United States
Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2021~~March 31, 2022

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

Commission file number: 0-27702

Bank of South Carolina Corporation

(Exact name of registrant issuer as specified in its charter)

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

256 Meeting Street, Charleston, SC 29401

(Address of principal executive offices)

(~~(843)~~843) 724-1500

(Registrant’s telephone number)

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

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common stock		BKSC		NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer	☐
Non-accelerated filer ☐	Smaller reporting company	☒
(Do not check if a smaller reporting company)	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 ☒

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

~~Title of each class~~		~~Trading symbol(s)~~		~~Name of each exchange~~ ~~on which registered~~
~~Common stock~~		~~BKSC~~		~~NASDAQ~~

As of ~~October~~April 15, ~~2021,~~2022, there were ~~5,536,661~~5,550,476 Common Shares outstanding.

Part I. Financial Information	Page

Item 1. Financial Statements	3
Consolidated Balance Sheets – ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	3
Consolidated Statements of Income – Three ~~and Nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	4
Consolidated Statements of Comprehensive ~~Income~~Loss – Three ~~and Nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	56
Consolidated Statements of Shareholders’ Equity – ~~Nine~~Three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	76
Consolidated Statements of Cash Flows – ~~Nine~~Three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	79
Notes to Consolidated Financial Statements	108

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3021
Off-Balance Sheet Arrangements	3725
Liquidity	3725
Capital Resources	3826

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3926

Item 4. Controls and Procedures	3926

Part II. Other Information

Item 1. Legal Proceedings	4027
Item 1A. Risk Factors	4027
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4027
Item 3. Defaults Upon Senior Securities	4027
Item 4. Mine Safety Disclosure	4027
Item 5. Other Information	4027
Item 6. Exhibits	4027

Signatures	4229
Certifications	4330

Part I. Financial Information

Item 1. Financial Statements

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited) (Audited)
March 31, December 31,
2022 2021
ASSETS
Cash and due from banks $ 7,946,158 $ 11,140,559
Interest-bearing deposits at the Federal Reserve 61,420,171 128,971,429
Investment securities available for sale 257,906,304 212,347,489
Mortgage loans to be sold 2,626,999 2,774,388
Loans 314,905,975 306,632,229
Less: Allowance for loan losses (4,304,502 ) (4,376,987 )
Net loans 310,601,473 302,255,242
Premises, equipment and leasehold improvements,  net 3,716,805 3,782,936
Right of use asset 13,889,805 14,041,843
Accrued interest receivable 1,473,108 1,404,227
Other assets 5,412,514 2,502,533
Total assets $ 664,993,337 $ 679,220,646

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing demand $ 258,738,170 $ 255,783,644
Interest bearing demand 159,954,068 165,335,038
Money market accounts 92,136,722 98,113,942
Time deposits $250,000 and over 7,668,871 7,417,864
Other time deposits 13,424,001 13,870,356
Other savings deposits 71,849,648 68,670,732
Total deposits 603,771,480 609,191,576
Accrued interest payable and other liabilities 2,373,739 2,069,594
Lease liability 13,889,805 14,041,843
Total liabilities 620,035,024 625,303,013

Shareholders’ equity
Common stock - 0 par 12,000,000 shares authorized; Issued 5,850,450 shares at March 31, 2022 and 5,841,240 shares at December 31, 2021. Shares outstanding 5,550,476 and 5,541,266 at March 31, 2022 and December 31, 2021, respectively. — —
Additional paid in capital 47,914,892 47,745,285
Retained earnings 11,643,236 11,122,710
Treasury stock: 299,974 shares at March 31, 2022 and December 31, 2021 (2,817,392 ) (2,817,392 )
Accumulated other comprehensive loss, net of income taxes (11,782,423 ) (2,132,970 )
Total shareholders’ equity 44,958,313 53,917,633
Total liabilities and shareholders’ equity $ 664,993,337 $ 679,220,646
(Unaudited)
September 30,
2021 (Audited)
December 31,
2020
ASSETS
Cash and due from banks $ 6,725,799 $ 5,977,896
Interest-bearing deposits at the Federal Reserve 157,553,270 42,348,085
Investment securities available for sale 193,193,279 134,819,818
Mortgage loans to be sold 5,761,352 12,965,733
Loans 312,834,795 320,802,673
Less: Allowance for loan losses (4,368,457 ) (4,185,694 )
Net loans 308,466,338 316,616,979
Premises, equipment and leasehold improvements, net 3,854,763 4,053,533
Right of use asset 12,355,167 12,730,151
Accrued interest receivable 1,423,041 1,595,629
Other assets 2,445,569 1,386,775

Total assets $ 691,778,578 $ 532,494,599

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing demand $ 286,499,136 $ 169,170,751
Interest bearing demand 170,175,580 140,602,723
Money market accounts 88,730,966 84,681,783
Time deposits over $250,000 7,462,857 4,493,189
Other time deposits 14,296,961 16,205,942
Other savings deposits 55,625,779 47,043,243
Total deposits 622,791,279 462,197,631

Accrued interest payable and other liabilities 2,209,254 2,586,461
Lease liability 12,355,167 12,730,151
Total liabilities 637,355,700 477,514,243

Shareholders’ equity
Common stock - 0 par 12,000,000 shares authorized; Issued 5,836,635 shares at September 30, 2021 and 5,818,935 shares at December 31, 2020. Shares outstanding 5,536,661 and 5,520,469 at September 30, 2021 and December 31, 2020, respectively. — —
Additional paid in capital 47,653,641 47,404,869
Retained earnings 10,525,556 8,693,519
Treasury stock: 299,974 and 298,466 shares at September 30, 2021 and December 31, 2020, respectively. (2,817,392 ) (2,787,898 )
Accumulated other comprehensive (loss) income, net of income taxes (938,927 ) 1,669,866
Total shareholders’ equity 54,422,878 54,980,356

Total liabilities and shareholders’ equity $ 691,778,578 $ 532,494,599
See accompanying notes to consolidated financial statements.
3

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended September 30,
2021 2020
Interest and fee income
Loans, including fees $ 3,610,842 $ 3,760,212
Taxable securities 468,862 433,280
Tax-exempt securities 90,176 82,550
Other 31,189 16,303
Total interest and fee income 4,201,069 4,292,345

Interest expense
Deposits 39,319 72,198
Total interest expense 39,319 72,198

Net interest income 4,161,750 4,220,147
Provision for loan losses — 40,000
Net interest income after provision for loan losses 4,161,750 4,180,147

Other income
Service charges and fees 338,854 275,318
Mortgage banking income 524,016 694,045
Gain on sales of securities 266,944 —
Other non-interest income 8,617 8,689
Total other income 1,138,431 978,052

Other expense
Salaries and employee benefits 1,849,254 1,775,498
Net occupancy expense 587,682 566,949
Other operating expenses 302,863 275,468
Professional fees 149,125 158,640
Data processing fees 158,610 158,443
Total other expense 3,047,534 2,934,998

Income before income tax expense 2,252,647 2,223,201
Income tax expense 525,710 519,930

Net income $ 1,726,937 $ 1,703,271

Weighted average shares outstanding
Basic 5,535,906 5,527,696
Diluted 5,686,250 5,696,247

Basic income per common share $ 0.31 $ 0.31
Diluted income per common share $ 0.30 $ 0.30

Three Months Ended
March 31,
2022 2021
Interest and fee income
Loans, including fees $ 3,551,875 $ 4,106,171
Taxable securities 559,670 453,457
Tax-exempt securities 109,129 69,606
Other 34,286 11,881
Total interest and fee income 4,254,960 4,641,115

Interest expense ��
Deposits 36,797 54,524
Total interest expense 36,797 54,524

Net interest income 4,218,163 4,586,591
Provision for loan losses (75,000 ) 120,000
Net interest income after provision for loan losses 4,293,163 4,466,591

Other income
Service charges and fees 307,593 288,224
Mortgage banking income 258,896 645,895
Gain on sales of securities 61,780 —
Other non-interest income 6,285 5,795
Total other income 634,554 939,914

Other expense
Salaries and employee benefits 1,812,155 1,799,006
Net occupancy expense 620,942 612,268
Other operating expenses 294,733 311,465
Professional fees 139,642 145,542
Data processing fees 149,090 162,434
Total other expense 3,016,562 3,030,715

Income before income tax expense 1,911,155 2,375,790
Income tax expense 447,049 565,715

Net income $ 1,464,106 $ 1,810,075

Weighted average shares outstanding
Basic 5,544,546 5,521,707
Diluted 5,688,619 5,685,151

Basic income per common share $ 0.26 $ 0.33
Diluted income per common share $ 0.26 $ 0.32
See accompanying notes to consolidated financial statements.

4

~~BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY~~
~~CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)~~

Nine Months Ended
September 30,
2021 2020
Interest and fee income
Loans, including fees $ 11,518,472 $ 11,152,378
Taxable securities 1,407,040 1,179,712
Tax-exempt securities 222,530 289,958
Other 58,052 174,934
Total interest and fee income 13,206,094 12,796,982

Interest expense
Deposits 136,160 242,275
Total interest expense 136,160 242,275

Net interest income 13,069,934 12,554,707
Provision for loan losses 120,000 40,000
Net interest income after provision for loan losses 12,949,934 12,514,707

Other income
Service charges and fees 931,617 801,245
Mortgage banking income 1,805,262 1,486,247
Gain on sales of securities 266,944 —
Other non-interest income 21,473 21,813
Total other income 3,025,296 2,309,305

Other expense
Salaries and employee benefits 5,502,178 5,360,111
Net occupancy expense 1,815,587 1,646,790
Other operating expenses 885,459 718,881
Professional fees 476,889 449,475
Data processing fees 482,732 486,485
Total other expense 9,162,845 8,661,742

Income before income tax expense 6,812,385 6,162,270
Income tax expense 1,606,689 1,436,845

Net income $ 5,205,696 $ 4,725,425

Weighted average shares outstanding
Basic 5,528,868 5,529,189
Diluted 5,684,484 5,695,614

Basic income per common share $ 0.94 $ 0.85
Diluted income per common share $ 0.92 $ 0.83
~~See accompanying notes to consolidated financial statements.~~
5
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~LOSS (UNAUDITED)

Three Months Ended
March 31,

2022 2021
Net income $ 1,464,106 $ 1,810,075
Other comprehensive loss
Unrealized loss on securities arising during the period (12,152,716 ) (2,967,059 )
Reclassification adjustment for securities gains realized in net income (61,780 ) —
Other comprehensive loss before tax (12,214,496 ) (2,967,059 )
Income tax effect related to items of other comprehensive loss before tax 2,565,043 623,082
Other comprehensive loss after tax (9,649,453 ) (2,343,977 )
Total comprehensive loss $ (8,185,347 ) $ (533,902 )
See accompanying notes to consolidated financial statements.
5
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED March 31, 2022 AND 2021 (UNAUDITED)

Three Months Ended
September 30,
2021 2020
Net income $ 1,726,937 $ 1,703,271
Other comprehensive loss
Unrealized loss on securities arising during the period (845,754 ) (5,467 )
Reclassification adjustment for gains included realized in net income (266,944 ) —
Other comprehensive loss before tax (1,112,698 ) (5,467 )
Income tax effect related to items of other comprehensive loss before tax 233,667 1,149
Other comprehensive loss after tax (879,031 ) (4,318 )
Total comprehensive income $ 847,906 $ 1,698,953

Nine Months Ended
September 30,
2021 2020
Net income $ 5,205,696 $ 4,725,425
Other comprehensive (loss) income
Unrealized (loss) gain on securities arising during the period (3,035,326 ) 1,984,046
Reclassification adjustment for gains included realized in net income (266,944 ) —
Other comprehensive income before tax (3,302,270 ) 1,984,046
Income tax effect related to items of other comprehensive (loss) income
before tax 693,477 (416,650 )
Other comprehensive income after tax (2,608,793 ) 1,567,396
Total comprehensive income $ 2,596,903 $ 6,292,821

Shares Outstanding Additional Paid in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total
December 31, 2021 - 5,541,266 $ 47,745,285 $ 11,122,710 $ (2,817,392 ) $ (2,132,970 ) $ 53,917,633
Net income - —   —   1,464,106 —   —   1,464,106
Other comprehensive loss —   —   —   —   (9,649,453 ) (9,649,453 )
Stock option exercises, net of surrenders 9,210 141,618 —   —   —   141,618
Stock-based compensation expense —   27,989 —   —   —   27,989
Cash dividends ($0.17 per common share) —   —   (943,580 ) —   —   (943,580 )
March 31, 2022 - 5,550,476 $ 47,914,892 $ 11,643,236 $ (2,817,392 ) $ (11,782,423 ) $ 44,958,313

Shares Outstanding Additional Paid in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total
December 31, 2020 - 5,520,469 $ 47,404,869 $ 8,693,519 $ (2,787,898 ) $ 1,669,866 $ 54,980,356
Net income - —   —   1,810,075 —   —   1,810,075
Other comprehensive loss —   —   —   —   (2,343,977 ) (2,343,977 )
Stock option exercises, net of surrenders 4,147 39,589 —   (8,344 ) —   31,245
Stock-based compensation expense —   22,997 —   —   —   22,997
Cash dividends ($0.27 per common share) —   —   (1,491,646 ) —   —   (1,491,646 )
March 31, 2021 - 5,524,616 $ 47,467,455 $ 9,011,948 $ (2,796,242 ) $ (674,111 ) $ 53,009,050
See accompanying notes to consolidated financial statements.

6
~~BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY~~
~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~
~~FOR THE NINE MONTHS ENDED~~ ~~September~~ ~~30, 2021 AND 2020 (UNAUDITED)~~
Shares Outstanding Additional
Paid in
Capital Retained
Earnings Treasury
Stock Accumulated Other Comprehensive Income (Loss) Total
December 31, 2020 5,520,469 $ 47,404,869 $ 8,693,519 $ (2,787,898 ) $ 1,669,866 $ 54,980,356
Net income — — 1,810,075 — — 1,810,075
Other comprehensive loss — — — — (2,343,977 ) (2,343,977 )
Stock option exercises, net of surrenders 4,147 39,589 — (8,344 ) — 31,245
Stock-based compensation expense — 22,997 — — — 22,997
Cash dividends ($0.27 per common share) — — (1,491,646 ) — — (1,491,646 )
March 31, 2021 5,524,616 $ 47,467,455 $ 9,011,948 $ (2,796,242 ) $ (674,111 ) $ 53,009,050

Net income — — 1,668,684 — — 1,668,684
Other comprehensive income — — — — 614,215 614,215
Stock option exercises, net of surrenders 9,383 103,495 — (21,150 ) — 82,345
Stock-based compensation expense — 29,648 — — — 29,648
Cash dividends ($0.17 per common share) — — (940,781 ) — — (940,781 )
June 30, 2021 5,533,999 $ 47,600,598 $ 9,739,851 $ (2,817,392 ) $ (59,896 ) $ 54,463,161

Net income — — 1,726,937 — — 1,726,937
Other comprehensive loss — — — — (879,031 ) (879,031 )
Stock option exercises 2,662 24,438 — — — 24,438
Stock-based compensation expense — 28,605 — — — 28,605
Cash dividends ($0.17 per common share) — — (941,232 ) — — (941,232 )
September 30, 2021 5,536,661 $ 47,653,641 $ 10,525,556 $ (2,817,392 ) $ (938,927 ) $ 54,422,878
7

Shares Outstanding Additional
Paid in
Capital Retained
Earnings Treasury
Stock Accumulated Other Comprehensive Income (Loss) Total
December 31, 2019 5,530,001 $ 47,131,034 $ 5,879,409 $ (2,325,225 ) $ 482,814 $ 51,168,032
Net income — — 1,521,131 — — 1,521,131
Other comprehensive income — — — — 601,016 601,016
Stock option exercises, net of surrenders 362 4,489 — — — 4,489
Stock-based compensation expense — 16,418 — — — 16,418
Cash dividends ($0.16 per common share) — — (884,859 ) — — (884,859 )
March 31, 2020 5,530,363 $ 47,151,941 $ 6,515,681 $ (2,325,225 ) $ 1,083,830 $ 52,426,227

Net income — — 1,501,023 — — 1,501,023
Other comprehensive income — — — — 970,698 970,698
Stock option exercises, net of surrenders 9,619 108,757 — (41,697 ) — 67,060
Stock-based compensation expense — 29,305 — — — 29,305
Repurchase of common shares (9,300 ) — — (148,550 ) — (148,550 )
Cash dividends ($0.16 per common share) — — (884,908 ) — — (884,908 )
June 30, 2020 5,530,682 $ 47,290,003 $ 7,131,796 $ (2,515,472 ) $ 2,054,528 $ 53,960,855

Net income — — 1,703,271 — — 1,703,271
Other comprehensive loss — — — — (4,318 ) (4,318 )
Stock option exercises 4,344 56,496 — (22,108 ) — 34,388
Stock-based compensation expense — 24,413 — — — 24,413
Repurchase of common shares (15,767 ) — — (250,318 ) — (250,318 )
Cash dividends ($0.17 per common share) — — (938,274 ) — — (938,274 )
September 30, 2020 5,519,259 $ 47,370,912 $ 7,896,793 $ (2,787,898 ) $ 2,050,210 $ 54,530,017
~~See accompanying notes to consolidated financial statements.~~
8

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

Nine Months Ended
September 30,
2021 2020
Cash flows from operating activities:
Net income $ 5,205,696 $ 4,725,425
Adjustments to reconcile net income net cash provided by (used in)
operating activities:
Depreciation expense 315,492 316,249
Provision for loan losses 120,000 40,000
Gain on sale of investment securities (266,944 ) —
Stock-based compensation expense 81,250 70,136
Deferred income taxes and other assets (365,317 ) (449,849 )
Net amortization of unearned discounts on investment securities
available for sale 386,724 228,908
Origination of mortgage loans held for sale (134,399,394 ) (121,792,079 )
Proceeds from sale of mortgage loans held for sale 141,603,775 114,125,958
Decrease (increase) in accrued interest receivable 172,588 (118,270 )
(Decrease) increase in accrued interest payable and other liabilities (379,960 ) 1,066,352
Net cash provided by (used in) operating activities 12,473,910 (1,787,170 )

Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale 26,967,000 15,158,000
Proceeds from sale of investment securities available for sale 15,572,500 —
Purchase of investment securities available for sale (104,335,011 ) (48,260,421 )
Net decrease (increase) in loans 8,030,641 (46,570,025 )
Purchase of premises, equipment, and leasehold improvements, net (116,722 ) (153,435 )
Net cash used in investing activities (53,881,592 ) (79,825,881 )

Cash flows from financing activities:
Net increase in deposit accounts 160,593,648 79,964,014
Dividends paid (3,370,906 ) (2,654,567 )
Stock options exercised, net of surrenders 138,028 105,937
Share repurchases — (398,868 )
Net cash provided by financing activities 157,360,770 77,016,516
Net increase (decrease) in cash and cash equivalents 115,953,088 (4,596,535 )
Cash and cash equivalents at the beginning of the period 48,325,981 49,094,419
Cash and cash equivalents at the end of the period $ 164,279,069 $ 44,497,884

Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest $ 156,380 $ 253,785
Income taxes $ 2,345,420 $ 500,000

Supplemental disclosures for non-cash investing and financing activity:
Change in unrealized gain on securities available for sale, net of income taxes $ 2,608,793 $ (1,567,396 )
Change in dividends payable $ 2,753 $ 53,474
Change in right of use assets and lease liabilities $ (374,984 ) $ (358,255 )

Three Months Ended
March 31,
2022 2021
Cash flows from operating activities:
Net income $ 1,464,106 $ 1,810,075
Adjustments to reconcile net income net cash provided by operating activities:
Depreciation expense 97,694 106,414
Gain on sale of investment securities (61,780 ) —
Provision for loan losses (75,000 ) 120,000
Stock-based compensation expense 27,989 22,997
Deferred income taxes and other assets (344,938 ) (813,220 )
Net amortization of unearned discounts on investment securities available for sale 214,931 96,917
Origination of mortgage loans held for sale (17,582,370 ) (48,008,560 )
Proceeds from sale of mortgage loans held for sale 17,729,759 47,744,276
(Increase) decrease in accrued interest receivable (68,881 ) 220,448
Increase in accrued interest payable and other liabilities 302,580 699,515
Net cash provided by operating activities 1,704,090 1,998,862

Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale 2,718,000 4,817,000
Proceeds from sale of investment securities available for sale 15,120,000 —
Purchase of investment securities available for sale (75,764,462 ) (15,728,575 )
Net increase in loans (8,271,231 ) (1,490,085 )
Purchase of premises, equipment, and leasehold improvements, net (31,563 ) (29,223 )
Net cash used in investing activities (66,229,256 ) (12,430,883 )

Cash flows from financing activities:
Net (decrease) increase in deposit accounts (5,420,096 ) 22,448,381
Dividends paid (942,015 ) (938,480 )
Stock options exercised, net of surrenders 141,618 31,245
Net cash (used in) provided by financing activities (6,220,493 ) 21,541,146
Net (decrease) increase in cash and cash equivalents (70,745,659 ) 11,109,125
Cash and cash equivalents at the beginning of the period 140,111,988 48,325,981
Cash and cash equivalents at the end of the period $ 69,366,329 $ 59,435,106

Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest $ 37,340 $ 75,231
Income taxes, net $ —   $ 231,375
See accompanying notes to consolidated financial statements.
9 7

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Note~~ 1. ~~Nature of Business and Basis of Presentation~~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 the Company and its wholly-owned subsidiary, the Bank. In 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”), 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 Securities and Exchange Commission (“SEC”) on March ~~5, 2021.~~4, 2022. 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 consolidated financial statements are prepared in conformity with GAAP, which require 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, deferred tax assets, the fair value of financial instruments and other-than-temporary impairment of investment securities.
~~Reclassification~~Income Per Common Share:
Certain amounts in the prior years’ financial statements have been reclassified to conform to the current period’s presentation. Such reclassifications had no effect on shareholders’ equity or net income as previously reported.
~~Income per share~~:
Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Dilutive income 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. ~~Retroactive recognition has been given for the effects of all stock dividends.~~
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 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.
10
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 June 2016, the FASB issued 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. ASU 2016-13 changes the impairment model for most financial assets to a current expected credit loss (“CECL”) model, replacing the incurred loss model that is currently in use. The new guidance requires an entity to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The CECL model will apply to financial assets measured at amortized cost, such as loans and investments, as well as certain off-balance sheet credit exposures. In May 2019, the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. In October 2019, the FASB voted to extend the implementation date for smaller reporting companies, non-SEC public companies, and private companies. This amendment will become effective for the Company on January 1, 2023. In connection with its efforts to implement ASU 2016-13, the Company internally developed and tested a model to apply the provisions of this guidance upon adoption. The Company is currently in the process of evaluating the ~~effect that implementation~~impact on the consolidated financial statements of ~~the new standard will have on its financial position, results~~adopting ASU 2016-13. The actual impact of ~~operations, and cash flows. It~~adopting ASU 2016-13 will be influenced by the quality, composition, and characteristics of our loan and investment portfolios, as well as the expected economic conditions and forecasts at the time of enactment and future reporting periods.
8

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~, which provides guidance to simply accounting for income taxes by removing specific technical exceptions that can produce information investors do not understand. The amendments improve and simplify the application of GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The amendment became effective January 1, 2021 and did not have a material effect on the financial statements.
In January 2020, the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendment became effective January 1, 2021 and did not have a material effect on the financial statements.
In February 2020, the FASB issued guidance to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. The amendments were effective upon issuance and did not have a material effect on the financial statements.
In March 2020, the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the current expected credit losses (CECL) guidance issued in 2016. The amendments related to conforming amendments. For public business entities, the amendments are effective upon issuance of this final ASU. For the amendments related to ASU 2016-13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies (SRCs) as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. Early adoption will continue to be permitted. For entities that have not yet adopted the guidance in ASU 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. The Company does not expect these amendments to have a material effect on its consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-402 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The amendments in ASU 2022-02 are effective upon the Company’s adoption of ASU 2016-13.
In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its consolidated financial statements.
In November 2021, the FASB added a topic to the Accounting Standards Codification, Government Assistance, to require certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. The amendment became effective January 1, 2022 and did not have a material effect on the consolidated 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.
11
Note 2: Investment Securities
The amortized cost and fair value of investment securities available for sale are summarized as follows:
September 30, 2021
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
U.S. Treasury Notes $ 85,901,080 $ 133,246 $ (542,336 ) $ 85,491,990
Government-Sponsored Enterprises 76,411,230 417,469 (1,360,537 ) 75,468,162
Municipal Securities 32,069,484 372,581 (208,938 ) 32,233,127
Total $ 194,381,794 $ 923,296 $ (2,111,811 ) $ 193,193,279
December 31, 2020
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
U.S. Treasury Notes $ 20,036,549 $ 374,001 $ — $ 20,410,550
Government-Sponsored Enterprises 96,614,182 1,398,884 (160,260 ) 97,852,806
Municipal Securities 16,055,332 501,130 — 16,556,462
Total $ 132,706,063 $ 2,274,015 $ (160,260 ) $ 134,819,818

March 31, 2022
Amortized
Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
U.S. Treasury Notes $ 170,849,901 $ — $ (7,263,586 ) $ 163,586,315
Government-Sponsored Enterprises 66,242,773 7,546 (5,628,550 ) 60,621,769
Municipal Securities 35,728,088 6,525 (2,036,393 ) 33,698,220
Total $ 272,820,762 $ 14,071 $ (14,928,529 ) $ 257,906,304

December 31, 2021
Amortized
Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
U.S. Treasury Notes $ 101,269,851 $ 68,848 $ (1,276,399 ) $ 100,062,300
Government-Sponsored Enterprises 76,355,720 275,123 (1,909,834 ) 74,721,009
Municipal Securities 37,421,880 335,912 (193,612 ) 37,564,180
Total $ 215,047,451 $ 679,883 $ (3,379,845 ) $ 212,347,489
12 9

The amortized cost and estimated fair value of investment securities available for sale as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, by contractual maturity are in the following table.

September 30, 2021 December 31, 2020
Amortized
Cost Estimated Fair Value Amortized
Cost Estimated Fair Value
Due in one year or less $ 17,765,344 $ 17,859,899 $ 32,245,646 $ 32,622,890
Due in one year to five years 84,922,196 85,072,046 40,022,194 41,258,370
Due in five years to ten years 84,973,132 83,702,529 50,438,223 50,968,288
Due in ten years and over 6,721,122 6,558,805 10,000,000 9,970,270
Total $ 194,381,794 $ 193,193,279 $ 132,706,063 $ 134,819,818
March 31, 2022 December 31, 2021
Amortized
Cost Estimated Fair Value Amortized Cost Estimated Fair Value
Due in one year or less $ 3,039,951 $ 3,014,039 $ 12,756,176 $ 12,859,086
Due in one year to five years 184,453,829 177,328,263 116,602,790 115,896,465
Due in five years to ten years 76,428,538 69,708,612 76,531,464 74,575,862
Due in ten years and over 8,898,444 7,855,390 9,157,021 9,016,076
Total $ 272,820,762 $ 257,906,304 $ 215,047,451 $ 212,347,489
Securities pledged to secure deposits at ~~both September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, had a fair value of $~~33.6~~31.0 million and $~~42.4~~33.3 million, respectively.
The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. We believe that all unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below before recovery of their amortized cost.

September 30, 2021
Less Than 12 Months 12 Months or Longer Total
# Fair
Value Gross Unrealized Loss # Fair
Value Gross Unrealized Loss # Fair
Value Gross Unrealized Loss
U.S. Treasury Notes 11 $ 60,364,645 $ (542,336 ) — $ — $ — 11 $ 60,364,645 $ (542,336 )
Government-Sponsored Enterprises 7 45,228,892 (1,123,217 ) 1 9,762,680 (237,320 ) 8 54,991,572 (1,360,537 )
Municipal Securities 17 10,576,443 (208,938 ) — — — 17 10,576,443 (208,938 )
Total 35 $ 116,169,980 $ (1,874,491 ) 1 $ 9,762,680 $ (237,320 ) 36 $ 125,932,660 $ (2,111,811 )

December 31, 2020 March 31, 2022
Less Than 12 Months 12 Months or Longer Total Less Than 12 Months 12 Months or Longer Total
# Fair
Value Gross Unrealized Loss # Fair
Value Gross Unrealized Loss # Fair
Value Gross Unrealized Loss # Fair Value Gross Unrealized Loss # Fair Value Gross Unrealized Loss # Fair Value Gross Unrealized Loss
U.S. Treasury Notes — $ — $ — — $ — $ — — $ — $ — 22 $ 158,707,410 $ (6,848,104 ) 1 $ 4,878,905 $ (415,482 ) 23 $ 163,586,315 $ (7,263,586 )
Government-Sponsored Enterprises 4 29,839,740 (160,260 ) — — — 4 29,839,740 (160,260 ) 2 9,324,550 (675,450 ) 7 46,293,814 (4,953,100 ) 9 55,618,364 (5,628,550 )
Municipal Securities — — — — — — — — — 70 31,221,099 (1,943,722 ) 1 977,570 (92,671 ) 71 32,198,669 (2,036,393 )

Total 4 $ 29,839,740 $ (160,260 ) — $ — $ — 4 $ 29,839,740 $ (160,260 ) 94 $ 199,253,059 $ (9,467,276 ) 9 $ 52,150,289 $ (5,461,253 ) 103 $ 251,403,348 $ (14,928,529 )
13

December 31, 2021
Less Than 12 Months 12 Months or Longer Total
# Fair Value Gross Unrealized Loss # Fair Value Gross Unrealized Loss # Fair Value Gross Unrealized Loss
U.S. Treasury Notes 15 $ 94,994,915 $ (1,276,399) — $ — $ — 15 $ 94,994,915 $ (1,276,399 )
Government-Sponsored Enterprises 3 19,480,595 (519,405) 6 39,909,134 (1,390,429 ) 9 59,389,729 (1,909,834 )
Municipa/l Securities 19 11,384,462 (193,612) — — — 19 11,384,462 (193,612 )
Total 37 $ 125,859,972 $ (1,989,416) 6 $ 39,909,134 $ (1,390,429 ) 43 $ 165,769,106 $ (3,379,845 )
The tables below show the proceeds from sales of securities available for sale and gross realized gains and losses.

Three Months Ended
March 31,
2022 2021
Gross proceeds $ 15,120,000 $ —
Gross realized gains 61,780 —
Gross realized losses — —


Three Months Ended
September 30,
2021 2020
Gross proceeds $ 15,572,500 $ —
Gross realized gains 266,944 —
Gross realized losses — —

Nine Months Ended
September 30,
2021 2020
Gross proceeds $ 15,572,500 $ —
Gross realized gains 266,944 —
Gross realized losses — —

There was a tax provision of $~~56,058~~12,974 related to gains for the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022. There were no realized gains for the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2021.
Note 3: Loans and Allowance for Loan Losses
Major classifications of loans (net of deferred loan fees of $~~713,203~~342,835 and $488,481 at ~~September 30, 2021~~March 31,2022 and $~~676,155~~ at December 31, ~~2020,~~2021, respectively) are shown in the table below.

September 30,
2021 December 31,
2020
Commercial $ 45,923,118 $ 51,041,397
Commercial real estate:
Construction 10,802,322 14,813,726
Other 160,119,820 146,187,886
Consumer:
Real estate 77,530,313 71,836,041
Other 4,576,146 4,480,491
Paycheck Protection Program 13,883,076 32,443,132
312,834,795 320,802,673
Allowance for loan losses (4,368,457 ) (4,185,694 )
Loans, net $ 308,466,338 $ 316,616,979
March 31, 2022 December 31, 2021
Commercial $ 47,360,745 $ 45,804,434
Commercial Real Estate:
Construction 14,750,474 12,054,095
Other 167,967,452 165,719,078
Consumer:
Real estate 76,712,257 71,307,488
Other 3,677,522 3,768,531
Paycheck Protection Program 4,437,525 7,978,603
314,905,975 306,632,229
Allowance for loan losses (4,304,502 ) (4,376,987 )
Loans, net $ 310,601,473 $ 302,255,242

We had $~~88.3~~96.3 million and $7694.7.0 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at ~~September 30, 2021~~March 31, 2022 and at December 31, ~~2020,~~2021, respectively.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. Under the program, the Small Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for payroll and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of ~~1.00% and a term of~~ ~~two years, if not forgiven, in whole or in part. The loans are~~ ~~100~~% guaranteed by the SBA and as long as the borrower submits its loan forgiveness application within ten months of completion of the covered period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by the SBA. The Bank received a processing fee ranging from 1~~% to~~ 5~~% based on the size of the loan from the SBA. The fees are deferred and amortized over the life of the loans in accordance with ASC 310-20.~~ The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued by financial institutions through the SBA.
~~On December 27,~~In 2020 and 2021, the ~~Economic Aid~~Bank provided $55.3 million in funding to ~~Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”) was enacted, which reauthorized lending under~~480 customers through the PPP ~~program through March 31, 2021, with an additional~~and received a total of $~~325~~.0 billion. On March 31, 2021, the PPP Extension Act of 2021 was signed into law, which formally changed the PPP application deadline from March 31, 2021 to May 31, 2021. Under the Economic Aid Act, the SBA will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for payroll and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of ~~1.00% and a term of~~ ~~five years, if not forgiven, in whole or in part. The loans are~~ ~~100~~% guaranteed by the SBA and as long as the borrower submits its loan forgiveness application within ten months of completion of the covered period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by the SBA. The Bank will receive a processing fee based on the size of the loan from the SBA, based on a tiered structure. For loans up to $~~50,000~~2.4 million in ~~principal, the lender~~ processing ~~fee will be the lesser of~~ 50~~% of the principal amount or $2,500. For loans between $50,000~~ ~~and $350,000~~ ~~in principal, the lender~~fees. The processing ~~fee will be~~ 5~~% of the principal amount. For loans $350,000~~ ~~and above, the lender processing fee will be~~ 3~~% of the principal amount. For loans of at least $~~2~~.0 million, the lender processing fee will be~~ 1~~% of the principal amount. The~~ fees ~~are~~were deferred and are being amortized over the life of the loans in accordance with ASC 310-20.
14
~~The Bank provided $37.8~~ ~~million to~~ ~~266~~ ~~customers in the first round of PPP and $17.5~~ ~~million to~~ ~~214~~ ~~customers in the second round of PPP. Because these loans are~~ ~~100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve. The Bank received $2.4~~ ~~million in processing fees related to the PPP program.~~ During the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Bank recognized $~~0.1~~0.2 million ~~million~~ and $~~0.2~~0.6 million ~~million,~~, respectively, in processing fees for the PPP program. ~~During the nine months ended September 30, 2021 and 2020, the Bank recognized $~~1~~.0 million and $0.3~~ ~~million, respectively, in processing fees for the PPP program.~~
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. Our portfolio is graded in its entirety, with the exception of the PPP loans. Because the PPP loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve.
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 and, where applicable, 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 possible. The borrowing entity has declining sales, rising costs, and may need to look for secondary source of repayment.
● Doubtful (7) The borrowing entity has negative cash flow. Survival of the business is at risk, full repayment is unlikely, and there are frequent and unexplained overdrafts. The borrowing entity shows declining trends and no operating profits.
● Loss (8) The borrowing entity has negative cash flow with no alternatives. Survival of the business is unlikely.

15
The following tables illustrate credit quality by class and internally assigned grades at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. “Pass” includes loans internally graded as excellent, good and satisfactory.
September 30, 2021
Commercial Commercial
Real Estate Construction Commercial
Real Estate
Other Consumer
Real Estate Consumer
Other Paycheck Protection Program Total
Pass $ 43,458,379 $ 10,357,540 $ 152,866,524 $ 76,186,041 $ 4,299,854 $ 13,883,076 $ 301,051,414
Watch 636,171 444,782 4,219,954 471,737 194,963 — 5,967,607
OAEM 344,195 — 1,077,755 622,777 40,618 — 2,085,345
Substandard 1,484,373 — 1,955,587 249,758 40,711 — 3,730,429
Doubtful — — — — — — —
Loss — — — — — — —
Total $ 45,923,118 $ 10,802,322 $ 160,119,820 $ 77,530,313 $ 4,576,146 $ 13,883,076 $ 312,834,795
March 31, 2022
Commercial Commercial
Real Estate Construction Commercial
Real Estate
Other Consumer
Real Estate Consumer
Other Paycheck Protection Program Total
Pass $ 45,293,533 $ 13,775,793 $ 163,137,366 $ 72,531,141 $ 3,426,221 $ 4,437,525 $ 302,601,579
Watch 686,987 974,681 2,768,774 3,656,913 191,740 — 8,279,095
OAEM 30,859 — 840,236 274,445 19,961 — 1,165,501
Substandard 1,349,366 — 1,221,076 249,758 39,600 — 2,859,800
Doubtful — — — — — — —
Loss — — — — — — —
Total $ 47,360,745 $ 14,750,474 $ 167,967,452 $ 76,712,257 $ 3,677,522 $ 4,437,525 $ 314,905,975
16

December 31, 2020
Commercial Commercial
Real Estate
Construction Commercial
Real Estate
Other Consumer
Real Estate Consumer
Other Paycheck
Protection
Program Total
Pass $ 44,903,134 $ 14,349,065 $ 125,111,378 $ 70,454,909 $ 4,171,858 $ 32,443,132 $ 291,433,476
Watch 3,415,408 464,661 15,200,992 467,163 219,954 — 19,768,178
OAEM 1,039,647 — 1,784,296 623,226 46,783 — 3,493,952
Substandard 1,683,208 — 4,091,220 290,743 41,896 — 6,107,067
Doubtful — — — — — — —
Loss — — — — — — —
Total $ 51,041,397 $ 14,813,726 $ 146,187,886 $ 71,836,041 $ 4,480,491 $ 32,443,132 $ 320,802,673
December 31, 2021
Commercial Commercial
Real Estate Construction Commercial
Real Estate
Other Consumer
Real Estate Consumer
Other Paycheck Protection Program Total
Pass $ 43,853,889 $ 11,616,118 $ 159,825,281 $ 69,920,347 $ 3,565,716 $ 7,978,603 $ 296,759,954
Watch 450,319 437,977 3,082,408 862,938 133,418 — 4,967,060
OAEM 36,749 — 1,158,268 274,445 29,244 — 1,498,706
Substandard 1,463,477 — 1,653,121 249,758 40,153 — 3,406,509
Doubtful — — — — — — —
Loss — — — — — — —
Total $ 45,804,434 $ 12,054,095 $ 165,719,078 $ 71,307,488 $ 3,768,531 $ 7,978,603 $ 306,632,229
The following tables include an aging analysis of the recorded investment in loans segregated by class.

September 30, 2021
30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans Receivable Recorded Investment ≥
90 Days and Accruing
Commercial $ 151,406 $ — $ — $ 151,406 $ 45,771,712 $ 45,923,118 $ —
Commercial Real Estate Construction — — — — 10,802,322 10,802,322 —
Commercial Real Estate Other — 59,424 926,808 986,232 159,133,588 160,119,820 —
Consumer Real Estate — — — — 77,530,313 77,530,313 —
Consumer Other 1,508 — — 1,508 4,574,638 4,576,146 —
Paycheck Protection Program — — — — 13,883,076 13,883,076 —
Total $ 152,914 $ 59,424 $ 926,808 $ 1,139,146 $ 311,695,649 $ 312,834,795 $ —
March 31, 2022
30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans Receivable Recorded Investment ≥
90 Days and Accruing
Commercial $ 225,000 $ 1,915 $ — $ 226,915 $ 47,133,830 $ 47,360,745 $ —
Commercial Real Estate Construction — — — — 14,750,474 14,750,474 —
Commercial Real Estate Other 677,131 750,000 621,358 2,048,489 165,918,963 167,967,452 —
Consumer Real Estate 203,042 — — 203,042 76,509,215 76,712,257 —
Consumer Other 626 — — 626 3,676,896 3,677,522 —
Paycheck Protection Program — — — — 4,437,525 4,437,525 —
Total $ 1,105,799 $ 751,915 $ 621,358 $ 2,479,072 $ 312,426,903 $ 314,905,975 $ —

1712

December 31, 2020
30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans Receivable Recorded Investment ≥
90 Days and Accruing
Commercial $ 144,999 $ 27,855 $ — $ 172,854 $ 50,868,543 $ 51,041,397 $ —
Commercial Real Estate Construction — — — — 14,813,726 14,813,726 —
Commercial Real Estate Other 61,597 — 923,828 985,425 145,202,461 146,187,886 —
Consumer Real Estate — — 40,893 40,893 71,795,148 71,836,041 —
Consumer Other — — — — 4,480,491 4,480,491 —
Paycheck Protection Program — — — — 32,443,132 32,443,132
Total $ 206,596 $ 27,855 $ 964,721 $ 1,199,172 $ 319,603,501 $ 320,802,673 $ —
December 31, 2021
30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans Receivable Recorded Investment ≥
90 Days and Accruing
Commercial $ 88,659 $ — $ — $ 88,659 $ 45,715,775 $ 45,804,434 $ —
Commercial Real Estate Construction — — — — 12,054,095 12,054,095 —
Commercial Real Estate Other 59,269 288,464 337,490 685,223 165,033,855 165,719,078 —
Consumer Real Estate — — — — 71,307,488 71,307,488 —
Consumer Other 23,971 — — 23,971 3,744,560 3,768,531 —
Paycheck Protection Program — — — — 7,978,603 7,978,603 —
Total $ 171,899 $ 288,464 $ 337,490 $ 797,853 $ 305,834,376 $ 306,632,229 $ —
There were no loans over 90 days past due and still accruing as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

The following table summarizes the balances of non-accrual loans:
Loans Receivable on
Non-Accrual
September 30,
2021 December 31,
2020
Commercial $ 178,975 $ 178,975
Commercial Real Estate Construction — —
Commercial Real Estate Other 926,808 923,828
Consumer Real Estate — 40,893
Consumer Other 10,337 12,234
Paycheck Protection Program — —
Total $ 1,116,120 $ 1,155,930
March 31,
2022 December 31, 2021
Commercial $ — $ 178,975
Commercial Real Estate Construction — —
Commercial Real Estate Other 621,358 625,953
Consumer Real Estate — —
Consumer Other 9,022 9,686
Paycheck Protection Program — —
Total $ 630,380 $ 814,614

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~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021. 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.

Three Months Ended March 31, 2022
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for Loan Losses:
Beginning balance $ 795,689 $ 175,493 $ 2,376,306 $ 924,784 $ 104,715 $ — $ 4,376,987
Charge-offs — — — (2,035 ) — (10 ) (2,045 )
Recoveries — — — — 4,200 360 4,560
Provisions (7,596 ) 28,075 (82,296 ) (2,777 ) (10,056 ) (350 ) (75,000 )
Ending balance $ 788,093 $ 203,568 $ 2,294,010 $ 919,972 $ 98,859 $ — $ 4,304,502

Three Months Ended September 30, 2021
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for
Loan Losses:
Beginning balance $ 801,548 $ 154,276 $ 2,206,215 $ 1,025,506 $ 118,758 $ — $ 4,306,303
Charge-offs — — — — — (903 ) (903 )
Recoveries 10,746 — — 47,711 4,600 — 63,057
Provisions (9,338 ) 1,248 72,060 (65,539 ) 666 903 —
Ending balance $ 802,956 $ 155,524 $ 2,278,275 $ 1,007,678 $ 124,024 $ — $ 4,368,457

Three Months Ended March 31, 2021
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for Loan Losses:
Beginning balance $ 1,029,310 $ 199,266 $ 1,909,121 $ 925,077 $ 122,920 $ — $ 4,185,694
Charge-offs — — — — (8,152 ) (6,479 ) (14,631 )
Recoveries — — — — 4,812 290 5,102
Provisions (126,428 ) (54,721 ) 168,648 127,083 (771 ) 6,189 120,000
Ending balance $ 902,882 $ 144,545 $ 2,077,769 $ 1,052,160 $ 118,809 $ — $ 4,296,165

1813



Nine Months Ended September 30, 2021
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for
Loan Losses:
Beginning balance $ 1,029,310 $ 199,266 $ 1,909,121 $ 925,077 $ 122,920 $ — $ 4,185,694
Charge-offs — — — — (11,439 ) (8,879 ) (20,318 )
Recoveries 21,329 — — 47,711 14,041 — 83,081
Provisions (247,683 ) (43,742 ) 369,154 34,890 (1,498 ) 8,879 120,000
Ending balance $ 802,956 $ 155,524 $ 2,278,275 $ 1,007,678 $ 124,024 $ — $ 4,368,457

Three Months Ended September 30, 2020
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for
Loan Losses:
Beginning balance $ 1,018,550 $ 150,807 $ 1,477,019 $ 883,300 $ 580,954 $ — $ 4,110,630
Charge-offs — — — — — — —
Recoveries — — — — 3,184 — 3,184
Provisions 197,766 28,766 312,806 (35,302 ) (464,036 ) — 40,000
Ending balance $ 1,216,316 $ 179,573 $ 1,789,825 $ 847,998 $ 120,102 $ — $ 4,153,814
19

Nine Months Ended September 30, 2020
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for
Loan Losses:
Beginning balance $ 1,429,917 $ 109,235 $ 1,270,445 $ 496,221 $ 697,940 $ — $ 4,003,758
Charge-offs — — — — (116,002 ) — (116,002 )
Recoveries 87,011 — 99,801 — 39,246 — 226,058
Provisions (300,612 ) 70,338 419,579 351,777 (501,082 ) — 40,000
Ending balance $ 1,216,316 $ 179,573 $ 1,789,825 $ 847,998 $ 120,102 $ — $ 4,153,814
The following tables present, by portfolio segment and reserving methodology, the allocation of the allowance for loan losses and the gross investment in loans, for the periods indicated.

March 31, 2022
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for Loan Losses
Individually evaluated for impairment $ 183,418 $ —   $ —   $ —   $ 39,600 $ —   $ 223,018
Collectively evaluated for impairment 604,675 203,568 2,294,010 919,972 59,259 —   4,081,484
Total Allowance for Loan Losses $ 788,093 $ 203,568 $ 2,294,010 $ 919,972 $ 98,859 $ —   $ 4,304,502
Loans Receivable
Individually evaluated for impairment $ 1,349,365 $ —   $ 1,221,076 $ 249,758 $ 39,600 $ —   $ 2,859,799
Collectively evaluated for impairment 46,011,380 14,750,474 166,746,376 76,462,499 3,637,922 4,437,525 312,046,176
Total Loans Receivable $ 47,360,745 $ 14,750,474 $ 167,967,452 $ 76,712,257 $ 3,677,522 $ 4,437,525 $ 314,905,975


September 30, 2021
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for Loan Losses
Individually evaluated for impairment $ 178,975 $ — $ — $ — $ 40,711 $ — $ 219,686
Collectively evaluated for impairment 623,981 155,524 2,278,275 1,007,678 83,313 — 4,148,771
Total Allowance for Loan Losses $ 802,956 $ 155,524 $ 2,278,275 $ 1,007,678 $ 124,024 $ — $ 4,368,457
Loans Receivable
Individually evaluated for impairment $ 1,484,372 $ — $ 1,955,587 $ 249,758 $ 40,711 $ — $ 3,730,428
Collectively evaluated for impairment 44,438,746 10,802,322 158,164,233 77,280,555 4,535,435 13,883,076 309,104,367
Total Loans Receivable $ 45,923,118 $ 10,802,322 $ 160,119,820 $ 77,530,313 $ 4,576,146 $ 13,883,076 $ 312,834,795

December 31, 2020
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for Loan Losses
Individually evaluated for impairment $ 357,657 $ — $ 36,747 $ 9,111 $ 41,896 $ — $ 445,411
Collectively evaluated for impairment 671,653 199,266 1,872,374 915,966 81,024 — 3,740,283
Total Allowance for Loan Losses $ 1,029,310 $ 199,266 $ 1,909,121 $ 925,077 $ 122,920 $ — $ 4,185,694
Loans Receivable
Individually evaluated for impairment $ 2,298,120 $ — $ 5,174,841 $ 290,743 $ 41,896 $ — $ 7,805,600
Collectively evaluated for impairment 48,743,277 14,813,726 141,013,045 71,545,298 4,438,595 32,443,132 312,997,073
Total Loans Receivable $ 51,041,397 $ 14,813,726 $ 146,187,886 $ 71,836,041 $ 4,480,491 $ 32,443,132 $ 320,802,673

December 31, 2021
Commercial Commercial Real Estate Construction Commercial Real Estate Other Consumer Real Estate Consumer Other Paycheck Protection Program Total
Allowance for Loan Losses
Individually evaluated for impairment $ 179,988 $ —   $ —   $ —   $ 40,153 $ —   $ 220,141
Collectively evaluated for impairment 615,701 175,493 2,376,306 924,784 64,562 —   4,156,846
Total Allowance for Loan Losses $ 795,689 $ 175,493 $ 2,376,306 $ 924,784 $ 104,715 $ —   $ 4,376,987
Loans Receivable
Individually evaluated for impairment $ 1,463,477 $ —   $ 1,653,121 $ 249,758 $ 40,153 $ —   $ 3,406,509
Collectively evaluated for impairment 44,340,957 12,054,095 164,065,957 71,057,730 3,728,378 7,978,603 303,225,720
Total Loans Receivable $ 45,804,434 $ 12,054,095 $ 165,719,078 $ 71,307,488 $ 3,768,531 $ 7,978,603 $ 306,632,229
20
As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, loans individually evaluated and considered impaired are presented in the following table.
Impaired Loans as of
March 31, 2022 December 31, 2021
Unpaid Principal Balance Recorded Investment Related Allowance Unpaid Principal Balance Recorded Investment Related Allowance
With no related allowance recorded:
Commercial $ 175,805 $ 175,805 $ —   $ 1,096,407 $ 1,096,407 $ —
Commercial Real Estate Construction —   —   —   —   —   —
Commercial Real Estate Other 1,221,076 1,221,076 —   1,653,121 1,653,121 —
Consumer Real Estate 249,758 249,758 —   249,758 249,758 —
Consumer Other —   —   —   —   —   —
Paycheck Protection Program —   —   —   —   —   —
Total 1,646,639 1,646,639 —   2,999,286 2,999,286 —

With an allowance recorded:
Commercial 1,173,560 1,173,560 183,418 367,070 367,070 179,988
Commercial Real Estate Construction —   —   —   —   —   —
Commercial Real Estate Other —   —   —   —   —   —
Consumer Real Estate —   —   —   —   —   —
Consumer Other 39,600 39,600 39,600 40,153 40,153 40,153
Paycheck Protection Program —   —   —   —   —   —
Total 1,213,160 1,213,160 223,018 407,223 407,223 220,141

Commercial 1,349,365 1,349,365 183,418 1,463,477 1,463,477 179,988
Commercial Real Estate Construction —   —   —   —   —   —
Commercial Real Estate Other 1,221,076 1,221,076 —   1,653,121 1,653,121 —
Consumer Real Estate 249,758 249,758 —   249,758 249,758 —
Consumer Other 39,600 39,600 39,600 40,153 40,153 40,153
Paycheck Protection Program —   —   —   —   —   —
Total $ 2,859,799 $ 2,859,799 $ 223,018 $ 3,406,509 $ 3,406,509 $ 220,141

Impaired Loans
September 30, 2021 December 31, 2020
Unpaid Principal Balance Recorded Investment Related Allowance Unpaid Principal Balance Recorded Investment Related Allowance
With no related allowance recorded:
Commercial $ 1,305,397 $ 1,305,397 $ — $ 1,721,818 $ 1,721,818 $ —
Commercial Real Estate Construction — — — — — —
Commercial Real Estate Other 1,955,587 1,955,587 — 4,831,757 4,831,757 —
Consumer Real Estate 249,758 249,758 — 249,850 249,850 —
Consumer Other — — — — — —
Paycheck Protection Program — — — — — —
Total 3,510,742 3,510,742 — 6,803,425 6,803,425 —

With an allowance recorded:
Commercial 178,975 178,975 178,975 576,302 576,302 357,657
Commercial Real Estate Construction — — — — — —
Commercial Real Estate Other — — — 343,084 343,084 36,747
Consumer Real Estate — — — 40,893 40,893 9,111
Consumer Other 40,711 40,711 40,711 41,896 41,896 41,896
Paycheck Protection Program — — — — — —
Total 219,686 219,686 219,686 1,002,175 1,002,175 445,411
Total
Commercial 1,484,372 1,484,372 178,975 2,298,120 2,298,120 357,657
Commercial Real Estate Construction — — — — — —
Commercial Real Estate Other 1,955,587 1,955,587 — 5,174,841 5,174,841 36,747
Consumer Real Estate 249,758 249,758 — 290,743 290,743 9,111
Consumer Other 40,711 40,711 40,711 41,896 41,896 41,896
Paycheck Protection Program — — — — — —
Total $ 3,730,428 $ 3,730,428 $ 219,686 $ 7,805,600 $ 7,805,600 $ 445,411
14

The following table presents average impaired loans and interest income recognized on those impaired loans, by class segment, for the periods indicated.
21
Three Months Ended September 30,
2021 2020
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
With no related allowance recorded:
Commercial $ 1,327,590 $ 20,140 $ 1,420,335 $ 19,891
Commercial Real Estate Construction — — — —
Commercial Real Estate Other 1,954,514 14,402 5,024,801 56,189
Consumer Real Estate 249,758 2,675 249,850 2,676
Consumer Other — — — —
Paycheck Protection Program — — — —
3,531,862 37,217 6,694,986 78,756

With an allowance recorded:
Commercial 178,975 4,564 1,299,038 26,910
Commercial Real Estate Construction — — — —
Commercial Real Estate Other — — 335,664 —
Consumer Real Estate — — 36,449 2,197
Consumer Other 40,921 670 41,896 686
Paycheck Protection Program — — — —
219,896 5,234 1,713,047 29,793
Total
Commercial 1,506,565 24,704 2,719,373 46,801
Commercial Real Estate Construction — — — —
Commercial Real Estate Other 1,954,514 14,402 5,360,465 56,189
Consumer Real Estate 249,758 2,675 286,299 4,873
Consumer Other 40,921 670 41,896 686
Paycheck Protection Program — — — —
$ 3,751,758 $ 42,451 $ 8,408,033 $ 108,549

Nine Months Ended September 30,
2021 2020
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
With no related allowance recorded:
Commercial $ 1,357,025 $ 64,253 $ 1,442,248 $ 55,882
Commercial Real Estate - Construction — — — —
Commercial Real Estate - Other 1,948,369 45,482 5,043,047 175,862
Consumer Real Estate 249,783 8,842 249,801 9,148
Consumer Other — — — —
Paycheck Protection Program — — — —
3,555,177 118,577 6,735,096 240,892

With an allowance recorded:
Commercial 178,975 8,173 1,401,247 63,338
Commercial Real Estate - Construction — — — —
Commercial Real Estate - Other — — 335,578 —
Consumer Real Estate — — 35,460 —
Consumer Other 41,384 2,047 42,154 1,931
Paycheck Protection Program — — — —
220,359 10,220 1,814,439 65,269
Total
Commercial 1,536,000 72,426 2,843,495 119,220
Commercial Real Estate - Construction — — — —
Commercial Real Estate - Other 1,948,369 45,482 5,378,625 175,862
Consumer Real Estate 249,783 8,842 285,261 9,148
Consumer Other 41,384 2,047 42,154 1,931
Paycheck Protection Program — — — —
$ 3,775,536 $ 128,797 $ 8,549,535 $ 306,161

Three Months Ended March 31,
2022 2021
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
With no related allowance recorded:
Commercial $ 181,347 $ 2,720 $ 1,563,106 $ 25,815
Commercial Real Estate Construction —   —   —   —
Commercial Real Estate Other 1,226,665 7,706 5,482,702 49,760
Consumer Real Estate 249,758 2,617 249,833 3,491
Consumer Other —   —   —   —
Paycheck Protection Program —   —   —   —
1,657,770 13,043 7,295,641 79,066

With an allowance recorded:
Commercial 1,186,718 19,382 472,422 7,519
Commercial Real Estate Construction —   —   —   —
Commercial Real Estate Other —   —   —   —
Consumer Real Estate —   —   —   —
Consumer Other 39,822 638 41,848 672
Paycheck Protection Program —   —   —   —
1,226,540 20,020 514,270 8,191
Total
Commercial 1,368,065 22,102 2,035,528 33,334
Commercial Real Estate Construction —   —   —   —
Commercial Real Estate Other 1,226,665 7,706 5,482,702 49,760
Consumer Real Estate 249,758 2,617 249,833 3,491
Consumer Other 39,822 638 41,848 672
Paycheck Protection Program —   —   —   —
$ 2,884,310 $ 33,063 $ 7,809,911 $ 87,257
22

In general, the modification or restructuring of a ~~loan~~debt is considered a troubled debt restructuring (“TDR”) if ~~the Company,~~we, for economic or legal reasons related to a borrower’s financial difficulties, ~~grants~~grant a concession to the borrower that we would not otherwise consider. As of ~~September 30,~~both March 31, 2022 and December 31, 2021, there were 65 TDRs with a balance of $~~1.4~~1 ~~million compared to~~ 14 ~~TDRs with a balance of $5.8~~ ~~million as of December 31, 2020.~~.0 million. There were 0 TDRs added during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021. ~~There were~~ 0 ~~TDRs added during the three months ended September 30, 2020 and~~ 1 ~~TDR, in the amount of $0.6~~ ~~million was added during the nine months ended September 30, 2020.~~ These TDRs were granted extended payment terms with no principal reduction. The structure of 2 of the loans changed to interest only. All TDRs were performing as agreed as of ~~September 30, 2021.~~ ~~NaN~~March 31, 2022. No TDRs defaulted during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ which were modified within the previous twelve months.

Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. ~~The~~During 2020, the Bank processed approximately $0.7 million in principal deferments to 84 loans, with an aggregate loan balance of $25.9 ~~million, during the year ended December 31, 2020.~~million. The principal deferments ~~represent~~represented 0.24% of our total loan portfolio as of December 31, 2020. ~~In accordance~~The Bank did not process any principal deferments after December 31, 2020. As of March 31, 2022, there was 1 outstanding loan with ~~the FDIC guidance, borrowers who were current prior to becoming affected by COVID-19, that received payment accommodations as~~ a ~~result~~balance of ~~the pandemic, generally are not reported as past due.~~$0.2 million in TDR status. There were ~~no interest deferments granted and all~~2 loans ~~given payment accommodations are still paying interest. There have been no payment accommodations granted during the nine months ended September 30,~~outstanding with a balance of $0.5 million in TDR status as of December 31, 2021. All other remaining outstanding loans ~~granted payment accommodations during the year ended December 31, 2020 have commenced~~were paying as agreed ~~and are current~~ as of ~~September 30,~~March 31, 2022 and December 31, 2021.

Note 4: Leases

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had operating right of use (“ROU”) assets of $~~12.4~~13.9 million and $~~12.7~~14.0 million,, respectively, and had operating lease liabilities of $~~12.4~~13.9 million ~~million~~ and $~~12.7~~14.0 million, respectively. The Company maintains operating leases on land, branch facilities, and parking. Most of the leases include one or more options to renew, with renewal terms extending up to 20 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized in lease expense.

~~The~~As of March 31, 2022, the weighted average remaining lease term iswas ~~16.31~~16.3 ~~years. The~~years and the weighted average incremental borrowing rate iswas ~~4.35~~4.17%.
15

The table below shows lease expense components for the three months ended ~~September 30,~~March 31, 2022 and 2021.

Three Months Ended
September 30, 2021 September 30, 2020
Operating lease expense $ 269,592 $ 243,298
Short-term lease expense — —
Total lease expense $ 269,592 $ 243,298

March 31,
2022 2021
Operating lease expense $ 299,571 $ 301,537
Short-term lease expense —   —
Total lease expense $ 299,571 $ 301,537
23
~~The table below shows lease expense components for the nine months ended September 30, 2021.~~


Nine Months Ended
September 30, 2021 September 30, 2020
Operating lease expense $ 852,624 727,379
Short-term lease expense — —
Total lease expense $ 852,624 $ 727,379
Total rental expense was $299,571 and $301,537 for the three months ended March 31, 2022 and 2021, respectively and was included in net occupancy expense within the consolidated statements of income.

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we did not maintain any finance leases, and we determined that the number and dollar amount of equipment leases was immaterial. As of ~~September 30, 2021 and December~~March 31, ~~2020,~~2022, we ~~have~~had no ~~additional~~ operating leases that ~~have~~had not yet commenced.
During the three months ended September 30, 2021, the Bank entered into a lease agreement for a new location at 1730 Maybank Highway Charleston, SC. The lease commences October 2021. Restrictive covenants prevent use of the property for a bank until June 15, 2023.

Note 5: ~~Disclosure~~Disclosures Regarding Fair Value of Financial Statements

Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or 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:

● Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.

● Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.

● Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.
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 also significantly 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.

24
The following paragraphs describe the valuation methodologies used for assets ~~and liabilities~~ recorded at fair value on a recurring basis.

Investment 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~~mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include ~~asset-backed~~municipal securities in less liquid markets.
16

Derivative Instruments

Derivative instruments include interest rate lock commitments and forward sale commitments. These instruments are valued based on the change in the value of the underlying loan between the commitment date and the end of the period. We classify these instruments as Level 3.

We had no embedded derivative instruments requiring separate accounting treatment. We had freestanding derivative instruments consisting of fixed rate conforming loan commitments aswith 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~~the short-term nature of ~~the~~ mortgage loans ~~held for sale~~to be sold (derivative ~~contract)~~contracts), ~~the~~our derivative instruments were immaterial to ~~the Company’s~~our consolidated financial statements as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

~~Assets and liabilities~~The following table presents information about assets measured at fair value on a recurring basis ~~at September 30, 2021~~as of March 31, 2022 and December 31, ~~2020 are as follows:~~2021:
March 31, 2022
Level 1 Level 2 Level 3 Total
U.S. Treasury Notes $ 163,586,315 $ — $ — $ 163,586,315
Government-Sponsored Enterprises — 60,621,769 — 60,621,769
Municipal Securities — 13,071,566 20,626,654 33,698,220
Total $ 163,586,315 $ 73,693,335 $ 20,626,654 $ 257,906,304

September 30, 2021
Level 1 Level 2 Level 3 Total
U.S. Treasury Notes $ 85,491,990 $ — $ — $ 85,491,990
Government-Sponsored Enterprises — 75,468,162 — 75,468,162
Municipal Securities — 13,164,668 19,068,459 32,233,127
Total $ 85,491,990 $ 88,632,830 $ 19,068,459 $ 193,193,279
December 31, 2020 December 31, 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
U.S. Treasury Notes $ 20,410,550 $ — $ — $ 20,410,550 $ 100,062,300 $ — $ — $ 100,062,300
Government-Sponsored Enterprises — 97,852,806 — 97,852,806 — 74,721,009 — 74,721,009
Municipal Securities — 10,872,532 5,683,930 16,556,462 — 13,080,133 24,484,047 37,564,180
Total $ 20,410,550 $ 108,725,338 $ 5,683,930 $ 134,819,818 $ 100,062,300 $ 87,801,142 $ 24,484,047 $ 212,347,489
There were no liabilities recorded at fair value on a recurring basis as of ~~September 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021.

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~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:

Three Months Ended March 31,
2022 2021
Beginning balance $ 24,484,047 $ 5,683,930
Total gains or (losses) (realized/unrealized):
Included in other comprehensive income (1,444,393 ) (78,054 )
Purchases, issuances, and settlements, net of maturities (2,413,000 ) (3,637,000 )
Ending balance $ 20,626,654 $ 1,968,876

Three Months Ended
September 30,

Nine Months Ended
September 30,

2021 2020 2021 2020
Beginning balance $ 6,960,115 $ 6,086,342 $ 5,683,930 $ 11,954,451
Total gains or (losses) (realized/unrealized):
Included in other comprehensive income (33,656 ) 18,229 (120,471 ) 128,120
Purchases, issuances, and settlements net of maturities 12,142,000 (70,000 ) 13,505,000 (6,048,000 )
Ending balance $ 19,068,459 $ 6,034,571 $ 19,068,459 $ 6,034,571
25
There were no transfers between fair value levels during the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 or ~~2020.~~2021.

The following paragraphs describe the valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis.

Impaired Loans

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 nonperforming commercial real estate loan is out of our primary market area, we would typically order an independent appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following the determination that the loan is impaired.
17

However, as a second example, on a nonperforming commercial real estate loan where we are familiar with the property and surrounding areas and where the original appraisal value far exceeds the recorded investment in the loan, we may perform an internal analysis whereby the previous appraisal value would be reviewed considering recent current conditions, and known recent sales or listings of similar properties in the area, and any other relevant economic trends. This analysis may result in the call for a new appraisal. These valuations are reviewed and updated on a quarterly basis.

In accordance with ASC 820, Fair Value Measurement, impaired loans, where an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. 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.

Mortgage Loans to be Sold

Mortgage loans to be sold are carried at the lower of cost or market value. The fair values of mortgage loans to be sold 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 measured at fair value on a nonrecurring basis ~~at September 30, 2021~~as of March 31, 2022 and December 31, ~~2020:~~2021:

September 30, 2021
Level 1 Level 2 Level 3 Total
Impaired loans $ — $ — $ 2,205,345 $ 2,205,345
Mortgage loans to be sold — 5,761,352 — 5,761,352
Total $ — $ 5,761,352 $ 2,205,345 $ 7,966,697

December 31, 2020
Level 1 Level 2 Level 3 Total
Impaired loans $ — $ — $ 5,419,726 $ 5,419,726
Mortgage loans to be sold — 12,965,733 — 12,965,733
Total $ — $ 12,965,733 $ 5,419,726 $ 18,385,459

March 31, 2022
Level 1 Level 2 Level 3 Total
Impaired loans $ —   $ —   $ 1,470,833 $ 1,470,833
Mortgage loans to be sold —   2,626,999 —   2,626,999
Total $ —   $ 2,626,999 $ 1,470,833 $ 4,097,832
26

December 31, 2021
Level 1 Level 2 Level 3 Total
Impaired loans $ —   $ —   $ 1,902,879 $ 1,902,879
Mortgage loans to be sold —   2,774,388 —   2,774,388
Total $ —   $ 2,774,388 $ 1,902,879 $ 4,677,267
There were no liabilities measured at fair value on a nonrecurring basis as of ~~September 30, 2021~~March 31 2022 or December 31, ~~2020.~~2021.

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

Inputs
Valuation Technique Unobservable Input General Range of Inputs
Impaired Loans Appraisal
Value/Comparison Sales/Other Estimates Appraisals and/or Sales of Comparable Properties Appraisals Discounted 10% to 20% for Sales Commissions and Other Holding Costs

Accounting standards require disclosure of fair value information 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.

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.

18
The following paragraphs describe the methods and assumptions we use in estimating the fair values of financial instruments:

a. Cash and due from banks, interest-bearing deposits at the Federal Reserve Bank

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

b. Investment securities available for sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are 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.

c. Loans ~~net~~

The fair value of the Company’s loan portfolio includes a credit risk assumption in the determination of the fair value of its loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk as described above. However, under the new guidance, the Company believes a further credit risk discount must be applied through the use of a discounted cash flow model to compensate for illiquidity risk, based on certain assumptions included within the discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime of a loan. Additionally, in accordance with ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities, this consideration of enhanced credit risk provides an estimated exit price for the Company’s loan portfolio.

For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for impaired loans are estimated based on the fair value of the underlying collateral. Impaired loans measured using discounted future cash flows are not deemed to be measured at fair value.

27
d. Deposits

The estimated fair value of deposits with no stated maturity is equal to the carrying amount. The fair value of time deposits is estimated by discounting contractual cash flows, using interest rates currently being offered on the deposit products. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities as compared to the cost of alternative forms of funding (deposit base intangibles).

e. Accrued interest receivable and payable

Since these financial instruments will typically be received or paid within three months, the carrying amounts of such instruments are deemed to be a reasonable estimate of fair value.

f. Loan commitments

Estimates of the fair value of these off-balance sheet items are not made because of the short-term nature of these arrangements and the credit standing of the counterparties.
19

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021, respectively.

March 31, 2022
Estimated Fair Value
Carrying Value Level 1 Level 2 Level 3 Total
Financial Assets:
Cash and due from banks $ 7,946,158 $ 7,946,158 $ —   $ —   $ 7,946,158
Interest-bearing deposits at the Federal Reserve 61,420,171 61,420,171 —   —   61,420,171
Investment securities available for sale 257,906,304 163,586,315 73,693,335 20,626,654 257,906,304
Mortgage loans to be sold 2,626,999 —   2,626,999 —   2,626,999
Loans, net 310,601,473 —   —   301,121,392 301,121,392
Accrued interest receivable 1,473,108 —   1,473,108 —   1,473,108
Financial Liabilities:
Demand deposits 582,678,608 —   582,678,608 —   582,678,608
Time deposits 21,092,872 —   21,243,268 —   21,243,268
Accrued interest payable 14,371 —   14,371 —   14,371

Fair Value Measurements at September 30, 2021

Carrying
Amount

Estimated
Fair Value
Level 1 Level 2 Level 3
Financial Assets:
Cash and due from banks $ 6,725,799 $ 6,725,799 $ 6,725,799 $ — $ —
Interest-bearing deposits at the Federal Reserve 157,553,270 157,553,270 157,553,270 — —
Investment securities available for sale 193,193,279 193,193,279 85,491,990 88,632,830 19,068,459
Mortgage loans to be sold 5,761,352 5,761,352 — 5,761,352 —
Loans, net 308,466,338 300,229,114 — — 300,229,114
Accrued interest receivable 1,423,041 1,423,041 — 1,423,041 —
Financial Liabilities:
Demand deposits 601,031,461 601,031,461 — 601,031,461 —
Time deposits 21,759,818 21,765,876 — 21,765,876 —
Accrued interest payable 18,250 18,250 — 18,250 —

28

December 31, 2021

Fair Value Measurements at December 31, 2020

Estimated Fair Value

Carrying
Amount

Estimated
Fair Value

Level 1

Level 2

Level 3

Carrying
Value Level 1 Level 2 Level 3 Total
Financial Assets:

Cash and due from banks

$
5,977,896

$
5,977,896

$
5,977,896

$
—

$
—

$ 11,140,559 $ 11,140,559 $ —   $ —   $ 11,140,559
Interest-bearing deposits at the Federal Reserve

42,348,085

42,348,085

42,348,085

—

—

128,971,429 128,971,429 —   —   128,971,429
Investment securities available for sale

134,819,818

134,819,818

20,410,550

108,725,338

5,683,930

212,347,489 100,062,300 87,801,142 24,484,047 212,347,489
Mortgage loans to be sold

12,965,733

12,965,733

—

12,965,733

—

2,774,388 —   2,774,388 —   2,774,388
Loans, net

316,616,979

308,721,680

—

—

308,721,680

302,255,242 —   —   293,731,997 293,731,997
Accrued interest receivable

1,595,629

1,595,629

—

1,595,629

1,404,227 —   1,404,227 1,404,227
Financial Liabilities:

Demand deposits

441,498,500

441,498,500

—

441,498,500

—

587,903,356 —   587,903,356 —   587,903,356
Time deposits

20,699,131

20,294,852

—

20,294,852

—

21,288,220 —   21,428,310 —   21,428,310
Accrued interest payable

20,707

20,707

—

20,707

—

14,914 —   14,914 14,914
Note 6: Income Per Common Share
Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share 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.
The following table is a summary of the reconciliation of weighted average shares ~~outstanding for the three months ended September 30:~~outstanding:

2021

2020

Net income

$
1,726,937

$
1,703,271

Weighted average shares outstanding

5,535,906

5,527,696

Effect of dilutive shares

150,344

168,551

Weighted average shares outstanding - diluted

5,686,250

5,696,247

Earnings per share - basic

$
0.31

$
0.31

Earnings per share - diluted

$
0.30

$
0.30

Three Months Ended March 31,
2022 2021
Net income $ 1,464,106 $ 1,810,075

Weighted average shares outstanding 5,544,546 5,521,707
Effect of dilutive shares 144,073 163,444
Weighted average shares outstanding - diluted 5,688,619 5,685,151

Earnings per share - basic $ 0.26 $ 0.33
Earnings per share - diluted $ 0.26 $ 0.32

~~The following table is a summary of the reconciliation of weighted average shares outstanding for the nine months ended September 30:~~

2021

2020

Net income

$
5,205,696

$
4,725,425

Weighted average shares outstanding

5,528,868

5,529,189

Effect of dilutive shares

155,616

166,425

Weighted average shares outstanding - diluted

5,684,484

5,695,614

Earnings per share - basic

$
0.94

$
0.85

Earnings per share - diluted

$
0.92

$
0.83

2920

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including information included or incorporated by reference in this document, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1934. We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1996 and are including this statement for the express purpose of availing the Company of protections of such safe harbor with respect to all “forward-looking statements” contained in this Form 10-Q. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of our Company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors that are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitations, those described under the “Cautionary Statement Regarding Forward-Looking Statements” section of Part 1 of our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the SEC and the following:
●
Risk from changes in economic, monetary policy, and industry conditions

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

●
Market risk (including net income at risk analysis and economic value of equity risk analysis) and inflation

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

●
Loan growth, the adequacy of the allowance for loan losses, provisions for loan losses, and the assessment of problem loans

●
Level, composition, and re-pricing characteristics of the securities portfolio

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

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

●
Technological changes

●
Ability to control expense

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

●
Changes in compensation

●
Risks associated with income taxes including potential for adverse adjustments

●
Changes in accounting policies and practices

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

●
Recently enacted or proposed legislation and changes in political conditions
●
Reputational risk
30
●
~~Pandemic risk, including COVID-19, and related quarantine and/or stay-at home policies and restrictions~~
●
Pandemic risk
●
● Impact of COVID-19 on the collectability of loans
●
Changes in legislation as related to PPP loans
●
Credit risks, determination of deficiency, or complete loss if SBA denies PPP loans

We will undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. In addition, certain statements in future filings with the SEC, in our press releases, and in oral and written statements, which are not statements of historical fact, constitute forward-looking statements.
Overview
Bank of South Carolina Corporation (the “Company”) is a financial institution holding company headquartered in Charleston, South Carolina, with ~~$691.8~~$665.0 million in assets as of ~~September 30, 2021.~~March 31, 2022. The Company offers a broad range of financial services through its wholly-owned subsidiary, The Bank of South Carolina (the “Bank”). The Bank is a state-chartered commercial bank which operates primarily in the Charleston, Dorchester and Berkeley counties of South Carolina. The Bank’s original and current concept is to be a full-service financial institution specializing in personal service, responsiveness, and attention to detail to foster long standing relationships.
We derive most of our income from interest on loans and investments (interest-earning assets). The primary source of funding for making these loans and investments is our interest and non-interest-bearing deposits. Consequently, one of the key measures of our success is the amount of net interest income, or the difference between the income on our interest-earning assets and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.
A consequence of lending activities is that we may incur credit losses. The amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrowers. The reserve for credit losses consists of the allowance for loan losses (the “allowance”) and a reserve for unfunded commitments (the “unfunded reserve”). The allowance provides for probable and estimable losses inherent in our loan portfolio while the unfunded reserve provides for potential losses related to unfunded lending commitments.
In addition to earning interest on loans and investments, we earn income through fees and other expenses we charge to the customer. The various components of non-interest income as well as non-interest expense are described in the following discussion. The discussion and analysis also identify significant factors that have affected our financial position and operating results as of and for the periods ending ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, and should be read in conjunction with the financial statements and the related notes included in this report. In addition, a number of tables have been included to assist in the discussion.
COVID-19
On March 11, 2020, the World Health Organization (“WHO”) declared COVID-19 a pandemic. Due to orders issued by the governor of South Carolina and in an abundance of caution for the health of our customers and employees, on March 23, 2020 the Bank closed lobbies to all 5 offices but remained fully operational. The Bank reopened lobbies on May 3, 2021.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. Under the program, the Small Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for payroll and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. The loans are 100% guaranteed by the SBA and as long as the borrower submits its loan forgiveness application within ten months of completion of the covered period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by the SBA. The Bank received a processing fee ranging from 1% to 5% based on the size of the loan from the SBA. The fees are deferred and amortized over the life of the loans in accordance with ASC 310-20. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued by financial institutions through the SBA.
31
On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”) was enacted, which reauthorized lending under the PPP program through March 31, 2021, with an additional $325.0 billion. On March 31, 2021, the PPP Extension Act of 2021 was signed into law, which formally changed the PPP application deadline from March 31, 2021 to May 31, 2021. Under the Economic Aid Act, the SBA will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for payroll and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of five years, if not forgiven, in whole or in part. The loans are 100% guaranteed by the SBA and as long as the borrower submits its loan forgiveness application within ten months of completion of the covered period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by the SBA. The Bank will receive a processing fee based on the size of the loan from the SBA, based on a tiered structure. For loans up to $50,000 in principal, the lender processing fee will be the lesser of 50% of the principal amount or $2,500. For loans between $50,000 and $350,000 in principal, the lender processing fee will be 5% of the principal amount. For loans $350,000 and above, the lender processing fee will be 3% of the principal amount. For loans of at least $2.0 million, the lender processing fee will be 1% of the principal amount. The fees are deferred and amortized over the life of the loans in accordance with ASC 310-20.
The Bank provided $37.8 million to 266 customers in the first round of PPP and $17.5 million to 214 customers in the second round of PPP. Because these loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve.
Borrowers must submit a forgiveness application within ten months of the completion of the covered period. Once the borrower has submitted the application, the Bank has 60 days to review, issue a lender decision, and submit the decision and application to the SBA. Once the application is submitted, the SBA has 90 days to review and remit the appropriate forgiveness amount to the Bank plus any interest accrued through the date of payment. The SBA began accepting PPP Forgiveness Applications on August 10, 2020. As of September 30, 2021, the Bank received 326 PPP forgiveness applications, in the amount of $43.6 million in principal, and submitted 306 applications and decisions to the SBA, in the amount of $41.5 million in principal. Of the 306 submissions, 300 loans, in the amount of $40.7 million, were forgiven as of September 30, 2021. Upon forgiveness the Bank will recognize the deferred fee income in accordance with ASC 310-20. The Bank received $2.4 million in processing fees related to the PPP program. During the three months ended September 30, 2021 and 2020, the Bank recognized $0.1 million and $0.2 million, respectively, in processing fees for the PPP program. During the nine months ended September 30, 2021 and 2020, the Bank recognized $1.0 million and $0.3 million, respectively, in processing fees for the PPP program.
Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2020, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. The Bank processed approximately $0.7 million in principal deferments to 84 loans, with an aggregate loan balance of $25.9 million, during year ended December 31, 2020. The principal deferments represent 0.24% of our total loan portfolio as of December 31, 2020. In accordance with the FDIC guidance, borrowers who were current prior to becoming affected by COVID-19, that received payment accommodations as a result of the pandemic, generally should not be reported as past due. There were no interest deferments granted and all loans given payment accommodations are still paying interest. There have been no payment accommodations granted during the nine months ended September 30, 2021. All loans granted payment accommodations during the year ended December 31, 2020 have commenced paying as agreed and are current as of September 30, 2021.
32
Effects of COVID-19 may negatively impact management assumptions and estimates, such as the allowance for loan ~~losses; however,~~losses. However, it is difficult to assess or predict how, and to what extent, COVID-19 will affect the Bank in the ~~future will be difficult.~~future. Refer to Note 3: Loans and Allowance for Loan Losses for additional information about COVID-19 and programs that were established to assist borrowers.
Critical Accounting Policies
Our critical accounting policies, which involve significant judgments and assumptions that have a material impact on the carrying value of certain assets and liabilities, and used in the preparation of the Consolidated Financial Statements as of ~~September 30, 2021,~~March 31, 2022, have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.
Balance Sheet
Cash and Cash Equivalents
Total cash and cash equivalents ~~increased 239.94%~~decreased 50.5% or ~~$116.0~~$70.7 million to ~~$164.3~~$69.4 million as of ~~September 30, 2021,~~March 31, 2022, from ~~$48.3~~$140.1 million as of December 31, ~~2020.~~2021. The ~~increase~~decrease in total cash and cash equivalents is primarily due to anpurchases of investment securities available for sale, net of proceeds from sales, calls and maturities, and to a lesser extent, a net increase in ~~the balances of~~loans and a ~~related group of demand~~net decrease in deposit accounts at the end of the quarter that are temporary in nature. Funds are placed in interest bearing deposits at the Federal Reserve until opportunities arise for investment in higher yielding assets.accounts.
Investment Securities Available for Sale
Our primary objective in managing the investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding competitive returns. We are required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. We maintain investment balances based on continuing assessment of cash flows, the level of current and expected loan production, current interest rate risk strategies and the assessment of potential future direction of market interest rate changes. Investment securities differ in terms of default, interest rate, liquidity and expected rate of return risk.
We use the investment securities portfolio to serve as a vehicle to manage interest rate and prepayment risk, to generate interest and dividend income from investment of funds, to provide liquidity to meet funding requirements, and to provide collateral for pledging of public funds.
22

As of ~~September 30, 2021,~~March 31, 2022, our available for sale investment portfolio included U.S. Treasury Notes, Government-Sponsored Enterprises and Municipal Securities with a fair market value of ~~$193.2~~$257.9 million and an amortized cost of ~~$194.4~~$272.8 million for a net unrealized loss of approximately ~~$1.2~~$14.9 million. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, our investment securities portfolio represented approximately ~~27.93%~~38.78% and ~~25.32%~~31.26% of our total assets, respectively. The average yield on our investment securities was ~~1.09%~~1.03% and ~~1.59%~~1.02% at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.
Loans
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets. Substantially all of our loans are to borrowers located in our market area of Charleston, Dorchester and Berkeley counties of South Carolina.
Net loans ~~decreased $8.1~~increased $8.3 million, or ~~2.57%~~2.76%, to ~~$308.5~~$310.6 million as of ~~September 30, 2021~~March 31, 2022 from ~~$316.6~~$302.3 million as of December 31, ~~2020.~~2021. The ~~decrease~~increase is primarily related to ~~the forgiveness of~~growth in Consumer and Commercial Real Estate loans offset by a decrease in PPP loans.
In January 2020, the Bank began originating 30-year, fixed rate consumer mortgage loans in excess of the conforming loan amount which are held for investment rather than for sale in the secondary market. Prior to January 2020, all consumer mortgage loans made by the Bank were originated for the purpose of sale and reflected on the consolidated balance sheet as mortgage loans held for sale. This ~~new~~ mortgage product ~~has been~~continues to be well-received by the Bank’s customers, and the associated volume of originations ~~through the year~~ has ~~contributed~~continued to contribute to the increase in Consumer Real Estate lending.
The following table is a summary of our loan portfolio composition (net of deferred fees and costs of ~~$713,203~~$342,835 and $488,481 at ~~September 30, 2021~~March 31, 2022 and ~~$676,155 at~~ December 31, ~~2020,~~2021, respectively) and the corresponding percentage of total loans as of the dates indicated.

33
March 31, 2022 December 31, 2021
Amount Percent Amount Percent
Commercial $ 47,360,745 15.04 % $ 45,804,434 14.94 %
Commercial Real Estate Construction 14,750,474 4.68 % 12,054,095 3.93 %
Commercial Real Estate Other 167,967,452 53.34 % 165,719,078 54.04 %
Consumer Real Estate 76,712,257 24.36 % 71,307,488 23.26 %
Consumer Other 3,677,522 1.17 % 3,768,531 1.23 %
Payroll Protection Program 4,437,525 1.41 % 7,978,603 2.60 %
Total loans 314,905,975 100.00 % 306,632,229 100.00 %
Allowance for loan losses (4,304,502 ) (4,376,987 )
Total loans, net $ 310,601,473 $ 302,255,242

September 30, 2021

December 31, 2020

Amount

Percent

Amount

Percent
Commercial

$
45,923,118

14.68
%

$
51,041,397

15.91
%
Commercial Real Estate Construction

10,802,322

3.45
%

14,813,726

4.62
%
Commercial Real Estate Other

160,119,820

51.18
%

146,187,886

45.57
%
Consumer Real Estate

77,530,313

24.78
%

71,836,041

22.39
%
Consumer Other

4,576,146

1.47
%

4,480,491

1.40
%
Payroll Protection Program

13,883,076

4.44
%

32,443,132

10.11
%
Total loans

312,834,795

100.00
%

320,802,673

100.00
%
Allowance for loan losses

(4,368,457
)

(4,185,694
)

Total loans, net

$
308,466,338

$
316,616,979

The ~~increase~~decrease in the deferred fees is ~~directly~~primarily associated with the amortization of the processing fees the Bank received from the SBA for the PPP loans. The fees are deferred and amortized over the life of the loans in accordance with ASC 310-20.
Nonperforming Assets
Nonperforming Assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. As of ~~September 30, 2021,~~March 31, 2022, there were no loans 90 days past due still accruing interest.
The following table is a summary of our Nonperforming Assets:
March 31,
2022 December 31, 2021
Commercial $ — $ 178,975
Commercial Real Estate Other 621,358 625,953
Consumer Real Estate — —
Consumer Other 9,022 9,686
Total nonaccruing loans 630,380 814,614
Total nonperforming assets $ 630,380 $ 814,614
23

September 30,
2021

December 31,
2020

Commercial

$
178,975

$
178,975

Commercial Real Estate Other

926,808

923,828

Consumer Real Estate

—

40,893

Consumer Other

10,337

12,234

Total nonaccruing loans

1,116,120

1,155,930

Other real estate owned

—

—

Total nonperforming assets

$
1,116,120

$
1,155,930

On March 18, 2020, in recognition of the difficulties of COVID-19, the Chief Justice of South Carolina declared a statewide moratorium on evictions and foreclosures until directed by subsequent order of the Chief Justice. The South Carolina Supreme Court lifted its moratorium effective May 15, 2020. On August 8, 2020, the President of the United States of America issued an executive order that allows the Secretary of Housing and Urban Development to take action, as appropriate and consistent with applicable law, to promote the ability of renters and homeowners to avoid foreclosure and eviction resulting from financial hardships related to COVID-19. On August 27, 2020, the Federal Housing Finance Authority and Department of Housing and Urban Development announced it would extend its foreclosure and eviction moratorium through the end of 2020, benefiting homeowners who have mortgages guaranteed by Fannie Mae and Freddie Mac. On March 29, 2021, the federal eviction moratorium was extended again through September 30, 2021. On June 24, 2021, the federal eviction moratorium was extended again through July 31, 2021. On August 3, 2021, the CDC issued an eviction moratorium order in areas of substantial and high transmission that was subsequently lifted by the Supreme Court on August 26, 2021.
Allowance for Loan Losses
The allowance for loan losses was ~~$4.4~~$4.3 million as of ~~September 30, 2021~~March 31, 2022 and ~~$4.2~~$4.4 million as of December 31, ~~2020,~~2021, or ~~1.46%~~1.39% and ~~1.45%~~1.47%, respectively, of outstanding loans, net of PPP loans. Because PPP loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the allowance for loan losses represented ~~391.40%~~682.84% and ~~362.11%~~537.31%, respectively, of the total amount of nonperforming ~~loans, respectively.~~loans. Based on the level of coverage on nonperforming loans and analysis of our loan portfolio, we believe the allowance for loan losses at ~~September 30, 2021~~March 31, 2022 is adequate.
34
At ~~September 30, 2021,~~March 31, 2022, impaired loans totaled ~~$3.7~~$2.9 million, ~~for~~of which ~~$0.2~~$1.2 million of these loans had a reserve of approximately $0.2 million allocated in the allowance for loan losses. Comparatively, impaired loans totaled ~~$7.8~~$3.4 million as of December 31, ~~2020,~~2021, and ~~$1.0~~$0.4 million of these loans had a reserve of approximately ~~$0.4~~$0.2 million allocated in the allowance for loan losses.
During the three months ended ~~September 30, 2021,~~March 31, 2022, we recorded ~~$903~~$2,045 in charge-offs and ~~$63,057~~$4,560 of recoveries on loans previously charged-off, for net recoveries of ~~$62,154. During the nine months ended September 30, 2021, we recorded $20,318 in charge-offs and $83,081 of recoveries on loans previously charged-off, for net recoveries of $62,763.~~$2,515.
Deposits
Deposits remain our primary source of funding for loans and investments. Average interest-bearing deposits provided funding for ~~56.67%~~53.85% of average earning assets for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and ~~56.62%~~56.60% for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The Company encounters strong competition from other financial institutions as well as consumer and commercial finance companies, insurance companies and brokerage firms located in the primary service area of the Bank. However, the percentage of funding provided by deposits has remained stable.
The breakdown of total deposits by type and the respective percentage of total deposits are as follows:

September 30, 2021

December 31, 2020

March 31, 2022 December 31, 2021

Amount

Percent

Amount

Percent

Amount Percent Amount Percent
Deposits

Non-interest bearing demand

$
286,499,136

46.00
%

$
169,170,751

36.60
%
$ 258,738,170 42.86 % $ 255,783,644 41.98 %
Interest bearing demand

170,175,580

27.32
%

140,602,723

30.42
%
159,954,068 26.49 % 165,335,038 27.14 %
Money market accounts

88,730,966

14.25
%

84,681,783

18.32
%
92,136,722 15.26 % 98,113,942 16.11 %
Time deposits over $250,000

7,462,857

1.20
%

4,493,189

0.97
%
Time deposits $250,000 and over 7,668,871 1.27 % 7,417,864 1.22 %
Other time deposits

14,296,961

2.30
%

16,205,942

3.51
%
13,424,001 2.22 % 13,870,356 2.28 %
Other savings deposits

55,625,779

8.93
%

47,043,243

10.18
%
71,849,648 11.90 % 68,670,732 11.27 %
Total deposits

$
622,791,279

100.00
%

$
462,197,631

100.00
%
$ 603,771,480 100.00 % $ 609,191,576 100.00 %
Deposits ~~increased 34.75%~~decreased 0.89% or ~~$160.6~~$5.4 million from December 31, ~~2020~~2021 to ~~September 30, 2021~~March 31, 2022 primarily due to ~~an increase~~a decrease in the balances of a related group of demand deposit accounts. The higher balance in 2021 for these demand deposit accounts ~~at the end of the quarter that are in~~was temporary in nature.
At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, deposits with an aggregate deficit balance of ~~$143,416~~$26,965 and ~~$100,304,~~$28,549, respectively, were re-classified as other loans.
Comparison of Three Months Ended ~~September 30, 2021~~March 31, 2022 to Three Months Ended ~~September 30, 2020~~March 31, 2021
Net income ~~increased $0.02~~decreased $0.3 million or ~~1.39%~~19.11% to ~~$1.7~~$1.5 million, or basic and diluted earnings per share of ~~$0.31 and $0.30, respectively,~~$0.26 for the three months ended ~~September 30, 2021,~~March 31, 2022, from ~~$1.7~~$1.8 million, or basic and diluted earnings per share of ~~$0.31~~$0.33 and ~~$0.30,~~$0.32, respectively, for the three months ended ~~September 30, 2020.~~March 31, 2021. Our annualized returns on average assets and average equity for the three months ended ~~September 30, 2021~~March 31, 2022 were ~~1.15%~~0.88% and ~~12.32%~~11.24%, respectively, compared with ~~1.28%~~1.37% and ~~12.34%~~13.26%, respectively, for the three months ended ~~September 30, 2020.~~March 31, 2021.
Net Interest Income
Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is a measure of the difference between interest income on earning assets and interest paid on interest bearing liabilities relative to the amount of interest-bearing assets. Net interest income ~~remained consistent with the three months ended September 30, 2020, at~~decreased $0.4 million or 8.03% to $4.2 million for the three months ended ~~September 30, 2021. Average loans decreased $7.8 million or 2.37% to $319.1~~March 31, 2022 from $4.6 million for the three months ended ~~September 30, 2021, compared~~March 31, 2021. Average loans decreased $20.4 million or 6.18% to ~~$326.9~~$310.5 million for the three months ended ~~September 30, 2020.~~March 31, 2022, compared to $330.9 million for the three months ended March 31, 2021. The yield on average loans (including fees) was ~~5.02%~~4.99% and ~~5.09%~~5.52% for the three months ended ~~September 30,~~March 31, 2022 and March 31, 2021, ~~and September 30, 2020,~~ respectively. Interest income on loans decreased ~~$0.2~~$0.5 million for the three months ended ~~September 30, 2021~~March 31, 2022 to $3.6 million from ~~$3.8~~$4.1 million for the three months ended ~~September 30, 2020.~~March 31, 2021.
35
The average balance of interest bearing deposits at the Federal Reserve increased ~~$18.1~~$23.4 million or ~~30.17%~~49.29% to ~~$77.9~~$70.9 million for the three months ended ~~September 30, 2021,~~March 31, 2022, with a yield of ~~0.16%~~0.20% as compared to ~~$59.8~~$47.5 million for the three months ended ~~September 30, 2020,~~March 31, 2021, with a yield of ~~0.11%~~0.10%.
24

Provision for Loan Losses
We have established an allowance for loan losses through a charge (credit) to the 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 of our allowance for loan losses. For the three months ended ~~September 30, 2021,~~March 31, 2022, we ~~had no provision of~~recorded a $75,000 reduction to the allowance for loan losses as compared towith a provision of ~~$40,000~~$120,000 for the same period in the prior year. The net decrease in the provision for loan losses was based on our analysis of the adequacy of the allowance for loan losses. For additional information about the changes in the allowance and an allocation of the allowance by class, refer to Note 3. Loans and Allowance for Loan Losses.
Non-Interest Income
Other income ~~increased $0.1~~decreased $0.3 million or ~~16.40%~~32.5% to ~~$1.1~~$0.6 million for the three months ended ~~September 30, 2021,~~March 31, 2022, from ~~$1.0~~$0.9 million for the three months ended ~~September 30, 2020.~~March 31, 2021. This ~~increase~~decrease was primarily due to a $0.4 million decrease in mortgage banking income, partially offset by $0.1 million of gain on sales of investment securities. ~~Three investment securities were~~The Bank sold $17.7 million of mortgage loans held for sale during the ~~quarter~~three months ended ~~September 30, 2021, resulting in a gain on sale of $0.3 million.~~ March 31, 2022 as compared with $47.7 million during the three months ended March 31, 2021.
Non-Interest Expense
Non-interest expense ~~increased $0.1~~was $3.0 million ~~or 3.83% to $3.0~~for both the three months ended March 31, 2022 and 2021 For the three months ended March 31, 2022, marginal increases in salaries and employee benefits and net occupancy expense were offset by decreases in data processing fees and other operating expenses.
Income Tax Expense
Income tax expense was $0.4 million for the three months ended September 30, 2021 from $2.9 million for the three months ended September 30, 2020. This increase is related to increases in salaries and wages and net occupancy expenses during the three months ended September 30, 2021.
~~Income Tax Expense~~
~~We incurred income tax expense of $0.5 million for the three months ended September 30, 2021~~March 31, 2022 as compared to ~~$0.5~~$0.6 million during the same period in ~~2020.~~2021. Our effective tax rate was ~~23.34%~~23.39% and ~~23.39%~~23.81% for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.
~~Comparison of Nine Months Ended September 30, 2021 to Nine Months Ended September 30, 2020~~
Net income increased $0.5 million or 10.16% to $5.2 million, or basic and diluted earnings per share of $0.94 and $0.92, respectively, for the nine months ended September 30, 2021, from $4.7 million, or basic and diluted earnings per share of $0.85 and $0.83, respectively, for the nine months ended September 30, 2020. Our annualized returns on average assets and average equity for the nine months ended September 30, 2021 were 1.23% and 12.64%, respectively, compared with 1.28% and 11.77%, respectively, for the nine months ended September 30, 2020.
~~Net Interest Income~~
Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is a measure of the difference between interest income on earning assets and interest paid on interest bearing liabilities relative to the amount of interest-bearing assets. Net interest income increased $0.5 million or 4.10% to $13.1 million for the nine months ended September 30, 2021 from $12.6 million for the nine months ended September 30, 2020. This increase was primarily due to the recognition of PPP processing fees. During the nine months ended September 30, 2021 and 2020, the Bank recognized $1.0 million and $0.3 million, respectively, in processing fees from the PPP program.
The average balance of interest bearing deposits at the Federal Reserve increased $2.3 million or 103.75% to $62.2 million for the nine months ended September 30, 2021, with a yield of 0.12% as compared to $60.0 million for the nine months ended September 30, 2020, with a yield of 0.39%.
~~Provision for Loan Losses~~
We have established an allowance for loan losses through a provision for loan losses charged as an expense on our consolidated statements of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of our allowance for loan losses. For the nine months ended September 30, 2021, we had a provision of loan losses of $120,000 compared to a provision of $40,000 for the same period in the prior year. The increase in the provision for loan losses was based on our analysis of the adequacy of the allowance for loan losses.
36
~~Non-Interest Income~~
Other income increased $0.7 million or 31.00% to $3.0 million for the nine months ended September 30, 2021, from $2.3 million for the nine months ended September 30, 2020. This increase was primarily due to gain on sales of investment securities as well as income from mortgage banking activity. Three investment securities were sold during the nine months ended September 30, 2021, resulting in a gain on sale of $0.3 million. The Bank sold mortgage loans held for sale in the amount of $141.6 million during the nine months ended September 30, 2021 compared to $114.1 million during the nine months ended September 30, 2020.
~~Non-Interest Expense~~
Non-interest expense increased $0.5 million or 5.79% to $9.2 million for the nine months ended September 30, 2021 from $8.7 million for the nine months ended September 30, 2020. This increase was primarily due to an increase in FDIC assessments as a result of the depletion of the FDIC Small Bank Assessment Credits used in 2020. Additionally, there was an increase in occupancy expenses resulting from contractual lease obligations.
~~Income Tax Expense~~
We incurred income tax expense of $1.6 million for the nine months ended September 30, 2021 as compared to $1.4 million during the same period in 2020. Our effective tax rate was 23.58% and 23.32% for the nine months ended September 30, 2021 and 2020, respectively.
Off-Balance Sheet Arrangements
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on our credit evaluation of the borrower. Collateral held varies but may include accounts receivable, negotiable instruments, inventory, property, plant and equipment, and real estate. Commitments to extend credit, including unused lines of credit, amounted to ~~$118.4~~$140.8 million and ~~$122.8~~$117.5 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.
Standby letters of credit represent our obligation to a third-party contingent upon the failure of our customer to perform under the terms of an underlying contract with the third party or obligates us to guarantee or stand as surety for the benefit of the third party. The underlying contract may entail either financial or nonfinancial obligations and may involve such things as the shipment of goods, performance of a contract, or repayment of an obligation. Under the terms of a standby letter, generally drafts will be drawn only when the underlying event fails to occur as intended. We can seek recovery of the amounts paid from the borrower. The majority of these standby letters of credit are unsecured.
Commitments under standby letters of credit are usually for one year or less. The maximum potential amount of undiscounted future payments related to standby letters of credit at ~~September 30, 2021~~both March 31, 2022 and December 31, ~~2020~~2021 was ~~$0.8 million and $0.8 million, respectively.~~$0.6 million.
We originate certain fixed rate residential loans and commit these loans for sale. The commitments to originate fixed rate residential loans and the sales commitments are freestanding derivative instruments. We had forward sales commitments on mortgage loans held for sale totaling ~~$5.8~~$2.6 million and ~~$13.0~~$2.8 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The fair value of these commitments was not significant at ~~September 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021. We had no embedded derivative instruments requiring separate accounting treatment.
Once we sell certain fixed rate residential loans, the loans are no longer reportable on our balance sheet. With most of these sales, we have an obligation to repurchase the loan in the event of a default of principal or interest on the loan. This recourse period ranges from three to nine months. Misrepresentation or fraud carries unlimited time for recourse. The unpaid principal balance of loans sold with recourse was ~~$141.6~~$17.6 million at ~~September 30, 2021 and $57.2 million at December~~March 31, ~~2020. For the three and nine months ended September 30, 2021, there was one loan repurchased with a principal balance of $0.2 million.~~2022. There were no loans repurchased during the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2022 and 2021.
Liquidity
Historically, we have maintained our liquidity at levels believed to be adequate to meet requirements of normal operations, potential deposit outflows and strong loan demand and still allow for optimal investment of funds and return on assets.
37
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.
25

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, ~~interest-bearing deposits in other banks, federal funds sold, investments~~investment securities available for sale, ~~other short-term investments~~interest-bearing deposits at the Federal Reserve, and mortgage loans held for sale. Our primary liquid assets accounted for ~~52.51%~~49.61% and ~~36.83%~~52.30% of total assets at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Securities classified as available for sale, which are not pledged, may be sold in response to changes in interest rates and liquidity needs. All of the investment securities presently owned are classified as available for sale. Net cash provided by operations and deposits from customers have been the primary sources of liquidity. At ~~September 30, 2021,~~March 31, 2022, we had unused short-term lines of credit totaling approximately $41.0 million (which can be withdrawn at the lender’s option). Additional sources of funds available to us for ~~additional~~ liquidity ~~needs~~ include borrowing on a short-term basis from the Federal Reserve System, increasing deposits by raising interest rates paid and sale of mortgage loans held for sale. We established a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits us to retain possession of assets pledged as collateral to secure advances from the Federal Reserve Discount Window. At ~~September 30, 2021,~~March 31, 2022, we could borrow up to ~~$67.0~~$74.7 million. There have been no borrowings under this arrangement.
Our core deposits consist of non-interest-bearing accounts, NOW accounts, money market accounts, time deposits and savings accounts. We closely monitor our level of certificates of deposit greater than $250,000 and other large deposits. We maintain a Contingency Funding Plan (“CFP’) that identifies liquidity needs and weighs alternate courses of action designed to address these needs in emergency situations. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the expected funding needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to meet our operating needs and do not know of any trends, events or uncertainties that may result in a significant adverse effect on our liquidity position. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, our liquidity ratio was ~~56.53%~~52.67% and ~~38.63%~~56.43%, respectively.
Capital Resources
Our capital needs have been met to date through the $10.6 million in capital raised in our initial offering, the retention of earnings less dividends paid and the exercise of stock options to purchase stock. Total shareholders’ equity as of ~~September 30, 2021~~March 31, 2022 was ~~$54.4~~$45.0 million. The rate of asset growth since our inception has not negatively impacted this capital base.
On March 26, 2020, the Board of Directors of the Company approved a stock repurchase of up to $1.0 million through March 2021. The Company repurchased 25,067 shares for $0.4 million as a part of this plan, which expired in March 2021.
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.
~~On November 4, 2019,~~The Bank adopted the ~~federal banking agencies jointly issued~~community bank leverage ratio (“CBLR”) framework, a ~~final rule on an optional,~~ simplified measure of capital adequacy for qualifying community banking organizations, ~~called the community bank leverage ratio (“CBLR”) framework effective on January 1, 2020. The Bank adopted this rule~~ as of March 31, 2020 and ~~will~~upon adoption is no longer be subject to other capital and leverage requirements. A qualifying community banking organization is defined as having less than $10 billion in total consolidated assets, a leverage ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets. On October 9, 2020,To be considered well capitalized, the ~~federal banking agencies jointly issued a final rule on the~~required CBLR ~~framework effective November 9, 2020. Under the final rule, the CBLR is 8.0% for the year ended December 31, 2020,~~was 8.5% for the year ended December 31, 2021 and will be 9.0% ~~thereafter to be considered well capitalized.~~thereafter. Additionally, the qualifying community banking institution must be a non-advanced approaches FDIC supervised institution. ~~The final rule adopts Tier 1 capital and existing leverage ratio into~~If an electing bank later does not feet any of the eligibility criteria, it would have a two-quarter “grace” period to return to CBLR ~~framework. A bank meeting CBLR qualifying criteria is deemed~~compliance or revert to ~~have met the “well capitalized” ratio requirements and be in compliance with~~ the generally applicable ~~capital~~ rule. ~~The~~If an electing bank’s leverage ratio falls below 9.0%, the bank would be deemed well capitalized during the grace period as long as the bank’s leverage ratio remains above 8.0%. If an electing bank’s leverage ratio falls to 8.0% or less, it would be required to revert immediately to the generally applicable rule. As of December 31, 2021, the Bank’s CBLR as of ~~September 30, 2021 and December 31, 2020,~~8.66% was ~~9.40% and 10.19%, respectively. As~~above the required CBRL of ~~September 30, 2021, the Company and the Bank were~~8.5% to be categorized as “well capitalized.” As of March 31, 2022, the Bank’s CBRL was 8.56%, which was above the required 8.0% during the two-quarter grace period.
38
~~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 and leverage ratios for the Company and the Bank under CBLR will enable each of the Company and the Bank to continue to be categorized as “well capitalized.”
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures and internal controls and procedures for financial reporting
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities and Exchange Act of 1934 as amended (the “Act”) was carried out as of ~~September 30, 2021~~March 31, 2022 under the supervision and with the participation of the Bank of South Carolina Corporation’s management, including its President/Chief Executive Officer and the Chief Financial Officer/Executive Vice President and several other members of the Company’s senior management. Based upon that evaluation, Bank of South Carolina Corporation’s management, including the President/Chief Executive Officer and the Chief Financial Officer/Executive Vice President concluded that, as of ~~September 30, 2021,~~March 31, 2022, 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/Executive 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.
26

The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.
Under the supervision and with the participation of management, including the President/Chief Executive Officer and the Chief Financial Officer/Executive Vice President, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of ~~September 30, 2021,~~March 31, 2022, based on the 2013 framework established in a report entitled “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of ~~September 30, 2021.~~March 31, 2022. Based on this assessment, management believes that as of ~~September 30, 2021,~~March 31, 2022, the Company’s internal control over financial reporting was effective. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended ~~September 30, 2021,~~March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
39
The Audit and Compliance Committee, composed entirely of independent Directors, meets periodically with management, the Bank’s Audit and Compliance Officer, and Elliott Davis, LLC (separately and jointly) to discuss audit, financial and related matters. Elliott Davis, LLC and the Audit and Compliance Officer have direct access to the Audit and Compliance Committee.
Part II. Other Information
Item 1. Legal Proceedings
In our opinion, there are no other legal proceedings pending other than routine litigation incidental to our business involving amounts which are not material to our financial condition.
Item 1A. Risk Factors
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
None.
Item 5. Other Information
None.
Item 6. Exhibits
1. The Consolidated Financial Statements are included in this Form 10-Q and listed on pages as indicated.
Page

(1) Consolidated Balance Sheets 3
(2) Consolidated Statements of Income 4
(3) Consolidated Statements of Comprehensive Income 5
(4) Consolidated Statements of Shareholders’ Equity 6
(5) Consolidated Statements of Cash Flows 7
(6) Notes to Consolidated Financial Statements 8-20

Page

(1)
Consolidated Balance Sheets
3
(2)
Consolidated Statements of Income
4
(3)
Consolidated Statements of Comprehensive Income
6
(4)
Consolidated Statements of Shareholders’ Equity
7
(5)
Consolidated Statements of Cash Flows
8
(6)
Notes to Consolidated Financial Statements
9-21

Exhibits
~~2.0~~
~~Plan of Reorganization (Filed with 1995 10-KSB)~~
~~3.0~~
~~Articles of Incorporation of the Registrant (Filed with 1995 10-KSB)~~
~~3.1~~
~~By-laws of the Registrant (Filed with 1995 10-KSB)~~
~~3.2~~
~~Amendments to the Articles of Incorporation of the Registrant (Filed with Form S on September 23, 2011)~~
~~4.0~~
~~2021 Proxy Statement (Filed with 2020 10-K)~~
~~10.0~~
~~Lease Agreement for 256 Meeting Street (Filed with 1995 10-KSB)~~
~~10.1~~
~~Sublease Agreement for Parking Facilities at 256 Meeting Street (Filed with 1995 10-KSB)~~
~~10.2~~
~~Lease Agreement for 100 N. Main Street, Summerville, SC (Filed with 1995 10-KSB)~~
~~10.3~~
~~Lease Agreement for 1337 Chuck Dawley Blvd., Mt. Pleasant, SC (Filed with 1995 10-KSB)~~
~~10.4~~
~~Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed with 2010 10-K)~~
~~Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed with September 30, 2013 10-Q)~~
~~10.5~~
~~1998 Omnibus Stock Incentive Plan (Filed with 2008 10-K/A)~~
~~10.6~~
~~Employee Stock Ownership Plan (Filed with 2008 10-K/A)~~
~~Employee Stock Ownership Plan, Restated (Filed with 2011 Proxy Statement)~~
~~Employee Stock Ownership Plan, Restated (Filed with 2016 10-K~~
~~10.7~~
~~2010 Omnibus Incentive Stock Option Plan (Filed with 2010 Proxy Statement)~~
~~10.8~~
~~Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2013 10-K)~~
~~10.9~~
~~Assignment and Assumption of Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K)~~
40
~~10.10~~31.1
~~First Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K)~~
~~10.11~~
~~Second Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K)~~
~~10.12~~
~~Extension to Lease Agreement for 256 Meeting Street (Filed with September 30, 2017 10-Q)~~
~~10.13~~
~~North Charleston Lease Agreement (Filed with September 30, 2017 10-Q)~~
~~10.14~~
~~Sublease Amendment for Parking Facilities at 256 Meeting Street (Filed with September 30, 2017 10-Q)~~
~~10.15~~
~~2020 Stock Incentive Plan (Filed with 2020 Proxy Statement)~~
~~10.16~~
~~2021 Stock Incentive Plan for Independent Directors (filed with 2021 Proxy Statement)~~
~~10.17~~
~~Lease Agreement for 1730 Maybank Highway Charleston, SC~~ ~~(Filed within)~~
~~14.0~~
~~Code of Ethics (Filed with 2004 10-KSB)~~
~~21.0~~
~~List of Subsidiaries of the Registrant (Filed with 1995 10-KSB)~~
~~The Registrant’s only subsidiary is The Bank of South Carolina (Filed with 1995 10-KSB)~~
~~31.1~~
Certification pursuant to Rule 13a-14(a)/15d-14(a) by Chief Executive Officer
31.2
Certification pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial Officer
32.1
Certification pursuant to Section 1350
32.2
Certification pursuant to Section 1350
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
41
~~Signatures~~


Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Bank of South Carolina Corporation
~~November 5, 2021~~
May 6, 2022
By:
/s/ Fleetwood S. Hassell
Fleetwood S. Hassell
President/Chief Executive Officer
May 6, 2022
By:
/s/ Eugene H. Walpole, IV
Eugene H. Walpole, IV
Chief Financial Officer/Executive Vice President
42

	(Unaudited)			(Audited)
	March 31,			December 31,
	2022			2021
ASSETS
Cash and due from banks	$	7,946,158		$	11,140,559
Interest-bearing deposits at the Federal Reserve		61,420,171			128,971,429
Investment securities available for sale		257,906,304			212,347,489
Mortgage loans to be sold		2,626,999			2,774,388
Loans		314,905,975			306,632,229
Less: Allowance for loan losses		(4,304,502	)		(4,376,987	)
Net loans		310,601,473			302,255,242
Premises, equipment and leasehold improvements, net		3,716,805			3,782,936
Right of use asset		13,889,805			14,041,843
Accrued interest receivable		1,473,108			1,404,227
Other assets		5,412,514			2,502,533
Total assets	$	664,993,337		$	679,220,646

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing demand	$	258,738,170		$	255,783,644
Interest bearing demand		159,954,068			165,335,038
Money market accounts		92,136,722			98,113,942
Time deposits $250,000 and over		7,668,871			7,417,864
Other time deposits		13,424,001			13,870,356
Other savings deposits		71,849,648			68,670,732
Total deposits		603,771,480			609,191,576
Accrued interest payable and other liabilities		2,373,739			2,069,594
Lease liability		13,889,805			14,041,843
Total liabilities		620,035,024			625,303,013

Shareholders’ equity
Common stock - 0 par 12,000,000 shares authorized; Issued 5,850,450 shares at March 31, 2022 and 5,841,240 shares at December 31, 2021. Shares outstanding 5,550,476 and 5,541,266 at March 31, 2022 and December 31, 2021, respectively.		—			—
Additional paid in capital		47,914,892			47,745,285
Retained earnings		11,643,236			11,122,710
Treasury stock: 299,974 shares at March 31, 2022 and December 31, 2021		(2,817,392	)		(2,817,392	)
Accumulated other comprehensive loss, net of income taxes		(11,782,423	)		(2,132,970	)
Total shareholders’ equity		44,958,313			53,917,633
Total liabilities and shareholders’ equity	$	664,993,337		$	679,220,646

	(Unaudited) September 30, 2021			(Audited) December 31, 2020
ASSETS
Cash and due from banks	$	6,725,799		$	5,977,896
Interest-bearing deposits at the Federal Reserve		157,553,270			42,348,085
Investment securities available for sale		193,193,279			134,819,818
Mortgage loans to be sold		5,761,352			12,965,733
Loans		312,834,795			320,802,673
Less: Allowance for loan losses		(4,368,457	)		(4,185,694	)
Net loans		308,466,338			316,616,979
Premises, equipment and leasehold improvements, net		3,854,763			4,053,533
Right of use asset		12,355,167			12,730,151
Accrued interest receivable		1,423,041			1,595,629
Other assets		2,445,569			1,386,775

Total assets	$	691,778,578		$	532,494,599

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing demand	$	286,499,136		$	169,170,751
Interest bearing demand		170,175,580			140,602,723
Money market accounts		88,730,966			84,681,783
Time deposits over $250,000		7,462,857			4,493,189
Other time deposits		14,296,961			16,205,942
Other savings deposits		55,625,779			47,043,243
Total deposits		622,791,279			462,197,631

Accrued interest payable and other liabilities		2,209,254			2,586,461
Lease liability		12,355,167			12,730,151
Total liabilities		637,355,700			477,514,243

Shareholders’ equity
Common stock - 0 par 12,000,000 shares authorized; Issued 5,836,635 shares at September 30, 2021 and 5,818,935 shares at December 31, 2020. Shares outstanding 5,536,661 and 5,520,469 at September 30, 2021 and December 31, 2020, respectively.		—			—
Additional paid in capital		47,653,641			47,404,869
Retained earnings		10,525,556			8,693,519
Treasury stock: 299,974 and 298,466 shares at September 30, 2021 and December 31, 2020, respectively.		(2,817,392	)		(2,787,898	)
Accumulated other comprehensive (loss) income, net of income taxes		(938,927	)		1,669,866
Total shareholders’ equity		54,422,878			54,980,356

Total liabilities and shareholders’ equity	$	691,778,578		$	532,494,599


	Three Months Ended September 30,
	2021		2020
Interest and fee income
Loans, including fees	$	3,610,842	$	3,760,212
Taxable securities		468,862		433,280
Tax-exempt securities		90,176		82,550
Other		31,189		16,303
Total interest and fee income		4,201,069		4,292,345

Interest expense
Deposits		39,319		72,198
Total interest expense		39,319		72,198

Net interest income		4,161,750		4,220,147
Provision for loan losses		—		40,000
Net interest income after provision for loan losses		4,161,750		4,180,147

Other income
Service charges and fees		338,854		275,318
Mortgage banking income		524,016		694,045
Gain on sales of securities		266,944		—
Other non-interest income		8,617		8,689
Total other income		1,138,431		978,052

Other expense
Salaries and employee benefits		1,849,254		1,775,498
Net occupancy expense		587,682		566,949
Other operating expenses		302,863		275,468
Professional fees		149,125		158,640
Data processing fees		158,610		158,443
Total other expense		3,047,534		2,934,998

Income before income tax expense		2,252,647		2,223,201
Income tax expense		525,710		519,930

Net income	$	1,726,937	$	1,703,271

Weighted average shares outstanding
Basic		5,535,906		5,527,696
Diluted		5,686,250		5,696,247

Basic income per common share	$	0.31	$	0.31
Diluted income per common share	$	0.30	$	0.30


		Three Months Ended
		March 31,
		2022			2021
Interest and fee income
Loans, including fees		$	3,551,875		$	4,106,171
Taxable securities			559,670			453,457
Tax-exempt securities			109,129			69,606
Other			34,286			11,881
Total interest and fee income			4,254,960			4,641,115

Interest expense	��
Deposits			36,797			54,524
Total interest expense			36,797			54,524

Net interest income			4,218,163			4,586,591
Provision for loan losses			(75,000	)		120,000
Net interest income after provision for loan losses			4,293,163			4,466,591

Other income
Service charges and fees			307,593			288,224
Mortgage banking income			258,896			645,895
Gain on sales of securities			61,780			—
Other non-interest income			6,285			5,795
Total other income			634,554			939,914

Other expense
Salaries and employee benefits			1,812,155			1,799,006
Net occupancy expense			620,942			612,268
Other operating expenses			294,733			311,465
Professional fees			139,642			145,542
Data processing fees			149,090			162,434
Total other expense			3,016,562			3,030,715

Income before income tax expense			1,911,155			2,375,790
Income tax expense			447,049			565,715

Net income		$	1,464,106		$	1,810,075

Weighted average shares outstanding
Basic			5,544,546			5,521,707
Diluted			5,688,619			5,685,151

Basic income per common share		$	0.26		$	0.33
Diluted income per common share		$	0.26		$	0.32


	Nine Months Ended
	September 30,
	2021		2020
Interest and fee income
Loans, including fees	$	11,518,472	$	11,152,378
Taxable securities		1,407,040		1,179,712
Tax-exempt securities		222,530		289,958
Other		58,052		174,934
Total interest and fee income		13,206,094		12,796,982

Interest expense
Deposits		136,160		242,275
Total interest expense		136,160		242,275

Net interest income		13,069,934		12,554,707
Provision for loan losses		120,000		40,000
Net interest income after provision for loan losses		12,949,934		12,514,707

Other income
Service charges and fees		931,617		801,245
Mortgage banking income		1,805,262		1,486,247
Gain on sales of securities		266,944		—
Other non-interest income		21,473		21,813
Total other income		3,025,296		2,309,305

Other expense
Salaries and employee benefits		5,502,178		5,360,111
Net occupancy expense		1,815,587		1,646,790
Other operating expenses		885,459		718,881
Professional fees		476,889		449,475
Data processing fees		482,732		486,485
Total other expense		9,162,845		8,661,742

Income before income tax expense		6,812,385		6,162,270
Income tax expense		1,606,689		1,436,845

Net income	$	5,205,696	$	4,725,425

Weighted average shares outstanding
Basic		5,528,868		5,529,189
Diluted		5,684,484		5,695,614

Basic income per common share	$	0.94	$	0.85
Diluted income per common share	$	0.92	$	0.83


	Three Months Ended
	September 30,
	2021			2020
Net income	$	1,726,937		$	1,703,271
Other comprehensive loss
Unrealized loss on securities arising during the period		(845,754	)		(5,467	)
Reclassification adjustment for gains included realized in net income		(266,944	)		—
Other comprehensive loss before tax		(1,112,698	)		(5,467	)
Income tax effect related to items of other comprehensive loss before tax		233,667			1,149
Other comprehensive loss after tax		(879,031	)		(4,318	)
Total comprehensive income	$	847,906		$	1,698,953


	Nine Months Ended
	September 30,
	2021			2020
Net income	$	5,205,696		$	4,725,425
Other comprehensive (loss) income
Unrealized (loss) gain on securities arising during the period		(3,035,326	)		1,984,046
Reclassification adjustment for gains included realized in net income		(266,944	)		—
Other comprehensive income before tax		(3,302,270	)		1,984,046
Income tax effect related to items of other comprehensive (loss) income before tax		693,477			(416,650	)
Other comprehensive income after tax		(2,608,793	)		1,567,396
Total comprehensive income	$	2,596,903		$	6,292,821


	Shares Outstanding		Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
December 31, 2021	-	5,541,266	$	47,745,285	$	11,122,710		$	(2,817,392	)	$	(2,132,970	)	$	53,917,633
Net income	-	—		—		1,464,106			—			—			1,464,106
Other comprehensive loss		—		—		—			—			(9,649,453	)		(9,649,453	)
Stock option exercises, net of surrenders		9,210		141,618		—			—			—			141,618
Stock-based compensation expense		—		27,989		—			—			—			27,989
Cash dividends ($0.17 per common share)		—		—		(943,580	)		—			—			(943,580	)
March 31, 2022	-	5,550,476	$	47,914,892	$	11,643,236		$	(2,817,392	)	$	(11,782,423	)	$	44,958,313

	Shares Outstanding		Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
December 31, 2020		5,520,469	$	47,404,869	$	8,693,519		$	(2,787,898	)	$	1,669,866		$	54,980,356
Net income		—		—		1,810,075			—			—			1,810,075
Other comprehensive loss		—		—		—			—			(2,343,977	)		(2,343,977	)
Stock option exercises, net of surrenders		4,147		39,589		—			(8,344	)		—			31,245
Stock-based compensation expense		—		22,997		—			—			—			22,997
Cash dividends ($0.27 per common share)		—		—		(1,491,646	)		—			—			(1,491,646	)
March 31, 2021		5,524,616	$	47,467,455	$	9,011,948		$	(2,796,242	)	$	(674,111	)	$	53,009,050

Net income		—		—		1,668,684			—			—			1,668,684
Other comprehensive income		—		—		—			—			614,215			614,215
Stock option exercises, net of surrenders		9,383		103,495		—			(21,150	)		—			82,345
Stock-based compensation expense		—		29,648		—			—			—			29,648
Cash dividends ($0.17 per common share)		—		—		(940,781	)		—			—			(940,781	)
June 30, 2021		5,533,999	$	47,600,598	$	9,739,851		$	(2,817,392	)	$	(59,896	)	$	54,463,161

Net income		—		—		1,726,937			—			—			1,726,937
Other comprehensive loss		—		—		—			—			(879,031	)		(879,031	)
Stock option exercises		2,662		24,438		—			—			—			24,438
Stock-based compensation expense		—		28,605		—			—			—			28,605
Cash dividends ($0.17 per common share)		—		—		(941,232	)		—			—			(941,232	)
September 30, 2021		5,536,661	$	47,653,641	$	10,525,556		$	(2,817,392	)	$	(938,927	)	$	54,422,878



	Shares Outstanding			Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
December 31, 2019		5,530,001		$	47,131,034	$	5,879,409		$	(2,325,225	)	$	482,814		$	51,168,032
Net income		—			—		1,521,131			—			—			1,521,131
Other comprehensive income		—			—		—			—			601,016			601,016
Stock option exercises, net of surrenders		362			4,489		—			—			—			4,489
Stock-based compensation expense		—			16,418		—			—			—			16,418
Cash dividends ($0.16 per common share)		—			—		(884,859	)		—			—			(884,859	)
March 31, 2020		5,530,363		$	47,151,941	$	6,515,681		$	(2,325,225	)	$	1,083,830		$	52,426,227

Net income		—			—		1,501,023			—			—			1,501,023
Other comprehensive income		—			—		—			—			970,698			970,698
Stock option exercises, net of surrenders		9,619			108,757		—			(41,697	)		—			67,060
Stock-based compensation expense		—			29,305		—			—			—			29,305
Repurchase of common shares		(9,300	)		—		—			(148,550	)		—			(148,550	)
Cash dividends ($0.16 per common share)		—			—		(884,908	)		—			—			(884,908	)
June 30, 2020		5,530,682		$	47,290,003	$	7,131,796		$	(2,515,472	)	$	2,054,528		$	53,960,855

Net income		—			—		1,703,271			—			—			1,703,271
Other comprehensive loss		—			—		—			—			(4,318	)		(4,318	)
Stock option exercises		4,344			56,496		—			(22,108	)		—			34,388
Stock-based compensation expense		—			24,413		—			—			—			24,413
Repurchase of common shares		(15,767	)		—		—			(250,318	)		—			(250,318	)
Cash dividends ($0.17 per common share)		—			—		(938,274	)		—			—			(938,274	)
September 30, 2020		5,519,259		$	47,370,912	$	7,896,793		$	(2,787,898	)	$	2,050,210		$	54,530,017

	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	85,901,080	$	133,246	$	(542,336	)	$	85,491,990
Government-Sponsored Enterprises		76,411,230		417,469		(1,360,537	)		75,468,162
Municipal Securities		32,069,484		372,581		(208,938	)		32,233,127
Total	$	194,381,794	$	923,296	$	(2,111,811	)	$	193,193,279

	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	20,036,549	$	374,001	$	—		$	20,410,550
Government-Sponsored Enterprises		96,614,182		1,398,884		(160,260	)		97,852,806
Municipal Securities		16,055,332		501,130		—			16,556,462
Total	$	132,706,063	$	2,274,015	$	(160,260	)	$	134,819,818


	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	170,849,901	$	—	$	(7,263,586	)	$	163,586,315
Government-Sponsored Enterprises		66,242,773		7,546		(5,628,550	)		60,621,769
Municipal Securities		35,728,088		6,525		(2,036,393	)		33,698,220
Total	$	272,820,762	$	14,071	$	(14,928,529	)	$	257,906,304

	September 30, 2021
	Less Than 12 Months							12 Months or Longer							Total
	#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss
U.S. Treasury Notes		11	$	60,364,645	$	(542,336	)		—	$	—	$	—			11	$	60,364,645	$	(542,336	)
Government-Sponsored Enterprises		7		45,228,892		(1,123,217	)		1		9,762,680		(237,320	)		8		54,991,572		(1,360,537	)
Municipal Securities		17		10,576,443		(208,938	)		—		—		—			17		10,576,443		(208,938	)
Total		35	$	116,169,980	$	(1,874,491	)		1	$	9,762,680	$	(237,320	)		36	$	125,932,660	$	(2,111,811	)


	December 31, 2021
	Less Than 12 Months					12 Months or Longer						Total
	#	Fair Value		Gross Unrealized Loss		#	Fair Value		Gross Unrealized Loss			#	Fair Value		Gross Unrealized Loss
U.S. Treasury Notes	15	$	94,994,915	$	(1,276,399)	—	$	—	$	—		15	$	94,994,915	$	(1,276,399	)
Government-Sponsored Enterprises	3		19,480,595		(519,405)	6		39,909,134		(1,390,429	)	9		59,389,729		(1,909,834	)
Municipa/l Securities	19		11,384,462		(193,612)	—		—		—		19		11,384,462		(193,612	)
Total	37	$	125,859,972	$	(1,989,416)	6	$	39,909,134	$	(1,390,429	)	43	$	165,769,106	$	(3,379,845	)


	Three Months Ended
	September 30,
	2021		2020
Gross proceeds	$	15,572,500	$	—
Gross realized gains		266,944		—
Gross realized losses		—		—

	September 30, 2021			December 31, 2020
Commercial	$	45,923,118		$	51,041,397
Commercial real estate:
Construction		10,802,322			14,813,726
Other		160,119,820			146,187,886
Consumer:
Real estate		77,530,313			71,836,041
Other		4,576,146			4,480,491
Paycheck Protection Program		13,883,076			32,443,132
		312,834,795			320,802,673
Allowance for loan losses		(4,368,457	)		(4,185,694	)
Loans, net	$	308,466,338		$	316,616,979

	●	Excellent (1) The borrowing entity has more than adequate cash flow, unquestionable strength, strong earnings and capital and, where applicable, 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 possible. The borrowing entity has declining sales, rising costs, and may need to look for secondary source of repayment.

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

	●	Loss (8) The borrowing entity has negative cash flow with no alternatives. Survival of the business is unlikely.

September 30, 2021
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	43,458,379	$	10,357,540	$	152,866,524	$	76,186,041	$	4,299,854	$	13,883,076	$	301,051,414
Watch		636,171		444,782		4,219,954		471,737		194,963		—		5,967,607
OAEM		344,195		—		1,077,755		622,777		40,618		—		2,085,345
Substandard		1,484,373		—		1,955,587		249,758		40,711		—		3,730,429
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total	$	45,923,118	$	10,802,322	$	160,119,820	$	77,530,313	$	4,576,146	$	13,883,076	$	312,834,795

March 31, 2022
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	45,293,533	$	13,775,793	$	163,137,366	$	72,531,141	$	3,426,221	$	4,437,525	$	302,601,579
Watch		686,987		974,681		2,768,774		3,656,913		191,740		—		8,279,095
OAEM		30,859		—		840,236		274,445		19,961		—		1,165,501
Substandard		1,349,366		—		1,221,076		249,758		39,600		—		2,859,800
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total	$	47,360,745	$	14,750,474	$	167,967,452	$	76,712,257	$	3,677,522	$	4,437,525	$	314,905,975

December 31, 2020
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	44,903,134	$	14,349,065	$	125,111,378	$	70,454,909	$	4,171,858	$	32,443,132	$	291,433,476
Watch		3,415,408		464,661		15,200,992		467,163		219,954		—		19,768,178
OAEM		1,039,647		—		1,784,296		623,226		46,783		—		3,493,952
Substandard		1,683,208		—		4,091,220		290,743		41,896		—		6,107,067
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total	$	51,041,397	$	14,813,726	$	146,187,886	$	71,836,041	$	4,480,491	$	32,443,132	$	320,802,673

September 30, 2021
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment ≥ 90 Days and Accruing
Commercial	$	151,406	$	—	$	—	$	151,406	$	45,771,712	$	45,923,118	$	—
Commercial Real Estate Construction		—		—		—		—		10,802,322		10,802,322		—
Commercial Real Estate Other		—		59,424		926,808		986,232		159,133,588		160,119,820		—
Consumer Real Estate		—		—		—		—		77,530,313		77,530,313		—
Consumer Other		1,508		—		—		1,508		4,574,638		4,576,146		—
Paycheck Protection Program		—		—		—		—		13,883,076		13,883,076		—
Total	$	152,914	$	59,424	$	926,808	$	1,139,146	$	311,695,649	$	312,834,795	$	—

March 31, 2022
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment ≥ 90 Days and Accruing
Commercial	$	225,000	$	1,915	$	—	$	226,915	$	47,133,830	$	47,360,745	$	—
Commercial Real Estate Construction		—		—		—		—		14,750,474		14,750,474		—
Commercial Real Estate Other		677,131		750,000		621,358		2,048,489		165,918,963		167,967,452		—
Consumer Real Estate		203,042		—		—		203,042		76,509,215		76,712,257		—
Consumer Other		626		—		—		626		3,676,896		3,677,522		—
Paycheck Protection Program		—		—		—		—		4,437,525		4,437,525		—
Total	$	1,105,799	$	751,915	$	621,358	$	2,479,072	$	312,426,903	$	314,905,975	$	—

	Loans Receivable on Non-Accrual
	September 30, 2021		December 31, 2020
Commercial	$	178,975	$	178,975
Commercial Real Estate Construction		—		—
Commercial Real Estate Other		926,808		923,828
Consumer Real Estate		—		40,893
Consumer Other		10,337		12,234
Paycheck Protection Program		—		—
Total	$	1,116,120	$	1,155,930

	March 31, 2022		December 31, 2021
Commercial	$	—	$	178,975
Commercial Real Estate Construction		—		—
Commercial Real Estate Other		621,358		625,953
Consumer Real Estate		—		—
Consumer Other		9,022		9,686
Paycheck Protection Program		—		—
Total	$	630,380	$	814,614


Three Months Ended March 31, 2022
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other			Consumer Real Estate			Consumer Other			Paycheck Protection Program			Total
Allowance for Loan Losses:
Beginning balance	$	795,689		$	175,493	$	2,376,306		$	924,784		$	104,715		$	—		$	4,376,987
Charge-offs		—			—		—			(2,035	)		—			(10	)		(2,045	)
Recoveries		—			—		—			—			4,200			360			4,560
Provisions		(7,596	)		28,075		(82,296	)		(2,777	)		(10,056	)		(350	)		(75,000	)
Ending balance	$	788,093		$	203,568	$	2,294,010		$	919,972		$	98,859		$	—		$	4,304,502


Three Months Ended September 30, 2021
		Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate			Consumer Other		Paycheck Protection Program			Total
Allowance for Loan Losses:
Beginning balance	$	801,548		$	154,276	$	2,206,215	$	1,025,506		$	118,758	$	—		$	4,306,303
Charge-offs		—			—		—		—			—		(903	)		(903	)
Recoveries		10,746			—		—		47,711			4,600		—			63,057
Provisions		(9,338	)		1,248		72,060		(65,539	)		666		903			—
Ending balance	$	802,956		$	155,524	$	2,278,275	$	1,007,678		$	124,024	$	—		$	4,368,457


Three Months Ended March 31, 2021
	Commercial			Commercial Real Estate Construction			Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program			Total
Allowance for Loan Losses:
Beginning balance	$	1,029,310		$	199,266		$	1,909,121	$	925,077	$	122,920		$	—		$	4,185,694
Charge-offs		—			—			—		—		(8,152	)		(6,479	)		(14,631	)
Recoveries		—			—			—		—		4,812			290			5,102
Provisions		(126,428	)		(54,721	)		168,648		127,083		(771	)		6,189			120,000
Ending balance	$	902,882		$	144,545		$	2,077,769	$	1,052,160	$	118,809		$	—		$	4,296,165


Nine Months Ended September 30, 2021
	Commercial			Commercial Real Estate Construction			Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program			Total
Allowance for Loan Losses:
Beginning balance	$	1,029,310		$	199,266		$	1,909,121	$	925,077	$	122,920		$	—		$	4,185,694
Charge-offs		—			—			—		—		(11,439	)		(8,879	)		(20,318	)
Recoveries		21,329			—			—		47,711		14,041			—			83,081
Provisions		(247,683	)		(43,742	)		369,154		34,890		(1,498	)		8,879			120,000
Ending balance	$	802,956		$	155,524		$	2,278,275	$	1,007,678	$	124,024		$	—		$	4,368,457