<PAGE> 1
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 June 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
----------------------------------
(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 June 30, 1996, there were 1,171,650 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 ended
June 30, 1996
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations - Three months
ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations - Six months
ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Changes in Shareholders
Equity - Six months ended June 30, 1996 . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows - Six months
ended June 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Impact of New Accounting Pronouncements . . . . . . . . . . . . . . . . 14
Effect of Inflation and Changing Prices . . . . . . . . . . . . . . . . 14
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>
2
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PART I - ITEM 1 - FINANCIAL STATEMENTS
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
Assets: June 30, 1996 December 31, 1995
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<S> <C> <C>
Cash and due from banks $ 5,523,746 $ 4,239,424
Interest bearing deposits in other banks 6,069 5,957
Federal funds sold and repurchase agreements 7,625,000 15,025,000
Investment securities available for sale 19,066,285 12,505,634
Loans 63,149,016 61,986,536
Discount on loans receivable (11,365) -
Allowance for loan losses (971,322) (960,103)
----------------- -----------------
Net loans 62,166,329 61,026,433
Equipment and leasehold improvements, net 579,813 543,326
Other assets 1,850,771 1,902,305
----------------- -----------------
Total assets $ 96,818,013 $ 95,248,079
================= =================
Liabilities and Shareholders' Equity:
Deposits:
Non-interest bearing demand $ 18,677,755 $ 19,398,922
Interest bearing demand 13,642,079 15,410,415
Money market accounts 21,373,616 19,414,137
Certificates of deposit $100,000 and over 12,325,349 11,941,512
Other time deposits 9,879,860 9,143,811
Other savings deposits 3,876,873 3,681,547
----------------- -----------------
Total deposits 79,775,532 78,990,344
Short-term borrowings 1,802,536 1,078,569
Other liabilities 749,232 663,934
----------------- -----------------
Total liabilities 82,327,300 80,732,847
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Common Stock - No par value
Authorized 3,000,000 Shares;
Issued and outstanding 1,171,650 shares
at June 30, 1996, and 1,179,640 shares
at December 31, 1995 -- --
Additional paid in capital 10,848,000 10,724,000
Retained earnings 3,974,066 3,556,267
Unrealized gain on securities
available for sale, net of income taxes 3,350 234,965
Treasury stock (334,703) -
----------------- -----------------
Total shareholders' equity 14,490,713 14,515,232
----------------- -----------------
Total liabilities and shareholders' equity $ 96,818,013 $ 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.
3
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
June 30, 1996 June 30, 1995
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<S> <C> <C>
Interest and Fee Income
Interest and fees on loans $ 1,529,954 $ 1,387,822
Interest and dividends on investment securities 283,951 228,471
Other interest income 111,195 69,562
----------------- -----------------
Total interest and fee income 1,925,100 1,685,855
----------------- -----------------
Interest Expense
Interest on deposits 551,748 531,869
Interest on short-term borrowings 16,192 10,604
----------------- -----------------
Total interest expense 567,940 542,473
----------------- -----------------
Net Interest Income 1,357,160 1,143,382
Provision for loan losses 20,000 5,000
----------------- -----------------
Net Interest Income After Provision for Loan Losses 1,337,160 1,138,382
----------------- -----------------
Other Income
Service charges, fees and commissions 103,709 77,303
Other non-interest income (expense) 3,488 (117,961)
----------------- -----------------
Total other income 107,197 (40,658)
----------------- -----------------
Other Expense
Salaries and employee benefits 476,591 426,659
Net occupancy expense of premises 183,427 163,877
Net cost of operation of other real estate - 4,868
Other operating expenses 251,103 168,638
----------------- -----------------
Total other expense 911,121 764,042
----------------- -----------------
Income before income tax expense 533,236 333,682
Income tax expense 204,000 123,000
----------------- -----------------
Net Income $ 329,236 $ 210,682
================= =================
Net Income Per Common Share $ .28 $ .18
================= =================
Dividends Per Common Share $ .10 $ .06
================= =================
</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>
Six Months Ended
June 30, 1996 June 30, 1995
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<S> <C> <C>
Interest and Fee Income
Interest and fees on loans $ 3,018,310 $ 2,728,849
Interest and dividends on investment securities 501,705 471,719
Other interest income 251,142 88,696
----------------- -----------------
Total interest and fee income 3,771,157 3,289,264
----------------- -----------------
Interest Expense
Interest on deposits 1,109,320 995,910
Interest on short-term borrowings 31,224 30,109
----------------- -----------------
Total interest expense 1,140,544 1,026,019
----------------- -----------------
Net Interest Income 2,630,613 2,263,245
Provision for loan losses 35,000 20,000
----------------- -----------------
Net Interest Income After Provision for Loan Losses 2,595,613 2,243,245
----------------- -----------------
Other Income
Service charges, fees and commissions 195,877 151,737
(Loss) on investment securities (2,569) -
Other non-interest income (expense) (50,466) (236,097)
----------------- -----------------
Total other income 142,842 (84,360)
----------------- -----------------
Other Expense
Salaries and employee benefits 918,811 837,764
Net occupancy expense of premises 369,125 333,426
Net cost of operation of other real estate 1,088 10,646
Other operating expenses 417,031 345,980
----------------- -----------------
Total other expense 1,706,055 1,527,816
----------------- -----------------
Income before income tax expense 1,032,400 631,069
Income tax expense 388,639 228,000
----------------- -----------------
Net Income $ 643,761 $ 403,069
================= =================
Net Income Per Common Share $ .55 $ .34
================= =================
Dividends Per Common Share $ .20 $ .12
================= =================
</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)
SIX MONTHS ENDED JUNE 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 - - - (334,703) - (334,703)
Net income - - 643,761 - - 643,761
Change in unrealized gain
(loss) on securities
available for sale,
net of income taxes - - - - (231,615) (231,615)
Cash dividends - - (225,962) - - (225,962)
---- -------------- -------------- -------------- -------------- --------
Balance,
June 30, 1996 $ - $ 10,848,000 $ 3,974,066 $ (334,703) $ 3,350 $14,490,713
===== ============== ============== ============== ============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 643,761 $ 403,069
Adjustments to reconcile net income to net
cash provided used by operating activities:
Depreciation 63,825 60,227
Accretion/amortization of unearned
discounts/premiums on investments 8,066 (16,566)
Change in discount on loans receivable 11,365 -
Amortization of organizational costs 3,723 966
Loss on sale of investments 2,569 -
Write down of OREO - 244,400
Loss on sale of OREO 58,378 -
Increase Decrease in receivables and other assets (733,461) 115,468
Provision for loan losses 35,000 20,000
Increase in other liabilities 85,298 156,859
----------------- -----------------
Net cash used in operating activities 178,524 984,423
----------------- -----------------
Cash flows from investing activities:
Proceeds from sale/maturity of investments 4,011,382 1,843,421
Proceeds from sale of stock 25,000 -
Purchase of investment securities (10,975,311) -
Net increase in loans (1,186,261) (663,042)
Proceeds from sale of OREO 858,922 -
Purchase of office property and equipment (100,312) (21,372)
----------------- -----------------
Net cash provided by investing activities (7,366,580) 1,159,007
----------------- -----------------
Cash flows from financing activities:
Net increase in deposit accounts 785,188 5,930,772
Net increase in short-term borrowings 723,967 480,287
Exercise of stock options 124,000 124,000
Dividends (225,962) (149,392)
Treasury stock (334,703) -
----------------- -----------------
Net cash provided by financing activities 1,072,490 6,385,667
----------------- -----------------
Net decrease increase in cash and cash equivalents (6,115,566) 8,529,097
Cash and cash equivalents, beginning of period 19,270,381 4,872,442
----------------- -----------------
Cash and cash equivalents, end of period $ 13,154,815 $ 13,401,539
================= =================
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 1,158,011 $ 931,134
Income taxes 314,702 218,718
</TABLE>
See accompanying notes to consolidated financial statements.
7
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BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30, 1996, and December 31, 1995, and for the
quarters and six months ended June 30, 1996, and June 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 June 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 balance. 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
8
<PAGE> 9
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 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 $19,060,967. The aggregate market value of
securities "Available for Sale" on the basis of market quotations as of June
30, 1996, is $19,066,285. The unrealized gain as of June 30, 1996, on such
securities is $5,318.
The amortized cost of securities "Available for Sale" on the basis of market
quotations as of December 31, 1995, was $12,740,599. 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 $234,965.
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
<PAGE> 10
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 six months of 1996, the Company reported net income of $643,761
or $.55 per share, an increase of $240,692 or 59.7% compared to the net income
for the first six months of 1995 of $403,069 or $.34 per share. Total assets
increased approximately $1,570,000 or 1.7% at June 30, 1996, from December 31,
1995. The majority of this increase is reflected in loans. This increase in
assets was primarily funded by a modest increase in deposits and short-term
borrowings (demand notes issued to the U.S. Treasury).
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996, TO THREE MONTHS ENDED JUNE
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 $118,554 or 56.3% to $329,236 for the three
months ended June 30, 1996, from $210,682 for the three months ended June 30,
1995. The increase is primarily due to average interest bearing assets for
three months ended June 30, 1996, of approximately $88,410,000 compared to
$73,982,225 for the three months ended June 30, 1995, and the increase in total
other income of $147,855 for the three months period ended June 30, 1996,
compared to the same period ended June 30, 1995. A major part of the increase
in total other income is due to a write-down in Other Real Estate Owned during
the second quarter of 1995 of $122,200. Negating part of this increase,
however, was a $15,000 larger provision for loan losses and an increase in
total other expenses of $81,000.
Net Interest Income
Net interest income increased $213,778 or 18.7% to $1,357,160 for the three
months ended June 30, 1996, from $1,143,382 for the three months ended June 30,
1995. Total interest and fee income increased $239,245 for the three months
ended June 30, 1996, to $1,925,100 from $1,685,855 for the three months ended
June 30, 1995. This increase is a result of average total loans for the three
months ended June 30, 1996, averaging approximately $62,443,000 compared to
average total loans of approximately $54,389,000 for the three months ended
June 30, 1995. The loan portfolio produces the highest yield of all earning
assets. The investment portfolio income increased $55,480 or 24.3% to $283,951
for the period ended June 30, 1996, as compared to $228,471 for the three
months ended June 30, 1995. This increase in revenue is primarily a result of
increasing the securities portfolio from $14,473,109 as of June 30, 1995, to
$19,066,285 as of June 30, 1996. Other interest income increased $41,633 or
59.9% to $111,195 for the three months ended June 30, 1996, from $69,562 for
the three months ended June 30, 1995. This increase in revenue is primarily
attributed to the increase in average overnight federal funds from
approximately $4,800,000 during the three months ended June 30, 1995, to
approximately $8,562,000 for the three months ended June 30, 1996. The net
interest spread for the three months ended June 30, 1996, was 4.72% compared to
4.81% for the same period ended June 30, 1995.
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<PAGE> 11
Total interest expense increased $25,467 or 4.7% to $567,940 for the three
months ended June 30, 1996, from $542,473 for three months ended June 30, 1995.
The increase is due to average interest bearing deposits increasing for the
period June 30, 1996, to approximately $61,196,000 from the same period June
30, 1995, of approximately $50,895,000. Interest on deposits for the three
months ended June 30, 1996, was $551,748 compared to $531,869 for the same
period June 30, 1995, an increase of $19,879 or 3.7%. Interest on short-term
borrowings was $16,192 for the three months ended June 30, 1996, compared to
$10,604 for the three months ended June 30, 1995, an increase of $5,588 or
52.7%.
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 June 30, 1996, $20,000 was charged to the provision
for loan losses compared to $5,000 for the quarter ended June 30, 1995. At
June 30, 1996, the allowance for loan losses was $971,322 or 1.5% of total
loans. This compares to an allowance of $990,652 or 1.8% as of June 30, 1995.
During the quarter ended June 30, 1996, the Bank incurred one charge off
totaling $378 as compared to the same period quarter ended June 30, 1995, of
one charge off totaling $2,031. There was one loan on non-accrual status at
June 30, 1996, for $82,280 and none on non-accrual at June 30, 1995. There
were 21 loans past due over 30 days totaling $439,273 or .7% of total loans at
June 30, 1996, compared to $1,013,000 or 1.8% of total loans at June 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 June 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 June 30, 1996, was $107,197 compared to
a negative balance of ($40,658) for the same period ended June 30, 1995. The
difference is a write-down of Other Real Estate Owned during the second quarter
of 1995 in the amount of $122,200. Service charges, fees and commissions was
$103,709 for the three months ended June 30, 1996, compared to $77,303 for the
three months ended June 30, 1995, an increase of $26,406 or 34.2%. The
increase is primarily a result of an increase in total deposits resulting in
more fees and fees generated by an increase in home mortgage loans.
General and Administrative Expenses
Bank overhead increased $147,079 or 19.3% to $911,121 for the three months
period ended June 30, 1996, from $764,042 for the three months ended June 30,
1995. Salaries and employee benefits increased $49,932 or 11.7% to $476,591
for the period ended June 30, 1996, from $426,659 for the three months period
ended June 30, 1995. This increase is primarily attributed to merit raises
given to the employees and the addition of staff for a new branch which opened
May 24, 1996. Net occupancy expense increased $19,550 or 11.9% to $183,427 for
three months ended June 30, 1996, from $163,877 for three months ended June 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
a land lease for
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<PAGE> 12
the new Mt. Pleasant office. Other operating expenses increased $82,465 or
48.9% to $251,103 for the period ending June 30, 1996, from $168,638 for the
period ending June 30, 1995. This increase resulted primarily from an
aggressive advertising and business development campaign for the Bank and the
promotion of the new Mt. Pleasant office during the three months ended June 30,
1996. Costs for the three months ended June 30, 1996, in advertising was
$48,519 compared to $3,550 for the same period ended June 30, 1995.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996, TO THE SIX MONTHS ENDED JUNE
30, 1995
Net Income
Net income increased $240,692 or 59.7% to $643,761 for the six months ended
June 30, 1996, from $403,069 for the six months ended June 30, 1995. The
increase in net income is primarily a result of an increase in net interest
income of $367,368 and the increase in total other income of $227,202.
Net Interest Income
Net interest income increased $367,368 or 16.2% to $2,630,613 for the six
months ended June 30, 1996, from $2,263,245 for the six months ended June 30,
1995. Total interest and fee income increased $481,893 or 14.7% to $3,771,157
for the six months ended June 30, 1996, from $3,289,264 for the six months
ended June 30, 1995. This increase is primarily due to an increase in loan
volume. Loans averaged for the six months ended June 30, 1996, approximately
$62,506,000 whereas loans for the same period ended June 30, 1995, averaged
approximately $54,386,000 producing interest and fee income of $3,018,310 for
the six months ended June 30, 1996, compared to $2,728,849 for the six months
ended June 30, 1995, or an increase of $289,461 or 10.6%. Also other interest
income (Federal Funds Sold) produced $251,142 for the six months ended June 30,
1996, as opposed to $88,696 for the same period ended June 30, 1995, an
increase of $162,446. Total interest expense increased $114,525 or 11.2% to
$1,140,544 for the six months ended June 30, 1996, from $1,026,019 for the six
months ended June 30, 1995. The increase from the reporting period 1995 to
1996 is primarily the growth in interest bearing deposits averaging
approximately $61,794,000 for the six months ended June 30, 1996, as opposed to
$51,073,000 for the same period ended June 30, 1995. The net interest spread
for the six months ended June 30, 1996, was 4.70% compared to 4.97% for the
same period ended June 30, 1995.
Provision for Loan Losses
The provision for loan losses was $35,000 for the six months ended June 30,
1996, as compared to $20,000 for the same period in the prior year. For the
six months ended June 30, 1996, the Bank incurred three charge offs totaling
$25,856 as compared to the six months ended June 30, 1995, of four charge offs
totaling $31,692. The allowance for loan losses to total loans at June 30,
1996, was 1.5% compared to 1.8% as of June 30, 1995. There were 21 loans past
due over 30 days as of June 30, 1996, totaling $439,273.
Other Income
Other income for the period ended June 30, 1996, was $142,842 compared to a
negative balance of ($84,360) for the period ended June 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
General and administrative expenses increased $178,239 or 11.7% to $1,706,055
for the six months ended June 30, 1996, from $1,527,816 for the six months
ended June 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 $81,047 or 9.7%
12
<PAGE> 13
for the six months ended June 30, 1996, compared to the same period for 1995.
Occupancy expense increased $35,699 or 10.7% to $369,125 for the six months
ended June 30, 1996, from $333,426 for the six months ended June 30, 1995.
Painting of the 256 Meeting Street office, an annual adjustment in its lease
and the land lease for the new office are the reasons for the increase.
Advertising and customer relations increased approximately $36,800 for the six
months ended June 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 31.67% and
28.04% of average assets at June 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 86.0% of earning assets during the first six months of 1996 compared
to 85.9% 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 six
months ended June 30, 1996, the Bank's liquidity ratio was 31.67% and for the
same period ended June 30, 1995, the liquidity ratio was 32.04%.
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 June 30, 1996, of $14,490,713. 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
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 June 30, 1996, for the Bank is 22.06% and at June
30, 1995, was 25.56%. 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.
13
<PAGE> 14
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,
Statement 65 would have no adverse effect on the Company.
On June 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. This statement is not anticipated to 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.
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.
14
<PAGE> 15
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
27 - Financial Data Schedule (for SEC use only).
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
August 6, 1996
BY: /s/ Hugh C. Lane, Jr.
-------------------------------------
Hugh C. Lane, Jr.
President
BY: /s/ William L. Hiott, Jr.
-------------------------------------
William L. Hiott, Jr.
Executive Vice President & Cashier
16
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