~~☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

~~☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

Indicate by check mark whether the issuer (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.

Indicate by check mark whether the registrant has submitted electronically and posted on its Company Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

As of ~~November~~May 6, ~~2015~~2016 there were ~~4,916,600~~4,928,507 Common Shares outstanding.

Bank of South Carolina Corporation and Subsidiary

Table of Contents

~~Page~~

~~Part I. Financial Information~~

			Page
	~~Item 1.~~Part I. Financial ~~Statements (Unaudited)~~Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets – ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015		3
~~Consolidated Statements of Income - Three months ended September 30, 2015 and 2014~~	4
Consolidated Statements of Income – ~~Nine~~Three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	5	4
	Consolidated Statements of Comprehensive Income – Three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	6	5
	Consolidated Statements of Shareholders’ ~~Equity- Nine~~Equity – Three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	7	6
	Consolidated Statements of Cash Flows ~~- Nine~~– Three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	8	7
	Notes to Consolidated Financial Statements	9	8

Item 2. ~~Management's~~	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations	32	25
	Off-Balance Sheet Arrangements	46	31
	Liquidity	47	31
	Capital Resources	48	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49	33

Item 4.	Controls and Procedures	49	33

	Part II. Other Information

Item 1.	Legal Proceedings	50	34

Item 1A.	Risk Factors	50	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50	34

Item 3.	Defaults Upon Senior Securities	50	34

Item 4.	~~Removed and Reserved~~Mine Safety Disclosure	50	34

Item 5.	Other Information	50	34

Item 6.	Exhibits	50	34

~~Signatures~~	52
	Signatures		36

	Certifications	53	37

Part I. Financial Information

Item 1. Financial Statements

~~Bank of South Carolina Corporation and Subsidiary~~

~~Consolidated Balance Sheets~~

Assets:
(Unaudited)
September 30, 2015

(Audited)
December 31, 2014

Cash and due from banks $ 6,516,874 $ 4,698,435
Interest bearing deposits in other banks 12,468,073 5,680,613
Investment securities available for sale 116,001,867 113,994,112
Mortgage loans to be sold 7,018,137 7,325,081
Loans 241,250,253 234,117,792
Less: Allowance for loan losses (3,289,271 ) (3,334,848 )
Net loans 237,960,982 230,782,944
Premises and equipment, net 2,297,831 2,352,423
Other real estate owned 620,394 521,943
Accrued interest receivable 1,118,076 1,290,380
Other assets 556,859 579,871

Total assets $ 384,559,093 $ 367,225,802

Liabilities and Shareholders' Equity:
Liabilities
Deposits:
Non-interest bearing demand $ 116,488,824 $ 107,072,271
Interest bearing demand 79,865,760 79,397,647
Money market accounts 56,659,892 47,450,210
Time deposits over $250,000 34,121,413 32,363,615
Other time deposits 30,297,705 29,457,720
Other savings deposits 26,318,910 26,677,564
Total deposits 343,752,504 322,419,027

Short-term borrowings 481,141 6,980,681
Accrued interest payable and other liabilities 1,328,087 1,066,112
Total liabilities 345,561,732 330,465,820

Shareholders’ Equity
Common Stock - No par value;
12,000,000 shares authorized; Shares issued 5,157,006
at September 30, 2015 and 4,680,839 at December 31, 2014.
Shares outstanding 4,915,610 at September 30, 2015 and
4,461,388 at December 31, 2014. —   —
Additional paid in capital 36,312,008 28,779,108
Retained earnings 3,477,121 8,640,291
Treasury stock: 241,396 shares at September 30, 2015 and
219,451 at December 31, 2014 (2,247,415 ) (1,902,439 )
Accumulated other comprehensive income,
net of income taxes 1,455,647 1,243,022

Total shareholders' equity 38,997,361 36,759,982

Total liabilities and shareholders' equity $ 384,559,093 $ 367,225,802
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

(Unaudited)
March 31, 2016
(Audited)
December 31, 2015
ASSETS
Cash and due from banks $ 7,622,989 $ 5,295,924
Interest-bearing deposits in other bank 30,503,030 23,898,862
Investment securities available for sale 107,353,804 119,997,585
Mortgage loans to be sold 3,929,539 5,820,239
Loans 253,325,633 242,622,705
Less: Allowance for loan losses (3,436,762 ) (3,417,827 )
Net loans 249,888,871 239,204,878
Premises, equipment and leasehold improvements, net 2,265,079 2,289,228
Other real estate owned 521,943 620,394
Accrued interest receivable 1,040,677 1,284,063
Other assets 568,060 761,339

Total assets $ 403,693,992 $ 399,172,512

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest-bearing demand $ 119,022,680 $ 122,073,396
Interest-bearing demand 96,992,732 84,977,640
Money market accounts 63,935,267 70,233,422
Time deposits over $250,000 24,095,180 25,896,768
Other time deposits 28,657,047 28,871,044
Other savings deposits 28,966,396 26,666,342
Total deposits 361,669,302 358,718,612

Accrued interest payable and other liabilities 1,694,180 1,302,188
Total Liabilities 363,363,482 360,020,800

Shareholders’ Equity
Common Stock-No par value: 12,000,000 shares authorized; sharesissued 5,158,903 at March 31, 2016 and 5,157,996 at December 31, 2015;shares outstanding 4,917,507 at March 31, 2016 and 4,916,600 atDecember 31, 2015 — —
Additional paid in capital 36,372,788 36,341,744
Retained earnings 4,621,294 4,064,834
Treasury stock; 241,396 shares at March 31, 2016 and December 31, 2015 (2,247,415 ) (2,247,415 )
Accumulated other comprehensive income, net of income taxes 1,583,843 992,549
Total shareholders’ equity 40,330,510 39,151,712

Total liabilities and shareholders’ equity $ 403,693,992 $ 399,172,512

See accompanying notes to consolidated financial ~~statements~~

statements.
~~Bank of South Carolina Corporation and Subsidiary~~
~~Consolidated Statements of Income (Unaudited~~)

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
Three Months Ended
September 30,
2015 2014
Interest and fee income
Interest and fees on loans $ 2,975,653 $ 2,868,904
Interest and dividends on investment securities 581,708 536,034
Other interest income 12,311 14,927
Total interest and fee income 3,569,672 3,419,865

Interest expense
Interest on deposits 101,199 104,009
Interest on short-term borrowings 31 244
Total interest expense 101,230 104,253

Net interest income 3,468,442 3,315,612
Provision for loan losses 7,500 12,500
Net interest income after provision for
loan losses 3,460,942 3,303,112

Other income
Service charges, fees and commissions 240,306 223,369
Mortgage banking income 413,077 383,304
Other non-interest income 8,655 8,330
Gain on sale of other real estate owned —   2,382
Total other income 662,038 617,385

Other expense
Salaries and employee benefits 1,450,852 1,349,779
Net occupancy expense 372,727 369,201
Other operating expenses 549,163 522,998
Total other expense 2,372,742 2,241,978

Income before income tax expense 1,750,238 1,678,519
Income tax expense 551,319 536,806
Net income $ 1,198,919 $ 1,141,713

Basic income per common share $ 0.24 $ 0.23
Diluted income per common share $ 0.24 $ 0.23

Weighted average shares outstanding
Basic 4,915,610 4,907,203
Diluted 5,061,685 5,020,082

Cash Dividend Per Share $ 0.13 $ 0.23
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended
March 31,
2016 2015
Interest and fee income
Loans, including fees $ 3,034,043 $ 2,864,766
Taxable securities 323,133 339,781
Tax-exempt securities 239,314 263,181
Other 35,575 6,874
Total interest and fee income 3,632,065 3,474,602

Interest expense
Deposits 94,139 92,734
Short-term borrowings — 737
Total interest expense 94,139 93,471

Net interest income 3,537,926 3,381,131
Provision for loan losses 45,000 5,000
Net interest income after provisions for loan 3,492,926 3,376,131
losses

Other income
Service charges, fees and commissions 260,531 237,285
Mortgage banking income 351,873 377,146
Other non-interest income 5,689 4,914
Loss on sale of other real estate (13,450 ) —
Gain on sale of securities 187,936 111,313
Total other income 792,579 730,658

Other expense
Salaries and employee benefits 1,515,027 1,416,173
Net occupancy expense 376,399 363,599
Other operating expenses 631,272 559,282
Total other expense 2,522,698 2,339,054

Income before income tax expense 1,762,807 1,767,735
Income tax expense 567,071 562,775
Net income $ 1,195,736 $ 1,204,960

Weighted average shares outstanding
Basic 4,917,334 4,907,223
Diluted 5,067,563 5,054,687

Earnings per common share
Basic income per common share $ 0.24 $ 0.25
Diluted income per common share $ 0.24 $ 0.24
All share and per share data have been restated to reflect a 10% stock dividend declared August 27, 2015.
~~See accompanying notes to consolidated financial statements~~

~~Bank of South Carolina Corporation and Subsidiary~~
~~Consolidated Statements of Income (Unaudited)~~
Nine Months Ended
September 30,
2015 2014
Interest and fee income
Interest and fees on loans $ 8,798,553 $ 8,392,884
Interest and dividends on investment securities 1,770,754 1,516,239
Other interest income 25,629 33,483
Total interest and fee income 10,594,936 9,942,606

Interest expense
Interest on deposits 293,356 308,655
Interest on short-term borrowings 924 244
Total interest expense 294,280 308,899

Net interest income 10,300,656 9,633,707
Provision for loan losses 82,500 62,500
Net interest income after provision for
loan losses 10,218,156 9,571,207

Other income
Service charges, fees and commissions 728,799 679,806
Mortgage banking income 1,247,813 913,646
Other non-interest income 20,175 20,384
Gain on sale of other real estate owned —   2,382
Gain on sale of securities 264,401 223,735
Total other income 2,261,188 1,839,953

Other expense
Salaries and employee benefits 4,342,702 4,008,738
Net occupancy expense 1,112,354 1,101,929
Other operating expenses 1,656,198 1,624,749
Total other expense 7,111,254 6,735,416

Income before income tax expense 5,368,090 4,675,744
Income tax expense 1,710,774 1,468,306
Net income $ 3,657,316 $ 3,207,438

Basic income per common share $ 0.74 $ 0.65
Diluted income per common share $ 0.72 $ 0.64

Weighted average shares outstanding
Basic 4,911,142 4,907,203
Diluted 5,062,695 5,019,905

Cash Dividend Per Share $ 0.39 $ 0.49
~~All share and per share data have been restated to reflect a 10% stock dividend declared August 27, 2015.~~
See accompanying notes to consolidated financial ~~statements~~statements.

~~Bank of South Carolina Corporation and Subsidiary~~
~~Consolidated Statements of Comprehensive Income~~
~~(Unaudited)~~
Three Months Ended
September 30,
2015 2014
Net income $ 1,198,919 $ 1,141,713
Other comprehensive income
Unrealized gain (loss) on securities (net of tax $295,129 and $47,757, respectively) 502,516 (81,316 )
Other comprehensive income (loss), net of tax 502,516 (81,316 )
Total Comprehensive income $ 1,701,435 $ 1,060,397

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
Nine Months Ended
September 30,
2015 2014
Net income $ 3,657,316 $ 3,207,438
Other comprehensive income
Unrealized gain on securities (net of tax $27,046 and $53,306, respectively) 379,197 231,718
Reclassification adjustment for gains included in income (net of tax $97,829
and $82,782, respectively) (166,572 ) (140,953 )
Other comprehensive income, net of tax 212,625 90,765
Total Comprehensive income $ 3,869,941 $ 3,298,203
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
March 31,
2016 2015
Net income $ 1,195,736 $ 1,204,960
Other comprehensive income:
Unrealized gain on securities arising during the period (net of tax) 709,731 682,022
Reclassification adjustment for securities gains realized in net income (187,936 ) (111,313 )
Other comprehensive income, before tax 521,795 570,709
Income tax effect related to items of other comprehensive income 69,499 41,186
Other comprehensive income, after tax 591,294 611,895
Total comprehensive income $ 1,787,030 $ 1,816,855

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

~~Bank of South Carolina Corporation and Subsidiary~~
~~Consolidated Statements of Shareholders’ Equity~~
~~For the Nine Months Ended September 30, 2015 and 2014 (Unaudited)~~
Additional
Paid in
Capital Retained
Earnings Treasury
Stock Accumulated
Other Comprehensive Income Total

December 31, 2013 $ 28,678,150 $ 7,007,532 $ (1,902,439 ) $ 955,900 $ 34,739,143
  Net income —   3,207,438 —   —   3,207,438
  Other comprehensive
      income —   —   —   90,765 90,765
Exercise of stock
     options 26,050 —   —   —   26,050
Stock-based
     compensation
     expense 55,709 —   —   —   55,709
Cash dividends ($0.49
     per common share) —   (2,186,080 ) —   —   (2,186,080 )
September 30, 2014 $ 28,759,909 $ 8,028,890 $ (1,902,439 ) $ 1,046,665 $ 35,933,025

December 31, 2014 $ 28,779,108 $ 8,640,291 $ (1,902,439 ) $ 1,243,022 $ 36,759,982
Net income —   3,657,316 —   —   3,657,316
Other comprehensive
    income —   —   —   212,625 212,625
Exercise of stock
options 113,254 —   —   —   113,254
10% Stock dividend
446,597 common
21,945 treasury
at $15.72 7,360,703 (7,020,505 ) (344,976 ) —   (4,778 )
Stock-based
     compensation
     expense 58,943 —   —   —   58,943
Cash dividends ($0.39
��   per common share) —   (1,799,981 ) —   —   (1,799,981 )
September 30, 2015 $ 36,312,008 $ 3,477,121 $ (2,247,415 ) $ 1,455,647 $ 38,997,361

ADDITIONAL
PAID IN
CAPITAL

RETAINED
EARNINGS

TREASURY
STOCK ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
December 31, 2014 $ 28,779,108 $ 8,640,291 $ (1,902,439 ) $ 1,243,022 $ 36,759,982
Net income — 1,204,960 — — 1,204,960
Other comprehensive income — — — 611,895 611,895
Stock-based compensation expense 19,192 — — — 19,192
Cash dividends ($0.13 per common share) — (579,981 ) — — (579,981 )
March 31, 2015 $ 28,798,300 $ 9,265,270 $ (1,902,439 ) $ 1,854,917 $ 38,016,048

December 31, 2015 $ 36,341,744 $ 4,064,834 $ (2,247,415 ) $ 992,549 $ 39,151,712
Net income — 1,195,736 — — 1,195,736
Other comprehensive income — — — 591,294 591,294
Exercise of stock options 12,462 — — — 12,462
Stock-based compensation expense 18,582 — — — 18,582
Cash dividends ($0.13 per common share) — (639,276 ) — — (639,276 )
March 31, 2016 $ 36,372,788 $ 4,621,294 $ (2,247,415 ) $ 1,583,843 $ 40,330,510

See accompanying notes to consolidated financial statements.

~~Bank of South Carolina Corporation and Subsidiary~~
~~Consolidated Statements of Cash Flows (Unaudited)~~

Nine Months Ended September 30,
2015 2014

Cash flows from operating activities:
Net income $ 3,657,316 $ 3,207,438
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 148,425 152,869
Gain on sale of securities (264,401 ) (223,735 )
Gain on sale of other real estate owned —   (2,382 )
Provision for loan losses 82,500 62,500
Stock-based compensation expense 58,943 55,709
Net amortization of unearned discounts
on investments 73,622 256,679
Origination of mortgage loans held for sale (74,776,964 ) (50,265,314 )
Proceeds from sale of mortgage loans held for sale 75,083,908 48,374,207
Decrease (increase) in accrued interest receivable
and other assets 334,841 (161,354 )
Increase in accrued interest payable
and other liabilities 202,926 358,805

Net cash provided by operating activities 4,601,116 1,815,422

Cash flows from investing activities:
Proceeds from maturities of investment securities
available for sale 2,315,000 1,920,000
Proceeds from sale of investment securities available for sale 15,219,799 19,529,603
Proceeds from sale of other real estate owned —   37,855
Purchase of investment securities available for sale (19,278,675 ) (33,418,244 )
Net increase in loans (7,358,989 ) (11,879,322 )
Purchase of premises, equipment and leasehold
improvements, net (93,833 ) (98,424 )

Net cash used by investing activities (9,196,698 ) (23,908,532 )

Cash flows from financing activities:
Net increase in deposit accounts 21,333,477 24,032,780
Net (decrease) increase in short-term borrowings (6,499,540 ) 9,680,244
Dividends paid (1,740,932 ) (1,739,616 )
Cash paid for fractional shares (4,778 ) —
Stock options exercised 113,254 26,050

Net cash provided by financing activities 13,201,481 31,999,458

Net increase in cash and cash equivalents 8,605,899 9,906,348
Cash and cash equivalents at beginning of period 10,379,048 22,124,096

Cash and cash equivalents at end of period $ 18,984,947 $ 32,030,444

Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest $ 313,689 $ 329,710
Income taxes $ 1,631,252 $ 1,232,000
Supplemental disclosure for non-cash investing and financing activity:
Change in dividends payable $ 59,049 $ 446,464
Change in unrealized gain on available
for sale securities, net of tax $ 212,625 $ 90,765
Transfer of loans to other real estate owned $ 98,451 $ 557,416
6
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended
March 31,
2016 2015
Cash flows from operating activities:
Net income $ 1,195,736 $ 1,204,960
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 48,807 48,128
Gain on sale of securities (187,936 ) (111,313 )
Loss on sale of other real estate 13,450 —
Provision for loan losses 45,000 5,000
Stock-based compensation expense 18,582 19,192
Net amortization of unearned discounts on investments 44,680 25,813
Origination of mortgage loans held for sale (15,696,295 ) (18,927,142 )
Proceeds from sale of mortgage loans held for sale 17,586,995 22,046,921
Decrease in accrued interest receivable and other assets 277,334 138,244
Increase in accrued interest payable and other liabilities 391,874 570,085
Net cash provided by operating activities 3,738,227 5,019,888

Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale 2,000,000 1,400,000
Proceeds from sale of investment securities available for sale 15,629,464 10,845,887
Purchase of investment securities available for sale (4,091,802 ) (5,111,800 )
Proceeds from sale of other real estate owned 85,001 —
Net increase in loans (10,728,993 ) (3,575,680 )
Purchase of premises, equipment, and leasehold improvements (24,658 ) (85,607 )
Net cash provided by investing activities 2,869,012 3,472,800

Cash flows from financing activities:
Net increase in deposit accounts 2,950,690 10,535,019
Net decrease in short-term borrowings — (2,999,664 )
Dividends paid (639,158 ) (579,981 )
Stock options exercised 12,462 —
Net cash provided by financing activities 2,323,994 6,955,374
Net increase in cash and cash equivalents 8,931,233 15,448,062
Cash and cash equivalents at beginning of period 29,194,786 10,379,048
Cash and cash equivalents at end of period $ 38,126,019 $ 25,827,110

Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest $ 100,926 $ 98,961
Income taxes $ — $ —

Supplemental disclosure for non-cash investing and financing activity:
Change in unrealized gain on available for sale securities, net of tax $ 591,294 $ 611,895
Change in dividends payable $ 118 $ —
See accompanying notes to consolidated financial statements.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Nature of Business and Basis of Presentation
Organization
The Bank of South Carolina (the “Bank”) was organized on October 22, 1986 and opened for business as a state-chartered financial institution on February 26, 1987, in Charleston, South Carolina. The Bank was reorganized into a wholly-owned subsidiary of Bank of South Carolina Corporation (the “Company”), effective April 17, 1995. At the time of the reorganization, each outstanding share of the Bank was exchanged for two shares of Bank of South Carolina Corporation Stock.

Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Bank of South Carolina Corporation (the “Company”) and its wholly-owned subsidiary, The Bank ~~operates as an independent, community oriented, commercial bank providing a broad range~~ of ~~financial services~~South Carolina (the “Bank”). In consolidation, all significant intercompany balances and ~~products. We~~transactions have four banking house locations: 256 Meeting Street, Charleston, SC, 100 North Main Street, Summerville, SC, 1337 Chuck Dawley Boulevard, Mt. Pleasant, SC and 2027 Sam Rittenberg Boulevard, Charleston, SC. We intend to open a banking office in North Charleston, SC on Highway 78 and Ingleside Boulevard in the future.been eliminated.

References to ~~“we,” “us,” “our,”~~“we”, “us”, “our”, “the ~~Bank,”~~Bank”, or “the Company” refer to the parent and its subsidiary that are consolidated for financial purposes.

Basis of Presentation
The ~~consolidated financial statements in this report are~~accompanying unaudited ~~except for the December 31, 2014 consolidated balance sheet. All adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for fair presentation of the~~ interim consolidated financial statements have been ~~included~~prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for the interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K, filed with the SEC on March 4, 2016. In the opinion of management, these interim financial statements present fairly, ~~and accurately present~~in all material respects, the Company’s consolidated financial position ~~results of operations~~ and ~~cash flows of the Company. The~~ results of operations for each of the ~~three and nine months ended September 30, 2015,~~interim periods presented. Results of operations for interim periods are not necessarily indicative of the results ~~which~~of operations that may be expected for ~~the entire year.~~a full year or any future period.

Accounting Estimates and Assumptions
The preparation of the consolidated financial statements ~~are in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which~~ requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the ~~reporting period.~~reported periods. Actual results could differ significantly from these estimates and assumptions. Material estimates generally susceptible to significant change are related to the determination of the allowance for loan losses, impaired loans, other real estate owned, asset prepayment rates and other-than-temporary impairment of investment securities.

~~In preparing these~~Reclassification
Certain amounts in the prior years’ financial statements ~~we evaluated~~have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on shareholders’ equity or the net income as previously reported.
Income per share
Basic income per share represents income available to shareholders divided by the weighted-average number of common shares outstanding during the period. Dilutive income per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. The only potential common share equivalents are those related to stock options. Stock options which are anti-dilutive are excluded from the calculation of diluted net income per share. The dilutive effect of options outstanding under our stock compensation plan is reflected in diluted earnings per share by the application of the treasury stock method. Retroactive recognition has been given for the effects of all stock dividends.
Subsequent Events
Subsequent events ~~and~~are events or transactions ~~for potential recognition~~that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or ~~disclosure~~transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. We have reviewed events occurring through the date the financial statements were available to be ~~issued.~~issued and no subsequent events occurred requiring accrual or disclosure.

~~Note 2: Cash~~
8
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting and/or disclosure of financial information by the Company.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and ~~Cash Equivalents~~services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for reporting periods beginning after December 15, 2017. We will apply this guidance using a modified retrospective approach. We do not expect this amendment to have a material effect on our consolidated financial statements.
~~Cash~~
In August 2015, the FASB deferred the effective date of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for reporting periods beginning after December 15, 2017. We will apply this guidance using the modified retrospective approach. We do not expect this amendment to have a material effect on our financial statements.
In June 2014, the FASB issued guidance which makes limited amendments to the guidance on accounting for certain repurchase agreements. The guidance (1) requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings. The amendments became effective for the Company for the first interim or annual period beginning after December 31, 2014. We applied the guidance by making a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This adjustment did not have a material effect on our financial statements.
In August 2014, the FASB issued guidance that is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. In connection with preparing financial statements, management will need to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the organization’s ability to continue as a going concern within one year after the date that the financial statements are issued. This amendment will be effective for annual periods ending after December 31, 2016, and for annual and interim periods thereafter. We do not expect this amendment to have any effect on our financial statements.
In January 2015, the FASB issued guidance to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The amendment will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We will apply the guidance prospectively. We do not expect this amendment to have a material effect on our financial statements.
In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendment will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted (including during an interim period), provided that the guidance is applied as of the beginning of the annual period containing the adoption date. We do not expect this amendment to have a material effect on our financial statements.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2015, the FASB issued guidance that will require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This update affects disclosures related to debt issuance costs but does not affect existing recognition and measurement guidance for these items. The amendment will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015,with early adoption permitted. We do not expect this amendment to have a material effect on our financial statements.
In June 2015, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect these amendments to have a material effect on our financial statements.
In August 2015, the FASB issued amendments to the Interest topic of the Accounting Standards Codification to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective upon issuance. We do not expect these amendments to have a material effect on our financial statements.
In January 2016, the FASB amended the Financial Instruments topic of Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. We do not expect this amendment to have a material effect on our financial statements.
In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the effect that implementation of the new standard will have on our financial position, results of operations, and cash equivalents include working cash funds, due from banks, interest-bearing deposits in other banks, items in process of collection and federal funds sold. All cash equivalents are readily convertible to cash and have maturities of less than 90 days.flows.

~~To comply~~In March 2016, the FASB amended the Revenue from Contracts with ~~Federal Reserve regulations, we are required~~Customers topic of the Accounting Standards Codification to ~~maintain certain average cash reserve balances. Our daily reserve requirement~~clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties.The amendments will be effective for the ~~three and nine month~~Company for reporting periods ~~ending September 30, 2015~~beginning after December 15, 2017. We do not expect these amendments to have a material effect on our financial statements.
In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the ~~three~~classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and ~~nine month~~also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments will be effective for the Company for annual periods ~~ending September 30, 2014 was satisfied~~beginning after December 15, 2016 and interim periods within those annual periods. We do not expect these amendments to have a material effect on our financial statements.
Other accounting standards that have been issued or proposed by ~~vault cash.~~the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations or cash flows.
10
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3:2: Investment Securities
The amortized cost and fair value of investment securities available for sale are summarized as follows:
March 31, 2016
AMORTIZED COST GROSS UNREALIZED GAINS GROSS UNREALIZED LOSSES ESTIMATED FAIR VALUE
U.S. Treasury Notes $ 23,989,841 $ 252,503 $ — $ 24,242,344
Government-Sponsored Enterprises 46,018,755 897,653 — 46,916,408
Municipal Securities 34,831,179 1,367,484 3,611 36,195,052
Total $ 104,839,775 $ 2,517,640 $ 3,611 $ 107,353,804
December 31, 2015
AMORTIZED COST GROSS UNREALIZED GAINS GROSS UNREALIZED LOSSES ESTIMATED FAIR VALUE
U.S. Treasury Notes $ 34,517,996 $ 161,037 $ 45,360 $ 34,633,673
Government-Sponsored Enterprises 51,136,426 281,650 133,744 51,284,332
Municipal Securities 32,767,694 1,340,610 28,724 34,079,580
Total $ 118,422,116 $ 1,783,297 $ 207,828 $ 119,997,585
The following table presents the amortized cost and estimated fair value of investment securities available for sale by contractual maturity for the periods indicated:
March 31, 2016 December 31, 2015
AMORTIZED COST ESTIMATED FAIR VALUE AMORTIZED COST ESTIMATED FAIR VALUE
Due in one year or less $ 1,857,755 $ 1,870,311 $ 3,311,346 $ 3,326,249
Due in one year to five years 65,340,811 66,667,079 69,870,930 70,584,179
Due in five years to ten years 34,889,466 36,018,411 41,930,801 42,670,986
Due in ten years and over 2,751,743 2,798,003 3,309,039 3,416,171
Total $ 104,839,775 $ 107,353,804 $ 118,422,116 $ 119,997,585
Securities pledged to secure deposits and repurchase agreements at March 31, 2016 and December 31, 2015, had a carrying amount of $46.5 million and $48.0 million, respectively.
The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2016 and December 31, 2015. We believe that all unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below before recovery of their amortized cost.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Less Than 12 months 12 months or longer Total
Available for sale # Fair Value Unrealized Losses # Fair Value Unrealized Losses # Fair Value Unrealized Losses
As of March 31, 2016
U.S. Treasury Notes — $ — $ — — $ — $ — — $ — $ —
Government Sponsored Enterprises — — — — — — — — —
Municipal Securities 2 785,389 3,611 — — — 2 785,389 3,611
Total 2 $ 785,389 $ 3,611 — $ — $ — 2 $ 785,389 $ 3,611

As of December 31, 2015
U.S. Treasury Notes 2 $ 10,064,063 $ 45,360 — $ — $ — 2 $ 10,064,063 $ 45,360
Government Sponsored Enterprises 2 7,475,445 38,538 1 5,002,335 95,206 3 12,477,780 133,744
Municipal Securities 6 4,361,149 28,724 — — — 6 4,361,149 28,724
Total 10 $ 21,900,657 $ 112,622 1 $ 5,002,335 $ 95,206 11 $ 26,902,992 $ 207,828
We ~~classify investments into three categories as follows: (1) Held to Maturity - debt~~received proceeds from sales of securities ~~that we have the positive intent~~available for sale and ability to hold to maturity, which are reported at amortized cost, adjusted for the amortization of any related premiums or the accretion of any related discounts into interest income using a methodology which approximates a level yield of interest over the estimated remaining period until maturity; (2) Trading - debt and equity securities that are bought and held principally for the purpose of selling them in the near term, which are reported at fair value, with unrealizedgross realized gains and losses ~~included in earnings;~~as follows:
For the Three Months Ended
March 31,
2016 2015
Gross proceeds $ 15,629,464 $ 10,845,887
Gross realized gains 187,936 111,313
Gross realized losses — —
The tax provision related to these gains was $69,499 and (3) Available for Sale - debt and equity securities that may be sold under certain conditions, which are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity, net of income taxes. Unrealized losses on securities due to fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has occurred. Realized gains or losses on the sale of investments are recognized on a specific identification, trade date basis. All securities were classified as available for sale$41,186 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015, and at December 31, 2014. We do not have any mortgage-backed securities nor have we ever invested in mortgage-backed securities. (See “non-interest income” for discussion on the sale of investment securities.)

respectively.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
BANK OF SOUTH CAROLINA CORPORATION
~~Note 4: Mortgage Loans to be Sold~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We originate fixed and variable rate residential mortgage loans on a service release basis in the secondary market. Loans closed but not yet settled with an investor are carried in our loans held for sale portfolio.  These loans are fixed and variable rate residential mortgage loans that have been originated in our name and have closed.  Virtually all of these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with our customers.  Therefore, these loans present very little market risk.  We usually deliver to, and receive funding from, the investor within 30 to 60 days.  Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a “best efforts" basis. We are not obligated to deliver a loan or pay a penalty if a loan is not delivered to the investor. As a result of the short-term nature of these derivative contracts, the fair value of the mortgage loans held for sale in most cases is the same as the value of the loan amount at its origination.
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are provided for in a valuation allowance by charges to operations as a component of mortgage banking income. At September 30, 2015 and December 31, 2014, we had approximately $7.0 million and $7.3 million in mortgage loans held for sale, respectively. Gains or losses on sales of loans are recognized when control over these assets has been surrendered and are included in mortgage banking income in the consolidated statements of income.

Note 5:3: Loans and Allowance for Loan Losses
~~Loans are carried at principal amounts outstanding. Loan origination fees, net~~
Major classifications of ~~certain direct origination costs, are~~loans (net of deferred ~~and recognized as an adjustment to yield. Interest income on all loans is recorded on an accrual basis. The accrual of interest and the amortization of net~~ loan fees of $123,970 at March 31, 2016, and $118,188 at December 31, 2015) are generally discontinued and accrued interest amounts are reversed against interest income on loans which 1) are maintained on a cash basis because of deterioration in the financial condition of the borrower; 2) for which payment of full principal is not expected; or 3) upon which principal or interest has been in default for a period of 90 days or more. The accrual of interest, however, may continue on these loans if they are well secured, in the process of collection, and management deems it appropriate. If non-accrual loans decrease their past due status to less than 30 days for a period of six to nine months, they are reviewed individually by management to determine if they should be returned to accrual status. We define past due loans based on contractual payment and maturity dates.as follows:

March 31,
2016
December 31,
2015
Commercial Loans $ 52,101,572 $ 50,938,265
Commercial real estate:
Commercial real estate construction 1,160,893 1,005,118
Commercial real estate other 121,300,195 115,736,034
Consumer
Consumer real estate 73,239,469 69,777,307
Consumer other 5,523,504 5,165,981
253,325,633 242,622,705
Allowance for Loan losses (3,436,762 ) (3,417,827 )
Loans, net $ 249,888,871 $ 239,204,878

We ~~account for nonrefundable fees~~had $104.1 million and ~~costs associated~~$102.1 million of loans pledged as collateral to secure funding with ~~originating or acquiring loans by requiring that loan origination fees be recognized over~~ the ~~life of the related loan as an adjustment on the loan’s yield. Deferred loan fees were $108,939~~Federal Reserve Bank (“FRB”) Discount Window at ~~September 30, 2015~~March 31, 2016 and ~~$89,441~~ at December 31, ~~2014. Certain direct loan origination costs shall be recognized over~~2015, respectively.
Our portfolio grading analysis estimates the ~~life~~capability of the ~~related loan as a reduction of~~borrower to repay the ~~loan’s yield.~~
~~We account for impaired loans by requiring that all loans for which it is estimated that we will be unable to collect all amounts due according to the terms~~contractual obligations of the loan ~~agreement be recorded at the loan's fair value. Fair value may be determined~~agreements as scheduled. Our internal credit risk grading system is based ~~upon the present value of expected future cash flows discounted at the loan's effective interest rate, or the fair value of the collateral less cost to sell, if the loan is collateral dependent.~~on experience with similarly graded loans, industry best practices, and regulatory guidance.

~~Additional accounting guidance allows us~~Our internally assigned grades pursuant to ~~use existing methods for recognizing interest income on an impaired loan. The guidance also requires additional disclosures about how we estimate interest income related to our impaired loans.~~the Board-approved lending policy are as follows:

● Excellent(1) The borrowing entity has more than adequate cash flow, unquestionable strength, strong earnings and capital where applicable, and no overdrafts.
● Good(2) The Borrowing entity has dependable cash flow, better than average financial condition, good capital and usually no overdrafts.
● Satisfactory(3) The borrowing entity has adequate cash flow, satisfactory financial condition, explainable overdrafts (if any).
● Watch(4) The borrowing entity has generally adequate, yet inconsistent cash flow, cyclical earnings, weak capital, loan to/from stockholders, and infrequent overdrafts. The borrower has consistent yet sometimes unpredictable sales and growth.
● OAEM(5) The borrowing entity has marginal cash flow, occasional past dues, and frequent and unexpected working capital needs.
● Substandard(6) The borrowing entity has a cash flow barely sufficient to service debt, deteriorated financial condition, bankruptcy possible. The borrowing entity has declining sales, rising costs, and may need to look for secondary source of repayment.
● Doubtful(7) The borrowing entity has negative cash flow. Survival of the business is at risk, full repayment is unlikely, and there are frequent and unexplained overdrafts. The borrowing entity shows declining trends and no operating profits.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

When the ultimate collectability of an impaired loan's principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any amounts previously charged off. When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to interest income and then to principal.
● Loss(8) The borrowing entity has negative cash flow with no alternatives. Survival of the business is unlikely.

A loan is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). For this type of impaired loan, cash receipts are typically applied to principal and interest receivable in accordance with the terms of the restructured loan agreement. Interest income is recognized on these loans using the accrual method of accounting, provided they are performing in accordance with their restructured terms.
We believe that the allowance is adequate to absorb inherent losses in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires considerable judgment. Our judgments are based on numerous assumptions about current events which we believe to be reasonable, but which may or may not be valid. Thus there can be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio, in light of changing economic conditions and other relevant circumstances, will not require significant future additions to the allowance, thus adversely affecting our operating results.
The allowance is also subject to examination by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions and other adequacy tests. In addition, such regulatory agencies could require us to adjust our allowance based on information available to us at the time of our examination.
The methodology used to determine the reserve for unfunded lending commitments, which is included in other liabilities, is inherently similar to the methodology used to determine the allowance for loan losses adjusted for factors specific to binding commitments, including the probability of funding and historical loss ratio.
~~The following is a summary of the non-accrual loans as of September 30, 2015 and December 31, 2014.~~
September 30, 2015
Loans Receivable on Non-Accrual
Commercial $ —
Commercial Real Estate:
Commercial Real Estate - Construction —
Commercial  Real Estate - Other 1,400,600
Consumer:
Consumer Real Estate 82,015
Consumer - Other —
Total $ 1,482,615
December 31, 2014
Loans Receivable on Non-Accrual
Commercial $ —
Commercial Real Estate:
Commercial Real Estate - Construction —
Commercial Real Estate - Other 882,413
Consumer:
Consumer Real Estate —
Consumer - Other —
Total $ 882,413

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
~~The following is a schedule of our delinquent loans, excluding mortgage loans held for sale, as of September 30, 2015 and December 31, 2014.~~
September 30, 2015
30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Total Past Due Current Total Loans Receivable Recorded Investment > 90 Days and Accruing
Commercial $ 4,640 1,065,264 —   1,069,904 47,010,005 48,079,909 —
Commercial Real Estate:
Commercial Real Estate -Construction —   —   —   —   1,371,523 1,371,523 —
Commercial Real Estate -Other 187,359 696,206 685,271 1,568,836 118,209,088 119,777,924 89,500
Consumer:
Consumer- Real Estate 53,989 —   82,015 136,004 67,184,285 67,320,289 —
Consumer-Other 7,803 1,735 —   9,538 4,691,070 4,700,608 —
Total $ 253,792 1,763,204 767,286 2,784,282 238,465,971 241,250,253 89,500
December 31, 2014
30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Total Past Due Current Total Loans Receivable Recorded Investment > 90 Days and Accruing
Commercial $ 557,608 2,474 —   560,082 49,339,495 49,899,577 —
Commercial Real Estate:
Commercial Real Estate -Construction —   —   —   —   1,511,702 1,511,702 —
Commercial Real Estate -Other 229,607 589,705 1,665,673 2,484,985 113,254,697 115,739,682 1,274,119
Consumer:
Consumer- Real Estate —   —   —   —   62,054,983 62,054,983 —
Consumer-Other 17,468 —   —   17,468 4,894,380 4,911,848 —
Total $ 804,683 592,179 1,665,673 3,062,535 231,055,257 234,117,792 1,274,119
We grant short to intermediate term commercial and consumer loans to customers throughout our primary market area of Charleston, Berkeley and Dorchester Counties of South Carolina. Our primary market area is heavily dependent on tourism and medical services. Although we have a diversified loan portfolio, a substantial portion of our debtors' ability to honor their contracts is dependent upon the stability of the economic environment in their primary markets including the government, tourism and medical industries. The majority of the loan portfolio is located in our immediate market area with a concentration in Real Estate Related, Offices and Clinics of Medical Doctors, Real Estate Agents and Managers, and Legal Services.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
~~As of September 30, 2015 and December 31, 2014, loans individually evaluated and considered impaired are presented in the following table:~~
Impaired and Restructured Loans
For September 30, 2015
With no related allowance recorded: Unpaid
Principal
Balance Recorded
Investment Related
Allowance
Commercial $ 719,343 $ 719,343 $ —
Commercial Real Estate 2,670,690 2,670,690 —
Consumer Real Estate 450,053 450,053 —
Consumer Other 6,613 6,613 —

Total 3,846,699 3,846,699 —

With an allowance recorded:
Commercial 956,983 956,983 507,152
Commercial Real Estate 1,249,419 1,249,419 198,681
Consumer Real Estate 911,450 911,450 392,618
Consumer Other 97,171 97,171 97,171

Total 3,215,023 3,215,023 1,195,622
Grand Total $ 7,061,722 $ 7,061,722 $ 1,195,622
Impaired and Restructured Loans
As of December 31, 2014
With no related allowance recorded: Unpaid
Principal
Balance Recorded
Investment Related
Allowance
Commercial $ 634,865 $ 634,865 $ —
Commercial Real Estate 3,349,844 3,349,844 —
Consumer Real Estate 351,140 351,140 —
Consumer Other —   —   —

Total 4,335,849 4,335,849 —

With an allowance recorded:
Commercial 1,157,560 1,157,560 784,561
Commercial Real Estate 846,008 846,008 209,189
Consumer Real Estate 672,163 672,163 250,590
Consumer Other 39,547 39,547 39,547

Total 2,715,278 2,715,278 1,283,887
Grand Total $ 7,051,127 $ 7,051,127 $ 1,283,887

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2015 and 2014, respectively.
Average Recorded Investment and Interest Income
Impaired and Restructured Loans
For the Three Months Ended
September 30, 2015 September 30, 2014
With no related allowance recorded: Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest
Income Recognized
Commercial $ 736,376 $ 11,289 $ 591,490 $ 12,344
Commercial
Real Estate 2,689,602 37,625 3,212,538 40,197
Consumer
Real Estate 450,053 4,559 351,712 2,576
Consumer
Other 6,930 146 —   —

Total 3,882,961 53,619 4,155,740 55,117

With an allowance recorded:
Commercial 989,914 11,865 1,270,229 14,578
Commercial
Real Estate 1,253,113 14,333 1,794,000 21,349
Consumer
Real Estate 914,480 10,495 681,958 10,726
Consumer
Other 98,486 1,415 39,996 419

Total 3,255,993 38,108 3,786,183 47,072
Grand Total $ 7,138,954 $ 91,727 $ 7,941,923 $ 102,189

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
Average Recorded Investment and Interest Income
Impaired and Restructured Loans
For the Nine months Ended
September 30, 2015 September 30, 2014
With no related allowance recorded: Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest
Income Recognized
Commercial $ 763,464 $ 33,861 $ 603,268 $ 34,784
Commercial
Real Estate 2,646,960 111,164 3,298,665 100,952
Consumer
Real Estate 450,053 14,009 351,775 8,102
Consumer
Other 7,139 224 —   —

Total 3,867,616 159,258 4,253,708 143,838

With an allowance recorded:
Commercial 1,026,875 37,673 1,320,051 42,558
Commercial
Real Estate 1,254,696 43,702 1,803,242 61,062
Consumer
Real Estate 920,347 29,772 691,169 26,365
Consumer
Other 100,889 4,462 42,114 1,528

Total 3,302,807 115,609 3,856,576 131,513
Grand Total $ 7,170,423 $ 274,867 $ 8,110,284 $ 275,351
The following table illustrates credit risks by category and internally assigned grades at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014.~~2015. “Pass” includes loans internally graded as excellent, good and satisfactory.

September 30, 2015
Commercial Commercial
Real Estate
Construction Commercial
Real Estate
Other Consumer
Real Estate Consumer
Other Total

Pass $ 43,993,347 $ 935,506 $ 113,436,081 $ 63,862,429 $ 4,313,261 $ 226,540,624
Watch 1,033,532 436,017 1,221,544 1,992,556 254,295 4,937,944
OAEM 1,376,704 —   1,200,190 103,801 29,268 2,709,963
Sub-Standard 1,676,326 —   3,920,109 1,361,503 103,784 7,061,722
Doubtful —   —   —   —   —   —
Loss —   —   —   —   —   —

Total $ 48,079,909 $ 1,371,523 $ 119,777,924 $ 67,320,289 $ 4,700,608 $ 241,250,253

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
March 31, 2016
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Total
Pass $ 48,126,073 $ 730,876 $ 115,601,053 $ 69,362,054 $ 5,262,539 $ 239,082,595
Watch 1,010,043 430,017 926,678 2,471,241 133,234 4,971,213
OAEM 1,191,770 — 1,154,784 733,461 24,574 3,104,589
Substandard 1,773,686 — 3,617,680 672,713 103,157 6,167,236
Doubtful — — — — — —
Loss — — — — — —
Total $ 52,101,572 $ 1,160,893 $ 121,300,195 $ 73,239,469 $ 5,523,504 $ 253,325,633

December 31, 2014
Commercial Commercial
Real Estate
Construction Commercial
Real Estate
Other Consumer
Real Estate Consumer
Other Total

Pass $ 45,154,058 $ 1,062,185 $ 108,568,274 $ 58,744,677 $ 4,512,912 $ 218,042,106
Watch 2,401,715 —   1,697,883 1,818,923 276,557 6,195,078
OAEM 551,380 449,517 1,378,436 467,482 82,832 2,929,647
Sub-Standard 1,792,424 —   4,095,089 1,023,901 39,547 6,950,961
Doubtful —   —   —   —   —   —
Loss —   —   —   —   —   —

Total $ 49,899,577 $ 1,511,702 $ 115,739,682 $ 62,054,983 $ 4,911,848 $ 234,117,792
December 31, 2015
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Total
Pass $ 46,865,088 $ 572,101 $ 110,040,948 $ 65,941,806 $ 4,857,576 $ 228,277,519
Watch 1,096,200 433,017 940,073 2,490,339 175,489 5,135,118
OAEM 1,337,002 — 1,203,518 99,743 26,961 2,667,224
Substandard 1,639,975 — 3,551,495 1,245,419 105,955 6,542,844
Doubtful — — — — — —
Loss — — — — — —
Total $ 50,938,265 $ 1,005,118 $ 115,736,034 $ 69,777,307 $ 5,165,981 $ 242,622,705

The following tables include an aging analysis of the recorded investment of past-due financing receivable by class:
March 31, 2016
30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Total Past Due Current Total Loans Receivable Recorded Investment
> 90 Days and Accuring Interest
Commercial Loans $ 39,664 $ 1,054,310 — $ 1,093,974 $ 51,007,598 $ 52,101,572 $ —
Commercial real estate:
Commercial real estate construction — — — — 1,160,893 1,160,893 —
Commercial real estate other — 986,887 1,817,056 2,803,943 118,496,252 121,300,195 —
Consumer
Consumer real estate — — 150,255 150,255 73,089,214 73,239,469 —
Consumer other — 12,176 2,448 14,624 5,508,880 5,523,504 —
Total $ 39,664 $ 2,053,373 $ 1,969,759 $ 4,062,796 $ 249,262,837 $ 253,325,633 $ —
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Total Past Due Current Total Loans Receivable Recorded Investment
> 90 Days and Accuring Interest
Commercial Loans $ 1,162,676 $ 250,370 $ 4,317 $ 1,417,363 $ 49,520,902 $ 50,938,265 $ —
Commercial real estate:
Commercial real estate construction — — — — 1,005,118 1,005,118 —
Commercial real estate other 91,607 1,215,473 1,152,774 2,459,854 113,276,180 115,736,034 —
Consumer
Consumer real estate 68,240 249,754 82,015 400,009 69,377,298 69,777,307 —
Consumer other 69,333 58,116 6,056 133,505 5,032,476 5,165,981 1,606
Total $ 1,391,856 $ 1,773,713 $ 1,245,162 $ 4,410,731 $ 238,211,974 $ 242,622,705 $ 1,606
There were no loans at March 31, 2016 and one loan at December 31, 2015, over 90 days past due and still accruing interest. The following table ~~sets~~summarizes the balances of non-accrual loans:
Loans Receivable on Non-Accrual
For the Period Ending
March 31, 2016 December 31, 2015
Commercial Loans $ 3,862 $ 4,317
Commercial real estate:
Commercial real estate construction — —
Commercial real estate other 2,453,166 1,970,306
Consumer
Consumer real estate 150,255 82,015
Consumer other 4,857 4,450
Total $ 2,612,140 $ 2,061,088
The following tables set forth the changes in the allowance for loan losses and an allocation of the allowance by loan category for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~for the three and nine months ended September 30, 2014 and at December~~March 31, ~~2014. The allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.~~2015. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic ~~factors described above.~~
For the Three Months Ended
September 30, 2015
Commercial Commercial
Real Estate Consumer
Real Estate Consumer
Other Total
Allowance for Loan Losses
Beginning Balance June 30, 2015 $ 1,044,329 1,186,043 957,447 219,939 3,407,758
Charge-offs (99,737 ) (34,252 ) (6,075 ) (19,274 ) (159,338 )
Recoveries —   17,000 6,075 10,276 33,351
Provisions 3,450 100,935 (46,204 ) (50,681 ) 7,500
Ending Balance 948,042 1,269,726 911,243 160,260 3,289,271

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
As of and for the Nine Months Ended
September 30, 2015
Commercial Commercial
Real Estate Consumer
Real Estate Consumer
Other Total
Allowance for Loan Losses
Beginning Balance December 31, 2014 $ 1,211,130 $ 1,112,387 $ 906,255 $ 105,076 $ 3,334,848
Charge-offs (99,737 ) (55,252 ) (6,075 ) (40,007 ) (201,071 )
Recoveries 9,164 47,000 6,075 10,755 72,994
Provisions (172,515 ) 165,591 4,988 84,436 82,500
Ending Balance 948,042 1,269,726 911,243 160,260 3,289,271
Allowance for  Loan Losses Ending Balances:
Individually evaluated for impairment 507,152 198,681 392,618 97,171 1,195,622
Collectively evaluated for impairment 440,890 1,071,045 518,625 63,089 2,093,649
Investment in Loans Ending Balance:
Individually evaluated for impairment 1,676,326 3,920,109 1,361,503 103,784 7,061,722
Collectively evaluated for impairment $ 46,403,583 $ 117,229,338 $ 65,958,786 $ 4,596,824 $ 234,188,531
For the Three Months Ended
September 30, 2014
Commercial Commercial
Real Estate Consumer
Real Estate Consumer
Other Total
Allowance for Loan Losses
Beginning Balance June 30, 2014 $ 1,277,246 $ 1,317,450 $ 696,661 $ 88,451 $ 3,379,808
Charge-offs —   (15,834 ) —   (3,004 ) (18,838 )
Recoveries —   12,000 —   206 12,206
Provisions (23,077 ) (25,135 ) 44,219 16,493 12,500
Ending Balance 1,254,169 1,288,481 740,880 102,146 3,385,676

factors.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
March 31, 2016
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Total
Beginning Balance $ 896,854 $ 59,861 $ 1,345,094 $ 941,470 $ 174,548 $ 3,417,827
Charge-offs (33,045 ) — — — (1,050 ) (34,095 )
Recoveries 1,284 — 6,000 — 746 8,030
Provision 635,557 (15,593 ) (242,391 ) (328,228 ) (4,345 ) 45,000
Ending Balance $ 1,500,650 $ 44,268 $ 1,108,703 $ 613,242 $ 169,899 $ 3,436,762

As of and for the Nine Months Ended
September 30, 2014
Commercial Commercial
Real Estate Consumer
Real Estate Consumer
Other Total
Allowance for Loan Losses
Beginning Balance December 31, 2013 $ 1,448,804 $ 1,064,363 $ 694,950 $ 84,160 $ 3,292,277
Charge-offs —   (19,787 ) —   (7,133 ) (26,920 )
Recoveries —   31,100 —   26,719 57,819
Provisions (194,635 ) 212,805 45,930 (1,600 ) 62,500
Ending Balance 1,254,169 1,288,451 740,880 102,146 3,385,676
Allowance for  Loan Losses Ending Balances:
Individually evaluated for impairment 872,728 470,189 151,431 39,547 1,533,895
Collectively evaluated for impairment 381,441 738,704 589,449 62,599 1,851,781
Investment in Loans Ending Balance:
Individually evaluated for impairment 2,224,613 4,600,806 1,031,280 39,547 7,896,246
Collectively evaluated for impairment $ 46,495,983 $ 110,560,553 $ 59,724,271 $ 4,996,056 $ 221,776,863
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Total
Beginning Balance $ 1,211,130 $ 42,904 $ 1,112,387 $ 863,351 $ 105,076 $ 3,334,848
Charge-offs — — (21,000 ) — — (21,000 )
Recoveries — — 15,000 — 240 15,240
Provision (110,328 ) 1,792 85,335 (12,093 ) 40,294 5,000
Ending Balance $ 1,100,802 $ 44,696 $ 1,191,722 $ 851,258 $ 145,610 $ 3,334,088
~~Bank~~
The following tables present, by portfolio segment and reserving methodology, the allocation of ~~South Carolina Notes to Consolidated Financial Statements~~the allowance for loan losses and the gross investment in loans.
March 31, 2016
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Esate Consumer Other Total
Allowance for Loan Losses
Individually evaluated for impairment $ 1,103,564 $ — $ 338,142 $ 150,545 $ 103,157 $ 1,695,408
Collectively evaluated for impairment 397,086 44,268 770,561 462,697 66,742 1,741,354
Total Allowance for Losses $ 1,500,650 $ 44,268 $ 1,108,703 $ 613,242 $ 169,899 $ 3,436,762

Loan Receivable
Individually evaluated for impairment $ 1,773,687 $ — $ 4,020,095 $ 604,472 $ 171,397 $ 6,569,651
Collectively evaluated for impairment 50,327,885 1,160,893 117,280,100 72,634,997 5,352,107 246,755,982
Total Loans Receivable $ 52,101,572 $ 1,160,893 $ 121,300,195 $ 73,239,469 $ 5,523,504 $ 253,325,633
December 31, 2015
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Esate Consumer Other Total
Allowance for Loan Losses
Individually evaluated for impairment $ 387,979 $ — $ 253,105 $ 342,320 $ 100,103 $ 1,083,507
Collectively evaluated for impairment 508,875 59,861 1,091,989 599,150 74,445 2,334,320
Total Allowance for Losses $ 896,854 $ 59,861 $ 1,345,094 $ 941,470 $ 174,548 $ 3,417,827

Loan Receivable
Individually evaluated for impairment $ 1,639,974 $ — $ 3,551,495 $ 1,245,419 $ 105,819 $ 6,542,707
Collectively evaluated for impairment 49,298,291 1,005,118 112,184,539 68,531,888 5,060,162 236,079,998
Total Loans Receivable $ 50,938,265 $ 1,005,118 $ 115,736,034 $ 69,777,307 $ 5,165,981 $ 242,622,705
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2016 and December 31, 2015, loans individually evaluated and considered impaired are presented in the following table:
Impaired and Restructured Loans
As of
March 31, 2016 December 31, 2015
Unpaid Principal Balance Recorded Investment Related Allowance Unpaid Principal Balance Recorded Investment Related Allowance
With no related allowance recorded:
Commercial $ 670,123 $ 670,123 $ — $ 692,831 $ 692,831 $ —
Commercial Real Estate Construction — — — — — —
Commercial Real Estate Other 2,686,274 2,686,274 — 2,476,018 2,476,018 —
Consumer Real Estate 450,402 450,402 — 450,402 450,402 —
Consumer Other 68,240 68,240 — 5,715 5,715 —
$ 3,875,039 $ 3,875,039 $ — $ 3,624,966 $ 3,624,966 $ —

With an allowance recorded:
Commercial $ 1,103,564 $ 1,103,564 $ 1,103,564 $ 947,143 $ 947,143 $ 387,979
Commercial Real Estate Construction — — — — — —
Commercial Real Estate Other 1,333,821 1,333,821 338,142 1,075,477 1,075,477 253,105
Consumer Real Estate 154,070 154,070 150,545 795,017 795,017 342,320
Consumer Other 103,157 103,157 103,157 100,104 100,104 100,103
$ 2,694,612 $ 2,694,612 $ 1,695,408 $ 2,917,741 $ 2,917,741 $ 1,083,507
Total
Commercial $ 1,773,687 $ 1,773,687 $ 1,103,564 $ 1,639,974 $ 1,639,974 $ 387,979
Commercial Real Estate Construction — — — — — —
Commercial Real Estate Other 4,020,095 4,020,095 338,142 3,551,495 3,551,495 253,105
Consumer Real Estate 604,472 604,472 150,545 1,245,419 1,245,419 342,320
Consumer Other 171,397 171,397 103,157 105,819 105,819 100,103
$ 6,569,651 $ 6,569,651 $ 1,695,408 $ 6,542,707 $ 6,542,707 $ 1,083,507
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents average impaired loans and interest income recognized on those impaired loans, by class segment, for the periods indicated.
Three Months Ended
March 31, 2016 March 31, 2015
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
With no related allowance recorded:
Commercial $ 1,106,771 $ 16,647 $ 784,435 $ 11,992
Commercial Real Estate Construction — — — —
Commercial Real Estate Other 1,334,158 6,705 3,290,380 42,894
Consumer Real Estate 154,105 1,119 522,468 5,385
Consumer Other 106,011 2,374 — —
$ 2,701,045 $ 26,845 $ 4,597,283 $ 60,271
With an allowance recorded:
Commercial $ 682,992 $ 11,033 $ 1,176,492 $ 13,207
Commercial Real Estate Construction — — — —
Commercial Real Estate Other 2,650,492 29,127 1,111,464 12,938
Consumer Real Estate 450,403 6,742 748,701 5,431
Consumer Other 68,240 — 88,346 1,400
$ 3,852,127 $ 46,902 $ 3,125,003 $ 32,976
Total
Commercial $ 1,789,763 $ 27,680 $ 1,960,927 $ 25,199
Commercial Real Estate Construction — — — —
Commercial Real Estate Other 3,984,650 35,832 4,401,844 55,832
Consumer Real Estate 604,508 7,861 1,271,169 10,816
Consumer Other 174,251 2,374 88,346 1,400
$ 6,553,172 $ 73,747 $ 7,722,286 $ 93,247

~~TDR’s~~Restructured loans (loans, still accruing interest, which have been renegotiated at below-market interest rates or for which other concessions have been granted) were ~~$433,743~~$451,264 (3 loans) and ~~$466,541~~$458,268 (3 loans) at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, respectively. Restructured loans were granted extended payment terms with no principal reduction. All restructured loans ~~were renegotiated to allow multiple principal extensions and~~ were performing as agreed as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, respectively.
There were no additional loans identified as a ~~TDR~~troubled debt restructuring (“TDR”) during ~~the nine months ended September 30, 2015. There were no loans identified as a TDR that were in default as of September 30, 2015 or as of December 31, 2014.~~
~~Note 6: Premises, Equipment and Leasehold Improvements and Depreciation~~
Buildings and equipment are carried at cost less accumulated depreciation, calculated on the straight-line method over the estimated useful life of the related assets - 40 years for buildings and 3 to 15 years for equipment. Amortization of leasehold improvements is recorded using the straight-line method over the lesser of the estimated useful life of the asset or the term of the lease. Maintenance and repairs are charged to operating expenses as incurred.
~~Note 7: Concentration of Credit Risk~~
Our primary market consists of the Counties of Berkeley, Charleston and Dorchester, South Carolina. At September 30, 2015 and December 31, 2014, the majority of the total loan portfolio, as well as a substantial portion of the commercial and real estate loan portfolios, were to borrowers within this region. No other areas of significant concentration of credit risk have been identified.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
~~Note 8: Other Real Estate Owned~~
Other real estate owned (“OREO”) is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral, or our estimation of the value of the collateral. Gains and losses on the sale of OREO and subsequent write-downs from periodic re-evaluation are charged to Other Operating Income. We had two properties valued at $620,394 classified as OREO at September 30, 2015 and one property valued at $521,943 at December 31, 2014. A property valued at $35,473 classified as OREO sold at a gain of $2,382 during the year ended December 31, 2014.
~~The following table summarizes the activity in OREO at September 30, 2015 and December 31, 2014.~~
September 30, December 31,
2015 2014
Balance, beginning of period $ 521,943 $ —
Additions-foreclosure 98,451 557,416
Sales —   35,473
Write-downs —   —
Balance, end of period $ 620,394 $ 521,943
~~Note 9: Income Taxes~~
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net deferred tax assets are included in other assets in the consolidated balance sheet.
Accounting standards require the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. These standards also prescribe a recognition threshold and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. We believe that we had no uncertain tax positions as of September 30, 2015 or December 31, 2014.
~~Note 10: Stock Based Compensation~~
The shareholders of the Company voted at the Company’s Annual Meeting, April 13, 2010 to approve the 2010 Omnibus Stock Incentive Plan, including 363,000 shares (adjusted for a 10% stock dividend declared on August 26, 2010 and a 10% stock dividend declared on August 27, 2015) reserved under the plan (copy of the plan was filed with 2010 Proxy Statement). This plan is intended to assist the Company in recruiting and retaining employees with ability and initiative by enabling employees to participate in its future success and to align their interest with those of the Company and its shareholders. Under the Omnibus Stock Incentive Plan, options are periodically granted to employees at a price not less than 100% of the fair market value of the shares at the date of the grant. All employees are eligible to participate in this plan if the Executive Committee, in its sole discretion, determines that such person has contributed or can be expected to contribute to the profits or growth of the Company or its subsidiary. Options may be exercised in whole at any time or in part from time to time at such times and in compliance with such requirements as the Executive Committee shall determine. The maximum period in which an option may be exercised is determined at the date of grant and shall not exceed 10 years from the date of grant.
~~The options are not transferable except by will or by the laws of descent and distribution.~~
On April 23, 2015, the Executive Committee granted options to purchase an aggregate of 20,350 shares to nine employees. Fair value was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield 4.13%, historical volatility 19.62%, risk free interest rate of 1.96%. In addition, the Executive Committee granted options to purchase 3,300 shares to an employee on June 29, 2015. Fair value was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield 4.13%, historical volatility 19.62%, risk free interest rate of 1.96%.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
On July 24, 2014, the Executive Committee granted options to purchase an aggregate of 11,000 shares to twelve employees. Fair value was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield 3.74%, historical volatility 31.69%, risk free interest rate of 2.52% and an expected life of 10 years.
On April 14, 1998, the Company adopted the 1998 Omnibus Stock Incentive Plan which expired on April 14, 2008. Options can no longer be granted under the 1998 Plan. Options granted before April 14, 2008, shall remain valid in accordance with their terms. There are currently options to purchase 19,017 shares outstanding under this plan with options to purchase 13,209 shares exercisable.
~~All of the above shares subject to options have been adjusted to reflect a 10% stock dividend declared on August 27, 2015.~~
Under both plans, employees become 20% vested after five years and vest 20% each year until fully vested. The right to exercise each such 20% of the options is cumulative and will not expire until the tenth anniversary of the date of the grant.
The following is a summary of the activity under the 1998 and 2010 Omnibus Stock Incentive Plan for the three and nine months ended September 30, 2015 and for the three and nine months ended September 30, 2014.
Three Months Ended September 30, 2015 Options Weighted Average Exercise Price

Balance at July 1, 2015 187,042 $ 10.84
Forfeited (1,925 ) 13.49
Balance at September 30, 2015 185,117 10.81

Nine months Ended September 30, 2015 Options Weighted Average Exercise Price

Balance at January 1, 2015 176,181 $ 10.48
Forfeited (6,326 ) 11.88
Exercised (8,388 ) 13.51
Granted 23,650 14.48
Balance at September 30, 2015 185,117 10.81

Three months Ended September 30, 2014 Options Weighted Average Exercise Price

Balance at July 1, 2014 168,206 $ 10.03
Granted 11,000 13.49
Forfeited (1,375 ) 11.67
Balance at September 30, 2014 177,831 10.23

Nine months Ended September 30, 2014 Options Weighted Average Exercise Price

Balance at January 1, 2014 175,081 $ 10.03
Granted 11,000 13.49
Forfeited (5,500 ) 10.73
Exercised (2,750 ) 9.47
Balance at September 30, 2014 177,831 10.23

Options exercisable at September 30, 2015 13,209 $ 13.41
~~All shares and exercise prices per share have been adjusted to reflect a 10% stock dividend declared on August 27, 2015.~~

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
~~Note 11: Income Per Common Share~~
Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the weighted-average number of common shares and potential common shares outstanding. Potential common shares consist of dilutive stock options determined using the treasury stock method and the average market price of common stock.
~~The following table is a summary of dividends declared during the nine months ended September 30, 2015 and the nine months ended September 30, 2014.~~
~~Quarterly Dividend~~ ~~Date Declared~~ ~~Date of Record~~ ~~Date Payable~~
~~$.13~~ ~~March 26, 2015~~ ~~April 7, 2015~~ ~~April 30, 2015~~
~~$.13~~ ~~June 25, 2015~~ ~~July 6, 2015~~ ~~July 31, 2015~~
~~$.13~~ ~~September 24, 2015~~ ~~October 5, 2015~~ ~~October 30, 2015~~
~~Quarterly Dividend~~ ~~Date Declared~~ ~~Date of Record~~ ~~Date Payable~~
~~$.13~~ ~~March 27, 2014~~ ~~April 8, 2014~~ ~~April 30, 2014~~
~~$.13~~ ~~June 26, 2014~~ ~~July 7, 2014~~ ~~July 31, 2014~~
~~$.13~~ ~~September 25, 2014~~ ~~October 8, 2014~~ ~~October 31, 2014~~
~~Special $.10~~ ~~September 25, 2014~~ ~~October 8, 2014~~ ~~October 31, 2014~~
~~Income per common share for the three and nine months ended September 30, 2015 and for the three and nine months ended September 30, 2014 was calculated as follows:~~
~~All shares have been adjusted to reflect a 10% stock dividend declared August 27, 2015.~~
For The Three Months Ended September 30, 2015
Income
(Numerator) Shares
Weighted
Average
(Denominator) Per Share
Amount

Net income $ 1,198,919

Basic income available to
common shareholders $ 1,198,919 4,915,610 $ .24

Effect of dilutive options 146,075

Diluted income available to common
shareholders $ 1,198,919 5,061,685 $ .24
For The Nine Months Ended September 30, 2015
Income
(Numerator) Shares
Weighted
Average
(Denominator) Per Share
Amount

Net income $ 3,657,316

Basic income available to
common shareholders $ 3,657,316 4,911,142 $ .74

Effect of dilutive options 151,553

Diluted income available to common
shareholders $ 3,657,316 5,062,695 $ .72

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
For The Three Months Ended September 30, 2014
Income
(Numerator) Shares
Weighted
Average
(Denominator) Per Share
Amount

Net income $ 1,141,713

Basic income available to
common shareholders $ 1,141,713 4,907,203 $ .23

Effect of dilutive options 112,879

Diluted income available to common
shareholders $ 1,141,713 5,020,082 $ .23
For The Nine Months Ended September 30, 2014
Income
(Numerator) Shares
Weighted
Average
(Denominator) Per Share
Amount

Net income $ 3,207,438

Basic income available to
common shareholders $ 3,207,438 4,907,203 $ .65

Effect of dilutive options 112,702

Diluted income available to common
shareholders $ 3,207,438 5,019,905 $ .64
The future payment of cash dividends is subject to the discretion of the Board of Directors and depends upon a number of factors, including future earnings, financial condition, cash requirements, and general business conditions. Cash dividends when declared, are paid by the Bank to the Company for distribution to shareholders of the Company. The Bank’s ability to pay dividends to the Company is restricted by the laws and regulations of the State of South Carolina. Generally, these restrictions allow the Bank to pay dividends from current earnings without the prior written consent of the South Carolina Commissioner of Banking, if it received a satisfactory rating at its most recent examination.
~~Note 12: Comprehensive Income~~
We apply accounting standardswhich establish guidance for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income consists of net income and net unrealized gains or losses on available for sale securities.
~~Comprehensive income totaled $1,701,435 and $1,060,397 for~~ the three months ended ~~September 30, 2015 and 2014, respectively and $3,869,941 and $3,298,203 for~~March 31, 2016 or 2015. No TDRs defaulted during the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014, respectively.~~which were modified within the previous twelve months.

Note ~~13: Segment Information~~
We report operating segments in accordance with accounting standards. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Financial Officer/Executive Vice President in deciding how to allocate resources and assess performance. Accounting standards require that a public enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the way that the operating segments were determined and other items. The Company has one reporting segment, The Bank of South Carolina.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
~~Note 14: Derivative Instruments~~
Accounting standards require that all derivative instruments be recorded on the balance sheet at fair value. The accounting for the gain or loss due to change in fair value of the derivative instrument depends on whether the derivative instrument qualifies as a hedge. If the derivative does not qualify as a hedge, the gains or losses are reported in earnings when they occur. However, if the derivative instrument qualifies as a hedge, the accounting varies based on the type of risk being hedged.
We had no embedded derivative instruments requiring separate accounting treatment. We had freestanding derivative instruments consisting of fixed rate conforming loan commitments as interest rate locks and commitments to sell fixed rate conforming loans on a best efforts basis. We do not currently engage in hedging activities. Based on short term fair value of the mortgage loans held for sale (derivative contract), our derivative instruments were immaterial to our consolidated financial statements as of September 30, 2015 and September 30, 2014.
~~Note 15:~~4: Disclosure Regarding Fair Value ~~Measurements~~of Financial Statements
Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is ~~defined as~~ the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market ~~for an asset or liability~~ in an orderly transaction between market participants at the measurement date. ~~Fair~~An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. The fair value isstandard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs, which are developed based on ~~the assumptions~~market data we have obtained from independent sources, are ones that ~~we believe~~ market participants would use ~~when~~in pricing an asset or liability. ~~Fair value measurement and disclosure guidance establishes a three-level~~Unobservable inputs, which are developed based on the best information available in the circumstances, reflect our estimate of assumptions that market participants would use in pricing an asset or liability.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value hierarchy ~~that prioritizes~~gives the ~~use~~highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs ~~used in valuation methodologies.~~
~~The three levels of input that may be used to measure fair value are the following:~~as follows:

● Level 11: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.
~~Valuation~~● Level 2: valuation is based upon quoted market prices ~~(unadjusted)~~for similar instruments traded in active markets, quoted market prices for identical ~~assets~~ or ~~liabilities that we have the ability to access.  Level 1 assets and liabilities include debt and equity securities and derivative contracts~~similar instruments traded in markets that are ~~traded in an~~not active ~~exchange market, as well as US Treasuries~~ and ~~money market funds.~~
~~Level 2~~ ~~Valuation is based upon quoted prices~~model-based valuation techniques for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.  Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities and derivative contracts whose value is determined using a pricing model with inputs thatwhich all significant assumptions are observable in the market or can be ~~derived principally from or~~ corroborated by ~~observable~~ market data.  ~~This category generally includes certain derivative contracts and impaired loans.~~
● Level 3 ~~Valuation~~3: valuation is ~~generated~~derived from ~~model-based~~other valuation methodologies, including discounted cash flow models and similar techniques that use ~~at least one~~ significant ~~assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own~~ assumptions as there is little, if any, related market activity.  In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the levelnot observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.  The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.value.

~~Bank~~Fair value estimates are made at a specific point of ~~South Carolina Notes~~time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale our entire holdings of a particular financial instrument. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based on judgements regarding future expected loss experience, current economic conditions, current interest rates and prepayment trends, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in any of these assumptions used in calculating fair value also would affect significantly the estimates. In addition, the tax ramifications related to ~~Consolidated Financial Statements~~the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

The ~~guidance requires disclosures about the fair value~~following is a description of valuation methodologies used for assets and liabilities ~~recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made~~recorded at fair value on a recurring ~~basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans). Fair value estimates, methods, and assumptions are set forth below.~~basis:

Investment Securities Available for Sale
Securities available for sale are recorded at fair value on a recurring basis and are based upon quoted prices if available. If quoted prices are not available, fair ~~values are~~value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, or by dealers or brokers in active over-the counter markets. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Derivative Instruments
Derivative instruments include interest rate lock commitments and forward sale commitments. These instruments are valued based on the change in the value of the underlying loan between the commitment date and the end of the period. We classify these instruments as Level 3. The fair value of these commitments was not significant at March 31, 2016 or December 31, 2015.
We had no embedded derivative instruments requiring separate accounting treatment. We had freestanding derivative instruments consisting of fixed rate conforming loan commitments as interest rate locks and commitments to sell fixed rate conforming loans on a best efforts basis. We do not currently engage in hedging activities. Based on short term fair value of the mortgage loans held for sale (derivative contract), our derivative instruments were immaterial to our consolidated financial statements as of March 31, 2016 and December 31, 2015.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and liabilities measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015 are as follows:
March 31, 2016
Quoted Market Price in
Active Markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
U.S. Treasury Notes $ 24,242,344 $ — $ — $ 24,242,344
Government-Sponsored Enterprises — 46,916,408 — 46,916,408
Municipal Securities — 30,945,701 5,249,351 36,195,052
Total $ 24,242,344 $ 77,862,109 $ 5,249,351 $ 107,353,804
December 31, 2015
Quoted Market Price in
Active Markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
U.S. Treasury Notes $ 34,633,673 $ — $ — $ 34,633,673
Government-Sponsored Enterprises — 51,284,332 — 51,284,332
Municipal Securities — 28,861,902 5,217,678 34,079,580
Total $ 34,633,673 $ 80,146,234 $ 5,217,678 $ 119,997,585
There were no liabilities recorded at fair value on a recurring basis as of March 31, 2016 or December 31, 2015.
The following table reconciles the changes in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2016 and the three months ended March 31, 2015:
March 31,
2016 March 31,
2015
Beginning Balance $ 5,217,678 $ 1,377,089
Total gains or (losses) (realized/unrealized) included in earnings — —
Included in other comprehensive income 31,673 (8,646 )
Purchases, issuances and settlements — —
Transfers in and/or out of level 3 — —
Ending balance $ 5,249,351 $ 1,368,443
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no transfers between fair value levels during the three months ended March 31, 2016 or March 31, 2015.
Following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:
Other Real Estate Owned (OREO)
Loans, secured by real estate, are adjusted to the lower of the recorded investment in the loan or the fair value of the real estate upon transfer to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or our estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraisal, we record the asset as nonrecurring Level 2. When an appraised value is not available or we determine the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the asset as nonrecurring Level 3. ~~We had two properties valued at $620,394 and one property valued at $521,943 classified as OREO at September 30, 2015 and December 31, 2014, respectively.~~
~~Impaired Loans~~
We do not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans are reviewed for impairment on a quarterly basis if any of the following criteria are met:

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

~~Once a loan is identified as individually impaired, we measure~~Impaired loans are carried at the ~~impairment in accordance with Accounting Standards Codification (“ASC”) 310-10, “Accounting by Creditors for Impairment~~lower of ~~a Loan”.~~
~~In accordance with this standard, the~~recorded investment or fair ~~value is estimated using one of the following methods: fair value of the collateral less estimated costs to sell, discounted cash flows, or market value of the loan based on similar debt.~~value. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, we review the most recent appraisal and if it is over 12 to 18 months old we may request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, we may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. Specifically as an example, in situations where the collateral on a nonperforming commercial real estate loan is out of our primary market area, we would typically order an independent appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following the determination that the loan is impaired. However, as a second example, on a nonperforming commercial real estate loan where we are familiar with the property and surrounding areas and where the original appraisal value far exceeds the recorded investment in the loan, we may perform an internal analysis whereby the previous appraisal value would be reviewed considering recent current conditions, and known recent sales or listings of similar properties in the area, and any other relevant economic trends. This analysis may result in the call for a new appraisal. These valuations are reviewed and updated on a quarterly basis.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2015 and December 31, 2014, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with ~~topic ASC~~Accounting Standards Codification (“ASC”) 820 “Fair Value Measurement”, impaired loans, where an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. ~~We record the impaired loan as nonrecurring Level 3.~~
~~Assets and liabilities measured at fair value on a recurring basis at September 30, 2015~~At March 31, 2016 and December 31, ~~2014 are as follows:~~
Balance at
September 30, 2015
Quoted Market Price in active markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
US Treasury
Notes $ 29,908,712 $ —   $ —   $ 29,908,712
Government Sponsored
Enterprises —   51,653,088 —   51,653,088
Municipal Securities —   29,240,720 5,199,347 34,440,067
Total $ 29,908,712 $ 80,893,808 $ 5,199,347 $ 116,001,867
Balance at
December 31, 2014
Quoted Market Price in active markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
US Treasury
Notes $ 29,248,281 $ —   $ —   $ 29,248,281
Government Sponsored
Enterprises —   50,142,649 —   50,142,649
Municipal Securities —   33,226,093 1,377,089 34,603,182
Total $ 29,248,281 $ 83,368,742 $ 1,377,089 $ 113,994,112
~~There were no liabilities carried at fair value on a recurring basis as of September 30,~~ 2015, ~~or December 31, 2014.~~

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
~~Mortgage Loans Held for Sale~~
We originate fixed and variable rate residential mortgage loans on a service release basis in the secondary market. Loans closed but not yet settled with an investor are carried in our loans held for sale portfolio.  These loans are fixed and variable rate residential mortgage loans that have been originated in our name and have closed.  Virtuallysubstantially all of ~~these loans have commitments to be purchased by investors and~~ the ~~majority of these~~impaired loans were ~~locked in by price with the investors~~evaluated based on the same day or shortly thereafter that the loan was locked in with our customers.  Therefore, these loans present very little market risk.  We usually deliver to, and receive funding from, the investor within 30 to 60 days.  Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a “best efforts" basis. We are not obligated to deliver a loan or pay a penalty if a loan is not delivered to the investor. As a result of the short-term nature of these derivative contracts, the fair value of the collateral. These impaired loans are classified as Level 3. Impaired loans measured using discounted future cash flows are not deemed to be measured at fair value.
Loans Held for Sale
Loans held for sale include mortgage loans and are carried at the lower of cost or market value. The fair values of mortgage loans held for sale ~~in most cases is~~are based on current market rates from investors within the ~~same as the~~secondary market for loans with similar characteristics. Carrying value ~~of the loan amount at its origination.~~approximates fair value. These loans are classified as Level 2.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents ~~the collaterally dependent~~information about certain assets and liabilities ~~carried~~measured at fair value on ~~the balance sheet by caption and by level within the valuation hierarchy (as described above) as of September 30, 2015,~~a nonrecurring basis at March 31, 2016, and December 31, ~~2014, for which a nonrecurring change in fair value has been recorded as of September 30, 2015 and December 31, 2014.~~2015:

September 30, 2015
Quoted Market Price in active markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
Impaired loans $ —   $ —   $ 5,866,100 $ 5,866,100
Other real estate owned —   —   620,394 620,394
Total $ —   $ —   $ 6,486,494 $ 6,486,494
March 31, 2016
Quoted Market Price in Active Markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
Impaired loans $ — $ — $ 4,874,243 $ 4,874,243
Other real estate owned — — 521,943 521,943
Loans held for sale — 3,929,539 — 3,929,539
Total $ — $ 3,929,539 $ 5,396,186 $ 9,325,725

December 31, 2014
Quoted Market Price in active markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
Impaired loans $ —   $ —   $ 5,767,240 $ 5,767,240
Other real estate owned —   —   521,943 521,943
Total $ —   $ —   $ 6,289,183 $ 6,289,183
December 31, 2015
Quoted Market Price in Active Markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
Impaired loans $ — $ — $ 5,459,200 $ 5,459,200
Other real estate owned — — 620,394 620,394
Loans held for sale — 5,820,239 — 5,820,239
Total $ — $ 5,820,239 $ 6,079,594 $ 11,899,833

There were no liabilities ~~carried~~measured at fair value on a nonrecurring basis as of ~~September 30, 2015~~March 31, 2016 or December 31, ~~2014.~~2015.

The following table provides information describing the unobservable inputs used in Level 3 fair value ~~measurement~~measurements at ~~September 30, 2015 and December~~March 31, ~~2014.~~

~~Bank of South Carolina Notes to Consolidated Financial Statements~~2016:

Inputs
Valuation Technique Unobservable Input General Range of Inputs
~~Nonrecurring measurements:~~
Impaired Loans Discounted Appraisals Collateral Discounts ~~0-25%~~0 – 35%
Other Real Estate Owned
Appraisal Value/ Comparison Sales/Other Estimates Appraisals and/or Sales of Comparable Properties Appraisals Discounted 10% to 20% for Sales Commissions and Other Holding Costs

Accounting standards require disclosure of fair value information ~~about~~for all of our assets and liabilities that are considered financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate fair value. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and the relevant market information. When available, quoted market prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, prepayments, and estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may or may not be realized in an immediate sale of the instrument.

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the accounting standard, fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of the assets and liabilities that are not financial instruments. Accordingly, the aggregate fair value amounts of existing financial instruments do not represent the underlying value of those instruments on our books.

The following describes the methods and assumptions we use in estimating the fair values of financial instruments:

a. Cash and due from banks, interest-bearing deposits in other banks
The carrying value approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.
b. Investment securities available for sale
The fair value of investment securities is derived from quoted market prices.
c. Loans
The carrying values of variable rate consumer and commercial loans and consumer and commercial loans with remaining maturities of three months or less, approximate fair value. The fair values of fixed rate consumer and commercial loans with maturities greater than three months are determined using a discounted cash flow analysis and assume the rate being offered on these types of loans at March 31, 2016 and December 31, 2015, approximate market.
The carrying value of mortgage loans held for sale approximates fair value. For lines of credit, the carrying value approximates fair value.
d. Deposits
The estimated fair value of deposits with no stated maturity is equal to the carrying amount. The fair value of time deposits is estimated by discounting contractual cash flows, using interest rates currently being offered on the deposit products. The fair value estimates for deposits do not include the benefit that results from the low cost funding provided by the deposit liabilities as compared to the cost of alternative forms of funding (deposit base intangibles).
d. Short-term borrowings
The carrying amount approximates fair value due to the short-term nature of these instruments.
e. Accrued interest receivable and payable
Since these financial instruments will typically be received or paid within three months, the carrying amounts of such instruments are deemed to be a reasonable estimate of fair value.
f. Loan commitments
Estimates of the fair value of these off-balance sheet items are not made because of the short-term nature of these arrangements and the credit standing of the counterparties.
The following presents the carrying ~~value approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.~~
b.~~Investment securities available for sale~~
~~The~~amount, fair value, and placement in the fair value hierarchy of ~~investment securities is derived from quoted market prices.~~
c.~~Loans~~
~~The carrying values~~our financial instruments as of variable rate consumer and commercial loans and consumer and commercial loans with remaining maturities of three months or less, approximate fair value. The fair values of fixed rate consumer and commercial loans with maturities greater than three months are determined using a discounted cash flow analysis and assume the rate being offered on these types of loans at September 30, 2015March 31, 2016 and December 31, ~~2014, approximate market.~~
~~The carrying value of mortgage loans held for sale approximates fair value.~~
2015. For ~~lines of credit,~~short-term financial assets such as cash and cash equivalents, the carrying ~~value approximates fair value.~~
d.~~Deposits~~
~~The estimated fair value~~amount is a reasonable estimate of deposits with no stated maturity is equal to the carrying amount. The fair value of time deposits is estimated by discounting contractual cash flows, by applying interest rates currently being offered on the deposit products. The fair value estimates for deposits do not include the benefit that results from the low cost funding provided by the deposit liabilities as compared to the cost of alternative forms of funding (deposit base intangibles).

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
e.~~Short-term borrowings~~
~~The carrying amount approximates~~ fair value due to the ~~short-term nature~~relatively short time between the origination of ~~these instruments.~~the instrument and its expected realization.

~~The following table~~BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3
Financial Assets:
Cash and due from banks $ 7,622,989 $ 7,622,989 $ 7,622,989 $ $
Interest-bearing deposits in other banks 30,503,030 30,503,030 30,503,030
Investments available for sale 107,353,804 107,353,804 24,242,344 77,862,109 5,249,351
Mortgage loans to be sold 3,929,539 3,929,539 3,929,539
Loans 253,325,633 253,194,574 253,194,574
Accrued interest receivable 1,040,677 1,040,677 1,040,677
Financial Liabilities:
Demand deposits 308,917,075 308,917,075 308,917,075
Time deposits 52,752,227 52,764,119 52,764,119
Accrued interest payable 66,634 66,634 66,634
December 31, 2015
Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3
Financial Assets:
Cash and due from banks $ 5,295,924 $ 5,295,924 $ 5,295,924 $ $
Interest-bearing deposits in other banks 23,898,862 23,898,862 23,898,862
Investments available for sale 119,997,585 119,997,585 34,633,673 80,146,234 5,217,678
Mortgage loans to be sold 5,820,239 5,820,239 5,820,239
Loans 242,622,705 242,581,154 242,581,154
Accrued interest receivable 1,284,063 1,284,063 1,284,063
Financial Liabilities:
Demand deposits 303,950,800 303,950,800 303,950,800
Time deposits 54,767,812 54,780,915 54,780,915
Accrued interest payable 73,421 73,421 73,421
Note 5: Income Per Common Share
Basic income per share is ~~a summary~~computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the ~~carrying value~~weighted-average number of common shares and ~~estimated fair value~~potential common shares outstanding. Potential common shares consist of dilutive stock options determined using the treasury stock method and the average market price of common stock.
  March 31,
2016 March 31,
2015
Numerator:
Net Income $ 1,195,736 $ 1,204,960

Denominator:
Weighted average shares outstanding 4,917,334 4,907,223
Effect of dilutive shares 150,229 147,464
Weighted average shares outstanding-diluted 5,067,563 5,054,687
Earnings per share
Basic $ 0.24 $ 0.25
Diluted $ 0.24 $ 0.24
On August 27, 2015, the Company’s ~~financial instruments as~~Board of Directors declared a ten percent stock dividend to our shareholders. The record date was September ~~30,~~8, 2015 and ~~December 31, 2014:~~
September 30, 2015
Carrying
Amount Estimated
Fair Value Level
1 Level
2
Level
3
Financial Assets:
Cash and due from banks $ 6,516,874 $ 6,516,874 6,516,874 —   —
   Interest-bearing deposits in other banks 12,468,073 12,468,073 12,468,073 —   —
   Investments available for sale 116,001,867 116,001,867 29,908,712 80,893,808 5,199,347
   Mortgage loans to be sold 7,018,137 7,018,137 —   7,018,137 —
   Loans 241,250,253 241,286,861 —   —   241,286,861
Financial Liabilities:
   Deposits 343,752,504 344,467,342 —   344,467,342 —
Notional Amount Fair Value
Off-Balance Sheet Financial Instruments:

   Commitments to extend credit $ 82,753,090 $ —   $ —   —   $ —
   Standby letters of credit 567,427 —   —   —   —

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
December 31, 2014
Carrying
Amount Estimated
Fair Value Level
1 Level
2
Level
3
Financial Assets:
Cash and due from banks $ 4,698,435 $ 4,698,435 4,698,435 —   —
   Interest-bearing deposits in other banks 5,680,613 5,680,613 5,680,613 —   —
   Investments available for sale 113,994,112 113,994,112 29,248,281 83,368,742 1,377,089
   Mortgage loans to be sold 7,325,081 7,325,081 —   7,325,081
   Loans 234,117,792 234,204,303 —   —   234,204,303
Financial Liabilities:
   Deposits 322,419,027 322,435,308 —   322,435,308 —
Notional Amount Fair Value
Off-Balance Sheet Financial Instruments:

   Commitments to extend credit $ 62,597,548 $ —   $ —   —   $ —
   Standby letters of credit 577,943 —   —   —   —
~~Note 16: Recently Issued Accounting Pronouncements~~
~~The following is a summary of recent authoritative pronouncements that could impact~~ the ~~accounting, reporting and/or disclosure of financial information by the Company.~~
In January 2014, the Financial Accounting Standards Board (“FASB”) amended the Receivables topic of the Accounting Standards Codification. The amendments are intended to resolve diversity in practice with respect to when a creditor should reclassify a collateralized consumer mortgage loan to OREO. In addition, the amendments require a creditor reclassify a collateralized consumer mortgage loan to OREO upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. The amendments became effective for interimdistribution date was September 28, 2015. Earnings per share and annual reporting periods beginning after December 15, 2014, with early implementation of the guidance permitted. In implementing this guidance, assets that are reclassified from real estate to loans are measured at the carrying value of the real estate at the date of adoption. Assets reclassified from loans to real estate are measured at the lower of the net amount of the loan receivable or the fair value of the real estate less costs to sell at the date of adoption. We applied the amendments prospectively using the modified retrospective approach. These amendments did notaverage shares outstanding have ~~a material effect on our financial statements.~~
~~In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue~~been adjusted to reflect the ~~transfer of goods and services to customers~~stock dividend in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for reporting periods beginning after December 15, 2017. We will apply this guidance using a modified retrospective approach. We do not expect this amendment to have a material effect on our consolidated financial statements.

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for reporting periods beginning after December 15, 2017. We will apply this guidance using the modified retrospective approach. We do not expect this amendment to have a material effect on our financial statements.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~In June 2014,~~Note 6:Accumulated Other Comprehensive Income
The following table summarizes the FASB issued guidance which makes limited amendments to the guidance on accounting for certain repurchase agreements. The guidance (1) requires entities to account for repurchase-to-maturity transactionscomponents of accumulated other comprehensive income and changes in those components as ~~secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions,~~of and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings. The amendments became effective for the Company for the first interim or annual period beginning after December 31, 2014. We applied the guidance by making a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This adjustment did not have a material effect on our financial statements.
In August 2014, the FASB issued guidance that is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. In connection with preparing financial statements, management will need to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the organization’s ability to continue as a going concern within one year after the date that the financial statements are issued. This amendment will be effective for annual periods ending after Decemberthree months March 31, 2016 and ~~for annual and interim periods thereafter. We do not expect this amendment to have a material effect on our financial statements.~~2015:

~~In January 2015,~~
Available for sale secutities
Beginning Balance December 31, 2015 $ 992,549
Change in net unrealized gains on securities available for sale, net of income taxes 709,731
Reclasssification adjustment for net securities gains included in net income (187,936 )
Income tax expense 69,499
Balance at March 31, 2016 $ 1,583,843

Beginning Balance December 31, 2014 $ 1,243,022
Change in net unrealized gains on securities available for sale, net of income taxes 682,022
Reclasssification adjustment for net securities gains included in net income (111,313 )
Income tax expense 41,186
Balance at March 31, 2015 $ 1,854,917
The following table shows the ~~FASB issued guidance to eliminate~~line items in the consolidated Statements of Income affected by amounts reclassified from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The amendment will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We will apply the guidance prospectively. We do not expect this amendment to have a material effect on our financial statements.accumulated other comprehensive income:

In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendment will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted (including during an interim period), provided that the guidance is applied as of the beginning of the annual period containing the adoption date. We do not expect this amendment to have a material effect on our financial statements.
In April 2015, the FASB issued guidance that will require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This update affects disclosures related to debt issuance costs but does not affect existing recognition and measurement guidance for these items. The amendment will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015,~~with early adoption permitted. We do not expect this amendment to have a material effect on our financial statements.~~
March 31,
2016 March 31,
2015
Gain on sale of investments, net $ 187,936 $ 111,313
Tax effect — —
Total reclassification, net of tax $ 187,936 $ 111,313

In June 2015, the FASB issued amendments to clarify the ASC, correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. This amendment was effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect this amendment to have a material effect on our financial statements.

~~Bank of South Carolina Notes to Consolidated Financial Statements~~
In August 2015, the FASB issued amendments to the interest topic of the Accounting Standards Codification to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective upon issuance. These amendments did not have a material effect on our financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations or cash flows.
~~Note 17: Reclassification~~
Certain reclassifications of accounts reported for previous periods have been made in these consolidated financial statements. Such reclassifications had no effect on shareholders’ equity or net income as previously reported.
~~Note 18: Subsequent Events~~
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Nonrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. We have reviewed events occurring through the date the financial statements were issued and noted no subsequent event requiring accrual or disclosure.
Item 2. ~~Management's~~Management’s Discussion and Analysis or Plan of Operation

~~Management’s discussion and analysis is~~CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including information included to assist shareholders in understanding our financial condition, results of operations, and cash flow. This discussion should be reviewed in conjunction with the consolidated financial statements (unaudited) and notes presentedor incorporated by reference in this ~~report and~~document, contains statements which constitute “forward-looking statements” within the ~~supplemental financial data appearing throughout this report. Since the primary asset~~meaning of Section 27A of the ~~Company is its wholly-owned subsidiary, most~~Securities Act of ~~the discussion and analysis relates to the Bank.~~
Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of this quarterly report contain certain “forward-looking statements” concerning the future operations.1934. 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~~Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of ~~the~~our Company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. ~~Actual~~Our actual results may differ materially from those anticipated in any forward-looking ~~statements.~~statements, as they will depend on many factors about which we are unsure, including many factors that are beyond our control. The words ~~“may”~~“may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,”, “would”, “could”, “should”, “will”, “expect”, “anticipate”, “predict”, “project”, “potential”, “continue”, “assume”, “believe”, “intend”, “plan”, “forecast”, “goal”,“potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and ~~“estimate”,~~“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 heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2014~~2015 as filed with the Securities and Exchange Commission (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
· ● Technological changes
· ● Ability to control expenses
· ● 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

~~Much has been done to eliminate or mitigate these~~These risks ~~that have been~~are exacerbated by the developments over the last ~~eight~~ten years in national and international markets. Sweeping reform has entered our industry yet we are unable to fully predict its impact and perhaps its unintentional consequences for some time. There can be no assurance that these changes will not materially and adversely affect our business, financial condition and results of operation.

All forward-looking statements in this report are based on information available to us as of the date of this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that these expectations will be achieved. 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 ~~our~~ future filings with the SEC, in our press releases, and in ~~our~~ oral and written statements, which are not statements of historical fact, constitute ~~forward looking~~forward-looking statements.

Overview
Bank of South Carolina Corporation (the “Company”) is a financial institution holding company headquartered in Charleston, South Carolina, with ~~$384,559,093~~$403.7 million in assets as of ~~September 30, 2015~~March 31, 2016 and net income of ~~$1,198,919 and $3,657,316~~$1.2 million for the three ~~and nine~~ months ended ~~September 30, 2015, respectively.~~March 31, 2016. 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.

The following is a discussion of our financial condition as of September 30, 2015 as compared to December 31, 2014 and the results of operations for the three and nine months ended September 30, 2015 as compared to the three and nine months ended September 30, 2014. The discussion and analysis identifies significant factors that have affected our financial position and operating results and should be read in conjunction with the financial statements and the related notes included in this report.
We derive most of our income from interest on loans and investments (interest bearing 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 ~~profitability~~success is the amount of net interest income, or the difference between the income on our interest earning assets, such as loans and investments, and the expense on our interest bearing liabilities, primarily deposits. Another key measure is the spread between the yield we earn on these ~~interest bearing~~interest-bearing assets and the rate we pay on our ~~interest bearing~~interest-bearing liabilities.

A ~~primary risk~~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"~~“Allowance”) and a reserve for unfunded commitments (the ~~"Unfunded Reserve"~~“Unfunded Reserve”). The Allowance provides for probable and estimable losses inherent in our loan and lease portfolio. ~~The Allowance is increased or decreased through the provisioning process. For a detailed discussion on the allowance for loan losses see “Allowance for Loan Losses”.~~

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 identifies significant factors that have affected our financial position and operating results as of March 31, 2016 and December 31, 2015, 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.

Critical Accounting Policies
~~We have adopted various~~Our critical accounting policies that govern the application of principles generally accepted in the United States and with general practices within the banking industry in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to our unaudited consolidated financial statements as of September 30, 2015 and our notes included in the consolidated financial statements in our 2014 Annual Report on Form 10-K as filed with the SEC.
~~Certain accounting policies~~which involve significant ~~judgments~~judgements and assumptions ~~by the Company~~ that have a material impact on the carrying value of certain assets and ~~liabilities. We consider these accounting policies to be critical accounting policies. The judgment~~liabilities, and ~~assumptions we use are based on historical experience and other factors, which we believe to be reasonable under~~used in the ~~circumstances. Because~~preparation of the ~~number~~Consolidated Financial Statements as of March 31, 2016 have remained unchanged from the ~~judgments and assumptions that we make, actual results could differ from these judgments and estimates that could have a material impact~~disclosures presented in our Annual Report on ~~the carrying values of our assets and liabilities and our results of operations.~~Form 10-K.

We consider our policies regarding the allowance for loan losses to be our most subjective accounting policy due to the significant degree of judgment. We have developed what we believe to be appropriate policies and procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and estimates with respect to our loan portfolio. Our assessments may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations and the discovery of information with respect to borrowers which were not known at the time of the issuance of the consolidated financial statements. For additional discussion concerning our allowance for loan losses and related matters, see “Allowance for Loan Losses.”
Balance Sheet
Cash and Cash Equivalents
Cash and cash equivalents include working cash funds, due from banks, interest-bearing deposits in other banks, items in process of collection and federal funds sold. All amounts are readily convertible to cash and have maturities of less than 90 days. Total cash and cash equivalents increased ~~82.92%~~30.59% or ~~$8,605,899~~$8.9 million to ~~$18,984,947~~$38.1 million at ~~September 30, 2015,~~March 31, 2016, from ~~$10,379,048~~$29.2 at December 31, ~~2014.~~2015. This increase was primarily due to an increase in deposits ~~resulting in an increase in cash~~as well as the maturities and ~~interest bearing deposits in other banks.~~sales of investment securities.

Regulations set by the Federal Reserve require that we maintain certain average cash reserve balances. At September 30, 2015 and 2014 our cash reserve requirement with the Federal Reserve was satisfied by vault cash.
~~Loans~~
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets. At September 30, 2015, outstanding loans (plus deferred loan fees of $108,939) totaled $241,250,253 which equaled 70.18% of total deposits and 62.73% of total assets. Most loans were to borrowers located in our market area of Charleston, Dorchester and Berkeley Counties of South Carolina.
The quality of our loan portfolio is contingent upon our risk selection and underwriting practices. All new credit (except for mortgage loans in the process of being sold to investors and loans secured by properly margined negotiable securities traded on an established market or other cash collateral) with over $200,000 in exposure is summarized by our Credit Department and reviewed by the Loan Committee on a monthly basis. The Board of Directors reviews credits over $500,000 monthly with annual credit analyses conducted on these borrowers upon the receipt of updated financial information. Prior to any extension of credit, every loan request goes through sound credit underwriting. The Credit Department conducts detailed cash flow analysis on each proposal using the most current financial information. Relevant trends and ratios are evaluated.

~~The breakdown of total loans by type and the respective percentage of total loans are as follows:~~
September 30, December 31,
2015 2014 2014
Commercial loans $ 48,079,909 48,720,596 $ 49,899,577
Commercial real estate:
Commercial real estate construction 1,371,523 1,529,534 1,511,702
Commercial real estate other 119,777,924 115,161,359 115,739,682
Consumer:
Consumer real estate 67,320,289 59,226,017 62,054,983
Consumer other 4,700,608 5,035,603 4,911,848
241,250,253 229,673,109 234,117,792
Allowance for loan losses (3,289,271 ) (3,385,676 ) (3,334,848 )

Loans, net $ 237,960,982 226,287,433 $ 230,782,944
Percentage of Loans September 30, December 31,
2015 2014 2014
Commercial loans 19.93 % 21.21 % 21.31 %
Commercial real estate construction .57 % .67 % .64 %
Commercial real estate other 49.65 % 50.14 % 49.44 %
Consumer real estate 27.90 % 25.79 % 26.51 %
Consumer other 1.95 % 2.19 % 2.10 %

Total 100.00 % 100.00 % 100.00 %
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 for several purposes. It serves 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. ~~Investments are classified into three categories (1) Held to Maturity (2) Trading~~
At March 31, 2016, our available for sale investment portfolio included U. S. Treasury Notes, Government-Sponsored Enterprises and ~~(3) Available~~Municipal Securities with a fair market value of $107.4 million and an amortized cost of $104.8 million for ~~Sale. We believe that maintaining~~a net unrealized gain of $2.5 million. At March 31, 2016 and December 31, 2015, our investment securities ~~in the Available for Sale category provides greater flexibility in the management~~portfolio represented approximately 26.59% and 30.06% of ~~the overall investment portfolio.~~our total assets, respectively. The average yield on ~~investments~~our investment securities was 2.08% and 2.16% at ~~September 30, 2015 was 2.19% compared to 2.15% at September 30, 2014 and 2.12% at December~~March 31, ~~2014. The amortized cost of the investments available for sale at September 30, 2015, September 30, 2014~~2016 and December 31, ~~2014 and percentage of each category to total investments are as follows:~~
Investment Portfolio
September 30, 2015 September 30, 2014
December 31,
2014
US Treasury Notes $ 29,908,712 $ 29,922,266 $ 29,248,281
Government-Sponsored
   Enterprises 51,653,088 42,163,057 50,142,649
Municipal Securities 34,440,067 34,642,666 34,603,182
$ 116,001,867 $ 106,727,989 $ 113,994,112

US Treasury Notes 25.78 % 28.04 % 25.66 %
Government-Sponsored
   Enterprises 44.53 % 39.50 % 43.99 %
Municipal Securities 29.69 % 32.46 % 30.35 %
100.00 % 100.00 % 100.00 %

~~All investment securities were classified as Available for Sale (debt and equity securities that may be sold under certain conditions) at September 30,~~ 2015, and December 31, 2014. The securities were reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity, net of income taxes. Unrealized losses on securities due to fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has occurred. Gains or losses on the sale of securities are recognized on a specific identification, trade date basis. (See “non-interest income” for discussion on the sale of investment securities.)respectively.

~~The amortized cost~~We had four Municipal Securities totaling $2.0 million that matured in the three months ended March 31, 2016. In addition, we sold three U.S. Treasury Notes and ~~fair value of investment securities available for sale are summarized as follows as of September 30, 2015 and December 31, 2014:~~
September 30, 2015
Amortized
Cost Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value

U.S. Treasury Notes $ 29,506,783 $ 401,929 $ —   $ 29,908,712
Government-Sponsored Enterprises 51,160,342 576,093 83,347 51,653,088
Municipal Securities 33,024,189 1,477,855 61,977 34,440,067

Total $ 113,691,315 $ 2,455,877 $ 145,324 $ 116,001,867
December 31, 2014
Amortized
Cost Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value

U.S. Treasury Notes $ 29,162,412 $ 105,627 $ 19,758 $ 29,248,281
Government-Sponsored Enterprises 50,194,951 95,961 148,263 50,142,649
Municipal Securities 32,663,698 1,973,743 34,259 34,603,182

Total $ 112,021,061 $ 2,175,331 $ 202,280 $ 113,994,112
~~The amortized cost and fair value of investment securities available for sale at September 30, 2015, and December 31, 2014, by contractual maturity are as follows:~~
September 30, 2015

Amortized
Cost
Estimated
Fair
Value

Due in one year or less $ 3,319,312 $ 3,348,511
Due in one year to five years 60,758,549 61,922,337
Due in five years to ten years 46,302,046 47,324,190
Due in ten years and over 3,311,408 3,406,829

Total $ 113,691,315 $ 116,001,867

December 31, 2014

Amortized
Cost
Estimated
Fair
Value

Due in one year or less $ 8,324,400 $ 8,362,398
Due in one year to five years 43,301,670 43,851,426
Due in five years to ten years 52,566,597 53,671,067
Due in ten years and over 7,828,394 8,109,221

Total $ 112,021,061 $ 113,994,112
~~The fair value of investment securities available for sale with unrealized losses at September 30, 2015, and December 31, 2014, are as follows:~~
September 30, 2014
Less than 12 months 12 months or longer Total
Description of Securities
Fair
Value
Unrealized Losses Fair Value Unrealized Losses

Fair Value
Unrealized Losses

U.S. Treasury Notes
$ —   $ —   $ —   $ —   $ —   $ —
Government-Sponsored Enterprises 5,017,980 83,347 —   —   5,017,980 83,347
Municipal Securities 6,138,841 61,977 —   —   6,138,841 61,977
Total $ 11,156,821 $ 145,324 $ —   $ —   $ 11,156,821 $ 145,324
December 31, 2014
Less than 12 months 12 months or longer Total
Description of Securities
Fair
Value
Unrealized Losses Fair Value Unrealized Losses

Fair Value
Unrealized Losses

U.S. Treasury Notes
$ 4,948,438 $ 19,758 $ —   $ —   $ 4,948,438 $ 19,758
Government-Sponsored Enterprises 28,850,132 148,263 —   —   28,850,132 148,263
Municipal Securities 931,428 27,182 1,557,833 7,077 2,489,261 34,259
Total $ 34,729,998 $ 195,203 $ 1,557,833 $ 7,077 $ 36,287,831 $ 202,280
~~At September 30, 2015, we had~~ one Government Sponsored Enterprise ~~with an unrealized loss of $83,347 and eight~~totaling $15.8 million during the same period. We purchased eleven Municipal Securities with a face value of $3.8 million during the three months ended March 31, 2016.
Loans
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets and typically require a personal guarantee. Substantially all of our loans were to borrowers located in our market area of Charleston, Dorchester and Berkeley Counties of South Carolina.
Net loans increased $10.7 million, or 4.47%, to $249.9 million at March 31, 2016 from $239.2 million at December 31, 2015. We believe that economic conditions in our primary market area are continuing to improve, and that these improving conditions are contributing to an ~~unrealized~~increase in loan demand. The amount of commercial real estate loans as a percentage of total loans continues to increase as a result of our strong commercial relationships in all of our markets.
Although significantly under the threshold of 100% of capital (currently approximately $40 million), the number of overmargined real estate loans currently totals approximately $11.2 million or approximately 4.34% of our loan portfolio at March 31, 2016 compared to $11.4 million or approximately 4.61% of the loan portfolio at December 31, 2015.
The following is a summary of our loan portfolio composition (net of deferred fees of $123,970 at March 31, 2016 and $118,188 at December 31, 2015) and the corresponding percentage of total loans as of the dates indicated. During the three months ended March 31, 2016 our loan portfolio increased $10.7 million or 4.47%. Our commercial real estate experienced the largest growth of $5.6 million or 4.81%.
March 31,
2016 Percent December 31,
2015 Percent
Commercial Loans $ 52,101,572 20.57 % $ 50,938,265 20.99 %
Commercial real estate:
Commercial real estate construction 1,160,893 0.46 % 1,005,118 0.41 %
Commercial real estate other 121,300,195 47.88 % 115,736,034 47.71 %
Consumer
Consumer real estate 73,239,469 28.91 % 69,777,307 28.76 %
Consumer other 5,523,504 2.18 % 5,165,981 2.13 %
253,325,633 100.00 % 242,622,705 100.00 %
Allowance for Loan losses (3,436,762 ) (3,417,827 )
Loans, net $ 249,888,871 $ 239,204,878
Nonperforming Assets
Nonperforming Assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure, loans on nonaccrual status and TDRs. 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. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms and to show capacity to continue performing into the future before that loan can be placed back on accrual status. As of March 31, 2016 we had no loans 90 days past due still accruing interest.
We consider a loan to be a TDR when the debtor experiences financial difficulties and we provide concessions such that we will not collect all principal and interest in accordance with the original terms of the agreement. Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note. As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment. As of March 31, 2016, we determined that we had loans totaling $451,264, that we considered TDRs. As of December 31, 2015, we had loans totaling $458,268, that we considered TDRs.
Nonperforming assets include other real estate owned, which decreased by $98,451 from December 31, 2015 due to the sale of one property. We recorded a loss of ~~$61,977. At~~$13,450 on this sale. The balance at March 31, 2016 of $521,943 represents one commercial property.
Following is a summary of our nonperforming assets, including nonaccruing TDRs.
March 31,
2016 December 31,
2015
Commercial $ 3,862 $ 4,317
Commercial real estate 2,453,166 1,970,305
Consumer real estate 150,255 82,015
Consumer other 4,857 4,450
Nonaccruing troubled debt restructuring 451,264 458,268
Total nonaccrual loans 3,063,404 2,519,355
Other real estate owned 521,943 620,934
Total nonperforming assets $ 3,585,347 $ 3,140,289
Allowance for Loan Losses
The allowance for loan losses was $3.4 million and $3.4 million at March 31, 2016 and December 31, ~~2014~~2015, respectively, or 1.36% and 1.41% of outstanding loans, respectively. At March 31, 2016 and December 31, 2015, the allowance for loan losses represented 99.13% and 108.84% of the total amount of nonperforming loans, respectively. Based on the level of coverage on nonperforming loans and analysis of our loan portfolio, we had two U.S. Treasury Notes with an unrealized loss of $19,758, seven Government Sponsored Enterprises with an unrealized loss of $148,263 and three Municipal Securities with an unrealized loss of $34,259. The unrealizedbelieve the allowance for loan losses ~~on investments were caused by interest rate increases. The contractual terms~~at March 31, 2016 is adequate.
At March 31, 2016, impaired loans totaled $6.6 million, for which $2.7 million of these ~~investments do not permit~~loans had a reserve of approximately $1.7 million allocated in the ~~issuer to settle~~allowance. Comparatively, impaired loans totaled $6.5 million at December 31, 2015, and $2.9 million of these loans had a reserve of approximately $1.1 million allocated in the securities at a price less than the amortized cost of the investment. Therefore, these investments are not considered other-than-temporarily impaired. We have the ability to hold these investments until market price recovery or maturity.allowance.

During the three months ended March 31, 2016, we charged-off $34,095 of loans and recorded $8,030 of recoveries on loans previously charged-off, for net charge-offs of $26,065. Comparatively, we charged-off $21,000 of loans and recorded $15,240 of recoveries on loans previously charged-off, resulting in net charge-offs of $5,760 for the three months ended March 31, 2015.
Deposits
Deposits remain our primary source of funding for loans and investments. Average interest bearing deposits provided funding for ~~59.02%~~60.39% of average earning assets for the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, and ~~61.88%~~60.55% for the twelve months ended December 31, ~~2014.~~2015. 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:

September 30, December 31,
2015 2014 2014
Non-interest bearing demand $ 116,488,824 $ 109,354,662 $ 107,072,271
Interest bearing demand 79,865,760 76,901,044 79,397,647
Money market accounts 56,659,892 52,443,674 47,450,210
Time deposits over $250,000 34,121,413 35,185,310 32,363,615
Other time deposits 30,297,705 30,804,764 29,457,720
Other savings deposits 26,318,910 24,585,981 26,677,564

Total Deposits $ 343,752,504 $ 329,275,435 $ 322,419,027
Percentage of Deposits September 30, December 31,
2015 2014 2014
Non-interest bearing demand 33.89 % 33.21 % 33.21 %
Interest bearing demand 23.23 % 23.35 % 24.62 %
Money Market accounts 16.48 % 15.93 % 14.72 %
Time deposit over $250,000 9.93 % 10.69 % 10.04 %
Other time deposits 8.81 % 9.35 % 9.14 %
Other savings deposits 7.66 % 7.47 % 8.27 %

Total Deposits 100.00 % 100.00 % 100.00 %
March 31, 2016 Percentage December 31, 2015 Percentage
Deposits:
Non-interest-bearing demand $ 119,022,680 32.91 % $ 122,073,396 34.03 %
Interest-bearing demand 96,992,732 26.82 % 84,977,640 23.69 %
Money market accounts 63,935,267 17.68 % 70,233,422 19.58 %
Time deposits over $250,000 24,095,180 6.66 % 25,896,768 7.22 %
Other time deposits 28,657,047 7.92 % 28,871,044 8.05 %
Other savings deposits 28,966,396 8.01 % 26,666,342 7.43 %
Total deposits $ 361,669,302 100.00 % $ 358,718,612 100.00 %
Deposits increased ~~4.40%~~0.82% or ~~$14,477,069 from September 30, 2014 to September 30, 2015 and increased 6.62% or $21,333,477~~$3.0 million from December 31, ~~2014~~2015 to ~~September 30, 2015.~~March 31, 2016. These increases were primarily due to larger balances in existing customer accounts as well as new accounts. Certificates of Deposit and other time deposits over $250,000 totaled ~~$34,121,413, $35,185,310~~$24.1 million and ~~$32,363,615~~$25.9 million at ~~September 30, 2015, September 30, 2014~~March 31, 2016 and December 31, ~~2014,~~2015, respectively.

At ~~September 30,~~March 31, 2016 and December 31, 2015, ~~and September 30, 2014,~~ deposits with an aggregate deficit balance of ~~$37,246~~$62,408 and ~~$27,771,~~$121,331, respectively were re-classified as other loans. ~~At December 31, 2014 deposits with an aggregate deficit balance of $58,364 were reclassified as other loans.~~

~~Short-Term Borrowings~~
~~Short term borrowings are summarized as follows:~~
September 30, 2015 December 31, 2014
Securities sold under agreement to repurchase $ 481,141 $ 6,980,681
Total $ 481,141 $ 6,980,681
38
Securities sold under agreements to repurchase with customers mature on demand. These borrowings were collateralized by two U.S. Treasury Notes with an amortized cost of $2,664,912 and a fair value of $2,717,774 at September 30, 2015. At December 31, 2014, the borrowings were collateralized by five U.S. Treasury Notes with an amortized cost of $8,502,891 and a fair value of $8,553,484. The agreements to repurchase had a weighted average interest rate of .018% at September 30, 2015 and .025% at December 31, 2014, respectively. The average amount of outstanding agreements to repurchase was $2,459,048 for the nine months ended September 30, 2015 and $2,426,044 for the twelve months ended December 31, 2014. The securities underlying the repurchase agreements were held in safekeeping by an authorized broker. At the maturity date of this agreement the securities will be returned to our account.
~~At September 30, 2015 and December 31, 2014, we had no outstanding federal funds purchased with the option to borrow up to$18,000,000~~ on short term lines of credit. We established a Borrower-In-Custody arrangement with the Federal Reserve as a secondary source of liquidity. This arrangement permits us to retain possession of loans pledged as collateral to secure advances from the Federal Reserve Discount Window. Under this agreement we could borrow up to~~$74 million~~ ~~and $71 million at September 30, 2015 and December 31, 2014, respectively. There have been no borrowings under this arrangement.~~
Comparison of Three Months Ended ~~September 30, 2015~~March 31, 2016 to Three Months Ended ~~September 30, 2014~~March 31, 2015
Net income ~~increased $57,206~~decreased $9,224 or ~~5.01%~~0.77% to ~~$1,198,919,~~$1.2 million, or basic and diluted earnings per share of $.24 and $.24, respectively, for the three months ended ~~September 30, 2015,~~March 31, 2016, from ~~$1,141,713,~~$1.2 million, or basic and diluted earnings per share of ~~$.23~~$.25 and ~~$.23,~~$.24, respectively, for the three months ended ~~September 30, 2014.~~March 31, 2015. Our return on average assets and average equity for the three months ended ~~September 30, 2015~~March 31, 2016 were ~~1.25%~~1.22% and ~~12.27%~~11.91%, respectively, compared with ~~1.23%~~1.32% and ~~12.36%~~12.93%, respectively, for the three months ended ~~September 30, 2014.~~March 31, 2015.

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 ~~$152,830~~$156,795 or ~~4.61%~~4.64% to ~~$3,468,442~~$3.5 million for the three months ended ~~September 30, 2015~~March 31, 2016 from ~~$3,315,612~~$3.4 million for the three months ended ~~September 30, 2014.~~March 31, 2015. This increase was primarily due to interest and fee income from loans and interest bearing deposits in other banks (Federal Reserve). Average loans increased $12.0 million or 5.02% to $252.0 million for the three months ended March 31, 2016, compared to $240.0 million for the three months ended March 31, 2015. The yield on average loans (including fees) remained unchanged at 4.84% for the three months ended March 31, 2016 and 2015, respectively. Interest income on loans increased $169,277 for the three months ended March 31, 2016 to $3.0 million from $2.9 million for the three months ended March 31, 2015.
The average balance of interest bearing deposits in other banks increased $15.5 million or 133.82% to $27.1 million for the three months ended March 31, 2016, with a yield of 0.53% as compared to $11.6 million for the three months ended March 31, 2015, with a yield of 0.24%.
Provision for Loan Losses
We have established an allowance for loan losses through a provision for loan losses charged as an expense 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 for loan losses. For the three months ended March 31, 2016, we had a provision of $45,000 compared to a provision of $5,000 for the same period in the prior year. The increase in the provision for loan losses was based on our analysis of the adequacy of the allowance.
Non-Interest Income
Other income increased $61,921or 8.47% to $792,579 for the three months ended March 31, 2016, from $730,658 for the three months ended March 31, 2015. This increase was primarily due to increases in ~~interest~~service charge fees and ~~fees~~commissions and gains realized on ~~loans and interest and dividends from~~sale of investment securities. ~~Our local economy continues~~Service charge fees and commissions increased $23,246 or 9.80% to ~~improve which is giving~~$260,531 primarily due to a $16,567 increase in debit card fees. Debit card fees increased resulting from greater utilization by our ~~customers confidence to borrow for~~ business ~~and personal needs. Our average loans increased $9,553,253 or 4.08% to $243,617,106~~customers. In addition, we had realized gains of $187,936 for the three months ended ~~September 30, 2015, compared~~March 31, 2016 due to ~~$234,063,853~~the sale of investment securities.
Non-Interest Expense
Non-interest expense increased $183,644 or 7.85% to $2,522,698 for the three months ended ~~September 30, 2014. The yield on average loans remained relatively unchanged~~March 31, 2016, from ~~4.85%~~$2,339,054 for the three months ended ~~September 30, 2014, to 4.86% for the three months ended September 30,~~March 31, 2015. ~~Interest income on loans increased $106,749 for the three months ended September 30, 2015 to $2,975,653 from $2,868,904 for the three months ended September 30, 2014.~~
Average investment securities increased $6,092,447 or 6.04% to $106,900,893 for the three months ended September 30, 2015, with a yield of 2.16% as compared to $100,808,446 for the three months ended September 30, 2014, with a yield of 2.11%. Interest and dividends on investment securities increased $45,674 to $581,708 for the three months ended September 30, 2015. This was an increase of 8.52% from $536,034 for the three months ended September 30, 2014. An increase in deposits gave us the opportunity to invest our excess cash in investment securities to improve our earnings yield.
~~Allowance for Loan Losses~~
The allowance for loan losses represents our estimate of probable losses inherent in our loan portfolio. The adequacy of the allowance for loan losses (the “allowance”) is reviewed monthly by the Loan Committee and on a quarterly basis by the Board of Directors. For purposes of this analysis, adequacy is defined at a level sufficient to absorb estimated losses in the loan portfolio as of the balance sheet date presented. To remain Generally Accepted Accounting Principals (“GAAP”) compliant, the methodology employed for this analysis has been modified over the years to reflect our economic environment. This allowance is reviewed on a monthly basis by Credit Personnel. In addition, the allowance is validated on a periodic basis by the Company’s Risk Management Officer. The methodology is based on a Reserve Model that is comprised of the three components listed below:

1) ~~Specific Reserve analysis for impaired loans based on Financial Accounting Standards Board (“FASB”) “receivables” topic ASC 310-10-35.~~
2) ~~General reserve analysis applying historical loss rates based on FASB “contingencies” topic ASC 450-20.~~
3) ~~Qualitative or environmental factors.~~
~~Loans are reviewed for impairment on a quarterly basis if any of the following criteria are met:~~
1) ~~Any loan on non-accrual~~
2) ~~Any loan that is a troubled debt restructuring~~
3) ~~Any loan over 60 days past due~~
4) ~~Any loan rated sub-standard, doubtful, or loss~~
5) ~~Excessive principal extensions are executed~~
6) ~~If we are provided information that indicates we will not collect all principal and interest as scheduled~~
The aforementioned methodology applies to both secured and unsecured loans, yet it does not apply to large groups of smaller balance loans that are collectively evaluated. Impairment is measured by the present value of the future cash flow discounted at the loan’s effective interest rate, or, alternatively the fair value of the collateral if the loan is collateral dependent. An impaired loan may not represent an expected loss.
A general reserve analysis is performed on all loans, excluding impaired loans. This analysis includes a pool of loans that are reviewed for impairment but are not found to be impaired. Historical losses are segregated into risk-similar groups and a loss ratio is determined for each group over a five-year period. The five-year average loss ratio by type is then used to calculate the estimated loss based on the current balance of each group.
Qualitative and environmental factors include external risk factors that we believe are representative of our overall lending environment. We believe that the following factors create a more comprehensive system of controls in which we can monitor the quality of the loan portfolio.
1)~~Portfolio risk~~
a.~~Levels and trends in delinquencies, impaired loans and changes in loan rating matrix~~
b.~~Trends in volume and terms of loans~~
c.~~Over-margined real estate lending risk~~
2)~~National and local economic trends and conditions~~
3)~~Effects of changes in risk selection and underwriting practices~~
4)~~Experience, ability and depth of lending management staff~~
5)~~Industry conditions~~
6)~~Effects of changes in credit concentrations~~
a.~~Loan concentration~~
b.~~Geographic concentration~~
c.~~Regulatory concentration~~
7)~~Loan and credit administration risk~~
a.~~Collateral documentation~~
b.~~Insurance Risk~~
c.~~Maintenance of financial information risk~~
~~The sum of each component’s analysis results represents the “estimated loss” within our total portfolio.~~
Portfolio risk includes the levels and trends in delinquencies, impaired loans and changes in the loan rating matrix, trends in volume and terms of loans and overmargined real estate lending. We are satisfied with the stability of the past due and non-performing loans and believe there has been no decline in the quality of our loan portfolio due to any trend in delinquent or adversely classified loans. Sizable unsecured principal balances on a non-amortizing basis are monitored. Although the vast majority of our real estate loans are underwritten on a cash flow basis, the secondary source of repayment is typically tied to our ability to realize on the collateral. Accordingly, we closely monitor loan to value ratios. The maximum collateral advance rate is 80% on all real estate transactions, with the exception of raw land at 65% and land development at 70%.

Occasionally, we extend credit beyond our normal collateral advance margins in real estate lending. Although infrequent, the aggregate of these loans represent a notable part of our portfolio. Accordingly, these loans are monitored and the balances reported to the Board every quarter. An excessive level of this practice (as a percentage of capital) could result in additional regulatory scrutiny, competitive disadvantages and potential losses if forced to convert the collateral. The consideration of overmargined real estate loans directly relates to the capacity of the borrower to repay. We often request additional collateral to bring the loan to value ratio within the policy guidelines and also require a strong secondary source of repayment in addition to the primary source of repayment.
Although significantly under the threshold of 100% of capital (currently approximately $39 million), the number of overmargined real estate loans currently totals approximately $11.7 million or approximately 4.84% of our loan portfolio at September 30, 2015 compared to $16.1 million or approximately 9.09% of the loan portfolio at September 30, 2014.
A credit rating matrix is used to rate all extensions of credit and to provide a more specified picture of the risk each loan poses to the quality of the loan portfolio. There are nine possible ratings used to determine the quality of each loan based on the following characteristics: cash flow, collateral quality, guarantor strength, financial condition, management quality, operating performance, the relevancy of the financial statements, historical loan performance, and the borrower’s leverage position. The matrix is designed to meet our standards and expectations of loan quality. One hundred percent of our loans are graded.
National and local economic trends and conditions are constantly changing and result in both positive and negative impact on borrowers. Most macroeconomic conditions are not controllable by us and are incorporated into the qualitative risk factors. Natural and environmental disasters, political uncertainty, international instability, as well as problems in the traditional mortgage market are a few of the trends and conditions that are currently affecting the national and local economies. These changes have impacted borrowers’ ability, in many cases, to repay loans in a timely manner. On occasion, a loan’s primary source of repayment (i.e., personal income, cash flow, or lease income) may be eroded as a result of unemployment, lack of revenues, or the inability of a tenant to make rent payments.
The quality of our loan portfolio is contingent upon our risk selection and underwriting practices. Every credit with over $200,000 in exposure is summarized by our Credit Department and reviewed by the Loan Committee on a monthly basis. The Board of Directors reviews credits over $500,000 monthly with annual credit analyses conducted on these borrower upon the receipt of updated financial information. Prior to any extension of credit, every significant commercial loan goes through sound credit underwriting. The Credit Department conducts a detailed cash flow on each proposal using the most current financial information.
We have over 350 years of lending experience among our lending staff. In addition to the lending staff, we have an Advisory Board for each office comprised of business and community leaders from the specific office market area. An additional Advisory Board was created during 2012 to support our business efforts in the North Charleston area of South Carolina. As noted previously, the Bank recently announced its intention to open an office in North Charleston, South Carolina on Highway 78 and Ingleside Boulevard. We have signed a lease with an anticipated opening in the future. We meet with these advisory boards quarterly to discuss the trends and conditions in each respective market. We are aware of the many challenges currently facing the banking industry. As other banks look to increase earnings in the short term, we will continue to emphasize the need to maintain safe and sound lending practices and core deposit growth managed with a long term objective.
There continues to be an influx of new banks in our geographic area. This increase has decreased the local industry’s overall margins as a result of pricing competition. We believe that our borrowing base is well established and therefore unsound price competition is not necessary.
~~The risks associated with the effects of changes in credit concentration include loan concentration, geographic concentration and regulatory concentration.~~

As of September 30, 2015, there were only four Standard Industrial Code groups that comprised more than 2% of our total outstanding loans. The four groups are activities related to real estate, offices and clinics of doctors, real estate agents and managers, and legal services.
We are located along the coast and on an earthquake fault, increasing the chances that a natural disaster may impact us and our borrowers. We have a Disaster Recovery Plan in place; however, the amount of time it would take for our customers to return to normal operations is unknown. Our plan is reviewed and tested annually.
~~Loan and credit administration risk includes collateral documentation, insurance risk and maintaining financial information risk.~~
The majority of our loan portfolio is collateralized with a variety of our borrowers’ assets. The execution and monitoring of the documentation to properly secure the loan is the responsibility of our lenders and Loan Department. We require insurance coverage naming us as the mortgagee or loss payee. Although insurance risk is also considered collateral documentation risk, the actual coverage, amounts of coverage and increased deductibles are important to management. Recent legislation passed by Congress addresses the need for reform to the National Flood Insurance Program. This legislation, known as the Biggert Waters Flood Insurance Reform and Modernization Act of 2012, has resulted in significant unintended consequences causing dramatic increases in the cost of flood insurance coverage and its potential unaffordability. However, on March 14, 2014 the President signed the 2014 Homeowner Flood Insurance Affordability Act. This new law allows most properties to retain their subsidized premiums. Annual rate increases are also limited to 18% per year and the grandfather plan has been reinstated. In addition, the law requires the Federal Emergency Management Agency (“FEMA”) to refund policy holders who overpaid for premiums under the Biggert Waters Flood Insurance Reform and Modernization Act of 2012.
Risk includes a function of time during which the borrower’s financial condition may change; therefore, keeping financial information up to date is important to us. Our policy requires all new loans (with a credit exposure of $10,000 or more), regardless of the customer’s history with us, to have updated financial information. In addition, we monitor appraisals closely as real estate values are improving.
Based on our allowance for loan loss model, we recorded a provision for loan loss of $7,500 for the three months ended September 30, 2015 compared to $12,500 for the three months ended September 30, 2014. We believe our reserve is appropriate for our risk levels and anticipate strong loan growth in our improving economy. At September 30, 2015 the five-year average loss ratios were: .167% Commercial, .590% Consumer, .068% 1-4 Residential, .000% Real Estate Construction and .098% Real Estate Mortgage. The five-year historical loss ratio used at September 30, 2015 was .117% as compared to .172% at September 30, 2014.
During the three months ended September 30, 2015, charge-offs of $159,338 and recoveries of $33,351 were recorded to the allowance for loan losses, resulting in an allowance for loan losses of $3,289,271or 1.36% of total loans at September 30, 2015, compared to charge-offs of $18,838 and recoveries of $12,206 resulting in an allowance for loan losses of $3,385,676 or 1.47% of total loans at September 30, 2014.
We had impaired loans totaling $7,061,722 as of September 30, 2015 compared to $7,896,246 at September 30, 2014. Impaired loans include non-accrual loans with balances at September 30, 2015, and 2014, of $1,482,615 and $756,471, respectively and restructured loans (“TDR”) with balances at September 30, 2015 and 2014 of $433,743 and $473,119, respectively. We had two restructured loans at September 30, 2015 and September 30, 2014, respectively. According to GAAP, we are required to account for certain loan modifications or restructuring as a troubled debt restructuring, when appropriate. In general, the modification or restructuring of a debt is considered a TDR if we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise consider. Changes that occurred between September 30, 2014 and September 30, 2015 include eight loan receivables with an aggregate balance of $2,033,535 at September 30, 2014 being removed from the impaired loan classification. The following table reflects the changes.

Balance at
9/30/14
Estimated Loss at
9/30/14
Change at
9/30/15
$ 196,185 $ No loss expected Paid off
51,959 No loss expected Moved to satisfactory
495,974 No loss expected Moved to satisfactory
180,992 50,255 Moved to OREO
335,163 No loss expected Paid off
591,733 256,981 Paid off
102,737 102,737 Charged off
83,042 83,042 Charged off
$ 2,037,785 $ 493,015
Two loan receivables with an aggregate balance of $547,933 at September 30, 2014 were removed after the borrowers consistently paid as agreed and made substantial reductions to principal. All principal and interest are current and repayment of the remaining contractual principal and interest is expected. Eight loans with an aggregate balance of $1,729,812 were added to the impaired loan classification between September 30, 2014 and September 30, 2015. After a comprehensive review of our loans, it was determined that it is probable that we will not collect all amounts due according to the contractual terms of their loan agreements. Total expected loss on these loans is estimated to be $127,650. We do not know of any loans which will not meet their contractual obligations that are not otherwise discussed herein.
The accrual of interest is generally discontinued on loans which become 90 days past due as to principal or interest. The accrual of interest on some loans, however, may continue even though they are 90 days past due if the loans are well secured or in the process of collection and we deem it appropriate. If non-accrual loans decrease their past due status to less than 30 days for a period of 6 to 9 months, they are reviewed individually to determine if they should be returned to accrual status. There was one loan over 90 days past due still accruing interest at September 30, 2015 and September 30, 2014, respectively.
Net charge-offs for the three months ended September 30, 2015 and September 30, 2014 were $125,987 and $6,632, respectively. Although uncertainty in the economic outlook still exists, we believe loss exposure in the portfolio is identified, reserved against and closely monitored to ensure that changes are promptly addressed in the analysis of reserve adequacy.
~~The following table represents the net charge-offs by loan type.~~
Net (charge-offs) recovery for the three months ended
September 30, 2015 September 30, 2014
Commercial Loans $ (99,737 ) $ —
Commercial Real Estate (17,252 ) (3,834 )
Consumer Real Estate —   —
Consumer Other (8,998 ) (2,798 )
Net (charge-offs) recovery $ (125,987 ) $ (6,632 )
We believe the allowance for loan losses at September 30, 2015 is adequate to cover estimated losses in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires considerable judgment. Our judgments are based on numerous assumptions about current events which we believe to be reasonable, but which may or may not be valid. Thus, there can be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the allowance, thus adversely affecting our operating results.

~~The following table presents a breakdown of the allowance for loan losses as of September 30, 2015 and 2014, respectively.~~
September 30, 2015 September 30, 2014
Allowance by
loan type Percentage of
loans to
total loans Allowance by
loan type Percentage of
loans to
total loans
Commercial Loans 948,042 21 % 1,254,169 23 %
Commercial Real Estate 1,269,726 51 % 1,288,481 49 %
Consumer Real Estate 911,243 26 % 740,880 26 %
Consumer Other 160,260 2 % 102,146 2 %
Total 3,289,271 100 % 3,385,676 100 %
The allowance is also subject to examination testing by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions, and other adequacy tests. In addition, such regulatory agencies could require us to adjust its allowance based on information available to them at the time of their examination.
The methodology used to determine the reserve for unfunded lending commitments, which is included in other liabilities, is inherently similar to the methodology used to determine the allowance for loan losses adjusted for factors specific to binding commitments, including the probability of funding and historical loss ratio. No provision was recorded during the three months ended September 30, 2015 or the three months ended September 30, 2014, resulting in no change to the balance of $20,825.
~~Other Income~~
Other income increased $44,653 or 7.23% to $662,038 for the three months ended September 30, 2015, from $617,385 for the three months ended September 30, 2014. This increase was primarily due to an increase in mortgage banking income of $29,773 or 7.77% to $413,077 for the three months ended September 30, 2015 as compared to $383,304 for the three months ended September 30, 2014. Mortgage originations increased $4,351,637 to $25,771,227 for the three months ended September 30, 2015, from $21,419,590 for the three months ended September 30, 2014. Low interest rates and a good economy in our market area contributed to this growth. According to the Charleston Trident Association of Realtors, home sales increased 9.6% in September 2015 as compared to the same time last year. Service charges fees and commissions increased $16,937 or 7.58% to $240,306 for the three months ended September 30, 2015. This increase was primarily due to an increase of $17,615 in debit card fees resulting from increased usage particularly by our business customers.
~~Other Expense~~
~~Other expense increased $130,764 or 5.83% to $2,372,742 for the three months ended September 30, 2015, from $2,241,978 for the three months ended September 30, 2014.~~ This increase was primarily due to increases in salaries and employee benefits of ~~$101,073~~$98,854 or ~~7.49%~~6.98% from ~~$1,349,779~~$1.4 million for the three months ended ~~September 30, 2014~~March 31, 2015 to ~~$1,450,852~~$1.5 million for the three months ended ~~September 30, 2015.~~March 31, 2016. Base wages increased ~~$84,338~~$73,019 to ~~$1,150,761~~$1.2 million for the three months ended ~~September 30, 2015,~~March 31, 2016, as a result of annual merit ~~increases and the addition of new positions in our Credit and Technology Departments, as well as a new mortgage lender.~~increases. The cost of providing insurance for employees, including workers compensation, increased ~~$8,935~~$11,554 from ~~$144,170~~$142,960 for the three months ended ~~September 30, 2014~~March 31, 2015 to ~~$153,105~~$154,514 for the three
months ended ~~September 30, 2015.~~March 31, 2016. Our Employee Stock Ownership Plan (“ESOP”) contribution increased ~~$12,500~~$7,500 for the three months ended ~~September 30, 2015,~~March 31, 2016, as our monthly contribution increased from ~~$22,500 in 2014 to~~ $25,000 in 2015 ~~with an additional $2,500 increase~~to $27,500 in ~~July 2015.~~2016. We also saw an increase of ~~$26,165~~$71,990 in other operating expenses from ~~$522,998~~$559,282 for the three months ended ~~September 30, 2014,~~March 31, 2015, to ~~$549,163~~$631,272 for the three months ended ~~September 30, 2015.~~March 31, 2016. This increase was primarily due to the increases in ~~data processing~~professional fees, employee training and sundry losses. Our data processing fees fluctuate due to usage of electronic banking by our business and personal customers. ~~Meanwhile, continued focus on the development of our young bankers drove the increase in employee training expenses. Sundry losses can be losses due to bank error, fraud, item processing, or theft.~~

Income Tax Expense
~~For~~We incurred income tax expense of $567,071 for the three months ended ~~September 30, 2015,~~March 31, 2016 as compared to $562,775 during the ~~Company’s~~same period in 2015. Our effective tax rate was ~~31.50% compared to 31.98% during~~32.17% and 31.84% for the three months ended ~~September 30, 2014.~~
~~Comparison of Nine Months Ended September 30,~~March 31, 2016 and 2015, ~~to Nine Months Ended September 30, 2014~~
~~Net income increased $449,878 or 14.03% to $3,657,316 for~~respectively. The increase in the ~~nine months ended September 30, 2015 from $3,207,438 for~~effective tax rate during the nine months ended September 30, 2014. Basic and diluted earnings per share for the nine months ended September 30, 2015 were $.74 and $.72, respectively, compared to basic and diluted earnings per share of $.65 and $.64, respectively, for the nine months ended September 30, 2014. This increase2016 period is primarily ~~due to increases in interest and fees on loans, interest and dividends earned on investment securities, and mortgage banking income as well as~~ a ~~gain recognized on the sale of investment securities available for sale.~~
~~Net Interest Income~~
Net interest income increased $646,949 or 6.76% to $10,218,156 for the nine months ended September 30, 2015 from $9,633,707 for the nine months ended September 30, 2014. This increase was primarily due to increases in interest and fees on loans and interest and dividends on investment securities. Interest and fees on loans increased $405,669 or 4.83% to $8,798,553 for the nine months ended September 30, 2015 as the result of ~~an improving local economy and consumer confidence. Interest and dividends on investment securities increased $254,515 or 16.79% to $1,770,754 for~~ the ~~nine months ended September 30, 2015 from $1,516,239 for the nine months ended September 30, 2014.~~
Average earning assets increased $27,123,091 or 7.87% to $371,933,389 for the nine months ended September 30, 2015 from $344,810,298 for the nine months ended September 30, 2014. Average loans increased $12.5 million or 5.42% for the nine months ended September 30, 2015. Average investments increased $11.5 million or 12.03% to $106,900,893 for the nine months ended September 30, 2015 from $95,420,572 for the nine months ended September 30, 2014.
~~Allowance for Loan Losses~~
The contribution to the allowance for loan losses for the nine months ended September 30, 2015 was $82,500 compared to $62,500 for the nine months ended September 30, 2014. The Loan Committee determined that this contribution was appropriate based upon the strengthlesser impact of our reserve and the anticipation of strong loan growth and an improving economy. During the period, we reduced the specific reserve from 100% to 50% for a borrower who has had a vast improvement in its financial condition. Three impaired loans with an estimated loss of $97,238 were paid off during the nine months ended September 30, 2015. We had net charge-offs of $128,077 for the nine months ended September 30, 2015, compared with net recoveries of $30,899 for the nine months ended September 30, 2014. Charge-offs of $201,071, recoveries of $72,994, together with the contribution to the allowance, resulted in an allowance for loan losses of $3,289,271 or 1.36% of total loans at September 30, 2015.
~~The following table represents the net charge-offs by loan type.~~
Net (charge-offs) recovery for the nine months ended
September 30, 2015 September 30, 2014
Commercial Loans $ (90,573 ) $ —
Commercial Real Estate (8,252 ) 11,313
Consumer Real Estate —   —
Consumer Other (29,252 ) 19,586
Net (charge-offs) recovery $ (128,077 ) $ 30,899
~~Other Income~~
Non-interest income increased $421,235 or 22.89% to $2,261,188 for the nine months ended September 30, 2015. Our mortgage banking income increased $334,167 or 36.58% to $1,247,813 for the nine months ended September 30, 2015 from $913,646 for the nine months ended September 30, 2014. Mortgage banking income is highly influenced by mortgage interest rates and the housing market. According to local real estate market reports, the sales volume in the Charleston market at September 30 2015 was nearly 16% above the volume at September 30, 2014. Mortgage loan originations increased $24,511,650 or 48.76% to $74,776,964 for the nine months ended September 30, 2015 from $50,265,314 for the nine months ended September 30, 2014. Service charges, fees and commissions increased $48,993 to $728,799 for the nine months ended September 30, 2015 from $679,806 for the nine months ended September 30, 2014. This increase was primarily due to an increase of $45,091 in debit card fees resulting from increased usage particularly by our business customers. We also had a gain of $264,401 on the sale of $15,500,000 investment securities during the nine months ended September 30, 2015 compared to a gain of $223,735 on the sale of $19,000,000 investment securities during the nine months ended September 30, 2014.

tax-exempt income.

~~Other Expense~~
Other expense increased $375,838 or 5.58% to $7,111,254 for the nine months ended September 30, 2015, from $6,735,416 for the nine months ended September 30, 2014. Salaries and employee benefits increased $333,964 or 8.33% from $4,008,738 for the nine months ended September 30, 2014 to $4,342,702 for the nine months ended September 30, 2015. Base wages increased $251,243 to $3,415,839 for the nine months ended September 30, 2015. This increase was primarily due to annual merit increases and the addition of new positions in our Credit and Technology Departments, as well as a new mortgage lender. The cost of providing insurance for employees including workers compensation increased $30,518 from $428,389 for the nine months ended September 30, 2014 to $458,907 for the nine months ended September 30, 2015. Our monthly contribution to the ESOP increased from $22,500 in 2014 to $25,000 for the first six months of 2015. The Board of Directors approved another increase in July 2015, to $27,500. Contributions to the ESOP increased 13.41% for the nine months ended September 30, 2015 as compared to the same period in 2014.
Our net occupancy expense increased $10,425 or .95% to $1,112,354 for the nine months ended September 30, 2015, from $1,101,929 for the nine months ended September 30, 2014. Our net occupancy expense includes rent and insurance on our banking locations as well as the cost of repairs and maintenance on these facilities. Occupancy expense increased primarily due to annual rent increases at our Meeting Street and Summerville banking locations as well as an increase in insurance on banking locations, offset by a decrease in the cost of maintenance and repairs and depreciation on furniture, fixtures and equipment.
Other operating expenses increased $31,449 to $1,656,198 for the nine months ended September 30, 2015 from $1,624,749 for the nine months ended September 30, 2014. We experienced increases of $12,500 in charitable contributions, $13,588 in data processing fees, $12,058 in employee training, offset by a decrease of $15,284 in sundry losses. We increased our charitable contributions to many local organizations that we have supported in the past and also supported additional organizations which led to an increase in our charitable giving. Our data processing fees fluctuate due to usage of electronic banking primarily by our business customers. Meanwhile, continued focus on the development of our young bankers drove the increase in employee training expenses. Sundry losses can be losses due to bank error, fraud, item processing, or theft.
~~Income Tax Expense~~
~~For the nine months ended September 30, 2015, the Company’s effective tax rate was 31.87% compared to 31.08% during the nine months ended September 30, 2014.~~
Off Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used by us for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customer requests for funding.
Our off-balance sheet arrangements consist principally of commitments to extend credit described below. We estimate probable losses related to binding unfunded lending commitments and record a reserve for unfunded lending commitments in other liabilities on the consolidated balance sheet. At September 30, 2015 and 2014, the balance of this reserve was $20,825. At September 30, 2015 and 2014, we had no interests in non-consolidated special purpose entities.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of 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 ~~management's~~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 ~~$82,753,090~~$85.1 million and ~~$59,283,544~~$87.6 million at ~~September 30,~~March 31, 2016 and December 31, 2015, ~~and 2014, respectively, due to an improving economy, customer confidence in the future, and improving loan demand.~~

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 ~~September 30,~~March 31, 2016 and December 31, 2015 was $780,187 and ~~2014 was $567,427 and $657,593,~~$745,187, 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, totaling ~~$7.0~~$3.9 million at ~~September 30,~~March 31, 2016, to sell loans held for sale of $3.9 million, compared to forward sales commitments of $5.8 million at December 31, 2015, to sell loans held for sale of ~~$7.0 million. At September 30, 2014, we had forward sales commitments of $6.6~~$5.8 million. The fair value of these commitments was not significant at ~~September 30, 2015~~March 31, 2016 or ~~2014.~~December 31, 2015. 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 with~~months. Misrepresentation or fraud carries unlimited ~~recourse as a result of fraud.~~time for recourse. The unpaid principal balance of loans sold with recourse was ~~$13.03~~$14.1 million at ~~September 30, 2015~~March 31, 2016 and ~~$9.7~~$13.1 million at ~~September 30, 2014.~~December 31, 2015. For the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and March 31, 2015, ~~and September 30, 2014~~ there were no loans repurchased.

Liquidity
Historically, we have maintained our liquidity at levels believed by management 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.

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, federal funds sold, investments available for sale, other short-term investments and mortgage loans held for sale. Our primary liquid assets accounted for ~~36.93~~37.01% and ~~38.61%~~38.83% of total assets at ~~September 30,~~March 31, 2016 and December 31, 2015, ~~and 2014,~~ 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 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 ~~September 30, 2015,~~March 31, 2016, we had unused short-term lines of credit totaling approximately $18 million (which can be withdrawn at the ~~lender's~~lender’s option). Additional sources of funds available to us for additional liquidity needs include borrowing on a short-term basis from the Federal Reserve System, increasing deposits by raising interest rates paid and selling 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 ~~September 30, 2015~~March 31, 2016 we could borrow up to ~~$74~~$76 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 $100,000 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 ~~September 30,~~March 31, 2016 and December 31, 2015, ~~and 2014,~~ our liquidity ratio was~~35.70%~~33.35% and ~~36.58%~~33.27%, respectively.

Capital Resources
Our capital needs have been met to date through the ~~$10,600,000~~$10.6 million in capital raised in our initial offering, the retention of earnings less dividends paid and the exercise of stock options ~~for a total~~to purchase. Total shareholders’ equity at ~~September 30, 2015, of $38,997,361.~~March 31, 2016 was $40.3 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.
Basel III became effective on January 1, 2015. The purpose is to improve the quality and increase the quantity of capital for all banking organizations. The minimum requirements for the quantity and quality of capital were increased. The rule includes a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and requires a minimum leverage ratio of 4%. In addition, the rule also implements strict eligibility criteria for regulatory capital instruments and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Full compliance with all of the final rule requirements will be phased in over a multi-year schedule. The Bank’s total risk-based capital ratio at ~~September 30,~~March 31, 2016 and December 31, 2015 ~~for the Bank~~ was ~~15.19%.~~15.11% and 15.42%, respectively.
At ~~September 30, 2015,~~March 31, 2016, the Company and the Bank were categorized as “well capitalized” under Basel III. To be categorized as “well capitalized” the Company and the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital and Tier 1 leverage ratios of 10%, 8.0%, 6.5% and 5%, respectively, and to be categorized as “adequately capitalized,” the Company and the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital, and Tier 1 leverage ratios of 8%, 6%, 4.5%, and 4.0%, respectively.
Prior to January 1, 2015, the capital rules for US Banks were based on Basel I which was designed to highlight differences in risk profiles among financial institutions and to account for off-balance sheet risk. Basel I required a minimum risk-based capital ratio of 8% for bank holding companies and banks. The total risk-based capital ratio at September 30, 2014 for the Bank was 14.81%.
At September 30, 2014, the Company and Bank were categorized as “well capitalized” under Basel I. To be categorized as “well capitalized” the Company and the Bank had to maintain minimum total risk based, Tier 1 risk based and Tier 1 leverage ratios of 10%, 6% and 5%, respectively, and to be categorized as “adequately capitalized,” the Company and the Bank had to maintain minimum total risk based, Tier 1 risk based and Tier 1 leverage ratios of 8%, 4% and 4%, respectively.

We are subject to various regulatory capital requirements administered by the federal banking agencies. 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. We must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors. Current and previous quantitative measures established by regulation to ensure capital adequacy require that we maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and to average assets. ~~We believe, as of September 30, 2015,~~Management expects that the capital ratios for the Company and the Bank ~~meet all~~under Basel III will continue to exceed the well-capitalized minimum capital ~~adequacy requirements to which we are subject.~~requirements.

~~There are~~The Company had no ~~current conditions or events that we are aware~~material commitments for capital expenditures as of ~~that would change the Company’s or the Bank’s category.~~March 31, 2016 and December 31, 2016, respectively.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures and internal controls and procedures for financial reporting

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities and Exchange Act of 1934 as amended (the “Act”) was carried out as of ~~September 30, 2015~~March 31, 2016 under the supervision and with the participation of the Bank of South Carolina Corporation’s management, including its President/Chief Executive Officer and the Chief Financial Officer/~~Executive~~Senior Vice President and several other members of the Company’s senior management. Based upon that evaluation, Bank of South Carolina Corporation’s management, including the President/Chief Executive Officer and the Chief Financial Officer/~~Executive~~Senior Vice President concluded that, as of ~~September 30, 2015,~~March 31, 2016, the Company’s disclosure controls and procedures were effective in ensuring that the information the Company is required to disclose in the reports filed or submitted under the ~~act~~Act has been (i) accumulated and communicated to management (including the President/Chief Executive Officer and Chief Financial Officer/~~Executive~~Senior Vice President) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.

Under the supervision and with the participation of management, including the President/Chief Executive Officer and the Chief Financial Officer/~~Executive~~Senior Vice President, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of ~~September 30, 2015,~~March 31, 2016, based on the 2013 framework established in a report entitled“Internal Control-Integrated Framework”issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2016. Based on this assessment, ~~the President/Chief Executive Officer and the Chief Financial Officer/Executive Vice President believe~~management believes that as of ~~September 30, 2015,~~March 31, 2016, the Company’s internal control over financial reporting was effective. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended ~~September 30, 2015,~~March 31, 2016, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Part II. OtherInformation~~

The Audit and Compliance Committee, composed entirely of independent Directors, meets periodically with management, the Company’s Compliance Officer, Risk Management Officer and Elliott Davis Decosimo, LLC (separately and jointly) to discuss audit, financial and related matters. Elliott Davis Decosimo, LLC, the Compliance Officer, and the Risk Management Officer have direct access to the Audit and Compliance Committee.
Part II. Other Information
Item 1. Legal Proceedings
In our opinion, there are no other legal proceedings pending other than routine litigation incidental to our business involving amounts which are not material to our financial condition.

Item 1A. Risk Factors
Not required.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3. Defaults Upon Senior Securities
None.

Item 4. ~~Removed and Reserved~~Mine Safety Disclosure
None.

Item 5. Other Information
None.

Item 6. Exhibits
1.~~The Consolidated Financial Statements are included in this Form 10-Q and listed on pages as indicated.~~
~~Page~~
(1) Consolidated Balance Sheets 3
(2)   Consolidated Statements of Income 4
(3) Consolidated Statements of Comprehensive Income 6
(4) Consolidated Statements of  Shareholders’ Equity 7
(5) Consolidated Statements of Cash Flows 8
(6) Notes to Consolidated Financial Statements 9-32

2. 1. The Consolidated Financial Statements are included in this Form 10-Q and listed on pages as indicated.
Page

(1) Consolidated Balance Sheets 3
(2) Consolidated Statements of Income 4
(3) Consolidated Statements of Comprehensive Income 5
(4) Consolidated Statements of Shareholders’ Equity 6
(4) Consolidated Statements of Cash Flows 7
(5) Notes to Consolidated Financial Statements 8-25
2.   Exhibits
2.0 Plan of Reorganization (Filed with 1995 10-KSB)
3.0 Articles of Incorporation of the Registrant (Filed with 1995 10-KSB)
3.1 By-laws of the Registrant (Filed with 1995 10-KSB)
3.2 Amendments to the Articles of Incorporation of the Registrant (Filed with Form S on June 23, ~~2012)~~2011)
4.0 ~~2015~~ 2016 Proxy Statement (Filed with ~~2014~~2015 10-K)
10.0 Lease Agreement for 256 Meeting Street (Filed with 1995 10-KSB)
10.1 Sublease Agreement for Parking Facilities at 256 Meeting Street (Filed with 1995 10-KSB)
10.2 Lease Agreement for 100 N. Main Street, Summerville, SC (Filed with 1995 10-KSB)
10.3 Lease Agreement for 1337 Chuck Dawley Blvd., Mt. Pleasant, SC (Filed with 1995 10-KSB)
10.4 Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed With 2010 10-K)
Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed with September 30, 2014 10-Q)
10.5 1998 Omnibus Stock Incentive Plan (Filed with 2008 10-K/A)
10.6 Employee Stock Ownership Plan (Filed with 2008 10-K/A)
Employee Stock Ownership Plan, Restated (Filed with 2011 Proxy Statement)
10.7 2010 Omnibus Incentive Stock Option Plan (Filed with 2010 Proxy Statement)
10.8 Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC ~~(filed~~(Filed with 2013 10-K)
10.9 Assignment and Assumption of Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K)
10.10 First Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K)
10.11 Second Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K)
14.0 Code of Ethics (Filed with 2004 10-KSB)
21.0 List of Subsidiaries of the Registrant (Filed with 1995 10-KSB)
The Registrant's only subsidiary is The Bank of South Carolina (Filed with 1995 10-KSB)
31.1 Certification pursuant to Rule 13a-14(a)/15d-14(a) by Chief Executive Officer
31.2 Certification pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial Officer
32.1 Certification pursuant to Section 1350
32.2 Certification pursuant to Section 1350

101.INS
XBRL Instance Document

101.SCH
XBRL Taxonomy Extension Schema Document

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

101.LAB
XBRL Taxonomy Extension Label Linkbase Document

101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Bank of South Carolina Corporation

~~November~~May 6, ~~2015~~
2016 By: /s/Fleetwood S. Hassell
Fleetwood S. Hassell
President/Chief Executive Officer

By: /s/~~Sheryl G. Sharry~~Eugene H. Walpole, IV
~~Sheryl G. Sharry~~Eugene H. Walpole, IV
Chief Financial Officer/
~~Executive~~Senior Vice President
36

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended	March 31, 2016

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Large accelerated filer	☐		Accelerated Filer	☐
Non-accelerated filer	☐		Smaller reporting Company	☒

Assets:	(Unaudited) September 30, 2015			(Audited) December 31, 2014

Cash and due from banks	$	6,516,874		$	4,698,435
Interest bearing deposits in other banks		12,468,073			5,680,613
Investment securities available for sale		116,001,867			113,994,112
Mortgage loans to be sold		7,018,137			7,325,081
Loans		241,250,253			234,117,792
Less: Allowance for loan losses		(3,289,271	)		(3,334,848	)
Net loans		237,960,982			230,782,944
Premises and equipment, net		2,297,831			2,352,423
Other real estate owned		620,394			521,943
Accrued interest receivable		1,118,076			1,290,380
Other assets		556,859			579,871

Total assets	$	384,559,093		$	367,225,802

Liabilities and Shareholders' Equity:
Liabilities
Deposits:
Non-interest bearing demand	$	116,488,824		$	107,072,271
Interest bearing demand		79,865,760			79,397,647
Money market accounts		56,659,892			47,450,210
Time deposits over $250,000		34,121,413			32,363,615
Other time deposits		30,297,705			29,457,720
Other savings deposits		26,318,910			26,677,564
Total deposits		343,752,504			322,419,027

Short-term borrowings		481,141			6,980,681
Accrued interest payable and other liabilities		1,328,087			1,066,112
Total liabilities		345,561,732			330,465,820

Shareholders’ Equity
Common Stock - No par value;
12,000,000 shares authorized; Shares issued 5,157,006
at September 30, 2015 and 4,680,839 at December 31, 2014.
Shares outstanding 4,915,610 at September 30, 2015 and
4,461,388 at December 31, 2014.		—			—
Additional paid in capital		36,312,008			28,779,108
Retained earnings		3,477,121			8,640,291
Treasury stock: 241,396 shares at September 30, 2015 and
219,451 at December 31, 2014		(2,247,415	)		(1,902,439	)
Accumulated other comprehensive income,
net of income taxes		1,455,647			1,243,022

Total shareholders' equity		38,997,361			36,759,982

Total liabilities and shareholders' equity	$	384,559,093		$	367,225,802

	(Unaudited) March 31, 2016			(Audited) December 31, 2015
ASSETS
Cash and due from banks	$	7,622,989		$	5,295,924
Interest-bearing deposits in other bank		30,503,030			23,898,862
Investment securities available for sale		107,353,804			119,997,585
Mortgage loans to be sold		3,929,539			5,820,239
Loans		253,325,633			242,622,705
Less: Allowance for loan losses		(3,436,762	)		(3,417,827	)
Net loans		249,888,871			239,204,878
Premises, equipment and leasehold improvements, net		2,265,079			2,289,228
Other real estate owned		521,943			620,394
Accrued interest receivable		1,040,677			1,284,063
Other assets		568,060			761,339

Total assets	$	403,693,992		$	399,172,512

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest-bearing demand	$	119,022,680		$	122,073,396
Interest-bearing demand		96,992,732			84,977,640
Money market accounts		63,935,267			70,233,422
Time deposits over $250,000		24,095,180			25,896,768
Other time deposits		28,657,047			28,871,044
Other savings deposits		28,966,396			26,666,342
Total deposits		361,669,302			358,718,612

Accrued interest payable and other liabilities		1,694,180			1,302,188
Total Liabilities		363,363,482			360,020,800

Shareholders’ Equity
Common Stock-No par value: 12,000,000 shares authorized; sharesissued 5,158,903 at March 31, 2016 and 5,157,996 at December 31, 2015;shares outstanding 4,917,507 at March 31, 2016 and 4,916,600 atDecember 31, 2015		—			—
Additional paid in capital		36,372,788			36,341,744
Retained earnings		4,621,294			4,064,834
Treasury stock; 241,396 shares at March 31, 2016 and December 31, 2015		(2,247,415	)		(2,247,415	)
Accumulated other comprehensive income, net of income taxes		1,583,843			992,549
Total shareholders’ equity		40,330,510			39,151,712

Total liabilities and shareholders’ equity	$	403,693,992		$	399,172,512

	Three Months Ended
	September 30,
	2015		2014
Interest and fee income
Interest and fees on loans	$	2,975,653	$	2,868,904
Interest and dividends on investment securities		581,708		536,034
Other interest income		12,311		14,927
Total interest and fee income		3,569,672		3,419,865

Interest expense
Interest on deposits		101,199		104,009
Interest on short-term borrowings		31		244
Total interest expense		101,230		104,253

Net interest income		3,468,442		3,315,612
Provision for loan losses		7,500		12,500
Net interest income after provision for
loan losses		3,460,942		3,303,112

Other income
Service charges, fees and commissions		240,306		223,369
Mortgage banking income		413,077		383,304
Other non-interest income		8,655		8,330
Gain on sale of other real estate owned		—		2,382
Total other income		662,038		617,385

Other expense
Salaries and employee benefits		1,450,852		1,349,779
Net occupancy expense		372,727		369,201
Other operating expenses		549,163		522,998
Total other expense		2,372,742		2,241,978

Income before income tax expense		1,750,238		1,678,519
Income tax expense		551,319		536,806
Net income	$	1,198,919	$	1,141,713

Basic income per common share	$	0.24	$	0.23
Diluted income per common share	$	0.24	$	0.23

Weighted average shares outstanding
Basic		4,915,610		4,907,203
Diluted		5,061,685		5,020,082

Cash Dividend Per Share	$	0.13	$	0.23

	Three Months Ended
	March 31,
	2016			2015
Interest and fee income
Loans, including fees	$	3,034,043		$	2,864,766
Taxable securities		323,133			339,781
Tax-exempt securities		239,314			263,181
Other		35,575			6,874
Total interest and fee income		3,632,065			3,474,602

Interest expense
Deposits		94,139			92,734
Short-term borrowings		—			737
Total interest expense		94,139			93,471

Net interest income		3,537,926			3,381,131
Provision for loan losses		45,000			5,000
Net interest income after provisions for loan		3,492,926			3,376,131
losses

Other income
Service charges, fees and commissions		260,531			237,285
Mortgage banking income		351,873			377,146
Other non-interest income		5,689			4,914
Loss on sale of other real estate		(13,450	)		—
Gain on sale of securities		187,936			111,313
Total other income		792,579			730,658

Other expense
Salaries and employee benefits		1,515,027			1,416,173
Net occupancy expense		376,399			363,599
Other operating expenses		631,272			559,282
Total other expense		2,522,698			2,339,054

Income before income tax expense		1,762,807			1,767,735
Income tax expense		567,071			562,775
Net income	$	1,195,736		$	1,204,960

Weighted average shares outstanding
Basic		4,917,334			4,907,223
Diluted		5,067,563			5,054,687

Earnings per common share
Basic income per common share	$	0.24		$	0.25
Diluted income per common share	$	0.24		$	0.24

	Nine Months Ended
	September 30,
	2015		2014
Interest and fee income
Interest and fees on loans	$	8,798,553	$	8,392,884
Interest and dividends on investment securities		1,770,754		1,516,239
Other interest income		25,629		33,483
Total interest and fee income		10,594,936		9,942,606

Interest expense
Interest on deposits		293,356		308,655
Interest on short-term borrowings		924		244
Total interest expense		294,280		308,899

Net interest income		10,300,656		9,633,707
Provision for loan losses		82,500		62,500
Net interest income after provision for
loan losses		10,218,156		9,571,207

Other income
Service charges, fees and commissions		728,799		679,806
Mortgage banking income		1,247,813		913,646
Other non-interest income		20,175		20,384
Gain on sale of other real estate owned		—		2,382
Gain on sale of securities		264,401		223,735
Total other income		2,261,188		1,839,953

Other expense
Salaries and employee benefits		4,342,702		4,008,738
Net occupancy expense		1,112,354		1,101,929
Other operating expenses		1,656,198		1,624,749
Total other expense		7,111,254		6,735,416

Income before income tax expense		5,368,090		4,675,744
Income tax expense		1,710,774		1,468,306
Net income	$	3,657,316	$	3,207,438

Basic income per common share	$	0.74	$	0.65
Diluted income per common share	$	0.72	$	0.64

Weighted average shares outstanding
Basic		4,911,142		4,907,203
Diluted		5,062,695		5,019,905

Cash Dividend Per Share	$	0.39	$	0.49

	Three Months Ended September 30,
	2015		2014
Net income	$	1,198,919	$	1,141,713
Other comprehensive income
Unrealized gain (loss) on securities (net of tax $295,129 and $47,757, respectively)		502,516		(81,316	)
Other comprehensive income (loss), net of tax		502,516		(81,316	)
Total Comprehensive income	$	1,701,435	$	1,060,397

	Nine Months Ended September 30,
	2015			2014
Net income	$	3,657,316		$	3,207,438
Other comprehensive income
Unrealized gain on securities (net of tax $27,046 and $53,306, respectively)		379,197			231,718
Reclassification adjustment for gains included in income (net of tax $97,829
and $82,782, respectively)		(166,572	)		(140,953	)
Other comprehensive income, net of tax		212,625			90,765
Total Comprehensive income	$	3,869,941		$	3,298,203

~~Bank of South Carolina Corporation and Subsidiary~~
~~Consolidated Statements of Shareholders’ Equity~~
~~For the Nine Months Ended September 30, 2015 and 2014 (Unaudited)~~

	Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income		Total

December 31, 2013	$	28,678,150	$	7,007,532		$	(1,902,439	)	$	955,900	$	34,739,143
Net income		—		3,207,438			—			—		3,207,438
Other comprehensive
income		—		—			—			90,765		90,765
Exercise of stock
options		26,050		—			—			—		26,050
Stock-based
compensation
expense		55,709		—			—			—		55,709
Cash dividends ($0.49
per common share)		—		(2,186,080	)		—			—		(2,186,080	)
September 30, 2014	$	28,759,909	$	8,028,890		$	(1,902,439	)	$	1,046,665	$	35,933,025

December 31, 2014	$	28,779,108	$	8,640,291		$	(1,902,439	)	$	1,243,022	$	36,759,982
Net income		—		3,657,316			—			—		3,657,316
Other comprehensive
income		—		—			—			212,625		212,625
Exercise of stock options		113,254		—			—			—		113,254
10% Stock dividend
446,597 common
21,945 treasury
at $15.72		7,360,703		(7,020,505	)		(344,976	)		—		(4,778	)
Stock-based
compensation
expense		58,943		—			—			—		58,943
Cash dividends ($0.39
�� per common share)		—		(1,799,981	)		—			—		(1,799,981	)
September 30, 2015	$	36,312,008	$	3,477,121		$	(2,247,415	)	$	1,455,647	$	38,997,361

	Nine Months Ended September 30,
	2015			2014

Cash flows from operating activities:
Net income	$	3,657,316		$	3,207,438
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation		148,425			152,869
Gain on sale of securities		(264,401	)		(223,735	)
Gain on sale of other real estate owned		—			(2,382	)
Provision for loan losses		82,500			62,500
Stock-based compensation expense		58,943			55,709
Net amortization of unearned discounts
on investments		73,622			256,679
Origination of mortgage loans held for sale		(74,776,964	)		(50,265,314	)
Proceeds from sale of mortgage loans held for sale		75,083,908			48,374,207
Decrease (increase) in accrued interest receivable
and other assets		334,841			(161,354	)
Increase in accrued interest payable
and other liabilities		202,926			358,805

Net cash provided by operating activities		4,601,116			1,815,422

Cash flows from investing activities:
Proceeds from maturities of investment securities
available for sale		2,315,000			1,920,000
Proceeds from sale of investment securities available for sale		15,219,799			19,529,603
Proceeds from sale of other real estate owned		—			37,855
Purchase of investment securities available for sale		(19,278,675	)		(33,418,244	)
Net increase in loans		(7,358,989	)		(11,879,322	)
Purchase of premises, equipment and leasehold
improvements, net		(93,833	)		(98,424	)

Net cash used by investing activities		(9,196,698	)		(23,908,532	)

Cash flows from financing activities:
Net increase in deposit accounts		21,333,477			24,032,780
Net (decrease) increase in short-term borrowings		(6,499,540	)		9,680,244
Dividends paid		(1,740,932	)		(1,739,616	)
Cash paid for fractional shares		(4,778	)		—
Stock options exercised		113,254			26,050

Net cash provided by financing activities		13,201,481			31,999,458

Net increase in cash and cash equivalents		8,605,899			9,906,348
Cash and cash equivalents at beginning of period		10,379,048			22,124,096

Cash and cash equivalents at end of period	$	18,984,947		$	32,030,444

Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest	$	313,689		$	329,710
Income taxes	$	1,631,252		$	1,232,000
Supplemental disclosure for non-cash investing and financing activity:
Change in dividends payable	$	59,049		$	446,464
Change in unrealized gain on available
for sale securities, net of tax	$	212,625		$	90,765
Transfer of loans to other real estate owned	$	98,451		$	557,416

	March 31, 2016
	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		ESTIMATED FAIR VALUE
U.S. Treasury Notes	$	23,989,841	$	252,503	$	—	$	24,242,344
Government-Sponsored Enterprises		46,018,755		897,653		—		46,916,408
Municipal Securities		34,831,179		1,367,484		3,611		36,195,052
Total	$	104,839,775	$	2,517,640	$	3,611	$	107,353,804

	December 31, 2015
	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		ESTIMATED FAIR VALUE
U.S. Treasury Notes	$	34,517,996	$	161,037	$	45,360	$	34,633,673
Government-Sponsored Enterprises		51,136,426		281,650		133,744		51,284,332
Municipal Securities		32,767,694		1,340,610		28,724		34,079,580
Total	$	118,422,116	$	1,783,297	$	207,828	$	119,997,585

	Less Than 12 months						12 months or longer						Total
Available for sale	#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses
As of March 31, 2016
U.S. Treasury Notes		—	$	—	$	—		—	$	—	$	—		—	$	—	$	—
Government Sponsored Enterprises		—		—		—		—		—		—		—		—		—
Municipal Securities		2		785,389		3,611		—		—		—		2		785,389		3,611
Total		2	$	785,389	$	3,611		—	$	—	$	—		2	$	785,389	$	3,611

As of December 31, 2015
U.S. Treasury Notes		2	$	10,064,063	$	45,360		—	$	—	$	—		2	$	10,064,063	$	45,360
Government Sponsored Enterprises		2		7,475,445		38,538		1		5,002,335		95,206		3		12,477,780		133,744
Municipal Securities		6		4,361,149		28,724		—		—		—		6		4,361,149		28,724
Total		10	$	21,900,657	$	112,622		1	$	5,002,335	$	95,206		11	$	26,902,992	$	207,828

	For the Three Months Ended
	March 31,
	2016		2015
Gross proceeds	$	15,629,464	$	10,845,887
Gross realized gains		187,936		111,313
Gross realized losses		—		—

	March 31, 2016			December 31, 2015
Commercial Loans	$	52,101,572		$	50,938,265
Commercial real estate:
Commercial real estate construction		1,160,893			1,005,118
Commercial real estate other		121,300,195			115,736,034
Consumer
Consumer real estate		73,239,469			69,777,307
Consumer other		5,523,504			5,165,981
		253,325,633			242,622,705
Allowance for Loan losses		(3,436,762	)		(3,417,827	)
Loans, net	$	249,888,871		$	239,204,878

	●	Excellent(1) The borrowing entity has more than adequate cash flow, unquestionable strength, strong earnings and capital where applicable, and no overdrafts.

	●	Good(2) The Borrowing entity has dependable cash flow, better than average financial condition, good capital and usually no overdrafts.

	●	Satisfactory(3) The borrowing entity has adequate cash flow, satisfactory financial condition, explainable overdrafts (if any).

	●	Watch(4) The borrowing entity has generally adequate, yet inconsistent cash flow, cyclical earnings, weak capital, loan to/from stockholders, and infrequent overdrafts. The borrower has consistent yet sometimes unpredictable sales and growth.

	●	OAEM(5) The borrowing entity has marginal cash flow, occasional past dues, and frequent and unexpected working capital needs.

	●	Substandard(6) The borrowing entity has a cash flow barely sufficient to service debt, deteriorated financial condition, bankruptcy possible. The borrowing entity has declining sales, rising costs, and may need to look for secondary source of repayment.

	●	Doubtful(7) The borrowing entity has negative cash flow. Survival of the business is at risk, full repayment is unlikely, and there are frequent and unexplained overdrafts. The borrowing entity shows declining trends and no operating profits.

September 30, 2015
Loans Receivable on Non-Accrual
Commercial	$	—
Commercial Real Estate:
Commercial Real Estate - Construction		—
Commercial Real Estate - Other		1,400,600
Consumer:
Consumer Real Estate		82,015
Consumer - Other		—
Total	$	1,482,615

September 30, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing
Commercial	$	4,640		1,065,264		—		1,069,904		47,010,005		48,079,909		—
Commercial Real Estate:
Commercial Real Estate -Construction		—		—		—		—		1,371,523		1,371,523		—
Commercial Real Estate -Other		187,359		696,206		685,271		1,568,836		118,209,088		119,777,924		89,500
Consumer:
Consumer- Real Estate		53,989		—		82,015		136,004		67,184,285		67,320,289		—
Consumer-Other		7,803		1,735		—		9,538		4,691,070		4,700,608		—
Total	$	253,792		1,763,204		767,286		2,784,282		238,465,971		241,250,253		89,500

Impaired and Restructured Loans For September 30, 2015
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Related Allowance
Commercial	$	719,343	$	719,343	$	—
Commercial Real Estate		2,670,690		2,670,690		—
Consumer Real Estate		450,053		450,053		—
Consumer Other		6,613		6,613		—

Total		3,846,699		3,846,699		—

With an allowance recorded:
Commercial		956,983		956,983		507,152
Commercial Real Estate		1,249,419		1,249,419		198,681
Consumer Real Estate		911,450		911,450		392,618
Consumer Other		97,171		97,171		97,171

Total		3,215,023		3,215,023		1,195,622
Grand Total	$	7,061,722	$	7,061,722	$	1,195,622

Impaired and Restructured Loans As of December 31, 2014
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Related Allowance
Commercial	$	634,865	$	634,865	$	—
Commercial Real Estate		3,349,844		3,349,844		—
Consumer Real Estate		351,140		351,140		—
Consumer Other		—		—		—

Total		4,335,849		4,335,849		—

With an allowance recorded:
Commercial		1,157,560		1,157,560		784,561
Commercial Real Estate		846,008		846,008		209,189
Consumer Real Estate		672,163		672,163		250,590
Consumer Other		39,547		39,547		39,547

Total		2,715,278		2,715,278		1,283,887
Grand Total	$	7,051,127	$	7,051,127	$	1,283,887

Average Recorded Investment and Interest Income Impaired and Restructured Loans For the Three Months Ended
	September 30, 2015				September 30, 2014
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	736,376	$	11,289	$	591,490	$	12,344
Commercial Real Estate		2,689,602		37,625		3,212,538		40,197
Consumer Real Estate		450,053		4,559		351,712		2,576
Consumer Other		6,930		146		—		—

Total		3,882,961		53,619		4,155,740		55,117

With an allowance recorded:
Commercial		989,914		11,865		1,270,229		14,578
Commercial Real Estate		1,253,113		14,333		1,794,000		21,349
Consumer Real Estate		914,480		10,495		681,958		10,726
Consumer Other		98,486		1,415		39,996		419

Total		3,255,993		38,108		3,786,183		47,072
Grand Total	$	7,138,954	$	91,727	$	7,941,923	$	102,189

September 30, 2015
		Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total

	Pass	$	43,993,347	$	935,506	$	113,436,081	$	63,862,429	$	4,313,261	$	226,540,624
	Watch		1,033,532		436,017		1,221,544		1,992,556		254,295		4,937,944
	OAEM		1,376,704		—		1,200,190		103,801		29,268		2,709,963
	Sub-Standard		1,676,326		—		3,920,109		1,361,503		103,784		7,061,722
	Doubtful		—		—		—		—		—		—
	Loss		—		—		—		—		—		—

	Total	$	48,079,909	$	1,371,523	$	119,777,924	$	67,320,289	$	4,700,608	$	241,250,253

	Loans Receivable on Non-Accrual For the Period Ending
	March 31, 2016		December 31, 2015
Commercial Loans	$	3,862	$	4,317
Commercial real estate:
Commercial real estate construction		—		—
Commercial real estate other		2,453,166		1,970,306
Consumer
Consumer real estate		150,255		82,015
Consumer other		4,857		4,450
Total	$	2,612,140	$	2,061,088

As of and for the Nine Months Ended
September 30, 2015
	Commercial			Commercial Real Estate			Consumer Real Estate			Consumer Other			Total
Allowance for Loan Losses
Beginning Balance December 31, 2014	$	1,211,130		$	1,112,387		$	906,255		$	105,076		$	3,334,848
Charge-offs		(99,737	)		(55,252	)		(6,075	)		(40,007	)		(201,071	)
Recoveries		9,164			47,000			6,075			10,755			72,994
Provisions		(172,515	)		165,591			4,988			84,436			82,500
Ending Balance		948,042			1,269,726			911,243			160,260			3,289,271
Allowance for Loan Losses Ending Balances:
Individually evaluated for impairment		507,152			198,681			392,618			97,171			1,195,622
Collectively evaluated for impairment		440,890			1,071,045			518,625			63,089			2,093,649
Investment in Loans Ending Balance:
Individually evaluated for impairment		1,676,326			3,920,109			1,361,503			103,784			7,061,722
Collectively evaluated for impairment	$	46,403,583		$	117,229,338		$	65,958,786		$	4,596,824		$	234,188,531

	March 31, 2015
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other			Consumer Real Estate			Consumer Other		Total
Beginning Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351		$	105,076	$	3,334,848
Charge-offs		—			—		(21,000	)		—			—		(21,000	)
Recoveries		—			—		15,000			—			240		15,240
Provision		(110,328	)		1,792		85,335			(12,093	)		40,294		5,000
Ending Balance	$	1,100,802		$	44,696	$	1,191,722		$	851,258		$	145,610	$	3,334,088

	Impaired and Restructured Loans As of
	March 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	670,123	$	670,123	$	—	$	692,831	$	692,831	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		2,686,274		2,686,274		—		2,476,018		2,476,018		—
Consumer Real Estate		450,402		450,402		—		450,402		450,402		—
Consumer Other		68,240		68,240		—		5,715		5,715		—
	$	3,875,039	$	3,875,039	$	—	$	3,624,966	$	3,624,966	$	—

With an allowance recorded:
Commercial	$	1,103,564	$	1,103,564	$	1,103,564	$	947,143	$	947,143	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,333,821		1,333,821		338,142		1,075,477		1,075,477		253,105
Consumer Real Estate		154,070		154,070		150,545		795,017		795,017		342,320
Consumer Other		103,157		103,157		103,157		100,104		100,104		100,103
	$	2,694,612	$	2,694,612	$	1,695,408	$	2,917,741	$	2,917,741	$	1,083,507
Total
Commercial	$	1,773,687	$	1,773,687	$	1,103,564	$	1,639,974	$	1,639,974	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		4,020,095		4,020,095		338,142		3,551,495		3,551,495		253,105
Consumer Real Estate		604,472		604,472		150,545		1,245,419		1,245,419		342,320
Consumer Other		171,397		171,397		103,157		105,819		105,819		100,103
	$	6,569,651	$	6,569,651	$	1,695,408	$	6,542,707	$	6,542,707	$	1,083,507

	September 30,		December 31,
	2015		2014
Balance, beginning of period	$	521,943	$	—
Additions-foreclosure		98,451		557,416
Sales		—		35,473
Write-downs		—		—
Balance, end of period	$	620,394	$	521,943

Three Months Ended September 30, 2015	Options			Weighted Average Exercise Price

Balance at July 1, 2015	187,042		$	10.84
Forfeited	(1,925	)		13.49
Balance at September 30, 2015	185,117			10.81

Nine months Ended September 30, 2015	Options			Weighted Average Exercise Price

Balance at January 1, 2015	176,181		$	10.48
Forfeited	(6,326	)		11.88
Exercised	(8,388	)		13.51
Granted	23,650			14.48
Balance at September 30, 2015	185,117			10.81

Three months Ended September 30, 2014	Options			Weighted Average Exercise Price

Balance at July 1, 2014	168,206		$	10.03
Granted	11,000			13.49
Forfeited	(1,375	)		11.67
Balance at September 30, 2014	177,831			10.23

Nine months Ended September 30, 2014	Options			Weighted Average Exercise Price

Balance at January 1, 2014	175,081		$	10.03
Granted	11,000			13.49
Forfeited	(5,500	)		10.73
Exercised	(2,750	)		9.47
Balance at September 30, 2014	177,831			10.23


Options exercisable at September 30, 2015	13,209		$	13.41