10-K

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the fiscal year ended December 31, 2016

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from __________ to __________

Commission file number: 0-27702

BANK OF SOUTH CAROLINA CORPORATION

(Exact name of registrant 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)	(Zip Code)

Issuer’s telephone number:  (843) 724-1500

Securities registered under Section 12(b) of the Exchange Act:

Common Stock

(Title of Class)

Securities registered under Section 12(g) of the Exchange Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☒  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes ☒  No

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

Yes ☒   No ☐

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

Yes ☒   No ☐

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

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

Large accelerated filer ☐ Accelerated filer ☐  Non-accelerated filer ☐  Smaller reporting company ☒

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

Aggregate market value of the voting stock held by non-affiliates, computed by reference to the closing price of such stock on June 30, 2016 was: $51,069,297

As of February 23, 2017, the Registrant has outstanding 4,962,189 shares of common stock.

 BANK OF SOUTH CAROLINA CORPORATION

 AND SUBSIDIARY

Table of Contents

	PART I
		Page
Item 1.	Business	4
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	12
Item 3.	Legal Proceedings	12
Item 4.	Mine Safety Disclosures	12
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	81
Item 9A.	Controls and Procedures	81
Item 9B.	Other Information	82
	PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	82
Item 11.	Executive Compensation	82
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	84
Item 13.	Certain Relationships and Related Transactions, and Director Independence	84
Item 14.	Principal Accounting Fees and Services	84
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	84

2 

PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

● Continued availability of senior management

● Technological changes

● Ability to control expenses

● Changes in compensation

● Risks associated with income taxes including potential for adverse adjustments

● Changes in accounting policies and practices

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

● Recently enacted or proposed legislation

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

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

3 

Item 1. Business

General

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.

Market Area

The Bank operates as an independent, community oriented, commercial bank providing a broad range of financial services and products. We have four banking house locations: 256 Meeting Street, Charleston, SC, 100 North Main Street, Summerville, SC, 1337 Chuck Dawley Boulevard, Mt. Pleasant, SC and 2027 Sam Rittenberg Boulevard, Charleston, SC. We intend to open a banking office in North Charleston, SC on Highway 78 and Ingleside Boulevard in the future (copy of the lease incorporated as Exhibit 10.8 in the 2013 10-K and copy of the Assignment and Assumption of Lease incorporated as Exhibit 10.9, First Amendment to the Lease incorporated as Exhibit 10.10 and Second Amendment to the Lease incorporated as Exhibit 10.11 in the 2015 10-K).

The primary economic drivers of our market area are tourism, manufacturing and medical services. In addition, we have one of the busiest container ports in the United States as well as a Boeing plant in North Charleston, SC. In October 2009, Boeing selected a site in North Charleston SC, for a 787 Dreamliner final assembly and delivery line. Boeing South Carolina has added the IT Centers of Excellence, Engineering Design Center, Boeing Research & Technology Center and Propulsion South Carolina to its North Charleston campus and added a painting facility in 2016. Future development in our market area includes both a Volvo and Mercedes plant.

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

The Company (“BKSC”) is publicly traded on the National Association of Securities Dealers Automated Quotations (“NASDAQ”), and is under the reporting authority of the SEC. All of our electronic filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are accessible at no cost on our website, http://www.banksc.com, through the “Investor Relations” link. Our filings are also available through the SEC’s web site at http://www.sec.gov or by calling 1-800-SEC-0330.

Competition

The financial services industry is highly competitive. We face competition in attracting deposits and originating loans based upon a variety of factors including:

● interest rates offered on deposit accounts

● interest rates charged on loans

● credit and service charges

● the quality of services rendered

● the convenience of banking facilities and other delivery channels

● in the case of loans, relative lending limits and

● technology

We compete with commercial banks, savings institutions, finance companies, credit unions and other financial services companies. Many of our larger commercial bank competitors have greater name recognition and offer certain services that we do not. However, we believe that we have developed an effective competitive advantage in our market area that includes Charleston, Berkeley and Dorchester counties of South Carolina by emphasizing our exceptional service levels, and knowledge of local trends and conditions.

4 

Lending Activities

We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets and typically require a personal guarantee. Our primary lending activities are commercial real estate, one-to-four-family residential mortgage loans, commercial business loans and home equity loans and lines of credit. Our largest category of loans is commercial real estate. Most loans are to borrowers located in our market area of Charleston, Dorchester and Berkeley Counties of South Carolina.

Commercial Real Estate Loans

At December 31, 2016, $123.0 million, or 47.19%, of our loan portfolio consisted of commercial real estate loans, excluding commercial construction loans. Properties securing our commercial real estate loans are primarily comprised of business owner-occupied properties, small office buildings and office suites, and income-producing real estate.

In the underwriting of commercial real estate loans, we generally lend up to the lesser of 80% of the appraised value or the purchase price of the property. We base our decision to lend primarily on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we emphasize the ratio of the property’s projected net cash flow to the loan’s debt service requirement computed after deduction for an appropriate vacancy factor and reasonable expenses. We typically require property casualty insurance, title insurance, earthquake insurance, casualty insurance, and, if appropriate, flood insurance, in order to protect our security interest in the underlying property.

Commercial real estate loans generally carry higher credit risks, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the property, as repayment of the loan generally is dependent, in large part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions not within the control of the borrower or lender could affect the value of the underlying collateral or the future cash flow of the property.

Commercial Loans

At December 31, 2016, $52.3 million, or 20.06%, of our loan portfolio consisted of commercial loans. We originate various types of secured and unsecured commercial loans to customers in our market areas in order to provide customers with working capital and for other general business purposes. The terms of these loans generally range from less than one year to a maximum of 10 years. These loans bear either a fixed interest rate or an interest rate linked to a variable market index.

Commercial credit decisions are based upon our credit assessment of each applicant. We evaluate the applicant’s ability to repay in accordance with the proposed terms of the loan and we assess the risks involved. In addition to evaluating the applicant’s financial statements, we consider the adequacy of the primary and secondary sources of repayment for the loan. Credit agency reports of the applicant’s personal credit history supplement our analysis of the applicant’s creditworthiness. In addition, collateral supporting a secured transaction is analyzed to determine its marketability. Commercial business loans generally have higher interest rates than residential loans of similar duration because they have a higher risk of default with repayment generally depending on the successful operation of the borrower’s business and the sufficiency of any collateral.

One-to-Four-Family Residential Loans

One-to-four family residential loans were $30.7 million, or 11.78% of the loan portfolio at December 31, 2016. One-to-four family residential loans consist primarily of loans secured by first or second mortgages on primary residences, and are originated as adjustable-rate or fixed-rate loans for the purchase or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in the Company’s market area. The Company currently originates residential mortgage loans for our portfolio with loan-to-value ratios of up to 80% for traditional owner-occupied homes.

5 

Home Equity Loans and Lines of Credit

At December 31, 2016, $41.6 million, or 15.99% of our loan portfolio consisted of home equity loans and lines of credit. In addition to traditional one-to-four-family residential mortgage loans, we offer home equity loans and lines of credit that are secured by the borrower’s primary or secondary residence. Our home equity loans and lines of credit are currently originated with adjustable rates of interest, with a floor. Home equity loans and lines of credit are generally underwritten with the same criteria that we use to underwrite one-to-four-family residential mortgage loans. For a borrower’s primary residence, home equity loans and lines of credit are typically underwritten with a loan-to-value ratio of 80% when combined with the principal balance of the existing mortgage loan, while the maximum loan-to-value ratio on secondary residences is 70% when combined with the principal balance of the existing mortgage loan. We require a current appraisal or internally prepared real estate evaluations on home equity loans and lines of credit. At the time we close a home equity loan or line of credit, we record a mortgage to perfect our security interest in the underlying collateral.

Construction Loans

At December 31, 2016, our portfolio included $4.8 million of one-to-four-family residential construction loans or 1.83% of our loan portfolio. Other construction loans comprised $1.2 million, or 0.46% of our loan portfolio. We make construction loans to owner-occupiers of residential properties, and to businesses for commercial properties. Advances on construction loans are made in accordance with a schedule reflecting the cost of construction, but are generally limited to 80% loan-to-value ratio based on the appraised value upon completion. Repayment of construction loans on non-residential properties is normally attributable to rental income, income from the borrower’s operating entity or the sale of the property. Repayment of loans on income-producing property is normally scheduled following completion of construction, when permanent financing is obtained. Construction loans are interest-only during the construction period, which typically does not exceed 12 months and are often paid-off with permanent financing.

Before making a commitment to fund a construction loan, we require an appraisal of the property by a state-certified or state-licensed appraiser. We review and inspect properties before disbursement of funds during the term of the construction loan.

Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. Construction loans also expose us to risk that improvements will not be completed on time in accordance with specifications and projected costs.

Consumer Loans

Consumer loans totaled $7.0 million and were 2.69% of the loan portfolio at December 31, 2016. These loans are originated for various consumer purposes, including the purchase of automobiles, boats, and for other legitimate personal purposes. These loans generally have relatively low balances.

Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. The application of various federal and state laws, including bankruptcy and insolvency laws, may also limit the amount which can be recovered on such loans.

Mortgage Loan Originations

All residential loans that we originate are underwritten pursuant to our policies and procedures. We originate both adjustable-rate and fixed-rate loans. Our loan origination and sales activity may be adversely affected by a rising interest rate environment that typically results in decreased loan demand.

6 

Loan Approval Procedures and Authority

Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Board of Directors of the Bank. The loan approval process is intended to assess the borrower’s ability to repay the loan and value of the collateral that will secure the loan. To assess the borrower’s ability to repay, we review the borrower’s employment, credit history, and information on the historical and projected income and expenses of the borrower.

The objectives of our lending program are to:

1. Establish a sound asset structure.

2. Provide a sound and profitable loan portfolio to:

a) Protect the depositor’s funds

b) Maximize the shareholders’ return on their investment

3. Promote the stable economic growth and development of the market area served by the Bank.

4. Comply with all Regulatory Agency requirements and applicable law.

The individual secured/unsecured lending authority of the President/Chief Executive Officer of the Bank is set at $1,000,000 and the individual secured/unsecured lending authority of the Senior Lender/Executive Vice President is set at $500,000. The President/Chief Executive Officer of the Bank and the Senior Lender/Executive Vice President may jointly lend up to 10% of the Bank’s unimpaired capital for the previous quarter end. In the absence of either of the above, the other may, jointly with the approval of either the Chairman of the Board of Directors or a majority of the Loan Committee of the Board of Directors, lend up to 10% of the Bank’s unimpaired capital for the previous quarter end. The Board of Directors, with two-thirds vote, may approve the aggregate credit in excess of this limit but may not exceed 15% of the Bank’s unimpaired capital.

The Senior Lender/Executive Vice President may establish the unsecured loan authority of the individual loan officers of the Bank not to exceed $100,000 and secured loan authority not to exceed $250,000. With the concurrence of the President/Chief Executive Officer, the Senior Lender/Executive Vice President may approve unsecured lending authority of individual lending officers up to $250,000. Loan limits apply to the total direct and indirect liability of the borrower. All loans above the loan officer’s authority must have the approval of a loan officer with the authority to approve a loan of that amount. Pooling of loan authority is not allowed except as outlined above for the President/Chief Executive Officer, Senior Lender/Executive Vice President and a majority of the Loan Committee or two-thirds of the Board of Directors.

Every new and renewed loan is graded according to a loan rating matrix and assigned a risk rating of excellent, good, satisfactory, watch, OAEM, substandard, doubtful, or loss based on cash flow, collateral, guarantor, financial condition, management, operating performance, financial statements, loan performance, leverage, and debt service coverage. A weighted average method is used to compute the rating with cash flow, financial condition, and debt service being weighted three times, and financial statements being weighted two times the amount of the other factors. When a loan rating is between (and including) 3.5 and 4.4, it is placed on the watch list. When the rating is 4.5 or higher, it is placed on the classified loan list in the appropriate risk grade. The ratings are included on the loan summary, when applicable, and are reviewed by the President/Chief Executive Officer and Senior Loan Officer/Executive Vice President.

All new credit which results in aggregate direct, indirect, and related credit, not under an approved line of credit, of $200,000 or more, with the exceptions of mortgage loans in the process of being sold to investors and loans secured by properly margined negotiable securities traded on an established market or other cash collateral, are reviewed in detail on a monthly basis by the Loan Committee. Those new credits which result in aggregate direct, indirect and related credit, not under an approved line of credit, of $500,000 or more are reported to the Board of Directors at its regular monthly meeting.

Employees

At December 31, 2016, we employed 74 people, with two individuals considered part time, none of whom are subject to a collective bargaining agreement. We provide a variety of benefit programs including an Employee Stock Ownership Plan and Trust, Stock Incentive Plan, health, life, disability and other insurance. We believe our relationship with our employees is excellent.

7 

Supervision and Regulation

We are subject to extensive state and federal banking laws and regulations that impose specific requirements or restrictions and provide for general regulatory oversight of virtually all aspects of operations. The regulations are primarily intended to protect depositors, customers, and the integrity of the U.S. banking system and capital markets. The following information describes some of the more significant laws and regulations applicable to us. The description is qualified in its entirety by reference to the applicable laws and regulations. Proposals to change the laws and regulations governing the banking industry are frequently raised in Congress, in state legislatures, and with the various bank regulatory agencies. Changes in applicable laws or regulations, or a change in the way such laws or regulations are interpreted by regulatory agencies or courts, may have a material impact on our business operations and earnings.

Dodd-Frank Act

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became effective. This law has broadly affected the financial services industry by implementing changes to the financial regulatory landscape aimed at strengthening the sound operation of the financial services industry, and will continue to significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies, including the Company and the Bank. Under the Dodd-Frank Act a broad range of new rules and regulations by various federal agencies have been implemented, and further rulemaking must be proposed and adopted which will take effect over several years. Although we have already experienced some decrease in revenue because of the rules implemented under the Dodd-Frank Act, the overall financial impact the Act will have on the Company, our customers, or the financial industry in general remains difficult to anticipate.

The Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”) as an agency to centralize responsibility for consumer financial protection, including implementing, examining and enforcing compliance with federal consumer financial laws. The CFPB has begun exercising supervisory review of banks under its jurisdiction. The CFPB is expected to focus its rulemaking in several areas, particularly in the areas of mortgage reform involving the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Equal Credit Opportunity Act, and the Fair Debt Collection Practices Act; however, the content of the final rules and impact to our businesses are uncertain at this time. There are many provisions in the Dodd-Frank Act mandating regulators to adopt new regulations and conduct studies upon which future regulation may be based. While some have been issued, many remain to be issued. Governmental intervention and new regulations could materially and adversely affect our business, financial condition and results of operations.

Bank Holding Company Act

The Company is a one-bank holding company under the federal Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). As a result, the Company is primarily subject to the supervision, examination and reporting requirements of the Board of Governors of the Federal Reserve (the “Federal Reserve”) under the Bank Holding Company Act and its regulations promulgated thereunder. Moreover, as a bank holding company located in South Carolina, the Company is also subject to the regulations of the South Carolina State Board of Financial Institutions.

Capital Requirements

The Federal Reserve Board imposes certain capital requirements on the Company under the Bank Holding Company Act, including a minimum leverage ratio and minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are essentially the same as those that apply to the Bank and are described under “Regulatory Capital Requirements” in the notes to the financial statements. The ability of the Company to pay dividends depends on the Bank’s ability to pay dividends to the Company, which is subject to regulatory restrictions as described below in “Dividends”.

8 

Standards for Safety and Soundness

The Federal Deposit Insurance Act requires the federal banking regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions relating to (1) internal controls, information systems and internal audit systems, (2) loan documentation, (3) credit underwriting, (4) interest rate risk exposure, and (5) asset growth. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees, and benefits. The federal banking agencies have adopted regulations and “Interagency Guidelines Establishing Standards for Safety and Soundness” to implement these required standards. These guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.

Regulatory Examination

All insured institutions must undergo regular on-site examinations by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate banking agency against each institution or affiliate, as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the Federal Deposit Insurance Corporation (“FDIC”), their federal regulatory agency, and state supervisor when applicable.

The federal banking regulatory agencies prescribe, by regulation, standards for all insured depository institutions and depository institution holding companies relating, among other things, to the following:

● Internal controls

● Information systems and audit systems

● Loan documentation

● Credit underwriting

● Interest rate risk exposure

● Asset quality

● Liquidity

● Capital adequacy

● Bank Secrecy Act

● Sensitivity to market risk

Transactions with Affiliates and Insiders

We are subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. Such extensions of credit (1) must be made on substantially the same terms, including interest rates, and collateral, as those prevailing at the time for comparable transactions with third parties and (2) must not involve more than the normal risk of repayment or present other unfavorable features.

Dividends

The Company’s principal source of cash flow, including cash flow to pay dividends to its shareholders, is dividends it receives from the Bank. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Company. As a general rule, the amount of a dividend may not exceed, without prior regulatory approval, the sum of net income in the calendar year to date and the retained net earnings of the immediately preceding two calendar years. A depository institution may not pay any dividend if payment would cause the institution to become undercapitalized or if it already is undercapitalized.

9 

Consumer Protection Regulations

Activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers. Interest and other charges collected by the Bank are subject to state usury laws and federal laws concerning interest rates. Our loan operations are also subject to federal laws applicable to credit transactions such as:

● The federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers

● The Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves

● Fair Lending Act, fair equitable, and nondiscriminatory access to credit for consumers

● The Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit

● The Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies

● The Fair Debt Collection Act, governing the manner in which consumer debt may be collected by collection agencies

● The rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The deposit operations of the Bank also are subject to:

● The Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records

● The Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that Act, which governs automatic deposits to and withdrawals from deposit and customer’s rights and liabilities arising from the use of automated teller machines and other electronic banking services

● Regulation DD which implements the Truth in Savings Act to enable consumers to make informed decisions about deposit accounts at depository institutions. Regulation DD requires depository institutions to provide disclosures so that consumers can make meaningful comparisons among depository institutions.

Enforcement Powers

The Company is subject to supervision and examination by the Federal Reserve and the South Carolina State Board of Financial Institutions. The Bank is subject to extensive federal and state regulations that significantly affect business and activities. These regulatory bodies have broad authority to implement standards and to initiate proceedings designed to prohibit depository institutions from engaging in activities that represent unsafe or unsound banking practices or constitute violations of applicable laws, rules, regulations, administrative orders, or written agreements with regulators. These regulatory bodies are authorized to take action against institutions that fail to meet such standards, including the assessment of civil monetary penalties, the issuance of cease-and-desist orders, and other actions.

10 

Bank Secrecy Act/Anti-Money Laundering

We are subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA Patriot Act of 2001. We must maintain a Bank Secrecy Act Program that includes (1) established internal policies, procedures, and controls, (2) a designated compliance officer, (3) an ongoing employee training program and, (4) testing of the program by an independent audit function. The USA Patriot Act, amended, in part, the Bank Secrecy Act and provides for the facilitation of information sharing among governmental entities and the Company for the purpose of combating terrorism and money laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the US government. These provisions include (a) standards for verifying customer identification at account opening; (b) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (c) reports by nonfinancial trades and businesses filed with the U.S. Treasury’s Financial Crimes Enforcement Network for transactions exceeding $10,000; (d) suspicious activities reports by brokers and dealers if they believe a customer may be violating U.S. laws; and (e) regulations and enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications.

Privacy and Credit Reporting

In connection with our lending activities, we are subject to a number of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. These include the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the Community Reinvestment Act (the “CRA”). In addition, federal banking regulators, pursuant to the Gramm-Leach-Bliley Act, have enacted regulations limiting the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with nonaffiliated third parties. The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to assess the bank’s record in meeting the credit needs of the communities served by the bank, including low and moderate income neighborhoods. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.”

Volcker Rule

Section 619 of the Dodd-Frank Act, known as the “Volcker Rule,” prohibits any bank, bank holding company, or affiliate (referred to collectively as “banking entities”) from engaging in two types of activities: “proprietary trading” and the ownership or sponsorship of private equity or hedge funds that are referred to as “covered funds.” Proprietary trading, in general, is trading in securities on a short-term basis for a banking entity’s own account. In December 2013, federal banking agencies, the SEC and the Commodity Futures Trading Commission, finalized a regulation to implement the Volcker Rule. At December 31, 2016, the Company has evaluated our securities portfolio and has determined that we do not hold any covered funds.

11 

Item 1A.   Risk Factors

Under the filer category of “smaller reporting company”, as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide information requested by Part I, Item 1A of its Form 10-K.

Item 1B.  Unresolved Staff Comments

None.

Item 2. Properties

The Company’s headquarters is located at 256 Meeting Street in downtown Charleston, South Carolina. This site is also the location of the main office of its subsidiary, The Bank of South Carolina. In addition to the Meeting Street location, the Bank currently operates from three additional locations: 100 North Main Street, Summerville, SC, 1337 Chuck Dawley Boulevard, Mount Pleasant, SC, and 2027 Sam Rittenberg Boulevard, Charleston, SC. The Bank’s mortgage department is located at 1071 Morrison Drive, Charleston, SC. On January 28, 2014, we signed a lease to open a banking office on Highway 78 and Ingleside Boulevard, North Charleston, SC in the future (copy of the lease incorporated as Exhibit 10.8 in the 2013 10-K and copy of the Assignment and Assumption of Lease incorporated as Exhibit 10.9, First Amendment to the Lease incorporated as Exhibit 10.10 and Second Amendment to the Lease incorporated as Exhibit 10.11 in the 2015 10-K). The Company owns the 2027 Sam Rittenberg Boulevard location which also houses the Operations Department of the Bank. All other locations are leased. The owned location is not encumbered and all of the leases have renewal options. Each banking location is suitable and adequate for banking operations.

Item 3. Legal Proceedings

In our opinion, there are no other legal proceedings pending other than routine litigation incidental to the Company’s business involving amounts which are not material to our financial condition.

Item 4. Mine Safety Disclosures

Not applicable.

12 

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There were issued and outstanding 4,956,139 shares of the 12,000,000 authorized shares of common stock of the Company at the close of our fiscal year ended December 31, 2016. Our common stock is traded on The NASDAQ Capital Market under the trading symbol “BKSC”.

Information regarding the historical market prices of our common stock and dividends declared on that stock is shown below.

2016	High		Low		Dividends
Quarter ended March 31, 2016	$	16.75	$	14.91	$	0.13
Quarter ended June 30, 2016	$	16.25	$	15.51	$	0.13
Quarter ended September 30, 2016	$	18.63	$	15.95	$	0.14
Quarter ended December 31, 2016	$	23.47	$	18.39	$	0.14
2015
Quarter ended March 31, 2015	$	13.72	$	13.35	$	0.13
Quarter ended June 30, 2015	$	15.92	$	13.59	$	0.13
Quarter ended September 30, 2015	$	16.86	$	13.48	$	0.13
Quarter ended December 31, 2015	$	16.87	$	16.00	$	0.13
2014
Quarter ended March 31, 2014	$	14.46	$	13.29	$	0.13
Quarter ended June 30, 2014	$	14.11	$	13.46	$	0.13
Quarter ended September 30, 2014	$	14.09	$	13.32	$	0.23
Quarter ended December 31, 2014	$	13.87	$	12.96	$	0.13

As of February 23, 2017, there were approximately 1,769 shareholders of record with shares held by individuals and in nominee names. The market price for our common stock as of February 23, 2017, was $20.68.

The future payment of cash dividends is subject to the discretion of the Board of Directors and depends upon a number of factors, including future earnings, financial condition, cash requirements, and general business conditions. Cash dividends, when declared, are paid by the Bank to the Company for distribution to shareholders of the Company. Certain regulatory requirements restrict the amount of dividends that the Bank can pay to the Company.

 13

At our December, 1995 Board Meeting, the Board of Directors authorized the repurchase of up to 140,918 shares of its common stock on the open market. At our October, 1999 Board Meeting, the Board of Directors authorized the repurchase of up to 45,752 shares of its common stock on the open market and again at our September, 2001 Board meeting, the Board of Directors authorized the repurchase of up to 54,903 shares of its common stock on the open market. As of the date of this report, the Company owns 241,396 shares. Shares have been adjusted for three 10% stock dividends, a 10% stock distribution, and a 25% stock dividend. At the Annual Meeting April, 2007, the shareholders’ voted to increase the number of authorized shares from 6,000,000 to 12,000,000. As of February 23, 2017, there were 5,203,585 shares of common stock issued and 4,962,189 shares of common stock outstanding.

THE BANK OF SOUTH CAROLINA EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

During 1989, the Board of Directors of the Bank adopted an Employee Stock Ownership Plan and Trust Agreement (“ESOP”) to provide retirement benefits to eligible employees of the Bank for long and faithful service. An amendment and restatement was made to the ESOP effective January 1, 2007 and approved by the Board of Directors January 18, 2007. Periodically, the Internal Revenue Service (“IRS”) requires a restatement of a qualified retirement plan to ensure that the plan document includes provisions required by legislative and regulatory changes made since the last restatement. There have been no substantive changes to the plan, however, to comply with the IRS rules, the Board of Directors approved a restated plan, on January 26, 2012 (incorporated as Exhibit 10.5 in the 2011 10-K). The Plan was submitted to the IRS for approval and a determination letter was issued September 26, 2013, stating that the plan satisfies the requirements of Code Section 4975 (e) (7). On January 26, 2017, the Board of Directors approved a restated plan (incorporated as Exhibit 10.6 in the 2016 10-K).

The Board of Directors of the Bank approved a cash contribution of $345,000 to The Bank of South Carolina ESOP for the fiscal year ended December 31, 2016. The Board of Directors of the Bank approved cash contributions of $315,000 and $280,000 for the fiscal years ended December 31, 2015 and 2014, respectively. The contributions were made during the respective fiscal years.

An employee of the Bank who is not a member of an ineligible class of employees is eligible to participate in the plan upon reaching 21 years of age and being credited with one year of service (1,000 hours of service). All employees are eligible employees except for the following ineligible classes of employees:

● Employees whose employment is governed by a collective bargaining agreement between employee representatives and the Company in which retirement benefits were the subject of good faith bargaining unless the collective bargaining agreement expressly provides for the inclusion of such employees in the plan

● Employees who are non-resident aliens who do not receive earned income from the Company which constitutes income from sources within the United States

● Any person who becomes an employee as the result of certain asset or stock acquisitions, mergers, or similar transactions (but only during a transitional period)

● Certain leased employees

● Employees who are employed by an affiliated Company that does not adopt the plan

● Any person who is deemed by the Company to be an independent contractor on his or her employment commencement date and on the first day of each subsequent plan year, even if such person is later determined by a court or a governmental agency to be or to have been an employee.

 14

The employee may enter the Plan on the January 1^st that occurs nearest the date on which the employee first satisfies the age and service requirements described above. No contributions by employees are permitted. The amount and time of contributions are at the sole discretion of the Board of Directors of the Bank. The contribution for all participants is based solely on each participant’s respective regular or base salary and wages paid by the Bank including commissions, bonuses and overtime, if any.

A participant becomes vested in the ESOP based upon the employee’s credited years of service. The vesting schedule is as follows:

●	1 Year of Service	0% Vested
●	2 Years of Service	25% Vested
●	3 Years of Service	50% Vested
●	4 Years of Service	75% Vested
●	5 Years of Service	100% Vested

The Bank is the Plan Administrator. Eugene W. Walpole, IV, Fleetwood S. Hassell, Sheryl G. Sharry and Douglas H. Sass, currently serve as the Plan Administrative Committee and as Trustees for the Plan. The Plan currently owns 335,604 shares of common stock of Bank of South Carolina Corporation.

THE BANK OF SOUTH CAROLINA STOCK INCENTIVE PLAN

We have a Stock Incentive Plan which was approved in 1998 with 180,000 (329,422 adjusted for three 10% stock dividends, a 10% stock distribution, and a 25% stock dividend) shares reserved and a Stock Incentive Plan which was approved in 2010 with 300,000 (330,000 adjusted for a 10% stock dividend) shares reserved. Under both Plans, options are periodically granted to employees at a price not less than the fair market value of the shares at the date of grant. Participating employees become 20% vested after five years and then vest 20% each year until fully vested. The right to exercise each such 20% of the options is cumulative and will not expire until the tenth anniversary of the date of the grant. Employees are eligible to participate in this plan if the Executive Committee, in its sole discretion, determines that an employee has contributed or can be expected to contribute to our profits or growth.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of our common stock. The expected term of the options granted will not exceed ten years from the date of grant (the amount of time options granted are expected to be outstanding). The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

 15

Item 6. Selected Financial Data

The following table sets forth certain selected financial information concerning the Company and its wholly-owned subsidiary. The information was derived from audited consolidated financial statements. The information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which follows, and the audited consolidated financial statements and notes which are presented elsewhere in this report.

	2016			2015			2014			2013			2012
For December 31:
Net Income	$	5,247,063		$	4,884,288		$	4,398,820		$	4,076,924		$	3,666,828
Selected Year End Balances:
Total Assets		413,949,636			399,172,512			367,225,802			340,893,703			325,410,646
Total Loans (1)		264,962,325			248,442,944			241,442,873			223,059,647			235,608,502
Investment Securities Available for Sale		119,978,944			119,997,585			113,994,112			94,648,221			58,514,216
Interest-bearing Deposits in Other Banks		18,101,300			23,898,862			5,680,613			16,080,721			25,903,960
Earning Assets		403,042,569			392,339,391			361,117,598			333,788,589			320,026,678
Deposits		372,522,851			358,718,612			322,419,027			305,242,655			291,073,843
Shareholders’ Equity		40,612,974			39,151,712			36,759,982			34,739,143			33,930,442
Weighted Average Shares Outstanding-Basic		4,935,349			4,912,499			4,907,208			4,897,902			4,890,310
Weighted Average Shares Outstanding-Diluted		5,054,114			5,067,085			5,032,211			4,906,234			4,890,310
For the Year:
Selected Average Balances:
Total Assets		410,581,560			379,527,104			358,774,284			332,092,490			317,438,538
Total Loans (1)		265,151,258			243,729,630			232,281,473			226,267,071			220,780,471
Investment Securities Available for Sale		110,762,289			110,633,399			99,488,314			67,484,036			57,982,652
Federal Funds Sold and Resale Agreements		—			—			—			—			7,578,169
Interest-bearing Deposits in Other Banks		26,474,258			17,549,903			19,588,597			31,524,293			32,386,509
Earning Assets		402,387,805			371,912,932			351,358,384			325,275,400			311,149,632
Deposits		367,822,900			337,969,217			319,131,466			296,482,622			283,365,379
Shareholders’ Equity		41,479,755			38,631,718			36,283,441			34,800,116			33,415,008
Performance Ratios:
Return on Average Equity		12.65	%		12.64	%		12.12	%		11.72	%		10.97	%
Return on Average Assets		1.28	%		1.29	%		1.23	%		1.23	%		1.16	%
Average Equity to Average Assets		10.10	%		10.18	%		10.11	%		10.48	%		10.53	%
Net Interest Margin		3.71	%		3.72	%		3.70	%		3.79	%		3.86	%
Net Charge-offs to Average Loans		.05	%		.04	%		.02	%		.15	%		.01	%
Allowance for Loan Losses as a Percentage of Total Loans (excluding mortgage loans to be sold)		1.48	%		1.41	%		1.42	%		1.51	%		1.58	%
Per Share:
Basic Income	$	1.06		$	0.99		$	0.90		$	0.83		$	0.75
Diluted Income		1.04			0.96			0.87			0.83			0.75
Year End Book Value		8.19			7.96			7.49			7.79			7.63
Cash Dividends Declared		0.54			0.52			0.62			0.50			0.45
Dividend Payout Ratio		50.86	%		49.94	%		62.88	%		54.63	%		54.56	%
Full Time Employee Equivalents		74			81			77			77			76
(1) Including mortgage loans to be sold

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis is included to assist the shareholder in understanding our financial condition, results of operations, and cash flow. This discussion should be reviewed in conjunction with the audited consolidated financial statements and accompanying notes presented in Item 8 of this report and the supplemental financial data appearing throughout this report. Since the primary asset of the Company is its wholly-owned subsidiary, most of the discussion and analysis relates to the Bank.

OVERVIEW

Bank of South Carolina Corporation (the “Company”) is a financial institution holding company headquartered in Charleston, South Carolina, with $413,949,636 in assets as of December 31, 2016 and net income of $1,312,879 and $5,247,063, respectively, for the three and twelve months ended December 31, 2016. The Company offers a broad range of financial services through its wholly-owned subsidiary, The Bank of South Carolina (the “Bank”). The Bank is a state-chartered commercial bank, which operates principally in the Charleston, Dorchester, and Berkeley counties of South Carolina. The Bank’s original and current concept is to be a full service financial institution specializing in personal service, responsiveness, and attention to detail to foster long-standing relationships.

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

A consequence of lending activities is that we may incur credit losses. The amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrowers. The reserve for credit losses consists of the allowance for loan and lease losses (the “allowance”) and a reserve for unfunded commitments (the “unfunded reserve”). The allowance provides for probable and estimable losses inherent in our loan and lease portfolio while the unfunded reserve provides for potential losses related to unfunded lending commitments. The Allowance is increased or decreased through the provisioning process. For a detailed discussion on the allowance for loan losses see “Allowance for Loan Losses”.

In addition to earning interest on loans and investments, we earn income through fees and other expenses we charge to the customer. The various components of other income and other expenses are described in the following discussion. The discussion and analysis also identifies significant factors that have affected our financial position as of December 31, 2016 as compared to December 31, 2015 and our operating results for 2016 as compared to 2015 and 2015 as compared to 2014, and should be read in conjunction with the consolidated financial statements and the related notes included in this report. In addition, a number of tables have been included to assist in the discussion.

CRITICAL ACCOUNTING POLICIES

We have adopted various accounting policies that govern the application of principles generally accepted in the United States and with general practices within the banking industry in the preparation of our consolidated financial statements. Our significant accounting policies are set forth in the notes to the consolidated financial statements in this report.

Certain accounting policies involve significant judgments and assumptions by the Company that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the number of judgments and assumptions that we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

 17

We consider our policy regarding the allowance for loan losses to be our most subjective accounting policy due to the significant degree of judgment. We have developed what we believe to be appropriate policies and procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and estimates with respect to our loan portfolio. Our assessments may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations and the discovery of information with respect to borrowers which were not known at the time of the issuance of the consolidated financial statements. For additional discussion concerning our allowance for loan losses and related matters, see “Allowance for Loan Losses”.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2016 TO DECEMBER 31, 2015

Net income increased $362,775 or 7.43% to $5,247,063, or basic and diluted income per share of $1.06 and $1.04, respectively for the year ended December 31, 2016 from $4,884,288 or basic and diluted income per share of $0.99 and $0.96, respectively for the year ended December 31, 2015. This increase is primarily due to increases in interest and fees on loans offset by higher provision for loan losses expense and lower mortgage banking income. Our returns on average assets and average equity for the year ended December 31, 2016 were 1.28% and 12.65%, respectively, compared with 1.29% and 12.64%, respectively, for the year ended December 31, 2015.

Net interest income increased $1,089,304 or 7.88% to $14,916,857 for the year ended December 31, 2016 from $13,827,553 for the year ended December 31, 2015. This increase was primarily due to increases in interest and fees on loans and other interest income. Interest and fees on loans increased $1,056,597 or 8.96% to $12,851,900 for the year ended December 31, 2016 from $11,795,303 for the year ended December 31, 2015, as the result of higher average loan balances, an improving local economy, and consumer confidence. Other interest income, earned mostly on interest-bearing deposits in other banks, increased $93,057 or 204.22% to $138,623 for the year ended December 31, 2016 from $45,566 for the year ended December 31, 2015.

Average earning assets increased $30,474,873 or 8.19% to $402,387,805 for the year ended December 31, 2016 from $371,912,932 for the year ended December 31, 2015. Average loans increased $21,421,628 or 8.79% for the year ended December 31, 2016. Average interest-bearing deposits in other banks increased $8,924,355 or 50.85% to $26,474,258 for the year ended December 31, 2016 from $17,549,903 for the year ended December 31, 2015.

The provision to the allowance for loan losses for the year ended December 31, 2016 was $570,000 compared to $192,500 for the year ended December 31, 2015. The increase was primarily a result of loan growth. The Board of Directors determined that this provision was appropriate based upon the strength of our reserve and the anticipation of continued loan growth and an improving economy. Charge-offs of $208,295, recoveries of $72,085, together with the provision to the allowance, resulted in an allowance for loan losses of $3,851,617 or 1.48% of total loans at December 31, 2016.

Non-interest income decreased $188,875 or 6.19% to $2,861,083 for the year ended December 31, 2016. Our mortgage banking income decreased $217,936 or 13.57% to $1,387,740 for the year ended December 31, 2016 from $1,605,676 for the year ended December 31, 2015 due to the loss of two loan originators during 2016. Mortgage banking income is highly influenced by mortgage interest rates and the housing market. According to local real estate market reports, the sales volume in the Charleston market increased 10% for the year ended December 31, 2016 compared to the year ended December 31, 2015. The Charleston market had 17,114 home sales during 2016 with a median sales price of $245,000 compared to 16,202 home sales in 2015 at a median price of $229,000. Mortgage loan originations decreased $15,021,252 or 16.50% to $76,032,671 for the year ended December 31, 2016 from $91,053,923 for the year ended December 31, 2015. Service charges, fees and commissions increased $70,342 to $1,061,349 for the year ended December 31, 2016 from $991,007 for the year ended December 31, 2015. This increase was primarily due to an increase of $52,416 in debit card fees resulting from increased usage particularly by our business customers. We also had gains of $380,904 on the sales of investment securities during the year ended December 31, 2016 compared to gains of $423,832 during the year ended December 31, 2015.

Other expense increased $758,969 or 7.98% to $10,272,444 for the year ended December 31, 2016, from $9,513,475 for the year ended December 31, 2015. Salaries and employee benefits increased $228,726 or 3.90% from $5,859,203 for the year ended December 31, 2015 to $6,087,929 for the year ended December 31, 2016. Base wages increased $134,013 to $4,768,176 for the year ended December 31, 2016. This increase was primarily due to annual merit increases. Our contribution to the ESOP increased from $315,000 in 2015 to $345,000 for 2016.

 18

Other operating expenses increased $471,394. During 2016, the Company invested in a South Carolina Historic Rehabilitation Tax Credit of $937,211. The credit will be amortized over three years. For the year ended December 31, 2016, the Company amortized $325,000 of the credit.

Our net occupancy expense increased $47,442 or 3.20% to $1,528,048 for the year ended December 31, 2016, from $1,480,606 for the year ended December 31, 2015. Our net occupancy expense includes rent and insurance on our banking locations as well as the cost of repairs and maintenance on these facilities. Occupancy expense increased primarily due to annual rent increases at our Meeting Street and Summerville banking locations as well as an increase in insurance on banking locations, offset by a decrease in the cost of maintenance and repairs and depreciation on furniture, fixtures and equipment.

For the year ended December 31, 2016, the Company’s effective tax rate was 24.34% compared to 31.89% during the year ended December 31, 2015. The Company invested in a South Carolina Historic Rehabilitation Tax Credit during 2016 which resulted in a decrease to the effective rate.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2015 TO DECEMBER 31, 2014

Net income increased $485,468 or 11.04% to $4,884,288, or basic and diluted income per share of $.99 and $.96, respectively for the year ended December 31, 2015 from $4,398,820 or basic and diluted income per share of $.90 and $.87, respectively for the year ended December 31, 2014. This increase is primarily due to increases in interest and fees on loans, interest and dividends earned on investment securities, and mortgage banking income as well as gains recognized on the sale of investment securities available for sale. Our returns on average assets and average equity for the year ended December 31, 2015 were 1.29% and 12.64%, respectively, compared with 1.23% and 12.12%, respectively, for the year ended December 31, 2014.

Net interest income increased $818,246 or 6.29% to $13,827,553 for the year ended December 31, 2015 from $13,009,307 for the year ended December 31, 2014. This increase was primarily due to increases in interest and fees on loans and interest and dividends on investment securities. Interest and fees on loans increased $532,255 or 4.73% to $11,795,303 for the year ended December 31, 2015 from $11,263,048 for the year ended December 31, 2014, as the result of an improving local economy and consumer confidence. Interest and dividends on investment securities increased $283,604 or 13.47% to $2,389,079 for the year ended December 31, 2015 from $2,105,475 for the year ended December 31, 2014.

Average earning assets increased $20,554,548 or 5.85% to $371,912,932 for the year ended December 31, 2015 from $351,358,384 for the year ended December 31, 2014. Average loans increased $11,448,157 or 4.93% for the year ended December 31, 2015. Average investments increased $11,145,085 or 11.20% to $110,633,399 for the year ended December 31, 2015 from $99,488,314 for the year ended December 31, 2014.

The provision to the allowance for loan losses for the year ended December 31, 2015 was $192,500 compared to $82,500 for the year ended December 31, 2014. The Board of Directors determined that this provision was appropriate based upon the strength of our reserve and the anticipation of continued loan growth and an improving economy. Charge-offs of $201,071, recoveries of $91,550, together with the provision to the allowance, resulted in an allowance for loan losses of $3,417,827 or 1.41% of total loans at December 31, 2015.

Non-interest income increased $471,257 or 18.27% to $3,049,958 for the year ended December 31, 2015. Our mortgage banking income increased $290,656 or 22.10% to $1,605,676 for the year ended December 31, 2015 from $1,315,020 for the year ended December 31, 2014. Mortgage banking income is highly influenced by mortgage interest rates and the housing market. According to local real estate market reports, the sales volume in the Charleston market increased 14% for the year ended December 31, 2015 compared to the year ended December 31, 2014. The Charleston market had 16,202 home sales during 2015 with a median sales price of $229,000 compared to 14,256 home sales in 2014 at a median price of $215,000. Mortgage loan originations increased $19,286,123 or 26.87% to $91,053,923 for the year ended December 31, 2015 from $71,767,800 for the year ended December 31, 2014. Service charges, fees and commissions increased $69,369 to $991,007 for the year ended December 31, 2015 from $921,638 for the year ended December 31, 2014. This increase was primarily due to an increase of $71,267 in debit card fees resulting from increased usage particularly by our business customers. We also had a gain of $423,832 on the sales of investment securities during the year ended December 31, 2015 compared to a gain of $312,577 on the sales of investment securities during the year ended December 31, 2014.

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Other expense increased $404,653 or 4.44% to $9,513,475 for the year ended December 31, 2015, from $9,108,822 for the year ended December 31, 2014. Salaries and employee benefits increased $392,757 or 7.18% from $5,466,446 for the year ended December 31, 2014 to $5,859,203 for the year ended December 31, 2015. Base wages increased $290,826 to $4,634,163 for the year ended December 31, 2015. This increase was primarily due to annual merit increases and the addition of new positions in our Credit and Technology Departments. The cost of providing insurance for employees including workers compensation increased $44,308 from $576,305 for the year ended December 31, 2014 to $620,613 for the year ended December 31, 2015. Our monthly contribution to the ESOP increased from $22,500 in 2014 to $25,000 for the first six months of 2015 with an additional increase in July 2015 to $27,500. Total contributions for the year ended December 31, 2015 increased 12.50% to $315,000 compared to $280,000 for the year ended December 31, 2014.

Our net occupancy expense increased $6,906 or .47% to $1,480,606 for the year ended December 31, 2015, from $1,473,700 for the year ended December 31, 2014. Our net occupancy expense includes rent and insurance on our banking locations as well as the cost of repairs and maintenance on these facilities. Occupancy expense increased primarily due to annual rent increases at our Meeting Street and Summerville banking locations as well as an increase in insurance on banking locations, offset by a decrease in the cost of maintenance and repairs and depreciation on furniture, fixtures and equipment.

For the year ended December 31, 2015, the Company’s effective tax rate was 31.89% compared to 31.23% during the year ended December 31, 2014.

ASSET AND LIABILITY MANAGEMENT

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. The responsibility of managing asset and liability procedures is directed by the Asset and Liability/Investment Committee (“ALCO”) with the ultimate responsibility resting with the Chief Executive Officer. At December 31, 2016, total assets were $413,949,636, an increase of 3.70% from December 31 2015; total deposits were $372,522,851, an increase of 3.85% from the end of the previous year.

At December 31, 2016, approximately 97.37% of our assets were earning assets composed of U.S. Treasury, Government Sponsored Enterprises and Municipal Securities in the amount of $119,978,944, interest-bearing deposits in other banks in the amount of $18,101,300 and total loans including mortgage loans held for sale in the amount of $264,962,325.

The yield on a majority of our earning assets adjusts simultaneously with changes in the general level of interest rates. Some of the Company’s liabilities are issued with fixed terms and can be repriced only at maturity.

MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and interest rates. Our risk consists primarily of interest rate risk in our lending and investing activities as they relate to their funding by deposit and borrowing activities.

Our policy is to minimize interest rate risk between interest-bearing assets and liabilities at various maturities and to attempt to maintain an asset sensitive position over a six-month period. By adhering to this policy, we anticipate that our net interest margins will not be materially affected, unless there is an extraordinary precipitous change in interest rates. The average net interest rate spread for 2016 decreased to 3.64% from 3.65% for 2015 and the average net interest margin for 2016 decreased to 3.71% from 3.72% for 2015. At December 31, 2016 and 2015, our net cumulative gap was liability sensitive for periods less than one year and asset sensitive for periods of one year or more. The reason for the shift in sensitivity is the direct result of management’s strategic decision to invest excess funds held at the Federal Reserve into fixed rate investment securities that match our investment policy objectives. Management is aware of this departure from policy and will continue to closely monitor our sensitivity position going forward.

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Since the rates on most of our interest-bearing liabilities can vary on a daily basis, we continue to maintain a loan portfolio priced predominately on a variable rate basis. However, in an effort to protect future earnings in a declining rate environment, we offer certain fixed rates, interest rate floors, and terms primarily associated with real estate transactions. We seek stable, long-term deposit relationships to fund our loan portfolio. Furthermore, we do not have any brokered deposits or internet deposits.

At December 31, 2016, the average maturity of the investment portfolio was 4.13 years with an average yield of 1.99% compared to 4.28 years with an average yield of 2.16% at December 31, 2015.

We do not take foreign exchange or commodity risks. In addition, we do not own mortgage-backed securities nor do we have any exposure to the sub-prime market or any other distressed debt instruments.

The following table summarizes our interest sensitivity position as of December 31, 2016:

Earning Assets (in 000’s)	1 Day			Less Than 3 Months			3 Months to Less Than 6 Months			6 Months to Less Than 1 Year			1 Year to Less Than 5 Years		5 years or More		Total		Estimated Fair Value
Loans (1)	$	143,900		$	22,783		$	17,725		$	22,830		$	57,046	$	678	$	264,962	$	264,793
Investment securities (2)		—			995			1,835			513			82,849		34,750		120,942		119,979
Interest-bearing deposits		18,101			—			—			—			—		—		18,101		18,101
Total	$	162,001		$	23,778		$	19,560		$	23,343		$	139,895	$	35,428	$	404,005	$	402,873
Interest-bearing Liabilities (in 000’s)
CD’s and other time deposits 100,000 and over	$	225		$	13,280		$	8,419		$	8,236		$	1,297	$	—	$	31,457	$	31,470
CD’s and other time deposits under 100,000		17			3,904			3,401			3,539			1,520		3		12,384		12,386
Money market and interest bearing demand accounts		173,569			—			—			—			—		—		173,569		173,569
Savings		29,079			—			—			—			—		—		29,079		29,079
Total	$	202,890		$	17,184		$	11,820		$	11,775		$	2,817	$	3	$	246,489	$	246,504
Net	$	(40,889	)	$	6,594		$	7,740		$	11,568		$	137,078	$	35,425	$	157,516
Cumulative				$	(34,295	)	$	(26,555	)	$	(14,987	)	$	122,091	$	157,516

(1) Including mortgage loans to be sold and deferred fees.

(2) At amortized cost

 21

LIQUIDITY

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

The following table summarizes future contractual obligations as of December 31, 2016:

	Payment Due by Period
	Total		Less than 1 Year		1-5 Years		After 5 Years
Contractual Obligations (in 000’s)
Time deposits	$	43,841	$	41,021	$	2,817	$	3
Operating leases		7,760		615		2,436		4,709
Total contractual cash obligations	$	51,601	$	41,636	$	5,253	$	4,712

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, investments available for sale, interest-bearing deposits in other banks, and mortgage loans held for sale. Our primary liquid assets accounted for 36.38% and 38.83% of total assets at December 31, 2016 and 2015, respectively. Securities classified as available for sale, which are not pledged, may be sold in response to changes in interest rates and liquidity needs. All of the securities presently owned are classified as Available for Sale. Net cash provided by operations and deposits from customers have been the primary sources of liquidity. At December 31, 2016, we had unused short-term lines of credit totaling approximately $21 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 selling mortgage loans held for sale. We also 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 December 31, 2016 we could borrow up to $75 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 reliance on certificates of deposit greater than $100,000 and other large deposits. We maintain a Contingency Funding Plan (“CFP”) that identifies liquidity needs and weighs alternate courses of action designed to address these needs in emergency situations. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the expected funding needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to meet our operating needs and do not know of any trends, events or uncertainties that may result in a significant adverse effect on our liquidity position. At December 31, 2016 and 2015, our liquidity ratio was 38.27% and 37.27%, respectively.

Composition of Average Assets

	2016		2015		2014		2013		2012
Loans (1)	$	265,151,258	$	243,729,630	$	232,281,473	$	226,267,071	$	220,780,471
Investment securities available for sale		110,762,289		110,633,399		99,488,314		67,484,036		57,982,652
Federal funds sold and other investments including interest-bearing deposits in other banks		26,474,258		17,549,903		19,588,597		31,524,293		32,386,509
Non-earning assets		8,193,755		7,614,172		7,415,900		6,817,090		6,288,906
Total average assets	$	410,581,560	$	379,527,104	$	358,774,284	$	332,092,490	$	317,438,538

(1) Including mortgage loans to be sold and deferred fees.

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Average earning assets increased by $30,474,873 from 2015 to 2016. This increase was primarily due to a $21,421,628 increase in average loans and an $8,924,355 increase in average interest-bearing deposits in other banks. We have seen an increase in loan demand primarily due to our business development efforts coupled with an improving economy.

ANALYSIS OF CHANGES IN NET INTEREST INCOME

The following table shows changes in interest income and expense based upon changes in volume and changes in rates:

	2016 vs. 2015									2015 vs. 2014									2014 vs. 2013
	Volume			Rate			Net Dollar Change (1)			Volume			Rate			Net Dollar Change (1)			Volume			Rate			Net Dollar Change (1)
Loans (2)	$	1,038,280		$	18,317		$	1,056,597		$	554,074		$	(21,819	)	$	532,255		$	294,070		$	(219,770	)	$	74,300
Investment securities available for sale		2,780			(86,785	)		(84,005	)		239,933			43,671			283,604			679,162			(56,281	)		622,881
Interest-bearing deposits in other banks		31,025			62,032			93,057			(5,272	)		1,107			(4,165	)		(30,304	)		(415	)		(30,719	)
Interest Income	$	1,072,085		$	(6,436	)	$	1,065,649		$	788,735		$	22,959		$	811,694		$	942,928		$	(276,466	)	$	666,462
Interest-bearing transaction accounts	$	28,628		$	1,050		$	29,678		$	9,146		$	215		$	9,361		$	(203	)	$	68		$	(135	)
Savings		3,061			295			3,356			3,474			(268	)		3,206			4,584			107			4,691
Time deposits		(48,234	)		(7,529	)		(55,763	)		(17,738	)		(1,633	)		(19,371	)		15,375			(27,793	)		(12,418	)
Securities sold under agreement to repurchase		(1,817	)		891			(926	)		(160	)		412			252			681			—			681
Interest expense	$	(18,362	)	$	(5,293	)	$	(23,655	)	$	(5,278	)	$	(1,274	)	$	(6,552	)	$	20,437		$	(27,618	)	$	(7,181	)
Increase in net interest income							$	1,089,304								$	818,246								$	673,643

(1) Volume/Rate changes have been allocated to each category based on the percentage of each to the total change.

(2) Including mortgage loans to be sold

YIELDS ON AVERAGE EARNING ASSETS AND RATES ON AVERAGE INTEREST-BEARING LIABILITIES

	2016							2015							2014
	Average Balance		Interest Paid/ Earned		Average Yield/ Rate (1)			Average Balance		Interest Paid/Earned		Average Yield/Rate (1)			Average Balance		Interest Paid/Earned		Average Yield/ Rate (1)
Interest-Earning Assets
Loans (2)	$	265,151,258	$	12,851,900		4.85	%	$	243,729,630	$	11,795,303		4.84	%	$	232,281,473	$	11,263,048		4.85	%
Investment securities available for sale		110,762,289		2,305,074		2.08	%		110,633,399		2,389,079		2.16	%		99,488,314		2,105,475		2.12	%
Interest-bearing deposits in other banks		26,474,258		138,623		0.52	%		17,549,903		45,566		0.26	%		19,588,597		49,731		0.25	%
Total earning assets	$	402,387,805	$	15,295,597		3.80	%	$	371,912,932	$	14,229,948		3.83	%	$	351,358,384	$	13,418,254		3.82	%
Interest-Bearing Liabilities:
Interest-bearing transaction accounts	$	167,534,223	$	164,286		0.10	%	$	138,332,181	$	134,608		0.10	%	$	128,932,314	$	125,247		0.10	%
Savings		28,687,719		34,271		0.12	%		26,123,223		30,915		0.12	%		23,189,946		27,709		0.12	%
Time deposits		47,930,721		180,176		0.38	%		60,726,160		235,939		0.39	%		65,289,165		255,310		0.39	%
Securities sold under agreement to repurchase		751		7		0.93	%		1,934,493		933		0.05	%		2,426,044		681		0.03	%
Total interest-bearing liabilities	$	244,153,414	$	378,740		0.16	%	$	227,116,057	$	402,395		0.18	%	$	219,837,469	$	408,947		0.19	%
Net interest spread						3.64	%						3.65	%						3.63	%
Net interest margin						3.71	%						3.72	%						3.70	%
Net interest income			$	14,916,857						$	13,827,553						$	13,009,307

(1) The effect of forgone interest income as a result of non-accrual loans was not considered in the above analysis.

(2) Average loan balances include non-accrual loans and mortgage loans to be sold.

23 

INVESTMENT PORTFOLIO

The following tables summarize the carrying value of investment securities as of the indicated dates and the weighted-average yields of those securities at December 31, 2016.

December 31, 2016 (in thousands)	Amortized Cost Due
	Due Within One Year			After One Through Five Years			After Five Through Ten Years			After Ten Years			Total			Market Value
Investment securities
U.S. Treasury Notes	$	—		$	24,148		$	—		$	—		$	24,148		$	23,939
Government-sponsored Enterprises		—			40,897			10,841			—			51,738			51,034
Municipal securities		3,343			17,804			18,821			5,089			45,057			45,006
Total	$	3,343		$	82,849		$	29,662		$	5,089		$	120,943		$	119,979
Weighted average yields
U.S. Treasury Notes		—	%		1.70	%		—	%		—	%
Government-sponsored Enterprises		—	%		1.81	%		1.46	%		—	%
Municipal securities		1.92	%		2.43	%		2.64	%		2.11	%
Total		1.92	%		1.91	%		2.21	%		2.11	%		1.99	%

December 31, 2015 (in thousands)	Book Value		Market Value
Investment securities
U.S. Treasury Notes	$	34,518	$	34,634
Government-sponsored Enterprises		51,136		51,284
Municipal securities		32,768		34,080
Total	$	118,422	$	119,998
December 31, 2014 (in thousands)	Book Value		Market Value
Investment securities
U.S. Treasury Notes	$	29,162	$	29,248
Government-sponsored Enterprises		50,195		50,143
Municipal securities		32,664		34,603
Total	$	112,021	$	113,994

At December 31, 2016, we had four US Treasury Notes with an unrealized loss of $250,385, eight Agency Notes with an unrealized loss of $833,321 and fifty-four Municipal Securities with an unrealized loss of $816,413 compared to two US Treasury Notes with an unrealized loss of $45,360, three Agency Notes with an unrealized loss of $133,744 and six Municipal Securities with an unrealized loss of $28,724 at December 31, 2015. The unrealized losses on these investments were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Therefore, these investments are not considered other-than-temporarily impaired. We have the ability to hold these investments until market price recovery or maturity.

The primary purpose of the investment portfolio is to fund loan demand, to help manage fluctuations in deposits and liquidity, to satisfy pledging requirements and, at the same time, to generate a favorable return on investment. In doing these things, our main objective is to adhere to sound investment practices. To that end, all purchases and sales of investment securities are made through reputable securities dealers that have been approved by the Board of Directors, who also review the entire investment portfolio at each regular monthly meeting. In addition, we report to the Board on a monthly basis any purchases, sales, calls, and maturities during the previous month. Furthermore, a financial underwriting review of all municipal securities and their corresponding municipalities is conducted annually by Credit Personnel and reviewed by management.

24 

LOAN PORTFOLIO COMPOSITION

We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets. At December 31, 2016, outstanding loans (including mortgage loans and deferred loan fees of $136,446) totaled $264,959,325, which equaled 71.13% of total deposits and 64.01% of total assets. Substantially all loans were to borrowers located in our market area of Charleston, Dorchester and Berkeley counties of South Carolina.

The following is a schedule of our loan portfolio, excluding both mortgage loans to be sold and deferred loan fees, as of December 31, 2016, as compared to the prior four years:

	Book Value (in 000’s) As of December 31,
Type	2016		2015		2014		2013		2012
Commercial and industrial loans	$	52,393	$	50,871	$	49,643	$	53,183	$	54,959
Real estate loans		200,016		185,453		179,238		160,819		157,525
Loans to individuals for household, family and other personal expenditures		6,976		4,985		4,989		4,029		4,365
All other loans (including overdrafts)		1,055		1,196		158		223		159
Total Loans (excluding unearned income)	$	260,440	$	242,505	$	234,028	$	218,254	$	217,008

We had no foreign loans or loans to fund leveraged buyouts (“LBO’s”) at any time during the years ended December 31, 2012 through December 31, 2016.

The following table presents the contractual terms to maturity for loans outstanding at December 31, 2016. Demand loans, loans having no stated schedule of repayment or stated maturity, and overdrafts are reported as due in one year or less. The table does not include an estimate of prepayments, which can significantly affect the average life of loans and may cause our actual principal experience to differ from that shown.

SELECTED LOAN MATURITY (in 000’s)

AT DECEMBER 31, 2016

	One year or less		Over one but less than five years		Over five years		Total
Type
Commercial and industrial loans	$	42,117	$	10,216	$	60	$	52,393
Real estate loans		133,339		54,411		12,266		200,016
Loans to individuals for household, family and other personal expenditures		4,341		2,600		35		6,976
All other loans (including overdrafts)		25		1,030		—		1,055
Total Loans (excluding unearned income)	$	179,822	$	68,257	$	12,361	$	260,440
Loans maturing after one year with:
Fixed interest rates							$	57,458
Floating interest rates								23,160
							$	80,618

25 

IMPAIRED LOANS

A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans placed on non-accrual status are classified as impaired. However, not all impaired loans are on non-accrual status nor do they all represent a loss.

Impairment loss is measured by:

a. The present value of the future cash flow discounted at the loan’s effective interest rate, or, alternatively,

b. The fair value of the collateral if the loan is collateral dependent.

The following is a schedule of our impaired loans (non-accrual loans included) and non-accrual loans.

Impaired Loans
At December 31,
2016		2015		2014		2013		2012
$	5,901,784	$	6,542,707	$	7,051,127	$	7,136,907	$	11,498,279
Non-Accrual Loans
At December 31,
2016			2015		2014		2013		2012
$	1,741,621	$	2,061,088	$	882,413	$	1,575,440	$	3,993,816

TROUBLED DEBT RESTRUCTURINGS

According to GAAP, we are required to account for certain loan modifications or restructuring as a troubled debt restructuring (“TDR”), when appropriate. In general, the modification or restructuring of a debt is considered a TDR if we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise consider. Three factors must always be present: 

1. An existing credit must formally be renewed, extended, or modified. 

2. The borrower is experiencing financial difficulties.

3. We grant a concession that we would not otherwise consider.

The following is a schedule of our TDR’s including the number of loans represented.

Troubled Debt Restructurings
At December 31,
2016		2015		2014		2013		2012
#		#		#		#		#
2	$        378,382	3	$        458,268	2	$        466,541	4	$        1,196,341	5	$        1,618,278

One TDR with a balance of $72,919 at December 31, 2015, paid out during 2016. During the year ended December 31, 2014 a loan receivable with a balance of $496,090, was removed from TDR status. The borrower consistently paid as agreed and made substantial reductions to principal. Refinance guidance Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 310-20-35-9 allows for a loan to be removed from TDR status if the terms of the loan reflect current market rates and the loan has been performing under modified terms for an extended period of time or under certain circumstances. In addition, one loan receivable with a balance of $106,194 at December 31, 2013, was paid off during the year ended December 31, 2014. We do not know of any potential problem loans which will not meet their contractual obligations that are not otherwise discussed herein.

26 

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses represents our estimate of probable losses inherent in our loan portfolio. The adequacy of the allowance for loan losses (the “allowance”) is reviewed by the Loan Committee and by the Board of Directors on a quarterly basis. For purposes of this analysis, adequacy is defined as a level sufficient to absorb estimated losses in the loan portfolio as of the balance sheet date presented. To remain GAAP compliant, the methodology employed for this analysis has been modified over the years to reflect the economic environment. This allowance is reviewed on a quarterly basis by Credit Personnel. In addition, the allowance is validated on a periodic basis by the Company’s Risk Management Officer. The methodology is based on a Reserve Model that is comprised of the three components listed below:

1) Specific reserve analysis for impaired loans based on Financial Accounting Standards Board (“FASB”) “receivables” topic ASC 310-10-35.

2) General reserve analysis applying historical loss rates based on FASB “contingencies” topic ASC 450-20.

3) Qualitative or environmental factors.

Loans greater than $50,000 are reviewed for impairment on a quarterly basis if any of the following criteria are met:

1) Any loan on non-accrual

2) Any loan that is a troubled debt restructuring

3) Any loan over 60 days past due

4) Any loan rated sub-standard, doubtful, or loss

5) Excessive principal extensions are executed

6) If we are provided information that indicates we will not collect all principal and interest as scheduled

Impairment is measured by the present value of the future cash flow discounted at the loan’s effective interest rate, or, alternatively the fair value of the collateral if the loan is collateral dependent. An impaired loan may not represent an expected loss.

A general reserve analysis is performed on all loans, excluding impaired loans. This analysis includes a pool of loans that are reviewed for impairment but are not found to be impaired. Historical losses are segregated into risk-similar groups and a loss ratio is determined for each group over a five-year period. The five-year average loss ratio by type is then used to calculate the estimated loss based on the current balance of each group. The five-year historical loss percentage was .058% and .115% at December 31, 2016 and 2015, respectively.

Qualitative and environmental loss factors are also applied against the portfolio, excluding impaired loans. These factors include external risk factors that we believe are representative of our overall lending environment. We believe that the following factors create a more comprehensive loss projection which we can use to monitor the quality of the loan portfolio.

1) Portfolio risk

a) Levels and trends in delinquencies and impaired loans and changes in loan rating matrix

b) Trends in volume and terms of loans

c) Over-margined real estate lending risk

2) National and local economic trends and conditions

3) Effects of changes in risk selection and underwriting practices

4) Experience, ability and depth of lending management staff

5) Industry conditions

6) Effects of changes in credit concentrations

a) Loan concentration

b) Geographic concentration

c) Regulatory concentration

7) Loan and credit administration risk

a) Collateral documentation

b) Insurance risk

c) Maintenance of financial information risk

The sum of each component’s analysis contributes to the “estimated loss” within our total portfolio.

27 

Portfolio risk includes the levels and trends in delinquencies, impaired loans and changes in the loan rating matrix, trends in volume and terms of loans and overmargined real estate lending. We are satisfied with the stability of the past due and non-performing loans and believe there has been no decline in the quality of our loan portfolio due to any trend in delinquent or adversely classified loans. Sizable unsecured principal balances on a non-amortizing basis are monitored. Although the vast majority of our real estate loans are underwritten on a cash flow basis, the secondary source of repayment is typically tied to our ability to realize on the collateral. Accordingly, we closely monitor loan to value ratios. The maximum collateral advance rate is 80% on all real estate transactions, with the exception of raw land at 65% and land development at 70%.

Occasionally, we extend credit beyond our normal collateral advance margins in real estate lending. Although infrequent, the aggregate of these loans represent a notable part of our portfolio. Accordingly, these loans are monitored and the balances reported to the Board every quarter. An excessive level of this practice (as a percentage of capital) could result in additional regulatory scrutiny, competitive disadvantages and potential losses if forced to convert the collateral. The consideration of overmargined real estate loans directly relates to the capacity of the borrower to repay. We often request additional collateral to bring the loan to value ratio within the policy objectives and also require a strong secondary source of repayment in addition to the primary source of repayment.

Although significantly under the threshold of 100% of capital (currently approximately $41 million), the number of overmargined real estate loans currently totals approximately $10,015,945 or approximately 3.84% of our loan portfolio at December 31, 2016 compared to $11,441,700 or approximately 4.61% of the loan portfolio at December 31, 2015.

A credit rating matrix is used to rate all extensions of credit and to provide a more specified picture of the risk each loan poses to the quality of the loan portfolio. There are eight possible ratings used to determine the quality of each loan based on the following characteristics: cash flow, collateral quality, guarantor strength, financial condition, management quality, operating performance, the relevancy of the financial statements, historical loan performance, and the borrower’s leverage position. The matrix is designed to meet our standards and expectations of loan quality. One hundred percent of our loans are graded.

National and local economic trends and conditions are constantly changing and both positively and negatively impact borrowers. Most macroeconomic conditions are not controllable by us and are incorporated into the qualitative risk factors. Natural and environmental disasters, political uncertainty, international instability, as well as problems in the traditional mortgage market are a few of the trends and conditions that are currently affecting the national and local economies. These changes have impacted borrowers’ ability, in many cases, to repay loans in a timely manner. On occasion, a loan’s primary source of repayment (i.e., personal income, cash flow, or lease income) may be eroded as a result of unemployment, lack of revenues, or the inability of a tenant to make rent payments.

The quality of our loan portfolio is contingent upon our risk selection and underwriting practices. All new credits (except for mortgage loans in the process of being sold to investors and loans secured by properly margined negotiable securities traded on an established market or other cash collateral) with over $200,000 in exposure are reviewed by the Loan Committee on a monthly basis. The Board of Directors review credits over $500,000 monthly. Annual credit analyses are conducted on credits over $350,000 upon the receipt of updated financial information. Prior to any extension of credit, every significant commercial loan goes through sound credit underwriting. The Credit Department conducts a detailed cash flow on each proposal using the most current financial information.

We have over 350 years of lending experience among our lending staff. In addition to the lending staff, we have an Advisory Board for each office comprised of business and community leaders from the specific office market area. An additional Advisory Board was created during the year ended December 31, 2012, to support our business efforts in the North Charleston area of South Carolina. We meet with these advisory boards quarterly to discuss the trends and conditions in each respective market. We are aware of the many challenges currently facing the banking industry. As other banks look to increase earnings in the short term, we will continue to emphasize the need to maintain safe and sound lending practices and core deposit growth managed with a long term objective.

28 

There continues be an influx of new banks in our geographic area. This increase has decreased the local industry’s overall margins as a result of pricing competition. We believe that our borrowing base is well established and therefore unsound price competition is not necessary.

The risks associated with the effects of changes in credit concentration include loan concentration, geographic concentration and regulatory concentration.

As of December 31, 2016, there were only two Standard Industrial Code groups that comprised more than 2% of our total outstanding loans. The two groups are activities related to real estate and offices and clinics of doctors.

We are located along the coast and on an earthquake fault, increasing the chances that a natural disaster may impact us and our borrowers. We have a Disaster Recovery Plan in place; however, the amount of time it would take for our customers to return to normal operations is unknown. Our plan is reviewed and tested annually.

Loan and credit administration risk includes collateral documentation, insurance risk and maintaining financial information risk.

The majority of our loan portfolio is collateralized with a variety of our borrowers’ assets. The execution and monitoring of the documentation to properly secure the loan is the responsibility of our lenders and Loan Department. We require insurance coverage naming us as the mortgagee or loss payee. Although insurance risk is also considered collateral documentation risk, the actual coverage, amounts of coverage and increased deductibles are important to management. Recent legislation passed by Congress addresses the need for reform to the National Flood Insurance Program. This legislation, known as the Biggert Waters Flood Insurance Reform and Modernization Act of 2012, resulted in significant unintended consequences causing dramatic increases in the cost of flood insurance coverage and its potential unaffordability. However, on March 14, 2014 the Office of the President signed the 2014 Homeowner Flood Insurance Affordability Act. This law allows most properties to retain their subsidized premiums. Annual rate increases are also limited to 18% per year and the grandfather plan has been reinstated. In addition, the law requires the Federal Emergency Management Agency (“FEMA”) to refund policy holders who overpaid for premiums under the Biggert Waters Flood Insurance Reform and Modernization Act of 2012.

Risk includes a function of time during which the borrower’s financial condition may change; therefore, keeping financial information up to date is important to us. Our policy requires all new loans (with a credit exposure of $10,000 or more), regardless of the customer’s history with us, to have updated financial information. In addition, we monitor appraisals closely as real estate values are improving.

Based on our allowance for loan loss model, we recorded a provision for loan loss of $570,000 for the year ended December 31, 2016 primarily based on loan growth, compared to $192,500 for the year ended December 31, 2015. At December 31, 2016, the five-year average loss ratios were: 0.110% Commercial, 0.059% Consumer, 0.102% 1-4 Residential, 0.000% Real Estate Construction and 0.018% Real Estate Mortgage.

During the year ended December 31, 2016, charge-offs of $208,295 and recoveries of $72,085 were recorded to the allowance for loan losses, resulting in an allowance for loan losses of $3,851,617 or 1.48% of total loans, compared to charge-offs of $201,071 and recoveries of $91,550 resulting in an allowance for loan losses of $3,417,827 or 1.41% of total loans at December 31, 2015.

We had impaired loans totaling $5,901,784 as of December 31, 2016 compared to $6,542,707 at December 31, 2015. Impaired loans include non-accrual loans with balances at December 31, 2016, and 2015, of $1,741,621 and $2,061,088, respectively and TDRs with balances at December 31, 2016 and 2015 of $378,392 and $458,268, respectively. We had two restructured loans at December 31, 2016 and three restructured loans at December 31, 2015. According to GAAP, we are required to account for certain loan modifications or restructuring as a troubled debt restructuring, when appropriate. In general, the modification or restructuring of a debt is considered a TDR if we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise consider. We do not know of any loans which will not meet their contractual obligations that are not otherwise discussed herein.

29 

The accrual of interest is generally discontinued on loans which become 90 days past due as to principal or interest. The accrual of interest on some loans, however, may continue even though they are 90 days past due if the loans are well secured or in the process of collection and we deem it appropriate. If non-accrual loans decrease their past due status to less than 30 days for a period of 6 to 9 months, they are reviewed individually to determine if they should be returned to accrual status. At December 31, 2016 there were two loans over 90 days past due still accruing interest compared to one loan over 90 days past due still accruing interest at December 31, 2015. The loans at December 31, 2016 were both considered impaired. One loan subsequently renewed and payments were brought current. The other loan was put on nonaccrual status subsequent to year-end.

Net charge-offs for the year ended December 31, 2016, were $136,210 as compared to net charge-offs of $109,521 for the year ended December 31, 2015. Although uncertainty in the national and international economic outlook still exists, we believe loss exposure in the portfolio is identified, reserved against, and closely monitored, to ensure that changes are promptly addressed in the analysis of reserve adequacy.

The following table represents a summary of loan loss experience for the past five years.

Summary of Loan Loss Experience
(Dollars in thousands)	2016			2015			2014			2013			2012
Balance of allowance for loan losses at beginning of period	$	3,418		$	3,335		$	3,292		$	3,433		$	3,107
Charge offs:
Commercial		(33	)		(100	)		(83	)		(245	)		(60	)
Commercial real estate - construction		—			—			—			—			—
Commercial real estate - other		(78	)		(55	)		(16	)		—			(44	)
Consumer real estate		(82	)		(6	)		—			—			(56	)
Consumer other		(15	)		(40	)		(14	)		(146	)		(12	)
Total charge-offs		(208	)		(201	)		(113	)		(391	)		(172	)
Recoveries:
Commercial		—			9			—			23			110
Commercial real estate - construction		—			—			—			—			—
Commercial real estate - other		65			54			46			15			13
Consumer real estate		—			6			—			—			10
Consumer other		7			22			27			5			15
Total recoveries		72			91			73			43			148
Net charge-offs		(136	)		(110	)		(40	)		(348	)		(24	)
Provision charged to operations		570			193			83			207			350
Balance of allowance for loan losses at end of period	$	3,852		$	3,418		$	3,335		$	3,292		$	3,433

We believe the allowance for loan losses at December 31, 2016, is adequate to cover estimated losses in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires considerable judgment. Our judgments are based on numerous assumptions about current events that we believe to be reasonable, but may or may not be valid. Thus, there can be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the allowance, thus adversely affecting our operating results.

30 

The following table presents a breakdown of the allowance for loan losses for the past five years.

	December 31,
	2016					2015					2014					2013					2012
(in thousands)	$		%(1)			$		%(1)			$		%(1)			$		%(1)			$		%(1)
Commercial	$	1,545		20	%	$	897		21	%	$	1,211		21	%	$	1,449		24	%	$	1,576		25	%
Commercial:
Real Estate - Construction		52		1	%		60		1	%		43		1	%		22		1	%		31		1	%
Real Estate - Other		1,375		47	%		1,345		47	%		1,112		49	%		1,064		49	%		767		50	%
Consumer:
Real Estate		726		29	%		941		29	%		863		27	%		673		25	%		947		22	%
Other		154		3	%		175		2	%		105		2	%		84		2	%		112		2	%
	$	3,852		100	%	$	3,418		100	%	$	3,335		100	%	$	3,292		100	%	$	3,433		100	%

(1) Loan category as a percentage of total loans.

The allowance is also subject to examination testing by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions, and other adequacy tests. In addition, such regulatory agencies could require us to adjust our allowance based on information available to them at the time of their examination.

The methodology used to determine the reserve for unfunded lending commitments, which is included in other liabilities, is inherently similar to the methodology used to determine the allowance for loan losses described above, adjusted for factors specific to binding commitments, including the probability of funding and historical loss ratio. A provision of $4,001 was recorded during the year ended December 31, 2016. No provision was considered necessary for the year ended December 31, 2015. The balance for the reserve for unfunded lending commitments was $24,826 and $20,825 as of December 31, 2016 and 2015, respectively.

OTHER REAL ESTATE OWNED

Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned (“OREO”) until it is sold. When the property is acquired, it is recorded at the lesser of fair value of the property less estimated selling costs or the total loan balance. It is in our best interest to determine the fair market value by engaging an independent appraisal within 30 days of property being acquired into OREO. We cannot hold the property for a period of more than five years unless we have prior approval from the Commissioner of Banking of the State Board of Financial Institutions. The Bank will pay property taxes along with insurance expenses until the property is sold. OREO at December 31, 2016 consisted of one property in the amount of $521,943 compared to two properties in the total amount of $620,394 at December 31, 2015. One property was sold during the year ended December 31, 2016 for a loss of $13,450. One loan receivable valued at $35,473 was moved to OREO during the year ended December 31, 2014, and ultimately sold at a gain of $2,382. We had no OREO during the years ended December 31, 2012 and December 31, 2013.

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NONPERFORMING ASSETS

Nonperforming assets include OREO, nonaccrual loans and loans past due 90 days or more and still accruing interest. The following table summarizes nonperforming assets for the five years ended December 31, 2016:

Nonperforming Assets	2016			2015			2014			2013			2012
(Dollars in thousands)
Nonaccrual loans	$	1,742		$	2,061		$	882		$	1,575		$	3,994
Loans past due 90 days or more and still accruing interest		123			2			1,274			—			—
Total nonperforming loans		1,865			2,063			2,156			1,575			3,994
Other real estate owned		522			620			522			—			—
Total nonperforming assets	$	2,387		$	2,683		$	2,678		$	1,575		$	3,994
Nonperforming assets to total assets		0.58	%		0.67	%		0.73	%		0.46	%		1.23	%
Nonperforming loans to total loans		0.72	%		0.85	%		0.92	%		0.72	%		1.84	%

DEPOSITS

(in 000’s)	1 Day		Less Than 3 Months		3 Months to Less Than 6 Months		6 Months to Less Than 1 Year		1 Year to Less Than 5 Years		5 years or More		Total
CD’s and other time deposits 100,000 and over	$	225	$	13,280	$	8,419	$	8,236	$	1,297	$	—	$	31,457
CD’s and other time deposits under 100,000	$	17	$	3,904	$	3,401	$	3,539	$	1,520	$	3	$	12,384

Certificates of Deposit $100,000 and over decreased $9,816,652 or 23.78% for the year ended December 31, 2016, from $41,273,428 at December 31, 2015. This decrease was primarily due to the maturity of Public Funds that were used for construction projects.

The following table presents average deposits by category:

	2016					2015					2014
			Average					Average					Average
	Average		Rate			Average		Rate			Average		Rate
(Dollars in thousands)	Amount		Paid			Amount		Paid			Amount		Paid
Non-interest-bearing demand	$	123,670		n/a		$	112,788		n/a		$	101,720		n/a
Interest-bearing transaction accounts		167,534		0.10	%		138,332		0.10	%		128,932		0.10	%
Savings		28,688		0.12	%		26,123		0.12	%		23,190		0.12	%
Time deposits		47,931		0.38	%		60,726		0.39	%		65,289		0.39	%
Total average deposits	$	367,823				$	337,969				$	319,131

Deposits increased $13,804,239 or 3.85% to $372,522,851 at December 31, 2016, from $358,718,612 at December 31, 2015. Non-interest bearing deposits increased $3,961,082 to $126,034,478 at December 31, 2016, primarily from new account growth and an improved economy. We also experienced larger balances in existing customer accounts as well as large escrow deposits resulting in an increase in our interest-bearing demand deposit accounts.

We fund growth through core deposits and do not have and therefore do not rely on Brokered Deposits or Internet Deposits as a source to do so.

32 

SHORT-TERM BORROWINGS

Securities sold under agreements to repurchase with customers mature on demand. At December 31, 2016 and 2015, there were no securities sold under agreements to repurchase. There was no amount outstanding at any month end during 2016. The maximum amount of securities sold under agreements to repurchase outstanding at any month end was $5,480,927 for the year ended December 31, 2015. The average amount of outstanding securities sold under agreements to repurchase was $751 and $1,873,507 during the years ended December 31, 2016 and 2015, respectively. The securities underlying repurchase agreements are held in safekeeping by an authorized broker. At the maturity date of the agreement, the securities are returned to our account.

At December 31, 2016 and 2015, we had no outstanding federal funds purchased. We have a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits the Company to retain possession of loans pledged as collateral to secure advances from the Federal Reserve Discount Window. Under this agreement, we may borrow up to $75 million. We established this arrangement as an additional source of liquidity. There have been no borrowings under this arrangement.

At December 31, 2016 and 2015, the Bank had unused short-term lines of credit totaling approximately $21,000,000 and $18,000,000, respectively (which are withdrawable at the lender’s option).

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. We use such transactions for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customer requests for funding.

Our off-balance sheet arrangements consist principally of commitments to extend credit described below. We estimate probable losses related to binding unfunded lending commitments and record a reserve for unfunded lending commitments in other liabilities on the consolidated balance sheet. At December 31, 2016 and 2015, the balance of this reserve was $24,827 and $20,825, respectively. At December 31, 2016 and 2015, we had no interests in non-consolidated special purpose entities.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on 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 $81,234,269 and $87,622,437 at December 31, 2016 and 2015, 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 December 31, 2016 and 2015 was $793,992 and $745,187, respectively.

33 

We originate certain fixed rate residential loans and commit these loans for sale. The commitments to originate fixed rate residential loans and the sales commitments are freestanding derivative instruments. We had forward sales commitments, totaling $4,386,210 at December 31, 2016, to sell loans held for sale of $4,386,210, compared to forward sales commitments of $5,820,239 at December 31, 2015, to sell loans held for sale of $5,820,239. The fair value of these commitments was not significant at December 31, 2016 or 2015. We had no embedded derivative instruments requiring separate accounting treatment.

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

EFFECT OF INFLATION AND CHANGING PRICES

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) which require the measurement of financial position and results of operations in terms of historical dollars without consideration of changes in the relative purchasing power over time due to inflation.

Unlike most other industries, the assets and liabilities of financial institutions such as the Company are primarily monetary in nature. As a result, interest rates generally have a more significant impact on our performance than do the effects of general levels of inflation and changes in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. We strive to manage the relationship between interest-sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

CAPITAL RESOURCES

Our capital needs have been met to date through the $10,600,000 in capital raised in our initial offering, the retention of earnings less dividends paid and the exercise of options to purchase stock. Total shareholders’ equity at December 31, 2016 was $40,612,974. The rate of asset growth since our inception has not negatively impacted this capital base.

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

Basel III became effective on January 1, 2015. The purpose is to improve the quality and increase the quantity of capital for all banking organizations. The minimum requirements for the quantity and quality of capital were increased. The rule includes a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and requires a minimum leverage ratio of 4%. In addition, the rule also implements strict eligibility criteria for regulatory capital instruments and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Full compliance with all of the final rule requirements will be phased in over a multi-year schedule.

At December 31, 2016, the Bank was categorized as “well capitalized”. To be categorized as “well capitalized” the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital and Tier 1 leverage ratios of 10%, 8.0%, 6.5% and 5%, respectively, and to be categorized as “adequately capitalized,” the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital, and Tier 1 leverage ratios of 8%, 6%, 4.5%, and 4.0%, respectively.

34 

We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a material effect on the financial statements. We must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Current and previous quantitative measures established by regulation to ensure capital adequacy require that we maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and to average assets. We believe, as of December 31, 2016, that the Company and the Bank meet all capital adequacy requirements to which we are subject.

There are no current conditions or events that we are aware of that would change the Company’s or the Bank’s category.

Please see “Notes to Consolidated Financial Statements” for the Company’s and the Bank’s various capital ratios at December 31, 2016.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

See the Market Risk section in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in Item 7 of this report.

35 

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Bank of South Carolina Corporation and Subsidiary

Charleston, South Carolina

We have audited the accompanying consolidated balance sheets of Bank of South Carolina Corporation and Subsidiary as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bank of South Carolina Corporation and Subsidiary as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

/s/ Elliott Davis Decosimo, LLC

Columbia, South Carolina

March 3, 2017

36 

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
	DECEMBER 31,
	2016			2015
ASSETS
Cash and due from banks	$	8,141,030		$	5,295,924
Interest-bearing deposits in other banks		18,101,300			23,898,862
Investment securities available for sale (amortized cost of $120,942,615 and $118,422,116 in 2016 and 2015, respectively)		119,978,944			119,997,585
Mortgage loans to be sold		4,386,210			5,820,239
Loans		260,576,115			242,622,705
Less: Allowance for loan losses		(3,851,617	)		(3,417,827	)
Net loans		256,724,498			239,204,878
Premises, equipment and leasehold improvements, net		2,296,624			2,289,228
Other real estate owned		521,943			620,394
Accrued interest receivable		1,614,002			1,284,063
Other assets		2,185,085			761,339
Total assets	$	413,949,636		$	399,172,512
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest-bearing demand	$	126,034,478		$	122,073,396
Interest-bearing demand		96,260,589			84,977,640
Money market accounts		77,307,662			70,233,422
Time deposits over $250,000		17,822,136			25,896,768
Other time deposits		26,019,121			28,871,044
Other savings deposits		29,078,865			26,666,342
Total deposits		372,522,851			358,718,612
Accrued interest payable and other liabilities		813,811			1,302,188
Total liabilities		373,336,662			360,020,800
Commitments and contingencies Notes 6 and 11
Shareholders’ equity
Common stock-no par, 12,000,000 shares authorized; 5,197,535 and 5,157,996 shares issued at December 31, 2016 and 2015, respectively; 4,956,139 and 4,916,600 shares outstanding at December 31, 2016 and 2015, respectively		—			—
Additional paid in capital		36,824,022			36,341,744
Retained earnings		6,643,476			4,064,834
Treasury stock: 241,396 shares at December 31, 2016 and 2015		(2,247,415	)		(2,247,415	)
Accumulated other comprehensive income (loss), net of income taxes		(607,109	)		992,549
Total shareholders’ equity		40,612,974			39,151,712
Total liabilities and shareholders’ equity	$	413,949,636		$	399,172,512
See accompanying notes to consolidated financial statements.

37

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
	YEARS ENDED DECEMBER 31,
	2016		2015		2014
Interest and fee income
Loans, including fees	$	12,851,900	$	11,795,303	$	11,263,048
Taxable securities		1,297,636		1,376,441		1,045,592
Tax-exempt securities		1,007,438		1,012,638		1,059,883
Other		138,623		45,566		49,731
Total interest and fee income		15,295,597		14,229,948		13,418,254
Interest expense
Deposits		378,733		401,463		408,266
Short-term borrowings		7		932		681
Total interest expense		378,740		402,395		408,947
Net interest income		14,916,857		13,827,553		13,009,307
Provision for loan losses		570,000		192,500		82,500
Net interest income after provision for loan losses		14,346,857		13,635,053		12,926,807
Other income
Service charges, fees and commissions		1,061,349		991,007		921,638
Mortgage banking income		1,387,740		1,605,676		1,315,020
Gains on sales of securities		380,904		423,832		312,577
Other non-interest income		31,090		29,443		29,466
Total other income		2,861,083		3,049,958		2,578,701
Other expense
Salaries and employee benefits		6,087,929		5,859,203		5,466,446
Net occupancy expense		1,528,048		1,480,606		1,473,700
Net other real estate owned expenses		16,691		5,284		16,440
Other operating expenses		2,639,776		2,168,382		2,152,236
Total other expenses		10,272,444		9,513,475		9,108,822
Income before income tax expense		6,935,496		7,171,536		6,396,686
Income tax expense		1,688,433		2,287,248		1,997,866
Net income	$	5,247,063	$	4,884,288	$	4,398,820
Weighted average shares outstanding
Basic		4,935,349		4,912,499		4,907,208
Diluted		5,054,114		5,067,085		5,032,211
Basic income per common share	$	1.06	$	.99	$	.90
Diluted income per common share	$	1.04	$	.96	$	.87

See accompanying notes to consolidated financial statements.

38

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	YEARS ENDED DECEMBER 31,
	2016			2015			2014
Net income	$	5,247,063		$	4,884,288		$	4,398,820
Other comprehensive income (loss):
Unrealized gain (loss) on securities arising during the period		(2,158,236	)		26,255			768,326
Reclassification adjustment for securities gains realized in net income		(380,904	)		(423,832	)		(312,577	)
Other comprehensive income (loss), before tax		(2,539,140	)		(397,577	)		455,749
Income tax effect related to items of other comprehensive income (loss)		939,482			147,104			(168,627	)
Other comprehensive income (loss), after tax		(1,599,658	)		(250,473	)		287,122
Total comprehensive income	$	3,647,405		$	4,633,815		$	4,685,942

See accompanying notes to consolidated financial statements.

39

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2016, 2015, 2014
	ADDITIONAL PAID IN CAPITAL		RETAINED  EARNINGS			TREASURY STOCK			ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			TOTAL
December 31, 2013	$	28,678,150	$	7,007,532		$	(1,902,439	)	$	955,900		$	34,739,143
Net income		—		4,398,820			—			—			4,398,820
Other comprehensive income		—		—			—			287,122			287,122
Exercise of stock options 2,500 common		26,050		—			—			—			26,050
Stock-based compensation expense		74,908		—			—			—			74,908
Cash dividends ($0.62 per common share)		—		(2,766,061	)		—			—			(2,766,061	)
December 31, 2014		28,779,108		8,640,291			(1,902,439	)		1,243,022			36,759,982
Net income		—		4,884,288			—			—			4,884,288
Other comprehensive loss		—		—			—			(250,473	)		(250,473	)
Exercise of stock options 8,615 common		122,946		—			—			—			122,946
10% stock dividend 446,597 common 21,945 treasury at $15.72		7,360,703		(7,020,505	)		(344,976	)		—			(4,778	)
Stock-based compensation expense		78,987		—			—			—			78,987
Cash dividends ($0.52 per common share)		—		(2,439,240	)		—			—			(2,439,240	)
December 31, 2015		36,341,744		4,064,834			(2,247,415	)		992,549			39,151,712
Net income		—		5,247,063			—			—			5,247,063
Other comprehensive loss		—		—			—			(1,599,658	)		(1,599,658	)
Exercise of stock options 39,539 common		405,749		—			—			—			405,749
Stock-based compensation expense		76,529		—			—			—			76,529
Cash dividends ($0.54 per common share)		—		(2,668,421	)		—			—			(2,668,421	)
December 31, 2016	$	36,824,022	$	6,643,476		$	(2,247,415	)	$	(607,109	)	$	40,612,974

See accompanying notes to consolidated financial statements.        

40

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY   CONSOLIDATED STATEMENTS OF CASH FLOWS
	YEARS ENDED DECEMBER 31,
Cash flows from operating activities:	2016			2015			2014
Net income	$	5,247,063		$	4,884,288		$	4,398,820
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		189,188			196,827			200,178
Gain on sale of securities		(380,904	)		(423,832	)		(312,577	)
(Loss) gain on sale of other real estate		13,450			—			(2,382	)
Provision for loan losses		570,000			192,500			82,500
Stock-based compensation expense		76,529			78,987			74,908
Deferred income taxes		(750,254	)		4,748			134,478
Net amortization of unearned discounts on investment securities		250,755			109,311			303,036
Origination of mortgage loans held for sale		(76,032,671	)		(91,053,923	)		(71,767,800	)
Proceeds from sale of mortgage loans held for sale		77,466,700			92,558,765			69,182,061
(Increase) decrease in accrued interest receivable and other assets		(63,949	)		391,043			(274,201	)
Increase (decrease) in accrued interest payable and other liabilities		(543,083	)		176,898			153,882
Net cash provided by operating activities		6,042,824			7,115,612			2,172,903
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale		9,630,804			2,315,000			1,920,000
Proceeds from sale of available for sale securities		36,218,087			16,564,118			37,159,363
Purchase of investment securities available for sale		(48,239,241	)		(25,389,485	)		(57,959,964	)
Proceeds from sale of other real estate		85,001			—			37,855
Net increase in loans		(18,089,620	)		(8,712,885	)		(16,394,833	)
Purchase of premises, equipment and leasehold improvements, net		(196,584	)		(133,632	)		(97,740	)
Net cash used by investing activities		(20,591,553	)		(15,356,884	)		(35,335,319	)
Cash flows from financing activities:
Net increase in deposit accounts		13,804,239			36,299,585			17,176,372
Net (decrease) increase in short-term borrowings		—			(6,980,681	)		6,980,681
Dividends paid		(2,613,715	)		(2,380,062	)		(2,765,735	)
Stock options exercised		405,749			122,946			26,050
Cash in lieu of fractional shares		—			(4,778	)		—
Net cash (used) provided by financing activities		11,596,273			27,057,110			21,417,368
Net increase (decrease) in cash and cash equivalents		(2,952,456	)		18,815,738			(11,745,048	)
Cash and cash equivalents at beginning of year		29,194,786			10,379,048			22,124,096
Cash and cash equivalents at end of year	$	26,242,330		$	29,194,786		$	10,379,048
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest	$	400,531		$	419,004		$	429,758
Income taxes	$	2,320,830		$	2,196,000		$	1,819,000
Supplemental disclosure for non-cash investing and financing activity:
Change in unrealized gain (loss) on securities available for sale, net of income taxes	$	(1,599,658	)	$	(250,473	)	$	287,122
Change in dividends payable	$	54,706		$	59,178		$	325
Change in other real estate owned	$	—		$	186,210		$	521,943
See accompanying notes to consolidated financial statements.

41

BANK OF SOUTH CAROLINA CORPORATION

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. 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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accounting and reporting policies conform, in all material respects, to U.S. generally accepted accounting principles (“GAAP”), and to general practices within the banking industry. The following summarizes the more significant of these policies and practices.

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of Bank of South Carolina Corporation (the “Company”) and its wholly-owned subsidiary, The Bank of South Carolina (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.

We provide financial services through our four banking house locations: 256 Meeting Street, Charleston, SC, 100 North Main Street, Summerville, SC, 1337 Chuck Dawley Boulevard, Mt. Pleasant, SC and 2027 Sam Rittenberg Boulevard, Charleston, SC. Our primary deposit products are checking, savings, and term certificate accounts, and our primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans may be dependent on the general economic conditions in the area.

Accounting Estimates and Assumptions:

The preparation of the financial statements are 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, asset prepayment rates and other-than-temporary impairment of investment securities.

Reclassification:

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

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.

42

BANK OF SOUTH CAROLINA CORPORATION

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents:

Cash and cash equivalents include working cash funds, due from banks, interest-bearing deposits in other banks, items in process of collection and federal funds sold. All cash equivalents are readily convertible to cash and have maturities of less than 90 days.

Depository institutions are required to maintain reserve and clearing balances at the Federal Reserve Bank. Vault cash satisfied our daily reserve requirement for the years ended December 31, 2016 and 2015, respectively.

Interest-bearing Deposits in Other Financial Institutions:

Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.

Investment Securities:

We classify investments into three categories as follows: (1) Held to Maturity - debt securities that we have the positive intent and ability to hold to maturity, which are reported at amortized cost, adjusted for the amortization of any related premiums or the accretion of any related discounts into interest income using a methodology which approximates a level yield of interest over the estimated remaining period until maturity, (2) Trading - debt and equity securities that are bought and held principally for the purpose of selling them in the near term, which are reported at fair value, with unrealized gains and losses included in earnings, and (3) Available for Sale - debt and equity securities that may be sold under certain conditions, which are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of income taxes. Unrealized losses on securities due to fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has occurred.

Realized gains or losses on the sale of investments are recognized on a specific identification, trade date basis. All securities were classified as available for sale for 2016 and 2015. We do not have any mortgage-backed securities nor have we ever invested in mortgage-backed securities.

Mortgage Loans to be Sold:

We originate fixed and variable rate residential mortgage loans on a service release basis in the secondary market. Loans closed but not yet settled with an investor are carried in our loans held for sale portfolio. Virtually all of these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with our customers. Therefore, these loans present very little market risk. We usually deliver to, and receive funding from, the investor within 30 to 60 days. Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a “best efforts” basis. We are not obligated to deliver a loan or pay a penalty if a loan is not delivered to the investor. As a result of the short-term nature of these derivative contracts, the fair value of the mortgage loans held for sale in most cases is the same as the value of the loan amount at its origination.

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are provided for in a valuation allowance by charges to operations as a component of mortgage banking income. Gains or losses on sales of loans are recognized when control over these assets has been surrendered and are included in mortgage banking income in the consolidated statements of operations.

Loans and Allowance for Loan Losses:

Loans are carried at principal amounts outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the weighted average life of the loan as an adjustment to yield. Interest income on all loans is recorded on an accrual basis. The accrual of interest and the amortization of net loan fees are generally discontinued on loans which 1) are maintained on a cash basis because of deterioration in the financial condition of the borrower; 2) for which payment of full principal is not expected; or 3) upon which principal or interest has been in default for a period of 90 days or more. We define past due loans based on contractual payment and maturity dates.

43

BANK OF SOUTH CAROLINA CORPORATION

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accrual of interest is generally discontinued on loans that become 90 days past due as to principal or interest. The accrual of interest on some loans, however, may continue even though they are 90 days past due if the loans are well secured or in the process of collection and management deems it appropriate. If non-accrual loans decrease their past due status to less than 30 days for a period of six to nine months, they are reviewed individually by management to determine if they should be returned to accrual status.

When the ultimate collectability of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any amounts previously charged off. When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to interest income and then to principal.

We account for impaired loans by requiring that all loans (greater than $50,000) for which it is estimated that we will be unable to collect all amounts due according to the terms of the loan agreement be recorded at the loan’s fair value. Fair value may be determined based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral less cost to sell, if the loan is collateral dependent.

Additional accounting guidance allows us to use existing methods for recognizing interest income on an impaired loan. The guidance also requires additional disclosures about how we estimate interest income related to our impaired loans.

A loan is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). For this type of impaired loan, cash receipts are typically applied to principal and interest receivable in accordance with the terms of the restructured loan agreement. Interest income is recognized on these loans using the accrual method of accounting, provided they are performing in accordance with their restructured terms.

The allowance for loan losses is our estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis and is based upon our periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

We believe that the allowance is adequate to absorb inherent losses in the loan portfolio; however, there can be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio, in light of changing economic conditions and other relevant circumstances, will not require significant future additions to the allowance, thus adversely affecting our operating results.

The allowance is also subject to examination by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions and other adequacy tests. In addition, such regulatory agencies could require us to adjust our allowance based on information available at the time of the examination.

44

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The methodology used to determine the reserve for unfunded lending commitments, which is included in other liabilities, is inherently similar to the methodology used to determine the allowance for loan losses adjusted for factors specific to binding commitments, including the probability of funding and historical loss ratio.

Concentration of Credit Risk:

Our primary market consists of the counties of Berkeley, Charleston and Dorchester, South Carolina. At December 31, 2016, the majority of the total loan portfolio, as well as a substantial portion of the commercial and real estate loan portfolios, were to borrowers within this region. No other areas of significant concentration of credit risk have been identified.

Premises, Equipment and Leasehold Improvements and Depreciation:

Land is carried at cost. Buildings and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes over the estimated useful lives of the assets ranging from 40 years for buildings and 3 to 15 years for equipment. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term, including renewal periods when reasonably assured. The cost of maintenance and repairs is charged to operating expense as incurred.

Other Real Estate Owned:

Real estate properties acquired through foreclosure are initially recorded at the lower of the recorded investment in the loan or fair value less costs to sell. Losses arising from the initial foreclosure are charged against the allowance for loan losses. Subsequent to foreclosure, real estate owned is recorded at the lower of cost or fair value, adjusted for net selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or our estimation of the value of the collateral. Gains and losses on the sale of other real estate owned (“OREO”) and subsequent write-downs from periodic re-evaluation are charged to net other real estate owned expenses.

Income Taxes:

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net deferred tax assets are included in other assets in the consolidated balance sheet.

Accounting standards require the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. These standards also prescribe a recognition threshold and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. We believe that we had no uncertain tax positions for the years ended December 31, 2016 and 2015.

Stock-Based Compensation:

Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period (10 years).

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. Earnings per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

45

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comprehensive Income:

We apply accounting standards which establish guidance for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income consists of net income and net unrealized gains or losses on securities.

Segment Information:

The Company operates and manages itself within one retail banking segment and has, therefore, not provided segment disclosures.

Interest Rate Lock Commitments and Forward Sale Contracts:

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free-standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitments before the loan is funded. In order to hedge the change in interest rates resulting from commitments to fund the loans, we enter into forward commitments for the future delivery of mortgage loans when the interest rate is locked. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in income when they occur. As a result of the short-term nature of mortgage loans held for sale (derivative contract), our derivative instruments were considered to be immaterial as of December 31, 2016 and 2015.

We had no embedded derivative instruments requiring hedge accounting treatment at December 31, 2016. We do not currently engage in hedging activities.

Recent Accounting Pronouncements:

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting and/or disclosure of financial information by the Company.

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. This guidance also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. In August 2015, the FASB deferred the effective date of the amendments. As a result of the deferral, the guidance will be effective for the Company for reporting periods beginning after December 15, 2017. We will apply this guidance using a modified retrospective approach. We do not expect this amendment to have a material effect on our consolidated financial statements.

In June 2014, the FASB issued guidance which makes limited amendments to the guidance on accounting for certain repurchase agreements. The new guidance (1) requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings. The amendments became effective for the Company for the first interim or annual period beginning after December 31, 2014. We applied the guidance by making a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This adjustment did not have a material effect on our financial statements.

46

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2015, the FASB issued guidance to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The amendments were effective January 1, 2016 and did not have a material effect on our financial statements.

In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendments were effective January 1, 2016 and did not have a material effect on our financial statements.

In June 2015, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to transition guidance were effective January 1, 2016 and did not have a material effect on our financial statements.

In August 2015, the FASB issued amendments to the Interest topic of the Accounting Standards Codification to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal ear of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. We do not expect this amendment to have a material effect on our financial statements.

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to require all leases with lease terms over 12 months to be capitalized as a right-of-use asset and lease liability on the balance sheet at the date of lease commencement. Leases will be classified as either finance leases or operating leases. This distinction will be relevant for the pattern of expense recognition in the income statement. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of this guidance on its financial statements.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments were effective January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

47

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The guidance requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of adoption of this guidance on its financial statements.

In August 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Income Taxes topic of the Accounting Standards Codification to modify the accounting for intra-entity transfers of assets other than inventory. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Consolidation topic of the Accounting Standards Codification to revise the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments will be effective for the Company for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In December 2016, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (December 14, 2016) for amendments that do not have transition guidance. Amendments that are subject to transition guidance were effective January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

48

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations or cash flows.

49

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of investment securities available for sale are summarized as follows:

	DECEMBER 31, 2016
	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			ESTIMATED FAIR VALUE
U.S. Treasury Notes	$	24,148,295	$	41,153	$	(250,385	)	$	23,939,063
Government-Sponsored Enterprises		51,737,930		129,482		(833,321	)		51,034,091
Municipal Securities		45,056,390		765,813		(816,413	)		45,005,790
Total	$	120,942,615	$	936,448	$	(1,900,119	)	$	119,978,944

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

The amortized cost and estimated fair value of investment securities available for sale at December 31, 2016 and December 31, 2015, by contractual maturity are as follows:

	DECEMBER 31, 2016				DECEMBER 31, 2015
	AMORTIZED COST		ESTIMATED FAIR VALUE		AMORTIZED COST		ESTIMATED FAIR VALUE
Due in one year or less	$	3,343,347	$	3,350,205	$	3,311,346	$	3,326,249
Due in one year to five years		82,848,411		82,682,901		69,870,930		70,584,179
Due in five years to ten years		29,662,030		29,169,228		41,930,801		42,670,986
Due in ten years and over		5,088,827		4,776,610		3,309,039		3,416,171
Total	$	120,942,615	$	119,978,944	$	118,422,116	$	119,997,585

Securities pledged to secure deposits and repurchase agreements at December 31, 2016 and 2015, had a carrying amount of $47,619,232 and $48,027,575, respectively.

50

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2016 and 2015. We believe that all unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below before recovery of their amortized cost.

	Less Than 12 Months							12 Months or Longer							Total
					Gross							Gross							Gross
					Unrealized							Unrealized							Unrealized
	#		Fair Value		Loss			#		Fair Value		Loss			#		Fair Value		Loss
December 31, 2016 Available for sale
U.S. Treasury notes		4	$	17,968,594	$	(250,385	)		—	$	—	$	—			4	$	17,958,594	$	(250,385	)
Government-sponsored enterprises		8		30,136,720		(833,321	)		—		—		—			8		30,136,720		(833,321	)
Municipal securities		54		22,606,430		(816,413	)		—		—		—			54		22,606,430		(816,413	)
Total		66	$	70,711,744	$	(1,900,119	)		—	$	—	$	—			66	$	70,711,744	$	(1,900,119	)
December 31, 2015 Available for sale
U.S. Treasury notes		2	$	10,064,063	$	(45,360	)		—	$	—	$	—			2	$	10,064,063	$	(45,360	)
Government-sponsored enterprises		2		7,475,445		(38,538	)		1		5,002,335		(95,206	)		2		12,477,780		(133,744	)
Municipal securities		6		4,361,148		(28,724	)		—		—		—			6		4,361,148		(28,724	)
Total		10	$	21,900,656	$	(112,622	)		1	$	5,002,335	$	(95,206	)		10	$	26,902,991	$	(207,828	)

We received proceeds from sales of securities available for sale and gross realized gains and losses as follows:

	For the Year Ended December 31,
	2016			2015		2014
Gross proceeds	$	36,218,087		$	16,564,118	$	37,159,363
Gross realized gains		384,963			423,832		312,577
Gross realized losses		(4,059	)		—		—

The tax provision related to these gains was $140,934 and $156,818 for the year ended December 31, 2016 and 2015, respectively.  

51

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. LOANS AND ALLOWANCE FOR LOAN LOSSSES

Major classifications of loans (net of deferred loan fees of $136,446 at December 31, 2016, and $118,188 at December 31, 2015) are as follows:

	December 31
	2016			2015
Commercial loans	$	52,262,209		$	50,938,265
Commercial real estate:
Construction		1,208,901			1,005,118
Other		122,968,126			115,736,034
Consumer:
Real estate		77,131,816			69,777,307
Other		7,005,063			5,165,981
		260,576,115			242,622,705
Allowance for loan losses		(3,851,617	)		(3,417,827	)
Loans, net	$	256,724,498		$	239,204,878

We had $101.2 million and $102.1 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at December 31, 2016 and 2015, respectively.

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

Our internally assigned grades pursuant to the Board-approved lending policy are as follows:

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

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

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

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

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

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

52

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

● 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.

The following table illustrates credit risks by category and internally assigned grades at December 31, 2016 and December 31, 2015. “Pass” includes loans internally graded as excellent, good and satisfactory.

December 31, 2016
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total
Pass	$	48,289,944	$	798,884	$	116,490,396	$	74,115,426	$	6,728,367	$	246,423,017
Watch		1,004,957		410,017		2,625,079		899,306		147,992		5,087,351
OAEM		1,666,048		—		995,549		630,957		28,939		3,321,493
Sub-Standard		1,301,260		—		2,857,102		1,486,127		99,765		5,744,254
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	52,262,209	$	1,208,901	$	122,968,126	$	77,131,816	$	7,005,063	$	260,576,115

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

53

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing
Commercial	$	1,162,676	$	250,370	$	4,317	$	1,417,363	$	49,520,902	$	50,938,265	$	—
Commercial Real Estate:
Commercial Real Estate -Construction		—		—		—		—		1,005,118		1,005,118		—
Commercial Real Estate -Other		91,607		1,215,473		1,152,774		2,459,854		113,276,180		115,736,034		—
Consumer:
Consumer Real Estate		68,240		249,754		82,015		400,009		69,377,298		69,777,307		—
Consumer-Other		69,333		58,116		6,056		133,505		5,032,476		5,165,981		1,606
Total	$	1,391,856	$	1,773,713	$	1,245,162	$	4,410,731	$	238,211,974	$	242,622,705	$	1,606

There were two loans over 90 days past due and still accruing interest at December 31, 2016. There was one loan over 90 days past due still accruing interest at December 31, 2015. The following table summarizes the balances of non-accrual loans:

	Loans Receivable on Non-Accrual
	December 31, 2016		December 31, 2015
Commercial	$	61,781	$	4,317
Commercial Real Estate:
Commercial Real Estate - Construction		—		—
Commercial Real Estate - Other		1,678,876		1,970,306
Consumer:
Consumer - Real Estate		—		82,015
Consumer - Other		964		4,450
Total	$	1,741,621	$	2,061,088

54 

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth the changes in the allowance and an allocation of the allowance by loan category at December 31, 2016, December 31, 2015 and December 31, 2014. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.

December 31, 2016
	Commercial			Commercial Real Estate-Construction			Commercial  Real Estate-Other			Consumer  Real Estate			Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	896,854		$	59,861		$	1,345,094		$	941,470		$	174,548		$	3,417,827
Charge-offs		(33,046	)		—			(78,300	)		(82,015	)		(14,934	)		(208,295	)
Recoveries		—			—			65,000			—			7,085			72,085
Provisions		681,380			(8,392	)		42,912			(133,064	)		(12,836	)		570,000
Ending Balance	$	1,545,188		$	51,469		$	1,374,706		$	726,391		$	153,863		$	3,851,617

December 31, 2015
	Commercial			Commercial Real Estate-Construction		Commercial  Real Estate-Other			Consumer  Real Estate			Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351		$	105,076		$	3,334,848
Charge-offs		(99,737	)		—		(55,252	)		(6,075	)		(40,007	)		(201,071	)
Recoveries		9,164			—		53,753			6,075			22,558			91,550
Provisions		(223,703	)		16,957		234,206			78,119			86,921			192,500
Ending Balance	$	896,854		$	59,861	$	1,345,094		$	941,470		$	174,548		$	3,417,827

December 31, 2014
	Commercial			Commercial Real Estate-Construction		Commercial  Real Estate-Other			Consumer  Real Estate		Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,448,804		$	22,137	$	1,064,363		$	672,813	$	84,160		$	3,292,277
Charge-offs		(83,042	)		—		(15,834	)		—		(14,154	)		(113,030	)
Recoveries		—			—		46,000			—		27,101			73,101
Provisions		(154,632	)		20,767		17,858			190,538		7,969			82,500
Ending Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351	$	105,076		$	3,334,848

55 

BANK OF SOUTH CAROLINA CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2016
	Commercial		Commercial Real Estate- Construction		Commercial  Real Estate-Other		Consumer Real Estate		Consumer  Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	1,051,219	$	—	$	324,587	$	43,119	$	89,047	$	1,507,972
Collectively evaluated for impairment		493,969		51,469		1,050,119		683,272		64,816		2,343,645
Total Allowance for Losses	$	1,545,188	$	51,469	$	1,374,706	$	726,391	$	153,863	$	3,851,617
Loans Receivable
Individually evaluated for impairment	$	1,301,259	$	—	$	3,225,351	$	1,286,127	$	89,047	$	5,901,784
Collectively evaluated for impairment		50,960,950		1,208,901		119,742,775		75,845,689		6,916,016		254,674,331
Total Loans Receivable	$	52,262,209	$	1,208,901	$	122,968,126	$	77,131,816	$	7,005,063	$	260,576,115

December 31, 2015
	Commercial		Commercial Real Estate- Construction		Commercial  Real Estate-Other		Consumer  Real Estate		Consumer Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	387,979	$	—	$	253,105	$	342,320	$	100,103	$	1,083,507
Collectively evaluated for impairment		508,875		59,861		1,091,989		599,150		74,445		2,334,320
Total Allowance for Loan Losses	$	896,854	$	59,861	$	1,345,094	$	941,470	$	174,548	$	3,417,827
Loans Receivable
Individually evaluated for impairment	$	1,639,974	$	—	$	3,551,495	$	1,245,419	$	105,819	$	6,542,707
Collectively evaluated for impairment		49,298,291		1,005,118		112,184,539		68,531,888		5,060,162		236,079,998
	$	50,938,265	$	1,005,118	$	115,736,034	$	69,777,307	$	5,165,981	$	242,622,705

56

BANK OF SOUTH CAROLINA CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2016 and 2015, loans individually evaluated and considered impaired are presented in the following table:

Impaired and Restructured Loans  As of The Year Ended December 31,
	2016						2015
		Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	250,040	$	250,040	$	—	$	692,831	$	692,831	$	—
Commercial Real Estate- Construction		—		—		—		—		—		—
Commercial Real Estate-Other		2,174,770		2,174,770		—		2,476,018		2,476,018		—
Consumer Real Estate		1,243,008		1,243,008		—		450,402		450,402		—
Consumer Other		—		—		—		5,715		5,715		—
	$	3,667,818	$	3,667,818	$	—	$	3,624,966	$	3,624,966	$	—
With an allowance recorded:
Commercial	$	1,051,219	$	1,051,219	$	1,051,219	$	947,143	$	947,143	$	387,979
Commercial Real Estate- Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,050,581		1,050,581		324,587		1,075,477		1,075,477		253,105
Consumer Real Estate		43,119		43,119		43,119		795,017		795,017		342,320
Consumer Other		89,047		89,047		89,047		100,104		100,104		100,103
	$	2,233,966	$	2,233,966	$	1,507,972	$	2,917,741	$	2,917,741	$	1,083,507
Total
Commercial	$	1,301,259	$	1,301,259	$	1,051,219	$	1,639,974	$	1,639,974	$	387,979
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		3,225,351		3,225,351		324,587		3,551,495		3,551,495		253,105
Consumer Real Estate		1,286,127		1,286,127		43,119		1,245,419		1,245,419		342,320
Consumer Other		89,047		89,047		89,047		105,819		105,819		100,103
	$	5,901,784	$	5,901,784	$	1,507,972	$	6,542,707	$	6,542,707	$	1,083,507

57

BANK OF SOUTH CAROLINA CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents average impaired loans and interest income recognized on those impaired loans, by class segment, for the periods indicated.

For the Year Ended December 31,
	2016				2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	267,747	$	12,282	$	750,350	$	43,853	$	647,135	$	18,129
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial  Real Estate-Other		2,267,288		81,582		2,500,204		128,352		3,515,431		177,416
Consumer Real Estate		1,242,515		22,111		450,117		17,035		351,550		12,877
Consumer-Other		—		—		56,758		2,557		—		—
	$	3,777,550	$	115,975	$	3,757,429	$	191,797	$	4,514,116	$	208,422
With an allowance recorded:
Commercial	$	1,087,559	$	49,985	$	1,009,765	$	49,166	$	1,222,383	$	56,432
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,047,685		16,138		1,066,896		48,945		790,998		29,218
Consumer Real Estate		43,155		1,514		811,014		32,362		688,922		34,154
Consumer  Other		94,945		5,533		55,439		3,540		41,631		1,923
	$	2,273,344	$	73,170	$	2,943,114	$	134,013	$	2,743,934	$	121,727
Total
Commercial	$	1,355,306	$	62,267	$	1,760,115	$	93,019	$	1,869,518	$	74,561
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		3,314,973		97,720		3,567,100		177,297		4,306,429		206,634
Consumer Real Estate		1,285,670		23,625		1,261,131		49,397		1,040,472		47,031
Consumer Other		94,945		5,533		112,197		6,097		41,631		1,923
	$	6,050,894	$	189,145	$	6,700,543	$	325,810	$	7,258,050	$	330,149

58

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructured loans (loans, still accruing interest, which have been renegotiated at below-market interest rates or for which other concessions have been granted) were $378,392 (2 loans) and $458,268 (3 loans) at December 31, 2016 and December 31, 2015, respectively. Restructured loans were granted extended payment terms with no principal reduction. All restructured loans were performing as agreed as of December 31, 2016 and 2015, respectively.

No TDRs defaulted during the years ended December 31, 2016 and 2015, which were modified within the previous twelve months.

5.        CONCENTRATIONS OF CREDIT RISK

We grant short to intermediate term commercial and consumer loans to customers throughout our primary market area of Charleston, Berkeley and Dorchester counties of South Carolina. Our primary market area is heavily dependent on tourism and medical services. Although we have a diversified loan portfolio, a substantial portion of our debtors’ ability to honor their contracts is dependent upon the stability of the economic environment in their primary market including the government, tourism and medical industries. The majority of the loan portfolio is located in our immediate market area with a concentration in Real Estate Related Activities and Offices and Clinics of Medical Doctors.

Our loans were concentrated in the following categories.

	December 31, 2016	December 31, 2015
Commercial	20.06%	21.00%
Commercial Real Estate-Construction	0.46%	0.41%
Commercial Real Estate-Other	47.20%	47.70%
Consumer Real Estate	29.59%	28.76%
Consumer-Other	2.69%	2.13%
Total Loans	100.00%	100.00%

6.    Premises, Equipment and Leasehold Improvements

Premises, equipment and leasehold improvements are summarized as follows:

		December 31,
		2016			2015
Bank buildings	$	1,824,613		$	1,824,613
Land		838,075			838,075
Leasehold purchase		30,000			30,000
Lease improvements		690,212			687,333
Construction in process		11,754			11,754
Equipment		3,264,488			3,070,783
		6,659,142			6,462,558
Accumulated depreciation		(4,362,518	)		(4,173,330	)
Total	$	2,296,624		$	2,289,228

Depreciation and amortization on our bank premises and equipment charged to operating expense totaled $189,188 in 2016, $196,827 in 2015, and $200,178 in 2014.

 59

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We entered into agreements to lease equipment and office facilities under non-cancellable operating lease agreements expiring on various dates through 2039. We may, at our option, extend the lease of our office facility at 256 Meeting Street in Charleston, South Carolina, for one additional ten year period to 2027; extend the lease of our Summerville office at 100 North Main Street for two additional ten year periods; and extend the land lease where the Mt. Pleasant office is located for six additional five year periods.

We rent office space at 1071 Morrison Drive, Charleston, South Carolina, from a related party, to house our Mortgage Department. Rent expense for this lease was $51,690 and $50,184 for the years ended December 31, 2016 and 2015, respectively. This lease renews every two years.

Management intends to exercise its option on the lease agreements. Lease payments below include the lease renewals. Minimum rental commitments for these leases as of December 31, 2016 are as follows:

2017	$	615,122
2018		622,890
2019		614,103
2020		591,067
2021		608,257
2022 and thereafter		4,708,393
Total	$	7,759,832

Total rental expense was $594,567, $591,058 and $572,395 in 2016, 2015 and 2014, respectively.

On January 28, 2014, we signed a lease to open a banking office located on Highway 78, North Charleston, South Carolina (copy of the lease incorporated as Exhibit 10.8 in the 2013 10-K and copy of the Assignment and Assumption of Lease incorporated as Exhibit 10.9, First Amendment to the Lease incorporated as Exhibit 10.10 and Second Amendment to the Lease incorporated as Exhibit 10.11 in the 2015 10-K). The building is expected to be completed in the future. Rental payments do not commence until we take control of our space.

7. OTHER REAL ESTATE OWNED

The following table summarizes the activity in other real estate owned at December 31, 2016 and December 31, 2015.

		December 31, 2016			December 31,  2015
Balance, beginning of year	$	620,394		$	521,943
Additions-foreclosure		—			98,451
Sales		(98,451	)		—
Write-downs		—			—
Balance, end of year	$	521,943		$	620,394

We had one property valued at $521,943 classified as OREO at December 31, 2016. At December 31, 2015, we had two properties with an aggregate balance of $620,394 classified as OREO. Another property valued at $98,451 classified as OREO during 2015, was ultimately sold at a loss of $13,450.

 60

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. DEPOSITS

At December 31, 2016 and 2015, certificates of deposit of $250,000 or more totaled approximately $15,822,136 and $25,896,768, respectively.

At December 31, 2016, the scheduled maturities of certificates of deposit are as follows:

2017	$	41,020,714
2018		1,242,741
2019		516,921
2020		472,367
2021 and thereafter		588,514
	$	43,841,257

At December 31, 2016, deposits with a deficit balance of $24,963 were re-classified as other loans, compared to $121,331 at December 31, 2015.

9. Short-Term Borrowings

Securities sold under agreements to repurchase with customers mature on demand. At December 31, 2016 and 2015, there were no securities sold under agreements to repurchase. There was no amount outstanding at any month end during 2016. The maximum amount of securities sold under agreements to repurchase outstanding at any month end was $5,480,927 for the year ended December 31, 2015. The average amount of outstanding securities sold under agreements to repurchase was $751 and $1,873,507 during the years ended December 31, 2016 and 2015, respectively. The securities underlying repurchase agreements are held in safekeeping by an authorized broker. At the maturity date of the agreement, the securities are returned to our account.

At December 31, 2016 and 2015, we had no outstanding federal funds purchased. We have a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits the Company to retain possession of loans pledged as collateral to secure advances from the Federal Reserve Discount Window. Under this agreement, we may borrow up to $75 million. We established this arrangement as an additional source of liquidity. There have been no borrowings under this arrangement.

At December 31, 2016 and 2015, the Bank had unused short-term lines of credit totaling approximately $21,000,000 and $18,000,000, respectively (which are withdrawable at the lender’s option).

10. Income Taxes

Total income taxes for the years ended December 31, 2016, 2015 and 2014 are as follows:

	For the Year Ended December 31,
	2016			2015			2014
Income tax expense	$	1,688,433		$	2,287,248		$	1,997,866
Unrealized gains (losses) on securities available for sale presented in accumulated other comprehensive income (loss)		(939,482	)		(147,104	)		168,627
Total	$	748,951		$	2,140,144		$	2,166,493

 61

 BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income tax expense was as follows:

	For the Year Ended December 31,
	2016			2015			2014
Current income taxes
Federal	$	2,438,687		$	2,102,154		$	1,703,444
State		—			224,083			200,361
Total current tax expense		2,438,687			2,326,237			1,903,805
Deferred income tax (benefit) expense		(750,254	)		(38,989	)		94,061
Income tax expense	$	1,688,433		$	2,287,248		$	1,997,866

The differences between actual income tax expense and the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income from continuing operations for the periods indicated are reconciled as follows:

	For the Year Ended December 31,
	2016			2015			2014
Computed “expected” tax expense	$	2,358,069		$	2,438,322		$	2,174,873
Increase (reduction) in income taxes resulting from:
State income tax, net of federal benefit		(156,114	)		147,895			132,238
Tax exempt interest income		(339,994	)		(341,970	)		(357,834	)
Other, net		(173,528	)		43,001			48,589
	$	1,688,433		$	2,287,248		$	1,997,866

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are presented below:

	December 31
	2016			2015
Deferred tax assets:
Allowance for loan losses	$	1,248,551		$	1,064,916
State net operating loss carryforward		50,301			45,987
State credit carryforward		236,536			—
Unrealized loss on securities available for sale		356,562			—
Other		45,661			23,749
Total gross deferred tax assets		1,937,611			1,134,652
Valuation allowance		(50,301	)		(45,987	)
Deferred tax liabilities:
Prepaid expenses		(2,779	)		(1,363	)
Unrealized gain on securities available for sale		—			(582,926	)
Deferred loan fees		(46,392	)		(40,184	)
Fixed assets, principally due to differences in depreciation		(52,236	)		(24,611	)
Other bond accretion		(78,877	)		(65,735	)
Total gross deferred tax liabilities		(180,284	)		(714,819	)
Net deferred tax assets	$	1,707,026		$	373,846

 62

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 2016, the Company invested in a South Carolina Rehabilitation Credit. The tax credit is included in deferred tax assets and is being amortized. Amortization expense recognized for the year ended December 31, 2016 was $325,000 and was included in other operating expense on the statement of operations.

There was a $50,301 valuation allowance for deferred tax assets at December 31, 2016 and $45,987 at December 31, 2015 associated with the Company’s state net operating loss. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and prior to their expiration governed by the income tax code. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred income tax assets are expected to be deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2016. The amount of the deferred income tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability related to uncertain tax positions in accordance with applicable regulations.

Tax returns for 2013 and subsequent years are subject to examination by taxing authorities.

11. Commitments and Contingencies

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loan facilities to customers. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

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. If deemed necessary, the amount of collateral obtained 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 $81,234,269 and $87,622,437 at December 31, 2016 and 2015, respectively.

Standby letters of credit represent our obligation to a third party contingent upon the failure by 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. At December 31, 2016 and 2015, we have recorded no liability for the current carrying amount of the obligation to perform as a guarantor; as such amounts are not considered material. The maximum potential amount of undiscounted future payments related to standby letters of credit at December 31, 2016 and 2015 was $793,992 and $745,187, respectively.

 63

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.      Related Party Transactions

In the opinion of management, loans to our executive officers and directors are made on substantially the same terms, including interest rates and collateral, as those terms prevailing at the time for comparable loans with persons not related to the lender that do not involve more than the normal risk of collectability. There were no outstanding loans to our executive officers as of December 31, 2016 and 2015. Related party loans are summarized as follows:

	DECEMBER 31,
	2016			2015
Balance at beginning of year	$	6,523,137		$	6,664,467
New loans or advances		4,833,545			6,662,930
Repayments		(7,412,542	)		(6,804,260	)
Balance at end of year	$	3,944,140		$	6,523,137

At December 31, 2016 and 2015, total deposits held by related parties were $4,376,563 and $7,760,342, respectively.

The Company also leased office space from a related party as discussed in the Premises, Equipment and Leasehold Improvements footnote.

13.     Other Expense

A summary of the components of other operating expense is as follows:

	For the Year Ended December 31,
	2016		2015		2014
Advertising and business development	$	16,159	$	16,662	$	12,695
Supplies		94,006		111,604		123,087
Telephone and postage		194,853		188,052		193,039
Insurance		42,192		42,504		44,271
Professional fees		431,424		423,319		411,742
Data processing services		594,550		518,788		493,977
State and FDIC insurance and fees		242,926		228,627		216,129
Courier service		96,823		95,877		104,366
Amortization of state tax credit		325,000		—		—
Other		601,843		542,949		552,930
	$	2,639,776	$	2,168,382	$	2,152,236

14.     Stock Incentive Plan

We have a Stock Incentive Plan which was approved in 1998 with 180,000 (329,422 adjusted for three 10% stock dividends, a 10% stock distribution, and a 25% stock dividend) shares reserved and a Stock Incentive Plan which was approved in 2010 with 300,000 (330,000 adjusted for a 10% stock dividend) shares reserved. Under both Plans, options are periodically granted to employees at a price not less than the fair market value of the shares at the date of grant. Employees become 20% vested after five years and then vest 20% each year until fully vested. The right to exercise each such 20% of the options is cumulative and will not expire until the tenth anniversary of the date of the grant. All employees are eligible to participate in this plan if the Executive Committee, in its sole discretion, determines that such person has contributed or can be expected to contribute to our profits or growth.

 64

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant. The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of our common stock. The expected term of the options granted shall not exceed ten years from the date of grant (the amount of time options granted are expected to be outstanding). The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date:

	2016			2015					2014
Risk free interest rate		2.33	%		1.96	%	2.33	%		2.94	%
Expected life (in years)		10			10		10			10
Expected stock price volatility		27.95	%		19.62	%	19.62	%		36.34	%
Dividend yield		3.47	%		4.13	%	4.13	%		3.98	%

There are currently options to purchase 7,650 shares outstanding and exercisable under the 1998 Omnibus Stock Incentive Plan with options to purchase 7,170 shares exercisable at December 31, 2016. This plan has expired, however, those shares granted before the expiration date may still be exercised.

The following table presents a summary of the activity under the 1998 and 2010 Omnibus Stock Incentive Plans for the years ended December 31:

	2016					2015					2014
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, January 1		183,302		$	10.81		176,181		$	10.48		175,081		$	10.31
Granted		10,000			15.99		23,650			14.44		11,000			13.49
Expired		—			—		—			—		—			—
Exercised		(39,539	)		10.26		(9,378	)		13.11		(2,750	)		9.74
Forfeited		(12,858	)		13.84		(7,151	)		11.64		(7,150	)		11.15
Outstanding, December 31		140,905		$	11.06		183,302		$	10.81		176,181		$	10.48
Exercisable at year end		12,620		$	11.50		17,457		$	12.95		19,012		$	13.39

Information has been retroactively adjusted for the 2015 10% stock dividend as applicable.

65 

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information pertaining to options outstanding at December 31, 2016:

December 31, 2016
Exercise Price:		Number of Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Intrinsic Value of Outstanding Options		Number of Options Exercisable		Weighted Average Exercise Price		Intrinsic Value of Exercisable Options
$	13.22		6,050		—	$	13.22	$	23,535		6,050	$	13.22	$	23,535
$	11.73		1,600		1.2	$	11.73	$	8,608		1,120	$	11.73	$	6,026
$	9.79		11,220		3.7	$	9.79	$	82,130		1,270	$	9.79	$	9,296
$	10.61		4,400		4.2	$	10.61	$	28,600		—	$	—	$	—
$	9.47		71,610		4.5	$	9.47	$	54,710		4,180	$	9.47	$	31,935
$	10.10		9,075		5.6	$	10.10	$	63,616		—	$	—	$	—
$	10.91		2,750		5.9	$	10.91	$	17,050		—	$	—	$	—
$	13.64		2,200		6.9	$	13.64	$	694		—	$	—	$	—
$	13.49		4,950		7.6	$	13.49	$	17,919		—	$	—	$	—
$	14.35		13,750		8.5	$	14.35	$	37,950		—	$	—	$	—
$	14.98		3,300		8.6	$	14.98	$	7,029		—	$	—	$	—
$	15.99		10,000		9.3	$	15.99	$	11,200		—	$	—	$	—
			140,905		5.26	$	11.06	$	353,041		12,620	$	11.50	$	70,792

All relevant information has been retroactively adjusted for the 2015 10% stock dividend.

The total intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014, were $273,979, $14,272, and $12,775, respectively.

We recognized compensation cost for the years ended December 31, 2016, 2015 and 2014 in the amount of $76,529, $78,987, and $74,908, respectively, related to the granted options.

As of December 31, 2016, there was a total of $346,974 in unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted average period of 5.26 years.

15. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

We established an Employee Stock Ownership Plan (“ESOP”) effective January 1, 1989. Any employee of the Bank is eligible to become a participant in the ESOP upon reaching 21 years of age and credited with one-year of service (1,000 hours of service). The employee may enter the Plan on the January 1^st that occurs nearest the date on which the employee first satisfies the age and service requirements described above. No contributions by employees are permitted. The amount and time of contributions are at the sole discretion of the Board of Directors of the Bank. The contribution for all participants is based solely on each participant’s respective regular or base salary and wages paid by the Bank including commissions, bonuses and overtime, if any.

66 

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognizes expense when the contribution is approved by the Board of Directors. The total expenses amounted to $345,000 during the year ended December 31, 2016, $315,000 for the year ended December 31, 2015 and $280,000 for the year ended 2014. The plan currently owns 335,604 shares of common stock of Bank of South Carolina Corporation.

A participant becomes vested in the ESOP based upon the employee’s credited years of service. The vesting schedule is as follows;

● 1 Year of Service  0% Vested

● 2 Years of Service  25% Vested

● 3 Years of Service  50% Vested

● 4 Years of Service  75% Vested

● 5 Years of Service  100% Vested

Periodically the Internal Revenue Service “IRS” requires a restatement of a qualified retirement plan to ensure that the plan document includes provisions required by legislative and regulatory changes made since the last restatement. There have been no substantive changes to the plan. The Board of Directors approved a restated plan, on January 26, 2012 (incorporated as Exhibit 10.5 in the 2011 10-K). The Plan was submitted to the IRS for approval and a determination letter was issued September 26, 2013, stating that the plan satisfies the requirements of Code Section 4975 (e) (7). On January 26, 2017, the Board of Directors approved a restated plan (incorporated as Exhibit 10.6 in the 2016 10-K).

16. DIVIDENDS

The Bank’s ability to pay dividends to the Company is restricted by the laws and regulations of the State of South Carolina. Generally, these restrictions allow the Bank to pay dividends from current earnings without the prior written consent of the South Carolina Commissioner of Banking, if it received a satisfactory rating at its most recent examination. Cash dividends when declared, are paid by the Bank to the Company for distribution to shareholders of the Company. The Bank paid dividends of $2,340,000, $2,475,000 and $2,865,000 to the Company during the years ended December 31, 2016, 2015 and 2014, respectively.

On August 27, 2015, the Company’s Board of Directors declared a ten percent stock dividend to our shareholders. The record date was September 8, 2015 and the distribution date was September 28, 2015. Earnings per share and average shares outstanding have been adjusted to reflect the stock dividend in our consolidated financial statements.

17. Income Per Common Share

Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted 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.

67

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table is a summary of the reconciliation of average shares outstanding for the years ended December 31:

	2016		2015		2014
Numerator:
Net income	$	5,247,063	$	4,884,288	$	4,398,820
Denominator:
Weighted average shares outstanding		4,935,349		4,912,499		4,907,208
Effect of dilutive shares		118,765		154,586		125,003
Weighted average shares outstanding-diluted		5,054,114		5,067,085		5,032,211
Earnings per share - basic	$	1.06	$	0.99	$	0.90
Earnings per share - diluted	$	1.04	$	0.96	$	0.87

18. Regulatory Capital Requirements

The Company and the Bank are subject to various capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

Current quantitative measures established by regulation to ensure capital adequacy require that we maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulation) to risk-weighted assets (as defined) and to average assets. We believe that the Company and the Bank meet all capital adequacy requirements to which they were subject at December 31, 2016 and 2015.

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

Basel III became effective on January 1, 2015. The purpose is to improve the quality and increase the quantity of capital for all banking organizations. The minimum requirements for the quantity and quality of capital were increased. The rule includes a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and requires a minimum leverage ratio of 4%. In addition, the rule also implements strict eligibility criteria for regulatory capital instruments and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. All final rule requirements will be phased in over a multi-year schedule. The capital conservation buffer in effect for the year ended December 31, 2016 was 0.625%.

At December 31, 2016, the Bank was categorized as “well capitalized” under Basel III. To be categorized as “well capitalized” the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital and Tier 1 leverage ratios of 10%, 8.0%, 6.5% and 5%, respectively, and to be categorized as “adequately capitalized,” the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital, and Tier 1 leverage ratios of 8%, 6%, 4.5%, and 4.0%, respectively.

68

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the actual and required capital amounts and ratios for the Company and Bank at December 31, 2016 and 2015: 

December 31, 2016
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Company	$	44,850		15.46	%	$	23,213		8.00	%		N/A		N/A
Bank	$	44,544		15.36	%	$	23,207		8.00	%	$	29,009		10.00	%
Tier 1 capital to risk-weighted assets:
Company	$	41,220		14.21	%	$	17,410		6.00	%		N/A		N/A
Bank	$	40,915		14.10	%	$	17,405		6.00	%	$	23,207		8.00	%
Tier 1 capital to average assets:
Company	$	41,220		9.85	%	$	16,738		4.00	%		N/A		N/A
Bank	$	40,915		9.78	%	$	16,735		4.00	%	$	20,919		5.00	%
Common equity Tier 1 capital:
Company	$	41,220		14.21	%	$	13,058		4.50	%		N/A		N/A
Bank	$	40,915		14.10	%	$	13,054		4.50	%	$	18,856		6.50	%

69

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Company	$	41,497		15.54	%	$	21,359		8.00	%		N/A		N/A
Bank	$	41,169		15.42	%	$	21,357		8.00	%	$	26,696		10.00	%
Tier 1 capital to risk-weighted assets:
Company	$	38,159		14.29	%	$	16,019		6.00	%		N/A		N/A
Bank	$	37,831		14.17	%	$	16,018		6.00	%	$	21,357		8.00	%
Tier 1 capital to average assets:
Company	$	38,159		9.63	%	$	15,850		4.00	%		N/A		N/A
Bank	$	37,831		9.55	%	$	15,843		4.00	%	$	19,803		5.00	%
Common equity Tier 1 capital:
Company	$	38,159		14.29	%	$	12,014		4.50	%		N/A		N/A
Bank	$	37,831		14.17	%	$	12,013		4.50	%	$	17,353		6.50	%

19. DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or 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 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of inputs by requiring that observable inputs be used when available. Observable inputs that market participants would use in pricing an asset or liability are developed based on market data we have obtained from independent sources. Unobservable inputs reflect our estimate of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

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.

70

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

● 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 could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:

Investment Securities Available for Sale

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

Derivative Instruments

Derivative instruments include interest rate lock commitments and forward sale commitments. These instruments are valued based on the change in the value of the underlying loan between the commitment date and the end of the period. We classify these instruments as Level 3. The fair value of these commitments was not significant at December 31, 2016 or 2015.

71

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Balance at December 31, 2016
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
US Treasury Notes	$	23,939,063	$	—	$	—	$	23,939,063
Government Sponsored Enterprises		—		51,034,091		—		51,034,091
Municipal Securities		—		31,027,933		13,977,857		45,005,790
Total	$	23,939,063	$	82,062,024	$	13,977,857	$	119,978,944

Balance at December 31, 2015
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
US Treasury Notes	$	34,633,673	$	—	$	—	$	34,633,673
Government Sponsored Enterprises		—		51,284,332		—		51,284,332
Municipal Securities		—		28,861,902		5,217,678		34,079,580
Total	$	34,633,673	$	80,146,234	$	5,217,678	$	119,997,585

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

The following table reconciles the changes in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2016 and 2015:

	Level 3 Municipal Securities December 31, 2016			2015
Beginning Balance	$	5,217,678		$	1,377,089
Total gains or (losses) (realized/unrealized)
Included in earnings		—			—
Included in other comprehensive income		(818,821	)		(34,411	)
Purchases, issuances and settlements, net of maturities		9,579,000			3,875,000
Transfers in and/or out of level 3		—			—
Ending Balance	$	13,977,857		$	5,217,678

72

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were no transfers between fair value levels in 2016 or 2015.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:

Other Real Estate Owned (OREO)

Loans, secured by real estate, are adjusted to the lower of the recorded investment in the loan or the fair value of the real estate upon transfer to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or our estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraisal, we record the asset as nonrecurring Level 2. When an appraised value is not available or we determine the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the asset as nonrecurring Level 3.

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. 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 Accounting Standards Codification (“ASC”) 820 “Fair Value Measurement”, impaired loans, where an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. At December 31, 2016 and December 31, 2015, substantially all of the impaired loans were evaluated based on the fair value of the collateral. These impaired loans are classified as Level 3. Impaired loans measured using discounted future cash flows are not deemed to be measured at fair value.

Loans Held for Sale

Loans held for sale include mortgage loans and are carried at the lower of cost or market value. The fair values of mortgage loans held for sale are based on current market rates from investors within the secondary market for loans with similar characteristics. Carrying value approximates fair value. These loans are classified as Level 2.

73

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 on going basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents information about certain assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2016, and 2015:

December 31, 2016
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans	$	—	$	—	$	4,143,772	$	4,143,772
Other real estate owned		—		—		521,943		521,943
Loans held for sale		—		4,386,210		—		4,386,210
Total	$	—	$	4,386,210	$	4,665,715	$	9,051,925

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

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

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at December 31, 2016:

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

74

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and the relevant market information. When available, quoted market prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, prepayments, and estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may or may not be realized in an immediate sale of the instrument.

Under the accounting standard, fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of the assets and liabilities that are not financial instruments. Accordingly, the aggregate fair value amounts of existing financial instruments do not represent the underlying value of those instruments on our books.

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

a. Cash and due from banks, interest-bearing deposits in other banks

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

b. Investment securities available for sale

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

The carrying values of variable rate consumer and commercial loans and consumer and commercial loans with remaining maturities of three months or less, approximate fair value. The fair values of fixed rate consumer and commercial loans with maturities greater than three months are determined using a discounted cash flow analysis and assume the rate being offered on these types of loans at December 31, 2016 and December 31, 2015, approximate market.

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

d. Deposits

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

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 on the counterparties.

75

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of December 31, 2016 and December 31, 2015.

Fair Value Measurements at December 31, 2016
		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	8,141,030	$	8,141,030	$	8,141,030	$	—	$	—
Interest-bearing deposits in other banks		18,101,300		18,101,300		18,101,300		—		—
Investments available for sale		119,978,944		119,978,944		23,939,063		82,062,024		13,977,857
Mortgage loans to be sold		4,386,210		4,386,210		—		4,386,210		—
Loans		260,576,115		260,406,669		—		—		260,406,669
Accrued interest receivable		1,614,002		1,614,002		—		1,614,002		—
Financial Liabilities:
Demand deposits		328,681,594		328,681,594		—		328,681,594		—
Time deposits		43,841,257		43,856,383		—		43,856,383		—
Accrued interest payable		51,629		51,629		—		51,629		—

Fair Value Measurements at December 31, 2015
		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	5,295,924	$	5,295,924	$	5,295,924	$	—	$	—
Interest-bearing deposits in other banks		23,898,862		23,898,862		23,898,862		—		—
Investments available for sale		119,997,585		119,997,585		34,633,673		80,146,234		5,217,678
Mortgage loans to be sold		5,820,239		5,820,239		—		5,820,239		—
Loans		242,622,705		242,581,154		—		—		242,581,154
Accrued interest receivable		1,284,063		1,284,063				1,284,063
Financial Liabilities:
Demand deposits		303,950,800		303,950,800		—		303,950,800		—
Time deposits		54,767,812		54,780,915		—		54,780,915		—
Accrued interest payable		73,421		73,421		—		73,421		—

76

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

20. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the components of accumulated other comprehensive income (loss) and changes in those components as of and for the years ended December 31:

Available for sale securities
Beginning Balance December 31, 2013	$	955,900
Change in net unrealized gains (losses) on securities available for sale		768,326
Reclassification adjustment for net securities gains included in net income		(312,577	)
Income tax expense (benefit)		(168,627	)
Balance December 31, 2014		1,243,022
Change in net unrealized gains (losses) on securities available for sale		26,255
Reclassification adjustment for net securities gains included in net income		(423,832	)
Income tax expense (benefit)		147,104
Balance December 31, 2015		992,549
Change in net unrealized gains (losses) on securities available for sale		(2,158,236	)
Reclassification adjustment for net securities gains included in net income		(380,904	)
Income tax expense		939,482
Balance December 31, 2016	$	(607,109	)

The following table shows the line items in the consolidated Statements of Operations affected by amounts reclassified from accumulated other comprehensive income (loss):

Year Ended December 31,
	2016			2015		2014
Gain on sale of investments, net	$	380,904		$	423,832	$	312,577
Tax effect		(140,934	)		—		—
Total reclassification, net of tax	$	239,970		$	423,832	$	312,577

77

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. Bank of South Carolina Corporation - Parent Company

The Company’s principal source of income is dividends from the Bank. Certain regulatory requirements restrict the amount of dividends which the Bank can pay to the Company. The Company’s principal asset is its investment in its Bank subsidiary. The Company’s condensed statements of financial condition as of December 31, 2016 and 2015, and the related condensed statements of operations and cash flows for the years ended December 31, 2016, 2015 and 2014, are as follows:

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	2016		2015
Assets
Cash	$	922,595	$	946,996
Investment in wholly-owned bank subsidiary		40,308,166		38,823,720
Other assets		76,077		20,154
Total assets	$	41,306,838	$	39,790,870
Liabilities and shareholders’ equity
Other liabilities	$	693,864	$	639,158
Shareholders’ equity		40,612,974		39,151,712
Total liabilities and shareholders’ equity	$	41,306,838	$	39,790,870

CONDENSED STATEMENTS OF OPERATIONS

	2016			2015			2014
Interest income	$	571		$	302		$	306
Net operating expenses		(177,612	)		(195,636	)		(187,284	)
Dividends received from bank		2,340,000			2,475,000			2,865,000
Equity in undistributed earnings of subsidiary		3,084,104			2,604,622			1,720,798
Net income	$	5,247,063		$	4,884,288		$	4,398,820

78

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED STATEMENTS OF CASH FLOWS

	2016			2015			2014
Cash flows from operating activities:
Net income	$	5,247,063		$	4,884,288		$	4,398,820
Stock-based compensation expense		76,529			78,987			74,908
Equity in undistributed earnings of subsidiary		(3,084,104	)		(2,604,622	)		(1,720,798	)
Decrease (increase) in other assets		(55,923	)		202,043			(40,418	)
Net cash provided by operating activities		2,183,565			2,560,696			2,712,512
Cash flows from financing activities:
Dividends paid		(2,613,715	)		(2,380,062	)		(2,765,735	)
Cash in lieu of fractional shares		—			(4,778	)		—
Stock options exercised		405,749			122,946			26,050
Net cash used by financing activities		(2,207,966	)		(2,261,894	)		(2,739,685	)
Net increase (decrease) in cash		(24,401	)		298,802			(27,173	)
Cash at beginning of year		946,996			648,194			675,367
Cash at ending of year	$	922,595		$	946,996		$	648,194
Supplemental disclosure for non-cash investing and financing activity:
Change in dividends payable	$	54,706		$	59,178		$	325

79

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. Quarterly Results of Operations (unaudited)

The tables below represent the quarterly results of operations for the years ended December 31, 2016 and 2015, respectively:

	2016
	FOURTH		THIRD		SECOND		FIRST
Total interest and fee income	$	3,862,720	$	4,030,143	$	3,770,669	$	3,632,065
Total interest expense		95,146		96,467		92,988		94,139
Net interest income		3,767,574		3,933,676		3,677,681		3,537,926
Provision for loan losses		175,000		210,000		140,000		45,000
Net interest income after provisions for loan losses		3,592,574		3,723,676		3,537,681		3,492,926
Other income		638,896		686,586		729,572		806,029
Other expense		2,715,147		2,584,268		2,436,881		2,536,148
Income before income tax expense		1,516,323		1,825,994		1,830,372		1,762,807
Income tax expense		203,444		399,656		518,262		567,071
Net income	$	1,312,879	$	1,426,338	$	1,312,110	$	1,195,736
Basic income per common share	$	0.27	$	0.28	$	0.27	$	0.24
Diluted income per common share	$	0.26	$	0.28	$	0.26	$	0.24

	2015
	FOURTH		THIRD		SECOND		FIRST
Total interest and fee income	$	3,635,011	$	3,569,672	$	3,550,663	$	3,474,602
Total interest expense		108,115		101,230		99,579		93,471
Net interest income		3,526,896		3,468,442		3,451,084		3,381,131
Provision for loan losses		110,000		7,500		70,000		5,000
Net interest income after provisions for loan losses		3,416,896		3,460,942		3,381,084		3,376,131
Other income		788,770		662,038		868,492		730,658
Other expense		2,402,221		2,372,742		2,399,458		2,339,054
Income before income tax expense		1,803,445		1,750,238		1,850,118		1,767,737
Income tax expense		576,474		551,319		596,680		562,775
Net income	$	1,226,971	$	1,198,919	$	1,253,438	$	1,204,960
Basic income per common share	$	0.25	$	0.24	$	0.26	$	0.25
Diluted income per common share	$	0.24	$	0.24	$	0.25	$	0.22

80

Item 9.   Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

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 December 31, 2016 under the supervision and with the participation of the Bank of South Carolina Corporation’s management, including its President/Chief Executive Officer and the Chief Financial Officer/Senior Vice President and several other members of the Company’s senior management. Based upon that evaluation, Bank of South Carolina Corporation’s management, including the President/Chief Executive Officer and the Chief Financial Officer/Senior Vice President concluded that, as of December 31, 2016, the Company’s disclosure controls and procedures were effective in ensuring that the information the Company is required to disclose in the reports filed or submitted under the Act has been (i) accumulated and communicated to management (including the President/Chief Executive Officer and Chief Financial Officer/Senior Vice President) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Report on Internal Control Over Financial Reporting

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

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

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

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. Based on this assessment, management believes that as of December 31, 2016, the Company’s internal control over financial reporting was effective. There were no changes in the Company’s internal control over financial reporting that occurred during the year ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Company’s registered public accounting firm pursuant to the final ruling by the Securities and Exchange Commission that permit the Company to provide only management’s report in its annual report.

The Audit and Compliance Committee, composed entirely of independent Directors, meets periodically with management, the Company’s Compliance Officer, Risk Management Officer and Elliott Davis Decosimo, LLC (separately and jointly) to discuss audit, financial and related matters. Elliott Davis Decosimo, LLC, the Compliance Officer, and the Risk Management Officer have direct access to the Audit and Compliance Committee.

81

Item 9B. Other Information

There was no information required to be disclosed in a report on Form 8-K during the fourth quarter of 2016 that was not reported.

PART III

Item 10. Directors, Executive Officers, Promoters and Corporate Governance

The information required by this item contained under the sections captioned “Proposal 1: To elect seventeen Directors of Bank of South Carolina Corporation to serve until the Company’s 2018 Annual Meeting of Shareholders” and “Meetings and Committees of the Board of Directors and Corporate Governance Matters” included on pages 12-24 in the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 11, 2017, a copy of which has been filed with the SEC, the “Proxy Statement”, is incorporated in this document by reference.

Executive Officers The information concerning the Company’s executive officers is contained under the section captioned ” Proposal 1: To elect seventeen Directors of Bank of South Carolina Corporation to serve until the Company’s 2018 Annual Meeting of Shareholders,” included on pages 4-9 of the Company’s Proxy Statement, and is incorporated in this document by reference.

Audit and Compliance Committee Financial Expert The Audit and Compliance Committee of the Company is composed of Directors Linda J. Bradley McKee, PhD, CPA, David W. Bunch, William L. Hiott, Jr., Katherine M. Huger, and Steve D. Swanson (Chairman). The Board has selected the Audit and Compliance Committee members based on its determination that they are qualified to oversee the accounting and financial reporting processes of the Company and audits of the Company’s financial statements. Each member of the Audit and Compliance Committee is “independent” as defined in the NASDAQ Stock Market listing standards for audit committee members.

The Board of Directors has determined that Linda J. Bradley McKee, PhD, CPA, qualifies as a financial expert within the meaning of SEC rules and regulations and has designated Dr. Bradley McKee as the Audit and Compliance Committee financial expert. Director Bradley McKee is independent as that term is used in Schedule 14A promulgated under the Exchange Act.

Code of Ethics The Company has adopted a “Code of Ethics”, applicable to the Chairman of the Board, the President/Chief Executive Officer, the Executive Vice President/CFO and the Executive Vice President and a “Code of Conduct” for Directors, officers and employees. A copy of these policies may be obtained at the Company’s internet website: http:// www.banksc.com.

Compliance with Insider Reporting The information contained under the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” is included on page 17 of the Company’s Proxy Statement and is incorporated in this document by reference.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the Section captioned “Directors Compensation” and “Executive Compensation-Compensation Discussion and Analysis” included on pages 17-23 of the Proxy Statement.

82

Equity Compensation Plan Information

The following table summarizes share and exercise price information about the Stock Incentive Plan of the Company as of December 31, 2016:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans 1
1998 Omnibus Stock  Incentive Plan approved by Shareholders 2		7,650	$	12.91		—
2010 Omnibus Stock Incentive Plan approved by Shareholders3		133,255	$	10.95		130,458
Total		140,905	$	11.06		130,458

¹ In accordance with the 1998 Omnibus Stock Incentive Plan, no options may be granted under this Plan after April 14, 2008, due to its expiration. Options granted before this date shall remain valid in accordance with their terms.

² The number of securities to be issued upon exercise of the outstanding options represents the total outstanding options under the 1998 Omnibus Stock Incentive Plan. As per the agreement, the referenced options shall remain valid in accordance with their terms. During the year ended December 31, 2016, options to purchase 7,859 shares were exercised and 3,508 shares were forfeited from the 1998 Omnibus Stock Incentive Plan.

³ The 2010 Omnibus Stock Incentive Plan was approved by the Shareholders at the 2010 Annual Meeting. There were 330,000 shares reserved under this Plan. On September 24, 2010, options to purchase 36,300 shares were granted to 21 employees (other than Executive Officers) with options to purchase 825 shares forfeited with the resignation of one employee in 2010. On March 24, 2011, options to purchase 5,500 shares were granted to 1 employee and on June 23, 2011, options to purchase 105,600 shares were granted to 22 employees including Sheryl G. Sharry and Fleetwood S. Hassell, both Executive Officers who each received options to purchase 11,000 shares. Douglas H. Sass, Executive Vice President, also received options on June 23, 2011 to purchase 5,500 shares. During the year ended December 31, 2011, options to purchase 6,325 shares were forfeited with the resignation of two employees. On June 28, 2012 the Executive Committee granted options to purchase 9,900 shares to 5 employees including Douglas H. Sass, Executive Vice President, who received options to purchase 5,500 shares. In addition, the Board of Directors granted options to purchase 2,750 shares to 1 employee on September 24, 2012. There were options to purchase 4,400 shares forfeited during the year ended December 31, 2012. On June 27, 2013 options to purchase 5,500 shares were granted to 5 employees. Options to purchase 2,200 shares were granted to 3 employees on December 19, 2013. Options to purchase 10,618 shares were forfeited during the year ended December 31, 2013. On July 24, 2014, options to purchase an aggregate of 11,000 shares were granted to twelve employees. Options to purchase 7,150 shares were forfeited with the resignation of 4 employees during the year ended December 31, 2014. On April 23, 2015, options to purchase an aggregate of 20,350 shares were granted to nine employees and on June 29, 2015, options to purchase 3,300 shares were granted to one employee. Options to purchase 7,150 shares were forfeited in 2015. (All shares have been adjusted to reflect a 10% stock dividend declared August 27, 2015). On March 24, 2016, options to purchase 10,000 shares were granted to 2 employees and options to purchase 12,858 shares were forfeited during 2016.

83

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

Security Ownership and Certain Beneficial Owners

Information required by this item is incorporated in this document by reference to the Section captioned “Security Ownership of Certain Beneficial Owners and Management”, included on page 10-12 of the Proxy Statement.

Security Ownership of Management

Information required by this item is incorporated in this document by reference to the Section captioned “Security Ownership of Certain Beneficial Owners and Management”, included on pages 10-12 of the Proxy Statement.

Changes in Control

Management is not aware of any arrangements, including any pledge by any shareholder of the Company, the operation of which may at a subsequent date result in a change of control of the Company.

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

The information required by this item is incorporated in this document by reference to the Sections captioned “Proposal 1: To elect seventeen Directors of Bank of South Carolina Corporation to serve until the Company’s 2018 Annual Meeting of Shareholders” and “Meetings and Committees of the Board of Directors and Corporate Governance Matters”, included on pages 4-17 of the Proxy Statement.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated in this document by reference to “Proposal 2: To ratify the appointment by the Audit and Compliance Committee of the Company’s Board of Directors of Elliott Davis Decosimo, LLC as the Company’s independent registered public accounting firm for the year ended December 31, 2017” and “Auditing and Related Fees”, included on page 23-24 of the Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

1. The Consolidated Financial Statements and Report of Independent Auditors are included in this Form 10-K and listed on pages as indicated.

		Page
(1)	Report of Independent Registered Public Accounting Firm	36
(2)	Consolidated Balance Sheets	37
(3)	Consolidated Statements of Operations	38
(4)	Consolidated Statements of Comprehensive Income	39
(5)	Consolidated Statements of Shareholders’ Equity	40
(6)	Consolidated Statements of Cash Flows	41
(7)	Notes to Consolidated Financial Statements	42 - 80

84

2. Exhibits

2.0 Plan of Reorganization (Filed with 1995 10-KSB)

3.0 Articles of Incorporation of the Registrant (Filed with 1995 10-KSB)

3.1 By-laws of the Registrant (Filed with 1995 10-KSB)

3.2 Amendments to the Articles of Incorporation of the Registrant (Filed with Form S on June 23, 2011)

4.0 2017 Proxy Statement (Filed with 2016 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 March 31, 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 (Incorporated herein)

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)

10.10 First Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K)

10.11 Second Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K)

13.0 2016 10-K (Incorporated herein)

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 the Principal Executive Officer

31.2 Certification pursuant to Rule 13a-14(a)/15d-14(a) by the Principal Financial Officer

32.1 Certification pursuant to Section 1350

32.2 Certification pursuant to Section 1350

85

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: March 3, 2017	BANK OF SOUTH CAROLINA CORPORATION
	BY:	/s/ Fleetwood S. Hassell
		Fleetwood S. Hassell
		President/Chief Executive Officer
	By:	/s/ Eugene H. Walpole, IV
		Eugene H. Walpole, IV
		Chief Financial Officer/Senior Vice President

86

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

March 3, 2017	/s/ David W. Bunch
	David W. Bunch, Director
March 3, 2017	/s/ Graham M. Eubank, Jr.
	Graham M. Eubank, Jr., Director
March 3, 2017	/s/ Elizabeth M. Hagood
	Elizabeth M. Hagood, Director
March 3, 2017	/s/ Fleetwood S. Hassell
	Fleetwood S. Hassell, President/Chief Executive Office, Director
March 3, 2017	/s/ Glen B. Haynes, DVM
	Glen B. Haynes, DVM, Director
March 3, 2017	/s/ William L. Hiott, Jr.
	William L. Hiott, Jr., Director
March 3, 2017	/s/ Katherine M. Huger
	Katherine M. Huger, Director
March 3, 2017	/s/ Richard W. Hutson, Jr.
	Richard W. Hutson, Jr., Director
March 3, 2017	/s/Charles G. Lane
	Charles G. Lane, Director
March 3, 2017	/s/ Hugh C. Lane, Jr.
	Hugh C. Lane, Jr., Chairman of the Board, Director
March 3, 2017	/s/ Linda. J. Bradley McKee, PHD, CPA
	Linda J. Bradley McKee, PHD, CPA, Director
March 3, 2017	/s/ Alan I. Nussbaum
	Alan I. Nussbaum, MD, Director
March 3, 2017	/s/ Edmund Rhett, Jr.
	Edmund Rhett, Jr., MD, Director
March 3, 2017	/s/ Malcolm M. Rhodes
	Malcolm M. Rhodes, MD, Director
March 3, 2017	/s/ Douglas H. Sass
	Douglas H. Sass, Executive Vice President, Director

87

March 3, 2017	/s/ Sheryl G. Sharry
	Sheryl G. Sharry. Director
March 3, 2017	/s/ Steve D. Swanson
	Steve D. Swanson, Director

88

EX-10.6

Bank of South Carolina Corporation - 10-K

Exhibit 10.6

THE BANK OF SOUTH CAROLINA
EMPLOYEE STOCK OWNERSHIP PLAN

TABLE OF CONTENTS

ARTICLE I
DEFINITIONS
ARTICLE II
ADMINISTRATION
2.1	POWERS AND RESPONSIBILITIES OF THE EMPLOYER	15
2.2	DESIGNATION OF ADMINISTRATIVE AUTHORITY	16
2.3	ALLOCATION AND DELEGATION OF RESPONSIBILITIES	16
2.4	POWERS AND DUTIES OF THE ADMINISTRATOR	17
2.5	RECORDS AND REPORTS	18
2.6	APPOINTMENT OF ADVISERS	18
2.7	PAYMENT OF EXPENSES	18
2.8	CLAIMS PROCEDURE	19
2.9	CLAIMS REVIEW PROCEDURE	19
ARTICLE III
ELIGIBILITY
3.1	CONDITIONS OF ELIGIBILITY	19
3.2	EFFECTIVE DATE OF PARTICIPATION	20
3.3	DETERMINATION OF ELIGIBILITY	20
3.4	TERMINATION OF ELIGIBILITY	20
3.5	REHIRED EMPLOYEES AND BREAKS IN SERVICE	20
3.6	ELECTION NOT TO PARTICIPATE	22
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1	FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION	22
4.2	TIME OF PAYMENT OF EMPLOYER CONTRIBUTION	22
4.3	ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS	22
4.4	MAXIMUM ANNUAL ADDITIONS	27
4.5	DIRECTED INVESTMENT ACCOUNT	29
4.6	QUALIFIED MILITARY SERVICE	30

1 

ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1	INVESTMENT POLICY	30
5.2	APPLICATION OF CASH	31
5.3	TRANSACTIONS INVOLVING COMPANY STOCK	31
5.4	LOANS TO THE TRUST	32
ARTICLE VI
VALUATIONS
6.1	VALUATION OF THE TRUST FUND	34
6.2	METHOD OF VALUATION	34
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1	DETERMINATION OF BENEFITS UPON RETIREMENT	34
7.2	DETERMINATION OF BENEFITS UPON DEATH	35
7.3	DETERMINATION OF BENEFITS IN EVENT OF DISABILITY	37
7.4	DETERMINATION OF BENEFITS UPON TERMINATION	37
7.5	DISTRIBUTION OF BENEFITS	39
7.6	HOW PLAN BENEFIT WILL BE DISTRIBUTED	41
7.7	REQUIRED MINIMUM DISTRIBUTIONS	42
7.8	DISTRIBUTION FOR MINOR OR INCOMPETENT INDIVIDUAL	46
7.9	LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN	47
7.10	RIGHT OF FIRST REFUSALS	47
7.11	STOCK CERTIFICATE LEGEND	48
7.12	NONTERMINABLE PROTECTIONS AND RIGHTS	49
7.13	QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION	49
7.14	DIRECT ROLLOVER	49
7.15	CORRECTIVE DISTRIBUTIONS	51
ARTICLE VIII
TRUSTEE
8.1	BASIC RESPONSIBILITIES OF THE TRUSTEE	51
8.2	INVESTMENT POWERS AND DUTIES OF THE TRUSTEE	52
8.3	OTHER POWERS OF THE TRUSTEE	53
8.4	VOTING COMPANY STOCK	56

2 

8.5	DUTIES OF THE TRUSTEE REGARDING PAYMENTS	56
8.6	TRUSTEE’S COMPENSATION AND EXPENSES AND TAXES	56
8.7	ANNUAL REPORT OF THE TRUSTEE	57
8.8	AUDIT	57
8.9	RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE	58
8.10	TRANSFER OF INTEREST	59
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1	AMENDMENT	59
9.2	TERMINATION	60
9.3	MERGER, CONSOLIDATION OR TRANSFER OF ASSETS	60
ARTICLE X
TOP HEAVY
10.1	TOP HEAVY PLAN REQUIREMENTS	60
10.2	DETERMINATION OF TOP HEAVY STATUS	61
ARTICLE XI
MISCELLANEOUS
11.1	PARTICIPANT’S RIGHTS	64
11.2	ALIENATION	64
11.3	CONSTRUCTION OF PLAN	65
11.4	GENDER AND NUMBER	65
11.5	LEGAL ACTION	65
11.6	PROHIBITION AGAINST DIVERSION OF FUNDS	65
11.7	EMPLOYER’S AND TRUSTEE’S PROTECTIVE CLAUSE	66
11.8	INSURER’S PROTECTIVE CLAUSE	66
11.9	RECEIPT AND RELEASE FOR PAYMENTS	66
11.10	ACTION BY THE EMPLOYER	66
11.11	NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY	67
11.12	HEADINGS	67
11.13	ELECTRONIC MEDIA	67
11.14	PLAN CORRECTION	67
11.15	APPROVAL BY INTERNAL REVENUE SERVICE	68

3 

11.16	UNIFORMITY	68
11.17	SECURITIES AND EXCHANGE COMMISSION APPROVAL	68

4 

THE BANK OF SOUTH CAROLINA
EMPLOYEE STOCK OWNERSHIP PLAN

THIS AGREEMENT, hereby made and entered into this ________________ day of _____________________________, by and between The Bank of South Carolina (herein referred to as the “Employer”) and Fleetwood S. Hassell, Douglas H. Sass, Sheryl G. Sharry and Eugene H. Walpole, IV (herein referred to as the “Trustee”).

W I T N E S S E T H:

WHEREAS, the Employer heretofore established an Employee Stock Ownership Plan effective January 1, 1989, (hereinafter called the “Effective Date”) known as The Bank of South Carolina Employee Stock Ownership Plan (herein referred to as the “Plan”) in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; and

WHEREAS, under the terms of the Plan, the Employer has the ability to amend the Plan, provided the Trustee joins in such amendment if the provisions of the Plan affecting the Trustee are amended; and

WHEREAS, contributions to the Plan will be made by the Employer and such contributions made to the trust will be invested primarily in the capital stock of the Employer;

NOW, THEREFORE, effective January 1, 2017, except as otherwise provided, the Employer and the Trustee in accordance with the provisions of the Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and restate the Plan to provide as follows:

ARTICLE I

DEFINITIONS

1.1       “Act” means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.2       “Administrator” means the Employer unless another person or entity has been designated by the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer.

1.3       “Affiliated Employer” means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o).

1 

1.4       “Aggregate Account” means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the provisions of Section 10.2.

1.5       “Anniversary Date” means the last day of the Plan Year.

1.6       “Beneficiary” means the person (or entity) to whom the share of a deceased Participant’s interest in the Plan is payable.

1.7       “Code” means the Internal Revenue Code of 1986, as amended or replaced from time to time.

1.8       “Company Stock” means common stock issued by the Employer (or by a corporation which is a member of the controlled group of corporations of which the Employer is a member) which is readily tradable on an established securities market. If there is no common stock which meets the foregoing requirement, the term “Company Stock” means common stock issued by the Employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of: (A) that class of common stock of the Employer (or of any other such corporation) having the greatest voting power, and (B) that class of common stock of the Employer (or of any other such corporation) having the greatest dividend rights. Noncallable preferred stock shall be deemed to be “Company Stock” if such stock is convertible at any time into stock which constitutes “Company Stock” hereunder and if such conversion is at a conversion price which (as of the date of the acquisition by the Trust) is reasonable. For purposes of the preceding sentence, pursuant to Regulations, preferred stock shall be treated as noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence.

1.9       “Company Stock Account” means the account of a Participant which is credited with the shares of Company Stock purchased and paid for by the Trust Fund or contributed to the Trust Fund.

A separate accounting shall be maintained with respect to that portion of the Company Stock Account attributable to a Participant’s or the Participant’s Beneficiary’s election pursuant to Section 7.5(c)(3) to reinvest cash dividends in Company Stock. Any such Company Stock allocated to the Company Stock Account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason.

1.10       “Compensation” means, with respect to any Participant and except as otherwise provided herein, such Participant’s wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer’s trade or business) for a Plan Year (the “determination period”) for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052 (Form W-2 wages). Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).

2 

For purposes of this Section, the determination of Compensation shall be made by:

(a)           including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. For this purpose, amounts not includible in gross income under Code Section 125 shall be deemed to include any amounts not available to a Participant in cash in lieu of group health coverage because the Participant is unable to certify that the Participant has other health coverage, provided the Employer does not request or collect information regarding the Participant’s other health coverage as part of the enrollment process for the health plan.

(b)           including Military Differential Pay.

(c)           making the following adjustments for amounts that are paid after the Participant’s severance from employment with the Employer. Any other payment of compensation paid after severance of employment that is not described in the following types of compensation is not Compensation.

(1)           Compensation shall include regular pay after severance of employment if:

(i)            The payment is regular compensation for services during the Participant’s regular working hours, or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments; and

(ii)           The payment would have been paid to the Participant prior to a severance from employment if the Participant had continued in employment with the Employer, and

(iii)          The payment is made by the later of 2 1/2 months after a Participant’s severance from employment with the Employer or the end of the Limitation Year that includes the date of the Participant’s severance from employment with the Employer.

3 

(2)           Leave cash-outs shall be included in Compensation if those amounts would have been included in the definition of Compensation if they were paid prior to the Participant’s severance from employment with the Employer, and the amounts are for unused accrued bona fide sick, vacation, or other leave, but only if the Participant would have been able to use the leave if employment had continued, and such payment is made by the later of 2 1/2 months after a Participant’s severance from employment with the Employer or the end of the Limitation Year that includes the date of the Participant’s severance from employment with the Employer.

Compensation in excess of $200,000 (or such other amount provided in the Code) shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17)(B), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any “determination period” of less than twelve (12) months, the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the “determination period” begins multiplied by the ratio obtained by dividing the number of full months in the short “determination period” by twelve (12). A “determination period” is not less than twelve (12) months solely because a Participant’s Compensation does not include Compensation paid during a determination period while the Participant was not a Participant in the Plan (or a component of the Plan).

If any Employees are excluded from the Plan (or from any component of the Plan), then Compensation for any such Employees who become eligible or cease to be eligible to participate in the Plan (or in the component of the Plan) during a Plan Year shall only include Compensation while such Employees are Eligible Employees of the Plan (or of such component of the Plan).

If, in connection with the adoption of any amendment, the definition of Compensation has been modified, then, except as otherwise provided herein, for Plan Years prior to the Plan Year which includes the adoption date of such amendment, Compensation means compensation determined pursuant to the terms of the Plan then in effect.

1.11         “Contract” or “Policy” means any life insurance policy, retirement income policy or annuity policy (group or individual) issued pursuant to the terms of the Plan. In the event of any conflict between the terms of this Plan and the terms of any contract purchased hereunder, the Plan provisions shall control.

1.12         “Current Obligations” means Trust obligations arising from extension of credit to the Trust and payable in cash within (1) year from the date an Employer contribution is due.

1.13         “Early Retirement Date” means any Anniversary Date (prior to the Normal Retirement Date) coinciding with or following the date on which a Participant or Former Participant attains age 55, and has completed at least 5 Years of Service with the Employer (Early Retirement Age). A Participant shall become fully Vested upon satisfying this requirement if still employed at Early Retirement Age.

4 

A Former Participant who separates from service after satisfying any service requirement but before satisfying the age requirement for Early Retirement Age and who thereafter reaches the age requirement contained herein shall be entitled to receive benefits under this Plan (other than any accelerated vesting and allocations of Employer Contributions) as though the requirements for Early Retirement Age had been satisfied.

1.14         “Eligible Employee” means any Employee, except as provided below. The following Employees shall not be eligible to participate in this Plan:

(a)           Employees of Affiliated Employers, unless such Affiliated Employers have specifically adopted this Plan in writing.

(b)           Individuals who are not reported on the payroll records of the Employer as common law employees. In particular, it is expressly intended that individuals who are not treated as common law employees by the Employer on its payroll records, or partners or other Self-Employed Individuals who are treated as independent contractors, are not Eligible Employees and are excluded from Plan participation even if a court or administrative agency determines that such individuals are common law employees and not independent contractors.

(c)           Employees who are Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2).

(d)           Employees whose employment is governed by the terms of a collective bargaining agreement between Employee representatives (within the meaning of Code Section 7701(a)(46)) and the Employer under which retirement benefits were the subject of good faith bargaining between the parties, unless such agreement expressly provides for coverage in this Plan.

(e)           Employees who are nonresident aliens (within the meaning of Code Section 7701(b)(1)(B)) and who receive no earned income (within the meaning of Code Section 911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)).

1.15         “Employee” means any person who is employed by the Employer or Affiliated Employer. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient’s non-highly compensated work force.

1.16         “Employer” means The Bank of South Carolina and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employer is a “C” corporation with principal offices in the State of South Carolina.

5 

1.17         “ESOP” means an employee stock ownership plan that meets the requirements of Code Section 4975(e)(7) and Regulation 54.4975-11.

1.18        “Exempt Loan” means a loan made to the Plan by a disqualified person or a loan to the Plan which is guaranteed by a disqualified person and which satisfies the requirements of Section 5.4 hereof. Any Exempt Loan must be primarily for the benefit of the Plan Participants.

1.19         “Fiduciary” means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan.

1.20         “Fiscal Year” means the Employer’s accounting year of 12 months commencing on January 1st of each year and ending the following December 31st.

1.21         “Forfeiture” means that portion of a Participant’s Account that is not Vested, and occurs on the earlier of:

(a)           the distribution of the entire Vested portion of the Participant’s Account of a Former Participant who has severed employment with the Employer. For purposes of this provision, if the Former Participant has a Vested benefit of zero, then such Former Participant shall be deemed to have received a distribution of such Vested benefit as of the year in which the severance of employment occurs, or

(b)           the last day of the Plan Year in which a Former Participant who has severed employment with the Employer incurs five (5) consecutive 1-Year Breaks in Service.

Regardless of the preceding provisions, if a Former Participant is eligible to share in the allocation of Employer contributions or Forfeitures in the year in which the Forfeiture would otherwise occur, then the Forfeiture will not occur until the end of the first Plan Year for which the Former Participant is not eligible to share in the allocation of Employer contributions or Forfeitures. Furthermore, the term “Forfeiture” shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan.

1.22       “Former Participant” means a person who has been a Participant, but who has ceased to be a Participant for any reason.

1.23       ”415 Compensation” with respect to any Participant means such Participant’s wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer’s trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052, plus amounts that would have been received and includible in taxable compensation but for an election under Code Section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b), plus Military Differential Pay. “415 Compensation” must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).

6 

Notwithstanding the above, the determination of 415 Compensation shall be made by:

(a)           including amounts not includible in gross income under Code Section 125 shall be deemed to include any amounts not available to a Participant in cash in lieu of group health coverage because the Participant is unable to certify that the Participant has other health coverage, provided the Employer does not request or collect information regarding the Participant’s other health coverage as part of the enrollment process for the health plan.

(b)           making the following adjustments for amounts that are paid after the Participant’s severance from employment with the Employer. Any other payment of compensation paid after severance of employment that is not described in the following types of compensation is not considered compensation within the meaning of Code Section 415(c)(3), even if payment is made within the time period specified above.

(1)           415 Compensation shall include regular pay after severance of employment if:

(i)            The payment is regular compensation for services during the Participant’s regular working hours, or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments; and

(ii)           The payment would have been paid to the Participant prior to a severance from employment if the Participant had continued in employment with the Employer, and

(iii)          The payment is made by the later of 2 1/2 months after a Participant’s severance from employment with the Employer or the end of the Limitation Year that includes the date of the Participant’s severance from employment with the Employer.

(2)           Leave cash-outs shall be included in 415 Compensation if those amounts would have been included in the definition of 415 Compensation if they were paid prior to the Participant’s severance from employment with the Employer and the amounts are for unused accrued bona fide sick, vacation, or other leave, but only if the Participant would have been able to use the leave if employment had continued, and such amounts are paid by the later of 2 1/2 months after a Participant’s severance from employment with the Employer or the end of the Limitation Year that includes the date of the Participant’s severance from employment with the Employer, and represents.

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1.24         “Highly Compensated Employee” means an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means any Employee who:

(a)           was a “five percent owner” as defined in Section 1.28(b) at any time during the “determination year” or the “look-back year”; or

(b)           for the “look-back year” had “415 Compensation” from the Employer in excess of $80,000 and were in the Top Paid Group of Employees for the Plan Year. The $80,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996.

The “determination year” means the Plan Year for which testing is being performed, and the “look back year” means the immediately preceding twelve (12) month period.

A highly compensated former Employee is based on the rules applicable to determining Highly Compensated Employee status as in effect for the “determination year,” in accordance with Regulation 1.414(q)-1T, A-4 and IRS Notice 97-45 (or any superseding guidance).

In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. If a Nonresident Alien Employee has U.S. source income, that Employee is treated as satisfying this definition if all of such Employee’s U.S. source income from the Employer is exempt from U.S. income tax under an applicable income tax treaty. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer’s retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the “determination year.”

1.25         “Highly Compensated Participant” means any Highly Compensated Employee who is eligible to participate in the component of the Plan being tested.

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1.26         “Hour of Service” means, for purposes of eligibility for participation, vesting and benefit accrual, (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties (these hours will be credited to the Employee for the computation period in which the duties are performed); (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation 2530.200b-2 which is incorporated herein by reference); (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made). The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3).

Notwithstanding (2) above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker’s compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.

For purposes of (2) above, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.

For purposes of this Section, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.

1.27         “Investment Manager” means any Fiduciary described in Act Section 3(38).

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1.28         “Key Employee” means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of the Employee’s or former Employee’s Beneficiaries) is considered a Key Employee if the Employee’s or former Employee’s, at any time during the Plan Year that contains the “determination date” (within the meaning of Section 10.2) has been included in one of the following categories:

(a)           an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual “415 Compensation” greater than $130,000 (as adjusted under Code Section 416(i)(1)).

(b)          a “five percent owner” of the Employer. “Five percent owner” means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer.

(c)           a “one percent owner” of the Employer having an annual “415 Compensation” from the Employer of more than $150,000. “One percent owner” means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer.

For purposes of this Section, the determination of “415 Compensation” shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions.

In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. In determining whether an individual has 415 Compensation of more than $150,000 or $130,000 as adjusted, 415 Compensation from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account.

1.29         “Late Retirement Date” means the Anniversary Date coinciding with or next following a Participant’s actual Retirement Date after having reached Normal Retirement Date.

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1.30         “Leased Employee” means any person (other than an Employee of the recipient Employer) who pursuant to an agreement between the recipient Employer and any other person or entity (“leasing organization”) has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient Employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer. Furthermore, Compensation for a Leased Employee shall only include Compensation from the leasing organization that is attributable to services performed for the recipient Employer. A Leased Employee shall not be considered an Employee of the recipient Employer:

(a)           if such employee is covered by a money purchase pension plan providing:

(1)           a nonintegrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3);

(2)           immediate participation;

(3)           full and immediate vesting; and

(b)           if Leased Employees do not constitute more than 20% of the recipient Employer’s nonhighly compensated work force.

1.31         “Military Differential Pay” means any differential wage payments made to an individual that represents an amount which, when added to the individual’s military pay, approximates the amount of compensation that was paid to the individual while working for the Employer. An individual receiving a differential wage payment, as defined by Code Section 3401(h)(2), is treated as an Employee of the Employer making the payment, and the differential wage payment is treated as 415 Compensation.

The Plan is not treated as failing to meet the requirements of any provision described in Code Section 414(u)(1)(C) (or corresponding Plan provisions) by reason of any contribution or benefit which is based on the differential wage payment. The preceding sentence applies only if all Employees of the Employer performing service in the uniformed services described in Code Section 3401(h)(2)(A) are entitled to receive differential wage payments (as defined in Code Section 3401(h)(2)) on reasonably equivalent terms and, if eligible to participate in a retirement plan maintained by the Employer, to make contributions based on the payments on reasonably equivalent terms (taking into account Code Sections 410(b)(3), (4), and (5)).

1.32         “Non-Highly Compensated Participant” means any Participant who is not a Highly Compensated Employee.

A Participant is a Non-Highly Compensated Participant for a particular Plan Year if such Participant does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

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1.33         “Non-Key Employee” means any Employee or former Employee (and such Employee’s or former Employee’s Beneficiaries) who is not a Key Employee.

1.34         “Normal Retirement Age” means the Participant’s 65th birthday. A Participant shall become fully Vested in the Participant’s Account upon attaining Normal Retirement Age (if the Participant is an Employee on or after such date).

1.35         “Normal Retirement Date” means the Anniversary Date coinciding with or next following the Participant’s Normal Retirement Age.

1.36         “1-Year Break in Service” means, for purposes of eligibility for participation and vesting, the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for “authorized leaves of absence” and “maternity and paternity leaves of absence.” Years of Service and 1-Year Breaks in Service shall be measured on the same computation period.

“Authorized leave of absence” means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason.

A “maternity or paternity leave of absence” means an absence from work for any period by reason of the Employee’s pregnancy, birth of the Employee’s child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a “maternity or paternity leave of absence” shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a “maternity or paternity leave of absence” shall not exceed the number of Hours of Service needed to prevent the Employee from incurring a 1-Year Break in Service.

1.37         “Other Investments Account” means the account of a Participant which is credited with such Participant’s share of the net gain (or loss) of the Plan, Forfeitures and Employer contributions in other than Company Stock and which is debited with payments made to pay for Company Stock.

1.38         “Participant” means any Eligible Employee who participates in the Plan and has not for any reason become ineligible to participate further in the Plan.

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1.39         “Participant’s Account” means the account established and maintained by the Administrator for each Participant with respect to such Participant’s total interest in the Plan and Trust resulting from the Employer contributions.

1.40         “Plan” means this instrument, including all amendments thereto.

1.41         “Plan Year” means the Plan’s accounting year of twelve (12) months commencing on January 1st of each year and ending the following December 31st.

1.42         “Regulation” means the Income Tax Regulations as promulgated by the Secretary of the Treasury or a delegate of the Secretary of the Treasury, and as amended from time to time.

1.43         “Retired Participant” means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan.

1.44        “Retirement Date” means the date as of which a Participant retires for reasons other than Total and Permanent Disability, whether such retirement occurs on a Participant’s Normal Retirement Date, Early or Late Retirement Date (see Section 7.1).

1.45         “Terminated Participant” means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement.

1.46         “Top Heavy Plan” means a plan described in Section 10.2(a).

1.47         “Top Heavy Plan Year” means a Plan Year during which the Plan is a Top Heavy Plan.

1.48         “Top-Paid Group” means the top-paid group as determined pursuant to Code Section 414(q) and the Regulations thereunder and generally means the top twenty percent (20%) of Employees who performed services for the Employer during the applicable year, ranked according to the amount of “415 Compensation” received from the Employer during such year. All Affiliated Employers shall be taken into account as a single employer, and Leased Employees shall be treated as Employees if required pursuant to Code Section 414(n) or (o). Employees who are non-resident aliens who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Furthermore, for the purpose of determining the number of Employees in any year, the following additional Employees shall also be excluded, however, such Employees may still be considered for the purpose of identifying the particular Employees in the Top-Paid Group:

(a)           Employees with less than six (6) months of service;

(b)           Employees who normally work less than 17 1/2 hours per week;

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(c)           Employees who normally work less than six (6) months during a year; and

(d)           Employees who have not yet attained age twenty-one (21).

In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top-Paid Group.

The foregoing exclusions set forth in this Section shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. Furthermore, in applying such exclusions, the Employer may substitute any lesser service, hours or age.

1.49         “Total and Permanent Disability” means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders such Participant incapable of continuing any gainful occupation and which condition constitutes total disability under the federal Social Security Acts.

1.50         “Trustee” means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors.

1.51         “Trust Fund” means the assets of the Plan and Trust as the same shall exist from time to time.

1.52         “Unallocated Company Stock Suspense Account” means an account containing Company Stock acquired with the proceeds of an Exempt Loan and which has not been released from such account and allocated to the Participants’ Company Stock Accounts.

1.53         “Valuation Date” means the Anniversary Date and may include any other date or dates deemed necessary or appropriate by the Administrator for the valuation of the Participant’s accounts during the Plan Year, which may include any day that the Trustee, any transfer agent appointed by the Trustee or the Employer or any stock exchange used by such agent, are open for business.

1.54         “Vested” means the nonforfeitable portion of any account maintained on behalf of a Participant.

1.55         “Year of Service” means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service.

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For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period beginning after a 1-Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. If there is a shift to the Plan Year, then an Employee who is credited with the required Hours of Service in both the initial computation period (or the computation period beginning after a 1-Year Break in Service) and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate.

For vesting purposes, the computation periods shall be the Plan Year, including periods prior to the Effective Date of the Plan.

The computation period shall be the Plan Year if not otherwise set forth herein.

Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year.

Years of Service with any Affiliated Employer shall be recognized.

ARTICLE II

ADMINISTRATION

2.1           POWERS AND RESPONSIBILITIES OF THE EMPLOYER

(a)           In addition to the general powers and responsibilities otherwise provided for in this Plan, the Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to ensure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. The Employer may appoint counsel, specialists, advisers, agents (including any nonfiduciary agent) and other persons as the Employer deems necessary or desirable in connection with the exercise of its fiduciary duties under this Plan. The Employer may compensate such agents or advisers from the assets of the Plan as fiduciary expenses (but not including any business (settlor) expenses of the Employer), to the extent not paid by the Employer.

(b)           The Employer may, by written agreement or designation, appoint at its option an Investment Manager (qualified under the Investment Company Act of 1940 as amended), investment adviser, or other agent to provide direction to the Trustee with respect to any or all of the Plan assets. Such appointment shall be given by the Employer in writing in a form acceptable to the Trustee and shall specifically identify the Plan assets with respect to which the Investment Manager or other agent shall have authority to direct the investment.

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(c)           The Employer shall establish a “funding policy and method,” i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a “funding policy and method” shall not, however, constitute a directive to the Trustee as to the investment of the Trust Funds. Such “funding policy and method” shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act.

(d)           The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways.

(e)           The Employer will furnish Plan Fiduciaries and Participants with notices and information statements when voting rights must be exercised pursuant to Section 8.4.

2.2           DESIGNATION OF ADMINISTRATIVE AUTHORITY

The Employer shall be the Administrator. The Employer may appoint any person, including, but not limited to, the Employees of the Employer, to perform the duties of the Administrator. Any person so appointed shall signify acceptance by filing written acceptance with the Employer. Upon the resignation or removal of any individual performing the duties of the Administrator, the Employer may designate a successor.

2.3           ALLOCATION AND DELEGATION OF RESPONSIBILITIES

If more than one person is appointed as Administrator, the responsibilities of each Administrator may be specified by the Employer and accepted in writing by each Administrator. In the event that no such delegation is made by the Employer, the Administrators may allocate the responsibilities among themselves, in which event the Administrators shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Administrator until such time as the Employer or the Administrators file with the Trustee a written revocation of such designation.

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2.4           POWERS AND DUTIES OF THE ADMINISTRATOR

The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish the Administrator’s duties under the Plan.

The Administrator shall be charged with the duties of the general administration of the Plan as set forth under the terms of the Plan, including, but not limited to, the following:

(a)           the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan;

(b)           to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder;

(c)           to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the Trust;

(d)           to maintain all necessary records for the administration of the Plan;

(e)           to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof;

(f)            to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased;

(g)           to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan;

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(h)           to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives;

(i)           to establish and communicate to Participants a procedure for allowing each Participant to direct the Trustee as to the distribution of such Participant’s Company Stock Account pursuant to Section 4.5;

(j)            to establish and communicate to Participants a procedure and method to insure that each Participant will vote Company Stock allocated to such Participant’s Company Stock Account pursuant to Section 8.4;

(k)           to determine the validity of, and take appropriate action with respect to, any qualified domestic relations order received by it; and

(l)            to assist any Participant regarding the Participant’s rights, benefits, or elections available under the Plan.

2.5           RECORDS AND REPORTS

The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, policies, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law.

2.6           APPOINTMENT OF ADVISERS

The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, agents (including nonfiduciary agents) and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan, including but not limited to agents and advisers to assist with the administration and management of the Plan, and thereby to provide, among such other duties as the Administrator may appoint, assistance with maintaining Plan records and the providing of investment information to the Plan’s investment fiduciaries.

2.7           PAYMENT OF EXPENSES

All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, or any person or persons retained or appointed by any Named Fiduciary incident to the exercise of their duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment Managers, and other specialists and their agents, the costs of any bonds required pursuant to Act Section 412, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund.

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2.8           CLAIMS PROCEDURE

Claims for benefits under the Plan may be filed in writing with the Administrator. Written or electronic notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed, or such period as is required by applicable law or Department of Labor regulation. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan’s claims review procedure.

2.9           CLAIMS REVIEW PROCEDURE

Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.8 shall be entitled to request the Administrator to give further consideration to a claim by filing with the Administrator a written request for a hearing. Such request, together with a written statement of the reasons why the claimant believes the claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written or electronic notification provided for in Section 2.8. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of such claimant’s choosing and expense and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of the claim. At the hearing the claimant or the claimant’s representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based.

ARTICLE III

ELIGIBILITY

3.1           CONDITIONS OF ELIGIBILITY

Any Eligible Employee who has completed one (1) Year of Service and has attained age 21 shall be eligible to participate hereunder as of the date such Employee has satisfied such requirements. However, any Employee who was a Participant in the Plan prior to the effective date of this amendment and restatement shall continue to participate in the Plan.

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3.2           EFFECTIVE DATE OF PARTICIPATION

An Eligible Employee shall become a Participant effective as of the first day of the Plan Year in which such Employee met the eligibility requirements of Section 3.1 if such eligibility requirements were met during the first six months of that Plan Year, or, if such Employee met the eligibility requirements of Section 3.1 during the last six months of a Plan Year, then the Employee shall become a Participant effective as of the first day of the next succeeding Plan Year, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a 1-Year Break in Service has not occurred or, if later, the date that the Employee would have otherwise entered the Plan had the Employee not terminated employment).

If an Employee, who has satisfied the Plan’s eligibility requirements and would otherwise have become a Participant, shall go from a classification of a noneligible Employee to an Eligible Employee, such Employee shall become a Participant on the date such Employee becomes an Eligible Employee or, if later, the date that the Employee would have otherwise entered the Plan had the Employee always been an Eligible Employee.

If an Employee, who has satisfied the Plan’s eligibility requirements and would otherwise become a Participant, shall go from a classification of an Eligible Employee to a noneligible class of Employees, such Employee shall become a Participant in the Plan on the date such Employee again becomes an Eligible Employee, or, if later, the date that the Employee would have otherwise entered the Plan had the Employee always been an Eligible Employee. However, if such Employee incurs a 1-Year Break in Service, eligibility will be determined under the Break in Service rules set forth in Section 3.5.

3.3           DETERMINATION OF ELIGIBILITY

The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review pursuant to Section 2.9.

3.4           TERMINATION OF ELIGIBILITY

In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in the Plan for each Year of Service completed while a noneligible Employee, until such time as the Participant’s Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, the Former Participant’s interest in the Plan shall continue to share in the earnings of the Trust Fund.

3.5           REHIRED EMPLOYEES AND BREAKS IN SERVICE

(a)           If any Participant becomes a Former Participant due to severance from employment with the Employer and is reemployed by the Employer before a 1-Year Break in Service occurs, the Former Participant shall become a Participant as of the reemployment date.

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(b)           If any Employee becomes a former Employee due to severance from employment with the Employer and is reemployed after a 1-Year Break in Service has occurred, Years of Service shall include Years of Service prior to the 1-Year Break in Service subject to the following rules:

(1)           In the case of a former Employee who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions, Years of Service before a period of 1-Year Break in Service will not be taken into account if the number of consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five (5) or (B) the aggregate number of pre-break Years of Service. Such aggregate number of Years of Service will not include any Years of Service disregarded under the preceding sentence by reason of prior 1-Year Breaks in Service.

(2)           A former Employee who has not had Years of Service before a 1-Year Break in Service disregarded pursuant to (1) above, shall participate in the Plan as of the date of reemployment.

(c)           After a Former Participant who has severed employment with the Employer incurs five (5) consecutive 1-Year Breaks in Service, the Vested portion of said Former Participant’s Account attributable to pre-break service shall not be increased as a result of post-break service. In such case, separate accounts will be maintained as follows:

(1)           one account for nonforfeitable benefits attributable to pre-break service; and

(2)           one account representing the Participant’s Employer derived account balance in the Plan attributable to post-break service.

(d)           If any Participant becomes a Former Participant due to severance of employment with the Employer and is reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, and such Former Participant had received a distribution of the entire Vested interest prior to reemployment, then the forfeited account shall be reinstated only if the Former Participant repays the full amount which had been distributed. Such repayment must be made before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five (5) consecutive 1-Year Breaks in Service commencing after the distribution. If a distribution occurs for any reason other than a severance of employment, the time for repayment may not end earlier than five (5) years after the date of distribution. In the event the Former Participant does repay the full amount distributed, the undistributed forfeited portion of the Participant’s Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Valuation Date preceding the distribution. The source for such reinstatement may be Forfeitures occurring during the Plan Year. If such source is insufficient, then the Employer will contribute an amount which is sufficient to restore any such forfeited Accounts provided, however, that if a discretionary contribution is made for such year, such contribution shall first be applied to restore any such Accounts and the remainder shall be allocated in accordance with Section 4.3.

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If a non-Vested Former Participant was deemed to have received a distribution and such Former Participant is reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, then such Participant will be deemed to have repaid the deemed distribution as of the date of reemployment.

3.6           ELECTION NOT TO PARTICIPATE

An Employee may, subject to the approval of the Employer, elect voluntarily and irrevocably not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, within a reasonable period of time before the beginning of the first Plan Year to which such waiver shall apply.

ARTICLE IV

CONTRIBUTION AND ALLOCATION

4.1           FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION

(a)           For each Plan Year, the Employer shall contribute to the Plan such amount as shall be determined by the Employer.

(b)           The Employer contribution shall not be limited to years in which the Employer has current or accumulated net profit. Additionally, to the extent necessary, the Employer shall contribute to the Plan the amount necessary to provide the top heavy minimum contribution. All contributions by the Employer shall be made in cash or, if there is no prohibited transaction within the meaning of Labor regulation 2509.94-3, in such property as is acceptable to the Trustee.

4.2           TIME OF PAYMENT OF EMPLOYER CONTRIBUTION

The Employer may make its contribution to the Plan for a particular Plan Year at such time as the Employer, in its sole discretion, determines. If the Employer makes a contribution for a particular Plan Year after the close of that Plan Year, the Employer will designate to the Trustee the Plan Year for which the Employer is making its contribution.

4.3           ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS

(a)           The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date, or other Valuation Date, all amounts allocated to each such Participant as set forth herein.

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(b)           The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer contribution for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution to each Participant’s Account in the same proportion that each such Participant’s Compensation for the year bears to the total Compensation of all Participants for such year.

Only Participants who have completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year.

(c)           The Company Stock Account of each Participant shall be credited as of each Anniversary Date with Forfeitures of Company Stock and the Participant’s allocable share of Company Stock (including fractional shares) purchased and paid for by the Plan or contributed in kind by the Employer. Stock dividends on Company Stock held in the Participant’s Company Stock Account shall be credited to the Participant’s Company Stock Account when paid to the Plan. Cash dividends on Company Stock held in the Participant’s Company Stock Account shall, in the sole discretion of the Administrator, either be credited to the Participant’s Other Investments Account when paid to the Plan or be used to repay an Exempt Loan; provided, however, that when cash dividends are used to repay an Exempt Loan, Company Stock shall be released from the Unallocated Company Stock Suspense Account and allocated to the Participant’s Company Stock Account pursuant to Section 4.3(e) and, provided further, that Company Stock allocated to the Participant’s Company Stock Account shall have a fair market value not less than the amount of cash dividends which would have been allocated to such Participant’s Other Investments Account for the year.

Company Stock acquired by the Plan with the proceeds of an Exempt Loan shall only be allocated to each Participant’s Company Stock Account upon release from the Unallocated Company Stock Suspense Account as provided in Section 4.3(e) herein. Company Stock acquired with the proceeds of an Exempt Loan shall be an asset of the Trust Fund and maintained in the Unallocated Company Stock Suspense Account.

(d)           Except as provided above with respect to stock dividends on Company Stock, as of each Valuation Date, before allocation of Employer contributions for the entire Plan Year and after allocation of Forfeitures, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant’s and Former Participant’s nonsegregated accounts (other than each Participant’s Company Stock Account) bear to the total of all Participants’ and Former Participants’ nonsegregated accounts (other than each Participant’s Company Stock Account) as of such date.

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Earnings or losses do not include the interest paid under any installment contract for the purchase of Company Stock by the Trust Fund or on any loan used by the Trust Fund to purchase Company Stock, nor does it include income received by the Trust Fund with respect to Company Stock acquired with the proceeds of an Exempt Loan; all income received by the Trust Fund from Company Stock acquired with the proceeds of an Exempt Loan may, at the discretion of the Administrator, be used to repay such loan.

(e)           All Company Stock acquired by the Plan with the proceeds of an Exempt Loan must be added to and maintained in the Unallocated Company Stock Suspense Account. Such Company Stock shall be released and withdrawn from that account as if all Company Stock in that account were encumbered. For each Plan Year during the duration of the loan, the number of shares of Company Stock released shall equal the number of encumbered shares held immediately before release for the current Plan Year multiplied by a fraction, the numerator of which is the amount of principal paid for the Plan Year and the denominator of which is the sum of the numerator plus the principal to be paid for all future Plan Years. As of each Anniversary Date, the Plan must consistently allocate to each Participant’s Account, in the same manner as Employer discretionary contributions pursuant to Section 4.1(a) are allocated, non-monetary units (shares and fractional shares of Company Stock) representing each Participant’s interest in Company Stock withdrawn from the Unallocated Company Stock Suspense Account. However, Company Stock released from the Unallocated Company Stock Suspense Account with cash dividends pursuant to Section 4.3(c) shall be allocated to each Participant’s Company Stock Account in the same proportion that each such Participant’s number of shares of Company Stock sharing in such cash dividends bears to the total number of shares of all Participants’ Company Stock sharing in such cash dividends. Income earned with respect to Company Stock in the Unallocated Company Stock Suspense Account shall be used, at the discretion of the Administrator, to repay the Exempt Loan used to purchase such Company Stock. Company Stock released from the Unallocated Company Stock Suspense Account with such income, and any income which is not so used, shall be allocated as of each Anniversary Date in the same proportion that each Participant’s and Former Participant’s nonsegregated accounts after the allocation of any earnings or losses pursuant to Section 4.3(d) bear to the total of all Participants’ and Former Participants’ nonsegregated accounts after the allocation of any earnings or losses pursuant to Section 4.3(d).

(f)            On or before each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date may be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 3.5(d), be used to satisfy any contribution that may be required pursuant to Section 7.9, or used to pay any administrative expenses of the Plan. The remaining Forfeitures, if any, shall be allocated each year among the Participants’ Accounts of Participants otherwise eligible to share in the allocation of discretionary contributions in the same proportion that each such Participant’s Compensation for the year bears to the total Compensation of all such Participants for the year.

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Provided, however, that in the event the allocation of Forfeitures provided herein shall cause the “annual addition” (as defined in Section 4.4) to any Participant’s Account to exceed the amount allowable by the Code, the excess shall be reallocated to other Participants.

(g)           For any Top Heavy Plan Year, Employees not otherwise eligible to share in the allocation of contributions and Forfeitures as provided above, shall receive the minimum allocation provided for in Section 4.3(i) if eligible pursuant to the provisions of Section 4.3(k).

(h)           Notwithstanding the foregoing, Participants who are not actively employed on the last day of the Plan Year due to Retirement (Early, Normal or Late), Total and Permanent Disability or death shall share in the allocation of contributions and Forfeitures for that Plan Year.

(i)            Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer contributions and Forfeitures allocated to the Participant’s Account of each Employee shall be equal to at least three percent (3%) of such Employee’s “415 Compensation” (reduced by contributions and forfeitures, if any, allocated to each Employee in any defined contribution plan included with this Plan in a Required Aggregation Group). However, if (1) the sum of the Employer contributions and Forfeitures allocated to the Participant’s Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee’s “415 Compensation” and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, then the sum of the Employer contributions and Forfeitures allocated to the Participant’s Account of each Employee shall be equal to the largest percentage allocated to the Participant’s Account of any Key Employee.

However, no such minimum allocation shall be required in this Plan for any Employee who participates in another defined contribution plan subject to Code Section 412 included with this Plan in a Required Aggregation Group where the other plan provides the minimum allocation.

(j)            For purposes of the minimum allocations set forth above, the percentage allocated to the Participant’s Account of any Key Employee shall be equal to the ratio of the sum of the Employer contributions and Forfeitures allocated on behalf of such Key Employee divided by the “415 Compensation” for such Key Employee.

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(k)           For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant’s Account of all Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Employees who have (1) failed to complete a Year of Service; (2) failed to receive an allocation of Employer contributions merely because the Participant’s Compensation was less than a stated amount, or (3) declined to make mandatory contributions (if required) to the Plan.

(l)            For the purposes of this Section, “415 Compensation” in excess of $150,000 (or such other amount provided in the Code) shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17)(B), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. If “415 Compensation” for any prior determination period is taken into account in determining a Participant’s minimum benefit for the current Plan Year, the “415 Compensation” for such determination period is subject to the applicable annual “415 Compensation” limit in effect for that prior period. For this purpose, in determining the minimum benefit in Plan Years beginning on or after January 1, 1989, the annual “415 Compensation” limit in effect for determination periods beginning before that date is $200,000 (or such other amount as adjusted for increases in the cost of living in accordance with Code Section 415(d) for determination periods beginning on or after January 1, 1989, and in accordance with Code Section 401(a)(17)(B) for determination periods beginning on or after January 1, 1994). For determination periods beginning prior to January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan Years and shall not be adjusted. For any short Plan Year the “415 Compensation” limit shall be an amount equal to the “415 Compensation” limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12).

(m)          Notwithstanding anything in this Section to the contrary, all information necessary to properly reflect a given transaction may not be available until after the date specified herein for processing such transaction, in which case the transaction will be reflected when such information is received and processed. Subject to express limits that may be imposed under the Code, the processing of any contribution, distribution or other transaction may be delayed for any legitimate business reason (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive values or prices, and the correction for errors or omissions or the errors or omissions of any service provider). The processing date of a transaction will be binding for all purposes of the Plan.

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4.4          MAXIMUM ANNUAL ADDITIONS

(a)          Notwithstanding the foregoing, the maximum “annual additions” credited to a Participant’s accounts for any “limitation year” shall equal the lesser of: (1) $40,000 adjusted annually as provided in Code Section 415(d) pursuant to the Regulations, or (2) one-hundred percent (100%) of the Participant’s “415 Compensation” for such “limitation year.” If the Employer contribution that would otherwise be contributed or allocated to the Participant’s accounts would cause the “annual additions” for the “limitation year” to exceed the maximum “annual additions,” the amount contributed or allocated will be reduced so that the “annual additions” for the “limitation year” will equal the maximum “annual additions,” and any amount in excess of the maximum “annual additions,” which would have been allocated to such Participant may be allocated to other Participants. For any short “limitation year,” the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short “limitation year” and the denominator of which is twelve (12).

(b)          For purposes of applying the limitations of Code Section 415, “annual additions” means the sum credited to a Participant’s accounts for any “limitation year” of (1) Employer contributions, (2) Employee contributions, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the Employer, (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer and (6) allocations under a simplified employee pension plan. Except, however, the “415 Compensation” percentage limitation referred to in paragraph (a)(2) above shall not apply to: (1) any contribution for medical benefits after separation from service (within the meaning of Code Sections 401(h) or 419A(f)(2)) which is otherwise treated as an “annual addition,” or (2) any amount otherwise treated as an “annual addition” under Code Section 415(l)(1).

If an Exempt Loan has been made to the Plan, then the amount of an Employer contribution that is considered to be an “annual addition” is calculated, except as provided herein, with respect to Employer contributions of both principal and interest used to repay the Exempt Loan for the “limitation year.” In lieu of the preceding, the fair market value of the shares released from the Unallocated Company Stock Suspense Account on account of the Exempt Loan repayment and allocated to Participants’ Company Stock Accounts shall be used to calculate “annual additions” if such fair market value is less than the amount of Employer contribution of both principal and interest used to repay the Exempt Loan for the “limitation year.”

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(c)           For purposes of applying the limitations of Code Section 415, the following are not “annual additions”: (1) the transfer of funds from one qualified plan to another and (2) provided no more than one-third of the Employer contributions for the year are allocated to Highly Compensated Participants, Forfeitures of Company Stock purchased with the proceeds of an Exempt Loan and Employer contributions applied to the payment of interest on an Exempt Loan. In addition, the following are not Employee contributions for the purposes of Section 4.4(b): (1) rollover contributions (as defined in Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3) and 457(e)(16)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6).

(d)           For purposes of applying the limitations of Code Section 415, the “limitation year” shall be the Plan Year.

(e)           For the purpose of this Section, all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan.

(f)            For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer.

(g)           If this is a plan described in Code Section 413(c) (other than a plan described in Code Section 414(f)), then all of the benefits or contributions attributable to a Participant from all of the Employers maintaining this Plan shall be taken into account in applying the limits of this Section with respect to such Participant. Furthermore, in applying the limitations of this Section with respect to such a Participant, the total “415 Compensation” received by the Participant from all of the Employers maintaining the Plan shall be taken into account.

(h)(1)      If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum “annual additions” under this Plan shall equal the maximum “annual additions” for the “limitation year” minus any “annual additions” previously credited to such Participant’s accounts during the “limitation year.”

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(2)           If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, “annual additions” will be credited to the Participant’s accounts under the defined contribution plan subject to Code Section 412 prior to crediting “annual additions” to the Participant’s accounts under the defined contribution plan not subject to Code Section 412.

(3)           If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum “annual additions” under this Plan shall equal the product of (A) the maximum “annual additions” for the “limitation year” minus any “annual additions” previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the “annual additions” which would be credited to such Participant’s accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such “annual additions” for all plans described in this subparagraph.

(i)            Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder.

4.5          DIRECTED INVESTMENT ACCOUNT

(a)           Each “Qualified Participant” may elect within ninety (90) days after the close of each Plan Year during the “Qualified Election Period” to direct the Trustee in writing as to the distribution in cash and/or Company Stock of 25 percent of the total number of shares of Company Stock acquired by or contributed to the Plan that have ever been allocated to such “Qualified Participant’s” Company Stock Account (reduced by the number of shares of Company Stock previously distributed in cash and/or Company Stock pursuant to a prior election). In the case of the election year in which the last election can be made by the Participant, the preceding sentence shall be applied by substituting “50 percent” for “25 percent.” If the “Qualified Participant” elects to direct the Trustee as to the distribution of the Participant’s Company Stock Account, such direction shall be effective no later than ninety (90) days after the close of the Plan Year to which such direction applies.

Notwithstanding the above, if the fair market value (determined pursuant to Section 6.1 at the Plan Valuation Date immediately preceding the first day on which a “Qualified Participant” is eligible to make an election) of Company Stock acquired by or contributed to the Plan and allocated to a “Qualified Participant’s” Company Stock Account is $500 or less, then such Company Stock shall not be subject to this paragraph. For purposes of determining whether the fair market value exceeds $500, Company Stock held in accounts of all employee stock ownership plans (as defined in Code Section 4975(e)(7)) and tax credit employee stock ownership plans (as defined in Code Section 409(a)) maintained by the Employer or any Affiliated Employer shall be considered as held by the Plan.

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(b)           For the purposes of this Section the following definitions shall apply:

(1)           “Qualified Participant” means any Employee who has completed ten (10) Years of Service as a Participant and has attained age 55.

(2)           “Qualified Election Period” means the six (6) Plan Year period beginning with the later of (i) the first Plan Year in which the Participant first became a “Qualified Participant,” or (ii) the first Plan Year beginning after December 31, 1986.

4.6          QUALIFIED MILITARY SERVICE

Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service will be provided in accordance with Code Section 414(u).

ARTICLE V

FUNDING AND INVESTMENT POLICY

5.1          INVESTMENT POLICY

(a)           The Plan is designed to invest primarily in Company Stock.

(b)           With due regard to subparagraph (a) above, the Administrator may also direct the Trustee to invest funds under the Plan in other property described in the Trust or in life insurance policies to the extent permitted by subparagraph (c) below, or the Trustee may hold such funds in cash or cash equivalents.

(c)           With due regard to subparagraph (a) above, the Administrator may also direct the Trustee to invest funds under the Plan not attributable to proceeds from an Exempt Loan in insurance policies on the life of any “keyman” Employee. The proceeds of a “keyman” insurance policy may not be used for the repayment of any indebtedness owed by the Plan which is secured by Company Stock. In the event any “keyman” insurance is purchased by the Trustee, the premiums paid thereon during any Plan Year, net of any policy dividends and increases in cash surrender values, shall be treated as the cost of Plan investment and any death benefit or cash surrender value received shall be treated as proceeds from an investment of the Plan.

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(d)           The Plan may not obligate itself to acquire Company Stock from a particular holder thereof at an indefinite time determined upon the happening of an event such as the death of the holder.

(e)           The Plan may not obligate itself to acquire Company Stock under a put option binding upon the Plan. However, at the time a put option is exercised, the Plan may be given an option to assume the rights and obligations of the Employer under a put option binding upon the Employer.

(f)            All purchases of Company Stock shall be made at a price which, in the judgment of the Administrator, does not exceed the fair market value thereof. All sales of Company Stock shall be made at a price which, in the judgment of the Administrator, is not less than the fair market value thereof. The valuation rules set forth in Article VI shall be applicable.

5.2          APPLICATION OF CASH

Employer contributions in cash, and any earnings on such contributions, shall first be applied to pay any Current Obligations of the Trust Fund.

5.3          TRANSACTIONS INVOLVING COMPANY STOCK

(a)           No portion of the Trust Fund attributable to (or allocable in lieu of) Company Stock acquired by the Plan in a sale to which Code Section 1042 applies may accrue or be allocated directly or indirectly under any plan maintained by the Employer meeting the requirements of Code Section 401(a):

(1)           during the “Nonallocation Period,” for the benefit of

(i)          any taxpayer who makes an election under Code Section 1042(a) with respect to Company Stock,

(ii)         any individual who is related to the taxpayer (within the meaning of Code Section 267(b)), or

(2)           for the benefit of any other person who owns (after application of Code Section 318(a) applied without regard to the employee trust exception in Code Section 318(a)(2)(B)(i)) more than 25 percent of

(i)          any class of outstanding stock of the Employer or Affiliated Employer which issued such Company Stock, or

(ii)         the total value of any class of outstanding stock of the Employer or Affiliated Employer.

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(b)           Except, however, subparagraph (a)(1)(ii) above shall not apply to lineal descendants of the taxpayer, provided that the aggregate amount allocated to the benefit of all such lineal descendants during the “Nonallocation Period” does not exceed more than five (5) percent of the Company Stock (or amounts allocated in lieu thereof) held by the Plan which are attributable to a sale to the Plan by any person related to such descendants (within the meaning of Code Section 267(c)(4)) in a transaction to which Code Section 1042 is applied.

(c)           A person shall be treated as failing to meet the stock ownership limitation under paragraph (a)(2) above if such person fails such limitation:

(1)           at any time during the one (1) year period ending on the date of sale of Company Stock to the Plan, or

(2)           on the date as of which Company Stock is allocated to Participants in the Plan.

(d)           For purposes of this Section, “Nonallocation Period” means the period beginning on the date of the sale of the Company Stock and ending on the later of:

(1)           the date which is ten (10) years after the date of sale, or

(2)           the date of the Plan allocation attributable to the final payment of the Exempt Loan incurred in connection with such sale.

5.4          LOANS TO THE TRUST

(a)           The Plan may borrow money for any lawful purpose, provided the proceeds of an Exempt Loan are used within a reasonable time after receipt only for any or all of the following purposes:

(1)           To acquire Company Stock.

(2)           To repay such loan.

(3)           To repay a prior Exempt Loan.

(b)           All loans to the Trust which are made or guaranteed by a disqualified person must satisfy all requirements applicable to Exempt Loans including but not limited to the following:

(1)           The loan must be at a reasonable rate of interest;

(2)           The interest rate and price of the stock to be acquired with loan proceeds should not be such that the Plan assets may be drained off;

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(3)           The amount of interest paid shall not exceed the amount of each payment which would be treated as interest under standard loan amortization tables;

(4)           Any collateral pledged to the creditor by the Plan shall consist only of the Company Stock purchased with the borrowed funds;

(5)           Under the terms of the loan, any pledge of Company Stock shall provide for the release of shares so pledged on a pro-rata basis pursuant to Section 4.3(e);

(6)           Under the terms of the loan, the creditor shall have no recourse against the Plan except with respect to such collateral, earnings attributable to such collateral, Employer contributions (other than contributions of Company Stock) that are made to meet Current Obligations and earnings attributable to such contributions;

(7)           The loan must be for a specific term and may not be payable at the demand of any person, except in the case of default;

(8)           The term of the loan (including the sum of the expired duration of the loan, any renewal period, any extension period, and the duration of any new loan) shall not exceed ten (10) years;

(9)           The loan must provide for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten (10) years;

(10)         In the event of default upon an Exempt Loan, the value of the Trust Fund transferred in satisfaction of the Exempt Loan shall not exceed the amount of default. If the lender is a disqualified person, an Exempt Loan shall provide for a transfer of Trust Funds upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the Exempt Loan;

(11)         Exempt Loan payments during a Plan Year must not exceed an amount equal to: (A) the sum, over all Plan Years, of all contributions and cash dividends paid by the Employer to the Plan with respect to such Exempt Loan and earnings on such Employer contributions and cash dividends, less (B) the sum of the Exempt Loan payments in all preceding Plan Years. A separate accounting shall be maintained for such Employer contributions, cash dividends and earnings until the Exempt Loan is repaid.

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(c)           For purposes of this Section, the term “disqualified person” means a person who is a Fiduciary, a person providing services to the Plan, an Employer any of whose Employees are covered by the Plan, an employee organization any of whose members are covered by the Plan, an owner, direct or indirect, of 50% or more of the total combined voting power of all classes of voting stock or of the total value of all classes of the stock, or an officer, director, 10% or more shareholder, or a highly compensated Employee.

ARTICLE VI
VALUATIONS

6.1          VALUATION OF THE TRUST FUND

The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value (or their contractual value in the case of a Contract or Policy) as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund.

6.2          METHOD OF VALUATION

Valuations must be made in good faith and based on all relevant factors for determining the fair market value of securities. In the case of a transaction between a Plan and a disqualified person, value must be determined as of the date of the transaction. For all other Plan purposes, value must be determined as of the most recent Valuation Date under the Plan. An independent appraisal will not in itself be a good faith determination of value in the case of a transaction between the Plan and a disqualified person. However, in other cases, a determination of fair market value based on at least an annual appraisal independently arrived at by a person who customarily makes such appraisals and who is independent of any party to the transaction will be deemed to be a good faith determination of value. Company Stock not readily tradeable on an established securities market shall be valued by an independent appraiser meeting requirements similar to the requirements of the Regulations prescribed under Code Section 170(a)(1).

ARTICLE VII 

DETERMINATION AND DISTRIBUTION OF BENEFITS

7.1          DETERMINATION OF BENEFITS UPON RETIREMENT

Every Participant may terminate employment with the Employer and retire for the purposes hereof on the Participant’s Normal Retirement Date or Early Retirement Date. However, a Participant may postpone the termination of employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.3, shall continue until such Participant’s Late Retirement Date. Upon a Participant’s Retirement Date, or as soon thereafter as is practicable, the Trustee shall distribute, at the election of the Participant, all amounts credited to such Participant’s Account in accordance with Sections 7.5 and 7.6.

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7.2          DETERMINATION OF BENEFITS UPON DEATH

(a)           Upon the death of a Participant before the Participant’s Retirement Date or other termination of employment, all amounts credited to such Participant’s Account shall become fully Vested. If elected, distribution of the Participant’s Account shall commence not later than one (1) year after the close of the Plan Year in which such Participant’s death occurs. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to distribute the value of the deceased Participant’s accounts to the Participant’s Beneficiary.

(b)           Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to distribute any remaining Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant’s Beneficiary.

(c)           The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator’s determination of death and of the right of any person to receive payment shall be conclusive.

(d)           The Beneficiary of the death benefit payable pursuant to this Section shall be the Participant’s spouse. Except, however, the Participant may designate a Beneficiary other than the spouse if:

(1)           the spouse has waived the right to be the Participant’s Beneficiary, or

(2)           the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no “qualified domestic relations order” as defined in Code Section 414(p) which provides otherwise), or

(3)           the Participant has no spouse, or

(4)           the spouse cannot be located.

In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke a designation of a Beneficiary or change a Beneficiary by filing written (or in such other form as permitted by the Internal Revenue Service) notice of such revocation or change with the Administrator. However, the Participant’s spouse must again consent in writing (or in such other form as permitted by the Internal Revenue Service) to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right.

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(e)           In the event no valid designation of Beneficiary exists, or if the Beneficiary is not alive at the time of the Participant’s death, the death benefit will be paid in the following order of priority to:

(1)           the Participant’s surviving spouse;

(2)           the Participant’s children, including adopted children, per stirpes;

(3)           the Participant’s surviving parents in equal shares; or

(4)           the Participant’s estate.

If the Beneficiary does not predecease the Participant, but dies prior to distribution of the death benefit, the death benefit will be paid to the Beneficiary’s designated Beneficiary (or if there is no designated Beneficiary, to the Beneficiary’s estate).

(f)            Notwithstanding anything in this Section to the contrary, if a Participant has designated the spouse as a Beneficiary, then a divorce decree or a legal separation that relates to such spouse shall revoke the Participant’s designation of the spouse as a Beneficiary unless the decree or a qualified domestic relations order (within the meaning of Code Section 414(p)) provides otherwise.

(g)           Any consent by the Participant’s spouse to waive any rights to the death benefit must be in writing (or in such other form as permitted by the Internal Revenue Service), must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse’s consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary.

(h)           If a Participant dies while performing qualified military service (as defined in Code Section 414(u)), the Participant’s Beneficiary is entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the Plan as if the Participant had resumed employment and then terminated employment on account of death. Moreover, the Plan will credit the Participant’s qualified military service as service for vesting purposes, as though the Participant had resumed employment under the Uniformed Services Employment and Reemployment Rights Act (USERRA) immediately prior to the Participant’s death.

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7.3          DETERMINATION OF BENEFITS IN EVENT OF DISABILITY

In the event of a Participant’s Total and Permanent Disability prior to the Participant’s Retirement Date or other termination of employment, all amounts credited to such Participant’s Account shall become fully Vested. In the event of a Participant’s Total and Permanent Disability, the Administrator, in accordance with the provisions of Sections 7.5 and 7.6, shall direct the distribution to such Participant of all Vested amounts credited to such Participant’s Account. If such Participant elects, distribution shall commence not later than one (1) year after the close of the Plan Year in which Total and Permanent Disability occurs.

7.4          DETERMINATION OF BENEFITS UPON TERMINATION

(a)           If a Participant’s employment with the Employer is terminated for any reason other than death, Total and Permanent Disability or retirement, then such Participant shall be entitled to such benefits as are provided hereinafter pursuant to this Section 7.4.

If a portion of a Participant’s Account is forfeited, Company Stock allocated to the Participant’s Company Stock Account must be forfeited only after the Participant’s Other Investments Account has been depleted. If interest in more than one class of Company Stock has been allocated to a Participant’s Account, the Participant must be treated as forfeiting the same proportion of each such class.

Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant’s death, Total and Permanent Disability, Early or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee that the entire Vested portion of the Terminated Participant’s Account to be payable to such Terminated Participant on or after the Anniversary Date coinciding with or next following termination of employment. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Sections 7.5 and 7.6, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder.

For purposes of this Section 7.4, if the value of a Terminated Participant’s Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit.

(b)           The Vested portion of the Participant’s Account attributable to certain Employer contributions shall be a percentage of the total amount credited to the Participant’s Account determined on the basis of the Participant’s number of Years of Service.

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The Vested portion of the Participant’s Account attributable to Employer discretionary contributions made pursuant to Section 4.1(a) is determined according to the following schedule:

Vesting Schedule

Employer Discretionary Contributions

Years of Service	Percentage
1	0 %
2	25 %
3	50 %
4	75 %
5	100 %

(c)           Notwithstanding the above, Company Stock allocated to each Participant’s Company Stock Account pursuant to Section 4.3(e) must be forfeited only after other assets.

(d)           Notwithstanding the vesting schedule above, the Vested percentage of a Participant’s Account shall not be less than the Vested percentage attained as of the later of the effective date or adoption date of this amendment and restatement.

(e)           Notwithstanding the vesting schedule above, upon the complete discontinuance of the Employer contributions to the Plan or upon any full or partial termination of the Plan, all amounts then credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture.

(f)            The computation of a Participant’s nonforfeitable percentage of such Participant’s interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. In the event that the Plan is amended to change or modify any vesting schedule, or if the Plan is amended in any way that directly or indirectly affects the computation of the Participant’s nonforfeitable percentage, or if the Plan is deemed amended by an automatic change to a top heavy vesting schedule, then each Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have such Participant’s nonforfeitable percentage computed under the Plan without regard to such amendment or change. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant’s election period shall commence on the adoption date of the amendment and shall end sixty (60) days after the latest of:

(1)           the adoption date of the amendment,

(2)           the effective date of the amendment, or

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(3)           the date the Participant receives written notice of the amendment from the Employer or Administrator.

7.5          DISTRIBUTION OF BENEFITS

(a)           The Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to a Participant or such Participant’s Beneficiary any amount to which the Participant is entitled under the Plan in one lump-sum payment.

(b)           Any distribution to a Participant who has a benefit which exceeds $1,000, shall require such Participant’s written (or in such other form as permitted by the Internal Revenue Service) consent if such distribution is to occur prior to the time the benefit is “immediately distributable.” A benefit is “immediately distributable” if any part of the benefit could be distributed to the Participant (or surviving spouse) before the Participant attains (or would have attained if not deceased) the later of the Participant’s Normal Retirement Age or age 62. With regard to this required consent:

(1)           The Participant must be informed of the right to defer receipt of the distribution, and for notices provided in Plan Years beginning after December 31, 2006, such notification must also include a description of how much larger benefits will be if the commencement of distributions is deferred. If a Participant fails to consent, it shall be deemed an election to defer the distribution of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 7.7.

(2)           Notice of the rights specified under this paragraph shall be provided no less than thirty (30) days and no more than one hundred eighty (180) days before the date the distribution is made.

(3)           Written (or such other form as permitted by the Internal Revenue Service) consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than one hundred eighty (180) days before the date the distribution is made.

(4)           No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution.

Any such distribution may occur less than thirty (30) days after the notice required under Regulation 1.411(a)-11(c) is given, provided that: (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution.

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(c)           Notwithstanding anything herein to the contrary, the Administrator may direct that cash dividends on shares of Company Stock allocable to Participants’ Company Stock Accounts be:

(1)           Paid by the Employer directly in cash to the Participants in the Plan or their Beneficiaries.

(2)           Paid to the Plan and distributed in cash to Participants in the Plan or their Beneficiaries no later than ninety (90) days after the close of the Plan Year in which paid.

(3)           At the election of Participants or their Beneficiaries, paid in accordance with paragraph (1) or (2) above, or paid to the Plan and reinvested in Company Stock; provided, however, that if cash dividends are reinvested in Company Stock, then Company Stock allocated to the Participant’s Company Stock Account shall have a fair market value not less than the amount of cash dividends which would have been allocated to such Participant’s Other Investment Account for the year.

(4)           Used to make payments on an Exempt Loan the proceeds of which were used to acquire Company Stock (whether or not allocated to Participants’ Company Stock Accounts) with respect to which the cash dividend is paid.

(5)           Allocated to Participants’ Other Investment Accounts.

(d)           Any part of a Participant’s benefit which is retained in the Plan after the Anniversary Date on which the Participant’s participation ends will continue to be treated as a Company Stock Account or as an Other Investments Account (subject to Section 7.4(a)) as provided in Article IV. However, neither account will be credited with any further Employer contributions or Forfeitures.

(e)           Required minimum distributions (Code Section 401(a)(9)). Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant’s benefits shall be made in accordance with the requirements of Section 7.7.

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(f)            Except as limited by Sections 7.5 and 7.6, whenever the Trustee is to make a distribution, the distribution may be made on such date or as soon thereafter as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall occur not later than the sixtieth (60th) day after the close of the Plan Year in which the latest of the following events occurs:

(1)           the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein;

(2)           the tenth (10th) anniversary of the year in which the Participant commenced participation in the Plan; or

(3)           the date the Participant terminates his service with the Employer.

(g)           If a distribution is made to a Participant who has not severed employment and who is not fully Vested in the Participant’s Account and the Participant may increase the Vested percentage in such account, then, at any relevant time the Participant’s Vested portion of the account will be equal to an amount (“X”) determined by the formula:

X equals P(AB plus D) - D

For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, and D is the amount of distribution.

7.6          HOW PLAN BENEFIT WILL BE DISTRIBUTED

(a)           Distribution of a Participant’s benefit may be made in cash or Company Stock or both, provided, however, that if a Participant or Beneficiary so demands, such benefit shall be distributed only in the form of Company Stock. Prior to making a distribution of benefits, the Administrator shall advise the Participant or the Participant’s Beneficiary, in writing (or such other form as permitted by the Internal Revenue Service), of the right to demand that benefits be distributed solely in Company Stock.

(b)           If a Participant or Beneficiary demands that benefits be distributed solely in Company Stock, distribution of a Participant’s benefit will be made entirely in whole shares or other units of Company Stock. Any balance in a Participant’s Other Investments Account will be applied to acquire for distribution the maximum number of whole shares or other units of Company Stock at the then fair market value. Any fractional unit value unexpended will be distributed in cash. If Company Stock is not available for purchase by the Trustee, then the Trustee shall hold such balance until Company Stock is acquired and then make such distribution, subject to Sections 7.5(f) and 7.7.

(c)           The Trustee will make distribution from the Trust only on instructions from the Administrator.

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(d)          Notwithstanding anything contained herein to the contrary, if the Employer charter or by-laws restrict ownership of substantially all shares of Company Stock to Employees and the Trust Fund, as described in Code Section 409(h)(2)(B)(ii)(I), then the Administrator shall distribute a Participant’s Account entirely in cash without granting the Participant the right to demand distribution in shares of Company Stock.

(e)          Except as otherwise provided herein, Company Stock distributed by the Trustee may be restricted as to sale or transfer by the by-laws or articles of incorporation of the Employer, provided restrictions are applicable to all Company Stock of the same class. If a Participant is required to offer the sale of Company Stock to the Employer before offering to sell Company Stock to a third party, in no event may the Employer pay a price less than that offered to the distributee by another potential buyer making a bona fide offer and in no event shall the Trustee pay a price less than the fair market value of the Company Stock.

(f)          If Company Stock acquired with the proceeds of an Exempt Loan (described in Section 5.4 hereof) is available for distribution and consists of more than one class, a Participant or the Participant’s Beneficiary must receive substantially the same proportion of each such class.

7.7 REQUIRED MINIMUM DISTRIBUTIONS

(a)          General Rules

(1)          Precedence. The requirements of this Section will take precedence over any inconsistent provisions of the Plan.

(2)          Requirements of Treasury Regulations Incorporated. All distributions required under this Section will be determined and made in accordance with the Regulations under Code Section 401(a)(9).

(3)          TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Section and the Plan, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

(b)          Time and Manner of Distribution

(1)           Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date.

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(2)          Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(i)          If there is no designated beneficiary as of September 30th of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31st of the calendar year containing the fifth anniversary of the Participant’s death.

For purposes of this Section 7.7(b)(2) and Section 7.7(b)(3), distributions are considered to begin on the Participant’s required beginning date.

(3)          Forms of Distribution. Unless the Participant’s interest is distributed in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with Sections 7.7(c) and 7.7(d).

(c)          Required minimum distributions during Participant’s lifetime

(1)          Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(i)          the quotient obtained by dividing the Participant’s account balance by the distribution period in the Uniform Lifetime Table set forth in Regulation Section 1.401(a)(9)-9, Q&A-2, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or

(ii)         if the Participant’s sole designated beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s account balance by the number in the Joint and Last Survivor Table set forth in Regulation Section 1.401(a)(9)-9, Q&A-3, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

(2)          Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this Section 7.7(c) beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.

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(d)          Required minimum distributions after Participant’s death

(1)          Death On or After Date Distributions Begin.

(i)           Participant Survived by designated beneficiary. If the Participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated beneficiary, determined as follows:

(A)          The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(B)          If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(C)          If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, the designated beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(ii)          No designated beneficiary. If the Participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30th of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

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(2)          Death Before Date Distributions Begin.

(i)           Participant Survived by designated beneficiary. Except as provided in Section 7.7(b)(3), if the Participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the remaining life expectancy of the Participant’s designated beneficiary, determined as provided in Section 7.7(d)(1).

(ii)          No designated beneficiary. If the Participant dies before the date distributions begin and there is no designated beneficiary as of September 30th of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31st of the calendar year containing the fifth anniversary of the Participant’s death.

(e)          Definitions. For purposes of this Section, the following definitions apply:

(1)          “Designated beneficiary” means the individual who is designated as the Beneficiary under the Plan and is the designated beneficiary under Code Section 401(a)(9) and Regulation Section 1.401(a)(9)-1, Q&A-4.

(2)          “Distribution calendar year” means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s “Required beginning date.” For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 7.7(b). The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s “Required beginning date.” The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s “Required beginning date” occurs, will be made on or before December 31st of that distribution calendar year.

(3)          “Life expectancy” means the life expectancy as computed by use of the Single Life Table in Regulation Section 1.401(a)(9)-9.

(4)          “Participant’s account balance” means the Participant’s account balance as of the last valuation date in the calendar year immediately preceding the “Distribution calendar year” (valuation calendar year) increased by the amount of any contributions made and allocated or Forfeitures allocated to the account balance as of the dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the “Distribution calendar year” if distributed or transferred in the valuation calendar year.

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(5)          “Required beginning date” means, with respect to any Participant, April 1st of the calendar year following the later of the calendar year in which the Participant attains age 70 1/2 or the calendar year in which the Participant retires, except that benefit distributions to a “5-percent owner” must commence by April 1st of the calendar year following the calendar year in which the Participant attains age 70 1/2.

(6)          “5-percent owner” means a Participant who is a 5-percent owner as defined in Code Section 416 at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2. Once distributions have begun to a 5-percent owner under this Section they must continue to be distributed, even if the Participant ceases to be a 5-percent owner in a subsequent year.

(f)          2009 Transition Rules.

(1)          Notwithstanding the provisions of the Plan relating to required minimum distributions under Code Section 401(a)(9), a Participant or Beneficiary who would have been required to receive required minimum distributions for 2009 but for the enactment of Code Section 401(a)(9)(H) (“2009 RMDs”), and who would have satisfied that requirement by receiving distributions that are equal to the 2009 RMDs will not receive those distributions for 2009 unless the Participant or Beneficiary chooses to receive such distributions. Participants and Beneficiaries described in the preceding sentence will be given the opportunity to elect to receive the distributions described in the preceding sentence.

7.8 DISTRIBUTION FOR MINOR OR INCOMPETENT INDIVIDUAL

In the event a distribution is to be made to a minor or incompetent individual, then the Administrator may direct that such distribution be paid to the court appointed legal guardian or any other person authorized under state law to receive such distribution, or if none, then in the case of a minor individual, to a parent of such individual, or to the custodian for such individual under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said individual resides. Such a payment to the guardian, custodian or parent of a minor or incompetent individual shall fully discharge the Trustee (or Insurer), Employer, and Plan from further liability on account thereof.

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7.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN

In the event that all, or any portion, of the distribution payable to a Participant or Beneficiary hereunder shall, at the later of the Participant’s attainment of age 62 or Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or Beneficiary, the amount so distributable may either, at the discretion of the Administrator, be treated as a Forfeiture or paid directly to an individual retirement account described in Code Section 408(a) or individual retirement annuity described in Code Section 408(b) pursuant to the Plan. However, the foregoing shall also apply prior to the later of a Participant’s attainment of age 62 or Normal Retirement Age if, pursuant to the terms of the Plan, a mandatory distribution may be made to the Participant without the Participant’s consent and the amount of such distribution is not more than $1,000. In the event a Participant or Beneficiary is located subsequent to a Forfeiture, such benefit shall be restored, first from Forfeitures, if any, and then from an additional Employer contribution if necessary. However, regardless of the preceding, a benefit which is lost by reason of escheat under applicable state law is not treated as a Forfeiture for purposes of this Section nor as an impermissible forfeiture under the Code.

7.10 RIGHT OF FIRST REFUSALS

(a)          If any Participant, the Participant’s Beneficiary or any other person to whom shares of Company Stock are distributed from the Plan (the “Selling Participant”) shall, at any time, desire to sell some or all of such shares (the “Offered Shares”) to a third party (the “Third Party”), the Selling Participant shall give written notice of such desire to the Employer and the Administrator, which notice shall contain the number of shares offered for sale, the proposed terms of the sale and the names and addresses of both the Selling Participant and Third Party. Both the Trust Fund and the Employer shall each have the right of first refusal for a period of fourteen (14) days from the date the Selling Participant gives such written notice to the Employer and the Administrator (such fourteen (14) day period to run concurrently against the Trust Fund and the Employer) to acquire the Offered Shares. As between the Trust Fund and the Employer, the Trust Fund shall have priority to acquire the shares pursuant to the right of first refusal. The selling price and terms shall be the same as offered by the Third Party.

(b)          If the Trust Fund and the Employer do not exercise their right of first refusal within the required fourteen (14) day period provided above, the Selling Participant shall have the right, at any time following the expiration of such fourteen (14) day period, to dispose of the Offered Shares to the Third Party; provided, however, that (i) no disposition shall be made to the Third Party on terms more favorable to the Third Party than those set forth in the written notice delivered by the Selling Participant above, and (ii) if such disposition shall not be made to a third party on the terms offered to the Employer and the Trust Fund, the offered Shares shall again be subject to the right of first refusal set forth above.

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(c)          The closing pursuant to the exercise of the right of first refusal under Section 7.10(a) above shall take place at such place agreed upon between the Administrator and the Selling Participant, but not later than ten (10) days after the Employer or the Trust Fund shall have notified the Selling Participant of the exercise of the right of first refusal. At such closing, the Selling Participant shall deliver certificates representing the Offered Shares duly endorsed in blank for transfer, or with stock powers attached duly executed in blank with all required transfer tax stamps attached or provided for, and the Employer or the Trust Fund shall deliver the purchase price, or an appropriate portion thereof, to the Selling Participant.

(d)          Except as provided in this paragraph (d), no Company Stock acquired with the proceeds of an Exempt Loan complying with the requirements of Section 5.4 hereof shall be subject to a right of first refusal. Company Stock acquired with the proceeds of an Exempt Loan, which is distributed to a Participant or Beneficiary, shall be subject to the right of first refusal provided for in paragraph (a) of this Section only so long as the Company Stock is not publicly traded. The term “publicly traded” refers to a securities exchange registered under Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or that is quoted on a system sponsored by a national securities association registered under Section 15A(b) of the Securities Exchange Act (15 U.S.C. 780). In addition, in the case of Company Stock which was acquired with the proceeds of a loan described in Section 5.4, the selling price and other terms under the right must not be less favorable to the seller than the greater of the value of the security determined under Section 6.2, or the purchase price and other terms offered by a buyer (other than the Employer or the Trust Fund), making a good faith offer to purchase the security. The right of first refusal must lapse no later than fourteen (14) days after the security holder gives notice to the holder of the right that an offer by a third party to purchase the security has been made. The right of first refusal shall comply with the provisions of paragraphs (a), (b) and (c) of this Section, except to the extent those provisions may conflict with the provisions of this paragraph.

7.11 STOCK CERTIFICATE LEGEND

Certificates for shares distributed pursuant to the Plan shall contain the following legend:

“The shares represented by this certificate are transferable only upon compliance with the terms of The Bank of South Carolina Employee Stock Ownership Plan effective as of January 1, 1989, which grants to The Bank of South Carolina a right of first refusal, a copy of said Plan being on file in the office of the Company.”

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7.12 NONTERMINABLE PROTECTIONS AND RIGHTS

No Company Stock, except as provided in Section 7.11, acquired with the proceeds of a loan described in Section 5.4 hereof may be subject to a put, call, or other option, or buy-sell or similar arrangement when held by and when distributed from the Trust Fund, whether or not the Plan is then an ESOP. The protections and rights granted in this Section are nonterminable, and such protections and rights shall continue to exist under the terms of this Plan so long as any Company Stock acquired with the proceeds of a loan described in Section 5.4 hereof is held by the Trust Fund or by any Participant or other person for whose benefit such protections and rights have been created, and neither the repayment of such loan nor the failure of the Plan to be an ESOP, nor an amendment of the Plan shall cause a termination of said protections and rights.

7.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION

All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any “alternate payee” under a “qualified domestic relations order.” Furthermore, a distribution to an “alternate payee” shall be permitted if such distribution is authorized by a “qualified domestic relations order,” even if the affected Participant has not separated from service and has not reached the “earliest retirement age” under the Plan. For the purposes of this Section, “alternate payee,” “qualified domestic relations order” and “earliest retirement age” shall have the meaning set forth under Code Section 414(p).

A domestic relations order that otherwise satisfies the requirements for a qualified domestic relations order (“QDRO”) will not fail to be a QDRO: (i) solely because the order is issued after, or revises, another domestic relations order or QDRO; or (ii) solely because of the time at which the order is issued, including issuance after the Participant’s death. A domestic relations order described in this paragraph is subject to the same requirements and protections that apply to QDROs.

7.14 DIRECT ROLLOVER

(a)          This Section applies to distributions made on or after January 1, 2002. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a “distributee’s” election under this Section, a “distributee” may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an “eligible rollover distribution” that is equal to at least $500 paid directly to an “eligible retirement plan” specified by the “distributee” in a “direct rollover.”

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(b)          For purposes of this Section the following definitions shall apply:

(1)          An “eligible rollover distribution” means any distribution described in Code Section 402(c)(4) and generally includes any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the “distributee” or the joint lives (or joint life expectancies) of the “distributee” and the “distributee’s” designated beneficiary, or for a specified period of ten (10) years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of any other distribution(s) that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and any other distribution reasonably expected to total less than $200 during a year. Any amount that is distributed on account of hardship shall not be an eligible rollover distribution and the “distributee” may not elect to have any portion of such a distribution paid directly to an “eligible retirement plan.”

(2)          An “eligible retirement plan” is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b) (other than an endowment contract), a qualified trust (an employees’ trust) described in Code Section 401(a) which is exempt from tax under Code Section 501(a) and which agrees to separately account for amounts transferred into such plan from this Plan, an annuity plan described in Code Section 403(a), an eligible deferred compensation plan described in Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality thereof which agrees to separately account for amounts transferred into such plan from this Plan, and an annuity contract described in Code Section 403(b) that accepts the distributee’s eligible rollover distribution. However, in the case of an “eligible rollover” distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Code Section 414(p).

In addition, a Participant may elect to directly roll over an “eligible rollover distribution” to a Roth IRA described in Code Section 408A(b).

(3)          A “distributee” includes an Employee or former Employee. In addition, the Employee’s or former Employee’s surviving spouse and the Employee’s or former Employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are “distributees” with regard to the interest of the spouse or former spouse.

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A nonspouse beneficiary who is a “designated beneficiary” under Code Section 401(a)(9)(E) and the Regulations thereunder, by a direct trustee-to-trustee transfer (“direct rollover”), may roll over all or any portion of his or her distribution to an individual retirement account the beneficiary establishes for purposes of receiving the distribution. In order to be able to roll over the distribution, the distribution otherwise must be an “eligible rollover distribution.” If the Participant’s named beneficiary is a trust, the Plan may make a direct rollover to an individual retirement account on behalf of the trust, provided the trust satisfies the requirements to be a designated beneficiary within the meaning of Code Section 401(a)(9)(E). A nonspouse beneficiary may not roll over an amount which is a required minimum distribution, as determined under applicable Regulations and other Revenue Service guidance. If the Participant dies before his or her required beginning date and the nonspouse Beneficiary rolls over to an IRA the maximum amount eligible for rollover, the beneficiary may elect to use either the 5-year rule or the life expectancy rule, pursuant to Regulations Section 1.401(a)(9)-3, A-4(c), in determining the required minimum distributions from the IRA that receives the non-spouse beneficiary’s distribution.

(4)          A “direct rollover” is a payment by the Plan to the “eligible retirement plan” specified by the “distributee.”

(c)          Participant Notice. A Participant entitled to an eligible rollover distribution must receive a written explanation of his/her right to a direct rollover, the tax consequences of not making a direct rollover, and, if applicable, any available special income tax elections. The notice must be provided within the same 30-to-180 day timeframe applicable to the Participant consent notice. The direct rollover notice must be provided to all Participants, unless the total amount the Participant will receive as a distribution during the calendar year is expected to be less than $200.

7.15 CORRECTIVE DISTRIBUTIONS

Nothing in this Article shall preclude the Administrator from making a distribution to a Participant to the extent such distribution is made to correct a qualification defect in accordance with the correction procedures under the IRS’s Employee Plans Compliance Resolution System or any other voluntary compliance programs.

ARTICLE VIII
TRUSTEE

8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE

(a)          The Trustee shall have the following categories of responsibilities:

(1)          Consistent with the “funding policy and method” determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of the Employer or an Investment Manager appointed by the Employer or any agent of the Employer;

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(2)       At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; and

(3)       To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report pursuant to Section 8.7.

(b)       In the event that the Trustee shall be directed by the Employer, an Investment Manager or other agent appointed by the Employer with respect to the investment of any or all Plan assets, the Trustee shall have no liability with respect to the investment of such assets, but shall be responsible only to execute such investment instructions as so directed.

(1)       The Trustee shall be entitled to rely fully on the written (or other form acceptable to the Administrator and the Trustee, including, but not limited to, voice recorded) instructions of the Employer, or any Fiduciary or nonfiduciary agent of the Employer, in the discharge of such duties, and shall not be liable for any loss or other liability, resulting from such direction (or lack of direction) of the investment of any part of the Plan assets.

(2)       The Trustee may delegate the duty of executing such instructions to any nonfiduciary agent, which may be an affiliate of the Trustee or any Plan representative.

(c)       If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf.

8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE

(a)       The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, open-end or close-end mutual funds, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as an Employee Stock Ownership Plan and Trust.

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(b)       The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature.

(c)       In the event the Trustee invests any part of the Trust Fund, pursuant to the directions of the Administrator, in any shares of stock issued by the Employer, and the Administrator thereafter directs the Trustee to dispose of such investment, or any part thereof, under circumstances which, in the opinion of counsel for the Trustee, require registration of the securities under the Securities Act of 1933 and/or qualification of the securities under the Blue Sky laws of any state or states, then the Employer at its own expense, will take or cause to be taken any and all such action as may be necessary or appropriate to effect such registration and/or qualification.

8.3 OTHER POWERS OF THE TRUSTEE

The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee’s sole discretion:

(a)       To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained;

(b)       Except with respect to Company Stock, to sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement;

(c)       To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property. However, the Trustee shall not vote proxies relating to securities for which it has not been assigned full investment management responsibilities. In those cases where another party has such investment authority or discretion, the Trustee will deliver all proxies to said party who will then have full responsibility for voting those proxies;

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(d)       To cause any securities or other property to be registered in the Trustee’s own name or in the name of a nominee or in a street name provided such securities or other property are held on behalf of the Plan by (i) a bank or trust company, (ii) a broker or dealer registered under the Securities Exchange Act of 1934, or a nominee of such broker or dealer, or (iii) a clearing agency as defined in Section 3(a)(23) of the Securities Exchange Act of 1934;

(e)       To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing;

(f)      To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon;

(g)      To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder;

(h)      To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted;

(i)       To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings;

(j)       To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer;

(k)       To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof;

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(l)        To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest or in cash or cash balances without liability for interest thereon;

(m)      To invest in Treasury Bills and other forms of United States government obligations;

(n)       To invest in shares of investment companies registered under the Investment Company Act of 1940;

(o)       To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations;

(p)       To vote Company Stock as provided in Section 8.4;

(q)       To consent to or otherwise participate in reorganizations, recapitalizations, consolidations, mergers and similar transactions with respect to Company Stock or any other securities and to pay any assessments or charges in connection therewith;

(r)       To deposit such Company Stock (but only if such deposit does not violate the provisions of Section 8.4 hereof) or other securities in any voting trust, or with any protective or like committee, or with a trustee or with depositories designated thereby;

(s)       Except with respect to Company Stock, to sell or exercise any options, subscription rights and conversion privileges and to make any payments incidental thereto;

(t)       To exercise any of the powers of an owner, with respect to such Company Stock and other securities or other property comprising the Trust Fund. The Administrator, with the Trustee’s approval, may authorize the Trustee to act on any administrative matter or class of matters with respect to which direction or instruction to the Trustee by the Administrator is called for hereunder without specific direction or other instruction from the Administrator;

(u)       Except with respect to Company Stock, to sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange regardless of whether such options are covered; and

(v)       To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan.

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8.4 VOTING COMPANY STOCK

The Trustee shall vote all Company Stock held by it as part of the Plan assets. Provided, however, that if any agreement entered into by the Trust provides for voting of any shares of Company Stock pledged as security for any obligation of the Plan, then such shares of Company Stock shall be voted in accordance with such agreement. If the Trustee does not timely receive voting directions from a Participant or Beneficiary with respect to any Company Stock allocated to that Participant’s or Beneficiary’s Company Stock Account, the Trustee shall vote such Company Stock.

Notwithstanding the foregoing, if the Employer has a registration-type class of securities, each Participant or Beneficiary shall be entitled to direct the Trustee as to the manner in which the Company Stock which is entitled to vote and which is allocated to the Company Stock Account of such Participant or Beneficiary is to be voted. If the Employer does not have a registration-type class of securities, each Participant or Beneficiary in the Plan shall be entitled to direct the Trustee as to the manner in which voting rights on shares of Company Stock which are allocated to the Company Stock Account of such Participant or Beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as prescribed in Regulations. For purposes of this Section the term “registration-type class of securities” means: (A) a class of securities required to be registered under Section 12 of the Securities Exchange Act of 1934; and (B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such Section 12.

If the Employer does not have a registration-type class of securities and the by-laws of the Employer require the Plan to vote an issue in a manner that reflects a one-man, one-vote philosophy, each Participant or Beneficiary shall be entitled to cast one vote on an issue and the Trustee shall vote the shares held by the Plan in proportion to the results of the votes cast on the issue by the Participants and Beneficiaries.

8.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS

At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments.

8.6 TRUSTEE’S COMPENSATION AND EXPENSES AND TAXES

The Trustee shall be paid such reasonable compensation as set forth in the Trustee’s fee schedule (if the Trustee has such a schedule) or as agreed upon in writing by the Employer and the Trustee. However, an individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund.

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8.7 ANNUAL REPORT OF THE TRUSTEE

(a)       Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer contribution for each Plan Year, the Trustee, or its agent, shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth:

(1)       the net income, or loss, of the Trust Fund;

(2)       the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets;

(3)       the increase, or decrease, in the value of the Trust Fund;

(4)       all payments and distributions made from the Trust Fund; and

(5)       such further information as the Trustee and/or Administrator deems appropriate.

(b)       The Employer, promptly upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding on the Employer and the Trustee as to all matters contained in the statement to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties. However, nothing contained in this Section shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires.

8.8 AUDIT

(a)       If an audit of the Plan’s records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of the audit setting forth the accountant’s opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan’s annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently.

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(b)       All auditing and accounting fees shall be an expense of and may, at the election of the Employer, be paid from the Trust Fund.

(c)       If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated, supervised, and subject to periodic examination by a state or federal agency, then it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or by such other date as may be prescribed under regulations of the Secretary of Labor.

8.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE

(a)       Unless otherwise agreed to by both the Trustee and the Employer, a Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of resignation.

(b)       Unless otherwise agreed to by both the Trustee and the Employer, the Employer may remove a Trustee at any time by delivering to the Trustee, at least thirty (30) days before its effective date, a written notice of such Trustee’s removal.

(c)       Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan.

(d)       The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been named as Trustee herein immediately upon the death, resignation, incapacity, or removal of the predecessor.

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(e)       Whenever any Trustee hereunder ceases to serve as such, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which the individual or entity served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 8.7 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 8.7 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 8.7 shall have the same effect upon the statement as the Employer’s approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 8.7 and this subparagraph.

8.10 TRANSFER OF INTEREST

Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of a Participant to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such Participant’s new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust to which such transfers are made permits the transfer to be made.

ARTICLE IX

AMENDMENT, TERMINATION AND MERGERS

9.1 AMENDMENT

(a)       The Employer shall have the right at any time to amend this Plan subject to the limitations of this Section. However, any amendment which affects the rights, duties or responsibilities of the Trustee or Administrator, may only be made with the Trustee’s or Administrator’s written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the amendment affects the duties of the Trustee hereunder.

(b)       No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer.

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(c)       Except as permitted by Regulations (including Regulation 1.411(d)-4) or other IRS guidance, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective if it eliminates or reduces any “Section 411(d)(6) protected benefit” or adds or modifies conditions relating to “Section 411(d)(6) protected benefits” which results in a further restriction on such benefit unless such “Section 411(d)(6) protected benefits” are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. “Section 411(d)(6) protected benefits” are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit.

9.2 TERMINATION

(a)       The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants’ Accounts shall become 100% Vested as provided in Section 7.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts (other than the Unallocated Suspense Account), including Forfeitures, shall be allocated to the accounts of all Participants in accordance with the provisions hereof.

(b)       Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Sections 7.5 and 7.6. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of “Section 411(d)(6) protected benefits” in accordance with Section 9.1(c).

9.3 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS

This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the Plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any “Section 411(d)(6) protected benefits” in accordance with Section 9.1(c).

ARTICLE X
TOP HEAVY

10.1 TOP HEAVY PLAN REQUIREMENTS

For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 7.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.3 of the Plan.

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10.2 DETERMINATION OF TOP HEAVY STATUS

(a)          This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the “determination date,” (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group.

If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant’s Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the one-year period ending on the “determination date,” any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy Plan.

(b)          Aggregate Account: A Participant’s Aggregate Account as of the “determination date” is the sum of:

(1)          the Participant’s Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the “determination date.” However, with respect to Employees not performing services for the Employer during the year ending on the “determination date,” the Participant’s Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the “determination date” shall not be taken into account for purposes of this Section.

(2)          an adjustment for any contributions due as of the “determination date.” Such adjustment shall be the amount of any contributions actually made after the Valuation Date but due on or before the “determination date,” except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the “determination date” that are allocated as of a date in that first Plan Year.

(3)          any Plan distributions made within the Plan Year that includes the “determination date” or, with respect to distributions made for a reason other than severance from employment, disability or death, within the five (5) preceding Plan Years. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Code Section 416(g)(2)(A)(i). In the case of distributions made after the Valuation Date and prior to the “determination date,” such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant’s Aggregate Account balance as of the Valuation Date.

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(4)          any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant’s Aggregate Account balance.

(5)          with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant’s Aggregate Account balance.

(6)          with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant’s Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted.

(7)          For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Sections 414(b), (c), (m) and (o) are treated as the same employer.

(c)          “Aggregation Group” means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined.

(1)          Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group.

62 

In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group.

(2)          Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive Aggregation Group.

In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group.

(3)          Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans.

(4)          An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date.

(d)         “Determination date” means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year.

(e)          Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C). The determination of the Present Value of Accrued Benefit shall be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan.

(f)           “Top Heavy Group” means an Aggregation Group in which, as of the Determination Date, the sum of:

(1)          the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and

63 

(2)           the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds sixty percent (60%) of a similar sum determined for all Participants.

ARTICLE XI
MISCELLANEOUS

11.1 PARTICIPANT’S RIGHTS

This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon the Employee as a Participant of this Plan.

11.2 ALIENATION

(a)           Subject to the exceptions provided below, and as otherwise permitted by the Code and Act, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or the Participant’s Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law.

(b)           Subsection (a) shall not apply to a “qualified domestic relations order” defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a “qualified domestic relations order,” a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan.

(c)           Subsection (a) shall not apply to an offset to a Participant’s accrued benefit against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order, or decree issued, or a settlement entered into in accordance with Code Sections 401(a)(13)(C) and (D).

64 

11.3 CONSTRUCTION OF PLAN

This Plan and Trust shall be construed and enforced according to the Code, the Act and the laws of the State of South Carolina, other than its laws respecting choice of law, to the extent not pre-empted by the Act.

11.4 GENDER AND NUMBER

Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply.

11.5 LEGAL ACTION

In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee, the Employer or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee, the Employer or the Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney’s fees, and other expenses pertaining thereto incurred by them for which they shall have become liable provided there has been no breach of fiduciary duty by the party seeking reimbursement.

11.6 PROHIBITION AGAINST DIVERSION OF FUNDS

(a)           Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any Trust Fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Former Participants, or their Beneficiaries.

(b)          In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned.

65 

(c)          Except for Section 4.1(b), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the final determination of the disallowance, whether by agreement with the Internal Revenue Service or by final decision of a competent jurisdiction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned.

11.7 EMPLOYER’S AND TRUSTEE’S PROTECTIVE CLAUSE

The Employer, Administrator and Trustee, and their successors, shall not be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part.

11.8 INSURER’S PROTECTIVE CLAUSE

Except as otherwise agreed upon in writing between the Employer and the insurer, an insurer which issues any Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer.

11.9 RECEIPT AND RELEASE FOR PAYMENTS

Any payment to any Participant, the Participant’s legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer.

11.10 ACTION BY THE EMPLOYER

Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority.

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11.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY

The “named Fiduciaries” of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee, and (4) any Investment Manager appointed hereunder. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan including, but not limited to, any agreement allocating or delegating their responsibilities, the terms of which are incorporated herein by reference. In general, the Employer shall have the sole responsibility for making the contributions provided for under Section 4.1; and shall have the authority to appoint and remove the Trustee and the Administrator; to formulate the Plan’s “funding policy and method;” and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the sole responsibility for the administration of the Plan, including, but not limited to, the items specified in Article II of the Plan, as the same may be allocated or delegated thereunder. The Trustee shall have the sole responsibility of management of the assets held under the Trust, except to the extent directed pursuant to Article II or with respect to those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan as specified or allocated herein. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity.

11.12 HEADINGS

The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof.

11.13 ELECTRONIC MEDIA

The Administrator may use telephonic or electronic media to satisfy any notice requirements required by this Plan, to the extent permissible under regulations (or other generally applicable guidance). In addition, a Participant’s consent to an immediate distribution may be provided through telephonic or electronic means, to the extent permissible under regulations (or other generally applicable guidance). The Administrator also may use telephonic or electronic media to conduct plan transactions such as enrolling participants, making (and changing) deferral elections, electing (and changing) investment allocations, applying for Plan loans, and other transactions, to the extent permissible under regulations (or other generally applicable guidance).

11.14 PLAN CORRECTION

The Administrator in conjunction with the Employer may undertake such correction of Plan errors as the Administrator deems necessary, including correction to preserve tax qualification of the Plan under Code Section 401(a) or to correct a fiduciary breach under the Act. Without limiting the Administrator’s authority under the prior sentence, the Administrator, as it determines to be reasonable and appropriate, may undertake correction of Plan document, operational, demographic and employer eligibility failures under a method described in the Plan or under the IRS Employee Plans Compliance Resolution System (“EPCRS”) or any successor program to EPCRS. The Administrator, as it determines to be reasonable and appropriate, also may undertake or assist the appropriate fiduciary or plan official in undertaking correction of a fiduciary breach, including correction under the DOL Voluntary Fiduciary Correction Program (“VFC”) or any successor program to VFC.

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11.15 APPROVAL BY INTERNAL REVENUE SERVICE

Notwithstanding anything herein to the contrary, if, pursuant to an application for qualification filed by or on behalf of the Plan by the time prescribed by law for filing the Employer’s return for the taxable year in which the Plan is adopted, or such later date that the Secretary of the Treasury may prescribe, the Commissioner of Internal Revenue Service or the Commissioner’s delegate should determine that the Plan does not initially qualify as a tax-exempt plan under Code Sections 401 and 501, and such determination is not contested, or if contested, is finally upheld, then if the Plan is a new plan, it shall be void ab initio and all amounts contributed to the Plan by the Employer, less expenses paid, shall be returned within one (1) year and the Plan shall terminate, and the Trustee shall be discharged from all further obligations. If the disqualification relates to an amended plan, then the Plan shall operate as if it had not been amended.

11.16 UNIFORMITY

All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control.

11.17 SECURITIES AND EXCHANGE COMMISSION APPROVAL

The Employer may request an interpretative letter from the Securities and Exchange Commission stating that the transfers of Company Stock contemplated hereunder do not involve transactions requiring a registration of such Company Stock under the Securities Act of 1933. In the event that a favorable interpretative letter is not obtained, the Employer reserves the right to amend the Plan and Trust retroactively to their Effective Dates in order to obtain a favorable interpretative letter or to terminate the Plan.

68 

IN WITNESS WHEREOF, this Plan has been executed the day and year first above written.

The Bank of South Carolina
By
	EMPLOYER REPRESENTATIVE
By:
TRUSTEE - Fleetwood S. Hassell
TRUSTEE - Douglas H. Sass
TRUSTEE - Sheryl G. Sharry
TRUSTEE - Eugene H. Walpole, IV

69 

CERTIFICATE OF CORPORATE RESOLUTION

The undersigned Secretary of The Bank of South Carolina (the Corporation) hereby certifies that the following resolutions were duly adopted by the board of directors of the Corporation on _____________________, and that such resolutions have not been modified or rescinded as of the date hereof:

RESOLVED, that the form of amended Employee Stock Ownership Plan and Trust effective January 1, 2017, presented to this meeting is hereby approved and adopted and that the proper officers of the Corporation are hereby authorized and directed to execute and deliver to the Trustee of the Plan one or more counterparts of the Plan.

RESOLVED, that for purposes of the limitations on contributions and benefits under the Plan, prescribed by Section 415 of the Internal Revenue Code, the “limitation year” shall be the Plan Year.

RESOLVED, that not later than the due date (including extensions hereof) of the Corporation’s federal income tax return for each of its fiscal years hereafter, the Corporation shall contribute to the Plan for each such fiscal year such amount as shall be determined by the board of directors of the Corporation and that the Treasurer of the Corporation is authorized and directed to pay such contribution to the Trustee of the Plan in cash or property and to designate to the Trustee the year for which such contribution is made.

RESOLVED, that the proper officers of the Corporation shall act as soon as possible to notify the employees of the Corporation of the adoption of the Employee Stock Ownership Plan by delivering to each employee a copy of the summary description of the Plan in the form of the Summary Plan Description presented to this meeting, which form is hereby approved.

The undersigned further certifies that attached hereto as Exhibits A, B and C, respectively, are true copies of The Bank of South Carolina Employee Stock Ownership Plan as amended and restated, Summary Plan Description and Funding Policy and Method approved and adopted in the foregoing resolutions.

Secretary

Date

THE BANK OF SOUTH CAROLINA

EMPLOYEE STOCK OWNERSHIP PLAN

FUNDING POLICY AND METHOD

A pension benefit plan (as defined in the Employee Retirement Income Security Act of 1974) has been adopted by the company for the purpose of rewarding long and loyal service to the company by providing to employees additional financial security at retirement. Incidental benefits are provided in the case of disability, death or other termination of employment.

Since the principal purpose of the plan is to provide benefits at normal retirement age, the principal goal of the investment of the funds in the plan should be both security and long-term stability with moderate growth commensurate with the anticipated retirement dates of participants. Investments, other than “fixed dollar” investments, should be included among the plan’s investments to prevent erosion by inflation. However, investments should be sufficiently liquid to enable the plan, on short notice, to make some distributions in the event of the death or disability of a participant.

EX-31.1

Bank of South Carolina Corporation - 10-K

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934

CERTIFICATION

I, Fleetwood S. Hassell, certify that:

1. I have reviewed this Annual Report on Form 10-K of the Bank of South Carolina Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report.

4. The registrant’s other certifying officer (s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within the entity, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of registrant’s disclosure controls and procedures within 90 days prior to the filing date of the report and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any changes in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting: and

5. The registrant’s other certifying officer (s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit and Compliance Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 3, 2017

/s/Fleetwood S. Hassell

Fleetwood S. Hassell

President/Chief Executive Officer

89

EX-31.2

Bank of South Carolina Corporation - 10-K

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934

CERTIFICATION

I, Eugene H. Walpole, IV, certify that:

1. I have reviewed this Annual Report on Form 10-K of the Bank of South Carolina Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report.

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within the entity, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures within 90 days prior to the filing date of the report and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, registrant’s internal control over financial reporting: and

5. The registrant’s other certifying officer (s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit and Compliance Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in registrant’s internal control over financial reporting.

March 3, 2017

/s/ Eugene H. Walpole, IV

Eugene H. Walpole, IV

Chief Financial Officer/Senior Vice President

90

EX-32.1

Bank of South Carolina Corporation - 10-K

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Fleetwood S. Hassell, President/Chief Executive Officer of Bank of South Carolina Corporation (the “Company”), certify, that to the best of my knowledge, based upon a review of the annual report on Form 10-K for the period ended December 31, 2016 of the Company (the “Report”):

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (U.S.C. 78m or 78o(d)); and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2017
	BY:	/s/Fleetwood S. Hassell
		Fleetwood S. Hassell
		President/Chief Executive Officer

91

EX-32.2

Bank of South Carolina Corporation - 10-K

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Eugene H. Walpole, IV, Chief Financial Officer/Senior Vice President of Bank of South Carolina Corporation (the “Company”), certify that to the best of my knowledge, based upon a review of the annual report on Form 10-K for the period ended December 31, 2016 of the Company (the “Report):

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (U.S.C. 78m or 78o(d)); and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2017
	BY:	/s/Eugene H. Walpole, IV
		Eugene H. Walpole, IV
		Chief Financial Officer/Senior Vice President

92

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Feb. 23, 2017	Jun. 30, 2016
Document And Entity Information
Entity Registrant Name	BANK OF SOUTH CAROLINA CORP
Entity Central Index Key	0001007273
Document Type	10-K
Trading Symbol	BKSC
Document Period End Date	Dec. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 51,069,297
Entity Common Stock, Shares Outstanding		4,962,189
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2016

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Dec. 31, 2016	Dec. 31, 2015
ASSETS
Cash and due from banks	$ 8,141,030	$ 5,295,924
Interest-bearing deposits in other banks	18,101,300	23,898,862
Investment securities available for sale (amortized cost of $120,942,615 and $118,422,116 in 2016 and 2015, respectively)	119,978,944	119,997,585
Mortgage loans to be sold	4,386,210	5,820,239
Loans	260,576,115	242,622,705
Less: Allowance for loan losses	(3,851,617)	(3,417,827)
Net loans	256,724,498	239,204,878
Premises, equipment and leasehold improvements, net	2,296,624	2,289,228
Other real estate owned	521,943	620,394
Accrued interest receivable	1,614,002	1,284,063
Other assets	2,185,085	761,339
Total assets	413,949,636	399,172,512
Deposits:
Non-interest-bearing demand	126,034,478	122,073,396
Interest-bearing demand	96,260,589	84,977,640
Money market accounts	77,307,662	70,233,422
Time deposits over $250,000	17,822,136	25,896,768
Other time deposits	26,019,121	28,871,044
Other savings deposits	29,078,865	26,666,342
Total deposits	372,522,851	358,718,612
Accrued interest payable and other liabilities	813,811	1,302,188
Total liabilities	373,336,662	360,020,800
Shareholders' Equity
Common stock-no par, 12,000,000 shares authorized; 5,197,535 and 5,157,996 shares issued at December 31, 2016 and 2015, respectively; 4,956,139 and 4,916,600 shares outstanding at December 31, 2016 and 2015, respectively
Additional paid in capital	36,824,022	36,341,744
Retained earnings	6,643,476	4,064,834
Treasury stock: 241,396 shares at December 31, 2016 and 2015	(2,247,415)	(2,247,415)
Accumulated other comprehensive income (loss), net of income taxes	(607,109)	992,549
Total shareholders' equity	40,612,974	39,151,712
Total liabilities and shareholders' equity	$ 413,949,636	$ 399,172,512

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Amorization cost for investment securities available for sale	$ 120,942,615	$ 118,422,116
Common Stock, no par value (in dollars per share)
Common Stock, shares authorized	12,000,000	12,000,000
Common Stock, shares issued	5,197,535	5,157,996
Common Stock, shares outstanding	4,956,139	4,916,600
Treasury stock, shares	241,396	241,396

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Interest and fee income
Loans, including fees	$ 12,851,900	$ 11,795,303	$ 11,263,048
Taxable securities	1,297,636	1,376,441	1,045,592
Tax-exempt securities	1,007,438	1,012,638	1,059,883
Other	138,623	45,566	49,731
Total interest and fee income	15,295,597	14,229,948	13,418,254
Interest expense
Deposits	378,733	401,463	408,266
Short-term borrowings	7	932	681
Total interest expense	378,740	402,395	408,947
Net interest income	14,916,857	13,827,553	13,009,307
Provision for loan losses	570,000	192,500	82,500
Net interest income after provision for loan losses	14,346,857	13,635,053	12,926,807
Other income
Service charges, fees and commissions	1,061,349	991,007	921,638
Mortgage banking income	1,387,740	1,605,676	1,315,020
Gain on sale of securities	380,904	423,832	312,577
Other non-interest income	31,090	29,443	29,466
Total other income	2,861,083	3,049,958	2,578,701
Other expense
Salaries and employee benefits	6,087,929	5,859,203	5,466,446
Net occupancy expense	1,528,048	1,480,606	1,473,700
Net other real estate owned expenses	16,691	5,284	16,440
Other operating expenses	2,639,776	2,168,382	2,152,236
Total other expenses	10,272,444	9,513,475	9,108,822
Income before income tax expense	6,935,496	7,171,536	6,396,686
Income tax expense	1,688,433	2,287,248	1,997,866
Net income	$ 5,247,063	$ 4,884,288	$ 4,398,820
Weighted average shares outstanding
Basic (in shares)	4,935,349	4,912,499	4,907,208
Diluted (in shares)	5,054,114	5,067,085	5,032,211
Basic income per common share (in dollars per share)	$ 1.06	$ 0.99	$ 0.90
Diluted income per common share (in dollars per share)	$ 1.04	$ 0.96	$ 0.87

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Statement of Comprehensive Income [Abstract]
Net income	$ 5,247,063	$ 4,884,288	$ 4,398,820
Other comprehensive income (loss):
Unrealized gain (loss) on securities arising during the period	(2,158,236)	26,255	768,326
Reclassification adjustment for securities gains realized in net income	(380,904)	(423,832)	(312,577)
Other comprehensive income (loss), before tax	(2,539,140)	(397,577)	455,749
Income tax effect related to items of other comprehensive income (loss)	939,482	147,104	(168,627)
Other comprehensive income (loss), after tax	(1,599,658)	(250,473)	287,122
Total comprehensive income	$ 3,647,405	$ 4,633,815	$ 4,685,942

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)	ADDITIONAL PAID IN CAPITAL [Member]	RETAINED EARNINGS [Member]	TREASURY STOCK [Member]	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) [Member]	Total
Beginning Balance at Dec. 31, 2013	$ 28,678,150	$ 7,007,532	$ (1,902,439)	$ 955,900	$ 34,739,143
Net income		4,398,820			4,398,820
Other comprehensive income (loss)				287,122	287,122
Exercise of stock options	26,050				26,050
Stock-based compensation expense	74,908				74,908
Cash dividends		(2,766,061)			(2,766,061)
Ending balance at Dec. 31, 2014	28,779,108	8,640,291	(1,902,439)	1,243,022	36,759,982
Net income		4,884,288			4,884,288
Other comprehensive income (loss)				(250,473)	(250,473)
Exercise of stock options	122,946				122,946
10% stock dividend 446,597 common 21,945 treasury at $15.72	7,360,703	(7,020,505)	(344,976)		(4,778)
Stock-based compensation expense	78,987				78,987
Cash dividends		(2,439,240)			(2,439,240)
Ending balance at Dec. 31, 2015	36,341,744	4,064,834	(2,247,415)	992,549	39,151,712
Net income		5,247,063			5,247,063
Other comprehensive income (loss)				(1,599,658)	(1,599,658)
Exercise of stock options	405,749				405,749
Stock-based compensation expense	76,529				76,529
Cash dividends		(2,668,421)			(2,668,421)
Ending balance at Dec. 31, 2016	$ 36,824,022	$ 6,643,476	$ (2,247,415)	$ (607,109)	$ 40,612,974

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Common stock dividends, shares		446,597
Treasury stock, shares		21,945
Stock dividend per dollar amount		$ 15.72
Exercise of Stock Options	39,539	9,378	2,750
Cash dividends	$ 0.54	$ 0.52	$ 0.62
Common Stock - Pre Stock Dividend [Member]
Exercise of Stock Options		8,615	2,500

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities:
Net income	$ 5,247,063	$ 4,884,288	$ 4,398,820
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	189,188	196,827	200,178
Gain on sale of securities	(380,904)	(423,832)	(312,577)
(Loss) gain on sale of other real estate	13,450		(2,382)
Provision for loan losses	570,000	192,500	82,500
Stock-based compensation expense	76,529	78,987	74,908
Deferred income taxes	(750,254)	4,748	134,478
Net amortization of unearned discounts on investment securities	250,755	109,311	303,036
Origination of mortgage loans held for sale	(76,032,671)	(91,053,923)	(71,767,800)
Proceeds from sale of mortgage loans held for sale	77,466,700	92,558,765	69,182,061
(Increase) decrease in accrued interest receivable and other assets	(63,949)	391,043	(274,201)
Increase (decrease) in accrued interest payable and other liabilities	(543,083)	176,898	153,882
Net cash provided by operating activities	6,042,824	7,115,612	2,172,903
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale	9,630,804	2,315,000	1,920,000
Proceeds from sale of available for sale securities	36,218,087	16,564,118	37,159,363
Purchase of investment securities available for sale	(48,239,241)	(25,389,485)	(57,959,964)
Proceeds from sale of other real estate	85,001		37,855
Net increase in loans	(18,089,620)	(8,712,885)	(16,394,833)
Purchase of premises, equipment and leasehold improvements, net	(196,584)	(133,632)	(97,740)
Net cash used by investing activities	(20,591,553)	(15,356,884)	(35,335,319)
Cash flows from financing activities:
Net increase in deposit accounts	13,804,239	36,299,585	17,176,372
Net (decrease) increase in short-term borrowings		(6,980,681)	6,980,681
Dividends paid	(2,613,715)	(2,380,062)	(2,765,735)
Stock options exercised	405,749	122,946	26,050
Cash in lieu of fractional shares		(4,778)
Net cash (used) provided by financing activities	11,596,273	27,057,010	21,417,368
Net increase (decrease) in cash and cash equivalents	(2,952,456)	18,815,738	(11,745,048)
Cash and cash equivalents at beginning of year	29,194,786	10,379,048	22,124,096
Cash and cash equivalents at end of year	26,242,330	29,194,786	10,379,048
Cash paid during the year for:
Interest	400,531	419,004	429,758
Income taxes	2,320,830	2,196,000	1,819,000
Supplemental disclosure for non-cash investing and financing activity:
Change in unrealized gain (loss) on securities available for sale, net of income taxes	(1,599,658)	(250,473)	287,122
Change in dividends payable	54,706	59,178	325
Transfer of loans to other real estate owned		$ 186,210	$ 521,943

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ORGANIZATION

12 Months Ended

Dec. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION

1. 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.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accounting and reporting policies conform, in all material respects, to U.S. generally accepted accounting principles (“GAAP”), and to general practices within the banking industry. The following summarizes the more significant of these policies and practices.

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of Bank of South Carolina Corporation (the “Company”) and its wholly-owned subsidiary, The Bank of South Carolina (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.

We provide financial services through our four banking house locations: 256 Meeting Street, Charleston, SC, 100 North Main Street, Summerville, SC, 1337 Chuck Dawley Boulevard, Mt. Pleasant, SC and 2027 Sam Rittenberg Boulevard, Charleston, SC. Our primary deposit products are checking, savings, and term certificate accounts, and our primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans may be dependent on the general economic conditions in the area.

Accounting Estimates and Assumptions:

The preparation of the financial statements are 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, asset prepayment rates and other-than-temporary impairment of investment securities.

Reclassification:

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

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.

Cash and Cash Equivalents:

Cash and cash equivalents include working cash funds, due from banks, interest-bearing deposits in other banks, items in process of collection and federal funds sold. All cash equivalents are readily convertible to cash and have maturities of less than 90 days.

Depository institutions are required to maintain reserve and clearing balances at the Federal Reserve Bank. Vault cash satisfied our daily reserve requirement for the years ended December 31, 2016 and 2015, respectively.

Interest-bearing Deposits in Other Financial Institutions:

Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.

Investment Securities:

We classify investments into three categories as follows: (1) Held to Maturity - debt securities that we have the positive intent and ability to hold to maturity, which are reported at amortized cost, adjusted for the amortization of any related premiums or the accretion of any related discounts into interest income using a methodology which approximates a level yield of interest over the estimated remaining period until maturity, (2) Trading - debt and equity securities that are bought and held principally for the purpose of selling them in the near term, which are reported at fair value, with unrealized gains and losses included in earnings, and (3) Available for Sale - debt and equity securities that may be sold under certain conditions, which are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of income taxes. Unrealized losses on securities due to fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has occurred.

Realized gains or losses on the sale of investments are recognized on a specific identification, trade date basis. All securities were classified as available for sale for 2016 and 2015. We do not have any mortgage-backed securities nor have we ever invested in mortgage-backed securities.

Mortgage Loans to be Sold:

We originate fixed and variable rate residential mortgage loans on a service release basis in the secondary market. Loans closed but not yet settled with an investor are carried in our loans held for sale portfolio. Virtually all of these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with our customers. Therefore, these loans present very little market risk. We usually deliver to, and receive funding from, the investor within 30 to 60 days. Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a “best efforts” basis. We are not obligated to deliver a loan or pay a penalty if a loan is not delivered to the investor. As a result of the short-term nature of these derivative contracts, the fair value of the mortgage loans held for sale in most cases is the same as the value of the loan amount at its origination.

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are provided for in a valuation allowance by charges to operations as a component of mortgage banking income. Gains or losses on sales of loans are recognized when control over these assets has been surrendered and are included in mortgage banking income in the consolidated statements of operations.

Loans and Allowance for Loan Losses:

Loans are carried at principal amounts outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the weighted average life of the loan as an adjustment to yield. Interest income on all loans is recorded on an accrual basis. The accrual of interest and the amortization of net loan fees are generally discontinued on loans which 1) are maintained on a cash basis because of deterioration in the financial condition of the borrower; 2) for which payment of full principal is not expected; or 3) upon which principal or interest has been in default for a period of 90 days or more. We define past due loans based on contractual payment and maturity dates.

The accrual of interest is generally discontinued on loans that become 90 days past due as to principal or interest. The accrual of interest on some loans, however, may continue even though they are 90 days past due if the loans are well secured or in the process of collection and management deems it appropriate. If non-accrual loans decrease their past due status to less than 30 days for a period of six to nine months, they are reviewed individually by management to determine if they should be returned to accrual status.

When the ultimate collectability of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any amounts previously charged off. When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to interest income and then to principal.

We account for impaired loans by requiring that all loans (greater than $50,000) for which it is estimated that we will be unable to collect all amounts due according to the terms of the loan agreement be recorded at the loan’s fair value. Fair value may be determined based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral less cost to sell, if the loan is collateral dependent.

Additional accounting guidance allows us to use existing methods for recognizing interest income on an impaired loan. The guidance also requires additional disclosures about how we estimate interest income related to our impaired loans.

A loan is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). For this type of impaired loan, cash receipts are typically applied to principal and interest receivable in accordance with the terms of the restructured loan agreement. Interest income is recognized on these loans using the accrual method of accounting, provided they are performing in accordance with their restructured terms.

The allowance for loan losses is our estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis and is based upon our periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

We believe that the allowance is adequate to absorb inherent losses in the loan portfolio; however, there can be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio, in light of changing economic conditions and other relevant circumstances, will not require significant future additions to the allowance, thus adversely affecting our operating results.

The allowance is also subject to examination by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions and other adequacy tests. In addition, such regulatory agencies could require us to adjust our allowance based on information available at the time of the examination.

The methodology used to determine the reserve for unfunded lending commitments, which is included in other liabilities, is inherently similar to the methodology used to determine the allowance for loan losses adjusted for factors specific to binding commitments, including the probability of funding and historical loss ratio.

Concentration of Credit Risk:

Our primary market consists of the counties of Berkeley, Charleston and Dorchester, South Carolina. At December 31, 2016, the majority of the total loan portfolio, as well as a substantial portion of the commercial and real estate loan portfolios, were to borrowers within this region. No other areas of significant concentration of credit risk have been identified.

Premises, Equipment and Leasehold Improvements and Depreciation:

Land is carried at cost. Buildings and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes over the estimated useful lives of the assets ranging from 40 years for buildings and 3 to 15 years for equipment. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term, including renewal periods when reasonably assured. The cost of maintenance and repairs is charged to operating expense as incurred.

Other Real Estate Owned:

Real estate properties acquired through foreclosure are initially recorded at the lower of the recorded investment in the loan or fair value less costs to sell. Losses arising from the initial foreclosure are charged against the allowance for loan losses. Subsequent to foreclosure, real estate owned is recorded at the lower of cost or fair value, adjusted for net selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or our estimation of the value of the collateral. Gains and losses on the sale of other real estate owned (“OREO”) and subsequent write-downs from periodic re-evaluation are charged to net other real estate owned expenses.

Income Taxes:

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net deferred tax assets are included in other assets in the consolidated balance sheet.

Accounting standards require the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. These standards also prescribe a recognition threshold and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. We believe that we had no uncertain tax positions for the years ended December 31, 2016 and 2015.

Stock-Based Compensation:

Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period (10 years).

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. Earnings per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

Comprehensive Income:

We apply accounting standards which establish guidance for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income consists of net income and net unrealized gains or losses on securities.

Segment Information:

The Company operates and manages itself within one retail banking segment and has, therefore, not provided segment disclosures.

Interest Rate Lock Commitments and Forward Sale Contracts:

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free-standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitments before the loan is funded. In order to hedge the change in interest rates resulting from commitments to fund the loans, we enter into forward commitments for the future delivery of mortgage loans when the interest rate is locked. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in income when they occur. As a result of the short-term nature of mortgage loans held for sale (derivative contract), our derivative instruments were considered to be immaterial as of December 31, 2016 and 2015.

We had no embedded derivative instruments requiring hedge accounting treatment at December 31, 2016. We do not currently engage in hedging activities.

Recent Accounting Pronouncements:

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting and/or disclosure of financial information by the Company.

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. This guidance also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. In August 2015, the FASB deferred the effective date of the amendments. As a result of the deferral, the guidance will be effective for the Company for reporting periods beginning after December 15, 2017. We will apply this guidance using a modified retrospective approach. We do not expect this amendment to have a material effect on our consolidated financial statements.

In June 2014, the FASB issued guidance which makes limited amendments to the guidance on accounting for certain repurchase agreements. The new guidance (1) requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings. The amendments became effective for the Company for the first interim or annual period beginning after December 31, 2014. We applied the guidance by making a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This adjustment did not have a material effect on our financial statements.

In January 2015, the FASB issued guidance to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The amendments were effective January 1, 2016 and did not have a material effect on our financial statements.

In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendments were effective January 1, 2016 and did not have a material effect on our financial statements.

In June 2015, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to transition guidance were effective January 1, 2016 and did not have a material effect on our financial statements.

In August 2015, the FASB issued amendments to the Interest topic of the Accounting Standards Codification to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal ear of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. We do not expect this amendment to have a material effect on our financial statements.

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to require all leases with lease terms over 12 months to be capitalized as a right-of-use asset and lease liability on the balance sheet at the date of lease commencement. Leases will be classified as either finance leases or operating leases. This distinction will be relevant for the pattern of expense recognition in the income statement. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of this guidance on its financial statements.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments were effective January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The guidance requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of adoption of this guidance on its financial statements.

In August 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Income Taxes topic of the Accounting Standards Codification to modify the accounting for intra-entity transfers of assets other than inventory. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Consolidation topic of the Accounting Standards Codification to revise the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments will be effective for the Company for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In December 2016, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (December 14, 2016) for amendments that do not have transition guidance. Amendments that are subject to transition guidance were effective January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations or cash flows.

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INVESTMENT SECURITIES AVAILABLE FOR SALE

12 Months Ended

Dec. 31, 2016

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES AVAILABLE FOR SALE

3. INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of investment securities available for sale are summarized as follows:

	DECEMBER 31, 2016
	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			ESTIMATED FAIR VALUE
U.S. Treasury Notes	$	24,148,295	$	41,153	$	(250,385	)	$	23,939,063
Government-Sponsored Enterprises		51,737,930		129,482		(833,321	)		51,034,091
Municipal Securities		45,056,390		765,813		(816,413	)		45,005,790
Total	$	120,942,615	$	936,448	$	(1,900,119	)	$	119,978,944

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

The amortized cost and estimated fair value of investment securities available for sale at December 31, 2016 and December 31, 2015, by contractual maturity are as follows:

	DECEMBER 31, 2016				DECEMBER 31, 2015
	AMORTIZED COST		ESTIMATED FAIR VALUE		AMORTIZED COST		ESTIMATED FAIR VALUE
Due in one year or less	$	3,343,347	$	3,350,205	$	3,311,346	$	3,326,249
Due in one year to five years		82,848,411		82,682,901		69,870,930		70,584,179
Due in five years to ten years		29,662,030		29,169,228		41,930,801		42,670,986
Due in ten years and over		5,088,827		4,776,610		3,309,039		3,416,171
Total	$	120,942,615	$	119,978,944	$	118,422,116	$	119,997,585

Securities pledged to secure deposits and repurchase agreements at December 31, 2016 and 2015, had a carrying amount of $47,619,232 and $48,027,575, 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 December 31, 2016 and 2015. We believe that all unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below before recovery of their amortized cost.

	Less Than 12 Months							12 Months or Longer							Total
					Gross							Gross							Gross
					Unrealized							Unrealized							Unrealized
	#		Fair Value		Loss			#		Fair Value		Loss			#		Fair Value		Loss
December 31, 2016 Available for sale
U.S. Treasury notes		4	$	17,968,594	$	(250,385	)		—	$	—	$	—			4	$	17,958,594	$	(250,385	)
Government-sponsored enterprises		8		30,136,720		(833,321	)		—		—		—			8		30,136,720		(833,321	)
Municipal securities		54		22,606,430		(816,413	)		—		—		—			54		22,606,430		(816,413	)
Total		66	$	70,711,744	$	(1,900,119	)		—	$	—	$	—			66	$	70,711,744	$	(1,900,119	)
December 31, 2015 Available for sale
U.S. Treasury notes		2	$	10,064,063	$	(45,360	)		—	$	—	$	—			2	$	10,064,063	$	(45,360	)
Government-sponsored enterprises		2		7,475,445		(38,538	)		1		5,002,335		(95,206	)		2		12,477,780		(133,744	)
Municipal securities		6		4,361,148		(28,724	)		—		—		—			6		4,361,148		(28,724	)
Total		10	$	21,900,656	$	(112,622	)		1	$	5,002,335	$	(95,206	)		10	$	26,902,991	$	(207,828	)

We received proceeds from sales of securities available for sale and gross realized gains and losses as follows:

	For the Year Ended December 31,
	2016			2015		2014
Gross proceeds	$	36,218,087		$	16,564,118	$	37,159,363
Gross realized gains		384,963			423,832		312,577
Gross realized losses		(4,059	)		—		—

The tax provision related to these gains was $140,934 and $156,818 for the year ended December 31, 2016 and 2015, respectively. 

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LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2016

Receivables [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

4. LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans (net of deferred loan fees of $136,446 at December 31, 2016, and $118,188 at December 31, 2015) are as follows:

	December 31
	2016			2015
Commercial loans	$	52,262,209		$	50,938,265
Commercial real estate:
Construction		1,208,901			1,005,118
Other		122,968,126			115,736,034
Consumer:
Real estate		77,131,816			69,777,307
Other		7,005,063			5,165,981
		260,576,115			242,622,705
Allowance for loan losses		(3,851,617	)		(3,417,827	)
Loans, net	$	256,724,498		$	239,204,878

We had $101.2 million and $102.1 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at December 31, 2016 and 2015, respectively.

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

Our internally assigned grades pursuant to the Board-approved lending policy are as follows:

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

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

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

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

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

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

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

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

The following table illustrates credit risks by category and internally assigned grades at December 31, 2016 and December 31, 2015. “Pass” includes loans internally graded as excellent, good and satisfactory.

December 31, 2016
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total
Pass	$	48,289,944	$	798,884	$	116,490,396	$	74,115,426	$	6,728,367	$	246,423,017
Watch		1,004,957		410,017		2,625,079		899,306		147,992		5,087,351
OAEM		1,666,048		—		995,549		630,957		28,939		3,321,493
Sub-Standard		1,301,260		—		2,857,102		1,486,127		99,765		5,744,254
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	52,262,209	$	1,208,901	$	122,968,126	$	77,131,816	$	7,005,063	$	260,576,115

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

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

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

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing
Commercial	$	1,162,676	$	250,370	$	4,317	$	1,417,363	$	49,520,902	$	50,938,265	$	—
Commercial Real Estate:
Commercial Real Estate -Construction		—		—		—		—		1,005,118		1,005,118		—
Commercial Real Estate -Other		91,607		1,215,473		1,152,774		2,459,854		113,276,180		115,736,034		—
Consumer:
Consumer Real Estate		68,240		249,754		82,015		400,009		69,377,298		69,777,307		—
Consumer-Other		69,333		58,116		6,056		133,505		5,032,476		5,165,981		1,606
Total	$	1,391,856	$	1,773,713	$	1,245,162	$	4,410,731	$	238,211,974	$	242,622,705	$	1,606

There were two loans over 90 days past due and still accruing interest at December 31, 2016. There was one loan over 90 days past due still accruing interest at December 31, 2015. The following table summarizes the balances of non-accrual loans:

	Loans Receivable on Non-Accrual
	December 31, 2016		December 31, 2015
Commercial	$	61,781	$	4,317
Commercial Real Estate:
Commercial Real Estate - Construction		—		—
Commercial Real Estate - Other		1,678,876		1,970,306
Consumer:
Consumer - Real Estate		—		82,015
Consumer - Other		964		4,450
Total	$	1,741,621	$	2,061,088

The following tables set forth the changes in the allowance and an allocation of the allowance by loan category at December 31, 2016, December 31, 2015 and December 31, 2014. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.

December 31, 2016
	Commercial			Commercial Real Estate-Construction			Commercial  Real Estate-Other			Consumer  Real Estate			Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	896,854		$	59,861		$	1,345,094		$	941,470		$	174,548		$	3,417,827
Charge-offs		(33,046	)		—			(78,300	)		(82,015	)		(14,934	)		(208,295	)
Recoveries		—			—			65,000			—			7,085			72,085
Provisions		681,380			(8,392	)		42,912			(133,064	)		(12,836	)		570,000
Ending Balance	$	1,545,188		$	51,469		$	1,374,706		$	726,391		$	153,863		$	3,851,617

December 31, 2015
	Commercial			Commercial Real Estate-Construction		Commercial  Real Estate-Other			Consumer  Real Estate			Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351		$	105,076		$	3,334,848
Charge-offs		(99,737	)		—		(55,252	)		(6,075	)		(40,007	)		(201,071	)
Recoveries		9,164			—		53,753			6,075			22,558			91,550
Provisions		(223,703	)		16,957		234,206			78,119			86,921			192,500
Ending Balance	$	896,854		$	59,861	$	1,345,094		$	941,470		$	174,548		$	3,417,827

December 31, 2014
	Commercial			Commercial Real Estate-Construction		Commercial  Real Estate-Other			Consumer  Real Estate		Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,448,804		$	22,137	$	1,064,363		$	672,813	$	84,160		$	3,292,277
Charge-offs		(83,042	)		—		(15,834	)		—		(14,154	)		(113,030	)
Recoveries		—			—		46,000			—		27,101			73,101
Provisions		(154,632	)		20,767		17,858			190,538		7,969			82,500
Ending Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351	$	105,076		$	3,334,848

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

December 31, 2016
	Commercial		Commercial Real Estate- Construction		Commercial  Real Estate-Other		Consumer Real Estate		Consumer  Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	1,051,219	$	—	$	324,587	$	43,119	$	89,047	$	1,507,972
Collectively evaluated for impairment		493,969		51,469		1,050,119		683,272		64,816		2,343,645
Total Allowance for Losses	$	1,545,188	$	51,469	$	1,374,706	$	726,391	$	153,863	$	3,851,617
Loans Receivable
Individually evaluated for impairment	$	1,301,259	$	—	$	3,225,351	$	1,286,127	$	89,047	$	5,901,784
Collectively evaluated for impairment		50,960,950		1,208,901		119,742,775		75,845,689		6,916,016		254,674,331
Total Loans Receivable	$	52,262,209	$	1,208,901	$	122,968,126	$	77,131,816	$	7,005,063	$	260,576,115

December 31, 2015
	Commercial		Commercial Real Estate- Construction		Commercial  Real Estate-Other		Consumer  Real Estate		Consumer Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	387,979	$	—	$	253,105	$	342,320	$	100,103	$	1,083,507
Collectively evaluated for impairment		508,875		59,861		1,091,989		599,150		74,445		2,334,320
Total Allowance for Loan Losses	$	896,854	$	59,861	$	1,345,094	$	941,470	$	174,548	$	3,417,827
Loans Receivable
Individually evaluated for impairment	$	1,639,974	$	—	$	3,551,495	$	1,245,419	$	105,819	$	6,542,707
Collectively evaluated for impairment		49,298,291		1,005,118		112,184,539		68,531,888		5,060,162		236,079,998
	$	50,938,265	$	1,005,118	$	115,736,034	$	69,777,307	$	5,165,981	$	242,622,705

As of December 31, 2016 and 2015, loans individually evaluated and considered impaired are presented in the following table:

Impaired and Restructured Loans  As of The Year Ended December 31,
	2016						2015
		Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	250,040	$	250,040	$	—	$	692,831	$	692,831	$	—
Commercial Real Estate- Construction		—		—		—		—		—		—
Commercial Real Estate-Other		2,174,770		2,174,770		—		2,476,018		2,476,018		—
Consumer Real Estate		1,243,008		1,243,008		—		450,402		450,402		—
Consumer Other		—		—		—		5,715		5,715		—
	$	3,667,818	$	3,667,818	$	—	$	3,624,966	$	3,624,966	$	—
With an allowance recorded:
Commercial	$	1,051,219	$	1,051,219	$	1,051,219	$	947,143	$	947,143	$	387,979
Commercial Real Estate- Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,050,581		1,050,581		324,587		1,075,477		1,075,477		253,105
Consumer Real Estate		43,119		43,119		43,119		795,017		795,017		342,320
Consumer Other		89,047		89,047		89,047		100,104		100,104		100,103
	$	2,233,966	$	2,233,966	$	1,507,972	$	2,917,741	$	2,917,741	$	1,083,507
Total
Commercial	$	1,301,259	$	1,301,259	$	1,051,219	$	1,639,974	$	1,639,974	$	387,979
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		3,225,351		3,225,351		324,587		3,551,495		3,551,495		253,105
Consumer Real Estate		1,286,127		1,286,127		43,119		1,245,419		1,245,419		342,320
Consumer Other		89,047		89,047		89,047		105,819		105,819		100,103
	$	5,901,784	$	5,901,784	$	1,507,972	$	6,542,707	$	6,542,707	$	1,083,507

The following table presents average impaired loans and interest income recognized on those impaired loans, by class segment, for the periods indicated.

For the Year Ended December 31,
	2016				2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	267,747	$	12,282	$	750,350	$	43,853	$	647,135	$	18,129
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial  Real Estate-Other		2,267,288		81,582		2,500,204		128,352		3,515,431		177,416
Consumer Real Estate		1,242,515		22,111		450,117		17,035		351,550		12,877
Consumer-Other		—		—		56,758		2,557		—		—
	$	3,777,550	$	115,975	$	3,757,429	$	191,797	$	4,514,116	$	208,422
With an allowance recorded:
Commercial	$	1,087,559	$	49,985	$	1,009,765	$	49,166	$	1,222,383	$	56,432
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,047,685		16,138		1,066,896		48,945		790,998		29,218
Consumer Real Estate		43,155		1,514		811,014		32,362		688,922		34,154
Consumer  Other		94,945		5,533		55,439		3,540		41,631		1,923
	$	2,273,344	$	73,170	$	2,943,114	$	134,013	$	2,743,934	$	121,727
Total
Commercial	$	1,355,306	$	62,267	$	1,760,115	$	93,019	$	1,869,518	$	74,561
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		3,314,973		97,720		3,567,100		177,297		4,306,429		206,634
Consumer Real Estate		1,285,670		23,625		1,261,131		49,397		1,040,472		47,031
Consumer Other		94,945		5,533		112,197		6,097		41,631		1,923
	$	6,050,894	$	189,145	$	6,700,543	$	325,810	$	7,258,050	$	330,149

Restructured loans (loans, still accruing interest, which have been renegotiated at below-market interest rates or for which other concessions have been granted) were $378,392 (2 loans) and $458,268 (3 loans) at December 31, 2016 and December 31, 2015, respectively. Restructured loans were granted extended payment terms with no principal reduction. All restructured loans were performing as agreed as of December 31, 2016 and 2015, respectively.

No TDRs defaulted during the years ended December 31, 2016 and 2015, which were modified within the previous twelve months.

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CONCENTRATIONS OF CREDIT RISK

12 Months Ended

Dec. 31, 2016

Risks and Uncertainties [Abstract]

CONCENTRATIONS OF CREDIT RISK

5.        CONCENTRATIONS OF CREDIT RISK

We grant short to intermediate term commercial and consumer loans to customers throughout our primary market area of Charleston, Berkeley and Dorchester counties of South Carolina. Our primary market area is heavily dependent on tourism and medical services. Although we have a diversified loan portfolio, a substantial portion of our debtors’ ability to honor their contracts is dependent upon the stability of the economic environment in their primary market including the government, tourism and medical industries. The majority of the loan portfolio is located in our immediate market area with a concentration in Real Estate Related Activities and Offices and Clinics of Medical Doctors.

Our loans were concentrated in the following categories.

	December 31, 2016	December 31, 2015
Commercial	20.06%	21.00%
Commercial Real Estate-Construction	0.46%	0.41%
Commercial Real Estate-Other	47.20%	47.70%
Consumer Real Estate	29.59%	28.76%
Consumer-Other	2.69%	2.13%
Total Loans	100.00%	100.00%

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PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

12 Months Ended

Dec. 31, 2016

Property, Plant and Equipment [Abstract]

PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

6.    Premises, Equipment and Leasehold Improvements

Premises, equipment and leasehold improvements are summarized as follows:

		December 31,
		2016			2015
Bank buildings	$	1,824,613		$	1,824,613
Land		838,075			838,075
Leasehold purchase		30,000			30,000
Lease improvements		690,212			687,333
Construction in process		11,754			11,754
Equipment		3,264,488			3,070,783
		6,659,142			6,462,558
Accumulated depreciation		(4,362,518	)		(4,173,330	)
Total	$	2,296,624		$	2,289,228

Depreciation and amortization on our bank premises and equipment charged to operating expense totaled $189,188 in 2016, $196,827 in 2015, and $200,178 in 2014.

We entered into agreements to lease equipment and office facilities under non-cancellable operating lease agreements expiring on various dates through 2039. We may, at our option, extend the lease of our office facility at 256 Meeting Street in Charleston, South Carolina, for one additional ten year period to 2027; extend the lease of our Summerville office at 100 North Main Street for two additional ten year periods; and extend the land lease where the Mt. Pleasant office is located for six additional five year periods.

We rent office space at 1071 Morrison Drive, Charleston, South Carolina, from a related party, to house our Mortgage Department. Rent expense for this lease was $51,690 and $50,184 for the years ended December 31, 2016 and 2015, respectively. This lease renews every two years.

Management intends to exercise its option on the lease agreements. Lease payments below include the lease renewals. Minimum rental commitments for these leases as of December 31, 2016 are as follows:

2017	$	615,122
2018		622,890
2019		614,103
2020		591,067
2021		608,257
2022 and thereafter		4,708,393
Total	$	7,759,832

Total rental expense was $594,567, $591,058 and $572,395 in 2016, 2015 and 2014, respectively.

On January 28, 2014, we signed a lease to open a banking office located on Highway 78, North Charleston, South Carolina (copy of the lease incorporated as Exhibit 10.8 in the 2013 10-K and copy of the Assignment and Assumption of Lease incorporated as Exhibit 10.9, First Amendment to the Lease incorporated as Exhibit 10.10 and Second Amendment to the Lease incorporated as Exhibit 10.11 in the 2015 10-K). The building is expected to be completed in the future. Rental payments do not commence until we take control of our space.

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OTHER REAL ESTATE OWNED

12 Months Ended

Dec. 31, 2016

Real Estate Owned, Disclosure of Detailed Components [Abstract]

OTHER REAL ESTATE OWNED

7. OTHER REAL ESTATE OWNED

The following table summarizes the activity in other real estate owned at December 31, 2016 and December 31, 2015.

		December 31,   2016			December 31,  2015
Balance, beginning of year	$	620,394		$	521,943
Additions-foreclosure		—			98,451
Sales		(98,451	)		—
Write-downs		—			—
Balance, end of year	$	521,943		$	620,394

We had one property valued at $521,943 classified as OREO at December 31, 2016. At December 31, 2015, we had two properties with an aggregate balance of $620,394 classified as OREO. Another property valued at $98,451 classified as OREO during 2015, was ultimately sold at a loss of $13,450.

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DEPOSITS

12 Months Ended

Dec. 31, 2016

Deposits:

DEPOSITS

8. DEPOSITS

At December 31, 2016 and 2015, certificates of deposit of $250,000 or more totaled approximately $15,822,136 and $25,896,768, respectively.

At December 31, 2016, the scheduled maturities of certificates of deposit are as follows:

2017	$	41,020,714
2018		1,242,741
2019		516,921
2020		472,367
2021 and thereafter		588,514
	$	43,841,257

At December 31, 2016, deposits with a deficit balance of $24,963 were re-classified as other loans, compared to $121,331 at December 31, 2015.

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SHORT-TERM BORROWINGS

12 Months Ended

Dec. 31, 2016

Short-term Debt [Abstract]

SHORT-TERM BORROWINGS

9. Short-Term Borrowings

Securities sold under agreements to repurchase with customers mature on demand. At December 31, 2016 and 2015, there were no securities sold under agreements to repurchase. There was no amount outstanding at any month end during 2016. The maximum amount of securities sold under agreements to repurchase outstanding at any month end was $5,480,927 for the year ended December 31, 2015. The average amount of outstanding securities sold under agreements to repurchase was $751 and $1,873,507 during the years ended December 31, 2016 and 2015, respectively. The securities underlying repurchase agreements are held in safekeeping by an authorized broker. At the maturity date of the agreement, the securities are returned to our account.

At December 31, 2016 and 2015, we had no outstanding federal funds purchased. We have a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits the Company to retain possession of loans pledged as collateral to secure advances from the Federal Reserve Discount Window. Under this agreement, we may borrow up to $75 million. We established this arrangement as an additional source of liquidity. There have been no borrowings under this arrangement.

At December 31, 2016 and 2015, the Bank had unused short-term lines of credit totaling approximately $21,000,000 and $18,000,000, respectively (which are withdrawable at the lender’s option).

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INCOME TAXES

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

10. Income Taxes

Total income taxes for the years ended December 31, 2016, 2015 and 2014 are as follows:

	For the Year Ended December 31,
	2016			2015			2014
Income tax expense	$	1,688,433		$	2,287,248		$	1,997,866
Unrealized gains (losses) on securities available for sale presented in accumulated other comprehensive income (loss)		(939,482	)		(147,104	)		168,627
Total	$	748,951		$	2,140,144		$	2,166,493

Income tax expense was as follows:

	For the Year Ended December 31,
	2016			2015			2014
Current income taxes
Federal	$	2,438,687		$	2,102,154		$	1,703,444
State		—			224,083			200,361
Total current tax expense		2,438,687			2,326,237			1,903,805
Deferred income tax (benefit) expense		(750,254	)		(38,989	)		94,061
Income tax expense	$	1,688,433		$	2,287,248		$	1,997,866

The differences between actual income tax expense and the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income from continuing operations for the periods indicated are reconciled as follows:

	For the Year Ended December 31,
	2016			2015			2014
Computed “expected” tax expense	$	2,358,069		$	2,438,322		$	2,174,873
Increase (reduction) in income taxes resulting from:
State income tax, net of federal benefit		(156,114	)		147,895			132,238
Tax exempt interest income		(339,994	)		(341,970	)		(357,834	)
Other, net		(173,528	)		43,001			48,589
	$	1,688,433		$	2,287,248		$	1,997,866

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are presented below:

	December 31
	2016			2015
Deferred tax assets:
Allowance for loan losses	$	1,248,551		$	1,064,916
State net operating loss carryforward		50,301			45,987
State credit carryforward		236,536			—
Unrealized loss on securities available for sale		356,562			—
Other		45,661			23,749
Total gross deferred tax assets		1,937,611			1,134,652
Valuation allowance		(50,301	)		(45,987	)
Deferred tax liabilities:
Prepaid expenses		(2,779	)		(1,363	)
Unrealized gain on securities available for sale		—			(582,926	)
Deferred loan fees		(46,392	)		(40,184	)
Fixed assets, principally due to differences in depreciation		(52,236	)		(24,611	)
Other bond accretion		(78,877	)		(65,735	)
Total gross deferred tax liabilities		(180,284	)		(714,819	)
Net deferred tax assets	$	1,707,026		$	373,846

In 2016, the Company invested in a South Carolina Rehabilitation Credit. The tax credit is included in deferred tax assets and is being amortized. Amortization expense recognized for the year ended December 31, 2016 was $325,000 and was included in other operating expense on the statement of operations.

There was a $50,301 valuation allowance for deferred tax assets at December 31, 2016 and $45,987 at December 31, 2015 associated with the Company’s state net operating loss. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and prior to their expiration governed by the income tax code. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred income tax assets are expected to be deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2016. The amount of the deferred income tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability related to uncertain tax positions in accordance with applicable regulations.

Tax returns for 2013 and subsequent years are subject to examination by taxing authorities.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2016

Commitments And Contingencies

COMMITMENTS AND CONTINGENCIES

11. Commitments and Contingencies

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loan facilities to customers. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

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. If deemed necessary, the amount of collateral obtained 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 $81,234,269 and $87,622,437 at December 31, 2016 and 2015, respectively.

Standby letters of credit represent our obligation to a third party contingent upon the failure by 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. At December 31, 2016 and 2015, we have recorded no liability for the current carrying amount of the obligation to perform as a guarantor; as such amounts are not considered material. The maximum potential amount of undiscounted future payments related to standby letters of credit at December 31, 2016 and 2015 was $793,992 and $745,187, respectively.

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

12.      Related Party Transactions

In the opinion of management, loans to our executive officers and directors are made on substantially the same terms, including interest rates and collateral, as those terms prevailing at the time for comparable loans with persons not related to the lender that do not involve more than the normal risk of collectability. There were no outstanding loans to our executive officers as of December 31, 2016 and 2015. Related party loans are summarized as follows:

	DECEMBER 31,
	2016			2015
Balance at beginning of year	$	6,523,137		$	6,664,467
New loans or advances		4,833,545			6,662,930
Repayments		(7,412,542	)		(6,804,260	)
Balance at end of year	$	3,944,140		$	6,523,137

At December 31, 2016 and 2015, total deposits held by related parties were $4,376,563 and $7,760,342, respectively.

The Company also leased office space from a related party as discussed in the Premises, Equipment and Leasehold Improvements footnote.

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OTHER EXPENSE

12 Months Ended

Dec. 31, 2016

Other Income and Expenses [Abstract]

OTHER EXPENSE

13.     Other Expense

A summary of the components of other operating expense is as follows:

	For the Year Ended December 31,
	2016		2015		2014
Advertising and business development	$	16,159	$	16,662	$	12,695
Supplies		94,006		111,604		123,087
Telephone and postage		194,853		188,052		193,039
Insurance		42,192		42,504		44,271
Professional fees		431,424		423,319		411,742
Data processing services		594,550		518,788		493,977
State and FDIC insurance and fees		242,926		228,627		216,129
Courier service		96,823		95,877		104,366
Amortization of state tax credit		325,000		—		—
Other		601,843		542,949		552,930
	$	2,639,776	$	2,168,382	$	2,152,236

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STOCK INCENTIVE PLAN

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK INCENTIVE PLAN

14.     Stock Incentive Plan

We have a Stock Incentive Plan which was approved in 1998 with 180,000 (329,422 adjusted for three 10% stock dividends, a 10% stock distribution, and a 25% stock dividend) shares reserved and a Stock Incentive Plan which was approved in 2010 with 300,000 (330,000 adjusted for a 10% stock dividend) shares reserved. Under both Plans, options are periodically granted to employees at a price not less than the fair market value of the shares at the date of grant. Employees become 20% vested after five years and then vest 20% each year until fully vested. The right to exercise each such 20% of the options is cumulative and will not expire until the tenth anniversary of the date of the grant. All employees are eligible to participate in this plan if the Executive Committee, in its sole discretion, determines that such person has contributed or can be expected to contribute to our profits or growth.

Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant. The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of our common stock. The expected term of the options granted shall not exceed ten years from the date of grant (the amount of time options granted are expected to be outstanding). The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date:

	2016			2015					2014
Risk free interest rate		2.33	%		1.96	%	2.33	%		2.94	%
Expected life (in years)		10			10		10			10
Expected stock price volatility		27.95	%		19.62	%	19.62	%		36.34	%
Dividend yield		3.47	%		4.13	%	4.13	%		3.98	%

There are currently options to purchase 7,650 shares outstanding and exercisable under the 1998 Omnibus Stock Incentive Plan with options to purchase 7,170 shares exercisable at December 31, 2016. This plan has expired, however, those shares granted before the expiration date may still be exercised.

The following table presents a summary of the activity under the 1998 and 2010 Omnibus Stock Incentive Plans for the years ended December 31:

	2016					2015					2014
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, January 1		183,302		$	10.81		176,181		$	10.48		175,081		$	10.31
Granted		10,000			15.99		23,650			14.44		11,000			13.49
Expired		—			—		—			—		—			—
Exercised		(39,539	)		10.26		(9,378	)		13.11		(2,750	)		9.74
Forfeited		(12,858	)		13.84		(7,151	)		11.64		(7,150	)		11.15
Outstanding, December 31		140,905		$	11.06		183,302		$	10.81		176,181		$	10.48
Exercisable at year end		12,620		$	11.50		17,457		$	12.95		19,012		$	13.39

Information has been retroactively adjusted for the 2015 10% stock dividend as applicable.

The following table presents information pertaining to options outstanding at December 31, 2016:

December 31, 2016
Exercise Price:		Number of Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Intrinsic Value of Outstanding Options		Number of Options Exercisable		Weighted Average Exercise Price		Intrinsic Value of Exercisable Options
$	13.22		6,050		—	$	13.22	$	23,535		6,050	$	13.22	$	23,535
$	11.73		1,600		1.2	$	11.73	$	8,608		1,120	$	11.73	$	6,026
$	9.79		11,220		3.7	$	9.79	$	82,130		1,270	$	9.79	$	9,296
$	10.61		4,400		4.2	$	10.61	$	28,600		—	$	—	$	—
$	9.47		71,610		4.5	$	9.47	$	54,710		4,180	$	9.47	$	31,935
$	10.10		9,075		5.6	$	10.10	$	63,616		—	$	—	$	—
$	10.91		2,750		5.9	$	10.91	$	17,050		—	$	—	$	—
$	13.64		2,200		6.9	$	13.64	$	694		—	$	—	$	—
$	13.49		4,950		7.6	$	13.49	$	17,919		—	$	—	$	—
$	14.35		13,750		8.5	$	14.35	$	37,950		—	$	—	$	—
$	14.98		3,300		8.6	$	14.98	$	7,029		—	$	—	$	—
$	15.99		10,000		9.3	$	15.99	$	11,200		—	$	—	$	—
			140,905		5.26	$	11.06	$	353,041		12,620	$	11.50	$	70,792

All relevant information has been retroactively adjusted for the 2015 10% stock dividend.

The total intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014, were $273,979, $14,272, and $12,775, respectively.

We recognized compensation cost for the years ended December 31, 2016, 2015 and 2014 in the amount of $76,529, $78,987, and $74,908, respectively, related to the granted options.

As of December 31, 2016, there was a total of $346,974 in unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted average period of 5.26 years.

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EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

15. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

We established an Employee Stock Ownership Plan (“ESOP”) effective January 1, 1989. Any employee of the Bank is eligible to become a participant in the ESOP upon reaching 21 years of age and credited with one-year of service (1,000 hours of service). The employee may enter the Plan on the January 1^st that occurs nearest the date on which the employee first satisfies the age and service requirements described above. No contributions by employees are permitted. The amount and time of contributions are at the sole discretion of the Board of Directors of the Bank. The contribution for all participants is based solely on each participant’s respective regular or base salary and wages paid by the Bank including commissions, bonuses and overtime, if any.

The Company recognizes expense when the contribution is approved by the Board of Directors. The total expenses amounted to $345,000 during the year ended December 31, 2016, $315,000 for the year ended December 31, 2015 and $280,000 for the year ended 2014. The plan currently owns 335,604 shares of common stock of Bank of South Carolina Corporation.

A participant becomes vested in the ESOP based upon the employee’s credited years of service. The vesting schedule is as follows;

● 1 Year of Service  0% Vested

● 2 Years of Service  25% Vested

● 3 Years of Service  50% Vested

● 4 Years of Service  75% Vested

● 5 Years of Service  100% Vested

Periodically the Internal Revenue Service “IRS” requires a restatement of a qualified retirement plan to ensure that the plan document includes provisions required by legislative and regulatory changes made since the last restatement. There have been no substantive changes to the plan. The Board of Directors approved a restated plan, on January 26, 2012 (incorporated as Exhibit 10.5 in the 2011 10-K). The Plan was submitted to the IRS for approval and a determination letter was issued September 26, 2013, stating that the plan satisfies the requirements of Code Section 4975 (e) (7). On January 26, 2017, the Board of Directors approved a restated plan (incorporated as Exhibit 10.6 in the 2016 10-K).

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DIVIDENDS

12 Months Ended

Dec. 31, 2016

Dividends [Abstract]

DIVIDENDS

16. DIVIDENDS

The Bank’s ability to pay dividends to the Company is restricted by the laws and regulations of the State of South Carolina. Generally, these restrictions allow the Bank to pay dividends from current earnings without the prior written consent of the South Carolina Commissioner of Banking, if it received a satisfactory rating at its most recent examination. Cash dividends when declared, are paid by the Bank to the Company for distribution to shareholders of the Company. The Bank paid dividends of $2,340,000, $2,475,000 and $2,865,000 to the Company during the years ended December 31, 2016, 2015 and 2014, respectively.

On August 27, 2015, the Company’s Board of Directors declared a ten percent stock dividend to our shareholders. The record date was September 8, 2015 and the distribution date was September 28, 2015. Earnings per share and average shares outstanding have been adjusted to reflect the stock dividend in our consolidated financial statements.

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INCOME PER COMMON SHARE

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

INCOME PER COMMON SHARE

17. Income Per Common Share

Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted 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.

The following table is a summary of the reconciliation of average shares outstanding for the years ended December 31:

	2016		2015		2014
Numerator:
Net income	$	5,247,063	$	4,884,288	$	4,398,820
Denominator:
Weighted average shares outstanding		4,935,349		4,912,499		4,907,208
Effect of dilutive shares		118,765		154,586		125,003
Weighted average shares outstanding-diluted		5,054,114		5,067,085		5,032,211
Earnings per share - basic	$	1.06	$	0.99	$	0.90
Earnings per share - diluted	$	1.04	$	0.96	$	0.87

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REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Dec. 31, 2016

Regulatory Capital Requirements [Abstract]

REGULATORY CAPITAL REQUIREMENTS

18. Regulatory Capital Requirements

The Company and the Bank are subject to various capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

Current quantitative measures established by regulation to ensure capital adequacy require that we maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulation) to risk-weighted assets (as defined) and to average assets. We believe that the Company and the Bank meet all capital adequacy requirements to which they were subject at December 31, 2016 and 2015.

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

Basel III became effective on January 1, 2015. The purpose is to improve the quality and increase the quantity of capital for all banking organizations. The minimum requirements for the quantity and quality of capital were increased. The rule includes a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and requires a minimum leverage ratio of 4%. In addition, the rule also implements strict eligibility criteria for regulatory capital instruments and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. All final rule requirements will be phased in over a multi-year schedule. The capital conservation buffer in effect for the year ended December 31, 2016 was 0.625%.

At December 31, 2016, the Bank was categorized as “well capitalized” under Basel III. To be categorized as “well capitalized” the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital and Tier 1 leverage ratios of 10%, 8.0%, 6.5% and 5%, respectively, and to be categorized as “adequately capitalized,” the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital, and Tier 1 leverage ratios of 8%, 6%, 4.5%, and 4.0%, respectively.

The following tables present the actual and required capital amounts and ratios for the Company and Bank at December 31, 2016 and 2015: 

December 31, 2016
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Company	$	44,850		15.46	%	$	23,213		8.00	%		N/A		N/A
Bank	$	44,544		15.36	%	$	23,207		8.00	%	$	29,009		10.00	%
Tier 1 capital to risk-weighted assets:
Company	$	41,220		14.21	%	$	17,410		6.00	%		N/A		N/A
Bank	$	40,915		14.10	%	$	17,405		6.00	%	$	23,207		8.00	%
Tier 1 capital to average assets:
Company	$	41,220		9.85	%	$	16,738		4.00	%		N/A		N/A
Bank	$	40,915		9.78	%	$	16,735		4.00	%	$	20,919		5.00	%
Common equity Tier 1 capital:
Company	$	41,220		14.21	%	$	13,058		4.50	%		N/A		N/A
Bank	$	40,915		14.10	%	$	13,054		4.50	%	$	18,856		6.50	%

December 31, 2015
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Company	$	41,497		15.54	%	$	21,359		8.00	%		N/A		N/A
Bank	$	41,169		15.42	%	$	21,357		8.00	%	$	26,696		10.00	%
Tier 1 capital to risk-weighted assets:
Company	$	38,159		14.29	%	$	16,019		6.00	%		N/A		N/A
Bank	$	37,831		14.17	%	$	16,018		6.00	%	$	21,357		8.00	%
Tier 1 capital to average assets:
Company	$	38,159		9.63	%	$	15,850		4.00	%		N/A		N/A
Bank	$	37,831		9.55	%	$	15,843		4.00	%	$	19,803		5.00	%
Common equity Tier 1 capital:
Company	$	38,159		14.29	%	$	12,014		4.50	%		N/A		N/A
Bank	$	37,831		14.17	%	$	12,013		4.50	%	$	17,353		6.50	%

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DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS

19. DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or 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 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of inputs by requiring that observable inputs be used when available. Observable inputs that market participants would use in pricing an asset or liability are developed based on market data we have obtained from independent sources. Unobservable inputs reflect our estimate of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

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 could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:

Investment Securities Available for Sale

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

Derivative Instruments

Derivative instruments include interest rate lock commitments and forward sale commitments. These instruments are valued based on the change in the value of the underlying loan between the commitment date and the end of the period. We classify these instruments as Level 3. The fair value of these commitments was not significant at December 31, 2016 or 2015.

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

Balance at December 31, 2016
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
US Treasury Notes	$	23,939,063	$	—	$	—	$	23,939,063
Government Sponsored Enterprises		—		51,034,091		—		51,034,091
Municipal Securities		—		31,027,933		13,977,857		45,005,790
Total	$	23,939,063	$	82,062,024	$	13,977,857	$	119,978,944

Balance at December 31, 2015
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
US Treasury Notes	$	34,633,673	$	—	$	—	$	34,633,673
Government Sponsored Enterprises		—		51,284,332		—		51,284,332
Municipal Securities		—		28,861,902		5,217,678		34,079,580
Total	$	34,633,673	$	80,146,234	$	5,217,678	$	119,997,585

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

The following table reconciles the changes in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2016 and 2015:

	Level 3 Municipal Securities December 31, 2016			2015
Beginning Balance	$	5,217,678		$	1,377,089
Total gains or (losses) (realized/unrealized)
Included in earnings		—			—
Included in other comprehensive income		(818,821	)		(34,411	)
Purchases, issuances and settlements, net of maturities		9,579,000			3,875,000
Transfers in and/or out of level 3		—			—
Ending Balance	$	13,977,857		$	5,217,678

There were no transfers between fair value levels in 2016 or 2015.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:

Other Real Estate Owned (OREO)

Loans, secured by real estate, are adjusted to the lower of the recorded investment in the loan or the fair value of the real estate upon transfer to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or our estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraisal, we record the asset as nonrecurring Level 2. When an appraised value is not available or we determine the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the asset as nonrecurring Level 3.

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. 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 Accounting Standards Codification (“ASC”) 820 “Fair Value Measurement”, impaired loans, where an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. At December 31, 2016 and December 31, 2015, substantially all of the impaired loans were evaluated based on the fair value of the collateral. These impaired loans are classified as Level 3. Impaired loans measured using discounted future cash flows are not deemed to be measured at fair value.

Loans Held for Sale

Loans held for sale include mortgage loans and are carried at the lower of cost or market value. The fair values of mortgage loans held for sale are based on current market rates from investors within the secondary market for loans with similar characteristics. Carrying value approximates fair value. These loans are classified as Level 2.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an on going basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents information about certain assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2016, and 2015:

December 31, 2016
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans	$	—	$	—	$	4,143,772	$	4,143,772
Other real estate owned		—		—		521,943		521,943
Loans held for sale		—		4,386,210		—		4,386,210
Total	$	—	$	4,386,210	$	4,665,715	$	9,051,925

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

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

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at December 31, 2016:

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

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

Under the accounting standard, fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of the assets and liabilities that are not financial instruments. Accordingly, the aggregate fair value amounts of existing financial instruments do not represent the underlying value of those instruments on our books.

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

a. Cash and due from banks, interest-bearing deposits in other banks

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

b. Investment securities available for sale

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

The carrying values of variable rate consumer and commercial loans and consumer and commercial loans with remaining maturities of three months or less, approximate fair value. The fair values of fixed rate consumer and commercial loans with maturities greater than three months are determined using a discounted cash flow analysis and assume the rate being offered on these types of loans at December 31, 2016 and December 31, 2015, approximate market.

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

d. Deposits

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

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 on the counterparties.

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of December 31, 2016 and December 31, 2015.

Fair Value Measurements at December 31, 2016
		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	8,141,030	$	8,141,030	$	8,141,030	$	—	$	—
Interest-bearing deposits in other banks		18,101,300		18,101,300		18,101,300		—		—
Investments available for sale		119,978,944		119,978,944		23,939,063		82,062,024		13,977,857
Mortgage loans to be sold		4,386,210		4,386,210		—		4,386,210		—
Loans		260,576,115		260,406,669		—		—		260,406,669
Accrued interest receivable		1,614,002		1,614,002		—		1,614,002		—
Financial Liabilities:
Demand deposits		328,681,594		328,681,594		—		328,681,594		—
Time deposits		43,841,257		43,856,383		—		43,856,383		—
Accrued interest payable		51,629		51,629		—		51,629		—

Fair Value Measurements at December 31, 2015
		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	5,295,924	$	5,295,924	$	5,295,924	$	—	$	—
Interest-bearing deposits in other banks		23,898,862		23,898,862		23,898,862		—		—
Investments available for sale		119,997,585		119,997,585		34,633,673		80,146,234		5,217,678
Mortgage loans to be sold		5,820,239		5,820,239		—		5,820,239		—
Loans		242,622,705		242,581,154		—		—		242,581,154
Accrued interest receivable		1,284,063		1,284,063				1,284,063
Financial Liabilities:
Demand deposits		303,950,800		303,950,800		—		303,950,800		—
Time deposits		54,767,812		54,780,915		—		54,780,915		—
Accrued interest payable		73,421		73,421		—		73,421		—

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ACCUMULATED OTHER COMPREHENSIVE INCOME

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

20. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the components of accumulated other comprehensive income (loss) and changes in those components as of and for the years ended December 31:

Available for sale securities
Beginning Balance December 31, 2013	$	955,900
Change in net unrealized gains (losses) on securities available for sale		768,326
Reclassification adjustment for net securities gains included in net income		(312,577	)
Income tax expense (benefit)		(168,627	)
Balance December 31, 2014		1,243,022
Change in net unrealized gains (losses) on securities available for sale		26,255
Reclassification adjustment for net securities gains included in net income		(423,832	)
Income tax expense (benefit)		147,104
Balance December 31, 2015		992,549
Change in net unrealized gains (losses) on securities available for sale		(2,158,236	)
Reclassification adjustment for net securities gains included in net income		(380,904	)
Income tax expense		939,482
Balance December 31, 2016	$	(607,109	)

The following table shows the line items in the consolidated Statements of Operations affected by amounts reclassified from accumulated other comprehensive income (loss):

Year Ended December 31,
	2016			2015		2014
Gain on sale of investments, net	$	380,904		$	423,832	$	312,577
Tax effect		(140,934	)		—		—
Total reclassification, net of tax	$	239,970		$	423,832	$	312,577

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BANK OF SOUTH CAROLINA CORPORATION - PARENT COMPANY

12 Months Ended

Dec. 31, 2016

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

BANK OF SOUTH CAROLINA CORPORATION - PARENT COMPANY

21. Bank of South Carolina Corporation - Parent Company

The Company’s principal source of income is dividends from the Bank. Certain regulatory requirements restrict the amount of dividends which the Bank can pay to the Company. The Company’s principal asset is its investment in its Bank subsidiary. The Company’s condensed statements of financial condition as of December 31, 2016 and 2015, and the related condensed statements of operations and cash flows for the years ended December 31, 2016, 2015 and 2014, are as follows:

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	2016		2015
Assets
Cash	$	922,595	$	946,996
Investment in wholly-owned bank subsidiary		40,308,166		38,823,720
Other assets		76,077		20,154
Total assets	$	41,306,838	$	39,790,870
Liabilities and shareholders’ equity
Other liabilities	$	693,864	$	639,158
Shareholders’ equity		40,612,974		39,151,712
Total liabilities and shareholders’ equity	$	41,306,838	$	39,790,870

CONDENSED STATEMENTS OF OPERATIONS

	2016			2015			2014
Interest income	$	571		$	302		$	306
Net operating expenses		(177,612	)		(195,636	)		(187,284	)
Dividends received from bank		2,340,000			2,475,000			2,865,000
Equity in undistributed earnings of subsidiary		3,084,104			2,604,622			1,720,798
Net income	$	5,247,063		$	4,884,288		$	4,398,820

CONDENSED STATEMENTS OF CASH FLOWS

	2016			2015			2014
Cash flows from operating activities:
Net income	$	5,247,063		$	4,884,288		$	4,398,820
Stock-based compensation expense		76,529			78,987			74,908
Equity in undistributed earnings of subsidiary		(3,084,104	)		(2,604,622	)		(1,720,798	)
Decrease (increase) in other assets		(55,923	)		202,043			(40,418	)
Net cash provided by operating activities		2,183,565			2,560,696			2,712,512
Cash flows from financing activities:
Dividends paid		(2,613,715	)		(2,380,062	)		(2,765,735	)
Cash in lieu of fractional shares		—			(4,778	)		—
Stock options exercised		405,749			122,946			26,050
Net cash used by financing activities		(2,207,966	)		(2,261,894	)		(2,739,685	)
Net increase (decrease) in cash		(24,401	)		298,802			(27,173	)
Cash at beginning of year		946,996			648,194			675,367
Cash at ending of year	$	922,595		$	946,996		$	648,194
Supplemental disclosure for non-cash investing and financing activity:
Change in dividends payable	$	54,706		$	59,178		$	325

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QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

22. Quarterly Results of Operations (unaudited)

The tables below represent the quarterly results of operations for the years ended December 31, 2016 and 2015, respectively:

	2016
	FOURTH		THIRD		SECOND		FIRST
Total interest and fee income	$	3,862,720	$	4,030,143	$	3,770,669	$	3,632,065
Total interest expense		95,146		96,467		92,988		94,139
Net interest income		3,767,574		3,933,676		3,677,681		3,537,926
Provision for loan losses		175,000		210,000		140,000		45,000
Net interest income after provisions for loan losses		3,592,574		3,723,676		3,537,681		3,492,926
Other income		638,896		686,586		729,572		806,029
Other expense		2,715,147		2,584,268		2,436,881		2,536,148
Income before income tax expense		1,516,323		1,825,994		1,830,372		1,762,807
Income tax expense		203,444		399,656		518,262		567,071
Net income	$	1,312,879	$	1,426,338	$	1,312,110	$	1,195,736
Basic income per common share	$	0.27	$	0.28	$	0.27	$	0.24
Diluted income per common share	$	0.26	$	0.28	$	0.26	$	0.24

	2015
	FOURTH		THIRD		SECOND		FIRST
Total interest and fee income	$	3,635,011	$	3,569,672	$	3,550,663	$	3,474,602
Total interest expense		108,115		101,230		99,579		93,471
Net interest income		3,526,896		3,468,442		3,451,084		3,381,131
Provision for loan losses		110,000		7,500		70,000		5,000
Net interest income after provisions for loan losses		3,416,896		3,460,942		3,381,084		3,376,131
Other income		788,770		662,038		868,492		730,658
Other expense		2,402,221		2,372,742		2,399,458		2,339,054
Income before income tax expense		1,803,445		1,750,238		1,850,118		1,767,737
Income tax expense		576,474		551,319		596,680		562,775
Net income	$	1,226,971	$	1,198,919	$	1,253,438	$	1,204,960
Basic income per common share	$	0.25	$	0.24	$	0.26	$	0.25
Diluted income per common share	$	0.24	$	0.24	$	0.25	$	0.22

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of Bank of South Carolina Corporation (the “Company”) and its wholly-owned subsidiary, The Bank of South Carolina (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.

We provide financial services through our four banking house locations: 256 Meeting Street, Charleston, SC, 100 North Main Street, Summerville, SC, 1337 Chuck Dawley Boulevard, Mt. Pleasant, SC and 2027 Sam Rittenberg Boulevard, Charleston, SC. Our primary deposit products are checking, savings, and term certificate accounts, and our primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans may be dependent on the general economic conditions in the area.

Accounting Estimates and Assumptions

Accounting Estimates and Assumptions:

The preparation of the financial statements are 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, asset prepayment rates and other-than-temporary impairment of investment securities.

Reclassification

Reclassification:

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

Subsequent Events

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.

Cash and Cash Equivalents

Cash and Cash Equivalents:

Cash and cash equivalents include working cash funds, due from banks, interest-bearing deposits in other banks, items in process of collection and federal funds sold. All cash equivalents are readily convertible to cash and have maturities of less than 90 days.

Depository institutions are required to maintain reserve and clearing balances at the Federal Reserve Bank. Vault cash satisfied our daily reserve requirement for the years ended December 31, 2016 and 2015, respectively.

Interest-bearing Deposits in Other Financial Institutions

Interest-bearing Deposits in Other Financial Institutions:

Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.

Investment Securities

Investment Securities:

We classify investments into three categories as follows: (1) Held to Maturity - debt securities that we have the positive intent and ability to hold to maturity, which are reported at amortized cost, adjusted for the amortization of any related premiums or the accretion of any related discounts into interest income using a methodology which approximates a level yield of interest over the estimated remaining period until maturity, (2) Trading - debt and equity securities that are bought and held principally for the purpose of selling them in the near term, which are reported at fair value, with unrealized gains and losses included in earnings, and (3) Available for Sale - debt and equity securities that may be sold under certain conditions, which are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of income taxes. Unrealized losses on securities due to fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has occurred.

Realized gains or losses on the sale of investments are recognized on a specific identification, trade date basis. All securities were classified as available for sale for 2016 and 2015. We do not have any mortgage-backed securities nor have we ever invested in mortgage-backed securities.

Mortgage Loans to be Sold

Mortgage Loans to be Sold:

We originate fixed and variable rate residential mortgage loans on a service release basis in the secondary market. Loans closed but not yet settled with an investor are carried in our loans held for sale portfolio. Virtually all of these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with our customers. Therefore, these loans present very little market risk. We usually deliver to, and receive funding from, the investor within 30 to 60 days. Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a “best efforts” basis. We are not obligated to deliver a loan or pay a penalty if a loan is not delivered to the investor. As a result of the short-term nature of these derivative contracts, the fair value of the mortgage loans held for sale in most cases is the same as the value of the loan amount at its origination.

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are provided for in a valuation allowance by charges to operations as a component of mortgage banking income. Gains or losses on sales of loans are recognized when control over these assets has been surrendered and are included in mortgage banking income in the consolidated statements of operations.

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses:

Loans are carried at principal amounts outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the weighted average life of the loan as an adjustment to yield. Interest income on all loans is recorded on an accrual basis. The accrual of interest and the amortization of net loan fees are generally discontinued on loans which 1) are maintained on a cash basis because of deterioration in the financial condition of the borrower; 2) for which payment of full principal is not expected; or 3) upon which principal or interest has been in default for a period of 90 days or more. We define past due loans based on contractual payment and maturity dates.

The accrual of interest is generally discontinued on loans that become 90 days past due as to principal or interest. The accrual of interest on some loans, however, may continue even though they are 90 days past due if the loans are well secured or in the process of collection and management deems it appropriate. If non-accrual loans decrease their past due status to less than 30 days for a period of six to nine months, they are reviewed individually by management to determine if they should be returned to accrual status.

When the ultimate collectability of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any amounts previously charged off. When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to interest income and then to principal.

We account for impaired loans by requiring that all loans (greater than $50,000) for which it is estimated that we will be unable to collect all amounts due according to the terms of the loan agreement be recorded at the loan’s fair value. Fair value may be determined based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral less cost to sell, if the loan is collateral dependent.

Additional accounting guidance allows us to use existing methods for recognizing interest income on an impaired loan. The guidance also requires additional disclosures about how we estimate interest income related to our impaired loans.

A loan is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). For this type of impaired loan, cash receipts are typically applied to principal and interest receivable in accordance with the terms of the restructured loan agreement. Interest income is recognized on these loans using the accrual method of accounting, provided they are performing in accordance with their restructured terms.

The allowance for loan losses is our estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis and is based upon our periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

We believe that the allowance is adequate to absorb inherent losses in the loan portfolio; however, there can be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio, in light of changing economic conditions and other relevant circumstances, will not require significant future additions to the allowance, thus adversely affecting our operating results.

The allowance is also subject to examination by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions and other adequacy tests. In addition, such regulatory agencies could require us to adjust our allowance based on information available at the time of the examination.

The methodology used to determine the reserve for unfunded lending commitments, which is included in other liabilities, is inherently similar to the methodology used to determine the allowance for loan losses adjusted for factors specific to binding commitments, including the probability of funding and historical loss ratio.

Concentration of Credit Risk

Concentration of Credit Risk:

Our primary market consists of the counties of Berkeley, Charleston and Dorchester, South Carolina. At December 31, 2016, the majority of the total loan portfolio, as well as a substantial portion of the commercial and real estate loan portfolios, were to borrowers within this region. No other areas of significant concentration of credit risk have been identified.

Premises, Equipment and Leasehold Improvements and Depreciation

Premises, Equipment and Leasehold Improvements and Depreciation:

Land is carried at cost. Buildings and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes over the estimated useful lives of the assets ranging from 40 years for buildings and 3 to 15 years for equipment. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term, including renewal periods when reasonably assured. The cost of maintenance and repairs is charged to operating expense as incurred.

Other Real Estate Owned

Other Real Estate Owned:

Real estate properties acquired through foreclosure are initially recorded at the lower of the recorded investment in the loan or fair value less costs to sell. Losses arising from the initial foreclosure are charged against the allowance for loan losses. Subsequent to foreclosure, real estate owned is recorded at the lower of cost or fair value, adjusted for net selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or our estimation of the value of the collateral. Gains and losses on the sale of other real estate owned (“OREO”) and subsequent write-downs from periodic re-evaluation are charged to net other real estate owned expenses.

Income Taxes

Income Taxes:

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net deferred tax assets are included in other assets in the consolidated balance sheet.

Accounting standards require the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. These standards also prescribe a recognition threshold and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. We believe that we had no uncertain tax positions for the years ended December 31, 2016 and 2015.

Stock-Based Compensation

Stock-Based Compensation:

Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period (10 years).

Income Per Common Share

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. Earnings per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

Comprehensive Income

Comprehensive Income:

We apply accounting standards which establish guidance for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income consists of net income and net unrealized gains or losses on securities.

Segment Information

Segment Information:

The Company operates and manages itself within one retail banking segment and has, therefore, not provided segment disclosures.

Interest Rate Lock Commitments and Forward Sale Contracts

Interest Rate Lock Commitments and Forward Sale Contracts:

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free-standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitments before the loan is funded. In order to hedge the change in interest rates resulting from commitments to fund the loans, we enter into forward commitments for the future delivery of mortgage loans when the interest rate is locked. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in income when they occur. As a result of the short-term nature of mortgage loans held for sale (derivative contract), our derivative instruments were considered to be immaterial as of December 31, 2016 and 2015.

We had no embedded derivative instruments requiring hedge accounting treatment at December 31, 2016. We do not currently engage in hedging activities.

Recent Accounting Pronouncements

Recent Accounting Pronouncements:

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting and/or disclosure of financial information by the Company.

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. This guidance also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. In August 2015, the FASB deferred the effective date of the amendments. As a result of the deferral, the guidance will be effective for the Company for reporting periods beginning after December 15, 2017. We will apply this guidance using a modified retrospective approach. We do not expect this amendment to have a material effect on our consolidated financial statements.

In June 2014, the FASB issued guidance which makes limited amendments to the guidance on accounting for certain repurchase agreements. The new guidance (1) requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings. The amendments became effective for the Company for the first interim or annual period beginning after December 31, 2014. We applied the guidance by making a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This adjustment did not have a material effect on our financial statements.

In January 2015, the FASB issued guidance to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The amendments were effective January 1, 2016 and did not have a material effect on our financial statements.

In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendments were effective January 1, 2016 and did not have a material effect on our financial statements.

In June 2015, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to transition guidance were effective January 1, 2016 and did not have a material effect on our financial statements.

In August 2015, the FASB issued amendments to the Interest topic of the Accounting Standards Codification to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal ear of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. We do not expect this amendment to have a material effect on our financial statements.

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to require all leases with lease terms over 12 months to be capitalized as a right-of-use asset and lease liability on the balance sheet at the date of lease commencement. Leases will be classified as either finance leases or operating leases. This distinction will be relevant for the pattern of expense recognition in the income statement. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of this guidance on its financial statements.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments were effective January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The guidance requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of adoption of this guidance on its financial statements.

In August 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Income Taxes topic of the Accounting Standards Codification to modify the accounting for intra-entity transfers of assets other than inventory. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Consolidation topic of the Accounting Standards Codification to revise the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments will be effective for the Company for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In December 2016, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (December 14, 2016) for amendments that do not have transition guidance. Amendments that are subject to transition guidance were effective January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations or cash flows.

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Tables)

12 Months Ended

Dec. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Schedule of investment securities available for sale

The amortized cost and fair value of investment securities available for sale are summarized as follows:

	DECEMBER 31, 2016
	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			ESTIMATED FAIR VALUE
U.S. Treasury Notes	$	24,148,295	$	41,153	$	(250,385	)	$	23,939,063
Government-Sponsored Enterprises		51,737,930		129,482		(833,321	)		51,034,091
Municipal Securities		45,056,390		765,813		(816,413	)		45,005,790
Total	$	120,942,615	$	936,448	$	(1,900,119	)	$	119,978,944

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

Schedule of amortized cost and estimated fair value of investment securities available for sale by contractual maturity

The amortized cost and estimated fair value of investment securities available for sale at December 31, 2016 and December 31, 2015, by contractual maturity are as follows:

	DECEMBER 31, 2016				DECEMBER 31, 2015
	AMORTIZED COST		ESTIMATED FAIR VALUE		AMORTIZED COST		ESTIMATED FAIR VALUE
Due in one year or less	$	3,343,347	$	3,350,205	$	3,311,346	$	3,326,249
Due in one year to five years		82,848,411		82,682,901		69,870,930		70,584,179
Due in five years to ten years		29,662,030		29,169,228		41,930,801		42,670,986
Due in ten years and over		5,088,827		4,776,610		3,309,039		3,416,171
Total	$	120,942,615	$	119,978,944	$	118,422,116	$	119,997,585

Schedule of investment securities gross unrealized losses on investment securities and the fair market value of the related securities

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 December 31, 2016 and 2015. We believe that all unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below before recovery of their amortized cost.

	Less Than 12 Months							12 Months or Longer							Total
					Gross							Gross							Gross
					Unrealized							Unrealized							Unrealized
	#		Fair Value		Loss			#		Fair Value		Loss			#		Fair Value		Loss
December 31, 2016 Available for sale
U.S. Treasury notes		4	$	17,968,594	$	(250,385	)		—	$	—	$	—			4	$	17,958,594	$	(250,385	)
Government-sponsored enterprises		8		30,136,720		(833,321	)		—		—		—			8		30,136,720		(833,321	)
Municipal securities		54		22,606,430		(816,413	)		—		—		—			54		22,606,430		(816,413	)
Total		66	$	70,711,744	$	(1,900,119	)		—	$	—	$	—			66	$	70,711,744	$	(1,900,119	)
December 31, 2015 Available for sale
U.S. Treasury notes		2	$	10,064,063	$	(45,360	)		—	$	—	$	—			2	$	10,064,063	$	(45,360	)
Government-sponsored enterprises		2		7,475,445		(38,538	)		1		5,002,335		(95,206	)		2		12,477,780		(133,744	)
Municipal securities		6		4,361,148		(28,724	)		—		—		—			6		4,361,148		(28,724	)
Total		10	$	21,900,656	$	(112,622	)		1	$	5,002,335	$	(95,206	)		10	$	26,902,991	$	(207,828	)

Schedule of proceeds from sales of securities available for sale and gross realized gains and losses

We received proceeds from sales of securities available for sale and gross realized gains and losses as follows:

	For the Year Ended December 31,
	2016			2015		2014
Gross proceeds	$	36,218,087		$	16,564,118	$	37,159,363
Gross realized gains		384,963			423,832		312,577
Gross realized losses		(4,059	)		—		—

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

12 Months Ended

Dec. 31, 2016

Receivables [Abstract]

Schedule of major classifications of loans

Major classifications of loans (net of deferred loan fees of $136,446 at December 31, 2016, and $118,188 at December 31, 2015) are as follows:

	December 31
	2016			2015
Commercial loans	$	52,262,209		$	50,938,265
Commercial real estate:
Construction		1,208,901			1,005,118
Other		122,968,126			115,736,034
Consumer:
Real estate		77,131,816			69,777,307
Other		7,005,063			5,165,981
		260,576,115			242,622,705
Allowance for loan losses		(3,851,617	)		(3,417,827	)
Loans, net	$	256,724,498		$	239,204,878

Schedule of credit risks by category and internally assigned grades

The following table illustrates credit risks by category and internally assigned grades at December 31, 2016 and December 31, 2015. “Pass” includes loans internally graded as excellent, good and satisfactory.

December 31, 2016
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total
Pass	$	48,289,944	$	798,884	$	116,490,396	$	74,115,426	$	6,728,367	$	246,423,017
Watch		1,004,957		410,017		2,625,079		899,306		147,992		5,087,351
OAEM		1,666,048		—		995,549		630,957		28,939		3,321,493
Sub-Standard		1,301,260		—		2,857,102		1,486,127		99,765		5,744,254
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	52,262,209	$	1,208,901	$	122,968,126	$	77,131,816	$	7,005,063	$	260,576,115

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

Schedule of aging analysis of the recorded investment of past-due financing receivable by class

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

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

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing
Commercial	$	1,162,676	$	250,370	$	4,317	$	1,417,363	$	49,520,902	$	50,938,265	$	—
Commercial Real Estate:
Commercial Real Estate -Construction		—		—		—		—		1,005,118		1,005,118		—
Commercial Real Estate -Other		91,607		1,215,473		1,152,774		2,459,854		113,276,180		115,736,034		—
Consumer:
Consumer Real Estate		68,240		249,754		82,015		400,009		69,377,298		69,777,307		—
Consumer-Other		69,333		58,116		6,056		133,505		5,032,476		5,165,981		1,606
Total	$	1,391,856	$	1,773,713	$	1,245,162	$	4,410,731	$	238,211,974	$	242,622,705	$	1,606

Schedule of non-accrual loans

The following table summarizes the balances of non-accrual loans:

	Loans Receivable on Non-Accrual
	December 31, 2016		December 31, 2015
Commercial	$	61,781	$	4,317
Commercial Real Estate:
Commercial Real Estate - Construction		—		—
Commercial Real Estate - Other		1,678,876		1,970,306
Consumer:
Consumer - Real Estate		—		82,015
Consumer - Other		964		4,450
Total	$	1,741,621	$	2,061,088

Schedule of changes in the allowance and an allocation of the allowance by loan category

The following tables set forth the changes in the allowance and an allocation of the allowance by loan category at December 31, 2016, December 31, 2015 and December 31, 2014. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.

December 31, 2016
	Commercial			Commercial Real Estate-Construction			Commercial  Real Estate-Other			Consumer  Real Estate			Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	896,854		$	59,861		$	1,345,094		$	941,470		$	174,548		$	3,417,827
Charge-offs		(33,046	)		—			(78,300	)		(82,015	)		(14,934	)		(208,295	)
Recoveries		—			—			65,000			—			7,085			72,085
Provisions		681,380			(8,392	)		42,912			(133,064	)		(12,836	)		570,000
Ending Balance	$	1,545,188		$	51,469		$	1,374,706		$	726,391		$	153,863		$	3,851,617

December 31, 2015
	Commercial			Commercial Real Estate-Construction		Commercial  Real Estate-Other			Consumer  Real Estate			Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351		$	105,076		$	3,334,848
Charge-offs		(99,737	)		—		(55,252	)		(6,075	)		(40,007	)		(201,071	)
Recoveries		9,164			—		53,753			6,075			22,558			91,550
Provisions		(223,703	)		16,957		234,206			78,119			86,921			192,500
Ending Balance	$	896,854		$	59,861	$	1,345,094		$	941,470		$	174,548		$	3,417,827

December 31, 2014
	Commercial			Commercial Real Estate-Construction		Commercial  Real Estate-Other			Consumer  Real Estate		Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,448,804		$	22,137	$	1,064,363		$	672,813	$	84,160		$	3,292,277
Charge-offs		(83,042	)		—		(15,834	)		—		(14,154	)		(113,030	)
Recoveries		—			—		46,000			—		27,101			73,101
Provisions		(154,632	)		20,767		17,858			190,538		7,969			82,500
Ending Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351	$	105,076		$	3,334,848

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

December 31, 2016
	Commercial		Commercial Real Estate- Construction		Commercial  Real Estate-Other		Consumer Real Estate		Consumer  Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	1,051,219	$	—	$	324,587	$	43,119	$	89,047	$	1,507,972
Collectively evaluated for impairment		493,969		51,469		1,050,119		683,272		64,816		2,343,645
Total Allowance for Losses	$	1,545,188	$	51,469	$	1,374,706	$	726,391	$	153,863	$	3,851,617
Loans Receivable
Individually evaluated for impairment	$	1,301,259	$	—	$	3,225,351	$	1,286,127	$	89,047	$	5,901,784
Collectively evaluated for impairment		50,960,950		1,208,901		119,742,775		75,845,689		6,916,016		254,674,331
Total Loans Receivable	$	52,262,209	$	1,208,901	$	122,968,126	$	77,131,816	$	7,005,063	$	260,576,115

December 31, 2015
	Commercial		Commercial Real Estate- Construction		Commercial  Real Estate-Other		Consumer  Real Estate		Consumer Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	387,979	$	—	$	253,105	$	342,320	$	100,103	$	1,083,507
Collectively evaluated for impairment		508,875		59,861		1,091,989		599,150		74,445		2,334,320
Total Allowance for Loan Losses	$	896,854	$	59,861	$	1,345,094	$	941,470	$	174,548	$	3,417,827
Loans Receivable
Individually evaluated for impairment	$	1,639,974	$	—	$	3,551,495	$	1,245,419	$	105,819	$	6,542,707
Collectively evaluated for impairment		49,298,291		1,005,118		112,184,539		68,531,888		5,060,162		236,079,998
	$	50,938,265	$	1,005,118	$	115,736,034	$	69,777,307	$	5,165,981	$	242,622,705

Schedule of loans individually evaluated and considered impaired

As of December 31, 2016 and 2015, loans individually evaluated and considered impaired are presented in the following table:

Impaired and Restructured Loans  As of The Year Ended December 31,
	2016						2015
		Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	250,040	$	250,040	$	—	$	692,831	$	692,831	$	—
Commercial Real Estate- Construction		—		—		—		—		—		—
Commercial Real Estate-Other		2,174,770		2,174,770		—		2,476,018		2,476,018		—
Consumer Real Estate		1,243,008		1,243,008		—		450,402		450,402		—
Consumer Other		—		—		—		5,715		5,715		—
	$	3,667,818	$	3,667,818	$	—	$	3,624,966	$	3,624,966	$	—
With an allowance recorded:
Commercial	$	1,051,219	$	1,051,219	$	1,051,219	$	947,143	$	947,143	$	387,979
Commercial Real Estate- Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,050,581		1,050,581		324,587		1,075,477		1,075,477		253,105
Consumer Real Estate		43,119		43,119		43,119		795,017		795,017		342,320
Consumer Other		89,047		89,047		89,047		100,104		100,104		100,103
	$	2,233,966	$	2,233,966	$	1,507,972	$	2,917,741	$	2,917,741	$	1,083,507
Total
Commercial	$	1,301,259	$	1,301,259	$	1,051,219	$	1,639,974	$	1,639,974	$	387,979
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		3,225,351		3,225,351		324,587		3,551,495		3,551,495		253,105
Consumer Real Estate		1,286,127		1,286,127		43,119		1,245,419		1,245,419		342,320
Consumer Other		89,047		89,047		89,047		105,819		105,819		100,103
	$	5,901,784	$	5,901,784	$	1,507,972	$	6,542,707	$	6,542,707	$	1,083,507

The following table presents average impaired loans and interest income recognized on those impaired loans, by class segment, for the periods indicated.

For the Year Ended December 31,
	2016				2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	267,747	$	12,282	$	750,350	$	43,853	$	647,135	$	18,129
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial  Real Estate-Other		2,267,288		81,582		2,500,204		128,352		3,515,431		177,416
Consumer Real Estate		1,242,515		22,111		450,117		17,035		351,550		12,877
Consumer-Other		—		—		56,758		2,557		—		—
	$	3,777,550	$	115,975	$	3,757,429	$	191,797	$	4,514,116	$	208,422
With an allowance recorded:
Commercial	$	1,087,559	$	49,985	$	1,009,765	$	49,166	$	1,222,383	$	56,432
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,047,685		16,138		1,066,896		48,945		790,998		29,218
Consumer Real Estate		43,155		1,514		811,014		32,362		688,922		34,154
Consumer  Other		94,945		5,533		55,439		3,540		41,631		1,923
	$	2,273,344	$	73,170	$	2,943,114	$	134,013	$	2,743,934	$	121,727
Total
Commercial	$	1,355,306	$	62,267	$	1,760,115	$	93,019	$	1,869,518	$	74,561
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		3,314,973		97,720		3,567,100		177,297		4,306,429		206,634
Consumer Real Estate		1,285,670		23,625		1,261,131		49,397		1,040,472		47,031
Consumer Other		94,945		5,533		112,197		6,097		41,631		1,923
	$	6,050,894	$	189,145	$	6,700,543	$	325,810	$	7,258,050	$	330,149

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CONCENTRATIONS OF CREDIT RISK (Tables)

12 Months Ended

Dec. 31, 2016

Risks and Uncertainties [Abstract]

Schedule of loan concentration

Our loans were concentrated in the following categories.

	December 31, 2016	December 31, 2015
Commercial	20.06%	21.00%
Commercial Real Estate-Construction	0.46%	0.41%
Commercial Real Estate-Other	47.20%	47.70%
Consumer Real Estate	29.59%	28.76%
Consumer-Other	2.69%	2.13%
Total Loans	100.00%	100.00%

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PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Tables)

12 Months Ended

Dec. 31, 2016

Property, Plant and Equipment [Abstract]

Schedule of premises, equipment and leasehold improvements

Premises, equipment and leasehold improvements are summarized as follows:

		December 31,
		2016			2015
Bank buildings	$	1,824,613		$	1,824,613
Land		838,075			838,075
Leasehold purchase		30,000			30,000
Lease improvements		690,212			687,333
Construction in process		11,754			11,754
Equipment		3,264,488			3,070,783
		6,659,142			6,462,558
Accumulated depreciation		(4,362,518	)		(4,173,330	)
Total	$	2,296,624		$	2,289,228

Schedule of minimum rental commitments for leases

Minimum rental commitments for these leases as of December 31, 2016 are as follows:

2017	$	615,122
2018		622,890
2019		614,103
2020		591,067
2021		608,257
2022 and thereafter		4,708,393
Total	$	7,759,832

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OTHER REAL ESTATE OWNED (Tables)

12 Months Ended

Dec. 31, 2016

Real Estate Owned, Disclosure of Detailed Components [Abstract]

Schedule of activity in other real estate owned

The following table summarizes the activity in other real estate owned at December 31, 2016 and December 31, 2015.

		December 31, 2016			December 31,  2015
Balance, beginning of year	$	620,394		$	521,943
Additions-foreclosure		—			98,451
Sales		(98,451	)		—
Write-downs		—			—
Balance, end of year	$	521,943		$	620,394

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DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2016

Deposits:

Schedule of maturities of certificates of deposits

At December 31, 2016, the scheduled maturities of certificates of deposit are as follows:

2017	$	41,020,714
2018		1,242,741
2019		516,921
2020		472,367
2021 and thereafter		588,514
	$	43,841,257

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Schedule of components of income tax expense

Total income taxes for the years ended December 31, 2016, 2015 and 2014 are as follows:

	For the Year Ended December 31,
	2016			2015			2014
Income tax expense	$	1,688,433		$	2,287,248		$	1,997,866
Unrealized gains (losses) on securities available for sale presented in accumulated other comprehensive income (loss)		(939,482	)		(147,104	)		168,627
Total	$	748,951		$	2,140,144		$	2,166,493

Income tax expense was as follows:

	For the Year Ended December 31,
	2016			2015			2014
Current income taxes
Federal	$	2,438,687		$	2,102,154		$	1,703,444
State		—			224,083			200,361
Total current tax expense		2,438,687			2,326,237			1,903,805
Deferred income tax (benefit) expense		(750,254	)		(38,989	)		94,061
Income tax expense	$	1,688,433		$	2,287,248		$	1,997,866

Schedule of income tax reconciliation

The differences between actual income tax expense and the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income from continuing operations for the periods indicated are reconciled as follows:

	For the Year Ended December 31,
	2016			2015			2014
Computed “expected” tax expense	$	2,358,069		$	2,438,322		$	2,174,873
Increase (reduction) in income taxes resulting from:
State income tax, net of federal benefit		(156,114	)		147,895			132,238
Tax exempt interest income		(339,994	)		(341,970	)		(357,834	)
Other, net		(173,528	)		43,001			48,589
	$	1,688,433		$	2,287,248		$	1,997,866

Schedule of deferred tax assets and liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are presented below:

	December 31
	2016			2015
Deferred tax assets:
Allowance for loan losses	$	1,248,551		$	1,064,916
State net operating loss carryforward		50,301			45,987
State credit carryforward		236,536			—
Unrealized loss on securities available for sale		356,562			—
Other		45,661			23,749
Total gross deferred tax assets		1,937,611			1,134,652
Valuation allowance		(50,301	)		(45,987	)
Deferred tax liabilities:
Prepaid expenses		(2,779	)		(1,363	)
Unrealized gain on securities available for sale		—			(582,926	)
Deferred loan fees		(46,392	)		(40,184	)
Fixed assets, principally due to differences in depreciation		(52,236	)		(24,611	)
Other bond accretion		(78,877	)		(65,735	)
Total gross deferred tax liabilities		(180,284	)		(714,819	)
Net deferred tax assets	$	1,707,026		$	373,846

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RELATED PARTY TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2016

Related Party Transactions Tables

Schedule of related party loans

Related party loans are summarized as follows:

	DECEMBER 31,
	2016			2015
Balance at beginning of year	$	6,523,137		$	6,664,467
New loans or advances		4,833,545			6,662,930
Repayments		(7,412,542	)		(6,804,260	)
Balance at end of year	$	3,944,140		$	6,523,137

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OTHER EXPENSE (Tables)

12 Months Ended

Dec. 31, 2016

Other Income and Expenses [Abstract]

Schedule of other operating expenses

A summary of the components of other operating expense is as follows:

	For the Year Ended December 31,
	2016		2015		2014
Advertising and business development	$	16,159	$	16,662	$	12,695
Supplies		94,006		111,604		123,087
Telephone and postage		194,853		188,052		193,039
Insurance		42,192		42,504		44,271
Professional fees		431,424		423,319		411,742
Data processing services		594,550		518,788		493,977
State and FDIC insurance and fees		242,926		228,627		216,129
Courier service		96,823		95,877		104,366
Amortization of state tax credit		325,000		—		—
Other		601,843		542,949		552,930
	$	2,639,776	$	2,168,382	$	2,152,236

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STOCK INCENTIVE PLAN (Tables)

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of fair value weighted-average assumptions as of options

The fair value of options granted was determined using the following weighted-average assumptions as of grant date:

	2016			2015					2014
Risk free interest rate		2.33	%		1.96	%	2.33	%		2.94	%
Expected life (in years)		10			10		10			10
Expected stock price volatility		27.95	%		19.62	%	19.62	%		36.34	%
Dividend yield		3.47	%		4.13	%	4.13	%		3.98	%

Schedule of activity under stock incentive plan

The following table presents a summary of the activity under the 1998 and 2010 Omnibus Stock Incentive Plans for the years ended December 31:

	2016					2015					2014
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, January 1		183,302		$	10.81		176,181		$	10.48		175,081		$	10.31
Granted		10,000			15.99		23,650			14.44		11,000			13.49
Expired		—			—		—			—		—			—
Exercised		(39,539	)		10.26		(9,378	)		13.11		(2,750	)		9.74
Forfeited		(12,858	)		13.84		(7,151	)		11.64		(7,150	)		11.15
Outstanding, December 31		140,905		$	11.06		183,302		$	10.81		176,181		$	10.48
Exercisable at year end		12,620		$	11.50		17,457		$	12.95		19,012		$	13.39

Schedule of information pertaining to options outstanding

The following table presents information pertaining to options outstanding at December 31, 2016:

December 31, 2016
Exercise Price:		Number of Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Intrinsic Value of Outstanding Options		Number of Options Exercisable		Weighted Average Exercise Price		Intrinsic Value of Exercisable Options
$	13.22		6,050		—	$	13.22	$	23,535		6,050	$	13.22	$	23,535
$	11.73		1,600		1.2	$	11.73	$	8,608		1,120	$	11.73	$	6,026
$	9.79		11,220		3.7	$	9.79	$	82,130		1,270	$	9.79	$	9,296
$	10.61		4,400		4.2	$	10.61	$	28,600		—	$	—	$	—
$	9.47		71,610		4.5	$	9.47	$	54,710		4,180	$	9.47	$	31,935
$	10.10		9,075		5.6	$	10.10	$	63,616		—	$	—	$	—
$	10.91		2,750		5.9	$	10.91	$	17,050		—	$	—	$	—
$	13.64		2,200		6.9	$	13.64	$	694		—	$	—	$	—
$	13.49		4,950		7.6	$	13.49	$	17,919		—	$	—	$	—
$	14.35		13,750		8.5	$	14.35	$	37,950		—	$	—	$	—
$	14.98		3,300		8.6	$	14.98	$	7,029		—	$	—	$	—
$	15.99		10,000		9.3	$	15.99	$	11,200		—	$	—	$	—
			140,905		5.26	$	11.06	$	353,041		12,620	$	11.50	$	70,792

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INCOME PER COMMON SHARE (Tables)

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

Schedule of income per common share

The following table is a summary of the reconciliation of average shares outstanding for the years ended December 31:

	2016		2015		2014
Numerator:
Net income	$	5,247,063	$	4,884,288	$	4,398,820
Denominator:
Weighted average shares outstanding		4,935,349		4,912,499		4,907,208
Effect of dilutive shares		118,765		154,586		125,003
Weighted average shares outstanding-diluted		5,054,114		5,067,085		5,032,211
Earnings per share - basic	$	1.06	$	0.99	$	0.90
Earnings per share - diluted	$	1.04	$	0.96	$	0.87

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REGULATORY CAPITAL REQUIREMENTS (Tables)

12 Months Ended

Dec. 31, 2016

Regulatory Capital Requirements [Abstract]

Schedule of Regulatory Capital Requirements

The following tables present the actual and required capital amounts and ratios for the Company and Bank at December 31, 2016 and 2015:  

December 31, 2016
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Company	$	44,850		15.46	%	$	23,213		8.00	%		N/A		N/A
Bank	$	44,544		15.36	%	$	23,207		8.00	%	$	29,009		10.00	%
Tier 1 capital to risk-weighted assets:
Company	$	41,220		14.21	%	$	17,410		6.00	%		N/A		N/A
Bank	$	40,915		14.10	%	$	17,405		6.00	%	$	23,207		8.00	%
Tier 1 capital to average assets:
Company	$	41,220		9.85	%	$	16,738		4.00	%		N/A		N/A
Bank	$	40,915		9.78	%	$	16,735		4.00	%	$	20,919		5.00	%
Common equity Tier 1 capital:
Company	$	41,220		14.21	%	$	13,058		4.50	%		N/A		N/A
Bank	$	40,915		14.10	%	$	13,054		4.50	%	$	18,856		6.50	%

December 31, 2015
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Company	$	41,497		15.54	%	$	21,359		8.00	%		N/A		N/A
Bank	$	41,169		15.42	%	$	21,357		8.00	%	$	26,696		10.00	%
Tier 1 capital to risk-weighted assets:
Company	$	38,159		14.29	%	$	16,019		6.00	%		N/A		N/A
Bank	$	37,831		14.17	%	$	16,018		6.00	%	$	21,357		8.00	%
Tier 1 capital to average assets:
Company	$	38,159		9.63	%	$	15,850		4.00	%		N/A		N/A
Bank	$	37,831		9.55	%	$	15,843		4.00	%	$	19,803		5.00	%
Common equity Tier 1 capital:
Company	$	38,159		14.29	%	$	12,014		4.50	%		N/A		N/A
Bank	$	37,831		14.17	%	$	12,013		4.50	%	$	17,353		6.50	%

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DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Schedule of assets and liabilities measured at fair value on a recurring basis

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

Balance at December 31, 2016
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
US Treasury Notes	$	23,939,063	$	—	$	—	$	23,939,063
Government Sponsored Enterprises		—		51,034,091		—		51,034,091
Municipal Securities		—		31,027,933		13,977,857		45,005,790
Total	$	23,939,063	$	82,062,024	$	13,977,857	$	119,978,944

Balance at December 31, 2015
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
US Treasury Notes	$	34,633,673	$	—	$	—	$	34,633,673
Government Sponsored Enterprises		—		51,284,332		—		51,284,332
Municipal Securities		—		28,861,902		5,217,678		34,079,580
Total	$	34,633,673	$	80,146,234	$	5,217,678	$	119,997,585

Schedule of changes in Level 3 instruments

The following table reconciles the changes in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2016 and 2015:

	Level 3 Municipal Securities December 31, 2016			2015
Beginning Balance	$	5,217,678		$	1,377,089
Total gains or (losses) (realized/unrealized)
Included in earnings		—			—
Included in other comprehensive income		(818,821	)		(34,411	)
Purchases, issuances and settlements, net of maturities		9,579,000			3,875,000
Transfers in and/or out of level 3		—			—
Ending Balance	$	13,977,857		$	5,217,678

Schedule of assets and liabilities measured at fair value measured on a nonrecurring basis

The following table presents information about certain assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2016, and 2015:

December 31, 2016
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans	$	—	$	—	$	4,143,772	$	4,143,772
Other real estate owned		—		—		521,943		521,943
Loans held for sale		—		4,386,210		—		4,386,210
Total	$	—	$	4,386,210	$	4,665,715	$	9,051,925

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

Schedule of unobservable inputs used in Level 3 fair value measurement

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at December 31, 2016:

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

Schedule of carrying amount,estimated fair value and the financial hierarchy of entity's financial instruments

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of December 31, 2016 and December 31, 2015.

Fair Value Measurements at December 31, 2016
		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	8,141,030	$	8,141,030	$	8,141,030	$	—	$	—
Interest-bearing deposits in other banks		18,101,300		18,101,300		18,101,300		—		—
Investments available for sale		119,978,944		119,978,944		23,939,063		82,062,024		13,977,857
Mortgage loans to be sold		4,386,210		4,386,210		—		4,386,210		—
Loans		260,576,115		260,406,669		—		—		260,406,669
Accrued interest receivable		1,614,002		1,614,002		—		1,614,002		—
Financial Liabilities:
Demand deposits		328,681,594		328,681,594		—		328,681,594		—
Time deposits		43,841,257		43,856,383		—		43,856,383		—
Accrued interest payable		51,629		51,629		—		51,629		—

Fair Value Measurements at December 31, 2015
		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	5,295,924	$	5,295,924	$	5,295,924	$	—	$	—
Interest-bearing deposits in other banks		23,898,862		23,898,862		23,898,862		—		—
Investments available for sale		119,997,585		119,997,585		34,633,673		80,146,234		5,217,678
Mortgage loans to be sold		5,820,239		5,820,239		—		5,820,239		—
Loans		242,622,705		242,581,154		—		—		242,581,154
Accrued interest receivable		1,284,063		1,284,063				1,284,063
Financial Liabilities:
Demand deposits		303,950,800		303,950,800		—		303,950,800		—
Time deposits		54,767,812		54,780,915		—		54,780,915		—
Accrued interest payable		73,421		73,421		—		73,421		—

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Schedule of reclassification in accumulated other comprehensive income

The following table summarizes the components of accumulated other comprehensive income (loss) and changes in those components as of and for the years ended December 31:

Available for sale securities
Beginning Balance December 31, 2013	$	955,900
Change in net unrealized gains (losses) on securities available for sale		768,326
Reclassification adjustment for net securities gains included in net income		(312,577	)
Income tax expense (benefit)		(168,627	)
Balance December 31, 2014		1,243,022
Change in net unrealized gains (losses) on securities available for sale		26,255
Reclassification adjustment for net securities gains included in net income		(423,832	)
Income tax expense (benefit)		147,104
Balance December 31, 2015		992,549
Change in net unrealized gains (losses) on securities available for sale		(2,158,236	)
Reclassification adjustment for net securities gains included in net income		(380,904	)
Income tax expense		939,482
Balance December 31, 2016	$	(607,109	)

Schedule of amounts reclassified from accumulated other comprehensive income

The following table shows the line items in the consolidated Statements of Operations affected by amounts reclassified from accumulated other comprehensive income (loss):

Year Ended December 31,
	2016			2015		2014
Gain on sale of investments, net	$	380,904		$	423,832	$	312,577
Tax effect		(140,934	)		—		—
Total reclassification, net of tax	$	239,970		$	423,832	$	312,577

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BANK OF SOUTH CAROLINA CORPORATION - PARENT COMPANY (Tables)

12 Months Ended

Dec. 31, 2015

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Schedule of condensed financial statements of parent company

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	2016		2015
Assets
Cash	$	922,595	$	946,996
Investment in wholly-owned bank subsidiary		40,308,166		38,823,720
Other assets		76,077		20,154
Total assets	$	41,306,838	$	39,790,870
Liabilities and shareholders’ equity
Other liabilities	$	693,864	$	639,158
Shareholders’ equity		40,612,974		39,151,712
Total liabilities and shareholders’ equity	$	41,306,838	$	39,790,870

CONDENSED STATEMENTS OF OPERATIONS

	2016			2015			2014
Interest income	$	571		$	302		$	306
Net operating expenses		(177,612	)		(195,636	)		(187,284	)
Dividends received from bank		2,340,000			2,475,000			2,865,000
Equity in undistributed earnings of subsidiary		3,084,104			2,604,622			1,720,798
Net income	$	5,247,063		$	4,884,288		$	4,398,820

CONDENSED STATEMENTS OF CASH FLOWS

	2016			2015			2014
Cash flows from operating activities:
Net income	$	5,247,063		$	4,884,288		$	4,398,820
Stock-based compensation expense		76,529			78,987			74,908
Equity in undistributed earnings of subsidiary		(3,084,104	)		(2,604,622	)		(1,720,798	)
Decrease (increase) in other assets		(55,923	)		202,043			(40,418	)
Net cash provided by operating activities		2,183,565			2,560,696			2,712,512
Cash flows from financing activities:
Dividends paid		(2,613,715	)		(2,380,062	)		(2,765,735	)
Cash in lieu of fractional shares		—			(4,778	)		—
Stock options exercised		405,749			122,946			26,050
Net cash used by financing activities		(2,207,966	)		(2,261,894	)		(2,739,685	)
Net increase (decrease) in cash		(24,401	)		298,802			(27,173	)
Cash at beginning of year		946,996			648,194			675,367
Cash at ending of year	$	922,595		$	946,996		$	648,194
Supplemental disclosure for non-cash investing and financing activity:
Change in dividends payable	$	54,706		$	59,178		$	325

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QUARTERLY RESULTS OF OPERATIONS (Tables)

12 Months Ended

Dec. 31, 2015

Quarterly Financial Information Disclosure [Abstract]

Schedule of quarterly operating results

The tables below represent the quarterly results of operations for the years ended December 31, 2016 and 2015, respectively:

	2016
	FOURTH		THIRD		SECOND		FIRST
Total interest and fee income	$	3,862,720	$	4,030,143	$	3,770,669	$	3,632,065
Total interest expense		95,146		96,467		92,988		94,139
Net interest income		3,767,574		3,933,676		3,677,681		3,537,926
Provision for loan losses		175,000		210,000		140,000		45,000
Net interest income after provisions for loan losses		3,592,574		3,723,676		3,537,681		3,492,926
Other income		638,896		686,586		729,572		806,029
Other expense		2,715,147		2,584,268		2,436,881		2,536,148
Income before income tax expense		1,516,323		1,825,994		1,830,372		1,762,807
Income tax expense		203,444		399,656		518,262		567,071
Net income	$	1,312,879	$	1,426,338	$	1,312,110	$	1,195,736
Basic income per common share	$	0.27	$	0.28	$	0.27	$	0.24
Diluted income per common share	$	0.26	$	0.28	$	0.26	$	0.24

	2015
	FOURTH		THIRD		SECOND		FIRST
Total interest and fee income	$	3,635,011	$	3,569,672	$	3,550,663	$	3,474,602
Total interest expense		108,115		101,230		99,579		93,471
Net interest income		3,526,896		3,468,442		3,451,084		3,381,131
Provision for loan losses		110,000		7,500		70,000		5,000
Net interest income after provisions for loan losses		3,416,896		3,460,942		3,381,084		3,376,131
Other income		788,770		662,038		868,492		730,658
Other expense		2,402,221		2,372,742		2,399,458		2,339,054
Income before income tax expense		1,803,445		1,750,238		1,850,118		1,767,737
Income tax expense		576,474		551,319		596,680		562,775
Net income	$	1,226,971	$	1,198,919	$	1,253,438	$	1,204,960
Basic income per common share	$	0.25	$	0.24	$	0.26	$	0.25
Diluted income per common share	$	0.24	$	0.24	$	0.25	$	0.22

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)	12 Months Ended
	Dec. 31, 2016
Equipment [Member] | Lower Range [Member]
Property, Plant and Equipment [Line Items]
Useful life (in years)	3 years
Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Useful life (in years)	15 years
Bank Buildings [Member]
Property, Plant and Equipment [Line Items]
Useful life (in years)	40 years

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Investments, Debt and Equity Securities [Abstract]
Carrying amount of securities pledged to secure deposits and repurchase agreements	$ 47,619,232	$ 48,027,575
Tax provision	$ 140,934	$ 156,818

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Amortized Cost	$ 120,942,615	$ 118,422,116
Gross Unrealized Gains	936,448	1,783,297
Gross Unrealized Losses	(1,900,119)	(207,828)
Investments available for sale	119,978,944	119,997,585
U.S. Treasury Notes [Member]
Amortized Cost	24,148,295	34,517,996
Gross Unrealized Gains	41,153	161,037
Gross Unrealized Losses	(250,385)	(45,360)
Investments available for sale	23,939,063	34,633,673
Government-Sponsored Enterprises [Member]
Amortized Cost	51,737,930	51,136,426
Gross Unrealized Gains	129,482	281,650
Gross Unrealized Losses	(833,321)	(133,744)
Investments available for sale	51,034,091	51,284,332
Municipal Securties [Member]
Amortized Cost	45,056,390	32,767,694
Gross Unrealized Gains	765,813	1,340,610
Gross Unrealized Losses	(816,413)	(28,724)
Investments available for sale	$ 45,005,790	$ 34,079,580

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Details 1) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Amortized Cost
Due in one year or less	$ 3,343,347	$ 3,311,346
Due in one year to five years	82,848,411	69,870,930
Due in five years to ten years	29,662,030	41,930,801
Due in ten years and over	5,088,827	3,309,039
Total	120,942,615	118,422,116
Estimated Fair Value
Due in one year or less	3,350,205	3,326,249
Due in one year to five years	82,682,901	70,584,179
Due in five years to ten years	29,169,228	42,670,986
Due in ten years and over	4,776,610	3,416,171
Total	$ 119,978,944	$ 119,997,585

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Details 2) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Less than 12 Months
Fair Value	$ 70,711,744	$ 21,900,656
Gross Unrealized Losses	(1,900,119)	(112,622)
12 months or Longer
Fair value		5,002,335
Gross Unrealized Losses		(95,206)
Total
Fair value	70,711,744	26,902,991
Gross Unrealized Losses	(1,900,119)	(207,828)
U.S. Treasury Notes [Member]
Less than 12 Months
Fair Value	17,968,594	10,064,063
Gross Unrealized Losses	(250,385)	(45,360)
Total
Fair value	17,958,594	10,064,063
Gross Unrealized Losses	(250,385)	(45,360)
Government-Sponsored Enterprises [Member]
Less than 12 Months
Fair Value	30,136,720	7,475,445
Gross Unrealized Losses	(833,321)	(38,538)
12 months or Longer
Fair value		5,002,335
Gross Unrealized Losses		(95,206)
Total
Fair value	30,136,720	12,477,780
Gross Unrealized Losses	(833,321)	(133,744)
Municipal Securties [Member]
Less than 12 Months
Fair Value	22,606,430	4,361,148
Gross Unrealized Losses	(816,413)	(28,724)
Total
Fair value	22,606,430	4,361,148
Gross Unrealized Losses	$ (816,413)	$ (28,724)

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Details 3) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Investments, Debt and Equity Securities [Abstract]
Gross proceeds	$ 36,218,087	$ 16,564,118	$ 37,159,363
Gross realized gains	384,963	$ 423,832	$ 312,577
Gross realized losses	$ (4,059)

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Receivables [Abstract]
Deferred loan fees	$ 136,446	$ 118,188
Loans pledged as collateral to secure funding with the Federal Reserve Bank	101,200,000	102,100,000
Restructured loans	$ 378,392	$ 458,268

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Loans	$ 260,576,115	$ 242,622,705
Allowance for loan losses	(3,851,617)	(3,417,827)
Loans, net	256,724,498	239,204,878
Commercial [Member]
Loans	52,262,209	50,938,265
Commercial Real Estate Construction [Member]
Loans	1,208,901	1,005,118
Commercial Real Estate Other [Member]
Loans	122,968,126	115,736,034
Consumer Real Estate [Member]
Loans	77,131,816	69,777,307
Consumer Other [Member]
Loans	$ 7,005,063	$ 5,165,981

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 1) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Credit risks by category and internally assigned grades
Loans	$ 260,576,115	$ 242,622,705
Pass [Member]
Credit risks by category and internally assigned grades
Loans	246,423,017	228,277,519
Watch [Member]
Credit risks by category and internally assigned grades
Loans	5,087,351	5,135,118
OAEM [Member]
Credit risks by category and internally assigned grades
Loans	3,321,493	2,667,224
Substandard [Member]
Credit risks by category and internally assigned grades
Loans	5,744,254	6,542,844
Commercial [Member]
Credit risks by category and internally assigned grades
Loans	52,262,209	50,938,265
Commercial [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	48,289,944	46,865,088
Commercial [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	1,004,957	1,096,200
Commercial [Member] | OAEM [Member]
Credit risks by category and internally assigned grades
Loans	1,666,048	1,337,002
Commercial [Member] | Substandard [Member]
Credit risks by category and internally assigned grades
Loans	1,301,260	1,639,975
Commercial Real Estate Construction [Member]
Credit risks by category and internally assigned grades
Loans	1,208,901	1,005,118
Commercial Real Estate Construction [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	798,884	572,101
Commercial Real Estate Construction [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	410,017	433,017
Commercial Real Estate Other [Member]
Credit risks by category and internally assigned grades
Loans	122,968,126	115,736,034
Commercial Real Estate Other [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	116,490,396	110,040,948
Commercial Real Estate Other [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	2,625,079	940,073
Commercial Real Estate Other [Member] | OAEM [Member]
Credit risks by category and internally assigned grades
Loans	995,549	1,203,518
Commercial Real Estate Other [Member] | Substandard [Member]
Credit risks by category and internally assigned grades
Loans	2,857,102	3,551,495
Consumer Real Estate [Member]
Credit risks by category and internally assigned grades
Loans	77,131,816	69,777,307
Consumer Real Estate [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	74,115,426	65,941,806
Consumer Real Estate [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	899,306	2,490,339
Consumer Real Estate [Member] | OAEM [Member]
Credit risks by category and internally assigned grades
Loans	630,957	99,743
Consumer Real Estate [Member] | Substandard [Member]
Credit risks by category and internally assigned grades
Loans	1,486,127	1,245,419
Consumer Other [Member]
Credit risks by category and internally assigned grades
Loans	7,005,063	5,165,981
Consumer Other [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	6,728,367	4,857,576
Consumer Other [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	147,992	175,489
Consumer Other [Member] | OAEM [Member]
Credit risks by category and internally assigned grades
Loans	28,939	26,961
Consumer Other [Member] | Substandard [Member]
Credit risks by category and internally assigned grades
Loans	$ 99,765	$ 105,955

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 2) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Delinquent loans
Total Past Due	$ 2,451,238	$ 4,410,731
Current	258,124,877	238,211,974
Total Loans Receivable	260,576,115	242,622,705
Recorded Investment > 90 Days and Accuring Interest	123,230	1,606
30-59 Days Past Due [Member]
Delinquent loans
Total Past Due	916,763	1,391,856
Greater Than 90 Days [Member]
Delinquent loans
Total Past Due	1,534,475	1,245,162
60-89 Days Past Due [Member]
Delinquent loans
Total Past Due		1,773,713
Commercial [Member]
Delinquent loans
Total Past Due	438,159	1,417,363
Current	51,824,050	49,520,902
Total Loans Receivable	52,262,209	50,938,265
Commercial [Member] | 30-59 Days Past Due [Member]
Delinquent loans
Total Past Due	438,159	1,162,676
Commercial [Member] | Greater Than 90 Days [Member]
Delinquent loans
Total Past Due		4,317
Commercial [Member] | 60-89 Days Past Due [Member]
Delinquent loans
Total Past Due		250,370
Commercial Real Estate Construction [Member]
Delinquent loans
Current	1,208,901	1,005,118
Total Loans Receivable	1,208,901	1,005,118
Commercial Real Estate Other [Member]
Delinquent loans
Total Past Due	1,507,516	2,459,854
Current	121,460,610	113,276,180
Total Loans Receivable	122,968,126	115,736,034
Recorded Investment > 90 Days and Accuring Interest	89,908
Commercial Real Estate Other [Member] | 30-59 Days Past Due [Member]
Delinquent loans
Total Past Due	6,363	91,607
Commercial Real Estate Other [Member] | Greater Than 90 Days [Member]
Delinquent loans
Total Past Due	1,501,153	1,152,774
Commercial Real Estate Other [Member] | 60-89 Days Past Due [Member]
Delinquent loans
Total Past Due		1,215,473
Consumer Real Estate [Member]
Delinquent loans
Total Past Due	415,457	400,009
Current	76,716,359	69,377,298
Total Loans Receivable	77,131,816	69,777,307
Consumer Real Estate [Member] | 30-59 Days Past Due [Member]
Delinquent loans
Total Past Due	415,457	68,240
Consumer Real Estate [Member] | Greater Than 90 Days [Member]
Delinquent loans
Total Past Due		82,015
Consumer Real Estate [Member] | 60-89 Days Past Due [Member]
Delinquent loans
Total Past Due		249,754
Consumer Other [Member]
Delinquent loans
Total Past Due	90,106	133,505
Current	6,914,957	5,032,476
Total Loans Receivable	7,005,063	5,165,981
Recorded Investment > 90 Days and Accuring Interest	33,322	1,606
Consumer Other [Member] | 30-59 Days Past Due [Member]
Delinquent loans
Total Past Due	56,784	69,333
Consumer Other [Member] | Greater Than 90 Days [Member]
Delinquent loans
Total Past Due	$ 33,322	6,056
Consumer Other [Member] | 60-89 Days Past Due [Member]
Delinquent loans
Total Past Due		$ 58,116

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 3) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Loans Receivable on Non-Accrual	$ 1,741,621	$ 2,061,088
Commercial [Member]
Loans Receivable on Non-Accrual	61,781	4,317
Commercial Real Estate Other [Member]
Loans Receivable on Non-Accrual	1,678,876	1,970,306
Consumer Real Estate [Member]
Loans Receivable on Non-Accrual		82,015
Consumer Other [Member]
Loans Receivable on Non-Accrual	$ 964	$ 4,450

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 4) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Activity in the allowance for loan losses by portfolio segment
Beginning Balance				$ 3,417,827				$ 3,334,848	$ 3,417,827	$ 3,334,848	$ 3,292,277
Charge-offs									(208,295)	(201,071)	(113,030)
Recoveries									72,085	91,550	73,101
Provisions	$ 175,000	$ 210,000	$ 140,000	45,000	$ 110,000	$ 7,500	$ 70,000	5,000	570,000	192,500	82,500
Ending Balance	3,851,617				3,417,827				3,851,617	3,417,827	3,334,848
Allowance for Loan Losses Ending Balances:
Individually evaluated for impairment	1,507,972				1,083,507				1,507,972	1,083,507
Collectively evaluated for impairment	2,343,645				2,334,320				2,343,645	2,334,320
Loans Receivable:
Individually evaluated for impairment	5,901,784				6,542,707				5,901,784	6,542,707
Collectively evaluated for impairment	254,674,331				236,079,998				254,674,331	236,079,998
Total Loan Receivable	260,576,115				242,622,705				260,576,115	242,622,705
Commercial [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning Balance				896,854				1,211,130	896,854	1,211,130	1,448,804
Charge-offs									(33,045)	(99,737)	(83,042)
Recoveries										9,164
Provisions									681,380	(223,703)	(154,632)
Ending Balance	1,545,188				896,854				1,545,188	896,854	1,211,130
Allowance for Loan Losses Ending Balances:
Individually evaluated for impairment	1,051,219				387,979				1,051,219	387,979
Collectively evaluated for impairment	493,969				508,875				493,969	508,875
Loans Receivable:
Individually evaluated for impairment	1,301,259				1,639,974				1,301,259	1,639,974
Collectively evaluated for impairment	50,960,950				49,298,291				50,960,950	49,298,291
Total Loan Receivable	52,262,209				50,938,265				52,262,209	50,938,265
Commercial Real Estate Construction [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning Balance				59,861				42,904	59,861	42,904	22,137
Provisions									(8,392)	16,957	20,767
Ending Balance	51,469				59,861				51,469	59,861	42,904
Allowance for Loan Losses Ending Balances:
Collectively evaluated for impairment	51,469				59,861				51,469	59,861
Loans Receivable:
Collectively evaluated for impairment	1,208,901				1,005,118				1,208,901	1,005,118
Total Loan Receivable	1,208,901				1,005,118				1,208,901	1,005,118
Commercial Real Estate Other [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning Balance				1,345,094				1,112,387	1,345,094	1,112,387	1,064,363
Charge-offs									(78,300)	(55,252)	(15,834)
Recoveries									65,000	53,753	46,000
Provisions									42,912	234,206	17,858
Ending Balance	1,374,706				1,345,094				1,374,706	1,345,094	1,112,387
Allowance for Loan Losses Ending Balances:
Individually evaluated for impairment	324,587				253,105				324,587	253,105
Collectively evaluated for impairment	1,050,119				1,091,989				1,050,119	1,091,989
Loans Receivable:
Individually evaluated for impairment	3,225,351				3,551,495				3,225,351	3,551,495
Collectively evaluated for impairment	119,742,775				112,184,539				119,742,775	112,184,539
Total Loan Receivable	122,968,126				115,736,034				122,968,126	115,736,034
Consumer Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning Balance				941,470				863,351	941,470	863,351	672,813
Charge-offs									(82,015)	(6,075)
Recoveries										6,075
Provisions									(133,064)	78,119	190,538
Ending Balance	726,391				941,470				726,391	941,470	863,351
Allowance for Loan Losses Ending Balances:
Individually evaluated for impairment	43,119				342,320				43,119	342,320
Collectively evaluated for impairment	683,272				599,150				683,272	599,150
Loans Receivable:
Individually evaluated for impairment	1,286,127				1,245,419				1,286,127	1,245,419
Collectively evaluated for impairment	75,845,689				68,531,888				75,845,689	68,531,888
Total Loan Receivable	77,131,816				69,777,307				77,131,816	69,777,307
Consumer Other [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning Balance				$ 174,548				$ 105,076	174,548	105,076	84,160
Charge-offs									(14,934)	(40,007)	(14,154)
Recoveries									7,085	22,558	27,101
Provisions									(12,836)	86,921	7,969
Ending Balance	153,863				174,548				153,863	174,548	$ 105,076
Allowance for Loan Losses Ending Balances:
Individually evaluated for impairment	89,047				100,103				89,047	100,103
Collectively evaluated for impairment	64,816				74,445				64,816	74,445
Loans Receivable:
Individually evaluated for impairment	89,047				105,819				89,047	105,819
Collectively evaluated for impairment	6,916,016				5,060,162				6,916,016	5,060,162
Total Loan Receivable	$ 7,005,063				$ 5,165,981				$ 7,005,063	$ 5,165,981

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 5) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Impaired and Restructured Loans with no related allowance recorded
Unpaid Principal Balance With no related allowance recorded	$ 3,667,818	$ 3,624,966
Recorded Investment With no related allowance recorded	3,667,818	3,624,966
Average Recorded Investment With no related allowance recorded	3,777,550	3,757,429	$ 4,514,116
Interest Income Recognized With no related allowance recorded	115,975	191,797	208,422
Impaired and Restructured Loans with an allowance recorded
Unpaid Principal Balance With an allowance recorded	2,233,966	2,917,741
Recorded Investment With an allowance recorded	2,233,966	2,917,741
Related Allowance	1,507,972	1,083,507
Average Recorded Investment With an allowance recorded	2,273,344	2,943,114	2,743,934
Interest Income Recognized With an allowance recorded	73,170	134,013	121,727
Total of Impaired and Restructured Loans
Unpaid Principal balance	5,901,784	6,542,707
Recorded Investment	5,901,784	6,542,707
Average Recorded Investment	6,050,894	6,700,543	7,258,050
Interest Income Recognized	189,145	325,810	330,149
Commercial [Member]
Impaired and Restructured Loans with no related allowance recorded
Unpaid Principal Balance With no related allowance recorded	250,040	692,831
Recorded Investment With no related allowance recorded	250,040	692,831
Average Recorded Investment With no related allowance recorded	267,747	750,350	647,135
Interest Income Recognized With no related allowance recorded	12,282	43,853	18,129
Impaired and Restructured Loans with an allowance recorded
Unpaid Principal Balance With an allowance recorded	1,051,219	947,143
Recorded Investment With an allowance recorded	1,051,219	947,143
Related Allowance	1,051,219	387,979
Average Recorded Investment With an allowance recorded	1,087,559	1,009,765	1,222,383
Interest Income Recognized With an allowance recorded	49,985	49,166	56,432
Total of Impaired and Restructured Loans
Unpaid Principal balance	1,301,259	1,639,974
Recorded Investment	1,301,259	1,639,974
Average Recorded Investment	1,355,306	1,760,115	1,869,518
Interest Income Recognized	62,267	93,019	74,561
Commercial Real Estate Other [Member]
Impaired and Restructured Loans with no related allowance recorded
Unpaid Principal Balance With no related allowance recorded	2,174,770	2,476,018
Recorded Investment With no related allowance recorded	2,174,770	2,476,018
Average Recorded Investment With no related allowance recorded	2,267,288	2,500,204	3,515,431
Interest Income Recognized With no related allowance recorded	81,582	128,352	177,416
Impaired and Restructured Loans with an allowance recorded
Unpaid Principal Balance With an allowance recorded	1,050,581	1,075,477
Recorded Investment With an allowance recorded	1,050,581	1,075,477
Related Allowance	324,587	253,105
Average Recorded Investment With an allowance recorded	1,047,685	1,066,896	790,998
Interest Income Recognized With an allowance recorded	16,138	48,945	29,218
Total of Impaired and Restructured Loans
Unpaid Principal balance	3,225,351	3,551,495
Recorded Investment	3,225,351	3,551,495
Average Recorded Investment	3,314,973	3,567,100	4,306,429
Interest Income Recognized	97,720	177,297	206,634
Consumer Real Estate [Member]
Impaired and Restructured Loans with no related allowance recorded
Unpaid Principal Balance With no related allowance recorded	1,243,008	450,402
Recorded Investment With no related allowance recorded	1,243,008	450,402
Average Recorded Investment With no related allowance recorded	1,242,515	450,117	351,550
Interest Income Recognized With no related allowance recorded	22,111	17,035	12,877
Impaired and Restructured Loans with an allowance recorded
Unpaid Principal Balance With an allowance recorded	43,119	795,017
Recorded Investment With an allowance recorded	43,119	795,017
Related Allowance	43,119	342,320
Average Recorded Investment With an allowance recorded	43,155	811,014	688,922
Interest Income Recognized With an allowance recorded	1,514	32,362	34,154
Total of Impaired and Restructured Loans
Unpaid Principal balance	1,286,127	1,245,419
Recorded Investment	1,286,127	1,245,419
Average Recorded Investment	1,285,670	1,261,131	1,040,472
Interest Income Recognized	23,625	49,397	47,031
Consumer Other [Member]
Impaired and Restructured Loans with no related allowance recorded
Unpaid Principal Balance With no related allowance recorded		5,715
Recorded Investment With no related allowance recorded		5,715
Average Recorded Investment With no related allowance recorded		56,758
Interest Income Recognized With no related allowance recorded		2,557
Impaired and Restructured Loans with an allowance recorded
Unpaid Principal Balance With an allowance recorded	89,047	100,104
Recorded Investment With an allowance recorded	89,047	100,104
Related Allowance	89,047	100,103
Average Recorded Investment With an allowance recorded	94,945	55,439	41,631
Interest Income Recognized With an allowance recorded	5,533	3,540	1,923
Total of Impaired and Restructured Loans
Unpaid Principal balance	89,047	105,819
Recorded Investment	89,047	105,819
Average Recorded Investment	94,945	112,197	41,631
Interest Income Recognized	$ 5,533	$ 6,097	$ 1,923

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CONCENTRATIONS OF CREDIT RISK (Details) - Credit Concentration Risk [Member]	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Concentration Risk [Line Items]
Concentration of Credit Risk	100.00%	100.00%
Commercial [Member]
Concentration Risk [Line Items]
Concentration of Credit Risk	20.06%	21.00%
Commercial Real Estate Construction [Member]
Concentration Risk [Line Items]
Concentration of Credit Risk	0.46%	0.41%
Commercial Real Estate Other [Member]
Concentration Risk [Line Items]
Concentration of Credit Risk	47.20%	47.70%
Consumer Real Estate [Member]
Concentration Risk [Line Items]
Concentration of Credit Risk	29.59%	28.76%
Consumer Other [Member]
Concentration Risk [Line Items]
Concentration of Credit Risk	2.69%	2.13%

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PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment [Abstract]
Depreciation and amortization	$ 189,188	$ 196,827	$ 200,178
Rent expense	$ 51,690	$ 50,184

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PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Premises, equipment and leasehold improvements, gross	$ 6,659,142	$ 6,462,558
Accumulated depreciation	(4,362,518)	(4,173,330)
Premises, equipment and leasehold improvements, net	2,296,624	2,289,228
Bank Buildings [Member]
Property, Plant and Equipment [Line Items]
Premises, equipment and leasehold improvements, gross	1,824,613	1,824,613
Land [Member]
Property, Plant and Equipment [Line Items]
Premises, equipment and leasehold improvements, gross	838,075	838,075
Leasehold Purchase [Member]
Property, Plant and Equipment [Line Items]
Premises, equipment and leasehold improvements, gross	30,000	30,000
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Premises, equipment and leasehold improvements, gross	690,212	687,333
Construction in Progress [Member]
Property, Plant and Equipment [Line Items]
Premises, equipment and leasehold improvements, gross	11,754	11,754
Equipment [Member]
Property, Plant and Equipment [Line Items]
Premises, equipment and leasehold improvements, gross	$ 3,264,488	$ 3,070,783

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PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details 1)	Dec. 31, 2016 USD ($)
Property, Plant and Equipment [Abstract]
2017	$ 615,122
2018	622,890
2019	614,103
2020	591,067
2021	608,257
2022 and thereafter	4,708,393
Total	$ 7,759,832

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OTHER REAL ESTATE OWNED (Details Narrative)	12 Months Ended
	Dec. 31, 2016 USD ($) Number	Dec. 31, 2015 USD ($) Number	Dec. 31, 2014 USD ($)
Real Estate Owned, Disclosure of Detailed Components [Abstract]
(Loss) gain on sale of other real estate | $	$ (13,450)		$ 2,382
Number of properties | Number	1	2

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OTHER REAL ESTATE OWNED (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Summary of activity in other real estate owned:
Balance, beginning of year	$ 620,394	$ 521,943
Additions - foreclosure		98,451
Sales	(98,451)
Balance, end of year	$ 521,943	$ 620,394

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DEPOSITS (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Deposits:
Deposits with deficit balance reclassified as other loans	$ 24,963	$ 121,331
Time deposits over $250,000	$ 17,822,136	$ 25,896,768

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DEPOSITS (Details)	Dec. 31, 2016 USD ($)
Maturities of certificates of deposits
2017	$ 41,020,714
2018	1,242,741
2019	516,921
2020	472,367
2021 and thereafter	588,514
Certificates of deposit	$ 43,841,257

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SHORT-TERM BORROWINGS (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Line of Credit Facility [Line Items]
Unused balance of line of credit	$ 21,000,000	$ 18,000,000
Securities sold under repurchase agreements	$ 751	1,873,507
Maximum [Member]
Line of Credit Facility [Line Items]
Securities sold under repurchase agreements		5,480,927
Federal Reserve [Member]
Line of Credit Facility [Line Items]
Line of credit maximum borrowing capacity		$ 75,000,000

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INCOME TAXES (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Federal income tax rate	34.00%
Amortized expenses	$ 325,000
Valuation allowance	50,301	$ 45,987
State Net Operating Loss [Member]
Valuation allowance	$ 50,301	$ 45,987

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INCOME TAXES (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Income tax expense	$ 203,444	$ 399,656	$ 518,262	$ 567,071	$ 576,474	$ 551,319	$ 596,680	$ 562,775	$ 1,688,433	$ 2,287,248	$ 1,997,866
Unrealized gains (losses) on securities available for sale presented in accumulated other comprehensive income (loss)									(939,482)	(147,104)	168,627
Total									$ 748,951	$ 2,140,144	$ 2,166,493

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INCOME TAXES (Details 1) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Current income tax
Federal									$ 2,438,687	$ 2,102,154	$ 1,703,444
State										224,083	200,361
Total current tax expense									2,438,687	2,326,238	1,903,805
Deferred income tax (benefit) expense									(750,254)	(38,989)	94,061
Income tax expense	$ 203,444	$ 399,656	$ 518,262	$ 567,071	$ 576,474	$ 551,319	$ 596,680	$ 562,775	$ 1,688,433	$ 2,287,248	$ 1,997,866

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INCOME TAXES (Details 2) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Computed "expected" tax expense									$ 2,358,069	$ 2,438,322	$ 2,174,873
Increase (reduction) in income taxes resulting from:
State income tax, net of federal benefit									(156,114)	147,895	132,238
Tax exempt interest income									(339,994)	(341,970)	(357,834)
Other, net									(173,528)	43,001	48,589
Income tax expense	$ 203,444	$ 399,656	$ 518,262	$ 567,071	$ 576,474	$ 551,319	$ 596,680	$ 562,775	$ 1,688,433	$ 2,287,248	$ 1,997,866

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INCOME TAXES (Details 3) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Deferred tax assets:
Allowance for loan losses	$ 1,248,551	$ 1,064,916
State net operating loss carryforward	50,301	45,987
State credit carryforward	236,536
Unrealized loss on securities available for sale	356,562
Other	45,661	23,749
Total gross deferred tax assets	1,937,611	1,134,652
Valuation allowance	(50,301)	(45,987)
Deferred tax liabilities:
Prepaid expenses	(2,779)	(1,363)
Unrealized gain on securities available for sale		(582,926)
Deferred loan fees	(46,392)	(40,184)
Fixed assets, principally due to differences in depreciation	(52,236)	(24,611)
Other bond accretion	(78,877)	(65,735)
Total gross deferred tax liabilities	(180,284)	(714,819)
Net deferred tax assets	$ 1,707,026	$ 373,846

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COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Standby letters of credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Undiscounted future payments related to standby letters of credit	$ 793,992	$ 745,187
Commitments to extend credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments to extend credit	$ 81,234,269	$ 87,622,437

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RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Related Party Transactions [Abstract]
Deposits held by related parties	$ 4,376,563	$ 7,760,342

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RELATED PARTY TRANSACTIONS (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Related Party Transactions [Abstract]
Balance at beginning of year	$ 6,523,137	$ 6,664,467
New loans or advances	4,833,545	6,662,930
Repayments	(7,412,542)	(6,804,260)
Balance at end of year	$ 3,944,140	$ 6,523,137

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OTHER EXPENSE (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Other Income and Expenses [Abstract]
Advertising and business development	$ 16,159	$ 16,662	$ 12,695
Supplies	94,006	111,604	123,087
Telephone and postage	194,853	188,052	193,039
Insurance	42,192	42,504	44,271
Professional fees	431,424	423,319	411,742
Data processing services	594,550	518,788	493,977
State and FDIC insurance and fees	242,926	228,627	216,129
Courier service	96,823	95,877	104,366
Amortization of state tax credit	325,000
Other	601,843	542,949	552,930
Other operating expenses	$ 2,639,776	$ 2,168,382	$ 2,152,236

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STOCK INCENTIVE PLAN (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2010	Dec. 31, 2013	Dec. 31, 1998
Distribution Made to Limited Liability Company (LLC) Member [Line Items]
Dividend rate	3.47%	4.13%	3.98%
Total outstanding shares under plan	140,905	183,302	176,181		175,081
Number of options exercisable under plan	12,620	17,457	19,012
Intrinsic value of options exercised	$ 273,979	$ 14,272	$ 12,775
Stock-based compensation expense	76,529	$ 78,987	$ 74,908
Unrecognized compensation cost	$ 346,974
Period for unrecognized compensation cost to be recognized	5 years 3 months 4 days
1998 Stock Incentive Plan [Member]
Distribution Made to Limited Liability Company (LLC) Member [Line Items]
Number of share authorized under stock incentive plan						180,000
Number of adjusted shares authorized						329,422
Total outstanding shares under plan	7,650
Number of options exercisable under plan	7,170
Stock dividends (percent)						10.00%
Stock distribution (percent)						25.00%
Stock dividend (percent)						25.00%
2010 Stock Incentive Plan [Member]
Distribution Made to Limited Liability Company (LLC) Member [Line Items]
Number of share authorized under stock incentive plan				300,000
Number of adjusted shares authorized				330,000
Percent of options vesting in five years				20.00%
Percentage of options vesting each following year				20.00%
Stock dividends (percent)				10.00%

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STOCK INCENTIVE PLAN (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Risk free interest rate	2.33%		2.94%
Expected life	10 years	10 years	10 years
Expected stock price volatility	27.95%	19.62%	36.34%
Dividend Yield	3.47%	4.13%	3.98%
Maximum [Member]
Risk free interest rate		1.96%
Lower Range [Member]
Risk free interest rate		2.33%

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STOCK INCENTIVE PLAN (Details 1) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Options
Options outstanding, beginning	183,302	176,181	175,081
Options granted	10,000	23,650	11,000
Options exercised	(39,539)	(9,378)	(2,750)
Options forfeited	(12,858)	(7,150)	(7,150)
Options outstanding, ending	140,905	183,302	176,181
Options exercisable	12,620	17,457	19,012
Weighted Average Exercise Price
Options outstanding, beginning	$ 10.81	$ 10.48	$ 10.31
Options granted	15.99	14.44	13.49
Options forfeited	10.26	13.11	9.74
Options exercised	13.84	11.64	11.15
Options outstanding, ending	11.06	10.81	10.48
Options exercisable	$ 11.50	$ 12.95	$ 13.39

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STOCK INCENTIVE PLAN (Details 2) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 11.06
Options outstanding, ending	140,905
Options outstanding, weighted average remaining contractual life	5 years 3 months 4 days
Options exercisable, weighted average exercise price	$ 11.50	$ 12.95	$ 13.39
Options outstanding, intrinsic value	$ 353,041
Options exercisable	12,620
Options exercisable, intrinsic value	$ 70,792
Exercise Price 1 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 13.22
Options outstanding, ending	6,050
Options exercisable, weighted average exercise price	$ 13.22
Options outstanding, intrinsic value	$ 23,535
Options exercisable	6,050
Options exercisable, intrinsic value	$ 23,535
Exercise Price 2 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 11.73
Options outstanding, ending	1,600
Options outstanding, weighted average remaining contractual life	1 year 2 months 12 days
Options exercisable, weighted average exercise price	$ 11.73
Options outstanding, intrinsic value	$ 8,608
Options exercisable	1,120
Options exercisable, intrinsic value	$ 6,026
Exercise Price 3 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 9.79
Options outstanding, ending	11,220
Options outstanding, weighted average remaining contractual life	3 years 8 months 12 days
Options exercisable, weighted average exercise price	$ 9.79
Options outstanding, intrinsic value	$ 82,130
Options exercisable	1,270
Options exercisable, intrinsic value	$ 9,296
Exercise Price 4 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 10.61
Options outstanding, ending	4,400
Options outstanding, weighted average remaining contractual life	4 years 2 months 12 days
Options exercisable, weighted average exercise price	$ 10.61
Options outstanding, intrinsic value	$ 28,600
Exercise Price 5 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 9.47
Options outstanding, ending	71,610
Options outstanding, weighted average remaining contractual life	4 years 6 months
Options exercisable, weighted average exercise price	$ 9.47
Options outstanding, intrinsic value	$ 54,710
Options exercisable	4,180
Options exercisable, intrinsic value	$ 31,935
Exercise Price 6 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 10.1
Options outstanding, ending	9,075
Options outstanding, weighted average remaining contractual life	5 years 7 months 6 days
Options exercisable, weighted average exercise price	$ 10.1
Options outstanding, intrinsic value	$ 63,616
Exercise Price 7 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 10.91
Options outstanding, ending	2,750
Options outstanding, weighted average remaining contractual life	5 years 10 months 24 days
Options exercisable, weighted average exercise price	$ 10.91
Options outstanding, intrinsic value	$ 17,050
Exercise Price 8 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 13.64
Options outstanding, ending	2,200
Options outstanding, weighted average remaining contractual life	6 years 10 months 24 days
Options exercisable, weighted average exercise price	$ 13.64
Options outstanding, intrinsic value	$ 694
Exercise Price 9 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 13.49
Options outstanding, ending	4,950
Options outstanding, weighted average remaining contractual life	7 years 7 months 6 days
Options exercisable, weighted average exercise price	$ 13.49
Options outstanding, intrinsic value	$ 17,919
Exercise Price 10 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 14.35
Options outstanding, ending	13,750
Options outstanding, weighted average remaining contractual life	8 years 6 months
Options exercisable, weighted average exercise price	$ 14.35
Options outstanding, intrinsic value	$ 37,950
Exercise Price 11 Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 14.98
Options outstanding, ending	3,300
Options outstanding, weighted average remaining contractual life	8 years 7 months 6 days
Options exercisable, weighted average exercise price	$ 14.98
Options outstanding, intrinsic value	$ 7,029
Exercise Price 12 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, ending	$ 15.99
Options outstanding, ending	10,000
Options outstanding, weighted average remaining contractual life	9 years 3 months 18 days
Options exercisable, weighted average exercise price	$ 15.99
Options outstanding, intrinsic value	$ 11,200

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EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST (Details Narrative)	12 Months Ended
	Dec. 31, 2016 USD ($) Hours of service Age shares	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
ESOP Award, Tranche One [Member]
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
Vesting rights by percent	0.00%
ESOP Award, Tranche Two [Member]
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
Vesting rights by percent	25.00%
ESOP Award, Tranche Three [Member]
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
Vesting rights by percent	50.00%
ESOP Award, Tranche Four [Member]
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
Vesting rights by percent	75.00%
ESOP Award, Tranche Five [Member]
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
Vesting rights by percent	100.00%
Employee Stock Ownership Plan (ESOP), Plan [Member]
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
Stock-based compensation expense | $	$ 345,000	$ 315,000	$ 280,000
Number of common shares the plan currently owns | shares	335,604
Minimum age requirement | Age	21
Hours of service | Hours of service	1,000

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DIVIDENDS (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Dividends [Abstract]
Dividends paid to parent by subsidiaries	$ 2,340,000	$ 2,475,000	$ 2,865,000

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INCOME PER COMMON SHARE (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Numerator:
Net Income	$ 1,312,879	$ 1,426,338	$ 1,312,110	$ 1,195,736	$ 1,226,971	$ 1,198,919	$ 1,253,438	$ 1,204,960	$ 5,247,063	$ 4,884,288	$ 4,398,820
Denominator:
Weighted average shares outstanding									4,935,349	4,912,499	4,907,208
Effect of dilutive shares									118,765	154,586	125,003
Weighted average shares outstanding-diluted									5,054,114	5,067,085	5,032,211
Earnings per share
Earnings per share - basic	$ 0.27	$ 0.28	$ 0.27	$ 0.24	$ 0.25	$ 0.24	$ 0.26	$ 0.25	$ 1.06	$ 0.99	$ 0.90
Earnings per share - diluted	$ 0.26	$ 0.28	$ 0.26	$ 0.24	$ 0.24	$ 0.24	$ 0.25	$ 0.22	$ 1.04	$ 0.96	$ 0.87

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REGULATORY CAPITAL REQUIREMENTS (Details Narrative)	Dec. 31, 2016	Dec. 31, 2015
Regulatory Capital Requirements [Abstract]
Common equity tier 1 capital conservation buffer (risk-weighted assets)	0.625%	2.50%

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REGULATORY CAPITAL REQUIREMENTS (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Total Capital to risk-weighted assets:
Total Capital	$ 44,850,000	$ 41,497,000
Total Capital (to risk-weighted assets) ratio	15.46%	15.54%
Minimum amount of capital for adequacy purposes	$ 23,213,000	$ 21,359,000
Minimum amount of capital for adequacy purposes, ratio	8.00%	8.00%
Tier 1 capital to risk-weighted assets:
Tier 1 Capital	$ 41,220,000	$ 38,159,000
Tier 1 Capital (to risk-weighted assets) ratio	14.21%	14.29%
Minimum amount of Tier 1 Capital for adequacy purposes	$ 17,410,000	$ 16,019,000
Minimum amount of Tier 1 Capital for adequacy purposes, ratio	6.00%	6.00%
Tier 1 capital to average assets:
Tier 1 Capital	$ 41,220,000	$ 38,159,000
Tier 1 Capital (to average assets) ratio	9.85%	9.63%
Minimum amount of Tier 1 Capital for adequacy purposes	$ 16,738,000	$ 15,850,000
Minimum amount of Tier 1 Capital for adequacy purposes, ratio	4.00%	4.00%
Common equity Tier 1 capital:
Tier 1 Capital	$ 41,220,000	$ 38,159,000
Tier 1 Capital (to tangible assets) ratio	14.21%	14.29%
Tier 1 Capital for adequacy purposes	$ 13,058,000	$ 12,014,000
Tier 1 Capital for adequacy purposes, ratio	4.50%	4.50%
Bank [Member]
Total Capital to risk-weighted assets:
Total Capital	$ 44,544,000	$ 41,169,000
Total Capital (to risk-weighted assets) ratio	15.36%	15.42%
Minimum amount of capital for adequacy purposes	$ 23,207,000	$ 21,357,000
Minimum amount of capital for adequacy purposes, ratio	8.00%	8.00%
Minimum Capital required to be well-capitalized	$ 29,009,000	$ 26,696,000
Minimum Capital required to be well-capitalized, ratio	10.00%	10.00%
Tier 1 capital to risk-weighted assets:
Tier 1 Capital	$ 40,915,000	$ 37,831,000
Tier 1 Capital (to risk-weighted assets) ratio	14.10%	14.17%
Minimum amount of Tier 1 Capital for adequacy purposes	$ 17,405,000	$ 16,018,000
Minimum amount of Tier 1 Capital for adequacy purposes, ratio	6.00%	6.00%
Minimum Tier 1 Capital required to be well-capitalized	$ 23,207,000	$ 21,357,000
Minimum Tier 1 Capital required to be well-capitalized, ratio	8.00%	8.00%
Tier 1 capital to average assets:
Tier 1 Capital	$ 40,915,000	$ 37,831,000
Tier 1 Capital (to average assets) ratio	9.78%	9.55%
Minimum amount of Tier 1 Capital for adequacy purposes	$ 16,735,000	$ 15,843,000
Minimum amount of Tier 1 Capital for adequacy purposes, ratio	4.00%	4.00%
Minimum Tier 1 Capital required to be well-capitalized	$ 20,919,000	$ 19,803,000
Minimum Tier 1 Capital required to be well-capitalized, ratio	5.00%	5.00%
Common equity Tier 1 capital:
Tier 1 Capital	$ 40,915,000	$ 37,831,000
Tier 1 Capital (to tangible assets) ratio	14.10%	14.17%
Tier 1 Capital for adequacy purposes	$ 13,054,000	$ 12,013,000
Tier 1 Capital for adequacy purposes, ratio	4.50%	4.50%
Tier 1 Capital required to be well-capitalized	$ 18,856,000	$ 17,353,000
Tier 1 Capital required to be well-capitalized, ratio	6.50%	6.50%

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DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Investments available for sale	$ 119,978,944	$ 119,997,585
Quoted Prices in Active Markets (Level 1) [Member]
Investments available for sale	23,939,063	34,633,673
Significant Other Observable Inputs (Level 2) [Member]
Investments available for sale	82,062,024	80,146,234
Significant Unobservable Inputs (Level 3) [Member]
Investments available for sale	13,977,857	5,217,678
U.S. Treasury Notes [Member]
Investments available for sale	23,939,063	34,633,673
Government-Sponsored Enterprises [Member]
Investments available for sale	51,034,091	51,284,332
Municipal Securties [Member]
Investments available for sale	45,005,790	34,079,580
Recurring Basis [Member]
Total fair value	119,978,944	119,997,585
Recurring Basis [Member] | Quoted Prices in Active Markets (Level 1) [Member]
Total fair value	23,939,063	34,633,673
Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member]
Total fair value	82,062,024	80,146,234
Recurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member]
Total fair value	13,977,857	5,217,678
Recurring Basis [Member] | U.S. Treasury Notes [Member]
Investments available for sale	23,939,063	34,633,673
Recurring Basis [Member] | U.S. Treasury Notes [Member] | Quoted Prices in Active Markets (Level 1) [Member]
Investments available for sale	23,939,063	34,633,673
Recurring Basis [Member] | Government-Sponsored Enterprises [Member]
Investments available for sale	51,034,091	51,284,332
Recurring Basis [Member] | Government-Sponsored Enterprises [Member] | Significant Other Observable Inputs (Level 2) [Member]
Investments available for sale	51,034,091	51,284,332
Recurring Basis [Member] | Municipal Securties [Member]
Investments available for sale	45,005,790	34,079,580
Recurring Basis [Member] | Municipal Securties [Member] | Significant Other Observable Inputs (Level 2) [Member]
Investments available for sale	31,027,933	28,861,902
Recurring Basis [Member] | Municipal Securties [Member] | Significant Unobservable Inputs (Level 3) [Member]
Investments available for sale	$ 13,977,857	$ 5,217,678

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DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 1) - Significant Unobservable Inputs (Level 3) [Member] - Municipal Securties [Member] - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Beginning Balance	$ 5,217,678	$ 1,377,089
Included in other comprehensive income	(818,821)	(34,411)
Purchases, issuances and settlements, net of maturities	9,579,000	3,875,000
Ending balance	$ 13,977,857	$ 5,217,678

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DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2) - Nonrecurring Basis [Member] - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Impaired loans fair value	$ 4,143,772	$ 5,459,200
Other real estate owned fair value	521,943	620,394
Loans held for sale fair value	4,386,210	5,820,239
Total fair value	9,051,925	11,899,833
Significant Other Observable Inputs (Level 2) [Member]
Loans held for sale fair value	4,386,210	5,820,239
Total fair value	4,386,210	5,820,239
Significant Unobservable Inputs (Level 3) [Member]
Impaired loans fair value	4,143,772	5,459,200
Other real estate owned fair value	521,943	620,394
Total fair value	$ 4,665,715	$ 6,079,594

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DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3)

12 Months Ended

Dec. 31, 2016

Other Real Estate Owned [Member]

Fair Value Inputs, Assets, Quantitative Information [Line Items]

Valuation technique

Appraisal Value/ Comparison Sales/Other Estimates

Unobservable Input

Appraisals and/or Sales of Comparable Properties

Description of general range of inputs

Appraisals Discounted 10% to 20% for Sales Commissions and Other Holding Costs

Other Real Estate Owned [Member] | Collateral Discounts [Member] | Maximum [Member]

Fair Value Inputs, Assets, Quantitative Information [Line Items]

Discount rate (in percent)

20.00%

Other Real Estate Owned [Member] | Appraisals and/or Sales [Member] | Lower Range [Member]

Fair Value Inputs, Assets, Quantitative Information [Line Items]

Discount rate (in percent)

10.00%

Impaired Loans [Member]

Fair Value Inputs, Assets, Quantitative Information [Line Items]

Valuation technique

Discounted Appraisals

Unobservable Input

Collateral Discounts

Description of general range of inputs

0 – 35%

Impaired Loans [Member] | Collateral Discounts [Member] | Lower Range [Member]

Fair Value Inputs, Assets, Quantitative Information [Line Items]

Discount rate (in percent)

0.00%

Impaired Loans [Member] | Collateral Discounts [Member] | Maximum [Member]

Fair Value Inputs, Assets, Quantitative Information [Line Items]

Discount rate (in percent)

35.00%

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DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 4) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Financial Assets:
Investments available for sale	$ 119,978,944	$ 119,997,585
Quoted Prices in Active Markets (Level 1) [Member]
Financial Assets:
Cash and due from banks	8,141,030	5,295,924
Interest-bearing deposits in other banks	18,101,300	23,898,862
Investments available for sale	23,939,063	34,633,673
Significant Other Observable Inputs (Level 2) [Member]
Financial Assets:
Investments available for sale	82,062,024	80,146,234
Mortgage loans to be sold	4,386,210	5,820,239
Accrued interest receivable	1,614,002	1,284,063
Financial Liabilities:
Demand Deposits	328,681,594	303,950,800
Time Deposits	43,856,383	54,780,915
Accrued interest payable	51,629	73,421
Significant Unobservable Inputs (Level 3) [Member]
Financial Assets:
Investments available for sale	13,977,857	5,217,678
Loans	260,406,669	242,581,154
Carrying Amount [Member]
Financial Assets:
Cash and due from banks	8,141,030	5,295,924
Interest-bearing deposits in other banks	18,101,300	23,898,862
Investments available for sale	119,978,944	119,997,585
Mortgage loans to be sold	4,386,210	5,820,239
Loans	260,576,115	242,622,705
Accrued interest receivable	1,614,002	1,284,063
Financial Liabilities:
Demand Deposits	328,681,594	303,950,800
Time Deposits	43,841,257	54,767,812
Accrued interest payable	51,629	73,421
Estimated Fair Value [Member]
Financial Assets:
Cash and due from banks	8,141,030	5,295,924
Interest-bearing deposits in other banks	18,101,300	23,898,862
Investments available for sale	119,978,944	119,997,585
Mortgage loans to be sold	4,386,210	5,820,239
Loans	260,406,669	242,581,154
Accrued interest receivable	1,614,002	1,284,063
Financial Liabilities:
Demand Deposits	328,681,594	303,950,800
Time Deposits	43,856,383	54,780,915
Accrued interest payable	$ 51,629	$ 73,421

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Equity [Abstract]
Available for sale securities, beginning	$ 992,549	$ 1,243,022	$ 955,900
Change in net unrealized gains (losses) on securities available for sale	(2,158,236)	26,255	768,326
Reclassification adjustment for net securities gains included in net income	(380,904)	(423,832)	(312,577)
Income tax expense (benefit)	939,482	147,104	(168,627)
Available for sale securities, ending	$ (607,109)	$ 992,549	$ 1,243,022

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Details 1) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on sale of investments, net									$ 380,904	$ 423,832	$ 312,577
Income tax expense	$ (203,444)	$ (399,656)	$ (518,262)	$ (567,071)	$ (576,474)	$ (551,319)	$ (596,680)	$ (562,775)	(1,688,433)	(2,287,248)	(1,997,866)
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on sale of investments, net									380,904	423,832	312,577
Income tax expense									(140,934)
Total reclassification, net of tax									$ 239,970	$ 423,832	$ 312,577

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BANK OF SOUTH CAROLINA CORPORATION - PARENT COMPANY (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Assets:
Other assets	$ 2,185,085	$ 761,339
Total assets	413,949,636	399,172,512
Liabilities and Shareholders' Equity:
Shareholders' equity	40,612,974	39,151,712	$ 36,759,982	$ 34,739,143
Total liabilities and shareholders' equity	413,949,636	399,172,512
Bank of South Carolina Corporation - Parent [Member]
Assets:
Cash	922,595	946,996	$ 648,194	$ 675,367
Investment in wholly-owned subsidiary	40,308,166	38,823,720
Other assets	76,077	20,154
Total assets	41,306,838	39,790,870
Liabilities and Shareholders' Equity:
Other liabilities	693,864	639,158
Shareholders' equity	40,612,974	39,151,712
Total liabilities and shareholders' equity	$ 41,306,838	$ 39,790,870

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BANK OF SOUTH CAROLINA CORPORATION - PARENT COMPANY (Details 1) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Condensed Statements of Operations
Interest Income	$ 3,767,574	$ 3,933,676	$ 3,677,681	$ 3,537,926	$ 3,526,896	$ 3,468,442	$ 3,451,084	$ 3,381,131	$ 14,916,857	$ 13,827,553	$ 13,009,307
Net income	$ 1,312,879	$ 1,426,338	$ 1,312,110	$ 1,195,736	$ 1,226,971	$ 1,198,919	$ 1,253,438	$ 1,204,960	5,247,063	4,884,288	4,398,820
Bank of South Carolina Corporation - Parent [Member]
Condensed Statements of Operations
Interest Income									571	302	306
Net operating expenses									(177,612)	(195,636)	(187,284)
Dividends received from bank									2,340,000	2,475,000	2,865,000
Equity in undistributed earnings of subsidiary									3,084,104	2,604,622	1,720,798
Net income									$ 5,247,063	$ 4,884,288	$ 4,398,820

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BANK OF SOUTH CAROLINA CORPORATION - PARENT COMPANY (Details 2) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities:
Net income	$ 1,312,879	$ 1,426,338	$ 1,312,110	$ 1,195,736	$ 1,226,971	$ 1,198,919	$ 1,253,438	$ 1,204,960	$ 5,247,063	$ 4,884,288	$ 4,398,820
Stock-based compensation expense									76,529	78,987	74,908
Net cash provided by operating activities									6,042,824	7,115,612	2,172,903
Cash flows from financing activities:
Dividends paid									(2,613,715)	(2,380,062)	(2,765,735)
Cash paid for fractional shares										(4,778)
Stock options exercised									405,749	122,946	26,050
Net cash used by financing activities									11,596,273	27,057,010	21,417,368
Supplemental disclosure for non-cash investing and financing activity:
Change in dividends payable									54,706	59,178	325
Bank of South Carolina Corporation - Parent [Member]
Cash flows from operating activities:
Net income									5,247,063	4,884,288	4,398,820
Stock-based compensation expense									76,529	78,987	74,908
Equity in undistributed earnings of subsidiary									(3,084,104)	(2,604,622)	(1,720,798)
Decrease (increase) in other assets									(55,923)	202,043	(40,092)
Net cash provided by operating activities									2,183,565	2,560,696	2,712,838
Cash flows from financing activities:
Dividends paid									(2,613,715)	(2,380,062)	(2,766,061)
Cash paid for fractional shares										(4,778)
Stock options exercised									405,749	122,946	26,050
Net cash used by financing activities									(2,207,966)	(2,261,894)	(2,740,011)
Net increase (decrease) in cash									(24,401)	298,802	(27,173)
Cash at beginning of year				$ 946,996				$ 648,194	946,996	648,194	675,367
Cash at ending of year	$ 922,595				$ 946,996				922,595	946,996	648,194
Supplemental disclosure for non-cash investing and financing activity:
Change in dividends payable									$ 54,706	$ 59,178	$ 325

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QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Quarterly Financial Information Disclosure [Abstract]
Total interest and fee income	$ 3,862,720	$ 4,030,143	$ 3,770,669	$ 3,632,065	$ 3,635,011	$ 3,569,672	$ 3,550,663	$ 3,474,602	$ 15,295,597	$ 14,229,948	$ 13,418,254
Total interest expense	95,146	96,467	92,988	94,139	108,115	101,230	99,579	93,471	378,740	402,395	408,947
Net interest income	3,767,574	3,933,676	3,677,681	3,537,926	3,526,896	3,468,442	3,451,084	3,381,131	14,916,857	13,827,553	13,009,307
Provision for loan losses	175,000	210,000	140,000	45,000	110,000	7,500	70,000	5,000	570,000	192,500	82,500
Net interest income after provisions for loan losses	3,592,574	3,723,676	3,537,681	3,492,926	3,416,896	3,460,942	3,381,084	3,376,131	14,346,857	13,635,053	12,926,807
Other income	638,896	686,586	729,572	806,029	788,770	662,038	868,492	730,658	2,861,083	3,049,958	2,578,701
Other expense	2,715,147	2,584,268	2,436,881	2,536,148	2,402,221	2,372,742	2,399,458	2,339,054	10,272,444	9,513,475	9,108,822
Income before income tax expense	1,516,323	1,825,994	1,830,372	1,762,807	1,803,445	1,750,238	1,850,118	1,767,737	6,935,496	7,171,536	6,396,686
Income tax expense	203,444	399,656	518,262	567,071	576,474	551,319	596,680	562,775	1,688,433	2,287,248	1,997,866
Net income	$ 1,312,879	$ 1,426,338	$ 1,312,110	$ 1,195,736	$ 1,226,971	$ 1,198,919	$ 1,253,438	$ 1,204,960	$ 5,247,063	$ 4,884,288	$ 4,398,820
Basic income per common share	$ 0.27	$ 0.28	$ 0.27	$ 0.24	$ 0.25	$ 0.24	$ 0.26	$ 0.25	$ 1.06	$ 0.99	$ 0.90
Diluted income per common share	$ 0.26	$ 0.28	$ 0.26	$ 0.24	$ 0.24	$ 0.24	$ 0.25	$ 0.22	$ 1.04	$ 0.96	$ 0.87