Bank of South Carolina Corporation

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2008


o		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 small business issuer as specified in its charter)


South Carolina		57-1021355

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

256 Meeting Street, Charleston, SC 29401

(Address of principal executive offices)

(843) 724-1500

(Issuer’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 þ No o

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


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

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

As of September 30, 2008 there were 3,976,095 Common Shares outstanding.

PART I

ITEM 1 — FINANCIAL STATEMENTS

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS


	(Unaudited)			(Audited)
	September 30, 2008			December 31, 2007
Assets:
Cash and due from banks	$	10,058,797		$	9,716,533
Interest bearing deposits in other banks		8,188			8,109
Federal funds sold		9,348,095			18,357,674
Investment securities available for sale		36,817,817			35,840,019
Mortgage loans to be sold		2,646,288			1,981,018
Loans		173,971,682			156,348,017
Allowance for loan losses		(1,365,761	)		(1,335,099	)

Net loans		172,605,921			155,012,918

Premises and equipment, net		2,459,638			2,619,608
Accrued interest receivable		1,029,910			1,383,598
Other assets		294,744			237,613

Total assets	$	235,269,398		$	225,157,090


Liabilities and Shareholders’ Equity:
Deposits:
Non-interest bearing demand	$	55,896,220		$	58,390,190
Interest bearing demand		46,750,818			45,977,954
Money market accounts		56,906,162			45,677,850
Certificates of deposit $100,000 and over		22,562,427			22,122,593
Other time deposits		15,863,140			15,448,046
Other savings deposits		8,863,589			9,729,825

Total deposits		206,842,356			197,346,458

Short-term borrowings		923,272			927,873
Accrued interest payable and other liabilities		1,233,083			1,190,189

Total liabilities		208,998,711			199,464,520

Common Stock — No par value; 12,000,000 shares authorized; issued 4,175,596 shares at September 30, 2008 and 4,153,485 shares at December 31, 2007. Shares outstanding 3,976,095 shares at September 30, 2008 and 3,953,984 shares at December 31, 2007		—			—
Additional paid in capital		23,212,601			22,978,812
Retained earnings		4,227,559			3,976,706
Treasury stock — 199,501 shares at September 30, 2008 and December 31, 2007		(1,692,964	)		(1,692,964	)
Accumulated other comprehensive income, net of income taxes		523,491			430,016


Total shareholders’ equity		26,270,687			25,692,570


Total liabilities and shareholders’ equity	$	235,269,398		$	225,157,090

See accompanying notes to consolidated financial statements

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended
	September 30,
	2008			2007
Interest and fee income
Interest and fees on loans	$	2,518,085		$	3,392,660
Interest and dividends on investment securities		423,520			431,654
Other interest income		62,900			234,552

Total interest and fee income		3,004,505			4,058,866


Interest expense
Interest on deposits		356,618			1,240,416
Interest on short-term borrowings		1,948			10,884

Total interest expense		358,566			1,251,300


Net interest income		2,645,939			2,807,566
Provision for loan losses		85,000			—

Net interest income after provision for loan losses		2,560,939			2,807,566


Other income
Service charges, fees and commissions		236,758			215,434
Mortgage banking income		83,487			119,249
(Loss) gain on sale of securities		(238	)		69,792
Other non-interest income		8,026			5,717

Total other income		328,033			410,192


Other expense
Salaries and employee benefits		1,046,365			1,041,799
Net occupancy expense		336,117			354,066
Other operating expenses		412,371			382,729

Total other expense		1,794,853			1,778,594


Income before income tax expense		1,094,119			1,439,164
Income tax expense		382,047			498,603

Net income	$	712,072		$	940,561


Basic earnings per share	$	0.18		$	0.24

Diluted earnings per share	$	0.18		$	0.24


Weighted average shares outstanding
Basic		3,975,252			3,949,447

Diluted		3,981,056			3,976,459

See accompanying notes to consolidated financial statements

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Nine months Ended
	September 30,
	2008			2007
Interest and fee income
Interest and fees on loans	$	7,795,453		$	10,455,189
Interest and dividends on investment securities		1,213,229			1,404,278
Other interest income		298,801			717,024

Total interest and fee income		9,307,483			12,576,491


Interest expense
Interest on deposits		1,532,122			3,900,225
Interest on short-term borrowings		8,647			30,000

Total interest expense		1,540,769			3,930,225


Net interest income		7,766,714			8,646,266
Provision for loan losses		115,000			40,000

Net interest income after provision for loan losses		7,651,714			8,606,266


Other income
Service charges, fees and commissions		715,614			643,747
Mortgage banking income		363,807			434,654
(Loss) gain on sale of securities		(238	)		69,792
Other non-interest income		20,235			19,511

Total other income		1,099,418			1,167,704


Other expense
Salaries and employee benefits		3,132,348			3,128,343
Net occupancy expense		1,022,959			998,244
Other operating expenses		1,262,439			1,144,538

Total other expense		5,417,746			5,271,125


Income before income tax expense		3,333,386			4,502,845
Income tax expense		1,177,951			1,565,507

Net income	$	2,155,435		$	2,937,338


Basic earnings per share	$	0.54		$	0.75

Diluted earnings per share	$	0.54		$	0.74


Weighted average shares outstanding
Basic		3,962,817			3,939,420

Diluted		3,972,475			3,969,668

See accompanying notes to consolidated financial statements

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (UNAUDITED)

FOR NINE MONTHS SEPTEMBER 30, 2008 AND 2007


											Accumulated Other
	Common		Additional		Retained			Treasury			Comprehensive
	Stock		Paid In Capital		Earnings			Stock			Income		Total
December 31, 2006	$	—	$	22,719,918	$	2,592,719		$	(1,692,964	)	$	20,758	$	23,640,431

Comprehensive income:

Net income		—		—		2,937,338			—			—		2,937,338

Net unrealized gain on securities (net of tax expense of $69,996)		—		—		—			—			97,474		97,474


Comprehensive income		—		—		—			—			—		3,034,812


Exercise of stock options		—		213,678		—			—			—		213,678

Stock-based compensation expense		—		33,702		—			—			—		33,702

Cash dividends ($0.46 per common share)		—		—		(1,814,619	)		—			—		(1,814,619	)


September 30, 2007	$	—	$	22,967,298	$	3,715,438		$	(1,692,964	)	$	118,232	$	25,108,004


December 31, 2007	$	—	$	22,978,812	$	3,976,706		$	(1,692,964	)	$	430,016	$	25,692,570

Comprehensive income:

Net income		—		—		2,155,435			—			—		2,155,435

Net unrealized gain on securities (net of tax expense of $54,898)		—		—		—			—			93,475		93,475


														—
Total comprehensive income		—		—		—			—			—		2,248,910


Exercise of stock options		—		198,333		—			—			—		198,333

Stock-based compensation expense		—		35,456		—			—			—		35,456

Cash dividends ($0.48 per common share)		—		—		(1,904,582	)		—			—		(1,904,582	)


September 30, 2008	$	—	$	23,212,601	$	4,227,559		$	(1,692,964	)	$	523,491	$	26,270,687

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine months Ended September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	2,155,435		$	2,937,338
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		195,152			194,090
Loss (gain) on sale of securities		238			(69,792	)
Provision for loan losses		115,000			40,000
Stock-based compensation expense		35,456			33,702
Net accretion of unearned discounts on investments		(18,782	)		(64,613	)
Origination of mortgage loans held for sale		(29,541,199	)		(42,304,772	)
Proceeds from sale of mortgage loans held for sale		28,875,929			45,253,682
Decrease in accrued interest receivable and other assets		241,659			207,403
Increase (decrease) in accrued interest payable and other liabilities		39,356			(191,557	)


Net cash provided by operating activities		2,098,244			6,035,481


Cash flows from investing activities:
Purchase of investment securities available for sale		(5,785,881	)		(3,347,371	)
Maturities and sales of investment securities available for sale		4,975,000			12,315,000
Net (increase) decrease in loans		(17,708,003	)		3,226,770
Purchase of premises and equipment		(35,182	)		(217,798	)

Net cash (used) provided by investing activities		(18,554,066	)		11,976,601


Cash flows from financing activities:
Net increase (decrease) in deposit accounts		9,495,898			(20,155,580	)
Net (decrease) increase in short-term borrowings		(4,601	)		4,400
Dividends paid		(1,901,044	)		(2,125,178	)
Stock options exercised		198,333			213,678

Net cash provided (used) by financing activities		7,788,586			(22,062,680	)


Net decrease in cash and cash equivalents		(8,667,236	)		(4,050,598	)
Cash and cash equivalents, beginning of period		28,082,316			36,613,268


Cash and cash equivalents, end of period	$	19,415,080		$	32,562,670


Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest	$	1,729,669		$	4,028,144

Income taxes	$	1,063,747		$	1,549,825


Supplemental disclosure for non-cash investing and financing activity:
Change in dividends payable	$	3,538		$	(310,560	)


Change in unrealized gain on available for sale securities	$	93,475		$	97,474

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2008

NOTE 1: Basis of Presentation

The Bank of South Carolina (the “Bank”) began operations on February 26, 1987 as a state chartered bank and later became a subsidiary of Bank of South Carolina Corporation (the “Company”) a South Carolina corporation, in a reorganization effective on April 17, 1995. The Bank currently has four locations, two in Charleston, South Carolina, one in Summerville, South Carolina and one in Mt. Pleasant, South Carolina. The consolidated financial statements in this report are unaudited, except for the December 31, 2007 consolidated balance sheet. All adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for fair presentation of the interim consolidated financial statements have been included and fairly and accurately present the financial position, results of operations and cash flows of the Company. The results of operations for the three and nine months ended September 30, 2008, are not necessarily indicative of the results which may be expected for the entire year.

The preparation of the consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America (GAAP) which 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 at the date of the financial statements. In addition, they affect the reported amounts of income and expense during the reporting period. Actual results could differ from these estimates and assumptions.

NOTE 2: Investment Securities

The Company accounts for its investment securities in accordance with Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. Investment securities are classified as “Held to Maturity”, “Trading” and “Available for Sale”. Currently the Company has only investments classified as “Available for Sale”. These securities are carried at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity (net of estimated tax effects). Unrealized losses on securities due to fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has occurred. Realized gains or losses on the sale of investments are based on the specific identification method, trade date basis.

NOTE 3: Stock Based Compensation

The Company has an Incentive Stock Option Plan which was approved in 1998. Under the 1998 Incentive Stock Option Plan, options are periodically granted to employees at a price not less than the fair market value of the shares at the date of the grant. There were options for 4,500 shares granted under the 1998 Incentive Stock Option Plan during the nine months ended September 30, 2008 and 10,000 shares granted during the nine months ended September 30, 2007. Fair values were estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for the 2008 grant: dividend yield of 3.94%; historical volatility of 32.01%; risk-free interest rate of 3.34%; and expected life of the options of 10 years. The following assumptions were used for the 10,000 shares granted in 2007: dividend yield of 2.75%; historical volatility of 25.68%; risk-free interest rate of 4.70% for 5,000 shares granted in January and 5.16% for 5,000 shares granted in September. For purposes of the calculation, compensation expense is recognized on a straight-line basis over the vesting period.

At September 30, 2008, 38,541 shares of common stock were reserved to be granted under the 1998 Incentive Stock Option Plan from the original 272,250 shares.

The following is a summary of the activity under the Incentive Stock Option Plan for the three and nine months ending September 30, 2008.


Three Months Ended September 30, 2008	Options			Weighted Average Exercise Price
Balance at July 1, 2008		118,443		$	11.02
Granted		—			—
Exercised		(1,331	)		8.92
Exercised		(1,210	)		9.39
Cancelled		(7,500	)		16.62
Cancelled		(2,500	)		14.19

Balance at September 30, 2008		105,902		$	10.98


Nine Months Ended September 30, 2008	Options			Weighted Average Exercise Price
Balance at January 1, 2008		136,763		$	11.05
Granted		4,500			14.19
Exercised		(19,764	)		8.92
Exercised		(2,347	)		9.39
Cancelled		(10,750	)		16.62
Cancelled		(2,500	)		14.19

Balance at September 30, 2008		105,902		$	10.98


Options exercisable at September 30, 2008		10,640		$	8.92
		827		$	9.39

The following is a summary of the activity under the Incentive Stock Option Plan for the three and nine months ending September 30, 2007.


Three Months Ended September 30, 2007	Options			Weighted Average Exercise Price
Balance at July 1, 2007		145,840		$	11.12
Granted		—			—
Exercised		(5,025	)		8.92
Cancelled		(3,250	)		16.20

Balance at September 30, 2007		137,565		$	11.07


Nine months Ended September 30, 2007	Options			Weighted Average Exercise Price
Balance at January 1, 2007		160,094		$	10.49
Granted		5,000			15.99
Granted		5,000			15.51
Exercised		(23,955	)		8.92
Cancelled		(5,324	)		8.92
Cancelled		(3,250	)		16.20

Balance at September 30, 2007		137,565		$	11.07


Options exercisable at September 30, 2007		3,684		$	8.92

The Company established an Employee Stock Ownership Plan (ESOP) effective January 1, 1989. An amendment and restatement was made to the Employee Stock ownership plan effective January 1, 2007, approved by the Board of Directors January 18, 2007. An employee of the Bank is eligible to become a participant in the ESOP upon reaching 21 years of age and credited with one year of service (1,000 hours of service). The employee may enter the plan on the January 1^st that occurs nearest the date on which the employee first satisfies the age and service requirements described above. No contributions by employees are permitted. The amount and time of contributions are at the sole discretion of the Board of Directors of the Bank. The contribution for all participants is based solely on each participant’s respective regular or base salary and wages paid by the Bank including commissions, bonuses and overtime, if any.

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


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

NOTE 4: Shareholders’ Equity

A regular quarterly cash dividend of $.16 per share was declared on September 18, 2008 for shareholders of record at October 1, 2008, payable October 31, 2008. Income per common share for the three and nine months ended September 30, 2008 and for the three and nine months ended September 30, 2007 were calculated as follows:


	FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008
	INCOME		SHARES		PER SHARE
	(NUMERATOR)		(DENOMINATOR)		AMOUNT
Net income	$	712,072


Basic income available to common shareholders	$	712,072		3,975,252	$	.18


Effect of dilutive options				5,804


Diluted income available to common shareholders	$	712,072		3,981,056	$	.18


	FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
	INCOME		SHARES		PER SHARE
	(NUMERATOR)		(DENOMINATOR)		AMOUNT
Net income	$	2,155,435


Basic income available to common shareholders	$	2,155,435		3,962,817	$	.54


Effect of dilutive options				9,658


Diluted income available to common shareholders	$	2,155,435		3,972,475	$	.54


	FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007
	INCOME		SHARES		PER SHARE
	(NUMERATOR)		(DENOMINATOR)		AMOUNT
Net income	$	940,561


Basic income available to common shareholders	$	940,561		3,949,447	$	.24


Effect of dilutive options				27,012


Diluted income available to common shareholders	$	940,561		3,976,459	$	.24


	FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
	INCOME		SHARES		PER SHARE
	(NUMERATOR)		(DENOMINATOR)		AMOUNT
Net income	$	2,937,338


Basic income available to common shareholders	$	2,937,338		3,939,420	$	.75


Effect of dilutive options				30,248


Diluted income available to common shareholders	$	2,937,338		3,969,668	$	.74

NOTE 5: Comprehensive Income

The Company applies the provisions of SFAS No. 130, Reporting Comprehensive Income, which establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income consists of net income and net unrealized gains or losses on securities and is presented in the consolidated statements of shareholders’ equity and comprehensive income.

Total comprehensive income is $814,067 and $1,329,624, respectively for the three months ended September 30, 2008 and 2007, and $2,248,910 and $3,034,812 respectively for the nine months ended September 30, 2008 and 2007.

NOTE 6: Fair Value Measurements

Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. SFAS 157 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans).

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:


Level 1		Quoted prices in active markets for identical assets and liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury Securities.

Level 2		Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts and impaired loans.

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts.

Assets and liabilities measured at fair value on a recurring basis at September 30, 2008 are as follows:


			Significant
	Quoted Market		Other		Significant
	Price in active		Observable		Unobservable
	markets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Available for Sale Securities	$	3,145,312	$	33,672,505	$	—
Mortgage loans held for sale		—		2,646,288		—

Total	$	3,145,312	$	36,318,793	$	—

The Company has no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

The Company is predominantly a cash flow lender with real estate serving as collateral on a majority of loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be level 2 inputs. The aggregate carrying amount of impaired loans at September 30, 2008 was $64,416.

FASB Staff Position No. FAS 157-2 delays the implementation of SFAS 157 until the first quarter of 2009 with respect to goodwill, other intangible assets, real estate and other assets acquired through foreclosure and other non-financial assets measured at fair value.

The Company has no assets or liabilities whose fair values are measured using level 3 inputs.

NOTE 7: Recently Issued Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS 141(R)”) which replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141(R) is effective for acquisitions by the Company taking place on or after January 1, 2009. Early adoption is prohibited. Accordingly, a calendar year-end company is required to record and disclose business combinations following existing accounting guidance until January 1, 2009. The Company will assess the impact of SFAS 141(R) if and when a future acquisition occurs.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Before this statement, limited guidance existed for reporting noncontrolling interests (minority interest). As a result, diversity in practice exists. In some cases minority interest is reported as a liability and in others it is reported in the mezzanine section between liabilities and equity. Specifically, SFAS 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interests. SFAS 160 is effective for the Company on January 1, 2009. Earlier adoption is prohibited. The Company is currently evaluating the impact, if any, the adoption of SFAS 160 will have on its financial position, results of operations and cash flows.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improving the transparency of financial reporting. It is intended to enhance the current disclosure framework in SFAS 133 by requiring that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. This disclosure better conveys the purpose of derivative use in terms of the risks that the entity is intending to manage. SFAS 161 is effective for the Company on January 1, 2009. This pronouncement does not impact accounting measurements but will result in additional disclosures if the Company is involved in material derivative and hedging activities at that time.

In February 2008, the FASB issued FASB Staff Position No. 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP 140-3”). This FSP provides guidance on accounting for a transfer of a financial asset and the transferor’s repurchase financing of the asset. This FSP presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under SFAS No. 140. However, if certain criteria are met, the initial transfer and repurchase financing are not evaluated as a linked transaction and are evaluated separately under Statement 140. FSP 140-3 will be effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years and earlier application is not permitted. Accordingly, this FSP is effective for the Company on January 1, 2009. The Company is currently evaluating the impact, if any, the adoption of FSP 140-3 will have on its financial position, results of operations and cash flows.

In April 2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), “Business Combinations,” and other U.S. generally accepted accounting principles. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and early adoption is prohibited. Accordingly, this FSP is effective for the Company on January 1, 2009. The Company does not believe the adoption of FSP 142-3 will have a material impact on its financial position, results of operations or cash flows.

In May, 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The FASB has stated that it does not expect SFAS No. 162 will result in a change in current practice. The application of SFAS No. 162 will have no effect on the Company’s financial position, results of operations or cash flows.

The FASB issued FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” (“FSP No. APB 14-1”). The Staff Position specifies that issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP No. APB 14-1 provides guidance for initial and subsequent measurement as well as derecognition provisions. The Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. The adoption of this Staff Position will have no material effect on the Company’s financial position, results of operations or cash flows.

In June, 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities,” (“FSP EITF 03-6-1”). The Staff Position provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and must be included in the earnings per share computation. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period earnings per share data presented must be adjusted retrospectively. Early application is not permitted. The adoption of this Staff Position will have no material effect on the Company’s financial position, results of operations or cash flows.

FSP SFAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161,” (“FSP SFAS 133-1 and FIN 45-4”) was issued September 2008, effective for reporting periods (annual or interim) ending after November 15, 2008. FSP SFAS 133-1 and FIN 45-4 amends SFAS 133 to require the seller of credit derivatives to disclose the nature of the credit derivative, the maximum potential amount of future payments, fair value of the derivative, and the nature of any recourse provisions. Disclosures must be made for entire hybrid instruments that have embedded credit derivatives.

The staff position also amends FIN 45 to require disclosure of the current status of the payment/per-formance risk of the credit derivative guarantee. If an entity utilizes internal groupings as a basis for the risk, how the groupings are determined must be disclosed as well as how the risk is managed.

The staff position encourages that the amendments be applied in periods earlier than the effective date to facilitate comparisons at initial adoption. After initial adoption, comparative disclosures are required only for subsequent periods.

FSP SFAS 133-1 and FIN 45-4 clarifies the effective date of SFAS 161 such that required disclosures should be provided for any reporting period (annual or quarterly interim) beginning after November 15, 2008. The adoption of this Staff Position will have no material effect on the Company’s financial position, results of operations or cash flows.

The SEC’s Office of the Chief Accountant and the staff of the FASB issued press release 2008-234 on September 30, 2008 (“Press Release”) to provide clarifications on fair value accounting. The press release includes guidance on the use of management’s internal assumptions and the use of “market” quotes. It also reiterates the factors in SEC Staff Accounting Bulletin (“SAB”) Topic 5M which should be considered when determining other-than-temporary impairment: the length of time and extent to which the market value has been less than cost; financial condition and near-term prospects of the issuer; and the intent and ability of the holder to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value.

On October 10, 2008, the FASB issued FSP SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP SFAS 157-3”). This FSP clarifies the application of SFAS No. 157, “Fair Value Measurements” (see Note 6) in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that asset is not active. The FSP is effective upon issuance, including prior periods for which financial statements have not been issued. For the Company, this FSP is effective for the quarter ended September 30, 2008.

The Company considered the guidance in the Press Release and in FSP SFAS 157-3 when conducting its review for other-than-temporary impairment as of September 30, 2008 and determined that it did not result in a change to its impairment estimation techniques.

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 the Company’s financial position, results of operations or cash flows.

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS

OR PLAN OF OPERATION

Management’s discussion and analysis is included to provide the shareholders with an expanded narrative of the Company’s financial condition, results of operations, liquidity and capital adequacy. This narrative should be reviewed in conjunction with the consolidated financial statements (unaudited) and notes included in this report. Since the primary asset of the Company is its wholly-owned subsidiary, most of the discussion and analysis relates to the Bank.

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of this quarterly report contain certain “forward-looking statements” concerning the future operations of the Bank of South Carolina Corporation. Management desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1996 and is 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. We have used “forward-looking statements” to describe future plans and strategies including our expectations of the Company’s future financial results. The following are cautionary statements. Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. A variety of factors may affect the operations, performance, business strategy and results of the Company including, but not limited to 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 cost of deposits;

	•		Competition in the banking industry and demand for our products and services;

	•		Continued availability of senior management;

	•		Technological changes;

	•		Ability to control expenses;

	•		Changes in compensation;

	•		Risks associated with income taxes including potential for adverse adjustments;

	•		Changes in accounting policies and practices;

	•		Changes in regulatory actions, including the potential for adverse adjustments;

	•		Recently enacted or proposed legislation

	•		Current disarray in the financial service industry

Such forward looking statements speak only as of the date on which such statements are made and shall be deemed to be updated by any future filings made by the Company with the SEC. The Company 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 by the Company with the SEC, in press releases, and in oral and written statements made by or with the approval of the Company, 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 $235.3 million in assets as of September 30, 2008 and net income of $712,072 and $2,155,435, respectively, for the three and nine months ended September 30, 2008. The Company offers a broad range of financial services through its wholly-owned subsidiary, The Bank of South Carolina (the Bank). The Bank is a state-chartered commercial bank which operates principally in the Charleston, Dorchester and Berkeley, counties of South Carolina. The Bank’s original and current concept is to be a full service financial institution specializing in personal service, responsiveness, attention to detail, and long standing relationships.

The following is a discussion of the Company’s financial condition as of September 30, 2008 as compared to December 31, 2007 and the results of operations for the three and nine months ended September 30, 2008 as compared to the three and nine months ended September 30, 2007. The discussion and analysis identifies significant factors that have affected the Company’s financial position and operating results and should be read in conjunction with the financial statements and the related notes included in this report.

The Company derives most of its income from interest on loans and investments (interest bearing assets). The primary source of funding for making these loans and investments is the Company’s deposits (interest bearing liabilities). One of the key measures of the Company’s success is the net interest spread which depends upon the volume and rates associated with interest earning assets and interest bearing liabilities.

There are risks inherent in all loans; therefore, the Company maintains an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. For a detailed discussion on the allowance for loan losses see “Provision for Loan Losses”.

The Company’s results of operations depend not only on the level of its net interest income from loans and investments, but also on its non-interest income and its operating expenses. Net interest income depends upon the volumes, rates and mix associated with interest earning assets and interest bearing liabilities which result in the net interest spread. The Company’s net interest margin for the three and nine months ended September 30, 2008 was 4.81% and 4.81%, respectively, compared to 5.22% and 5.19%, respectively, for the three and nine months ended September 30, 2007. Non-interest income includes fees and other expenses charged to customers. A more detail discussion of interest income, non-interest income and operating expenses follows.

For the nine months ended September 30, 2008, the Bank has paid $1,375,000 to the Corporation for dividend payments. The continuation by the Corporation of payment of a $.16 per share quarterly dividend to its shareholders will be evaluated and a dividend will be paid as justified by the earnings of the Bank.

CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies are discussed in Note 1 to the Consolidated Financial Statements for the year ended December 31, 2007. Of the significant accounting policies, the Company considers its policies regarding the allowance for loan losses to be its most subjective accounting policy due to the significant degree of management judgment. The Company has developed what it believes to be appropriate policies and procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and estimates with respect to its loan portfolio. The Company’s assessments may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations and the discovery of information with respect to borrowers which were not known by management at the time of the issuance of the consolidated financial statements. For additional discussion concerning the Company’s allowance for loan losses and related matters, see “Provision for Loan Losses.”

BALANCE SHEET

LOANS

The Company focuses its lending activities on small and middle market businesses, professionals and individuals in its geographic markets. At September 30, 2008 outstanding loans (less deferred loan fees of $56,189) totaled $173,971,682 which equaled 84.11% of total deposits and 73.95% of total assets. The major components of the loan portfolio were commercial loans and commercial real estate loans totaling 27.19% and 50.70%, respectively of total loans. Substantially all loans were to borrowers located in the Company’s market areas in the counties of Charleston, Dorchester and Berkeley in South Carolina. The breakdown of total loans by type and the respective percentage of total loans are as follows:


	September 30,						December 31,
	2008			2007			2007
Commercial loans	$	47,325,082		$	46,921,743		$	49,168,128
Commercial real estate		88,234,503			75,576,484			76,289,935
Residential mortgage		14,836,405			14,129,725			12,195,078
Consumer loans		5,107,548			4,820,736			5,218,165
Personal banklines		18,233,182			13,154,025			12,805,795
Other		291,151			830,775			719,832

Total		174,027,871			155,443,488			156,396,933

Deferred loan fees (net)		(56,189	)		(52,930	)		(48,916	)
Allowance for loan losses		(1,365,761	)		(1,355,762	)		(1,335,099	)

Loans, net	$	172,605,921		$	154,034,796		$	155,012,918


Percentage of Loans	September 30,						December 31,
	2008			2007			2007
Commercial loans		27.19	%		30.19	%		31.44	%
Commercial real estate		50.70	%		48.62	%		48.78	%
Residential mortgage		8.53	%		9.09	%		7.80	%
Consumer loans		2.93	%		3.11	%		3.33	%
Personal banklines		10.48	%		8.46	%		8.19	%
Other		.17	%		0.53	%		0.46	%

Total		100.00	%		100.00	%		100.00	%

Total loans, not including deferred loan fees, increased $18,584,383 or 11.96% to $174,027,871 at September 30, 2008 from $155,443,488 at September 30, 2007 and increased $17,630,938 or 11.27% from $156,396,933 at December 31, 2007. The increase in loans between September 2007 and September 2008 is primarily due to an increase in commercial real estate loans of $12,658,019 or 16.75% and an increase in personal banklines of $5,079,157 or 38.61%. The increase in loans for the nine months ended September 30, 2008 when compared to December 31, 2007 is primarily due to an increase in commercial real estate loans of $11,944,568 or 15.66% and an increase in personal banklines of $5,427,387 or 42.38%.

INVESTMENT SECURITIES AVAILABLE FOR SALE

The Company uses 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 pledges on public funds. Investments are classified into three categories (1) Held to Maturity (2) Trading and (3) Available for Sale. All securities were classified as Available for Sale for the nine months ended September 30, 2008 and September 30, 2007. Management believes that maintaining its securities in the Available for Sale category provides greater flexibility in the management of the overall investment portfolio. The average yield on investments at September 30, 2008 was 4.39% compared to 4.61% at September 30, 2007. The carrying values of the investments available for sale at September 30, 2008 and 2007 and percentage of each category to total investments are as follows:

INVESTMENT PORTFOLIO


	2008			2007
US Treasury Notes	$	2,959,996		$	2,943,923
Federal Agency Securities		3,000,000			4,001,320
Government-Sponsored Enterprises		18,014,292			17,856,418
Municipal Securities		12,012,592			7,242,769

	$	35,986,880		$	32,044,430


US Treasury Notes		8.22	%		9.19	%
Federal Agency Securities		8.34	%		12.49	%
Government-Sponsored Enterprises		50.06	%		55.72	%
Municipal Securities		33.38	%		22.60	%

		100.00	%		100.00	%

DEPOSITS

Deposits remain the Company’s primary source of funding for loans and investments. Average interest bearing deposits provided funding for 67.17% of average earning assets for the nine months ended September 30, 2008, and 68.89% for the nine months ended September 30, 2007. The Bank 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, and accordingly, the Company has not had to rely on other sources. The breakdown of total deposits by type and the respective percentage of total deposits are as follows:


	September 30,				December 31,
	2008		2007		2007
Non-interest bearing demand	$	55,896,220	$	52,352,299	$	58,390,190
Interest bearing demand	$	46,750,818	$	46,890,183	$	45,977,954
Money market accounts	$	56,906,162	$	51,040,825	$	45,677,850
Certificates of deposit $100,000 and over	$	22,562,427	$	20,387,299	$	22,122,593
Other time deposits	$	15,863,140	$	16,130,035	$	15,448,046
Other savings deposits	$	8,863,589	$	8,360,680	$	9,729,825

Total Deposits	$	206,842,356	$	195,161,321	$	197,346,458


Percentage of Deposits	September 30,						December 31,
	2008			2007			2007
Non-interest bearing demand		27.02	%		26.83	%		29.59	%
Interest bearing demand		22.60	%		24.03	%		23.30	%
Money Market accounts		27.51	%		26.15	%		23.14	%
Certificates of deposit $100,000 and over		10.91	%		10.45	%		11.21	%
Other time deposits		7.67	%		8.26	%		7.83	%
Other savings deposits		4.29	%		4.28	%		4.93	%

Total Deposits		100.00	%		100.00	%		100.00	%

Total deposits increased $11,681,035 or 5.98% to $206,842,356 at September 30, 2008 from $195,161,321 at September 30, 2007 and increased $9,495,898 or 4.81% from $197,346,458 at December 31, 2007. Money market accounts and certificates of deposit $100,000 and over increased 11.49% and 10.67%, respectively, from September 30, 2007 to September 30, 2008. Money market accounts increased 24.58% for the nine months ended September 30, 2008 compared to December 31, 2007.

SHORT-TERM BORROWINGS

The Bank has a demand note through the US Treasury, Tax and Loan system with the Federal Reserve Bank of Richmond. The Bank may borrow up to $1,000,000 under the arrangement at an interest rate set by the Federal Reserve. During the third quarter of 2008, The Bank reduced the arrangement with the Federal Reserve from $2,800,000 to $1,000,000 in order to free up collateral, due to declining balances under the arrangement. The note is secured by Government Sponsored Enterprise Securities with a market value of $1,020,696 at September 30, 2008. The amount outstanding under the note totaled $923,272 and $2,717,083 at September 30, 2008 and 2007, respectively.

Comparison of Three Months Ended September 30, 2008 to Three Months Ended September 30, 2007

Net income decreased $228,489 or 24.29% to $712,072, or basic and diluted earnings per share of $.18 for the three months ended September 30, 2008, from $940,561, or basic and diluted earnings per share of $.24 for the three months ended September 30, 2007.

Net Interest Income

Net interest income, the major component of the Company’s net income, decreased $161,627 or 5.76% to $2,645,939 for the three months ended September 30, 2008, from $2,807,566 for the three months ended September 30, 2007. Total interest and fee income decreased $1,054,361 or 25.98% for the three months ended September 30, 2008, to $3,004,505 from $4,058,866 for the three months ended September 30, 2007. This decrease is due to a decrease in interest and fees on loans and a decrease in interest on federal funds sold. Recent decreases in the Federal Reserve short-term rates and the resulting decrease in the yields generated on earning assets (from variable rate loan repricing and new loans at lower rates) contributed to this decrease. Total interest and fees on loans decreased $874,575 or 25.78% to $2,518,085 for the three months ended September 30, 2008, compared to $3,392,660 for the three months ended September 30, 2007. Interest on federal funds sold decreased $171,652 or 73.18% to $62,900 for the three months ended September 30, 2008 from $234,552 for the three months ended September 30, 2007. As of September 30, 2008 the federal funds target rate, the rate at which banks lend balances at the Federal Reserve to other depository institutions (federal funds sold), was 2.00%. The federal funds target rate at September 30, 2007 was 4.75%.

Average interest earning assets increased from $213.6 million for the three months ended September 30, 2007, to $219.0 million for the three months ended September 30, 2008. The yield on interest earning assets decreased 208 basis points between periods to 5.46% for the three months ended September 30, 2008, compared to 7.54% for the same period in 2007. This decrease is primarily due to a decrease in the yield on average loans of 250 basis points and a decrease of 323 basis points on federal funds sold.

Total interest expense decreased $892,734 or 71.34% to $358,566 for the three months ended September 30, 2008, from $1,251,300 for the three months ended September 30, 2007. The decrease in interest expense is primarily due to a decrease in average cost of deposits. Interest on deposits for the three months ended September 30, 2008, was $356,618 compared to $1,240,416 for the three months ended September 30, 2007, a decrease of $883,798 or 71.25%. Total interest bearing deposits averaged approximately $146.4 million for the three months ended September 30, 2008, as compared to $145.9 million for the three months ended September 30, 2007. The average cost of interest bearing deposits was .97% and 3.37% for the three months ended September 30, 2008 and 2007, respectively, a decrease of 240 basis points.

Provision for Loan Losses

The allowance for loan losses represents management’s estimate of probable losses inherent in the loan portfolio. The adequacy of the allowance for loan losses (the “Allowance”) is reviewed monthly by the Loan Committee and on a quarterly basis by the Board of Directors. For purposes of this analysis, adequacy is defined as a level sufficient to absorb probable losses in the loan portfolio as of the balance sheet date presented. The methodology employed for this analysis was modified in the third quarter of 2007 to conform with regulatory guidance. The new methodology is based on a Reserve Model that is comprised of the three components listed below.

	1)		Specific Reserve analysis for impaired loans based on SFAS 114 “Accounting by Creditors for Impairment of a Loan, an amendment of FASB Statements No. 5 and 15.”

	2)		General reserve analysis applying historical loss rates based on SFAS No 5 “Accounting for Contingencies.”

	3)		Qualitative or environmental factors.

Loans are reviewed for impairment which is measured in accordance with SFAS No. 114 “Accounting by Creditors for Impairment of a Loan, an amendment of FASB Statements No. 5 and 15.” Impaired loans can either be secured or unsecured, not including large groups of smaller balance loans that are collectively evaluated. Impairment is measured by the difference between the loan amount and the present value of the future cash flow discounted at the loan’s effective interest rate, or, alternatively the fair value of the collateral if the loan is collateral dependent. An impaired loan may not represent an expected loss.

A general reserve analysis is performed on individually reviewed loans, but not impaired loans, and excluded individually reviewed impaired loans, based on SFAS No. 5 “Accounting for Contingencies.” Historical losses are segregated into risk-similar groups and a loss ratio is determined for each group over a five year period. The five year average loss ratio by type is then used to calculate the estimated loss based on the current balance of each group.

Qualitative and environmental factors include external risk factors that Management believes are representative of the overall lending environment of the Bank. Management believes that the following factors create a more comprehensive system of controls in which the Bank can monitor the quality of the loan portfolio.

	1)		Portfolio risk

	2)		National and local economic trends and conditions

	3)		Effects of changes in risk selection and underwriting practices

	4)		Experience, ability and depth of lending management staff

	5)		Industry conditions

	6)		Effects of changes in credit concentrations

	7)		Loan and credit administration risk

Portfolio risk includes the levels and trends in delinquencies, impaired loans and changes in the loan rating matrix with a risk factor of .1000%, trends in volume and terms of loans with a risk factor of .05000% and overmargined real estate lending with a risk factor of .2500%.

Management is satisfied with the stability of the past due and non-performing loans and believes there has been no decline in the quality of the loan portfolio due to any trend in delinquent or adversely classified loans. Although the aggregate total of classified loans has increased, management is confident in the adequacy of the sources of repayment. Sizable unsecured principal balances on a non-amortizing basis are monitored.

Management revised the credit rating matrix in order to rate all extensions of credit providing a more specified picture of the risk each loan poses to the quality of the loan portfolio. There are eight possible ratings based on nine different qualifying characteristics. The nine characteristics are: cash flow, collateral quality, guarantor strength, financial condition, management quality, operating performance, the relevancy of the financial statements, historical loan performance and the borrower’s leverage. The matrix is designed to meet management’s standards and expectations of loan quality. In addition to the rating matrix, the Company rates its credit exposure on the basis of each loan and the quality of each borrower.

Occasional extensions of credit occur beyond the policy thresholds of the Company’s normal collateral advance margins for real estate lending. The aggregate of these loans represents 10.70% of the Company’s total loans and 78.90% of capital as of September 30, 2008. These loans are monitored and the balances reported to the Board every quarter. An excessive level of this practice could result in additional examiner scrutiny, competitive disadvantages and potential losses if forced to convert the collateral. The consideration of overmargined real estate loans directly relates to the capacity of the borrower. Management often requests additional collateral to bring the loan to value ratio within the policy guidelines and also require a strong secondary source of repayment in addition to the primary source of repayment.

National and local economic trends and conditions are constantly changing and results in both positive and negative impact on borrowers. Most macroeconomic conditions are not controllable by the Company and are incorporated into the qualitative risk factors. Natural disasters, wars and the recent fallout of the subprime lending market as well as problems in the traditional mortgage market are a few of the trends and conditions that are currently affecting our national and local economy. Management assigned a risk factor of .0625% to the national and local economic trends and conditions.

The quality of the Bank’s loan portfolio is contingent upon our risk selection and underwriting practices. Every credit with over $100,000 in exposure is summarized by the Bank’s Credit Department and reviewed by the Loan Committee on a monthly basis. The Board of Directors review credits over $500,000 and an annual credit analysis is conducted on these borrowers upon the receipt of updated financial information. Prior to any extension of credit, every significant commercial loan goes through sound credit underwriting. The Credit Department conducts detailed cash flow analysis on each proposal using the most current financial information. Relevant trends and ratios are evaluated. The effect of changes in risk selection and underwriting practices has been assigned a risk factor of .0750%.

The Bank has an aggregate of over 250 years of lending management experience among people on its lending staff. In addition to the lending staff the Bank has an Advisory Board for each branch comprised of business and community leaders from the specific branch’s market area. Management meets with these boards quarterly to discuss the trends and conditions in each respective market. A risk factor of .0750% has been assigned to the experience, ability and depth of lending management and staff.

In recent years there has been an influx of new banks within the Company’s geographic area. This increase has decreased the local industry’s overall margins as a result of pricing competition. Management believes that the borrowing base of the Bank is well established and therefore unsound price competition is not necessary. A risk factor of .0750% was added to the model for industry conditions.

The risks associated with the effects of changes in credit concentration include loan concentration with a risk factor of .0600%, geographic concentration with a risk factor of .0625% and regulatory concentration of .0625%.

As of September 30, 2008, there were only four Standard Industrial Code groups that comprised more than three percent of the Bank’s total outstanding loans. The four groups are non-residential building operators, offices and clinics of doctors, real-estate agents and managers and legal services.

The Company is located along the coast and on an earthquake fault, increasing the chances that a natural disaster may impact the Bank and its borrowers. The Company has a Disaster Recovery Plan in place; however, the amount of time it would take for our customers to return to normal operations is unknown.

Loan and credit administration risk includes collateral documentation with a risk factor of .0550%, insurance risk with a risk factor of .0750% and maintaining financial information risk with a risk factor of .0575%

The majority of the Bank’s loan portfolio is collateralized with a variety of its borrowers assets. The execution and monitoring of the documentation to properly secure the loan lies with the Bank’s lenders and Loan Department. The Bank requires insurance coverage naming the Bank as the mortgagee or loss payee. Although insurance risk is also considered collateral documentation risk, the actual coverage, amounts of coverage and increased deductibles are important to management.

Risk includes a function of time and the borrower’s financial condition may change; therefore, keeping financial information up to date is important to the Bank. The policy of the Bank is that all new loans, regardless of the customer’s history with the Bank, should have updated financial information, as long as exposure is greater than $10,000.

Based on the evaluation described above, the Company recorded a provision for loan loss during the three months ended September 30, 2008 of $85,000, compared to no provision for the three months ended September 30, 2007. At September 30, 2008 the five year average loss ratios were: .016% Commercial, .012% Consumer, .022% 1-4 Residential, .000% Real Estate Construction and .014% Real Estate Mortgage. The historical loss ratio used at September 30, 2008 was .064% compared to .066% at September 30, 2007.

During the quarter ended September 30, 2008, there were $75,965 in charge-offs and $5,861 in recoveries recorded to the allowance for loan losses, resulting in an allowance for loan losses of $1,365,761 or .79% of total loans at September 30, 2008, compared to $1,335,099 or .85% of total loans at December 31, 2007 and $1,355,762 or .87% or total loans at September 30, 2007.

The Bank had impaired loans totaling $64,416 as of September 30, 2008, compared to $929,396 as of September 30, 2007. The impaired loans at September 30, 2008 include two non-accrual loans with a combined balance of $12,847 and one loan classified by the examiners/auditors as impaired with a balance of $41,000. Impaired loans at September 30, 2007 included three non-accrual loans with a combined balance of $762,923 and two loans classified by the examiners/auditors totaling $139,908. Management does not know of any loans which will not meet their contractual obligations that are not otherwise discussed herein.

The accrual of interest is generally discontinued on loans, which become 90 days past due as to principal or interest. The accrual of interest on some loans, however, may continue even though they are 90 days past due if the loans are well secured or in the process of collection and management deems it appropriate. If non-accrual loans decrease their past due status to less than 30 days for a period of nine months, they are reviewed individually by management to determine if they should be returned to accrual status. There was one loan over 90 days past due still accruing interest as of September 30, 2008 and one loan over 90 days past due still accruing interest as of September 30, 2007.

Net charge-offs were $70,104 for the three months ended September 30, 2008 as compared to net recoveries of $42,102 for the three months ended September 30, 2007. Uncertainty in the economic outlook still exists, making charge-off levels in future periods less predictable; however, loss exposure in the portfolio is identified, reserved and closely monitored to ensure that changes are promptly addressed in the analysis of reserve adequacy.

The Company had no unallocated reserves at September 30, 2008 related to other inherent risk in the portfolio compared to unallocated reserves of $118,200 at September 30, 2007. Management believes the allowance for loan losses at September 30, 2008, is adequate to cover probable losses in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires considerable judgment. Management’s judgments are based on numerous assumptions about current events which it believes to be reasonable, but which may or may not be valid. Thus there can be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the allowance will not be required. No assurance can be given that management’s ongoing evaluation of the loan portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the allowance, thus adversely affecting the operating results of the Company.

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

The methodology used to determine the reserve for unfunded lending commitments, which is included in other liabilities, is inherently similar to that used to determine the allowance for loan losses described above adjusted for factors specific to binding commitments, including the probability of funding and historical loss ratio. During the three months ended September 30, 2008, the allowance for unfunded loans and commitments was not changed, leaving a balance of $20,825.

Other Income

Other income for the three months ended September 30, 2008, decreased $82,159 or 20.03% to $328,033 from $410,192 for the three months ended September 30, 2007. This decrease is primarily due to a decrease in mortgage banking income as well as a loss on the sale of securities. The decrease in mortgage banking income is the result of the slowdown in the real estate market locally and nationally. Mortgage loan origination fees and discount fees decreased $26,685 and $26,318, respectively, for the three months ended September 30, 2008 when compared to September 30, 2007. This decrease was offset by a decrease in commissions paid on mortgage loans from $55,297 for the three months ended September 30, 2007, to $37,102 for the three months ended September 30, 2008. The overall decrease in mortgage banking income was 29.99% for the three months ended September 30, 2008 or $35,762 from $119,249 for the three months ended September 30, 2007.

During the three months ended September 30, 2007 a security was sold for a gain of $69,792, whereas during the three months ended September 30, 2008 a municipal bond was called at a loss of $238, resulting in a decrease of $70,030 or 100.34% in other income.

Service charges, fees and commissions increased $21,324 or 9.90%, from $215,434 for the three months ended September 30, 2007, to $236,758. This increase resulted primarily from an increase in service charges on business accounts of $9,535 and an increase of $7,281 in overdraft fees. The increase in service charges on business accounts is due to a decrease in the earnings credit and the decrease in the average balance maintained.

Other Expense

Bank overhead increased $16,259 or .91% to $1,794,853 for the three months ended September 30, 2008, from $1,778,594 for the three months ended September 30, 2007. Other operating expenses increased $29,642 or 7.74% to $412,371 for the three months ended September 30, 2008, from $382,729 for the three months ended September 30, 2007. Total professional and director fees increased $18,809, or 25.78% for the three months ended September 30, 2008, from $72,941 for the three months ended September 30, 2007. This increase is primarily due to increase in the cost of processing reports required by NASDAQ and the SEC. Insurance paid to the FDIC increased $25,146 or 394.07%, to $31,527 for the three months ended September 31, 2008, from $6,381 for the three months ended September 30, 2007. This increase is due to the FDIC Insurance Reform Legislation that allows the FDIC to price deposit insurance according to risk for all insured institutions regardless of the level of the reserve ratio. In 2007,

the Company had a credit that was used toward payment of this assessment. Net occupancy expense decreased $17,949 or 5.07% to $336,117 from $354,066 for the three months ended September 30, 2008 and 2007, respectively. This decrease was primarily due to a decrease in repairs and maintenance and depreciation on furniture fixtures and equipment of 29.56% and 28.14%, respectively.

Income Tax Expense

For the three months ended September 30, 2008, the Company’s effective tax rate was 34.92% compared to 34.65% during the three months ended September 30, 2007.

Comparison of Nine months Ended September 30, 2008 to Nine months Ended September 30, 2007

Net income decreased $781,093 or 26.62% to $2,155,435 or basic and diluted earnings per share of $.54 for the nine months ended September 30, 2008, from $2,937,338, or basic earnings per share of $.75 and diluted earnings per share of $.74 for the nine months ended September 30, 2007.

Net Interest Income

Net interest income, the Company’s primary source of revenue, is the difference between interest earned on assets, including loan fees and interest on investment securities, and the interest incurred for the liabilities to support such assets. Net interest income decreased $879,552 or 10.17%, to $7,766,714 for the nine months ended September 30, 2008, from $8,646,266 for the nine months ended September 30, 2007. Total interest and fee income decreased $3,269,008 or 25.99% to $9,307,483 for the nine months ended September 30, 2008. This decrease was primarily due to the recent decreases in the Federal Reserve short-term rates and the resulting decrease in the yields generated on earning assets (from variable rate loan repricing and new loans at lower rates). Interest and fees on loans decreased 25.44% from $10,455,189 for the nine months, ended September 30, 2007, to $7,795,453. Average loans decreased from $164.2 million for the nine months ended September 30, 2007, to $162.0 million for the nine months ended September 30, 2008. The yield on average loans decreased 208 basis points to 6.43% from 8.51% for the nine months ended September 30, 2008 and September 30, 2007, respectively. Interest earned on federal funds sold decreased $418,223 or 58.33% for the nine months ended September 30, 2008, to $298,801, from $717,024 for the nine months ended September 30, 2007. Interest and dividends on investment securities decreased $191,049 or 13.60% to $1,213,229 for the nine months ended September 30, 2008. The yield on average investments and average federal funds sold, for the nine months ended September 30, 2008, decreased 33 basis points and 280 basis points, respectively, from 4.67% and 5.25%, respectively for the nine months ended September 30, 2007. Overall, average earning assets for the nine months ended September 30, 2008, decreased from $222.6 million for the nine months ended September 30, 2007, to $215.6 million. The yield on average earning assets decreased 178 basis points to 5.77% for the nine months ended September 30, 2008, from 7.55% for the nine months ended September 30, 2007.

Provision for Loan Losses

The provision for loan loss for the nine months ended September 30, 2008 was $115,000 compared to $40,000 for the nine months ended September 30, 2007. This increase is due to a loss in the third quarter, requiring a larger reserve for loan losses. Net charge-offs for the nine months ended September 30, 2008 were $84,338, compared to net recoveries of $41,563 for the nine months ended September 30, 2007. Charge-offs for the nine months ended September 30, 2008 were $97,951 with $13,613 in recoveries resulting in an allowance for loan losses of $1,365,761, or .79% of total loans. This compares to charge-offs of $7,376 and recoveries of $48,939 for the nine months ended September 30, 2007, for a total allowance of $1,355,762, or .87% of total loans. Loss exposure in the portfolio is identified, reserved and closely monitored to ensure that changes are promptly addressed in the analysis of the reserve.

Other Income

Total other income includes service charges, fees and commissions, mortgage banking income and other non-interest income. For the nine months ended September 30, 2008, other income decreased $68,286 or 5.85%, to $1,099,418, compared to $1,167,704 for the nine months ended September 30, 2007. This decrease was primarily due to a decrease in mortgage banking income and a loss on the sale of securities. Mortgage banking income decreased $70,847 or 16.30%, to $363,807 for the nine months ended September 30, 2008, compared to $434,654 for the nine months ended September 30, 2007. This decrease is due to the slow down in the real estate market locally and nationally. During the nine months ended September 30, 2008 a municipal security bond was called at a loss of $238. During the same period of 2007 a security was sold at a gain of $69,792, resulting in a decrease of $70,030 in other income. The decrease in other income was offset by an increase in service charge fees and commissions, which increased 11.16% to $715,614 from $643,747. Activity service charges on business accounts and overdraft fees increased 18.79% to $403,918 for the nine months ended September 30, 2008, from $340,031 for the nine months ended September 30, 2007. This increase is the result of a decrease in the earnings credit and a decrease in the average balance maintained in business account.

Other Expense

Bank overhead increased $146,621 or 2.78%, to $5,417,746 for the nine months ended September 30, 2008, from $5,271,125 for the nine months ended September 30, 2007. Net occupancy expense and other operating expenses increased 2.48% and 10.30%, respectively, for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. Maintenance and repairs on equipment also increased 69.38%, to $32,943, from $19,449 for the nine months ended September 30, 2008 and September 30, 2007, respectively. With the implementation of Section 404 of the Sarbanes Oxley Act, professional audit fees increased $47,019 or 55.98%, from $84,000 for the nine months ended September 30, 2007, to $131,019 for the nine months ended September 30, 2008. Due to the Deposit Insurance Reform Legislation that allows the FDIC to price deposit insurance according to risk for all insured institutions regardless of the level of the reserve ratio, fees for deposit insurance increased 196.15% for the nine months ended September 30, 2008 to $56,724, from $19,154 for the nine months ended September 30, 2007. In 2007, the Company had a credit that was used toward payment of this assessment.

Income Tax Expense

The Company’s effective tax rate for the nine months ended September 30, 2008 was 35.34%, compared to 34.77% for the nine months ended September 30, 2007.

Off Balance Sheet Arrangements

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

The Company’s off-balance sheet arrangements consist principally of commitments to extend credit described below. The Company estimates probable losses related to binding unfunded lending commitments and records a reserve for unfunded lending commitment in other liabilities on the consolidated balance sheet. At September 30, 2008 and September 30, 2007 the balance of the reserve was $20,825 and $20,796, respectively. At September 30, 2008 and 2007, the Company had no interests in non-consolidated special purpose entities.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s 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 $47,148,909 and $30,450,789 at September 30, 2008 and 2007 respectively.

Standby letters of credit represent an obligation of the Company to a third party contingent upon the failure of the Company’s customer to perform under the terms of an underlying contract with the third party or obligates the Company 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. The Company can seek recovery of the amounts paid from the borrower. The majority of these standby letters of credit are unsecured. Commitments under standby letters of credit are usually for one year or less. The maximum potential amount of undiscounted future payments related to standby letters of credit at September 2008 and 2007 was $980,838 and $509,373, respectively.

The Company originates certain fixed rate residential loans and commits these loans for sale. The commitments to originate fixed rate residential loans and the sale commitments are freestanding derivative instruments. The fair value of the commitments to originate fixed rate conforming loans was not significant at September 30, 2008. The Company has forward sales commitments, totaling $2.7 million at September 30, 2008, to sell loans held for sale of $2.7 million. The fair value of these commitments was not significant at September 30, 2008. The Company has no embedded derivative instruments requiring separate accounting treatment.

Liquidity

The Company must maintain an adequate liquidity position in order to respond to the short-term demand for funds caused by withdrawals from deposit accounts, extensions of credit and for the payment of operating expenses. Primary liquid assets of the Company are cash and due from banks, federal funds sold, investments available for sale, other short-term investments and mortgage loans held for sale. The Company’s primary liquid assets accounted for 25.03% and 28.89% of total assets at September 30, 2008 and 2007, respectively. Proper liquidity management is crucial to ensure that the Company is able to take advantage of new business opportunities as well as meet the credit needs of its existing customers. Investment securities are an important tool in the Company’s liquidity management. Securities classified as available for sale may be sold in response to changes in interest rates and liquidity needs. All of the securities presently owned by the Bank are classified as available for sale. At September 30, 2008, the Bank had unused short-term lines of credit totaling approximately $13,000,000 (which are withdrawable at the lender’s option). Additional sources of funds available to the Bank for additional liquidity needs include borrowing on a short-term basis from the Federal Reserve System, increasing deposits by raising interest rates paid and selling mortgage loans for sale.

The Company’s core deposits consist of non-interest bearing accounts, NOW accounts, money market accounts, time deposits and savings accounts. The Company closely monitors its reliance on certificates of deposit greater than $100,000 and other large deposits. The Company’s management believes its liquidity sources are adequate to meet its operating needs and does not know of any trends, events or uncertainties that may result in a significant adverse effect on the Company’s liquidity position. At September 30, 2008 and 2007, the Bank’s liquidity ratio was 14.75% and 25.47%, respectively.

Capital Resources

The capital needs of the Company have been met to date through the $10,600,000 in capital raised in the Bank’s initial offering, the retention of earnings less dividends paid and the exercise of stock options for total shareholders’ equity at September 30, 2008, of $26,270,687. The rate of asset growth since the Bank’s inception has not negatively impacted this capital base. The risk-based capital guidelines for financial institutions are designed to highlight differences in risk profiles among financial institutions and to account for off balance sheet risk. The guidelines established require a risk based capital ratio of 8% for bank holding companies and banks. The risk based capital ratio at September 30, 2008, for the Bank is 13.37% and at September 30, 2007 was 13.46%. The Company’s management does not know of any trends, events or uncertainties that may result in the Company’s capital resources materially increasing or decreasing.

The Company and the Bank 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. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and to average assets. Management believes, as of September 30, 2008, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

At September 30, 2008 and 2007, the Company and the Bank are categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized” the Company and the Bank must maintain minimum total risk based, Tier 1 risk based and Tier 1 leverage ratios of 10%, 6% 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 and Tier 1 leverage ratios of 8%, 4% and 4%, respectively. There are no current conditions or events that management believes would change the Company’s or the Bank’s category.

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 was carried out under the supervision and with the participation of Bank of South Carolina Corporation’s management, including its Principal Executive Officer and the Executive Vice President and Treasurer, of the effectiveness of Bank of South Carolina Corporation’s disclosure controls and procedures as of September 30, 2008. Based on that evaluation, Bank of South Carolina Corporation’s management, including the Chief Executive Officer and Executive Vice President and Treasurer, has concluded that Bank of South Carolina Corporation’s disclosure controls and procedures are effective. During the period ending September 30, 2008, there was no change in Bank of South Carolina Corporation’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect, Bank of South Carolina Corporation’s internal control over financial reporting.

The Company established a Disclosure Committee on December 20, 2002. The committee is made up of the President and Chief Executive Officer, Executive Vice President and Treasurer, Executive Vice President, Senior Vice President (Operations), Vice President (Audit Compliance Officer), Vice President (Accounting) and Assistant Vice President (Credit Department). This Committee meets quarterly to review the 10Q and the 10K, to assure that the financial statements, Securities and Exchange Commission filings and all public releases are free of any material misstatements and correctly reflect the financial position, results of operations and cash flows of the Company. This Committee also assures that the Company is in compliance with the Sarbanes-Oxley Act.

The Disclosure Committee establishes a calendar each year to assure that all filings are reviewed and filed in a proper manner. The calendar includes the dates of the Disclosure Committee meetings, the dates that the 10Q and the 10K are sent to our independent accountants and to our independent counsel for review as well as the date for the Audit Committee of the Board of Directors to review the reports.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiary from time to time are involved as plaintiff or defendant in various legal actions incident to its business. These actions are not believed to be material either individually or collectively to the consolidated financial condition of the Company or its subsidiary.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

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 Operations for the three months ended September 30, 2008 and 2007		4
(3)	Consolidated Statements of Operations for the nine months ended September 30, 2008 and 2007		5
(4)	Consolidated Statements of Shareholders’ Equity and Comprehensive Income		6
(4)	Consolidated Statements of Cash Flows		7
(5)	Notes to Consolidated Financial Statements		8-15

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)

	4.0		2008 Proxy Statement (Filed with 2008 10-KSB)

	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)

	31.1		Certification of Principal Executive Officer pursuant to 15 U.S.C. 78m(a) or 78 o(d) (Section 302 of the Sarbanes-Oxley Act of 2002)

	31.2		Certification of Principal Financial Officer Pursuant to 15 U.S.C. 78m(a) or 78 o(d) (Section 302 of the Sarbanes-Oxley Act of 2002)

	32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

	32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)


	BANK OF SOUTH CAROLINA CORPORATION October 29, 2008
	BY:	/s/ Hugh C. Lane, Jr.
		Hugh C. Lane, Jr.
		President and Chief Executive Officer


	BY:	/s/ William L. Hiott, Jr.
		William L. Hiott, Jr.
		Executive Vice President & Treasurer

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets — September 30, 2008 and December 31, 2007		3
Consolidated Statements of Income — Three months ended September 30, 2008 and 2007		4
Consolidated Statements of Income — Nine months ended September 30, 2008 and 2007		5
Consolidated Statements of Shareholders’ Equity and Comprehensive Income — Nine months ended September 30, 2008 and 2007		6
Consolidated Statements of Cash Flows — Nine months ended September 30, 2008 and 2007		7
Notes to Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Off-Balance Sheet Arrangements		27
Liquidity		28
Capital Resources		29

Item 3. Quantitative and Qualitative Disclosures About Market Risk		30

Item 4. Controls and Procedures		30

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 3. Defaults Upon Senior Securities		30
Item 4. Submission of Matters to a Vote of Security Holders		31
Item 5. Other Information		31
Item 6. Exhibits		31

Signatures		32
Certifications		33
EX-31.1
EX-31.2
EX-32.1
EX-32.2