NASDAQ: SFST

Simple and Efficient ClientFIRST Model. We operate
our Bank using a simple and efficient style of banking that is focused on providing core banking products and services to our clients
through a team of talented and experienced bankers. We refer to this model as “ClientFIRST” and it is structured to deliver
superior client service via “relationship teams,” which provide each client with a specific banker contact and a consistent
support team responsible for all of the client’s banking needs. We believe this model results in a consistent and superior level
of professional service that provides us with a distinct competitive advantage by enabling us to build and maintain long-term relationships
with desirable clients, enhancing the quality and stability of our funding and lending operations and positioning us to take advantage
of future growth opportunities in our existing markets. We also believe that this client focused culture has led to our successful expansion
into new markets in the past, and will enable us to be successful if we seek to expand into new markets in the future.

Our ClientFIRST model focuses on achieving cost efficiencies
by diligently managing the growth of our number of employees and banking offices. We believe that the identification of talented bankers
will drive our growth strategy, as opposed to a more general desire to enter a specific geography or market. This strategy translates
into a smaller number of brick-and-mortar offices relative to our size and compared to peer banks, but larger overall deposit balances
in our offices as compared to peers. As a result, our offices average approximately $263.7 million in total deposits. We believe this
style of banking allows us to deliver exceptional client service, while achieving lower efficiency ratios relative to certain of our local
competitors, as evidenced by our 64.0% efficiency ratio for the year ended December 31, 2025.

We continue to make significant investments in our IT systems
and technology offerings to our clients that we believe will continue to drive low-cost deposit growth. We believe that our current mobile
banking, on-line banking and cash management offerings are industry-leading solutions amongst community banks, and we plan to continue
to invest in the latest technology solutions to enable us to meet the evolving needs of our clients and maintain this competitive advantage
over other community banks.

Attractive South Carolina, North Carolina, and Georgia
Markets. We have eight banking offices located in Greenville, Columbia and Charleston, South Carolina, which are the three largest
markets in South Carolina; three banking offices located in Charlotte, Raleigh and Greensboro, North Carolina, which are some of the largest
markets in North Carolina; and one banking office located in Atlanta, Georgia, which is the largest market in Georgia. The following table
illustrates our market share, by insured deposits as of the dates indicated, in these seven markets:

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Market(1)
Total Offices
Our Market Deposits at June 30, 2025
Total
Market

Deposits(2)

(Dollars in thousands)

Greenville
4
$1,776,590
$25,997,019

Charleston
3
705,445
23,087,727

Atlanta
1
469,667
245,973,642

Columbia
1
299,541
26,826,159

Raleigh
1
220,782
101,609,204

Greensboro
1
128,479
16,232,272

Charlotte
1
55,991
477,339,169

(1)Represents the metropolitan statistical area (“MSA”)
for each market.

(2)The total market deposits data displayed are as of June 30,
2025 as reported by the FDIC.

Greenville. The city of Greenville is located in Greenville
County, South Carolina approximately midway between Atlanta and Charlotte on the heavily traveled I-85 business corridor. The Greenville-Anderson-Greer
MSA is the most populous market in South Carolina with an estimated population of 996,680 as reported for 2024. The median household income
for the Greenville-Anderson-Greer MSA was $75,881 for 2024. A large and diverse metropolitan area, the Greenville-Anderson-Greer MSA is one
of the southeast region’s premier areas for business, serving as headquarters for Michelin and Current Lighting (formerly Hubbell
Lighting) as well as hosting significant operations for BMW and Lockheed Martin.

Charleston. The city of Charleston is located in Charleston
County, South Carolina. The Charleston-North Charleston MSA is the third most populous market in the state with an estimated population
of 869,940 for 2024. Charleston is home to the deepest port in the Southeast and boasts top companies in the aerospace, biomedical and
technology fields such as Boeing, the Medical University of South Carolina (MUSC) and Blackbaud. The median household income for the Charleston-North
Charleston MSA was approximately $90,307 for 2024. One of our retail offices in the Charleston market is located in the city of Mount
Pleasant, which is located just north of Charleston in Charleston County and ranks as the fourth largest city in South Carolina.

Columbia. The city of Columbia is located in Richland
County, South Carolina and its surrounding suburban areas expand into adjoining Lexington County. Columbia is the state capital, the largest
city in the state and the home of the University of South Carolina and Fort Jackson, the Army’s largest Initial Entry Training Center.
The Columbia MSA is the second most populous market in the state with an estimated population of 870,193 for 2024. The median household
income for the Columbia MSA was $70,788 for 2024.

Raleigh. The city of Raleigh is the second largest
city in the state of North Carolina and is located in Wake County, North Carolina. The Raleigh-Cary MSA is one of the most populous markets
in the state with an estimated population of 1.56 million for 2024. Raleigh is the state capital and is home to North Carolina State University
and is part of the Research Triangle area, together with Durham, North Carolina (home of Duke University) and Chapel Hill, North Carolina
(home of the University of North Carolina at Chapel Hill). The median household income for the Raleigh-Cary MSA was approximately $102,144
for 2024.

Greensboro. The city of Greensboro is the third largest
city in North Carolina and is located in Guilford County, North Carolina. The Greensboro-High Point MSA is one of the most populous markets
in the state of North Carolina with an estimated population of 800,722 for 2024. Greensboro has traditionally been a fixture in the textiles,
tobacco and furniture industries while also moving towards an increased presence of high-tech, aviation and transportation/logistics sectors.
Greensboro, along with Winston-Salem and High Point, is commonly referred to as the Triad region of North Carolina and is home to companies
such as Honda Aircraft, Lincoln Financial Group and Volvo Trucks of North America. The median household income for the Greensboro-High
Point MSA was approximately $66,072 for 2024.

Charlotte. The city of Charlotte is the largest city
in the state and is located in Mecklenburg County, North Carolina. The Charlotte-Concord-Gastonia MSA is the most populous market in the
state of North Carolina with an estimated population of 2.88 million for 2024. Charlotte is the second largest banking city in the United
States after New York and is home to the corporate headquarters of Bank of America, Truist Financial, and the east coast headquarters
of Wells Fargo. Charlotte is also home to many Fortune 500 companies including Duke Energy, Honeywell and Lowe’s. The median household
income for the Charlotte-Concord-Gastonia MSA was approximately $85,938 for 2024.

Atlanta. The Atlanta-Sandy Springs-Roswell MSA has
the nineth largest population in the U.S. estimated at 6.41 million for 2024. Atlanta is the state capital of, and largest city in, Georgia
and is the world headquarters of corporations such as

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Coca-Cola, Home Depot, UPS, Delta Airlines and Turner Broadcasting. The median household
income for the Atlanta-Sandy Springs-Roswell MSA is $92,344 for 2024.

We believe that the demographics and growth characteristics
of these seven markets will provide us with significant opportunities to further develop existing client relationships and expand our
client base.

Data related to the estimated population and median household
income for each of the markets presented above is from the United States Census Bureau online database.

Experienced Management Team, Dedicated Board of Directors
and Talented Employees. Our senior management team is led by R. Arthur Seaver, Jr., Calvin C. Hurst, Christian J. Zych, Julie
A. Fairchild, Wesley C. Wilbanks, and Silvia T. King, whose biographies are included below.

R. Arthur “Art” Seaver, Jr. has served
as the Chief Executive Officer of our Company and our Bank since 1999. He has over 35 years of banking experience. From 1986 until 1992,
Mr. Seaver held various positions with The Citizens & Southern National Bank of South Carolina. From 1992 until February 1999, he
was with Greenville National Bank, which was acquired by Regions Bank in 1998. He was the Senior Vice President in lending and was also
responsible for managing Greenville National Bank’s deposit strategies prior to leaving to form the Bank. Mr. Seaver is a 1986 graduate
of Clemson University with a bachelor’s degree in Financial Management and a 1999 graduate of the BAI Graduate School of Community
Bank Management.

Calvin C. Hurst has served as Chief Banking Officer
of our Company and our Bank since March 2019 and as President since August 2022. Mr. Hurst has over 15 years of banking experience. From
2006 to 2008, Mr. Hurst served as a commercial underwriter for RBC Bank, and from 2008 to 2015 he served as commercial relationship manager
for PNC Bank. Before joining Southern First, Mr. Hurst served as regional vice president for TD Bank. Mr. Hurst is a 2005 graduate of
Furman University, with a Bachelor’s degree in Business Administration and Economics.

Christian J. Zych has served as Chief Financial Officer
of our Company and our Bank since May 2024. Prior to joining us, Mr. Zych held various roles at United Community Bank, most recently serving
as Director of Corporate Development and Investor Relations for over a decade. He has 30 years of experience in the banking industry,
including financial management and analysis, formulation and execution of corporate and financial strategy, and investor relations management.
Mr. Zych holds a Master of Business Administration from Wake Forest University School of Business and a bachelor’s degree in finance
from Bentley University.

Julie A. Fairchild has served as Chief Accounting Officer
and principal accounting officer of our Company and our Bank since October 2024. Ms. Fairchild joined the bank in 2005, serving in various
roles, most recently as Executive Vice President of Accounting and Finance. Prior to joining the Bank, Ms. Fairchild served as audit manager
for Elliott Davis LLC, a regional public accounting and consulting firm. Ms. Fairchild holds a Bachelor of Science degree in accounting
from Bob Jones University and is a certified public accountant in the State of South Carolina.

Wesley C. Wilbanks has served as Chief Credit Officer
of the Bank since April 2025. Mr. Wilbanks joined us in September 2021 as a Senior Credit Risk Officer before serving as Executive Director
of Market Support. Mr. Wilbanks has over 25 years of banking experience, and prior to joining Southern First, served in various senior
credit roles at SouthState Bank for 11 years. Mr. Wilbanks is a graduate of Palm Beach Atlantic University with a Bachelor’s degree
in Finance and a graduate of the School of Banking at LSU.

Silvia T. King has served as Chief Human Resources
Officer of our Company and our Bank since March 2018. Ms. King has over 20 years of Human Resources leadership experience. From 2003 to
2009, Ms. King served in various human resource and senior management roles with Monsanto Company and Select Comfort Corporation. From
2009 to 2016, Ms. King served as senior human resources consultant for FGP International, a professional staffing firm in Greenville,
South Carolina, and most recently as a human resources instructor with e-Cornell University. Ms. King holds degrees in Psychology and
International Marketing from Clemson University and a Master of Human Resources degree from the University of South Carolina.

In addition to Messrs. Seaver, Hurst, Zych, Wilbanks, Mses.
Fairchild and King, our executive management team consists of 13 individuals who bring an average of 30 years of experience in the banking
industry.

The management team is complemented by our dedicated board
of directors with extensive local market knowledge and a wide range of experience including accounting, business, banking, manufacturing,
insurance, management and finance. We believe that our management’s and board’s incentives are closely aligned with our shareholders
through the

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ownership of a substantial amount of our stock. As of December 31, 2025, our executive officers and board of directors owned
an aggregate of 567,422 shares of our common stock, including options to purchase shares of our common stock, which represented approximately
7.014% of the fully-diluted amount of our common stock outstanding. We believe that our officers’ and directors’ experience
and local market knowledge are valuable assets and will enable them to guide us successfully in the future.

In addition, we believe that we have assembled a group of
highly talented employees by being an employer of choice in the markets we serve. We employed a total of 315 FTE employees as of December
31, 2025. Our employees are skilled in the areas of banking, information technology, management, sales, advertising and marketing, among
others. We strive to provide an “umbrella for great talent,” characterized by a culture of transparency and collaboration
which permeates all levels of the organization. To drive our culture of transparency and collaboration, our employees engage in a series
of weekly meetings to understand the goals and plan for each week. These meetings are intended to remind our employees of our vision,
strategy and ClientFIRST service, and provide our employees with information regarding monthly and quarterly goals and client or prospect
needs. In addition, each week is started with a meeting of all Executive Vice Presidents so that all team members are informed on the
latest developments of our Company. Our employees and their ClientFIRST approach to service have been instrumental to our success.

Our Business Strategy

We are focused on growing business relationships and building
core deposits, profitable loans and noninterest income. We believe that we have built a dynamic franchise that meets the financial needs
of our clients by providing an array of personalized products and services delivered by seasoned banking professionals with knowledge
of our local markets. Our overall strategic goal is to provide the highest level of service to our clients while achieving high-performance
metrics within the community banking market that drive franchise and shareholder value. Our specific business strategies include:

Focus on Profitable and Efficient Growth. Our
executive management team and board of directors are dedicated to producing profits and returns for our shareholders. We actively manage
the mix of assets and liabilities on our balance sheet to optimize our net interest margin while also maintaining expense controls and
developing noninterest income streams. By continually striving to build a well-structured balance sheet, we seek to increase profitability
and improve our return on average assets, return on average equity and efficiency ratio. We believe that, as the economy continues to
improve, our focus on maximizing our net interest margin and minimizing our efficiency ratio while maintaining credit quality controls
will translate into continued and improved profitability and shareholder returns. We are committed to enhancing these levels of profitability
by focusing on our core competencies of commercial lending and core deposit gathering. We believe that we have the infrastructure currently
in place, such as technology, support staff and administration, to support expansion with limited associated noninterest expense increases.

Provide a Distinctive Client Experience. Our
markets have been subject to consolidation of local community banks primarily by larger, out-of-state financial institutions. We believe
there is a large client base in our markets that prefers doing business with a local institution and may be dissatisfied with the service
offered by national and larger regional banks. We believe that the exceptional level of professional service provided to our clients as
a result of our ClientFIRST model provides us with a distinct competitive advantage over our local competitors. We also believe that technology
innovation will continue to play a critical role in retaining clients and winning new business. We believe that our current mobile banking,
on-line banking and cash management offerings are industry-leading solutions amongst community banks. During 2025, 40% of deposits were
acquired through our office network, 43% came through the commercial remote deposit capture channel and the remaining 15% came through
consumer mobile deposits. We believe that the volume in remote deposit capture and mobile deposit channels will continue to increase over
time as more clients become acquainted with the convenience these services provide. By delivering superior professional service through
our ClientFIRST model, coupled with our deep understanding of our markets and our commitment to providing the latest technology solutions
to meet our clients’ banking needs, we believe that we can attract new clients and expand our total loans and deposits.

Maintain a Rigorous Risk Management Infrastructure.
As we grow, one of our top priorities is to continue to build a robust enterprise risk management infrastructure. We believe effective
risk management requires a culture of risk management and governance throughout the Company. The legislative and regulatory landscape
continues to quickly evolve, so we are continually performing risk assessments throughout the organization and re-allocating resources
where appropriate. We will continue to add new resources and technology investments to help enhance all of our risk management processes
throughout the Bank. Our risk management success is exemplified by our historic credit risk management and disciplined underwriting practices,
which have enabled us to successfully grow our balance sheet while maintaining strong credit quality metrics. We do not reduce our credit
standards or pricing discipline to generate new loans. In addition, we are heavily focused on compliance risk and cybersecurity risk,
as both of these risks have increased since our inception. Our management team continually analyzes emerging fraud and security risks
and utilizes tools,

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strategies and policies to manage risk while delivering an optimal and appropriate client experience. We believe our
risk management structure allows our board and senior management to maintain effective oversight of our risks to ensure that our personnel
are following prudent and appropriate risk management practices resulting in strong loan quality and minimal credit losses.

Attract Talented Banking Professionals With A “ClientFIRST”
Focus. We believe that our ability to attract and retain banking professionals with strong community relationships and significant
knowledge of our markets will continue to drive our success and grow our business in an efficient manner. By focusing on experienced,
established bankers who deliver exceptional client service through our ClientFIRST model, we believe we can enhance our market position
and add profitable growth opportunities. We believe that the strength of our exceptional client service and relationship banking approach
will continue to help us attract these established bankers. We have carefully invested in our internal infrastructure, including support
and back-office personnel, and we believe that we can continue to add experienced frontline bankers to our existing markets, which will
drive our efficient growth.

We will continue to expand our franchise, but only in a controlled
manner. We may choose to open new locations, but only after rigorous due diligence and substantial quantitative analysis regarding the
financial and capital impacts of such investments. We may also seek to enter new metropolitan markets contiguous to, or nearby, our current
footprint, such as our recent expansion in Charlotte, North Carolina, but only after careful study and the identification and
vetting of a local, senior level banking team with significant experience and reputational strength in that market and receipt of any
applicable regulatory approvals. We have not yet supplemented our historic strategy of organic deposit and loan growth with traditional
mergers or acquisitions. We evaluate potential acquisition opportunities that we believe would be complementary to our business as part
of our growth strategy. However, we have not yet identified any specific acquisition opportunity that meets our strict requirements and
do not have any immediate plans, arrangements or understandings relating to any acquisition. Furthermore, we do not believe an acquisition
is necessary to successfully drive our growth and execute our ClientFIRST model.

Lending Activities

General. We offer a full complement of loan services
to businesses and individuals. This includes commercial, real estate, and consumer loans. Our underwriting standards vary for each type
of loan, as described below. Because loans typically provide higher interest yields than other types of interest-earning assets, we invest
a substantial percentage of our earning assets in our loan portfolio. At December 31, 2025, we had net loans of $3.80 billion, representing
86.4% of our total assets.

We focus our lending to businesses and individuals that reside
in the markets that we serve. By focusing on this client base and by serving each client with a consistent relationship team of bankers,
we have generated a loan portfolio with larger average loan amounts than we believe is typical for a community bank. As of December 31,
2025, our average loan size was approximately $382,000. At the same time, we have strived to maintain a diversified loan portfolio and
limit the amount of our loans to any single client. As of December 31, 2025, our ten largest client loan relationships represented approximately
$288 million, or 7.48%, of our loan portfolio.

In October 2023, we opened our Dream Mortgage Center in Columbia,
South Carolina. The Dream Mortgage Center is a loan production center designed to create space for opportunities for homebuyer education,
community events, and mortgage lending experts equipped with a variety of loan products.

Loan Approval. Certain credit risks are inherent in
making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from
changes in economic and industry conditions, and risks inherent in dealing with individual borrowers. We attempt to mitigate repayment
risks by adhering to internal credit policies and procedures. These policies and procedures include officer and client lending limits,
a multi-layered approval process for larger loans, documentation examination, and follow-up procedures for any exceptions to credit policies.
Our loan approval policies provide for various levels of officer lending authority. When the amount of aggregate loans to a single borrower
exceeds an individual officer’s lending authority, the loan request will be considered for approval by a team of officers led by
a senior lender, or by the voting members of the Credit Approval Support Team (“CAST”) committee, based on the loan amount.
The CAST committee, which is comprised of a group of our senior commercial lenders, senior credit administrators, chief credit officer,
president, and chief executive officer, has pre-determined lending limits, and any loans in excess of this lending limit will be submitted
for approval by our full board. We do not make any loans to any director or executive officer of the Bank unless the loan is approved
by the board of directors of the Bank and all loans to directors, officers and employees are on terms not more favorable to such person
than would be available to a person not affiliated with the Bank, consistent with federal banking regulations.

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Management monitors exposure to credit risk from potential
concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, as well as concentrations of
lending products and practices such as loans that subject borrowers to substantial payment increases (e.g., principal deferral periods,
loans with initial interest-only periods, etc.), and loans with high loan-to-value ratios. These types of loans are subject to strict
underwriting standards and are more closely monitored than a loan with a low loan-to-value ratio. Furthermore, there are industry practices
that could subject us to increased credit risk should economic conditions change over the course of a loan’s life. For example,
we make variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e. balloon
payment loans). The various types of loans are individually underwritten and monitored to manage the associated risks.

Credit Administration and Loan Review. We maintain
a continuous loan review system. We also apply a credit grading system to each loan, and we use an independent process to review the loan
files on a test basis to assess the grading of each loan. We periodically review performance benchmarks established by management in the
areas of nonperforming assets, charge-offs, past dues, and loan documentation. Each loan officer is responsible for each loan he or she
makes, regardless of whether other individuals or committees joined in the approval. This responsibility continues until the loan is repaid
or until the loan is officially assigned to another officer.

Lending Limits. Our lending activities are subject
to a variety of lending limits imposed by federal and state laws and regulations. In general, the Bank is subject to a legal limit on
loans to a single borrower equal to 15% of the Bank’s capital and unimpaired surplus. Based upon the capitalization of the Bank
at December 31, 2025, the maximum amount we could lend to one borrower was $65.6 million. However, to mitigate concentration risk, our
internal lending limit at December 31, 2025 was $45.9 million and may vary based on our assessment of the lending relationship. The board
of directors will adjust the internal lending limit as deemed necessary to continue to mitigate risk and serve our clients. The Bank’s
legal lending limit will increase or decrease in response to increases or decreases in the Bank’s level of capital. We are able
to sell participations in our larger loans to other financial institutions, which allow us to manage the risk involved in these loans
and to meet the lending needs of our clients requiring extensions of credit in excess of these limits.

Loan Portfolio Segments. Our loan portfolio is comprised
of commercial and consumer loans made to small businesses and individuals for various business and personal purposes. While our loan portfolio
is not concentrated in loans to any single borrower or a relatively small number of borrowers, the principal component of our loan portfolio
is loans secured by real estate mortgages on either commercial or residential property. These loans will generally fall into one of the
following six categories: commercial owner-occupied real estate, commercial non-owner occupied real estate, commercial construction, consumer
real estate, consumer construction, and home equity loans. We obtain a security interest in real estate whenever possible, in addition
to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. At December 31, 2025, loans
secured by first or second mortgages on commercial and consumer real estate made up approximately 82.8% of our loan portfolio. In addition
to loans secured by real estate, our loan portfolio includes commercial business loans and other consumer loans which comprised 16.0%
and 1.1%, respectively, of our total loan portfolio at December 31, 2025.

Interest rates for all real estate loan categories may be
fixed or adjustable, and will more likely be fixed for shorter-term loans. We generally charge an origination fee for each loan which
is taken into income over the life of the loan as an adjustment to the loan yield. Other loan fees consist primarily of late charge fees.
Real estate loans are subject to the same general risks as other loans and are particularly sensitive to fluctuations in the value of
real estate. Fluctuations in the value of real estate, as well as other factors arising after a loan has been made, could negatively affect
a borrower’s cash flow, creditworthiness, and ability to repay the loan. Although, the loans are collateralized by real estate,
the primary source of repayment may not be the sale of real estate.

The following describes the types of loans in our loan portfolio.

·Commercial Real Estate Loans (Commercial Owner Occupied
and Commercial Non-owner Occupied Real Estate Loans). At December 31, 2025, commercial owner occupied and non-owner occupied real
estate loans (other than construction loans) amounted to $1.69 billion, or 44.1% of our loan portfolio. Of our commercial real estate
loan portfolio, $956.8 million in loans were non-owner occupied properties, representing 40.3% of our commercial loan portfolio and 24.9%
of our total loan portfolio. The remainder of our commercial real estate loan portfolio, $737.0 million of loans or 31.0% of the commercial
loan portfolio, were owner occupied. Owner occupied loans represented 19.2% of our total loan portfolio. At December 31, 2025, the original
balances of our individual commercial real estate loans ranged in size from approximately $15,000 to $25.0 million, with an average loan
size of approximately $916,000. These loans generally have terms of five years or less, although payments may be structured on a longer
amortization basis. We evaluate each borrower on an individual basis and attempt to determine the business risks and credit profile of
each borrower. We attempt to reduce credit risk in the

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commercial real estate portfolio by emphasizing loans on owner-occupied office
and retail buildings where the loan-to-value ratio, established by independent appraisals, does not exceed 85%. We also generally require
that a borrower’s cash flow exceeds 115% of monthly debt service obligations. As of December 31, 2025, $221.4 million, or 5.8% of
our total loan portfolio, was collateralized by office properties, $186.7 million, or 4.9%, was collateralized by retail properties, $144.2
million, or 3.8%, was collateralized by hotels, and $101.7 million, or 2.6% was collateralized by multifamily properties. In order to
seek to ensure secondary sources of payment and liquidity to support a loan request, we typically review all of the personal financial
statements of the principal owners and require their personal guarantees.

·Construction Real Estate Loans. We offer adjustable
and fixed rate construction real estate loans for commercial and consumer projects, typically to builders and developers and to consumers
who wish to build their own homes. At December 31, 2025, total commercial and consumer construction loans amounted to $88.7 million, or
2.3% of our loan portfolio. Commercial construction loans represented $63.7 million, or 1.7%, of our total loan portfolio, while consumer
construction loans represented $25.0 million, or 0.6% of our total loan portfolio. At December 31, 2025, the original balances of our
commercial construction real estate loans ranged in size from approximately $100,000 to $11.2 million, with an average loan balance of
approximately $1.4 million. At December 31, 2025, the original balances of our consumer or residential construction loans ranged in size
from approximately $195,000 to $3.1 million, with an average loan size of approximately $580,000. The duration of our construction loans
generally is limited to 18 months, although payments may be structured on a longer amortization basis. Commercial construction loans generally
carry a higher degree of risk than long-term financing of existing properties because repayment depends on the ultimate completion of
the project and sometimes on the sale of the property. Specific risks include:

·cost overruns;

·mismanaged construction;

·inferior or improper construction techniques;

·economic changes or downturns during construction;

·a downturn in the real estate market;

·rising interest rates which may prevent sale of the property;
and

·failure to sell completed projects in a timely manner.

We attempt to reduce the risk associated with construction
loans by obtaining personal guarantees where possible and by keeping the loan-to-value ratio of the completed project at or below 80%.

·Commercial Business Loans. We make loans for commercial
purposes in various lines of businesses, including the manufacturing, service industry, and professional service areas. At December 31,
2025, commercial business loans amounted to $620.0 million, or 16.0% of our loan portfolio, and the original balances of the loans ranged
in size from approximately $1,000 to $14.0 million, with an average loan size of approximately $285,000. Commercial loans are generally
considered to have greater risk than first or second mortgages on real estate because commercial loans may be unsecured, or if they are
secured, the value of the collateral may be difficult to assess and more likely to decrease than real estate.

We are eligible to offer small business loans utilizing
government enhancements such as the Small Business Administration’s (“SBA”) 7(a) program and SBA’s 504 programs.
These loans typically are partially guaranteed by the government, which helps to reduce their risk. Government guarantees of SBA loans
do not exceed, and are generally less than, 80% of the loan. As of December 31, 2025, we had originated 12 loans utilizing government
enhancements and over 26 loans engaged in state-based small business partnerships.

·Consumer Real Estate Loans and Home Equity Loans. At
December 31, 2025 consumer real estate loans (other than construction loans) amounted to $1.40 billion, or 36.5% of our loan portfolio.
Included in the consumer real estate loans was $1.15 billion, or 30.0% of our loan portfolio, in first and second mortgages on individuals’
homes, while home equity loans represented $248.7 million, or 6.5% of our total loan portfolio. At December 31, 2025, the original balances
of our individual residential real estate loans ranged in size from $1,500 to $5.9 million, with an average loan size of approximately
$472,000. Generally, we limit the loan-to-value ratio on our consumer real estate loans to 85%. We offer fixed and adjustable rate consumer
real estate loans with terms of up to 30 years. We also offer home equity lines of credit. At December 31, 2025, the original balances
of our individual home equity lines of credit ranged in size from $8,200 to $3.6 million, with an average of approximately $108,000. Our
underwriting criteria and the risks associated with home equity loans and lines of credit are generally the same as those for first mortgage
loans. Home equity lines of credit typically have terms of ten years or less. We

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generally limit the extension of credit to 90% of the
market value of each property, although we may extend up to 100% of the market value.

·Other Consumer Loans. We make a variety of loans to
individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. These
consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and
value of collateral. Consumer rates are both fixed and variable, with negotiable terms. At December 31, 2025, consumer loans other than
real estate amounted to $41.0 million, or 1.1% of our loan portfolio, and the original balances of the loans ranged in size from $100
to $15.7 million, with an average loan size of approximately $34,000. Our installment loans typically amortize over periods up to 60 months.
We will offer consumer loans with a single maturity date when a specific source of repayment is available. We typically require monthly
payments of interest and a portion of the principal on our revolving loan products. Consumer loans are generally considered to have greater
risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral
may be difficult to assess and more likely to decrease in value than real estate.

Deposit Services

Our principal source of funds is core deposits. We offer a
full range of deposit services, including checking accounts, commercial checking accounts, savings accounts, and other time deposits of
various types, ranging from daily money market accounts to long-term certificates of deposit. At December 31, 2025, we had $552.9 million
in out-of-market, or wholesale, certificates of deposits. In an effort to obtain lower cost deposits, we have focused on expanding our
retail deposit program. We currently have 12 retail offices which assist us in obtaining low cost transaction accounts that are less affected
by rising rates. Deposit rates are reviewed regularly by our senior management. We believe that the rates we offer are competitive with
those offered by other financial institutions in our area. We focus on client service and our ClientFIRST culture to attract and retain
deposits.

Other Banking Services

In addition to deposit and loan services, we offer other
bank services such as internet banking, cash management, safe deposit boxes, direct deposit, automatic drafts, bill payment and mobile
banking services. We earn fees for most of these services, including debit and credit card transactions, sales of checks, and wire transfers.
We also receive ATM transaction fees from transactions performed by our non-clients. We are associated with the NYCE, Pulse, STAR, and
Cirrus networks, which are available to our clients throughout the country. Since we outsource our ATM services, we are charged related
transaction fees from our ATM service provider. We have contracted with Fidelity National Information Systems, an outside computer service
company, to provide our core data processing services and our ATM processing. By outsourcing these services, we believe we are able to
reduce our overhead by matching the expense in each period to the transaction volume that occurs during the period, as a significant portion
of the fee charged is directly related to the number of loan and deposit accounts and the related number of transactions we have during
the period. We believe that by being associated with a shared network of ATMs, we are better able to serve our clients and to attract
clients who are accustomed to the convenience of using ATMs, although we do not believe that maintaining this association is critical
to our success. We also offer purchasing cards to our business clients which are designed for business expenses and procurement purposes.

Competition

The banking business is highly competitive, and we experience
competition in our market from many other financial institutions. Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and scope
of the services rendered, the convenience of banking facilities, and, in the case of loans to commercial borrowers, relative lending limits.
We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities
brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national, and international
financial institutions that operate offices in Greenville, Columbia and Charleston, South Carolina; Charlotte, Raleigh and Greensboro,
North Carolina; Atlanta, Georgia and elsewhere.

As of June 30, 2025, the most recent date for which market
data is available, there were 40 financial institutions in our primary market of Greenville County, 27 financial institutions in the Columbia
market, 38 financial institutions in the Charleston and Raleigh markets, 25 financial institutions in the Greensboro market, 49 financial
institutions in the Charlotte market, and 80 financial institutions in the Atlanta market. We compete with other financial institutions
in our market areas both in attracting deposits and in making loans. In addition, we have to attract our client base from other existing
financial institutions and from new residents. Many of our competitors are well-established, larger financial

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institutions with substantially
greater resources and lending limits, such as, Bank of America, Wells Fargo, and Truist. These institutions offer some services, such
as extensive and established branch networks and trust services that we do not provide. In addition, many of our non-bank competitors
are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. We believe the
financial services industry will likely continue to become more competitive as further technological advances enable more financial institutions
to provide expanded financial services without having a physical presence in our markets. Because larger competitors have advantages in
attracting business from larger corporations, we do not generally compete for that business. Instead, we concentrate our efforts on attracting
the business of individuals and small and medium-size businesses. With regard to such accounts, we generally compete on the basis of client
service and responsiveness to client needs, the convenience of our offices and hours, and the availability and pricing of our products
and services.

We believe our commitment to quality and personalized banking
services through our ClientFIRST culture is a factor that contributes to our competitiveness and success.

Employees

At December 31, 2025, we employed a total of 315 full-time
equivalent employees. We provide our full-time employees and certain part-time employees with a comprehensive program of benefits, including
medical benefits, life insurance, long-term disability coverage and a 401(k) plan. Our employees are not represented by a collective bargaining
agreement. Management considers its employee relations to be excellent.

Available Information

We file Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K with the SEC which are accessible electronically at the SEC’s
website at www.sec.gov. We maintain an Internet website at www.southernfirst.com where these reports can also be accessed
free of charge. No information contained on our website is intended to be included as part of, or incorporated by reference into, this
Annual Report on Form 10-K.

SUPERVISION AND REGULATION

Both the Company and the Bank are subject to extensive state
and federal banking laws and regulations that impose specific requirements or restrictions on and provide for general regulatory oversight
of virtually all aspects of our operations. These laws and regulations are generally intended to protect depositors, not shareholders.
Changes in applicable laws or regulations may have a material effect on our business and prospects.

The following discussion is not intended to be a complete
list of all the activities regulated by the banking laws or of the impact of such laws and regulations on our operations. It is intended
only to briefly summarize some material provisions. The following summary is qualified by reference to the statutory and regulatory provisions
discussed.

Legislative and Regulatory Developments

Two legislative and regulatory responses to the 2008 financial
crisis – the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the Basel III-based
capital rules –continue to have an impact on our operations.

In addition, newer regulatory developments implemented in
response to the COVID-19 pandemic and the bank failures in 2023 will continue to have an impact on our operations.

The Dodd-Frank Wall Street Reform and Consumer Protection
Act

The Dodd-Frank Act was signed into law in July 2010 and impacts
financial institutions in numerous ways, including:

·The creation of a Financial Stability Oversight Council responsible
for monitoring and managing systemic risk,

·Granting additional authority to the Board of Governors of
the Federal Reserve (the “Federal Reserve”) to regulate certain types of nonbank financial companies,

·Granting new authority to the FDIC as liquidator and receiver,

·Changing the manner in which deposit insurance assessments
are made,

·Requiring regulators to modify capital standards,

·Establishing the Consumer Financial Protection Bureau (the
“CFPB”),

·Capping interchange fees that banks charge merchants for debit
card transactions,

·Imposing more stringent requirements on mortgage lenders,
and

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·Limiting banks’ proprietary trading activities.

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. While some have been issued, many remain
to be issued. Governmental intervention and new regulations could materially and adversely affect our business, financial condition and
results of operations.

The Economic Growth, Regulatory Relief, and Consumer Protection
Act

On May 24, 2018, President Trump signed into law the first
major financial services reform bill since the enactment of the Dodd-Frank Act. The Economic Growth, Regulatory Relief, and Consumer Protection
Act (the “Reform Law”) modified or eliminated certain requirements on community and regional banks and nonbank financial institutions.
For instance, under the Reform Act and related rule making:

·banks that have less than $10 billion in total consolidated
assets and total trading assets and trading liabilities of less than five percent of total consolidated assets are excluded from Section
619 of the Dodd-Frank Act, known as the “Volcker Rule”, which prohibits “proprietary trading” and the ownership
or sponsorship of private equity or hedge funds that are referred to as “covered funds”;

·the asset threshold for bank holding companies to qualify
for treatment under the “Small Bank Holding Company and Savings and Loan Holding Company Policy Statement” was raised from
$1 billion to $3 billion, which exempts these institutions from certain regulatory requirements including the Basel III capital rules;

·a “community bank leverage ratio” was adopted,
which is applicable to certain banks and bank holding companies with total assets of less than $10 billion (as described below under “Basel
Capital Standards”); and

·banks with up to $3 billion in total consolidated assets may
be examined by their federal banking regulator every 18 months (as opposed to every 12 months).

Basel Capital Standards

Regulatory capital rules known as Basel III impose minimum
capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings and loan
associations regardless of size and bank holding companies and savings and loan holding companies other than “small bank holding
companies,” generally holding companies with consolidated assets of less than $3 billion. More stringent requirements are imposed
on “advanced approaches” banking organizations-those organizations with $250 billion or more in total consolidated assets,
$10 billion or more in total foreign exposures, or that have opted into the Basel II capital regime.

The Basel III rules require the Company and the Bank to maintain
the following minimum capital requirements:

·a common equity Tier 1 (“CET1”) risk-based capital
ratio of 4.5%;

·a Tier 1 risk-based capital ratio of 6%;

·a total risk-based capital ratio of 8%; and

·a leverage ratio of 4%.

Under Basel III, Tier 1 capital includes two components: CET1
capital and additional Tier 1 capital. The highest form of capital, CET1 capital, consists solely of common stock (plus related surplus),
retained earnings, accumulated other comprehensive income, otherwise referred to as AOCI, and limited amounts of minority interests that
are in the form of common stock. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority
interests and grandfathered trust preferred securities (as discussed below). Tier 2 capital generally includes the allowance for credit
losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying tier 2 minority interests, less
any deductions in Tier 2 instruments of an unconsolidated financial institution. Cumulative perpetual preferred stock is included only
in Tier 2 capital, except that the Basel III rules permit bank holding companies with less than $15 billion in total consolidated assets
to continue to include trust preferred securities and cumulative perpetual preferred stock issued before May 19, 2010 in Tier 1 Capital
(but not in CET1 capital), subject to certain restrictions. AOCI is presumptively included in CET1 capital and often would operate to
reduce this category of capital. When implemented, Basel III provided a one-time opportunity at the end of the first quarter of 2015 for
covered banking organizations to opt out of much of this treatment of AOCI. We made this opt-out election and, as a result, retained our
pre-existing treatment for AOCI.

In addition, in order to avoid restrictions on capital distributions
or discretionary bonus payments to executives, under Basel III, a banking organization must maintain a 2.5% “capital conservation
buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of CET1 capital, but the buffer applies
to all three risk-based measurements (CET1, Tier 1 capital and total capital). The 2.5% capital conservation buffer effectively results
in the

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following minimum capital ratios (taking into account the capital conservation buffer): (i) a CET1 capital ratio of 7.0%, (ii)
a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.

Proposed new rules for U.S. implementation of capital requirements
under Basel IV rules, more recently referred to as the “Basel III Endgame”, were issued by the U.S. federal banking agencies
on July 27, 2023. These proposed rules include broad-based changes to the risk-weighting framework for various credit exposures and operational
risk capital requirements. However, the proposed rules generally apply only to large banking organizations with total assets of $100 billion
or more, and are expected to not be applicable to us. Recent regulatory developments have introduced uncertainty regarding the implementation
of the Basel III Endgame rules. Changes in leadership and evolving policy priorities within regulatory agencies have led to speculation
about potential delays or modifications to the final rulemaking process. As of the date of this filing, the Basel III Endgame rules have
not been finalized, and their scope, and ultimate implementation remain uncertain.

As part of its response to the impact of the COVID-19 pandemic,
in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that
adopted the credit impairment model, the Current Expected Credit Loss, or CECL, during the 2020 calendar year with the option to delay
for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss
methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial
two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2022, we did not elect to
utilize the five-year CECL transition.

In November 2019, the federal banking regulators published
final rules under the Reform Law (discussed above) implementing a simplified measure of capital adequacy for certain banking organizations
that have less than $10 billion in total consolidated assets. Under the final rules, which went into effect on January 1, 2020, depository
institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other
qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets
and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking
organizations” and are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking
organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is
considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if applicable,
is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s
prompt corrective action rules, discussed below. In November 2025, federal banking regulators proposed changes to increase flexibility
under the community bank leverage ratio framework, including lowering the leverage ratio threshold from 9% to 8% and extending the grace
period for falling below the threshold from two quarters to four quarters, subject to certain conditions. Public comments on the proposal
were open through January 30, 2026. We do not have any immediate plans to elect to use the community bank leverage ratio framework but
may make such an election in the future.

As of December 31, 2025, the Bank was well-capitalized, as
defined by FDIC regulations. As of December 31, 2025, the Company had regulatory capital in excess of the Federal Reserve’s requirements
and met the Basel III rule requirements to be well-capitalized.

Acquisition Activity

The primary purpose of a bank holding company is to control
and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company
or any acquisition by a bank holding company of another bank or bank holding company. In addition, the prior approval of the FDIC is required
for a bank to merge with another bank or purchase the assets or assume the deposits of another bank. In determining whether to approve
a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition,
the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis,
and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and
moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community Reinvestment Act (“CRA”).

On July 9, 2021, President Biden issued an Executive Order
on Promoting Competition in the American Economy. Among other initiatives, the Executive Order encouraged the federal banking agencies
to review their current merger oversight practices under the BHCA and the Bank Merger Act and adopt a plan for revitalization of such
practices. In December 2021, the U.S. Department of Justice (“DOJ”) (in consultation with the Federal Reserve, the Office
of the Comptroller of the Currency (the “OCC”), and FDIC announced that it was seeking additional public comments on whether
and how the DOJ should revise the 1995 Bank Merger Competitive Review Guidelines. The comment period closed on February 15, 2022. In March
2022, the FDIC published a Request for Information seeking information and comments regarding the

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laws, practices, rules, regulations,
guidance, and statements of policy that apply to merger transactions involving one or more insured depository institutions, including
the merger between an insured depository institution and a noninsured institution. In a May 2022 speech, the acting head of the OCC announced
that he had asked his staff to work with DOJ and other federal banking agencies to review the agency’s frameworks to analyze bank
mergers. In May 2022, the CFPB announced the establishment of an Office of Competition and Innovation.

On September 17, 2024, the FDIC approved a final Statement
of Policy on Bank Merger Transactions, updating its approach to evaluating bank mergers under the Bank Merger Act. The new policy emphasizes
a principles-based evaluation, focusing on factors such as the effect of the transaction on competition, financial stability, and the
convenience and needs of the community to be served. The OCC concurrently approved a final rule updating its regulations for business
combinations involving national banks and federal savings associations, including a policy statement summarizing the principles used during
its review of Bank Merger Act applications. The Federal Reserve did not join with the FDIC and the OCC in issuing comparable guidance.
Additionally, the DOJ announced its withdrawal from the 1995 Bank Merger Competitive Review Guidelines, indicating that it would apply
its general merger enforcement framework, including its 2023 Merger Guidelines, in reviewing banking industry transactions. In May 2025, the OCC rescinded its 2024 final rule and related policy statement through an interim final rule that restored expedited review procedures
and streamlined application processes.

In early 2025, the FDIC
announced that it would rescind its 2024 Statement of Policy on Bank Merger Transactions, citing concerns that the revised framework created
uncertainty in the merger review process. By May 2025, the FDIC approved rescission of the 2024 Statement of policy and reinstatement of its prior Statement of Policy, originally adopted in
1998 and last revised in 2008, which became effective on August 4, 2025, Accordingly, the FDIC is currently applying its reinstated pre-2024
Statement of Policy. These developments highlight the evolving nature of regulatory
policy in this area and the potential for further changes to merger review standards.

Proposed Legislation and Regulatory Action

From time to time, various legislative and regulatory initiatives
are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand
or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution
regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable
ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect
the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether
any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial
condition or results of operations of the Company. A change in statutes, regulations or regulatory policies applicable to the Company
or the Bank could have a material effect on the business of the Company.

On October 2, 2024, the FDIC released a notice of proposed
rulemaking to strengthen recordkeeping requirements for certain types of custodial accounts. Under the proposed rule, FDIC-insured banks
holding certain custodial accounts, as defined in the proposal, would be required to take certain steps to ensure accurate account records
are maintained in order to determine the individual owner of the funds, including a requirement to reconcile the account for each individual
owner on a daily basis. These requirements, as well as others, apply if the bank uses a third party to maintain records. The FDIC extended
the comment period to January 16, 2025. It is unclear how President Trump’s administration will approach proposals under the previous
administration.

Southern First Bancshares, Inc.

We own 100% of the outstanding capital stock of the Bank,
and therefore we are considered to be a bank holding company under the federal Bank Holding Company Act of 1956. As a result, we are primarily
subject to the supervision, examination and reporting requirements of the Federal Reserve under the BHCA and its regulations promulgated
thereunder. Moreover, as a bank holding company of a bank located in South Carolina, we also are subject to the South Carolina Banking
and Branching Efficiency Act.

Permitted Activities. Under the BHCA, a bank
holding company is generally permitted to engage in, or acquire direct or indirect control of more than 5% of the voting shares of any
company engaged in, the following activities:

·banking or managing or controlling banks;

·furnishing services to or performing services for our subsidiaries;
and

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·any activity that the Federal Reserve determines to be so
closely related to banking as to be a proper incident to the business of banking.

Activities that the Federal Reserve has found to be so closely
related to banking as to be a proper incident to the business of banking include:

·factoring accounts receivable;

·making, acquiring, brokering or servicing loans and usual
related activities;

·leasing personal or real property;

·operating a non-bank depository institution, such as a savings
association;

·trust company functions;

·financial and investment advisory activities;

·conducting discount securities brokerage activities;

·underwriting and dealing in government obligations and money
market instruments;

·providing specified management consulting and counseling activities;

·performing selected data processing services and support services;

·acting as agent or broker in selling credit life insurance
and other types of insurance in connection with credit transactions; and

·performing selected insurance underwriting activities.

As a bank holding company we also can elect to be treated
as a “financial holding company,” which would allow us to engage in a broader array of activities. In summary, a financial
holding company can engage in activities that are financial in nature or incidental or complimentary to financial activities, including
insurance underwriting, sales and brokerage activities, providing financial and investment advisory services, underwriting services and
limited merchant banking activities. We have not sought financial holding company status, but may elect such status in the future as our
business matures. If we were to elect financial holding company status, each insured depository institution we control would have to be
well capitalized, well managed and have at least a satisfactory rating under the CRA as discussed below.

The Federal Reserve has the authority to order a bank holding
company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has
reasonable cause to believe that the Bank holding company’s continued ownership, activity or control constitutes a serious risk
to the financial safety, soundness or stability of it or any of its bank subsidiaries.

Change in Control. Two statutes, the BHCA and
the Change in Bank Control Act, together with regulations promulgated under them, require some form of regulatory review before any company
may acquire “control” of a bank or a bank holding company. Under the BHCA, control is deemed to exist if a company acquires
25% or more of any class of voting securities of a bank holding company; controls the election of a majority of the members of the board
of directors; or exercises a controlling influence over the management or policies of a bank or bank holding company. The Federal Reserve’s
standards for determining whether one company has control over another establish four categories of tiered presumptions of noncontrol
that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence
of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside
of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks,
business relationship and restrictive contractual covenants. Under the standards, investors can hold up to 24.9% of the voting securities
and up to 33% of the total equity of a company without necessarily having a controlling influence. State laws generally, including South
Carolina law, require state approval before an acquirer may become the holding company of a state bank.

Under the Change in Bank Control Act, a person or company
is required to file a notice with the Federal Reserve if it will, as a result of the transaction, own or control 10% or more of any class
of voting securities or direct the management or policies of a bank or bank holding company and either if the bank or bank holding company
has registered securities or if the acquirer would be the largest holder of that class of voting securities after the acquisition. For
a change in control at the holding company level, both the Federal Reserve and the subsidiary bank’s primary federal regulator must approve
the change in control; at the bank level, only the bank’s primary federal regulator is involved. Transactions subject to the BHCA are
exempt from Change in Control Act requirements. For state banks, state laws, including that of South Carolina, typically require approval
by the state bank regulator as well.

Most recently, the FDIC rescinded its proposed rule issued
in August 2024 that would have amended its filing requirements under the CBCA. That proposal sought to remove an exemption allowing acquisitions
of voting securities in a depository institution holding company to rely on Federal Reserve review without a separate FDIC filing. In
January

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2025, the FDIC withdrew the proposal, citing concerns about duplicative requirements and the need for further consideration.

Source of Strength. There are a number of obligations
and restrictions imposed by law and regulatory policy on bank holding companies with regard to their depository institution subsidiaries
that are designed to minimize potential loss to depositors and to the FDIC insurance funds in the event that the depository institution
becomes in danger of defaulting under its obligations to repay deposits. Under a policy of the Federal Reserve, a bank holding company
is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such
institutions in circumstances where it might not do so absent such policy. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991, to avoid receivership of its insured depository institution subsidiary, a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become “undercapitalized” within the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking agency up to the lesser of (i) an amount equal to 5% of
the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount which is necessary (or would
have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails
to comply with such capital restoration plan.

The Federal Reserve also has the authority under the BHCA
to require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary
of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness
or stability of any subsidiary depository institution of the bank holding company. Further, federal law grants federal bank regulatory
authorities’ additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution’s financial condition.

In addition, the “cross guarantee” provisions
of the Federal Deposit Insurance Act (the “FDIA”) require insured depository institutions under common control to reimburse
the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The
FDIC’s claim for damages is superior to claims of shareholders of the insured depository institution or its holding company, but
is subordinate to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled
insured depository institutions.

The FDIA also provides that amounts received from the liquidation
or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay
the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability,
general creditor or shareholder. This provision would give depositors a preference over general and subordinated creditors and shareholders
in the event a receiver is appointed to distribute the assets of our Bank.

Any capital loans by a bank holding company to any of its
subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event
of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain
the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Capital Requirements. The Federal Reserve imposes
certain capital requirements on the bank holding company under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying”
capital to risk-weighted assets. These requirements are essentially the same as those that apply to the Bank and are described above under
“Basel III Capital Standards.” Subject to certain restrictions, we are able to borrow money to make a capital contribution
to the Bank, and these loans may be repaid from dividends paid from the Bank to the Company. Our ability to pay dividends depends on,
among other things, the Bank’s ability to pay dividends to us, which is subject to regulatory restrictions as described below in
“Southern First Bank—Dividends.”

We are also able to raise capital for contribution to the
Bank by issuing securities without having to receive prior regulatory approval, subject to compliance with federal and state securities
laws.

Dividends. Since the Company is a bank holding
company, its ability to declare and pay dividends is dependent on certain federal and state regulatory considerations, including the guidelines
of the Federal Reserve. 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

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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. Likewise, under the proposed Basel III Endgame rules, banks subject to the
new framework could face increased capital requirements that may impact dividend policies and capital distribution strategies. If finalized
and implemented, these rules could introduce new capital constraints for institutions seeking to maintain or increase dividend payments.
These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.

In addition, since the Company is a legal entity separate
and distinct from the Bank and does not conduct stand-alone operations, its ability to pay dividends depends on the ability of the Bank
to pay dividends to it, which is also subject to regulatory restrictions as described below in “Southern First Bank – Dividends.”

South Carolina State Regulation. As a South
Carolina bank holding company under the South Carolina Banking and Branching Efficiency Act, we are subject to limitations on sale or
merger and to regulation by the South Carolina Board of Financial Institutions (the “S.C. Board”). We are not required to
obtain the approval of the S.C. Board prior to acquiring the capital stock of a national bank, but we must notify them at least 15 days
prior to doing so. We must receive the S.C. Board’s approval prior to engaging in the acquisition of a South Carolina state chartered
bank or another South Carolina bank holding company.

Southern First Bank

As a South Carolina bank, deposits in the Bank are insured
by the FDIC up to a maximum amount, which is currently $250,000 per depositor. The S.C. Board and the FDIC regulate or monitor virtually
all areas of the Bank’s operations, including;

·security devices and procedures;

·adequacy of capitalization and loss reserves;

·loans;

·investments;

·borrowings;

·deposits;

·mergers;

·issuances of securities;

·payment of dividends;

·interest rates payable on deposits;

·interest rates or fees chargeable on loans;

·establishment of branches;

·corporate reorganizations;

·maintenance of books and records; and

·adequacy of staff training to carry on safe lending and deposit
gathering practices.

These agencies, and the federal and state laws applicable
to the Bank’s operations, extensively regulate various aspects of our banking business, including, among other things, permissible
types and amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans and on deposits, the
maintenance of reserves on demand deposit liabilities, and the safety and soundness of our banking practices.

All insured institutions must undergo regular 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 federal banking agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions
are required to submit annual reports to the FDIC, their federal regulatory agency, and state supervisor when applicable. The FDIC has
developed a method for insured depository institutions to provide supplemental disclosure of the estimated fair market value of assets
and liabilities, to the extent feasible and practicable, in any balance sheet, financial statement, report of condition or any other report
of any insured depository institution. The FDIC and the other federal banking regulatory agencies also have issued standards for all insured
depository institutions relating, among other things, to the following:

·internal controls;

·information systems and audit systems;

·loan documentation;

·credit underwriting;

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·interest rate risk exposure; and

·asset quality.

Prompt Corrective Action. As an insured depository
institution, the Bank is required to comply with the capital requirements promulgated under the FDIA and the prompt corrective action
regulations thereunder, which set forth five capital categories, each with specific regulatory consequences. Under these regulations,
the categories are:

·Well Capitalized — The institution exceeds the required
minimum level for each relevant capital measure. A well-capitalized institution (i) has a total risk-based capital ratio of 10% or greater,
(ii) has a Tier 1 risk-based capital ratio of 8% or greater, (iii) has a common equity Tier 1 risk-based capital ratio of 6.5% or greater,
(iv) has a leverage capital ratio of 5% or greater, and (v) is not subject to any order or written directive to meet and maintain a specific
capital level for any capital measure.

·Adequately Capitalized — The institution meets the required
minimum level for each relevant capital measure. No capital distribution may be made that would result in the institution becoming undercapitalized.
An adequately capitalized institution (i) has a total risk-based capital ratio of 8% or greater, (ii) has a Tier 1 risk-based capital
ratio of 6% or greater, (iii) has a common equity Tier 1 risk-based capital ratio of 4.5% or greater, and (iv) has a leverage capital
ratio of 4% or greater.

·Undercapitalized — The institution fails to meet the
required minimum level for any relevant capital measure. An undercapitalized institution (i) has a total risk-based capital ratio of less
than 8%, (ii) has a Tier 1 risk-based capital ratio of less than 6%, (iii) has a common equity Tier 1 risk-based capital ratio of less
than 4.5%, or (iv) has a leverage capital ratio of less than 4%.

·Significantly Undercapitalized — The institution is
significantly below the required minimum level for any relevant capital measure. A significantly undercapitalized institution (i) has
a total risk-based capital ratio of less than 6%, (ii) has a Tier 1 risk-based capital ratio of less than 4%, (iii) has a common equity
Tier 1 risk-based capital ratio of less than 3%, or (iv) has a leverage capital ratio of less than 3%.

·Critically Undercapitalized — The institution fails
to meet a critical capital level set by the appropriate federal banking agency. A critically undercapitalized institution has a ratio
of tangible equity to total assets that is equal to or less than 2%.

If the FDIC determines, after notice and an opportunity for
hearing, that the Bank is in an unsafe or unsound condition, the regulator is authorized to reclassify the Bank to the next lower capital
category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition.

If a bank is not well capitalized, it cannot accept brokered
deposits without prior regulatory approval. Even if approved, rate restrictions will govern the rate a bank may pay on brokered deposits.
In addition, a bank that is not well capitalized cannot offer an effective yield in excess of 75 basis points over interest paid on deposits
of comparable size and maturity in such institution’s normal market area for deposits accepted from within its normal market area,
or national rate paid on deposits of comparable size and maturity for deposits accepted outside the bank’s normal market area. Moreover,
the FDIC generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying
any management fee to its parent holding company if the depository institution would thereafter be categorized as undercapitalized. Undercapitalized
institutions are subject to growth limitations (an undercapitalized institution may not acquire another institution, establish additional
branch offices or engage in any new line of business unless determined by the appropriate federal banking agency to be consistent with
an accepted capital restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective
action) and are required to submit a capital restoration plan. The agencies may not accept a capital restoration plan without determining,
among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s
capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must
guarantee that the institution will comply with the capital restoration plan. The aggregate liability of the parent holding company is
limited to the lesser of an amount equal to 5.0% of the depository institution’s total assets at the time it became categorized
as undercapitalized or the amount that is necessary (or would have been necessary) to bring the institution into compliance with all capital
standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails
to submit an acceptable plan, it is categorized as significantly undercapitalized.

Significantly undercapitalized categorized depository institutions
may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become categorized as
adequately capitalized, requirements to reduce total assets, restrictions on deposit interest rates, orders for election of new directors
or forced dismissal of executive officers, divestment of certain subsidiaries, and cessation of receipt of deposits from correspondent
banks. The appropriate federal banking agency may take any action authorized for a significantly undercapitalized institution if an undercapitalized
institution fails to submit an acceptable capital restoration plan or fails in any material respect to

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implement a plan accepted by the
agency. A critically undercapitalized institution is subject to having a receiver or conservator appointed to manage its affairs and for
loss of its charter to conduct banking activities.

An insured depository institution may not pay a management
fee to a bank holding company controlling that institution or any other person having control of the institution if, after making the
payment, the institution would be undercapitalized. In addition, an institution cannot make a capital distribution, such as a dividend
or other distribution, that is in substance a distribution of capital to the owners of the institution if following such a distribution
the institution would be undercapitalized. Thus, if payment of such a management fee or the making of such would cause a bank to become
undercapitalized, it could not pay a management fee or dividend to the bank holding company.

As of December 31, 2025, the Bank was deemed to be “well
capitalized.”

Standards for Safety and Soundness. The FDIA
also requires the federal banking regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for
all insured depository institutions relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation;
(iii) credit underwriting; (iv) interest rate risk exposure; and (v) 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 Prescribing 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. Under the regulations, if the FDIC determines that the Bank fails to meet any standards
prescribed by the guidelines, the agency may require the Bank to submit to the agency an acceptable plan to achieve compliance with the
standard, as required by the FDIC. The final regulations establish deadlines for the submission and review of such safety and soundness
compliance plans. The FDIC previously requested comments on a proposal that would amend the regulations implementing section 29 of the
Federal Deposit Insurance Act which contains brokered deposits restrictions that apply to less than well capitalized depository institutions.
The proposed changes, however, were withdrawn in March 2025, due to the FDIC’s concern that the changes would disrupt the existing
deposit landscape.

Insurance of Accounts and Regulation by the FDIC.
The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. The Dodd-Frank Act permanently
increased the maximum amount of deposit insurance for banks to $250,000 per account. As insurer, the FDIC imposes deposit insurance premiums
and is authorized to conduct examinations of and to require reporting by FDIC insured institutions. It also may prohibit any FDIC insured
institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the insurance fund.

As an FDIC-insured bank, the Bank must pay deposit insurance
assessments to the FDIC based on its average total assets minus its average tangible equity. The Bank’s assessment rates are currently
based on its risk classification (i.e., the level of risk it poses to the FDIC’s deposit insurance fund). Institutions classified
as higher risk pay assessments at higher rates than institutions that pose a lower risk. The initial base assessment rates currently range
from approximately five basis points to approximately 32 basis points. In addition to ordinary assessments described above, the FDIC
has the ability to impose special assessments in certain instances.

In addition to the ordinary assessments described above, the
FDIC has the ability to impose special assessments in certain instances. For example, in November 2023, the FDIC implemented a special
assessment to recover the approximately $16.3 billion loss to the Deposit Insurance Fund associated with protecting uninsured depositors
following the closures of Silicon Valley Bank and Signature Bank earlier in the year. However, the assessment was limited to banks with
more than $5 billion uninsured deposits as of December 31, 2022, so we did not receive any assessment. As of March 2025, no further special
assessments have been imposed.

The FDIC may terminate the deposit insurance of any insured
depository institution, including the Bank, if it determines after a hearing that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed
by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance if
the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination,
less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management
is not aware of any practice, condition or violation that might lead to termination of the Bank’s deposit insurance.

Transactions with Affiliates and Insiders. The
Company is a legal entity separate and distinct from the Bank and its other subsidiaries. Various legal limitations restrict the Bank
from lending or otherwise supplying funds to the Company

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or its non-bank subsidiaries. The Company and the Bank are subject to Sections
23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W.

Section 23A of the Federal Reserve Act places limits on the
amount of loans or extensions of credit by a bank to any affiliate, including its holding company, and on a bank’s investments in,
or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations
of any affiliates of the bank. Section 23A also applies to derivative transactions, repurchase agreements and securities lending and borrowing
transactions that cause a bank to have credit exposure to an affiliate. The aggregate of all covered transactions is limited in amount,
as to any one affiliate, to 10% of the Bank’s capital and surplus and, as to all affiliates combined, to 20% of the Bank’s
capital and surplus. Furthermore, within the foregoing limitations as to amount, each covered transaction must meet specified collateral
requirements. The Bank is forbidden to purchase low quality assets from an affiliate.

Section 23B of the Federal Reserve Act, among other things,
prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially
the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies. If there are no comparable transactions, a bank’s (or one of its subsidiaries’) affiliate transaction
must be on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, nonaffiliated
companies. These requirements apply to all transactions subject to Section 23A as well as to certain other transactions.

The affiliates of a bank include any holding company of the
bank, any other company under common control with the bank (including any company controlled by the same shareholders who control the
bank), any subsidiary of the bank that is itself a bank, any company in which the majority of the directors or trustees also constitute
a majority of the directors or trustees of the bank or holding company of the bank, any company sponsored and advised on a contractual
basis by the bank or an affiliate, and any mutual fund advised by a bank or any of the bank’s affiliates. Regulation W generally
excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the Federal
Reserve decides to treat these subsidiaries as affiliates.

The Bank is also subject to certain restrictions on extensions
of credit to executive officers, directors, certain principal shareholders, and their related interests. Extensions of credit include
derivative transactions, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions to the extent
that such transactions cause a bank to have credit exposure to an insider. Any extension of credit to an insider (i) must be made on substantially
the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with
unrelated third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.

On December 22, 2020, the federal banking agencies issued
an interagency statement extending the temporary relief from enforcement action against banks or asset managers, which become principal
shareholders of banks, with respect to certain extensions of credit by banks that otherwise would violate Regulation O, provided the asset
managers and banks satisfy certain conditions designed to ensure that there is a lack of control by the asset manager over the bank.

The federal banking agencies have extended the temporary relief
from enforcement actions related to Regulation O multiple times, most recently on December 19, 2025. The relief, which applies to banks
and asset managers that become principal stockholders of banks, will now expire on the earlier of January 1, 2027, or the effective date
of a final Federal Reserve rule revising Regulation O. This extension allows additional time for regulators to address the treatment of
bank credit extensions to complex-controlled portfolio companies that qualify as insiders. Financial institutions and asset managers should
continue monitoring updates, as a final rule could impact the relief before its expiration.

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 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. The Bank must also maintain the CET1 capital conservation buffer of 2.5% to avoid becoming subject to restrictions on capital
distributions, including dividends, as described above.

Branching. Under current South Carolina law,
the Bank may open branch offices throughout South Carolina with the prior approval of the S.C. Board. In addition, with prior regulatory
approval, the Bank is able to acquire existing banking operations in South Carolina. Furthermore, federal legislation permits interstate
branching, including out-of-state

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acquisitions by bank holding companies, interstate branching by banks, and interstate merging by banks.
The Dodd-Frank Act removes previous state law restrictions on de novo interstate branching in states such as South Carolina. This change
permits out-of-state banks to open de novo branches in states where the laws of the state where the de novo branch to be opened would
permit a bank chartered by that state to open a de novo branch.

Community Reinvestment Act. The CRA requires
that the FDIC evaluate the record of the Bank in meeting the credit needs of its local community, including low and moderate income neighborhoods.
These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately
meet these criteria imposes additional requirements and limitations on our Bank. On February 27, 2025, the date of the most recent examination
report, the Bank received a Satisfactory CRA rating.

In December 2019, the FDIC and the Office of the Comptroller
of the Currency (the “OCC”) issued a notice of proposed rulemaking intended to (i) clarify which activities qualify for CRA
credit; (ii) update where activities count for CRA credit; (iii) create a more transparent and objective method for measuring CRA performance;
and (iv) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting. However, the
Federal Reserve did not join the proposed rulemaking. That proposed rulemaking was later superseded and is no longer in effect.

In May 2020, the OCC issued its final CRA rule, which was
later rescinded in December 2021, replacing it with a rule based on the rules adopted jointly by the federal banking agencies in 1995,
as amended and superseded by an updated joint framework. On the same day that the OCC announced its plans to rescind the CRA final rule,
the OCC, the FDIC, and the Federal Reserve announced that they are working together to “strengthen and modernize the rules implementing
the CRA.” On May 5, 2022, the OCC, FDIC, and Federal Reserve released a notice of proposed rulemaking regarding the CRA and invited
public comment on the proposed rules. The comment period closed on August 5, 2022. On October 24, 2023, the OCC, the FDIC, and the Federal
Reserve issued the final rule to strengthen and modernize regulations implementing the CRA. The final rule was scheduled to take effect
on April 1, 2024; however, its effectiveness was enjoined by a federal court and compliance with the majority of the final rule’s
provisions has been deferred. As originally adopted, compliance with the most substantive provisions would not have been required until
January 1, 2026, and the data reporting requirements would not have taken effect until January 1, 2027. The final rules, among other things,
include: (i) applying four new performance tests to evaluate the CRA performance of large banks (assets of $2 billion or more): the Retail
Lending Test, Retail Services and Products Test, Community Development Financing Test, and Community Development Services Test; (ii) retaining
a strategic plan option, with modifications to reflect the new performance tests and updates to the approval standards; (iii) clarifying
community development activities by updating the definition of community development, providing a process by which banks may request confirmation
that an activity is eligible for community development consideration, and providing for a publicly available interagency illustrative
list of qualifying community development activities; (iv) updating delineation requirements for facility-based assessment areas and establishing
new retail lending assessment areas for certain large banks; (v) updating data collection, maintenance, and reporting requirements for
large banks, tailoring those requirements based on large bank asset size and leveraging existing data where possible, while not imposing
new data collection and reporting requirements for small and intermediate banks; and (vi) continuing public file and public notice disclosure
requirements and creating a new public comment process to facilitate public engagement. Several banking industry groups filed a lawsuit
seeking to invalidate the CRA final rule, in which they argued that the federal banking agencies exceeded their statutory authority in
adopting the CRA final rule. In March 2024, a federal judge granted an injunction preventing the CRA final rule from taking effect. The
OCC, the FDIC, and the Federal Reserve appealed the injunction. However, in March 2025, the federal banking agencies filed an unopposed
motion to stay the appeal pending completion of a new rulemaking that would propose rescinding the enjoined 2023 CRA Final Rule and reinstating
the CRA framework that existed prior to the final rule. In April 2025, the Fifth Circuit granted the agencies’ motion. Management
has and will continue to evaluate any changes to the CRA’s regulations and their impact to the Bank.

Fair Lending Requirements. We are subject to
certain fair lending requirements and reporting obligations involving lending operations. A number of laws and regulations provide these
fair lending requirements and reporting obligations, including, at the federal level, the Equal Credit Opportunity Act (“ECOA”),
as amended by the Dodd-Frank Act, and Regulation B, as well as the Fair Housing Act (“FHA”) and regulations implementing the
FHA. ECOA and Regulation B prohibit discrimination in any aspect of a credit transaction based on a number of prohibited factors, including
race or color, religion, national origin, sex, marital status, age, the applicant’s receipt of income derived from public assistance
programs, and the applicant’s exercise, in good faith, of any right under the Consumer Credit Protection Act. ECOA and Regulation
B include lending acts and practices that are specifically prohibited, permitted, or required, and these laws and regulations proscribe
data collection requirements, legal action statute of limitations, and disclosure of the consumer’s ability to receive a copy of
any appraisal(s) and valuation(s) prepared in connection with certain loans secured by dwellings. In January 2023, the OCC revised its
“Fair Lending” booklet of the Comptroller’s Handbook to incorporate clarified details and risk factors for a variety
of examination scenarios addressing fair lending and to update references to

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supervisory guidance, sound risk management practices, and
applicable legal standards. While this OCC guidance does not apply to the Bank explicitly, it represents best practices guidance for the
Bank. FHA prohibits discrimination in all aspects of residential real-estate related transactions based on prohibited factors, including
race or color, national origin, religion, sex, familial status, and handicap. In April 2025, President Trump issued Executive Order (EO)
14281, which directed agencies to eliminate the use of disparate impact liability in all contexts. Following the Executive Order, the
OCC announced the removal of references to “disparate impact” in its Fair Lending booklet. The FDIC likewise updated the Fair
Lending Laws and Regulation section of its Consumer Compliance Examination Manual to remove all references to disparate impact and how
to evaluate disparate impact risk.

Federal fair lending laws and regulations, as interpreted
by courts and regulatory agencies, continue to recognize both disparate treatment and disparate impact theories of liability. Regulatory
agencies periodically review and update supervisory guidance related to fair lending risk management and examination practices.

In addition to prohibiting discrimination in credit transactions
on the basis of prohibited factors, these laws and regulations can cause a lender to be liable for policies that result in a disparate
treatment of or have a disparate impact on a protected class of persons. In June 2024, the CFPB released its 2023 Fair Lending Annual
Report to Congress, reporting that it took action against Citibank for intentional, illegal discrimination against Armenian Americans
applying for credit cards. The CFPB also identified significant issues around institutions failing to report demographic information required
under the Home Mortgage Disclosure Act (HMDA). If a pattern or practice of lending discrimination is alleged by a regulator, then the
matter may be referred by the agency to the DOJ for investigation. In December 2012, the DOJ and CFPB entered into a Memorandum of Understanding
under which the agencies have agreed to share information, coordinate investigations, and have generally committed to strengthen their
coordination efforts.

In addition to substantive penalties and corrective measures
that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with fair lending
requirements into account when regulating and supervising other activities of the bank, including in acting on expansionary proposals.

Consumer Protection Regulations. The activities
of the Bank are subject to a variety of statutes and regulations designed to protect consumers. This includes Title X of the Dodd-Frank
Act, which prohibits engaging in any unfair, deceptive, or abusive acts or practices (“UDAAP”). UDAAP claims involve detecting
and assessing risks to consumers and to markets for consumer financial products and services. Interest and other charges collected or
contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The loan operations of the Bank
are also subject to federal laws applicable to credit transactions, such as:

·the Truth-In-Lending Act (“TILA”) and Regulation
Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial requirements for mortgage lending
and servicing, as mandated by the Dodd-Frank Act;

·the Home Mortgage Disclosure Act and Regulation C, requiring
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 communities they serve;

·ECOA and Regulation B, prohibiting discrimination on the basis
of race, color, religion, or other prohibited factors in any aspect of a credit transaction;

·the Fair Credit Reporting Act, as amended by the Fair and
Accurate Credit Transactions Act and Regulation V, as well as the rules and regulations of the FDIC governing the use of consumer reports,
provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures;

·the Fair Debt Collection Practices Act and Regulation F, governing
the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt
collection practices;

·the Real Estate Settlement Procedures Act (“RESPA”)
and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates
certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance
escrow accounts, and loss mitigation procedures;

·The Secure and Fair Enforcement for Mortgage Licensing Act
(“SAFE Act”) which mandates a nationwide licensing and registration system for residential mortgage loan originators. The
SAFE Act also prohibits individuals from engaging in the business of a residential mortgage loan originator without first obtaining and
maintaining annual registration as either a federal or state licensed mortgage loan originator;

·The Homeowners Protection Act, or the PMI Cancellation Act,
provides requirements relating to private mortgage insurance on residential mortgages, including the cancelation and termination of PMI,
disclosure and notification requirements, and the requirement to return unearned premiums;

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·The Fair Housing Act prohibits discrimination in all aspects
of residential real-estate related transactions based on race or color, national origin, religion, sex, and other prohibited factors;

·The Servicemembers Civil Relief Act and Military Lending Act,
providing certain protections for servicemembers, members of the military, and their respective spouses, dependents and others; and

·Section 106(c)(5) of the Housing and Urban Development Act
requires making home ownership available to eligible homeowners.

The deposit operations of the Bank are also subject to federal
laws, such as:

·the Federal Deposit Insurance Act (“FDIA”), which,
among other things, limits the amount of deposit insurance available per insured depositor category to $250,000 and imposes other limits
on deposit-taking;

·the Right to Financial Privacy Act, which imposes a duty to
maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial
records;

·the Electronic Funds Transfer Act and Regulation E, which
governs the rights, liabilities, and responsibilities of consumers and financial institutions using electronic fund transfer services,
and which generally mandates disclosure requirements, establishes limitations on liability applicable to consumers for unauthorized electronic
fund transfers, dictates certain error resolution processes, and applies other requirements relating to automatic deposits to and withdrawals
from deposit accounts;

·The Expedited Funds Availability Act and Regulation CC, setting
forth requirements to make funds deposited into transaction accounts available according to specified time schedules, disclose funds availability
policies to customers, and relating to the collection and return of checks and electronic checks, including the rules regarding the creation
or receipt of substitute checks; and

·the Truth in Savings Act and Regulation DD, which requires
depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts.

In light of the growing concern by regulators about relationships
between chartered financial institutions and their third-party service providers, the FDIC joined the other federal supervisory agencies
in issuing the Interagency Guidance on Third-Party Relationships: Risk Management. This guidance provided risk management oversight guidelines
for financial institutions to incorporate in their ongoing relationships with third party vendors.

The CFPB is an independent regulatory authority housed within
the Federal Reserve. The CFPB has broad authority to regulate the offering and provision of consumer financial products and services.
The CFPB has the authority to supervise and examine depository institutions with more than $10 billion in assets for compliance with
federal consumer laws. The authority to supervise and examine depository institutions with $10 billion or less in assets, such as
us, for compliance with federal consumer laws remains largely with those institutions’ primary regulators. However, the CFPB may
participate in examinations of these smaller institutions on a “sampling basis” and may refer potential enforcement actions
against such institutions to their primary regulators. As such, the CFPB may participate in examinations of the Bank. In addition, states
are permitted to adopt consumer protection laws and regulations that are stricter than the regulations promulgated by the CFPB, and state
attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.

The CFPB has issued a number of significant rules that impact
nearly every aspect of the lifecycle of consumer financial products and services, including rules regarding residential mortgage loans.
These rules implement Dodd-Frank Act amendments to ECOA, TILA and RESPA. On July 18, 2024 regulators, including the CFPB, issued interagency
guidance on reconsideration of value (ROVs) of residential real estate transactions. The CFPB continued its scrutiny of so called “pay-to-pay”
and “junk fee” regimes, proposing rules related to credit card penalties. In March 2024, the CFPB finalized a rule that addresses
late fees charged by card issuers that together with their affiliates have one million or more open credit card accounts. However, on
April 15, 2025, this final rule, the “Credit Card Penalty Fees Final Rule” was vacated pursuant to a court order in Chamber
Of Commerce of the United States of America, et al. v Consumer Financial Protection Bureau, et al., No. 4:24-cv-00213-P (N.D. Tex.).

The Office of Foreign Assets Control. The Office of
Foreign Assets Control (“OFAC”), which is a division of the U.S. Treasury, is responsible for helping to ensure that U.S.
entities do not engage in transactions with “enemies” of the U.S., as defined by various Executive Orders and Acts of Congress.
OFAC has sent, and will send, our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring
or engaging in terrorist acts. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must
freeze such account, file a suspicious activity report and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee
the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC areas such as new accounts,
wire transfers and customer files. The Bank performs these checks utilizing software, which is updated each

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time a modification is made
to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons.

Anti-Money Laundering and Countering the Financing of
Terrorism (AML/CFT); the USA PATRIOT Act; the Office of Foreign Assets Control. Financial institutions must maintain AML/CFT programs,
including internal policies, compliance officers, training, and independent audits, in accordance with the Bank Secrecy Act (“BSA”)
and other federal laws. They must adhere to “knowing your customer” and enhanced due diligence requirements, particularly
for high-risk customers and foreign institutions, to prevent money laundering and terrorism financing. Institutions must also report suspicious
activities to law enforcement and ensure compliance with risk-based customer due diligence procedures. The USA PATRIOT Act amended the
BSA to enhance financial transparency and information-sharing between institutions, regulators, and law enforcement. It mandates customer
identification programs, increased due diligence for non-U.S. persons, and stricter reporting of transactions over $10,000 to FinCEN.
Financial institutions must also monitor and report transactions involving individuals or entities suspected of terrorist financing. Regulators
actively enforce compliance, imposing penalties on institutions failing to meet AML/CFT obligations.

The USA PATRIOT Act amended the Bank Secrecy Act and provides,
in part, for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating
terrorism and money laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection
tools and enforcement mechanics for the U.S. government, including: (i) requiring standards for verifying customer identification at account
opening; (ii) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties
that may be involved in terrorism or money laundering; (iii) reports by nonfinancial trades and businesses filed with the U.S. Treasury
Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000; (iv) filing suspicious activities reports
if a bank believes a customer may be violating U.S. laws and regulations; and (v) requires enhanced due diligence requirements for financial
institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons. Bank regulators
routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory
review of applications.

Under the USA PATRIOT Act, the regulators can provide lists
of the names of persons suspected of involvement in terrorist activities. The Bank can be requested, to search its records for any relationships
or transactions with persons on those lists. If the Bank finds any relationships or transactions, it must file a suspicious activity report
and contact the applicable governmental authorities.

OFAC publishes lists of names of persons and organizations
with which the Bank is prohibited from engaging in business. If the Bank finds a name on any transaction, account or wire transfer that
is on an OFAC list, it must freeze such account, file a suspicious activity report, and notify the FBI. The Bank has appointed an OFAC
compliance officer to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC
areas such as new accounts, wire transfers and customer files. The Bank performs these checks utilizing software, which is updated each
time a modification is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons.

In August 2023, the FFIEC updated its BSA/AML Examination
Manual to clarify risk-based compliance expectations. The FFIEC and the FDIC emphasize oversight of third-party AML/CFT service providers,
with examination enforcement actions against institutions that fail to monitor vendors effectively.

The Anti-Money Laundering Act of 2020 led to FinCEN’s
Corporate Transparency Act (“CTA”), requiring many corporate entities to disclose beneficial ownership information. Court
rulings deeming the CTA unconstitutional, creating uncertainty regarding its future enforcement. However, on February 18, 2025, a federal
judge lifted this previous nationwide injunction that had blocked the enforcement of the CTA. Subsequently, on March 21, 2025, FinCEN
removed Beneficial Ownership reporting requirements for domestic reporting companies. FinCEN has also indicated continuing plans to assess
options for further modification when considering the public interest and the burdens imposed by regulation.

Following Russia’s invasion of Ukraine, OFAC imposed
extensive sanctions under Executive Order 14024, including restrictions on Russian financial institutions, expanded sovereign debt prohibitions,
and increased scrutiny of sanctions evasion. FinCEN issued an alert in March 2022, advising heightened vigilance. Sanctions enforcement
continued through 2023 and 2024. Globally, the Financial Action Task Force (“FATF”) updates its high-risk jurisdiction lists,
affecting due diligence requirements for international transactions. In October 2025, FATF removed Burkina Faso, Mozambique, Nigeria and
South Africa from its lists of Jurisdictions under Increased Monitoring. BSA/AML oversight by financial institutions continues to be a
significant source of enforcement activity by all prudential regulators and FinCEN and therefore requires ongoing focus by the Bank.

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Privacy, Data Security and Credit Reporting. Under
privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 (“GLBA”) and related regulations, we are limited in our
ability to disclose non-public information about consumers to nonaffiliated third parties. Financial institutions are required to disclose
their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing
nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of
transactions requested by the consumer or if the Bank is jointly sponsoring a product or service with a nonaffiliated third party. Additionally,
financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing,
direct mail marketing or other marketing to consumers. It is the Bank’s policy not to disclose any personal information unless required
by law.

Consumers must be notified in the event of a data breach under
applicable state laws. Multiple states and Congress are considering laws or regulations which could create new individual privacy rights
and impose increased obligations on companies handling personal data. For example, on November 18, 2021, the federal financial regulatory
agencies published a final rule that required banking organizations and their service providers to implement new notification requirements
for significant cybersecurity incidents. Specifically, the final rule requires banking organizations to notify their primary federal regulator
as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level
of a “notification incident” within the meaning attributed to those terms by the final rule. Banks’ service providers
are required under the final rule to notify any affected bank to or on behalf of which the service provider provides services “as
soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely
to materially disrupt or degrade, covered services provided to such bank for as much as four hours. The final rule took effect on April
1, 2022 and banks and their service providers must have complied with the requirements of the rule by May 1, 2022. Effective December
9, 2022, the Federal Trade Commission’s amendments to GLBA’s Safeguards Rule became effective for institutions subject to
the FTC’s jurisdiction; banking organizations subject to federal banking agency oversight are subject to substantially similar information
security requirements enforced by their prudential regulators. In 2024 and 2025, federal banking agencies issued guidance emphasizing
ransomware preparedness and third-party risk management. Banks are expected to maintain robust incident response plans, conduct resilience
exercises, and strengthen cybersecurity controls. Additionally, regulators reinforced that institutions remain fully accountable for risks
posed by third-party service providers, requiring comprehensive due diligence, ongoing monitoring and governance oversight.

States continue to take the lead in passing privacy focused
legislation. A majority of states have now enacted some form of consumer privacy protection laws, many of which include exemptions or
partial exemptions for entities regulated under GLBA. Congress has proposed significant privacy focused legislation largely targeting
technology companies, however, to date, none of these laws have been enacted.

The CFPB also took additional action related to consumer privacy.
In October 2024, the CFPB issued a final rule implementing Section 1033 of the Consumer Financial Protection Act, requiring banks to provide
consumers with access to their financial transaction data upon request. In early 2025, a federal district court enjoined enforcement of
the rule nationwide. In July 2025, the CFPB announced its intent to initiate a new rulemaking process to reconsider the final rule. The
issues the CFPB has indicated it intends to focus on include: (a) the proper understanding of who can serve as a “representative”
making a request on behalf of the consumer; (b) the appropriate approach to the assessment of fees to defray the costs incurred by a “covered
person” in responding to a customer-driven request; (c) data security risks and cost-benefit considerations associated with Section
1033 compliance; and (d) data privacy risks associated with Section 1033 compliance. Comments on the CFPB’s proposed approach were
requested by October 21, 2025.

In addition, pursuant to the Fair and Accurate Credit Transactions
Act of 2003 (the “FACT Act”) and the implementing regulations of the federal banking agencies and Federal Trade Commission,
the Bank is required to have in place an “identity theft red flags” program to detect, prevent and mitigate identity theft.
The Bank has implemented an identity theft red flags program designed to meet the requirements of the FACT Act and the joint final rules.
Additionally, the FACT Act amends the Fair Credit Reporting Act to generally prohibit a person from using information received from an
affiliate to make a solicitation for marketing purposes to a consumer, unless the consumer is given notice and a reasonable opportunity
and a reasonable and simple method to opt out of the making of such solicitations.

Federal Home Loan Bank System. The
Bank is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, which is one of 12 regional FHLBs that administer home financing
credit for depository institutions. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans or advances to members in
accordance with policies and procedures established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal
Housing Financing Board. All advances from the FHLB, which are subject to the oversight of the Federal Housing Finance

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Board. All advances
from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. On September 30, 2024, the Federal
Housing Finance Agency issued a notice of proposed rulemaking on that would improve FHLBs ability to provide liquidity to members by aligning
the treatment of interest-bearing deposit accounts and other authorized overnight investments with the treatment of Federal Funds sales.
On January 14, 2025, the Federal Housing Finance Agency finalized the rule originally proposed in September 2024. These changes became
effective in April 2025.

Effect of Governmental Monetary Policies.
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the U.S. government and its
agencies. The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating
results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or
combat a recession. The monetary policies of the Federal Reserve have major effects upon the levels of bank loans, investments and deposits
through its open market operations in U.S. government securities and through its regulation of the discount rate on borrowings of member
banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes
in monetary and fiscal policies. In response to the COVID-19 pandemic, in 2020, the Federal Open Market Committee (“FOMC”)
reduced the targeted federal funds interest rate range to 0.0% to 0.25%; however, due in part to rising inflation, throughout 2022 the
target federal funds rate increased to a maximum of between 4.25% and 4.50%. Throughout 2023, the target federal funds rate increased
as far as 5.50%. In early 2024, with signs of moderating inflation and a slowing growth outlook, the FOMC initiated a gradual easing of
monetary policy, reducing the target range to approximately 4.25% to 4.50% by the end of 2024. In January 2025, amid mixed economic signals,
the FOMC maintained this target range while emphasizing its readiness to adjust policy further as economic conditions evolve. By the end
of 2025, the rate had dropped to between 3.50% and 3.75%.

Incentive Compensation. In
addition to the potential restrictions on discretionary bonus compensation under the Basel III rules, the federal bank regulatory agencies
have issued guidance on incentive compensation policies (the “Incentive Compensation Guidance”) intended to ensure that the
incentive compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging
excessive risk-taking. The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the
risk profile of an institution, either individually or as part of a group, is based upon the key principles that a financial institution’s
incentive compensation arrangements should comply with the following principles: (i) provide employees incentives that appropriately balance
risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance,
including active and effective oversight by the organization’s board of directors.

The scope and content of federal bank regulatory agencies’
policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. In 2016, federal
agencies proposed regulations which could significantly change the regulation of incentive compensation programs at financial institutions.
The proposal would create four tiers of institutions based on asset size. Institutions in the top two tiers would be subject to rules
much more detailed and proscriptive than are currently in effect. If interpreted aggressively by the regulators, the proposed rules could
be used to prevent, as a practical matter, larger institutions from engaging in certain lines of business where substantial commission
and bonus pool arrangements are the norm. In the 2016 proposal, the top two tiers included institutions with more than $50 billion of
assets, which would not currently apply to us. In May 2024, the federal banking agencies reissued a Notice of Proposed Rulemaking under
Section 956 of the Dodd-Frank Act to strengthen oversight of incentive compensation arrangements. The proposal would apply to institutions
with $1 billion or more in total consolidated assets and includes requirements for risk-adjusted awards, mandatory deferrals, forfeiture
and clawback provisions, and enhanced governance standards. As of the date of this filing, these proposed rules have not been finalized.
This marks the latest effort to finalize rules originally proposed in 2011 and 2016, signaling continued regulatory focus on aligning
compensation practices with safety and soundness objectives. We cannot predict what final rules may be adopted, nor how they may be implemented
and, therefore, it cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire,
retain and motivate our key employees.

Corporate Governance. The
Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly
traded companies. The Dodd-Frank Act (i) grants stockholders of U.S. publicly traded companies an advisory vote on executive compensation
and so-called “golden parachute” payments, (ii) enhances independence requirements for compensation committee members, (iii)
requires the SEC to adopt rules directing national securities exchanges to establish listing standards requiring all listed companies
to adopt incentive-based compensation clawback policies for executive officers, and (iv) provides the SEC with authority to adopt proxy
access rules that would allow stockholders of publicly traded companies to nominate candidates for election as a director and have those
nominees included in a company’s proxy materials. The SEC has completed the bulk (although not all) of the rulemaking necessary
to implement these provisions. However, on October 14, 2021, the SEC signaled a renewed

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interest in this rulemaking initiative by re-opening
the comment period on a proposed rule issued originally in 2015 regarding clawbacks of incentive-based executive compensation. On October
26, 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (clawback) provisions of the Dodd-Frank Act.
The final rules directed the stock exchanges to establish listing standards requiring listed companies to develop and implement a policy
providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers and to
satisfy related disclosure obligations. As of December 1, 2023, the final clawback rules from The NASDAQ Stock Market were effective.
The Company’s updated clawback policies were effective November 21, 2023.

Concentrations in Commercial Real Estate. Concentration
risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate
is one example of regulatory concern. The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices
guidance (“CRE Guidance”) provides supervisory criteria, including the following numerical indicators, to assist bank examiners
in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny:
(i) commercial real estate loans exceeding 300% of capital and increasing 50% or more in the preceding three years or (ii) construction
and land development loans exceeding 100% of capital. The CRE Guidance does not limit banks’ levels of commercial real estate lending
activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the
level and nature of their commercial real estate concentrations. On December 18, 2015, the federal banking agencies issued a statement
to reinforce prudent risk-management practices related to commercial real estate lending, having observed substantial growth in many commercial
real estate asset and lending markets, increased competitive pressures, rising commercial real estate concentrations in banks, and an
easing of commercial real estate underwriting standards. The federal bank agencies reminded FDIC-insured institutions to maintain underwriting
discipline and exercise prudent risk-management practices to identify, measure, monitor and manage the risks arising from commercial real
estate lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their commercial
real estate concentration risk. Since 2023, the OCC, FDIC, and Federal Reserve have issued multiple reminders and risk bulletins emphasizing
prudent CRE risk management due to rising interest rates, declining office valuations, and stress in certain property sectors.

Based on the Bank’s loan portfolio
as of December 31, 2025, it did not exceed the 300% and 100% guidelines for commercial real estate loans or construction and land development
loans. The Bank will continue to monitor its portfolio to manage this increased risk.

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