BANK OF SOUTH CAROLINA CORP (Form: 10-Q, Received: 08/10/2017 06:08:17)

Inputs

Valuation Technique

Unobservable Input

General Range of
Inputs

Impaired Loans

Discounted Appraisals

Collateral Discounts

Other Real Estate Owned

Appraisal Value/ Comparison Sales/Other Estimates

Appraisals and/or Sales of Comparable Properties

Appraisals Discounted 10% to 20% for Sales Commissions and Other Holding Costs

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, 2017

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

Yes ☒ No ☐

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

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.

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 ☒

As of August 10, 2017 there were 4,980,009 Common Shares outstanding.

Bank of South Carolina Corporation and Subsidiary

Table of Contents

		Page
Part I. Financial Information

Item 1. Financial Statements (Unaudited)

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Off-Balance Sheet Arrangements		34
Liquidity		35
Capital Resources		35

Item 3. Quantitative and Qualitative Disclosures About Market Risk		36

Item 4. Controls and Procedures		36

Part II. Other Information

Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosure	37
Item 5.	Other Information	37
Item 6.	Exhibits	37

Signatures		39
Certifications		40

Part I. Financial Information

Item 1. Financial Statements

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS

	(Unaudited) June 30, 2017			(Audited) December 31, 2016
ASSETS
Cash and due from banks	$	8,746,291		$	8,141,030
Interest-bearing deposits at the Federal Reserve Bank		23,881,649			18,101,300
Investment securities available for sale		132,660,381			119,978,944
Mortgage loans to be sold		2,232,201			4,386,210
Loans		260,229,745			260,576,115
Less: Allowance for loan losses		(3,927,515	)		(3,851,617	)
Net loans		256,302,230			256,724,498
Premises, equipment and leasehold improvements, net		2,270,977			2,296,624
Other real estate owned		475,800			521,943
Accrued interest receivable		1,551,357			1,614,002
Other assets		2,183,113			2,185,085
Total assets	$	430,303,999		$	413,949,636

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest-bearing demand	$	132,051,130		$	126,034,478
Interest-bearing demand		94,401,633			96,260,589
Money market accounts		81,827,246			77,307,662
Time deposits over $250,000		17,959,145			17,822,136
Other time deposits		26,559,417			26,019,121
Other savings deposits		33,493,698			29,078,865
Total deposits		386,292,269			372,522,851
Accrued interest payable and other liabilities		958,771			813,811
Total liabilities		387,251,040			373,336,662

Shareholders’ equity
Common stock-no par, 12,000,000 shares authorized; 5,211,285 and 5,197,535 shares issued at June 30, 2017 and December 31, 2016, respectively; 4,969,889 and 4,956,139 shares outstanding at June 30, 2017 and December 31, 2016, respectively		—			—
Additional paid in capital		37,015,422			36,824,022
Retained earnings		7,865,149			6,643,476
Treasury stock: 241,396 shares at June 30, 2017 and December 31, 2016		(2,247,415	)		(2,247,415	)
Accumulated other comprehensive income (loss), net of income taxes		419,803			(607,109	)
Total shareholders’ equity		43,052,959			40,612,974
Total liabilities and shareholders’ equity	$	430,303,999		$	413,949,636

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	THREE MONTHS ENDED JUNE 30,
	2017		2016
Interest and fee income
Loans, including fees	$	3,221,855	$	3,208,836
Taxable securities		399,909		290,486
Tax-exempt securities		256,202		240,171
Other		55,319		31,176
Total interest and fee income		3,933,285		3,770,669

Interest expense
Deposits		106,522		92,981
Short-term borrowings		—		7
Total interest expense		106,522		92,988

Net interest income		3,826,763		3,677,681
Provision for loan losses		30,000		140,000
Net interest income after provision for loan losses		3,796,763		3,537,681

Other income
Service charges, fees and commissions		287,873		265,736
Mortgage banking income		400,519		296,891
Gains on sales of securities		—		160,391
Other non-interest income		8,087		6,554
Total other income		696,479		729,572

Other expense
Salaries and employee benefits		1,500,362		1,480,420
Net occupancy expense		393,763		380,311
Other operating expenses		649,855		576,150
Net other real estate owned expenses		46,143		—
Total other expenses		2,590,123		2,436,881

Income before income tax expense		1,903,119		1,830,372
Income tax expense		516,734		518,262

Net income	$	1,386,385	$	1,312,110

Weighted average shares outstanding
Basic		4,967,907		4,929,722
Diluted		5,072,908		5,056,523

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

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	SIX MONTHS ENDED JUNE 30,
	2017		2016
Interest and fee income
Loans, including fees	$	6,363,593	$	6,242,879
Taxable securities		738,756		613,619
Tax-exempt securities		527,087		479,485
Other		95,270		66,750
Total interest and fee income		7,724,706		7,402,733

Interest expense
Deposits		203,304		187,120
Short-term borrowings		—		7
Total interest expense		203,304		187,127

Net interest income		7,521,402		7,215,606
Provision for loan losses		32,500		185,000
Net interest income after provision for loan losses		7,488,902		7,030,606

Other income
Service charges, fees and commissions		557,439		526,267
Mortgage banking income		675,624		648,764
Gains on sales of securities		—		348,327
Other non-interest income		15,290		12,243
Total other income		1,248,353		1,535,601

Other expense
Salaries and employee benefits		2,970,571		2,995,446
Net occupancy expense		757,908		756,710
Other operating expenses		1,287,131		1,207,422
Net other real estate owned expenses		46,143		13,450
Total other expenses		5,061,753		4,973,028

Income before income tax expense		3,675,502		3,593,179
Income tax expense		1,063,029		1,085,333

Net income	$	2,612,473	$	2,507,846

Weighted average shares outstanding
Basic		4,965,094		4,923,266
Diluted		5,069,024		5,047,601

Basic income per common share	$	0.53	$	0.51
Diluted income per common share	$	0.52	$	0.50

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

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

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

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED)

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

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

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

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

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)

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

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

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

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

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

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Nature of Business and Basis of Presentation

Organization

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

Principles of Consolidation

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

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

Basis of Presentation

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

Accounting Estimates and Assumptions

The preparation of the consolidated financial statements requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ significantly from these estimates and assumptions. Material estimates generally susceptible to significant change are related to the determination of the allowance for loan losses, impaired loans, other real estate owned, 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 the net income as previously reported.

Income per share

Basic income per share represents income available to shareholders divided by the weighted-average number of common shares outstanding during the period. Dilutive income per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. The only potential common share equivalents are those related to stock options. Stock options that are anti-dilutive are excluded from the calculation of diluted net income per share. The dilutive effect of options outstanding under our stock compensation plan is reflected in diluted earnings per share by the application of the treasury stock method. Retroactive recognition has been given for the effects of all stock dividends.

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Events

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

Recent Accounting Pronouncements

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

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, Topic 606 . The core principle of the new standard is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. This guidance also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. In August 2015, the FASB deferred the effective date of the amendments. As a result of the deferral, the guidance will be effective for the Company for reporting periods beginning after December 15, 2017. We will apply this guidance using a modified retrospective approach. We do not expect this amendment to have a material effect on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10); Recognition and Measurement of Financial Instruments and Financial Liabilities . This update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect this amendment to have a material effect on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which revises certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the effect that implementation of the new standard will have on our financial position, results of operations, and cash flows.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect this amendment to have a material effect on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share – Based Payment Accounting, to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments became effective for the Company on January 1, 2017 and this amendment did not have a material effect on its financial statements.

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow- Scope Improvements and Practical Expedients , to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

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

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers . These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will continue to evaluate the impact of this ASU and does not expect these amendments to have a material effect on its financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business , which provided guidance to assist with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective date. The Company does not expect this amendment to have a material effect on its financial statements.

In February 2017, the FASB issued ASU 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets , to clarify the scope of established guidance on nonfinancial asset derecognition, issued as part of ASU 2014-09, Revenue from Contracts with Customers , as well as accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. This amendment is effective for annual periods beginning after December 15, 2017. The Company does not expect this amendment to have a material effect on its financial statements.

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

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2: Investment Securities

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


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

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

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


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

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

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

The amortized cost and estimated fair value of investment securities available for sale as of June 30, 2017 and December 31, 2016, by contractual maturity are as follows:


	JUNE 30, 2017				DECEMBER 31, 2016
	AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE

Due in one year or less	$	3,017,513	$	3,038,231	$	3,343,347	$	3,350,205
Due in one year to five years		91,871,936		92,428,862		82,848,411		82,682,901
Due in five years to ten years		33,599,190		33,748,377		29,662,030		29,169,228
Due in ten years and over		3,552,859		3,444,911		5,088,827		4,776,610

Total	$	132,041,498	$	132,660,381	$	120,942,615	$	119,978,944

Investment securities pledged to secure public deposits and for other purposes required or permitted by law at June 30, 2017 and December 31, 2016, had a fair value of $53.1 million and $47.6 million, respectively.

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2017 and December 31, 2016. We believe that all unrealized losses have resulted from temporary changes in the interest rates and current market conditions and not as a result of credit deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below before recovery of their amortized cost.


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

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

	For the Three Months Ended June 30,
	2017		2016
Gross proceeds	$	—	$	5,135,609
Gross realized gains		—		160,391
Gross realized losses		—		—

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

The tax provision related to these gains was $59,382 and $128,881 for the three and six months ended June 30, 2016, respectively.

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3: Loans and Allowance for Loan Losses

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

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

We had $103.4 million and $101.2 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at June 30, 2017 and at December 31, 2016, respectively.

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

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

●

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 as of June 30, 2017 and December 31, 2016. “Pass” includes loans internally graded as excellent, good and satisfactory.

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

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

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

December 31, 2016
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total

Pass	$	48,289,944	$	798,884	$	116,490,396	$	74,115,426	$	6,728,367	$	246,423,017
Watch		1,004,957		410,017		2,625,079		899,306		147,992		5,087,351
OAEM		1,666,048		—		995,549		630,957		28,939		3,321,493
Sub-Standard		1,301,260		—		2,857,102		1,486,127		99,765		5,744,254
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—

Total	$	52,262,209	$	1,208,901	$	122,968,126	$	77,131,816	$	7,005,063	$	260,576,115

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

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

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

There were no loans at June 30, 2017 and two loans at December 31, 2016 over 90 days past due and still accruing.

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

	Loans Receivable on Non-Accrual
		June 30, 2017		December 31, 2016
Commercial	$	52,050	$	61,781
Commercial Real Estate - Construction		—		—
Commercial Real Estate - Other		1,782,819		1,678,876
Consumer - Real Estate		—		—
Consumer - Other		—		964

Total	$	1,834,869	$	1,741,621

The following tables set forth the changes in the allowance for loan losses and an allocation of the allowance for loan losses by class for the three and six months ended June 30, 2017 and June 30, 2016. The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.

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

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30, 2017
	Commercial		Commercial Real Estate-Construction		Commercial Real Estate-Other		Consumer Real Estate		Consumer Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,545,188	$	51,469	$	1,374,706	$	726,391	$	153,863		$	3,851,617
Charge-offs		—		—		—		—		(2,372	)		(2,372	)
Recoveries		—		—		—		42,000		3,770			45,770
Provisions		83,484		1,294		8,213		3,462		(63,953	)		32,500
Ending Balance	$	1,628,672	$	52,763	$	1,382,919	$	771,853	$	91,308		$	3,927,515

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

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

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

June 30, 2017
	Commercial		Commercial Real Estate-Construction		Commercial Real Estate-Other		Consumer Real Estate		Consumer Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	1,032,461	$	—	$	259,972	$	43,119	$	35,614	$	1,371,166
Collectively evaluated for impairment		596,211		52,763		1,122,947		728,734		55,694		2,556,349
Total Allowance for Losses	$	1,628,672	$	52,763	$	1,382,919	$	771,853	$	91,308	$	3,927,515
Loans Receivable
Individually evaluated for impairment	$	1,255,033	$	—	$	2,458,870	$	494,437	$	35,613	$	4,243,953
Collectively evaluated for impairment		55,026,536		1,457,591		119,018,968		75,208,440		5,274,257		255,985,792
Total Loans Receivable	$	56,281,569	$	1,457,591	$	121,477,838	$	75,702,877	$	5,309,870	$	260,229,745

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

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

With an allowance recorded:

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

Total

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

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

With an allowance recorded:

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

Total

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

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

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4: Fair Value of Financial Instruments

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

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

●

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

●

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

●

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

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

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.

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments

Derivative instruments include interest rate lock commitments and forward sale commitments. These instruments are valued based on the change in the value of the underlying loan between the commitment date and the end of the period. We classify these instruments as Level 3. The fair value of these commitments was not significant at June 30, 2017 or December 31, 2016.

We have no embedded derivative instruments requiring separate accounting treatment. We had freestanding derivative instruments consisting of fixed rate conforming loan commitments as interest rate locks and commitments to sell fixed rate conforming loans on a best efforts basis. We do not currently engage in hedging activities. Based on short term fair value of the mortgage loans held for sale (derivative contract), our derivative instruments were immaterial to our consolidated financial statements as of June 30, 2017 and December 31, 2016.

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

June 30, 2017
	Quoted Market Price in active markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
U.S. Treasury Notes	$	24,195,314	$	—	$	—	$	24,195,314
Government Sponsored Enterprises		—		66,717,277		—		66,717,277
Municipal Securities		—		29,258,845		12,488,945		41,747,790
Total	$	24,195,314	$	95,976,122	$	12,488,945	$	132,660,381

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

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

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2017 and 2016:

	Three Months Ended June 30,
	2017			2016
Beginning balance	$	13,458,445		$	5,249,351
Total gains or (losses) (realized/unrealized)
Included in earnings		—			—
Included in other comprehensive income		215,500			(1,463	)
Purchases, issuances and settlements, net of maturities		(1,185,000	)		2,454,000
Transfers in and/or out of level 3		—			—
Ending balance	$	12,488,945		$	7,704,814

	Six Months Ended June 30,
	2017			2016
Beginning balance	$	13,977,857		$	5,217,678
Total gains or (losses) (realized/unrealized)
Included in earnings		—			—
Included in other comprehensive income		241,088			(33,136	)
Purchases, issuances and settlements, net of maturities		(1,730,000	)		2,454,000
Transfers in and/or out of level 3		—			—
Ending balance	$	12,488,945		$	7,704,814

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

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.

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.

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. At June 30, 2017 and December 31, 2016, substantially all of the impaired loans were evaluated based on the fair value of the collateral. These impaired loans are classified as Level 3. Impaired loans measured using discounted future cash flows are not deemed to be measured at fair value.

Loans Held for Sale

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

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 tables present information about certain assets and liabilities measured at fair value on a nonrecurring basis at June 30, 2017 and December 31, 2016:

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

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

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

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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 that have not been previously discussed:

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

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

Loans

The carrying values of variable rate consumer and commercial loans and consumer and commercial loans with remaining maturities of three months or less, approximate fair value. The fair values of fixed rate consumer and commercial loans with maturities greater than three months are determined using a discounted cash flow analysis and assume the rate being offered on these types of loans at June 30, 2017 and December 31, 2016, approximate market.

For lines of credit, the carrying value approximates fair value.

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.

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.

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.

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of June 30, 2017 and December 31, 2016.

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

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

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5: 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 tables are a summary of the reconciliation of average shares outstanding:

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

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

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

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

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

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

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

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, including information included or incorporated by reference in this document, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1934. We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1996 and are including this statement for the express purpose of availing the Company of protections of such safe harbor with respect to all “forward-looking statements” contained in this Form 10-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, 2016 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

●

Increased cybersecurity risk, including potential business disruptions or financial losses

●

Ability to control expenses

●

Changes in compensation

●

Risks associated with income taxes and deferred tax assets including potential for adverse adjustments

●

Changes in accounting policies and practices

●

Changes in regulatory actions, including the potential for adverse adjustments

●

Recently enacted or proposed legislation and changes in political conditions

●

Reputational risk

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

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

Overview

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

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

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

In addition to earning interest on loans and investments, we earn income through fees and other expenses we charge to the customer. The various components of non-interest income as well as non-interest expense are described in the following discussion. The discussion and analysis also identifies significant factors that have affected our financial position and operating results as of June 30, 2017 and December 31, 2016, and should be read in conjunction with the financial statements and the related notes included in this report. In addition, a number of tables have been included to assist in the discussion.

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, 2017, have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2016.

Balance Sheet

Cash and Cash Equivalents

Total cash and cash equivalents increased 24.33% or $6.4 million to $32.6 million at June 30, 2017, from $26.2 million at December 31, 2016. This increase was primarily due to an increase in deposit balances for both new and existing customers. Funds are placed in interest bearing deposits with the Federal Reserve Bank until opportunities arise for higher yielding assets.

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.

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

We had seven Municipal Securities with an approximate total book value of $2.8 million that matured and three Municipal Securities with an approximate total book value of $1.0 million that were called in the six months ended June 30, 2017. We purchased three investment securities issued by Government Sponsored Enterprises with a face value of $15.1 million during the six months ended June 30, 2017.

Loans

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

Net loans decreased approximately $400,000, or 0.16%, to $256.3 million at June 30, 2017 from $256.7 million at December 31, 2016. While loan demand remains consistent, we believe the decrease in net loans is due to an increase in loan payoffs related to the sale of real estate held as collateral and decrease in the usage of lines of credit.

The following table is a summary of our loan portfolio composition (net of deferred fees of $143,374 at June 30, 2017 and $136,446 at December 31, 2016) and the corresponding percentage of total loans as of the dates indicated.

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

Nonperforming assets

Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure, loans on nonaccrual status and TDRs. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms and to show capacity to continue performing into the future before that loan can be placed back on accrual status. As of June 30, 2017, we had no loans 90 days past due still accruing interest.

We consider a loan to be a TDR when the debtor experiences financial difficulties and we provide concessions such that we will not collect all principal and interest in accordance with the original terms of the agreement. Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note. As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment. As of June 30, 2017, we determined that we had one loan totaling $33,300 that we considered a TDR. As of December 31, 2016, we had two loans totaling $378,382 that we considered TDRs.

Nonperforming loans include all loans past due 90 days and over, certain impaired loans (some of which may be contractually current), and TDR loans that have not yet established a satisfactory period of payment performance (some of which may be contractually current). Nonperforming assets include other real estate owned, which decreased $46,143 from $521,943 as of December 31, 2016 to $475,800 as of June 30, 2017. The balance represents one property.

The following table is a summary of our nonperforming assets:

	June 30, 2017		December 31, 2016
Commercial loans	$	52,050	$	61,781
Commercial real estate – other		1,782,819		1,678,876
Consumer – other		—		964
Total nonaccrual loans		1,834,869		1,741,621
Other real estate owned		475,800		521,943
Total nonperforming assets	$	2,310,669	$	2,263,564

Allowance for Loan Losses

The allowance for loan losses was $3.9 million at June 30, 2017 and December 31, 2016, or 1.51% and 1.48% of outstanding loans, respectively. At June 30, 2017 and December 31, 2016, the allowance for loan losses represented 169.97% and 170.16% 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, 2017 is adequate.

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

During the three months ended June 30, 2017, we recorded $2,372 of charge-offs and $23,030 of recoveries on loans previously charged-off, resulting in net recoveries of $20,658. Comparatively, we recorded $82,556 of charge-offs and $18,240 of recoveries on loans previously charged-off, resulting in net charge-offs of $64,316 during the three months ended June 30, 2016. During the six months ended June 30, 2017, we recorded $2,372 of charge-offs and we recorded $45,770 of recoveries on loans previously charged-off, resulting in net recoveries of $43,398. Comparatively, during the same period in 2016, we recorded $116,651 of charge-offs and $26,270 of recoveries on loans previously charged-off, resulting in net charge-offs of $90,381 for the six months ended June 30, 2016.

Deposits

Deposits remain our primary source of funding for loans and investments. Average interest bearing deposits provided funding for 60.88% of average earning assets for the six months ended June 30, 2017, and 65.70% for the twelve months ended December 31, 2016. The Company encounters strong competition from other financial institutions as well as consumer and commercial finance companies, insurance companies and brokerage firms located in the primary service area of the Bank. However, the percentage of funding provided by deposits has remained stable.

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

	June 30, 2017					December 31, 2016
	Amount		Percent			Amount		Percent
Deposits:
Non-interest bearing demand	$	132,051,130		34.18	%	$	126,034,478		33.83	%
Interest-bearing demand		94,401,633		24.44	%		96,260,589		25.84	%
Money market accounts		81,827,246		21.18	%		77,307,662		20.75	%
Time deposits over $250,000		17,959,145		4.64	%		17,822,136		4.78	%
Other time deposits		26,559,417		6.88	%		26,019,121		6.98	%
Other savings deposits		33,493,698		8.68	%		29,078,865		7.81	%
Total deposits	$	386,292,269		100.00	%	$	372,522,851		100.00	%

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

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

Comparison of Three Months Ended June 30, 2017 to Three Months Ended June 30, 2016

Net income increased $74,275 or 5.66% to $1.4 million, or basic and diluted earnings per share of $0.28 and $0.27, respectively, for the three months ended June 30, 2017, from $1.3 million, or basic and diluted earnings per share of $0.27 and $0.26, respectively, for the three months ended June 30, 2016. Our return on average assets and average equity for the three months ended June 30, 2017 were 1.31% and 12.97%, respectively, compared with 1.30% and 12.82%, respectively, for the three months ended June 30, 2016.

Net Interest Income

Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is a measure of the difference between interest income on earning assets and interest paid on interest bearing liabilities relative to the amount of interest bearing assets. Net interest income increased $149,082 or 4.05% to $3.8 million for the three months ended June 30, 2017 from $3.7 million for the three months ended June 30, 2016. This increase was primarily due to income from securities and interest bearing deposits at the Federal Reserve Bank. Average loans decreased $5.5 million or 2.01% to $261.3 million for the three months ended June 30, 2017, compared to $266.8 million for the three months ended June 30, 2016. The yield on average loans (including fees) was 5.55% and 4.84% for the three months ended June 30, 2017 and June 30, 2016, respectively. Interest income on loans increased $13,019 for the three months ended June 30, 2017 to $3.2 million from $3.2 million for the three months ended June 30, 2016.

The average balance of interest bearing deposits in other banks decreased $4.1 million or 16.33% to $21.0 million for the three months ended June 30, 2017, with a yield of 1.06% as compared to $25.1 million for the three months ended June 30, 2016, with a yield of 0.50%.

Provision for Loan Losses

We have established an allowance for loan losses through a provision for loan losses charged as an expense on our consolidated statements of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy for loan losses. For the three months ended June 30, 2017, we had a provision of $30,000 compared to a provision of $140,000 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 decreased $33,093 or 4.54% to $696,479 for the three months ended June 30, 2017, from $729,572 for the three months ended June 30, 2016. This reduction was primarily due to less income derived from the sale of investment securities, and was partially offset by increases in service charges, fees, and commissions and mortgage banking income. For the three months ended June 30, 2016, we realized gains of $160,391 from the sale of investment securities. However, during the three months ended June 30, 2017, there were no sales of investment securities.

Non-Interest Expense

Non-interest expense increased $153,242 or 6.29% to $2.6 million for the three months ended June 30, 2017 from $2.4 million for the three months ended June 30, 2016. This increase was primarily due to an increase in other operating expenses of $73,705 related to the amortization of the tax credit and a write down on OREO of $46,143.

Income Tax Expense

We incurred income tax expense of $516,734 for the three months ended June 30, 2017 as compared to $518,262 during the same period in 2016. Our effective tax rate was 27.15% and 28.31% for the three months ended June 30, 2017 and 2016, respectively. The decrease in the effective tax rate during the 2017 period is a result of the Company’s 2016 investment in a South Carolina Historic Rehabilitation Tax Credit.

Comparison of Six Months Ended June 30, 2017 to Six Months Ended June 30, 2016

Net income increased $104,627 or 4.17% to $2.6 million, or basic and diluted earnings per share of $0.53 and $0.52, respectively, for the six months ended June 30, 2017, from $2.5 million, or basic and diluted earnings per share of $0.51 and $0.50, respectively, for the six months ended June 30, 2016. Our return on average assets and average equity for the six months ended June 30, 2017 were 1.26% and 12.42%, respectively, compared with 1.26% and 12.37%, respectively, for the six months ended June 30, 2016.

Net Interest Income

Net interest income increased $305,796 or 4.24% to $7.5 million for the six months ended June 30, 2017 from $7.2 million for the six months ended June 30, 2016. This increase was primarily due income from securities and interest bearing deposits at the Federal Reserve Bank. Average loans increased $1.8 million or 0.68% to $261.2 million for the six months ended June 30, 2017, compared to $259.4 million for the six months ended June 30, 2016. The yield on average loans (including fees) was 5.39% and 4.84% for the six months ended June 30, 2017 and June 30, 2016, respectively. Interest income on loans increased $120,714 for the six months ended June 30, 2017 to $6.4 million from $6.2 million for the six months ended June 30, 2016.

The average balance of interest bearing deposits in other banks decreased $5.8 million or 22.43% to $20.3 million for the six months ended June 30, 2017, with a yield of 0.95% as compared to $26.1 million for the six months ended June 30, 2016, with a yield of 0.50%.

Provision for Loan Losses

For the six months ended June 30, 2017, we had a provision of $32,500 compared to a provision of $185,000 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 decreased $287,248 or 18.71% to $1.2 million for the six months ended June 30, 2017, from $1.5 million for the six months ended June 30, 2016. This reduction is primarily due to less income derived from the sale of investment securities, and was partially offset by increases in service charges, fees, and commissions and mortgage banking income. For the six months ended June 30, 2016, we realized gains of $348,327 from the sale of investment securities. However, during six months ended June 30, 2017, there were no sales of investment securities.

Non-Interest Expense

Non-interest expense increased $88,725 or 1.78% to $5.1 million for the six months ended June 30, 2017 from $5.0 million for the six months ended June 30, 2016. This increase was primarily due to an increase in other operating expenses of $72,709 related to the amortization of the tax credit and a write-down of OREO in the amount of $46,143.

Income Tax Expense

We incurred income tax expense of $1.1 million for the six months ended June 30, 2017 as compared to $1.1 million during the same period in 2016. Our effective tax rate was 28.92% and 30.21% for the six months ended June 30, 2017 and 2016, respectively. The decrease in the effective tax rate during the 2017 period is a result of the Company’s 2016 investment in a South Carolina Historic Rehabilitation Tax Credit.

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 $86.8 million and $81.2 million at June 30, 2017 and December 31, 2016, respectively.

Standby letters of credit represent our obligation to a third party contingent upon the failure of our customer to perform under the terms of an underlying contract with the third party or obligates us to guarantee or stand as surety for the benefit of the third party. The underlying contract may entail either financial or nonfinancial obligations and may involve such things as the shipment of goods, performance of a contract, or repayment of an obligation. Under the terms of a standby letter, generally drafts will be drawn only when the underlying event fails to occur as intended. We can seek recovery of the amounts paid from the borrower. The majority of these standby letters of credit are unsecured. Commitments under standby letters of credit are usually for one year or less. The maximum potential amount of undiscounted future payments related to standby letters of credit at June 30, 2017 and December 31, 2016 was $953,504 and $793,992, respectively.

We originate certain fixed rate residential loans and commit these loans for sale. The commitments to originate fixed rate residential loans and the sales commitments are freestanding derivative instruments. We had forward sales commitments, totaling $6.2 million at June 30, 2017, to sell loans held for sale of $2.2 million, compared to forward sales commitments of $4.4 million at December 31, 2016, to sell loans held for sale of $4.4 million. The fair value of these commitments was not significant at June 30, 2017 or December 31, 2016. We had no embedded derivative instruments requiring separate accounting treatment.

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

Liquidity

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

We manage our assets and liabilities to ensure there is sufficient liquidity to enable management to fund deposit withdrawals, loan demand, capital expenditures, reserve requirements, operating expenses, dividends and to manage daily operations on an ongoing basis. Funds are primarily provided by the Bank through customer deposits, principal and interest payments on loans, mortgage loan sales, the sale or maturity of securities, temporary investments and earnings.

Proper liquidity management is crucial to ensure that we are able to take advantage of new business opportunities as well as meet the credit needs of our existing customers. Investment securities are an important tool in our liquidity management. Our primary liquid assets are cash and due from banks, federal funds sold, investments available for sale, other short-term investments and mortgage loans held for sale. Our primary liquid assets accounted for 38.93 % and 36.38% of total assets at June 30, 2017 and December 31, 2016, respectively. Securities classified as available for sale, which are not pledged, may be sold in response to changes in interest rates and liquidity needs. All of the securities presently owned are classified as available for sale. Net cash provided by operations and deposits from customers have been the primary sources of liquidity. At June 30, 2017, we had unused short-term lines of credit totaling approximately $18 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 liquidation of mortgage loans held for sale. We established a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits us to retain possession of assets pledged as collateral to secure advances from the Federal Reserve Discount Window. At June 30, 2017, we could borrow up to $77 million. There have been no borrowings under this arrangement.

Our core deposits consist of non-interest bearing accounts, NOW accounts, money market accounts, time deposits and savings accounts. We closely monitor our level of certificates of deposit greater than $100,000 and other large deposits. We maintain a Contingency Funding Plan (“CFP’) that identifies liquidity needs and weighs alternate courses of action designed to address these needs in emergency situations. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the expected funding needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to meet our operating needs and do not know of any trends, events or uncertainties that may result in a significant adverse effect on our liquidity position. At June 30, 2017 and December 31, 2016, our liquidity ratio was 42.85% and 38.27%, respectively.

Capital Resources

Our capital needs have been met to date through the $10.6 million in capital raised in our initial offering, the retention of earnings less dividends paid and the exercise of stock options to purchase. Total shareholders’ equity at June 30, 2017 was $43.1 million. The rate of asset growth since our inception has not negatively impacted this capital base.

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

Basel III became effective on January 1, 2015. The purpose is to improve the quality and increase the quantity of capital for all banking organizations. The minimum requirements for the quantity and quality of capital were increased. The rule includes a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and requires a minimum leverage ratio of 4%. In addition, the rule also implements strict eligibility criteria for regulatory capital instruments and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Full compliance with all of the final rule requirements will be phased in over a multi-year schedule. The Bank’s total risk-based capital ratio at June 30, 2017 and December 31, 2016 was 15.69% and 15.36%, respectively.

At June 30, 2017, the Company and the Bank were categorized as “well capitalized” under Basel III. To be categorized as “well capitalized” the Company and the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital and Tier 1 leverage ratios of 10%, 8.0%, 6.5% and 5%, respectively, and to be categorized as “adequately capitalized,” the Company and the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital, and Tier 1 leverage ratios of 8%, 6%, 4.5%, and 4.0%, respectively.

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

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

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities and Exchange Act of 1934 as amended (the “Act”) was carried out as of June 30, 2017 under the supervision and with the participation of the Bank of South Carolina Corporation’s management, including its President/Chief Executive Officer and the Chief Financial Officer/Senior Vice President and several other members of the Company’s senior management. Based upon that evaluation, Bank of South Carolina Corporation’s management, including the President/Chief Executive Officer and the Chief Financial Officer/Senior Vice President concluded that, as of June 30, 2017, the Company’s disclosure controls and procedures were effective in ensuring that the information the Company is required to disclose in the reports filed or submitted under the Act has been (i) accumulated and communicated to management (including the President/Chief Executive Officer and Chief Financial Officer/Senior Vice President) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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

Under the supervision and with the participation of management, including the President/Chief Executive Officer and the Chief Financial Officer/Senior Vice President, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of June 30, 2017, 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, 2017. Based on this assessment, management believes that as of June 30, 2017, the Company’s internal control over financial reporting was effective. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2017, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

Part II. Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Not required.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

None.

Item 5. Other Information

None.

Item 6. Exhibits

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	9-28

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

2016 Proxy Statement (Filed with 2015 10-K)

10.0

Lease Agreement for 256 Meeting Street (Filed with 1995 10-KSB)

10.1

Sublease Agreement for Parking Facilities at 256 Meeting Street (Filed with 1995 10-KSB)

10.2

Lease Agreement for 100 N. Main Street, Summerville, SC (Filed with 1995 10-KSB)

10.3

Lease Agreement for 1337 Chuck Dawley Blvd., Mt. Pleasant, SC (Filed with 1995 10-KSB)

10.4

Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed With 2010 10-K)

Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed with September 30, 2014 10-Q)

10.5

1998 Omnibus Stock Incentive Plan (Filed with 2008 10-K/A)

10.6

Employee Stock Ownership Plan (Filed with 2008 10-K/A)

Employee Stock Ownership Plan, Restated (Filed with 2011 Proxy Statement)

10.7

2010 Omnibus Incentive Stock Option Plan (Filed with 2010 Proxy Statement)

10.8

Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed 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

10.13

North Charleston Lease Agreement (filed within)

14.0

Code of Ethics (Filed with 2004 10-KSB)

21.0

List of Subsidiaries of the Registrant (Filed with 1995 10-KSB)

The Registrant’s only subsidiary is The Bank of South Carolina (Filed with 1995 10-KSB)

31.1

Certification pursuant to Rule 13a-14(a)/15d-14(a) by Chief Executive Officer

31.2

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

32.1

Certification pursuant to Section 1350

32.2

Certification pursuant to Section 1350

	101.INS	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

Signatures

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

	Bank of South Carolina Corporation

August 10, 2017
	By:	/s/Fleetwood S. Hassell
		Fleetwood S. Hassell
		President/Chief Executive Officer

	By:	/s/Eugene H. Walpole, IV
		Eugene H. Walpole, IV
		Chief Financial Officer/
		Senior Vice President

Bank of South Carolina Corporation 10-Q

Exhibit 10.13

THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO
THE SOUTH CAROLINA UNIFORM ARBITRATION ACT, TITLE 15,
CHAPTER 48, CODE OF LAWS OF SOUTH CAROLINA 1976,
AS AMENDED

STATE OF SOUTH CAROLINA	)
	)	LEASE AGREEMENT
COUNTY OF CHARLESTON	)	LEASE AGREEMENT

THIS LEASE AGREEMENT (hereinafter called “Lease”), made and entered into this 31 ^st day of July, 2017 (hereinafter called “Effective Date”), by and between SUNSET SOUTHSTAR, LLC (hereinafter called “Landlord”) and THE BANK OF SOUTH CAROLINA (hereinafter called “Tenant”):

WHEREAS, Tenant and Landlord’s predecessor in title, Weber USA Corporation, as agent for and sole member of Highway 78 Frontage Tracts, LLC, entered into that certain Lease Agreement dated January 28, 2014 regarding a portion of the Premises (hereinafter, the “Original Lease”).

WHEREAS, the parties wish to amend and restate the Original Lease in its entirety and enter into this new Lease setting forth the terms and conditions governing the Premises.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Original Lease is no longer of any force and effect:

WITNESSETH:

That in consideration of the mutual agreements of the parties, including the rental agreed to be paid by Tenant to Landlord, Landlord leases to Tenant, and Tenant leases and rents from Landlord the following terms and conditions:

1. Description of Leasehold Premises . The premises this day leased (hereinafter called the “Premises”) consists of Suite 100 as shown on Exhibit A attached hereto and made a part hereof, containing 10,026 rentable square feet to be determined by the BOMA method, within a mixed use office building (hereinafter the “Building”) which will be located on a parcel of land situated in lngleside on the south side of US Highway 78 and west side of Ingleside Boulevard, containing 4.0 acres more or less, including Tenant’s, and Tenant’s employees, invitees and customers, non-exclusive right to the use of at least the minimum amount of parking spaces required by applicable governmental authorities for a 20,000 square foot office building but no less than 84 spaces (the “Development”). The Development is contemplated to house the 10,026 square foot Premises, plus approximately 10,000 rentable square feet according to the BOMA method of medical office/professional office space with parking as generally displayed on the conceptual side plan attached as Exhibit B, together with any appurtenance thereto

provided hereunder. The Premises shall have direct private access from the Building exterior and access to the Common Areas lobby. The Premises shall also be allowed the use of a two-lane, expandable to Three-lane, vehicular teller facility adjoining the Premises in the general position as shown on Exhibit B. The Premises shall be allocated for the Lease Term at least seven (7) designated exclusive parking spaces adjacent to the Building as shown on the Site Plan, Exhibit B.

2. Common Areas . Tenant, its employees, agents, invites and licensees, are also granted the right and privilege, in common with others, to the non-exclusive use of such common areas (the “Common Areas”) as are designated as such by Landlord from time to time. These areas shall include all entrances to and exits from the Building, parking facilities, crosswalks and sidewalks, and landscaped areas and grounds, except such of the foregoing landscaped areas and grounds as are designated for restricted to special uses and purposes by Landlord.

3. Representations . Neither the Landlord nor its agents have made any representations with respect to the Premises or the Building, except as expressly set forth herein and no rights, easement, or licenses are acquired by the Tenant by implication or otherwise except as expressly set forth in the provisions of this Lease.

4. Tenant’s Acceptance of Property . Except as specifically provided to the contrary attached to this Lease, Tenant shall accept the Premises in the condition as set forth after Landlord has completed Landlord’s Work as set forth on Exhibit C attached hereto, and Landlord shall have no obligation to upfit the same. Except as expressly set forth herein, neither Landlord nor its agents have made any representations with respect to the Premises and the Building, and no rights, easements or licenses are acquired by the Tenant by implication or otherwise. The taking of possession of the Premises by Tenant shall be conclusive evidence that the Premises and the Building were in satisfactory condition at the time possession was taken, provided, however, Tenant may take possession of the Premises, with the approval of Landlord, which will not be unreasonably withheld, and shall be subject to the terms of a work letter (“Work Letter”) indicating any items of Landlord’s Work remain unfinished. If Landlord is required to do any work in the Premises, then Tenant must notify Landlord in writing by amending the Work Letter within forty-five (45) days of the taking of possession of the Premises of any incomplete “punch list” items, any items not contained in such notice shall be deemed fulfilled. In the event that someone other than Landlord constructs any improvements to the Premises, then those Improvements must be constructed using, at a minimum, finishes which are standard to the Building and according to plans and specifications approved by Landlord in advance, not to be unreasonably withheld. Tenant shall furnish Landlord with a complete set of as-built specifications of such interior improvements within sixty (60) days of the completion of these improvements. In all cases, Tenant’s work on fire, sprinkler or alarm systems, and any penetration of floors, must be pre-approved and managed by Landlord.

5. Lease Term .

a. Initial Term . The initial term of this Lease shall be for a period from the Effective Date up to the Rent Commencement Date, as hereinafter defined in Paragraph 6(e) (the “Initial Term”), and thereafter will be for a term of twenty (20) years from the Rent Commencement Date (the “Lease Term”). The Landlord’s delivery of the Premises to Tenant

shall be upon substantial completion of the Landlord’s Work as outlined in Exhibit C and shall occur on or before eighteen (18) months after Landlord has obtained all permits necessary to construct the Premises (the “Outside Completion Date”). Landlord hereby represents to Tenant that it has retained HLA Inc. to expedite the permitting process and has initiated the permitting process with the following regulatory entities: City of North Charleston Planning Department, City of North Charleston Public Works Department, Coastal Zone Consistency, Bureau of Water, Santee Cooper, South Carolina Department of Transportation, CWS / SC DHEC, SD / SC DHEC, SCE&G, and cable. Landlord shall proceed in good faith and with all reasonable effort to procure the permits necessary to construct the Premises as expeditiously as possible, which may be expedited because said permits are re-approvals and will, in any event: (i) within one hundred twenty (120) days of the Effective Date, submit its application(s), plans, and related documents in order to obtain all necessary permits, and (ii) within two hundred forty (240) days of the Effective Date, obtain all necessary permits, or Tenant shall have the right to terminate this Lease. Landlord will notify Tenant in writing when it has received all permits necessary to perform Landlord’s Work. If Landlord has not substantially completed Landlord’s Work by the Outside Completion Date, Tenant shall have the right to terminate this Lease, and neither party shall have any further liability to the other, or extend the time for Landlord to complete. The deadlines contained in this subsection shall be extended arising out of, and for the number of days delayed by, a force majeure event, not to exceed one-hundred eighty (180) days.

b. Option to Extend . Provided Tenant is not in default, Tenant shall have the right to four (4) five (5) year Lease renewal options upon giving Landlord not less than a three hundred sixty-five (365) day notice prior to the expiration of the then-current Lease term. If the options are exercised, the Rent shall continue to increase as hereinafter provided under Escalation of Monthly Based Rent. If an option or options are exercised, such respective five (5) year period shall become a part of the Lease Term.

The Initial Term, Lease Term, and any extension thereof, shall be collectively defined as the Total Term (the “Total Term”).

6. Rental: When Paid .

a. Base Rent . Commencing on the Rent Commencement Date, the Tenant covenants and agrees to pay to Landlord as rental (the “Monthly Base Rent”) for the Premises the sum of Thirty-Five and No/100 Dollars ($35.00) per rentable square foot (as determined upon completion under the BOMA method by Landlord and certified by Landlord’s architect) and based upon 10,026 rentable square feet, would be the sum of Three Hundred Fifty Thousand Dollars ($350,910.00) annually, payable in equal amounts of Twenty-Nine Thousand One Hundred Sixty-Six and 67/100 Dollars ($29,242.50) monthly on the first day of each month, in advance, during the Lease Term, as adjusted, as hereinafter provided; provided, however, that if the Rent Commencement Date does not begin on the first day or end on the last day of a month, the Monthly Base Rent for that partial month shall be prorated and paid in advance and the first lease year (the “Lease Year”) of the initial twenty (20) year Lease Term shall commence on the first day of the succeeding month. Monthly Base Rent is net of CAM, Taxes and any other charge provided under this Lease. A Certificate of rentable square feet by Landlord’s architect is to be attached to this Lease as Exhibit D.

b. Escalation of Monthly Base Rent . Monthly Base Rent shall remain the same for the first two years of the Lease Term. Monthly Base Rent shall increase annually each Lease Year during the Lease Term beginning with the third Lease Year and continuing each consecutive Lease Year thereafter during the Lease Term and any extension at the rate of the lesser of:

CPI, or

ii.

Three (3%) percent.

“CPI” shall mean the Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average for All Items (1982-84=100), published by the Bureau of Labor Statistics of the U.S. Dept of Labor for the period ending three (3) months prior to the applicable date. If the CPI is not published for any month during the Lease Term, Landlord, in its reasonable discretion (and reasonably acceptable to Tenant), may substitute a comparable index which reflects the purchasing power of the consumer dollar and is published by the Bureau of Labor Statistics of the U.S. Dept of Labor. If such an index is not published by the Bureau of Labor Statistics, Landlord, in its reasonable discretion, shall select a comparable index published by a nationally recognized responsible financial periodical. The CPI which is published for the period ending nearest three (3) months prior to the date of the commencement of the new Lease Year (“Current Index”) shall be compared with the CPI Index published for the period ending nearest three (3) months prior to the commencement of the prior Lease Year (“Beginning Index”).

If the Current Index is increased over the Beginning Index, the Monthly Base Rent each year, shall be set by multiplying the Monthly Base Rent for the prior year by a fraction, the numerator of which is the Current Index, and the denominator of which is the Beginning Index. As soon as the new Monthly Base Rent for the following year is set, Landlord shall give Tenant notice of the amount of Monthly Base Rent for the following Lease Year based upon the lesser of three (3%) percent or the CPI increase.

c. Common Areas Maintenance Charge . Tenant shall pay its proportionate share of the Common Areas Costs and Expenses, Taxes and Insurance (“CAM”) for the Premises as hereinafter provided. For the purpose of determining Tenant’s share of CAM, and Tenant’s share of Impositions in the next following section, Tenant’s proportionate share shall be the percentage obtained by dividing the rentable square feet of the Premises by the rentable square feet comprising the Building. Tenant shall pay a monthly CAM payment in advance during the Lease Term, based on Landlord’s estimate of what CAM will be for each respective calendar year during the Lease Term. CAM for a partial calendar year during the Lease Term shall be prorated. At the end of each calendar year or partial calendar year during the Lease Term, when Landlord has determined actual CAM for such period, Tenant shall be credited with the estimated payments made during such period, and any overpayment shall be refunded to Tenant and any underpayment shall be paid by Tenant to Landlord within thirty (30) days of the determination of the same. Tenant’s initial monthly CAM installments beginning on the Rent Commencement Date shall be based on an annual rate of ____________ Dollars ($____) per rentable square foot of the Premises and shall be “Additional Rent” equal to ____________ Dollars ($____) per month, based on the Premises containing 10,026 rentable

square feet and the Building containing 20,026 rentable square feet. Landlord shall use reasonable efforts to minimize CAM expenses. Tenant’s proportionate share of CAM shall be adjusted proportionately if the square footage of the Premises or the Building changes. Landlord shall determine the amount of CAM for the Building and Tenant shall be furnished with a statement thereof within ninety (90) days after the end of each calendar year, but Landlord’s failure to provide such statement shall not relieve Tenant of the obligation to pay any amounts due when the statement is furnished. Tenant shall pay in a lump sum any amount due with respect to the preceding partial calendar year or calendar year to Landlord within thirty (30) days after receipt of such statement, all subsequent monthly installments paid by Tenant to Landlord, beginning with the first month of each calendar year or partial calendar year, for CAM, shall be adjusted based on actual CAM for the immediately preceding calendar year. CAM Charges (exclusive of real estate taxes, insurance, and uncontrollable CAM Charges such as snow/ice removal and utility expenses for exterior lighting) will not increase by more than five (5%) percent non-cumulative per calendar year.

Common Areas Costs and Expenses : Common Areas Costs and Expenses shall mean and include all amounts paid or incurred by Landlord for operating, managing, insuring, and maintaining the Building, including the buildings, improvements and Common Areas facilities of the Building in a manner deemed by Landlord reasonable and appropriate and for the best interest of the Building, including, without limitation, all costs and expenses of:

Operating, repairing, lighting, cleaning, painting and securing (including cost of uniforms, equipment, and all employment taxes) the Building and the Common Areas of the Building, and water and sewer charges.

Paying all personnel employed on a part time basis or full time basis in the operation and maintenance of the Building, including the Common Areas.

Removing rubbish and debris from the Building.

Inspection, maintenance, operation and depreciation of machinery and equipment used in the operation and maintenance of the Building including the Common Areas facilities and personal property taxes and other charges incurred in connection with such equipment.

Replacement and maintenance of walkway, landscaping, and lighting facilities, other than such costs and expenses of a capital nature.

Management fees paid to the property management firm to manage the Building not to exceed five (5%) percent of net rent from the Building for such year.

Planting, replanting and replacing flowers, shrubbery, and planters and the supplies required therefore.

All utilities used in connection with the operation of the Common Areas facilities.

Seasonal decorations, including installation and removal thereof and electricity therefore.

10.

Leasing or renting equipment used in connection with the operation and maintenance of the Common Areas.

11.

Security, fire and crime prevention services.

12.

Utility charges for the Common Areas including without limitation, storm water, sewer and pollution control fees.

13.

Water and sewer for the Premises, unless, sub-metered and charged directly to the Tenant.

14.

Water and sewer for the Common Areas.

ii.

Taxes . Tenant shall pay Tenant’s proportionate share of all taxes, assessments and charges (hereinafter sometimes called “Impositions”) paid or incurred by Landlord during each calendar year (including a calendar year which contains a partial calendar year within the Lease Term) for ad valorem taxes, real estate taxes, user fees, or any other tax on rents or real estate as such (other than income taxes thereon) from time to time directly or indirectly assessed or imposed upon the Building and the land upon which it is situated and hereinafter previously defined as the Development, including all costs and fees paid or incurred by Landlord in contesting, or in negotiating with the public authorities as to the amount of such assessments, charges or taxes or the basis upon which the same shall be assessed. Tenant’s proportionate share of said Impositions shall be computed by multiplying the total sum of said Impositions for the applicable period by a fraction, the numerator of which shall be the number of rentable square feet of the Premises, being 10,026, and the denominator of which shall be the total number of rentable square feet in the Building, being 20,026.

Tenant’s proportionate share of said Impositions shall be paid, along with other monthly installments of Monthly Base Rent and CAM charges, in advance in monthly installments estimated by Landlord and subsequently adjusted, resulting from the actual Impositions exceeding (or falling short of) estimated payments. Monthly Installments for each subsequent calendar year shall

thereafter be estimated by Landlord at the beginning of each such calendar year on the basis of the actual Impositions for the preceding calendar year.

Landlord shall deliver to Tenant a statement certifying the actual total amount thereof and the amount of Tenant’s proportionate share thereof. Along with the next monthly rental installment, Tenant shall pay to Landlord such amounts as may be necessary to effect adjustment of the amount paid or payable for the prior calendar or partial calendar year to the actual amount of Tenant’s proportionate share of such Impositions for such year. Landlord shall credit any excess payments made by Tenant against future installments to be paid by Tenant hereunder, or in the event of the last year of the Lease, such excess shall be refunded to Tenant.

If the Lease Term shall begin or end on a date other than the first (1st) or last day of a calendar year, the first (1st) and/or final annual charges to Tenant with respect to the aforesaid Impositions shall be prorated on a daily basis on the basis of a three hundred sixty-five (365) day calendar year.

The foregoing provisions to the contrary notwithstanding, it is understood and agreed that any and all assessments or charges for ad valorem real estate taxes or other taxes on business or personal property or any other tax on real estate or business or personal property as such from time to time directly or indirectly assessed or imposed upon with respect to any alterations, additions or improvements made to the Premises by Tenant or under its direction or with respect to any property of Tenant therein shall be borne and paid entirely by Tenant and if any of said items or any portion thereof shall be paid by Landlord, Tenant shall reimburse Landlord for the same immediately upon receipt by Tenant of written demand therefore from Landlord.

iii.

Insurance . Landlord shall, during the entire Lease Term hereof, maintain in force casualty insurance on its interest in the Building in such amounts and against such hazards and contingencies as Landlord shall deem desirable for its own protection; provided, however, Landlord shall not be obligated to insure any furniture, equipment, or other property placed in the Premises by or at the expense of Tenant. Tenant shall not permit any use of the Premises that would invalidate or conflict with the terms of any hazard insurance policy covering risks insured by Landlord, excluding use as a bank. Landlord shall, in addition, during the entire Lease Term hereof, maintain liability insurance on the Common Areas with limits of not less than Two Million and No/100 ($2,000,000.00) Dollars, with all tenants in the Building

named as additional insureds and Tenant shall pay, as Additional Rent, its proportionate share of Landlord’s liability insurance premium. Tenant shall pay, as Additional Rent, its proportionate share, as determined in (ii) above, of Landlord’s hazard insurance premiums. Tenant shall also pay the entire increase in Landlord’s hazard insurance premiums which may be caused by the Tenant’s use and occupancy of, or improvements to, the Premises, excluding use as a bank. Said increases in insurance premiums shall be due and payable to the Landlord within thirty (30) days after a statement therefore is rendered to the Tenant by the Landlord, which statement shall also include the amount of direct increase caused by Tenant’s use and occupancy of, or improvements to, the Premises, if any.

Tenant shall at Tenant’s expense, obtain and keep in force at all times during the Initial Term and Lease Term, commercial general liability insurance including, property damage on an occurrence basis with limits of not less than Two Million ($2,000,000) Dollars combined single limit insuring Landlord, Landlord’s agent and property manager, as additional insureds, and Tenant against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. The limit of said insurance shall not, however limit the liability of the Tenant hereunder. Tenant may carry said insurance under a blanket policy providing an endorsement naming Landlord and Landlord’s agent and property manager as an additional insured. Insurance required hereunder shall be in companies licensed in the State that the Premises are located and shall have a “Best’s Insurance Guide” rating of B+/VI or better. Mutual insurance companies may be used only if they are non-assessable. No policy shall be cancelable or subject to reduction of coverage except after thirty (30) days written notice to Landlord. All policies of insurance maintained by Tenant shall be in a form acceptable to Landlord with satisfactory evidence that all premiums have been paid. Tenant agrees not to knowingly violate or permit to be violated any of the conditions or provisions of the insurance policies required to be furnished hereunder, and agrees to promptly notify Landlord or Landlord’s Agent of any fire or other casualty within twenty-four (24) hours. Tenant shall, at Tenant’s expense, obtain and keep in force at all times during the Lease Term, personal property insurance with regard to Tenant’s furniture, fixtures, and equipment placed in, on or about the Premises.

d. Late Payment . If Monthly Base Rent or any other payment due hereunder from Tenant to Landlord remains unpaid ten (10) days after said payment is due, the amount of such unpaid rent or other payment shall be increased by a late charge to be paid to Landlord by Tenant in an amount equal to five (5%) percent of the amount of the delinquent rent

or other payment after written notice is sent. The amount of the late charge to be paid for such month shall be computed on the aggregate amount of delinquent rent and other payment then outstanding for such month. Landlord and Tenant agree that such late charge shall not be deemed to be a penalty, it being understood between the parties that late payments by Tenant shall result in additional administrative expense to Landlord which is difficult and impractical to ascertain and that such late charge is a reasonable estimate of the loss and expense to be suffered by Landlord as a result of such late payment by Tenant. If rent or any other sums due Landlord by Tenant hereunder shall not be paid with thirty (30) days of its due date, then in such case in addition to the late charge provided for hereinabove, and after written notice from Landlord to Tenant, such rent or other sum shall bear interest beginning on the thirty-first (31st) day after its due date at the rate of eighteen (18%) percent per annum (or, if less, the highest rate allowed by law). If rent or any other sums due Landlord by Tenant hereunder is collected by or through an attorney at law, Tenant agrees to pay Landlord’s actual and reasonable attorneys’ fees incurred with respect thereto. Nothing herein shall relieve Tenant of the obligation to pay rent or any other payment on or before the date on which any such payment is due, nor in any way limit Landlord’s remedies under this Lease or at law in the event said rent or other payment is unpaid after it is due.

e. Rent Commencement Date . Unless otherwise provided, all of the terms and provisions of this Lease will be effective as of the date of Lease execution, with the exception of the obligation to pay Monthly Base Rent, Additional Rent and Impositions. The Lease Term of twenty (20) years and the obligation to pay Monthly Base Rent, including all Additional Rent and Impositions, shall commence on the Rent Commencement Date, which is the earlier of the following dates: (a) The date on which Tenant opens the Premises for business with the public; or (b) the date which is one hundred twenty (120) days after the delivery of the Premises to Tenant with “Landlord’s Work” (described on Exhibit C attached hereto) substantially complete and an agreed upon Work Letter has been executed by Landlord and Tenant. Notwithstanding the Rent Commencement Date has occurred, Tenant shall be obligated to construct and open a Bank of South Carolina facility in accordance with the Landlord’s approved site plan within two hundred twenty (220) days from the date of delivery of the Premises to Tenant with Landlord’s Work substantially complete and an agreed upon Work Letter has been executed by Landlord and Tenant. Landlord’s Work is more fully described on Exhibit C attached hereto.

Tenant agrees to file for construction permits for its interior improvements (“Tenant’s Upfit”) within thirty (30) days following delivery of the Premises to Tenant with Landlord’s Work completed and an agreed upon Tenant’s work letter (“Tenant’s Work Letter”) having been executed by Landlord and Tenant. Delays in Landlord’s Work caused by Tenant delays shall not extend the Rent Commencement Date.

7. Address of Landlord and Tenant: Notices . All rentals and other sums to be paid by Tenant to Landlord shall be delivered to Landlord under this Lease at:

Sunset Southstar, LLC

c/o Tribek Properties, Inc.

101 South Kings Drive, Suite 200

Charlotte, NC 28204

704-333-8485 fax

sbortz@tribek.com

All sums of money to be paid to Tenant by Landlord under this Lease shall be delivered to the Premises unless Tenant shall advise Landlord by written notice that such sums of money should be delivered to a different address.

Any notice under this Lease required or allowed to be given by either party to the other, shall be deemed to have been sufficiently given for all purposes when made in writing and sent in the United States mail as certified or registered mail, return receipt requested, postage prepaid, or sent by Federal Express or similar overnight courier service, and addressed:

a.	If to Landlord:	Sunset Southstar, LLC
		c/o Tribek Properties, Inc.
		101 South Kings Drive, Suite 200
		Charlotte, NC 28204
		704-333-8485 fax
		sbortz@tribek.com

	With copy to:	Alexander Ricks PLLC
		Attn: Daniel A. Merlin, Esq.
		4601 Park Road, Suite 580
		Charlotte, NC 28209
		704-365-3676 fax
		danny@alexanderricks.com

b.	If to Tenant:	The Bank of South Carolina
		Attention: Chief Financial Officer
		256 Meeting Street
		PO Box 538
		Charleston, SC 29401
		Telephone: 843-724-1500
		Fax: 843-724-1523
		Email: gwalpole@banksc.com

		With copy to:	Holcombe, Fair & Lane
			Attention: Charles Lane
			PO Box 668
			Charleston, SC 29402
			Telephone: 843-722-2642
			Fax: 843-720-5939
			Email: Charleshfl@bellsouth.net

	and

	John H. Warren, III, Esq.
	Womble Carlyle Sandridge & Rice, LLP
	5 Exchange Street
	Charleston, SC 29401
	Telephone: 843-720-4674
	Fax: 843-723-7398
	Email: jhwarren@wcsr.com

Or to such other place as Landlord or Tenant may from time to time designate in a notice to the other party hereto. Tenant hereby appoints as its agent for service of process in all dispossessory, distraint and summary ejectment proceedings which may be brought against it by Landlord, any person occupying the Premises provided that if no person is occupying the Premises, then Tenant agrees that such service may be made by attachment thereof to the main entrance to the Premises.

8. Utilities and Services . Landlord shall provide: (i) Heating, ventilation, and air conditioning (“HVAC”) during Business Hours (as hereinafter defined) to maintain temperatures for comfortable and customary use and occupancy in the Common Areas of the Building; (ii) Extermination and pest control when necessary to the Common Areas of the Building; and (iii) Maintenance of Common Areas in a manner comparable to other Class A office buildings in the Charleston, South Carolina area. The maintenance of the Common Areas shall include cleaning, HVAC, illumination, snow shoveling, deicing, repairs, replacements, lawn care, hardscape cleaning and landscaping. Tenant shall pay for all electricity, heating, air conditioning, water, and sewer, supplied to the Premises and removal of garbage from Premises, custodial services and other utilities and services required by Tenant in Tenant’s use of the Premises. Landlord, at Landlord’s sole option, may either require that Tenant contract directly with the public utility company providing any of the foregoing services or Landlord may contract with such public utility company directly and sub-meter such utility and bill Tenant for the same and Tenant shall pay such bill within ten days of receipt of same. Tenant shall have access to the building 24 hours a day, 7 days a week. Building Hours are 7:00 a.m. to 6:00 p.m., Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturdays.

9. Repairs . Landlord shall maintain the roof and exterior walls of the Building and the Premises in good repair, except that Tenant shall have the responsibility for the maintenance repair and replacement of all glass, doors (interior and exterior), windows, and doorways of the Premises. Tenant shall also be responsible for repair, replacement and maintenance of any exterior walls if the necessity therefore should be the result of Tenant’s negligence or the negligence of any agent, employee, or licensee of Tenant. Tenant shall keep the interior of the Premises in good repair, maintaining, where necessary, all electrical, plumbing, heating, air conditioning and other mechanical installations and systems servicing only the Premises, as well as damage to plumbing and other systems inside of the Premises if caused by the acts or omissions of Tenant, or Tenant’s agents, employees, invitees or licensees inside the Premises. Tenant shall effect all such maintenance, repairs and replacements at its own expense and employing materials and labor of a kind and quality equal to the original installations. If Tenant shall fail to maintain, repair or replace equipment or other installations in or about the Premises

as above provided, Landlord, immediately after giving Tenant notice of the necessity for such maintenance, repair or replacement may accomplish the required work and add the costs thereof to the next due rental installment(s) but Tenant shall not be liable to the Landlord for any failure to fulfill the obligations of this paragraph until such time as the Tenant shall be notified, as aforesaid, in writing of the requirement therefore, provided however, in the event of a bona fide emergency, Landlord need not give such notice to Tenant prior to performing such work. With regard to heating and air conditioning systems in the Premises, Landlord shall provide for the same to be in good working order upon Tenant’s occupancy of the Premises. In addition, Tenant shall maintain at Tenant’s sole expense a maintenance and service contract with a reputable heating and air conditioning service company for the heating and air conditioning systems and provide that such service contract shall not be canceled for any reason without a ten (10) day notice to Landlord, and deliver to Landlord a copy of such maintenance service contract. If Tenant fails to maintain such contract or if Tenant fails to repair, maintain or replace if caused by failure to maintain the heating and air conditioning system as needed, Landlord at its sole option may accomplish the same and bill the costs thereof to Tenant as Additional Rent and the failure to pay the same within thirty (30) days of submission of Invoice for the same to Tenant shall be an event of default herein. Landlord shall be responsible for the replacement of required components of the HVAC units as required, so long as Tenant maintains HVAC units to servicing requirements of this Lease.

10. Alterations . Excepting Tenant’s Upfit, Tenant shall make no alterations, additions, or improvements to the Premises without the prior written consent of Landlord, and any such request by Tenant of Landlord to make any such alterations, additions or improvements shall in each case be accompanied by plans and specifications for such alterations, additions and improvements all in such detail as Landlord may reasonably required. Any alteration, addition or improvement to the Premises which results in any damage to the Premises or the alteration, addition or improvement to the Premises which results in any damage to the Premises or the Building including, but not limited to the floor, ceiling or outside walls shall be repaired by the Tenant at the termination of the Lease, or if sooner, upon the request by the Landlord. All alterations, additions and improvements (including, without limitation, all partitions, walls, railings, carpeting, and floor coverings) made by, for or at the direction of the Tenant, shall remain upon and be surrendered with the Premises as a part thereof at the expiration or earlier termination of this Lease. All contractors and subcontractors employed by Tenant for any such work shall be subject to Landlord’s prior approval. Tenant shall comply with all applicable laws and obtain all licenses and permits required by any applicable authority before commencing construction. Any alarm or sprinkler system installed by Tenant must be compatible with any such system maintained by Landlord for the Building, Tenant and all contractors and subcontractors employed or engaged by Tenant shall comply with the Contractor Upfit and Insurance Procedures and Requirements prepared by Landlord for the Building, a copy of which will be provided to Tenant upon request All alterations, additions and improvements made by Tenant to the Premises, including without limitation, the initial alterations, additions and improvements made to the Premises, shall remain in the Premises and shall not be removed therefore at any time. Upon the expiration or any earlier termination of this Lease, Tenant shall promptly reimburse Landlord for any expense or cost incurred by Landlord in restoring the Premises to the condition in which the Premises were at the time Tenant shall have occupied the same, except for Tenant’s Upfit and for ordinary wear and tear, fire or other casualty and

alterations, additions and improvements to the Premises consented to in writing by Landlord unless Landlord is entitled to and notifies Tenant to remove the same.

11. Furniture and Fixtures . All readily moveable furnishings, store fixtures and equipment owned and used by Tenant in the Premises shall at all times during the Lease Term be and remain the property of the Tenant without regard to the means by which they are installed in or attached to the Premises. Upon expiration or termination of this Lease, Tenant shall remove all such furnishings, fixtures and equipment and restore the Premises as provided in Paragraph 10 hereof, provided that Tenant shall not remove any equipment, conduits or fixtures providing water, plumbing, including water heater, electrical, heating, ventilation, air conditioning, lighting, exhaust and sewer service to the Premises, all of which, together with any other furnishings, fixtures and equipment not removed by Tenant as provided above, shall become the property of Landlord upon expiration of the Lease Term or termination of Tenant’s right to possession of the Premises and if not already owned by Landlord shall be conclusively presumed to have been conveyed by Tenant to Landlord. If the removal or installation of such furnishings, fixtures and equipment results in any damage to the Premises, Tenant shall repair the same to the end that the Premises shall be restored to the condition in which they were found immediately prior to the installation of the same, normal wear and tear excepted.

12. Covenants . Tenant covenants with and for the benefit of Landlord:

a. To comply with all requirements of the terms of any State or Federal statute or local ordinance or regulation applicable to Tenant or its use of the Premises, and to save Landlord harmless from penalties, fines, costs, expenses or damages resulting from failure to do so.

b. To give Landlord prompt written notice of any accident, fire or damage occurring on or to the Premises and the Common Areas.

c. To load and unload goods only at such times, in such areas and through such entrances as may be designated for such purposes by Landlord, and to prohibit all trucks and trailers which have moved upon Building property on account of Tenant’s conduct of business from remaining overnight or for extended periods of time in any portion of the Building.

d. To make such arrangement as Landlord may reasonably require from time to time for the storage and disposal of all garbage and refuse.

e. To keep the Premises sufficiently heated to prevent freezing of water in pipes and fixtures.

f. To keep the outside areas immediately adjoining the Premises clean and free from rubbish, obstructions or merchandise in such areas.

g. To keep the Premises clean, orderly, sanitary and free from objectionable odors and from insects, vermin and other pests and to maintain a pest control contract with a licensed pest control company to provide for periodic pest control measures approved by Landlord and to send Landlord a copy of the same.

h. To park Tenant’s vehicles and to require Tenant’s directors, officers, employees, agents, contractors, sub-tenants, licensees and concessionaires to park their vehicles only in those portions of the parking area, or at such other places, as are designated for that purpose by Landlord in writing prior to the Rent Commencement Date, provided that this provision shall not apply to Tenant’s designated spaces as set forth in Paragraph 1. Tenant agrees that from time to time upon written notice from Landlord, it shall, within five (5) days, furnish Landlord with the State automobile license numbers assigned to the hereinabove designated vehicles.

i. To keep its windows in the Premises, illuminated and its exterior and interior signs and lights continuously well lighted every day of the Lease Term during such time as Landlord shall reasonably require consistent with prevailing practices in the locality.

j. To use and occupy the Premises continuously and uninterruptedly throughout the Lease Term, and to be open for business during such reasonable business hours as Landlord may prescribe from time to time, but at least from 9:00 a.m. to 5:00 p.m. five (5) days per week (Monday through Friday, excluding bank holidays), except when prevented from so doing by casualty, strike, Act of God or other causes beyond Tenant’s control.

k. To conduct its business in the Premises in all respects in a diligent and dignified manner and keep the Premises in first class condition in accordance with the highest standards of operation of similar businesses, maintaining at all times during the Lease Term a full staff of well trained and high grade personnel.

l. To comply with all commercially reasonable rules and regulations of the Building, as they may be established from time to time by Landlord, including but not limited to the installation of such fire extinguisher and other safety equipment as Landlord may require; and to comply with the recommendations of Landlord’s insurance carriers and their rate-making bodies.

m. To pay promptly to Landlord all Monthly Base Rent, and all other charges, costs and expenses due to Landlord pursuant to the terms of this Lease before the same shall become delinquent.

n. To maintain the Premises in a Class A condition, including the doors and glass, and to deliver the Premises to Landlord, at the end of the Lease Term in as good condition as they were when received by Tenant; excepting only normal wear and tear and repairs required to be made by Landlord.

o. The Tenant shall use and occupy the Premises solely for use as a retail bank and/or office operation and for no other use without the Landlord’s written consent which may be withheld for any reason.

p. To refrain from doing each and every one of the following:

Using the Premises in any manner which, in Landlord’s commercially reasonable opinion, is or may be harmful to the Building or disturbing to other tenants in the Building.

Pasting or otherwise affixing any advertising material on the interior side of any display window or door or positioning any advertising material any closer than twelve inches (12”) to any such display window or door;

ii.

Placing any machines, equipment or materials of any kind outside of the confines of the Premises;

iii.

Permitting, allowing or causing to be used in or about the Premises or other portions of the Building any phonographs, radios, public address systems, sound production or reproduction devices, pinball machines, video games, vending machines, mechanical or moving display devices, motion picture or television devices, excessively bright lights, changing, flashing, flickering or moving lights or lighting devices, or any similar advertising media or devices, the effect of which shall be visible or audible from the exterior of the Premises and which constitute a nuisance;

iv.

Causing or permitting any noxious, disturbing or offensive odors, fumes, or gasses, or any smoke, dust, steam or vapors, or any loud or disturbing noise or vibrations to originate in or be emitted from the Premises;

Permitting any act to be performed or any practice to be adopted or followed in or about the Premises which, in Landlord’s opinion, may detract from or impair the reputation of the Building;

vi.

Causing or suffering to be done, any act, matter or thing objectionable to insurance companies whereby any hazard insurance or any other insurance now in force or hereafter to be placed on the Building, or on any part thereof may become void or be suspended, or whereby the insurance premiums payable by Landlord, or by any tenant of Landlord, may be increased;

vii.

Conducting any auction, fire, bankruptcy, liquidation, selling out, or going out of business sale on or about the Premises;

viii.

Attaching any antenna, canopy, awning, or other projection to the roof or the outside walls of the Premises or the building of which the Premises are a part without Landlord’s approval;

ix.

Committing or suffering to be committed by any person any waste upon the Premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the Building, or which may disturb the quiet enjoyment of any person within five hundred (500) feet of the boundaries of the Building;

Soliciting business for itself, or permitting its licensees, concessionaires, or subtenants to solicit business in the parking or other Common Areas, and distributing any handbills or other advertising matter in or on automobiles parking in a parking area or in other Common Areas;

xi.

Vacating or abandoning the Premises or allowing the same to appear to be vacated or abandoned; or

xii.

Placing or allowing any garbage, trash, waste, dirt, rubbish, or refuse in or about the Premises or Building except only within the Premises in approved trash receptacles within the Premises at locations approved by Landlord.

13. Tenant’s Signs . Tenant shall not install or affix any sign, device, fixture or attachment on or to the exterior of the Premises unless Tenant shall first obtain Landlord’s written consent thereto, which consent will not be unreasonably withheld, and signage will meet any Development signage plan given to Tenant prior to the Effective Date, provided, however, at Tenant’s cost, Tenant may place prominent lighted signage near the top of the Building, subject to necessary approvals by the appropriate municipal authorities and the Landlord, who will not unreasonably withhold approval, and which shall be the exclusive signage on the exterior of the Building.

14. Landlord’s Privileges . In addition to the other rights and privileges of Landlord herein or by law granted, Landlord shall have the following rights and privileges:

a. To go upon and inspect the Premises at any reasonable time with reasonable prior notice and at Landlord’s option make repairs, alterations and additions thereto or to other portions of the Building, which right, in the event of an emergency, shall include the right of Landlord to forcibly enter said Premises without rendering Landlord or Landlord’s agents or employees liable therefore.

b. To display “For Rent” signs with the Premises at prominent locations at any time within the last year of the Lease Term.

c. To install, place upon or affix to the roof and exterior walls of the Premises such antennae, dishes, and other objects or structures as Landlord shall deem necessary or appropriate for the operation, maintenance or repair of the Building.

d. To make alterations on or additions to the Building, to build additional stories thereon, and to build adjacent to or adjoining the Premises, provided there is no loss of parking. Landlord reserves the right to construct and improve other buildings and add to any existing buildings or improvements in the Building, and to permit others to do so. Said alterations or additions may temporarily diminish the free flow of traffic in the Building or temporarily create noise or other annoyances which, absent this provision could be construed to interfere with Tenant’s enjoyment of the Premises and to the enjoyment of and access to said Premises by Tenant’s subtenants, employees and invitees, but shall not prevent Tenant from operating its business daily.

e. To store necessary materials, tools and equipment in the Building for alterations and repairs.

f. To remove from the Premises any placards signs, fixtures, alterations or additions not permitted by this Lease. The exercise by Landlord of any of its rights, whether herein enumerated or otherwise, shall never be deemed to affect Tenant’s obligations and covenants under this Lease nor to be an eviction of Tenant (or of Tenant’s subtenant) nor to be a disturbance of the use and possessions of the Premises by Tenant, Tenant’s subtenants, employees, Invitees, licensees or customers.

15. Damage to Premises . In the event of less than 50% of replacement cost of the Premises, or any part thereof, by fire, storm, war, riot, Act of God, unavoidable accident, public enemy or other casualty, Landlord shall repair and restore the Premises to their condition prior to such damage or destruction, and during the time required for repairing and restoring said Premises as aforesaid, the Monthly Base Rent and other changes hereunder shall equitably abate to the extent Tenant is unable to use the Premises due to such damage it is provided, however, that in the event the Premises are damaged or destroyed by a casualty during the last two years of the then current term of this Lease and the damage is sufficiently extensive to result in the entire suspension of Tenant’s business, however temporary, then Landlord or Tenant may elect, by written notice, to terminate this Lease as of the date on which the damage occurred. Further, in the event the Premises are damaged or destroyed by fire, storm, Act of God, war, riot, unavoidable accident, public enemy or other casualty to an extent greater than fifty (50%) percent of the replacement cost thereof, Landlord reserves the right of either terminating this Lease or restoring the Premises to the condition in which they were prior to such damage or destruction and in the event Landlord shall elect to reconstruct the Premises, restoring them to the condition in which they were event Landlord shall elect to reconstruct the Premises, restoring them to the condition in which they were prior to such damage or destruction, Tenant shall be notified in writing of the same within forty-five (45) days of the date of damage, provided, however, in the event the reconstruction will take more than one hundred eighty (180) days, Tenant may elect to terminate this Lease by written notice to Landlord. In the event of full abatement of rent as aforesaid, the term of this Lease shall be extended automatically for a period equal to the time of such abatement.

16. Eminent Domain . If the entire Premises are taken under the power of eminent domain, this Lease will thereupon terminate as of the date possession is taken. If more than twenty-five percent (25%) of the Premises or more than fifty percent (50%) of the Building is taken, or conveyance is made in lieu thereof, either party will have the right to cancel and terminate this Lease as of the date of such taking upon giving notice to the other party of such election within thirty (30) days after the date of such taking. In the event of such cancellation, the parties will thereupon be released from any further liability under this Lease, except for obligations existing on the effective date of such termination. Tenant waives any statutory rights of termination that may arise because of any partial taking of the Premises or any other portion of the Building. If a portion of the Premises is taken, and if this Lease will not be terminated as provided in the preceding paragraph, then the provisions of this Lease will remain in full force and effect, except that the Monthly Base Rent will be reduced in the same proportion that the amount of floor area in the Premises remaining after such taking bears to the total floor area immediately prior to such taking, and Landlord will, upon receipt of the award in condemnation.

make all reasonable repairs or alterations to the Building in which the Premises are located so as to constitute the portion of the Building not taken a complete architectural unit, but Landlord will not be required to spend for such work an amount in excess of the net amount received by Landlord as damages for the taking of the part of the Building within which the Premises are located. If the Premises and Building are not restored to a condition as good or better than the condition existing immediately prior to the condemnation, Tenant may terminate this Lease. “Amount received by Landlord” will mean that part of the award in condemnation that is free and clear to Landlord of any collection by mortgagees for the value of the diminished fee. Tenant, at its own cost and expense, will restore and re-fixture such part of the Premises Tenant was responsible for providing as is not taken to as near its former condition as the circumstances will permit, including, without limitation, all exterior signs, trade fixtures, equipment, display cases, furniture, furnishings and other installations of personalty of Tenant.

All compensation awarded or paid upon such a total or partial taking of the Premises or the Development within which the Premises are located will belong to and be the property of Landlord without any participation by Tenant. Tenant will, however, be entitled to claim, prove and receive in such condemnation proceedings such award as may be allowed for relocation costs, fixtures and other equipment installed by it but only to the extent that the same will not reduce Landlord’s award and only if such award will be in addition to the award for the land and Development (or portion thereof) containing the Premises. To the extent that the Tenant has a claim in condemnation proceedings, as aforesaid, Tenant may claim from the condemning authority, but not from Landlord, such compensation as may be recoverable by Tenant.

17. Default . The occurrence of any of the following events shall constitute a default (hereinafter sometimes called “Event(s) of Default”) by Tenant and a breach of this Lease:

a. Failure of Tenant to pay Monthly Base Rent, CAM, Impositions or any other charge or sum to be paid to Landlord by Tenant when due and payable under the terms of this Lease and such failure continues after ten (10) days written notice; provided, however, Landlord shall not be obligated to give written notice of default more than twice in any Lease Year.

b. Failure of Tenant to comply with any other of the rules, regulations, agreements, covenants, terms and conditions contained or referred to herein (other than the failure to pay sums of money) for a period of fifteen (15) days after Landlord has notified Tenant of the default(s) provided that if such default is not susceptible of being cured within such fifteen (15) day period, the time permitted Tenant to cure the default(s) shall be extended for as long as shall be reasonably necessary to cure such default(s) if Tenant commences promptly and proceeds diligently to cure such default(s); provided, always, that such period for curing any default shall not be so extended as to jeopardize the interest of Landlord in the Premises or Building or other property of Landlord or so as to subject Landlord to any civil or criminal liabilities.

c. Filing by or against Tenant in any court pursuant to any statute, either of the United States or of any state, of a petition in bankruptcy or insolvency, or for reorganization, or for any arrangement or for appointment of a receiver or trustees of all or a portion of Tenant’s property or should Tenant make any assignment for the benefit of its creditors; provided, that if

the action or proceeding be against Tenant, the same shall not be an event of default if the petition shall be dismissed within six (6) months after commencement thereof.

d. Dissolution or liquidation of Tenant, voluntary or involuntary, or the taking of possession of any of Tenant’s property by execution and levy of attachment.

Any failure of Landlord to perform any of its obligations under this Lease shall not be considered a default unless Tenant shall have given Landlord at least a fifteen (15) day written notice and opportunity to cure the same, unless another time period is specifically provided for in this Lease, or if such obligation cannot reasonably be performed or such failure reasonably cured within said period, Landlord shall have such additional time as is reasonably necessary to perform the obligation or cure the default.

18. Remedies Upon Default .

a. Upon the occurrence of an Event of Default by Tenant as described in paragraph 17 hereof, the Landlord, without declaring a termination of this Lease (which right is, however, unconditionally and absolutely reserved) in addition to all other remedies of Landlord at law or in equity, may at its sole election exercise one or more or all of the following remedies:

Landlord with or without terminating this Lease may immediately or at any time thereafter reenter the Premises and, without disrupting Tenant’s business operations, correct or repair any condition which shall constitute a failure on Tenant’s part to keep or perform or abide by any term, condition, covenant or agreement of this Lease and Tenant shall reimburse and compensate Landlord as Additional Rent within fifteen (15) days of rendition of any statement to Tenant by Landlord for any expenditures made by Landlord in making such corrections or repairs.

ii.

Landlord with or without terminating this Lease may immediately or at any time thereafter demand in writing that Tenant vacate the Premises and thereupon Tenant shall vacate the Premises and remove therefrom all property therein belonging to Tenant within three (3) days of receipt by Tenant of such notice from Landlord whereupon Landlord shall have the right to re-enter and take possession of the Premises.

iii.

Landlord with or without terminating this Lease may immediately or at any time thereafter re-enter the Premises and remove therefrom Tenant and all property belonging to or placed in the Premises by, at the direction of or with the consent of Tenant and/or alter, re-key, remove or replace any locks or other security devices at the Premises.

iv.

Landlord with or without terminating this Lease may immediately or at any time thereafter re-let the Premises or any part thereof for such time or times and at such rental or rentals and upon such other

terms and conditions as are commercially reasonable and Landlord may make any alterations or repairs to the Premises which it may deem advisable; and Tenant shall pay all costs of such re-letting including the cost of any such alterations or repairs to the Premises; and if this Lease shall not have been terminated, Tenant shall continue to pay all rent due under this lease up to and including the date of beginning of payment of rent by and subsequent tenant of a part or all of the Premises and thereafter Tenant shall pay monthly during the remainder of the term of the Lease the difference, if any, between the rent collected from any such subsequent tenant or tenants and the rent reserved in this Lease by Tenant shall not be entitled to receive any excess of any such rents collected over the rents reserved herein.

Landlord may immediately or at any time thereafter terminate this Lease (without notice or demand to vacate the Premises which Tenant hereby waives) and this Lease shall be deemed to have been terminated upon receipt by Tenant of written notice of such termination and upon such termination Landlord shall have and recover from Tenant all damages Landlord may suffer by reason of such termination including without limitation the cost (including legal expenses and reasonable attorney’s fees) of recovering possession of the Premises, the costs of any repairs to the Premises which are necessary or proper to prepare the same for reletting and in addition thereto Landlord at its election shall have and recover from Tenant either (A) an amount equal to the excess, if any, of the total amount of all rents to be paid by Tenant for the remainder of the term of this Lease over the then reasonable value of the Premises for the remainder of the term of this Lease or (B) the rents which Landlord would be entitled to receive from Tenant pursuant to the provisions of subparagraph (iv) above if the Lease were not terminated and such election shall be made by Landlord by serving written notice of its choice of one of two said alternatives upon Tenant within thirty (30) days of the notice of termination.

In the event of any re-entry of the Premises by Landlord pursuant to any of the provisions of this Lease, Tenant hereby waives all claims for damages, except such claims arising out of proven acts of negligence by Landlord, which may be caused by such re-entry by Landlord and Tenant shall save Landlord harmless from any loss, cost (including without limitation legal expenses and reasonable attorney’s fees) or damages suffered by Landlord by reason of such re-entry and no such re-entry shall be considered or construed to be a forcible entry.

No course of dealing between Landlord and Tenant or any delay on the part of Landlord in exercising any rights it may have under this Lease shall operate as a waiver of any of the rights of Landlord hereunder nor shall any waiver of a prior default operate as a

waiver of any subsequent default or defaults and no express waiver shall affect any condition, covenant, rule or regulation other than the one specified in such waiver and that one only for the time and in the manner specifically stated.

The exercise by Landlord of any one or more of the remedies provided in this Lease shall not prevent the subsequent exercise by Landlord of any one or more of the other remedies herein provided. All remedies of Landlord, may be exercised alternatively, successively or in any other manner and are in addition to any other rights provided by law.

b. Nothing herein contained shall limit or prejudice the right of Landlord to prove and obtain as damages by reason of such default an amount equal to the maximum allowed by any statute or rule of law in effect at the time when such damages are to be proved.

c. Any suit brought to collect the amount of the deficiency for any month shall not prejudice the right of Landlord to collect the deficiency for any subsequent month by a similar action.

d. Tenant hereby expressly waives, so far as permitted by law, the service of any notice of intention to re-enter provided in any statute, or of the institution of legal proceedings to that end. Tenant, for and on behalf of any and all persons claiming through or under Tenant, also waives any right of redemption or re-entry or repossession or restoration of Tenant’s possessory rights hereunder in the event Tenant shall be dispossessed by a judgment or by action of any court or judge or in case of re-entry or repossession by Landlord as a result of Tenant’s default. Landlord and Tenant, so far as permitted by law, waive trial by jury in any action, proceeding, or counterclaim brought by either of the parties hereto against the other on any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant’s use or occupancy of the Premises, or any claim of injury or damage.

e. Any action taken by Landlord under this paragraph shall not operate as a waiver of any right Landlord would otherwise have against Tenant for breach of this Lease and Tenant shall remain liable to Landlord for any damages suffered by Landlord by Reason of Tenant’s default or breach.

f. The Landlord shall also be entitled to enjoin any breach or threatened breach by Tenant of any of the agreements, covenants, terms and conditions contained in this Lease, and in the event of such breach shall have all rights and remedies allowed at law, in equity, by statute, or otherwise. Any and all remedies referred to herein are considered cumulative and not exclusive. Mention of particular remedies herein shall not prevent Landlord from pursuing other remedies in law or equity in the event of breach or default of Tenant.

The terms “enter”, “re-enter”, “entry” or “re-entry” as used in this Lease are not restricted to their technical legal meaning.

19. Landlord’s Performance for Account of Tenant . If Tenant shall continue in default in the performance of any of the covenants or agreements herein contained after the expiration of the time limit hereinabove set forth for the curing of said default(s). so that an Event of Default has occurred and is continuing, Landlord may, after ten (10) days prior written notice to Tenant, cure such default by performing such covenant or agreement or account of

Tenant and any amount paid or expense or liability incurred by Landlord in the performance of any such matter for the account of Tenant shall be deemed to be Additional Rent and the same (together with interest thereon at the highest lawful rate of interest or eighteen (18%) percent per annum, from the date upon which any such expense shall have been incurred) may be added at the option of Landlord, to any rent then due or thereafter falling due hereunder. Nothing contained herein shall be construed to prevent Landlord from immediately collecting from Tenant by suit or otherwise, any such sums with interest.

20. Indemnity – Insurance . During the Lease Term, Tenant, its assigns agree to indemnify and defend Landlord and to save harmless Landlord, and agents, servants and employees of Landlord against and from any and all claims by or on behalf of any person, firm or corporation arising by reason of injury to person, including death, or property occurring in or about the Premises or in the Building occasioned by Tenant, or by any employee (whether or not acting within the scope of employment), agent , licensee, Invitee or visitor of Tenant, or by reason of any breach, violation or nonperformance of any covenant in this Lease on the part of Tenant to be observed or performed, and also by reason of any matter or thing growing out of the occupancy or use of the Premises by Tenant. In accordance with Paragraph 6(c)(iii), Tenant shall keep in force, during the full term of this Lease or any renewal or extension thereof, commercial general liability insurance issued by a nationally recognized Insurance company, with such limits as may be reasonably requested by Landlord from time to time, but with minimum limits not less than Two Million Dollars ($2,000,000.00) in the aggregate on account of death, personal injury, or property damage in any one occurrence.

21. Insurance Criteria . Insurance policies required by this Lease shall be as provided in Paragraph 6(c)(iii).

22. Personal Property – Insurance . Tenant agrees that all personal property in said Premises shall be and remain at Tenant’s sole risk, and Landlord shall not be liable for any damage to, or loss of such personal property arising from any acts or omissions of any persons other than Landlord or Landlord’s employees or contractors or from fire, or from the leaking of the roof, or from the bursting, leaking, or overflowing of water, sewer, or steam pipes, or from malfunctions of the heating, plumbing, or electrical systems. Tenant expressly agrees to save Landlord harmless in all such cases. Throughout the Lease Term, Tenant shall carry fire and extended coverage insurance insuring its interest, if any, in improvements to or in the Premises and in its interest in its office furniture, equipment supplies and other property. Tenant hereby waives any claim or right of action, which it may have against Landlord for loss or damage covered by such insurance and Tenant covenants and agrees that it will obtain a waiver from the carrier of such insurance releasing such carrier’s subrogation rights as against Landlord. Copies of all of Tenant’s insurance policies shall be delivered to Landlord upon request. Tenant shall not do or cause to be done or permit on the Premises anything deemed extra hazardous on account of fire or other risk and Tenant shall not use the Premises in any manner which will cause an increase in the premium rate for any insurance in effect on the Premises or a part thereof. If, because of anything done, caused to be done, permitted or omitted by Tenant or its agents, servants or employees (whether or not acting in the scope and course of their employment), excluding operation of a bank, the premium rate for any kind of insurance in effect on the Premises or any part thereof shall be raised. Tenant shall pay Landlord on demand the amount of any such increase in premium which Landlord shall pay for such insurance and if

Landlord shall demand that Tenant remedy the condition which caused any such increase in an insurance premium rate, Tenant shall remedy such condition within five (5) days after receipt of such demand.

23. Application of Payments Received from Tenant . Landlord, acting in its sole discretion, shall have the right to apply any payments made by Tenant to the satisfaction of any debt or obligation of Tenant to Landlord regardless of the instructions of Tenant as to application of any sum whether such instructions be endorsed upon Tenant’s check or otherwise, unless otherwise agreed upon by both parties in writing. The acceptance by Landlord of a check drawn by others than Tenant shall in no way affect Tenant’s liability hereunder nor shall it be deemed an approval of any assignment of this Lease by Tenant.

24. Subordination . Tenant shall, upon request by Landlord, subject and subordinate all or any of its rights under this Lease to any and all mortgages and deeds of trust now existing or hereafter placed on the Building or the land upon which the Building is located; provided, however, that the holder of any such mortgage agrees in writing that Tenant will not be disturbed in the use or enjoyment of the Premises so long as it is not in default hereunder. Tenant agrees that this Lease shall remain in full force and effect notwithstanding any default or foreclosure under any such mortgage or deed of trust and that it will attorn to the mortgagee, trustee or beneficiary of such mortgage or deed of trust, and their successors or assigns, and to the purchaser or assignee under any such foreclosure. Tenant will, upon request by Landlord, execute and deliver to Landlord, or to any other person designated by Landlord, any instrument or instruments required to give effect to the provisions of this paragraph.

25. Assignment or Sublet . Tenant shall not transfer, mortgage, grant a security interest in, encumber, or assign this Lease, or any interest therein, or sublease all or part of the Premises, without Landlord’s advance written consent. Landlord’s consent to the granting of a security interest in, or mortgaging Tenant’s leasehold estate, or any interest therein, may be withheld by Landlord in Landlord’s sole discretion. If the Tenant is a corporation, the sale, transfer or encumbrance of a majority of its outstanding voting stock or equity interests (whether the result of a single or series of transactions), excluding merger, sale of assets, or consolidation with another banking institution or dissolution, shall be deemed an assignment of this Lease and shall be subject to the provisions contained herein relative to assignment. Likewise, if Tenant is a partnership, limited liability company, or any other entity, the sale, transfer or encumbrance of a majority of its voting or ownership or equity interests (whether the result of a single or series of transactions) shall be deemed an assignment of this Lease and shall be subject to the provisions contained herein relative to assignment.

Reasonableness . The Landlord’s consent shall not be considered unreasonably withheld if:

The proposed subtenant’s or assignee’s financial responsibility does not meet the same criteria Landlord uses to select comparable Building tenants;

ii.

The proposed subtenant’s or assignee’s business is not suitable for the Building considering the business of the other tenants and the Building’s prestige; or

iii.

The proposed use is inconsistent with the use permitted by Article 28.

Procedure . Tenant must provide Landlord in writing:

The name and address of the proposed subtenant or assignee;

ii.

The nature of the proposed subtenant’s or assignee’s business it will operate in the Premises;

iii.

The terms of the proposed sublease or assignment; and

iv.

Reasonable financial information so that Landlord can evaluate the proposed subtenant or assignee under this paragraph.

Landlord shall, within thirty (30) days after receiving the information required under this Article, give notice to Tenant to permit or deny the proposed sublease or assignment. If Landlord denies consent, it must explain the reasons for the denial. If Landlord does not give notice within the thirty (30) day periods, then Tenant may sublease or assign part or all of the Premises upon the terms Tenant gave in the information under this article.

Conditions . Subleases and Assignments by Tenant are also subject to:

The terms of this Lease.

ii.

The term shall not extend beyond the Lease Term.

iii.

Tenant, or Tenant’s permitted successors under Article 25, shall remain liable for all Lease obligations.

iv.

Consent to one sublease or assignment does not waive the consent requirement for future assignments or subleases.

Fifty (50%) percent of the consideration (Excess Consideration) received by Tenant from an assignment or sublease that exceeds the amount Tenant must pay Landlord, which amount is to be prorated where a part of the Premises is subleased, shall also be paid to Landlord. Excess Consideration shall exclude reasonable leasing commissions paid by Tenant, payments attributable to the amortization of the cost of Tenant improvements made to the Premises at Tenant’s cost for the assignee or sublessee, and other reasonable, out-of-pocket costs paid by Tenant, such as attorneys’ fees directly related to Tenant’s obtaining an assignee or sublessee. Tenant shall pay this Excess Consideration to Landlord at the end

of each calendar year during which Tenant collects any Excess Consideration. Each payment shall be sent with a detailed statement showing (A) the total consideration paid by the subtenant or assignee and (B) any exclusion from the consideration permitted by this paragraph. Landlord shall have the right to audit Tenant’s books and records to verify the accuracy of the detailed statement.

26. Mechanic’s Liens . Tenant shall have no right to encumber or subject the interest of Landlord in the Premises to any mechanic’s materialmen’s, or other liens of any nature whatsoever, and upon the filing of any such lien, the failure of Tenant to have the same canceled promptly shall constitute a default and entitle Landlord at its option to take any action provided for elsewhere in this Lease. Tenant shall hold Landlord harmless from any such liens.

27. Holding Over . Upon the expiration of the term or other termination of this Lease, Tenant shall quit and surrender the Premises to Landlord, broom clean, in good order and condition, ordinary wear and tear excepted and Tenant shall remove from the Premises all of its property. If Tenant shall hold over after the expiration of this term or other termination of this Lease, such holding over shall not be deemed to be a renewal of this Lease but shall be deemed to create a tenancy-at-will and by such holding over Tenant shall be deemed to have agreed to be bound by all of the terms and conditions of this Lease except those as to the term hereof, and except that during such tenancy-at-will, Tenant shall pay One Hundred Fifty Percent (150.0%) of all monthly rentals due at that time including Monthly Base Rent, CAM, and Impositions. If any rent or other sum owing under this Lease is collected by or through an attorney-at-law, Tenant agrees to pay Landlord’s reasonable attorney’s fees. Tenant shall surrender all keys to the Premises to the Landlord at the place then fixed for the payment of rent and shall inform Landlord of all combinations on locks, safes and vaults, if any, in the Premises, provided, however, Tenant may, at its option, remove any vault in the Premises at the termination of this Lease, provided Tenant restores the Premises in a commercially reasonable fashion. Tenant shall, at its expense, remove from the Premises on or prior to such expiration or earlier termination all furnishings, fixtures and equipment situated thereon (including all exterior and interior signs) which are not the property of the Landlord, and Tenant shall, at is expense, on or before such expiration or earlier termination, repair any damage caused by such removal.

28. Permitted Uses . The Tenant shall use and occupy the Premises solely for use as a banking institution and/or general office purposes and for no other purpose whatsoever unless Landlord, in its sole right and discretion consents to a change in such uses. Tenant acknowledges and agrees that the uses of the Premises set forth herein are a critical element of the bargain of the parties hereto and that actual and substantial detriment will result to Landlord and other tenants and occupants of the Building in the event that a change or deviation in such uses shall occur or be permitted without the express written consent herein required.

29. Compliance With Law and Contracts . Tenant shall, at its expense, comply with and shall cause the Premises and Tenant’s employees, agents, contractors and subcontractors to comply with all governmental statutes, laws, rules, orders, regulations and ordinances affecting the Premises or any part thereof, or the use therefore, at any time during the Lease Term, including without limitation, the Americans With Disabilities Act (“ADA”).

Tenant shall, at its expense, comply with the requirements of all policies of insurance which at any time may be in force with respect to the Premises, and with the provisions of all contracts, agreements and restrictions affecting the Premises or any part thereof or the occupancy or use thereof. Provided, however, Tenant shall not be responsible for any capital improvements to the Premises or any part thereof to comply with ADA unless such improvements are directly related to Tenant’s use of the Premises or any part thereof.

30. Waiver . It is further understood and agreed that waiver by Landlord of any default or breach of any covenant, condition or agreement herein shall not be construed to be a waiver of that covenant, condition or agreement or of any subsequent breach thereof. The acceptance of rent by Landlord with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. No delay or omission of Landlord to exercise any right or power arising from any default on part of Tenant shall impair any such right or power, or shall be construed to be a waiver of any such default or acquiescence thereto.

31. Quiet Enjoyment . Landlord covenants, represents and warrants that it has the full right and authority to lease the Premises upon the terms and conditions herein set forth; and that Tenant shall peacefully and quietly hold and enjoy the Premises for the full term hereof so long as it does not default in the performance of any of its agreements hereunder.

32. Transfer of Landlord’s Interest . The term “Landlord” as used in this Lease means only the owner or the mortgagee in possession for the time being of the Building or the owner of the lease of the Building so that in the event of any sale or sales of the Building or of said lease, or in the event of a lease of the Building, said Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder, and it shall be deemed and construed without further agreement between the parties or their successors in interest or between the parties and the purchaser at any such sale or the lessee of the Building, that the purchaser or the lessee of the Building has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. Notwithstanding anything to the contrary contained in this Lease, it is specifically understood and agreed that the liability of the Landlord hereunder shall be limited to the equity of the Landlord in the Building and Landlord’s applicable insurance policies in the event of a breach or the failure of Landlord to perform any of the terms, covenants, conditions and agreements of this Lease to be performed by Landlord. In furtherance of the foregoing, the Tenant hereby agrees that any judgment it may obtain against Landlord as a result of the breach of this Lease as aforesaid shall be enforceable solely against the Landlord’s interest in the Building and Landlord’s applicable insurance policies. Any security given by Tenant to Landlord to secure performance of Tenant’s obligations hereunder may be assigned and transferred by Landlord to the successor in interest to Landlord; and, upon acknowledgement by such successor of receipt of such security and its express assumption of the obligation to account to Tenant for such security in accordance with the terms of this Lease, Landlord shall thereby be discharged of any further obligation relating thereto. Landlord’s assignment, sale, or transfer of the Lease or of any or all of its rights herein shall in no manner affect Tenant’s obligations hereunder. Tenant shall thereafter attorn and look to such assignee, as Landlord, provided Tenant has first received written notice of such assignment of Landlord’s interest.

33. Landlord Not Partner . It is expressly understood and agreed that the Landlord is not a partner, joint venturer or associate of Tenant in the conduct of Tenant’s business; that the provisions of this Lease with respect to the payment by Tenant of Percentage Rents are payment of Additional Rent and not sharing of profit; and that the relationship between the parties hereby is and shall remain at all times that of Landlord and Tenant. No provision of this Lease shall be construed to impose upon the parties hereto any obligation or restriction not expressly set forth herein.

34. Additional Instruments . The parties agree to execute and deliver any instrument in writing, including a Memorandum of Lease suitable for recording, necessary to carry out any agreement, term, condition, or assurance in this Lease whenever occasion shall arise and request for such instrument shall be made.

35. Pronouns . All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person(s), firm(s), or corporation(s) may require.

36. Counterparts . This Lease may be executed in counterparts all of which taken together shall be deemed one original.

37. Amendment and Modification . This Lease embodies the full agreement of the parties and supersedes any and all prior understandings or commitments concerning the subject matter of this Lease. Any modification or amendment must be in writing and signed by both parties.

38. Binding Effect . This Lease shall be binding upon and inure to the benefit of the parties hereto, their assigns, administrators, successors, estates, heirs and legatees respectively, except as herein provided to the contrary.

39. Controlling Law . This Lease and the rights of the Landlord and Tenant hereunder shall be construed and enforced in accordance with the laws of the State of South Carolina.

40. Broker Warranties . Meyer Kapp & Associates, LLC is acting as the Landlord’s broker. Charles Lane of Holcombe Fair & Lane is acting as the Tenant’s broker. Landlord shall be responsible for payment of broker commissions, which shall be split equally between both brokers.

41. Partial Invalidity . In the event that any part or provision of this Lease shall be determined to be invalid or unenforceable, the remaining parts and provisions of said Lease, which can be separated from the Invalid, unenforceable provision shall continue in full force and effect.

42. Captions . The table of contents, paragraph and marginal titles, numbers and captions contained in this Lease are inserted only as a matter of convenience and for reference, and in no way define, extend, modify, or describe the scope or intent of this Lease nor any provision herein.

43. Lease Not An Offer . Landlord has given this Lease to Tenant for review. It is not an offer to lease. This Lease shall not be binding unless signed by both parties.

44. Hazardous Substances . Tenant shall not cause or permit any Hazardous Substance to be used, stored, generated or disposed of on or in the Premises by Tenant, Tenant’s agents, employees, contractors, or invitees, other than customary cleaning solvents, without first obtaining Landlord’s written consent. If Hazardous Substances are used, stored, generated or disposed of on or in the Premises whether with or without Landlord’s consent or if the Premises become contaminated in any manner for which Tenant is legally liable, Tenant shall indemnify and hold harmless the Landlord from any and all claims, damages, fines judgments, penalties, costs, liabilities or losses (including, without limitation, a decrease in value of the Premises or Building, damages due to loss or restriction of rentable or usable space, or any damages due to adverse impact on marketing of the space, and any and all sums paid for settlement of claims, attorney’s fees, consultant and expert fees) arising during or after the Lease Term and arising as a result of such use, storage, generating, disposal, or contamination by Tenant. This indemnification includes, without limitation, any and all costs incurred due to any investigation of the site or any cleanup, removal or restoration mandated by a federal, state or local agency or political subdivision. Without limitation of the foregoing, if Tenant causes or permits the presence of any Hazardous Substance on the Premises and such results in contamination, Tenant shall promptly, at its sole expense, take any and all necessary actions to return the Premises to the condition existing prior to the presence of any such Hazardous Substance on the Premises. Tenant shall first obtain Landlord’s approval for any such remedial action. As used herein, “Hazardous Substance” means any substance which is toxic, ignitable, reactive, or corrosive and which is regulated by any local government, the State of South Carolina, or the United States government. “Hazardous Substance” includes any and all material or substances which are defined as “hazardous waste”, “extremely hazardous waste” or a “hazardous substance” pursuant to state, federal or local law. “Hazardous Substance” includes but is not restricted to asbestos, polychlorobiphenyls (“PCB’s”) and petroleum.

45. Security Deposit . The Landlord hereby waives any Security Deposit.

46. Documents To Be Deposited With Landlord . On or before the Rent Commencement Date, Tenant shall deposit with Landlord its required HVAC Maintenance Contract, Pest Control Contract, and Insurance Policies.

47. Consent Not Unreasonably Withheld . When either party hereunder is required to give its consent to the other party prior to such other party doing or refraining from doing some act hereunder, it shall be deemed agreed that the party whose consent is required shall not unreasonably withhold or delay such consent, unless it is specifically stated that the party whose consent is required may withhold such consent is its sole discretion, or words of similar import.

Rights Reserved by Landlord . Notwithstanding any other provision of this Lese, Landlord shall at all times have the right to (a) grant to any tenant an exclusive use to conduct a particular type of business in the Building, excepting a bank, credit union or savings and loan association, (b) change the name or address of the Building, (c) to install and maintain signs on the exterior or interior of the Building, (d) to retain pass keys to all locks within or into the Premises, (e) to make any alterations, additions or improvements to the Building as Landlord

may deem in its sole discretion necessary for the safety, protection, preservation, or improvement of the Building or Premises , and to change the arrangement and/or location of entrances, passageways, doors, corridor, elevators, stairs, toilets and public parts of the Building, so long as Tenant’s use of the Premises is not adversely affected. Additionally, the Exhibits to the Lease may not be materially revised without written consent from both Landlord and Tenant. Prior to the Rent Commencement Date, Landlord may revise the Exhibits for planning or construction purposes if necessary, provided such revisions are immaterial in nature and are approved by Tenant, which approval shall not be unreasonably withheld.

49. Financial Information . Tenant acknowledges that the financial capability of Tenant to perform its obligations hereunder is material to Landlord and that Landlord would not enter into this Lease but for its belief, based on its review of Tenant’s financial statements that Tenant is capable of performing such financial obligations. Tenant hereby represents, warrants and certifies to Landlord that its financial statements previously furnished to Landlord were at the time given true and correct in all material respects and that there have been no material subsequent changes thereto as of the date of this Lease.

50. Estoppel Certificates . Tenant shall execute, acknowledge and deliver to Landlord, from time to time during the Lease Term with ten (10) days after Landlord provides Tenant with written notice to do so, an estoppel certificate certifying in writing that the Lease is in full force and effect, unmodified, or modified solely as set forth in such estoppel certificate including confirmation of the Rent Commencement date and the Initial Termination Date, the date or dates to which rent has been paid and that Landlord has, as of the date of such estoppel certificate, fully and completely performed and complied with each of the terms and conditions of this Lease, without exception or except as only set forth in such estoppel certificate. Any such estoppel certificate may be conclusively relied upon by any prospective purchaser of encumbrance of the Building. The failure of Tenant to so deliver such estoppel certificate in such period of time shall mean that the Lease is in full force and effect, without modification, that the rent has not been prepaid under the Lease except as expressly required in the Lease and the Landlord has, as of the date on which Tenant failed to deliver such estoppel certificate, fully and completely performed and complied with each of these terms and conditions, without exception. Landlord agrees to deliver a similar Estoppel Certificate upon the reasonable request of Tenant.

51. Expansion Options . After the Landlord has fully leased the Building, thereafter subject to any prior Tenant rights, Tenant shall have the ongoing Right of First Refusal (“ROFR”) on all space within the Building (the “Expansion Premises”) at the same terms and conditions as this Lease so long as at least thirty-six (36) months of the Lease Term remains. If less than thirty-six (36) months remain, then, unless an option to extend is exercised by Tenant, the expansion shall be at a market Rental Rate or the new length of the lease term shall be added to the original lease. Tenant shall have three (3) business days to accept the ROFR. Landlord will send a ROFR letter to Tenant upon receiving a RFP from a prospect to Landlord, or a submission of a proposal from Landlord to a prospect.

52. Exclusive Use Rights . The Landlord covenants and agrees with the Tenant that, for a period from the Rent Commencement Date through the earlier to occur of: (a) the termination of the Lease; (b) if Tenant vacates the Premises and ceases operation of its banking

business on the Premises for a period of more than six (6) months for a reason other than a casualty or a regulatory-related closure; or (c) the date that is twenty (20) years after the Rent Commencement Date plus the terms of any exercised options to extent, except for Tenant’s use, the Building shall not be used as a commercial bank branch, savings bank, saving and loan association, trust company, credit union, mortgage loan production office, automated teller machine or such other use offering the same or similar financial services (collectively, “Financial Institution”). Notwithstanding the above, the term “Financial Institution” shall not include certain ancillary uses associated with financial institutions, including security brokerage, insurance, estate planning, asset management, tax planning, or financial planning businesses. The purpose of this exclusion is to allow for Tenant to enjoy the exclusive use of the Premises as a commercial bank branch, savings bank, saving and loan association, trust company, credit union, mortgage loan production office, automated teller machine, or such other use offering the same or similar financial services, but not to limit Landlord’s ability to lease the Premises to certain ancillary uses.

[ signatures on following page ]

IN WITNESS WHEREOF, the undersigned have caused these presents to be executed under seal as of the day and year first above written.


WITNESSES:		LANDLORD:

		SUNSET SOUTHSTAR, LLC

		By:
		Name:		E. Blanton Hamilton Jr.
		Its:		Manager


		TENANT:

		THE BANK OF SOUTH CAROLINA

		By:
		Name:		Eugene H. Walpole, IV
		Its:		CFO

EXHIBIT A
The Premises

[ see attached ]

(MAP)

EXHIBIT B
Conceptual Site Plan

[ see attached ]

(MAP)

EXHIBIT C
Landlord’s Work

Design Drawings

Within ninety (90) days of the Effective Date of the Lease, Landlord shall provide Tenant and Tenant’s architect with initial CAD construction drawings for Tenant’s review, revisions/additions to the interior specifics of the plans and additional comments. If Tenant reasonably objects to Landlord Construction Documents, Tenant must notify Landlord, including specific suggestions which would make the objectionable items acceptable to Tenant, within ten (10) days after Tenant’s receipt of Landlord Construction Documents. Otherwise, Landlord Construction Documents will be considered to be approved by Tenant. Within ten (10) days after receipt of such objections, Landlord will make such revisions therein as necessary to overcome Tenant’s reasonable objections.

Promptly following Tenant’s notice to Landlord of Tenant’s approval of Landlord Construction Documents, Landlord will apply for and use good faith efforts to obtain such building permits and other approvals from governmental authorities as are necessary to enable Landlord to commence construction of Landlord’s Work (as specified in Landlord Construction Documents). Landlord will be responsible for all so-called “impact” and similar fees and charges, no matter how designated.

Landlord Site Work Responsibilities

All site work and infrastructure required for occupying the Building, including: Parking lot, off- site road improvements, curb and gutter, utilities, driveways, storm water detention, parking lot lighting and landscaping.

Building Delivery Condition . Landlord, at Landlord’s sole cost, shall complete the following as part of the Building Shell Improvements:

The roof, foundations, exterior walls, window systems and concrete floor slabs on all floors. All structural parts of the Building will be delivered by the Landlord.

Landlord shall provide a concrete slab finished in accordance with Project plans, including extra concrete necessary for a vault. Actual pouring of the subfloor may take part during the Tenant Improvements as to avoid saw cutting.

Landlord shall provide HVAC, mechanical equipment and primary distribution throughout the Premises according to Base Building and mechanical drawings. Final air distribution duct and diffusers shall be furnished and installed by Tenant. Tenant’s HVAC engineer is responsible to verify capacity of supply and exhaust and is responsible for coordinating “as-built” locations of all Base Building mechanical work. Tenant is responsible for the costs to modify the mechanical system to accommodate Tenant’s specific design.

One (1) variable air volume (VAV) air conditioning box installed per every 850 usable square feet. In the event that Tenant’ design require more than one (1) VAV box per 850 usable square feet, additional boxes will be charged to the Tenant Improvement Allowance.

Building standard fire sprinkler system (in accordance with applicable code requirements, NFPA 13 – light hazard), with heads turned up. Tenant is responsible for the costs to modify the sprinkler system to accommodate Tenant’s specific design.

Building perimeter walls will be framed and insulated so as to allow for electrical and voice/data installation. Interior columns are not framed. Tenant will be responsible for installing perimeter drywall. Landlord agrees to reimburse Tenant for the material cost of the perimeter drywall upon Tenant providing proof of installation and providing invoice for such work. Cost of drywall shall be at a total “not to exceed” cost which shall be agreed upon by parties in the Lease.

Four foot by four foot (4’ x 4’) suspended ceiling grid installed. Two-foot and four-foot “Ts” for completion of ceiling grid purchased and inventoried on the floor. Cost of installment of “Ts” shall be at the cost of the Tenant.

Two foot by two foot (2’ x 2’) regular ceiling tiles for entire ceiling area purchased and inventoried on the floor. Installation of the ceiling tiles shall be at the cost of the Tenant.

One (1) deep 24-cell two foot by four foot (2’ x 4’) parabolic light per every eighty (80) usable square feet, purchased and inventoried on the floor.

10.

Landlord shall provide electric power at the electrical rooms or separate panel for Tenant connection of electrical power distribution at the rate of five (5) watts per usable square foot.

11.

Landlord will provide four (4) 20-amp circuits for Tenant plus four (4) additional circuits for every 1,000 usable square feet leased by Tenant.

12.

Landlord shall provide plumbing vent, waste and domestic cold water connection points to be shown on the Base Building drawings stubbed to the appropriate locations as per Tenant’s plans for use in in-Premises restrooms, break rooms, and other Tenant Upfit requirements.

13.

A 4’ x 8’ sheet of plywood for telephone connections to main riser system provided in the Building phone room on each floor.

14.

ADA requirements required by local building code and law with respect to the exterior of the Building and required as part of the Base Building permitting process.

15.

Finishes, exit signs, and fire extinguishers shall be provided by Landlord to meet all applicable City and State codes in mechanical, electrical, and telephone equipment and core areas.

16.

Landlord will finish and deliver the ground floor elevator lobby and ground floor common corridors as part of the Building Shell Improvements.

17.

Landlord will provide full CADD files for the Premises to Tenant for review and coordination with Tenant’s design team.

18.

Teller lane(s) infrastructure including to-be-designed canopy, appropriate vehicular stacking lanes, require vision glass for teller interaction with customers. Tenant will be responsible for all Teller mechanical and electronic infrastructure including pneumatic tube delivery systems.

EXHIBIT D
Rentable Square Feet Certification

To be provided upon completion of construction

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:

I have reviewed this quarterly report on Form 10-Q of the Bank of South Carolina Corporation;

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;

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.

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;

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;

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

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; and

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):

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

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 10, 2017

	/s/Fleetwood S. Hassell
	Fleetwood S. Hassell
	President/Chief Executive Officer

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:

I have reviewed this quarterly report on Form 10-Q of the Bank of South Carolina Corporation;

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;

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 10, 2017

	/s/Eugene H. Walpole, IV
	Eugene H. Walpole, IV
	Chief Financial Officer/
	Senior Vice President

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:

the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2017 (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

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 10, 2017

	By:	/s/Fleetwood S. Hassell
		Fleetwood S. Hassell
		President/Chief Executive Officer

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/Senior 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:

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 10, 2017

	By:	/s/Eugene H. Walpole, IV
		Eugene H. Walpole, IV
		Chief Financial Officer/
		Senior Vice President