Item 1 — FINANCIAL STATEMENTS

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

		(Unaudited)				(Audited)
		September 30, 2007				December 31, 2006
Assets:
Cash and due from banks		$	8,179,528			$	9,747,621
Interest bearing deposits in other banks			8,080				7,990
Federal funds sold			24,375,062				26,857,657
Investment securities available for sale			32,232,101				40,897,855
Mortgage loans to be sold			1,011,818				3,960,728
Loans			155,390,558				158,596,560
Allowance for loan losses			(1,355,762	)			(1,294,994	)
Net loans			154,034,796				157,301,566
Premises and equipment, net			2,685,794				2,662,086
Accrued interest receivable			1,286,096				1,474,703
Other assets			473,742				562,534
Total assets		$	224,287,017			$	243,472,740
Liabilities and Shareholders’ Equity:
Deposits:
Non-interest bearing demand		$	52,352,299			$	58,835,554
Interest bearing demand			46,890,183				48,557,628
Money market accounts			51,040,825				56,179,204
Certificates of deposit $100,000 and over			20,387,299				22,281,984
Other time deposits			16,130,035				14,092,859
Other savings deposits			8,360,680				15,369,672
Total deposits			195,161,321				215,316,901
Short-term borrowings			2,717,083				2,712,683
Accrued interest payable and other liabilities			1,300,609				1,802,725
Total liabilities			199,179,013				219,832,309
Common Stock — No par value; 12,000,000 shares authorized; issued 4,153,364 shares at September 30, 2007 and 4,129,409 at December 31, 2006; outstanding 3,953,863 shares at September 30, 2007 and 3,929,908 at December 31, 2006			—				—
Additional paid in capital			22,967,298				22,719,918
Retained earnings			3,715,438				2,592,719
Treasury stock — 199,501 shares at September 30, 2007 and December 31, 2006			(1,692,964	)			(1,692,964	)
Accumulated other comprehensive income, net of income taxes			118,232				20,758
Total shareholders’ equity			25,108,004				23,640,431
Total liabilities and shareholders’ equity		$	224,287,017			$	243,472,740

See accompanying notes to consolidated financial statements

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

		Three Months Ended
		September 30,
		2007				2006
Interest and fee income
Interest and fees on loans		$	3,392,660			$	3,518,059
Interest and dividends on investment securities			431,654				476,899
Other interest income			234,552				251,405
Total interest and fee income			4,058,866				4,246,363
Interest expense
Interest on deposits			1,240,416				1,260,340
Interest on short-term borrowings			10,884				9,732
Total interest expense			1,251,300				1,270,072
Net interest income			2,807,566				2,976,291
Provision for loan losses			—				60,000
Net interest income after provision for loan losses			2,807,566				2,916,291
Other income
Service charges, fees and commissions			215,434				220,027
Mortgage banking income			119,249				133,191
Gain on sale of securities			69,792				—
Other non-interest income			5,717				6,240
Total other income			410,192				359,458
Other expense
Salaries and employee benefits			1,041,799				1,028,905
Net occupancy expense			354,066				324,443
Other operating expenses			382,729				346,887
Total other expense			1,778,594				1,700,235
Income before income tax expense			1,439,164				1,575,514
Income tax expense			498,603				545,767
Net income		$	940,561			$	1,029,747
Basic earnings per share		$	0.24			$	0.26
Diluted earnings per share		$	0.24			$	0.26
Weighted average shares outstanding
Basic			3,949,447				3,920,228
Diluted			3,976,459				3,963,022

See accompanying notes to consolidated financial statements

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

		Nine Months Ended
		September 30,
		2007				2006
Interest and fee income
Interest and fees on loans		$	10,455,189			$	9,904,342
Interest and dividends on investment securities			1,404,278				1,334,048
Other interest income			717,024				683,027
Total interest and fee income			12,576,491				11,921,417
Interest expense
Interest on deposits			3,900,225				3,367,926
Interest on short-term borrowings			30,000				23,908
Total interest expense			3,930,225				3,391,834
Net interest income			8,646,266				8,529,583
Provision for loan losses			40,000				180,000
Net interest income after provision for loan losses			8,606,266				8,349,583
Other income
Service charges, fees and commissions			643,747				660,969
Mortgage banking income			434,654				423,452
Gain (loss) on sale of securities			69,792				(22,950	)
Other non-interest income			19,511				19,928
Total other income			1,167,704				1,081,399
Other expense
Salaries and employee benefits			3,128,343				2,964,295
Net occupancy expense			998,244				918,532
Other operating expenses			1,144,538				1,123,261
Total other expense			5,271,125				5,006,088
Income before income tax expense			4,502,845				4,424,894
Income tax expense			1,565,507				1,518,876
Net income		$	2,937,338			$	2,906,018
Basic earnings per share		$	0.75			$	0.75
Diluted earnings per share		$	0.74			$	0.73
Weighted average shares outstanding
Basic			3,939,420				3,893,172
Diluted			3,969,668				3,973,137

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, 2007 AND 2006

																		Accumulated Other
		Common				Additional				Retained				Treasury				Comprehensive
		Stock				Paid In Capital				Earnings				Stock				Income				Total
December 31, 2005		$	—			$	22,077,627			$	1,173,050			$	(1,692,964	)		$	(51,919	)		$	21,505,794
Comprehensive income:
Net income			—				—				2,906,018				—				—				2,906,018
Net unrealized loss on securities (net of tax expense of $38,697)			—				—				—				—				26,810				26,810
Comprehensive income			—				—				—				—				—				2,932,828
Exercise of stock options			—				514,149				—				—				—				514,149
Stock-based compensation expense			—				28,691				—				—				—				28,691
Cash paid on fractional shares 25% stock dividend			—				—				(3,913	)			—				—				(3,913	)
Cash dividends ($0.43 per common share)			—				—				(1,561,503	)			—				—				(1,561,503	)
September 30, 2006		$	—			$	22,620,467			$	2,513,652			$	(1,692,964	)		$	(25,109	)		$	23,416,046
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 loss on securities (net of tax expense of $69,996)			—				—				—				—				97,474				97,474
Total 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

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,
		2007				2006
Cash flows from operating activities:
Net income		$	2,937,338			$	2,906,018
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation			194,090				177,342
(Gain) loss on sale of securities			(69,792	)			22,950
Provision for loan losses			40,000				180,000
Stock-based compensation expense			33,702				28,691
Net accretion of unearned discounts on investments			(64,613	)			(198,354	)
Origination of mortgage loans held for sale			(42,304,772	)			(47,033,402	)
Proceeds from sale of mortgage loans held for sale			45,253,682				46,238,919
Decrease (increase) in accrued interest receivable and other assets			207,403				(456,053	)
(Decrease) increase in accrued interest payable and other liabilities			(191,557	)			99,162
Net cash provided by operating activities			6,035,481				1,965,273
Cash flows from investing activities:
Purchase of investment securities available for sale			(3,347,371	)			(28,004,512	)
Maturities and sales of investment securities available for sale			12,315,000				27,277,950
Net decrease in loans			3,226,770				894,007
Purchase of premises and equipment			(217,798	)			(160,485	)
Net cash provided by investing activities			11,976,601				6,960
Cash flows from financing activities:
Net (decrease) increase in deposit accounts			(20,155,580	)			11,858,823
Net increase (decrease) in short-term borrowings			4,400				(70,264	)
Dividends paid			(2,125,178	)			(1,476,512	)
Fractional shares paid			—				(3,913	)
Stock options exercised			213,678				514,149
Net cash (used) provided by financing activities			(22,062,680	)			10,822,283
Net (decrease) increase in cash and cash equivalents			(4,050,598	)			12,794,516
Cash and cash equivalents, beginning of period			36,613,268				20,272,566
Cash and cash equivalents, end of period		$	32,562,670			$	33,067,082
Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest		$	4,028,144			$	3,076,211
Income taxes		$	1,549,825			$	1,656,998
Supplemental disclosure for non-cash investing and financing activity:
Change in dividends payable		$	(310,560	)		$	84,738
Change in unrealized loss on available for sale securities		$	97,474			$	26,810

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2007

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, 2006 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, 2007, 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. Employees become 20% vested after five years and then vest 20% each year until fully vested. The right to exercise each such 20% of the options is cumulative and will not expire until the tenth anniversary of the date of the grant. At September 30, 2007, 29,291 shares of common stock are reserved to be granted under the 1998 Incentive Stock Option Plan from the original 272,250 shares.

There were options for 10,000 shares granted during the nine months ended September 30, 2007 and 32,500 shares granted during the nine months ended September 30, 2006. Fair values were estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for the 2006 grant: dividend yield of 3.58%; historical volatility of 29.98%; risk-free interest rate of 4.36%; 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 June. For purposes of the calculation, compensation expense is recognized on a straight-line basis over the vesting period.

The following is a summary of the activity under the Incentive Stock Options 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	)			16.62
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	)			16.62
Balance at September 30, 2007			137,565			$	11.07
Options exercisable at September 30, 2007			3,684			$	8.92

The following is a summary of the activity under the Incentive Stock Options Plan for the three and nine months ending September 30, 2006.

Three Months Ended September 30, 2006		Options				Weighted Average Exercise Price
Balance at July 1, 2006			175,273			$	10.41
Granted			—				—
Exercised			—				—
Cancelled			(5,499	)			9.97
Balance at September 30, 2006			169,774			$	10.42

Nine Months Ended September 30, 2006		Options				Weighted Average Exercise Price
Balance at January 1, 2006			197,895			$	9.09
Granted			32,500				16.62
Exercised			(55,122	)			9.33
Cancelled			(5,499	)			9.97
Balance at September 30, 2006			169,774			$	10.42
Options exercisable at September 30, 2006			634			$	8.92

NOTE 4: Shareholders’ Equity

A regular quarterly cash dividend of $.16 per share was declared on September 20, 2007 for shareholders of record at October 1, 2007, payable October 31, 2007. Income per common share for the three and nine months ended September 30, 2007 and for the three and nine months ended September 30, 2006 was calculated as follows:

		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
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