10-Q

United States
Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One) 

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

For the quarterly period ended June 30, 2020

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

Commission file number: 0-27702

Bank of South Carolina Corporation

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

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

256 Meeting Street, Charleston, SC 29401

(Address of principal executive offices)

(843) 724-1500

(Registrant’s telephone number)

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

Yes ☒ No ☐ 

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

Yes ☒ No ☐ 

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

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

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

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

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

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

As of July 15, 2020, there were 5,526,408 Common Shares outstanding.

Part I. Financial Information		Page
Item 1.	Financial Statements
Consolidated Balance Sheets – June 30, 2020 and December 31, 2019		3
Consolidated Statements of Income – Three and Six months ended June 30, 2020 and 2019		4
Consolidated Statements of Comprehensive Income – Three and Six months ended June 30, 2020 and 2019		6
Consolidated Statements of Shareholders’ Equity – Six months ended June 30, 2020 and 2019		7
Consolidated Statements of Cash Flows – Six months ended June 30, 2020 and 2019		8
Notes to Consolidated Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Off-Balance Sheet Arrangements		28
Liquidity		28
Capital Resources		29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
Part II. Other Information
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosure	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Signatures		31
Certifications		32

Part I. Financial Information

Item 1. Financial Statements

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

 CONSOLIDATED BALANCE SHEETS

	(Unaudited)			(Audited)
	June 30,			December 31,
	2020			2019
ASSETS
Cash and due from banks	$	6,886,753		$	9,773,893
Interest-bearing deposits at the Federal Reserve		89,344,677			39,320,526
Investment securities available for sale		108,906,662			100,449,956
Mortgage loans to be sold		11,624,188			5,062,398
Loans		309,907,305			274,072,560
Less: Allowance for loan losses		(4,110,630	)		(4,003,758	)
Net loans		305,796,675			270,068,802
Premises, equipment and leasehold improvements,  net		4,161,381			4,290,435
Right of use asset		12,971,774			13,209,217
Accrued interest receivable		1,332,528			1,309,772
Other assets		1,596,912			1,527,521
Total assets	$	542,621,550		$	445,012,520
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing demand	$	177,061,501		$	125,621,031
Interest bearing demand		141,000,259			125,175,935
Money market accounts		90,750,383			68,964,879
Time deposits over $250,000		4,199,914			5,967,559
Other time deposits		17,045,826			16,215,228
Other savings deposits		43,639,294			37,247,023
Total deposits		473,697,177			379,191,655
Accrued interest payable and other liabilities		1,991,744			1,443,616
Lease liability		12,971,774			13,209,217
Total liabilities		488,660,695			393,844,488
Shareholders’ equity
Common stock - no par 12,000,000 shares authorized; Issued 5,812,038 shares at June 30, 2020 and 5,799,637 shares at December 31, 2019. Shares outstanding 5,530,682 and 5,530,001 at June 30, 2020 and December 31, 2019, respectively.		—			—
Additional paid in capital		47,290,003			47,131,034
Retained earnings		7,131,796			5,879,409
Treasury stock: 281,356 and 269,636 shares at June 30, 2020 and December 31, 2019, respectively.		(2,515,472	)		(2,325,225	)
Accumulated other comprehensive income, net of income taxes		2,054,528			482,814
Total shareholders’ equity		53,960,855			51,168,032
Total liabilities and shareholders’ equity	$	542,621,550		$	445,012,520

See accompanying notes to consolidated financial statements.

3

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended
	June 30,
	2020		2019
Interest and fee income
Loans, including fees	$	3,721,184	$	4,090,423
Taxable securities		382,993		423,211
Tax-exempt securities		82,783		137,115
Other		16,251		162,596
Total interest and fee income		4,203,211		4,813,345
Interest expense
Deposits		76,005		245,226
Total interest expense		76,005		245,226
Net interest income		4,127,206		4,568,119
Provision for loan losses		—		135,000
Net interest income after provision for loan losses		4,127,206		4,433,119
Other income
Service charges and fees		250,337		300,553
Mortgage banking income		446,119		256,379
Gain on sales of securities		—		28,900
Other non-interest income		7,166		6,907
Total other income		703,622		592,739
Other expense
Salaries and employee benefits		1,812,832		1,664,436
Net occupancy expense		554,534		427,247
Other operating expenses		334,199		394,178
Data processing fees		168,658		148,921
Total other expense		2,870,223		2,634,782
Income before income tax expense		1,960,605		2,391,076
Income tax expense		459,582		550,229
Net income	$	1,501,023	$	1,840,847
Weighted average shares outstanding
Basic		5,529,632		5,517,236
Diluted		5,714,121		5,587,985
Basic income per common share	$	0.27	$	0.33
Diluted income per common share	$	0.26	$	0.33

See accompanying notes to consolidated financial statements.

4

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Six Months Ended
	June 30,
	2020		2019
Interest and fee income
Loans, including fees	$	7,392,166	$	8,042,142
Taxable securities		746,432		886,665
Tax-exempt securities		207,408		298,836
Other		158,631		278,535
Total interest and fee income		8,504,637		9,506,178
Interest expense
Deposits		170,077		488,984
Total interest expense		170,077		488,984
Net interest income		8,334,560		9,017,194
Provision for loan losses		—		145,000
Net interest income after provision for loan losses		8,334,560		8,872,194
Other income
Service charges and fees		525,927		580,486
Mortgage banking income		792,202		380,041
Gain on sale of securities		—		28,900
Other non-interest income		13,124		12,095
Total other income		1,331,253		1,001,522
Other expense
Salaries and employee benefits		3,584,613		3,320,960
Net occupancy expense		1,079,841		814,379
Other operating expenses		734,248		864,227
Data processing fees		328,042		294,577
Total other expense		5,726,744		5,294,143
Income before income tax expense		3,939,069		4,579,573
Income tax expense		916,915		1,049,462
Net income	$	3,022,154	$	3,530,111
Weighted average shares outstanding
Basic		5,529,944		5,515,832
Diluted		5,708,718		5,586,813
Basic income per common share	$	0.55	$	0.64
Diluted income per common share	$	0.53	$	0.63

See accompanying notes to consolidated financial statements.

5

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended
	June 30,
	2020			2019
Net income	$	1,501,023		$	1,840,847
Other comprehensive income
Unrealized gain on securities arising during the period		1,228,734			1,343,539
Reclassification adjustment for securities gains realized in net income		—			(28,900	)
Other comprehensive income before tax		1,228,734			1,314,639
Income tax effect related to items of other comprehensive income before tax		(258,036	)		(276,074	)
Other comprehensive income after tax		970,698			1,038,565
Total comprehensive income	$	2,471,721		$	2,879,412

	Six Months Ended
	June 30,
	2020			2019
Net income	$	3,022,154		$	3,530,111
Other comprehensive income
Unrealized gain on securities arising during the period		1,989,513			2,599,154
Reclassification adjustment for securities gains realized in net income		—			(28,900	)
Other comprehensive income before tax		1,989,513			2,570,254
Income tax effect related to items of other comprehensive income before tax		(417,799	)		(539,753	)
Other comprehensive income after tax		1,571,714			2,030,501
Total comprehensive income	$	4,593,868		$	5,560,612

See accompanying notes to consolidated financial statements.

6

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED) 

	Shares Outstanding			Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Total
December 31, 2019		5,530,001		$	47,131,034	$	5,879,409		$	(2,325,225	)	$	482,814	$	51,168,032
Net income		—			—		1,521,131			—			—		1,521,131
Other comprehensive income		—			—		—			—			601,016		601,016
Stock option exercises		362			4,489		—			—			—		4,489
Stock-based compensation expense		—			16,418		—			—			—		16,418
Cash dividends ($0.16 per common share)		—			—		(884,859	)		—			—		(884,859	)
March 31, 2020		5,530,363		$	47,151,941	$	6,515,681		$	(2,325,225	)	$	1,083,830	$	52,426,227
Net income		—			—		1,501,023			—			—		1,501,023
Other comprehensive income		—			—		—			—			970,698		970,698
Stock option exercises		9,619			108,757		—			(41,697	)		—		67,060
Stock-based compensation expense		—			29,305		—			—			—		29,305
Repurchase of common shares		(9,300	)		—		—			(148,550	)		—		(148,550	)
Cash dividends ($0.16 per common share)		—			—		(884,908	)		—			—		(884,908	)
June 30, 2020		5,530,682		$	47,290,003	$	7,131,796		$	(2,515,472	)	$	2,054,528	$	53,960,855

	Shares Outstanding		Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
December 31, 2018		5,510,917	$	46,857,734	$	2,650,296		$	(2,268,264	)	$	(1,777,205	)	$	45,462,561
Net income		—		—		1,689,264			—			—			1,689,264
Other comprehensive income		—		—		—			—			991,936			991,936
Stock option exercises		5,808		51,265		—			—			—			51,265
Stock-based compensation expense		—		18,881		—			—			—			18,881
Cash dividends ($0.16 per common share)		—		—		(882,676	)		—			—			(882,676	)
March 31, 2019		5,516,725	$	46,927,880	$	3,456,884		$	(2,268,264	)	$	(785,269	)	$	47,331,231
Net income		—		—		1,840,847			—			—			1,840,847
Other comprehensive income		—		—		—			—			1,038,565			1,038,565
Stock option exercises		8,553		94,977		—			(45,843	)		—			49,134
Stock-based compensation expense		—		18,882		—			—			—			18,882
Cash dividends ($0.16 per common share)		—		—		(884,044	)		—			—			(884,044	)
June 30, 2019		5,525,278	$	47,041,739	$	4,413,687		$	(2,314,107	)	$	253,296		$	49,394,615

See accompanying notes to consolidated financial statements.

7

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
	2020			2019
Cash flows from operating activities:
Net income	$	3,022,154		$	3,530,111
Adjustments to reconcile net income net cash (used in) provided by operating activities:
Depreciation expense		210,774			109,132
Gain on sale of investment securities		—			(28,900	)
Provision for loan losses		—			145,000
Stock-based compensation expense		45,723			37,763
Deferred income taxes		(487,188	)		(21,966	)
Net amortization of unearned discounts on investment securities available for sale		94,805			140,730
Origination of mortgage loans held for sale		(69,441,770	)		(27,140,026	)
Proceeds from sale of mortgage loans held for sale		62,879,980			25,464,482
Increase in accrued interest receivable and other assets		(22,756	)		(215,254	)
Increase in accrued interest payable and other liabilities		548,019			599,626
Net cash (used in) provided by operating activities		(3,150,259	)		2,620,698
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale		10,088,000			5,743,835
Proceeds from sale of investment securities available for sale		—			14,952,500
Purchase of investment securities available for sale		(16,650,000	)		—
Net increase in loans		(35,727,873	)		(9,412,146	)
Purchase of premises, equipment, and leasehold improvements, net		(81,720	)		(463,239	)
Net cash (used in) provided by investing activities		(42,371,593	)		10,820,950
Cash flows from financing activities:
Net increase in deposit accounts		94,505,522			1,431,517
Dividends paid		(1,769,658	)		(1,709,314	)
Stock options exercised		71,549			100,399
Share repurchases		(148,550	)		—
Net cash provided by (used in) financing activities		92,658,863			(177,398	)
Net increase in cash and cash equivalents		47,137,011			13,264,250
Cash and cash equivalents at the beginning of the period		49,094,419			31,832,241
Cash and cash equivalents at the end of the period	$	96,231,430		$	45,096,491
Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest	$	207,880		$	589,058
Income taxes	$	—		$	627,642
Supplemental disclosures for non-cash investing and financing activity:
Change in unrealized gain on securities available for sale, net of income taxes	$	(1,571,714	)	$	(2,030,501	)
Change in dividends payable	$	109		$	57,406
Right of use assets obtained in exchange for lease obligations	$	—		$	7,334,079
Change in right of use assets and lease liabilities	$	(237,443	)	$	(115,435	)

See accompanying notes to consolidated financial statements.

8

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Nature of Business and Basis of Presentation

Organization

The Bank of South Carolina (the “Bank”) was organized on October 22, 1986 and opened for business as a state-chartered financial institution on February 26, 1987, in Charleston, South Carolina. The Bank was reorganized into a wholly-owned subsidiary of Bank of South Carolina Corporation (the “Company”), effective April 17, 1995. At the time of the reorganization, each outstanding share of the Bank was exchanged for two shares of Bank of South Carolina Corporation Stock.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. In consolidation, all significant intercompany balances and transactions have been eliminated.

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

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or (“GAAP”), for the interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 6, 2020. In the opinion of management, these interim financial statements present fairly, in all material respects, the Company’s consolidated financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

Accounting Estimates and Assumptions

The consolidated financial statements are prepared in conformity with GAAP, which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ significantly from these estimates and assumptions. Material estimates generally susceptible to significant change are related to the determination of the allowance for loan losses, impaired loans, other real estate owned, deferred tax assets, the fair value of financial instruments and other-than-temporary impairment of investment securities.

Reclassification

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

Income per share

Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Dilutive income per share is computed by dividing net income by the weighted-average number of common shares and potential common shares outstanding. Potential common shares consist of dilutive stock options determined using the treasury stock method and the average market price of common stock. Retroactive recognition has been given for the effects of all stock dividends.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. We have reviewed events occurring through the date the financial statements were available to be issued and no subsequent events occurred requiring accrual or disclosure.

Recent Accounting Pronouncements

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

In June 2016, the FASB issued ASU 2016-13, Financial instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to change the accounting for credit losses and modify the impairment model for certain debt securities. In May 2019, the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. In October 2019, the FASB voted to extend the implementation date for smaller reporting companies, non-SEC public companies, and private companies. The amendment will be effective for the Company for periods beginning after December 15, 2022. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows. It will be influenced by the quality, composition, and characteristics of our loan and investment portfolios, as well as the expected economic conditions and forecasts at the time of enactment and future reporting periods.

9

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles and Goodwill and Other-Internal Use Software (Subtopic 350-40):Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract),which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.

In April 2019, the FASB issued guidance that clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for the reporting period beginning after December 15, 2019. The amendments related to hedging became effective January 1, 2019. The amendments related to recognition and measurement of financial instruments became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.

In July 2019, the FASB updated various Topics of the ASC to align the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. The amendments were effective upon issuance and did not have a material effect on the financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which provides guidance to simply accounting for income taxes by removing specific technical exceptions that can produce information investors do not understand. The amendments improve and simplify the application of GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on the financial statements.

In January 2020, the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2020, the FASB issued guidance to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2020, the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the current expected credit losses (CECL) guidance issued in 2016. The amendments related to conforming amendments. For public business entities, the amendments are effective upon issuance of this final ASU. The effective date of the amendments to ASU 2016-01 is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For the amendments related to ASU 2016-13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies (SRCs) as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. Early adoption will continue to be permitted. For entities that have not yet adopted the guidance in ASU 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its 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.

10

Note 2: Investment Securities

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

	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	23,058,684	$	542,757	$	—		$	23,601,441
Government-Sponsored Enterprises		66,754,370		1,593,682		(9,967	)		68,338,085
Municipal Securities		16,492,938		474,198		—			16,967,136
Total	$	106,305,992	$	2,610,637	$	(9,967	)	$	108,906,662

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	23,080,465	$	99,735	$	—		$	23,180,200
Government-Sponsored Enterprises		50,139,959		401,336		(43,100	)		50,498,195
Municipal Securities		26,618,375		169,640		(16,454	)		26,771,561
Total	$	99,838,799	$	670,711	$	(59,554	)	$	100,449,956

The amortized cost and estimated fair value of investment securities available for sale as of June 30, 2020 and December 31, 2019, by contractual maturity are in the following table.

	June 30, 2020				December 31, 2019
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	10,189,841	$	10,320,371	$	9,185,615	$	9,191,226
Due in one year to five years		69,550,840		71,471,655		77,261,123		77,815,119
Due in five years to ten years		26,565,311		27,114,636		13,392,061		13,443,611
Due in ten years and over		—		—		—		—
Total	$	106,305,992	$	108,906,662	$	99,838,799	$	100,449,956

11

Securities pledged to secure deposits at both June 30, 2020 and December 31, 2019, had a fair value of $41.2 million and $37.6 million, respectively. 

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2020 and December 31, 2019. 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.

	June 30, 2020
	Less Than 12 Months							12 Months or Longer						Total
	#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss		#		Fair Value		Gross Unrealized Loss
U.S. Treasury Notes		—	$	—	$	—			—	$	—	$	—		—	$	—	$	—
Government-Sponsored Enterprises		1		11,624,020		(9,967	)		—		—		—		1		11,624,020		(9,967	)
Municipal Securities		—		—		—			—		—		—		—		—		—
Total		1	$	11,624,020	$	(9,967	)		—	$	—	$	—		1	$	11,624,020	$	(9,967	)

	December 31, 2019
	Less Than 12 Months							12 Months or Longer							Total
Available for sale	#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss
U.S. Treasury Notes		—	$	—	$	—			—	$	—	$	—			—	$	—	$	—
Government-Sponsored Enterprises		1		5,039,550		(43,100	)		—		—		—			1		5,039,550		(43,100	)
Municipal Securities		9		3,199,517		(13,335	)		1		330,880		(3,119	)		10		3,530,397		(16,454	)
Total		10	$	8,239,067	$	(56,435	)		1	$	330,880	$	(3,119	)		11	$	8,569,947	$	(59,554	)

The tables below show the proceeds from sales of securities available for sale and gross realized gains and losses.

	Three Months Ended
	June 30,
	2020		2019
Gross proceeds	$	—	$	14,952,500
Gross realized gains		—		59,512
Gross realized losses		—		(30,612	)

	Six Months Ended
	June 30,
	2020		2019
Gross proceeds	$	—	$	14,952,500
Gross realized gains		—		59,512
Gross realized losses		—		(30,612	)

There was no tax provision related to gains for the three and six months ended June 30, 2020. The tax provision related to these sales was $6,069 for the three and six months ended June 30, 2019.

Note 3: Loans and Allowance for Loan Losses

Major classifications of loans (net of deferred loan fees and costs of $1,128,775 at June 30, 2020 and $155,697 at December 31, 2019, respectively) are as follows:

	June 30, 2020			December 31, 2019
Commercial	$	42,680,070		$	52,848,455
Commercial Real Estate:
Construction		14,301,901			12,491,078
Other		140,469,962			143,821,990
Consumer:
Real Estate		71,183,544			59,533,045
Other		4,728,864			5,377,992
Paycheck Protection Program		36,542,964			—
		309,907,305			274,072,560
Allowance for loan losses		(4,110,630	)		(4,003,758	)
Loans, net	$	305,796,675		$	270,068,802

12

We had $68.7 million and $85.2 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at June 30, 2020 and at December 31, 2019, respectively.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. Under the program, the Small Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for Paycheck and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. The loans are 100% guaranteed by the SBA and payments are deferred for the first six months of the loan. The Bank receives a processing fee ranging from 1% to 5% based on the size of the loan from the SBA. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued by financial institutions through the SBA. The Bank has provided $36.5 million in funding to 266 customers through the PPP as of June 30, 2020. Because these loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve.

13

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

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

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

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

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

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

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

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

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

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

The following tables illustrate credit quality by class and internally assigned grades at June 30, 2020 and December 31, 2019. “Pass” includes loans internally graded as excellent, good and satisfactory.

June 30, 2020
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	35,665,736	$	13,461,039	$	118,080,815	$	68,776,698	$	4,430,294	$	—	$	240,414,582
Watch		4,701,530		840,862		20,069,519		869,152		219,765		—		26,700,828
OAEM		388,727		—		238,227		622,731		36,909		—		1,286,594
Substandard		1,924,077		—		2,081,401		914,963		41,896		—		4,962,337
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Unrated		—		—		—		—		—		36,542,964		36,542,964
Total	$	42,680,070	$	14,301,901	$	140,469,962	$	71,183,544	$	4,728,864	$	36,542,964	$	309,907,305

December 31, 2019
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	48,098,936	$	12,005,834	$	137,641,011	$	56,034,247	$	4,966,615	$	—	$	258,746,643
Watch		2,303,568		485,244		3,758,220		2,096,445		315,375		—		8,958,852
OAEM		460,551		—		649,039		522,600		44,232		—		1,676,422
Substandard		1,985,400		—		1,773,720		879,753		51,770		—		4,690,643
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Unrated		—		—		—		—		—		—		—
Total	$	52,848,455	$	12,491,078	$	143,821,990	$	59,533,045	$	5,377,992	$	—	$	274,072,560

The following tables include an aging analysis of the recorded investment in loans segregated by class.

June 30, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment ≥ 90 Days and Accruing
Commercial	$	—	$	210,121	$	—	$	210,121	$	42,469,949	$	42,680,070	$	—
Commercial Real Estate Construction		—		—		—		—		14,301,901		14,301,901		—
Commercial Real Estate Other		335,448		423,170		638,139		1,396,757		139,073,205		140,469,962		—
Consumer Real Estate		—		—		665,114		665,114		70,518,430		71,183,544		—
Consumer Other		—		2,560		—		2,560		4,726,304		4,728,864		—
Paycheck Protection Program		—		—		—		—		36,542,964		36,542,964		—
Total	$	335,448	$	635,851	$	1,303,253	$	2,274,552	$	307,632,753	$	309,907,305	$	—

14

December 31, 2019
	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	$	39,329	$	—	$	178,975	$	218,304	$	52,630,151	$	52,848,455	$	—
Commercial Real Estate Construction		—		—		—		—		12,491,078		12,491,078		—
Commercial Real Estate Other		620,837		300,240		582,419		1,503,496		142,318,494		143,821,990		—
Consumer Real Estate		—		2,965		629,999		632,964		58,900,081		59,533,045		—
Consumer Other		32,842		—		—		32,842		5,345,150		5,377,992		—
Paycheck Protection Program		—		—		—		—		—		—		—
Total	$	693,008	$	303,205	$	1,391,393	$	2,387,606	$	271,684,954	$	274,072,560	$	—

There were no loans over 90 days past due and still accruing as of June 30, 2020 and December 31, 2019.

The following table summarizes the balances of non-accrual loans:

	Loans Receivable on Non-Accrual
		June 30, 2020		December 31, 2019
Commercial	$	190,751	$	178,975
Commercial Real Estate Construction		—		—
Commercial Real Estate Other		912,067		857,327
Consumer Real Estate		665,114		629,999
Consumer Other		13,450		—
Paycheck Protection Program		—		—
Total	$	1,781,382	$	1,666,301

The following tables set forth the changes in the allowance for loan losses and an allocation of the allowance for loan losses by loan category for the three and six months ended June 30, 2020 and 2019. The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.

15

	Three Months Ended June 30, 2020
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,416,267		$	123,069	$	1,212,647	$	562,000	$	700,230		$	—	$	4,014,213
Charge-offs		—			—		—		—		(76,410	)		—		(76,410	)
Recoveries		71,511			—		99,801		—		1,515			—		172,827
Provisions		(469,228	)		27,738		164,571		321,300		(44,381	)		—		—
Ending balance	$	1,018,550		$	150,807	$	1,477,019	$	883,300	$	580,954		$	—	$	4,110,630

	Six Months Ended June 30, 2020
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,429,917		$	109,235	$	1,270,445	$	496,221	$	697,940		$	—	$	4,003,758
Charge-offs		—			—		—		—		(116,002	)		—		(116,002	)
Recoveries		87,011			—		99,801		—		36,062			—		222,874
Provisions		(498,378	)		41,572		106,773		387,079		(37,046	)		—		—
Ending balance	$	1,018,550		$	150,807	$	1,477,019	$	883,300	$	580,954		$	—	$	4,110,630

	Three Months Ended June 30, 2019
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,528,577	$	81,047	$	1,318,918	$	377,641	$	683,239		$	—	$	3,989,422
Charge-offs		—		—		—		—		(2,009	)		—		(2,009	)
Recoveries		5,500		—		—		—		2,635			—		8,135
Provisions		5,575		16,940		13,885		150,888		(52,288	)		—		135,000
Ending balance	$	1,539,652	$	97,987	$	1,332,803	$	528,529	$	631,577		$	—	$	4,130,548

	Six Months Ended June 30, 2019
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,665,413		$	63,876	$	1,292,346	$	386,585	$	806,111		$	—	$	4,214,331
Charge-offs		(229,395	)		—		—		—		(8,342	)		—		(237,737	)
Recoveries		6,000			—		—		—		2,954			—		8,954
Provisions		97,634			34,111		40,457		141,944		(169,146	)		—		145,000
Ending balance	$	1,539,652		$	97,987	$	1,332,803	$	528,529	$	631,577		$	—	$	4,130,548

16

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

	June 30, 2020
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	466,463	$	—	$	29,199	$	170,794	$	—	$	—	$	666,456
Collectively evaluated for impairment		552,087		150,807		1,447,820		712,506		580,954		—		3,444,174
Total Allowance for Loan Losses	$	1,018,550	$	150,807	$	1,477,019	$	883,300	$	580,954	$	—	$	4,110,630
Loans Receivable
Individually evaluated for impairment	$	1,924,077	$	—	$	2,084,973	$	914,964	$	41,896	$	—	$	4,965,910
Collectively evaluated for impairment		40,755,993		14,301,901		138,384,989		70,268,580		4,686,968		36,542,964		304,941,395
Total Loans Receivable	$	42,680,070	$	14,301,901	$	140,469,962	$	71,183,544	$	4,728,864	$	36,542,964	$	309,907,305

	December 31, 2019
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	683,278	$	—	$	1,782	$	—	$	90	$	—	$	685,150
Collectively evaluated for impairment		746,639		109,235		1,268,663		496,221		697,850		—		3,318,608
Total Allowance for Loan Losses	$	1,429,917	$	109,235	$	1,270,445	$	496,221	$	697,940	$	—	$	4,003,758
Loans Receivable
Individually evaluated for impairment	$	2,065,732	$	—	$	1,679,872	$	879,753	$	51,770	$	—	$	4,677,127
Collectively evaluated for impairment		50,782,723		12,491,078		142,142,118		58,653,292		5,326,222		—		269,395,433
Total Loans Receivable	$	52,848,455	$	12,491,078	$	143,821,990	$	59,533,045	$	5,377,992	$	—	$	274,072,560

17

As of June 30, 2020 and December 31, 2019, loans individually evaluated and considered impaired are presented in the following table.

	Impaired Loans as of
	June 30, 2020						December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	956,102	$	956,102	$	—	$	1,355,875	$	1,355,875	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,749,438		1,749,438		—		1,432,988		1,432,988		—
Consumer Real Estate		249,850		249,850		—		879,753		879,753		—
Consumer Other		41,896		41,896		—		—		—		—
Paycheck Protection Program		—		—		—		—		—		—
Total		2,997,286		2,997,286		—		3,668,616		3,668,616		—
With an allowance recorded:
Commercial		967,975		967,975		466,463		709,857		709,857		683,278
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		435,336		335,535		29,199		346,685		246,884		1,782
Consumer Real Estate		665,114		665,114		170,794		—		—		—
Consumer Other		—		—		—		51,770		51,770		90
Paycheck Protection Program		—		—		—		—		—		—
Total		2,068,425		1,968,624		666,456		1,108,312		1,008,511		685,150
Commercial		1,924,077		1,924,077		466,463		2,065,732		2,065,732		683,278
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		2,184,774		2,084,973		29,199		1,779,673		1,679,872		1,782
Consumer Real Estate		914,964		914,964		170,794		879,753		879,753		—
Consumer Other		41,896		41,896		—		51,770		51,770		90
Paycheck Protection Program		—		—		—		—		—		—
Total	$	5,065,711	$	4,965,910	$	666,456	$	4,776,928	$	4,677,127	$	685,150

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

	Three Months Ended June 30,
	2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	960,398	$	14,480	$	117,741	$	2,071
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,752,669		21,646		863,351		10,354
Consumer Real Estate		249,800		2,647		879,753		14,257
Consumer Other		42,163		683		—		—
Paycheck Protection Program		—		—		—		—
		3,005,030		39,456		1,860,845		26,682
With an allowance recorded:
Commercial		1,052,358		11,434		1,582,324		25,869
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		235,734		—		501,279		2,735
Consumer Real Estate		665,058		—		—		—
Consumer Other		—		—		17,108		224
Paycheck Protection Program		—		—		—		—
		1,953,150		11,434		2,100,711		28,828
Total
Commercial		2,012,756		25,914		1,700,065		27,940
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,988,403		21,646		1,364,630		13,089
Consumer Real Estate		914,858		2,647		879,753		14,257
Consumer Other		42,163		683		17,108		224
Paycheck Protection Program		—		—		—		—
	$	4,958,180	$	50,890	$	3,961,556	$	55,510

18

		Six Months Ended June 30,
		2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	1,024,907	$	29,570	$	123,509	$	4,334
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		1,772,945		37,824		967,076		20,700
Consumer Real Estate		249,754		6,472		879,753		28,357
Consumer Other		43,903		1,342		—		—
Paycheck Protection Program		—		—		—		—
		3,091,509		75,208		1,970,338		53,391
With an allowance recorded:
Commercial		1,184,428		26,662		1,597,013		51,983
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		229,149		—		403,001		5,498
Consumer Real Estate		664,701		—		—		—
Consumer Other		—		—		18,279		478
Paycheck Protection Program		—		—		—		—
		2,078,278		26,662		2,018,293		57,959
Total
Commercial		2,209,335		56,232		1,720,522		56,317
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		2,002,094		37,824		1,370,077		26,198
Consumer Real Estate		914,455		6,472		879,753		28,357
Consumer Other		43,903		1,342		18,279		478
Paycheck Protection Program		—		—		—		—
	$	5,169,787	$	101,870	$	3,988,631	$	111,350

In general, the modification or restructuring of a loan is considered a troubled debt restructuring (“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. As of June 30, 2020, there were 6 TDRs with a balance of $1.7 million compared to 3 TDRs with a balance of $573,473 as of December 31, 2019. These TDRs were granted extended payment terms with no principal reduction. The structure of two of the loans changed to interest only. All TDRs were performing as agreed as of June 30, 2020. No TDRs defaulted during the three and six months ended June 30, 2020 and 2019, which were modified within the previous twelve months.

Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. The Bank processed approximately $0.6 million in principal deferments to 80 customers during the six months ended June 30, 2020. This represents 0.18% of our total loan portfolio as of June 30, 2020. The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and found that all borrowers were current prior to relief and were not experiencing financial difficulty prior to COVID-19.

Note 4: Leases

As of June 30, 2020 and December 31, 2019, the Company had operating right of use (“ROU”) assets of $13.0 million and $13.2 million, respectively, and operating lease liabilities of $13.0 million and $13.2 million, respectively. The Company maintains operating leases on land, branch facilities, and parking. Most of the leases include one or more options to renew, with renewal terms extending up to 20 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized in lease expense.

The weighted average remaining lease term is 17.56 years. The weighted average incremental borrowing rate is 4.34%.

The table below shows lease expense components for the three months ended June 30, 2020.

Lease Expense Components
Operating lease expense	$	250,121
Short-term lease expense		—
Total lease expense	$	250,121

The table below shows lease expense components for the six months ended June 30, 2020.

Lease Expense Components
Operating lease expense	$	484,080
Short-term lease expense		—
Total lease expense	$	484,080

Total rental expense was $250,121 and $161,867 for the three months ended June 30, 2020 and 2019, respectively, and $484,080 and $317,859 for the six months ended June 30, 2020 and 2019, respectively, and was included in net occupancy expense within the consolidated statements of income.

As of June 30, 2020 and December 31, 2019, we did not maintain any finance leases and we determined that the number and dollar amount of equipment leases was immaterial. As of June 30, 2020 and December 31, 2019, we have no additional operating leases that have not yet commenced.

Note 5: Disclosure Regarding Fair Value of Financial Statements

Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs, which are developed based on market data we have obtained from independent sources, are ones that market participants would use in pricing an asset or liability. Unobservable inputs, which are developed based on the best information available in the circumstances, reflect our estimate of assumptions that market participants would use in pricing an asset or liability.

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The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

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

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

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

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

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

Investment Securities Available for Sale

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

We had no embedded derivative instruments requiring separate accounting treatment. We had freestanding derivative instruments consisting of fixed rate conforming loan commitments as interest rate locks and commitments to sell fixed rate conforming loans on a best efforts basis. We do not currently engage in hedging activities. Based on short term fair value of the mortgage loans held for sale (derivative contract), our derivative instruments were immaterial to our consolidated financial statements as of June 30, 2020 and December 31, 2019.

 Assets and liabilities measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 are as follows:

	June 30, 2020
	Level 1		Level 2		Level 3		Total
U.S. Treasury Notes	$	23,601,441	$	—	$	—	$	23,601,441
Government-Sponsored Enterprises		—		68,338,085		—		68,338,085
Municipal Securities		—		10,880,794		6,086,342		16,967,136
Total	$	23,601,441	$	79,218,879	$	6,086,342	$	108,906,662

	December 31, 2019
	Level 1		Level 2		Level 3		Total
U.S. Treasury Notes	$	23,180,200	$	—	$	—	$	23,180,200
Government-Sponsored Enterprises		—		50,498,195		—		50,498,195
Municipal Securities		—		14,817,110		11,954,451		26,771,561
Total	$	23,180,200	$	65,315,305	$	11,954,451	$	100,449,956

There were no liabilities recorded at fair value on a recurring basis as of June 30, 2020 or December 31, 2019.

The following table reconciles the changes in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Beginning balance	$	6,403,720		$	5,738,618		$	11,954,451		$	6,241,955
Total gains or (losses) (realized/unrealized)
Included in other comprehensive income		81,622			44,734			109,891			101,397
Purchases, issuances, and settlements net of maturities		(399,000	)		(1,248,835	)		(5,978,000	)		(1,808,835	)
Ending balance	$	6,086,342		$	4,534,517		$	6,086,342		$	4,534,517

There were no transfers between fair value levels during the three and six months ended June 30, 2020 or 2019.

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The following paragraphs describe the 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.

The Bank does not have any OREO as of June 30, 2020 or December 31, 2019.

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 ASC 820, Fair Value Measurement, impaired loans, where an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. These impaired loans are classified as Level 3. Impaired loans measured using discounted future cash flows are not deemed to be measured at fair value. 

Mortgage Loans to be Sold

Mortgage loans to be sold are carried at the lower of cost or market value. The fair values of mortgage loans to be sold are based on current market rates from investors within the secondary market for loans with similar characteristics. Carrying value approximates fair value. These loans are classified as Level 2.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The following table presents information about certain assets measured at fair value on a nonrecurring basis at June 30, 2020 and December 31, 2019:

	June 30, 2020
	Level 1		Level 2		Level 3		Total
Impaired loans	$	—	$	—	$	2,799,944	$	2,799,944
Mortgage loans to be sold		—		11,624,188		—		11,624,188
Total	$	—	$	11,624,188	$	2,799,944	$	14,424,132

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Impaired loans	$	—	$	—	$	2,657,644	$	2,657,644
Mortgage loans to be sold		—		5,062,398		—		5,062,398
Total	$	—	$	5,062,398	$	2,657,644	$	7,720,042

There were no liabilities measured at fair value on a nonrecurring basis as of June 30, 2020 or December 31, 2019.

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at June 30, 2020 and December 31, 2019:

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

Accounting standards require disclosure of fair value information for all of our assets and liabilities that are considered financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate fair value.

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

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

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

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

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b. Investment securities available for sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.

c. Loans, net

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

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

d. Deposits

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

e. Accrued interest receivable and payable

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

f. Loan commitments

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

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of June 30, 2020 and December 31, 2019.

	Fair Value Measurements at June 30, 2020
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	6,886,753	$	6,886,753	$	6,886,753	$	—	$	—
Interest-bearing deposits at the Federal Reserve		89,344,677		89,344,677		89,344,677		—		—
Investment securities available for sale		108,906,662		108,906,662		23,601,441		79,218,879		6,086,342
Mortgage loans to be sold		11,624,188		11,624,188		—		11,624,188		—
Loans, net		305,796,675		298,879,296		—		—		298,879,296
Accrued interest receivable		1,332,528		1,332,528		—		1,332,528		—
Financial Liabilities:
Demand deposits		452,451,437		452,451,437		—		452,451,437		—
Time deposits		21,245,740		23,478,635		—		23,478,635		—
Accrued interest payable		29,492		29,492		—		29,492		—

	Fair Value Measurements at December 31, 2019
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	9,773,893	$	9,773,893	$	9,773,893	$	—	$	—
Interest-bearing deposits at the Federal Reserve		39,320,526		39,320,526		39,320,526		—		—
Investment securities available for sale		100,449,956		100,449,956		23,180,200		65,315,305		11,954,451
Mortgage loans to be sold		5,062,398		5,062,398		—		5,062,398		—
Loans, net		270,068,802		271,736,572		—		—		271,736,572
Accrued interest receivable		1,309,772		1,309,772		—		1,309,772		—
Financial Liabilities:
Demand deposits		357,008,868		357,008,868		—		357,008,868		—
Time deposits		22,182,787		21,962,039		—		21,962,039		—
Accrued interest payable		38,748		38,748		—		38,748		—

Note 6: Income Per Common Share

Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and potential common shares outstanding. Potential common shares consist of dilutive stock options determined using the treasury stock method and the average market price of common stock.

The following table is a summary of the reconciliation of weighted average shares outstanding for the three months ended June 30:

	2020		2019
Net income	$	1,501,023	$	1,840,847
Weighted average shares outstanding		5,529,632		5,517,236
Effect of dilutive shares		184,489		70,749
Weighted average shares outstanding - diluted		5,714,121		5,587,985
Earnings per share - basic	$	0.27	$	0.33
Earnings per share - diluted	$	0.26	$	0.33

The following table is a summary of the reconciliation of weighted average shares outstanding for the six months ended June 30:

	2020		2019
Net income	$	3,022,154	$	3,530,111
Weighted average shares outstanding		5,529,944		5,515,832
Effect of dilutive shares		178,774		70,981
Weighted average shares outstanding - diluted		5,708,718		5,586,813
Earnings per share - basic	$	0.55	$	0.64
Earnings per share - diluted	$	0.53	$	0.63

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including information included or incorporated by reference in this document, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1934. We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1996 and are including this statement for the express purpose of availing the Company of protections of such safe harbor with respect to all “forward-looking statements” contained in this Form 10-Q. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of our Company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors that are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitations, those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the SEC and the following:

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

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

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

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

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

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

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

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

● Technological changes

● Ability to control 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
●	Reputational risk
● ● ●	Pandemic risk, including COVID-19, and related quarantine and/or stay-at home policies and restrictions Impact of COVID-19 on the collectability of loans Changes in legislation as related to PPP loans

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

Overview

Bank of South Carolina Corporation (the “Company”) is a financial institution holding company headquartered in Charleston, South Carolina, with $542.6 million in assets as of June 30, 2020. The Company offers a broad range of financial services through its wholly-owned subsidiary, The Bank of South Carolina (the “Bank”). The Bank is a state-chartered commercial bank which operates primarily in the Charleston, Dorchester and Berkeley counties of South Carolina. The Bank’s original and current concept is to be a full-service financial institution specializing in personal service, responsiveness, and attention to detail to foster long standing relationships.

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

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

In addition to earning interest on loans and investments, we earn income through fees and other expenses we charge to the customer. The various components of non-interest income as well as non-interest expense are described in the following discussion. The discussion and analysis also identify significant factors that have affected our financial position and operating results as of and for the periods ending June 30, 2020 and December 31, 2019, and should be read in conjunction with the financial statements and the related notes included in this report. In addition, a number of tables have been included to assist in the discussion.

COVID-19

On March 11, 2020, the World Health Organization (“WHO”) declared COVID-19 a pandemic. Due to orders issued by the governor of South Carolina and in an abundance of caution for the health of our customers and employees, on March 23, 2020 the Bank closed lobbies to all 5 offices but remained fully operational.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. Under the program, the Small Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for Paycheck and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. The loans are 100% guaranteed by the SBA and payments are deferred for the first six months of the loan. The Bank receives a processing fee ranging from 1% to 5% based on the size of the loan from the SBA. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued by financial institutions through the SBA. The Bank has provided $36.5 million in funding to 266 customers through the PPP as of June 30, 2020. Because these loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve.

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Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. The Bank processed approximately $0.6 million in principal deferments to 80 customers during the six months ended June 30, 2020. This represents 0.18% of our total loan portfolio as of June 30, 2020. In accordance with the FDIC guidance, borrowers who were current prior to becoming affected by COVID-19, that received payment accommodations as a result of the pandemic, generally should not be reported as past due. All borrowers who received payment accommodations did not experience financial difficulty and were current prior to COVID-19. There were no interest deferments granted and all loans given payment accommodations are still paying interest. The Bank is tracking all payment accommodations to customers to identify and quantify any impact they might have on the Bank.

While the effects of COVID-19 have impacted all industries to varying degrees, the Bank believes the retail and/or service, food and beverage, and short term rental industries in our geographic area are considered a higher risk due to the primary source of repayment. These industries are dependent upon the hospitality industry and were affected by the mandates issued by the Governor of South Carolina to limit occupancy or close for a period of time.

The table below shows the total loans receivable for these segments as a percentage of total gross loans as of June 30, 2020.

	June 30, 2020
	Amount		Percentage of Total Gross Loans
Retail and/or Service	$	2,577,101		0.83	%
Food and Beverage		1,378,126		0.44	%
Short Term Rental		13,791,316		4.45	%
Total	$	17,746,543		5.73	%

These loans have been temporarily downgraded and the Bank is continuing to monitor the effects of COVID-19 on these segments of our loan portfolio. The Bank granted payment accommodations of approximately $6.0 million, or 33.59%, of these loans. The Bank will reevaluate these loans in the third quarter of 2020 based on actual performance.

Effects of COVID-19 may negatively impact management assumptions and estimates, such as the allowance for loan losses. However, it is difficult to assess or predict how, and to what extent, COVID-19 will affect the Bank in the future.

Critical Accounting Policies

Our critical accounting policies, which involve significant judgements and assumptions that have a material impact on the carrying value of certain assets and liabilities, and used in the preparation of the Consolidated Financial Statements as of June 30, 2020, have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2019.

Balance Sheet

Cash and Cash Equivalents 

Total cash and cash equivalents increased 96.01% or $47.1 million to $96.2 million as of June 30, 2020, from $49.1 million as of December 31, 2019. The increase in total cash and cash equivalents is due to an increase in deposits driven by a combination of various government stimulus programs, delayed income tax payments, and decreased consumer spending.

Investment Securities Available for Sale

Our primary objective in managing the investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding competitive returns. We are required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. We maintain investment balances based on continuing assessment of cash flows, the level of current and expected loan production, current interest rate risk strategies and the assessment of potential future direction of market interest rate changes. Investment securities differ in terms of default, interest rate, liquidity and expected rate of return risk.

We use the investment securities portfolio for several purposes. It serves as a vehicle to manage interest rate and prepayment risk, to generate interest and dividend income from investment of funds, to provide liquidity to meet funding requirements, and to provide collateral for pledging of public funds.

As of June 30, 2020, our available for sale investment portfolio included U. S. Treasury Notes, Government-Sponsored Enterprises and Municipal Securities with a fair market value of $108.9 million and an amortized cost of $106.3 million for a net unrealized gain of approximately $2.6 million. As of June 30, 2020 and December 31, 2019, our investment securities portfolio represented approximately 20.07% and 22.57% of our total assets, respectively. The average yield on our investment securities was 1.85% and 2.00% at June 30, 2020 and December 31, 2019, respectively.

During the second quarter of 2020, three Municipal Securities totaling $1.0 million were called and one Municipal Security totaling $.4 million matured. During the first quarter of 2020, five Municipal Securities totaling $3.4 million were called and five Municipal Securities totaling $5.4 million matured. The Bank purchased $16.7 million in Government-Sponsored Enterprise securities during the second quarter of 2020.

During the first quarter of 2019, five Municipal Securities totaling $3.0 million matured and one Municipal Security in the amount of $0.5 million was called. During the second quarter of 2019, six Municipal Securities totaling $1.4 million were called, two Municipal Securities totaling $0.9 million matured, two Government-Sponsored Enterprise securities were sold for $10.0 million, and one U.S. Treasury Note in the amount of $5.0 was sold.

25

Loans

We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets. Substantially all of our loans are to borrowers located in our market area of Charleston, Dorchester and Berkeley counties of South Carolina.

Net loans increased $35.7 million, or 13.23%, to $305.8 million as of June 30, 2020 from $270.1 million as of December 31, 2019. The increase is primarily related to the PPP loans originated by the Bank.

The following table is a summary of our loan portfolio composition (net of deferred fees and costs of $1,128,775 at June 30, 2020 and $155,697 at December 31, 2019, respectively) and the corresponding percentage of total loans as of the dates indicated.

	June 30, 2020						December 31, 2019
	Amount			Percent			Amount			Percent
Commercial	$	42,680,070			13.77	%	$	52,848,455			19.28	%
Commercial Real Estate Construction		14,301,901			4.61	%		12,491,078			4.56	%
Commercial Real Estate Other		140,469,962			45.33	%		143,821,990			52.48	%
Consumer Real Estate		71,183,544			22.97	%		59,533,045			21.72	%
Consumer Other		4,728,864			1.53	%		5,377,992			1.96	%
Paycheck Protection Program		36,542,964			11.79	%		—			0.00	%
Total loans		309,907,305			100.00	%		274,072,560			100.00	%
Allowance for loan losses		(4,110,630	)					(4,003,758	)
Total loans, net	$	305,796,675					$	270,068,802

In January 2020, the Bank began originating 30-year, fixed rate consumer mortgage loans, which are held for investment rather than for sale in the secondary market. Prior to January, all consumer mortgage loans made by the Bank were originated for the purpose of sale and reflected on the consolidated balance sheet as mortgage loans held for sale. This new mortgage product has been well-received by the Bank’s customers, and the associated volume of originations through the first half of the year has contributed to the increase in Consumer Real Estate lending.

The increase in the deferred fees is directly associated with the processing fees the Bank received from the SBA for the PPP loans. The fees are deferred and amortized over the life of the loan in accordance with ASC 310-20.

Nonperforming Assets

Nonperforming Assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. As of June 30, 2020, there were no loans 90 days past due still accruing interest.

On March 18, 2020, in recognition of the difficulties of COVID-19, the Chief Justice of South Carolina declared a statewide moratorium on evictions and foreclosures until directed by subsequent order of the Chief Justice. The South Carolina Supreme Court lifted its moratorium effective May 15, 2020.

The following table is a summary of our Nonperforming Assets:

	June 30, 2020		December 31, 2019
Commercial	$	190,751	$	178,975
Commercial Real Estate Other		912,067		857,327
Consumer Real Estate		665,114		629,999
Consumer Other		13,450		—
Total nonaccruing loans		1,781,382		1,666,301
Total nonperforming assets	$	1,781,382	$	1,666,301

Allowance for Loan Losses

The allowance for loan losses was $4.1 million as of June 30, 2020 and $4.0 million as of December 31, 2019, or 1.50% and 1.46%, respectively, of outstanding loans, net of PPP loans, for each respective period. Because PPP loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process they are not graded and do not have an associated reserve. At June 30, 2020 and December 31, 2019, the allowance for loan losses represented 230.76% and 240.28% of the total amount of nonperforming loans, respectively. Based on the level of coverage on nonperforming loans and analysis of our loan portfolio, we believe the allowance for loan losses at June 30, 2020 is adequate.

At June 30, 2020, impaired loans totaled $5.0 million, for which $2.1 million of these loans had a reserve of approximately $0.7 million allocated in the allowance for loan losses. Comparatively, impaired loans totaled $4.7 million at December 31, 2019, and $1.1 million of these loans had a reserve of approximately $0.7 million allocated in the allowance for loan losses.

During the three months ended June 30, 2020, we recorded $76,410 of charge-offs and $172,827 of recoveries on loans previously charged-off, for net recoveries of $96,417. Comparatively, we recorded $2,009 of charge-offs and $8,135 of recoveries on loans previously charged-off, for net recoveries of $6,126 for the three months ended June 30, 2019. During the six months ended June 30, 2020, we recorded $116,002 of charge-offs and $222,874 of recoveries, for net recoveries of $106,872. Comparatively, we recorded $237,737 of charge-offs and $8,954 of recoveries on loans previously charged-off, for net charge-offs of $228,783 for the six months ended June 30, 2019.

Deposits

Deposits remain our primary source of funding for loans and investments. Average interest-bearing deposits provided funding for 57.11% of average earning assets for the six months ended June 30, 2020, and 58.98% for the six months ended June 30, 2019. The Company encounters strong competition from other financial institutions as well as consumer and commercial finance companies, insurance companies and brokerage firms located in the primary service area of the Bank. However, the percentage of funding provided by deposits has remained stable.

The breakdown of total deposits by type and the respective percentage of total deposits are as follows:

	June 30, 2020					December 31, 2019
	Amount		Percent			Amount		Percent
Deposits
Non-interest bearing demand	$	177,061,501		37.38	%	$	125,621,031		33.13	%
Interest bearing demand		141,000,259		29.77	%		125,175,935		33.01	%
Money market accounts		90,750,383		19.16	%		68,964,879		18.19	%
Time deposits over $250,000		4,199,914		0.89	%		5,967,559		1.57	%
Other time deposits		17,045,826		3.59	%		16,215,228		4.28	%
Other savings deposits		43,639,294		9.21	%		37,247,023		9.82	%
Total deposits	$	473,697,177		100.00	%	$	379,191,655		100.00	%

26

Deposits increased 24.92% or $94.5 million from December 31, 2019 to June 30, 2020 due to an increase in deposits driven by a combination of various government stimulus programs, delayed income tax payments, and decreased consumer spending.

At June 30, 2020 and December 31, 2019, deposits with an aggregate deficit balance of $24,813 and $25,319, respectively, were re-classified as other loans.

Comparison of Three Months Ended June 30, 2020 to Three Months Ended June 30, 2019

The net income reflected for the three months ended June 30, 2020 on the Company’s earnings press release filed on July 9, 2020 was inaccurately stated. The net income shown and reflected in this report is correct. Net income decreased $0.3 million or 18.46% to $1.5 million, or basic and diluted earnings per share of $0.27 and $0.26, respectively, for the three months ended June 30, 2020, from $1.8 million, or basic and diluted earnings per share of $0.33 for the three months ended June 30, 2019. Our annualized returns on average assets and average equity for the three months ended June 30, 2020 were 1.19% and 11.19%, respectively, compared with 1.70% and 15.23%, respectively, for the three months ended June 30, 2019.

Net Interest Income

Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is a measure of the difference between interest income on earning assets and interest paid on interest bearing liabilities relative to the amount of interest-bearing assets. Net interest income decreased $0.5 million or 9.65% to $4.1 million for the three months ended June 30, 2020 from $4.6 million for the three months ended June 30, 2019. This decrease was primarily due to interest and fee income received on loans tied to changes in variable interest rates as a result of the significant decrease in interest rates at the Federal Reserve during the end of the first quarter of 2020, combined with below market interest rates on PPP loans. Average loans increased $27.7 million or 9.80% to $310.5 million for the three months ended June 30, 2020, compared to $282.8 million for the three months ended June 30, 2019. The yield on average loans (including fees) was 5.32% and 6.15% for the three months ended June 30, 2020 and June 30, 2019, respectively. Interest income on loans decreased $0.4 million for the three months ended June 30, 2020 to $3.7 million from $4.1 million for the three months ended June 30, 2019.

The average balance of interest bearing deposits at the Federal Reserve increased $47.9 million or 174.97% to $75.2 million for the three months ended June 30, 2020, with a yield of 0.09% as compared to $27.3 million for the three months ended June 30, 2019, with a yield of 2.38%.

Provision for Loan Losses

We have established an allowance for loan losses through a provision for loan losses charged as an expense on our consolidated statements of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of our allowance for loan losses. For the three months ended June 30, 2020, we had no provision of loan losses compared to a provision of $135,000 for the same period in the prior year. The decrease in the provision for loan losses was based on our analysis of the adequacy of the allowance for loan losses.

Non-Interest Income

Other income increased $0.1 million or 18.71% to $0.7 million for the three months ended June 30, 2020, from $0.6 million for the three months ended June 30, 2019. This increase was primarily due to improved mortgage banking activity. Rates have remained consistently low, fueling demand for refinancing and new home purchases. Accordingly, mortgage banking income increased $0.1 million or 74.01% from $0.3 million for the three months ended June 30, 2019 to $0.4 million for the three months ended June 30, 2020.

Non-Interest Expense

Non-interest expense increased $0.3 million or 8.94% to $2.9 million for the three months ended June 30, 2020 from $2.6 million for the three months ended June 30, 2019. This increase was primarily driven by salaries, employee benefits, and net occupancy expenses of our new North Charleston office, which opened in the fourth quarter of 2019.

Income Tax Expense

We incurred income tax expense of $0.5 million for the three months ended June 30, 2020 as compared to $0.6 million during the same period in 2019. Our effective tax rate was 23.44% and 23.01% for the three months ended June 30, 2020 and 2019, respectively.

Comparison of Six Months Ended June 30, 2020 to Six Months Ended June 30, 2019

Net income decreased $0.5 million or 14.39% to $3.0 million, or basic and diluted earnings per share of $0.55 and $0.53, respectively, for the six months ended June 30, 2020, from $3.5 million, or basic and diluted earnings per share of $0.64 and $0.63, respectively, for the six months ended June 30, 2019. Our annualized returns on average assets and average equity for the three months ended June 30, 2020 were 1.28% and 11.46%, respectively, compared with 1.65% and 14.99%, respectively, for the six months ended June 30, 2019.

Net Interest Income

Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is a measure of the difference between interest income on earning assets and interest paid on interest bearing liabilities relative to the amount of interest-bearing assets. Net interest income decreased $0.7 million or 7.57% to $8.3 million for the six months ended June 30, 2020 from $9.0 million for the six months ended June 30, 2019. This decrease was primarily due to interest and fee income received on loans tied to changes in variable interest rates as a result of the significant decrease in interest rates at the Federal Reserve during the end of the first quarter of 2020, combined with below market interest rates on PPP loans originated in the second quarter. Average loans increased $14.6 million or 5.22% to $294.3 million for the six months ended June 30, 2020, compared to $279.7 million for the six months ended June 30, 2019. The yield on average loans (including fees) was 5.47% and 6.06% for the six months ended June 30, 2020 and June 30, 2019, respectively. Interest income on loans decreased $0.6 million for the six months ended June 30, 2020 to $7.4 million from $8.0 million for the six months ended June 30, 2019.

The average balance of interest bearing deposits at the Federal Reserve increased $37.0 million or 160.19% to $60.0 million for the six months ended June 30, 2020, with a yield of 0.25% as compared to $23.0 million for the six months ended June 30, 2019, with a yield of 2.42%.

27

Provision for Loan Losses

We have established an allowance for loan losses through a provision for loan losses charged as an expense on our consolidated statements of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of our allowance for loan losses. For the six months ended June 30, 2020, we had no provision of loan losses compared to a provision of $145,000 for the same period in the prior year. The decrease in the provision for loan losses was based on our analysis of the adequacy of the allowance for loan losses.

Non-Interest Income

Other income increased $0.3 million or 32.92% to $1.3 million for the six months ended June 30, 2020, from $1.0 million for the six months ended June 30, 2019. This increase was primarily due to improved mortgage banking activity. Rates have remained consistently low, fueling demand for refinancing and new home purchases. Accordingly, mortgage banking income increased $0.4 million or 108.45% from $0.4 million for the six months ended June 30, 2019 to $0.8 million for the six months ended June 30, 2020.

Non-Interest Expense

Non-interest expense increased $0.4 million or 8.17% to $5.7 million for the six months ended June 30, 2020 from $5.3 million for the six months ended June 30, 2019. This increase was primarily driven by salaries, employee benefits, and net occupancy expenses of our new North Charleston office, which opened in the fourth quarter of 2019.

Income Tax Expense

We incurred income tax expense of $0.9 million for the six months ended June 30, 2020 as compared to $1.0 million during the same period in 2019. Our effective tax rate was 23.28% and 22.92% for the six months ended June 30, 2020 and 2019, respectively.

Off-Balance Sheet Arrangements 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on our credit evaluation of the borrower. Collateral held varies but may include accounts receivable, negotiable instruments, inventory, property, plant and equipment, and real estate. Commitments to extend credit, including unused lines of credit, amounted to $114.2 million and $105.5 million at June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019 was $1.0 million and $1.1 million, respectively.

We originate certain fixed rate residential loans and commit these loans for sale. The commitments to originate fixed rate residential loans and the sales commitments are freestanding derivative instruments. We had forward sales commitments on mortgage loans held for sale totaling $11.6 million and $5.1 million at June 30, 2020 and December 31, 2019, respectively. The fair value of these commitments was not significant at June 30, 2020 or December 31, 2019. 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 $36.4 million at June 30, 2020 and $19.1 million at December 31, 2019. For the three and six months ended June 30, 2020 and June 30, 2019, there were no loans repurchased.

Liquidity 

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

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, stock repurchases, and to manage daily operations on an ongoing basis. Funds are primarily provided by the Bank through customer deposits, principal and interest payments on loans, mortgage loan sales, the sale or maturity of securities, temporary investments and earnings.

Proper liquidity management is crucial to ensure that we are able to take advantage of new business opportunities as well as meet the credit needs of our existing customers. Investment securities are an important tool in our liquidity management. Our primary liquid assets are cash and due from banks, interest-bearing deposits in other banks, federal funds sold, investments available for sale, other short-term investments and mortgage loans held for sale. Our primary liquid assets accounted for 39.95% and 34.74% of total assets at June 30, 2020 and December 31, 2019, 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 June 30, 2020, we had unused short-term lines of credit totaling approximately $23.0 million (which can be withdrawn at the lender’s option). Additional sources of funds available to us for additional liquidity needs include borrowing on a short-term basis from the Federal Reserve System, increasing deposits by raising interest rates paid and sale of mortgage loans held for sale. We established a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits us to retain possession of assets pledged as collateral to secure advances from the Federal Reserve Discount Window. At June 30, 2020, we could borrow up to $50.9 million. There have been no borrowings under this arrangement.

During the second quarter of 2020, we established an agreement with the Federal Reserve through the Paycheck Protection Program Liquidity Facility ("PPPLF"). Under this facility, the Bank can borrow from this arrangement on a non-recourse basis, using PPP loans as collateral. As of June 30, 2020, we could borrow up to $37.8 million. There have been no borrowings under this arrangement.

Our core deposits consist of non-interest-bearing accounts, NOW accounts, money market accounts, time deposits and savings accounts. We closely monitor our level of certificates of deposit greater than $250,000 and other large deposits. We maintain a Contingency Funding Plan (“CFP’) that identifies liquidity needs and weighs alternate courses of action designed to address these needs in emergency situations. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the expected funding needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to meet our operating needs and do not know of any trends, events or uncertainties that may result in a significant adverse effect on our liquidity position. At June 30, 2020 and December 31, 2019, our liquidity ratio was 41.60% and 36.18%, respectively.

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Capital Resources 

Our capital needs have been met to date through the $10.6 million in capital raised in our initial offering, the retention of earnings less dividends paid and the exercise of stock options to purchase stock. Total shareholders’ equity as of June 30, 2020 was $54.0 million. The rate of asset growth since our inception has not negatively impacted this capital base.

On March 26, 2020, the Board of Directors of the Company approved a stock repurchase of up to $1.0 million through March 2021.

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 has been phased in over a multi-year schedule. The Bank’s total risk-based capital ratio at December 31, 2019 was 16.46%.

On November 4, 2019, the federal banking agencies jointly issued a final rule on an optional, simplified measure of capital adequacy for qualifying community banking organizations called the community bank leverage ratio (“CBLR”) framework effective on January 1, 2020. A qualifying community banking organization is defined as having less than $10 billion in total consolidated assets, a leverage ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets. Additionally, the qualifying community banking institution must be a non-advanced approaches FDIC supervised institution. The final rule adopts Tier 1 capital and existing leverage ratio into the CBLR framework. The Bank adopted this rule as of June 30, 2020 and will no longer be subject to other capital and leverage requirements. A CBLR bank meeting qualifying criteria is deemed to have met the “well capitalized” ratio requirements and be in appliance with the generally applicable capital rule. The Bank’s CBLR as of June 30, 2020 was 10.26%. As of June 30, 2020, the Company and the Bank were categorized as “well capitalized.”

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

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

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities and Exchange Act of 1934 as amended (the “Act”) was carried out as of June 30, 2020 under the supervision and with the participation of the Bank of South Carolina Corporation’s management, including its President/Chief Executive Officer and the Chief Financial Officer/Executive Vice President and several other members of the Company’s senior management. Based upon that evaluation, Bank of South Carolina Corporation’s management, including the President/Chief Executive Officer and the Chief Financial Officer/Executive Vice President concluded that, as of June 30, 2020, the Company’s disclosure controls and procedures were effective in ensuring that the information the Company is required to disclose in the reports filed or submitted under the Act has been (i) accumulated and communicated to management (including the President/Chief Executive Officer and Chief Financial Officer/Executive Vice President) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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

Under the supervision and with the participation of management, including the President/Chief Executive Officer and the Chief Financial Officer/Executive Vice President, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of June 30, 2020, 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 June 30, 2020. Based on this assessment, management believes that as of June 30, 2020, the Company’s internal control over financial reporting was effective. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

29

Part II. Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors 

Not required.

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

The Company’s repurchases of its common stock during the second quarter of 2020 were as follows:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 1 – April 30, 2020		—		—		—		1,000,000
May 1 – May 31, 2020		2,200	$	15.99		2,200		997,800
June 1 – June 30, 2020		7,100	$	15.97		7,100		990,700
Total		9,300	$	15.97		9,300		990,700

(1) On March 26, 2020, the Company adopted a $1.0 million stock repurchase program.

Item 3. Defaults Upon Senior Securities 

None.

Item 4. Mine Safety Disclosure

None.

Item 5. Other Information 

None.

Item 6. Exhibits

1.	The Consolidated Financial Statements are included in this Form 10-Q and listed on pages as indicated.
			Page
	(1)	Consolidated Balance Sheets	3
	(2)	Consolidated Statements of Income	4-5
	(3)	Consolidated Statements of Comprehensive Income	6
	(4)	Consolidated Statements of Shareholders’ Equity	7
	(5)	Consolidated Statements of Cash Flows	8
	(6)	Notes to Consolidated Financial Statements	9-22

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	2020 Proxy Statement (Filed with 2019 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 June 30, 2013 10-Q)
	10.5	1998 Omnibus Stock Incentive Plan (Filed with 2008 10-K/A)
	10.6	Employee Stock Ownership Plan (Filed with 2008 10-K/A)
		Employee Stock Ownership Plan, Restated (Filed with 2011 Proxy Statement)
		Employee Stock Ownership Plan, Restated (Filed with 2016 10-K)
	10.7	2010 Omnibus Incentive Stock Option Plan (Filed with 2010 Proxy Statement)
	10.8	Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2013 10-K)
	10.9	Assignment and Assumption of Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K)
	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)
	10.12	Extension to Lease Agreement for 256 Meeting Street (Filed with September 30, 2017 10-Q)
	10.13	North Charleston Lease Agreement (Filed with June 30, 2017 10-Q)
	10.14	Sublease Amendment for Parking Facilities at 256 Meeting Street (Filed with September 30, 2017 10-Q)
	10.15	2020 Stock Incentive Plan (Filed with 2020 Proxy Statement)

14.0	Code of Ethics (Filed with 2004 10-KSB)
21.0	List of Subsidiaries of the Registrant (Filed with 1995 10-KSB)
	The Registrant’s only subsidiary is The Bank of South Carolina (Filed with 1995 10-KSB)
31.1	Certification pursuant to Rule 13a-14(a)/15d-14(a) by Chief Executive Officer
31.2	Certification pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial Officer
32.1	Certification pursuant to Section 1350
32.2	Certification pursuant to Section 1350
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

30

Signatures

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

	Bank of South Carolina Corporation
August 4, 2020
	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/Executive Vice President

31

EX-31.1

Bank of South Carolina Corporation 10-Q

Exhibit 31.1

Certification Pursuant to 13a-14(a)/15d-14(a) by the Chief Executive Officer

I, Fleetwood S. Hassell, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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 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 the registrant’s most recent fiscal quarter (the registrant’s fourth 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.

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 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.

August 4, 2020

/s/ Fleetwood S. Hassell

Fleetwood S. Hassell

President/Chief Executive Officer

32

EX-31.2

Bank of South Carolina Corporation 10-Q

Exhibit 31.2

Certification Pursuant to 13a-14(a)/15d-14(a) by the Chief Financial Officer

I, Eugene H. Walpole, IV, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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 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 the registrant’s most recent fiscal quarter (the registrant’s fourth 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.

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 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.

August 4, 2020

/s/ Eugene H. Walpole, IV

Eugene H. Walpole, IV

Chief Financial Officer/

Executive Vice President

33

EX-32.1

Bank of South Carolina Corporation 10-Q

Exhibit 32.1

Certification of the Chief Executive Officer Pursuant to 18 USC 1350 (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, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (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: August 4, 2020
	By:	/s/ Fleetwood S. Hassell
		Fleetwood S. Hassell
		President/Chief Executive Officer

34

EX-32.2

Bank of South Carolina Corporation 10-Q

Exhibit 32.2

Certification of the Chief Financial Officer Pursuant to 18 USC 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

I, Eugene H. Walpole, IV, Chief Financial Officer/Executive Vice President of Bank of South Carolina Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (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: August 4, 2020
	By:	/s/ Eugene H. Walpole, IV
		Eugene H. Walpole, IV
		Chief Financial Officer/
		Executive Vice President

35

XML

Cover - shares	6 Months Ended
	Jun. 30, 2020	Jul. 15, 2020
Cover [Abstract]
Entity Registrant Name	BANK OF SOUTH CAROLINA CORP
Entity Central Index Key	0001007273
Document Type	10-Q
Entity File Number	0-27702
Entity State Incorporation	SC
Document Period End Date	Jun. 30, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		5,526,408
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2020

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
ASSETS
Cash and due from banks	$ 6,886,753	$ 9,773,893
Interest-bearing deposits at the Federal Reserve	89,344,677	39,320,526
Investment securities available for sale	108,906,662	100,449,956
Mortgage loans to be sold	11,624,188	5,062,398
Loans	309,907,305	274,072,560
Less: Allowance for loan losses	(4,110,630)	(4,003,758)
Net loans	305,796,675	270,068,802
Premises, equipment and leasehold improvements, net	4,161,381	4,290,435
Right of use asset	12,971,774	13,209,217
Accrued interest receivable	1,332,528	1,309,772
Other assets	1,596,912	1,527,521
Total assets	542,621,550	445,012,520
Deposits:
Non-interest bearing demand	177,061,501	125,621,031
Interest bearing demand	141,000,259	125,175,935
Money market accounts	90,750,383	68,964,879
Time deposits over $250,000	4,199,914	5,967,559
Other time deposits	17,045,826	16,215,228
Other savings deposits	43,639,294	37,247,023
Total deposits	473,697,177	379,191,655
Accrued interest payable and other liabilities	1,991,744	1,443,616
Lease liability	12,971,774	13,209,217
Total liabilities	488,660,695	393,844,488
Shareholders' equity
Common stock - no par 12,000,000 shares authorized; Issued 5,812,038 shares at June 30, 2020 and 5,799,637 shares at December 31, 2019. Shares outstanding 5,530,682 and 5,530,001 at June 30, 2020 and December 31, 2019, respectively.
Additional paid in capital	47,290,003	47,131,034
Retained earnings	7,131,796	5,879,409
Treasury stock: 281,356 and 269,636 shares at June 30, 2020 and December 31, 2019, respectively.	(2,515,472)	(2,325,225)
Accumulated other comprehensive income, net of income taxes	2,054,528	482,814
Total shareholders' equity	53,960,855	51,168,032
Total liabilities and shareholders' equity	$ 542,621,550	$ 445,012,520

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Common stock, no par value (in dollars per share)	$ 0	$ 0
Common stock, authorized	12,000,000	12,000,000
Common stock, issued	5,812,038	5,799,637
Common stock, outstanding	5,530,682	5,530,001
Treasury stock, shares	281,356	269,636
Time deposits	$ 250,000	$ 250,000

XML

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Interest and fee income
Loans, including fees	$ 3,721,184	$ 4,090,423	$ 7,392,166	$ 8,042,142
Taxable securities	382,993	423,211	746,432	886,665
Tax-exempt securities	82,783	137,115	207,408	298,836
Other	16,251	162,596	158,631	278,535
Total interest and fee income	4,203,211	4,813,345	8,504,637	9,506,178
Interest expense
Deposits	76,005	245,226	170,077	488,984
Total interest expense	76,005	245,226	170,077	488,984
Net interest income	4,127,206	4,568,119	8,334,560	9,017,194
Provision for loan losses		135,000		145,000
Net interest income after provision for loan losses	4,127,206	4,433,119	8,334,560	8,872,194
Other income
Service charges and fees	250,337	300,553	525,927	580,486
Mortgage banking income	446,119	256,379	792,202	380,041
Gain on sales of securities		28,900		28,900
Other non-interest income	7,166	6,907	13,124	12,095
Total other income	703,622	592,739	1,331,253	1,001,522
Other expense
Salaries and employee benefits	1,812,832	1,664,436	3,584,613	3,320,960
Net occupancy expense	554,534	427,247	1,079,841	814,379
Other operating expenses	334,199	394,178	734,248	864,227
Data processing fees	168,658	148,921	328,042	294,577
Total other expense	2,870,223	2,634,782	5,726,744	5,294,143
Income before income tax expense	1,960,605	2,391,076	3,939,069	4,579,573
Income tax expense	459,582	550,229	916,915	1,049,462
Net income	$ 1,501,023	$ 1,840,847	$ 3,022,154	$ 3,530,111
Weighted average shares outstanding
Basic (in shares)	5,529,632	5,517,236	5,529,944	5,515,832
Diluted (in shares)	5,714,121	5,587,985	5,708,718	5,586,813
Basic income per common share (in dollars per share)	$ 0.27	$ 0.33	$ 0.55	$ 0.64
Diluted income per common share (in dollars per share)	$ 0.26	$ 0.33	$ 0.53	$ 0.63

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 1,501,023	$ 1,840,847	$ 3,022,154	$ 3,530,111
Other comprehensive income
Unrealized gain on securities arising during the period	1,228,734	1,343,539	1,989,513	2,599,154
Reclassification adjustment for securities gains realized in net income		(28,900)		(28,900)
Other comprehensive income before tax	1,228,734	1,314,639	1,989,513	2,570,254
Income tax effect related to items of other comprehensive income before tax	(258,036)	(276,074)	(417,799)	(539,753)
Other comprehensive income after tax	970,698	1,038,565	1,571,714	2,030,501
Total comprehensive income	$ 2,471,721	$ 2,879,412	$ 4,593,868	$ 5,560,612

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($)	Common Stock [Member]	Additional Paid in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Beginning Balance at Dec. 31, 2018		$ 46,857,734	$ 2,650,296	$ (2,268,264)	$ (1,777,205)	$ 45,462,561
Beginning Balance (in shares) at Dec. 31, 2018	5,510,917
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			1,689,264			1,689,264
Other comprehensive income					991,936	991,936
Stock option exercises		51,265				51,265
Stock option exercises (in shares)	5,808
Stock-based compensation expense		18,881				18,881
Cash dividends			(882,676)			(882,676)
Ending Balance at Mar. 31, 2019		46,927,880	3,456,884	(2,268,264)	(785,269)	47,331,231
Ending Balance (in shares) at Mar. 31, 2019	5,516,725
Beginning Balance at Dec. 31, 2018		46,857,734	2,650,296	(2,268,264)	(1,777,205)	45,462,561
Beginning Balance (in shares) at Dec. 31, 2018	5,510,917
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income						3,530,111
Other comprehensive income						2,030,501
Ending Balance at Jun. 30, 2019		47,041,739	4,413,687	(2,314,107)	253,296	49,394,615
Ending Balance (in shares) at Jun. 30, 2019	5,525,278
Beginning Balance at Mar. 31, 2019		46,927,880	3,456,884	(2,268,264)	(785,269)	47,331,231
Beginning Balance (in shares) at Mar. 31, 2019	5,516,725
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			1,840,847			1,840,847
Other comprehensive income					1,038,565	1,038,565
Stock option exercises		94,977		(45,843)		49,134
Stock option exercises (in shares)	8,553
Stock-based compensation expense		18,882				18,882
Cash dividends			(884,044)			(884,044)
Ending Balance at Jun. 30, 2019		47,041,739	4,413,687	(2,314,107)	253,296	49,394,615
Ending Balance (in shares) at Jun. 30, 2019	5,525,278
Beginning Balance at Dec. 31, 2019		47,131,034	5,879,409	(2,325,225)	482,814	$ 51,168,032
Beginning Balance (in shares) at Dec. 31, 2019	5,530,001					5,530,001
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			1,521,131			$ 1,521,131
Other comprehensive income					601,016	601,016
Stock option exercises		4,489				4,489
Stock option exercises (in shares)	362
Stock-based compensation expense		16,418				16,418
Cash dividends			(884,859)			(884,859)
Ending Balance at Mar. 31, 2020		47,151,941	6,515,681	(2,325,225)	1,083,830	52,426,227
Ending Balance (in shares) at Mar. 31, 2020	5,530,363
Beginning Balance at Dec. 31, 2019		47,131,034	5,879,409	(2,325,225)	482,814	$ 51,168,032
Beginning Balance (in shares) at Dec. 31, 2019	5,530,001					5,530,001
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income						$ 3,022,154
Other comprehensive income						1,571,714
Ending Balance at Jun. 30, 2020		47,290,003	7,131,796	(2,515,472)	2,054,528	$ 53,960,855
Ending Balance (in shares) at Jun. 30, 2020	5,530,682					5,530,682
Beginning Balance at Mar. 31, 2020		47,151,941	6,515,681	(2,325,225)	1,083,830	$ 52,426,227
Beginning Balance (in shares) at Mar. 31, 2020	5,530,363
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			1,501,023			1,501,023
Other comprehensive income					970,698	970,698
Stock option exercises		108,757		(41,697)		67,060
Stock option exercises (in shares)	9,619
Stock-based compensation expense		29,305				29,305
Cash dividends	$ (9,300)			(148,550)		(148,550)
Ending Balance at Jun. 30, 2020		$ 47,290,003	$ 7,131,796	$ (2,515,472)	$ 2,054,528	$ 53,960,855
Ending Balance (in shares) at Jun. 30, 2020	5,530,682					5,530,682

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - $ / shares	3 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]
Cash dividends (per share)	$ 0.16	$ 0.16	$ 0.16	$ 0.16

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities:
Net income	$ 3,022,154	$ 3,530,111
Adjustments to reconcile net income net cash (used in) provided by operating activities:
Depreciation expense	210,774	109,132
Gain on sale of investment securities		(28,900)
Provision for loan losses		145,000
Stock-based compensation expense	45,723	37,763
Deferred income taxes	(487,188)	(21,966)
Net amortization of unearned discounts on investment securities available for sale	94,805	140,730
Origination of mortgage loans held for sale	(69,441,770)	(27,140,026)
Proceeds from sale of mortgage loans held for sale	62,879,980	25,464,482
Increase in accrued interest receivable and other assets	(22,756)	(215,254)
Increase in accrued interest payable and other liabilities	548,019	599,626
Net cash (used in) provided by operating activities	(3,150,259)	2,620,698
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale	10,088,000	5,743,835
Proceeds from sale of investment securities available for sale		14,952,500
Purchase of investment securities available for sale	(16,650,000)
Net increase in loans	(35,727,873)	(9,412,146)
Purchase of premises, equipment, and leasehold improvements, net	(81,720)	(463,239)
Net cash (used in) provided by investing activities	(42,371,593)	10,820,950
Cash flows from financing activities:
Net increase in deposit accounts	94,505,522	1,431,517
Dividends paid	(1,769,658)	(1,709,314)
Stock options exercised	71,549	100,399
Share repurchases	(148,550)
Net cash provided by (used in) financing activities	92,658,863	(177,398)
Net increase in cash and cash equivalents	47,137,011	13,264,250
Cash and cash equivalents at the beginning of the period	49,094,419	31,832,241
Cash and cash equivalents at the end of the period	96,231,430	45,096,491
Cash paid during the period for:
Interest	207,880	589,058
Income taxes		627,642
Supplemental disclosures for non-cash investing and financing activity:
Change in unrealized gain on securities available for sale, net of income taxes	(1,571,714)	(2,030,501)
Change in dividends payable	109	57,406
Right of use assets obtained in exchange for lease obligations		7,334,079
Change in right of use assets and lease liabilities	$ (237,443)	$ (115,435)

XML

Nature of Business and Basis of Presentation

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Nature of Business and Basis of Presentation

Note 1: Nature of Business and Basis of Presentation

Organization 

The Bank of South Carolina (the “Bank”) was organized on October 22, 1986 and opened for business as a state-chartered financial institution on February 26, 1987, in Charleston, South Carolina. The Bank was reorganized into a wholly-owned subsidiary of Bank of South Carolina Corporation (the “Company”), effective April 17, 1995. At the time of the reorganization, each outstanding share of the Bank was exchanged for two shares of Bank of South Carolina Corporation Stock. 

Principles of Consolidation  

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. In consolidation, all significant intercompany balances and transactions have been eliminated. 

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

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or (“GAAP”), for the interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 6, 2020. In the opinion of management, these interim financial statements present fairly, in all material respects, the Company’s consolidated financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period. 

Accounting Estimates and Assumptions 

The consolidated financial statements are prepared in conformity with GAAP, which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ significantly from these estimates and assumptions. Material estimates generally susceptible to significant change are related to the determination of the allowance for loan losses, impaired loans, other real estate owned, deferred tax assets, the fair value of financial instruments and other-than-temporary impairment of investment securities.

Reclassification 

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

Income per share

Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Dilutive income per share is computed by dividing net income by the weighted-average number of common shares and potential common shares outstanding. Potential common shares consist of dilutive stock options determined using the treasury stock method and the average market price of common stock. Retroactive recognition has been given for the effects of all stock dividends.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. We have reviewed events occurring through the date the financial statements were available to be issued and no subsequent events occurred requiring accrual or disclosure.

Recent Accounting Pronouncements  

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

In June 2016, the FASB issued ASU 2016-13, Financial instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to change the accounting for credit losses and modify the impairment model for certain debt securities. In May 2019, the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. In October 2019, the FASB voted to extend the implementation date for smaller reporting companies, non-SEC public companies, and private companies. The amendment will be effective for the Company for periods beginning after December 15, 2022. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows. It will be influenced by the quality, composition, and characteristics of our loan and investment portfolios, as well as the expected economic conditions and forecasts at the time of enactment and future reporting periods.  

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles and Goodwill and Other-Internal Use Software (Subtopic 350-40):Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract),which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements. 

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements. 

In April 2019, the FASB issued guidance that clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for the reporting period beginning after December 15, 2019. The amendments related to hedging became effective January 1, 2019. The amendments related to recognition and measurement of financial instruments became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements. 

In July 2019, the FASB updated various Topics of the ASC to align the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. The amendments were effective upon issuance and did not have a material effect on the financial statements. 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which provides guidance to simply accounting for income taxes by removing specific technical exceptions that can produce information investors do not understand. The amendments improve and simplify the application of GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on the financial statements.

In January 2020, the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements. 

In February 2020, the FASB issued guidance to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements. 

In March 2020, the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the current expected credit losses (CECL) guidance issued in 2016. The amendments related to conforming amendments. For public business entities, the amendments are effective upon issuance of this final ASU. The effective date of the amendments to ASU 2016-01 is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For the amendments related to ASU 2016-13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies (SRCs) as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. Early adoption will continue to be permitted. For entities that have not yet adopted the guidance in ASU 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. The Company does not expect these amendments to have a material effect on its financial statements. 

In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its 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

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Note 2: Investment Securities

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

	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	23,058,684	$	542,757	$	—		$	23,601,441
Government-Sponsored Enterprises		66,754,370		1,593,682		(9,967	)		68,338,085
Municipal Securities		16,492,938		474,198		—			16,967,136
Total	$	106,305,992	$	2,610,637	$	(9,967	)	$	108,906,662

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	23,080,465	$	99,735	$	—		$	23,180,200
Government-Sponsored Enterprises		50,139,959		401,336		(43,100	)		50,498,195
Municipal Securities		26,618,375		169,640		(16,454	)		26,771,561
Total	$	99,838,799	$	670,711	$	(59,554	)	$	100,449,956

The amortized cost and estimated fair value of investment securities available for sale as of June 30, 2020 and December 31, 2019, by contractual maturity are in the following table. 

	June 30, 2020				December 31, 2019
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	10,189,841	$	10,320,371	$	9,185,615	$	9,191,226
Due in one year to five years		69,550,840		71,471,655		77,261,123		77,815,119
Due in five years to ten years		26,565,311		27,114,636		13,392,061		13,443,611
Due in ten years and over		—		—		—		—
Total	$	106,305,992	$	108,906,662	$	99,838,799	$	100,449,956

Securities pledged to secure deposits at both June 30, 2020 and December 31, 2019, had a fair value of $41.2 million and $37.6 million, respectively.  

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2020 and December 31, 2019. 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. 

	June 30, 2020
	Less Than 12 Months							12 Months or Longer						Total
	#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss		#		Fair Value		Gross Unrealized Loss
U.S. Treasury Notes		—	$	—	$	—			—	$	—	$	—		—	$	—	$	—
Government-Sponsored Enterprises		1		11,624,020		(9,967	)		—		—		—		1		11,624,020		(9,967	)
Municipal Securities		—		—		—			—		—		—		—		—		—
Total		1	$	11,624,020	$	(9,967	)		—	$	—	$	—		1	$	11,624,020	$	(9,967	)

	December 31, 2019
	Less Than 12 Months							12 Months or Longer							Total
Available for sale	#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss
U.S. Treasury Notes		—	$	—	$	—			—	$	—	$	—			—	$	—	$	—
Government-Sponsored Enterprises		1		5,039,550		(43,100	)		—		—		—			1		5,039,550		(43,100	)
Municipal Securities		9		3,199,517		(13,335	)		1		330,880		(3,119	)		10		3,530,397		(16,454	)
Total		10	$	8,239,067	$	(56,435	)		1	$	330,880	$	(3,119	)		11	$	8,569,947	$	(59,554	)

The tables below show the proceeds from sales of securities available for sale and gross realized gains and losses. 

	Three Months Ended
	June 30,
	2020		2019
Gross proceeds	$	—	$	14,952,500
Gross realized gains		—		59,512
Gross realized losses		—		(30,612	)

	Six Months Ended
	June 30,
	2020		2019
Gross proceeds	$	—	$	14,952,500
Gross realized gains		—		59,512
Gross realized losses		—		(30,612	)

There was no tax provision related to gains for the three and six months ended June 30, 2020. The tax provision related to these sales was $6,069 for the three and six months ended June 30, 2019.

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Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Loans and Allowance for Loan Losses

Note 3: Loans and Allowance for Loan Losses

Major classifications of loans (net of deferred loan fees and costs of $1,128,775 at June 30, 2020 and $155,697 at December 31, 2019, respectively) are as follows:

	June 30, 2020			December 31, 2019
Commercial	$	42,680,070		$	52,848,455
Commercial Real Estate:
Construction		14,301,901			12,491,078
Other		140,469,962			143,821,990
Consumer:
Real Estate		71,183,544			59,533,045
Other		4,728,864			5,377,992
Paycheck Protection Program		36,542,964			—
		309,907,305			274,072,560
Allowance for loan losses		(4,110,630	)		(4,003,758	)
Loans, net	$	305,796,675		$	270,068,802

We had $68.7 million and $85.2 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at June 30, 2020 and at December 31, 2019, respectively.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. Under the program, the Small Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for Paycheck and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. The loans are 100% guaranteed by the SBA and payments are deferred for the first six months of the loan. The Bank receives a processing fee ranging from 1% to 5% based on the size of the loan from the SBA. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued by financial institutions through the SBA. The Bank has provided $36.5 million in funding to 266 customers through the PPP as of June 30, 2020. Because these loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve.

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

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

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

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

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

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

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

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

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

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

The following tables illustrate credit quality by class and internally assigned grades at June 30, 2020 and December 31, 2019. “Pass” includes loans internally graded as excellent, good and satisfactory.

June 30, 2020
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	35,665,736	$	13,461,039	$	118,080,815	$	68,776,698	$	4,430,294	$	—	$	240,414,582
Watch		4,701,530		840,862		20,069,519		869,152		219,765		—		26,700,828
OAEM		388,727		—		238,227		622,731		36,909		—		1,286,594
Substandard		1,924,077		—		2,081,401		914,963		41,896		—		4,962,337
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Unrated		—		—		—		—		—		36,542,964		36,542,964
Total	$	42,680,070	$	14,301,901	$	140,469,962	$	71,183,544	$	4,728,864	$	36,542,964	$	309,907,305

December 31, 2019
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	48,098,936	$	12,005,834	$	137,641,011	$	56,034,247	$	4,966,615	$	—	$	258,746,643
Watch		2,303,568		485,244		3,758,220		2,096,445		315,375		—		8,958,852
OAEM		460,551		—		649,039		522,600		44,232		—		1,676,422
Substandard		1,985,400		—		1,773,720		879,753		51,770		—		4,690,643
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Unrated		—		—		—		—		—		—		—
Total	$	52,848,455	$	12,491,078	$	143,821,990	$	59,533,045	$	5,377,992	$	—	$	274,072,560

The following tables include an aging analysis of the recorded investment in loans segregated by class.

June 30, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment ≥ 90 Days and Accruing
Commercial	$	—	$	210,121	$	—	$	210,121	$	42,469,949	$	42,680,070	$	—
Commercial Real Estate Construction		—		—		—		—		14,301,901		14,301,901		—
Commercial Real Estate Other		335,448		423,170		638,139		1,396,757		139,073,205		140,469,962		—
Consumer Real Estate		—		—		665,114		665,114		70,518,430		71,183,544		—
Consumer Other		—		2,560		—		2,560		4,726,304		4,728,864		—
Paycheck Protection Program		—		—		—		—		36,542,964		36,542,964		—
Total	$	335,448	$	635,851	$	1,303,253	$	2,274,552	$	307,632,753	$	309,907,305	$	—

December 31, 2019
	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	$	39,329	$	—	$	178,975	$	218,304	$	52,630,151	$	52,848,455	$	—
Commercial Real Estate Construction		—		—		—		—		12,491,078		12,491,078		—
Commercial Real Estate Other		620,837		300,240		582,419		1,503,496		142,318,494		143,821,990		—
Consumer Real Estate		—		2,965		629,999		632,964		58,900,081		59,533,045		—
Consumer Other		32,842		—		—		32,842		5,345,150		5,377,992		—
Paycheck Protection Program		—		—		—		—		—		—		—
Total	$	693,008	$	303,205	$	1,391,393	$	2,387,606	$	271,684,954	$	274,072,560	$	—

There were no loans over 90 days past due and still accruing as of June 30, 2020 and December 31, 2019.

The following table summarizes the balances of non-accrual loans:

	Loans Receivable on Non-Accrual
		June 30, 2020		December 31, 2019
Commercial	$	190,751	$	178,975
Commercial Real Estate Construction		—		—
Commercial Real Estate Other		912,067		857,327
Consumer Real Estate		665,114		629,999
Consumer Other		13,450		—
Paycheck Protection Program		—		—
Total	$	1,781,382	$	1,666,301

The following tables set forth the changes in the allowance for loan losses and an allocation of the allowance for loan losses by loan category for the three and six months ended June 30, 2020 and 2019. The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.

	Three Months Ended June 30, 2020
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,416,267		$	123,069	$	1,212,647	$	562,000	$	700,230		$	—	$	4,014,213
Charge-offs		—			—		—		—		(76,410	)		—		(76,410	)
Recoveries		71,511			—		99,801		—		1,515			—		172,827
Provisions		(469,228	)		27,738		164,571		321,300		(44,381	)		—		—
Ending balance	$	1,018,550		$	150,807	$	1,477,019	$	883,300	$	580,954		$	—	$	4,110,630

	Six Months Ended June 30, 2020
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,429,917		$	109,235	$	1,270,445	$	496,221	$	697,940		$	—	$	4,003,758
Charge-offs		—			—		—		—		(116,002	)		—		(116,002	)
Recoveries		87,011			—		99,801		—		36,062			—		222,874
Provisions		(498,378	)		41,572		106,773		387,079		(37,046	)		—		—
Ending balance	$	1,018,550		$	150,807	$	1,477,019	$	883,300	$	580,954		$	—	$	4,110,630

	Three Months Ended June 30, 2019
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,528,577	$	81,047	$	1,318,918	$	377,641	$	683,239		$	—	$	3,989,422
Charge-offs		—		—		—		—		(2,009	)		—		(2,009	)
Recoveries		5,500		—		—		—		2,635			—		8,135
Provisions		5,575		16,940		13,885		150,888		(52,288	)		—		135,000
Ending balance	$	1,539,652	$	97,987	$	1,332,803	$	528,529	$	631,577		$	—	$	4,130,548

	Six Months Ended June 30, 2019
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,665,413		$	63,876	$	1,292,346	$	386,585	$	806,111		$	—	$	4,214,331
Charge-offs		(229,395	)		—		—		—		(8,342	)		—		(237,737	)
Recoveries		6,000			—		—		—		2,954			—		8,954
Provisions		97,634			34,111		40,457		141,944		(169,146	)		—		145,000
Ending balance	$	1,539,652		$	97,987	$	1,332,803	$	528,529	$	631,577		$	—	$	4,130,548

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

	June 30, 2020
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	466,463	$	—	$	29,199	$	170,794	$	—	$	—	$	666,456
Collectively evaluated for impairment		552,087		150,807		1,447,820		712,506		580,954		—		3,444,174
Total Allowance for Loan Losses	$	1,018,550	$	150,807	$	1,477,019	$	883,300	$	580,954	$	—	$	4,110,630
Loans Receivable
Individually evaluated for impairment	$	1,924,077	$	—	$	2,084,973	$	914,964	$	41,896	$	—	$	4,965,910
Collectively evaluated for impairment		40,755,993		14,301,901		138,384,989		70,268,580		4,686,968		36,542,964		304,941,395
Total Loans Receivable	$	42,680,070	$	14,301,901	$	140,469,962	$	71,183,544	$	4,728,864	$	36,542,964	$	309,907,305

	December 31, 2019
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	683,278	$	—	$	1,782	$	—	$	90	$	—	$	685,150
Collectively evaluated for impairment		746,639		109,235		1,268,663		496,221		697,850		—		3,318,608
Total Allowance for Loan Losses	$	1,429,917	$	109,235	$	1,270,445	$	496,221	$	697,940	$	—	$	4,003,758
Loans Receivable
Individually evaluated for impairment	$	2,065,732	$	—	$	1,679,872	$	879,753	$	51,770	$	—	$	4,677,127
Collectively evaluated for impairment		50,782,723		12,491,078		142,142,118		58,653,292		5,326,222		—		269,395,433
Total Loans Receivable	$	52,848,455	$	12,491,078	$	143,821,990	$	59,533,045	$	5,377,992	$	—	$	274,072,560

As of June 30, 2020 and December 31, 2019, loans individually evaluated and considered impaired are presented in the following table.

	Impaired Loans as of
	June 30, 2020						December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	956,102	$	956,102	$	—	$	1,355,875	$	1,355,875	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,749,438		1,749,438		—		1,432,988		1,432,988		—
Consumer Real Estate		249,850		249,850		—		879,753		879,753		—
Consumer Other		41,896		41,896		—		—		—		—
Paycheck Protection Program		—		—		—		—		—		—
Total		2,997,286		2,997,286		—		3,668,616		3,668,616		—
With an allowance recorded:
Commercial		967,975		967,975		466,463		709,857		709,857		683,278
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		435,336		335,535		29,199		346,685		246,884		1,782
Consumer Real Estate		665,114		665,114		170,794		—		—		—
Consumer Other		—		—		—		51,770		51,770		90
Paycheck Protection Program		—		—		—		—		—		—
Total		2,068,425		1,968,624		666,456		1,108,312		1,008,511		685,150
Commercial		1,924,077		1,924,077		466,463		2,065,732		2,065,732		683,278
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		2,184,774		2,084,973		29,199		1,779,673		1,679,872		1,782
Consumer Real Estate		914,964		914,964		170,794		879,753		879,753		—
Consumer Other		41,896		41,896		—		51,770		51,770		90
Paycheck Protection Program		—		—		—		—		—		—
Total	$	5,065,711	$	4,965,910	$	666,456	$	4,776,928	$	4,677,127	$	685,150

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

	Three Months Ended June 30,
	2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	960,398	$	14,480	$	117,741	$	2,071
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,752,669		21,646		863,351		10,354
Consumer Real Estate		249,800		2,647		879,753		14,257
Consumer Other		42,163		683		—		—
Paycheck Protection Program		—		—		—		—
		3,005,030		39,456		1,860,845		26,682
With an allowance recorded:
Commercial		1,052,358		11,434		1,582,324		25,869
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		235,734		—		501,279		2,735
Consumer Real Estate		665,058		—		—		—
Consumer Other		—		—		17,108		224
Paycheck Protection Program		—		—		—		—
		1,953,150		11,434		2,100,711		28,828
Total
Commercial		2,012,756		25,914		1,700,065		27,940
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,988,403		21,646		1,364,630		13,089
Consumer Real Estate		914,858		2,647		879,753		14,257
Consumer Other		42,163		683		17,108		224
Paycheck Protection Program		—		—		—		—
	$	4,958,180	$	50,890	$	3,961,556	$	55,510

		Six Months Ended June 30,
		2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	1,024,907	$	29,570	$	123,509	$	4,334
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		1,772,945		37,824		967,076		20,700
Consumer Real Estate		249,754		6,472		879,753		28,357
Consumer Other		43,903		1,342		—		—
Paycheck Protection Program		—		—		—		—
		3,091,509		75,208		1,970,338		53,391
With an allowance recorded:
Commercial		1,184,428		26,662		1,597,013		51,983
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		229,149		—		403,001		5,498
Consumer Real Estate		664,701		—		—		—
Consumer Other		—		—		18,279		478
Paycheck Protection Program		—		—		—		—
		2,078,278		26,662		2,018,293		57,959
Total
Commercial		2,209,335		56,232		1,720,522		56,317
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		2,002,094		37,824		1,370,077		26,198
Consumer Real Estate		914,455		6,472		879,753		28,357
Consumer Other		43,903		1,342		18,279		478
Paycheck Protection Program		—		—		—		—
	$	5,169,787	$	101,870	$	3,988,631	$	111,350

In general, the modification or restructuring of a loan is considered a troubled debt restructuring (“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. As of June 30, 2020, there were 6 TDRs with a balance of $1.7 million compared to 3 TDRs with a balance of $573,473 as of December 31, 2019. These TDRs were granted extended payment terms with no principal reduction. The structure of two of the loans changed to interest only. All TDRs were performing as agreed as of June 30, 2020. No TDRs defaulted during the three and six months ended June 30, 2020 and 2019, which were modified within the previous twelve months.

Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. The Bank processed approximately $0.6 million in principal deferments to 80 customers during the six months ended June 30, 2020. This represents 0.18% of our total loan portfolio as of June 30, 2020. The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and found that all borrowers were current prior to relief and were not experiencing financial difficulty prior to COVID-19.

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Leases

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Leases

Note 4: Leases 

As of June 30, 2020 and December 31, 2019, the Company had operating right of use (“ROU”) assets of $13.0 million and $13.2 million, respectively, and operating lease liabilities of $13.0 million and $13.2 million, respectively. The Company maintains operating leases on land, branch facilities, and parking. Most of the leases include one or more options to renew, with renewal terms extending up to 20 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized in lease expense. 

The weighted average remaining lease term is 17.56 years. The weighted average incremental borrowing rate is 4.34%. 

The table below shows lease expense components for the three months ended June 30, 2020. 

Lease Expense Components
Operating lease expense	$	250,121
Short-term lease expense		—
Total lease expense	$	250,121

The table below shows lease expense components for the six months ended June 30, 2020. 

Lease Expense Components
Operating lease expense	$	484,080
Short-term lease expense		—
Total lease expense	$	484,080

Total rental expense was $250,121 and $161,867 for the three months ended June 30, 2020 and 2019, respectively, and $484,080 and $317,859 for the six months ended June 30, 2020 and 2019, respectively, and was included in net occupancy expense within the consolidated statements of income. 

As of June 30, 2020 and December 31, 2019, we did not maintain any finance leases and we determined that the number and dollar amount of equipment leases was immaterial. As of June 30, 2020 and December 31, 2019, we have no additional operating leases that have not yet commenced.

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Disclosure Regarding Fair Value of Financial Statements

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Disclosure Regarding Fair Value of Financial Statements

Note 5: Disclosure Regarding Fair Value of Financial Statements

Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs, which are developed based on market data we have obtained from independent sources, are ones that market participants would use in pricing an asset or liability. Unobservable inputs, which are developed based on the best information available in the circumstances, reflect our estimate of assumptions that market participants would use in pricing an asset or liability.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

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

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

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

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

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

Investment Securities Available for Sale

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

We had no embedded derivative instruments requiring separate accounting treatment. We had freestanding derivative instruments consisting of fixed rate conforming loan commitments as interest rate locks and commitments to sell fixed rate conforming loans on a best efforts basis. We do not currently engage in hedging activities. Based on short term fair value of the mortgage loans held for sale (derivative contract), our derivative instruments were immaterial to our consolidated financial statements as of June 30, 2020 and December 31, 2019.

 Assets and liabilities measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 are as follows:

	June 30, 2020
	Level 1		Level 2		Level 3		Total
U.S. Treasury Notes	$	23,601,441	$	—	$	—	$	23,601,441
Government-Sponsored Enterprises		—		68,338,085		—		68,338,085
Municipal Securities		—		10,880,794		6,086,342		16,967,136
Total	$	23,601,441	$	79,218,879	$	6,086,342	$	108,906,662

	December 31, 2019
	Level 1		Level 2		Level 3		Total
U.S. Treasury Notes	$	23,180,200	$	—	$	—	$	23,180,200
Government-Sponsored Enterprises		—		50,498,195		—		50,498,195
Municipal Securities		—		14,817,110		11,954,451		26,771,561
Total	$	23,180,200	$	65,315,305	$	11,954,451	$	100,449,956

There were no liabilities recorded at fair value on a recurring basis as of June 30, 2020 or December 31, 2019.

The following table reconciles the changes in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Beginning balance	$	6,403,720		$	5,738,618		$	11,954,451		$	6,241,955
Total gains or (losses) (realized/unrealized)
Included in other comprehensive income		81,622			44,734			109,891			101,397
Purchases, issuances, and settlements net of maturities		(399,000	)		(1,248,835	)		(5,978,000	)		(1,808,835	)
Ending balance	$	6,086,342		$	4,534,517		$	6,086,342		$	4,534,517

There were no transfers between fair value levels during the three and six months ended June 30, 2020 or 2019.

The following paragraphs describe the 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.

The Bank does not have any OREO as of June 30, 2020 or December 31, 2019.

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 ASC 820, Fair Value Measurement, impaired loans, where an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. These impaired loans are classified as Level 3. Impaired loans measured using discounted future cash flows are not deemed to be measured at fair value. 

Mortgage Loans to be Sold

Mortgage loans to be sold are carried at the lower of cost or market value. The fair values of mortgage loans to be sold are based on current market rates from investors within the secondary market for loans with similar characteristics. Carrying value approximates fair value. These loans are classified as Level 2.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The following table presents information about certain assets measured at fair value on a nonrecurring basis at June 30, 2020 and December 31, 2019:

	June 30, 2020
	Level 1		Level 2		Level 3		Total
Impaired loans	$	—	$	—	$	2,799,944	$	2,799,944
Mortgage loans to be sold		—		11,624,188		—		11,624,188
Total	$	—	$	11,624,188	$	2,799,944	$	14,424,132

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Impaired loans	$	—	$	—	$	2,657,644	$	2,657,644
Mortgage loans to be sold		—		5,062,398		—		5,062,398
Total	$	—	$	5,062,398	$	2,657,644	$	7,720,042

There were no liabilities measured at fair value on a nonrecurring basis as of June 30, 2020 or December 31, 2019.

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at June 30, 2020 and December 31, 2019:

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

Accounting standards require disclosure of fair value information for all of our assets and liabilities that are considered financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate fair value.

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

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

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

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

b. Investment securities available for sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.

c. Loans, net

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

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

d. Deposits

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

e. Accrued interest receivable and payable

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

f. Loan commitments

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

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of June 30, 2020 and December 31, 2019.

	Fair Value Measurements at June 30, 2020
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	6,886,753	$	6,886,753	$	6,886,753	$	—	$	—
Interest-bearing deposits at the Federal Reserve		89,344,677		89,344,677		89,344,677		—		—
Investment securities available for sale		108,906,662		108,906,662		23,601,441		79,218,879		6,086,342
Mortgage loans to be sold		11,624,188		11,624,188		—		11,624,188		—
Loans, net		305,796,675		298,879,296		—		—		298,879,296
Accrued interest receivable		1,332,528		1,332,528		—		1,332,528		—
Financial Liabilities:
Demand deposits		452,451,437		452,451,437		—		452,451,437		—
Time deposits		21,245,740		23,478,635		—		23,478,635		—
Accrued interest payable		29,492		29,492		—		29,492		—

	Fair Value Measurements at December 31, 2019
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	9,773,893	$	9,773,893	$	9,773,893	$	—	$	—
Interest-bearing deposits at the Federal Reserve		39,320,526		39,320,526		39,320,526		—		—
Investment securities available for sale		100,449,956		100,449,956		23,180,200		65,315,305		11,954,451
Mortgage loans to be sold		5,062,398		5,062,398		—		5,062,398		—
Loans, net		270,068,802		271,736,572		—		—		271,736,572
Accrued interest receivable		1,309,772		1,309,772		—		1,309,772		—
Financial Liabilities:
Demand deposits		357,008,868		357,008,868		—		357,008,868		—
Time deposits		22,182,787		21,962,039		—		21,962,039		—
Accrued interest payable		38,748		38,748		—		38,748		—

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Income Per Common Share

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Income Per Common Share

Note 6: Income Per Common Share 

Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and potential common shares outstanding. Potential common shares consist of dilutive stock options determined using the treasury stock method and the average market price of common stock. 

The following table is a summary of the reconciliation of weighted average shares outstanding for the three months ended June 30: 

	2020		2019
Net income	$	1,501,023	$	1,840,847
Weighted average shares outstanding		5,529,632		5,517,236
Effect of dilutive shares		184,489		70,749
Weighted average shares outstanding - diluted		5,714,121		5,587,985
Earnings per share - basic	$	0.27	$	0.33
Earnings per share - diluted	$	0.26	$	0.33

The following table is a summary of the reconciliation of weighted average shares outstanding for the six months ended June 30: 

	2020		2019
Net income	$	3,022,154	$	3,530,111
Weighted average shares outstanding		5,529,944		5,515,832
Effect of dilutive shares		178,774		70,981
Weighted average shares outstanding - diluted		5,708,718		5,586,813
Earnings per share - basic	$	0.55	$	0.64
Earnings per share - diluted	$	0.53	$	0.63

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Nature of Business and Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. In consolidation, all significant intercompany balances and transactions have been eliminated.

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

Basis of Presentation

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or (“GAAP”), for the interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 6, 2020. In the opinion of management, these interim financial statements present fairly, in all material respects, the Company’s consolidated financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

Accounting Estimates and Assumptions

Accounting Estimates and Assumptions

The consolidated financial statements are prepared in conformity with GAAP, which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ significantly from these estimates and assumptions. Material estimates generally susceptible to significant change are related to the determination of the allowance for loan losses, impaired loans, other real estate owned, deferred tax assets, the fair value of financial instruments and other-than-temporary impairment of investment securities.

Reclassification

Reclassification

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

Income per share

Income per share

Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Dilutive income per share is computed by dividing net income by the weighted-average number of common shares and potential common shares outstanding. Potential common shares consist of dilutive stock options determined using the treasury stock method and the average market price of common stock. Retroactive recognition has been given for the effects of all stock dividends.

Subsequent Events

Subsequent Events

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.

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 June 2016, the FASB issued ASU 2016-13, Financial instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to change the accounting for credit losses and modify the impairment model for certain debt securities. In May 2019, the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. In October 2019, the FASB voted to extend the implementation date for smaller reporting companies, non-SEC public companies, and private companies. The amendment will be effective for the Company for periods beginning after December 15, 2022. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows. It will be influenced by the quality, composition, and characteristics of our loan and investment portfolios, as well as the expected economic conditions and forecasts at the time of enactment and future reporting periods.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles and Goodwill and Other-Internal Use Software (Subtopic 350-40):Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract),which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.

In April 2019, the FASB issued guidance that clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for the reporting period beginning after December 15, 2019. The amendments related to hedging became effective January 1, 2019. The amendments related to recognition and measurement of financial instruments became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.

In July 2019, the FASB updated various Topics of the ASC to align the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. The amendments were effective upon issuance and did not have a material effect on the financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which provides guidance to simply accounting for income taxes by removing specific technical exceptions that can produce information investors do not understand. The amendments improve and simplify the application of GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on the financial statements.

In January 2020, the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2020, the FASB issued guidance to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2020, the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the current expected credit losses (CECL) guidance issued in 2016. The amendments related to conforming amendments. For public business entities, the amendments are effective upon issuance of this final ASU. The effective date of the amendments to ASU 2016-01 is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For the amendments related to ASU 2016-13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies (SRCs) as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. Early adoption will continue to be permitted. For entities that have not yet adopted the guidance in ASU 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its 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 (Tables)

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Schedule of amortized cost and fair value of investment securities available for sale

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

	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	23,058,684	$	542,757	$	—		$	23,601,441
Government-Sponsored Enterprises		66,754,370		1,593,682		(9,967	)		68,338,085
Municipal Securities		16,492,938		474,198		—			16,967,136
Total	$	106,305,992	$	2,610,637	$	(9,967	)	$	108,906,662

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	23,080,465	$	99,735	$	—		$	23,180,200
Government-Sponsored Enterprises		50,139,959		401,336		(43,100	)		50,498,195
Municipal Securities		26,618,375		169,640		(16,454	)		26,771,561
Total	$	99,838,799	$	670,711	$	(59,554	)	$	100,449,956

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 as of June 30, 2020 and December 31, 2019, by contractual maturity are in the following table.

	June 30, 2020				December 31, 2019
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	10,189,841	$	10,320,371	$	9,185,615	$	9,191,226
Due in one year to five years		69,550,840		71,471,655		77,261,123		77,815,119
Due in five years to ten years		26,565,311		27,114,636		13,392,061		13,443,611
Due in ten years and over		—		—		—		—
Total	$	106,305,992	$	108,906,662	$	99,838,799	$	100,449,956

Schedule of investment securities gross unrealized losses on investment securities and the fair market value of the related securities

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.

	June 30, 2020
	Less Than 12 Months							12 Months or Longer						Total
	#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss		#		Fair Value		Gross Unrealized Loss
U.S. Treasury Notes		—	$	—	$	—			—	$	—	$	—		—	$	—	$	—
Government-Sponsored Enterprises		1		11,624,020		(9,967	)		—		—		—		1		11,624,020		(9,967	)
Municipal Securities		—		—		—			—		—		—		—		—		—
Total		1	$	11,624,020	$	(9,967	)		—	$	—	$	—		1	$	11,624,020	$	(9,967	)

	December 31, 2019
	Less Than 12 Months							12 Months or Longer							Total
Available for sale	#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss			#		Fair Value		Gross Unrealized Loss
U.S. Treasury Notes		—	$	—	$	—			—	$	—	$	—			—	$	—	$	—
Government-Sponsored Enterprises		1		5,039,550		(43,100	)		—		—		—			1		5,039,550		(43,100	)
Municipal Securities		9		3,199,517		(13,335	)		1		330,880		(3,119	)		10		3,530,397		(16,454	)
Total		10	$	8,239,067	$	(56,435	)		1	$	330,880	$	(3,119	)		11	$	8,569,947	$	(59,554	)

Schedule of proceeds from sales of securities available for sale and gross realized gains and losses

The tables below show the proceeds from sales of securities available for sale and gross realized gains and losses.

	Three Months Ended
	June 30,
	2020		2019
Gross proceeds	$	—	$	14,952,500
Gross realized gains		—		59,512
Gross realized losses		—		(30,612	)

	Six Months Ended
	June 30,
	2020		2019
Gross proceeds	$	—	$	14,952,500
Gross realized gains		—		59,512
Gross realized losses		—		(30,612	)

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Loans and Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Schedule of major classifications of loans

Major classifications of loans (net of deferred loan fees and costs of $1,128,775 at June 30, 2020 and $155,697 at December 31, 2019, respectively) are as follows:

	June 30, 2020			December 31, 2019
Commercial	$	42,680,070		$	52,848,455
Commercial Real Estate:
Construction		14,301,901			12,491,078
Other		140,469,962			143,821,990
Consumer:
Real Estate		71,183,544			59,533,045
Other		4,728,864			5,377,992
Paycheck Protection Program		36,542,964			—
		309,907,305			274,072,560
Allowance for loan losses		(4,110,630	)		(4,003,758	)
Loans, net	$	305,796,675		$	270,068,802

Schedule of credit risks by category and internally assigned grades

The following tables illustrate credit quality by class and internally assigned grades at June 30, 2020 and December 31, 2019. “Pass” includes loans internally graded as excellent, good and satisfactory.

June 30, 2020
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	35,665,736	$	13,461,039	$	118,080,815	$	68,776,698	$	4,430,294	$	—	$	240,414,582
Watch		4,701,530		840,862		20,069,519		869,152		219,765		—		26,700,828
OAEM		388,727		—		238,227		622,731		36,909		—		1,286,594
Substandard		1,924,077		—		2,081,401		914,963		41,896		—		4,962,337
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Unrated		—		—		—		—		—		36,542,964		36,542,964
Total	$	42,680,070	$	14,301,901	$	140,469,962	$	71,183,544	$	4,728,864	$	36,542,964	$	309,907,305

December 31, 2019
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	48,098,936	$	12,005,834	$	137,641,011	$	56,034,247	$	4,966,615	$	—	$	258,746,643
Watch		2,303,568		485,244		3,758,220		2,096,445		315,375		—		8,958,852
OAEM		460,551		—		649,039		522,600		44,232		—		1,676,422
Substandard		1,985,400		—		1,773,720		879,753		51,770		—		4,690,643
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Unrated		—		—		—		—		—		—		—
Total	$	52,848,455	$	12,491,078	$	143,821,990	$	59,533,045	$	5,377,992	$	—	$	274,072,560

Schedule of aging analysis of the recorded investment in loans segregated by class

The following tables include an aging analysis of the recorded investment in loans segregated by class.

June 30, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment ≥ 90 Days and Accruing
Commercial	$	—	$	210,121	$	—	$	210,121	$	42,469,949	$	42,680,070	$	—
Commercial Real Estate Construction		—		—		—		—		14,301,901		14,301,901		—
Commercial Real Estate Other		335,448		423,170		638,139		1,396,757		139,073,205		140,469,962		—
Consumer Real Estate		—		—		665,114		665,114		70,518,430		71,183,544		—
Consumer Other		—		2,560		—		2,560		4,726,304		4,728,864		—
Paycheck Protection Program		—		—		—		—		36,542,964		36,542,964		—
Total	$	335,448	$	635,851	$	1,303,253	$	2,274,552	$	307,632,753	$	309,907,305	$	—

December 31, 2019
	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	$	39,329	$	—	$	178,975	$	218,304	$	52,630,151	$	52,848,455	$	—
Commercial Real Estate Construction		—		—		—		—		12,491,078		12,491,078		—
Commercial Real Estate Other		620,837		300,240		582,419		1,503,496		142,318,494		143,821,990		—
Consumer Real Estate		—		2,965		629,999		632,964		58,900,081		59,533,045		—
Consumer Other		32,842		—		—		32,842		5,345,150		5,377,992		—
Paycheck Protection Program		—		—		—		—		—		—		—
Total	$	693,008	$	303,205	$	1,391,393	$	2,387,606	$	271,684,954	$	274,072,560	$	—

Schedule of non-accrual loans

The following table summarizes the balances of non-accrual loans:

	Loans Receivable on Non-Accrual
		June 30, 2020		December 31, 2019
Commercial	$	190,751	$	178,975
Commercial Real Estate Construction		—		—
Commercial Real Estate Other		912,067		857,327
Consumer Real Estate		665,114		629,999
Consumer Other		13,450		—
Paycheck Protection Program		—		—
Total	$	1,781,382	$	1,666,301

Schedule of change in allowance and an allocation of the allowance by loan categery

The following tables set forth the changes in the allowance for loan losses and an allocation of the allowance for loan losses by loan category for the three and six months ended June 30, 2020 and 2019. The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.

	Three Months Ended June 30, 2020
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,416,267		$	123,069	$	1,212,647	$	562,000	$	700,230		$	—	$	4,014,213
Charge-offs		—			—		—		—		(76,410	)		—		(76,410	)
Recoveries		71,511			—		99,801		—		1,515			—		172,827
Provisions		(469,228	)		27,738		164,571		321,300		(44,381	)		—		—
Ending balance	$	1,018,550		$	150,807	$	1,477,019	$	883,300	$	580,954		$	—	$	4,110,630

	Six Months Ended June 30, 2020
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,429,917		$	109,235	$	1,270,445	$	496,221	$	697,940		$	—	$	4,003,758
Charge-offs		—			—		—		—		(116,002	)		—		(116,002	)
Recoveries		87,011			—		99,801		—		36,062			—		222,874
Provisions		(498,378	)		41,572		106,773		387,079		(37,046	)		—		—
Ending balance	$	1,018,550		$	150,807	$	1,477,019	$	883,300	$	580,954		$	—	$	4,110,630

	Three Months Ended June 30, 2019
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,528,577	$	81,047	$	1,318,918	$	377,641	$	683,239		$	—	$	3,989,422
Charge-offs		—		—		—		—		(2,009	)		—		(2,009	)
Recoveries		5,500		—		—		—		2,635			—		8,135
Provisions		5,575		16,940		13,885		150,888		(52,288	)		—		135,000
Ending balance	$	1,539,652	$	97,987	$	1,332,803	$	528,529	$	631,577		$	—	$	4,130,548

	Six Months Ended June 30, 2019
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses:
Beginning balance	$	1,665,413		$	63,876	$	1,292,346	$	386,585	$	806,111		$	—	$	4,214,331
Charge-offs		(229,395	)		—		—		—		(8,342	)		—		(237,737	)
Recoveries		6,000			—		—		—		2,954			—		8,954
Provisions		97,634			34,111		40,457		141,944		(169,146	)		—		145,000
Ending balance	$	1,539,652		$	97,987	$	1,332,803	$	528,529	$	631,577		$	—	$	4,130,548

Schedule of allocation of the allowance for loan losses and the gross investment in loans by class and reserving methodology

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

	June 30, 2020
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	466,463	$	—	$	29,199	$	170,794	$	—	$	—	$	666,456
Collectively evaluated for impairment		552,087		150,807		1,447,820		712,506		580,954		—		3,444,174
Total Allowance for Loan Losses	$	1,018,550	$	150,807	$	1,477,019	$	883,300	$	580,954	$	—	$	4,110,630
Loans Receivable
Individually evaluated for impairment	$	1,924,077	$	—	$	2,084,973	$	914,964	$	41,896	$	—	$	4,965,910
Collectively evaluated for impairment		40,755,993		14,301,901		138,384,989		70,268,580		4,686,968		36,542,964		304,941,395
Total Loans Receivable	$	42,680,070	$	14,301,901	$	140,469,962	$	71,183,544	$	4,728,864	$	36,542,964	$	309,907,305

	December 31, 2019
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	683,278	$	—	$	1,782	$	—	$	90	$	—	$	685,150
Collectively evaluated for impairment		746,639		109,235		1,268,663		496,221		697,850		—		3,318,608
Total Allowance for Loan Losses	$	1,429,917	$	109,235	$	1,270,445	$	496,221	$	697,940	$	—	$	4,003,758
Loans Receivable
Individually evaluated for impairment	$	2,065,732	$	—	$	1,679,872	$	879,753	$	51,770	$	—	$	4,677,127
Collectively evaluated for impairment		50,782,723		12,491,078		142,142,118		58,653,292		5,326,222		—		269,395,433
Total Loans Receivable	$	52,848,455	$	12,491,078	$	143,821,990	$	59,533,045	$	5,377,992	$	—	$	274,072,560

Schedule of loans individually evaluated for impairment and the corresponding allowance for loan losses

As of June 30, 2020 and December 31, 2019, loans individually evaluated and considered impaired are presented in the following table.

	Impaired Loans as of
	June 30, 2020						December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	956,102	$	956,102	$	—	$	1,355,875	$	1,355,875	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,749,438		1,749,438		—		1,432,988		1,432,988		—
Consumer Real Estate		249,850		249,850		—		879,753		879,753		—
Consumer Other		41,896		41,896		—		—		—		—
Paycheck Protection Program		—		—		—		—		—		—
Total		2,997,286		2,997,286		—		3,668,616		3,668,616		—
With an allowance recorded:
Commercial		967,975		967,975		466,463		709,857		709,857		683,278
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		435,336		335,535		29,199		346,685		246,884		1,782
Consumer Real Estate		665,114		665,114		170,794		—		—		—
Consumer Other		—		—		—		51,770		51,770		90
Paycheck Protection Program		—		—		—		—		—		—
Total		2,068,425		1,968,624		666,456		1,108,312		1,008,511		685,150
Commercial		1,924,077		1,924,077		466,463		2,065,732		2,065,732		683,278
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		2,184,774		2,084,973		29,199		1,779,673		1,679,872		1,782
Consumer Real Estate		914,964		914,964		170,794		879,753		879,753		—
Consumer Other		41,896		41,896		—		51,770		51,770		90
Paycheck Protection Program		—		—		—		—		—		—
Total	$	5,065,711	$	4,965,910	$	666,456	$	4,776,928	$	4,677,127	$	685,150

Schedule of average impaired loans and interest income recognized on those impaired loans by class

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

	Three Months Ended June 30,
	2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	960,398	$	14,480	$	117,741	$	2,071
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,752,669		21,646		863,351		10,354
Consumer Real Estate		249,800		2,647		879,753		14,257
Consumer Other		42,163		683		—		—
Paycheck Protection Program		—		—		—		—
		3,005,030		39,456		1,860,845		26,682
With an allowance recorded:
Commercial		1,052,358		11,434		1,582,324		25,869
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		235,734		—		501,279		2,735
Consumer Real Estate		665,058		—		—		—
Consumer Other		—		—		17,108		224
Paycheck Protection Program		—		—		—		—
		1,953,150		11,434		2,100,711		28,828
Total
Commercial		2,012,756		25,914		1,700,065		27,940
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,988,403		21,646		1,364,630		13,089
Consumer Real Estate		914,858		2,647		879,753		14,257
Consumer Other		42,163		683		17,108		224
Paycheck Protection Program		—		—		—		—
	$	4,958,180	$	50,890	$	3,961,556	$	55,510

		Six Months Ended June 30,
		2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	1,024,907	$	29,570	$	123,509	$	4,334
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		1,772,945		37,824		967,076		20,700
Consumer Real Estate		249,754		6,472		879,753		28,357
Consumer Other		43,903		1,342		—		—
Paycheck Protection Program		—		—		—		—
		3,091,509		75,208		1,970,338		53,391
With an allowance recorded:
Commercial		1,184,428		26,662		1,597,013		51,983
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		229,149		—		403,001		5,498
Consumer Real Estate		664,701		—		—		—
Consumer Other		—		—		18,279		478
Paycheck Protection Program		—		—		—		—
		2,078,278		26,662		2,018,293		57,959
Total
Commercial		2,209,335		56,232		1,720,522		56,317
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		2,002,094		37,824		1,370,077		26,198
Consumer Real Estate		914,455		6,472		879,753		28,357
Consumer Other		43,903		1,342		18,279		478
Paycheck Protection Program		—		—		—		—
	$	5,169,787	$	101,870	$	3,988,631	$	111,350

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Leases (Tables)

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Schedule of lease expense components

The table below shows lease expense components for the three months ended June 30, 2020.

Lease Expense Components
Operating lease expense	$	250,121
Short-term lease expense		—
Total lease expense	$	250,121

The table below shows lease expense components for the six months ended June 30, 2020.

Lease Expense Components
Operating lease expense	$	484,080
Short-term lease expense		—
Total lease expense	$	484,080

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Disclosure Regarding Fair Value of Financial Statements (Tables)

6 Months Ended

Jun. 30, 2020

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 June 30, 2020 and December 31, 2019 are as follows:

	June 30, 2020
	Level 1		Level 2		Level 3		Total
U.S. Treasury Notes	$	23,601,441	$	—	$	—	$	23,601,441
Government-Sponsored Enterprises		—		68,338,085		—		68,338,085
Municipal Securities		—		10,880,794		6,086,342		16,967,136
Total	$	23,601,441	$	79,218,879	$	6,086,342	$	108,906,662

	December 31, 2019
	Level 1		Level 2		Level 3		Total
U.S. Treasury Notes	$	23,180,200	$	—	$	—	$	23,180,200
Government-Sponsored Enterprises		—		50,498,195		—		50,498,195
Municipal Securities		—		14,817,110		11,954,451		26,771,561
Total	$	23,180,200	$	65,315,305	$	11,954,451	$	100,449,956

Schedule of changes in assets measured at fair value on a recurring basis using significant unobservable inputs

The following table reconciles the changes in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Beginning balance	$	6,403,720		$	5,738,618		$	11,954,451		$	6,241,955
Total gains or (losses) (realized/unrealized)
Included in other comprehensive income		81,622			44,734			109,891			101,397
Purchases, issuances, and settlements net of maturities		(399,000	)		(1,248,835	)		(5,978,000	)		(1,808,835	)
Ending balance	$	6,086,342		$	4,534,517		$	6,086,342		$	4,534,517

Schedule of certain assets measured at fair value on a nonrecurring basis

The following table presents information about certain assets measured at fair value on a nonrecurring basis at June 30, 2020 and December 31, 2019:

	June 30, 2020
	Level 1		Level 2		Level 3		Total
Impaired loans	$	—	$	—	$	2,799,944	$	2,799,944
Mortgage loans to be sold		—		11,624,188		—		11,624,188
Total	$	—	$	11,624,188	$	2,799,944	$	14,424,132

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Impaired loans	$	—	$	—	$	2,657,644	$	2,657,644
Mortgage loans to be sold		—		5,062,398		—		5,062,398
Total	$	—	$	5,062,398	$	2,657,644	$	7,720,042

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 June 30, 2020 and December 31, 2019:

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

Schedule of carrying amount, fair value, and placement in the fair value hierarchy of financial instruments

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of June 30, 2020 and December 31, 2019.

	Fair Value Measurements at June 30, 2020
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	6,886,753	$	6,886,753	$	6,886,753	$	—	$	—
Interest-bearing deposits at the Federal Reserve		89,344,677		89,344,677		89,344,677		—		—
Investment securities available for sale		108,906,662		108,906,662		23,601,441		79,218,879		6,086,342
Mortgage loans to be sold		11,624,188		11,624,188		—		11,624,188		—
Loans, net		305,796,675		298,879,296		—		—		298,879,296
Accrued interest receivable		1,332,528		1,332,528		—		1,332,528		—
Financial Liabilities:
Demand deposits		452,451,437		452,451,437		—		452,451,437		—
Time deposits		21,245,740		23,478,635		—		23,478,635		—
Accrued interest payable		29,492		29,492		—		29,492		—

	Fair Value Measurements at December 31, 2019
	Carrying Amount		Estimated  Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	9,773,893	$	9,773,893	$	9,773,893	$	—	$	—
Interest-bearing deposits at the Federal Reserve		39,320,526		39,320,526		39,320,526		—		—
Investment securities available for sale		100,449,956		100,449,956		23,180,200		65,315,305		11,954,451
Mortgage loans to be sold		5,062,398		5,062,398		—		5,062,398		—
Loans, net		270,068,802		271,736,572		—		—		271,736,572
Accrued interest receivable		1,309,772		1,309,772		—		1,309,772		—
Financial Liabilities:
Demand deposits		357,008,868		357,008,868		—		357,008,868		—
Time deposits		22,182,787		21,962,039		—		21,962,039		—
Accrued interest payable		38,748		38,748		—		38,748		—

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Income Per Common Share (Tables)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Schedule of reconciliation of average shares outstanding

The following table is a summary of the reconciliation of weighted average shares outstanding for the three months ended June 30:

	2020		2019
Net income	$	1,501,023	$	1,840,847
Weighted average shares outstanding		5,529,632		5,517,236
Effect of dilutive shares		184,489		70,749
Weighted average shares outstanding - diluted		5,714,121		5,587,985
Earnings per share - basic	$	0.27	$	0.33
Earnings per share - diluted	$	0.26	$	0.33

The following table is a summary of the reconciliation of weighted average shares outstanding for the six months ended June 30:

	2020		2019
Net income	$	3,022,154	$	3,530,111
Weighted average shares outstanding		5,529,944		5,515,832
Effect of dilutive shares		178,774		70,981
Weighted average shares outstanding - diluted		5,708,718		5,586,813
Earnings per share - basic	$	0.55	$	0.64
Earnings per share - diluted	$	0.53	$	0.63

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Investment Securities (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Amortized Cost	$ 106,305,992	$ 99,838,799
Gross Unrealized Gains	2,610,637	670,711
Gross Unrealized Losses	(9,967)	(59,554)
Estimated Fair Value	108,906,662	100,449,956
U.S. Treasury Notes [Member]
Amortized Cost	23,058,684	23,080,465
Gross Unrealized Gains	542,757	99,735
Estimated Fair Value	23,601,441	23,180,200
Government-Sponsored Enterprises [Member]
Amortized Cost	66,754,370	50,139,959
Gross Unrealized Gains	1,593,682	401,336
Gross Unrealized Losses	(9,967)	(43,100)
Estimated Fair Value	68,338,085	50,498,195
Municipal Securities [Member]
Amortized Cost	16,492,938	26,618,375
Gross Unrealized Gains	474,198	169,640
Gross Unrealized Losses		(16,454)
Estimated Fair Value	$ 16,967,136	$ 26,771,561

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Investment Securities (Details 1) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Amortized Cost
Due in one year or less	$ 10,189,841	$ 9,185,615
Due in one year to five years	69,550,840	77,261,123
Due in five years to ten years	26,565,311	13,392,061
Total	106,305,992	99,838,799
Estimated Fair Value
Due in one year or less	10,320,371	9,191,226
Due in one year to five years	71,471,655	77,815,119
Due in five years to ten years	27,114,636	13,443,611
Total	$ 108,906,662	$ 100,449,956

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Investment Securities (Details 2)	Jun. 30, 2020 USD ($) Number	Dec. 31, 2019 USD ($) Number
Less than 12 Months
Number of positions | Number	1	10
Fair Value	$ 11,624,020	$ 8,239,067
Gross Unrealized Losses	$ (9,967)	$ (56,435)
12 months or Longer
Number of positions | Number		1
Fair value		$ 330,880
Gross Unrealized Losses		$ (3,119)
Total
Number of positions | Number	1	11
Fair value	$ 11,624,020	$ 8,569,947
Gross Unrealized Losses	$ (9,967)	$ (59,554)
Government-Sponsored Enterprises [Member]
Less than 12 Months
Number of positions | Number	1	1
Fair Value	$ 11,624,020	$ 5,039,550
Gross Unrealized Losses	$ (9,967)	$ (43,100)
Total
Number of positions | Number	1	1
Fair value	$ 11,624,020	$ 5,039,550
Gross Unrealized Losses	$ (9,967)	$ (43,100)
Municipal Securities [Member]
Less than 12 Months
Number of positions | Number		9
Fair Value		$ 3,199,517
Gross Unrealized Losses		$ (13,335)
12 months or Longer
Number of positions | Number		1
Fair value		$ 330,880
Gross Unrealized Losses		$ (3,119)
Total
Number of positions | Number		10
Fair value		$ 3,530,397
Gross Unrealized Losses		$ (16,454)

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Investment Securities (Details 3) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Investments, Debt and Equity Securities [Abstract]
Gross proceeds	$ 14,952,500	$ 14,952,500
Gross realized gains	59,512	59,512
Gross realized losses	$ (30,612)	$ (30,612)

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Investment Securities (Details Narrative) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Jun. 30, 2020	Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]
Investment securities pledged to secure deposits, fair value			$ 41,200,000	$ 37,600,000
Gross realized gains (losses) on sale of investments, tax	$ 6,069	$ 6,069

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Loans and Allowance for Loan Losses (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Loans	$ 309,907,305	$ 274,072,560
Allowance for loan losses	(4,110,630)	(4,003,758)
Loans, net	305,796,675	270,068,802
Commercial [Member]
Loans	42,680,070	52,848,455
Commercial Real Estate Construction [Member]
Loans	14,301,901	12,491,078
Commercial Real Estate Other [Member]
Loans	140,469,962	143,821,990
Consumer Real Estate [Member]
Loans	71,183,544	59,533,045
Consumer Other [Member]
Loans	4,728,864	$ 5,377,992
Paycheck Protection Program [Member]
Loans	$ 36,542,964

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Loans and Allowance for Loan Losses (Details 1) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Credit risks by category and internally assigned grades
Loans	$ 309,907,305	$ 274,072,560
Pass [Member]
Credit risks by category and internally assigned grades
Loans	240,414,582	258,746,643
Watch [Member]
Credit risks by category and internally assigned grades
Loans	26,700,828	8,958,852
OAEM [Member]
Credit risks by category and internally assigned grades
Loans	1,286,594	1,676,422
SubStandard [Member]
Credit risks by category and internally assigned grades
Loans	4,962,337	4,690,643
Unrated [Member]
Credit risks by category and internally assigned grades
Loans	36,542,964
Commercial [Member]
Credit risks by category and internally assigned grades
Loans	42,680,070	52,848,455
Commercial [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	35,665,736	48,098,936
Commercial [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	4,701,530	2,303,568
Commercial [Member] | OAEM [Member]
Credit risks by category and internally assigned grades
Loans	388,727	460,551
Commercial [Member] | SubStandard [Member]
Credit risks by category and internally assigned grades
Loans	1,924,077	1,985,400
Commercial Real Estate Construction [Member]
Credit risks by category and internally assigned grades
Loans	14,301,901	12,491,078
Commercial Real Estate Construction [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	13,461,039	12,005,834
Commercial Real Estate Construction [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	840,862	485,244
Commercial Real Estate Other [Member]
Credit risks by category and internally assigned grades
Loans	140,469,962	143,821,990
Commercial Real Estate Other [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	118,080,815	137,641,011
Commercial Real Estate Other [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	20,069,519	3,758,220
Commercial Real Estate Other [Member] | OAEM [Member]
Credit risks by category and internally assigned grades
Loans	238,227	649,039
Commercial Real Estate Other [Member] | SubStandard [Member]
Credit risks by category and internally assigned grades
Loans	2,081,401	1,773,720
Consumer Real Estate [Member]
Credit risks by category and internally assigned grades
Loans	71,183,544	59,533,045
Consumer Real Estate [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	68,776,698	56,034,247
Consumer Real Estate [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	869,152	2,096,445
Consumer Real Estate [Member] | OAEM [Member]
Credit risks by category and internally assigned grades
Loans	622,731	522,600
Consumer Real Estate [Member] | SubStandard [Member]
Credit risks by category and internally assigned grades
Loans	914,963	879,753
Consumer Other [Member]
Credit risks by category and internally assigned grades
Loans	4,728,864	5,377,992
Consumer Other [Member] | Pass [Member]
Credit risks by category and internally assigned grades
Loans	4,430,294	4,966,615
Consumer Other [Member] | Watch [Member]
Credit risks by category and internally assigned grades
Loans	219,765	315,375
Consumer Other [Member] | OAEM [Member]
Credit risks by category and internally assigned grades
Loans	36,909	44,232
Consumer Other [Member] | SubStandard [Member]
Credit risks by category and internally assigned grades
Loans	41,896	$ 51,770
Paycheck Protection Program [Member]
Credit risks by category and internally assigned grades
Loans	36,542,964
Paycheck Protection Program [Member] | Unrated [Member]
Credit risks by category and internally assigned grades
Loans	$ 36,542,964

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Loans and Allowance for Loan Losses (Details 2) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Financing Receivable, Past Due [Line Items]
Total Past Due	$ 2,274,552	$ 2,387,606
Current	307,632,753	271,684,954
Total Loans Receivable	309,907,305	274,072,560
30-59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	335,448	693,008
60-89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	635,851	303,205
Greater Than 90 Days [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	1,303,253	1,391,393
Commercial [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	210,121	218,304
Current	42,469,949	52,630,151
Total Loans Receivable	42,680,070	52,848,455
Commercial [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due		39,329
Commercial [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	210,121
Commercial [Member] | Greater Than 90 Days [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due		178,975
Commercial Real Estate Construction [Member]
Financing Receivable, Past Due [Line Items]
Current	14,301,901	12,491,078
Total Loans Receivable	14,301,901	12,491,078
Commercial Real Estate Other [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	1,396,757	1,503,496
Current	139,073,205	142,318,494
Total Loans Receivable	140,469,962	143,821,990
Commercial Real Estate Other [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	335,448	620,837
Commercial Real Estate Other [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	423,170	300,240
Commercial Real Estate Other [Member] | Greater Than 90 Days [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	638,139	582,419
Consumer Real Estate [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	665,114	632,964
Current	70,518,430	58,900,081
Total Loans Receivable	71,183,544	59,533,045
Consumer Real Estate [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due		2,965
Consumer Real Estate [Member] | Greater Than 90 Days [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	665,114	629,999
Consumer Other [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	2,560	32,842
Current	4,726,304	5,345,150
Total Loans Receivable	4,728,864	5,377,992
Consumer Other [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due		$ 32,842
Consumer Other [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	2,560
Paycheck Protection Program [Member]
Financing Receivable, Past Due [Line Items]
Current	36,542,964
Total Loans Receivable	$ 36,542,964

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Loans and Allowance for Loan Losses (Details 3) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Financing Receivable, Past Due [Line Items]
Non-accrual loans receivable	$ 1,781,382	$ 1,666,301
Commercial [Member]
Financing Receivable, Past Due [Line Items]
Non-accrual loans receivable	190,751	178,975
Commercial Real Estate Other [Member]
Financing Receivable, Past Due [Line Items]
Non-accrual loans receivable	912,067	857,327
Consumer Real Estate [Member]
Financing Receivable, Past Due [Line Items]
Non-accrual loans receivable	665,114	$ 629,999
Consumer Other [Member]
Financing Receivable, Past Due [Line Items]
Non-accrual loans receivable	$ 13,450

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Loans and Allowance for Loan Losses (Details 4) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Activity in the allowance for loan losses by portfolio segment
Beginning balance	$ 4,014,213	$ 3,989,422	$ 4,003,758	$ 4,214,331
Charge-offs	(76,410)	(2,009)	(116,002)	(237,737)
Recoveries	172,827	8,135	222,874	8,954
Provisions		135,000		145,000
Ending balance	4,110,630	4,130,548	4,110,630	4,130,548
Commercial [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	1,416,267	1,528,577	1,429,917	1,665,413
Charge-offs				(229,395)
Recoveries	71,511	5,500	87,011	6,000
Provisions	(469,228)	5,575	(498,378)	97,634
Ending balance	1,018,550	1,539,652	1,018,550	1,539,652
Commercial Real Estate Construction [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	123,069	81,047	109,235	63,876
Provisions	27,738	16,940	41,572	34,111
Ending balance	150,807	97,987	150,807	97,987
Commercial Real Estate Other [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	1,212,647	1,318,918	1,270,445	1,292,346
Recoveries	99,801		99,801
Provisions	164,571	13,885	106,773	40,457
Ending balance	1,477,019	1,332,803	1,477,019	1,332,803
Consumer Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	562,000	377,641	496,221	386,585
Provisions	321,300	150,888	387,079	141,944
Ending balance	883,300	528,529	883,300	528,529
Consumer Other [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	700,230	683,239	697,940	806,111
Charge-offs	(76,410)	(2,009)	(116,002)	(8,342)
Recoveries	1,515	2,635	36,062	2,954
Provisions	(44,381)	(52,288)	(37,046)	(169,146)
Ending balance	$ 580,954	$ 631,577	$ 580,954	$ 631,577

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Loans and Allowance for Loan Losses (Details 5) - USD ($)	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Allowance for Loan Losses
Individually evaluated for impairment	$ 666,456		$ 685,150
Collectively evaluated for impairment	3,444,174		3,318,608
Total Allowance for Loan Losses	4,110,630	$ 4,014,213	4,003,758	$ 4,130,548	$ 3,989,422	$ 4,214,331
Loans Receivable
Individually evaluated for impairment	4,965,910		4,677,127
Collectively evaluated for impairment	304,941,395		269,395,433
Total Loans Receivable	309,907,305		274,072,560
Commercial [Member]
Allowance for Loan Losses
Individually evaluated for impairment	466,463		683,278
Collectively evaluated for impairment	552,087		746,639
Total Allowance for Loan Losses	1,018,550	1,416,267	1,429,917	1,539,652	1,528,577	1,665,413
Loans Receivable
Individually evaluated for impairment	1,924,077		2,065,732
Collectively evaluated for impairment	40,755,993		50,782,723
Total Loans Receivable	42,680,070		52,848,455
Commercial Real Estate Construction [Member]
Allowance for Loan Losses
Collectively evaluated for impairment	150,807		109,235
Total Allowance for Loan Losses	150,807	123,069	109,235	97,987	81,047	63,876
Loans Receivable
Collectively evaluated for impairment	14,301,901		12,491,078
Total Loans Receivable	14,301,901		12,491,078
Commercial Real Estate Other [Member]
Allowance for Loan Losses
Individually evaluated for impairment	29,199		1,782
Collectively evaluated for impairment	1,447,820		1,268,663
Total Allowance for Loan Losses	1,477,019	1,212,647	1,270,445	1,332,803	1,318,918	1,292,346
Loans Receivable
Individually evaluated for impairment	2,084,973		1,679,872
Collectively evaluated for impairment	138,384,989		142,142,118
Total Loans Receivable	140,469,962		143,821,990
Consumer Real Estate [Member]
Allowance for Loan Losses
Individually evaluated for impairment	170,794
Collectively evaluated for impairment	712,506		496,221
Total Allowance for Loan Losses	883,300	562,000	496,221	528,529	377,641	386,585
Loans Receivable
Individually evaluated for impairment	914,964		879,753
Collectively evaluated for impairment	70,268,580		58,653,292
Total Loans Receivable	71,183,544		59,533,045
Consumer Other [Member]
Allowance for Loan Losses
Individually evaluated for impairment			90
Collectively evaluated for impairment	580,954		697,850
Total Allowance for Loan Losses	580,954	$ 700,230	697,940	$ 631,577	$ 683,239	$ 806,111
Loans Receivable
Individually evaluated for impairment	41,896		51,770
Collectively evaluated for impairment	4,686,968		5,326,222
Total Loans Receivable	4,728,864		$ 5,377,992
Paycheck Protection Program [Member]
Loans Receivable
Collectively evaluated for impairment	36,542,964
Total Loans Receivable	$ 36,542,964

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Loans and Allowance for Loan Losses (Details 6) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Impaired Loans with no related allowance recorded
Unpaid Principal Balance with no related allowance recorded	$ 2,997,286	$ 3,668,616
Recorded Investment with no related allowance recorded	2,997,286	3,668,616
Impaired Loans with an allowance recorded
Unpaid Principal Balance with an allowance recorded	2,068,425	1,108,312
Recorded Investment with an allowance recorded	1,968,624	1,008,511
Related Allowance	666,456	685,150
Total Impaired Loans
Unpaid Principal balance	5,065,711	4,776,928
Recorded Investment	4,965,910	4,677,127
Related Allowance	666,456	685,150
Commercial [Member]
Impaired Loans with no related allowance recorded
Unpaid Principal Balance with no related allowance recorded	956,102	1,355,875
Recorded Investment with no related allowance recorded	956,102	1,355,875
Impaired Loans with an allowance recorded
Unpaid Principal Balance with an allowance recorded	967,975	709,857
Recorded Investment with an allowance recorded	967,975	709,857
Related Allowance	466,463	683,278
Total Impaired Loans
Unpaid Principal balance	1,924,077	2,065,732
Recorded Investment	1,924,077	2,065,732
Related Allowance	466,463	683,278
Commercial Real Estate Other [Member]
Impaired Loans with no related allowance recorded
Unpaid Principal Balance with no related allowance recorded	1,749,438	1,432,988
Recorded Investment with no related allowance recorded	1,749,438	1,432,988
Impaired Loans with an allowance recorded
Unpaid Principal Balance with an allowance recorded	435,336	346,685
Recorded Investment with an allowance recorded	335,535	246,884
Related Allowance	29,199	1,782
Total Impaired Loans
Unpaid Principal balance	2,184,774	1,779,673
Recorded Investment	2,084,973	1,679,872
Related Allowance	29,199	1,782
Consumer Real Estate [Member]
Impaired Loans with no related allowance recorded
Unpaid Principal Balance with no related allowance recorded	249,850	879,753
Recorded Investment with no related allowance recorded	249,850	879,753
Impaired Loans with an allowance recorded
Unpaid Principal Balance with an allowance recorded	665,114
Recorded Investment with an allowance recorded	665,114
Related Allowance	170,794
Total Impaired Loans
Unpaid Principal balance	914,964	879,753
Recorded Investment	914,964	879,753
Related Allowance	170,794
Consumer Other [Member]
Impaired Loans with no related allowance recorded
Unpaid Principal Balance with no related allowance recorded	41,896
Recorded Investment with no related allowance recorded	41,896
Impaired Loans with an allowance recorded
Unpaid Principal Balance with an allowance recorded		51,770
Recorded Investment with an allowance recorded		51,770
Related Allowance		90
Total Impaired Loans
Unpaid Principal balance	41,896	51,770
Recorded Investment	$ 41,896	51,770
Related Allowance		$ 90

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Loans and Allowance for Loan Losses (Details 7) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Average Impaired Loans with no related allowance recorded
Average Recorded Investment with no related allowance recorded	$ 3,005,030	$ 1,860,845	$ 3,091,509	$ 1,970,338
Interest Income Recognized with no related allowance recorded	39,456	26,682	75,208	53,391
Average Impaired Loans with an allowance recorded
Average Recorded Investment with an allowance recorded	1,953,150	2,100,711	2,078,278	2,018,293
Interest Income Recognized with an allowance recorded	11,434	28,828	26,662	57,959
Total Average Impaired Loans
Average Recorded Investment	4,958,180	3,961,556	5,169,787	3,988,631
Interest Income Recognized	50,890	55,510	101,870	111,350
Commercial [Member]
Average Impaired Loans with no related allowance recorded
Average Recorded Investment with no related allowance recorded	960,398	117,741	1,024,907	123,509
Interest Income Recognized with no related allowance recorded	14,480	2,071	29,570	4,334
Average Impaired Loans with an allowance recorded
Average Recorded Investment with an allowance recorded	1,052,358	1,582,324	1,184,428	1,597,013
Interest Income Recognized with an allowance recorded	11,434	25,869	26,662	51,983
Total Average Impaired Loans
Average Recorded Investment	2,012,756	1,700,065	2,209,335	1,720,522
Interest Income Recognized	25,914	27,940	56,232	56,317
Commercial Real Estate Other [Member]
Average Impaired Loans with no related allowance recorded
Average Recorded Investment with no related allowance recorded	1,752,669	863,351	1,772,945	967,076
Interest Income Recognized with no related allowance recorded	21,646	10,354	37,824	20,700
Average Impaired Loans with an allowance recorded
Average Recorded Investment with an allowance recorded	235,734	501,279	229,149	403,001
Interest Income Recognized with an allowance recorded		2,735		5,498
Total Average Impaired Loans
Average Recorded Investment	1,988,403	1,364,630	2,002,094	1,370,077
Interest Income Recognized	21,646	13,089	37,824	26,198
Consumer Real Estate [Member]
Average Impaired Loans with no related allowance recorded
Average Recorded Investment with no related allowance recorded	249,800	879,753	249,754	879,753
Interest Income Recognized with no related allowance recorded	2,647	14,257	6,472	28,357
Average Impaired Loans with an allowance recorded
Average Recorded Investment with an allowance recorded	665,058		664,701
Total Average Impaired Loans
Average Recorded Investment	914,858	879,753	914,455	879,753
Interest Income Recognized	2,647	14,257	6,472	28,357
Consumer Other [Member]
Average Impaired Loans with no related allowance recorded
Average Recorded Investment with no related allowance recorded	42,163		43,903
Interest Income Recognized with no related allowance recorded	683		1,342
Average Impaired Loans with an allowance recorded
Average Recorded Investment with an allowance recorded		17,108		18,279
Interest Income Recognized with an allowance recorded		224		478
Total Average Impaired Loans
Average Recorded Investment	42,163	17,108	43,903	18,279
Interest Income Recognized	$ 683	$ 224	$ 1,342	$ 478

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Loans and Allowance for Loan Losses (Details Narrative)		6 Months Ended
	Mar. 27, 2020 USD ($)	Jun. 30, 2020 USD ($) Number Customer	Dec. 31, 2019 USD ($) Number
Financing Receivable, Impaired [Line Items]
Principal amount		$ 305,796,675	$ 270,068,802
Deferred loan fees		1,128,775	155,697
Loans pledged as collateral to secure funding with the Federal Reserve Bank		$ 68,700,000	$ 85,200,000
Number of loans over 90 days past due and still accruing | Number		6	3
Restructured loan		$ 1,700,000	$ 573,473
Number of bank funding customer | Customer		80
Percentage of portfolio rate		0.18%
Paycheck Protection Program [Member]
Financing Receivable, Impaired [Line Items]
Loans carry a fixed rate	1.00%
Term loan	2 years
Guarantee of loan by SBA (percent)	100.00%
Loans to be issued under Cares Act	$ 349,000,000,000
Additional funding of loans to be issued under Cares Act	$ 310,000,000,000
Bank funding		$ 36,500,000
Principal deferments		$ 600,000
Number of bank funding customer | Customer		266
Paycheck Protection Program [Member] | Minimum [Member]
Financing Receivable, Impaired [Line Items]
Processing fee of SBA loans (percent)		1.00%
Paycheck Protection Program [Member] | Maximum [Member]
Financing Receivable, Impaired [Line Items]
Processing fee of SBA loans (percent)		5.00%

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Leases (Details) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020
Lease Expense Components
Operating lease expense	$ 250,121	$ 484,080
Total lease expense	$ 250,121	$ 484,080

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Leases (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Leases [Abstract]
Operating Lease, Right-of-Use Asset	$ 12,971,774		$ 12,971,774		$ 13,209,217
Operating Lease, Liability	$ 12,971,774		$ 12,971,774		$ 13,209,217
Weighted average remaining lease term	17 years 6 months 22 days		17 years 6 months 22 days
Weighted average rate	4.34%		4.34%
Rent expense	$ 250,121	$ 161,867	$ 484,080	$ 317,859
Renewal terms	20 years		20 years

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Disclosure Regarding Fair Value of Financial Statements (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Investment securities available for sale	$ 108,906,662	$ 100,449,956
Level 1 [Member]
Investment securities available for sale	23,601,441	23,180,200
Level 2 [Member]
Investment securities available for sale	79,218,879	65,315,305
Level 3 [Member]
Investment securities available for sale	6,086,342	11,954,451
U.S. Treasury Notes [Member]
Investment securities available for sale	23,601,441	23,180,200
Government-Sponsored Enterprises [Member]
Investment securities available for sale	68,338,085	50,498,195
Municipal Securities [Member]
Investment securities available for sale	16,967,136	26,771,561
Recurring Basis [Member]
Investment securities available for sale	108,906,662	100,449,956
Recurring Basis [Member] | Level 1 [Member]
Investment securities available for sale	23,601,441	23,180,200
Recurring Basis [Member] | Level 2 [Member]
Investment securities available for sale	79,218,879	65,315,305
Recurring Basis [Member] | Level 3 [Member]
Investment securities available for sale	6,086,342	11,954,451
Recurring Basis [Member] | U.S. Treasury Notes [Member]
Investment securities available for sale	23,601,441	23,180,200
Recurring Basis [Member] | U.S. Treasury Notes [Member] | Level 1 [Member]
Investment securities available for sale	23,601,441	23,180,200
Recurring Basis [Member] | Government-Sponsored Enterprises [Member]
Investment securities available for sale	68,338,085	50,498,195
Recurring Basis [Member] | Government-Sponsored Enterprises [Member] | Level 2 [Member]
Investment securities available for sale	68,338,085	50,498,195
Recurring Basis [Member] | Municipal Securities [Member]
Investment securities available for sale	16,967,136	26,771,561
Recurring Basis [Member] | Municipal Securities [Member] | Level 2 [Member]
Investment securities available for sale	10,880,794	14,817,110
Recurring Basis [Member] | Municipal Securities [Member] | Level 3 [Member]
Investment securities available for sale	$ 6,086,342	$ 11,954,451

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Disclosure Regarding Fair Value of Financial Statements (Details 1) - Level 3 [Member] - Municipal Securities [Member] - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Beginning Balance	$ 6,403,720	$ 5,738,618	$ 11,954,451	$ 6,241,955
Total gains or (losses) (realized/unrealized)
Included in other comprehensive income	81,622	44,734	109,891	101,397
Purchases, issuances, and settlements net of maturities	(399,000)	(1,248,835)	(5,978,000)	(1,808,835)
Ending balance	$ 6,086,342	$ 4,534,517	$ 6,086,342	$ 4,534,517

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Disclosure Regarding Fair Value of Financial Statements (Details 2) - Nonrecurring Basis [Member] - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Impaired loans	$ 2,799,944	$ 2,657,644
Mortgage loans to be sold	11,624,188	5,062,398
Total	14,424,132	7,720,042
Level 2 [Member]
Mortgage loans to be sold	11,624,188	5,062,398
Total	11,624,188	5,062,398
Level 3 [Member]
Impaired loans	2,799,944	2,657,644
Total	$ 2,799,944	$ 2,657,644

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Disclosure Regarding Fair Value of Financial Statements (Details 3) - Appraisals and/or Sales [Member] - Discount Rate [Member] - Number	Jun. 30, 2020	Dec. 31, 2019
Minimum [Member]
Impaired loans	0.10	0.10
Maximum [Member]
Impaired loans	0.20	0.20

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Disclosure Regarding Fair Value of Financial Statements (Details 4) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Financial Assets:
Investment securities available for sale	$ 108,906,662	$ 100,449,956
Level 1 [Member]
Financial Assets:
Cash and due from banks	6,886,753	9,773,893
Interest-bearing deposits at the Federal Reserve	89,344,677	39,320,526
Investment securities available for sale	23,601,441	23,180,200
Level 2 [Member]
Financial Assets:
Investment securities available for sale	79,218,879	65,315,305
Mortgage loans to be sold	11,624,188	5,062,398
Accrued interest receivable	1,332,528	1,309,772
Financial Liabilities:
Demand deposits	452,451,437	357,008,868
Time deposits	23,478,635	21,962,039
Accrued interest payable	29,492	38,748
Level 3 [Member]
Financial Assets:
Investment securities available for sale	6,086,342	11,954,451
Loans, net	298,879,296	271,736,572
Carrying Amount [Member]
Financial Assets:
Cash and due from banks	6,886,753	9,773,893
Interest-bearing deposits at the Federal Reserve	89,344,677	39,320,526
Investment securities available for sale	108,906,662	100,449,956
Mortgage loans to be sold	11,624,188	5,062,398
Loans, net	305,796,675	270,068,802
Accrued interest receivable	1,332,528	1,309,772
Financial Liabilities:
Demand deposits	452,451,437	357,008,868
Time deposits	21,245,740	22,182,787
Accrued interest payable	29,492	38,748
Estimated Fair Value [Member]
Financial Assets:
Cash and due from banks	6,886,753	9,773,893
Interest-bearing deposits at the Federal Reserve	89,344,677	39,320,526
Investment securities available for sale	108,906,662	100,449,956
Mortgage loans to be sold	11,624,188	5,062,398
Loans, net	298,879,296	271,736,572
Accrued interest receivable	1,332,528	1,309,772
Financial Liabilities:
Demand deposits	452,451,437	357,008,868
Time deposits	23,478,635	21,962,039
Accrued interest payable	$ 29,492	$ 38,748

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Income Per Common Share (Details) - USD ($)	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Earnings Per Share [Abstract]
Net income	$ 1,501,023	$ 1,521,131	$ 1,840,847	$ 1,689,264	$ 3,022,154	$ 3,530,111
Weighted average shares outstanding	5,529,632		5,517,236		5,529,944	5,515,832
Effect of dilutive shares	184,489		70,749		178,774	70,981
Weighted average shares outstanding - diluted	5,714,121		5,587,985		5,708,718	5,586,813
Earnings per share - basic (in dollars per share)	$ 0.27		$ 0.33		$ 0.55	$ 0.64
Earnings per share - diluted (in dollars per share)	$ 0.26		$ 0.33		$ 0.53	$ 0.63