UNITED STATES

SECURITIES AND EXCHANGE COMMISSION ~~WASHINGTON, D.C. 20549~~

WASHINGTON, D.C. 20549

FORM 10-K

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2021~~2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~__________~~ ___________ to ~~__________~~_________

Commission file number: 0000-27702

BANK OF SOUTH CAROLINA CORPORATION

(Exact name of registrant as specified in its charter)

South Carolina		57-1021355
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification Number)
256 Meeting Street, Charleston, SC		29401
(Address of principal executive offices)		(Zip Code)

256 Meeting Street, Charleston, SC		29401
(Address of principal executive offices)		(Zip Code)

Issuer’s telephone number: (843) 724-1500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock		BKSC		NASDAQ

Securities registered ~~under~~pursuant to Section 12(bg) of the Exchange Act: None

Common Stock (Title of Class)

Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit).

Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐☒ Smaller reporting company ☒ ~~(Do not check if a smaller reporting company)~~ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period by complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Aggregate market value of the voting stock held by non-affiliates, computed by reference to the closing price of such stock on June 30, 2022 ~~2021~~ was $7370,~~575~~780,~~011~~472.

As of February 24, ~~2022~~ 2023, the Registrant has outstanding 5,~~543~~552,~~976~~351 shares of common stock.

~~BANK~~DOCUMENTS OFINCORPORATED ~~SOUTH~~BY ~~CAROLINA CORPORATION~~REFERENCE

~~AND~~Portions ~~SUBSIDIARY~~of the registrant’s definitive proxy statement for its 2023 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

BANK OF SOUTH CAROLINA CORPORATION
AND SUBSIDIARY

Table of Contents

PART I

	Page	~~Page~~
Item 1. Business	3
Item 1A. Risk Factors	98
Item 1B. Unresolved Staff Comments	98
Item 2. Properties	9
Item 3. Legal Proceedings	9
Item 4. Mine Safety Disclosures	9
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 6. [Reserved]	1211
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1312
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	3627
Item 8. Financial Statements and Supplementary Data	3728
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	7857
Item 9A. Controls and Procedures	7857
Item 9B. Other Information	7857
PART III
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	57
Item 10. Directors, Executive Officers, Promoters and Corporate Governance	79
PART III
Item 11. Executive Compensation	79
Item 10. Directors, Executive Officers and Corporate Governance	58
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	79
Item 11. Executive Compensation	58
Item 13. Certain Relationships and Related Transactions, and Director Independence	80
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	58
Item 14. Principal Accounting Fees and Services	80
Item 13. Certain Relationships and Related Transactions, and Director Independence	59
PART IV
Item 14. Principal Accountant Fees and Services	59
Item 15. Exhibits and Financial Statement Schedules	81
PART IV
Item 15. Exhibits and Financial Statement Schedules	60
Item 16. Form 10-K Summary	60

PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, including information included or incorporated by reference in this document, contains statements that constitute “forward-looking statements” within the meaning of Section ~~27A~~21E of the Securities Exchange Act of 1934. We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of ~~1996~~1995 and are including this statement for the express purpose of availing the Bank of South Carolina Corporation (the “Company”) of protections of such safe harbor with respect to all “forward-looking statements” contained in this Form 10-K. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of the Company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors that are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitations, those described below:

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Risk from changes in economic, monetary policy, and industry conditions

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Changes in interest rates, shape of the yield curve, deposit rates, the net interest margin and funding sources

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Market risk (including net income at risk analysis and economic value of equity risk analysis) and inflation

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Risk inherent in making loans including repayment risks and changes in the value of collateral

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Loan growth, the adequacy of the allowance for loan losses, provisions for loan losses, and the assessment of problem loans

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Level, composition, and re-pricing characteristics of the securities portfolio

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Deposit growth and changes in the mix or type of deposit products and services

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Continued availability of senior management and ability to attract and retain key personnel

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Technological changes

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Increased cybersecurity risk, including potential business disruptions or financial losses

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Ability to control expenses

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Ability to compete in our industry and competitive pressures among depository and other financial institutions

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Changes in compensation

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Risks associated with income taxes including potential for adverse adjustments

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Changes in accounting policies and practices

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Changes in regulatory actions, including the potential for adverse adjustments

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Recently enacted or proposed legislation and changes in political conditions

● Pandemic risk, including COVID-19, and related quarantine and/or stay-at-home policies and restrictions

● Impact of COVID-19 on the collectability of loans

We will undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. In addition, certain statements in future filings with the SEC, in our press releases, and in oral and written statements, which are not statements of historical fact, constitute forward-looking statements.

Item 1. Business

~~General~~References in this report to "we," "us," "our," "the Bank," or "the Company" refer to the registrant and its subsidiary that are consolidated for financial reporting purposes.

The Bank of South Carolina (the “Bank”) was organized on October 22, 1986 and opened for business as a state-chartered financial institution on February 26, 1987, in Charleston, South Carolina. The Bank was reorganized into a wholly owned subsidiary of the Company, effective April 17, 1995. At the time of the reorganization, each outstanding share of the Bank was exchanged for two shares of Company stock.General

~~Market~~The Bank ~~Area~~of South Carolina (the “Bank”) was organized on October 22, 1986 and opened for business as a state-chartered financial institution on February 26, 1987, in Charleston, South Carolina. The Bank was reorganized into a wholly owned subsidiary of the Company, effective April 17, 1995. At the time of the reorganization, each outstanding share of the Bank was exchanged for two shares of Company stock.

~~The Bank operates as an independent, community~~Market oriented, commercial bank providing a broad range of financial services and products to the Charleston – North Charleston metro area, which includes Charleston, Berkeley, and Dorchester county. We have five banking house locations: 256 Meeting Street, Charleston, SC; 100 North Main Street, Summerville, SC; 1337 Chuck Dawley Boulevard, Mt. Pleasant, SC; 2027 Sam Rittenberg Boulevard, Charleston, SC; and 9403 Highway 78, North Charleston, SC. We also have a future banking house location at 1730 Maybank Highway, Charleston, SC that is scheduled to open in June 2023.Area

3 The Bank operates as an independent, community oriented, commercial bank providing a broad range of financial services and products to the Charleston – North Charleston metro area, which includes Charleston, Berkeley, and Dorchester counties. We have five banking house locations: 256 Meeting Street, Charleston, SC; 100 North Main Street, Summerville, SC; 1337 Chuck Dawley Boulevard, Mt. Pleasant, SC; 2027 Sam Rittenberg Boulevard, Charleston, SC; and 9403 Highway 78, North Charleston, SC. We also have a future banking house location at 1730 Maybank Highway, Charleston, SC we expect to open in June 2023.

The Charleston – North Charleston metro area grew 11.79% from 2015 to 2020 according to the U.S. Bureau of Economic Analysis based on real gross domestic product. Prior to the economic contraction resulting from government-imposed shutdowns imposed at the onset of the COVID-19 pandemic in March 2020, real gross domestic product grew 15.27% from 2015 – 2019. Charleston and Berkeley counties are ranked in the top ten economies in South Carolina based on real gross domestic product according to the U.S. Bureau of Economic Analysis. The largest nonfarm employers in our market area are trade, transportation, and utilities; government; and professional and business services. Trade, transportation and utilities has been the main economic driver of the growth in the area over the last five years. This includes manufacturing campuses for Boeing, Volvo Cars, and Mercedes-Benz Vans in the area. Based on Bureau of Labor Statistics, in October 2021 the Charleston area unemployment rate was 2.8% compared to 4.6% nationally. The Charleston area continues to rank higher than the other major metropolitan areas of the state of South Carolina in talent, innovative capacity, entrepreneurial and business environment, and livability.3

~~References~~The Charleston – North Charleston metro area grew 8.24% from 2018 to ~~“we~~2021 according to the U.S. Bureau of Economic Analysis based on real gross domestic product despite the economic contraction experienced in 2020 resulting from government-imposed shutdowns imposed at the onset of the COVID-19 pandemic in March 2020. Charleston and Berkeley counties are ranked in the top ten economies in South Carolina based on real gross domestic product according to the U.S. Bureau of Economic Analysis. The largest nonfarm employers in our market area are from trade,” ~~“us~~transportation,” utilities, government and professional and business services. Trade, ~~“our~~transportation and utilities have been the main economic drivers of the growth in the area over the last five years. This includes manufacturing campuses for Boeing,” “Volvo Cars, and Mercedes-Benz Vans in the ~~Bank~~area. Based on Bureau of Labor Statistics,” orin “October 2022 the ~~Company”~~Charleston ~~refer~~area unemployment rate was 3.1% compared to 3.7% nationally. The Charleston area continues to rank higher than the ~~parent~~other ~~and~~major ~~its~~metropolitan ~~subsidiary~~areas of the state of South Carolina in talent, ~~that~~innovative ~~are~~capacity, ~~consolidated for~~entrepreneurial ~~financial~~and ~~reporting~~business environment, ~~purposes~~and livability.

The Company (ticker symbol: BKSC) is publicly traded on ~~the~~The ~~National~~Nasdaq ~~Association~~Stock ofMarket ~~Securities~~LLC ~~Dealers Automated Quotations~~ (“NASDAQ”), and is under the reporting authority of the SEC. All of our electronic filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are accessible at no cost on our website, http://www.banksc.com, (through the “Investor Relations” link). Our filings are also available through the SEC’s web site at http://www.sec.gov or by calling 1-800-SEC-0330.

Competition

The financial services industry is highly competitive. We face competition in attracting deposits and originating loans based upon a variety of factors including:

●

interest rates offered on deposit accounts

●

interest rates charged on loans

●

credit and service charges

●

the quality of services rendered

●

the convenience of banking facilities and other delivery channels

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relative lending limits in the case of loans

●

increase in non-banking financial institutions providing similar services

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continued consolidation, and

●

legislative, regulatory, economic, and technological changes.

We compete with commercial banks, savings institutions, finance companies, credit unions, financial technology companies and other financial services companies. Many of our larger commercial bank competitors have greater name recognition and offer certain services that we do not. However, we believe that we have developed an effective competitive advantage in our market area by emphasizing exceptional service and knowledge of local trends and conditions.

Lending Activities

We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets and typically require personal guarantees. Our primary lending activities are for commercial, commercial real estate, and consumer purposes, with the largest category being commercial real estate. Most of our lending activity is to borrowers within our market area.

Commercial Loans

As of December 31, ~~2021~~2022, $45.81 million, or 1413.946%, of our loan portfolio consisted of commercial loans. We originate various types of secured and unsecured commercial loans to customers in our market area in order to provide customers with working capital and funds for other general business purposes. The terms of these loans generally range from less than one year to 10 years. These loans bear either a fixed interest rate or an interest rate linked to a variable market index, depending on the individual loan, its purpose, and underwriting of that loan.

Commercial credit decisions are based upon our credit assessment of each applicant. We evaluate the applicant’s ability to repay in accordance with the proposed terms of the loan and assess the risks involved. In addition to evaluating the applicant’s financial statements, we consider the adequacy of the primary and secondary sources of repayment for the loan. Credit agency reports of the applicant’s personal credit history supplement our analysis of the applicant’s creditworthiness. In addition, collateral supporting a secured transaction is analyzed to determine its marketability. Commercial business loans generally have higher interest rates than residential loans of a similar duration because they have a higher risk of default with repayment generally depending on the successful operation of the borrower’s business and the adequacy of any collateral.

Commercial Real Estate Loans

As of December 31, ~~2021~~2022, commercial real estate construction loans comprised $1217.15 million, or 35.933%, of our loan portfolio. ~~We make construction loans for commercial properties to businesses.~~ Advances on construction loans are made in accordance with a schedule reflecting the cost of construction. Loans are typically underwritten with a maximum loan to value ratio of 80% based on current appraisals with value defined as the purchase price, appraised value, or cost of construction, whichever is lower. Repayment of construction loans on non-residential and income-producing properties is normally attributable to rental income, income from the borrower’s operating entity, or the sale of the property. Construction loans are interest-only during the construction period, which typically does not exceed twelve months, and are often amortized or paid-off with permanent financing.

Before making a commitment to fund a construction loan, we require an appraisal of the property by a state-certified or state-licensed appraiser. We review and inspect properties before disbursement of funds during the term of the construction loan.

Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimated value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. Construction loans also expose us to risk that improvements will not be completed on time in accordance with specifications and projected costs.

As of December 31, ~~2021~~2022, $~~165~~172.79 million, or 5452.042%, of our loan portfolio consisted of other commercial real estate loans, excluding commercial construction loans. Properties securing our commercial real estate loans are primarily comprised of business owner-occupied properties, small office buildings and office suites, and income-producing real estate.

We base our decision to lend primarily on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we emphasize the ratio of the property’s projected net cash flow to the loan’s debt service requirement computed after a deduction for an appropriate vacancy factor and reasonable expenses. We typically require property casualty insurance, title insurance, earthquake insurance, wind and hail coverage, and, if appropriate, flood insurance, in order to protect our security interest in the underlying property.

Commercial real estate loans generally carry higher credit risks than our other lending activities, as they typically involve larger loan balances concentrated with single borrowers or a group of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the property, as repayment of the loan generally is largely dependent upon sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions not within the control of the borrower or lender could affect the value of the underlying collateral or the future cash flow of the property.

Consumer Loans

Consumer real estate loans were $7191.36 million, or 2327.267%, of the loan portfolio as of December 31, ~~2021~~2022. Consumer real estate loans consist of consumer construction loans, home equity lines of credit (“HELOCs”), and mortgage originations. We make mortgage and construction loans for owner-occupied residential properties. Advances on construction loans are in accordance with a schedule reflecting the cost of construction, but are limited to a maximum loan-to-value ratio of 80%. Before making a commitment to fund a construction loan, we require an appraisal of the property by a state-certified or state-licensed appraiser. We review and inspect properties before disbursement of funds during the term of the construction loan. Similar to commercial real estate construction financing, consumer construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimated value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. Construction loans also expose us to risk that improvements will not be completed on time in accordance with plans, specifications, and projected costs.

This category of loans consists of loans secured by first or second mortgages on primary residences and originate as adjustable-rate or fixed-rate loans. Owner-occupied properties located in the Company’s market area serve as the collateral for these loans. The Company currently originates residential mortgage loans for our portfolio with a maximum loan-to-value ratio of 80% for traditional owner-occupied homes.

We offer home equity loans and lines of credit secured by the borrower’s primary or secondary residence. Our home equity loans and lines of credit currently originate with an adjustable- rate with a floor. We generally underwrite home equity loans and lines of credit with the same criteria that we use to underwrite mortgage loans to be sold. For a borrower’s primary and secondary residences, home equity loans and lines of credit are typically underwritten with a maximum loan-to-value ratio of 80% when combined with the principal balance of the existing mortgage loan. We require a current appraisal or internally prepared real estate evaluations on home equity loans and lines of credit. At the time we close a home equity loan or line of credit, we record a mortgage to perfect our security interest in the underlying collateral.

Other consumer loans totaled $3.89 million, or 1.232% of the loan portfolio, as of December 31, ~~2021~~2022. These loans are originated for various purposes, including the purchase of automobiles, boats, and other personal items or needs.

Consumer loans may entail greater credit risk than mortgage loans to be sold, particularly in the case of consumer loans that are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. The application of various federal and state laws, including bankruptcy and insolvency laws, may also limit the amount which can be recovered on such loans.

5 Paycheck Protection Program

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”) was enacted, which reauthorized lending under the PPP through March 31, 2021, with an additional $325.0 billion. Under the program, the U.S. Small Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for payroll and other permitted purposes in accordance with the requirements of the program. These loans were originated to assist small businesses affected by the coronavirus, or COVID-19. The Bank originated $55.3 million in PPP loans to 480 customers. PPP loans were $8.0 million, or 2.6% of the loan portfolio as of December 31, 2021. As of December 31, 2022, there were no PPP loans outstanding.

~~Paycheck Protection Program~~These ~~(“PPP”)~~ loans were ~~$8.0 million, or 2.60~~100% ofguaranteed the loan portfolio as of December 31, 2021, compared to $32.4 million, or 10.11% of the loan portfolio, as of December 31, 2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by ~~financial institutions. On December 27, 2020,~~ the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”) was enacted, which reauthorized lending under the PPP program through March 31, 2021, with an additional $325.0 billion. Under the program, the Small Business Administration (“SBA~~”) will forgive loans~~, insubject ~~whole or in part, made by approved lenders~~ to ~~eligible~~compliance ~~borrowers for payroll and other permitted purposes in accordance~~ with ~~the~~PPP requirements ~~of the program~~. ~~These loans were originated to assist small businesses affected by the coronavirus. The Bank originated $55.3 million in PPP loans to 480 customers as of December 31, 2021.~~

~~These loans are 100% guaranteed by the SBA.~~5

Loan Approval Procedures and Authority

Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Board of Directors of the Bank. The loan approval process is intended to assess the borrower’s ability to repay the loan and the value of the collateral that will secure the loan. To assess the borrower’s ability to repay, we review the borrower’s employment, credit history, and other information on the historical and projected income and expenses of the borrower.

The objectives of our lending program are to:

Establish a sound asset structure

Provide a sound and profitable loan portfolio to:

a) Minimize risk to depositors’ funds

b) ~~Maximize~~ Maximize the shareholders’ return on their investment

Promote the stable economic growth and development of the market area served by the Bank

Comply with all regulatory agency requirements and applicable law

The underwriting standards and loan origination procedures include officer lending limits, which are approved by the Board of Directors. The individual secured/unsecured lending authority of the President/Chief Executive Officer of the Bank is set at $1,500,000, and the individual secured/unsecured lending authority of the Senior Lender/Executive Vice President is set at $~~750~~1,000,000. The President/Chief Executive Officer of the Bank and the Senior Lender/Executive Vice President may jointly lend up to 10% of the Bank’s unimpaired capital for the previous quarter end. In the absence of either of the above, the other may, jointly with the approval of either the Chairman of the Board of Directors or a majority of the Loan Committee of the Board of Directors, lend up to 10% of the Bank’s unimpaired capital for the previous quarter end. The Board of Directors, with two-thirds vote, may approve the aggregate credit in excess of this limit but may not exceed 15% of the Bank’s unimpaired capital. Loan limits apply to the total direct and indirect liability of the borrower. All loans above the loan officer’s authority must have the approval of a loan officer with the authority to approve a loan of that amount. Pooling of loan authority is not allowed except as outlined above for the President/Chief Executive Officer, Senior Lender/Executive Vice President, Chairman of the Board of Directors, and a majority of the Loan Committee or two-thirds of the Board of Directors.

All new credit which results in aggregate direct, indirect, and related credit, not under an approved line of credit of a threshold set forth in our loan policy, with the exceptions of mortgage loans in the process of being sold to investors and loans secured by properly margined negotiable securities traded on an established market or other cash collateral, are reviewed in detail on a monthly basis by the Loan Committee. Certain new credits that meet a higher threshold than required for the Loan Committee are reviewed by the Board of Directors of the Bank at its regular monthly meeting.

Employees

At December 31, ~~2021~~2022, we employed 8180 people, with one individual considered hourly, none of whom are subject to a collective bargaining agreement. We provide a variety of benefit programs including an Employee Stock Ownership Plan and Trust; Stock Incentive Plan; and health, life, disability and other insurance. We believe our relationship with our employees is excellent.

Supervision and Regulation

We are subject to extensive state and federal banking laws and regulations that impose specific requirements or restrictions and provide for general regulatory oversight of virtually all aspects of operations. The regulations are primarily intended to protect depositors, customers, and the integrity of the U.S. banking system and capital markets. The following information describes some of the more significant laws and regulations applicable to us. The description is qualified in its entirety by reference to the applicable laws and regulations. Proposals to change the laws and regulations governing the banking industry are frequently raised in Congress, state legislatures, and with the various bank regulatory agencies. Changes in applicable laws or regulations, or a change in the way such laws or regulations are interpreted by regulatory agencies or courts, may have a material impact on our business, operations and earnings.

6 Dodd-Frank Act

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became effective. This law has broadly affected the financial services industry by implementing changes to the financial regulatory landscape aimed at strengthening the sound operation of the financial services industry. This legislation continues to affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies, including the Company and the Bank.

~~On July 21, 2010, the~~ The Dodd-Frank ~~Wall~~Act ~~Street Reform~~created ~~and~~the Consumer Financial Protection ~~Act~~Bureau (the “~~Dodd-Frank Act~~CFPB”) ~~became~~to ~~effective.~~centralize ~~This~~responsibility ~~law~~for ~~has~~consumer financial ~~broadly~~protection, ~~affected~~including ~~the~~implementing, ~~financial services~~examining ~~industry~~and byenforcing ~~implementing~~compliance ~~changes~~with tofederal ~~the~~consumer financial ~~regulatory~~laws. ~~landscape~~The ~~aimed~~CFPB exercises atsupervisory ~~strengthening~~review ~~the~~of ~~sound~~banks ~~operation~~under ofits ~~the financial~~jurisdiction, ~~services~~which ~~industry~~includes banks with assets over $10 billion. ~~This~~The ~~legislation~~CFPB ~~will~~focuses ~~continue~~its torulemaking ~~significantly~~in ~~change~~several areas, particularly in the ~~current~~areas ~~bank~~of ~~regulatory~~mortgage ~~structure~~reform ~~and~~involving ~~affect~~ the ~~lending~~Real Estate Settlement Procedures Act, ~~deposit~~the Truth in Lending Act, ~~investment~~the Equal Credit Opportunity Act, ~~trading~~and the Fair Debt Collection Practices Act. There are many provisions in the Dodd-Frank Act mandating regulators to adopt new regulations and ~~operating~~conduct ~~activities~~studies ofupon ~~financial~~which ~~institutions~~future regulation may be based. Governmental intervention and ~~their~~new ~~holding~~regulations ~~companies~~could materially and adversely affect our business, ~~including the~~financial ~~Company~~condition and ~~the~~results ~~Bank~~of operations.

~~The Dodd-Frank Act created the Consumer~~Volcker Financial Protection Bureau (the “CFPB”) to centralize responsibility for consumer financial protection, including implementing, examining and enforcing compliance with federal consumer financial laws. The CFPB exercises supervisory review of banks under its jurisdiction. The CFPB focuses its rulemaking in several areas, particularly in the areas of mortgage reform involving the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Equal Credit Opportunity Act, and the Fair Debt Collection Practices Act. There are many provisions in the Dodd-Frank Act mandating regulators to adopt new regulations and conduct studies upon which future regulation may be based. Governmental intervention and new regulations could materially and adversely affect our business, financial condition and results of operations.Rule

Section 619 of the Dodd-Frank Act, known as the “Volcker Rule,” prohibits any bank, bank holding company, or affiliate (referred to collectively as “banking entities”) from engaging in two types of activities: proprietary trading and the ownership or sponsorship of private equity or hedge funds that are referred to as covered funds. Proprietary trading, in general, is trading in securities on a short-term basis for a banking entity’s own account. In December 2013, federal banking agencies, the SEC and the Commodity Futures Trading Commission, finalized a regulation to implement the Volcker Rule. As of December 31, 2022, the Company has evaluated our securities portfolio and has determined that we do not hold any covered funds.

~~Section~~Further, ~~619~~pursuant ofto the ~~Dodd-Frank~~Economic ~~Act~~Growth, ~~known as~~Regulatory ~~the~~Relief, ~~“Volcker~~and Consumer ~~Rule,”~~Protection ~~prohibits~~Act ~~any~~enacted ~~bank~~in 2018, ~~bank~~the ~~holding~~Volcker ~~company,~~Rule orwas ~~affiliate~~amended ~~(referred~~by tomodifying ~~collectively~~the asdefinition “of ‘‘banking ~~entities”)~~entity’’ ~~from~~to ~~engaging~~exclude incertain ~~two~~community ~~types~~banks ofand ~~activities:~~their ~~proprietary~~affiliates. ~~trading~~Under ~~and~~ the ~~ownership~~Volcker orRule, ~~sponsorship~~as ofamended, ~~private~~community ~~equity~~banks orare ~~hedge~~excluded ~~funds~~from ~~that~~the ~~are~~restrictions ~~referred~~of tothe asVolcker ~~covered~~Rule ~~funds.~~if ~~Proprietary~~(i) ~~trading,~~the incommunity ~~general~~bank, isand ~~trading~~every ~~in securities on a short-term basis for a banking~~ entity’s ~~own~~that ~~account.~~controls ~~In December 2013~~it, ~~federal~~has ~~banking~~total consolidated ~~agencies,~~assets ~~the~~equal ~~SEC~~to ~~and~~or ~~the~~less ~~Commodity~~than ~~Futures~~$10 ~~Trading Commission,~~billion ~~finalized~~and a(ii) ~~regulation~~trading toassets ~~implement~~and ~~the~~liabilities ~~Volcker Rule. As~~ of ~~December~~the ~~31,~~community ~~2021~~bank, ~~the~~and ~~Company~~every entity ~~has~~that ~~evaluated~~controls ~~our~~it, ~~securities portfolio~~are ~~and~~equal ~~has~~to ~~determined~~or ~~that~~less wethan dofive ~~not~~percent ~~hold~~of ~~any~~its ~~covered~~total ~~funds~~consolidated assets.

~~Bank Holding Company Act~~6

~~The Company is a one-bank holding company under the Federal~~ Bank Holding Company Act of 1956, as amended. As a result, the Company is primarily subject to the supervision, examination and reporting requirements of the Board of Governors (the “Federal Reserve Board”) of the Federal Reserve Bank (the “Federal Reserve”) under the act and its regulations promulgated thereunder.

~~Capital~~The Company ~~Requirements~~is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended. As a result, the Company is primarily subject to the supervision, examination and reporting requirements of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) under the act and its regulations promulgated thereunder. The Federal Reserve Board, together with the applicable Federal Reserve Bank that is delegated with primary supervision responsibilities over the Company (collectively, the “Federal Reserve”), is the Company’s primary federal banking regulator.

The Federal Reserve Board imposes certain capital requirements on the Company under the Bank Holding Company Act, including a minimum leverage ratio and minimum ratio of “qualifying” capital to risk-weighted assets or a community bank leverage ratio for qualifying community banking organizations. These requirements are essentially the same as those that apply to the Bank and are described under “Regulatory Capital ~~Requirements” in the notes to the consolidated financial statements (see Note 18). The ability of the Company to pay~~ ~~dividends to shareholders depends on the Bank’s ability to pay dividends to the Company, which is subject to regulatory restrictions as described below in “Dividends.”~~Requirements

~~Standards~~The Federal Reserve Board imposes certain capital requirements on the Company under the Bank Holding Company Act, including a minimum leverage ratio and minimum ratio of “qualifying” capital to risk-weighted assets or a community bank leverage ratio for ~~Safety~~qualifying community banking organizations. These requirements are essentially the same as those that apply to the Bank and are ~~Soundness~~described under “Regulatory Capital Requirements” in the notes to the consolidated financial statements (see Note 18). The ability of the Company to pay dividends to shareholders depends on the Bank’s ability to pay dividends to the Company, which is subject to regulatory restrictions as described below in the section titled “Dividends.”

~~The Federal Deposit Insurance Act requires~~Standards ~~the federal banking regulatory agencies to prescribe, by regulation or guidelines, operational and managerial standards~~ for all insured depository institutions relating to (1) internal controls, information systems and internal audit systems, (2) loan documentation, (3) credit underwriting, (4) interest rate risk exposure, and (5) asset growth. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees, and benefits. The federal banking agencies have adopted regulations and “Interagency Guidelines Establishing Standards for Safety and Soundness” to implement these required standards. These guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.

~~Regulatory~~The Federal ~~Examination~~Deposit Insurance Act requires the federal banking regulatory agencies to prescribe, by regulation or guidelines, operational and managerial standards for all insured depository institutions relating to (1) internal controls, information systems and internal audit systems, (2) loan documentation, (3) credit underwriting, (4) interest rate risk exposure, and (5) asset growth. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees, and benefits. The federal banking agencies have adopted regulations and “Interagency Guidelines Establishing Standards for Safety and Soundness” to implement these required standards. These guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.

~~All insured institutions must undergo regular~~Regulatory on-site examinations by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate banking agency against each institution or affiliate, as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the Federal Deposit Insurance Corporation (“FDIC”), their federal regulatory agency, and state supervisor, when applicable. As a state-chartered bank located in South Carolina, the Bank is also subject to the regulations of the South Carolina State Board of Financial Institutions.Examination

~~The~~All insured ~~federal~~institutions ~~banking~~must ~~regulatory~~undergo ~~agencies prescribe,~~regular on-site examinations by ~~regulation,~~their ~~standards~~appropriate ~~for~~banking ~~all~~agency. The cost of examinations of insured depository institutions and ~~depository~~any ~~institution~~affiliates ~~holding~~may ~~companies~~be ~~relating~~assessed by the appropriate banking agency against each institution or affiliate, as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the Federal Deposit Insurance Corporation (“FDIC”), ~~among~~their ~~other~~federal ~~things~~regulatory agency, and state supervisor, when applicable. As a state-chartered bank located in South Carolina, the ~~following:~~Bank is also subject to the regulations of the South Carolina State Board of Financial Institutions.

●The federal ~~Internal~~banking ~~controls~~regulatory agencies prescribe, by regulation, standards for all insured depository institutions and depository institution holding companies relating to, among other things, the following:

● ~~Information~~Internal ~~systems and audit systems~~controls

● ~~Loan~~Information ~~documentation~~systems and audit systems

● ~~Credit~~Loan ~~underwriting~~documentation

● ~~Interest~~Credit ~~rate risk exposure~~underwriting

● ~~Asset~~Interest ~~quality~~rate risk exposure

7 ● Asset quality

●

Liquidity

●

Capital adequacy

●

Bank Secrecy Act

●

Sensitivity to market risk

Transactions with Affiliates and Insiders

We are subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. Such extensions of credit must be made on substantially the same terms, including interest rates, and collateral, as those prevailing at the time for comparable transactions with third parties and must not involve more than the normal risk of repayment or present other unfavorable features.

Dividends

The Company’s principal source of cash flow, including cash flow to pay dividends to its shareholders, is dividends it receives from the Bank. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Company. As a general rule, the amount of a dividend may not exceed, without prior regulatory approval, the sum of net income in the calendar year to date and the retained net earnings of the immediately preceding two calendar years. A depository institution may not pay any dividend, without regulatory approval, if payment would cause the institution to become undercapitalized or if it already is undercapitalized.

Consumer Protection Regulations

Activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers. Interest and other charges collected by the Bank are subject to state usury laws and federal laws concerning interest rates. Our loan operations are also subject to federal laws applicable to credit transactions, such as:

●

The federal Truth-In-Lending Act, which governs disclosures of credit terms to consumer borrowers

●

The Home Mortgage Disclosure Act of 1975, which requires financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves

●

The Fair Lending Act, which requires fair, equitable, and nondiscriminatory access to credit for consumers

~~● The Equal Credit Opportunity Act, which prohibits discrimination on the basis of race, creed or other prohibited factors in extending credit~~7

● The ~~Fair~~Equal Credit ~~Reporting~~Opportunity Act ~~of 1978~~, which ~~governs~~prohibits ~~the~~discrimination ~~use~~on ~~and~~the ~~provision~~basis of ~~information~~race, tocreed ~~credit~~or ~~reporting~~other ~~agencies~~prohibited factors in extending credit

● The Fair ~~Debt~~Credit ~~Collection~~Reporting Act of 1978, which governs the ~~manner~~use inand ~~which~~provision ~~consumer~~of ~~debt~~information ~~may~~to becredit ~~collected~~reporting ~~by collection~~ agencies

● The ~~Gramm~~Fair -Debt ~~Leach~~Collection ~~- Bliley~~ Act, which governs the ~~protection~~manner ofin which consumer ~~information~~debt may be collected by collection agencies

● The ~~rules~~Gramm ~~and~~- ~~regulations~~Leach of- ~~the~~Bliley ~~various~~Act, ~~federal~~which ~~agencies~~governs ~~charged with~~ the ~~responsibility~~protection of ~~implementing~~consumer ~~such federal laws~~information

● The ~~deposit~~rules ~~operations~~and regulations of the ~~Bank~~various ~~also are~~federal ~~subject~~agencies ~~to:~~charged with the responsibility of implementing such federal laws

● The ~~Right~~deposit tooperations ~~Financial Privacy Act, which imposes a duty to maintain confidentiality~~ of ~~consumer~~the ~~financial~~Bank ~~records~~also ~~and~~are ~~prescribes~~subject ~~procedures for complying with administrative subpoenas of financial records~~to:

● The ~~Electronic~~Right ~~Funds Transfer Act and Regulation E, issued by the Federal Reserve Board~~ to ~~implement~~Financial ~~the~~Privacy ~~act~~Act, which ~~govern~~imposes ~~automatic~~a ~~deposits~~duty to ~~and~~maintain ~~withdrawals~~confidentiality ~~from~~of ~~deposit~~consumer ~~accounts~~financial records and ~~customer’s~~prescribes ~~rights~~procedures ~~and~~for ~~liabilities~~complying ~~arising~~with ~~from~~administrative ~~the~~subpoenas ~~use~~ of ~~automated~~financial ~~teller machines and other electronic banking services~~records

● The Electronic Funds Transfer Act and Regulation DDE, which ~~implements~~govern ~~the~~automatic ~~Truth~~deposits into ~~Savings~~and ~~Act~~withdrawals tofrom ~~enable~~deposit ~~consumers~~accounts toand ~~make~~customer’s ~~informed~~rights ~~decisions~~and ~~about~~liabilities ~~deposit~~arising ~~accounts~~from atthe ~~depository~~use ~~institutions.~~of automated teller machines and other electronic banking services

~~Enforcement~~● ~~Powers~~Regulation DD, which implements the Truth in Savings Act to enable consumers to make informed decisions about deposit accounts at depository institutions.

~~The Company is subject to supervision and~~Enforcement examination by the FDIC, the Federal Reserve and the South Carolina State Board of Financial Institutions. The Bank is subject to extensive federal and state regulations that significantly affect business and activities. These regulatory bodies have broad authority to implement standards and to initiate proceedings designed to prohibit depository institutions from engaging in activities that represent unsafe or unsound banking practices or constitute violations of applicable laws, rules, regulations, administrative orders, or written agreements with regulators. These regulatory bodies are authorized to take action against institutions that fail to meet such standards, including the assessment of civil monetary penalties, the issuance of cease-and-desist orders, and other actions.Powers

The Company is subject to supervision and examination by the FDIC, the Federal Reserve and the South Carolina State Board of Financial Institutions. The Bank ~~Secrecy~~is ~~Act/Anti~~subject to extensive federal and state regulations that significantly affect business and activities. These regulatory bodies have broad authority to implement standards and to initiate proceedings designed to prohibit depository institutions from engaging in activities that represent unsafe or unsound banking practices or constitute violations of applicable laws, rules, regulations, administrative orders, or written agreements with regulators. These regulatory bodies are authorized to take action against institutions that fail to meet such standards, including the assessment of civil monetary penalties, the issuance of cease-~~Money~~and-desist ~~Laundering~~orders, and other actions.

~~We are subject to the~~ Bank ~~Secrecy Act~~ ~~and other anti-money laundering laws and regulations, including the USA Patriot Act of 2001 (“USA Patriot Act”). We must maintain a Bank~~ Secrecy Act ~~Program that includes established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee~~/Anti-~~training~~Money program; and testing of the program by an independent audit function. The enactment of the USA Patriot Act amended and expanded the focus of the Bank Secrecy Act to facilitate information sharing among governmental entities and the Company for the purpose of combating terrorism and money laundering. It improves anti-money laundering and financial transparency laws, information collection tools and the enforcement mechanics for the U.S. government. These provisions include (a) standards for verifying customer identification at account opening; (b) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (c) reports by nonfinancial trades and businesses filed with the U.S. Treasury’s Financial Crimes Enforcement Network for transactions exceeding $10,000; (d) suspicious activities reports by brokers and dealers if they believe a customer may be violating U.S. laws; and (e) regulations and enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.Laundering

8 We are subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA Patriot Act of 2001 (“USA Patriot Act”). We must maintain a Bank Secrecy Act Program that includes established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee-training program; and testing of the program by an independent audit function. The enactment of the USA Patriot Act amended and expanded the focus of the Bank Secrecy Act to facilitate information sharing among governmental entities and the Company for the purpose of combating terrorism and money laundering. It improves anti-money laundering and financial transparency laws, information collection tools and the enforcement mechanics for the U.S. government. These provisions include (a) standards for verifying customer identification at account opening; (b) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (c) reports by nonfinancial trades and businesses filed with the U.S. Treasury’s Financial Crimes Enforcement Network for transactions exceeding $10,000; (d) suspicious activities reports by brokers and dealers if they believe a customer may be violating U.S. laws; and (e) regulations and enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.

Similar in purpose to the Bank Secrecy Act, the Office of Foreign Assets Control (“OFAC”), a division of the U.S. Department of Treasury, controls and imposes economic and trade sanctions based on U.S. foreign policy and national security goals against targeted countries and individuals based on threats to foreign policy, national security, or the U.S. economy. OFAC has and will send banking regulatory agencies lists of names of individuals and organizations suspected of aiding, concealing, or engaging in terrorist acts. Among other things, the Bank must block transactions with or accounts of sanctioned persons and report those transactions after their occurrence.

Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications.

Privacy and Credit Reporting

In connection with our lending activities, we are subject to a number of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. These include the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the Community Reinvestment Act (the “CRA”). The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to assess the bank’s record in meeting the credit needs of the communities served by the bank, including low and moderate income neighborhoods. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” In addition, federal banking regulators, pursuant to the Gramm-Leach-Bliley Act, have enacted regulations limiting the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with nonaffiliated third parties.

Item 1A.

Risk Factors

Under the filer category of “smaller reporting company”, as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide information requested by Part I, Item 1A of its Form 10-K.

Item 1B.

Unresolved Staff Comments

None.

~~Item 2. Properties~~8

~~The~~Item ~~Company’s headquarters is located at 256 Meeting Street in downtown Charleston, South Carolina~~2. This site is also the location of the main office of the Bank. The Bank also operates from four additional locations: 100 North Main Street, Summerville, SC; 1337 Chuck Dawley Boulevard, Mount Pleasant, SC; 2027 Sam Rittenberg Boulevard, Charleston, SC; and 9403 Highway 78, North Charleston, SC. The Bank also plans to open an additional banking location in June 2023 at 1730 Maybank Highway, Charleston, SC. The Company owns the 2027 Sam Rittenberg Boulevard location, which houses the Operations Department of the Bank as well as a banking office. The Company leases all other locations, including the future banking location. The owned location is not encumbered and all of the leases have renewal options. Each banking location is suitable and adequate for banking operations.Properties

~~Item~~The Company’s 3headquarters is located at 256 Meeting Street in downtown Charleston, South Carolina. ~~Legal~~This ~~Proceedings~~site is also the location of the main office of the Bank. The Bank also operates from four additional locations: 100 North Main Street, Summerville, SC; 1337 Chuck Dawley Boulevard, Mount Pleasant, SC; 2027 Sam Rittenberg Boulevard, Charleston, SC; and 9403 Highway 78, North Charleston, SC. The Bank also plans to open an additional banking location in June 2023 at 1730 Maybank Highway, Charleston, SC. The Company owns the 2027 Sam Rittenberg Boulevard location, which houses the Operations Department of the Bank as well as a banking office. The Company leases all other locations, including the future banking location. The owned location is not encumbered and all of the leases have renewal options. Each banking location is suitable and adequate for banking operations.

InItem ~~our~~3. ~~opinion,~~Legal ~~there are no legal proceedings pending other than routine litigation incidental to the Company’s business involving amounts that are not material to our financial condition.~~Proceedings

~~Item~~In our 4.opinion, ~~Mine~~there ~~Safety~~are ~~Disclosures~~no legal proceedings pending other than routine litigation incidental to the Company’s business involving amounts that are not material to our financial condition.

~~Not~~Item ~~applicable~~4. Mine Safety Disclosures

9 Not applicable.

~~PART II~~9

~~Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~PART II

~~At December 31, 2021, there were 5,841,240~~Item ~~shares issued and~~ 5~~,541,266~~. ~~shares~~Market ~~outstanding~~for ofRegistrant’s ~~the~~Common 12Equity,~~000,000~~ ~~authorized~~Related ~~shares~~Stockholder ofMatters ~~common~~and ~~stock~~Issuer Purchases of ~~the~~Equity ~~Company. Our common stock is traded on the NASDAQ under the trading symbol “BKSC”.~~Securities

~~Information~~Market ~~regarding the historical market prices of our common stock and dividends declared on that stock is shown below.~~Information

	High		Low		Dividends
2021
Quarter ended March 31, 2021	$	23.28	$	16.00	$	0.27
Quarter ended June 30, 2021	$	22.70	$	19.81	$	0.17
Quarter ended September 30, 2021	$	22.84	$	19.64	$	0.17
Quarter ended December 31, 2021	$	20.60	$	19.79	$	0.17
2020
Quarter ended March 31, 2020	$	19.39	$	11.65	$	0.16
Quarter ended June 30, 2020	$	18.19	$	13.75	$	0.16
Quarter ended September 30, 2020	$	17.18	$	15.69	$	0.17
Quarter ended December 31, 2020	$	16.91	$	15.95	$	0.17
2019
Quarter ended March 31, 2019	$	19.30	$	18.12	$	0.16
Quarter ended June 30, 2019	$	20.01	$	17.52	$	0.16
Quarter ended September 30, 2019	$	19.32	$	18.34	$	0.26
Quarter ended December 31, 2019	$	18.99	$	18.24	$	0.16

The Company’s common stock is traded on the NASDAQ Capital Market under the trading symbol “BKSC”.

The future payment of cash dividends is subject to the discretion of the Board of Directors and depends on a number of factors including future earnings, financial condition, cash requirements, and general business conditions. Cash dividends, when declared, are paid by the Bank to the Company for distribution to shareholders of the Company. Certain regulatory requirements restrict the dividend amount that the Bank can pay to the Company.Holders

AtAs ~~our December 1995 Board Meeting, the Board~~ of ~~Directors~~January ~~authorized the repurchase of up to 140~~31,~~918~~ ~~shares of its common stock on the open market. At our October 1999 Board Meeting~~2023, ~~the~~there ~~Board~~were ofapproximately 456 ~~Directors~~holders ~~authorized the repurchase~~ of ~~up to 45,752 shares of its common stock on~~ the ~~open market and again at our September 2001 Board meeting, the Board of Directors authorized the repurchase of up to 54,903~~ ~~shares of its common stock on the open market. At the Annual Meeting in 2020, the Board of Directors authorized a stock repurchase plan of up to $1.0 million. The~~ Company’s ~~repurchased 25,067 shares of its~~ common stock ~~for $398,868 during the year ended December 31, 2020~~. The Company did not repurchase any common shares during the years ended December 31, 2021 and 2019. As of the date of this report, the Company owns 299,974 shares, adjusted for five 10% stock dividends and a 25% stock dividend. At the Annual Meeting in 2007, the shareholders voted to increase the number of authorized shares from 6,000,000 to 12,000,000.

~~THE BANK OF SOUTH CAROLINA EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST~~Dividends

~~During~~The ~~1989,~~future ~~the~~payment ~~Board~~ of ~~Directors~~cash ~~of the~~dividends ~~Bank~~is ~~adopted~~subject ~~an Employee Stock Ownership Plan and Trust Agreement (“ESOP”)~~ to ~~provide~~the ~~retirement~~discretion ~~benefits to eligible employees~~ of the ~~Bank for long and faithful service. An amendment and restatement was made to the ESOP effective January 1, 2007~~ ~~and approved by the~~ Board of Directors onand ~~January~~depends ~~18,~~on ~~2007. Periodically, the Internal Revenue Service (“IRS”) requires~~ a ~~restatement~~number of afactors ~~qualified~~including ~~retirement~~future ~~plan~~earnings, tofinancial ~~ensure~~condition, ~~that~~cash ~~the~~requirements, ~~plan document includes provisions required by legislative~~ and ~~regulatory changes~~general ~~made since the last restatement~~business conditions. ~~There~~Cash ~~have been no substantive changes to the plan; however~~dividends, towhen ~~comply with the IRS rules~~declared, ~~the~~ ~~Board~~have ofhistorically ~~Directors~~been ~~approved~~paid aby ~~restated plan on January 26, 2012 (incorporated as Exhibit 10.5 in~~ the ~~2011~~Bank ~~10-K) and submitted the plan~~ to the ~~IRS~~Company for ~~approval.~~distribution ~~The~~to ~~IRS~~shareholders ~~issued a determination letter on September 26, 2013, stating that the plan satisfied~~of the ~~requirements of Code Section 4975 (e) (7)~~Company. OnCertain ~~January~~regulatory ~~26,~~requirements ~~2017,~~restrict the ~~Board~~dividend ofamount ~~Directors~~that ~~approved a restated plan (incorporated as Exhibit 10.6 in~~ the ~~2016~~Bank ~~10-K).~~can ~~The~~pay ~~restated Plan was submitted~~ to the ~~IRS for approval and a determination letter was issued November 17, 2017, stating that the plan satisfies the requirements of Code Section 4975 (e) (7)~~Company.

~~The~~Securities ~~Board~~Authorized ~~of Directors of the Bank approved a cash contribution of $540,000, $540,000, and $510,000 to the ESOP~~ for ~~the~~Issuance ~~fiscal~~under ~~years~~Equity ~~ended~~Compensation ~~December 31, 2021, 2020, and 2019, respectively. The contributions were made during the respective fiscal years.~~Plans

10 See Item 12 of this report for disclosure regarding securities authorized for issuance under equity compensation plans required by Item 201(d) of Regulation S-K.

AnRecent ~~employee~~Sales of ~~the~~Unregistered Bank who is not a member of an ineligible class of employees is eligible to participate in the plan upon reaching 21 years of age and being credited with one year of service (1,000 hours of service). All employees are eligible employees except for the following ineligible classes of employees:Securities

●There ~~Employees~~were ~~whose~~no ~~employment~~equity issecurities ~~governed~~of bythe aCompany ~~collective~~sold ~~bargaining~~by ~~agreement between employee representatives and~~ the Company ~~in which retirement benefits were~~ during the ~~subject~~period ofcovered ~~good~~by ~~faith bargaining unless~~ the ~~collective~~report ~~bargaining~~that ~~agreement~~were ~~expressly~~not ~~provides~~registered ~~for~~under the ~~inclusion~~Securities ~~of such employees in the plan~~Act.

●Purchases ~~Employees~~of ~~who~~Equity ~~are~~Securities ~~non-resident~~by ~~aliens who do not receive earned income from~~ the ~~Company~~Issuer ~~which~~and ~~constitutes~~Affiliated ~~income from sources within the United States~~Purchasers

●There ~~Any~~were ~~person~~no ~~who~~repurchases ~~becomes~~of ~~an employee as~~ the ~~result~~Company’s ofcommon ~~certain asset or~~ stock ~~acquisitions,~~during ~~mergers,~~the fourth orquarter ~~similar~~of ~~transactions~~the ~~(but~~fiscal ~~only~~year ~~during~~covered aby ~~transitional~~this ~~period)~~report.

●At ~~Certain~~the ~~leased~~Annual ~~employees~~Meeting in 2020, the Company’s Board of Directors authorized a stock repurchase plan of up to $1.0 million. The Company repurchased 25,067 shares of its common stock for $398,868 during the year ended December 31, 2020. The Company did not repurchase any shares of its common stock during the years ended December 31, 2022 and 2021.

~~● Employees who are employed by an affiliated company that does not adopt the Plan~~10

● Any person who is deemed by the Company to be an independent contractor on his or her employment commencement date and on the first day of each subsequent plan year, even if such person is later determined by a court or a governmental agency to be or to have been an employeeItem 6. [Reserved]

The employee may enter the Plan on the January 1st that occurs nearest the date on which the employee first satisfies the age and service requirements described above. No contributions by employees are permitted. The amount and time of contributions are at the sole discretion of the Board of Directors of the Bank. The contribution for all participants is based solely on each participant’s respective regular or base salary and wages paid by the Bank including commissions, bonuses and overtime, if any.11

~~A participant becomes vested in the ESOP~~Item ~~based~~7. ~~upon the employee~~Management’s ~~credited~~Discussion ~~years~~and Analysis of ~~service.~~Financial ~~The~~Condition ~~vesting~~and ~~schedule~~Results isof ~~as follows:~~Operations

●	1 Year of Service	0% Vested
●	2 Years of Service	25% Vested
●	3 Years of Service	50% Vested
●	4 Years of Service	75% Vested
●	5 Years of Service	100% Vested

Management’s discussion and analysis is included to assist the reader in understanding our financial condition, results of operations, and cash flow. This discussion should be reviewed in conjunction with the audited consolidated financial statements and accompanying notes presented in Item 8 of this report and the supplemental financial data appearing throughout this report. Since the primary asset of the Company is its wholly-owned subsidiary, most of the discussion and analysis relates to the Bank.

The Bank is the Plan Administrator. Eugene H. Walpole, IV, Fleetwood S. Hassell, Sheryl G. Sharry and Douglas H. Sass, currently serve as the Plan Administrative Committee and Trustees for the Plan. At December 31, 2021, the Plan owned 361,565 shares of common stock of the Company.OVERVIEW

~~THE~~The Company ~~BANK~~is OFa ~~SOUTH~~bank ~~CAROLINA~~holding ~~STOCK~~company ~~INCENTIVE~~headquartered in Charleston, South Carolina, with $653.3 million in assets as of December 31, 2022 ~~PLANS~~and net income of $6.7 million for the year ended December 31, 2022. The Company offers a broad range of financial services through its wholly owned subsidiary, the Bank. The Bank is a state-chartered commercial bank, which operates principally in the Charleston, Dorchester, and Berkeley counties of South Carolina. The Bank’s original and current concept is to be a full service financial institution specializing in personal service, responsiveness, and attention to detail to foster long-standing relationships.

We derive ~~have~~most ~~two~~of ~~Stock~~our ~~Incentive~~income ~~Plans:~~from ~~the first~~interest ~~was~~on ~~approved~~loans inand ~~2010~~investment ~~with~~securities. ~~300,000~~The ~~(363,000~~primary ~~adjusted~~source ~~for~~of ~~two~~funding ~~10%~~for ~~stock~~making ~~dividends)~~these ~~shares reserved~~ loans and ~~another~~purchasing ~~Stock~~investment ~~Incentive Plan,~~securities ~~which~~is ~~was~~our ~~approved~~interest-bearing inand ~~2020,~~non-interest-bearing ~~with 300,000 shares reserved~~deposits. ~~No new options may be granted under the 2010 plan~~Consequently, asone itof ~~expired on April 14, 2020. Under~~ the ~~2020~~key ~~plan, options are periodically granted to employees~~measures atof aour ~~price~~success ~~not~~is ~~less~~the ~~than~~amount ~~the~~of ~~fair~~net ~~market~~interest ~~value~~income, ofor the ~~shares~~difference atbetween the ~~date~~income ofon ~~grant.~~our ~~Participating~~interest-earning ~~employees~~assets, ~~become 20% vested after~~such ~~five~~as ~~years~~loans and ~~then~~investments, ~~vest~~and ~~20%~~the ~~each~~expense ~~year~~on ~~until~~our ~~fully~~interest-bearing ~~vested.~~liabilities, ~~The~~such ~~right~~as todeposits. ~~exercise~~Another ~~each~~key ~~such~~measure ~~20%~~is of the ~~options is cumulative and~~spread ~~will~~between ~~not expire until~~ the ~~tenth~~yield ~~anniversary~~we ofearn ~~the~~on ~~date~~these ~~of the grant. Employees are eligible to participate in this plan if the Executive/Long~~interest-~~Range~~earning ~~Planning~~assets ~~Committee, in its sole discretion,~~ and the ~~Compensation~~rate ~~Committee~~we aspay toon ~~Executive~~our ~~Officers who are members of the Executive/Long~~interest-~~Range~~bearing ~~Planning Committee, determines that an employee has contributed or can be expected to contribute to our profits or growth~~liabilities.

WeA consequence ~~also~~of ~~have~~lending aactivities ~~stock~~is ~~incentive~~that ~~plan~~we ~~to provide~~may ~~equity~~incur ~~incentive~~credit ~~compensation~~losses. toThe ~~the~~amount ~~Company's~~of ~~eligible~~such ~~independent~~losses ~~directors.~~will ~~The~~vary ~~plan~~depending ~~was~~upon ~~approved by~~ the ~~shareholders in~~risk ~~2021~~characteristics ~~and~~of ~~has 150,000 shares reserved. Under~~ the ~~2021~~loan ~~plan,~~portfolio ~~options~~as ~~may~~affected beby ~~granted~~economic toconditions ~~eligible~~such ~~independent~~as ~~directors~~rising atinterest arates ~~price~~and ~~not less than~~ the ~~fair~~financial ~~market value~~ performance of ~~the shares at the date of grant~~borrowers. ~~Options~~The ~~granted~~reserve tofor ~~independent~~credit ~~directors~~losses ~~become~~consists ~~vested~~of asthe toallowance ~~20%~~for ofloan losses (the ~~options~~“allowance”) ~~per year~~ and ~~will~~a bereserve for ~~fully~~unfunded ~~vested~~commitments ~~after~~(the ~~five~~“unfunded ~~years~~reserve”). The ~~right~~allowance toprovides ~~exercise~~for ~~each~~probable ~~such 20% of the options is cumulative~~ and ~~will~~estimable ~~not~~losses ~~expire~~inherent ~~until~~in ~~the~~our ~~tenth~~loan ~~anniversary~~portfolio ofwhile the ~~date~~unfunded ofreserve ~~the~~provides ~~grant.~~for ~~Each~~potential ~~independent~~losses ~~director~~related ~~is eligible~~ to ~~participate~~unfunded inlending ~~the~~commitments. ~~2021~~For ~~plan if~~a ~~the~~detailed ~~Compensation~~discussion ~~Committee,~~on inthe ~~its~~allowance ~~sole~~for ~~discretion~~loan losses, ~~determines~~see ~~that~~“Allowance ~~such~~for ~~person~~Loan ~~has contributed or can be expected to contribute to our profits or growth~~Losses”.

~~The~~In addition ~~fair~~to ~~value~~earning ofinterest ~~each~~on ~~option~~loans ~~award~~and ~~is estimated~~investment onsecurities, ~~the~~we ~~date~~earn ofincome ~~grant~~through ~~using~~fees aand ~~closed~~other ~~form~~expenses ~~option~~we ~~valuation~~charge ~~(Black-Scholes)~~to ~~model~~the customer. ~~Expected~~The ~~volatilities~~various ~~are~~components ~~based~~of onother ~~historical volatilities~~income ofand ~~our~~other ~~common~~expenses ~~stock~~are described in the following discussion. The ~~expected~~discussion and ~~term~~analysis ofalso ~~the~~identifies ~~options~~significant ~~granted~~factors ~~will~~that ~~not~~have ~~exceed~~affected ~~ten~~our ~~years~~financial ~~from~~position ~~the~~and ~~date~~operating results as of ~~grant~~and ~~(the~~for ~~amount~~the ofyear ~~time~~ended ~~options~~December ~~granted~~31, ~~are~~2022 ~~expected~~as compared to beDecember ~~outstanding).~~31, ~~The~~2021 ~~risk-free~~and ~~interest~~our ~~rate~~operating results for ~~the~~2021 ~~expected~~compared ~~term~~to of2020, ~~the~~and ~~option~~should isbe ~~based~~read onin conjunction with the ~~U.S.~~consolidated ~~Treasury~~financial ~~yield~~statements ~~curve~~and the related notes included in ~~effect~~this atreport. ~~the~~In ~~time~~addition, a number of tables have been included to assist in the ~~grant~~discussion.

11 The following table sets forth certain summary financial information concerning the Company and its wholly-owned subsidiary for the last five years. The information was derived from the audited consolidated financial statements. The information should be read in conjunction with this section of the report, and the audited consolidated financial statements and notes, which are presented in Item 8 of this report.

~~Item 6. [Reserved]~~12

	2022			2021			2020			2019			2018
For December 31:
Net income	$	6,655,140		$	6,744,865		$	6,460,631		$	7,318,433		$	6,922,934
Selected year end balances:
Total assets		653,345,609			679,220,646			532,494,599			445,012,520			429,135,198
Total loans¹		331,848,376			309,406,617			333,768,406			279,134,958			275,863,705
Investment securities available for sale		271,172,226			212,347,489			134,819,818			100,449,956			119,668,874
Interest-bearing deposits at the Federal Reserve		12,999,135			128,971,429			42,348,085			39,320,526			25,506,784
Earning assets		616,019,737			650,725,535			510,936,309			418,905,440			421,039,363
Total deposits		598,670,258			609,191,576			462,197,631			379,191,655			382,378,388
Total shareholders’ equity		38,811,387			53,917,633			54,980,356			51,168,032			45,462,561
Weighted Average Shares Outstanding - basic		5,550,078			5,531,518			5,526,948			5,522,025			5,500,027
Weighted Average Shares Outstanding - diluted		5,644,698			5,680,482			5,678,543			5,588,090			5,589,012

For the Year:
Selected average balances:
Total assets	$	656,833,125		$	589,379,985		$	502,628,318		$	440,615,140		$	430,495,412
Total loans¹		320,826,946			324,078,445			313,303,363			281,508,711			277,223,600
Investment securities available for sale		266,432,504			167,250,568			112,970,054			106,421,507			123,347,669
Interest-bearing deposits at the Federal Reserve		41,131,016			75,734,060			54,231,372			34,713,982			20,151,823
Earning assets		628,390,466			567,063,073			480,504,789			422,644,200			420,723,092
Total deposits		596,881,098			519,900,412			434,071,108			381,687,960			386,025,147
Total shareholders’ equity		43,602,112			54,838,166			54,021,647			49,242,545			43,691,359

Performance Ratios:
Return on average equity		15.26	%		12.30	%		11.96	%		14.86	%		15.85	%
Return on average assets		1.01	%		1.14	%		1.29	%		1.66	%		1.61	%
Average equity to average assets		6.64	%		9.30	%		10.75	%		11.18	%		10.15	%
Net interest margin		3.01	%		3.06	%		3.52	%		4.28	%		4.15	%
Net (recoveries) charge-offs to average loans		0.00	%		-0.02	%		0.02	%		0.14	%		-0.01	%
Allowance for loan losses as a percentage of total loans²		1.30	%		1.43	%		1.30	%		1.46	%		1.53	%

Per Share:
Basic income per common share³	$	1.20		$	1.22		$	1.17		$	1.33		$	1.26
Diluted income per common share³	$	1.18		$	1.19		$	1.14		$	1.31		$	1.24
Year end book value³	$	6.99		$	9.73		$	9.96		$	9.25		$	8.25
Dividends per common share	$	0.68		$	0.78		$	0.66		$	0.74		$	0.58
Dividend payout ratio		56.73	%		63.98	%		56.44	%		55.88	%		54.68	%
Full time employee equivalents		80			79			76			79			79

~~Item~~(1) 7.Including ~~Management’s~~mortgage ~~Discussion~~loans ~~and~~to ~~Analysis~~be ~~of Financial Condition and Results of Operations~~sold.

~~Management’s~~(2) ~~discussion~~Excluding ~~and~~mortgage ~~analysis is~~loans ~~included~~ to ~~assist the shareholder in understanding our financial condition, results of operations, and cash flow. This discussion should~~ be reviewed in conjunction with the audited consolidated financial statements and accompanying notes presented in Item 8 of this report and the supplemental financial data appearing throughout this reportsold. ~~Since the primary asset of the Company is its wholly-owned subsidiary, most of the discussion and analysis relates to the Bank.~~

~~OVERVIEW~~(3) Adjusted to retroactively reflect 10% stock dividend issued during the year ended December 31, 2018.

~~The Company is a bank holding company headquartered~~We inhave ~~Charleston,~~adopted ~~South~~various ~~Carolina,~~accounting ~~with~~policies ~~$679.2~~that ~~million~~govern inthe ~~assets~~application as of ~~December~~accounting ~~31,~~principles ~~2021~~generally ~~and~~accepted ~~net~~in ~~income of $6.7 million for~~ the ~~year~~United ~~ended~~States ~~December~~(“GAAP”) ~~31,~~and ~~2021.~~with ~~The~~general ~~Company~~practices ~~offers~~within ~~a broad range of financial services through its wholly owned subsidiary,~~ the ~~Bank. The~~banking ~~Bank~~industry ~~is a state-chartered commercial bank, which operates principally~~ in the ~~Charleston,~~preparation ~~Dorchester,~~of ~~and~~our ~~Berkeley~~consolidated ~~counties~~financial ~~of South Carolina~~statements. ~~The~~Our ~~Bank’s~~significant ~~original~~accounting ~~and~~policies ~~current~~are ~~concept~~set isforth toin bethe anotes ~~full~~to ~~service~~the consolidated financial ~~institution~~statements ~~specializing~~ in ~~personal~~ ~~service,~~Item ~~responsiveness,~~8 of ~~and~~this ~~attention to detail to foster long-standing relationships~~report.

WeCertain accounting ~~derive~~policies ~~most~~involve ofsignificant ~~our~~judgments ~~income from interest on loans~~ and ~~investment~~assumptions ~~securities.~~made ~~The~~by ~~primary~~the ~~source~~Company ofthat ~~funding~~have ~~for~~a ~~making~~material ~~these~~impact ~~loans~~on ~~and~~the ~~purchasing~~carrying value ~~investment~~of ~~securities~~certain ~~is our~~assets ~~interest-bearing~~ and ~~non-interest-bearing deposits~~liabilities. ~~Consequently,~~We ~~one~~consider ofthese ~~the~~accounting ~~key~~policies ~~measures~~to ofbe ~~our~~critical ~~success~~accounting ispolicies. ~~the~~The ~~amount of net~~judgment ~~interest~~and ~~income,~~assumptions orwe ~~the~~use ~~difference~~are ~~between~~based ~~the~~on ~~income~~factors onthat ~~our~~we ~~interest-earning~~believe ~~assets,~~to ~~such~~be asreasonable ~~loans~~under ~~and~~the ~~investments,~~circumstances. ~~and~~Because of the ~~expense~~number of onjudgments ~~our~~and ~~interest-bearing~~assumptions ~~liabilities~~that we make, ~~such~~actual asresults ~~deposits.~~could ~~Another~~differ ~~key~~and ~~measure~~have isa ~~the~~material ~~spread~~impact ~~between~~on the ~~yield~~carrying wevalues ~~earn~~of onour ~~these interest-earning~~ assets and ~~the~~liabilities ~~rate~~and ~~we pay on~~ our ~~interest-bearing~~results ~~liabilities~~of operations.

AWe consider ~~consequence~~our ofpolicy ~~lending~~regarding ~~activities~~the ~~is that~~allowance wefor ~~may~~loan ~~incur credit~~ losses. ~~The~~to ~~amount~~be ofour ~~such~~most ~~losses~~subjective ~~will~~accounting ~~vary~~policy ~~depending~~due ~~upon~~to the ~~risk~~significant degree ~~characteristics~~ of ~~the~~judgment. ~~loan~~We ~~portfolio as~~have ~~affected~~developed bywhat ~~economic~~we ~~conditions~~believe ~~such~~to asbe ~~rising~~appropriate ~~interest~~policies ~~rates~~ and ~~the~~procedures ~~financial performance of borrowers. The reserve~~ for ~~credit losses~~assessing ~~consists~~the ofadequacy of the allowance for loan losses, ~~(the~~recognizing ~~“allowance”)~~that ~~and~~this process requires a ~~reserve~~number ~~for~~of ~~unfunded~~assumptions ~~commitments~~and ~~(the~~estimates ~~“unfunded reserve”).~~with ~~The~~respect ~~allowance~~to ~~provides~~our loan ~~for~~portfolio. ~~probable~~Our ~~and~~assessments ~~estimable~~may ~~losses~~be ~~inherent~~impacted in ~~our~~future ~~loan~~periods ~~portfolio~~by ~~while~~changes in economic conditions, the ~~unfunded~~impact ~~reserve~~of regulatory ~~provides~~examinations ~~for~~and ~~potential~~the ~~losses~~discovery ~~related~~of information with respect to ~~unfunded~~borrowers, ~~lending~~which ~~commitments~~were not known at the time of the issuance of the consolidated financial statements. For aadditional ~~detailed~~ discussion onconcerning ~~the~~our allowance for loan losses and related matters, ~~see~~ see “Allowance for Loan Losses”.

In addition to earning interest on loans and investment securities, we earn income through fees and other expenses we charge to the customer. The various components of other income and other expenses are described in the following discussion. The discussion and analysis also identifies significant factors that have affected our financial position and operating results as of and for the year ended December 31, 2021 as compared to December 31, 2020 and our operating results for 2020 compared to 2019, and should be read in conjunction with the consolidated financial statements and the related notes included in this report. In addition, a number of tables have been included to assist in the discussion.COVID-19

13 On March 11, 2020, the World Health Organization (“WHO”) declared COVID-19 a pandemic. Due to orders issued by the governor of South Carolina and in an abundance of caution for the health of our customers and employees, in March 2020 the Bank closed lobbies to all 5 offices but remained fully operational. The Bank subsequently reopened all of the lobbies in June 2021.

The following table sets forth certain summary financial information concerning the Company and its wholly-owned subsidiary for the last five years. The information was derived from the audited consolidated financial statements. The information should be read in conjunction with this section of the report, and the audited consolidated financial statements and notes, which are presented in Item 8 of this report.13

	2021			2020			2019			2018			2017
For December 31:
Net income	$	6,744,865		$	6,460,631		$	7,318,433		$	6,922,934		$	4,901,825
Selected year end balances:
Total assets		679,220,646			532,494,599			445,012,520			429,135,198			446,566,498
Total loans1		309,406,617			333,768,406			279,134,958			275,863,705			272,274,363
Investment securities available for sale		212,347,489			134,819,818			100,449,956			119,668,874			139,250,250
Interest-bearing deposits at the Federal Reserve		128,971,429			42,348,085			39,320,526			25,506,784			24,034,194
Earning assets		650,725,535			510,936,309			418,905,440			421,039,363			435,558,807
Total deposits		609,191,576			462,197,631			379,191,655			382,378,388			402,888,300
Total shareholders’ equity		53,917,633			54,980,356			51,168,032			45,462,561			42,764,635
Weighted Average Shares Outstanding - basic		5,531,518			5,526,948			5,522,025			5,500,027			5,471,001
Weighted Average Shares Outstanding - diluted		5,680,482			5,678,543			5,588,090			5,589,012			5,568,493
For the Year:
Selected average balances:
Total assets	$	589,379,985		$	502,628,318		$	440,615,140		$	430,495,412		$	428,174,359
Total loans1		324,078,445			313,303,363			281,508,711			277,223,600			264,881,222
Investment securities available for sale		167,250,568			112,970,054			106,421,507			123,347,669			130,161,937
Interest-bearing deposits at the Federal Reserve		75,734,060			54,231,372			34,713,982			20,151,823			23,558,893
Earning assets		567,063,073			480,504,789			422,644,200			420,723,092			418,602,052
Total deposits		519,900,412			434,071,108			381,687,960			386,025,147			384,524,305
Total shareholders’ equity		54,838,166			54,021,647			49,242,545			43,691,359			43,121,778
Performance Ratios:
Return on average equity		12.30	%		11.96	%		14.86	%		15.85	%		11.37	%
Return on average assets		1.14	%		1.29	%		1.66	%		1.61	%		1.14	%
Average equity to average assets		9.30	%		10.75	%		11.18	%		10.15	%		10.07	%
Net interest margin		3.06	%		3.52	%		4.28	%		4.15	%		3.76	%
Net (recoveries) charge-offs to average loans		-0.02	%		0.02	%		0.14	%		-0.01	%		0.01	%
Allowance for loan losses as a percentage of total loans2		1.43	%		1.30	%		1.46	%		1.53	%		1.43	%
Per Share:
Basic income per common share3	$	1.22		$	1.17		$	1.33		$	1.26		$	0.90
Diluted income per common share3	$	1.19		$	1.14		$	1.31		$	1.24		$	0.88
Year end book value3	$	9.73		$	9.96		$	9.25		$	8.25		$	7.79
Dividends per common share	$	0.78		$	0.66		$	0.74		$	0.58		$	0.58
Dividend payout ratio		63.98	%		56.44	%		55.88	%		54.68	%		58.87	%
Full time employee equivalents		79			76			79			79			77

As discussed elsewhere in the report (See “Part I – Paycheck Protection Program” and Note 4 to the Company’s Notes to Consolidated Financial Statements included in Part II – Item 8 of this report), on March 27, 2020, the PPP was established under the CARES Act in response to the COVID-19 pandemic.

(While the impacts of COVID-19 and its variants appeared to create less economic disruption during 2022 as compared to 2021 and 2020, COVID-19 continues to evolve, along with governmental support and/or restrictions in response to it. As of December 31, 2021, the Bank had received 391 PPP forgiveness applications, in the amount of $49.1) ~~Including~~million ~~mortgage~~in ~~loans~~principal, and submitted 361 applications and decisions to bethe ~~sold~~SBA, in the amount of $47.7 million in principal. Of the 391 PPP submissions, 351 loans, in the amount of $46.9 million, were forgiven as of December 31, 2021. The remaining 129 loans, in the amount of $8.4 million, were forgiven during the year ended December 31, 2022. There were no PPP loans outstanding as of December 31, 2022. Upon forgiveness the Bank recognized the deferred fee income in accordance with ASC 310-20. The Bank received processing fees of $2.4 million and recognized $0.4 million and $1.3 million during the years ended December 31, 2022 and 2021, respectively.

Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (2initially issued on March 22, 2020 and revised on April 7, 2020), ~~Excluding~~encouraged ~~mortgage~~financial institutions ~~loans~~to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be ~~sold~~accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short- term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. During 2020, the Bank processed approximately $0.7 million in principal deferments to 84 customers, with an aggregate loan balance of $29.7 million. The principal deferments represented 0.24% of our total loan portfolio as of December 31, 2020. The Bank did not process any principal deferments during the years ended December 31, 2022 and 2021. The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and classified 9 loans, with an aggregate loan balance of $4.0 million, that were granted payment accommodations as TDRs given the continued financial difficulty of the customer, associated industry risk, and multiple deferral requests. All other borrowers were current prior to relief, were not experiencing financial difficulty prior to COVID-19, and the Bank determined they were not considered TDRs. As of December 31, 2021, 4 of the TDRs were removed from TDR status due to improvement in financial condition and sustained performance under the restructured terms, 2 TDRs were paid off through refinancing into new loans at market terms, and 1 TDR was paid off. Two loans with a balance of $0.5 million remained in TDR status as of December 31, 2021. Additionally, of the 75 customers that received payment accommodations that were not classified as TDRs, 41 customers, with an aggregate loan balance of $9.9 million, had paid their loan in full as of December 31, 2021. An additional loan was removed from TDR status during 2022. The remaining loan with a balance of $0.1 million is paying as agreed as of December 31, 2022. There are no loans that received payment accommodation past due greater than 30 days. The Bank will continue to examine payment accommodations as requested by borrowers.

~~(3)~~While the ~~Adjusted~~effects of COVID-19 have impacted all industries to ~~retroactively~~varying ~~reflect~~degrees, ~~10%~~during ~~stock~~2020 ~~dividend~~the Bank assessed the retail and/or service, food and beverage, and short-term rental industries in our geographic area as having a higher risk due to the possibility of the primary source of repayment not materializing. These industries are dependent upon the hospitality industry and were affected by the mandates issued ~~during~~by the ~~year~~Governor ~~ended~~of South Carolina to limit occupancy or close for a period of time. Our loans in these industries represented 3.96% of our loan portfolio at December 31, ~~2018~~2020 and were temporarily downgraded to our “Watch” category during 2020. In May 2021, due to improving economic conditions, increased vaccination rates and a continued reopening of the South Carolina economy, these loans were upgraded to our “Satisfactory” category.

14 Effects of COVID-19 or its variants may still negatively impact management assumptions and estimates, such as the allowance for loan losses. However, it is difficult to assess or predict how, and to what extent, COVID-19 will affect the Bank in the future.

~~CRITICAL~~COMPARISON OF ~~ACCOUNTING~~THE ~~POLICIES~~YEAR ENDED DECEMBER 31, 2022 TO DECEMBER 31, 2021

WeNet income ~~have~~decreased ~~adopted~~$0.1 ~~various~~million ~~accounting~~or ~~policies that~~1.3% ~~govern~~to ~~the~~$6.66 ~~application~~million, ofor ~~accounting~~basic ~~principles~~and ~~generally~~diluted ~~accepted~~income inper share of $1.20 and $1.18, respectively, for the ~~United~~year ~~States~~ended ~~(“GAAP”)~~December 31, 2022 from $6.74 million or basic and ~~with~~diluted ~~general practices~~income ~~within~~per share of $1.22 and $1.19, respectively, for the year ended December 31, 2021. This decrease was primarily due to lower mortgage banking ~~industry~~income inand ~~the~~gains ~~preparation~~on sales of securities largely offset by higher average earning asset balances coupled with increased asset yields in our ~~consolidated~~investment ~~financial~~securities ~~statements~~and a reduction in the provision for loan losses. Our returns ~~significant~~on ~~accounting~~average ~~policies are~~assets ~~set~~and ~~forth~~average inequity for the ~~notes~~year ended December 31, 2022 were 1.01% and 15.26%, respectively, compared to ~~the~~1.14% ~~consolidated~~and ~~financial~~12.30%, ~~statements~~respectively, infor ~~Item~~the 8year ofended ~~this~~December ~~report~~31, 2021.

~~Certain accounting policies involve significant~~Net ~~judgments~~interest ~~and~~income ~~assumptions~~increased ~~made~~$1.5 bymillion ~~the~~or ~~Company~~8.74% ~~that~~to ~~have~~$18.9 amillion ~~material~~for ~~impact on~~ the ~~carrying~~year ~~value~~ended ofDecember ~~certain~~31, ~~assets~~2022 ~~and~~from ~~liabilities~~$17. We4 ~~consider~~million ~~these~~for ~~accounting~~the year ~~policies~~ended toDecember be31, ~~critical accounting policies~~2021. ~~The~~This ~~judgment~~increase ~~and~~was ~~assumptions~~primarily wedue ~~use are based on factors that we believe~~ to behigher ~~reasonable~~balances ~~under the circumstances. Because~~ of ~~the~~average ~~number~~earning ofassets ~~judgments~~coupled ~~and~~with ~~assumptions~~an ~~that~~increase in weasset ~~make,~~yields ~~actual results~~on ~~could~~our ~~differ~~investment securities and ~~have~~increased ainterest ~~material~~rates ~~impact~~ on ~~the~~variable ~~carrying~~rate ~~values~~loans ofand ~~our~~new ~~assets~~originations and ~~liabilities~~renewals of ~~and~~fixed ~~our~~rate ~~results of operations~~loans.

We consider our policy regarding the allowance for loan losses to be our most subjective accounting policy due to the significant degree of judgment. We have developed what we believe to be appropriate policies and procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and estimates with respect to our loan portfolio. Our assessments may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations and the discovery of information with respect to borrowers, which were not known at the time of the issuance of the consolidated financial statements. For additional discussion concerning our allowance for loan losses and related matters, see “Allowance for Loan Losses”.14

~~COVID~~Average earning assets increased $61.3 million or 10.81% to $628.4 million for the year ended December 31, 2022 from $567.1 million for the year ended December 31, 2021. This is primarily related to an increase in the average balance of investment securities and interest-19bearing deposits at the Federal Reserve and, to a lesser extent, loans. The increase in investment securities and interest-bearing balances at the Federal Reserve reflect the deployment of excess funds resulting from a $77.0 million increase in average deposits during the year.

OnWe recorded ~~March~~a 11$75,000 ~~2020,~~reduction to the ~~World~~allowance ~~Health~~for ~~Organization (“WHO”)~~loan ~~declared~~losses ~~COVID-19~~for the year ended December 31, 2022 compared to a ~~pandemic~~provision for loan losses of $120,000 for the year ended December 31, 2021. ~~Due~~The todecrease ~~orders~~was ~~issued~~primarily driven by the ~~governor~~composition of ~~South~~our ~~Carolina~~loan portfolio in accordance with our allowance for loan loss methodology and inour ananalysis ~~abundance~~of the adequacy of ~~caution~~ the allowance for loan losses. The Board of Directors determined that this provision was appropriate based upon the ~~health~~adequacy of our ~~customers~~reserve. ~~and~~Charge-offs of ~~employees~~$42,644 inand ~~March~~recoveries ~~2020~~of $31,878, together with the ~~Bank~~reduction ~~closed~~in ~~lobbies~~the toallowance, ~~all~~resulted 5in ~~offices~~an ~~but~~allowance ~~remained~~for ~~fully~~loan losses of ~~operational~~$4.3 ~~The~~million ~~Bank~~or ~~subsequently~~1.30% ~~reopened~~of ~~all~~total ofloans ~~the~~as ~~lobbies~~of inDecember ~~June~~31, ~~2021~~2022.

~~On March 27, 2020, the Coronavirus Aid,~~Other ~~Relief,~~income ~~and~~decreased ~~Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated~~ $~~349~~1.08 ~~billion~~million ofor ~~loans~~46.62% to ~~be issued by financial institutions~~$2.1 ~~Under~~million ~~the~~for ~~program,~~ the ~~Small Business~~year ~~Administration~~ended ~~(“SBA”)~~December ~~will forgive loans~~31, ~~in whole or in part~~2022, ~~made~~from by$3.9 ~~approved~~million ~~lenders to eligible borrowers~~ for ~~payroll and other permitted purposes in accordance with~~ the ~~requirements~~year ~~of the program. These loans carry a fixed rate of~~ended ~~1.00%~~December ~~and a term of two years~~31, ~~if not forgiven, in whole or in part~~2021. ~~The~~Other ~~loans~~income ~~are~~reflects ~~100%~~lower ~~guaranteed~~mortgage bybanking ~~the~~income ~~SBA~~ and asdecreases ~~long~~in asgain ~~the borrower~~on ~~submits~~sales ~~its loan forgiveness application within ten months~~ of ~~completion~~securities of ~~the covered period~~$0.2 ~~The borrower is not required~~million. toOur ~~make~~mortgage ~~any~~banking ~~payments~~income ~~until~~decreased ~~the forgiveness amount is remitted to the lender by the SBA~~$1.6 ~~The~~million ~~Bank~~or ~~received a processing fee from the SBA ranging from 1~~71.17% to ~~5% based on the size of the loan~~$0.7 ~~The~~million ~~fees~~for ~~are deferred and amortized over~~ the ~~life~~year ofended ~~the~~December ~~loans in accordance with ASC 310-20. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was signed into law on April 24~~31, ~~2020.~~2022 ~~The~~from ~~PPP/HCEA Act authorized additional funding under the CARES Act of~~ $~~310~~2.~~0 billion for PPP loans to be issued by financial institutions through the SBA. The Bank has provided $55.~~3 million ~~in funding to 480 customers through~~ for the ~~PPP~~year asended of December 31, 2021. ~~Because~~due ~~these~~to ~~loans~~decreased ~~are~~volume ~~100%~~associated ~~guaranteed~~with by the ~~SBA~~higher ~~and~~interest ~~did~~rate ~~not~~environment ~~undergo~~experienced in ~~the~~2022. ~~Bank’s~~Mortgage ~~typical underwriting~~banking ~~process,~~income ~~they~~is ~~are~~highly ~~not~~influenced ~~graded~~by ~~and~~mortgage dointerest ~~not~~rates ~~have~~and anthe ~~associated~~housing ~~allowance~~market.

~~Borrowers must submit a forgiveness application~~Other ~~within~~expense ~~ten~~increased ~~months~~$0.1 ofmillion ~~the~~or ~~completion~~0.77% ofto ~~the covered period~~$12.4 ~~Once~~million ~~the~~for ~~borrower has submitted~~ the ~~application,~~year ~~the~~ended ~~Bank~~December ~~has 60 days to review~~31, ~~issue a lender decision~~2022, ~~and~~from ~~submit the decision and application to the SBA~~$12.3 ~~Once~~million ~~the~~for ~~application is submitted,~~ the ~~SBA~~ ~~has 90 days to review and remit the appropriate forgiveness amount to the Bank plus any interest accrued through the date of~~year ~~payment.~~ended ~~The SBA began accepting PPP Forgiveness Applications on August 10, 2020. As of~~ December 31, 2021,. ~~the~~Salaries ~~Bank~~and ~~received~~employee ~~371 PPP~~benefits ~~forgiveness~~increased ~~applications,~~approximately ~~in the amount of~~ $490.1 million, inor ~~principal~~1.47%, ~~and~~due ~~submitted 361 applications and decisions~~ to ~~the SBA~~increased benefits, payroll intaxes ~~the~~and ~~amount~~other ofemployee-related ~~$47~~costs.7 ~~million~~Net inoccupancy ~~principal.~~expense Ofincreased ~~the~~approximately ~~391 PPP submissions, 351 loans, in the amount of~~ $460.91 million, ~~were~~due ~~forgiven as~~to ofrent ~~December~~escalation provisions ~~31, 2021. Upon forgiveness the Bank will recognize the deferred fee income~~ in ~~accordance~~certain ~~with~~of ~~ASC~~our ~~310-20~~leases. ~~The~~Other ~~Bank received~~operating ~~processing~~expenses ~~fees~~decreased of $20.~~4 million and recognized $~~1.3 million, ~~and~~or $0.~~6 million during the years ended December 31, 2021 and 2020, respectively~~77%.

~~Regulatory agencies, as set forth in the~~For ~~Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by~~ the ~~Coronavirus (initially~~year ~~issued~~ended on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, ~~2019~~2022, ~~and executed between March 1, 2020 and~~ the ~~earlier~~Company’s ofeffective ~~December~~tax ~~31,~~rate ~~2020~~was ~~or 60 days after the date of termination of the National Emergency~~22.91% ~~All~~compared ~~short-term loan modifications made on a good faith basis in response~~ to ~~COVID-19 to borrowers who were current prior to any relief are not considered TDRs~~23. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. During 2020, the Bank processed approximately $0.7 million in principal deferments to 84 customers, with an aggregate loan balance of $29.7 million. The principal deferments represented 0.2450% ~~of our total loan portfolio as of December 31, 2020. The Bank did not process any principal deferments~~ during the year ended December ~~31, 2021. The Bank has examined the payment accommodations granted to borrowers in response to COVID-19~~ and classified 9 loans, with an aggregate loan balance of $4.0 million, that were granted payment accommodations as TDRs given the continued financial difficulty of the customer, associated industry risk, and multiple deferral requests. All other borrowers were current prior to relief, were not experiencing financial difficulty prior to COVID-19, and the Bank determined they were not considered TDRs. As of December 31, 2021, 4 of the TDRs were removed from TDR status due to improvement in financial condition and sustained performance under the restructured terms, 2 TDRs were paid off through refinancing into new loans at market terms, and 1 TDR was paid off. Two loans with a balance of $0.5 million remain in TDR status as of December 31, 2021. Additionally, of the 75 customers that received payment accommodations that were not classified as TDRs, 41 customers, with an aggregate loan balance of $9.9 million, have paid their loan in full as of December 31, 2021. The remaining loans are paying as agreed as of December 31, 2021. There are no loans that received payment accommodation past due greater than 30 days. The Bank will continue to examine payment accommodations as requested by our borrowers.

15 COMPARISON OF THE YEAR ENDED DECEMBER 31, 2021 TO DECEMBER 31, 2020

OnNet income ~~December~~increased ~~27,~~$0.2 ~~2020,~~million ~~the~~or ~~Economic~~4.40% ~~Aid~~ to ~~Hard-Hit~~$6.7 ~~Small Businesses~~million, ~~Nonprofits,~~or basic and ~~Venues~~diluted ~~Act~~income ~~(“Economic~~per ~~Aid~~share ~~Act”)~~of ~~was~~$1.22 ~~enacted~~and $1.19, ~~which reauthorized lending~~respectively, ~~under~~for the ~~PPP~~year ~~program~~ended ~~through~~December ~~March~~ 31, 2021, ~~with~~from ~~an additional~~ $~~325 billion~~6.5 ~~Under~~million ~~this Act, the SBA will forgive loans, in whole~~ or inbasic ~~part, made by approved lenders to eligible borrowers for payroll~~ and ~~other~~diluted ~~permitted~~income ~~purposes~~per inshare ~~accordance with the requirements~~ of ~~the program. These loans carry a fixed rate of~~ $1.~~00%~~17 and ~~a term of five years~~$1.14, ~~if not forgiven~~respectively, ~~in whole or in part. The loans~~ ~~are~~for ~~100% guaranteed by~~ the ~~SBA~~year ~~and~~ended asDecember ~~long as the borrower submits its loan forgiveness application within ten months of completion of the covered period~~31, ~~the~~2020. ~~borrower~~This isincrease ~~not~~was ~~required~~primarily todue ~~make any payments until the forgiveness amount is remitted~~ to ~~the~~higher ~~lender by~~average ~~the~~earning ~~SBA.~~asset ~~The~~balances ~~Bank~~coupled ~~will~~with ~~receive~~ a decline ~~processing~~in ~~fee~~our ~~based~~cost ~~on the size~~ of ~~the loan from the SBA and a tiered structure~~funds. ~~For~~Our ~~loans up~~returns toon ~~$50,000~~average inassets ~~principal,~~and ~~the~~average ~~lender~~equity ~~processing~~for ~~fee will be~~ the ~~lesser~~year ofended ~~50%~~December ~~of the principal amount or $2~~31,~~500.~~ ~~For~~2021 ~~loans~~were ~~between~~1.14% ~~$50,000~~ and ~~$350~~12.30%,~~000~~ ~~in principal~~respectively, ~~the~~compared ~~lender~~to ~~processing fee will be 5~~1.29% ofand ~~the principal amount~~11. ~~For loans $350~~96%,~~000~~ ~~and above~~respectively, ~~the~~ ~~lender~~for ~~processing fee will be 3% of~~ the ~~principal~~year ~~amount.~~ended ~~The~~December ~~fees are deferred and amortized over the life of the loans in accordance with ASC 310-20. Over the course of the PPP program~~31, ~~the Bank extended 480 loans with a total loan amount of $55~~2020.~~3 million.~~

~~While~~Net interest ~~the~~income ~~effects~~increased of$0.5 ~~COVID-19~~million ~~have~~or ~~impacted all~~2.61% ~~industries~~ to ~~varying~~$17.4 ~~degrees,~~million ~~during~~for ~~2020~~ the ~~Bank~~year ~~assessed~~ended ~~the~~December ~~retail and/or service~~31, ~~food~~2021 ~~and~~from ~~beverage,~~$16.9 ~~and~~million ~~short-term~~for ~~rental~~the ~~industries~~year inended ~~our~~December ~~geographic~~31, ~~area~~2020. asThis ~~having~~increase awas ~~higher~~primarily ~~risk~~ due to ~~the~~an ~~possibility~~increase ofin ~~the~~interest ~~primary~~and ~~source~~fees ofon ~~repayment~~PPP ~~not~~loans ~~materializing.~~and ~~These industries are dependent~~investment ~~upon~~securities. ~~the~~Interest ~~hospitality industry~~ and ~~were~~fees ~~affected~~on byloans ~~the~~and ~~mandates~~investment ~~issued~~securities byincreased ~~the~~$0.4 ~~Governor~~million ofor ~~South~~2.35% ~~Carolina~~ to ~~limit~~$17.1 ~~occupancy~~million ~~or close~~ for athe ~~period~~year ended ofDecember ~~time.~~31, ~~Our~~2021 ~~loans~~from ~~in these industries represented 3~~$16.~~96%~~7 ofmillion ~~our~~for ~~loan~~the ~~portfolio~~year atended December 31, 2020 ~~and were temporarily downgraded to our “Watch” category during 2020. In May 2021~~, ~~due~~as tothe ~~improving~~result ~~economic~~of ~~conditions,~~higher ~~increased vaccination~~balances ~~rates and a continued reopening~~ of ~~the~~average ~~South Carolina economy, these loans were upgraded to our “Satisfactory”~~earning ~~category~~assets.

~~Effects~~Average earning ofassets ~~COVID-19~~increased ~~may~~$86.6 ~~negatively~~million ~~impact management~~or ~~assumptions~~18.01% ~~and~~to ~~estimates,~~$567.1 ~~such~~million asfor the ~~allowance~~year ~~for~~ended ~~loan~~December ~~losses~~31, 2021 from $480.5 ~~However~~million for the year ended December 31, it2020. This is ~~difficult~~primarily related to ~~assess~~an orincrease ~~predict~~in ~~how,~~the average balance of investment securities and interest-bearing deposits at the Federal Reserve and, to ~~what~~a lesser extent, ~~COVID~~loans. The increase in investment securities and interest-19bearing balances ~~will~~at ~~affect~~the Federal Reserve reflect the ~~Bank~~deployment of excess funds resulting from an $85.8 million increase in average deposits during the ~~future~~year.

~~COMPARISON~~The provision OFto ~~THE~~the ~~YEAR~~allowance ~~ENDED~~for ~~DECEMBER~~ loan losses for the year ended December 31, 2021 TOwas ~~DECEMBER~~$120,000 compared to $240,000 for the year ended December 31, 2020. The decrease was primarily driven by the composition of our loan portfolio in accordance with our allowance for loan loss methodology. The Board of Directors determined that this provision was appropriate based upon the adequacy of our reserve. Charge-offs of $20,990 and recoveries of $92,283, together with the provision to the allowance, resulted in an allowance for loan losses of $4.4 million or 1.43% of total loans as of December 31, 2021. The allowance for loan losses is 1.47% of total loans net of PPP loans.

~~Net~~ Other income increased $0.25 million or 413.4061% to $63.79 million, orfor ~~basic~~the ~~and~~year ~~diluted~~ended ~~income~~December ~~per~~31, ~~share~~2021, offrom $13.224 ~~and~~million ~~$1.19, respectively,~~ for the year ended December 31, ~~2021 from $6~~2020.5 ~~million~~Other orincome ~~basic~~reflects ~~and~~increases ~~diluted~~in ~~income~~gain ~~per~~on ~~share~~sales of ~~$1.17~~securities ~~and~~of $10.~~14,~~3 ~~respectively,~~million ~~for~~and ~~the~~service ~~year~~charges ~~ended~~and ~~December~~fees ~~31,~~of ~~2020~~$0.2 ~~This~~million. ~~increase~~Our ~~was~~mortgage ~~primarily~~banking ~~due~~income toincreased ~~higher~~$46,700 ~~average~~or ~~earning~~2.06% ~~asset~~to ~~balances~~$2.3 ~~coupled~~million ~~with~~for athe ~~decline~~year inended ~~our~~December ~~cost~~31, of2021 ~~funds~~from $2.3 million for the ~~Our~~year ~~returns~~ended onDecember ~~average~~31, ~~assets~~2020 ~~and~~due ~~average~~to ~~equity~~elevated ~~for~~volume ~~the~~associated ~~year~~with ~~ended~~a ~~December~~continuation ~~31,~~of ~~2021~~the ~~were~~low ~~1.14%~~interest ~~and~~rate 12environment.~~30%,~~ ~~respectively,~~Mortgage ~~compared~~banking toincome ~~1.29%~~is ~~and~~highly ~~11.96%,~~influenced ~~respectively,~~by ~~for~~mortgage ~~the~~interest ~~year~~rates ~~ended~~and ~~December~~the ~~31,~~housing ~~2020~~market.

~~Net~~Other expense ~~interest income~~ increased $0.56 million or 25.6145% to $1712.43 million for the year ended December 31, 2021, from $1611.97 million for the year ended December 31, 2020. ~~This increase~~Salaries ~~was~~and ~~primarily~~employee ~~due~~benefits toincreased anapproximately ~~increase~~$0.2 inmillion, ~~interest~~or ~~and~~3.03%, ~~fees~~due onto ~~PPP~~increased ~~loans~~benefits, payroll ~~and~~taxes ~~investment securities. Interest~~ and ~~fees~~other onemployee-related ~~loans~~costs. ~~and investment~~Net ~~securities~~occupancy expense increased approximately $0.42 million ordue ~~2.35%~~ to ~~$17.1~~rent ~~million~~escalation provisions ~~for~~in ~~the~~certain ~~year~~of ~~ended~~our ~~December~~leases. ~~31,~~Other ~~2021~~operating ~~from~~expense increased $160.72 million, ~~for the~~or ~~year~~14.45%, ~~ended~~due ~~December~~to ~~31,~~certain ~~2020,~~loan-related ascosts and ~~the~~higher ~~result~~FDIC ofinsurance ~~higher~~assessments ~~balances~~resulting offrom ~~average~~an ~~earning~~increase ~~assets~~in deposit balances.

~~Average earning assets increased $86.6~~For ~~million or 18.01% to $567.1 million for~~ the year ended December 31, 2021, ~~from $480.5 million for~~ the ~~year~~Company’s ~~ended~~effective ~~December~~tax ~~31,~~rate ~~2020~~was 23. ~~This~~50% iscompared ~~primarily related~~ to an23.33% ~~increase~~during in the ~~average~~year ~~balance~~ended ~~of investment securities and interest-bearing deposits at the Federal~~December ~~Reserve and~~31, ~~to a lesser extent, loans~~2020. The increase in investment securities and interest-bearing balances at the Federal Reserve reflect the deployment of excess funds resulting from an $85.8 million increase in average deposits during the year.

~~The provision to the allowance for loan~~ASSET ~~losses~~AND ~~for~~LIABILITY the year ended December 31, 2021 was $120,000 compared to $240,000 for the year ended December 31, 2020. The decrease was primarily driven by the composition of our loan portfolio in accordance with our allowance for loan loss methodology. The Board of Directors determined that this provision was appropriate based upon the adequacy of our reserve. Charge-offs of $20,990 and recoveries of $92,283, together with the provision to the allowance, resulted in an allowance for loan losses of $4.4 million or 1.43% of total loans as of December 31, 2021. The allowance for loan losses is 1.47% of total loans net of PPP loans.MANAGEMENT

16 We manage our assets and liabilities to ensure there is sufficient liquidity to enable management to fund deposit withdrawals, loan demand, capital expenditures, reserve requirements, operating expenses, and dividends; and to manage daily operations on an ongoing basis. Funds are primarily provided by the Bank through customer deposits, principal and interest payments on loans, mortgage loan sales, the sale or maturity of securities, temporary investments and earnings. The Asset Liability/Investment Committee (“ALCO”) manages asset and liability procedures though the ultimate responsibility rests with the President/Chief Executive Officer. At December 31, 2022, total assets decreased 3.81% to $653.3 million from $679.2 million as of December 31, 2021 and total deposits decreased 1.73% to $598.7 million from $609.2 million as of December 31, 2021.

Other income increased $0.5 million or 13.61% to $3.9 million for the year ended December 31, 2021, from $3.4 million for the year ended December 31, 2020. Other income reflects increases in gain on sales of securities of $0.3 million and service charges and fees of $0.2 million. Our mortgage banking income increased $46,700 or 2.06% to $2.3 million for the year ended December 31, 2021 from $2.3 million for the year ended December 31, 2020 due to elevated volume associated with a continuation of the low interest rate environment. Mortgage banking income is highly influenced by mortgage interest rates and the housing market.15

~~Other expense increased $0.6 million or~~As ~~5.45%~~of ~~to $12.3 million for the year ended~~ December 31, ~~2021~~2022, ~~from~~earning ~~$11.7~~assets, ~~million~~which ~~for~~are ~~the~~composed ~~year~~of ~~ended~~U.S. ~~December 31~~Treasury, ~~2020.~~Government ~~Salaries~~ Sponsored Enterprises and ~~employee~~Municipal Securities ~~benefits~~in ~~increased~~the ~~approximately~~amount of $0271.2 million, orinterest-bearing ~~3.03%,~~deposits ~~due~~at tothe ~~increased~~Federal ~~benefits,~~Reserve ~~payroll~~in ~~taxes~~the ~~and~~amount ~~other~~of ~~employee-related costs. Net occupancy expense increased approximately~~ $013.20 million and ~~due~~total toloans, ~~rent~~including ~~escalation~~mortgage ~~provisions~~loans inheld ~~certain~~for ofsale, ~~our~~in ~~leases.~~the ~~Other~~amount ~~operating~~of ~~expense increased~~ $0331.28 million, orconstituted 14approximately 94.4529%, ~~due to certain loan-related costs and higher FDIC insurance assessments resulting~~of ~~from~~our antotal ~~increase in deposit balances~~assets.

~~For~~The yield ~~the~~on ~~year~~a ~~ended~~majority ~~December~~of ~~31,~~our ~~2021,~~earning ~~the Company’s~~assets ~~effective~~adjusts ~~tax~~in ~~rate~~tandem ~~was~~with ~~23.50%~~changes ~~compared~~in tothe 23general level of interest rates.~~33%~~ ~~during~~Some of the ~~year~~Company’s liabilities ~~ended~~are ~~December~~issued ~~31,~~with ~~2020~~fixed terms and can be repriced only at maturity.

17 MARKET RISK

~~COMPARISON~~Market risk OFis ~~THE~~the ~~YEAR~~risk ~~ENDED~~of ~~DECEMBER~~loss from adverse changes in market prices and interest rates. Our risk consists primarily of interest rate ~~31,~~risk ~~2020~~in TOour ~~DECEMBER~~lending ~~31,~~and ~~2019~~investing activities as they relate to the funding by deposit and borrowing activities.

~~Net~~Our policy ~~income~~is ~~decreased~~to ~~$0.8~~minimize ~~million~~interest orrate ~~11.72%~~risk between interest-earning assets and interest-bearing liabilities at various maturities and to ~~$6.5~~attempt ~~million,~~to ormaintain ~~basic~~an ~~and~~asset ~~diluted~~sensitive ~~income~~position ~~per~~over ~~share~~a ofone-year $1period.17 ~~and~~By ~~$1.14,~~adhering ~~respectively~~to this policy, ~~for~~we ~~the~~anticipate ~~year~~that our ~~ended~~net ~~December~~interest 31margins will not be materially affected, ~~2020~~unless ~~from $7.3~~there ~~million~~is oran ~~basic~~extraordinary and ~~diluted~~or ~~income~~precipitous ~~per~~change ~~share~~in ~~of $1~~interest rates.33 ~~and~~The ~~$1.31,~~average ~~respectively,~~net interest rate margin for ~~the~~2022 ~~year~~decreased ~~ended~~to ~~December~~3.01% ~~31,~~from ~~2019~~3.06% ~~This decrease~~for ~~was~~2021. ~~primarily~~At ~~due~~December to31, ~~interest~~2022 and ~~fee~~2021, ~~income~~our net ~~received~~cumulative ongap ~~loans~~was ~~tied~~liability tosensitive ~~changes~~for inperiods ~~variable~~less ~~interest~~than ~~rates~~one asyear aand ~~result of~~asset ~~the~~sensitive ~~significant~~for ~~decrease~~periods inof ~~interest~~one ~~rates~~year ator ~~the~~more. The ~~Federal~~reason ~~Reserve~~for ~~during~~ the ~~end~~shift ofin sensitivity is the ~~first~~direct ~~quarter~~result of ~~2020,~~management’s ~~combined~~strategic ~~with below~~decision ~~market~~to ~~interest~~invest ~~rates~~excess onfunds ~~PPP~~held at ~~loans.~~the ~~Our~~Federal ~~returns~~Reserve oninto ~~average~~fixed ~~assets~~rate ~~and~~investment ~~average~~securities ~~equity~~that ~~for~~match ~~the~~our ~~year~~investment ~~ended~~policy ~~December 31, 2020 were 1~~objectives.~~29%~~ ~~and~~Management ~~11.96%,~~is ~~respectively,~~aware of ~~compared~~this todeparture ~~1.66%~~from policy and ~~14.86%,~~will ~~respectively,~~continue ~~for~~to ~~the~~closely ~~year~~monitor ~~ended~~our ~~December~~sensitivity ~~31,~~position ~~2019~~going forward.

~~Net interest income decreased $1.2 million~~Since ~~or 6.43% to $16.9 million for~~ the ~~year~~rates ~~ended~~on ~~December~~most ~~31,~~of ~~2020~~our ~~from~~interest-bearing ~~$18.1~~liabilities ~~million~~can ~~for~~vary ~~the~~on ~~year~~a ~~ended~~daily ~~December 31~~basis, ~~2019.~~we ~~This~~continue ~~decrease was primarily due~~ to maintain a ~~decrease~~loan inportfolio ~~interest~~priced predominately ~~and fees~~ on ~~loans.~~a ~~Interest~~variable ~~and~~rate ~~fees on loans decreased $0~~basis.9 ~~million~~However, orin ~~5.87%~~an effort to ~~$15.1 million~~protect ~~for~~future ~~the~~earnings ~~year~~in ~~ended~~a ~~December~~declining ~~31,~~rate ~~2020 from $16.0 million for the year ended December 31~~environment, ~~2019,~~we ~~as the result of changes~~offer incertain ~~variable~~fixed rates, interest ~~rates~~rate asfloors, ~~effected~~and byterms ~~the~~primarily ~~significant~~associated ~~decrease~~with inreal ~~interest~~estate ~~rates~~transactions. atWe ~~the~~seek ~~Federal~~stable, ~~Reserve~~long-term deposit ~~during~~relationships ~~the~~to ~~end~~fund ofour ~~the first~~loan ~~quarter~~portfolio. ofFurthermore, ~~2020~~we ~~combined~~do ~~with~~not ~~below~~have ~~market~~any ~~interest~~brokered ~~rates~~deposits onor ~~PPP~~internet ~~loans~~deposits.

~~Average earning assets increased $57.9~~At ~~million or 13.69% to $480.5 million for the year ended~~ December 31, ~~2020~~2022, ~~from~~the ~~$422.6~~average ~~million~~maturity ~~for~~of the ~~year~~investment ~~ended~~portfolio ~~December~~was ~~31, 2019~~3. ~~This~~45 isyears ~~primarily~~with ~~related~~an ~~to the increase in the~~ average ~~balance~~yield of ~~loans~~1.18% ~~related~~compared to 4.76 ~~the~~years ~~PPP~~with ~~program~~an ~~and~~average ~~interest-bearing~~yield ~~deposits~~ of 1.02% at ~~the~~December ~~Federal~~31, ~~Reserve~~2021.

~~The provision to the allowance for loan~~We ~~losses~~do ~~for~~not ~~the~~take ~~year~~foreign ~~ended~~exchange ~~December~~or ~~31,~~commodity ~~2020~~risks. ~~was~~In ~~$240~~addition,~~000~~ ~~compared~~we todo ~~$180,000~~not ~~for~~own ~~the~~mortgage-backed ~~year ended December 31~~securities, ~~2019.~~nor ~~The~~do ~~increase was~~we ~~primarily~~have ~~driven~~any ~~by the composition of our loan portfolio in accordance with our allowance for loan loss methodology. The Board~~exposure ofto ~~Directors determined that this provision was appropriate based upon~~ the ~~adequacy of our reserve. Charge~~sub-~~offs~~prime ofmarket ~~$0.3 million and recoveries of $0.2 million, together with the provision to the allowance, resulted in an allowance for loan losses of $4.2 million~~ or ~~1.30%~~any ofother ~~total~~distressed ~~loans~~debt ~~as of December 31, 2020~~instruments. ~~The allowance for loan losses is 1.45% of total loans, net of PPP loans.~~

~~Other income increased $1.2 million or~~The ~~54.87%~~following totable ~~$3.4~~summarizes ~~million~~our ~~for~~interest ~~the~~sensitivity ~~year~~position ~~ended~~as ~~December~~of ~~31, 2020, from $2.2 million for the year ended~~ December 31, ~~2019~~2022. Our mortgage banking income increased $1.3 million or 141.04% to $2.3 million for the year ended December 31, 2020 from $0.9 million for the year ended December 31, 2019 due to increased volume associated with lower interest rates. Mortgage banking income is highly influenced by mortgage interest rates and the housing market.

Other expense increased $1.1 million or 9.89% to $11.7 million for the year ended December 31, 2020, from $10.6 million for the year ended December 31, 2019. Salaries and employee benefits increased approximately $0.6 million due to increased salaries and commissions on robust mortgage activity. Net occupancy expense increased approximately $0.6 million due to a full year of occupancy in our North Charleston office, which opened in September 2019.

	One Day			Less than three months			Three months to less than six months			Six months to less than one year			One year to less than five years		Five years or more		Total		Estimated Fair Value
(in thousands)
Interest-earning assets
Loans¹	$	73,798		$	19,037		$	13,451		$	22,603		$	167,122	$	35,996	$	332,007	$	304,250
Investment securities available for sale²		—			7,462			9,919			25,341			212,327		41,948		296,997		271,172
Interest-bearing deposits at the Federal Reserve		12,999			—			—			—			—		—		12,999		12,999
Total	$	86,797		$	26,499		$	23,370		$	47,944		$	379,449	$	77,944	$	642,003	$	588,421

Interest-bearing liabilities
CD’s and other time deposits less than $250,000	$	—		$	3,852		$	2,269		$	3,643		$	1,502	$	—	$	11,266	$	14,156
CD’s and other time deposits $250,000 and over		—			2,088			549			2,667			—		—		5,304		7,272
Money Market and Interest Bearing Demand Accounts		296,235			—			—			—			—		—		296,235		518,276
Savings		63,825			—			—			—			—		—		63,825		63,825
Total	$	360,060		$	5,940		$	2,818		$	6,310		$	1,502	$	—	$	376,630	$	603,529

Net	$	(276,263	)	$	20,559		$	20,552		$	41,634		$	377,947	$	77,944	$	265,373
Cumulative				$	(252,704	)	$	(232,152	)	$	(190,518	)	$	187,429	$	265,374

~~For~~(1) ~~the~~Including ~~year~~mortgage ~~ended~~loans ~~December 31, 2020, the Company’s effective tax rate was 23.33% compared~~ to ~~22.91%~~be ~~during~~sold ~~the~~and ~~year~~deferred ~~ended December 31, 2019~~fees.

~~ASSET~~(2) ~~AND~~At ~~LIABILITY~~amortized ~~MANAGEMENT~~cost based on the earlier of the call date or scheduled maturity.

We manage our assets and liabilities to ensure there is sufficient liquidity to enable management to fund deposit withdrawals, loan demand, capital expenditures, reserve requirements, operating expenses, and dividends; and to manage daily operations on an ongoing basis. Funds are primarily provided by the Bank through customer deposits, principal and interest payments on loans, mortgage loan sales, the sale or maturity of securities, temporary investments and earnings. The Asset Liability/Investment Committee (“ALCO”) manages asset and liability procedures though the ultimate responsibility rests with the President/Chief Executive Officer. At December 31, 2021, total assets increased 27.55% to $679.2 million from $532.5 million as of December 31, 2020 and total deposits increased 31.8% to $609.2 million from $462.2 million as of December 31, 2020.16

As of December 31, 2021, earning assets, which are composed of U.S. Treasury, Government Sponsored Enterprises and Municipal Securities in the amount of $212.3 million, interest-bearing deposits at the Federal Reserve in the amount of $129.0 million and total loans, including mortgage loans held for sale, in the amount of $309.4 million, constituted approximately 95.80% of our total assets.LIQUIDITY

~~The~~Historically, we ~~yield~~have onmaintained aour ~~majority~~liquidity ofat ~~our~~levels ~~earning assets~~believed ~~adjusts~~by inmanagement ~~tandem~~to ~~with~~be ~~changes~~adequate into ~~the~~meet ~~general~~requirements ~~level~~ of ~~interest~~normal ~~rates.~~operations, ~~Some~~potential deposit ofoutflows ~~the~~and ~~Company’s~~strong ~~liabilities~~loan ~~are~~demand ~~issued with~~and ~~fixed~~still ~~terms~~allow ~~and~~for ~~can~~optimal beinvestment ~~repriced~~of ~~only~~funds atand ~~maturity~~return on assets.

~~MARKET~~The following ~~RISK~~table summarizes future contractual obligations as of December 31, 2022.

Market risk is the risk of loss from adverse changes in market prices and interest rates. Our risk consists primarily of interest rate risk in our lending and investing activities as they relate to the funding by deposit and borrowing activities.

	Total		Less than one year		One to five years		After five years
Contractual Obligations
(in thousands)
Time deposits	$	16,569	$	14,829	$	1,740	$	—
Operating leases		18,223		1,183		5,914		11,126
Total contractual cash obligations	$	34,792	$	16,012	$	7,416	$	11,126

~~Our~~Proper liquidity ~~policy~~management is crucial to ~~minimize~~ensure ~~interest~~that ~~rate~~we are able to take advantage of new business opportunities as well as meet ~~risk~~the ~~between~~credit ~~interest-earning~~needs of our existing customers. Investment securities are an important tool in our liquidity management. Our primary liquid assets are cash and due from banks, investment securities available for sale, interest-bearing ~~liabilities~~deposits at ~~various~~the Federal ~~maturities~~Reserve, and tomortgage ~~attempt~~loans toheld ~~maintain~~for ansale. ~~asset sensitive~~Our ~~position~~primary ~~over~~liquid aassets ~~one-year~~accounted ~~period~~for 45.89% Byand ~~adhering~~52.30% toof ~~this~~total ~~policy~~assets at December 31, we2022 ~~anticipate~~and ~~that~~2021, ~~our~~respectively. ~~net~~Investment ~~interest~~securities ~~margins~~classified ~~will~~as ~~not~~available ~~be materially~~for ~~affected~~sale, ~~unless~~which ~~there~~are isnot anpledged, may ~~extraordinary~~be ~~and~~sold orin ~~precipitous~~response ~~change~~to changes in interest rates and liquidity needs. ~~The~~All ~~average~~of ~~net~~the ~~interest~~investment ~~rate~~securities presently owned ~~margin~~are ~~for~~classified ~~2021~~as ~~decreased~~available tofor 3sale.~~06%~~ Net cash provided by operations and deposits from ~~3.52%~~customers ~~for~~have ~~2020~~been the primary sources of liquidity. At December 31, ~~2021~~2022, ~~and~~we ~~2020,~~had ~~our~~unused ~~net~~short-term ~~cumulative~~lines ~~gap~~of ~~was~~credit ~~liability~~totaling ~~sensitive for~~approximately ~~periods~~$41 ~~less~~million (which ~~than~~can ~~one~~be ~~year~~withdrawn ~~and~~at ~~asset~~the ~~sensitive~~lender’s ~~for~~option). ~~periods~~Additional sources of ~~one~~funds ~~year~~available orto ~~more.~~us ~~The~~for ~~reason~~liquidity ~~for~~include increasing ~~the~~deposits ~~shift~~by inraising ~~sensitivity~~interest ~~is the~~rates ~~direct~~paid ~~result~~and ofselling ~~management’s~~mortgage ~~strategic~~loans ~~decision~~held tofor ~~invest~~sale. ~~excess~~We ~~funds~~also ~~held~~established ata Borrower-In-Custody arrangement with the Federal Reserve. ~~into~~This ~~fixed~~arrangement ~~rate~~permits ~~investment securities~~us ~~that~~to ~~match~~retain ~~our~~possession ~~investment~~of ~~policy~~assets ~~objectives.~~pledged as ~~Management~~collateral isto ~~aware~~secure ofadvances ~~this~~from ~~departure~~the ~~from~~Federal ~~policy~~Reserve ~~and~~Discount ~~will~~Window. ~~continue~~At ~~to closely~~December ~~monitor~~31, ~~our~~2022, ~~sensitivity~~we ~~position~~could ~~going~~borrow ~~forward~~up to $78.3 million.

18 Our core deposits consist of non-interest bearing demand accounts, NOW accounts, money market accounts, time deposits and savings accounts. We closely monitor our reliance on certificates of deposit greater than $250,000 and other large deposits. We maintain a Contingency Funding Plan (“CFP”) that identifies liquidity needs and weighs alternate courses of action designed to address these needs in emergency situations. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the expected funding needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to meet our operating needs and do not know of any trends, events or uncertainties that may result in a significant adverse effect on our liquidity position. At December 31, 2022 and 2021, our liquidity ratio was 48.09% and 56.43%, respectively.

~~Since~~The following ~~the~~table ~~rates~~shows onthe ~~most~~composition of ~~our~~average ~~interest-bearing liabilities~~assets ~~can~~over ~~vary~~the onpast afive ~~daily~~fiscal ~~basis, we continue to maintain a loan portfolio priced predominately on a variable rate basis~~years. However, in an effort to protect future earnings in a declining rate environment, we offer certain fixed rates, interest rate floors, and terms primarily associated with real estate transactions. We seek stable, long-term deposit relationships to fund our loan portfolio. Furthermore, we do not have any brokered deposits or internet deposits.

At December 31, 2021, the average maturity of the investment portfolio was 4.76 years with an average yield of 1.02% compared to 4.57 years with an average yield of 1.60% at December 31, 2020.

	2022		2021		2020		2019		2018
Loans¹	$	320,826,946	$	324,078,445	$	313,303,363	$	277,395,432	$	277,223,600
Investment securities available for sale		266,432,504		167,250,568		112,970,054		106,421,507		123,347,669
Interest-bearing deposits at the Federal Reserve		41,131,016		75,734,060		54,231,372		34,713,982		20,151,823
Non-earning assets		28,442,659		22,316,912		22,123,529		22,084,219		9,772,320
Total average assets	$	656,833,125	$	589,379,985	$	502,628,318	$	440,615,140	$	430,495,412

We1 doIncluding ~~not take foreign exchange or commodity risks. In addition, we do not own~~ mortgage~~-backed~~ ~~securities~~loans ~~nor do we have any exposure~~ to ~~the~~be ~~sub-prime~~sold ~~market~~and ordeferred ~~any other distressed debt instruments~~fees.

~~The following table summarizes our interest sensitivity position as of December 31, 2021.~~17

	One Day			Less than three months			Three months to less than six months			Six months to less than one year			One year to less than five years		Five years or more		Total		Estimated Fair Value
(in thousands)
Interest-earning assets
Loans1	$	76,173		$	24,908		$	24,070		$	27,492		$	139,572	$	17,678	$	309,893	$	293,732
Investment securities available for sale2		—			2,355			5,001			5,400			143,879		58,412		215,047		212,347
Interest-bearing deposits at the Federal Reserve		128,971			—			—			—			—		—		128,971		128,971
Total	$	205,144		$	27,263		$	29,071		$	32,892		$	283,451	$	76,090	$	653,911	$	635,050
Interest-bearing liabilities
CD’s and other time deposits less than $250,000	$	—		$	4,766		$	3,328		$	3,801		$	1,972	$	3	$	13,870	$	14,156
CD’s and other time deposits $250,000 and over		—			2,048			3,806			1,564			—		—		7,418		7,272
Money Market and Interest Bearing Demand Accounts		264,682			—			—			—			—		—		264,682		519,233
Savings		68,671			—			—			—			—		—		68,671		68,671
Total	$	333,353		$	6,814		$	7,134		$	5,365		$	1,972	$	3	$	354,641	$	609,332
Net	$	(128,209	)	$	20,449		$	21,937		$	27,527		$	281,479	$	76,087	$	299,270
Cumulative				$	(107,760	)	$	(85,823	)	$	(58,296	)	$	223,183	$	299,270

ANALYSIS OF CHANGES IN NET INTEREST INCOME

~~(1)~~The following ~~Including~~table ~~mortgage~~shows ~~loans~~changes toin beinterest ~~sold~~income and ~~deferred~~expense ~~fees~~based upon changes in volume and changes in rates.

(2) At amortized cost based on the earlier of the call date or scheduled maturity.

	2022 vs. 2021									2021 vs. 2020									2020 vs. 2019
	Volume			Rate			Net Dollar Change¹			Volume			Rate			Net Dollar Change¹			Volume			Rate			Net Dollar Change¹
Loans²	$	(153,327	)	$	545,916		$	392,589		$	519,830		$	(290,799	)	$	229,031		$	1,798,561		$	(2,736,870	)	$	(938,309	)
Investment securities available for sale		1,274,919			(320,851	)		954,068			963,531			(800,492	)		163,039			136,175			(324,518	)		(188,343	)
Interest-bearing deposits at the Federal Reserve		(47,994	)		348,709			300,715			72,342			(153,057	)		(80,715	)		409,494			(955,338	)		(545,844	)
Interest income	$	1,073,598		$	573,774		$	1,647,372		$	1,555,703		$	(1,244,348	)	$	311,355		$	2,344,230		$	(4,016,726	)	$	(1,672,496	)



Interest-bearing transaction accounts	$	12,170		$	121,959		$	134,129		$	25,230		$	(103,212	)	$	(77,982	)	$	56,917		$	(443,183	)	$	(386,266	)
Savings		12,094			—			12,094			10,278			(21,710	)		(11,432	)		23,542			(81,423	)		(57,881	)
Time deposits		(5,559	)		(12,871	)		(18,430	)		(2,531	)		(39,469	)		(42,000	)		(34,106	)		(31,504	)		(65,610	)
Interest expense	$	18,705		$	109,088		$	127,793		$	32,977		$	(164,391	)	$	(131,414	)	$	46,353		$	(556,110	)	$	(509,757	)

Increase (decrease) in net interest income							$	1,519,579								$	442,769								$	(1,162,739	)

19 (1) Volume/rate changes have been allocated to each category based on the percentage of each change to the total change.

~~LIQUIDITY~~(2) Including mortgage loans to be sold.

~~Historically, we have maintained our liquidity~~YIELDS atON ~~levels~~AVERAGE ~~believed~~EARNING byASSETS ~~management~~AND toRATES beON ~~adequate~~AVERAGE toINTEREST-BEARING ~~meet requirements of normal operations, potential deposit outflows and strong loan demand and still allow for optimal investment of funds and return on assets.~~LIABILITIES

The following table ~~summarizes~~shows ~~future~~the ~~contractual obligations~~yields ason ofaverage ~~December~~earning ~~31,~~assets ~~2021~~and average interest-bearing liabilities.

	Total		Less than one year		One to five years			After five years
	2022							2021							2020
Contractual Obligations
	Average Balance		Interest Paid/Earned		Average Yield/Rate1			Average Balance		Interest Paid/Earned		Average Yield/Rate1			Average Balance		Interest Paid/Earned		Average Yield/Rate1
(in thousands)
Interest-earning assets
Time deposits	$	21,289	$	19,313	$	1,972		$	4
Loans2	$	320,826,946	$	15,677,601		4.89	%	$	324,078,445	$	15,285,012		4.72	%	$	313,303,363	$	15,055,981		4.81	%
Operating leases		18,104		1,175		4,700			12,229
Investment Securities Available for Sale		266,432,504		3,116,858		1.17	%		167,250,568		2,162,790		1.29	%		112,970,054		1,999,751		1.77	%
Total contractual cash obligations	$	39,393	$	20,488	$	6,672		$	12,233
Federal Funds Sold & Interest bearing deposits		41,131,016		404,024		0.98	%		75,734,060		103,309		0.14	%		54,231,372		184,024		0.34	%
Total earning assets	$	628,390,466	$	19,198,483		3.06	%	$	567,063,073	$	17,551,111		3.10	%	$	480,504,789	$	17,239,756		3.59	%
Interest-bearing liabilities
Interest-bearing transaction accounts	$	269,510,451	$	222,493		0.08	%	$	242,617,530	$	88,364		0.04	%	$	208,940,724	$	166,346		0.08	%
Savings		65,816,763		40,488		0.06	%		51,608,804		28,394		0.06	%		40,770,588		39,826		0.10	%
Time Deposits		18,443,811		38,812		0.21	%		20,435,199		57,242		0.28	%		20,964,940		99,242		0.47	%
	$	353,771,025	$	301,793		0.09	%	$	314,661,533	$	174,000		0.06	%	$	270,676,252	$	305,414		0.11	%
Net interest spread						2.97	%						3.04	%						3.48	%
Net interest margin						3.01	%						3.06	%						3.52	%
Net interest income			$	18,896,690						$	17,377,111						$	16,934,342

~~Proper~~(1) ~~liquidity~~The ~~management~~effect ~~is crucial to ensure that we are able to take advantage~~ of ~~new~~forgone ~~business~~interest ~~opportunities~~income as ~~well~~a asresult ~~meet the credit needs~~ of our existing customers. Investment securities are an important tool in our liquidity management. Our primary liquid assets are cash and due from banks, investment securities available for sale, interestnon-~~bearing~~accrual ~~deposits at the Federal Reserve, and mortgage~~ loans ~~held~~was ~~for sale. Our primary liquid assets accounted for 52.30% and 36.83% of total assets at December 31, 2021 and 2020, respectively. Investment securities classified as available for sale, which are~~ not ~~pledged,~~considered ~~may be sold~~ in ~~response to changes in interest rates and liquidity needs. All of~~ the ~~investment~~above ~~securities presently owned are classified as available for sale~~analysis. Net cash provided by operations and deposits from customers have been the primary sources of liquidity. At December 31, 2021, we had unused short-term lines of credit totaling approximately $41 million (which can be withdrawn at the lender’s option). Additional sources of funds available to us for liquidity include increasing deposits by raising interest rates paid and selling mortgage loans held for sale. We also established a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits us to retain possession of assets pledged as collateral to secure advances from the Federal Reserve Discount Window. At December 31, 2021, we could borrow up to $72.1 million. There have been no borrowings under this arrangement.

~~Our~~(2) ~~core~~Average ~~deposits~~balance ~~consist~~includes of non-~~interest bearing~~accrual ~~demand~~loans ~~accounts, NOW accounts, money market accounts, time deposits~~ and ~~savings~~mortgage ~~accounts.~~loans We closely monitor our reliance on certificates of deposit greater than $250,000 and other large deposits. We maintain a Contingency Funding Plan (“CFP”) that identifies liquidity needs and weighs alternate courses of action designed to ~~address~~be ~~these needs in emergency situations~~sold. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the expected funding needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to meet our operating needs and do not know of any trends, events or uncertainties that may result in a significant adverse effect on our liquidity position. At December 31, 2021 and 2020, our liquidity ratio was 56.43% and 38.63%, respectively.

Average earning assets increased by $86.6 million from 2020 to 2021. This increase is primarily related to an increase in the average balance of investment securities and interest-bearing deposits at the Federal Reserve and, to a lesser extent, loans. The increase in investment securities and interest-bearing balances at the Federal Reserve reflect the deployment of excess funds resulting from an $85.8 million increase in average deposits during the year.18

20 INVESTMENT PORTFOLIO

The following ~~table~~tables ~~shows~~summarize the ~~composition~~carrying value of investment securities as of the indicated dates and the weighted-average yields of those securities at December 31, 2022. Weighted-average ~~assets~~yields ~~over~~are determined based on the ~~past~~amortized ~~five~~cost ~~fiscal~~and ~~years~~book yield of the individual investment securities comprising each investment security type and maturity classification.

	2021			2020			2019			2018			2017
	Amortized Cost
Loans1	$	324,078,445		$	313,303,363		$	277,395,432		$	277,223,600		$	260,987,352
	Within One Year			After One Year through Five Years			After Five Years through Ten Years			After Ten Years			Total			Estimated Fair Value
Investment securities available for sale		167,250,568			112,970,054			106,421,507			123,347,669			130,161,937
(in thousands)
Interest-bearing deposits at the Federal Reserve		75,734,060			54,231,372			34,713,982			20,151,823			23,558,893
U.S. Treasury Notes	$	25,341		$	154,957		$	—		$	—		$	180,298		$	168,187
Non-earning assets		22,316,912			22,123,529			22,084,219			9,772,320			13,466,177
Government-Sponsored Enterprises		4,998			20,000			42,387			—			67,385			57,075
Total average assets	$	589,379,985		$	502,628,318		$	440,615,140		$	430,495,412		$	428,174,359
Municipal Securities		12,383			15,613			11,609			9,710			49,315			45,910
Total	$	42,722		$	190,570		$	53,996		$	9,710		$	296,998		$	271,172
Weighted average yields
U.S. Treasury Notes		0.32	%		1.11	%		0.00	%		0.00	%
Government-Sponsored Enterprises		0.52	%		0.90	%		1.23	%		0.00	%
Municipal Securities		1.85	%		1.62	%		1.76	%		2.05	%
Total		0.79	%		1.13	%		1.34	%		2.05	%		1.17	%

~~(1) Including mortgage~~The ~~loans~~following totables bepresent the ~~sold~~amortized cost and ~~deferred~~estimated ~~fees~~fair value of investment securities for the past three years.

We continued to experience growth in our interest-bearing deposits at the Federal Reserve subsequent to December 31, 2021. As a result of this increase in liquidity, and to increase the yield on these balances, in January 2022 we purchased $45.0 million of U.S. Treasury Notes having maturities ranging from approximately two to four years.

December 31, 2022	Amortized Cost		Estimated Fair Value
(in thousands)
U.S. Treasury Notes	$	180,298	$	168,187
Government-Sponsored Enterprises		67,385		57,075
Municipal Securities		49,315		45,910

Total	$	296,998	$	271,172

ANALYSIS OF CHANGES IN NET INTEREST INCOME

December 31, 2021	Amortized Cost		Estimated Fair Value
(in thousands)
U.S. Treasury Notes	$	101,270	$	100,062
Government-Sponsored Enterprises		76,356		74,721
Municipal Securities		37,422		37,564

Total	$	215,048	$	212,347

The following table shows changes in interest income and expense based upon changes in volume and changes in rates.

December 31, 2020	Amortized Cost		Estimated Fair Value
(in thousands)
U.S. Treasury Notes	$	20,037	$	20,411
Government-Sponsored Enterprises		96,614		97,853
Municipal Securities		16,055		16,556

Total	$	132,706	$	134,820

	2021 vs. 2020									2020 vs. 2019									2019 vs. 2018
	Volume			Rate			Net Dollar Change1			Volume			Rate			Net Dollar Change1			Volume			Rate			Net Dollar Change1
Loans2	$	519,830		$	(290,799	)	$	229,031		$	1,798,561		$	(2,736,870	)	$	(938,309	)	$	237,995		$	629,980		$	867,975
Investment securities available for sale		963,531			(800,492	)		163,039			136,175			(324,518	)		(188,343	)		(364,113	)		(64,792	)		(428,905	)
Interest-bearing deposits at the Federal Reserve		72,342			(153,057	)		(80,715	)		409,494			(955,338	)		(545,844	)		284,163			52,108			336,271
Interest income	$	1,555,703		$	(1,244,348	)	$	311,355		$	2,344,230		$	(4,016,726	)	$	(1,672,496	)	$	158,045		$	617,296		$	775,341
Interest bearing transaction accounts	$	25,230		$	(103,212	)	$	(77,982	)	$	56,917		$	(443,183	)	$	(386,266	)	$	28,048		$	137,012		$	165,060
Savings		10,278			(21,710	)		(11,432	)		23,542			(81,423	)		(57,881	)		(4,507	)		20,217			15,710
Time deposits		(2,531	)		(39,469	)		(42,000	)		(34,106	)		(31,504	)		(65,610	)		(80,972	)		20,987			(59,985	)
Interest expense	$	32,977		$	(164,391	)	$	(131,414	)	$	46,353		$	(556,110	)	$	(509,757	)	$	(57,431	)	$	178,216		$	120,785
Increase (decrease) in net interest income							$	442,769								$	(1,162,739	)							$	654,556

As of December 31, 2022, we had 25 U.S. Treasury Notes and 77 Municipal Securities with an unrealized loss of $12.1 million and $3.4 million, respectively. As of December 31, 2021, we had fifteen U.S. Treasury Notes and nineteen Municipal Securities with an unrealized loss of $1.3 million and $0.2 million, respectively. As of December 31, 2020, we had no U.S. Treasury Notes or Municipal Securities with an unrealized loss. As of December 31, 2022, we had 11 securities issued by Government-Sponsored Enterprises with an unrealized loss of $10.3 million compared to nine Government-Sponsored Enterprises with an unrealized loss of $1.9 million as of December 31, 2021. The unrealized losses on these securities are related to changes in the interest rate environment from the date of purchase. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Therefore, these investments are not considered other-than-temporarily impaired. We have the ability to hold these investments until market price recovery or maturity.

~~(1)~~The ~~Volume/rate~~primary ~~changes~~purpose ~~have~~of ~~been~~the investment ~~allocated~~portfolio is to ~~each~~fund ~~category~~loan ~~based~~demand, manage fluctuations in deposits and liquidity, satisfy pledging requirements and generate a favorable return on investment. In doing these things, our main objective is to adhere to sound investment practices. To that end, all purchases and sales of investment securities are made through reputable securities dealers that have been approved by the ~~percentage~~Board of Directors. The Board of Directors of the Bank reviews the entire investment portfolio at each ~~change~~regular tomonthly meeting, including any purchases, sales, calls, and maturities during the ~~total~~previous ~~change~~month. Furthermore, the Credit Department conducts a financial underwriting assessment of all municipal securities and their corresponding municipalities annually and management reviews the assessments.

~~(2)~~LOAN ~~Including~~PORTFOLIO ~~mortgage loans to be sold.~~COMPOSITION

21 We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic market. At December 31, 2022, outstanding loans (including deferred loan fees of $159,434) totaled $331.0 million, which equaled 55.29% of total deposits and 50.66% of total assets.

~~YIELDS ON AVERAGE EARNING ASSETS AND RATES ON AVERAGE INTEREST-BEARING LIABILITIES~~19

The following table ~~shows~~presents our ~~the~~loan ~~yields~~portfolio, onexcluding ~~average~~both ~~earning~~mortgage ~~assets~~ loans to be sold and ~~average~~deferred ~~interest-bearing~~loan ~~liabilities~~fees, as of December 31, 2022, compared to the prior four years.

	2021							2020							2019
(in thousands)	2022		2021		2020			2019		2018
	Average Balance		Interest Paid/Earned		Average Yield/Rate1			Average Balance		Interest Paid/Earned		Average Yield/Rate1			Average Balance		Interest Paid/Earned		Average Yield/Rate1
Commercial	$	45,072	$	45,804	$	51,041		$	52,848	$	54,829
Interest-earning assets
Commercial real estate construction		17,524		12,054		14,814			12,491		7,304
Loans2	$	324,078,445	$	15,285,012		4.72	%	$	313,303,363	$	15,055,981		4.81	%	$	281,508,711	$	15,994,290		5.68	%
Commercial real estate other		172,897		165,719		146,188			143,824		143,703
Investment Securities Available for Sale		167,250,568		2,162,790		1.29	%		112,970,054		1,999,751		1.77	%		106,421,507		2,188,094		2.06	%
Consumer real estate		91,637		71,307		71,836			59,532		63,787
Federal Funds Sold & Interest bearing deposits		75,734,060		103,309		0.14	%		54,231,372		184,024		0.34	%		34,713,982		729,868		2.10	%
Consumer other		3,852		3,769		4,481			5,378		5,040
Total earning assets	$	567,063,073	$	17,551,111		3.10	%	$	480,504,789	$	17,239,756		3.59	%	$	422,644,200	$	18,912,252		4.47	%
Paycheck protection program		—		7,979		32,443			—		—
Interest-bearing liabilities
Total	$	330,982	$	306,632	$	320,803		$	274,073	$	274,663
Interest-bearing transaction accounts	$	242,617,530	$	88,364		0.04	%	$	208,940,724	$	166,346		0.08	%	$	189,114,988	$	552,612		0.29	%
Savings		51,608,804		28,394		0.06	%		40,770,588		39,826		0.10	%		32,934,733		97,707		0.30	%
Time Deposits		20,435,199		57,242		0.28	%		20,964,940		99,242		0.47	%		26,456,064		164,852		0.62	%
	$	314,661,533	$	174,000		0.06	%	$	270,676,252	$	305,414		0.11	%	$	248,505,785	$	815,171		0.33	%
Net interest spread						3.04	%						3.48	%						4.14	%
Net interest margin						3.06	%						3.52	%						4.28	%
Net interest income			$	17,377,111						$	16,934,342						$	18,097,081

~~(1)~~During ~~The~~the ~~effect~~year ofended ~~forgone~~December ~~interest~~31, ~~income~~2022, astotal aloans increased ~~result~~$24.3 ofmillion. ~~non-accrual~~This ~~loans~~is ~~was~~primarily ~~not~~due ~~considered~~to growth in ~~the~~our ~~above~~consumer ~~analysis~~real estate and commercial real estate portfolios.

~~(2)~~We ~~Average~~had ~~loan~~no ~~balances~~foreign ~~include~~loans ~~non-accrual~~or loans ~~and~~to ~~mortgage~~fund ~~loans~~leveraged buyouts toat beany ~~sold~~time during the years ended December 31, 2018 through December 31, 2022.

22 The following table presents the contractual terms to maturity for loans outstanding at December 31, 2022. Overdrafts are reported as due in one year or less. The table does not include an estimate of prepayments, which can significantly affect the average life of loans and may cause our actual principal experience to differ from that shown.

INVESTMENT PORTFOLIO

	Selected Loan Maturity as of December 31, 2022
(in thousands)	One Year or Less		Over One Year but Less Than 5 Years		After 5 Years Through 15 Years		Over 15 Years		Total
Commercial	$	17,634	$	25,142	$	2,296	$	—	$	45,072
Commercial real estate construction		3,734		13,790		—		—		17,524
Commercial real estate other		28,684		138,107		4,007		2,099		172,897
Consumer real estate		10,747		9,967		31,704		39,219		91,637
Consumer other		1,498		2,354		—		—		3,852
Paycheck protection program		—		—		—		—		—
Total	$	62,297	$	189,360	$	38,007	$	41,318	$	330,982

Loans maturing after one year with:
Fixed interest rates									$	203,054
Floating interest rates										—
Total									$	203,054

~~The~~IMPAIRED following tables summarize the carrying value of investment securities as of the indicated dates and the weighted-average yields of those securities at December 31, 2021. Weighted-average yields are determined based on the amortized cost and book yield of the individual investment securities comprising each investment security type and maturity classification.LOANS

	Amortized Cost
	Within One Year			After One Year through Five Years			After Five Years through Ten Years			After Ten Years			Total			Estimated Fair Value
(in thousands)
U.S. Treasury Notes	$	4,999		$	86,465		$	9,806		$	—		$	101,270		$	100,062
Government-Sponsored Enterprises		5,001			15,055			56,300			—			76,356			74,721
Municipal Securities		2,756			15,082			10,427			9,157			37,422			37,564
Total	$	12,756		$	116,602		$	76,533		$	9,157		$	215,048		$	212,347
Weighted average yields
U.S. Treasury Notes		2.04	%		0.58	%		0.91	%		0.00	%
Government-Sponsored Enterprises		2.05	%		1.49	%		1.11	%		0.00	%
Municipal Securities		1.08	%		1.23	%		1.55	%		1.74	%
Total		1.83	%		0.78	%		1.15	%		1.74	%		1.02	%

A loan is impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on current information and events. All loans with a principal balance over $50,000 placed on non-accrual status are classified as impaired. However, not all impaired loans are on non-accrual status nor do they all represent a loss.

~~The~~Impairment ~~following~~loss ~~tables~~is ~~present~~measured ~~the amortized cost and estimated fair value of investment securities for the past three years.~~by:

December 31, 2021	Amortized Cost		Estimated Fair Value
(in thousands)
U.S. Treasury Notes	$	101,270	$	100,062
Government-Sponsored Enterprises		76,356		74,721
Municipal Securities		37,422		37,564
Total	$	215,047	$	212,347

The present value of the future cash flow discounted at the loan’s effective interest rate, or

23 b. The fair value of the collateral if the loan is collateral dependent.

December 31, 2020	Amortized Cost		Estimated Fair Value
(in thousands)
U.S. Treasury Notes	$	20,037	$	20,411
Government-Sponsored Enterprises		96,614		97,853
Municipal Securities		16,055		16,556
Total	$	132,706	$	134,820

The following is a schedule of our impaired loans and non-accrual loans as of December 31, 2018 through 2022.

December 31, 2019	Amortized Cost		Estimated Fair Value
	2022		2021		2020		2019		2018
(in thousands)
Nonaccrual loans	$	631,453	$	814,614	$	1,155,930	$	1,666,301	$	823,534
U.S. Treasury Notes	$	23,080	$	23,180
Impaired loans	$	2,766,060	$	3,406,508	$	7,805,600	$	4,776,928	$	4,278,347
Government-Sponsored Enterprises		50,140		50,498
Municipal Securities		26,618		26,772
Total	$	99,838	$	100,450

AsBeginning ofin ~~December~~March 312020, ~~2021, we had fifteen U.S.~~ ~~Treasury~~the ~~Notes~~Bank ~~and~~provided ~~nineteen~~payment ~~Municipal~~accommodations ~~Securities~~to ~~with an unrealized loss of $1.3 million and $0.2 million~~customers, ~~respectively.~~consisting As of ~~December~~ ~~31,~~60-day ~~2020,~~principal wedeferral ~~had~~to noborrowers ~~U.S.~~negatively ~~Treasury Notes or Municipal Securities with an unrealized loss. As of December 31, 2021, we had~~impacted ~~nine securities issued~~ by ~~Government~~COVID-~~Sponsored~~19. ~~Enterprises~~During ~~with~~2020, anthe ~~unrealized~~Bank ~~loss~~processed ofapproximately $10.97 million ~~compared~~in principal deferments to ~~four Government-Sponsored~~84 ~~Enterprises~~customers, with an ~~unrealized~~aggregate loan ~~loss~~balance of $029.27 million ~~as of December 31, 2020~~. The ~~unrealized~~Bank ~~losses~~did ~~on these~~not ~~securities~~process ~~are~~any ~~related~~principal todeferments ~~changes~~during in the ~~interest~~years ~~rate~~ended ~~environment~~December ~~from~~31, ~~the~~2022 ~~date~~and ~~of purchase~~2021. The ~~contractual~~principal ~~terms~~deferments ofrepresented ~~these investments~~0.24% doof ~~not~~our ~~permit~~total ~~the~~loan ~~issuer~~portfolio toas ~~settle the securities at a price less than the amortized cost~~ of ~~the~~December ~~investment. Therefore~~31, ~~these~~ ~~investments are not considered other-than-temporarily impaired~~2020. ~~We have the ability to hold these investments until market price recovery or maturity.~~

The primary purpose of the investment portfolio is to fund loan demand, manage fluctuations in deposits and liquidity, satisfy pledging requirements and generate a favorable return on investment. In doing these things, our main objective is to adhere to sound investment practices. To that end, all purchases and sales of investment securities are made through reputable securities dealers that have been approved by the Board of Directors. The Board of Directors of the Bank reviews the entire investment portfolio at each regular monthly meeting, including any purchases, sales, calls, and maturities during the previous month. Furthermore, the Credit Department conducts a financial underwriting assessment of all municipal securities and their corresponding municipalities annually and management reviews the assessments.20

~~LOAN~~TROUBLED ~~PORTFOLIO~~DEBT ~~COMPOSITION~~RESTRUCTURINGS

WeAccording ~~focus~~to ~~our~~GAAP, ~~lending~~we ~~activities~~are required onto ~~small and~~account ~~middle~~for ~~market~~certain ~~businesses,~~loan ~~professionals~~modifications ~~and~~or ~~individuals~~restructurings inas ~~our~~a ~~geographic~~troubled ~~market.~~debt Atrestructuring ~~December~~(“TDR”), 31when appropriate. In general, ~~2021~~the modification or restructuring of a debt is considered a TDR if we, ~~outstanding~~for ~~loans~~economic ~~(including~~or legal reasons related ~~deferred~~to ~~loan~~a ~~fees~~borrower’s offinancial ~~$488~~difficulties,~~481)~~ ~~totaled~~grant ~~$306.6~~a ~~million,~~concession ~~which~~to ~~equaled~~the ~~50.33%~~borrower ofthat ~~total~~we ~~deposits~~would ~~and~~not 45otherwise consider.~~14%~~ ofThree ~~total~~factors must ~~assets.~~always be present:

~~The~~1. ~~following~~An ~~table~~existing ~~presents~~credit ~~our loan~~must ~~portfolio,~~formally ~~excluding both mortgage loans to~~ be ~~sold and deferred loan fees~~renewed, ~~as of December 31~~extended, ~~2021,~~ ~~compared~~or ~~to the prior four years.~~modified,

(in thousands)	2021		2020		2019		2018		2017
Commercial	$	45,804	$	51,041	$	52,848	$	54,829	$	51,723
Commercial real estate construction		12,054		14,814		12,491		7,304		2,318
Commercial real estate other		165,719		146,188		143,824		143,703		140,187
Consumer real estate		71,307		71,836		59,532		63,787		70,798
Consumer other		3,769		4,481		5,378		5,040		5,155
Paycheck protection program		7,979		32,443		—		—		—
Total	$	306,632	$	320,803	$	274,073	$	274,663	$	270,181

The borrower is experiencing financial difficulties, and

24 3. We grant a concession that we would not otherwise consider.

~~During~~The ~~the~~following ~~year~~is ~~ended~~a ~~December~~schedule ~~31,~~of ~~2021,~~our TDR’s ~~total~~including ~~loans decreased $14.2 million. This is primarily due to~~ the ~~forgiveness~~number of ~~Paycheck Protection Program~~ loans, ~~which offset growth in our other commercial real estate portfolio~~represented.

We had no foreign loans or loans to fund leveraged buyouts at any time during the years ended December 31, 2017 through December 31, 2021.


	2022		2021		2020		2019		2018
Number of TDRs		5		5		14		3		—
Amount of TDRs	$	971,150	$	1,039,909	$	5,803,163	$	573,473	$	—

25 The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-20-35-9 allows a loan to be removed from TDR status if the terms of the loan reflect current market rates and the loan has been performing under modified terms for an extended period of time or under certain other circumstances.

~~The~~Nine ~~following~~TDRs ~~table~~with ~~presents~~a ~~the contractual~~balance ~~terms~~of to$4.7 ~~maturity~~million ~~for~~at ~~loans~~December ~~outstanding~~31, at2020 were removed from TDR status during the year ended December 31, 2021. ~~Overdrafts~~Five ~~are~~TDRs ~~reported~~with asa balance of $3.8 million were removed from TDR status due to improvement in ~~one~~financial ~~year~~condition orand ~~less~~sustained performance under the restructured terms, two TDRs with a balance of $0.5 ~~The~~million ~~table~~were ~~does~~paid ~~not~~off, ~~include~~and antwo ~~estimate~~TDRs with a balance of ~~prepayments~~$0.4 million were paid off through refinancing into new loans at market terms. One TDR with a balance of $33,300 ~~which~~at December 31, 2017 was removed from TDR status ~~can~~during ~~significantly~~the ~~affect~~year ended December 31, 2018 since, at the ~~average~~most ~~life~~recent ofrenewal, ~~loans~~the loan was amortized at market rate and ~~may~~no ~~cause~~concessions were ~~our~~granted. ~~actual~~We ~~principal~~do ~~experience~~not toknow ~~differ~~of ~~from~~any potential problem loans which will not meet their contractual obligations that ~~shown~~are not otherwise discussed herein.

	Selected Loan Maturity as of December 31, 2021
(in thousands)	One Year or Less		Over One Year but Less Than 5 years		After 5 Years Through 15 Years		Over 15 Years		Total
Commercial	$	23,562	$	20,259	$	1,983	$	—	$	45,804
Commercial real estate construction		2,679		9,375		—		—		12,054
Commercial real estate other		34,497		123,313		5,372		2,537		165,719
Consumer real estate		17,870		7,390		26,706		19,341		71,307
Consumer other		798		2,925		46		—		3,769
Paycheck protection program		7,979		—		—		—		7,979
Total	$	87,385	$	163,262	$	34,107	$	21,878	$	306,632
Loans maturing after one year with:
Fixed interest rates									$	157,190
Floating interest rates										—
Total									$	157,190

Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short- term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and classified 9 loans, with an aggregate loan balance of $4.0 million, that were granted payment accommodations as TDRs given the continued financial difficulty of the customer, associated industry risk, and multiple deferral requests. As of December 31, 2021, 4 of the TDRs were removed from TDR status due to improvement in financial condition and sustained performance under the restructured terms, 2 TDRs were paid off through refinancing into new loans at market terms, and 1 TDR was paid off. Two loans with a balance of $0.5 million remained in TDR status as of December 31, 2021. An additional loan was removed from TDR status during 2022. The remaining loan with a balance of $0.1 million is paying as agreed as of December 31, 2022. The Bank will continue to examine payment accommodations as requested by the borrowers.

26 ALLOWANCE FOR LOAN LOSSES

~~IMPAIRED~~The ~~LOANS~~allowance for loan losses represents our estimate of probable losses inherent in our loan portfolio. The adequacy of the allowance for loan losses (the “allowance”) is reviewed by the Loan Committee and by the Board of Directors on a quarterly basis. For purposes of this analysis, adequacy is defined as a level sufficient to absorb estimated losses in the loan portfolio as of the balance sheet date presented. To remain consistent with GAAP, the methodology employed for this analysis has been modified over the years to reflect the economic environment and new accounting pronouncements. The Credit Department reviews this calculation on a quarterly basis. In addition, an independent third party validates the allowance calculation on a periodic basis. The methodology is based on a reserve model that is comprised of the three components listed below:

A1) ~~loan~~Specific isreserve ~~impaired~~analysis ~~when~~for itimpaired isloans ~~probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement~~ based on ~~current~~FASB ~~information and~~ASC ~~events. All loans with a principal balance over $50,000 placed on non~~310-~~accrual status are classified as impaired. However~~10-35, ~~not all~~Receivables ~~impaired loans are on non~~-~~accrual~~ ~~status nor do they all represent a loss.~~Overall

~~Impairment~~2) General reserve analysis applying historical loss isrates ~~measured~~based byon FASB ASC 450-20, Contingencies: Loss Contingencies

a.3) ~~The~~Qualitative ~~present~~or ~~value~~environmental ~~of the future cash flow discounted at the loan’s effective interest rate, or~~factors.

b.Loans ~~The~~greater ~~fair~~than ~~value~~$50,000 ofare reviewed ~~the~~for ~~collateral~~impairment on a quarterly basis if any of the ~~loan~~following iscriteria ~~collateral~~are ~~dependent.~~met:

1) The ~~following~~loan is aon ~~schedule of our impaired loans and~~ non-accrual ~~loans as of December 31, 2017 through 2021.~~

	2021		2020		2019		2018		2017
Nonaccrual loans	$	814,614	$	1,155,930	$	1,666,301	$	823,534	$	831,859
Impaired loans	$	3,406,508	$	7,805,600	$	4,776,928	$	4,278,347	$	3,724,262

The loan is a troubled debt restructuring

~~Beginning~~3) in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. During 2020, the Bank processed approximately $0.7 million in principal deferments to 84 customers, with an aggregate loan balance of $29.7 million. The ~~Bank did not process any principal deferments during the year ended December 31, 2021. The principal deferments represented 0.24% of our total~~ loan ~~portfolio~~is asover of60 ~~December~~days ~~31,~~past ~~2020.~~due

~~TROUBLED~~4) ~~DEBT~~The ~~RESTRUCTURINGS~~loan is rated substandard, doubtful, or loss

~~According~~5) toExcessive ~~GAAP,~~principal weextensions are required to account for certain loan modifications or restructurings as a troubled debt restructuring (“TDR”), when appropriate. In general, the modification or restructuring of a debt is considered a TDR if we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise consider. Three factors must always be present: executed

1.6) AnIf ~~existing~~we ~~credit~~are ~~must~~provided ~~formally~~information bethat ~~renewed,~~indicates ~~extended, or~~we ~~modified,~~ will not collect all principal and interest as scheduled

2.Impairment ~~The~~is ~~borrower~~measured isby the ~~experiencing~~present ~~financial~~value ~~difficulties,~~of the future cash flow discounted at the loan’s effective interest rate or the fair value of the collateral ~~and~~ if the loan is collateral dependent. An impaired loan may not represent an expected loss.

~~3. We grant a concession that we would not otherwise consider.~~21

~~The~~A ~~following~~general reserve analysis is performed on all loans, excluding impaired loans. This analysis includes a ~~schedule~~pool of ~~our~~loans ~~TDR’s~~that ~~including~~are reviewed for impairment but are not found to be impaired. Loans are segregated into similar risk groups and a historical loss ratio is determined for each group over a five-year period. The five-year average loss ratio by loan type is then used to calculate the estimated loss based ~~number~~on the current balance of ~~loans~~each ~~represented~~group.

	2021		2020		2019		2018		2017
Number of TDRs		5		14		3		—		1
Amount of TDRs	$	1,039,909	$	5,803,163	$	573,473	$	—	$	33,300

Qualitative and environmental loss factors are also applied against the portfolio, excluding impaired loans. These factors include external risk factors that we believe are representative of our overall lending environment. We believe that the following factors create a more comprehensive loss projection, which we can use to monitor the quality of the loan portfolio.

~~The Financial Accounting Standards Board (“FASB”~~1) ~~Accounting~~Portfolio Standards Codification (“ASC”) 310-20-35-9 allows a loan to be removed from TDR status if the terms of the loan reflect current market rates and the loan has been performing under modified terms for an extended period of time or under certain other circumstances.risk

~~Nine TDRs with~~ a) ~~balance~~Levels ofand ~~$4.7~~trends ~~million at December 31, 2020 were removed from TDR status during the year ended December 31, 2021. Five TDRs with a balance of $3.8 million were removed from TDR status due to improvement~~ in ~~financial~~delinquencies ~~condition~~ and ~~sustained~~impaired ~~performance~~loans ~~under the restructured terms, two TDRs with a balance of $0.5 million were paid off,~~ and ~~two~~changes ~~TDRs~~in with a balance of $0.4 million were paid off through refinancing into new loans at market terms. One TDR with a balance of $33,300 at December 31, 2017 was removed from TDR status during the year ended December 31, 2018 since, at the most recent renewal, the loan ~~was~~rating ~~amortized at market rate and no concessions were granted. We do not know of any potential problem loans which will not meet their contractual obligations that are not otherwise discussed herein.~~matrix

27 b) Trends in volume and terms of loans

Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020c), ~~have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID~~Over-~~19.~~margined Inreal ~~this~~estate ~~statement, the~~lending regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and classified 9 loans, with an aggregate loan balance of $4.0 million, that were granted payment accommodations as TDRs given the continued financial difficulty of the customer, associated industry risk, and multiple deferral requests. As of December 31, 2021, 4 of the TDRs were removed from TDR status due to improvement in financial condition and sustained performance under the restructured terms, 2 TDRs were paid off through refinancing into new loans at market terms, and 1 TDR was paid off. Two loans with a balance of $0.5 million remain in TDR status as of December 31, 2021. The Bank will continue to examine payment accommodations as requested by the borrowers.

~~ALLOWANCE~~2) ~~FOR~~National ~~LOAN~~and ~~LOSSES~~local economic trends and conditions

~~The allowance for loan losses represents our estimate of probable losses inherent in our loan portfolio. The adequacy of the allowance for loan losses (the “allowance”~~3) is ~~reviewed~~Effects ~~by the Loan Committee and by the Board~~ of ~~Directors~~changes ~~on a quarterly basis. For purposes of this analysis, adequacy is defined as a level sufficient to absorb estimated losses~~ in ~~the~~risk ~~loan~~selection ~~portfolio as of the balance sheet date presented. To remain consistent with GAAP, the methodology employed for this analysis has been modified over the years to reflect the economic environment~~ and ~~new~~underwriting accounting pronouncements. The Credit Department reviews this calculation on a quarterly basis. In addition, an independent third party validates the allowance calculation on a periodic basis. The methodology is based on a reserve model that is comprised of the three components listed below:practices

14) ~~Specific reserve analysis for impaired loans based on FASB ASC 310-10-35~~Experience, ~~Receivables~~ability -and ~~Overall~~depth 2)of ~~General~~lending ~~reserve~~management ~~analysis applying historical loss rates based on FASB ASC 450-20, Contingencies: Loss Contingencies 3) Qualitative or environmental factors.~~staff

~~Loans~~5) ~~greater~~Industry ~~than $50,000 are reviewed for impairment on a quarterly basis if any of the following criteria are met:~~ conditions

1) The loan is on non-accrual 2) The loan is a troubled debt restructuring 3) The loan is over 60 days past due 4) The loan is rated sub-standard, doubtful, or loss 5) Excessive principal extensions are executed 6) IfEffects weof ~~are~~changes ~~provided~~in ~~information~~credit ~~that indicates we will not collect all principal and interest as scheduled~~concentrations

~~Impairment~~a) isLoan measured by the present value of the future cash flow discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An impaired loan may not represent an expected loss.concentration

Ab) ~~general~~Geographic reserve analysis is performed on all loans, excluding impaired loans. This analysis includes a pool of loans that are reviewed for impairment but are not found to be impaired. Loans are segregated into similar risk groups and a historical loss ratio is determined for each group over a five-year period. The five-year average loss ratio by loan type is then used to calculate the estimated loss based on the current balance of each group.concentration

~~Qualitative~~c) ~~and~~Regulatory environmental loss factors are also applied against the portfolio, excluding impaired loans. These factors include external risk factors that we believe are representative of our overall lending environment. We believe that the following factors create a more comprehensive loss projection, which we can use to monitor the quality of the loan portfolio.concentration

1)	Portfolio risk
	a)	Levels and trends in delinquencies and impaired loans and changes in loan rating matrix
	b)	Trends in volume and terms of loans
	c)	Over-margined real estate lending risk
2)	National and local economic trends and conditions
3)	Effects of changes in risk selection and underwriting practices
4)	Experience, ability and depth of lending management staff
5)	Industry conditions
6)	Effects of changes in credit concentrations
	a)	Loan concentration
	b)	Geographic concentration
	c)	Regulatory concentration
7)	Loan and credit administration risk
	a)	Collateral documentation
	b)	Insurance risk
	c)	Maintenance of financial information risk

Loan and credit administration risk

28 a) Collateral documentation

~~The~~b) ~~sum~~Insurance ~~of each component’s analysis contributes to the total “estimated loss” within our portfolio.~~risk

~~Portfolio~~c) ~~Risk~~ Maintenance of financial information risk

Portfolio risk includes the levels and trends in delinquencies, impaired loans and changes in the loan rating matrix, trends in volume and terms of loans, and over-margined real estate lending. We are satisfied with the stability of the past due and non-performing loans and believe there has been no decline in the quality of our loan portfolio due to any trend in delinquent or adversely classified loans. Sizable unsecured principal balances on a non-amortizing basis are monitored. Although the vast majority of our real estate loans are underwritten on a cash flow basis, the secondary source of repayment is typically tied to our ability to realize the conversion of the collateral to cash. Accordingly, we closely monitor loan to value ratios. The maximum collateral advance rate is 80% on all real estate transactions, with the exception of raw land at 65% and land development at 70%.Risk

~~Occasionally,~~Portfolio werisk ~~extend~~includes the ~~credit~~levels ~~beyond~~and ~~our normal~~trends ~~collateral~~in ~~advance~~delinquencies, ~~margins~~impaired loans and changes in ~~real~~the ~~estate~~loan ~~lending.~~rating Wematrix, ~~refer~~trends toin ~~these~~volume ~~loans~~and asterms of loans, and over- margined real estate ~~loans~~lending. ~~Although infrequent,~~We are satisfied with the ~~aggregate~~stability of ~~these~~the ~~loans~~past ~~represents~~due aand ~~notable~~non-performing ~~part~~loans ofand ~~our~~believe there ~~portfolio.~~has ~~Accordingly,~~been ~~these~~no ~~loans~~decline ~~are~~in ~~monitored and~~ the ~~balances~~quality ~~reported~~of toour ~~the~~loan ~~Board~~portfolio ofdue ~~Directors~~to ~~every~~any ~~quarter.~~trend Anin ~~excessive~~delinquent ~~level~~or ofadversely ~~this~~classified ~~practice~~loans. ~~(as~~Sizable unsecured principal balances on a ~~percentage~~non-amortizing ofbasis ~~capital) could~~are ~~result~~monitored. inAlthough ~~additional~~the ~~regulatory~~vast ~~scrutiny,~~majority ~~competitive~~of ~~disadvantages~~our ~~and~~real ~~potential~~estate ~~losses~~loans ifare ~~forced~~underwritten on toa ~~convert~~cash flow basis, the ~~collateral. The~~secondary ~~consideration~~source of ~~over-margined~~repayment ~~real~~is ~~estate~~typically ~~loans~~tied ~~directly~~to ~~relates~~our ability to realize the ~~capacity~~conversion of the ~~borrower~~ collateral to ~~repay~~cash. WeAccordingly, ~~often~~we ~~request additional~~closely ~~collateral~~monitor loan to ~~bring~~value ~~the~~ratios. ~~loan~~The tomaximum ~~value~~collateral ~~ratio~~advance ~~within~~rate ~~the~~is ~~policy~~80% ~~objectives~~on ~~and~~all ~~require~~real aestate ~~strong~~transactions, with ~~secondary~~the ~~source~~exception of ~~repayment~~raw land at 65% and land development at 70%.

~~Although~~Occasionally, ~~significantly~~we ~~under~~extend credit beyond our ~~policy threshold~~normal ofcollateral ~~100%~~advance ofmargins ~~capital~~in ~~(currently~~real ~~approximately~~estate ~~$53~~lending.9 ~~million),~~We ~~the~~refer ~~amount~~to ofthese loans as over-margined real estate loans. ~~currently~~These ~~totals~~loans are ~~approximately~~monitored ~~$1.5~~and ~~million~~the orbalances ~~approximately~~reported 0to the Board of Directors every quarter.~~48%~~ An excessive level of ~~our~~this ~~loan~~practice ~~portfolio~~(as ata ~~December~~percentage of 31capital) could result in additional regulatory scrutiny, ~~2021~~competitive ~~compared~~disadvantages toand ~~$2.9~~potential ~~million~~losses orif ~~approximately~~forced to convert 0the collateral.~~89%~~ The consideration of over-margined real estate loans directly relates to the capacity of the borrower to repay. We often request additional collateral to bring the loan ~~portfolio~~to atvalue ~~December~~ratio ~~31,~~within ~~2020~~the policy objectives and require a strong secondary source of repayment.

AAlthough ~~credit~~significantly ~~rating matrix is used to rate~~under ~~all~~our ~~extensions~~policy ofthreshold ~~credit and to provide a more specific picture~~ of ~~the~~100% ~~risk each loan poses to the quality~~ of ~~the~~capital ~~loan~~(currently ~~portfolio~~approximately $38. ~~There~~8 ~~are~~million), ~~eight possible ratings used to determine~~ the ~~quality~~amount of ~~each~~over-margined ~~loan~~real ~~based~~estate ~~on the following characteristics: cash flow,~~loans ~~collateral~~currently ~~quality,~~totals ~~guarantor~~approximately ~~strength,~~$2.9 ~~financial~~million ~~condition,~~or ~~management~~approximately ~~quality,~~0.88% ~~operating performance, the relevancy~~ of ~~the~~our ~~financial statements, historical~~ loan ~~performance,~~portfolio ~~debt~~at ~~coverage~~December ~~ratio~~31, ~~and~~2022 ~~the~~compared ~~borrower’s leverage position. The matrix is designed~~ to ~~meet our standards and expectations of loan quality~~$1. ~~It is based on experience with similarly graded loans, industry best practices,~~5 ~~and~~million ~~regulatory~~or ~~guidance.~~approximately ~~Our loan portfolio is graded in its entirety, with the exception of PPP loans~~0. ~~Because PPP loans are 100~~48% ~~guaranteed~~ byof the ~~SBA~~loan ~~and~~portfolio ~~did~~at ~~not~~December ~~undergo the Bank’s typical underwriting process~~31, ~~they are not graded~~2021.

~~National~~A credit rating matrix is used to rate all extensions of credit and ~~local~~to ~~economic~~provide ~~trends~~a more specific picture of the risk each loan poses to the quality of the loan portfolio. There are eight possible ratings used to determine the quality of each loan based on the following characteristics: cash flow, collateral quality, guarantor strength, financial condition, management quality, operating performance, the relevancy of the financial statements, historical loan performance, debt coverage ratio, and ~~conditions~~ the borrower’s leverage position. The matrix is designed to meet our standards and expectations of loan quality. It is based on experience with similarly graded loans, industry best practices, and regulatory guidance. Our loan portfolio is graded in its entirety, with the exception of PPP loans. Because PPP loans were 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they were not graded. There were no PPP loans outstanding at December 31, 2022.

National and local economic trends and ~~conditions~~ ~~are constantly changing and both positively and negatively impact borrowers. Most macroeconomic~~ conditions are not controllable by us and are incorporated into the qualitative risk factors. Natural and environmental disasters, including the rise of sea levels, political uncertainty, increasing levels of consumer price inflation, supply-chain disruptions and international instability are a few of the trends and conditions that are currently affecting the national and local economies. Additionally, the national and local economy has been affected by COVID-19 during the years ended December 31, 2021 and 2020. These changes have impacted borrowers’ ability, in many cases, to repay loans in a timely manner. On occasion, a loan’s primary source of repayment (i.e. personal income, cash flow, or lease income) may be eroded as a result of unemployment, lack of revenues, or the inability of a tenant to make rent payments.

~~Effects~~National and local economic trends and conditions are constantly changing and both positively and negatively impact borrowers. Most macroeconomic conditions are not controllable by us and are incorporated into the qualitative risk factors. Natural and environmental disasters, including the rise of sea levels, political uncertainty, increasing levels of consumer price inflation, supply-chain disruptions and international instability are a few of the trends and conditions that are currently affecting the national and local economies. Additionally, the national and local economy has been affected by COVID-19 during the years ended December 31, 2022 and 2021. These changes have impacted borrowers’ ability, in ~~risk~~many ~~selection~~cases, to repay loans in a timely manner. On occasion, a loan’s primary source ~~and~~of ~~underwriting~~repayment ~~practices~~ (i.e. personal income, cash flow, or lease income) may be eroded as a result of unemployment, lack of revenues, or the inability of a tenant to make rent payments.

~~The~~Effects ~~quality~~ of ~~our loan portfolio is contingent~~changes ~~upon~~in ~~our~~ risk selection and underwriting practices. All new loans (except for mortgage loans in the process of being sold to investors and loans secured by properly margined negotiable securities traded on an established market or other cash collateral) with exposure over $300,000 are reviewed by the Loan Committee on a monthly basis. The Board of Directors review credits over $750,000 monthly. Annual credit analyses are conducted on credits over $500,000 upon the receipt of updated financial information. Prior to extensions of credit, significant loan opportunities go through sound credit underwriting. Our Credit Department conducts a detailed cash flow analysis on each proposal using the most current financial information.

~~Experience,~~The ~~ability~~quality of our loan portfolio is contingent upon our risk selection and ~~depth~~underwriting practices. All new loans (except for mortgage loans in the process of being sold to investors and loans secured by properly margined negotiable securities traded on an established ~~lending~~market ~~management~~or ~~staff~~ other cash collateral) with exposure over $300,000 are reviewed by the Loan Committee on a monthly basis. The Board of Directors review credits over $750,000 monthly. Annual credit analyses are conducted on credits over $500,000 upon the receipt of updated financial information. Prior to extensions of credit, significant loan opportunities go through sound credit underwriting. Our Credit Department conducts a detailed cash flow analysis on each proposal using the most current financial information.

We have over 300 combined years of lending experience among our lending staff. We are aware of the many challenges currently facing the banking industry. As other banks look to increase earnings in the short term, we will continue to emphasize the need to maintain safe and sound lending practices and core deposit growth managed with a long-term perspective.22

~~Industry~~Experience, ~~conditions~~ ability and depth of lending management staff

~~There~~We ~~continues~~have toover be300 ancombined years ~~influx~~ of ~~new banks~~lending ~~and~~experience ~~consolidation~~among our lending staff. We are aware of ~~existing~~the many challenges currently facing the banking industry. As other banks look to increase earnings in ~~our~~the ~~geographic~~short ~~area~~term, ~~which~~we ~~creates~~will ~~pricing~~continue ~~competition.~~to Weemphasize ~~believe~~the ~~that~~need ~~our~~to ~~borrowing base~~maintain issafe ~~well~~and ~~established~~sound lending practices and ~~therefore~~core ~~unsound~~deposit ~~price~~growth ~~competition~~managed iswith ~~not~~a ~~necessary~~long-term perspective.

~~Effects~~Industry ~~of changes in credit concentrations~~ conditions

~~The~~There ~~risks~~continues ~~associated~~to ~~with~~be ~~the~~an influx ~~effects~~ of ~~changes~~ innew ~~credit~~banks ~~concentration~~and ~~include~~consolidation ~~loan,~~of ~~geographic~~existing ~~and~~banks ~~regulatory~~in ~~concentrations.~~our Asgeographic ~~of December 31~~area, ~~2021,~~which ~~one~~creates ~~Standard~~pricing ~~Industrial Code~~competition. ~~group,~~We ~~activities~~believe ~~related~~that our toborrowing ~~real~~base ~~estate,~~is ~~comprised~~well ~~more~~established ~~than~~and 2%therefore ofunsound ~~our~~price ~~total~~competition ~~outstanding~~is ~~loans~~not necessary.

29Effects of changes in credit concentrations

~~Effects~~The risks associated with the effects of changes in credit concentration include loan, geographic and regulatory concentrations . As of December 31, 2022, two Standard Industrial Code groups, activities related to real estate and redi-mix concrete, comprised more than 2% of our total loans outstanding.

WeEffects ~~are located along the east coast~~ of ~~the~~ ~~United States and on an earthquake fault line, increasing the chances that a natural disaster may impact our borrowers and~~changes ~~us. We have a Disaster Recovery Plan~~ in ~~place;~~geographic ~~however, the amount of time it would take for our customers to return to normal operations is unknown. Our plan is reviewed and tested annually.~~concentrations

~~Loan~~We are located along the east coast of the United States and ~~credit~~on ~~administration~~an ~~risk~~ earthquake fault line, increasing the chances that a natural disaster may impact our borrowers and us. We have a Disaster Recovery Plan in place; however, the amount of time it would take for our customers to return to normal operations is unknown. Our plan is reviewed and tested annually.

Loan and credit administration risk ~~includes collateral documentation, insurance risk and maintaining financial information risk.~~

~~The~~Loan ~~majority of our loan portfolio is collateralized with a variety of our borrowers’ assets. The execution~~ and ~~monitoring~~credit ~~of the documentation to properly secure the loan is~~administration ~~the responsibility of our lenders and loan department. We require insurance coverage naming us as the mortgagee or loss payee. Although insurance~~ risk isincludes ~~also considered~~ collateral documentation ~~risk~~, ~~the~~insurance ~~actual~~risk ~~coverage, amounts of coverage~~ and ~~increased deductibles~~maintaining ~~are~~financial ~~important~~information ~~to management~~risk.

~~Financial~~The ~~Information~~majority ~~Risk~~of ~~includes~~our aloan ~~function~~portfolio ofis ~~time~~collateralized ~~during~~with ~~which~~a ~~the~~variety ~~borrower’s~~of ~~financial~~our ~~condition~~borrowers’ ~~may~~assets. ~~change;~~The ~~therefore,~~execution ~~keeping~~and ~~financial~~monitoring ~~information~~of upthe documentation to ~~date is~~properly ~~important~~secure tothe ~~us.~~loan ~~Our~~is ~~policy~~the ~~requires~~responsibility ~~all~~of ~~new~~our ~~loans~~lenders ~~(with~~and aloan ~~credit~~department. ~~exposure~~We ofrequire ~~$10,000~~insurance orcoverage ~~more),~~naming ~~regardless~~us ofas the ~~customer’s~~mortgagee ~~history~~or ~~with~~loss ~~us,~~payee. toAlthough ~~have~~insurance ~~updated~~risk ~~financial~~is ~~information.~~also Inconsidered ~~addition~~collateral documentation risk, wethe ~~monitor~~actual ~~appraisals~~coverage, ~~closely~~amounts asof ~~real~~coverage and ~~estate~~increased ~~values~~deductibles are ~~appreciating~~important to management.

~~Based~~Financial onInformation ~~our~~Risk includes ~~analysis~~a function of ~~the~~time ~~adequacy~~during of which the ~~allowance~~borrower’s ~~for~~financial ~~loan~~condition ~~loss~~may ~~model~~change; therefore, wekeeping ~~recorded~~financial ainformation up ~~provision~~to ~~for~~date ~~loan~~is ~~loss~~important ofto $0us.1 ~~million~~Our ~~for~~policy ~~the~~requires ~~year~~all ~~ended~~new ~~December~~loans ~~31,~~(with ~~2021~~a ~~compared to~~credit ~~$0.2~~exposure ~~million~~of ~~for the year ended December 31~~$10, ~~2020.~~000 Ator ~~December 31~~more), ~~2021,~~regardless of the customer’s ~~five-year~~history ~~average~~with ~~loss ratios were: 0.17% Commercial~~us, ~~0.00%~~to ~~Commercial~~have ~~Real~~updated ~~Estate~~financial ~~Construction, -0~~information.~~01%~~ ~~Commercial~~In ~~Real Estate Other~~addition, ~~-0.03%~~we ~~Consumer~~monitor ~~Real~~appraisals ~~Estate,~~closely ~~and~~as ~~0.54%~~real estate ~~Consumer~~values ~~Other~~are appreciating.

~~During~~Based ~~the~~on ~~year~~our ~~ended~~analysis ~~December 31, 2021,~~of ~~charge-offs~~the ofadequacy ~~$20,990 and recoveries~~ of ~~$0.1 million were recorded to~~ the allowance for loan ~~losses~~loss model, ~~resulting~~we recorded a reduction in anthe allowance for loan ~~losses~~loss of $40.41 million orfor ~~1.43% of total loans at December 31, 2021. During~~ the year ended December 31, ~~2020,~~2022 ~~charge-offs of~~compared ~~$0.3 million and recoveries of $0.2 million were recorded~~ to ~~the~~a ~~allowance~~provision for loan ~~losses,~~loss ~~resulting in an allowance for loan losses~~ of $40.21 million orfor ~~1.30%~~the ofyear ~~total~~ended ~~loans at~~ December 31, ~~2020~~2021. AsAt of December 31, ~~2021~~2022, the ~~allowance~~five-year ~~for~~average ~~loan~~loss ~~losses~~ratios ~~was 1~~were: 0.4719% ofCommercial, ~~total loans less PPP loans~~0. ~~PPP loans are 100~~00% ~~guaranteed~~Commercial byReal ~~the~~Estate ~~SBA; therefore~~Construction, ~~these~~-0.02% ~~loans~~Commercial Real doEstate ~~not~~Other, ~~have an associated reserve~~-0.03% WeConsumer ~~believe~~Real ~~loss exposure in the portfolio is identified~~Estate, ~~reserved against,~~ and ~~closely~~0.46% ~~monitored~~Consumer ~~to ensure that economic changes are promptly addressed in the analysis of reserve adequacy~~Other.

~~The~~With ~~accrual~~regard ~~of interest is generally discontinued on loans which become 90 days past due as~~ to ~~principal~~jumbo ~~or interest. The accrual of interest on some~~ loans, ~~may continue even though they are 90 days past due if the loans are well secured or in the process of collection and~~ we ~~deem~~obtain itpeer ~~appropriate.~~data ~~If non-accrual loans decrease their past due status to less than 30 days~~ for ause ~~period of six~~ to ~~nine~~calculate ~~months,~~historical ~~they~~loss ~~are reviewed individually to determine if they should be returned to accrual status~~ratios. At December 31, ~~2021 and 2020~~2022, ~~there~~the ~~were~~5-year noaverage loss ~~loans~~for ~~over~~the 90jumbo ~~days~~loan ~~past~~portfolio ~~due still~~was ~~accruing interest~~0.01%.

During the year ended December 31, 2022, charge-offs of $42,644 and recoveries of $31,878 were recorded to the allowance for loan losses, resulting in an allowance for loan losses of $4.3 million or 1.30 % of total loans at December 31, 2022. During the year ended December 31, 2021, charge-offs of $20,990 and recoveries of $0.1 million were recorded to the allowance for loan losses, resulting in an allowance for loan losses of $4.4 million or 1.43% of total loans at December 31, 2021. During the year ended December 31, 2020, charge-offs of $0.3 million and recoveries of $0.2 million were recorded to the allowance for loan losses, resulting in an allowance for loan losses of $4.2 million or 1.30% of total loans at December 31, 2020. We believe loss exposure in the portfolio is identified, reserved against, and closely monitored to ensure that economic changes are promptly addressed in the analysis of reserve adequacy.

The ~~following~~accrual ~~table~~of ~~represents~~interest is agenerally ~~summary~~discontinued on loans which become 90 days past due as to principal or interest. The accrual of interest on some loans may continue even though they are 90 days past due if the loans are well secured or in the process of ~~loan~~collection ~~loss~~and ~~experience~~we deem it appropriate. If non-accrual loans decrease their past due status to less than 30 days for ~~the~~a period of six to nine months, they are reviewed individually to determine if they should be returned to accrual status. At December 31, 2022 and 2021, there were no loans over 90 days past ~~five~~due ~~years~~still accruing interest.

	2021			2020			2019			2018			2017
(in thousands)
Balance of the allowance of loan losses at the beginning of the period	$	4,186		$	4,004		$	4,214		$	3,875		$	3,852
Charge-offs
Commercial		—			(172	)		(399	)		(31	)		—
Commercial Real Estate Construction		—			—			—			—			—
Commercial Real Estate Other		—			—			—			—			(181	)
Consumer Real Estate		—			—			—			—			—
Consumer Other		(11	)		(116	)		(8	)		(85	)		(5	)
Paycheck Protection Program		(10	)		(2	)		—			—			—
Total charge-offs		(21	)		(290	)		(407	)		(116	)		(186	)
Recoveries
Commercial		21			89			12			14			6
Commercial Real Estate Construction		—			—			—			—			—
Commercial Real Estate Other		—			100			—			57			87
Consumer Real Estate		48			—			—			45			60
Consumer Other		22			43			5			14			1
Paycheck Protection Program		1			—			—			—			—
Total recoveries		92			232			17			130			154
Net recoveries (charge-offs)		71			(58	)		(390	)		14			(32	)
Provision charged to operations		120			240			180			325			55
Balance of the allowance for loan losses at the end of the period	$	4,377		$	4,186		$	4,004		$	4,214		$	3,875

31 The following table represents a summary of loan loss experience for the past five years.

We believe the allowance for loan losses at December 31, 2021 is adequate to cover estimated losses in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires considerable judgment. Our judgments are based on numerous assumptions about current events that we believe to be reasonable, but may or may not be valid. Thus, there can be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the allowance, thus adversely affecting our operating results.

	2022			2021			2020			2019			2018
(in thousands)
Balance of the allowance of loan losses at the beginning of the period	$	4,377		$	4,186		$	4,004		$	4,214		$	3,875

Charge-offs
Commercial		(41	)		—			(172	)		(399	)		(31	)
Commercial Real Estate Construction		—			—			—			—			—
Commercial Real Estate Other		—			—			—			—			—
Consumer Real Estate		(2	)		—			—			—			—
Consumer Other		—			(11	)		(116	)		(8	)		(85	)
Paycheck Protection Program		(0	)		(10	)		(2	)		—			—
Total charge-offs		(43	)		(21	)		(290	)		(407	)		(116	)

Recoveries
Commercial		1			21			89			12			14
Commercial Real Estate Construction		—			—			—			—			—
Commercial Real Estate Other		18			—			100			—			57
Consumer Real Estate		—			48			—			—			45
Consumer Other		12			22			43			5			14
Paycheck Protection Program		1			1			—			—			—
Total recoveries		32			92			232			17			130
Net (charge-offs) recoveries		(11	)		71			(58	)		(390	)		14

Provision charged to operations		(75	)		120			240			180			325

Balance of the allowance for loan losses at the end of the period	$	4,291		$	4,377		$	4,186		$	4,004		$	4,214

~~The following table presents a breakdown of the allowance for loan losses for the past five years.~~ 24

	2021				2020				2019				2018				2017
		$	%(1)			$	%(1)			$	%(1)			$	%(1)			$	%(1)
(in thousands)
Commercial	$	796	15	%	$	1,030	16	%	$	1,430	19	%	$	1,665	20	%	$	1,404	20	%
Commercial Real Estate Construction		175	4	%		199	5	%		109	5	%		64	3	%		23	3	%
Commercial Real Estate Other		2,376	54	%		1,909	46	%		1,271	52	%		1,292	52	%		1,550	52	%
Consumer Real Estate		925	23	%		925	22	%		496	22	%		387	23	%		797	23	%
Consumer Other		105	1	%		123	1	%		698	2	%		806	2	%		101	2	%
Paycheck Protection Program		—	3	%		—	10	%		—	—	%		—	—	%		—	—	%
Total	$	4,377	100	%	$	4,186	100	%	$	4,004	100	%	$	4,214	100	%	$	3,875	100	%

We believe the allowance for loan losses at December 31, 2022 is adequate to cover estimated losses in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires considerable judgment. Our judgments are based on numerous assumptions about current events that we believe to be reasonable, but may or may not be valid. Thus, there can be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the allowance, thus adversely affecting our operating results.

~~(1) Loan category~~The asfollowing table presents a ~~percentage~~breakdown of ~~total~~the ~~loans~~allowance for loan losses for the past five years.

The allowance is also subject to examination testing by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions and other adequacy tests. In addition, such regulatory agencies could require us to adjust our allowance based on information available to them at the time of their examination.

	2022					2021					2020					2019					2018
	$		%⁽¹⁾			$		%⁽¹⁾			$		%⁽¹⁾			$		%⁽¹⁾			$		%⁽¹⁾
(in thousands)
Commercial	$	736		14	%	$	796		15	%	$	1,030		16	%	$	1,430		19	%	$	1,665		20	%
Commercial Real Estate Construction		231		5	%		175		4	%		199		5	%		109		5	%		64		3	%
Commercial Real Estate Other		2,216		52	%		2,376		54	%		1,909		46	%		1,271		52	%		1,292		52	%
Consumer Real Estate		1,015		28	%		925		23	%		925		22	%		496		22	%		387		23	%
Consumer Other		94		1	%		105		1	%		123		1	%		698		2	%		806		2	%
Paycheck Protection Program		—		—	%		—		3	%		—		10	%		—		—	%		—		—	%
Total	$	4,291		100	%	$	4,377		100	%	$	4,186		100	%	$	4,004		100	%	$	4,214		100	%

~~The~~(1) ~~methodology~~Loan ~~used~~category toas determine the reserve for unfunded lending commitments, which is included in other liabilities, is inherently similar to the methodology used to determine the allowance for loan losses described above, adjusted for factors specific to binding commitments, including the probability of funding and historical loss ratio. During the year ended December 31, 2021, a ~~provision~~percentage of $0total ~~was recorded compared to a provision of $11,894 during the year ended December 31, 2020~~loans. ~~The balance for the reserve for unfunded lending commitments was $44,912 as of December 31, 2021 and 2020.~~

~~NONPERFORMING~~The ~~ASSETS~~allowance is also subject to examination testing by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions and other adequacy tests. In addition, such regulatory agencies could require us to adjust our allowance based on information available to them at the time of their examination.

~~Nonperforming~~The ~~assets~~methodology ~~include~~used ~~OREO~~to determine the reserve for unfunded lending commitments, ~~nonaccrual~~which is included in other liabilities, is inherently similar to the methodology ~~loans~~used ~~and~~to ~~loans~~determine ~~past~~the ~~due~~allowance 90for ~~days~~loan orlosses ~~more~~described above, adjusted for factors specific to binding commitments, including the probability of funding and ~~still~~historical ~~accruing~~loss ~~interest~~ratio. ~~The~~During ~~following~~the ~~table~~years ~~summarizes~~ended ~~nonperforming~~December ~~assets~~31, 2022 and 2021, no provisions were recorded. The balance for the ~~five~~ ~~years~~reserve ~~ended~~for unfunded lending commitments was $44,912 as of December 31:, 2022 and 2021.

Nonperforming Assets
(in thousands)	2021			2020			2019			2018			2017
Nonaccrual loans	$	815		$	1,156		$	1,666		$	824		$	832
Loans past due 90 days or more and still accruing interest		—			—			—			—			33
Total nonperforming loans		815			1,156			1,666			824			865
Other real estate owned		—			—			—			—			435
Total nonperforming assets	$	815		$	1,156		$	1,666		$	824		$	1,300
Allowance for loan losses to nonaccrual loans		537.36	%		362.11	%		240.34	%		511.41	%		465.75	%
Nonaccrual loans to total loans		0.27	%		0.36	%		0.61	%		0.30	%		0.31	%
Nonperforming loans to total loans		0.27	%		0.36	%		0.61	%		0.30	%		0.29	%
Nonperforming assets to total assets		0.12	%		0.22	%		0.37	%		0.19	%		0.32	%

NONPERFORMING ASSETS

32 Nonperforming assets include other real estate owned (“OREO”), nonaccrual loans and loans past due 90 days or more and still accruing interest. The following table summarizes nonperforming assets for the five years ended December 31:

DEPOSITS

Nonperforming Assets
(in thousands)	2022			2021			2020			2019			2018
Nonaccrual loans	$	631		$	815		$	1,156		$	1,666		$	824
Loans past due 90 days or more and still accruing interest		—			—			—			—			—
Total nonperforming loans		631			815			1,156			1,666			824
Other real estate owned		—			—			—			—			—
Total nonperforming assets	$	631		$	815		$	1,156		$	1,666		$	824

Allowance for loan losses to nonaccrual loans		679.60	%		537.36	%		362.11	%		240.34	%		511.41	%
Nonaccrual loans to total loans		0.19	%		0.27	%		0.36	%		0.61	%		0.30	%
Nonperforming loans to total loans		0.19	%		0.27	%		0.36	%		0.61	%		0.30	%
Nonperforming assets to total assets		0.10	%		0.12	%		0.22	%		0.37	%		0.19	%

~~The following table shows the contractual maturities of time deposits in denominations of $100,000 or more at December 31, 2021 and the amount of time deposits in excess of FDIC insurance limits.~~25

	One Day		Less than three months		Three months to less than six months		Six months to less than one year		One year to less than five years		Five years or more		Total
(in thousands)
CD’s and other time deposits less than $100,000	$	—	$	1,912	$	1,566	$	1,708	$	868	$	4	$	6,058
CD’s and other time deposits $100,000 and over		—		4,902		5,568		3,657		1,104		—		15,231
Total	$	—	$	6,814	$	7,134	$	5,365	$	1,972	$	4	$	21,289
CD’s and other time deposits in excess of FDIC insurance limit	$	—	$	798	$	3,056	$	564	$	—	$	—	$	4,418

DEPOSITS

~~Certificates~~The offollowing ~~Deposit~~table ~~$100,000~~shows ~~and~~the ~~over~~contractual maturities ~~increased~~of ~~$1.2~~time ~~million~~deposits orin ~~8.41%~~denominations toof $~~15.2~~100,000 ~~million~~or asmore ofat December 31, ~~2021~~2022 ~~from~~and ~~$14.0~~the ~~million~~amount as of ~~December~~time ~~31,~~deposits ~~2020.~~in ~~This~~excess ~~increase was primarily due to higher customer balances resulting from a continuation~~ of ~~government~~FDIC ~~stimulus programs and increased savings~~insurance limits.

	One Day		Less than three months		Three months to less than six months		Six months to less than one year		One year to less than five years		Five years or more		Total
(in thousands)
CD’s and other time deposits less than $100,000	$	—	$	1,875	$	1,158	$	1,486	$	1,130	$	—	$	5,649
CD’s and other time deposits $100,000 and over		—		4,065		1,660		4,574		622		—		10,921
Total	$	—	$	5,940	$	2,818	$	6,060	$	1,752	$	—	$	16,570

CD’s and other time deposits in excess of FDIC insurance limit	$	—	$	838	$	299	$	917	$	—	$	—		2,054

Certificates of Deposit $100,000 and over decreased $4.3 million or 28.3% to $10.9 million as of December 31, 2022 from $15.2 million as of December 31, 2021. The ~~following~~higher ~~table~~balance ~~presents~~in ~~average~~2021 for these demand deposits bywas ~~category~~temporary in nature.

	2021					2020					2019
	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
Non-interest-bearing demand	$	205,238		N/A		$	163,394		N/A		$	133,182		N/A
Interest-bearing transaction accounts		242,618		0.04	%		208,941		0.08	%		189,115		0.29	%
Savings		51,609		0.06	%		40,771		0.10	%		32,935		0.30	%
Time deposits		20,435		0.28	%		20,965		0.47	%		26,456		0.62	%
	$	519,900				$	434,071				$	381,688

The following table presents average deposits by category.

Deposits increased $147.0 million or 31.80% to $609.2 million as of December 31, 2021, from $462.2 million as of December 31, 2020. Non-interest bearing deposits increased $86.6 million to $255.8 million as of December 31, 2021, primarily driven by a continuation of various government stimulus programs and decreased consumer spending, which both began in fiscal 2020.

	2022					2021					2020
*(in thousands)*	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
Non-interest-bearing demand	$	243,110		N/A		$	205,238		N/A		$	163,394		N/A
Interest-bearing transaction accounts		269,510		0.08	%		242,618		0.04	%		208,941		0.08	%
Savings		65,817		0.06	%		51,609		0.06	%		40,771		0.10	%
Time deposits		18,444		0.21	%		20,435		0.28	%		20,965		0.47	%
	$	596,881				$	519,900				$	434,071

WeDeposits ~~fund~~decreased ~~growth~~$10.5 million ~~through~~or ~~core~~1.73% ~~deposits~~to $598.7 ~~We do~~million ~~not~~as ~~have~~of December 31, ~~nor~~2022, dofrom we$609.2 ~~rely~~million onas of December 31, ~~Brokered~~2021. ~~Deposits~~Non-interest orbearing ~~Internet~~deposits decreased ~~Deposits~~$32.7 million to $223.1 million as of December 31, 2022. The higher balance in 2021 for these demand deposits was temporary in nature.

34 We fund growth through core deposits. We do not have, nor do we rely on, Brokered Deposits or Internet Deposits.

SHORT-TERM BORROWINGS

At December 31, ~~2021~~2022 and ~~2020~~ 2021, we had no outstanding federal funds purchased. We have a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits the Company to retain possession of loans pledged as collateral to secure advances from the Federal Reserve Discount Window. Under this agreement, we may borrow up to $7278.13 million. We established this arrangement as an additional source of liquidity. ~~There have been no borrowings under this arrangement.~~

At December 31, ~~2021~~2022 and ~~2020~~2021, the Bank had unused short-term lines of credit totaling approximately $41 million ~~and $23 million, respectively~~ (which are withdrawable at the lender’s option).

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. We use such transactions for general corporate purposes or customer needs. General corporate purpose transactions are used to help manage credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customer requests for funding.

Our off-balance sheet arrangements consist principally of commitments to extend credit described below. We estimate probable losses related to binding unfunded lending commitments and record a reserve for unfunded lending commitments in other liabilities on the consolidated balance sheet. At December 31, ~~2021~~2022 and ~~2020~~2021, the balance of this reserve was $44,912. At December 31, ~~2021~~2022 and ~~2020~~2021, we had no interests in non-consolidated special purpose entities.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent ~~future~~ future cash requirements. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on our credit evaluation of the borrower. Collateral held varies but may include accounts receivable, negotiable instruments, inventory, property, plant and equipment, and real estate. Commitments to extend credit, including unused lines of credit, amounted to $~~117~~145.5 4 million and $~~122~~117.85 million as of December 31, ~~2021~~2022 and ~~2020~~2021, respectively.

Standby letters of credit represent our obligation to a third-party contingent upon the failure of our customer to perform under the terms of an underlying contract with the third party or obligates us to guarantee or stand as surety for the benefit of the third party. The underlying contract may entail either financial or nonfinancial obligations and may involve such things as the shipment of goods, performance of a contract, or repayment of an obligation. Under the terms of a standby letter, generally drafts will be drawn only when the underlying event fails to occur as intended. We can seek recovery of the amounts paid from the borrower. Commitments under standby letters of credit are usually for one year or less. The maximum potential amount of undiscounted future payments related to standby letters of credit at December 31, 2021 and 2020 was $0.6 million and $0.8 million, respectively.26

~~We originate~~Standby ~~certain~~letters ~~fixed~~of ~~rate~~credit represent ~~residential~~our ~~loans~~obligation ~~and~~to ~~commit~~a ~~these~~third-party ~~loans~~contingent ~~for~~upon ~~sale.~~the ~~The~~failure ~~commitments~~of our customer to ~~originate~~perform ~~fixed~~under ~~rate~~the ~~residential~~terms of an underlying ~~loans~~contract ~~and~~with the ~~sales~~third ~~commitments~~party ~~are~~or ~~freestanding~~obligates ~~derivative~~us ~~instruments.~~to Weguarantee ~~had~~or ~~forward~~stand ~~sales~~as ~~commitments,~~surety ~~totaling~~for $2the benefit of the third party.8 ~~million~~The underlying atcontract ~~December~~may 31entail either financial or nonfinancial obligations and may involve such things as the shipment of goods, ~~2021~~performance of a contract, toor ~~sell~~repayment ~~loans~~of ~~held~~an ~~for~~obligation. ~~sale~~Under the terms of ~~$2.8~~a ~~million~~standby letter, ~~compared~~generally drafts will be drawn only when the underlying event fails to ~~forward~~occur ~~sales~~as ~~commitments~~intended. We can seek recovery of ~~$13~~the amounts paid from the borrower.0 ~~million~~Commitments ~~at December 31, 2020,~~under standby toletters ~~sell~~of ~~loans~~credit ~~held~~are usually for ~~sale~~one ofyear ~~$13.0~~or ~~million~~less. The ~~fair~~maximum ~~value~~potential amount of ~~these~~undiscounted ~~commitments~~future ~~was~~payments ~~not~~related ~~significant~~to standby letters of credit at December 31, ~~2021~~2022 ~~or 2020.~~and We2021 ~~had~~was no$2.5 ~~embedded~~million ~~derivative~~and ~~instruments~~$0.6 ~~requiring~~million, ~~separate accounting treatment~~respectively.

~~Once we~~We ~~sell~~originate certain fixed rate residential loans, ~~the~~and ~~loans~~commit ~~are~~these noloans ~~longer~~for ~~reportable on our balance sheet~~sale. ~~With~~The ~~most~~commitments ofto ~~these~~originate ~~sales, we~~fixed ~~have~~rate anresidential ~~obligation~~loans toand ~~repurchase~~ the ~~loan~~sales incommitments are ~~the~~freestanding ~~event~~derivative ofinstruments. aWe ~~default~~had offorward ~~principal~~sales orcommitments, ~~interest~~totaling ~~on the loan~~$0.9 ~~This~~million ~~recourse~~at ~~period ranges~~December ~~from~~31, ~~three~~2022, to sell ~~nine~~loans ~~months.~~held ~~Misrepresentation~~for orsale ~~fraud~~of ~~carries~~$0.9 ~~unlimited~~million, ~~time~~compared ~~for~~to ~~recourse.~~forward ~~The~~sales ~~unpaid~~commitments ~~principal balance~~ of ~~loans sold with recourse was~~ $302.8 million at December 31, 2021, ~~and~~to sell loans held for sale of $~~57.~~2.8 million. atThe ~~December~~fair ~~31,~~value ~~2020.~~of ~~For~~these ~~the~~commitments ~~years ended~~was not significant at December 31, 2022 or 2021. ~~and~~We had ~~December~~no ~~31,~~embedded ~~2020,~~derivative ~~there~~instruments ~~were~~requiring noseparate ~~loans~~accounting ~~repurchased~~treatment.

~~EFFECT~~Once we sell certain fixed OFrate ~~INFLATION~~residential ~~AND~~loans, ~~CHANGING~~the ~~PRICES~~loans are no longer reportable on our balance sheet. With most of these sales, we have an obligation to repurchase the loan in the event of a default of principal or interest on the loan. This recourse period ranges from three to nine months. Misrepresentation or fraud carries unlimited time for recourse. The unpaid principal balance of loans sold with recourse was $8.9 million at December 31, 2022 and $30.8 million at December 31, 2021. For the years ended December 31, 2022 and December 31, 2021, there were two loans and one loan repurchased, respectively.

~~The consolidated~~EFFECT ~~financial~~OF ~~statements have been prepared in accordance with GAAP, which require the measurement of financial position~~INFLATION ~~and~~AND ~~results~~CHANGING ~~of operations in terms of historical dollars without consideration of changes in the relative purchasing power over time due to inflation.~~PRICES

~~Unlike most~~The ~~other~~consolidated ~~industries, the assets and liabilities of~~ financial ~~institutions~~statements ~~like~~have ~~the~~been prepared ~~Company are primarily monetary~~ in ~~nature. As~~accordance awith ~~result~~GAAP, ~~interest~~which ~~rates~~require ~~generally have a more significant impact on our performance than~~ the ~~effects~~measurement of ~~general~~financial ~~levels~~position ~~of inflation~~ and ~~changes~~results inof ~~prices.~~operations ~~In addition, interest rates do not necessarily move~~ in ~~the~~terms ~~same~~of ~~direction or in the same magnitude~~historical asdollars ~~the~~without ~~prices~~consideration of ~~goods~~changes ~~and~~in ~~services. We strive to manage~~ the ~~relationship~~relative ~~between~~purchasing ~~interest~~power ~~rate~~over ~~sensitive~~time ~~assets~~due ~~and liabilities in order~~ to ~~protect against wide interest rate fluctuations, including those resulting from~~ inflation.

35Unlike most other industries, the assets and liabilities of financial institutions like the Company are primarily monetary in nature. As a result, interest rates generally have a more significant impact on our performance than the effects of general levels of inflation and changes in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. We strive to manage the relationship between interest rate sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

CAPITAL RESOURCES

Our capital needs have been met to date through the $10.6 million in capital raised in our initial offering, the retention of earnings less dividends paid and the exercise of options to purchase stock. Total shareholders’ equity at December 31, ~~2021~~2022 was $5338.9 8 million. The rate of asset growth since our inception has not negatively impacted our capital base.

On July 2, 2013, the Federal Reserve Board approved the final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks (“Basel III”). Following the actions by the Federal Reserve, the FDIC also approved regulatory capital requirements on July 9, 2013. The FDIC’s rule is identical in substance to the final rules issued by the Federal Reserve Bank.

~~Basel III~~The ~~became~~purpose ~~effective~~of onBasel ~~January~~III ~~1, 2015. The purpose~~ is to improve the quality and increase the quantity of capital for all banking organizations. The minimum requirements for the quantity and quality of capital were increased. The rule includes a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also ~~raises~~raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and requires a minimum leverage ratio of 4%. In addition, the rule ~~also~~implemented a ~~implements~~ strict eligibility criteria for regulatory capital instruments and ~~improves~~improved the methodology for calculating risk-weighted assets to enhance risk sensitivity. ~~Full compliance with all of the final rule requirements will be phased in over a multi-year schedule.~~

On November 4, 2019, the federal banking agencies jointly issued a final rule on an optional, simplified measure of capital adequacy for qualifying community banking organizations called the community bank leverage ratio (“CBLR”) framework effective on January 1, 2020. A qualifying community banking organization is defined as having less than $10 billion in total consolidated assets, a leverage ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets. Additionally, the qualifying community banking institution must be a non-advanced approaches FDIC supervised institution. The final rule adopts Tier 1 capital and existing leverage ratio into the CBLR framework. The Bank adopted this rule as of September 30, 2020 and is no longer subject to other capital and leverage requirements. A CBLR bank meeting qualifying criterion is deemed to have met the “well capitalized” ratio requirements and be in compliance with the generally applicable capital rule. The Bank’s CBLR as of December 31, ~~2021~~2022 was 89.6603%. As of December 31, ~~2021~~2022, the Company and the Bank were categorized as “well capitalized.” We believe, as of December 31, ~~2021~~2022, that the Company and the Bank meet all capital adequacy requirements to which we are subject.

There are no current conditions or events that we are aware of that would change the Company’s or the Bank’s capital adequacy category.

Please see “Notes to Consolidated Financial Statements” for additional information regarding the Company’s and the Bank’s capital ratios at December 31, ~~2021~~ 2022.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

~~See the~~As ~~Market~~a ~~Risk~~smaller ~~section~~reporting incompany, ~~“Management’s~~the ~~Discussion~~Company ~~and~~is ~~Analysis~~not ofrequired ~~Financial~~to ~~Condition~~provide ~~and~~the ~~Results~~information ofrequired ~~Operations” included~~by ~~in Item 7 of~~ this ~~report~~item.

36See the Market Risk section in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this report for a discussion of certain market risks we face, including interest rate risk.

~~Item 8. Financial Statements and Supplementary Data~~27

~~Report of~~Item ~~Independent~~8. ~~Registered~~Financial ~~Public~~Statements ~~Accounting~~and ~~Firm~~Supplementary Data

~~To the~~Report ~~Shareholders and the Board~~ of ~~Directors~~Independent Registered ofPublic ~~Bank~~Accounting ~~of South Carolina Corporation:~~Firm

~~Opinion on~~To the ~~Financial~~Shareholders ~~Statements~~and the Board of Directors of Bank of South Carolina Corporation:

~~We have~~Opinion ~~audited~~on the ~~accompanying~~Financial consolidated balance sheets of Bank of South Carolina Corporation (the “Company”) as of December 31, 2021 and 2020 and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the consolidated financial statements and schedules (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.Statements

~~Basis~~We have audited the accompanying consolidated balance sheets of Bank of South Carolina Corporation (the “Company”) as of December 31, 2022 and 2021 and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for ~~Opinion~~the years then ended, and the related notes to the consolidated financial statements and schedules (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 the years then ended, in conformity with accounting principles generally accepted in the United States of America.

~~These financial~~Basis ~~statements~~for are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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.Opinion

~~We conducted~~These ~~our~~financial ~~audits~~statements ~~in accordance with~~ are the ~~standards~~responsibility of the ~~PCAOB~~Company’s management. ~~Those~~Our ~~standards~~responsibility ~~require~~is ~~that we plan and perform the audit~~ to ~~obtain~~express ~~reasonable~~an ~~assurance~~opinion ~~about~~on ~~whether~~ the Company’s financial statements based ~~are~~on ~~free~~our ~~of material misstatement, whether due to error or fraud~~audits. ~~The~~We ~~Company~~are isa ~~not~~public ~~required~~accounting tofirm ~~have,~~registered ~~nor~~with ~~were~~the wePublic ~~engaged~~Company toAccounting ~~perform,~~Oversight anBoard ~~audit~~(United ofStates) ~~its internal control over financial~~(PCAOB) ~~reporting.~~and ~~As part of our audits we~~ are required to ~~obtain~~be anindependent ~~understanding~~with ofrespect ~~internal~~to ~~control~~the ~~over~~Company ~~financial~~in ~~reporting~~accordance ~~but~~with ~~not for~~U.S. ~~the~~federal ~~purpose~~securities oflaws ~~expressing~~and anthe ~~opinion~~applicable onrules and ~~the~~regulations ~~effectiveness~~ of the ~~Company's~~Securities ~~internal~~and ~~control~~Exchange ~~over~~Commission ~~financial~~and ~~reporting.~~the ~~Accordingly, we express no such opinion~~PCAOB.

~~Our audits~~We ~~included~~conducted ~~performing~~our ~~procedures~~audits toin ~~assess~~accordance with the ~~risks~~standards of ~~material~~the ~~misstatement~~PCAOB. ofThose standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud,. ~~and~~The ~~performing~~Company ~~procedures~~is ~~that~~not ~~respond~~required to ~~those~~have, ~~risks.~~nor ~~Such~~were we ~~procedures~~engaged ~~included~~to ~~examining~~perform, onan aaudit ~~test~~of ~~basis,~~its ~~evidence regarding~~internal ~~the~~control ~~amounts~~over ~~and~~financial ~~disclosures~~reporting. inAs ~~the~~part ~~financial~~of ~~statements.~~our ~~Our~~ audits ~~also~~we ~~included~~are ~~evaluating~~required ~~the~~to ~~accounting~~obtain ~~principles~~an understanding ~~used~~of ~~and~~internal ~~significant~~control ~~estimates~~over ~~made~~financial byreporting ~~management,~~but asnot ~~well~~for asthe ~~evaluating~~purpose ~~the~~of ~~overall~~expressing ~~presentation~~an ofopinion on the ~~financial~~effectiveness ~~statements. We~~of ~~believe~~the ~~that~~Company’s internal ~~our~~control ~~audits~~over ~~provide~~financial areporting. ~~reasonable~~Accordingly, ~~basis~~we ~~for~~express ~~our~~no such opinion.

~~Critical~~Our audits included performing procedures ~~Audit~~to ~~Matters~~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.

~~The critical~~Critical ~~audit~~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.Matters

~~Allowance~~The critical audit matters communicated ~~for~~below ~~Loan~~are ~~Losses~~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.

~~As described~~Allowance ~~in Note 4 to the Company’s financial statements, the Company has a gross loan portfolio of approximately $306.6 million and related allowance~~ for ~~loan~~Loan losses of approximately $4.8 million as of December 31, 2021. As described by the Company in Note 1, the evaluation of the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance for loan losses is evaluated on a regular basis and is based upon the Company’s review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.Losses

~~We identified~~As ~~the~~described in Note 4 to the Company’s ~~estimate~~financial ofstatements, the Company has a gross loan portfolio of approximately $331.0 million and related allowance for loan losses of approximately $4.3 million as aof ~~critical~~December ~~audit~~31, ~~matter~~2022. ~~The~~As ~~principal~~described ~~considerations for~~by ~~our~~the ~~determination~~Company in Note 1, the evaluation of the allowance for loan losses is inherently subjective as ait ~~critical~~requires ~~audit~~estimates ~~matter~~that ~~related~~are susceptible to ~~the~~significant ~~high~~revision ~~degree~~as ofmore ~~subjectivity~~information inbecomes ~~the~~available. ~~Company’s~~The ~~judgments~~allowance infor ~~determining~~loan ~~the~~losses ~~qualitative~~is ~~factors.~~evaluated ~~Auditing~~on ~~these~~a ~~complex~~regular ~~judgments~~basis and ~~assumptions~~is bybased upon the Company’s ~~involves~~review ~~especially~~of ~~challenging~~the ~~auditor~~collectability of ~~judgment~~the ~~due~~loans toin light of historical experience, the nature and ~~extent~~volume of ~~audit~~the ~~evidence~~loan ~~and~~portfolio, ~~effort~~adverse ~~required~~situations tothat may affect the borrower’s ~~address~~ability ~~these~~to ~~matters~~repay, ~~including~~estimated ~~the~~value ~~extent~~ of ~~specialized~~any ~~skill~~underlying orcollateral, ~~knowledge~~and ~~needed~~prevailing economic conditions.

~~The~~We identified the Company’s ~~primary~~estimate ~~procedures~~of wethe ~~performed~~allowance tofor ~~address~~loan ~~this~~losses as a critical audit matter. ~~included~~The principal considerations for our determination of the ~~following:~~allowance for loan losses as a critical audit matter related to the high degree of subjectivity in the Company’s judgments in determining the qualitative factors. Auditing these complex judgments and assumptions by the Company involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

●The Weprimary ~~evaluated~~procedures ~~the~~we ~~relevance and the reasonableness of assumptions related~~ performed to ~~evaluation~~address ofthis ~~the~~critical ~~loan~~audit ~~portfolio,~~matter ~~current~~included ~~economic conditions, and other risk factors used in development of~~ the ~~qualitative factors for collectively evaluated loans.~~following:

●· We ~~validated~~evaluated the ~~completeness~~relevance and ~~accuracy~~the reasonableness of assumptions related to evaluation of the ~~underlying~~loan ~~data~~portfolio, current economic conditions, and other risk factors used toin ~~develop~~development of the qualitative factors for collectively evaluated loans.

●· We validated the ~~mathematical~~completeness and accuracy of the ~~calculation~~underlying data used to develop the factors.

●· We ~~evaluated~~validated the ~~reasonableness~~mathematical accuracy 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, as well as other audit evidence gathered~~calculation.

●· ~~Analytical~~We ~~procedures~~evaluated ~~were~~the ~~performed~~reasonableness toof ~~evaluate~~assumptions ~~the~~and ~~directional~~data ~~consistency~~used ofby ~~changes~~the ~~that~~Company ~~occurred~~ in developing the ~~allowance~~qualitative ~~for~~factors ~~loan~~by ~~losses~~comparing ~~for~~these ~~loans~~data ~~collectively~~points ~~evaluated~~to ~~for~~internally ~~impairment~~developed and third-party sources, as well as other audit evidence gathered.

~~We have~~· ~~served~~Analytical asprocedures were performed to evaluate the ~~Company's~~directional ~~auditor~~consistency ~~since~~of ~~2006~~changes that occurred in the allowance for loan losses for loans collectively evaluated for impairment.

~~Charleston, South~~We ~~Carolina~~have served as the Company’s auditor since 2006.

~~March 4~~Charleston, ~~2022~~South Carolina

37March 2, 2023

~~BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY~~ 28

~~CONSOLIDATED BALANCE~~BANK ~~SHEETS~~OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

	December 31,			December 31,
	2021			2020
ASSETS
Cash and due from banks	$	11,140,559		$	5,977,896
Interest-bearing deposits at the Federal Reserve		128,971,429			42,348,085
Investment securities available for sale (amortized cost of $215,047,451 and $132,706,063 in 2021 and 2020, respectively)		212,347,489			134,819,818
Mortgage loans to be sold		2,774,388			12,965,733
Loans		306,632,229			320,802,673
Less: Allowance for loan losses		(4,376,987	)		(4,185,694	)
Net loans		302,255,242			316,616,979
Premises, equipment and leasehold improvements, net		3,782,936			4,053,533
Right of use asset		14,041,843			12,730,151
Accrued interest receivable		1,404,227			1,595,629
Other assets		2,502,533			1,386,775
Total assets	$	679,220,646		$	532,494,599
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing demand	$	255,783,644		$	169,170,751
Interest bearing demand		165,335,038			140,602,723
Money market accounts		98,113,942			84,681,783
Time deposits $250,000 and over		7,417,864			4,493,189
Other time deposits		13,870,356			16,205,942
Other savings deposits		68,670,732			47,043,243
Total deposits		609,191,576			462,197,631
Accrued interest payable and other liabilities		2,069,594			2,586,461
Lease liability		14,041,843			12,730,151
Total liabilities		625,303,013			477,514,243
Commitments and contingencies in Notes 7 and 11
Shareholders’ equity
Common stock - no par 12,000,000 shares authorized; Issued 5,841,240 shares at December 31, 2021 and 5,818,935 shares at December 31, 2020. Shares outstanding 5,541,266 and 5,520,469 at December 31, 2021 and December 31, 2020, respectively.
Additional paid in capital		47,745,285			47,404,869
Retained earnings		11,122,710			8,693,519
Treasury stock: 299,974 shares as of December 31, 2021 and 298,466 shares as of December 31, 2020		(2,817,392	)		(2,787,898	)
Accumulated other comprehensive income (loss), net of income taxes		(2,132,970	)		1,669,866
Total shareholders’ equity		53,917,633			54,980,356
Total liabilities and shareholders’ equity	$	679,220,646		$	532,494,599

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

	December 31,			December 31,
	2022			2021
ASSETS
Cash and due from banks	$	14,772,564		$	11,140,559
Interest-bearing deposits at the Federal Reserve		12,999,135			128,971,429
Investment securities available for sale (amortized cost of $296,998,150 and $215,047,451 in 2021 and 2020, respectively)		271,172,226			212,347,489
Mortgage loans to be sold		866,594			2,774,388
Loans		330,981,782			306,632,229
Less: Allowance for loan losses		(4,291,221	)		(4,376,987	)
Net loans		326,690,561			302,255,242
Premises, equipment and leasehold improvements, net		3,988,607			3,782,936
Right of use asset		13,433,692			14,041,843
Accrued interest receivable		2,145,522			1,404,227
Other assets		7,276,708			2,502,533

Total assets	$	653,345,609		$	679,220,646

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing demand	$	223,117,903		$	255,783,644
Interest bearing demand		195,143,514			165,335,038
Money market accounts		100,014,125			98,113,942
Time deposits $250,000 and over		5,303,509			7,417,864
Other time deposits		11,266,099			13,870,356
Other savings deposits		63,825,108			68,670,732
Total deposits		598,670,258			609,191,576

Accrued interest payable and other liabilities		2,430,272			2,069,594
Lease liability		13,433,692			14,041,843
Total liabilities		614,534,222			625,303,013
Commitments and contingencies in Note 11
Shareholders’ equity
Common stock - no par 12,000,000 shares authorized; Issued 5,852,325 and 5,841,240 shares at December 31, 2022 and December 31, 2021, respectively. Shares outstanding 5,552,351 and 5,541,266 at December 31, 2022 and December 31, 2021, respectively.
Additional paid in capital		48,028,689			47,745,285
Retained earnings		14,002,571			11,122,710
Treasury stock: 299,974 shares as of December 31, 2022 and 2021		(2,817,392	)		(2,817,392	)
Accumulated other comprehensive loss, net of income taxes		(20,402,481	)		(2,132,970	)
Total shareholders’ equity		38,811,387			53,917,633

Total liabilities and shareholders’ equity	$	653,345,609		$	679,220,646

38See accompanying notes to consolidated financial statements.

~~BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY~~ 29

~~CONSOLIDATED STATEMENTS~~BANK OF ~~INCOME~~SOUTH CAROLINA CORPORATION AND SUBSIDIARY

	Years Ended December 31,
	2021		2020		2019
Interest and fee income
Loans, including fees	$	15,285,012	$	15,055,981	$	15,994,290
Taxable securities		1,849,347		1,628,753		1,617,471
Tax-exempt securities		313,443		370,998		570,623
Other		103,309		184,024		729,868
Total interest and fee income		17,551,111		17,239,756		18,912,252
Interest expense
Deposits		174,000		305,414		815,171
Total interest expense		174,000		305,414		815,171
Net interest income		17,377,111		16,934,342		18,097,081
Provision for loan losses		120,000		240,000		180,000
Net interest income after provision for loan losses		17,257,111		16,694,342		17,917,081
Other income
Service charges and fees		1,254,699		1,094,985		1,175,657
Mortgage banking income		2,314,106		2,267,406		940,671
Gain on sales of securities, net		266,944		10,002		50,707
Other non-interest income		32,482		32,508		31,574
Total other income		3,868,231		3,404,901		2,198,609
Other expense
Salaries and employee benefits		7,437,787		7,219,005		6,809,258
Net occupancy expense		2,428,082		2,216,727		1,623,590
Data processing fees		622,536		646,590		607,467
Professional expenses		395,115		345,126		324,628
Other operating expenses		1,425,454		1,245,485		1,257,040
Total other expense		12,308,974		11,672,933		10,621,983
Income before income tax expense		8,816,368		8,426,310		9,493,707
Income tax expense		2,071,503		1,965,679		2,175,274
Net income	$	6,744,865	$	6,460,631	$	7,318,433
Weighted average shares outstanding
Basic		5,531,518		5,526,948		5,522,025
Diluted		5,680,482		5,678,543		5,588,090
Basic income per common share	$	1.22	$	1.17	$	1.33
Diluted income per common share	$	1.19	$	1.14	$	1.31

CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to consolidated financial statements.


	Years Ended December 31,
	2022			2021		2020
Interest and fee income
Loans, including fees	$	15,677,601		$	15,285,012	$	15,055,981
Taxable securities		2,531,951			1,849,347		1,628,753
Tax-exempt securities		584,907			313,443		370,998
Other		404,024			103,309		184,024
Total interest and fee income		19,198,483			17,551,111		17,239,756

Interest expense
Deposits		301,793			174,000		305,414
Total interest expense		301,793			174,000		305,414

Net interest income		18,896,690			17,377,111		16,934,342
Provision for loan losses		(75,000	)		120,000		240,000
Net interest income after provision for loan losses		18,971,690			17,257,111		16,694,342

Other income
Service charges and fees		1,290,665			1,254,699		1,094,985
Mortgage banking income		667,257			2,314,106		2,267,406
Gain on sales of securities, net		64,782			266,944		10,002
Other non-interest income		42,158			32,482		32,508
Total other income		2,064,862			3,868,231		3,404,901

Other expense
Salaries and employee benefits		7,547,306			7,437,787		7,219,005
Net occupancy expense		2,514,904			2,428,082		2,216,727
Data processing fees		562,228			622,536		646,590
Professional expenses		448,248			395,115		345,126
Other operating expenses		1,331,354			1,425,454		1,245,485
Total other expense		12,404,040			12,308,974		11,672,933

Income before income tax expense		8,632,512			8,816,368		8,426,310
Income tax expense		1,977,372			2,071,503		1,965,679

Net income	$	6,655,140		$	6,744,865	$	6,460,631

Weighted average shares outstanding
Basic		5,550,078			5,531,518		5,526,948
Diluted		5,644,698			5,680,482		5,678,543

Basic income per common share	$	1.20		$	1.22	$	1.17
Diluted income per common share	$	1.18		$	1.19	$	1.14

39See accompanying notes to consolidated financial statements.

~~BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY~~ 30

~~CONSOLIDATED STATEMENTS~~BANK OF ~~COMPREHENSIVE~~SOUTH ~~INCOME~~CAROLINA CORPORATION AND SUBSIDIARY

	Years Ended December 31,
	2021			2020			2019
Net income	$	6,744,865		$	6,460,631		$	7,318,433
Other comprehensive (loss) income
Unrealized (loss) gain on securities arising during the period		(4,546,773	)		1,512,600			2,911,491
Reclassification adjustment for securities gains realized in net income		(266,944	)		(10,002	)		(50,707	)
Other comprehensive (loss) income before tax		(4,813,717	)		1,502,598			2,860,784
Income tax effect related to items of other comprehensive (loss) income before tax		1,010,881			(315,546	)		(600,765	)
Other comprehensive (loss) income after tax		(3,802,836	)		1,187,052			2,260,019
Total comprehensive income	$	2,942,029		$	7,647,683		$	9,578,452

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See accompanying notes to consolidated financial statements.


	Years Ended December 31,
	2022			2021			2020
Net income	$	6,655,140		$	6,744,865		$	6,460,631
Other comprehensive (loss) income
Unrealized (loss) gain on securities arising during the period		(23,061,180	)		(4,546,773	)		1,512,600
Reclassification adjustment for securities gains realized in net income		(64,782	)		(266,944	)		(10,002	)
Other comprehensive (loss) income before tax		(23,125,962	)		(4,813,717	)		1,502,598
Income tax effect related to items of other comprehensive (loss) income before tax		4,856,451			1,010,881			(315,546	)
Other comprehensive (loss) income after tax		(18,269,511	)		(3,802,836	)		1,187,052
Total comprehensive (loss) income	$	(11,614,371	)	$	2,942,029		$	7,647,683

40See accompanying notes to consolidated financial statements.

~~BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY~~ 31

~~CONSOLIDATED~~BANK ~~STATEMENTS~~ OF ~~SHAREHOLDERS’~~SOUTH ~~EQUITY~~ CAROLINA CORPORATION AND SUBSIDIARY

~~YEARS ENDED~~CONSOLIDATED ~~DECEMBER~~STATEMENTS ~~31,~~OF ~~2021,~~SHAREHOLDERS’ ~~2020 AND 2019~~EQUITY

	Shares Outstanding			Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
December 31, 2018		5,510,917		$	46,857,734	$	2,650,296		$	(2,268,264	)	$	(1,777,205	)	$	45,462,561
Net income		—			—		7,318,433			—			—			7,318,433
Other comprehensive loss		—			—		—			—			2,260,019			2,260,019
Stock option exercises, net of surrenders		19,084			195,247		—			(56,961	)		—			138,286
Stock-based compensation expense		—			78,053		—			—			—			78,053
Cash dividends ($0.74 per common share)		—			—		(4,089,320	)		—			—			(4,089,320	)
December 31, 2019		5,530,001		$	47,131,034	$	5,879,409		$	(2,325,225	)	$	482,814		$	51,168,032
Net income		—			—		6,460,631			—			—			6,460,631
Other comprehensive gain		—			—		—			—			1,187,052			1,187,052
Stock option exercises, net of surrenders		15,535			180,849		—			(63,805	)		—			117,044
Stock-based compensation expense		—			92,986		—			—			—			92,986
Repurchase of common shares		(25,067	)		—		—			(398,868	)		—			(398,868	)
Cash dividends ($0.66 per common share)		—			—		(3,646,521	)		—			—			(3,646,521	)
December 31, 2020		5,520,469		$	47,404,869	$	8,693,519		$	(2,787,898	)	$	1,669,866		$	54,980,356
Net income		—			—		6,744,865			—			—			6,744,865
Other comprehensive loss		—			—		—			—			(3,802,836	)		(3,802,836	)
Stock option exercises, net of surrenders		20,797			237,383		—			(29,494	)		—			207,889
Stock-based compensation expense		—			103,033		—			—			—			103,033
Cash dividends ($0.78 per common share)		—			—		(4,315,674	)		—			—			(4,315,674	)
December 31, 2021		5,541,266		$	47,745,285	$	11,122,710		$	(2,817,392	)	$	(2,132,970	)	$	53,917,633

YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020

See accompanying notes to consolidated financial statements.

	Shares Outstanding			Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
December 31, 2019		5,530,001		$	47,131,034	$	5,879,409		$	(2,325,225	)	$	482,814		$	51,168,032

Net income		—			—		6,460,631			—			—			6,460,631
Other comprehensive gain		—			—		—			—			1,187,052			1,187,052
Stock option exercises, net of surrenders		15,535			180,849		—			(63,805	)		—			117,044
Stock-based compensation expense		—			92,986		—			—			—			92,986
Repurchase of common shares		(25,067	)		—		—			(398,868	)					(398,868	)
Cash dividends ($0.66 per common share)		—			—		(3,646,521	)		—			—			(3,646,521	)
December 31, 2020		5,520,469		$	47,404,869	$	8,693,519		$	(2,787,898	)	$	1,669,866		$	54,980,356

Net income		—			—		6,744,865			—			—			6,744,865
Other comprehensive loss		—			—		—			—			(3,802,836	)		(3,802,836	)
Stock option exercises, net of surrenders		20,797			237,383		—			(29,494	)		—			207,889
Stock-based compensation expense		—			103,033		—			—			—			103,033
Cash dividends ($0.78 per common share)		—			—		(4,315,674	)		—			—			(4,315,674	)
December 31, 2021		5,541,266		$	47,745,285	$	11,122,710		$	(2,817,392	)	$	(2,132,970	)	$	53,917,633

Net income		—			—		6,655,140			—			—			6,655,140
Other comprehensive loss		—			—		—			—			(18,269,511	)		(18,269,511	)
Stock option exercises, net of surrenders		11,085			161,731		—			—			—			161,731
Stock-based compensation expense		—			121,673		—			—			—			121,673
Cash dividends ($0.68 per common share)		—			—		(3,775,279	)		—			—			(3,775,279	)
December 31, 2022		5,552,351		$	48,028,689	$	14,002,571		$	(2,817,392	)	$	(20,402,481	)	$	38,811,387

41See accompanying notes to consolidated financial statements.

~~BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY~~ 32

~~CONSOLIDATED~~BANK ~~STATEMENTS~~ OF ~~CASH~~SOUTH ~~FLOWS~~CAROLINA CORPORATION AND SUBSIDIARY

	Years Ended December 31,
	2021			2020			2019
Cash flows from operating activities:
Net income	$	6,744,865		$	6,460,631		$	7,318,433
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		412,866			421,040			230,377
Gain on sale of investment securities		(266,944	)		(10,002	)		(50,707	)
Provision for loan losses		120,000			240,000			180,000
Stock-based compensation expense		103,033			92,986			78,053
Deferred income taxes		(46,751	)		(422,345	)		432,844
Net amortization of unearned discounts on investment securities available for sale		592,357			362,159			247,624
Origination of mortgage loans held for sale		(163,176,146	)		(181,781,058	)		(67,783,219	)
Proceeds from sale of mortgage loans held for sale		173,367,491			173,877,723			63,920,259
Decrease (increase) in accrued interest receivable and other assets		133,276			(38,312	)		(221,400	)
(Decrease) increase in accrued interest payable and other liabilities		(520,403	)		1,089,165			91,204
Net cash provided by operating activities		17,463,644			291,987			4,443,468
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale		36,967,000			23,491,000			9,356,835
Proceeds from sale of investment securities available for sale		15,572,500			11,550,000			30,412,250
Purchase of investment securities available for sale		(135,206,301	)		(68,260,421	)		(17,886,300	)
Net decrease (increase) in loans		14,241,737			(46,788,177	)		201,134
Purchase of premises, equipment, and leasehold improvements, net		(142,269	)		(184,138	)		(2,185,605	)
Net cash (used in) provided by investing activities		(68,567,333	)		(80,191,736	)		19,898,314
Cash flows from financing activities:
Net increase (decrease) in deposit accounts		146,993,945			83,005,976			(3,186,733	)
Dividends paid		(4,312,138	)		(3,592,841	)		(4,031,157	)
Repurchase of common shares		—			(398,868	)		—
Stock options exercised		207,889			117,044			138,286
Net cash provided by (used in) financing activities		142,889,696			79,131,311			(7,079,604	)
Net increase (decrease) in cash and cash equivalents		91,786,007			(768,438	)		17,262,178
Cash and cash equivalents at the beginning of the period		48,325,981			49,094,419			31,832,241
Cash and cash equivalents at the end of the period	$	140,111,988		$	48,325,981		$	49,094,419
Cash paid during the period for:
Interest	$	179,793		$	323,455		$	940,299
Income taxes	$	2,845,420		$	814,052		$	1,761,574
Supplemental disclosures for non-cash investing and financing activity:
Change in unrealized gain or loss on securities available for sale, net of income taxes	$	(3,802,836	)	$	1,187,052		$	2,260,019
Change in dividends payable	$	3,536		$	53,680		$	58,163
Right of use assets obtained in exchange for lease obligation	$	1,825,793		$	—		$	13,519,027
Change in right of use assets and lease liabilities	$	514,101		$	479,066		$	309,810

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.


	Years Ended December 31,
	2022			2021			2020
Cash flows from operating activities:
Net income	$	6,655,140		$	6,744,865		$	6,460,631
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		359,251			412,866			421,040
Gain on sale of investment securities		(64,782	)		(266,944	)		(10,002	)
Provision for loan losses		(75,000	)		120,000			240,000
Stock-based compensation expense		121,673			103,033			92,986
Deferred income taxes		(171,800	)		(46,751	)		(422,345	)
Net amortization of unearned discounts on investment securities available for sale		869,690			592,357			362,159
Origination of mortgage loans held for sale		(60,017,637	)		(163,176,146	)		(181,781,058	)
Proceeds from sale of mortgage loans held for sale		61,925,431			173,367,491			173,877,723
(Increase) decrease in accrued interest receivable and other assets		(487,217	)		133,276			(38,312	)
Increase (decrease) in accrued interest payable and other liabilities		358,795			(520,403	)		1,089,165
Net cash provided by operating activities		9,473,544			17,463,644			291,987

Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale		3,539,000			36,967,000			23,491,000
Proceeds from sale of investment securities available for sale		18,525,780			15,572,500			11,550,000
Purchase of investment securities available for sale		(104,820,389	)		(135,206,301	)		(68,260,421	)
Net (increase) decrease in loans		(24,360,319	)		14,241,737			(46,788,177	)
Purchase of premises, equipment, and leasehold improvements, net		(564,922	)		(142,269	)		(184,138	)
Net cash used in investing activities		(107,680,850	)		(68,567,333	)		(80,191,736	)

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