UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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| |  | 

FORM
10-K/A

Amendment
No. 1

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|(Mark One) |                                                                                               
|---------- | ----------------------------------------------------------------------------------------------
|x          | ANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      
|           | For the fiscal
    year ended December 31, 2016                                               
|          
|OR        
|          
|o          | TRANSITIONAL
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|           | For the transition
    period from ________ to ________                                       
|           |                                                                                               

Commission
File Number 0-26995



| |  | 
| |  | 

HCSB
FINANCIAL CORPORATION

(Exact
name of registrant as specified in its charter)



|                                                                       |                                              | 
|---------------------------------------------------------------------- | -------------------------------------------- | 
|South
    Carolina                                                     | 57-1079444                                  
|(State
    or other jurisdiction of incorporation
    or organization) | (I.R.S.
    Employer Identification
    No.)
|                                                                       |                                             
|3640
    Ralph Ellis Boulevard                                         | 29569                                       
|Loris,
    South Carolina                                              | (Zip
    Code)                              
|(Address
    of principal executive offices)                           |                                             
|                                                                       |                                              | 

Registrant’s
telephone number, including area code: (843) 756-6333



| |  | 
| |  | 

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

|Title
    of each class |  | Name
    of each exchange on which registered
|----------------------- |  | ---------------------------------------------
|Not applicable          |  | Not Applicable                               
|                        |  |                                              

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

Voting Common
Stock, $.01 par value per share

Non-Voting
Common Stock, $.01 par value per share(Title of Class)

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes
o No

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

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

|Large accelerated filer o                                             | Accelerated filer o        
|--------------------------------------------------------------------- | ---------------------------
|Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x
|                                                                      | Emerging growth company o  
|                                                                      |                            

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

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

The
estimated aggregate market value of the voting common stock held by non-affiliates (shareholders holding less than 5% of an outstanding
class of stock, excluding directors and executive officers) of the Company on June 30, 2016 was $37,247,710. See Part II, Item
5 of this Form 10-K for information on the market for the Company’s common stock.



|Common stock outstanding on February 24, 2017:     |                               
|-------------------------------------------------- | ------------------------------
|Voting Common Stock, par value $0.01 per share     | 405,232,383 shares outstanding
|Non-Voting Common Stock, par value $0.01 per share | 90,531,557 shares outstanding 





DOCUMENTS
INCORPORATED BY REFERENCE



None.







EXPLANATORY
NOTE

HCSB
Financial Corporation, Inc. filed its Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”) with the
Securities and Exchange Commission (the “Commission”) on March 3, 2017. Pursuant to General Instruction G(3) to Form
10-K, the Company incorporated by reference the information required by Part III of Form 10-K from our definitive proxy statement
for the 2017 Annual Meeting of Shareholders (the “2017 Proxy Statement”) that we expected to file with the Commission
no later than 120 days after the end of the fiscal year covered by the 2016 Form 10-K. Because the definitive 2017 Proxy Statement
will not be filed with the Commission before such date, the Company is filing this Amendment No. 1 to the 2016 Form 10-K (this
“Form 10-K/A”) to provide the additional information required by Part III of Form 10-K. This Form 10-K/A does not
change the previously reported financial statements or any of the other disclosures contained in Part I, Part II or Part IV, other
than to update information provided in the Exhibit List under Item 15(a)(3) of the 2016 Form 10-K. Some of the information provided
in Form 10-K/A may be superseded by the information provided in the definitive 2017 Proxy Statement to be filed with the Commission.
References to “HCSB,” “us,” “we,” “Company” and “our” in this report
refer to HCSB Financial Corporation together with its subsidiary, Horry County State Bank (the “Bank”).







Item
10. Directors, Executive Officers and Corporate Governance

Directors

Our
Amended and Restated Bylaws provide that, unless otherwise provided in the Company’s Articles of Incorporation, the board
of directors shall consist of not fewer than five nor more than 25 directors with the exact number to be fixed by the board of
directors. The board of directors has fixed the number of directors constituting the entire board at seven.

The
following provides information regarding each of our current directors, including their business experience for at least the past
five years, the names of other publicly-held companies where they currently serve as a director or served as a director during
the past five years, and additional information about the specific experience, qualifications, attributes, or skills that led
to the board’s conclusion that such person should serve as a director for the Company. Each of the following directors is
also a director of our Bank.

Michael
S. Addy, 65, has been President of Addy’s Harbor Dodge, Inc. and MSA, Inc. in Myrtle Beach, S.C., since 1990, and is
Managing Member of Addy’s Limited Liability Company. Mr. Addy received his B.S. degree in Business Administration from the
University of South Carolina in 1973. He is a member of the Myrtle Beach Sertoma Club. Mr. Addy has served as a director of the
Company and of the Bank since 2006. His leadership experience and business and personal ties to the Bank’s Myrtle Beach
market area enhance his ability to contribute as a director. Mr. Addy currently serves as Chairman of the board of directors of
both the Company and the Bank.

D.
Singleton Bailey, 66, has served as a director of the Company since its formation in 1999 and of the Bank since 1987. Mr.
Bailey has been the President of Loris Drug Store, Inc., located in Loris, S.C. since 1988. He received a B.A. degree in sociology
from Wofford College in 1972. Mr. Bailey now serves as the Vice Chairman and Secretary of the board of directors of the Company
and the Bank. Mr. Bailey’s business and personal experience in certain of the communities that the Bank serves provides
him with a useful appreciation of markets that we serve.

Clay
D. Brittain, III, 62, has served as a director of the Company and of the Bank since 2002. Mr. Brittain received his B.A. degree
in Economics from Wofford College in 1977 and received his Juris Doctorate from the University of South Carolina Law School in
1980. He is an attorney in the firm of Thomas & Brittain, PA in Myrtle Beach, S.C. Mr. Brittain served as a director of United
Carolina Bank of South Carolina until April 1997. Through his legal and business experience, Mr. Brittain has an extensive background
in the South Carolina real estate market, including local real estate markets that we serve. Mr. Brittain’s institutional
knowledge of the Company’s business, as well as his own business and personal experience in certain of the communities that
the Bank serves, provides him with a useful appreciation of markets that we serve. Mr. Brittain’s legal training and experience
enhance his ability to understand the Company’s regulatory framework.

Gerald
R. Francis,72, has served as a director of the Company and the Bank since July 2016. Mr. Francis brings extensive business
expertise to the Company from his 45 years of experience in community banking. Mr. Francis retired in 2010 after serving as Managing
Director of Financial Stocks, an investment advisory firm in Cincinnati, Ohio, since 2007. Prior to that, Mr. Francis had served
as the President and Chief Executive Officer of four community banks, including First National Bank & Trust in Indianapolis,
IN (2005-2007), City National Bank of West Virginia in Charleston, West Virginia (2001-2005), Peoples Bank & Trust Company
in Indianapolis, Indiana (1996-1999), and Banc One in Cincinnati, Ohio (1992-1995). He received his B.S. degree from Wright State
University in 1970 and his M.B.A. from the University of Dayton in 1978. Mr. Francis’ chief executive experience with other
community banks provide him with valuable insight in assisting the Company.



Jan
H. Hollar, 61, has served as the Chief Executive Officer of the Company and President and Chief Executive Officer the Bank
as well as a director of the Company and the Bank since April 2016.  Ms. Hollar has extensive banking expertise from close
to forty years of experience in the financial services industry, having most recently served as executive vice president and chief
financial officer of Yadkin in Statesville, North Carolina from September 2009 until July 2014.  Ms. Hollar had been hired
by Yadkin in 2009 as part of the executive management team that was brought in to address the challenges facing Yadkin as a result
of the Great Recession. In addition to her experience at Yadkin, she was the Senior Vice President and Chief Financial Officer
of Blueharbor Bank in Mooresville, North Carolina, from November 2007 until October 2008.  She has also served as the Executive
Vice President and Chief Financial Officer of the Scottish Bank, and as the Executive Vice President and Director of Finance of
First Charter Bank, both of Charlotte, North Carolina. Mrs. Hollar is a 1978 graduate of Furman University where she received
a Bachelor of Arts in Economics and Business Administration with a concentration in Accounting. She is also a North Carolina licensed
Certified Public Accountant.







James
C. Nesbitt, 68, has served as a director of the Company and the Bank since July 2016. Mr. Nesbitt brings extensive business
expertise to the Company from his 25 years of experience as an audit partner in the national accounting firm, BDO USA. He serves
on the Company’s and the Bank’s Board of Directors as the director representative for RMB under the side letter agreement
entered into between the Company and RMB dated April 11, 2016, which provides that RMB is entitled to have one representative
appointed to the Company’s Board of Directors for so long as it, together with its respective affiliates, owns, in the aggregate,
5% or more of all of the outstanding shares of common stock or 50% or more of its purchased shares. During his career, Mr. Nesbitt
has worked with financial institutions, among other industries, including by serving as lead auditor of several publicly traded
bank holding companies. In addition to his experience at BDO USA, Mr. Nesbitt has served as a director and audit committee chairman
of Revere Bank, a community bank in Laurel, Maryland since July 2014. Mr. Nesbitt holds a Bachelor of Science in Accounting from
Babson College. Mr. Nesbitt’s accounting background and experience with a similar-sized community bank provides him with
valuable insight in assisting the Company as it attempts to restore the Bank to financial health and profitability.



John
T. Pietrzak, 44,has served as a director of the Company and the Bank since May 2016. Mr. Pietrzak has served as a Managing
Principal of Castle Creek Capital, an alternative asset management firm focused on the financial services industry and specifically
on community banks, since May 2005. He serves on the Company’s and the Bank’s Board of Directors as the director representative
for Castle Creek under the side letter agreement entered into between the Company and Castle Creek dated April 11, 2016, which
provides that Castle Creek is entitled to have one representative appointed to the Company’s Board of Directors for so long
as it, together with its respective affiliates, owns, in the aggregate, 5% or more of all of the outstanding shares of common
stock or 50% or more of its purchased shares. Mr. Pietrzak has worked with a multitude of community banks similar to the Bank
and currently serves as a director of Origin Bancorp, Inc. Mr. Pietrzak is also a former board member of West Coast Bancorp and
its wholly-owned subsidiary, West Coast Bank; Square 1 Financial, its wholly-owned subsidiary Square 1 Bank; and Intermountain
Community Bancorp and its wholly-owned subsidiary, Panhandle State Bank. Mr. Pietrzak holds a Bachelor of Science in Accounting
from Indiana University and an M.B.A. from The Wharton School at the University of Pennsylvania and is a CFA charter holder.Mr. Pietrzak’s experience with similar banks provides him with valuable insight in assisting the Company with both strategic
and operational matters.



Executive
Officers



Other
than Ms. Hollar, whose information appears above in the list of directors, the following provides information regarding our executive
officers, each of whom joined the Company and/or the Bank during 2016:

J.
Ricky Patterson,59, serves as the Chief Operating Officer of the Bank. Mr. Patterson brings extensive banking expertise to
the Bank from his 36 years of experience in the financial services industry. During his career, Mr. Patterson has worked with
both national and community banks in the Carolinas, and he has extensive operational experience covering all aspects of consumer
and commercial banking, including experience with managing a troubled bank’s operations. Most notably, Mr. Patterson served
as chief banking officer of Yadkin Bank in Statesville, North Carolina from August 2011 to July 2014, when Yadkin Bank, and its
holding company, Yadkin Financial Corporation, merged with VantageSouth Bancshares, Inc. and Piedmont Community Bank Holdings,
Inc. Mr. Patterson was a part of Yadkin’s senior management team, which helped engineer a significant turn-around in Yadkin’s
operations and executed a number of key strategic measures to position the company and the bank for future growth. In addition
to his experience at Yadkin Bank, Mr. Patterson has served as South Carolina community banking director at Wachovia Bank in from
2003-2008.

W.
Jack McElveen, Jr., 54, serves as the Chief Credit Officer of the Bank. McElveen brings extensive banking expertise to the
Bank from his 30 years of experience in the financial services industry. During his career, Mr. McElveen has worked with both
national and community banks in the Carolinas, and he has extensive operational experience covering all aspects of credit and
administration services, including experience with managing a troubled bank’s loan portfolio and efficiently addressing
a concentration of nonperforming assets. Most notably, Mr. McElveen previously served as chief credit officer of the $1.1B asset
The Palmetto Bank in Greenville, South Carolina from July 2009 to August 2015, having been originally hired in 2009 as part of
the executive management team that was brought in to address the significant challenges facing The Palmetto Bank as a result of
the Great Recession. Palmetto’s credit team, led by Mr. McElveen, engineered a significant turn-around in its credit quality
and executed a number of key strategic measures to position the company and the bank for future growth. In addition to his experience
at The Palmetto Bank, Mr. McElveen has served as Director of Loan Review at Community Resource Bank in Columbia, South Carolina,
and served as the Chief Credit Officer of Carolina National Bank in Columbia, South Carolina. He is a 1985 graduate of Clemson
University with B.S. in Financial Management and is also a South Carolina licensed Certified Public Accountant.







Jennifer
W. Harris, 41, serves as Chief Financial Officer of the Bank and the Company. Ms. Harris brings extensive financial and accounting
expertise to the Company and the Bank from her 18 years of experience in the financial services industry. During her career, Ms.
Harris has worked with both national and community banks in the Carolinas, and she has experience covering all aspects of finance.
Most recently, Ms. Harris served as VP Senior Accountant – SEC Reporting of Park Sterling Bank in Charlotte, North Carolina,
from September 2014 to May 2016. Prior to that, Ms. Harris served as SEC Financial Reporting Manager of Yadkin Bank in Statesville,
North Carolina, from April 2009 to July 2014, when Yadkin Bank, and its holding company, Yadkin Financial Corporation, merged
with VantageSouth Bancshares, Inc. and Piedmont Community Bank Holdings, Inc. Ms. Harris also has held various senior accounting
roles at community banks across North Carolina. In addition to her community banking experience, Ms. Harris is a certified public
accountant and began her career at a national public accounting firm, during which time which she specialized in auditing financial
institutions.



Family
Relationships



There
are no family relationships among the members of our board of directors or our executive officers.

Audit
Committee

The
board of directors of the Company has appointed an audit committee. The audit committee has the responsibility of reviewing
the Company’s financial statements, evaluating internal accounting controls, reviewing reports of regulatory agencies
and the Bank’s internal auditor and determining that all audits and examinations required by law are performed. The
audit committee reports its findings to the board of directors. The audit committee also recommends to the board of directors
the appointment of the independent registered public accounting firm. The current members of the audit committee are Clay D.
Brittain, III, D. Singleton Bailey, Michael S. Addy and Gerald R. Francis.

None
of the current members of the audit committee qualifies as an “audit committee financial expert” as defined under
the rules of the SEC, however, we have two directors not currently serving on the audit committee that quality as financial experts.
As a relatively small public company, it is difficult to identify potential qualified candidates that are willing to serve on
our board and otherwise meet our requirements for service. At present, we do not know if or when we will appoint a board member
to the audit committee who qualifies as an audit committee financial expert.

Although
none of the members of our audit committee qualify as an audit committee financial expert, each of our audit committee members
has made valuable contributions to the Company and its shareholders as members of the audit committee. The board has determined
that each member is independent under SEC rules and fully qualified to monitor the performance of management, the public disclosures
by the Company of its financial condition and performance, our internal accounting operations, and our independent registered public accounting firm.

Code
of Ethics

We
expect all of our employees to conduct themselves honestly and ethically, particularly in handling actual and apparent conflicts
of interest and providing full, accurate, and timely disclosure to the public.

We
have adopted a Code of Business Conduct and Ethics that is specifically applicable to our senior management and financial officers,
including our principal executive officer, our principal financial officer, and our principal accounting officer and controllers.
Our Code of Business Conduct Ethics is available for review on the Bank’s website at www.hcsbaccess.com under the “Investor
Relations” tab.

Section
16(a) Beneficial Ownership Reporting Compliance

As
required by Section 16(a) of the Exchange Act, the Company’s directors, its executive officers, and certain individuals
are required to report periodically their ownership of the Company’s common stock and any changes in ownership to the SEC.
Based on review of Forms 3, 4, and 5 and any representations made to the Company, the Company believes that all such reports for
these persons were filed in a timely fashion during 2016.







Item
11. Executive Compensation.

Summary of Cash and Certain Other
Compensation



The
following table shows the compensation we paid for the years ended December 31, 2016 and 2015 to our Chief Executive Officer and
the two other most highly compensated executive officers (collectively, the “named executive officers”).



|Names and
 Principal Position                                                    |  | Year |      |  | Salary
 ($) |  |         | Stock Awards
 ($) |  |  | Option
 Awards($) (1) |  |  | Bonus
 ($) |   |  | Non-Equity Incentive Plan Compensation ($) |  |   | All OtherCompensation
 ($) (2) |  |  | Total ($) | 
|-------------------------------------------------------------------------------- |  | ---- | ---- |  | ----------- |  | ------- | ----------------- |  |  | --------------------- |  |  | ---------- | - |  | ------------------------------------------ |  | - | ------------------------------ |  |  | --------- | 
|James R. Clarkson                                                                |  |      | 2016 |  |             |  | 123,302 |                   |  |  | —                     |  |  |            | — |  |                                            |  | — |                                |  |  | —         | 
|President and Chief Executive Officer of the Company and the Bank (3)            |  |      | 2015 |  |             |  | 211,375 |                   |  |  | —                     |  |  |            | — |  |                                            |  | — |                                |  |  | —         | 
|                                                                                 |  |      |      |  |             |  |         |                   |  |  |                       |  |  |            |   |  |                                            |  |   |                                |  |  |           | 
|Jan H. Hollar                                                                    |  |      | 2016 |  |             |  | 164,063 |                   |  |  | 1,200,000             |  |  |            | — |  |                                            |  | — |                                |  |  | 45,000    | 
|President and Chief Executive Officer of the Company and the Bank (4)            |  |      | 2015 |  |             |  | —       |                   |  |  | —                     |  |  |            | — |  |                                            |  | — |                                |  |  | —         | 
|                                                                                 |  |      |      |  |             |  |         |                   |  |  |                       |  |  |            |   |  |                                            |  |   |                                |  |  |           | 
|J. Rick Patterson                                                                |  |      | 2016 |  |             |  | 125,000 |                   |  |  | 750,000               |  |  |            | — |  |                                            |  | — |                                |  |  | 40,000    | 
|Executive Vice President and Chief Operating Officer of the Company and the Bank |  |      | 2015 |  |             |  | —       |                   |  |  | —                     |  |  |            | — |  |                                            |  | — |                                |  |  | —         | 
|                                                                                 |  |      |      |  |             |  |         |                   |  |  |                       |  |  |            |   |  |                                            |  |   |                                |  |  |           | 
|W. Jack M cElveen                                                                |  |      | 2016 |  |             |  | 225,000 |                   |  |  | 500,000               |  |  |            | — |  |                                            |  | — |                                |  |  | 40,000    | 
|Executive Vice President and Chief Credit Officer of the Company and the Bank    |  |      | 2015 |  |             |  | —       |                   |  |  | —                     |  |  |            | — |  |                                            |  | — |                                |  |  | —         | 





|(1) | In
                                         2016, with shareholder approval, we adopted an Omnibus Stock Ownership and Long Term
                                         Incentive Plan (the “Stock Plan”). Stock options and restricted stock awards
                                         have been granted under the Stock Plan to our named executive officers from time to time
                                         to reward performance and promote our long-term success.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | All
                                         other compensation includes premiums paid by the Bank for life, long-term disability,
                                         auto allowance, health and dental insurance as well as automobile allowance, 401(k) plan
                                         matching contributions and consulting fees.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As
                                         previously disclosed, in connection with the closing of the 2016 private placement, Mr.
                                         Clarkson retired as the President and Chief Executive Officer of the Company and the
                                         Bank and resigned from the boards of directors of the Company and the Bank effective
                                         as of April 11, 2016.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | As
                                         previously disclosed, on April 9, 2016, Ms. Hollar was named Chief Executive Officer
                                         of the Company and the Bank.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Non-Equity Incentive Compensation Plan

For fiscal year 2016, the Board of Directors implemented an incentive compensation plan for Ms. Hollar and Messrs. Patterson
and McElveen, which was tied to achieving certain earnings and operational targets. The targets included in the incentive
plan included:

•  Core pre-tax earnings, as defined in the plan, at Horry County State Bank,

•  Loan growth metrics,
and

•  Classified assets to tier 1 capital ratio targets.



Upon completion of the financial results for 2016, the Compensation Committee reviewed the attainment of the targets included
in the incentive plan and approved the incentive compensation cash bonuses paid to executives. The level of compensation approved
by the Compensation Committee was based upon the level of the attainment of targeted objectives, each of which was achieved other
than the core pre-tax earnings metric. As to this metric, the Bank only partially attained the metric, but the Compensation Committee
acting in its discretion under the plan waived completion of this target such that the bonuses were paid as if all objectives
were fully satisfied. For 2016, Ms. Hollar earned $45,000, Mr. Patterson earned $40,000, and Mr. McElveen earned $40,000 under
the plan.



Details on All Other Compensation
Reported in the Summary Compensation Table for 2016





|                        |  | Health, Dental |       |  | Long-term    |  |     |                 |  |  | Auto      |  |  |              |       |  |       | 
|----------------------- |  | -------------- | ----- |  | ------------ |  | --- | --------------- |  |  | --------- |  |  | ------------ | ----- |  | ----- | 
|                        |  | and Life       |       |  | Disability   |  |     | Employer 401(k) |  |  | Provision |  |  | Consulting   |       |  |       | 
|Named Executive Officer |  | Insurance ($)  |       |  | Premiums ($) |  |     | Match ($)       |  |  | ($)       |  |  | Fees ($) (1) |       |  | Total | 
|James R. Clarkson       |  |                | 3,866 |  |              |  | 270 |                 |  |  | 2,290     |  |  |              | —     |  |       | 
|Jan H. Hollar           |  |                | 4,578 |  |              |  | 315 |                 |  |  | 1,875     |  |  |              | 4,000 |  |       | 
|J. Rick Patterson       |  |                | 470   |  |              |  | 270 |                 |  |  | 1,167     |  |  |              | 3,500 |  |       | 
|W. Jack M cElveen       |  |                | 7,087 |  |              |  | 495 |                 |  |  | 833       |  |  |              | —     |  |       | 



|(1) | Consulting
                                         fees paid to Ms. Hollar and Mr. Patterson for period of service as independent contractors
                                         prior to beginning of employment.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







Outstanding Equity Awards at Fiscal
Year-End



The
Outstanding Equity Awards at Fiscal Year-End Table below reflects each named executive officer’s equity award holdings at December 31,
2016 on an individual award basis.



|Option Awards     |  |             | Stock Awards | 
|----------------- |  | ----------- | ------------ | 
|                  |  |             |              | 
|                  |  |             |              | 
|                  |  |             |              | 
|                  |  | Number of   |              | 
|                  |  | Securities  |              | 
|                  |  | Underlying  |              | 
|                  |  | Unexercised |              | 
|                  |  | Options (#) |              | 
|                  |  | Exercisable |              | 
|Jan H. Hollar     |  |             | —            | 
|J. Rick Patterson |  |             | —            | 
|W. Jack McElveen  |  |             | —            | 





Compensation Arrangements



Employment and Noncompete Agreements



As previously
disclosed, on February 29, 2016, the Company and the Bank entered into an employment agreement with Ms. Jan H. Hollar, which became
effective upon the closing of the 2016 private placement on April 11, 2016, pursuant to which Ms. Hollar will serve as the Chief
Executive Officer of the Company and the Bank. The employment agreement is initially for a term of three years and will thereafter
be automatically extended for additional terms of one year unless either party delivers a notice of termination at least 90 days
prior to the end of the term.



Under the terms
of her employment agreement, Ms. Hollar will be entitled to an annual base salary of $225,000 per year, and the Board of Directors
of the Company (or an appropriate committee thereof) will review Ms. Hollar’s base salary at least annually for adjustment
based on her performance. Ms. Hollar will be eligible to receive an annual cash bonus of up to 20% of her annual base salary if
she achieves certain performance levels established from time to time by the board of directors, and she will be eligible to participate
in the Company’s long-term equity incentive program and for the grant of stock options, restricted stock, and other awards
thereunder or under any similar plan adopted by the Company. Additionally, Ms. Hollar will participate in the Company’s
retirement, welfare, and other benefit programs and be entitled to reimbursement for travel and business expenses, as well as
a monthly automobile allowance.



As previously
disclosed, on May 26, 2016, the Company and the Bank entered into a noncompete agreement with Jan H. Hollar, the Company’s
and the Bank’s Chief Executive Officer. Under the terms of the noncompete agreement, Ms. Hollar is entitled, upon termination
of her employment, to receive an amount equal to her then current monthly base salary on the last business day of each month for
a period of twelve months following her termination of employment with the Company and the Bank in exchange for her agreement
to abide by certain restrictive covenants regarding competition with the Company and the Bank for twelve months following her
termination of employment.



As previously
disclosed, on May 13, 2016, the Bank entered into an employment agreement with Mr. J. Rick Patterson, pursuant to which Mr. Patterson
will serve as Executive Vice President and Chief Operating Officer of the Bank. The employment agreement is initially for a term
of three years and will thereafter be automatically extended for additional terms of one year unless either party delivers a notice
of termination at least 90 days prior to the end of the term.







Under the terms
of his employment agreement, Mr. Patterson will be entitled to an annual base salary of $200,000 per year, and the Board of Directors
of the Company (or an appropriate committee thereof) will review Mr. Patterson’s base salary at least annually for adjustment
based on his performance. Mr. Patterson will be eligible to receive an annual cash bonus of up to 20% of his annual base salary
if he achieves certain performance levels established from time to time by the Board of Directors, and he will be eligible to
participate in the Company’s long-term equity incentive program and for the grant of stock options, restricted stock, and
other awards thereunder or under any similar plan adopted by the Company. Additionally, Mr. Patterson will participate in the
Company’s retirement, welfare, and other benefit programs and be entitled to reimbursement for travel and business expenses,
as well as a monthly automobile allowance.



As previously
disclosed, on June 22, 2016, the Bank entered into an employment agreement with Mr. W. Jack McElveen, pursuant to which Mr. McElveen
will serve as Executive Vice President and Chief Credit Officer of the Bank. The employment agreement is initially for a term
of three years and will thereafter be automatically extended for additional terms of one year unless either party delivers a notice
of termination at least 90 days prior to the end of the term.



Under the terms
of his employment agreement, Mr. McElveen will be entitled to an annual base salary of $200,000 per year, and the Board of Directors
of the Company (or an appropriate committee thereof) will review Mr. Mc Elveen’s base salary at least annually for adjustment
based on his performance. Mr. McElveen will be eligible to receive an annual cash bonus of up to 20% of his annual base salary
if he achieves certain performance levels established from time to time by the Board of Directors, and he will be eligible to
participate in the Company’s long-term equity incentive program and for the grant of stock options, restricted stock, and
other awards thereunder or under any similar plan adopted by the Company. Additionally, Mr. McElveen will participate in the Company’s
retirement, welfare, and other benefit programs and be entitled to reimbursement for travel and business expenses.



As
previously disclosed, on March 21, 2017, the Company and the Bank entered into amended and restated employment agreements with
Jan H. Hollar, J. Rick Patterson, and W. Jack McElveen. These agreements were amended to provide the Company and the Bank with
noncompete protection in exchange for severance payments in the event of termination of these executives without cause or following
a change in control. Also, in the case of Ms. Hollar, the changes consolidate her existing employment agreement and noncompete
agreement into the amended and restated employment agreement. The board of directors approved the agreements on October 20, 2016
subject to the removal of both the Bank’s Consent Order dated February 10, 2011 by the Federal Deposit Insurance Corporation
and the Company’s Written Agreement dated May 9, 2011 by the Federal Reserve. The Consent Order was removed on October 26,
2016.



The
amended agreements for Messrs. Patterson and McElveen provide that during the term of employment and for a period of 12 months
following termination, the executive may not (a) compete with the Company or any of its affiliates by, directly or indirectly,
forming, serving as an organizer, director or officer of, or consultant to, or acquiring or maintaining more than a 1% passive
investment in, a depository financial institution or holding company therefor if such depository institution or holding company
has one or more offices or branches located within 30 miles from the main office of the Bank or any branch or loan production
office of the Bank, subject to certain exclusions contained in the employment agreement, (b) solicit the Bank’s customers
with which the executive had material contact in connection with products and services provided by the Bank for the purpose of
providing financial services, or (c) solicit the Bank’s employees or consultants. These provisions are identical to the
restrictive covenants applicable to Ms. Hollar and currently included in her amended agreement.



The
amended agreements for Messrs. Patterson and McElveen also provide that the executive’s employment is terminated by the
Company without cause prior to a change in control or more than 12 months following a change in control, the executive will be
entitled to severance compensation of his then current monthly salary for a period of 12 months, plus any bonus earned or accrued
through the date of termination. This provision is identical to the applicable provision for Ms. Hollar included in her amended
agreement. In addition, the amended agreements for all three executives provide that if the executive’s employment is terminated
by the Company without cause within 12 months following a change in control or by the executive for good reason within 12 months
following a change in control, the executive will be entitled to (i) severance compensation equal to his or her then current annual
base salary multiplied by 2.99, plus any bonus earned or accrued through the date of termination (ii) continued participation,
in accordance with the terms of the applicable benefits plans, in the Company’s group health plan pursuant to plan continuation
rules under COBRA, and (3) termination of the restrictions on any outstanding incentive awards (including restricted stock) granted
to the executive such that the awards will become 100% vested.



Neither the Company
nor the Bank entered into an employment agreements with Mr. Clarkson.







Director Compensation



No
compensation was paid to the directors for their service as directors in 2016 or 2015.



Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The
following table sets forth information known to the Company with respect to beneficial ownership of the Company’s common
stock as of March 31, 2017, for (i) each director and each person nominated or chosen to become a director, (ii) each holder of
5% or greater of the Company’s common stock, (iii) the Company’s named executive officers, and (iv) all executive officers and directors as a group. Unless otherwise indicated, the mailing address for each
beneficial owner is: c/o HCSB Financial Corporation, P.O. Box 218, Loris, South Carolina, 29569. Beneficial ownership is determined
under the rules of the SEC and generally includes voting or investment power with respect to securities.

|                                            |  |                      |            |  |          |  |   | Percentage of     | 
|------------------------------------------- |  | -------------------- | ---------- |  | -------- |  | - | ----------------- | 
|                                            |  | Number of            |            |  | Right to |  |   | Beneficial        | 
|Name                                        |  | Shares
    Owned (1) |            |  | Acquire  |  |   | Ownership
    (2) | 
|Michael S. Addy                             |  |                      | 1,543,727  |  |          |  | — |                   | 
|D. Singleton Bailey                         |  |                      | 2,054,504  |  |          |  | — |                   | 
|Clay D. Brittain, III                       |  |                      | 1,514,326  |  |          |  | — |                   | 
|Gerald R. Francis                           |  |                      | 5,000,000  |  |          |  | — |                   | 
|Jan H. Hollar                               |  |                      | 17,000,000 |  |          |  | — |                   | 
|James C. Nesbitt                            |  |                      | 1,000,000  |  |          |  | — |                   | 
|John T. Pietrzak (3)                        |  |                      | 35,978,163 |  |          |  | — |                   | 
|                                            |  |                      |            |  |          |  |   |                   | 
|Non-Director Named Executives               |  |                      |            |  |          |  |   |                   | 
|W. Jack McElveen                            |  |                      | 6,250,000  |  |          |  | — |                   | 
|J. Rick Patterson                           |  |                      | 10,050,000 |  |          |  | — |                   | 
|                                            |  |                      |            |  |          |  |   |                   | 
|Executive officers and directors as a group |  |                      | 80,390,720 |  |          |  | — |                   | 
|                                            |  |                      |            |  |          |  |   |                   | 
|Holders of 5% or Greater of Common Stock    |  |                      |            |  |          |  |   |                   | 
|Castle Creek Capital Partners VI, LP (4)    |  |                      | 35,968,163 |  |          |  | — |                   | 
|EJF Sidecar Fund, LLC Series E (5)          |  |                      | 35,968,163 |  |          |  | — |                   | 
|Mendon Capital Master Fund, Ltd. (6)        |  |                      | 35,968,163 |  |          |  | — |                   | 
|Strategic Value Investors LP (7)            |  |                      | 30,100,000 |  |          |  | — |                   | 
|                                            |  |                      |            |  |          |  |   |                   | 

|(1) | Includes
                                         shares for which the named person has sole voting and investment power, has shared voting
                                         and investment power with a spouse or holder in an IRA or other retirement plan program,
                                         unless otherwise indicated in these footnotes.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The
                                         calculations are based on 495,763,940 shares of common stock outstanding on March 31,
                                         2017.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As
                                         previously disclosed, Mr. Pietrzak was appointed to the Boards of Directors of the Company
                                         and the Bank effective as of May 26, 2016. Mr. Pietrzak will serve as the director representative
                                         for Castle Creek under the side letter agreement entered into between the Company and
                                         Castle Creek dated April 11, 2016, which provides that Castle Creek is entitled to have
                                         one representative appointed to the Company’s Board of Directors for so long as
                                         it, together with its respective affiliates, owns, in the aggregate, 5% or more of all
                                         of the outstanding shares of common stock or 50% or more of its purchased shares. Mr.
                                         Pietrzak may be deemed to be the beneficial owner of the 35,968,163 shares of common
                                         stock held directly by Castle Creek. Castle Creek Capital VI LLC (“CCC VI”)
                                         is the sole general partner of Castle Creek. Mr. Pietrzak shares voting and dispositive
                                         power over the 35,968,163 shares beneficially owned by Castle Creek, due to the fact
                                         that Mr. Pietrzak is a managing principal of CCC VI. Mr. Pietrzak disclaims beneficial
                                         ownership of the shares of common stock, except to the extent of Mr. Pietrzak’s
                                         pecuniary interest in Castle Creek.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | 6051
                                         El Tordo, Rancho Santa Fe, CA 92067
|--- | ---------------------------------------------------------------------------------

|(5) | 2107
                                         Wilson Boulevard, Suite 410, Arlington, VA 22201
|--- | ----------------------------------------------------------------------------------------------

|(6) | 115
                                         S. LaSalle, 34th Floor, Chicago, IL 60608
|--- | --------------------------------------------------------------------------------------

|(7) | 2000
                                         Auburn Drive, Suite 300, Beachwood, Ohio 44122
|--- | --------------------------------------------------------------------------------------------







Securities Authorized
for Issuance under Equity Compensation Plans

A
total of 30,000,000 shares of voting common stock have been reserved for the issuance of awards under the 2016 Equity Incentive
Plan, all of which may be issued as stock options (including incentive stock options), restricted stock or restricted stock units,
subject to the anti-dilution provisions of the 2016 Plan. As of December 31, 2016, 27,750,000 shares had been issued as restricted
stock and 2,250,000 shares were available for future issuance.

Item
13. Certain Relationships and Related Transactions, and Director Independence.

The
Company’s Code of Business Conduct and Ethics provides that personal interests of directors, officers and employees of the
Company must not interfere with, or appear to interfere with, the interests of the Company. Directors, officers and employees
of the Company may not compete with the Company or disadvantage the Company by taking for personal gain corporate opportunities
or engage in any action that creates actual or apparent conflicts of interest with the Company. Any director or officer involved
in a transaction with the Company or that has an interest or a relationship that reasonably could be expected to give rise to
a conflict of interest must report the matter promptly to the Board of Directors, which is responsible for determining if the
particular situation is acceptable.

The
Company has had, and expects to have in the future, transactions in the ordinary course of the Company’s business with its
directors, executive officers, principal shareholders and their related interests (collectively referred to as “related
parties”). All such transactions between the Company and related parties are made in the ordinary course of the Company’s
business, on substantially the same terms, including (in the case of loans) interest rates, collateral, and repayment terms, as
those prevailing at the same time for other comparable transactions with persons not related to the lender, and have not involved
more than normal risks of collectability or presented other unfavorable features.

The
Company does not have a written policy regarding the review, approval or ratification of transactions with related parties, but
reviews, approves, ratifies and discloses transactions with related parties consistent with SEC rules and regulations. As transactions
are reported, the Board of Directors considers any related party transactions on a case-by-case basis to determine whether the
transaction or arrangement was undertaken in the ordinary course of business and whether the terms of the transaction are no less
favorable to the Company than terms that could have been reached with an unrelated party. If any member of the Board of Directors
is interested in the transaction, that member will recuse himself from the discussion and decision on the transaction.

In
addition, the Bank is subject to the provisions of Section 23A of the Federal Reserve Act, which places limits on the amount of
loans or extensions of credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances
to third parties collateralized by the securities or obligations of affiliates. The Bank is also subject to the provisions of
Section 23B of the Federal Reserve Act which, 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.

The
aggregate dollar amount of loans outstanding to directors and executive officers of the Bank was approximately $10.8 million at
March 31, 2017.

Independence

Our
Board of Directors has determined that Michael S. Addy, D. Singleton Bailey, Clay D. Brittain, III, and Gerald R. Francis are
“independent” directors, based upon the independence criteria set forth in the corporate governance listing standards
of The NASDAQ Stock Market, the exchange that we selected in order to determine whether our directors and committee members meet
the independence criteria of a national securities exchange, as required by Item 407(a) of Regulation S-K.







Item
14. Principal Accountant Fees and Services.

The
following table shows the fees that we paid for services performed in fiscal years ended December 31, 2016 and 2015:



|                   |  | Year Ended        |         |  | Year Ended        |  
|------------------ |  | ----------------- | ------- |  | ----------------- | -
|                   |  | December 31, 2016 |         |  | December 31, 2015 |  
|Audit Fees         |  | $                 | 106,000 |  |                   | $
|Audit-Related Fees |  |                   | 43,800  |  |                   |  
|Tax Fees           |  |                   | 19,010  |  |                   |  
|Other Matters      |  |                   | 12,500  |  |                   |  
|Total              |  | $                 | 181,310 |  |                   | $
|                   |  |                   |         |  |                   |  

Audit
Fees. This category includes the aggregate fees billed for each of the last two fiscal years for professional services rendered
by Elliott Davis Decosimo, LLC for the audit of our annual financial statements and for reviews of the condensed financial statements
included in our quarterly reports on Form 10-Q.

Audit-Related
Fees. This category includes the aggregate fees billed for non-audit services, exclusive of the fees disclosed relating
to audit fees, rendered by Elliott Davis Decosimo, LLC during the fiscal years ended December 31, 2016 and 2015. These
services principally included the audit of the Company’s Trusteed Retirement Savings Plan (401k) and the Health and
Welfare Plan, discussions related to possible capital and merger opportunities, review of SEC filings associated with the
Company's capital raises, a review of the settlement of litigation and the Company’s corresponding obligation to
downstream funds to the Bank, and a review of management’s analysis of the deferred tax asset.

Tax
Fees. This category includes the aggregate fees billed for tax services rendered by Elliott Davis Decosimo, LLC during the
fiscal years ended December 31, 2016 and 2015. These services include preparation of state and federal tax returns for the Company
and its subsidiary and review of deferred taxes for GAAP and call reporting.

Oversight
of Accountants; Approval of Accountant Fees. Under the provisions of its charter, the Audit Committee is responsible for the
retention, compensation, and oversight of the work of the independent auditors. The charter provides that the Audit Committee
must pre-approve the fees paid for the audit. The Audit Committee has delegated approval of non-audit services and fees to the
chairman of the Audit Committee for presentation to the full Audit Committee at the next scheduled meeting. The policy specifically
prohibits certain non-audit services that are prohibited by securities laws from being provided by an independent auditor. All
of the accounting services and fees reflected in the table above were reviewed and approved by the Audit Committee, and none of
the services were performed by individuals who were not employees of the independent auditor.