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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996
------------------
[ ] 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
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(Exact name of small business issuer as specified in its charter)
South Carolina 57-1021355
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
256 Meeting Street, Charleston, SC 29401
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(Address of principal executive offices)
(803) 724-1500
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 X No
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As of September 30, 1996, there were 1,157,117 Common Shares outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes No X
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Table of Contents
BANK OF SOUTH CAROLINA CORPORATION
Report on Form 10-QSB
for quarter and nine months ended
September 30, 1996
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations - Three months
ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations - Nine months
ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Changes in Shareholders
Equity - Nine months ended September 30, 1996 . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 8 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . 10 - 13
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Impact of New Accounting Pronouncements . . . . . . . . . . . . . . . . 14
Effect of Inflation and Changing Prices . . . . . . . . . . . . . . . . 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. Default Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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PART I - ITEM 1 - FINANCIAL STATEMENTS
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
Assets: September 30, 1996 December 31, 1995
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<S> <C> <C>
Cash and due from banks $ 5,439,871 $ 4,239,424
Interest bearing deposits in other banks 6,126 5,957
Federal funds sold and repurchase agreements 2,700,000 15,025,000
Investment securities available for sale 20,115,635 12,505,634
Loans 68,996,704 61,986,536
Allowance for loan losses 983,957 960,103
----------------- -----------------
Net loans 68,012,747 61,026,433
Equipment and leasehold improvements, net 1,157,858 543,326
Other assets 1,355,730 1,902,305
----------------- -----------------
Total assets $ 98,787,967 $ 95,248,079
================= =================
Liabilities and shareholders' equity:
Deposits:
Non-interest bearing demand $ 18,644,099 $ 19,398,922
Interest bearing demand 14,823,858 15,410,415
Money market accounts 20,033,475 19,414,137
Certificates of deposit $100,000 and over 13,458,308 11,941,512
Other time deposits 10,606,731 9,143,811
Other savings deposits 3,975,557 3,681,547
----------------- -----------------
Total deposits 81,542,028 78,990,344
Short-term borrowings 1,895,864 1,078,569
Other liabilities 791,038 663,934
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Total liabilities 84,228,930 80,732,847
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Common Stock - No par value
Authorized 3,000,000 Shares;
Issued and outstanding 1,157,117 shares
at September 30, 1996, and 1,179,640 shares
at December 31, 1995 - -
Additional paid in capital 10,848,000 10,724,000
Retained earnings 4,225,150 3,556,267
Unrealized gain on securities
available for sale, net of income taxes 36,573 234,965
Treasury stock (35,000 shares) 550,686 -
----------------- -----------------
Total shareholders' equity 14,559,037 14,515,232
----------------- -----------------
Total liabilities and shareholders' equity $ 98,787,967 $ 95,248,079
================= =================
</TABLE>
All share and per share data have been retroactively restated to reflect the
ten percent common stock dividend paid to shareholders on May 15, 1996.
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
September 30, 1996 September 30, 1995
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<S> <C> <C>
Interest and fee income
Interest and fees on loans $ 1,626,154 $ 1,430,000
Interest and dividends on investment securities 324,314 226,549
Other interest income 85,232 197,762
----------------- -----------------
Total interest and fee income 2,035,700 1,854,311
----------------- -----------------
Interest expense
Interest on deposits 589,499 625,270
Interest on short-term borrowings 15,429 22,000
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Total interest expense 604,928 647,270
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Net interest income 1,430,772 1,207,041
Provision for loan losses 45,000 -
----------------- -----------------
Net interest income after provision for loan losses 1,385,772 1,207,041
----------------- -----------------
Other income
Service charges, fees and commissions 135,427 88,833
Other non-interest income 4,316 3,987
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Total other income 139,743 92,820
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Other expense
Salaries and employee benefits 491,307 422,933
Net occupancy expense of premises 208,574 167,772
Net cost of operation of other real estate - 2,019
Other operating expenses 240,838 142,013
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Total other expense 940,719 734,737
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Income before income tax expense 584,796 565,124
Income tax expense 218,000 214,000
----------------- -----------------
Net income $ 366,796 $ 351,124
================= =================
Net income per common share $ .32 $ .30
================= =================
Dividends per common share $ .10 $ .08
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
4
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Interest and fee income
Interest and fees on loans $ 4,644,464 $ 4,158,850
Interest and dividends on investment securities 826,019 698,267
Other interest income 336,374 286,458
----------------- -----------------
Total interest and fee income 5,806,857 5,143,575
----------------- -----------------
Interest expense
Interest on deposits 1,698,818 1,621,180
Interest on short-term borrowings 46,654 52,109
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Total interest expense 1,745,472 1,673,289
----------------- -----------------
Net interest income 4,061,385 3,470,286
Provision for loan losses 80,000 20,000
----------------- -----------------
Net interest income after provision for loan losses 3,981,385 3,450,286
----------------- -----------------
Other income
Service charges, fees and commissions 331,304 240,570
Loss on investment securities 2,569 -
Other non-interest income (expense) 46,150 232,110
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Total other income (expense) 282,585 8,460
----------------- -----------------
Other expense
Salaries and employee benefits 1,410,119 1,260,697
Net occupancy expense of premises 577,699 501,198
Net cost of operation of other real estate 1,088 12,665
Other operating expenses 657,868 487,993
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Total other expense 2,646,774 2,262,553
----------------- -----------------
Income before income tax expense 1,617,196 1,196,193
Income tax expense 606,639 442,000
----------------- -----------------
Net income $ 1,010,557 $ 754,193
================= =================
Net income per common share $ .87 $ .64
================= =================
Dividends per common share $ .30 $ .20
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Unrealized
gain (loss)
on securities
Common Additional Retained Treasury available
Stock Paid In Capital Earnings Stock for sale Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 $ - $ 10,724,000 $ 3,556,267 $ - $ 234,965 $14,515,232
Shares issued for the
exercise of stock options - 124,000 - - - 124,000
Purchase of
Treasury stock - - - (550,886) - 550,686
Net income - - 1,010,557 - - 1,010,557
Change in unrealized gain
(loss) on securities
available for sale,
net of income taxes - - - - 198,392 198,392
Cash dividends - - 341,674 - - 341,674
--------- -------------- ------------- ------------- ----------- -----------
Balance,
September 30, 1996 $ - $ 10,848,000 $ 4,225,150 $ 550,686 $ 36,573 $14,559,037
========= ============== ============= ============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,010,557 $ 754,193
Adjustments to reconcile net income to net
cash provided used by operating activities:
Depreciation 109,048 90,270
Accretion/amortization of unearned
discounts/premiums on investments 6,451 26,177
Amortization of organizational costs 5,584 2,827
Loss on sale of investments 2,569 -
Write down of OREO - 244,400
Loss on sale of OREO 58,378 -
Increase in receivables and other assets 259,793 206,926
Provision for loan losses 80,000 20,000
Increase in other liabilities 127,104 323,211
----------------- -----------------
Net cash provided by operating activities 1,139,898 1,254,152
----------------- -----------------
Cash flows from investing activities:
Proceeds from sale/maturity of investments 4,011,382 3,013,881
Proceeds from sale of stock 25,000 -
Purchase of investment securities 11,970,311 1,001,875
Net increase in loans 7,066,314 3,726,206
Proceeds from sale of OREO 858,922 -
Purchase of office property and equipment 723,580 53,257
----------------- -----------------
Net cash used in investing activities 14,864,901 1,767,457
----------------- -----------------
Cash flows from financing activities:
Net increase in deposit accounts 2,551,684 13,017,738
Net increase in short-term borrowings 817,295 1,221,161
Exercise of stock options 124,000 124,000
Dividends 341,674 235,184
Treasury stock 550,686 -
----------------- -----------------
Net cash provided by financing activities 2,600,619 14,127,715
----------------- -----------------
Net decrease increase in cash and cash equivalents 11,124,384 13,614,410
Cash and cash equivalents, beginning of period 19,270,381 4,872,442
----------------- -----------------
Cash and cash equivalents, end of period $ 8,145,997 $ 18,486,852
================= =================
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 1,769,944 $ 1,519,716
Income taxes 520,542 352,968
</TABLE>
See accompanying notes to consolidated financial statements.
7
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BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1: BASIS OF PRESENTATION
Bank of South Carolina Corporation (the Company) was organized as a South
Carolina Corporation on April 17, 1995, for the purpose of forming a one-bank
holding company. The Company through its bank subsidiary (the Bank) provides a
full range of banking services including the taking of demand and time deposits
and the making of commercial, consumer and mortgage loans. The Bank currently
has three locations, one in Charleston, South Carolina, one in Summerville,
South Carolina and one in Mt. Pleasant, South Carolina. Consolidated financial
statements of the Company at September 30, 1996, and December 31, 1995, and for
the quarters and nine months ended September 30, 1996, and September 30, 1995,
are unaudited. 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 as of those dates of the Company.
The results of operations for the periods ending September 30, 1996, are not
necessarily indicative of the results which may be expected for the entire
year.
NOTE 2: ORGANIZATION AND DEVELOPMENT
The organization of The Bank of South Carolina (the Bank) began on April 24,
1986, and the Bank received approval on October 22, 1986, to organize and
operate as a state-chartered bank. Common stock was issued on October 23,
1986. The Federal Deposit Insurance Corporation (FDIC) issued approval to
insure all deposits to the full amount permitted by the law upon commencement
of operations on February 26, 1987. On the effective date (12:01 a.m., April
17, 1995), shareholders of The Bank of South Carolina became shareholders of
Bank of South Carolina Corporation at which time one share of common stock in
the Bank was exchanged for two shares of common stock in the Corporation.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Interest income on loans is recognized over the terms of the loans based on the
unpaid principal balances. The recognition of interest income is normally
discontinued when a loan becomes 90 days delinquent as to principal or interest
or when, in management's judgment, the interest will not be collected in the
normal course of business. Upon such discontinuance, all unpaid accrued
interest is reversed.
The allowance for loan losses is based on management's evaluation of the loan
portfolio under current economic conditions. The evaluation includes a review
of delinquencies and an estimate of the possibility of loss based on the risk
characteristics of the portfolio. While management uses the best information
available to make evaluations, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the assumptions used
in making the evaluations.
The allowance for loan losses is subject to periodic evaluations by various
regulatory authorities and may be subject to adjustment upon their examination.
NOTE 4: INVESTMENT SECURITIES
Investment securities to be "Held to Maturity" are carried at cost, adjusted
for amortization of premiums and accretion of discounts, computed by the
interest method. Investment securities classified as "Available for Sale" are
marked to market with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity (net of estimated tax
effects). Realized gains or losses on the sale of investments are based on the
specific identification method. All the Company's
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securities are classified as "Available for Sale".
The amortized cost of U.S. Treasury Securities held by the Bank and classified
as "Available for Sale" is $20,057,582. The aggregate market value of
securities "Available for Sale" on the basis of market quotations as of
September 30, 1996, is $20,115,635. The unrealized gain as of September 30,
1996, on such securities is $58,053.
The amortized cost of securities "Available for Sale" on the basis of market
quotations as of December 31, 1995, was $12,132,673. The aggregate market
value of securities "Available for Sale" on the basis of market quotation as of
December 31, 1995, was $12,505,634. The unrealized gain as of December 31,
1995, on such securities was $372,961.
NOTE 5: EQUIPMENT AND DEPRECIATION
Equipment is carried at cost less accumulated depreciation, calculated on the
straight-line method over the estimated useful life of the related assets
ranging from 5 to 12 years for financial reporting purposes and an accelerated
method for income tax purposes. Amortization of leasehold improvements is
recorded using the straight-line method over the lesser of the estimated useful
life of the asset or the term of the lease. Maintenance and repairs are
charged to operating expenses as incurred.
NOTE 6: INCOME TAXES
Deferred income taxes represent the aggregate amount of income taxes payable or
refundable in future years as a result of cumulative temporary differences
between the bases of certain assets and liabilities for income tax and
financial reporting purposes.
9
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Bank of South Carolina Corporation (the Company) is a financial institution
holding company headquartered in Charleston, South Carolina, with branch
operations in Summerville, South Carolina and Mt. Pleasant, South Carolina. It
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 counties of Charleston,
Dorchester and Berkeley in South Carolina.
For the first nine months of 1996, the Company reported net income of
$1,010,557 or $.87 per share, an increase of $256,364 or 34.0% compared to the
net income for the first nine months of 1995 of $754,193 or $.64 per share.
Total assets increased approximately $3,540,000 or 3.7% at September 30, 1996,
from December 31, 1995. The majority of this increase is reflected in loans
and investments available for sale. This increase in assets was primarily
funded by a modest increase in deposits and short-term borrowings.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996, TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's results of operations depends primarily on the level of its net
interest income, its non-interest income and the level of its operating
expenses. Net interest income depends upon the volume of interest earning
assets and interest bearing liabilities which results in the net interest
spread. Net income increased only $15,672 or 4.5% to $366,796 for the three
months ended September 30, 1996, from $351,124 for the three months ended
September 30, 1995. Although average interest bearing assets increased for the
three months ended September 30, 1996, to approximately $92,400,000 from
$83,700,000 for the three months ended September 30, 1995, the increase in net
interest income of $223,731 and other income of $46,923 was offset for the same
three months ended September 30, 1996, by an increase of $45,000 in provision
for loan losses and an increase in other expense of $205,982 for the period.
Net Interest Income
Net interest income increased $223,731 or 18.5% to $1,430,772 for the three
months ended September 30, 1996, from $1,207,041 for the three months ended
September 30, 1995. Total interest and fee income increased $181,389 for the
three months ended September 30, 1996, to $2,035,700 from $1,854,311 for the
three months ended September 30, 1995. This increase is a result of the
increase in average total loans for the three months ended September 30, 1996,
to $65,907,000 compared to average total loans of approximately $55,667,000 for
the three months ended September 30, 1995. This produced interest and fee
income of $1,626,154 for the three months ended September 30, 1996, compared to
$1,430,000 for the three months ended September 30, 1995, an increase of
$196,154 or 13.7%. The investment portfolio income increased $97,765 or 43.2%
to $324,314 for the period ended September 30, 1996, as compared to $226,549
for the three months ended September 30, 1995. This increase in investment
portfolio revenue is primarily a result of increasing the securities portfolio
from $14,417,539 as of September 30, 1995, to $20,115,635 as of September 30,
1996. Other interest income decreased $112,530 or 57.0% to $85,232 for the
three months ended September 30, 1996, from $197,762 for the three months ended
September 30, 1995. This decrease in revenue is primarily attributed to the
decrease in average overnight federal funds from approximately $14,375,000
during the three months ended September 30, 1995, to approximately $2,700,000
for the three months ended September 30, 1996. These funds were used to fund
loan growth and increase the longer term investment portfolio. The net
interest spread for the three months ended September 30, 1996, was 4.60%
compared to 4.38% for the same period ended September 30, 1995.
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Total interest expense decreased $42,342 or 6.5% to $604,928 for the three
months ended September 30, 1996, from $647,270 for three months ended September
30, 1995. Although average interest bearing deposits increased approximately
$4,368,000 or 7.3% from $59,617,189 for the three months ended September 30,
1995, to $63,985,983 for the three months ended September 30, 1996, the three
month average cost of interest bearing deposits for the period ended September
30, 1995, was 4.18% compared to the three months ended September 30, 1996, of
3.68%.
Provision for Loan Losses
The amount charged to the provision for loan losses by the Bank is based on
management's evaluation as to the amounts required to maintain an allowance
adequate to provide for potential losses in the loan portfolio. The level of
this allowance is dependent upon the total amount of past due loans,
non-performing loans, general economic conditions and management's assessment
of potential losses based upon internal credit evaluations of the loans and
periodic reviews and assessments of credit risks associated with particular
loans. While management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making these
evaluations. The allowance for loan losses also is subject to periodic
evaluations by various regulatory authorities and may be subject to adjustment
upon their examination.
During the quarter ended September 30, 1996, $45,000 was charged to the
provision for loan losses compared to none for the quarter ended September 30,
1995. At September 30, 1996, the allowance for loan losses was $983,957 or
1.4% of total loans. This compares to an allowance of $994,509 or 1.7% as of
September 30, 1995. During the quarter ended September 30, 1996, the Bank
incurred four charge offs totaling $32,365 as compared to the same quarter
ended September 30, 1995, of one charge off totaling $404. There were no loans
on non-accrual status at September 30, 1996, and none on non-accrual at
September 30, 1995. There were 22 loans past due over 30 days totaling
$991,018 or 1.4% of total loans at September 30, 1996, compared to $599,665 or
1.0% of total loans at September 30, 1995. Generally, loans are placed on
non-accrual status at the earlier of when they are 90 days past due or when the
collection of interest becomes doubtful. The allowance for loan losses at
September 30, 1996, in management's opinion is adequate for future losses that
may occur in the loan portfolio at this time.
Other Income
Other income for the three months ended September 30, 1996, was $139,743
compared to $92,820 for the three months ended September 30, 1996, an increase
of $46,923 or 50.6%. An increase in business in the mortgage loan area
resulted in an increase of approximately $22,881 in revenues from service
release premiums on mortgages sold to correspondent banks for the period ended
September 30, 1996, compared to September 30, 1995. Service charges, fees and
commissions were $135,427 for the three months ended September 30, 1996,
compared to $88,833 for the three months ended September 30, 1995, an increase
of $46,554 or 52.5%. The increase is primarily a result of an increase in
total deposits resulting in more service charge fees and commissions.
General and Administrative Expenses
Bank overhead increased $205,982 or 28.0% to $940,719 for the three months
period ended September 30, 1996, from $734,737 for the three months ended
September 30, 1995. Salaries and employee benefits increased $68,374 or 16.2%
to $491,307 for the period ended September 30, 1996, from $422,933 for the
three months period ended September 30, 1995. This increase is primarily
attributed to annual merit raises given to the employees and the addition of
staff for a new office which opened May 24, 1996. Net occupancy expense
increased $40,802 or 24.3% to $208,574 for three months ended September 30,
1996, from $167,772 for three months ended September 30, 1995. The increase is
attributed to the annual adjustment in the base rent of the bank at 256 Meeting
Street, Charleston, South Carolina, and the addition of the new Mt. Pleasant
office which was completed in May, 1996. Other
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<PAGE> 12
operating expenses increased $98,825 or 69.6% to $240,838 for the period ending
September 30, 1996, from $142,013 for the period ending September 30, 1995.
The primary causes for this increase was the cost of fees associated with a new
receivables financing service of $38,790 for the three months ended September
30, 1996, an increase in business development expenses related to the opening
of a new office of $5,372 for the three months ended September 30, 1996, data
processing fees increasing by $10,988 due to account growth for the three
months ended September 30, 1996, and the cost of supplies to open a new office
during this same period.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996, TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net Income
Net income increased $256,364 or 34.0% to $1,010,557 for the nine months ended
September 30, 1996, from $754,193 for the nine months ended September 30, 1995.
The increase in net income is primarily a result of an increase in net interest
income of $591,099 and the increase in total other income of $274,125 offset by
increases in other expenses and income taxes of $384,221 and 164,639,
respectively.
Net Interest Income
Net interest income increased $591,099 or 17.0% to $4,061,385 for the nine
months ended September 30, 1996, from $3,470,286 for the nine months ended
September 30, 1995. Total interest and fee income increased $663,282 or 12.9%
to $5,806,857 for the nine months ended September 30, 1996, from $5,143,575 for
the nine months ended September 30, 1995. This increase is primarily due to an
increase in loan volume. Loans averaged for the nine months ended September
30, 1996, approximately $63,733,000 whereas loans for the same period ended
September 30, 1995, averaged approximately $54,813,000 producing interest and
fee income of $4,644,464 for the nine months ended September 30, 1996, compared
to $4,158,850 for the nine months ended September 30, 1995, or an increase of
$485,614 or 11.7%. Also, investment income produced $826,019 for the nine
months ended September 30, 1996, as opposed to $698,267 for the same period
ended September 30, 1995, an increase of $127,752 or 18.3%. Total interest
expense increased $72,183 or 4.3% to $1,745,472 for the nine months ended
September 30, 1996, from $1,673,289 for the nine months ended September 30,
1995. The increase from the reporting period 1995 to 1996 is primarily the
growth in interest bearing deposits averaging approximately $61,678,000 for the
nine months ended September 30, 1996, as opposed to approximately $53,196,000
for the same period ended September 30, 1995. The average net interest spread
for the nine months ended September 30, 1996, was 4.65% compared to 4.77% for
the same period ended September 30, 1995.
Provision for Loan Losses
The provision for loan losses was $80,000 for the nine months ended September
30, 1996, as compared to $20,000 for the same period in the prior year. For
the nine months ended September 30, 1996, the Bank incurred seven charge offs
totaling $58,221 as compared to the nine months ended September 30, 1995, of
five charge offs totaling $32,095. The allowance for loan losses to total
loans at September 30, 1996, was 1.4% compared to 1.7% as of September 30,
1995. There were 22 loans past due over 30 days as of September 30, 1996,
totaling $991,018.
Other Income
Total other income for the period ended September 30, 1996, was $282,585
compared to $8,460 for the period ended September 30, 1995. The increase is
primarily due to a $244,400 write-down of Other Real Estate Owned during the
reporting period of 1995, which was not repeated in the current period.
General and Administrative Expenses
12
<PAGE> 13
General and administrative expenses increased $384,221 or 17.0% to $2,646,774
for the nine months ended September 30, 1996, from $2,262,553 for the nine
months ended September 30, 1995. In part, this increase is due to an annual
merit increase for the Company's staff and the increase in employees needed to
staff a new office in Mt. Pleasant, South Carolina, resulting in salary and
benefits increasing $149,422 or 11.9% for the nine months ended September 30,
1996, compared to the same period for 1995. Occupancy expense increased
$76,501 or 15.3% to $577,699 for the nine months ended September 30, 1996, from
$501,198 for the nine months ended September 30, 1995. Painting of the 256
Meeting Street office, an annual adjustment in the lease and associated costs
for the new office are the reasons for the increase. Total loan costs for the
nine months ended September 30, 1996, increased $81,497 from $4,337 for the
period ended September 30, 1995, to $85,834 for the period ended September 30,
1996. The increase is due to the cost of remittance fees and discount fees
associated with adding a new receivables financing service. Advertising and
customer relations increased approximately $43,261 for the nine months ended
September 30, 1996, compared to the same period for 1995. This is due to an
advertising campaign by the Company and the promotion of the new Mt. Pleasant
office. Although other expenses was reduced by the decrease in the FDIC
assessment, an increase in overall general expenses negated much of this
savings.
LIQUIDITY
The Company must maintain an adequate liquidity position in order to respond to
the short-term demand for funds caused by the withdrawals from deposit
accounts, maturities of repurchase agreements, extensions of credit and for the
payment of operating expenses. Maintaining this position of adequate liquidity
is accomplished through the management of a combination of liquid assets; those
which can be converted into cash and access to additional sources of funds.
Primary liquid assets of the Company are cash and due from banks, federal funds
sold, investments available for sale and other short-term investments and
maturing loans. The Company's primary liquid assets accounted for 31.7% and
35.6% of average assets at September 30, 1996, and 1995, respectively.
Additional sources of funds available through the Bank for additional liquidity
needs include borrowing on a short-term basis from the Federal Reserve System,
the purchasing of federal funds from other financial institutions and
increasing deposits by raising rates paid. The Company's core deposits consist
of IPCs, NOW accounts, money market accounts, time deposits and savings.
Although such core deposits are becoming increasingly more costly and interest
sensitive for both the Company and the industry as a whole, such core deposits
continue to provide the Company with a large and stable source of funds. Core
deposits averaged 87.3% of earning assets during the first six months of 1996
compared to 87.6% of earning assets for the same period ending six months 1995.
The Company closely monitors its reliance on certificates on deposit greater
than $100,000. The Company plans to meet its future needs through maturities
of investments and loans and through the generation of 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 nine
months ended September 30, 1996, the Bank's liquidity ratio was 25.8% and for
the same period ended September 30, 1995, the liquidity ratio was 34.4%.
CAPITAL RESOURCES
The capital needs of the Company have been met to date through the $10,600,000
in capital raised at its initial offering and the retention of earnings less
dividends paid and the exercising of stock options in April, 1995, of $124,000
and the exercising of stock options in March, 1996, of $124,000 for a total
shareholders' equity at September 30, 1996, of $14,559,037. The rate of asset
growth from the Bank's inception does not negatively impact this capital base.
Effective December 31, 1990, regulatory authorities adopted risk based capital
guidelines for financial institutions. These risk based guidelines are
13
<PAGE> 14
designed to highlight differences in risk profiles among financial institutions
and to account for off balance sheet risk. The guidelines established requires
a risk based capital ratio of 8% for bank holding companies and banks. The
risk based capital ratio at September 30, 1996, for the Bank is 21.4% and at
September 30, 1995, was 24.3%. The Company has no commitments or immediate
plans for significant capital expenditures. The Company opened another branch
in its market area in late May, 1996, and believes it can finance this growth
primarily with funds provided through normal operations. 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.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In May, 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights", an Amendment of SFAS No. 65, which is effective prospectively for
years beginning after December 15, 1995. The statement requires the
recognition of an asset for the right to service mortgage loans for others,
regardless of how those rights were acquired (either purchased or originated).
Further, it amends SFAS No. 65 to require assessment of impairment based on
fair value. Since the Company does not retain servicing or mortgage loans, the
adoption on SFAS No. 122 had no material effect on the Company.
On September 30, 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of"
which is effective for financial statements issued for fiscal years beginning
after December 15, 1995. SFAS No. 121 provides guidance for recognition and
measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill related both to assets to be held and used and assets
to be disposed of. The adoption of this statement did not have a material
effect on the Company.
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation". This statement is effective for financial statements issued for
fiscal years beginning December 15, 1995. SFAS No 123 provides guidance on the
valuation of compensation costs arising from both fixed and performance stock
compensation plans. The adoption of this statement did not have a material
effect on the Company.
In June, 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities". The
statement will become effective at the beginning of 1997. The statement uses a
"financial components" approach that focuses on control to determine the proper
accounting for financial asset transfers. Under that approach, after financial
assets are transferred, an entity would recognize on the balance sheet all
assets it controls and liabilities it has incurred. It would remove from the
balance sheet those assets it no longer controls and liabilities it has
satisfied. The Company does not anticipate that adoption of this standard will
have a material effect on the Company's financial statements in 1997.
14
<PAGE> 15
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with generally accepted
accounting principles (GAAP) which require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in relative purchasing power of money over time due to
inflation. The primary impact of inflation on operations of the Bank is
reflected in increased operating costs. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily in the same direction
or to the same extent as the prices of goods and services.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiary from time to time and currently is 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. CHANGES IN SECURITIES
See footnotes to consolidated balance sheets, pages 8 and 9.
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 AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK OF SOUTH CAROLINA CORPORATION
November 5, 1996
BY: /s/ Hugh C. Lane, Jr.
-------------------------------------
Hugh C. Lane, Jr.
President
BY: /s/ William L. Hiott,
--------------------------------------
William L. Hiott, Jr.
Executive Vice President & Cashier
16
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