Management's discussion and analysis is included to assist shareholders in understanding the Company's financial condition, results of operations, and cash flow. This discussion should be reviewed in conjunction with the consolidated financial statements (unaudited) and notes included in this report and the supplemental financial data appearing throughout this report. Since the primary asset of the Company is its wholly-owned subsidiary, most of the discussion and analysis relates to the Bank.

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. The Company has used "forward-looking statements" to describe future plans and strategies including its 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 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 $271.5 million in assets as of September 30, 2009 and net income of $1,598,884 for the nine months ended September 30, 2009. The Company offers a broad range of financial services through its wholly-owned subsidiary, The Bank of South Carolina (the Bank). The Bank is a state-chartered commercial bank which operates principally in the Charleston, Dorchester and Berkeley, counties of South Carolina. The Bank's original and current concept is to be a full service financial institution specializing in personal service, responsiveness, and attention to detail to foster long standing relationships.

The following is a discussion of the Company's financial condition as of September 30, 2009 as compared to December 31, 2008 and the results of operations for the three and nine months ended September 30, 2009 as compared to September 30, 2008. 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, on which the Company pays interest. Consequently, one of the key measures of the Company's success is the amount of net interest income, or the difference between the income on its interest-earning assets, such as loans and investments, and the expense on its interest bearing liabilities, such as deposits. Another key measure is the spread between the yield the Company earns on these interest-bearing assets and the rate the Company pays on its interest-bearing liabilities.

There are risks inherent in all loans; therefore, the Company maintains an allowance for loan losses to absorb estimated losses on existing loans that may become uncollectible. The Company established and maintains this allowance by charging a provision for loan losses against its operating earnings. In the following section the Company has included a discussion of this process, as well as several tables describing its allowance for loan losses and the allocation of this allowance among its various categories of loans.

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 spread for the nine months ended September 30, 2009 was 3.95%, compared to 4.95% for the nine months ended September 30, 2008.

Non-interest income includes fees and other expenses charged to customers. A more detailed discussion of interest income, non-interest income and operating expenses follows.

For the nine months ended September 30, 2009, the Bank has paid $905,000 to the Company for dividend payments.

CRITICAL ACCOUNTING POLICIES
The Company has adopted various accounting policies that govern the application principles generally accepted in the United States and with general practices within the banking industry in the preparation of its financial statements. The Company's significant accounting policies are described in the footnotes to its unaudited consolidated financial statements as of September 30, 2009 and its notes included in the consolidated financial statements in its 2008 Annual Report on Form 10-K as filed with the SEC.

Certain accounting policies involve significant judgments and assumptions by the Company that have a material impact on the carrying value of certain assets and liabilities. The Company considers these accounting policies to be critical accounting policies. The judgment and assumptions the Company uses are based on historical experience and other factors, which the Company believes to be reasonable under the circumstances. Because of the nature of the judgments and assumptions the Company makes, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of its assets and liabilities and its results of operations.

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 "Allowance 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, 2009 outstanding loans (less deferred loan fees of $27,046) totaled $210,978,963 which equaled 89.72% of total deposits and 77.72% of total assets. The major components of the loan portfolio were commercial loans and commercial real estate loans totaling 21.34% and 54.12%, 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,
                                2009              2008              2008
Commercial loans            $  45,025,696     $  47,325,082     $  45,805,794
Commercial real estate        114,190,915        88,234,503        92,106,908
Residential mortgage           21,383,693        14,836,405        16,254,781
Consumer loans                  5,699,769         5,107,548         5,348,559
Personal banklines             24,519,797        18,233,182        20,313,172
Other                             186,139           291,151           308,867

Total                         211,006,009       174,027,871       180,138,081
Deferred loan fees (net)          (27,046 )         (56,189 )         (65,131 )
Allowance for loan losses      (2,013,259 )      (1,365,761 )      (1,429,835 )

Loans, net                  $ 208,965,704     $ 172,605,921     $ 178,643,115



Percentage of Loans          September 30,          December 31,
                           2009         2008            2008
Commercial loans            21.34 %      27.19 %            25.43 %
Commercial real estate      54.12 %      50.70 %            51.13 %
Residential mortgage        10.13 %       8.53 %             9.02 %
Consumer loans               2.70 %       2.93 %             2.97 %
Personal banklines          11.62 %      10.48 %            11.28 %
Other                         .09 %        .17 %             0.17 %

Total                      100.00 %     100.00 %           100.00 %

Total loans, not including deferred loan fees, increased $36,978,138 or 21.25% to $211,006,009 at September 30, 2009 from $174,027,871 at September 30, 2008 and increased $30,867,928 or 17.14% from $180,138,081 at December 31, 2008. This increase can be attributed to the stability of the Company, strong business development efforts, the hiring of two additional loan officers and the slow down of lending in the Company's market.

Commercial real estate loans increased $25,956,412 or 29.42%, residential mortgages increased $6,547,288 or 44.13% and personal banklines increased 34.48% or $6,286,615 from September 30, 2008 to September 30, 2009. Commercial real estate loans increased $22,084,007 or 23.98%, residential mortgages increased $5,128,912 or 31.55% and personal banklines increased $4,206,625 or 20.71% from December 31, 2008.

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. 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, 2009 was 4.14% compared to 4.39% at September 30, 2008. The carrying values of the investments available for sale at September 30, 2009 and 2008 and percentage of each category to total investments are as follows:

                              INVESTMENT PORTFOLIO

                                    September 30,       September 30,
                                        2009                2008
US Treasury Notes                  $     2,976,860     $     2,959,996
Government-Sponsored Enterprises        12,028,603          21,014,292
Municipal Securities                    20,858,408          12,012,592
                                   $    35,863,871     $    35,986,880

US Treasury Notes                             8.30 %              8.22 %
Government-Sponsored Enterprises             33.54 %             58.40 %
Municipal Securities                         58.16 %             33.38 %
                                            100.00 %            100.00 %

The Company accounts for its investment securities in accordance with FASB ASC Topic 320: Investments - Debt and Equity Securities. All securities were classified as Available for Sale (debt and equity securities that may be sold under certain conditions), at September 30, 2009 and September 30, 2008. The securities were reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity, net of income taxes. Unrealized losses on securities due to fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has occurred. Gains or losses on the sale of securities are recognized on a specific identification, trade date basis.

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

                                                              September 30, 2009
                                                            GROSS           GROSS          ESTIMATED
                                         AMORTIZED       UNREALIZED       UNREALIZED          FAIR
                                            COST            GAINS           LOSSES           VALUE

U.S. Treasury Notes                     $  2,976,860     $   165,171     $          -     $  3,142,031
Government-Sponsored Enterprises          12,028,603         591,202                -       12,619,805
Municipal Securities                      20,858,408         921,205           22,511       21,757,102

Total                                   $ 35,863,871     $ 1,677,578     $     22,511     $ 37,518,938

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2009, by contractual maturity are as follows:

                                                   ESTIMATED
                                  AMORTIZED           FAIR
                                     COST            VALUE

Due in one year or less          $  3,412,936     $  3,527,158
Due in one year to five years      14,589,417       15,358,440
Due in five years to ten years      5,960,169        6,381,630
Due in ten years and over          11,901,349       12,251,710

Total                            $ 35,863,871     $ 37,518,938



                                                               September 30, 2009

                                              Less than 12 months                   12 months or longer                         Total
Description                               Fair            Unrealized       Fair                  Unrealized          Fair            Unrealized
of Securities                             Value           Losses           Value                 Losses              Value           Losses

U.S. Treasury Notes                       $         -     $          -     $         -           $             -     $         -     $          -
Government-Sponsored Enterprises                    -                -               -                         -               -                -
Municipal Securities                        1,515,001           22,511               -                         -       1,515,001           22,511

                                          $ 1,515,001     $     22,511     $         -           $             -     $ 1,515,001     $     22,511

                                                                December 31, 2008
                                              Less than 12 months                   12 months or longer                         Total
Description                               Fair            Unrealized       Fair                  Unrealized          Fair            Unrealized
of Securities                             Value           Losses           Value                 Losses              Value           Losses

U.S. Treasury Notes                       $         -     $          -     $         -           $             -     $         -     $          -
Government-Sponsored Enterprises                    -                -               -                         -               -                -
Municipal Securities                        1,526,724           19,899               -                         -       1,526,724           19,899

                                          $ 1,526,724     $     19,899     $         -           $             -     $ 1,526,724     $     19,899

At September 30, 2009, there were two Municipal Securities with an unrealized loss of $22,511 as compared to five Municipal Securities with an unrealized loss of $19,899, at December 31, 2008. These investments are not considered other-than-temporarily impaired. The Company has the ability and the intent to hold these investments until a market price recovery or maturity. The unrealized losses on these investments were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment.

DEPOSITS
Deposits remain the Company's primary source of funding for loans and investments. Average interest bearing deposits provided funding for 70.66% of average earning assets for the nine months ended September 30, 2009, and 67.17% for the nine months ended September 30, 2008. The Company encounters strong competition from other financial institutions as well as consumer and commercial finance companies, insurance companies and brokerage firms located in the primary service area of the Bank. However, the percentage of funding provided by deposits has remained stable. The breakdown of total deposits by type and the respective percentage of total deposits are as follows:

                                                              September 30,              December 31,
                                                         2009              2008              2008
Non-interest bearing demand                          $  49,735,424     $  55,896,220     $  52,659,020
Interest bearing demand                              $  50,448,440     $  46,750,818     $  46,076,897
Money market accounts                                $  64,423,956     $  59,906,162     $  64,705,925
Certificates of deposit $100,000 and over            $  43,520,164     $  22,562,427     $  27,356,516
Other time deposits                                  $  17,296,581     $  15,863,140     $  15,697,678
Other savings deposits                               $   9,728,599     $   8,863,589     $   8,290,479

Total Deposits                                       $ 235,153,164     $ 206,842,356     $ 214,786,515

Percentage of Deposits                          September 30,          December 31,
                                              2009         2008            2008
Non-interest bearing demand                    21.15 %      27.02 %            24.52 %
Interest bearing demand                        21.45 %      22.60 %            21.45 %
Money Market accounts                          27.40 %      27.51 %            30.13 %
Certificates of deposit $100,000 and over      18.51 %      10.91 %            12.74 %
Other time deposits                             7.35 %       7.67 %             7.31 %
Other savings deposits                          4.14 %       4.29 %             3.86 %

Total Deposits                                100.00 %     100.00 %           100.00 %

Total deposits increased $28,310,808 or 13.69% to $235,153,164 at September 30, 2009 from $206,842,356 at September 30, 2008 and increased $20,366,649 or 9.48% from $214,786,515 at December 31, 2008. Total certificates of deposit $100,000 and over and money market accounts increased 92.89% and 13.21%, respectively, from September 30, 2008 to September 30, 2009. For the nine months ended September 30, 2009 when compared to December 31, 2008, certificates of deposit $100,000 and over increased $16,163,648 or 59.09%, offset by a decrease of 5.55% in non-interest bearing accounts.

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 at September 30, 2009 and 2008 under the arrangement at an interest rate set by the Federal Reserve. The note is secured by Government Sponsored Enterprise Securities with a market value of $1,122,021 at September 30, 2009 and $1,020,696 at September 30, 2008. The amount outstanding under the note totaled $213,896 and $923,272 at September 30, 2009 and 2008, respectively. At September 30, 2009, the Company had no outstanding federal funds purchased with the option to borrow up to $22,000,000 on short term lines of credit. The Company has also established a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits the Company to retain possession of loans pledged as collateral to secure advances from the Federal Reserve Discount Window. The Company established this arrangement as a secondary source of liquidity. In addition, on September 10, 2009 the Company borrowed $7,500,000 from the Federal Reserve Bank's Term Auction Facility (TAF) at a rate of .25% for a term of 84 days. The Board of Governor's of the Federal Reserve System established this program to allow depository institutions to place a bid for an advance from its local Federal Reserve Bank at a fixed interest rate determined via centralized single-price auction. The collateral pledged to secure advances from the Federal Reserve Discount Window, serves as collateral.

Comparison of Three Months Ended September 30, 2009 to Three Months Ended September 30, 2008
Net income decreased $575,551 or 80.83% to $136,521, or basic and diluted earnings per share of $.03 and $.03, respectively, for the three months ended September 30, 2009, from $712,072, or basic and diluted earnings per share of $.18 and $.18, respectively, for the three months ended September 30, 2008. During the three months ended September 30, 2009 the Company increased its Allowance for Loan Losses to $1,110,000 as compared to $85,000 for the three months ended September 30, 2008. The increase in the Allowance for Loan Losses was based on management's evaluation of the adequacy of the Allowance at September 30, 2009, as discussed in the Allowance for Loan Loss section.

Net Interest Income
Net interest income, the major component of the Company's net income, decreased $19,378 or .73% to $2,626,561 for the three months ended September 30, 2009, from $2,645,939 for the three months ended September 30, 2008. Total interest and fee income decreased $32,827 or 1.09% for the three months ended September 30, 2009, to $2,971,678 from $3,004,505 for the three months ended September 30, 2008. This decrease was primarily due to significant decreases in short-term rates by the Federal Reserve, and the resulting decrease in yields generated on earning assets (from variable rate loan repricing and new loans at lower rates). Interest and dividends on federal funds sold decreased $58,197 or 92.52% to $4,703 for the three months ended September 30, 2009 from $62,900 for the three months ended September 30, 2008. Interest on investment securities decreased $56,998 or 13.46% to $366,522 for the three months ended September 30, 2009 from $423,520 for the three months ended September 30, 2008.

Average interest earning assets increased from $218.9 million for the three months ended September 30, 2008, to $252.2 million for the three months ended September 30, 2009. The yield on interest earning assets decreased 82 basis points between periods to 4.64% for the three months ended September 30, 2009, compared to 5.46% for the same period in 2008. This decrease is primarily due to a decrease in the yield on federal funds sold of 198 basis points and a decrease of 96 basis points in loans.

Total interest expense decreased $13,449 or 3.75% to $345,117 for the three months ended September 30, 2009, from $358,566 for the three months ended September 30, 2008. 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, 2009, was $340,391 compared to $356,618 for the three months ended September 30, 2008, a decrease of $16,227 or 4.55%. Total interest bearing deposits averaged approximately $176.8 million for the three months ended September 30, 2009, as compared to $146.4 million for the three months ended September 30, 2008. The average cost of interest bearing deposits was .76% and .97% for the three months ended September 30, 2009 and 2008, respectively, a decrease of 21 basis points. Short term borrowings for the three months ended September 30, 2009 averaged approximately $7.9 million as compared to $443,675 for the three months ended September 30, 2008.

Allowance 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 estimated 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, the fourth quarter of 2008 and again in the third quarter 2009. The revised methodology is based on a Reserve Model that is comprised of the three components listed below.

. . .