☒ 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 or an emerging growth company.

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

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 2, 2016~~August 10, 2017 there were ~~4,948,939~~4,980,009 Common Shares outstanding.

~~BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY~~

Bank of South Carolina Corporation and Subsidiary

Table of Contents

		Page
Part I. Financial Information

Item 1.		Financial Statements (Unaudited)

		Consolidated Balance Sheets – ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016	3
	Consolidated Statements of Income - Three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016		4
	Consolidated Statements of Income - ~~Nine~~Six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016		5
	Consolidated Statements of Comprehensive Income – Three and ~~Nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016		6
	Consolidated Statements of Shareholders’ Equity- ~~Nine~~Six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016		7
	Consolidated Statements of Cash Flows - ~~Nine~~Six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016		8
	Notes to Consolidated Financial Statements		9

Item 2.		~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
		Off-Balance Sheet Arrangements	3534
	Liquidity		35
		Capital Resources	35

Item 3. Quantitative and Qualitative Disclosures About Market Risk		36

~~Item 3.~~		~~Quantitative and Qualitative Disclosures About Market Risk~~	37

Item 4.	Controls and Procedures	3736

Part II. Other Information

Item 1.	Legal Proceedings	3837
Item 1A.	Risk Factors	3837
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3837
Item 3.	Defaults Upon Senior Securities	3837
Item 4.	Mine Safety Disclosure	3837
Item 5.	Other Information	3837
Item 6.	Exhibits	3837

Signatures		39
Certifications
		40

Part I. Financial Information

Item 1. Financial Statements

~~BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY~~
~~CONSOLIDATED BALANCE SHEETS~~

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS							BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
	(Unaudited)			(Audited)
	September 30, 2016			December 31, 2015				(Unaudited) June 30, 2017			(Audited) December 31, 2016
ASSETS

Cash and due from banks	$	7,187,028		$	5,295,924			$	8,746,291		$	8,141,030
Interest-bearing deposits in other banks		14,576,120			23,898,862
Interest-bearing deposits at the Federal Reserve Bank									23,881,649			18,101,300
Investment securities available for sale		115,082,608			119,997,585				132,660,381			119,978,944
Mortgage loans to be sold		4,962,967			5,820,239				2,232,201			4,386,210
Loans		266,383,656			242,622,705				260,229,745			260,576,115
Less: Allowance for loan losses		(3,745,111	)		(3,417,827	)			(3,927,515	)		(3,851,617	)
Net loans		262,638,545			239,204,878				256,302,230			256,724,498
Premises, equipment and leasehold improvements, net		2,218,255			2,289,228				2,270,977			2,296,624
Other real estate owned		521,943			620,394				475,800			521,943
Accrued interest receivable		1,018,121			1,284,063				1,551,357			1,614,002
Other assets		1,360,838			761,339				2,183,113			2,185,085

Total assets	$	409,566,425		$	399,172,512			$	430,303,999		$	413,949,636

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest-bearing demand	$	119,677,668		$	122,073,396			$	132,051,130		$	126,034,478
Interest-bearing demand		95,799,297			84,977,640				94,401,633			96,260,589
Money market accounts		76,942,944			70,233,422				81,827,246			77,307,662
Time deposits over $250,000		15,513,613			25,896,768				17,959,145			17,822,136
Other time deposits		28,003,075			28,871,044				26,559,417			26,019,121
Other savings deposits		29,469,957			26,666,342				33,493,698			29,078,865
Total deposits		365,406,554			358,718,612				386,292,269			372,522,851
Accrued interest payable and other liabilities									958,771			813,811
Total liabilities									387,251,040			373,336,662

Accrued interest payable and other liabilities		2,100,380			1,302,188
Total Liabilities		367,506,934			360,020,800

Shareholders' Equity
Common Stock-No par value: 12,000,000 shares authorized; shares
issued 5,190,115 at September 30, 2016 and 5,157,996 at December 31, 2015;
shares outstanding 4,948,719 at September 30, 2016 and 4,916,600 at December 31, 2015		—			—
Shareholders’ equity
Common stock-no par, 12,000,000 shares authorized; 5,211,285 and 5,197,535 shares issued at June 30, 2017 and December 31, 2016, respectively; 4,969,889 and 4,956,139 shares outstanding at June 30, 2017 and December 31, 2016, respectively									—			—
Additional paid in capital		36,733,560			36,341,744				37,015,422			36,824,022
Retained earnings		6,024,488			4,064,834				7,865,149			6,643,476
Treasury stock; 241,396 shares at September 30, 2016 and December 31, 2015		(2,247,415	)		(2,247,415	)
Accumulated other comprehensive income, net of income taxes		1,548,858			992,549
Total shareholders' equity		42,059,491			39,151,712

Total liabilities and shareholders' equity	$	409,566,425		$	399,172,512
Treasury stock: 241,396 shares at June 30, 2017 and December 31, 2016									(2,247,415	)		(2,247,415	)
Accumulated other comprehensive income (loss), net of income taxes									419,803			(607,109	)
Total shareholders’ equity									43,052,959			40,612,974
Total liabilities and shareholders’ equity								$	430,303,999		$	413,949,636

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended
	September 30,
	2016		2015		THREE MONTHS ENDED JUNE 30,
					2017		2016
Interest and fee income
Loans, including fees	$	3,360,151	$	2,975,653	$	3,221,855	$	3,208,836
Taxable securities		379,039		333,589		399,909		290,486
Tax-exempt securities		255,231		248,119		256,202		240,171
Other		35,722		12,311		55,319		31,176
Total interest and fee income		4,030,143		3,569,672		3,933,285		3,770,669

Interest expense
Deposits		96,467		101,199		106,522		92,981
Short-term borrowings		—		31		—		7
Total interest expense		96,467		101,230		106,522		92,988

Net interest income		3,933,676		3,468,442		3,826,763		3,677,681
Provision for loan losses		210,000		7,500		30,000		140,000
Net interest income after provisions for loan losses		3,723,676		3,460,942
Net interest income after provision for loan losses						3,796,763		3,537,681

Other income
Service charges, fees and commissions		265,769		240,306		287,873		265,736
Mortgage banking income		409,674		413,077		400,519		296,891
Gains on sales of securities						—		160,391
Other non-interest income		11,143		8,655		8,087		6,554
Total other income		686,586		662,038		696,479		729,572

Other expense
Salaries and employee benefits		1,485,621		1,450,852		1,500,362		1,480,420
Net occupancy expense		377,075		372,727		393,763		380,311
Other operating expenses		721,572		549,163		649,855		576,150
Total other expense		2,584,268		2,372,742
Net other real estate owned expenses						46,143		—
Total other expenses						2,590,123		2,436,881

Income before income tax expense		1,825,994		1,750,238		1,903,119		1,830,372
Income tax expense		399,656		551,319		516,734		518,262

Net income	$	1,426,338	$	1,198,919	$	1,386,385	$	1,312,110

Weighted average shares outstanding

Basic		4,931,185		4,915,610		4,967,907		4,929,722
Diluted		5,054,723		5,061,685		5,072,908		5,056,523

Basic income per common share	$	0.29	$	0.24	$	0.28	$	0.27
Diluted income per common share	$	0.28	$	0.24	$	0.27	$	0.26

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Nine Months Ended
	September 30,
	2016			2015		SIX MONTHS ENDED JUNE 30,
						2017		2016
Interest and fee income
Loans, including fees	$	9,603,030		$	8,798,553	$	6,363,593	$	6,242,879
Taxable securities		992,658			1,036,038		738,756		613,619
Tax-exempt securities		734,716			734,716		527,087		479,485
Other		102,472			25,629		95,270		66,750
Total interest and fee income		11,432,876			10,594,936		7,724,706		7,402,733

Interest expense
Deposits		283,588			293,356		203,304		187,120
Short-term borrowings		7			924		—		7
Total interest expense		283,595			294,280		203,304		187,127

Net interest income		11,149,281			10,300,656		7,521,402		7,215,606
Provision for loan losses		395,000			82,500		32,500		185,000
Net interest income after provisions for loan losses		10,754,281			10,218,156
Net interest income after provision for loan losses							7,488,902		7,030,606

Other income
Service charges, fees and commissions		792,036			728,799		557,439		526,267
Mortgage banking income		1,058,438			1,247,813		675,624		648,764
Gains on sales of securities							—		348,327
Other non-interest income		23,385			20,175		15,290		12,243
Loss on sale of other real estate		(13,450	)		—
Gain on sale of securities		348,327			264,401
Total other income		2,208,736			2,261,188		1,248,353		1,535,601

Other expense
Salaries and employee benefits		4,481,067			4,342,702		2,970,571		2,995,446
Net occupancy expense		1,133,784			1,112,354		757,908		756,710
Other operating expenses		1,928,994			1,656,198		1,287,131		1,207,422
Total other expense		7,543,845			7,111,254
Net other real estate owned expenses							46,143		13,450
Total other expenses							5,061,753		4,973,028

Income before income tax expense		5,419,172			5,368,090		3,675,502		3,593,179
Income tax expense		1,484,989			1,710,774		1,063,029		1,085,333

Net income	$	3,934,183		$	3,657,316	$	2,612,473	$	2,507,846

Weighted average shares outstanding

Basic		4,929,977			4,911,142		4,965,094		4,923,266
Diluted		5,058,837			5,062,695		5,069,024		5,047,601

Basic income per common share	$	0.80		$	0.74	$	0.53	$	0.51
Diluted income per common share	$	0.78		$	0.72	$	0.52	$	0.50

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended
September 30,
2016 2015

Net income $ 1,426,338 $ 1,198,919
Other comprehensive income (loss):
Unrealized gain (loss) on securities arising during the period
Reclassification adjustment for securities gains realized in net income
Other comprehensive income (loss), before tax (387,289 ) 797,645
Income tax effect related to items of other comprehensive income (loss)
Other comprehensive income (loss), after tax (282,601 ) 502,516
Total comprehensive income $ 1,143,736 $ 1,701,435
THREE MONTHS ENDED
JUNE 30,
2017 2016
Net income $ 1,386,385 $ 1,312,110
Other comprehensive income:
Unrealized gain on securities arising during the period 996,733 553,433
Reclassification adjustment for securities gains realized in net income — (160,391 )
Other comprehensive income, before tax 996,733 393,042
Income tax effect related to items of other comprehensive income (338,889 ) (145,426 )
Other comprehensive income, after tax 657,844 247,616
Total comprehensive income $ 2,044,229 $ 1,559,726

Nine Months Ended
September 30,
2016 2015

Net income $ 3,934,183 $ 3,657,316
Other comprehensive income:
Unrealized gain on securities arising during the period
Reclassification adjustment for securities gains realized in net income
Other comprehensive income, before tax 944,314 337,500
Income tax effect related to items of other comprehensive income
Other comprehensive income, after tax 556,309 212,625
Total comprehensive income $ 4,490,492 $ 3,869,941
SIX MONTHS ENDED
JUNE 30,
2017 2016
Net income $ 2,612,473 $ 2,507,846
Other comprehensive income:
Unrealized gain on securities arising during the period 1,582,555 1,679,929
Reclassification adjustment for securities gains realized in net income — (348,327 )
Other comprehensive income, before tax 1,582,555 1,331,602
Income tax effect related to items of other comprehensive income (555,643 ) (492,692 )
Other comprehensive income, after tax 1,026,912 838,910
Total comprehensive income $ 3,639,385 $ 3,346,756

See accompanying notes to consolidated financial statements.
6

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS'~~SHAREHOLDERS’ EQUITY
FOR THE ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, 2017 AND 2016 ~~AND 2015~~ (UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
PAID IN RETAINED TREASURY COMPREHENSIVE
CAPITAL EARNINGS STOCK INCOME TOTAL
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

December 31, 2015 $ 36,341,744 $ 4,064,834 $ (2,247,415 ) $ 992,549 $ 39,151,712
Net income —   3,934,183 —   —   3,934,183
Other comprehensive income —   —   —   556,309 556,309
Exercise of stock options 333,704 —   —   —   333,704
Stock-based compensation expense 58,112 —   —   —   58,112
Cash dividends ($0.40 per common share) —   (1,974,529 ) —   —   (1,974,529 )
September 30, 2016 $ 36,733,560 $ 6,024,488 $ (2,247,415 ) $ 1,548,858 $ 42,059,491
~~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,
2016 2015

Cash flows from operating activities:
Net income $ 3,934,183 $ 3,657,316
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 140,276 148,425
Gain on sales and call of securities (446,041 ) (264,401 )
Loss on sale of OREO 13,450 —
Provision for loan losses 395,000 82,500
Stock-based compensation expense 58,112 58,943
Net amortization of unearned discounts on investments 223,272 73,622
Origination of mortgage loans held for sale (57,759,783 ) (74,776,964 )
Proceeds from sale of mortgage loans held for sale 58,617,055 75,083,908
(Increase) decrease in accrued interest receivable and other assets (721,562 ) 334,841
Increase in accrued interest payable and other liabilities 744,530 202,926
Net cash provided by operating activities 5,198,492 4,601,116

Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale 4,728,518 2,315,000
Proceeds from sales and calls of investment securities available for sale 26,113,400 15,219,799
Purchase of investment securities available for sale (24,759,858 ) (19,278,675 )
Proceeds from sale of other real estate owned 85,000 —
Net increase in loans (23,828,667 ) (7,358,989 )
Purchase of premises, equipment, and leasehold improvements (69,303 ) (93,833 )
Net cash used by investing activities (17,730,910 ) (9,196,698 )

Cash flows from financing activities:
Net increase in deposit accounts 6,687,942 21,333,477
Net decrease in short-term borrowings —   (6,499,540 )
Dividends paid (1,920,866 ) (1,740,932 )
Cash paid for fractional shares —   (4,778 )
Stock options exercised 333,704 113,254
Net cash provided by financing activities 5,100,780 13,201,481
Net (decrease) increase in cash and cash equivalents (7,431,638 ) 8,605,899
Cash and cash equivalents at beginning of period 29,194,786 10,379,048

Cash and cash equivalents at end of period $ 21,763,148 $ 18,984,947

Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest $ 308,857 $ 313,689
Income taxes $ 1,669,840 $ 1,631,252

Supplemental disclosure for non-cash investing and financing activity:
Change in unrealized gain on available for sale securities, net of tax $ 556,309 $ 212,625
Change in dividends payable $ 53,663 $ 59,049
Transfer of loans to other real estate owned $ —   $ 98,451

ADDITIONAL
PAID IN
CAPITAL

RETAINED
EARNINGS

TREASURY
STOCK

ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)

TOTAL

December 31, 2015 $ 36,341,744 $ 4,064,834 $ (2,247,415 ) $ 992,549 $ 39,151,712

Net income — 2,507,846 — — 2,507,846
Other comprehensive income — — — 838,910 838,910
Exercise of stock options 260,546 — — — 260,546
Stock-based compensation expense 39,683 — — — 39,683
Cash dividends ($0.26 per common share) — (1,281,709 ) — — (1,281,709 )
June 30, 2016 $ 36,641,973 $ 5,290,971 $ (2,247,415 ) $ 1,831,459 $ 41,516,988

December 31, 2016 $ 36,824,022 $ 6,643,476 $ (2,247,415 ) $ (607,109 ) $ 40,612,974

Net income — 2,612,473 — — 2,612,473
Other comprehensive income — — — 1,026,912 1,026,912
Exercise of stock options 154,858 — — — 154,858
Stock-based compensation expense 36,542 — — — 36,542
Cash dividends ($0.28 per common share) — (1,390,800 ) — — (1,390,800 )
June 30, 2017 $ 37,015,422 $ 7,865,149 $ (2,247,415 ) $ 419,803 $ 43,052,959

See accompanying notes to consolidated financial statements.
8

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
Cash flows from operating activities: 2017 2016
Net income $ 2,612,473 $ 2,507,846
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 94,994 95,732
Gain on sale of securities — (348,327 )
Loss on sale of other real estate — 13,450
Valuation and other adjustments to other real estate 46,143 —
Provision for loan losses 32,500 185,000
Stock-based compensation expense 36,542 39,683
Deferred income taxes (553,671 ) —
Net amortization of unearned discounts on investment securities 198,768 92,417
Origination of mortgage loans held for sale (32,568,879 ) (36,412,202 )
Proceeds from sale of mortgage loans held for sale 34,722,888 35,731,989
Decrease  (increase) in accrued interest receivable and other assets 62,645 (292,725 )
Increase (decrease)  in accrued interest payable and other liabilities 143,193 (99,874 )
Net cash provided by operating activities 4,827,596 1,512,989

Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale 3,787,150 4,146,000
Proceeds from sale of available for sale securities — 21,113,400
Purchase of investment securities available for sale (15,084,800 ) (9,033,245 )
Proceeds from sale of other real estate — 85,001
Net decrease (increase) in loans 389,768 (27,767,765 )
Purchase of premises, equipment and leasehold improvements, net (69,347 ) (24,658 )
Net cash used in investing activities (10,977,229 ) (11,481,267 )

Cash flows from financing activities:
Net increase in deposit accounts 13,769,418 23,503,668
Dividends paid (1,389,033 ) (1,278,434 )
Stock options exercised 154,858 260,546
Net cash provided by financing activities 12,535,243 22,485,780
Net increase in cash and cash equivalents 6,385,610 12,517,502
Cash and cash equivalents at beginning of year 26,242,330 29,194,786

Cash and cash equivalents at end of year $ 32,627,940 $ 41,712,288

Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 254,933 $ 190,343
Income taxes $ 1,511,965 $ 1,069,840
Supplemental disclosure for non-cash investing and financing activity:
Change in unrealized gain on securities available for sale, net of income taxes $ 1,026,912 $ 838,910
Change in dividends payable $ 1,767 $ 3,275
See accompanying 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")~~the Company and its wholly-owned subsidiary, ~~The Bank of South Carolina (the "Bank"). In~~the Bank. During consolidation, all significant intercompany balances and transactions have been eliminated.

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

Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ~~or GAAP,~~(“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~~Securities and Exchange Commission on March ~~4, 2016.~~3, 2017. In the opinion of management, these interim financial statements present fairly, in all material respects, the Company’s consolidated financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

Accounting Estimates and Assumptions
The preparation of the consolidated financial statements 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 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~~deferred tax assets, the fair value of financial instruments and other-than-temporary impairment of investment securities.

Reclassification
Certain amounts in the prior years’ financial statements have been reclassified to conform to the current ~~year’s~~period’s presentation. Such reclassifications had no effect on shareholders’ equity or the net income as previously reported.

~~BANK OF SOUTH CAROLINA CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
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~~that 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.

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. ~~Non recognized~~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 and no subsequent events occurred requiring accrual or disclosure.

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~~Accounting Standards Update (“ASU”) 2014-09,Revenue from ~~contracts~~Contracts with ~~customers.~~Customers, Topic 606. The core principle of the new ~~guidance~~standard is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. ~~The~~This guidance also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. In August 2015, the FASB deferred the effective date of the amendments. As a result of the deferral, the guidance will be effective for the Company 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 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 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~~ issued ASU 2016-01,Financial Instruments ~~topic~~– Overall (Subtopic 825-10); Recognition and Measurement of ~~Accounting Standards Codification to address~~Financial Instruments and Financial Liabilities. This update addresses 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~~The Company does not expect this amendment to have a material effect on ~~our~~its financial statements.

In February 2016, the FASB ~~amended the~~ issued ASU 2016-02,Leases ~~topic of the Accounting Standards Codification to revise~~(Topic 842),which revises 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 flows.

In March 2016, the FASB ~~amended the~~ issued ASU 2016-08,Revenue from Contracts with Customers ~~topic of the Accounting Standards Codification~~(Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), to 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 Company for reporting periods beginning after December 15, ~~2017~~. ~~We do~~2017. The Company does not expect ~~these amendments~~this amendment to have a material effect on ~~our~~its financial statements.

In March 2016, the FASB issued ~~guidance~~ ASU 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share – Based Payment Accounting,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 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 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~~became effective for ~~annual periods beginning after December 15, 2016~~the Company on January 1, 2017 and ~~interim periods within those annual periods~~. ~~We do~~this amendment did not ~~expect these amendments to~~ have a material effect on ~~our~~its financial statements.

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In April 2016, the FASB ~~amended the~~ issued ASU 2016-10,Revenue from Contracts with Customers ~~topic of the ASC~~(Topic 606): Identifying Performance Obligations and Licensing, to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. ~~We do~~The Company does not expect these amendments to have a material effect on ~~our~~its financial statements.

~~BANK OF SOUTH CAROLINA CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
In May 2016, the FASB ~~amended the~~ issued ASU 2016-12,Revenue from Contracts with Customers ~~topic of the ASC~~(Topic 606): Narrow- Scope Improvements and Practical Expedients, to clarify guidance related to ~~the~~ collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. ~~We do~~The Company does not expect these amendments to have a material effect on ~~our~~its financial statements.

In June 2016, the FASB issued ~~guidance~~ASU 2016-13,Financial instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. ~~We are~~Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently evaluating the effect that implementation of the new standard will have on ~~our~~its financial position, results of operations, and cash flows.

In August 2016, the FASB ~~amended the~~ issued ASU 2016-15,Statement of Cash Flows ~~topic~~(Topic 230): Classification of ~~the Accounting Standards Codification~~Certain Cash Receipts and Cash Payments, to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. ~~We do~~Early adoption is permitted. The Company does not expect these amendments to have a material effect on ~~our~~its financial statements.
In December 2016, the FASB issued ASU 2016-20,Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will continue to evaluate the impact of this ASU and does not expect these amendments to have a material effect on its financial statements.
In January 2017, the FASB issued ASU 2017-01,Clarifying the Definition of a Business, which provided guidance to assist with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective date. The Company does not expect this amendment to have a material effect on its financial statements.
In February 2017, the FASB issued ASU 2017-05,Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, to clarify the scope of established guidance on nonfinancial asset derecognition, issued as part of ASU 2014-09,Revenue from Contracts with Customers, as well as accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. This amendment is effective for annual periods beginning after December 15, 2017. The Company does not expect this amendment to have a material effect on its 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.

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2: Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale are summarized as follows:

JUNE 30, 2017
AMORTIZED
COST GROSS
UNREALIZED
GAINS GROSS
UNREALIZED
LOSSES FAIR
VALUE

U.S. Treasury Notes $ 24,139,912 $ 62,201 $ (6,799 ) $ 24,195,314
Government-Sponsored Enterprises 66,708,908 391,749 (383,380 ) 66,717,277
Municipal Securities 41,192,677 865,966 (310,853 ) 41,747,790

Total $ 132,041,497 $ 1,319,916 $ (701,032 ) $ 132,660,381
September 30, 2016
AMORTIZED
COST GROSS
UNREALIZED
GAINS GROSS
UNREALIZED
LOSSES ESTIMATED
FAIR VALUE

U.S. Treasury Notes $ 23,996,534 $ 333,623 $ —   $ 24,330,157
Government-Sponsored Enterprises 46,532,303 920,517 76,858 47,375,962
Municipal Securities 42,095,272 1,351,372 70,155 43,376,489
Total $ 112,624,109 $ 2,605,512 $ 147,013 $ 115,082,608
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
~~BANK OF SOUTH CAROLINA CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

DECEMBER 31, 2016
AMORTIZED
COST GROSS
UNREALIZED
GAINS GROSS
UNREALIZED
LOSSES FAIR
VALUE

U.S. Treasury Notes $ 24,148,295 $ 41,153 $ (250,385 ) $ 23,939,063
Government-Sponsored Enterprises 51,737,930 129,482 (833,321 ) 51,034,091
Municipal Securities 45,056,390 765,813 (816,413 ) 45,005,790

Total $ 120,942,615 $ 936,448 $ (1,900,119 ) $ 119,978,944

The ~~following table presents the~~ amortized cost and estimated fair value of investment securities available for sale as of June 30, 2017 and December 31, 2016, by contractual maturity ~~for the periods indicated:~~ are as follows:

September 30, 2016 December 31, 2015 JUNE 30, 2017 DECEMBER 31, 2016
AMORTIZED
COST ESTIMATED
FAIR VALUE AMORTIZED
COST ESTIMATED
FAIR VALUE AMORTIZED
COST FAIR
VALUE AMORTIZED
COST FAIR
VALUE

Due in one year or less $ 3,010,876 $ 3,025,977 $ 3,311,346 $ 3,326,249 $ 3,017,513 $ 3,038,231 $ 3,343,347 $ 3,350,205
Due in one year to five years 81,399,920 83,106,646 69,870,930 70,584,179 91,871,936 92,428,862 82,848,411 82,682,901
Due in five years to ten years 23,121,280 23,857,968 41,930,801 42,670,986 33,599,190 33,748,377 29,662,030 29,169,228
Due in ten years and over 5,092,033 5,092,017 3,309,039 3,416,171 3,552,859 3,444,911 5,088,827 4,776,610

Total $ 112,624,109 $ 115,082,608 $ 118,422,116 $ 119,997,585 $ 132,041,498 $ 132,660,381 $ 120,942,615 $ 119,978,944
~~Securities~~Investment securities pledged to secure public deposits and for other purposes required or permitted by law at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, had a ~~carrying amount~~fair value of ~~$47.8~~$53.1 million and ~~$48.0~~$47.6 million, respectively.

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016. We believe that all unrealized losses have resulted from temporary changes in the interest ~~rate~~rates and current market conditions 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.

Less Than 12 Months 12 Months or Longer Total
# Fair Value Gross Unrealized Loss # Fair Value Gross Unrealized Loss # Fair Value Gross Unrealized Loss
June 30, 2017
Available for sale
U.S. Treasury notes 2 $ 10,142,188 $ (6,799 ) — $ — $ — 2 $ 10,142,188 $ (6,799 )
Government-sponsored enterprises 4 12,441,218 (326,380 ) 1 2,928,357 (57,000 ) 5 15,369,575 (383,380 )
Municipal securities 36 15,193,138 (310,853 ) — — — 36 15,193,138 (310,853 )
Total 42 $ 37,776,544 $ (644,032 ) 1 $ 2,928,357 $ (57,000 ) 43 $ 40,704,901 $ (701,032 )
December 31, 2016
Available for sale
U.S. Treasury notes 4 $ 17,968,594 $ (250,385 ) — $ — $ — 4 $ 17,968,594 $ (250,385 )
Government-sponsored enterprises 8 30,136,720 (833,321 ) — — — 8 30,136,720 (833,321 )
Municipal securities 54 22,606,430 (816,413 ) — — — 54 22,606,430 (816,413 )
Total 66 $ 70,711,744 $ (1,900,119 ) — $ — $ — 66 $ 70,711,744 $ (1,900,119 )

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 September 30, 2016

U.S. Treasury Notes — $ — $ — — $ — $ — — $ — $ —
Government Sponsored Enterprises 4 10,512,585 76,858 — — — 4 10,512,585 76,858
Municipal Securities 15 6,772,212 70,155 — — — 15 6,772,212 70,155
Total 19 $ 17,284,797 $ 147,013 — $ — $ — 19 $ 17,284,797 $ 147,013
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 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
~~BANK OF SOUTH CAROLINA CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
We received proceeds from sales ~~and calls~~ of securities available for sale and gross realized gains and losses as follows:

For the Three Months Ended
September 30, For the Three Months Ended
June 30,
2016 2015 2017 2016
Gross proceeds $ 4,902,286 $ —   $ — $ 5,135,609
Gross realized gains 97,714 —   — 160,391
Gross realized losses — —   — —

For the Six Months Ended
June 30,
2017 2016
Gross proceeds $ — $ 21,113,400
Gross realized gains — 348,327
Gross realized losses — —
For the Nine Months Ended
September 30,
2016 2015
Gross proceeds $ 25,667,359 $ 15,219,799
Gross realized gains 446,041 264,401
Gross realized losses —   —
The tax provision related to these gains was ~~$36,154~~$59,382 and $128,881 for the three and six months ended ~~September~~June 30, 2016, ~~and $165,035 and $97,829 for the nine months ended September 30, 2016 and 2015,~~ respectively.

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3: Loans and Allowance for Loan Losses

Major classifications of loans (net of deferred loan fees of ~~$142,460~~$143,374 at ~~September~~June 30, ~~2016,~~2017 and ~~$118,188~~$136,446 at December 31, ~~2015)~~2016) are as follows:

June 30,
2017 December 31,
2016
Commercial loans $ 56,281,569 $ 52,262,209
Commercial real estate:
Construction 1,457,591 1,208,901
Other 121,477,838 122,968,126
Consumer:
Real Estate 75,702,877 77,131,816
Other 5,309,870 7,005,063
260,229,745 260,576,115
Allowance for loan losses (3,927,515 ) (3,851,617 )
Loans, net $ 256,302,230 $ 256,724,498
September 30, December 31,
2016 2015

Commercial Loans $ 48,155,901 $ 50,938,265
Commercial real estate:
Commercial real estate construction 1,189,986 1,005,118
Commercial real estate other 127,715,800 115,736,034
Consumer
Consumer real estate 83,531,237 69,777,307
Consumer other 5,790,732 5,165,981
266,383,656 242,622,705
Allowance for Loan losses (3,745,111 ) (3,417,827 )
Loans, net $ 262,638,545 $ 239,204,878
We had ~~$109.4~~$103.4 million and ~~$102.1~~$101.2 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at ~~September~~June 30, ~~2016~~2017 and at December 31, ~~2015,~~2016, respectively.

Our portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Our internal credit risk grading system is based on experience with similarly graded loans, industry best practices, and regulatory guidance.

~~BANK OF SOUTH CAROLINA CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
Our internally assigned grades pursuant to 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, and 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, and bankruptcy is a possiblility. 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.

~~Excellent~~BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~(1) The borrowing entity has more than adequate cash flow, unquestionable strength, strong earnings and capital where applicable, and no overdrafts.~~

The following ~~table illustrates~~tables illustrate credit ~~risks~~quality by ~~category~~class and internally assigned grades ~~at September~~as of June 30, ~~2016~~2017 and December 31, ~~2015.~~2016. “Pass” includes loans internally graded as excellent, good and satisfactory.

The following tables include an aging analysis of the recorded investment ~~of past-due financing receivable~~in loans segregated by class:

There were ~~three~~no loans at ~~September~~June 30, ~~2016~~2017 and ~~one loan~~two loans at December 31, ~~2015,~~2016 over 90 days past due and still ~~accruing interest.~~ accruing.

The following tables set forth the changes in the allowance for loan losses and an allocation of the allowance for loan losses by ~~loan category~~class for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~September~~June 30, ~~2015.~~2016. The allowance for loan losses 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.

The following tables present, by ~~portfolio segment~~class and reserving methodology, the allocation of the allowance for loan losses and the gross investment in loans.

As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, loans individually evaluated for impairment and ~~considered impaired~~the corresponding allowance for loan losses are presented in the following table:

The following ~~table presents~~tables present average investment in impaired loans and the related interest income recognized on those impaired loans, by class, ~~segment,~~ for the periods indicated.

Restructured loans, ~~were $444,145 (3 loans) and $458,268 (3 loans)~~also known as troubled debt restructurings (“TDR”), are loans, still accruing interest, which have been renegotiated at ~~September~~below-market interest rates or have been granted other concessions. At June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, there were $33,300 (1 loan) and $378,392 (2 loans) in restructured loans, respectively. ~~Restructured~~Our restructured loans were granted extended payment terms with no principal ~~reduction.~~or rate reductions. All ~~restructured loans~~TDRs were performing as agreed as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. There were no additional loans identified as a ~~troubled debt restructuring (“TDR”)~~TDR during the three or ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 or ~~2015.~~2016. No TDRs defaulted during the three or ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, which were modified within the previous twelve months.

Note 4: ~~Disclosure Regarding~~ Fair Value of Financial ~~Statements~~Instruments

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 the price that would be received to sell an asset or paid to transfer a liability in the principal or the most advantageous market in an orderly transaction between market participants at the measurement date. 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 standard~~GAAP 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 market data we have obtained from independent sources, are ones that market participants would use in pricing an asset or liability. 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.

The fair value hierarchy gives the 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 as follows:

Fair value estimates are made at a specific point of 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 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 following ~~is a description of~~paragraphs describe the valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:

~~Securities available for sale~~Investment securities are recorded at fair value on a recurring basis and are based upon quoted prices if available. If quoted prices are not available, fair 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 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 ~~September~~June 30, ~~2016~~2017 or December 31, ~~2015.~~2016.

We ~~had~~have 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~~June 30, ~~2016~~2017 and December 31, ~~2015.~~

Assets and liabilities measured at fair value on a recurring basis at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows:

There were no liabilities recorded at fair value on a recurring basis as of ~~September~~June 30, ~~2016~~2017 or December 31, ~~2015.~~2016.

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 and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~September 30, 2015, respectively:~~2016:

There were no transfers between fair value levels during the three or ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 or ~~September~~June 30, ~~2015.~~2016.

~~Following is a description of~~The following paragraphs describe the valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:

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.

Impaired loans are carried at the lower of recorded investment or fair 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 ~~non-performing~~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 ~~non-performing~~nonperforming or immediately following the determination that the loan is impaired.

However, as a second example, on a ~~non-performing~~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.

In accordance with ~~Accounting Standards Codification (“ASC”)~~ASC 820, ~~“Fair~~Fair Value ~~Measurement”~~Measurement, impaired loans, where an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. At ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, substantially all of the impaired loans were evaluated based on 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 include mortgage loans and are carried at the lower of cost or market value. The fair values of mortgage loans held for sale are based on current market rates from investors within the secondary market for loans with similar characteristics. Carrying value 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).

The following ~~table presents~~tables present information about certain assets and liabilities measured at fair value on a nonrecurring basis at ~~September~~June 30, ~~2016,~~2017 and December 31, ~~2015:~~2016:

There were no liabilities measured at fair value on a nonrecurring basis as of ~~September~~June 30, ~~2016~~2017 or December 31, ~~2015.~~2016.

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at ~~September~~June 30, ~~2016:~~2017:

~~Accounting standards require~~GAAP requires disclosure of fair value information 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.

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~~paragraphs describe the methods and assumptions we use in estimating the fair values of financial ~~instruments:~~instruments that have not been previously discussed:

The carrying value approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.

~~The fair value of investment securities is derived from quoted market prices.~~

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 ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, approximate market.

~~The carrying value of mortgage loans held for sale approximates fair value.~~ For lines of credit, the carrying value approximates fair value.

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).

~~The carrying amount approximates fair value due to the short-term nature of these instruments.~~

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.

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 tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of ~~September~~June 30, ~~2016~~2017 and December 31, 2015. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.2016.

Basic income per share is 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 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.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~The following tables are a summary of the reconciliation of average shares outstanding:

Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is designed to provide a better understanding of various factors related to the Company’s consolidated financial condition, results of operations, liquidity, and capital resources. It should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10k for the year ended December 31, 2016 and other financial information appearing elsewhere in this report.

This ~~Quarterly Report on Form 10-Q,~~report, including information included or incorporated by reference in this document, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1934. We desire to take advantage of the ~~“safe harbor”~~safe harbor provisions of the Private Securities Litigation Reform Act of 1996 and are including this statement for the express purpose of availing the Company of protections of such safe harbor with respect to all “forward-looking statements” contained in this Form 10-Q. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of our Company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors that are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,”, “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitations, those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 as filed with the ~~Securities and Exchange Commission (the “SEC”)~~SEC and the following:

These risks are exacerbated by the developments over the last 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.

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

Bank of South Carolina Corporation (the “Company”) is a financial institution holding company headquartered in Charleston, South Carolina, with ~~$409.6~~$430.3 million in assets as of ~~September~~June 30, ~~2016~~2017 and net income of $1.4 million and ~~$3.9~~$2.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2017. The Company offers a broad range of financial services through its wholly-owned subsidiary, The Bank of South Carolina (the “Bank”). The Bank is a state-chartered commercial bank which operates primarily in the Charleston, Dorchester and Berkeley counties of South Carolina. The Bank’s original and current concept is to be a full service financial institution specializing in personal service, responsiveness, and attention to detail to foster long standing relationships.

We derive most of our income from interest on loans and investments (interest 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 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~~such as deposits. Another key measure is the spread between the yield we earn on these interest-bearing assets and the rate we pay on our interest-bearing liabilities.

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

In addition to earning interest on loans and investments, we earn income through fees and other expenses we charge to the customer. The various components of non-interest income as well as non-interest expense are described in the following discussion. The discussion and analysis also identifies significant factors that have affected our financial position and operating results as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, 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.

Our critical accounting policies which involve significant judgements and assumptions that have a material impact on the carrying value of certain assets and liabilities, and used in the preparation of the Consolidated Financial Statements as of ~~September~~June 30, ~~2016,~~2017, have remained unchanged from the disclosures presented in our Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2016.

Total cash and cash equivalents ~~decreased 25.46%~~increased 24.33% or ~~$7.4~~$6.4 million to ~~$21.8~~$32.6 million at ~~September~~June 30, ~~2016,~~2017, from ~~$29.2~~$26.2 million at December 31, ~~2015.~~2016. This ~~decrease is~~increase was primarily due to ~~a reduction in funds received from mortgage loans sold as well as~~ an increase in ~~funds used~~deposit balances for ~~securities purchases. Please refer to our Consolidated Statements of Cash Flows~~both new and existing customers. Funds are placed in interest bearing deposits with the Federal Reserve Bank until opportunities arise for ~~more information on our operating, investing and financing activities.~~higher yielding assets.

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 ~~the~~ continuing assessment of cash flows, the level of current and expected loan production, ~~the~~ 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 ~~multiple~~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.

At ~~September~~June 30, ~~2016,~~2017, our available for sale investment portfolio included U. S. Treasury Notes, Government-Sponsored Enterprises and Municipal Securities with a fair market value of ~~$115.1~~$132.7 million and an amortized cost of ~~$112.6~~$132.0 million for a net unrealized gain of ~~$2.5 million.~~$618,883. At ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, our investment securities portfolio represented approximately ~~28.10%~~30.83% and ~~30.06%~~28.00% of our total assets, respectively. The average yield on our investment securities was ~~2.01%~~2.00% and ~~2.16%~~1.99% at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively.

We had ~~twelve~~seven Municipal Securities ~~totaling $4.7~~with an approximate total book value of $2.8 million that matured in the nine months ended September 30, 2016. One Government-Sponsored Enterprise Security totaling $5.0 million was called for a gain of $97,714 during the nine months ended September 31, 2016. In addition, we soldand three ~~U.S. Treasury Notes and two Government Sponsored Enterprises totaling $20.8 million during the same period. We purchased thirty-six~~ Municipal Securities with ~~a face~~an approximate total book value of ~~$23.6~~$1.0 million ~~and four~~that were called in the six months ended June 30, 2017. We purchased three investment securities issued by Government Sponsored Enterprises with a face value of ~~$10.0~~$15.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017.

We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic ~~markets and typically require a personal guarantee.~~markets. Substantially all of our loans ~~are~~were to borrowers located in our market area of Charleston, Dorchester and Berkeley Counties of South Carolina.

Net loans ~~increased $23.4 million,~~decreased approximately $400,000, or ~~9.80%~~0.16%, to ~~$262.6~~$256.3 million at ~~September~~June 30, ~~2016~~2017 from ~~$239.2~~$256.7 million at December 31, ~~2015. We~~2016. While loan demand remains consistent, we believe ~~that economic conditions~~the decrease in ~~our primary market area are continuing to improve, and that these improving conditions are contributing~~net loans is due to an increase in loan ~~demand. The amount~~payoffs related to the sale of ~~commercial~~ real estate ~~loans~~held as ~~a percentage~~collateral and decrease in the usage of ~~total loans continues to increase as a result~~lines of ~~strong real estate demand in our markets.~~credit.

The following table is a summary of our loan portfolio composition (net of deferred fees of ~~$142,460~~$143,374 at ~~September~~June 30, ~~2016~~2017 and ~~$118,188~~$136,446 at December 31, ~~2015)~~2016) and the corresponding percentage of total loans as of the dates indicated. ~~Our commercial real estate experienced the largest growth of $13.8 million or 19.71%.~~

~~Non-performing 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 ~~non-performing~~nonperforming loans requires the borrower to make a minimum of ~~nine~~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. ~~At September~~As of June 30, ~~2016~~2017, we had ~~three~~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. ~~At September~~As of June 30, ~~2016,~~2017, we determined that we had ~~three loans~~one loan totaling ~~$444,145,~~$33,300 that we considered ~~TDRs. At~~a TDR. As of December 31, ~~2015,~~2016, we had ~~three~~two loans totaling ~~$458,268,~~$378,382 that we considered TDRs.

~~Non-performing~~Nonperforming loans include all loans past due 90 days and over, certain impaired loans (some of which may be contractually current), and TDR loans that have not yet established a satisfactory period of payment performance (some of which may be contractually current). ~~Non-performing~~Nonperforming assets include other real estate owned, which decreased ~~by $98,451~~$46,143 from $521,943 as of December 31, ~~2015 due~~2016 to ~~the sale~~$475,800 as of ~~one property. We recorded a loss of $13,450 on this sale.~~June 30, 2017. The balance ~~at September 30, 2016 of $521,943~~ represents one ~~commercial~~ property.

The following table is a summary of our ~~non-performing assets, including accruing TDRs.~~nonperforming assets:

The allowance for loan losses was ~~$3.7 million and $3.4~~$3.9 million at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015, respectively,~~2016, or ~~1.41%~~1.51% and ~~1.41%~~1.48% of outstanding loans, respectively. At ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the allowance for loan losses represented ~~128.01%~~169.97% and ~~108.86%~~170.16% of the total amount of ~~non-performing loans.~~nonperforming loans, respectively. Based on the level of coverage on ~~non-performing~~nonperforming loans and analysis of our loan portfolio, we believe the allowance for loan losses at ~~September~~June 30, ~~2016~~2017 is adequate.

At ~~September~~June 30, ~~2016,~~2017, impaired loans totaled ~~$6.2~~$4.2 million, for which ~~$2.3~~$2.2 million of these loans had a reserve of approximately $1.4 million allocated in the allowance for loan losses. Comparatively, impaired loans totaled $5.9 million at December 31, 2016, and $2.2 million of these loans had a reserve of approximately $1.5 million allocated in the allowance for loan losses. ~~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 allowance.~~

During the three months ended ~~September~~June 30, ~~2016~~2017, we recorded ~~no charge-offs. A total~~$2,372 of ~~$116,651 was charged-off during the nine months ended September 30, 2016. During the three~~charge-offs and ~~nine months ended September 30, 2016 we recorded~~$23,030 of recoveries ~~of $22,665 and $48,935~~ on loans previously charged-off, ~~for~~resulting in net recoveries of ~~$22,665 and net charge-offs of $67,716, respectively.~~$20,658. Comparatively, we recorded ~~$159,338 and $201,071~~$82,556 of charge-offs and ~~recorded $33,351 and $72,994~~$18,240 of recoveries on loans previously charged-off, resulting in net charge-offs of ~~$125,987~~$64,316 during the three months ended June 30, 2016. During the six months ended June 30, 2017, we recorded $2,372 of charge-offs and ~~$128,077~~we recorded $45,770 of recoveries on loans previously charged-off, resulting in net recoveries of $43,398. Comparatively, during the same period in 2016, we recorded $116,651 of charge-offs and $26,270 of recoveries on loans previously charged-off, resulting in net charge-offs of $90,381 for the ~~three and nine~~six months ended ~~September~~June 30, ~~2015, respectively.~~2016.

Deposits remain our primary source of funding for loans and investments. Average interest bearing deposits provided funding for ~~60.58%~~60.88% of average earning assets for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017, and ~~60.55%~~65.70% for the twelve months ended December 31, ~~2015.~~2016. 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:

Deposits increased ~~1.86%~~3.70% or ~~$6.7~~$13.8 million from December 31, ~~2015~~2016 to ~~September~~June 30, ~~2016.~~2017. These increases were primarily due to larger balances in existing customer accounts as well as new accounts. ~~Time~~Certificates of Deposit and other time deposits over $250,000 totaled ~~$15.5~~$18.0 million and ~~$25.9~~$17.8 million ~~at September~~as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively.

At ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, deposits with an aggregate deficit balance of ~~$48,510~~$29,155 and ~~$121,331,~~$24,963, respectively were re-classified as other loans.

Comparison of Three Months Ended ~~September~~June 30, ~~2016~~2017 to Three Months Ended ~~September~~June 30, ~~2015~~2016

Net income increased ~~$227,419~~$74,275 or ~~18.97%~~5.66% to ~~$1.43~~$1.4 million, or basic and diluted earnings per share of ~~$.29~~$0.28 and ~~$.28,~~$0.27, respectively, for the three months ended ~~September~~June 30, ~~2016,~~2017, from ~~$1.20~~$1.3 million, or basic and diluted earnings per share of ~~$.24~~$0.27 and ~~$.24,~~$0.26, respectively, for the three months ended ~~September~~June 30, ~~2015.~~2016. Our return on average assets and average equity for the three months ended ~~September~~June 30, ~~2016~~2017 were ~~1.39%~~1.31% and ~~13.74%~~12.97%, respectively, compared with ~~1.27%~~1.30% and ~~12.41%~~12.82%, respectively, for the three months ended ~~September~~June 30, ~~2015.~~2016.

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 ~~$465,234~~$149,082 or ~~13.41%~~4.05% to ~~$4.0~~$3.8 million for the three months ended ~~September~~June 30, ~~2016~~2017 from ~~$3.5~~$3.7 million for the three months ended ~~September~~June 30, ~~2015.~~2016. This increase was primarily due to ~~an increase in interest and fee~~ income from ~~loans~~securities and interest bearing deposits ~~in other banks (Federal Reserve). In addition, we had a realized gain of $97,714 on~~at the ~~call of an investment security.~~Federal Reserve Bank. Average loans ~~increased $31.2~~decreased $5.5 million or ~~12.80%~~2.01% to ~~$274.8~~$261.3 million for the three months ended ~~September~~June 30, ~~2016,~~2017, compared to ~~$243.6~~$266.8 million for the three months ended ~~September~~June 30, ~~2015.~~2016. The yield on average loans (including fees) was ~~4.86%~~5.55% and ~~4.85%~~4.84% for the three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~June 30, 2016, respectively. Interest income on loans increased ~~$384,498~~$13,019 for the three months ended ~~September~~June 30, ~~2016~~2017 to ~~$3.4~~$3.2 million from ~~$3.0~~$3.2 million for the three months ended ~~September~~June 30, ~~2015.~~2016.

The average balance of interest bearing deposits in other banks ~~increased $5.9~~decreased $4.1 million or ~~27.45%~~16.33% to ~~$27.3~~$21.0 million for the three months ended ~~September~~June 30, ~~2016,~~2017, with a ~~rate~~yield of ~~0.52%~~1.06% as compared to ~~$21.4~~$25.1 million for the three months ended ~~September~~June 30, ~~2015,~~2016, with a ~~rate~~yield of ~~0.23%~~0.50%.

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 ~~September~~June 30, ~~2016,~~2017, we had a provision of ~~$210,000~~$30,000 compared to a provision of ~~$7,500~~$140,000 for the same period in the prior year. The ~~increase~~decrease in the provision for loan losses was based on ~~the significant increase in loan volume as part of~~ our analysis of the adequacy of the allowance for loan losses.

Other income ~~increased $24,548~~decreased $33,093 or ~~3.71%~~4.54% to ~~$686,586~~$696,479 for the three months ended ~~September~~June 30, ~~2016,~~2017, from ~~$662,038~~$729,572 for the three months ended ~~September~~June 30, ~~2015. Our~~2016. This reduction was primarily due to less income derived from the sale of investment securities, and was partially offset by increases in service ~~charge~~charges, fees, and commissions ~~increased $25,463 or 10.60% to $265,769 primarily due to increases~~and mortgage banking income. For the three months ended June 30, 2016, we realized gains of ~~$16,359 in debit card fees and $18,678 in wire transfer fees offset by a decrease~~$160,391 from the sale of ~~$19,207 in business service charge fees and overdraft fees.~~investment securities. However, during the three months ended June 30, 2017, there were no sales of investment securities.

Non-interest expense increased ~~$211,526~~$153,242 or ~~8.91%~~6.29% to $2.6 million for the three months ended ~~September~~June 30, ~~2016,~~2017 from $2.4 million for the three months ended ~~September~~June 30, ~~2015.~~2016. This increase was primarily due to an increase ~~of $172,409~~ in other operating expenses ~~from $549,163 for the three months ended September 30, 2015, to $721,572 for the three months ended September 30, 2016. We had amortization expense~~ of ~~$162,500~~ ~~associatedwith our investment in a South Carolina Historic Rehabilitation Tax Credit. Our data processing fees increased $18,264 for the three months ended September 30, 2016 due~~$73,705 related to the ~~implementation~~amortization of ~~Europay, MasterCard , Visa Cards (“EMV”)~~the tax credit and ~~mobile banking.~~a write down on OREO of $46,143.

We incurred income tax expense of ~~$399,656~~$516,734 for the three months ended ~~September~~June 30, ~~2016~~2017 as compared to ~~$551,319~~$518,262 during the same period in ~~2015.~~2016. Our effective tax rate was ~~21.89%~~27.15% and ~~31.50%~~28.31% for the three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The decrease in the effective tax rate during the ~~three months ended September 30,~~2017 period is a result of the Company’s 2016 ~~was primarily due to our~~ investment in a South Carolina Historic Rehabilitation Tax ~~Credit generated from the extensive renovation of a local historic building. This transaction closed on June 24, 2016.~~Credit.

Comparison of ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017 to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2015~~2016

Net income increased ~~$276,867~~$104,627 or ~~7.57%~~4.17% to ~~$3.93~~$2.6 million, or basic and diluted earnings per share of ~~$.80~~$0.53 and ~~$.78,~~$0.52, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, from ~~$3.66~~$2.5 million, or basic and diluted earnings per share of ~~$.74~~$0.51 and ~~$.72,~~$0.50, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. Our return on average assets and average equity for the ~~nine~~six months ended ~~September~~June 30, ~~2016 was 1.29%~~2017 were 1.26% and ~~12.73%~~12.42%, respectively, compared with ~~1.31%~~1.26% and ~~12.75%~~12.37%, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016.

Net interest income increased ~~$848,624~~$305,796 or ~~8.24%~~4.24% to ~~$11.1~~$7.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 from ~~$10.3~~$7.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. This increase was primarily due ~~to an increase in interest and fee~~ income from ~~loans~~securities and interest bearing deposits ~~in other banks (Federal Reserve). In addition, we had a realized gain of $97,714 on~~at the ~~call of an investment security.~~Federal Reserve Bank. Average loans increased ~~$21.5~~$1.8 million or ~~8.86%~~0.68% to ~~$264.4~~$261.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, compared to ~~$242.9~~$259.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. The yield on average loans (including fees) was ~~4.85%~~5.39% and 4.84% for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~June 30, 2016, respectively. Interest income on loans increased ~~$804,477~~$120,714 for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 to ~~$9.6~~$6.4 million from ~~$8.8~~$6.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016.

The average balance of interest bearing deposits in other banks ~~increased $11.9~~decreased $5.8 million or ~~81.96%~~22.43% to ~~$26.5~~$20.3 million for the ~~nine~~six months ended ~~September~~June 30, 2017, with a yield of 0.95% as compared to $26.1 million for the six months ended June 30, 2016, with a ~~rate~~yield of ~~0.52% as compared to $14.6 million for the nine months ended September 30, 2015, with a rate of 0.24%~~0.50%.

For the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, we had a provision of ~~$395,000~~$32,500 compared to a provision of ~~$82,500~~$185,000 for the same period in the prior year. The ~~increase~~decrease in the provision for loan losses was based on ~~the significant increase in loan volume as part of~~ our analysis of the adequacy of the allowance for loan losses.

Other income decreased ~~$52,452~~$287,248 or ~~2.32%~~18.71% to ~~$2.2~~$1.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. Mortgage banking income decreased $189,375 due to a decrease of $17.0 million in mortgage loan originations for the nine months ended September 30, 2016~~2017, from ~~originations of $74.8~~$1.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. This decrease was offset by an increase in service charge fees and commissions and gains realized on the sale of securities. Service charge fees and commissions increased $63,237 or 8.68% to $792,036 for the nine months ended September 30, 2016,reduction is primarily due to ~~an increase of $51,117 in debit card fees. We also realized gains of $348,327 on~~less income derived from the sale of investment securities, ~~for~~and was partially offset by increases in service charges, fees, and commissions and mortgage banking income. For the ~~nine~~six months ended ~~September~~June 30, 2016, ~~as compared to~~we realized gains of ~~$264,401 for~~$348,327 from the ~~same period in 2015.~~sale of investment securities. However, during six months ended June 30, 2017, there were no sales of investment securities.

Non-interest expense increased ~~$432,591~~$88,725 or ~~6.08%~~1.78% to ~~$7.5~~$5.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017 from ~~$7.1~~$5.0 million for the ~~nine~~six months ended September 30, 2015. This increase was primarily due to increases in salaries and employee benefits of $138,365 or 3.19% from $4.3 million for the nine months ended September 30, 2015 to $4.5 million for the nine months ended September 30, 2016. Base wages increased $118,743 for the nine months ended September 30, 2016, as a result of annual merit increases. Our Employee Stock Ownership Plan (“ESOP”) contribution expense increased $22,500 for the nine months ended September 30, 2016, as our monthly contribution increased from $25,000 in 2015 to $27,500 in 2016. In August 2016, our monthly contribution was increased by our Board of Directors to $30,000. We also saw an increase of $272,796 in other operating expenses from $1.7 million for the nine months ended September 30, 2015, to $1.9 million for the nine months ended SeptemberJune 30, 2016. This increase was primarily due to ~~increases~~an increase in ~~professional fees, data processing fees, employee training~~other operating expenses of $72,709 related to the amortization of the tax credit and ~~amortization expense associated with our investment~~a write-down of OREO in ~~a South Carolina Historical Rehabilitation Tax Credit.~~the amount of $46,143.

We incurred income tax expense of ~~$1.5~~$1.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 as compared to ~~$1.7~~$1.1 million during the same period in ~~2015.~~2016. Our effective tax rate was ~~27.40%~~28.92% and ~~31.87%~~30.21% for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The decrease in the effective tax rate during the ~~nine months ended September 30,~~2017 period is a result of the Company’s 2016 ~~was primarily due to our~~ investment in a South Carolina Historic Rehabilitation Tax ~~Credit generated from the extensive renovation of a local historic building. This transaction closed on June 24, 2016.~~Credit.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on our credit evaluation of the borrower. Collateral held varies but may include accounts receivable, negotiable instruments, inventory, property, plant and equipment, and real estate. Commitments to extend credit, including unused lines of credit, amounted to ~~$85.4~~$86.8 million and ~~$87.6~~$81.2 million at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, 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~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 was ~~$828,237~~$953,504 and ~~$745,187,~~$793,992, 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 ~~$5.0~~$6.2 million at ~~September~~June 30, 2017, to sell loans held for sale of $2.2 million, compared to forward sales commitments of $4.4 million at December 31, 2016, to sell loans held for sale of ~~$5.0 million, compared to forward sales commitments of $5.8 million at December 31, 2015, to sell loans held for sale of $5.8~~$4.4 million. The fair value of these commitments was not significant at ~~September~~June 30, ~~2016~~2017 or December 31, ~~2015.~~2016. We had no embedded derivative instruments requiring separate accounting treatment.

Once we sell certain fixed rate residential loans, the loans are no longer reportable on our balance sheet. With most of these sales, we have an obligation to repurchase the loan in the event of a default of principal or interest on the loan. This recourse period ranges from three to nine months. Misrepresentation or fraud carries unlimited time for recourse. The unpaid principal balance of loans sold with recourse was ~~$9.1~~$34.7 million at ~~September~~June 30, ~~2016~~2017 and ~~$13.1~~$18.1 million at December 31, ~~2015.~~2016. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~September~~June 30, ~~2015,~~2016, there were no loans repurchased.

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 ~~34.62~~38.93% and ~~38.83%~~36.38% of total assets at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, 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~~available for ~~Sale.~~sale. Net cash provided by operations and deposits from customers have been the primary sources of liquidity. At ~~September~~June 30, ~~2016,~~2017, 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~~liquidation of mortgage loans held for sale. We established a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits us to retain possession of assets pledged as collateral to secure advances from the Federal Reserve Discount Window. At ~~September~~June 30, ~~2016~~2017, we could borrow up to ~~$82~~$77 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~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, our liquidity ratio was ~~33.06~~42.85% and ~~37.27%~~38.27%, respectively.

Our capital needs have been met to date through the $10.6 million in capital raised in our initial offering, the retention of earnings less dividends paid and the exercise of stock options to purchase. Total shareholders’ equity at ~~September~~June 30, ~~2016~~2017 was ~~$42.1~~$43.1 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~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 was ~~15.05%~~15.69% and ~~15.42%~~15.36%, respectively.

At ~~September~~June 30, ~~2016,~~2017, 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%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%4.0%, 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. Management expects that the capital ratios for the Company and the Bank under Basel III will continue to exceed the well-capitalized minimum capital requirements.

The Company had no material commitments for capital expenditures as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively.

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~~June 30, ~~2016~~2017 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/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/Senior Vice President concluded that, as of ~~September~~June 30, ~~2016,~~2017, 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 has been (i) accumulated and communicated to management (including the President/Chief Executive Officer and Chief Financial Officer/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/Senior Vice President, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of ~~September~~June 30, ~~2016,~~2017, based on the 2013 framework established in a report entitled ““Internal Control-Integrated ~~Framework”~~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 ~~September~~June 30, ~~2016.~~2017. Based on this assessment, management believes that as of ~~September~~June 30, ~~2016,~~2017, 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~~June 30, ~~2016,~~2017, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Audit and Compliance Committee, composed entirely of independent Directors, meets periodically with management, the ~~Company’s~~Bank’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.

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.


	South Carolina			57-1021355
	(State or other jurisdiction of			(IRS Employer
	incorporation or organization)			Identification Number)

Large accelerated filer	☐	Accelerated ~~Filer~~	filer ☐
Non-accelerated filer ☐	☐	Smaller reporting ~~Company~~company☒
(Do not check if a smaller reporting company)	☒Emerging growth company ☐

June 30, 2017
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total		Recorded Investment > 90 Days and Accruing
Commercial	$	225,212	$	19,467	$	—	$	244,679	$	56,036,890	$	56,281,569	$	—
Commercial Real Estate -Construction		—		—		—		—		1,457,591		1,457,591		—
Commercial Real Estate -Other		280,689		—		1,552,910		1,833,599		119,644,239		121,477,838		—
Consumer Real Estate		140,920		21,200		—		162,120		75,540,757		75,702,877		—
Consumer-Other		—		99,982		—		99,982		5,209,888		5,309,870		—
Total	$	646,821	$	140,649	$	1,552,910	$	2,340,380	$	257,889,365	$	260,229,745	$	—

	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

	December 31, 2016
		30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total		Recorded Investment > 90 Days and Accruing
Commercial		$	438,159	$	—	$	—	$	438,159	$	51,824,050	$	52,262,209	$	—
Commercial Real Estate -Construction			—		—		—		—		1,208,901		1,208,901		—
Commercial Real Estate -Other			6,363		—		1,501,153		1,507,516		121,460,610		122,968,126		89,908
Consumer Real Estate			415,457		—		—		415,457		76,716,359		77,131,816		—
Consumer-Other			56,784		—		33,322		90,106		6,914,957		7,005,063		33,322
Total		$	916,763	$	—	$	1,534,475	$	2,451,238	$	258,124,877	$	260,576,115	$	123,230

									ACCUMULATED
	ADDITIONAL								OTHER
	PAID IN		RETAINED			TREASURY			COMPREHENSIVE
	CAPITAL		EARNINGS			STOCK			INCOME		TOTAL
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

December 31, 2015	$	36,341,744	$	4,064,834		$	(2,247,415	)	$	992,549	$	39,151,712
Net income		—		3,934,183			—			—		3,934,183
Other comprehensive income		—		—			—			556,309		556,309
Exercise of stock options		333,704		—			—			—		333,704
Stock-based compensation expense		58,112		—			—			—		58,112
Cash dividends ($0.40 per common share)		—		(1,974,529	)		—			—		(1,974,529	)
September 30, 2016	$	36,733,560	$	6,024,488		$	(2,247,415	)	$	1,548,858	$	42,059,491

	ADDITIONAL PAID IN CAPITAL		RETAINED EARNINGS			TREASURY STOCK			ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			TOTAL
December 31, 2015	$	36,341,744	$	4,064,834		$	(2,247,415	)	$	992,549		$	39,151,712

Net income		—		2,507,846			—			—			2,507,846
Other comprehensive income		—		—			—			838,910			838,910
Exercise of stock options		260,546		—			—			—			260,546
Stock-based compensation expense		39,683		—			—			—			39,683
Cash dividends ($0.26 per common share)		—		(1,281,709	)		—			—			(1,281,709	)
June 30, 2016	$	36,641,973	$	5,290,971		$	(2,247,415	)	$	1,831,459		$	41,516,988

December 31, 2016	$	36,824,022	$	6,643,476		$	(2,247,415	)	$	(607,109	)	$	40,612,974

Net income		—		2,612,473			—			—			2,612,473
Other comprehensive income		—		—			—			1,026,912			1,026,912
Exercise of stock options		154,858		—			—			—			154,858
Stock-based compensation expense		36,542		—			—			—			36,542
Cash dividends ($0.28 per common share)		—		(1,390,800	)		—			—			(1,390,800	)
June 30, 2017	$	37,015,422	$	7,865,149		$	(2,247,415	)	$	419,803		$	43,052,959

	SIX MONTHS ENDED JUNE 30,
Cash flows from operating activities:	2017			2016
Net income	$	2,612,473		$	2,507,846
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		94,994			95,732
Gain on sale of securities		—			(348,327	)
Loss on sale of other real estate		—			13,450
Valuation and other adjustments to other real estate		46,143			—
Provision for loan losses		32,500			185,000
Stock-based compensation expense		36,542			39,683
Deferred income taxes		(553,671	)		—
Net amortization of unearned discounts on investment securities		198,768			92,417
Origination of mortgage loans held for sale		(32,568,879	)		(36,412,202	)
Proceeds from sale of mortgage loans held for sale		34,722,888			35,731,989
Decrease (increase) in accrued interest receivable and other assets		62,645			(292,725	)
Increase (decrease) in accrued interest payable and other liabilities		143,193			(99,874	)
Net cash provided by operating activities		4,827,596			1,512,989

Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale		3,787,150			4,146,000
Proceeds from sale of available for sale securities		—			21,113,400
Purchase of investment securities available for sale		(15,084,800	)		(9,033,245	)
Proceeds from sale of other real estate		—			85,001
Net decrease (increase) in loans		389,768			(27,767,765	)
Purchase of premises, equipment and leasehold improvements, net		(69,347	)		(24,658	)
Net cash used in investing activities		(10,977,229	)		(11,481,267	)

Cash flows from financing activities:
Net increase in deposit accounts		13,769,418			23,503,668
Dividends paid		(1,389,033	)		(1,278,434	)
Stock options exercised		154,858			260,546
Net cash provided by financing activities		12,535,243			22,485,780
Net increase in cash and cash equivalents		6,385,610			12,517,502
Cash and cash equivalents at beginning of year		26,242,330			29,194,786

Cash and cash equivalents at end of year	$	32,627,940		$	41,712,288

Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest	$	254,933		$	190,343
Income taxes	$	1,511,965		$	1,069,840
Supplemental disclosure for non-cash investing and financing activity:
Change in unrealized gain on securities available for sale, net of income taxes	$	1,026,912		$	838,910
Change in dividends payable	$	1,767		$	3,275


	JUNE 30, 2017
	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			FAIR VALUE

U.S. Treasury Notes	$	24,139,912	$	62,201	$	(6,799	)	$	24,195,314
Government-Sponsored Enterprises		66,708,908		391,749		(383,380	)		66,717,277
Municipal Securities		41,192,677		865,966		(310,853	)		41,747,790

Total	$	132,041,497	$	1,319,916	$	(701,032	)	$	132,660,381


Less Than 12 Months								12 Months or Longer							Total
	#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss
June 30, 2017
Available for sale
U.S. Treasury notes		2	$	10,142,188	$	(6,799	)		—	$	—	$	—			2	$	10,142,188	$	(6,799	)
Government-sponsored enterprises		4		12,441,218		(326,380	)		1		2,928,357		(57,000	)		5		15,369,575		(383,380	)
Municipal securities		36		15,193,138		(310,853	)		—		—		—			36		15,193,138		(310,853	)
Total		42	$	37,776,544	$	(644,032	)		1	$	2,928,357	$	(57,000	)		43	$	40,704,901	$	(701,032	)
December 31, 2016
Available for sale
U.S. Treasury notes		4	$	17,968,594	$	(250,385	)		—	$	—	$	—			4	$	17,968,594	$	(250,385	)
Government-sponsored enterprises		8		30,136,720		(833,321	)		—		—		—			8		30,136,720		(833,321	)
Municipal securities		54		22,606,430		(816,413	)		—		—		—			54		22,606,430		(816,413	)
Total		66	$	70,711,744	$	(1,900,119	)		—	$	—	$	—			66	$	70,711,744	$	(1,900,119	)

	For the Three Months Ended
	September 30,				For the Three Months Ended June 30,
	2016		2015		2017		2016
Gross proceeds	$	4,902,286	$	—	$	—	$	5,135,609
Gross realized gains		97,714		—		—		160,391
Gross realized losses		—		—		—		—

	For the Six Months Ended June 30,
	2017		2016
Gross proceeds	$	—	$	21,113,400
Gross realized gains		—		348,327
Gross realized losses		—		—

	For the Nine Months Ended
	September 30,
	2016		2015
Gross proceeds	$	25,667,359	$	15,219,799
Gross realized gains		446,041		264,401
Gross realized losses		—		—

	June 30, 2017			December 31, 2016
Commercial loans	$	56,281,569		$	52,262,209
Commercial real estate:
Construction		1,457,591			1,208,901
Other		121,477,838			122,968,126
Consumer:
Real Estate		75,702,877			77,131,816
Other		5,309,870			7,005,063
		260,229,745			260,576,115
Allowance for loan losses		(3,927,515	)		(3,851,617	)
Loans, net	$	256,302,230		$	256,724,498

	September 30,			December 31,
	2016			2015

Commercial Loans	$	48,155,901		$	50,938,265
Commercial real estate:
Commercial real estate construction		1,189,986			1,005,118
Commercial real estate other		127,715,800			115,736,034
Consumer
Consumer real estate		83,531,237			69,777,307
Consumer other		5,790,732			5,165,981
		266,383,656			242,622,705
Allowance for Loan losses		(3,745,111	)		(3,417,827	)
Loans, net	$	262,638,545		$	239,204,878

	September 30, 2016
		Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total

Pass	$	43,904,613	$	771,969	$	122,873,476	$	80,614,704	$	5,434,552	$	253,599,314
Watch		1,109,909		418,017		890,620		959,998		217,141		3,595,685
OAEM		1,678,655		—		652,460		641,604		34,724		3,007,443
Substandard		1,462,724		—		3,299,244		1,314,931		104,315		6,181,214
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	48,155,901	$	1,189,986	$	127,715,800	$	83,531,237	$	5,790,732	$	266,383,656

June 30, 2017
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total

Pass	$	51,883,004	$	1,061,069	$	117,318,419	$	73,856,986	$	5,097,028	$	249,216,506
Watch		2,480,236		396,522		1,425,095		1,351,454		177,229		5,830,536
OAEM		662,989		—		295,490		—		—		958,479
Sub-Standard		1,255,340		—		2,438,834		494,437		35,613		4,224,224
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—

Total	$	56,281,569	$	1,457,591	$	121,477,838	$	75,702,877	$	5,309,870	$	260,229,745

	Loans Receivable on Non-Accrual
	For the Period Ending
	September 30, 2016		December 31, 2015

Commercial Loans	$	65,000	$	4,317
Commercial real estate:
Commercial real estate construction		—		—
Commercial real estate other		1,891,540		1,970,306
Consumer
Consumer real estate		—		82,015
Consumer other		2,939		4,450
Total	$	1,959,479	$	2,061,088

Three Months Ended June 30, 2017
	Commercial		Commercial Real Estate-Construction			Commercial Real Estate-Other			Consumer Real Estate			Consumer Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,553,159	$	57,071		$	1,418,575		$	756,892		$	91,160		$	3,876,857
Charge-offs		—		—			—			—			(2,372	)		(2,372	)
Recoveries		—		—			—			21,000			2,030			23,030
Provisions		75,513		(4,308	)		(35,656	)		(6,039	)		490			30,000
Ending Balance	$	1,628,672	$	52,763		$	1,382,919		$	771,853		$	91,308		$	3,927,515

Six Months Ended June 30, 2017																		Six Months Ended June 30, 2017
	Three Months Ended																		Commercial		Commercial Real Estate-Construction		Commercial Real Estate-Other		Consumer Real Estate		Consumer Other			Total
	September 30, 2015
		Commercial			Commercial Real Estate Construction		Commercial Real Estate Other			Consumer Real Estate			Consumer Other			Total

Allowance for Loan Losses
Beginning Balance	$	1,044,329		$	44,318	$	1,186,043		$	913,129		$	219,939		$	3,407,758			$	1,545,188	$	51,469	$	1,374,706	$	726,391	$	153,863		$	3,851,617
Charge-offs		(99,737	)		—		(34,252	)		(6,075	)		(19,274	)		(159,338	)			—		—		—		—		(2,372	)		(2,372	)
Recoveries		—			—		17,000			6,075			10,276			33,351				—		—		—		42,000		3,770			45,770
Provision		3,450			5,442		51,175			(1,886	)		(50,681	)		7,500
Provisions																				83,484		1,294		8,213		3,462		(63,953	)		32,500
Ending Balance	$	948,042		$	49,760	$	1,219,966		$	911,243		$	160,260		$	3,289,271			$	1,628,672	$	52,763	$	1,382,919	$	771,853	$	91,308		$	3,927,515

Three Months Ended June 30, 2016
		Commercial			Commercial Real Estate-Construction		Commercial Real Estate-Other		Consumer Real Estate			Consumer Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,500,650		$	44,268	$	1,108,703	$	613,242		$	169,899		$	3,436,762
Charge-offs		—			—		—		(82,015	)		(541	)		(82,556	)
Recoveries		—			—		18,000		—			240			18,240
Provisions		(10,323	)		13,106		59,821		98,546			(21,150	)		140,000
Ending Balance	$	1,490,327		$	57,374	$	1,186,524	$	629,773		$	148,448		$	3,512,446

Six Months Ended June 30, 2016
	Commercial			Commercial Real Estate-Construction			Commercial Real Estate-Other			Consumer Real Estate			Consumer Other			Total
Allowance for Loan Losses
Beginning Balance	$	896,854		$	59,861		$	1,345,094		$	941,470		$	174,548		$	3,417,827
Charge-offs		(33,045	)		—			—			(82,015	)		(1,591	)		(116,651	)
Recoveries		1,284			—			24,000			—			986			26,270
Provisions		625,234			(2,487	)		(182,570	)		(229,682	)		(25,495	)		185,000
Ending Balance	$	1,490,327		$	57,374		$	1,186,524		$	629,773		$	148,448		$	3,512,446

	June 30, 2017						December 31, 2016
		Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	171,136	$	171,136	$	—	$	250,040	$	250,040	$	—
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,435,014		1,435,014		—		2,174,770		2,174,770		—
Consumer Real Estate		451,318		451,318		—		1,243,008		1,243,008		—
Consumer Other		—		—		—		—		—		—
	$	2,057,468	$	2,057,468	$	—	$	3,667,818	$	3,667,818	$	—

With an allowance recorded:
Commercial	$	1,083,897	$	1,083,897	$	1,032,461	$	1,051,219	$	1,051,219	$	1,051,219
Commercial Real Estate- Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,023,856		1,023,856		259,973		1,050,581		1,050,581		324,587
Consumer Real Estate		43,119		43,119		43,119		43,119		43,119		43,119
Consumer Other		35,613		35,613		35,613		89,047		89,047		89,047
	$	2,186,485	$	2,186,485	$	1,371,166	$	2,233,966	$	2,233,966	$	1,507,972

Total
Commercial	$	1,255,033	$	1,255,033	$	1,032,461	$	1,301,259	$	1,301,259	$	1,051,219
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		2,458,870		2,458,870		259,973		3,225,351		3,225,351		324,587
Consumer Real Estate		494,437		494,437		43,119		1,286,127		1,286,127		43,119
Consumer Other		35,613		35,613		35,613		89,047		89,047		89,047
	$	4,243,953	$	4,243,953	$	1,371,166	$	5,901,784	$	5,901,784	$	1,507,972

	Impaired and Restructured Loans
	As of
	September 30, 2016						December 31, 2015
		Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	375,847	$	375,847	$	—	$	692,831	$	692,831	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		2,245,717		2,245,717		—		2,476,018		2,476,018		—
Consumer Real Estate		1,243,008		1,243,008		—		450,402		450,402		—
Consumer Other		—		—		—		5,715		5,715		—
	$	3,864,572	$	3,864,572	$	—	$	3,624,966	$	3,624,966	$	—

With an allowance recorded:
Commercial	$	1,076,158	$	1,076,158	$	1,076,158	$	947,143	$	947,143	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,077,858		1,077,858		307,975		1,075,477		1,075,477		253,105
Consumer Real Estate		71,923		71,923		71,923		795,017		795,017		342,320
Consumer Other		92,929		92,929		92,929		100,104		100,104		100,103
	$	2,318,868	$	2,318,868	$	1,548,985	$	2,917,741	$	2,917,741	$	1,083,507
Total
Commercial	$	1,452,006	$	1,452,006	$	1,076,158	$	1,639,974	$	1,639,974	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		3,323,576		3,323,576		307,975		3,551,495		3,551,495		253,105
Consumer Real Estate		1,314,931		1,314,931		71,923		1,245,419		1,245,419		342,320
Consumer Other		92,929		92,929		92,929		105,819		105,819		100,103
	$	6,183,441	$	6,183,441	$	1,548,985	$	6,542,707	$	6,542,707	$	1,083,507

	For the Three Months Ended June 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	175,568	$	4,886	$	486,498	$	4,221
Commercial Real Estate-Construction		—		—		—		—
Commercial Real Estate-Other		1,383,621		21,894		2,883,625		20,215
Consumer Real Estate		451,035		5,630		1,242,703		14,334
Consumer-Other		—		—		—		—
	$	2,010,224	$	32,410	$	4,612,826	$	38,770

With an allowance recorded:

Commercial	$	1,091,779	$	36,481	$	1,097,191	$	13,912
Commercial Real Estate-Construction		—		—		—		—
Commercial Real Estate-Other		1,020,012		5,331		1,065,261		10,949
Consumer Real Estate		43,119		431		72,034		387
Consumer Other		36,107		516		100,212		1,177
	$	2,191,017	$	42,759	$	2,334,698	$	26,425

Total

Commercial	$	1,267,347	$	41,367	$	1,583,689	$	18,133
Commercial Real Estate-Construction		—		—		—		—
Commercial Real Estate-Other		2,403,633		27,225		3,948,886		31,164
Consumer Real Estate		494,154		6,061		1,314,737		14,721
Consumer Other		36,107		516		100,212		1,177
	$	4,201,241	$	75,169	$	6,947,524	$	65,195

	For the Six Months Ended June 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	179,698	$	10,032	$	494,572	$	10,718
Commercial Real Estate-Construction		—		—		—		—
Commercial Real Estate-Other		1,324,984		43,806		2,889,248		42,855
Consumer Real Estate		450,860		11,025		1,242,069		27,781
Consumer-Other		—		—		—		—
	$	1,955,542	$	64,863	$	4,625,889	$	81,354

With an allowance recorded:

Commercial	$	1,098,449	$	71,193	$	1,101,252	$	30,364
Commercial Real Estate-Construction		—		—		—		—
Commercial Real Estate-Other		1,020,012		7,941		1,031,087		18,265
Consumer Real Estate		43,119		838		72,059		1,006
Consumer Other		36,848		1,086		102,264		3,510
	$	2,198,428	$	81,058	$	2,306,662	$	53,145

Total

Commercial	$	1,278,147	$	81,225	$	1,595,824	$	41,082
Commercial Real Estate-Construction		—		—		—		—
Commercial Real Estate-Other		2,344,996		51,747		3,920,335		61,120
Consumer Real Estate		493,979		11,863		1,314,128		28,787
Consumer Other		36,848		1,086		102,264		3,510
	$	4,153,970	$	145,921	$	6,932,552	$	134,499

		September 30, 2016
		Quoted Market Price in active markets		Significant Other Observable Inputs		Significant Unobservable Inputs
June 30, 2017									June 30, 2017
		(Level 1)		(Level 2)		(Level 3)		Total		Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
U.S. Treasury Notes	$	24,330,157	$	—	$	—	$	24,330,157		$	24,195,314	$	—	$	—	$	24,195,314
Government-Sponsored Enterprises		—		47,375,962		—		47,375,962
Government Sponsored Enterprises											—		66,717,277		—		66,717,277
Municipal Securities		—		31,982,158		11,394,331		43,376,489			—		29,258,845		12,488,945		41,747,790
Total	$	24,330,157	$	79,358,120	$	11,394,331	$	115,082,608		$	24,195,314	$	95,976,122	$	12,488,945	$	132,660,381

June 30, 2017
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans	$	—	$	—	$	2,650,215	$	2,650,215
Other real estate owned		—		—		475,800		475,800
Loans held for sale		—		2,232,201		—		2,232,201
Total	$	—	$	2,232,201	$	3,126,015	$	5,358,216

Fair Value Measurements at June 30, 2017
		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	8,746,291	$	8,746,291	$	8,746,291	$	—	$	—
Interest-bearing deposits in other banks		23,881,649		23,881,649		23,881,649		—		—
Investment securities available for sale		132,660,381		132,660,381		24,195,314		95,976,122		12,488,945
Mortgage loans to be sold		2,232,201		2,232,201		—		2,232,201		-
Net loans		256,302,230		255,780,927		—		—		255,780,927
Accrued interest receivable		1,551,357		1,551,357		—		1,551,357		—
Financial Liabilities:
Demand deposits		341,773,707		341,773,707		—		341,773,707		—
Time deposits		44,518,562		44,734,936		—		44,734,936		—
Accrued interest payable		59,031		59,031		—		59,031		—

Fair Value Measurements at December 31, 2016
		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	8,141,030	$	8,141,030	$	8,141,030	$	—	$	—
Interest-bearing deposits in other banks		18,101,300		18,101,300		18,101,300		—		—
Investment securities available for sale		119,978,944		119,978,944		23,939,063		82,062,024		13,977,857
Mortgage loans to be sold		4,386,210		4,386,210		—		4,386,210		—
Net loans		256,724,498		256,555,052		—		—		256,555,052
Accrued interest receivable		1,614,002		1,614,002		—		1,614,002		—
Financial Liabilities:
Demand deposits		328,681,594		328,681,594		—		328,681,594		—
Time deposits		43,841,257		43,856,383		—		43,856,383		—
Accrued interest payable		51,629		51,629		—		51,629		—

	Three Months Ended June 30
	2017		2016
Net income	$	1,386,385	$	1,312,110

Weighted average shares outstanding - basic		4,967,907		4,929,722
Effect of dilutive shares		105,001		126,801
Weighted average shares outstanding - diluted		5,072,908		5,056,523

Earnings per share - basic	$	0.28	$	0.27
Earnings per share - diluted	$	0.27	$	0.26

	Six Months Ended June 30
	2017		2016
Net income	$	2,612,473	$	2,507,846

Weighted average shares outstanding - basic		4,965,094		4,923,266
Effect of dilutive shares		103,930		124,335
Weighted average shares outstanding - diluted		5,069,024		5,047,601

Earnings per share - basic	$	0.53	$	0.51
Earnings per share - diluted	$	0.52	$	0.50

	June 30, 2017						December 31, 2016
	Amount			Percent			Amount			Percent
Commercial loans	$	56,281,569			21.63	%	$	52,262,209			20.06	%
Commercial real estate – construction		1,457,591			0.56	%		1,208,901			0.46	%
Commercial real estate – other		121,477,838			46.68	%		122,968,126			47.19	%
Consumer real estate		75,702,877			29.09	%		77,131,816			29.60	%
Consumer other		5,309,870			2.04	%		7,005,063			2.69	%
Total		260,229,745			100.00	%		260,576,115			100.00	%
Allowance for loan loss		(3,927,515	)					(3,851,617	)
Total loans, net	$	256,302,230					$	256,724,498

		September 30, 2016	Percentage			December 31, 2015	Percentage
Deposits:
Non-interest-bearing demand	$	119,677,668	33.52	%	$	122,073,396	34.03	%
Interest-bearing demand		95,799,297	24.30	%		84,977,640	23.69	%
Money market accounts		76,942,944	21.85	%		70,233,422	19.58	%
Time deposits over $250,000		15,513,613	6.30	%		25,896,768	7.22	%
Other time deposits		28,003,075	6.20	%		28,871,044	8.05	%
Other savings deposits		29,469,957	7.83	%		26,666,342	7.43	%
Total deposits	$	365,406,554	100.00	%	$	358,718,612	100.00	%

Valuation Technique

Unobservable Input

General Range of
Inputs

Impaired Loans

Discounted Appraisals

Collateral Discounts

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