SOUTHERN FIRST BANCSHARES INC (SFST) Risk Factors

Item 1A. Risk Factors.

The following risk factors and other information included
in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may adversely impact our
business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be
materially adversely affected.

Risks Related to Economic Conditions

Our business may be adversely affected by conditions
in the financial markets and economic conditions generally.

Our financial performance generally, and in particular the
ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as
well as demand for loans and other products and services we offer and whose success we rely on to drive our growth, is highly dependent
upon the business environment in the primary markets where we operate and in the United States as a whole. Unlike larger banks that are
more geographically diversified, we are a regional bank that provides banking and financial services to customers primarily in Greenville,
Columbia, Charleston, and Summerville, South Carolina; Raleigh, Greensboro and Charlotte, North Carolina; and Atlanta, Georgia. The economic
conditions in these local markets may be different from, and in some instances worse than, the economic conditions in the United States
as a whole. In 2024 and early 2025, continued regional economic uncertainty—exacerbated by persistent inflation, supply chain disruptions,
and subdued consumer spending—has further increased the risks in our primary markets.

Some elements of the business environment that affect our
financial performance include short-term and long-term interest rates, the prevailing yield curve, inflation and price levels, monetary
and trade policy, unemployment and the strength of the domestic economy and the local economy in the markets in which we operate. Unfavorable
market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an
increase in the number of loan delinquencies, defaults, charge-offs, foreclosures, additional provisions for credit losses, adverse asset
values of the collateral securing our loans and an overall material adverse effect on the quality of our loan portfolio. Unfavorable or
uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence;
limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high
unemployment; natural disasters; epidemics and pandemics; or a combination of these or other factors.

In addition, there are continuing concerns related to, among
other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic
and political tensions with China, the Russian invasion of Ukraine, and the Middle East conflict, all of which may have a destabilizing
effect on financial markets and economic activity. Economic pressure on consumers and overall economic uncertainty may result in changes
in consumer and business spending, borrowing and saving habits. These economic conditions and/or other negative developments in the domestic
or international credit markets or economies may significantly affect the markets in which we do business, the value of our loans and
investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and high unemployment
or underemployment may also result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified
assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect
our capital, liquidity and financial condition.

A significant portion of our loan portfolio is secured
by real estate, and events that negatively affect the real estate market could hurt our business.

As of December 31, 2025, approximately 83% of our loans had
real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an alternate source of
repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. A weakening of
the real estate market in our primary market areas could result in an increase in the number of borrowers who default on their loans and
a reduction in the value of the collateral securing their loans, which in turn could have an adverse effect on our profitability and asset
quality. Deterioration in the real estate market could cause us to adjust our opinion of the level of credit quality in our loan portfolio.
If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our
earnings and capital could be adversely affected. Acts of nature, including hurricanes, tornadoes, earthquakes, fires and floods, which
may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively affect our financial condition.

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Risks Related to Lending Activities

Our loan portfolio contains a number of real
estate loans with relatively large balances.

Because our loan portfolio contains a number of real
estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in nonperforming
loans, which could result in a net loss of earnings, an increase in the provision for credit losses and an increase in loan charge-offs,
all of which could have a material adverse effect on our financial condition and results of operations.

Commercial real estate loans increase our exposure
to credit risk.

At December 31, 2025, 45.7% of our loan portfolio
was secured by commercial real estate. Commercial real estate loans may involve distinct credit and collateral risks compared to other
loan types because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers,
the accuracy of the estimate of the property’s value at completion of construction, and the estimated cost of construction. Commercial
real estate loans also often involve larger loan balances and borrower relationships, so the deterioration of one or a small number of
credits may have a disproportionate impact on asset quality and results of operations. An adverse development with respect to one lending
relationship can expose us to a significantly greater risk of loss compared with a single-family residential mortgage loan because we
typically have more than one loan with such borrowers. Additionally, these loans typically involve larger loan balances to single borrowers
or groups of related borrowers compared with single-family residential mortgage loans. Therefore, the deterioration of one or a few of
these loans could cause a significant decline in the related asset quality. A return of recessionary conditions could result in a sharp
increase in loans charged-off and could require us to significantly increase our allowance for credit losses, which could have a material
adverse impact on our business, financial condition, results of operations, and cash flows.

Imposition of limits by the bank regulators
on commercial and multi-family real estate lending activities could curtail our growth and adversely affect our earnings.

The 2006 “Concentrations in Commercial Real
Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”) provides that a bank’s commercial real estate
lending exposure could receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans
secured by apartment buildings, investor commercial real estate, and construction and land loans, represent 300% or more of an institution’s
total risk-based capital, and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during
the preceding 36 months. Our level of commercial real estate and multi-family loans represents 236.5% of the Bank’s total risk-based
capital at December 31, 2025. If the FDIC, our primary federal regulator, were to impose restrictions on the amount of commercial real
estate loans we can hold in our portfolio, our earnings would be adversely affected.

In December 2015, the regulatory agencies released
a statement on prudent risk management for commercial real estate lending that indicated, among other things, the intent to continue “to
pay special attention” to commercial real estate lending activities and concentrations going forward. More recently, in 2025, the
FDIC and the Federal Reserve reaffirmed their commitment to stringent oversight of CRE exposures in response to evolving market conditions.
In early 2025, preliminary guidance from regulators suggested that any further acceleration in CRE loan growth or deterioration in loan
performance could prompt the imposition of additional limits or remedial actions, which, if implemented, could curtail our growth and
adversely affect our earnings.

Repayment of our commercial business loans is
often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in
value.

At December 31, 2025, commercial business loans comprised
16.0% of our total loan portfolio. Our commercial business loans are originated primarily based on the identified cash flow and general
liquidity of the borrower and secondarily on the underlying collateral provided by the borrower and/or repayment capacity of any guarantor.
The borrower’s cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Although commercial business
loans are often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of collateral in
the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may
be obsolete or of limited use. In addition, business assets may depreciate over time, may be difficult to appraise, and may fluctuate
in value based on the success of the business. Accordingly, the repayment of commercial business loans depends primarily on the cash flow
and credit worthiness of the borrower and secondarily on the underlying collateral value provided by the borrower and liquidity of the
guarantor. If these borrowers do not have sufficient cash flows or resources to pay these loans as they come due or the value of the underlying
collateral is insufficient to fully secure these loans, we may suffer losses on these loans that exceed our allowance for credit losses.

We may have higher credit losses than we have
allowed for in our allowance for credit losses.

Our actual loan losses could exceed our allowance
for credit losses and therefore our allowance for credit losses may not be adequate. As of December 31, 2025, 45.7% of our loan portfolio
was secured by commercial real estate. Repayment of such loans is generally considered more subject to market risk than residential mortgage
loans. Industry experience shows that a portion of loans will become delinquent and a portion of loans will require partial or entire
charge-off.

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Regardless of the underwriting criteria utilized,
losses may be experienced as a result of various factors beyond our control, including among other things, changes in market conditions
affecting the value of loan collateral, the cash flows of our borrowers and problems affecting borrower credit. If we suffer credit losses
that exceed our allowance for credit losses, our financial condition, liquidity or results of operations could be materially and adversely
affected.

Our decisions regarding allowance for credit
losses and credit risk may materially and adversely affect our business.

Making loans and other extensions of credit is an
essential element of our business. Although we seek to mitigate risks inherent in lending by adhering to specific underwriting practices,
our loans and other extensions of credit may not be repaid. The risk of nonpayment is affected by a number of factors, including: the
duration of the credit; credit risks of a particular client; changes in economic and industry conditions; and in the case of a collateralized
loan, risks resulting from uncertainties about the future value of the collateral.

We attempt to maintain an appropriate allowance for
credit losses to provide for probable losses in our loan portfolio. We periodically determine the amount of the allowance based on consideration
of several factors, including but not limited to: an ongoing review of the quality, mix, and size of our overall loan portfolio; our historical
loan loss experience; evaluation of economic conditions; regular reviews of loan delinquencies and loan portfolio quality; ongoing review
of financial information provided by borrowers; and the amount and quality of collateral, including guarantees, securing the loans.

The determination of the appropriate level of the
allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current
credit risks and future trends, all of which may undergo material changes. A deterioration in economic conditions affecting borrowers,
new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our
control, may require an increase in the allowance for credit losses. Economic uncertainty remains elevated entering 2026, driven by persistent
inflationary pressures, higher interest rates, geopolitical conflicts, and the potential for continued volatility in global markets—despite
forecasts for moderate growth in the U.S. and abroad. In addition, regulatory agencies periodically review our allowance for credit losses
and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different
than those of management. In addition, if charge-offs in future periods exceed the allowance for credit losses, we will need additional
provisions to increase the allowance for credit losses. Any increases in the allowance for credit losses will result in a decrease in
net income and, possibly, capital, and may have a material adverse effect on our financial condition and results of operations.

A percentage of the loans in our portfolio may
include exceptions to our loan policies and supervisory guidelines.

All of the loans that we make are subject to written
loan policies adopted by our board of directors and to supervisory guidelines imposed by our regulators. Our loan policies are designed
to reduce the risks associated with the loans that we make by requiring our loan officers to take certain steps that vary depending on
the type and amount of the loan, prior to closing a loan. These steps include, among other things, making sure the proper liens are documented
and perfected on property securing a loan, and requiring proof of adequate insurance coverage on property securing loans. Loans that do
not fully comply with our loan policies are known as “exceptions.” We categorize exceptions as policy exceptions, financial
statement exceptions and document exceptions. As a result of these exceptions, such loans may have a higher risk of loan loss than the
other loans in our portfolio that fully comply with our loan policies. In addition, we may be subject to regulatory action by federal
or state banking authorities if they believe the number of exceptions in our loan portfolio represents an unsafe banking practice.

Risks Related to Capital and Liquidity

Liquidity needs could adversely affect our financial
condition and results of operations.

Dividends from the Bank provide the primary source
of funds for the Company. The primary sources of funds of the Bank are client deposits and loan repayments. While scheduled loan repayments
are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to
repay loans can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting
business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters
and international instability. In 2024 and early 2025, increased competition for deposits and volatility in wholesale funding markets
have added to liquidity pressures. Market volatility increased regulatory scrutiny of financial institutions, or adverse perceptions regarding
the banking industry could further constrain capital availability.

Additionally, deposit levels may be affected by a
number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available
to clients on alternative investments and general economic conditions. Accordingly, we may be required from time to time to rely on secondary
sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include proceeds from FHLB advances, sales
of investment

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securities and loans, and federal funds lines of credit
from correspondent banks, as well as out-of-market time deposits. While we believe that these sources are currently adequate, there can
be no assurance they will be sufficient to meet future liquidity demands, particularly if we continue to grow and experience increasing
loan demand. We may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should
such sources not be adequate. Likewise, recent bank failures and heightened sensitivity to liquidity risk have increased regulatory and
market focus on contingency funding planning and liquidity stress testing.

The Company is a stand-alone entity with its own liquidity
needs to service its debt or other obligations. Other than dividends from the Bank, the Company does not have additional means of generating
liquidity without obtaining additional debt or equity funding. In addition, the Company and the Bank are each required by federal regulatory
authorities to maintain adequate levels of capital to support their operations and to comply with evolving regulatory capital expectations,
including stress testing, capital planning, and concentration risk considerations. If we are unable to receive dividends from the Bank
or obtain additional funding, we may be unable to pay our debt or other obligations.

Legal, Accounting, Regulatory and Compliance
Risks

We are subject to extensive regulation that
has limited the conduct of our business, and could impose financial requirements, each of which could have an adverse impact on our operations.

We operate in a highly regulated industry and are
subject to examination, supervision, and comprehensive regulation by various regulatory agencies. We are subject to regulation by the
Federal Reserve. The Bank is subject to extensive regulation, supervision, and examination by our primary federal regulator, the FDIC,
the regulating authority that insures client deposits, and by our primary state regulator, the S.C. Board. Also, as a member of the Federal
Home Loan Bank system, the Bank must comply with applicable regulations and guidance of the Federal Housing Finance Agency and the applicable
Federal Home Loan Bank. Regulation by these agencies is intended primarily for the protection of our depositors and the deposit insurance
fund and not for the benefit of our shareholders. The Bank’s activities are also regulated under consumer protection laws applicable
to our lending, deposit, and other activities. A sufficient claim against us under these laws could have a material adverse effect on
our results of operations. Recent regulatory developments have led to enhanced expectations in areas such as cybersecurity, data privacy,
digital asset management, and anti-money laundering. Regulators could also limit capital distributions, including dividends or share repurchases.
These evolving requirements are increasing our compliance costs and the complexity of our regulatory obligations.

Failure to comply with laws, regulations or policies
could also result in heightened regulatory scrutiny and in sanctions by regulatory agencies (such as a memorandum of understanding, a
written supervisory agreement or a cease and desist order), civil money penalties and/or reputation damage. Any of these consequences
could restrict our ability to expand our business or could require us to raise additional capital or sell assets on terms that are not
advantageous to us or our shareholders and could have a material adverse effect on our business, financial condition and results of operations.
While we have policies and procedures designed to prevent any such violations, such violations may occur despite our best efforts.

We are subject to fair lending laws, and failure
to comply with these laws could lead to material penalties.

Federal and state fair lending laws and regulations,
such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions.
The Department of Justice, CFPB and other federal and state agencies are responsible for enforcing these laws and regulations. A finding
by these regulators of noncompliance with these laws could result in a wide variety of sanctions, including the required payment of damages
and civil money penalties, injunctive relief, and imposition of restrictions on expansion activity. Private parties may also have the
ability to challenge an institution’s performance under fair lending laws in private class action litigation, which if successful could
adversely impact our rating under the CRA. As of our most recent examination report, the Bank received a “Satisfactory” CRA
rating.

We face risks related to the adoption of future
legislation and potential changes in federal regulatory agency leadership, policies, and priorities.

The U.S. political landscape remains fluid, and
changes in Congressional composition, presidential administrations, and agency leadership may result in shifts in regulatory priorities
and policy direction. Under the Biden Administration, Congressional committees with jurisdiction over the banking sector pursued oversight
and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within
the banking industry and addressing other Environmental, Social, and Governance matters, improving competition in the banking sector and
enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight
of pandemic responses and economic recovery. Subsequent changes in administration and Congressional leadership may result in efforts to
reverse, suspend, or modify regulatory initiatives adopted in prior periods, promote deregulation by easing regulatory burdens on financial
institutions, adopt a technology-forward regulatory approach, or

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take a more favorable stance on bank mergers
and acquisitions. For example, recent legislative and regulatory actions have included the use of the Congressional Review Act to repeal
agency rules affecting bank merger review processes and the enactment of legislation establishing a federal framework for stablecoins
and other digital assets. Because of this kind of oscillation in regulation, the prospects for the enactment of major banking reform
legislation remain unclear at this time.

Furthermore, leadership changes within federal banking
agencies and financial regulators continue to shape the regulatory environment. Since the recent changes in presidential administration,
key positions across agencies—including the Comptroller of the Currency, CFPB, CFTC, SEC, and the U.S. Treasury—have experienced
significant periods of turnover and transition, leading to ongoing shifts in regulatory priorities and enforcement approaches. In early
2025, this same manner of turnover and policy realignments within these agencies have further contributed to regulatory uncertainty in
the financial services sector. The potential impact of changes in government leadership and agency personnel, policies and priorities
on the financial services sector, including the Company and the Bank, cannot be fully predicted at this time. Regulations and laws may
be modified at any time, and new legislation may be enacted that will affect us. Any future changes in federal and state laws and regulations,
as well as the interpretation and implementation of such laws and regulations, could affect us in substantial and unpredictable ways,
including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of
operations.

We face a risk of noncompliance and enforcement
action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The federal Bank Secrecy Act, the USA Patriot Act
and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering
programs and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network,
established by the U.S. Treasury to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations
of those requirements and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the
U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance
with the rules enforced by OFAC. Federal and state bank regulators also focus on compliance with Bank Secrecy Act and anti-money laundering
regulations. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions
that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory
actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain
aspects of our business plan, including our acquisition plans, which would negatively affect our business, financial condition and results
of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have
serious reputational consequences for us.

Consumer lending laws may restrict our ability
to originate certain mortgage loans or increase our risk of liability with respect to such loans and could increase our cost of doing
business.

Federal, state and local laws have been adopted that
are intended to eliminate certain lending practices considered “predatory.” These laws prohibit practices such as steering
borrowers away from more affordable products, selling unnecessary insurance to borrowers, repeatedly refinancing loans and making loans
without a reasonable expectation that the borrowers will be able to repay the loans irrespective of the value of the underlying property.
Loans with certain terms and conditions and that otherwise meet the definition of a “qualified mortgage” may be protected
from liability to a borrower for failing to make the necessary determinations. In either case, we may find it necessary to tighten our
mortgage loan underwriting standards in response to the CFPB rules, which may constrain our ability to make loans consistent with our
business strategies. It is our policy not to make predatory loans and to determine borrowers’ ability to repay, but the law and related
rules create the potential for increased liability with respect to our lending and loan investment activities. They increase our cost
of doing business and, ultimately, may prevent us from making certain loans and cause us to reduce the average percentage rate or the
points and fees on loans that we do make.

The Federal Reserve may require us to commit
capital resources to support the Bank.

The Federal Reserve requires a bank holding company
to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank.
Under the “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections
into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit
resources to such a subsidiary bank. In addition, the Dodd-Frank Act directs the federal bank regulators to require that all companies
that directly or indirectly control an insured depository institution serve as a source of strength for the institution. Under these requirements,
in the future, we could be required to provide financial assistance to the Bank if the Bank experiences financial distress.

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A capital injection may be required at times
when we do not have the resources to provide it, and therefore we may be required to borrow the funds. In the event of a bank holding
company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency
to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled
to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of its note
obligations. Thus, any borrowing that must be done by the holding company in order to make the required capital injection becomes more
difficult and expensive and will adversely impact the holding company’s cash flows, financial condition, results of operations
and prospects.

Risks Related to Our Operations

Competition with other financial institutions
may have an adverse effect on our ability to retain and grow our client base, which could have a negative effect on our financial condition
or results of operations.

The banking and financial services industry is very
competitive and includes services offered from other banks, savings and loan associations, credit unions, mortgage companies, other lenders,
and institutions offering uninsured investment alternatives. Legal and regulatory developments have made it easier for new and sometimes
unregulated competitors to compete with us. The financial services industry has and is experiencing an ongoing trend towards consolidation
in which fewer large national and regional banks and other financial institutions are replacing many smaller and more local banks. These
larger banks and other financial institutions hold a large accumulation of assets and have significantly greater resources and a wider
geographic presence or greater accessibility. In some instances, these larger entities operate without the traditional brick and mortar
facilities that restrict geographic presence. Some competitors have more aggressive marketing campaigns and better brand recognition,
and are able to offer more services, more favorable pricing or greater customer convenience than the Bank. In addition, competition has
increased from new banks and other financial services providers that target our existing or potential clients. As consolidation continues
among large banks, we expect other smaller institutions to try to compete in the markets we serve. This competition could reduce our net
income by decreasing the number and size of the loans that we originate and the interest rates we charge on these loans. Additionally,
these competitors may offer higher interest rates, which could decrease the deposits we attract or require us to increase rates to retain
existing deposits or attract new deposits. Increased deposit competition could adversely affect our ability to generate the funds necessary
for lending operations which could increase our cost of funds. Likewise, rapid adoption of AI by competitors, either in financial services
or FinTech, could create significant pressure on pricing, automation, or client satisfaction. If we fail to keep pace with AI-enabled
analytics and customer offerings, our competitive positioning could be detrimentally impacted.

The financial services industry could become even
more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms
and insurance companies can merge as part of a financial holding company, which can offer virtually any type of financial service, including
banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Technological developments have allowed
competitors, including some non-depository institutions, to compete more effectively in local markets and have expanded the range of financial
products, services and capital available to our target clients. If we are unable to implement, maintain and use such technologies effectively,
we may not be able to offer products or achieve cost-efficiencies necessary to compete in the industry. In addition, some of these competitors
have fewer regulatory constraints and lower cost structures.

We are subject to environmental risks that could
result in losses.

In the course of business, the Bank may acquire, through
foreclosure, or deed in lieu of foreclosure, properties securing loans it has originated or purchased which are in default. Particularly
in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this event, the
Bank may be required to remove these substances from the affected properties at our sole cost and expense. The cost of this removal could
substantially exceed the value of affected properties. We may not have adequate remedies against the prior owner or other responsible
parties and could find it difficult or impossible to sell the affected properties. These events could have a material adverse effect on
our business, results of operations and financial condition.

We face increasing climate change risks, including
more frequent severe weather events—such as hurricanes, tropical storms, tornadoes, winter storms, freezes, and floods—that
could damage or destroy residential and multifamily real estate collateral or impair borrowers’ ability to make payments. Such events
could lower the value of our collateral, raise delinquency rates, and trigger broader economic downturns, thereby materially affecting
our business and financial results. The potential losses and costs associated with these climate-related risks are difficult to predict.

We rely on other companies to provide key components
of our business infrastructure.

Third parties provide key components of our business
operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections
and network access. While we have selected

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these third-party vendors carefully, we do not control
their actions. Any problem caused by these third parties, including poor performance of services, data breaches, failure to provide services,
disruptions in communication services provided by a vendor and failure to handle current or higher volumes, could adversely affect our
ability to deliver products and services to our clients and otherwise conduct our business, and may harm our reputation. Our reliance
on third-party vendors for critical systems and services, likewise, increases our exposure to cybersecurity risks. While regulatory expectations
for vendor oversight have intensified, requiring enhanced due diligence and ongoing monitoring, failure of third-party controls could
result in operational disruptions or data breaches. Financial or operational difficulties of a third-party vendor could also hurt our
operations if those difficulties interfere with the vendor’s ability to serve us. Replacing these third-party vendors could also
create significant delay and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to our business operations.

We may be adversely affected by the soundness
of other financial institutions.

Financial services institutions are interrelated as
a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties,
and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers,
investment banks, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by a
counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by the Bank cannot be realized upon or
is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank. Any such losses
could have a material adverse effect on our financial condition and results of operations.

We are subject to losses due to errors, omissions
or fraudulent behavior by our employees, clients, counterparties or other third parties.

We are exposed to many types of operational risk,
including the risk of fraud by employees and third parties, clerical recordkeeping errors and transactional errors. Our business is dependent
on our employees as well as third-party service providers to process a large number of increasingly complex transactions. We could be
materially and adversely affected if employees, clients, counterparties or other third parties caused an operational breakdown or failure,
either as a result of human error, fraudulent manipulation or purposeful damage to any of our operations or systems.

In deciding whether to extend credit or to enter into
other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties,
including financial statements and other financial information, which we do not independently verify. We also may rely on representations
of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports
of independent auditors. For example, in deciding whether to extend credit to clients, we may assume that a client’s audited financial
statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows
of the client. Our financial condition and results of operations could be negatively affected to the extent we rely on financial statements
that do not comply with GAAP or are materially misleading, any of which could be caused by errors, omissions, or fraudulent behavior by
our employees, clients, counterparties, or other third parties.

In addition, criminals committing fraud increasingly
are using more sophisticated techniques and in some cases are part of larger criminal rings, which allow them to be more effective. This
type of fraudulent activity has taken many forms, ranging from check fraud, mechanical devices attached to ATM machines (“skimming”),
social engineering and phishing attacks to obtain personal information or impersonation of our clients through the use of falsified or
stolen credentials. Additionally, an individual or business entity may properly identify themselves, particularly when banking online,
yet seek to establish a business relationship for the purpose of perpetrating fraud. Further, in addition to fraud committed against us,
we may suffer losses as a result of fraudulent activity committed against third parties. Increased deployment of technologies, such as
chip card technology, defray and reduce aspects of fraud; however, criminals are turning to other sources to steal personally identifiable
information, such as unaffiliated healthcare providers and government entities, in order to impersonate the consumer to commit fraud.
Many of these data compromises are widely reported in the media.

As a result of the increased sophistication of fraud
activity, we have increased our spending on systems and controls to detect and prevent fraud. This will result in continued ongoing investments
in the future. Nevertheless, these investments may prove insufficient and fraudulent activity could result in losses to us or our customers;
loss of business and/or customers; damage to our reputation; the incurrence of additional expenses (including the cost of notification
to consumers, credit monitoring and forensics, and fees and fines imposed by the card networks); disruption to our business; our inability
to grow our online services or other businesses; additional regulatory scrutiny or penalties; or our exposure to civil litigation and
possible financial liability any of which could have a material adverse effect on our business, financial condition and results of operations.

Our operational or security systems may experience
an interruption or breach in security, including as a result of cyber-attacks.

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We rely heavily on communications and information
systems to conduct our business. Any failure, interruption or breach in security of these systems, including as a result of cyber-attacks,
could result in failures or disruptions in our client relationship management, deposit, loan, and other systems and also the disclosure
or misuse of confidential or proprietary information. While we have systems, policies and procedures designed to prevent or limit the
effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions
or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions
or security breaches of our information systems could damage our reputation, result in a loss of client business, subject us to additional
regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect
on our business, financial condition and results of operations.

Furthermore, information security risks for financial
institutions have increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications
technologies to conduct financial transactions, and the increasing sophistication and activities of organized crime, hackers, terrorists,
activists, and other external parties. Our technologies, systems, networks, and our customers’ devices may become the target of
cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction
of our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other
third parties’ business operations. As cyber threats continue to evolve, we may also be required to expend significant additional
resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

While we have not experienced any material losses
relating to cyber-attacks or other information security breaches to date, we may suffer such losses in the future and any information
security breach could result in significant costs to us, which may include fines and penalties, potential liabilities from governmental
or third party investigations, proceedings or litigation, legal, forensic and consulting fees and expenses, costs and diversion of management
attention required for investigation and remediation actions, and the negative impact on our reputation and loss of confidence of our
customers and others, any of which could have a material adverse impact on our business, financial condition and operating results.

Our enterprise risk management framework may
not be effective in mitigating risk and reducing the potential for losses.

Our enterprise risk management framework seeks to
mitigate risk and loss to us. We have established comprehensive policies and procedures and an internal control framework designed to
provide a sound operational environment for the types of risk to which we are subject, including credit risk, market risk (interest rate
and price risks), liquidity risk, operational risk, compliance risk, legal risk, strategic risk, and reputational risk. However, as with
any risk management framework, there are inherent limitations to our current and future risk management strategies, including risks that
we have not appropriately anticipated or identified. In addition, our businesses and the markets in which we operate are continuously
evolving. We may fail to adequately or timely enhance our enterprise risk framework to address those changes. If our enterprise risk framework
is ineffective, either because it fails to keep pace with changes in the financial markets, regulatory requirements, our businesses, our
counterparties, clients or service providers or for other reasons, we could incur losses, suffer reputational damage or find ourselves
out of compliance with applicable regulatory or contractual mandates. In addition to our executive committee, the Risk Committee of the
Board, the Audit Committee of the Board, as well as the Company’s Chief Risk Officer are all responsible for the “risk management
framework” of the Company. These committees each meet regularly, with the authority to convene additional meetings, as circumstances
require.

Our interest rate risk is overseen by the Risk Committee
which monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program. The Risk
Committee reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest
rate risk, mitigated our exposures appropriately and any residual risk is acceptable. In addition to our annual review of this policy,
our Board of Directors reviews the interest rate risk policy limits at least annually.

Our controls and procedures may fail or be circumvented.

We regularly review and update our internal controls,
disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and
operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the
system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls
and procedures could have a material adverse effect on our business, results of operations and financial condition.

Failure to keep pace with technological change
could adversely affect our business.

The financial services industry is continually undergoing
rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology
increases efficiency and enables financial

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institutions to better serve customers and to reduce
costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products
and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors
have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven
products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with
technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our
financial condition and results of operations. In recent years, the pace of technological change has accelerated, and the rapid evolution
of cybersecurity threats, as well as the need to integrate new digital platforms, has increased the risks associated with failure to adapt.

The development and use of AI presents risks
and challenges that may adversely impact our business.

The development and use of AI by us or our third-party
vendors poses significant risks. The evolving legal and regulatory landscape—covering intellectual property, privacy, consumer protection,
employment, and more—could force costly changes and heighten non-compliance risks. AI models, especially generative ones, might
produce biased, inaccurate, harmful, or otherwise ‘hallucinated’ outputs, disclose confidential information, or infringe on
intellectual property rights. Moreover, their inherent complexity limits transparency, complicating oversight and error reduction. Reliance
on third-party models further exposes us to risks associated with unauthorized training data and their risk management practices. Any
of these issues could lead to legal liabilities, reputational harm, and adverse impacts on our business.

Our profitability is dependent on our banking
activities.

Because we are a bank holding company, our profitability
is directly attributable to the success of the Bank. Our banking activities compete with other banking institutions on the basis of products,
service, convenience and price, among others. Due in part to both regulatory changes and consumer demands, banks have experienced increased
competition from other entities offering similar products and services. We rely on the profitability of the Bank and dividends received
from the Bank for payment of our operating expenses and satisfaction of our obligations. As is the case with other similarly situated
financial institutions, our profitability will be subject to the fluctuating cost and availability of funds, changes in the prime lending
rate and other interest rates, changes in economic conditions in general, and other factors.

Risks Related to Our Industry

We are subject to interest rate risk, which
could adversely affect our financial condition and profitability.

A significant portion of our banking assets are subject
to changes in interest rates. As of December 31, 2025, approximately 75% of our loan portfolio was in fixed rate loans, while only 25%
was in variable rate loans. Like most financial institutions, our earnings significantly depend on our net interest income, the principal
component of our earnings, which is the difference between interest earned by us from our interest-earning assets, such as loans and investment
securities, and interest paid by us on our interest-bearing liabilities, such as deposits and borrowings. We expect that we will periodically
experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing
liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event,
if market interest rates should move contrary to our position, this “gap” will negatively impact our earnings. Many factors
beyond our control impact interest rates, including economic conditions, governmental monetary policies, inflation, recession, changes
in unemployment, the money supply, and disorder and instability in domestic and foreign financial markets. Changes in monetary policies
of the various government agencies could influence not only the interest we receive on loans and securities and the interest we pay on
deposits and borrowings, but such changes could also affect our ability to originate loans and obtain deposits, the fair value of our
financial assets and liabilities, and the average duration of our assets and liabilities.

In a declining interest rate environment, there may
be an increase in prepayments on loans as borrowers refinance their loans at lower rates. In a rising interest rate environment, the interest
rate increases often result in larger payment requirements for our floating interest rate borrowers, which increases the potential for
default. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting
from higher interest rates. An increase (or decrease) in interest rates also requires us to increase (or decrease) the interest rates
that we pay on our deposits. Changes in interest rates also can affect the value of loans, securities and other assets. An increase in
interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to increases in nonperforming
assets, charge-offs and delinquencies, further increases to the allowance for credit losses, and a reduction of income recognized, among
others, which could have a material adverse effect on our results of operations and cash flows. Further, when we place a loan on non-accrual
status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, we continue to have
a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
Thus, an increase in the amount of nonperforming assets could have a material adverse impact on our net interest income.

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In March 2020, in response to the COVID-19
pandemic, the Federal Reserve reduced the target Federal Funds rate to between zero and 0.25%. However, starting in March 2022 and
continuing through mid-2023, the Federal Reserve raised the target Federal Funds rate to between 5.25% and 5.50% in response to
persistent inflationary pressures. In 2024 and early 2025, continued regional economic uncertainty, exacerbated by persistent
inflation, supply chain disruptions, and subdued consumer spending, has further increased the risks in our primary markets. As of
mid-to-late 2025, interest rates remain elevated, and prolonged higher rates could result in net interest margin compression as
interest-bearing liability rates continue to reprice upwards, while interest-earning assets may have already repriced to peak
yields. Rapid changes in interest rates make it difficult for us to balance our loan and deposit portfolios, which may adversely
affect our results of operations by, for example, reducing asset yields or spreads, creating operating and system issues, or having
other adverse impacts on our business. When short-term interest rates are low for a prolonged period and assuming longer-term
interest rates fall further, we could experience net interest margin compression as our interest-earning assets would continue to
reprice downward while our interest-bearing liability rates could fail to decline in tandem, which would have an adverse effect on
our net interest income and could have an adverse effect on our business, financial condition and results of operations. When
interest-earning assets mature or reprice more quickly, or to a greater degree than interest-bearing liabilities, falling interest
rates could reduce net interest income. When interest-bearing liabilities mature or reprice more quickly, or to a greater degree
than interest-earning assets in a period, an increase in interest rates could reduce net interest income.

In addition, our mortgage operations provide a portion
of our noninterest income. We generate mortgage revenues primarily from gains on the sale of residential mortgage loans pursuant to programs
currently offered by Fannie Mae, Ginnie Mae or Freddie Mac. In this rising or higher interest rate environment, our originations of mortgage
loans have decreased, resulting in fewer loans that are available to be sold to investors, which has decreased mortgage revenues in noninterest
income. In addition, our results of operations are affected by the amount of noninterest expenses associated with mortgage activities,
such as salaries and employee benefits, other loan expense, and other costs. During periods of reduced loan demand, our results of operations
may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations.

Inflationary pressures and rising prices may
affect our results of operations and financial condition.

In 2021 and 2022, inflation rose to levels not seen
in decades. While inflation has since moderated, inflationary pressures have remained a factor into 2026, notwithstanding periods of moderation.
Nonetheless, persistently higher input costs, wage pressures, and ongoing supply chain disruptions continue to challenge our customers’
ability to service their debt, thereby potentially increasing our credit risk. Inflation could lead to increased costs to our customers,
making it more difficult for them to repay their loans or other obligations increasing our credit risk. Sustained higher interest rates
by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic
activity. A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies
and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in
turn, would adversely affect our business, financial condition and results of operations.

The Federal Reserve has implemented significant
economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve.

In recent years, the Federal Reserve has maintained
a relatively tight monetary policy to address persistent inflationary pressures, resulting in elevated short-term interest rates. Since
mid-2024, as inflation has moderated, the Federal Reserve has gradually recalibrated its policy stance and dropped rates, though it remains
cautious amid ongoing economic uncertainty.

Effects on the yield curve often are most pronounced
at the short end of the curve, which is of particular importance to us and other banks. Among other things, easing strategies are intended
to lower interest rates, expand the money supply, and stimulate economic activity, while tightening strategies are intended to increase
interest rates, discourage borrowing, tighten the money supply, and restrain economic activity. Recent periods have demonstrated that
when short-term rates rise more rapidly than long-term rates, the yield curve can invert—an occurrence that, while relatively uncommon,
may signal potential economic slowdowns or increased recessionary risks.

It is unclear how long it will take for long-term
rates to catch up. Many external factors may interfere with the effects of these plans or cause them to be changed, sometimes quickly.
Such factors include significant economic trends or events as well as significant international monetary policies and events. Elevated
interest rates, combined with an inverted or flattening yield curve, can increase borrowing costs, depress asset values, and reduce loan
demand—factors that may adversely affect our operating results and financial condition. Moreover, unexpected shifts in domestic
or international economic policies, or abrupt changes in market conditions, could lead to rapid alterations in the yield curve and further
impact the broader financial system.

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Negative public opinion surrounding the Company
and the financial institutions industry generally could damage our reputation and adversely impact our earnings.

Reputation risk, or the risk to our business, earnings
and capital from negative public opinion surrounding the Company and the financial institutions industry generally, is inherent in our
business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices,
corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to those
activities. Negative public opinion can adversely affect our ability to keep and attract clients and employees and can expose us to litigation
and regulatory action. Although we take steps to minimize reputation risk in dealing with our clients and communities, this risk will
always be present given the nature of our business.

Adverse developments affecting the financial
services industry, such as recent bank failures or concerns involving liquidity, may have a material adverse effect on the Company’s
operations.

The high-profile bank failures in 2023 involving Silicon
Valley Bank, Signature Bank, and First Republic Bank caused general uncertainty and concern regarding the liquidity adequacy of the banking
sector. Although we were not directly affected by these bank failures, the resulting speed and ease in which news, including social media
commentary, led depositors to withdraw or attempt to withdraw their funds from these and other financial institutions, which then caused
the stock prices of many financial institutions to become volatile. Additional bank failures could have an adverse effect on our financial
condition and results of operations, either directly or through an adverse impact on certain of our customers.

In response to these bank failures and the resulting
market reaction, the Secretary of the Treasury approved actions enabling the FDIC to complete its resolutions of the failed banks in a
manner that fully protects depositors by utilizing the Deposit Insurance Fund, including the use of Bridge Banks to assume all of the
deposit obligations of the failed banks, while leaving unsecured lenders and equity holders of such institutions exposed to losses. Separately,
a Federal Reserve emergency lending facility established in response to the 2023 bank failures ceased making new loans in March 2024.
With the risk of any additional bank failures, we may face the potential for reputational risk, deposit outflows, increased costs and
competition for liquidity, and increased credit risk which, individually or in the aggregate, could have a material adverse effect on
our business, financial condition and results of operations.

Consumers may decide not to use banks to complete
their financial transactions.

Technology and other changes are allowing parties
to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain
funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid
cards. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.
The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income,
as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the
lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Our reliance on brokered deposits could adversely
affect our liquidity and operating results.

Among other sources of funds, in 2025, we relied on
brokered deposits to provide funds with which to make loans and provide other liquidity needed. Our brokered deposits were $552.9 million,
representing 14.9% of our total deposits at December 31, 2025 and included fixed-rate time deposits with maturities through October 2028.
Brokered deposits are utilized, along with other wholesale funding sources, to fund loan growth and offset core deposit outflows. Generally,
these deposits may not be as stable as other types of deposits. In the future, these depositors may not replace their deposits with us
as they mature, or we may have to pay a higher rate of interest to keep those deposits or to replace them with other deposits or sources
of funds. Not being able to maintain or replace these deposits as they mature could affect our liquidity. Paying higher deposit rates
to maintain or replace these types of deposits could adversely affect our net interest margin and operating results.

Risks Related to Our Strategic Plans

We are dependent on key individuals and the
loss of one or more of these key individuals could curtail our growth and adversely affect our prospects.

R. Arthur Seaver, Jr., our chief executive officer,
and Calvin C. Hurst, our president, each have extensive and long-standing ties within our primary market area and substantial experience
with our operations, and each has contributed significantly to our growth. If we lose the services of any of these individuals, they would
be difficult to replace, and our business and development could be materially and adversely affected. We may not be successful in retaining
key personnel, and the unexpected loss of services of one or more of our key personnel could have a material adverse effect on our business
because of their skill, knowledge of our primary markets, years of industry experience and the difficulty

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of promptly finding qualified replacement personnel.
Leadership transitions can be inherently difficult to manage, and an inadequate transition to a permanent successor may cause disruptions
to our business due to, among other things, diverting management’s attention or causing a deterioration in morale.

Our success also depends, in part, on our continued
ability to attract and retain experienced loan originators, as well as other management personnel, including other executive vice presidents.
Competition for personnel is intense, and the process of locating key personnel with the combination of skills and attributes required
to execute our business strategy may be lengthy. In 2021, there was a dramatic increase in workers leaving their positions throughout
our industry and other industries that is being referred to as the “great resignation,” and the market to build, retain and
replace talent then became even more highly competitive. These trends resulted in labor shortages in many of our markets, which made attracting
new employees and replacing existing employees more difficult. However, by 2023, labor shortages began to ease somewhat, and while challenges
persisted, the economy showed signs of stabilization in the labor market, improving workforce availability. While labor conditions have
continued to evolve through 2024 and 2025, talent retention and competition for skilled workers remain key concerns for many industries.

If the services of any of our other key personnel
should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to the Company,
or at all, which could have a material adverse effect on our business, results of operation, financial condition, and future prospects.
The departure of any of our other personnel could also have a material adverse impact on our business, results of operations and growth
prospects.

The success of our growth strategy depends on
our ability to identify and retain individuals with experience and relationships in the markets in which we intend to expand.

To expand our franchise successfully, we must identify
and retain experienced key management members with local expertise and relationships in these markets. We expect that competition for
qualified management in the markets in which we may expand will be intense and that there will be a limited number of qualified persons
with knowledge of and experience in the community banking industry in these markets. Even if we identify individuals that we believe could
assist us in establishing a presence in a new market, we may be unable to recruit these individuals away from more established financial
institutions. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required
to carry out our strategy requires both management and financial resources and is often lengthy. Our inability to identify, recruit, and
retain talented personnel to manage new offices effectively would limit our growth and could materially adversely affect our business,
financial condition, and results of operations.

We will face risks with respect to future expansion.

We routinely evaluate opportunities to expand into
new markets, as we did in Columbia, South Carolina in 2007, Charleston, South Carolina in 2012, Raleigh, North Carolina in 2017, Atlanta,
Georgia in 2017, Summerville, South Carolina and Greensboro, North Carolina in 2018 and Charlotte, North Carolina in 2021. We may also
expand our lines of business or offer new products or services as well as seek to acquire other financial institutions or parts of those
institutions. Any merger and acquisition activities could be material and could require us to use a substantial amount of common stock,
cash, other liquid assets, and/or incur debt. Moreover, these types of expansions involve various risks, including:

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There is no assurance that existing branches or future
branches, if any, will maintain or achieve deposit levels, loan balances or other operating results necessary to avoid losses or produce
profits. Our growth may entail an increase in overhead expenses if we add new branches and staff. There are considerable costs involved
in opening branches, and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation
for at least a year or more. Accordingly, any new branches established can be expected to negatively impact earnings for some period of
time until they reach certain economies of scale. Our historical results may not be indicative of future results or results that may be
achieved, particularly if we continue to expand.

Failure to successfully address these and other issues
related to any expansion could have a material adverse effect on our business, financial condition and results of operations, including
short-term and long-term liquidity, and could adversely affect our ability to successfully implement our business strategy.

New lines of business or new products and services
may subject us to additional risk.

From time to time, we may implement new lines of business
or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these
efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or
new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new
lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External
factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful
implementation of a new line of business and/or a new product or service. Furthermore, any new line of business and/or new product or
service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these
risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect
on our business and, in turn, our financial condition and results of operations.

Risks Related to Our Common Stock

Our ability to pay cash dividends is limited,
and we may be unable to pay future dividends even if we desire to do so.

The Federal Reserve has issued a policy statement
regarding the payment of dividends by bank holding companies. In general, the Federal Reserve’s policies provide that dividends
should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears
consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve’s policies
also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available
resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial
flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Further, under
the prompt corrective action regulations, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank
becomes undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital
distributions.

Statutory and regulatory limitations apply to the
Bank’s payment of dividends to the Company. As a South Carolina chartered bank, the Bank is subject to limitations on the amount
of dividends that it is permitted to pay. Unless otherwise instructed by the S.C. Board, the Bank is generally permitted under South Carolina
state banking regulations to pay cash dividends of up to 100% of net income in any calendar year without obtaining the prior approval
of the S.C. Board. The FDIC also has the authority under federal law to enjoin a bank from engaging in what in its opinion constitutes
an unsafe or unsound practice in conducting its business, including the payment of a dividend under certain circumstances. If the Bank
is not permitted to pay cash dividends to the Company, it is unlikely that we would be able to pay cash dividends on our common stock.
Moreover, holders of our common stock are entitled to receive dividends only when, and if declared by our board of directors.

Our stock price may be volatile, which could result
in losses to our investors and litigation against us.

Our stock price has been volatile in the past and
several factors could cause the price to fluctuate substantially in the future. These factors include but are not limited to: actual or
anticipated variations in earnings, changes in analysts’ recommendations or projections, our announcement of developments related
to our businesses, operations and stock performance of other companies deemed to be peers, new technology used or services offered by
traditional and non-traditional competitors, news reports of trends, irrational exuberance on the part of investors, new federal banking
regulations, and other issues related to the financial services industry. Our stock price may fluctuate significantly in the future, and
these fluctuations may be unrelated to our performance. General market declines or market volatility in the future, especially in the
financial institutions sector, could adversely affect the price of our common stock, and the current market price may not be indicative
of future market prices. Stock price volatility may make it more difficult for you to resell

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your common stock when you want and at prices you
find attractive. Moreover, in the past, securities class action lawsuits have been instituted against some companies following periods
of volatility in the market price of its securities. We could in the future be the target of similar litigation. Securities litigation
could result in substantial costs and divert management’s attention and resources from our normal business.

Future sales of our stock by our shareholders
or the perception that those sales could occur may cause our stock price to decline.

Although our common stock is listed for trading on
The NASDAQ Global Market, the trading volume in our common stock is lower than that of other larger financial services companies. A public
trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing
buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic
and market conditions over which we have no control. Given the relatively low trading volume of our common stock, significant sales of
our common stock in the public market, or the perception that those sales may occur, could cause the trading price of our common stock
to decline or to be lower than it otherwise might be in the absence of those sales or perceptions.

Economic and other circumstances may require
us to raise capital at times or in amounts that are unfavorable to us. If we have to issue shares of common stock, they will dilute the
percentage ownership interest of existing shareholders and may dilute the book value per share of our common stock and adversely affect
the terms on which we may obtain additional capital.

We may need to incur additional debt or equity financing
in the future to make strategic acquisitions or investments or to strengthen our capital position. Our ability to raise additional capital,
if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control and our
financial performance. We cannot provide assurance that such financing will be available to us on acceptable terms or at all, or if we
do raise additional capital that it will not be dilutive to existing shareholders.

If we determine, for any reason, that we need to raise
capital, subject to applicable NASDAQ rules, our board generally has the authority, without action by or vote of the shareholders, to
issue all or part of any authorized but unissued shares of stock for any corporate purpose, including issuance of equity-based incentives
under or outside of our equity compensation plans. Additionally, we are not restricted from issuing additional common stock or preferred
stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or
preferred stock or any substantially similar securities. The market price of our common stock could decline as a result of sales by us
of a large number of shares of common stock or preferred stock or similar securities in the market or from the perception that such sales
could occur. If we issue preferred stock that has a preference over the common stock with respect to the payment of dividends or upon
liquidation, dissolution or winding-up, or if we issue preferred stock with voting rights that dilute the voting power of the common stock,
the rights of holders of the common stock or the market price of our common stock could be adversely affected. Any issuance of additional
shares of stock will dilute the percentage ownership interest of our shareholders and may dilute the book value per share of our common
stock. Shares we issue in connection with any such offering will increase the total number of shares and may dilute the economic and voting
ownership interest of our existing shareholders.

Provisions of our articles of incorporation
and bylaws, South Carolina law, and state and federal banking regulations, could delay or prevent a takeover by a third party.

Our articles of incorporation and bylaws could delay,
defer, or prevent a third party takeover, despite possible benefit to the shareholders, or otherwise adversely affect the price of our
common stock. Our governing documents:

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In addition, the South Carolina business combinations
statute provides that a 10% or greater shareholder of a resident domestic corporation cannot engage in a “business combination”
(as defined in the statute) with such corporation for a period of two years following the date on which the 10% shareholder became such,
unless the business combination or the acquisition of shares is approved by a majority of the disinterested members of such corporation’s
board of directors before the 10% shareholder’s share acquisition date. This statute further provides that at no time (even after the
two-year period subsequent to such share acquisition date) may the 10% shareholder engage in a business combination with the relevant
corporation unless certain approvals of the board of directors or disinterested shareholders are obtained or unless the consideration
given in the combination meets certain minimum standards set forth in the statute. The law is very broad in its scope and is designed
to inhibit unfriendly acquisitions but it does not apply to corporations whose articles of incorporation contain a provision electing
not to be covered by the law. Our articles of incorporation do not contain such a provision. An amendment of our articles of incorporation
to that effect would, however, permit a business combination with an interested shareholder even though that status was obtained prior
to the amendment.

Finally, the Change in Bank Control Act and the BHCA
generally require filings and approvals prior to certain transactions that would result in a party acquiring control of the Company or
the Bank.

Our common stock is not an insured deposit and
is not guaranteed by the FDIC.

Shares of our common stock are not a bank deposit
and, therefore, losses in value are not insured by the FDIC, any other deposit insurance fund or by any other public or private entity.
Investment in shares of our common stock is inherently risky for the reasons described herein and our shareholders will bear the risk
of loss if the value or market price of our common stock is adversely affected.

General Risk Factors

We may be subject to claims and litigation asserting
lender liability.

From time to time, clients and others make claims
and take legal action pertaining to our performance of fiduciary responsibilities. These claims are often referred to as “lender
liability” claims and are sometimes brought in an effort to produce or increase leverage against us in workout negotiations or debt
collection proceedings. Lender liability claims frequently assert one or more of the following allegations: breach of fiduciary duties,
fraud, economic duress, breach of contract, breach of the implied covenant of good faith and fair dealing, and similar claims. Whether
customer claims and legal action related to the performance of our responsibilities are founded or unfounded, if such claims and legal
actions are not resolved in a favorable manner, they may result in significant financial liability and/or adversely affect our market
reputation, products and services, as well as potentially affecting customer demand for those products and services. Any financial liability
or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our
financial condition, results of operations and liquidity.

From time to time, we are, or may become, involved
in suits, legal proceedings, information-gatherings, investigations and proceedings by governmental and self-regulatory agencies that
may lead to adverse consequences.

Many aspects of the banking business involve a substantial
risk of legal liability. From time to time, we are, or may become, the subject of information-gathering requests, reviews, investigations
and proceedings, and other forms of regulatory inquiry, including by bank regulatory agencies, self-regulatory agencies, the SEC and law
enforcement authorities. The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties,
damages, adverse judgments, settlements, fines, injunctions, restrictions on the way we conduct our business or reputational harm.