CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





This Quarterly Report on Form 10-Q, including information included or
incorporated by reference in this document, contains statements which constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933. We desire to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1996 and are including this
statement for the express purpose of availing the Company of protections of such
safe harbor with respect to all "forward-looking statements" contained in this
Form 10-Q. Forward-looking statements may relate to, among other matters, the
financial condition, results of operations, plans, objectives, future
performance, and business of our Company. Forward-looking statements are based
on many assumptions and estimates and are not guarantees of future performance.
Our actual results may differ materially from those anticipated in any
forward-looking statements, as they will depend on many factors about which we
are unsure, including many factors that are beyond our control. The words "may,"
"would," "could," "should," "will," "expect," "anticipate," "predict,"
"project," "potential," "continue," "assume," "believe," "intend," "plan,"
"forecast," "goal," and "estimate," as well as similar expressions, are meant to
identify such forward-looking statements. Potential risks and uncertainties that
could cause our actual results to differ materially from those anticipated in
our forward-looking statements include, without limitations, those described
under the "Cautionary Statement Regarding Forward-Looking Statements" section of
Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2021 as
filed with the SEC and the following:



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



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

? Market risk (including net income at risk analysis and economic value of


        equity risk analysis) and inflation



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

? Loan growth, the adequacy of the allowance for loan losses, provisions for


        loan losses, and the assessment of problem loans

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


        portfolio

? Deposit growth, change in the mix or type of deposit products and services





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



  ? Technological changes



  ? Ability to control expense



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



  ? Changes in compensation



    ?   Risks associated with income taxes including potential for adverse
        adjustments



  ? Changes in accounting policies and practices



    ?   Changes in regulatory actions, including the potential for adverse
        adjustments



    ?   Recently enacted or proposed legislation and changes in political
        conditions

    ?   Reputational risk

    ?   Pandemic risk

    ?   Impact of COVID-19 on the collectability of loans

    ?   Changes in legislation as related to PPP loans

? Credit risks, determination of deficiency, or complete loss if SBA denies


        PPP loans




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



Overview

Bank of South Carolina Corporation (the "Company") is a bank holding company
headquartered in Charleston, South Carolina, with $655.5 million in assets as of
June 30, 2022. The Company offers a broad range of financial services through
its wholly-owned subsidiary, The Bank of South Carolina (the "Bank"). The Bank
is a state-chartered commercial bank which operates primarily in the Charleston,
Dorchester and Berkeley counties of South Carolina. The Bank's original and
current concept is to be a full-service financial institution specializing in
personal service, responsiveness, and attention to detail to foster long
standing relationships.



We derive most of our income from interest on loans and investments
(interest-earning assets). The primary source of funding for making these loans
and investments is our interest and non-interest-bearing deposits. Consequently,
one of the key measures of our success is the amount of net interest income, or
the difference between the income on our interest-earning assets and the expense
on our interest-bearing liabilities, such as deposits. Another key measure is
the spread between the yield we earn on these interest-earning assets and the
rate we pay on our interest-bearing liabilities.



A consequence of lending activities is that we may incur credit losses. The
amount of such losses will vary depending upon the risk characteristics of the
loan and lease portfolio as affected by economic conditions such as rising
interest rates and the financial performance of borrowers. The reserve for
credit losses consists of the allowance for loan losses (the "allowance") and a
reserve for unfunded commitments (the "unfunded reserve"). The allowance
provides for probable and estimable losses inherent in our loan portfolio while
the unfunded reserve provides for potential losses related to unfunded lending
commitments.



In addition to earning interest on loans and investments, we earn income through
fees and other expenses we charge to the customer. The various components of
non-interest income as well as non-interest expense are described in the
following discussion. The discussion and analysis also identify significant
factors that have affected our financial position and operating results as of
and for the periods ending June 30, 2022 and December 31, 2021, and should be
read in conjunction with the financial statements and the related notes included
in this report. In addition, a number of tables have been included to assist in
the discussion.



COVID-19



Effects of COVID-19 may negatively impact management assumptions and estimates,
such as the allowance for loan losses. However, it is difficult to assess or
predict how, and to what extent, COVID-19 will affect the Bank in the future.
Refer to Note 3: Loans and Allowance for Loan Losses for additional information
about COVID-19 and programs that were established to assist borrowers.

Critical Accounting Policies



Our critical accounting policies, which involve significant judgments and
assumptions that have a material impact on the carrying value of certain assets
and liabilities, and used in the preparation of the Consolidated Financial
Statements as of June 30, 2022, have remained unchanged from the disclosures
presented in our Annual Report on Form 10-K for the year ended December 31,

2021.



Balance Sheet



Cash and Cash Equivalents

Total cash and cash equivalents decreased 69.6% or $97.5 million to $42.6
million as of June 30, 2022, from $140.1 million as of December 31, 2021. The
decrease in total cash and cash equivalents is primarily due to purchases of
investment securities available for sale, net of proceeds from sales, calls and
maturities, and to a lesser extent, a net increase in loans and a net decrease
in deposit accounts.

Investment Securities Available for Sale


Our primary objective in managing the investment portfolio is to maintain a
portfolio of high quality, highly liquid investments yielding competitive
returns. We are required under federal regulations to maintain adequate
liquidity to ensure safe and sound operations. We maintain investment balances
based on continuing assessment of cash flows, the level of current and expected
loan production, current interest rate risk strategies and the assessment of
potential future direction of market interest rate changes. Investment
securities differ in terms of default, interest rate, liquidity and expected
rate of return risk.




We use the investment securities portfolio to serve as a vehicle to manage
interest rate and prepayment risk, to generate interest and dividend income from
investment of funds, to provide liquidity to meet funding requirements, and to
provide collateral for pledging of public funds.



                                       25





As of June 30, 2022, our available for sale investment portfolio included U.S.
Treasury Notes, Government-Sponsored Enterprises and Municipal Securities with a
fair market value of $270.7 million and an amortized cost of $290.7 million for
a net unrealized loss of approximately $20.0 million. As of June 30, 2022 and
December 31, 2021, our investment securities portfolio represented approximately
41.30% and 31.26% of our total assets, respectively. The average yield on our
investment securities was 1.11% and 1.02% at June 30, 2022 and December 31,

2021, respectively.



Loans

We focus our lending activities on small and middle market businesses,
professionals and individuals in our geographic markets. Substantially all of
our loans are to borrowers located in our market area of Charleston, Dorchester
and Berkeley counties of South Carolina.



Net loans increased $9.9 million, or 3.3%, to $312.2 million as of June 30, 2022
from $302.3 million as of December 31, 2021. The increase is primarily related
to growth in Consumer and Commercial Real Estate loans offset by a decrease

in
PPP loans.



In January 2020, the Bank began originating 30-year, fixed rate consumer
mortgage loans in excess of the conforming loan amount which are held for
investment rather than for sale in the secondary market. Prior to January 2020,
all consumer mortgage loans made by the Bank were originated for the purpose of
sale and reflected on the consolidated balance sheet as mortgage loans held for
sale. This mortgage product continues to be well-received by the Bank's
customers, and the associated volume of originations has continued to contribute
to the increase in Consumer Real Estate lending.



The following table is a summary of our loan portfolio composition (net of
deferred fees and costs of $257,281 and $488,481 at June 30, 2022 and December
31, 2021, respectively) and the corresponding percentage of total loans as

of
the dates indicated.



                                                June 30, 2022                  December 31, 2021
                                            Amount          Percent          Amount          Percent
Commercial                              $  50,891,563          16.08 %   $  45,804,434          14.94 %

Commercial Real Estate Construction        17,169,667           5.42 %     

12,054,095           3.93 %
Commercial Real Estate Other              166,328,808          52.55 %     165,719,078          54.04 %
Consumer Real Estate                       77,626,604          24.52 %      71,307,488          23.26 %
Consumer Other                              3,630,394           1.15 %       3,768,531           1.23 %
Payroll Protection Program                    888,712           0.28 %       7,978,603           2.60 %
Total loans                               316,535,748         100.00 %     306,632,229         100.00 %
Allowance for loan losses                  (4,306,865 )                     (4,376,987 )
Total loans, net                        $ 312,228,883                    $ 302,255,242




The decrease in the deferred fees is primarily associated with the recognition
of the processing fees the Bank received from the SBA for the PPP loans. The
fees are deferred and amortized over the life of the loans in accordance with
ASC 310-20.



Nonperforming Assets

Nonperforming Assets include real estate acquired through foreclosure or deed
taken in lieu of foreclosure and loans on nonaccrual status. Generally, a loan
is placed on nonaccrual status when it becomes 90 days past due as to principal
or interest, or when we believe, after considering economic and business
conditions and collection efforts, that the borrower's financial condition is
such that collection of the contractual principal or interest on the loan is
doubtful. A payment of interest on a loan that is classified as nonaccrual is
recognized as a reduction in principal when received. As of June 30, 2022, there
were no loans 90 days past due still accruing interest.

The following table is a summary of our Nonperforming Assets:





                                June 30, 2022      December 31, 2021
Commercial                     $       68,104     $         178,975
Commercial Real Estate Other          616,858               625,953
Consumer Real Estate                       -                     -
Consumer Other                          8,351                 9,686
Total nonaccruing loans               693,313               814,614
Total nonperforming assets     $      693,313     $         814,614




                                       26





Allowance for Loan Losses


The allowance for loan losses was $4.3 million as of June 30, 2022 and $4.4
million as of December 31, 2021, or 1.36% and 1.47%, respectively, of
outstanding loans, net of PPP loans. Because PPP loans are 100% guaranteed by
the SBA and did not undergo the Bank's typical underwriting process, they are
not graded and do not have an associated reserve. At June 30, 2022 and December
31, 2021, the allowance for loan losses represented 621.2% and 537.31%,
respectively, of the total amount of nonperforming loans. Based on the level of
coverage on nonperforming loans and analysis of our loan portfolio, we believe
the allowance for loan losses at June 30, 2022 is adequate.



At June 30, 2022, impaired loans totaled $2.9 million, of which $0.3 million of
these loans had a reserve of approximately $0.3 million allocated in the
allowance for loan losses. Comparatively, impaired loans totaled $3.4 million as
of December 31, 2021, and $0.4 million of these loans had a reserve of
approximately $0.2 million allocated in the allowance for loan losses.



During the three months ended June 30, 2022, we recorded no charge-offs and
$2,363 of recoveries on loans previously charged-off.  During the six months
ended June 30, 2022, we recorded $2,045 in charge-offs and $6,923 of recoveries
on loans previously charged-off, for net recoveries of $4,878.

Deposits



Deposits remain our primary source of funding for loans and investments. Average
interest-bearing deposits provided funding for 54.97% of average earning assets
for the six months ended June 30, 2022, and 56.77% for the six months ended June
30, 2021. The Company encounters strong competition from other financial
institutions as well as consumer and commercial finance companies, insurance
companies and brokerage firms located in the primary service area of the Bank.
However, the percentage of funding provided by deposits has remained stable.



The breakdown of total deposits by type and the respective percentage of total
deposits are as follows:



                                         June 30, 2022                December 31, 2021
                                      Amount         Percent         Amount         Percent
Deposits
Non-interest bearing demand       $ 241,473,757        40.40 %   $ 255,783,644        41.98 %
Interest bearing demand             169,106,826        28.29 %     165,335,038        27.14 %
Money market accounts               102,506,579        17.15 %      98,113,942        16.11 %
Time deposits $250,000 and over       5,150,841         0.82 %       7,417,864         1.22 %
Other time deposits                  12,861,837         2.19 %      13,870,356         2.28 %
Other savings deposits               66,690,321        11.15 %      68,670,732        11.27 %
Total deposits                    $ 597,790,161       100.00 %   $ 609,191,576       100.00 %




Deposits decreased 1.87% or $11.4 million from December 31, 2021 to June 30,
2022 primarily due to a decrease in the balances of a related group of demand
deposit accounts. The higher balance in 2021 for these demand deposit accounts
was temporary in nature.

At June 30, 2022 and December 31, 2021, deposits with an aggregate deficit balance of $9,917 and $28,549, respectively, were re-classified as other loans.

Comparison of Three Months Ended June 30, 2022 to Three Months Ended June 30, 2021



Net income decreased $0.1 million or 7.53% to $1.5 million, or basic and diluted
earnings per share of $0.28 and $0.27, respectively, for the three months ended
June 30, 2022, from $1.7 million, or basic and diluted earnings per share of
$0.30 and $0.29, respectively, for the three months ended June 30, 2021. Our
annualized returns on average assets and average equity for the three months
ended June 30, 2022 were 0.93% and 11.24%, respectively, compared with 1.17% and
12.34%, respectively, for the three months ended June 30, 2021.

Net Interest Income



Net interest income is affected by the size and mix of our balance sheet
components as well as the spread between interest earned on assets and interest
paid on liabilities. Net interest margin is a measure of the difference between
interest income on earning assets and interest paid on interest bearing
liabilities relative to the amount of interest-bearing assets. Net interest
income increased $0.2 million or 5.18% to $4.5 million for the three months
ended June 30, 2022 from $4.3 million for the three months ended June 30, 2021.
Average loans decreased $12.7 million or 3.8% to $320.1 million for the three
months ended June 30, 2022, compared to $332.8 million for the three months
ended June 30, 2021. The yield on average loans (including fees) was 5.07% and
5.23% for the three months ended June 30, 2022 and June 30, 2021, respectively.
Interest income on loans decreased $0.1 million for the three months ended June
30, 2022 to $3.7 million from $3.8 million for the three months ended June

30,
2021.



The average balance of interest bearing deposits at the Federal Reserve
decreased $7.2 million or 11.91% to $53.7 million for the three months ended
June 30, 2022 with a yield of 0.73% as compared to $60.9 million for the three
months ended June 30, 2021, with a yield of 0.10%.



                                       27





Provision for Loan Losses


We have established an allowance for loan losses through a charge (credit) to
the provision for loan losses on our consolidated statements of income. We
review our loan portfolio periodically to evaluate our outstanding loans and to
measure both the performance of the portfolio and the adequacy of our allowance
for loan losses. We did not recognize a provision during the three months ended
June 30, 2022 and 2021. For additional information about the changes in the
allowance and an allocation of the allowance by class, refer to Note 3. Loans
and Allowance for Loan Losses.

Non-Interest Income


Other income decreased $0.3 million or 37.3% to $0.6 million for the three
months ended June 30, 2022, from $0.9 million for the three months ended June
30, 2021. This decrease was primarily due to a $0.4 million decrease in mortgage
banking income.



Non-Interest Expense

Non-interest expense increased $0.1 million or 1.75% to $3.1 million for the
three months ended June 30, 2022, from $3.0 million for the three months ended
June 30, 2021. For the three months ended June 30, 2022, we experienced marginal
increases in professional fees and other operating expenses.

Income Tax Expense



Income tax expense was $0.5 million for the three months ended June 30, 2022 as
compared to $0.5 million during the same period in 2021. Our effective tax rate
was 22.88% and 23.59% for the three months ended June 30, 2022 and 2021,
respectively.

Comparison of Six Months Ended June 30, 2022 to Six Months Ended June 30, 2021



Net income decreased $0.5 million or 13.56% to $3.0 million, or basic and
diluted earnings per share of $0.54 and $0.53 for the six months ended June 30,
2022, respectively, from $3.5 million, or basic and diluted earnings per share
of $0.63 and $0.61, respectively, for the six months ended June 30, 2021. Our
annualized returns on average assets and average equity for the six months ended
June 30, 2022 were 0.91% and 12.68%, respectively, compared with 1.27% and
12.80%, respectively, for the six months ended June 30, 2021.

Net Interest Income



Net interest income is affected by the size and mix of our balance sheet
components as well as the spread between interest earned on assets and interest
paid on liabilities. Net interest margin is a measure of the difference between
interest income on earning assets and interest paid on interest bearing
liabilities relative to the amount of interest-bearing assets. Net interest
income decreased $0.1 million or 1.62% to $8.8 million for the six months ended
June 30, 2022 from $8.9 million for the six months ended June 30, 2021. Average
loans decreased $16.5 million or 4.98% to $315.3 million for the six months
ended June 30, 2022, compared to $331.8 million for the six months ended June
30, 2021. The yield on average loans (including fees) was 5.03% and 5.36% for
the six months ended June 30, 2022 and 2021, respectively. Interest income on
loans decreased $0.6 million for the six months ended June 30, 2022 to $7.3
million from $7.9 million for the six months ended June 30, 2021.



The average balance of interest bearing deposits at the Federal Reserve
increased $8.0 million or 14.73% to $62.2 million for the six months ended June
30, 2022, with a yield of 0.43% as compared to $54.2 million for the six months
ended June 30, 2021, with a yield of 0.10%.



                                       28




Provision for Loan Losses

We have established an allowance for loan losses through a charge (credit) to
the provision for loan losses on our consolidated statements of income. We
review our loan portfolio periodically to evaluate our outstanding loans and to
measure both the performance of the portfolio and the adequacy of our allowance
for loan losses. For the six months ended June 30, 2022, we recorded a $75,000
reduction to the allowance for loan losses. We did not recognize a provision
during the six months ended June 30, 2021. The net decrease in the provision for
loan losses was based on our analysis of the adequacy of the allowance for loan
losses. For additional information about the changes in the allowance and an
allocation of the allowance by class, refer to Note 3. Loans and Allowance for
Loan Losses.

Non-Interest Income
Other income decreased $0.7 million or 34.9% to $1.2 million for the six months
ended June 30, 2022, from $1.9 million for the six months ended June 30, 2021.
This decrease was primarily due to a $0.8 million decrease in mortgage banking
income, partially offset by $0.1 million of gain on sales of investment
securities. The Bank sold $39.2 million of mortgage loans held for sale during
the six months ended June 30, 2022 as compared with $102.2 million during the
six months ended June 30, 2021.

Non-Interest Expense
Non-interest expense was $6.1 and $6.0 million for the six months ended June 30,
2022 and 2021, respectively. For the six months ended June 30, 2022, marginal
increases in professional fees, salaries and employee benefits, including
temporary discretionary wage increases for non-executive staff to help offset
inflation, and net occupancy expense were offset by decreases in data processing
fees.

Income Tax Expense
Income tax expense was $0.9 million for the six months ended June 30, 2022 as
compared to $1.1 million during the same period in 2021. Our effective tax rate
was 23.13% and 23.71% for the six months ended June 30, 2022 and 2021,
respectively.

Off-Balance Sheet Arrangements
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained if deemed
necessary by the Company upon extension of credit is based on our credit
evaluation of the borrower. Collateral held varies but may include accounts
receivable, negotiable instruments, inventory, property, plant and equipment,
and real estate. Commitments to extend credit, including unused lines of credit,
amounted to $137.9 million and $117.5 million at June 30, 2022 and December 31,
2021, respectively.

Standby letters of credit represent our obligation to a third-party contingent
upon the failure of our customer to perform under the terms of an underlying
contract with the third party or obligates us to guarantee or stand as surety
for the benefit of the third party. The underlying contract may entail either
financial or nonfinancial obligations and may involve such things as the
shipment of goods, performance of a contract, or repayment of an obligation.
Under the terms of a standby letter, generally drafts will be drawn only when
the underlying event fails to occur as intended. We can seek recovery of the
amounts paid from the borrower. The majority of these standby letters of credit
are unsecured.

Commitments under standby letters of credit are usually for one year or less.
The maximum potential amount of undiscounted future payments related to standby
letters of credit at June 30, 2022 and December 31, 2021 was $2.5 million and
$0.6 million, respectively.

We originate certain fixed rate residential loans and commit these loans for
sale. The commitments to originate fixed rate residential loans and the sales
commitments are freestanding derivative instruments. We had forward sales
commitments on mortgage loans held for sale totaling $4.1 million and $2.8
million at June 30, 2022 and December 31, 2021, respectively. The fair value of
these commitments was not significant at June 30, 2022 or December 31, 2021. We
had no embedded derivative instruments requiring separate accounting treatment.

Once we sell certain fixed rate residential loans, the loans are no longer
reportable on our balance sheet. With most of these sales, we have an obligation
to repurchase the loan in the event of a default of principal or interest on the
loan. This recourse period ranges from three to nine months. Misrepresentation
or fraud carries unlimited time for recourse. The unpaid principal balance of
loans sold with recourse was $21.9 million at June 30, 2022. There were two
loans repurchased during the six months ended June 30, 2022 and no loans
repurchased during the six months ended June 30,2021.

Liquidity


Historically, we have maintained our liquidity at levels believed to be adequate
to meet requirements of normal operations, potential deposit outflows and strong
loan demand and still allow for optimal investment of funds and return on
assets.

We manage our assets and liabilities to ensure there is sufficient liquidity to
enable management to fund deposit withdrawals, loan demand, capital
expenditures, reserve requirements, operating expenses, dividends and to manage
daily operations on an ongoing basis. Funds are primarily provided by the Bank
through customer deposits, principal and interest payments on loans, mortgage
loan sales, the sale or maturity of securities, temporary investments and
earnings.


                                       29




Proper liquidity management is crucial to ensure that we are able to take
advantage of new business opportunities as well as meet the credit needs of our
existing customers. Investment securities are an important tool in our liquidity
management. Our primary liquid assets are cash and due from banks, investment
securities available for sale, interest-bearing deposits at the Federal Reserve,
and mortgage loans held for sale. Our primary liquid assets accounted for 48.43%
and 52.30% of total assets at June 30, 2022 and December 31, 2021, respectively.
Securities classified as available for sale, which are not pledged, may be sold
in response to changes in interest rates and liquidity needs. All of the
investment securities presently owned are classified as available for sale. Net
cash provided by operations and deposits from customers have been the primary
sources of liquidity. At June 30, 2022, we had unused short-term lines of credit
totaling approximately $41.0 million (which can be withdrawn at the lender's
option). Additional sources of funds available to us for liquidity include
borrowing on a short-term basis from the Federal Reserve System, increasing
deposits by raising interest rates paid and sale of mortgage loans held for
sale. We established a Borrower-In-Custody arrangement with the Federal Reserve.
This arrangement permits us to retain possession of assets pledged as collateral
to secure advances from the Federal Reserve Discount Window. At June 30, 2022,
we could borrow up to $68.1 million. There have been no borrowings under this
arrangement.

Our core deposits consist of non-interest-bearing accounts, NOW accounts, money
market accounts, time deposits and savings accounts. We closely monitor our
level of certificates of deposit greater than $250,000 and other large deposits.
We maintain a Contingency Funding Plan ("CFP') that identifies liquidity needs
and weighs alternate courses of action designed to address these needs in
emergency situations. We perform a quarterly cash flow analysis and stress test
the CFP to evaluate the expected funding needs and funding capacity during a
liquidity stress event. We believe our liquidity sources are adequate to meet
our operating needs and do not know of any trends, events or uncertainties that
may result in a significant adverse effect on our liquidity position. At June
30, 2022 and December 31, 2021, our liquidity ratio was 50.84% and 56.43%,
respectively.

Capital Resources
Our capital needs have been met to date through the $10.6 million in capital
raised in our initial offering, the retention of earnings less dividends paid
and the exercise of stock options to purchase stock. Total shareholders' equity
as of June 30, 2022 was $41.6 million. The rate of asset growth since our
inception has not negatively impacted this capital base.

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

The Bank adopted the community bank leverage ratio ("CBLR") framework, a
simplified measure of capital adequacy for qualifying community banking
organizations, as of March 31, 2020 and upon adoption is no longer subject to
other capital and leverage requirements. To be considered well capitalized, the
required CBLR was 8.5% for the year ended December 31, 2021 and will be 9.0%
thereafter. Additionally, the qualifying community banking institution must be a
non-advanced approaches FDIC supervised institution. If an electing bank later
does not meet any of the eligibility criteria, it would have a two-quarter
"grace" period to return to CBLR compliance or revert to the generally
applicable rule. If an electing bank's leverage ratio falls below 9.0%, the bank
would be deemed well capitalized during the grace period as long as the bank's
leverage ratio remains above 8.0%. If an electing bank's leverage ratio falls to
8.0% or less, it would be required to revert immediately to the generally
applicable rule. As of December 31, 2021, the Bank's CBLR of 8.66% was above the
required CBLR of 8.5% to be categorized as "well capitalized." As of June 30,
2022, the Bank's CBLR was 8.48%, which was above the required 8.0% during the
two-quarter grace period.

Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a material effect on the financial statements.

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