at cost

less accumulated depreciation.

Components of property and equipment included in the consolidated balance sheets are as follows:

Schedule of components of property and equipment

(dollars in thousands)

Leasehold improvements

Furniture and equipment

Construction in process

Buildings Buildings [Member]

Leasehold improvements Leasehold improvements [Member]

Furniture and equipment Furniture and equipment [Member]

Construction in process Construction in process [Member]

Accumulated depreciation and amortization

2 unchanged sentences

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

2023 consisted primarily of costs associated with information technology projects that will be complete in 2024.

Construction in process

at December 31, 2022 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, 2022.

The loss is reported in other noninterest income on the consolidated statements of income.

Depreciation and amortization expense for the years ended December 31, 2023 and 2022 was $ 4.8 million and $ 3.7 million, respectively.

1 unchanged sentence

The estimated useful lives for the principal items follow:

Schedule of estimated useful lives of property and equipment

Type of Asset

Life in Years

Furniture and equipment

1 unchanged sentence

NOTE 6 – 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.

The Company had operating right-of-use assets,

included in property and equipment, of $ 22.2 million and $ 23.6 million as of December 31, 2023 and 2022, respectively.

had lease liabilities, included in other liabilities, of $ 24.6 million and $ 25.8 million as of December 31, 2023 and 2022, respectively.

We maintain operating leases on land and buildings for various office spaces.

5 unchanged sentences

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.

The ROU assets

also include any initial direct costs incurred and lease payments made at or before commencement date and are reduced by any lease incentives.

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 of ASC 842 and as of the lease commencement date for leases subsequently entered into.

weighted average discount rate for leases was 2.94 % and 2.86 % as of December 31, 2023 and 2022, respectively.

Total operating lease costs were $ 2.4

2 unchanged sentences

were as follows:

Schedule of maturities of lease liabilities

(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, 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

Write-downs, net

Balance, end of year

NOTE 7 – Deposits

The following is a detail

of the deposit accounts:

The following is a detail of the deposit

Schedule of detail in deposit accounts

in thousands)

4 unchanged sentences

Total deposits

At December 31, 2022 and 2021, time

deposits greater than $250,000 were $ 374.8 million and $ 84.4 million, respectively.

At December 31, 2023 and 2022, time deposits

greater than $250,000 were $ 568.1 million and $ 374.8 million, respectively.

Also, at December 31, 2023, the Company

had $ 379.4 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

December 31, 2022 the Company had $ 236.2 million deposits in brokered deposits.

Interest expense on time deposits greater than $250,000

was $ 23.8 million for the year ended December 31, 2023, $ 3.2 million for the year ended December 31, 2022, and $ 786 ,000 for the year ended

December 31, 2021.

At December 31, 2023 the scheduled maturities of time

deposits are as follows:

Schedule of maturities certificates of deposit

(dollars in thousands)

NOTE 8 – Federal Home Loan Bank Advances and

Other Borrowings

At December 31, 2023 and 2022, the Company

had $ 275 .0 million and $ 175 .0 million in FHLB Advances, respectively.

Listed below is a summary of the terms

and maturities of the advances outstanding at December 31, 2023 and 2022.

Of the $ 275 .0 million outstanding at December 31, 2023, $ 35.0

million was at a variable rate and $ 240 .0 million was at fixed rates.

The $ 275.0 million was secured with approximately $ 1.25 billion

of mortgage loans and $ 16.1 million of stock in the FHLB at December 31, 2023.

The $ 175 .0 million outstanding at December 31, 2022 was

at a variable rate and was secured with approximately $ 1.05 billion of mortgage loans and $ 9.3 million of stock in the FHLB at December

Schedule of terms and maturities of advances outstanding

(dollars in thousands)

February 16, 2023

February 29, 2024

April 28, 2028

June 28, 2028

July 10, 2028

NOTE 9 – 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, 2023, the interest rate was 8.72 % and is indexed to the 3-month LIBOR rate plus 3.10 % and adjusted quarterly.

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

3 unchanged sentences

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 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”)

The Notes have a 10 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.

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.

1 unchanged sentence

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 (the “Exchange

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,

7 unchanged sentences

The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes for the Company ;

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

however, the amount that is eligible

to be included in Tier 2 capital will be reduced by 20% each year during the last five years before the maturity date of the Notes beginning

in the quarter ended December 31, 2024.

NOTE 10 – Unused Lines of Credit

At December 31, 2023, the Company had five

lines of credit to purchase federal funds that totaled $ 108.5 million which were unused at December 31, 2023.

The lines of credit are

available on a one to 14 day basis for general corporate purposes of the Company.

The lenders have reserved the right to withdraw the

line at their option.

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The Company has collateral that would support approximately $ 542.8 million in additional borrowings with the FHLB at December 31, 2023.

The Company is also enrolled in the Federal

Reserve’s Bank Term Funding Program which offers loans of up to one year in length if we pledge collateral eligible for purchase

by the Federal Reserve Banks in open market operations, such as U.S.

Treasuries, U.S.

agency securities, and U.S.

agency mortgage-backed

At December 31, 2023, the Company had $ 13 .0 million of marketable investment securities pledged in the Federal Reserve’s

Bank Term Funding Program.

At December 31, 2023, we had $ 227.1 million pledged and available with the Federal Reserve Discount Window.

The Company also has an unsecured, interest

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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.

Prime Rate plus 0.25 % and matures on February 28, 2025 .

The loan agreement contains various financial covenants related to

capital, earnings and asset quality.

NOTE 11 – Derivative Financial

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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

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 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.

These derivatives are free- standing derivatives and are not designated as instruments for hedge accounting.

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 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 entered into a pay-fixed portfolio

layer method fair value swap, designated as a hedging instrument, with a total notional amount of $ 200.0 million in the second quarter

The hedging instrument matures on May 25, 2028.

The Company is designating the fair value swap under the portfolio layer method

Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that

is anticipated to remain outstanding for the designated hedged period.

Adjustments are made to record the swap at fair value on the consolidated

balance sheets, with changes in fair value recognized in interest income.

The carrying value of the fair value swap on the consolidated

balance sheets will also be adjusted through

interest income, based on changes in fair value attributable to changes in the hedged risk.

The following table represents the carrying

value of the portfolio layer method hedged instrument and the cumulative fair value hedging adjustment included in the carrying value

of the hedged instrument as of December 31, 2023.

Schedule of carrying value of hedged asset and cumulative fair value hedging adjustment

December 31, 2023

(dollars in thousands)

Hedged Liability

Fixed Rate Liability 1

1 These amounts included the amortized cost basis of closed portfolios of fixed rate loans

used to designate hedging relationships in which the hedged item is the stated amount of the assets in the closed portfolio anticipated

to be outstanding for the designated hedged period.

As of December 31, 2023, the amortized cost basis of the closed portfolio used in

this hedging relationship was $ 718.8

million, the cumulative basis adjustment associated with this hedging relationship was $ 511 ,000,

and the amount of the designated hedged item was $ 200.0

The following table summarizes the Company’s

outstanding financial derivative instruments at December 31, 2023 and December 31, 2022.

Schedule of outstanding financial derivative instruments

in thousands)

Sheet Location

Asset/(Liability)

Mortgage loan interest rate lock commitments

MBS forward sales commitments

Total derivative financial instruments

Derivatives designated as hedging instruments:

Fair value swap Fair

value swap [Member]

Other liabilities

Derivatives not designated as hedging instruments:

Mortgage loan interest rate lock commitments Mortgage loan

interest rate lock commitments [Member]

MBS forward sales

commitments MBS forward sales commitments [Member]

Other liabilities

Total derivative financial instruments Total derivative financial instruments [Member]

December 31, 2022

Sheet Location

in thousands)

Asset/(Liability)

Derivatives not designated as hedging instruments:

Mortgage loan interest rate lock commitments

MBS forward sales commitments

Other liabilities

Total derivative financial instruments

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

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

inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;

Accrued interest receivable related to

the interest rate swap as of December 31, 2023 totaled $ 285 ,000 and is excluded from the fair value presented in the table above.

The Company assesses the effectiveness

of the fair value swap hedge with a regression analysis that compares the changes in forward curves to determine the value.

The effective

portion of changes in fair value of derivatives designated as fair value hedges is recorded through interest income.

The Company does

not offset derivative assets and derivative liabilities for financial statement presentation purposes.

The following table summarizes the effect

of the fair value hedging relationship recognized in the consolidated statements of income for the twelve months ended December 31, 2023.

of summarize the effect of fair value hedging relationship recognized in consolidated statement of income

(dollars in thousands)

Twelve months ended

December 31, 2023

Gain (loss) on fair value hedging relationship:

Hedged liability

Fair value derivative designated as hedging instrument

Total gain (loss) recognized in interest income on loans

NOTE 12 – 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 – 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 – Significant other observable inputs

Observable 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

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.

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 individually evaluated loans.

Level 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.

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.

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

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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

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.

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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 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 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.

evaluated 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 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.

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

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

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 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.

Other Real Estate Owned

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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

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).

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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)

The Company estimates the fair value of the derivative liability based on changes in the benchmark

interest rate component of the hedged loans.

The estimated variable rate cash inflows were compared to the fixed rate outflows and such

difference was discounted to a present value to estimate the fair value of the interest rate swaps.

The components of the valuation were

observable or could be corroborated by observable market data and, therefore, were classified within Level 2 of the valuation hierarchy.

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.

Schedule of assets and liabilities measured at fair value on a recurring basis

December 31, 2023

(dollars in thousands)

Securities available for sale:

Corporate bonds

US treasuries

US government agencies

Corporate bonds Level 1 [Member]

US treasuries Level 2 [Member]

US government agencies Level 3 [Member]

State and political subdivisions

3 unchanged sentences

Mortgage loan interest rate lock commitments

MBS forward sales commitments

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)

Derivative liability

MBS forward sales commitments

Total liabilities measured at fair value on a recurring basis

December 31, 2022

(dollars in thousands)

Securities available for sale:

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US government agencies

SBA securities

State and political subdivisions

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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

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.

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.

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, 2023.

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

Schedule 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

Impaired loans

Total assets measured at fair value on a nonrecurring basis

evaluated loans

measured at fair value on a nonrecurring basis

evaluated loans

measured at fair value on a nonrecurring basis

Company had no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

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unobservable inputs used in the fair value measurements were as follows:

Unobservable Inputs

Schedule of unobservable inputs used in the fair value measurements

Valuation Technique

Significant Unobservable Inputs

Range of 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

Discounts to appraisals or cash flows for estimated holding and/or

selling costs or age of appraisal

Fair Value of Financial Instruments

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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.

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

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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.

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 –

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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)

The estimated fair values of the Company’s financial

instruments at December 31, 2023 and 2022 are as follows:

Schedule of estimated fair values of the company's financial instruments

in thousands)

Financial Assets:

Other investments, at cost

Financial Liabilities:

Subordinated debentures

(dollars in thousands)

in thousands)

Financial Assets:

Other investments, at cost

Financial Liabilities:

Subordinated debentures

Carrying amount is net of the allowance for credit losses and individually

evaluated loans.

(1) Carrying amount

is net of the allowance for credit losses and individually evaluated loans.

13 – 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, 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, 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.

The following schedule reconciles the numerators

and denominators of the basic and diluted earnings per share computations for the years ended December 31, 2023, 2022 and 2021.

common shares arise from the potentially dilutive effect of the Company’s stock options and warrants that are outstanding.

conversion of stock options and warrants can create a difference between basic and dilutive net income per common share.

At December 31, 2023, 2022 and 2021, options

totaling 269,072 , 131,433 , and 9,000 , 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.

in thousands, except share data)

Schedule of earnings per share calculation

(dollars in thousands, except share data)

Net income available to common shareholders

4 unchanged sentences

NOTE 14 – 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 Company has entered into a three year

employment agreement with its chief executive officer and a two year employment agreement with its president and 13 other members of senior

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.

The total estimated aggregate salary commitment is approximately $ 4.2 million.

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.

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.

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NOTE 15 – Income Taxes

The components of income tax expense

were as follows:

the years ended December 31,

in thousands)

The components of income tax expense were

Schedule of components of income tax expense

For the years ended December 31,

(dollars in thousands)

Current income taxes:

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that caused recorded income taxes to differ from taxes computed using the statutory tax rate:

the years ended December 31,

in thousands)

Schedule of taxes computed using the statutory tax rate

For the years ended December 31,

(dollars in thousands)

Tax expense at statutory rate

5 unchanged sentences

are as follows:

in thousands)

Schedule of components of the deferred tax assets and liabilities

(dollars in thousands)

Deferred tax assets:

Allowance for credit losses

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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.

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 16 – Related Party Transactions

3 unchanged sentences

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)

A summary of loan transactions with directors

and executive officers, including their affiliates is as follows:

Schedule of loan transactions with directors and executive officers, including their affiliates

For the years ended December 31,

(dollars 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, 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.

Deposits by executive officers and directors

and their related interests at December 31, 2023 and 2022, were $ 6.4 million and $ 6.5 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.

were no payments to the director for these services during 2023 or 2022.

The Company received rent payments from

a company of which a director is a private investor and chairman of the board.

Rent received totaled $ 88,000 and $ 79,000 for the twelve

months ended December 31, 2023 and December 31, 2022, 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 17 – 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.

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

20 unchanged sentences

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.

At December 31, 2023 and 2022, there was

a $ 16.1 million and $ 14.3 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,

13 unchanged sentences

Contributions made to the Plan for the years ended December 31, 2023, 2022,

and 2020 amounted to $ 995,000 , $ 905,000 , and $ 881,000 , respectively.

and 2021 amounted to $ 1.1 million, $ 995,000 , and $ 905,000 , respectively.

The Company also provides a nonqualified

3 unchanged sentences

$ 6.9 million and $ 8.4 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 Company had a $ 1.1 million and $ 284,000 reversal of expenses related to this plan for

the twelve months ended December 31, 2023 and December 31, 2022, respectively, and incurred expenses related to this plan of $ 1 .0 million

NOTE 19 – 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:

Schedule of stock-based compensation expense

the years ended December 31,

4 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 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).

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 of common stock either as stock options or restricted stock grants.

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 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:

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, 2023, there were 319,058 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:

Schedule of the status of the stock option plan and changes

the years ended December 31,

at beginning of year

Outstanding at beginning of year

Forfeited or expired

3 unchanged sentences

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 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 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 331,349 and 427,224 stock options outstanding at December 31, 2023 and 2022 was $ 1.3 million and $ 4.9 million,

respectively.

The aggregate intrinsic value of 267,376 and 287,902 stock options exercisable at December 31, 2023 and 2022 was $ 1.3 million

and $ 3.9 million, respectively.

Stock Compensation Plan [Member]

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:

Schedule of assumptions used

Dividend yield -

2 unchanged sentences

Risk-free interest rate

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.

31, 2023, there was $ 408,000 of total unrecognized compensation cost related to nonvested stock option grants.

The cost is expected to

be recognized over a weighted-average period of 1.1 years.

The fair value of stock option grants that vested during 2023, 2022, and 2021

was $ 846,000 , $ 1.1 million and $ 1.1 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

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, 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

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, 2023, there were 319,058 shares available for grant under the 2020 Equity Incentive

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.

During this period, the holder is entitled to full voting rights and dividends.

1 unchanged sentence

restricted stock and changes for the years ended December 31, 2023, 2022, and 2021 is as follows:

Schedule of the status of the company's nonvested restricted stock and changes

Nonvested at beginning of year

Nonvested at end of year

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.

31, 2023, there was $ 3.6 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 2.7 years.

NOTE 20 – Dividends

3 unchanged sentences

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

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.

2 unchanged sentences

financial condition.

NOTE 23 – Regulatory

NOTE 21 – Regulatory Matters

The Bank is subject to various regulatory

13 unchanged sentences

As of December 31, 2023, 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.

The following table summarizes the capital amounts and

ratios of the Bank and the Company and the regulatory minimum requirements at December 31, 2023 and 2022.

Schedule of capital amounts and ratios of the Bank and the Company and the regulatory minimum requirements

adequacy purposes

in thousands)

of December 31, 2022

corrective action

provisions minimum

(dollars in thousands)

As of December 31, 2023

Total Capital (to risk weighted assets)

6 unchanged sentences

Tier 1 Capital (to average assets)

adequacy purposes

corrective action

in thousands)

provisions minimum

(dollars in thousands)

As of December 31, 2022

8 unchanged sentences

Tier 1 Capital (to average assets)

(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.

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 22 – Parent Company Financial Information

Following is condensed financial

information of Southern First Bancshares, Inc.

Following is condensed financial information

of Southern First Bancshares, Inc.

(parent company only):

Condensed Balance

in thousands)

Condensed Balance Sheets

Schedule of condensed balance sheets

(dollars in thousands)

Cash and cash equivalents

1 unchanged sentence

Liabilities and Shareholders’ Equity

Accounts payable and accrued expenses

Accrued expenses

Subordinated debentures

2 unchanged sentences

Condensed Statements of Income

the years ended December 31,

in thousands)

Schedule of condensed statements of income

years ended December 31,

(dollars in thousands)

Interest income

7 unchanged sentences

Condensed Statements of Cash Flows

the years ended December 31,

in thousands)

Schedule of condensed statements of cash flows

For the years ended December 31,

(dollars in thousands)

Operating activities

to reconcile net income to cash provided by (used for) operating activities

Adjustments to reconcile net income to cash provided by operating activities

Equity in undistributed net income of subsidiaries

1 unchanged sentence

(Increase) decrease in other assets

Increase (decrease) in accounts payable and accrued expenses

Net cash provided by (used for) operating activities

Increase in accrued expenses and subordinated debentures

Net cash provided by operating activities

Investing activities

5 unchanged sentences

Net cash provided by financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

NOTE 25 – Selected Condensed Quarterly Financial

Data (Unaudited)

the quarters ended

in thousands, except share data)

Interest income

Interest expense

Net interest income

Provision for credit losses

Noninterest income

Noninterest expenses

Income before income tax expense

Income tax expense

Net income available to common shareholders

Earnings per common share

Weighted average common shares outstanding

the quarters ended

Interest income

Interest expense

Net interest income

Provision for credit losses

Noninterest income

Noninterest expenses

Income before income tax expense

Income tax expense

Net income available to common shareholders

Earnings per common share

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