<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number: 0-27702
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BANK OF SOUTH CAROLINA CORPORATION
(Name of small business issuer in its charter)
South Carolina 57-1021355
- ------------------------------ ----------------------
(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) (Zip Code)
Issuer's telephone number: (803) 724-1500
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Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained to be best of the registrant's knowledge, in definitive proxy
information statements incorporated by reference in Part III of this Form
10-KSB. Not applicable
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Issuer's revenues for its most recent fiscal year: $7,899,225
Aggregate market value of the voting stock held by non-affiliates: $12,627,914
As of March 24, 1997, the Registrant has outstanding 1,170,757 shares of common
stock.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
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BANK OF SOUTH CAROLINA CORPORATION
AND SUBSIDIARY
Table of Contents
<TABLE>
<CAPTION>
PART I Page
<S> <C> <C>
Item 1. Description of Business....................................................3
Item 2. Description of Property....................................................5
Item 3. Legal Proceedings..........................................................5
Item 4. Submission of Matters to Vote of Security Holders..........................5
PART II
Item 5. Market for the Bank's Common Stock and Related Matters.....................5
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................7
Item 7. Financial Statements and Supplementary Data...............................18
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Matters.........................................................37
PART III
Item 9. Directors and Executive Officers of the Registrant........................38
Item 10. Compensation of Directors and Executive Officers..........................40
Item 11. Security Ownership of Certain Beneficial Owners and Management............42
Item 12. Certain Relationships and Related Transactions............................46
PART IV
Item 13. Exhibits, Financial Statements and Reports on Form 8-K....................47
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Bank of South Carolina (the "Bank") is a state-chartered financial
institution with depository accounts insured by the FDIC which was organized on
October 22, 1986, and opened for business on February 26, 1987. The Bank is a
wholly-owned subsidiary of Bank of South Carolina Corporation (the "Company").
The reorganization of The Bank of South Carolina into a subsidiary of a one-bank
holding company became effective on April 17, 1995. Each issued and outstanding
share of the Bank was exchanged for two shares of Bank of South Carolina
Corporation stock. Since the primary asset of the Company is its wholly-owned
subsidiary, the majority of the following discussion relates to the Bank.
The Bank serves Berkeley, Charleston and Dorchester counties (the "Tri-County
Area") as an independent, community-oriented commercial bank concentrating on
individuals and small and medium-sized businesses desiring a high level of
personalized services.
The Bank offers a full range of deposit services. Checking account services
include regular non-interest bearing checking accounts as well as interest
bearing negotiable order of withdrawal ("NOW") accounts. Savings and certificate
of deposit accounts include accounts ranging from a daily maturity (regular
savings and also money market accounts) to longer term certificates as
authorized by regulation. The Bank offers two levels of interest to its
customers on both money market and NOW accounts. NOW accounts with balances of
$20,000 or greater and money market accounts with balances of $10,000 or greater
are paid a rate slightly higher than the general market for these types of
accounts. In addition, retirement accounts such as IRA (Individual Retirement
Accounts) are available. In the last quarter of 1988, the Bank introduced a
safekeeping and brokerage service through First Wachovia Brokerage Service
Corporation which allows dividends and interest to be credited to an account
maintained by the Bank. During the third quarter of 1991, the Bank introduced a
cash management service to certain high balance account customers. The service
maximizes the earnings for the customer while allowing the Bank to operate
within regulatory requirements. All deposit accounts are insured by the FDIC to
the full amount permitted by law. Deposit accounts are solicited from
individuals, businesses, professional organizations and governmental
authorities.
Lending services include a full range of commercial, personal and mortgage
loans. The Bank's primary focus is on business lending. The types of commercial
loans that are available include both secured and unsecured loans for working
capital (including inventory and receivables), business expansion (including
acquisition of real estate and improvements) and purchase of machinery and
equipment. The Bank does not emphasize real estate lending for land acquisition,
land development or open-end construction loans. The types of personal loans
that are available include secured and unsecured loans for such purposes as
financing automobiles, home improvements, education and personal investments.
Beginning the first quarter of 1994, residential mortgage lending was provided
through correspondent relationships. The Bank originates, processes and closes
the loan and sells (each individually) to a correspondent.
The Bank offers credit cards (through correspondent banking services) including
MasterCard (TM) and Visa (TM) along with a personal checking account related
line of credit. The line of credit is available for both protection against
unexpected overdrafts and also for the convenience of having a pre-arranged loan
that can be activated simply by a check drawn on a personal checking account.
Other services offered, but not limited to, include safe deposit boxes, letters
of credit, travelers checks, direct deposit of payroll, social security and
dividend payments and automatic payment of insurance premiums and mortgage
loans. The Bank does not have a proprietary automated teller machine but
participates in a national ATM network through the Visa Debit Card Program. This
service is called "Check Card" by the Bank and also offers purchases by the
cardholder where Visa cards are accepted worldwide using a direct charge to
their checking account. The Bank operates a courier service as part of its
deposit services for commercial customers and provides a safekeeping brokerage
service through one of its correspondent banks. All banking services are
available through three banking house locations, 256 Meeting Street, Charleston,
SC, 100 N. Main Street, Summerville, SC, and 1337 Chuck Dawley Boulevard, Mt.
Pleasant, SC, which opened for business on May 28, 1996. A complete listing of
the Bank's services may be referenced in its Annual Report on page 39.
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The Bank has spent no appreciable amount in order to determine or develop the
services that the Bank offers. Research activities relating to development of
bank services were performed by the officers of the Bank during the organization
of the Bank and by those officers after the Bank opened for business.
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "BCHA"), and as such, is under the
supervisory and regulatory authority of the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). As a bank holding company registered
under the laws of the South Carolina Bank Holding Company Act, the Company is
also subject to regulation by the South Carolina State Board of Financial
Institutions. Thus, the Company is required to file annual reports and other
information with the Federal Reserve and the South Carolina State Board of
Financial Institutions regarding its financial condition, results of operations,
management and intercompany relationships and transactions between the Company
and its subsidiaries.
The Company's subsidiary bank, The Bank of South Carolina, is a state chartered
financial institution, and as such, is subject to various statutory
requirements, supervision and regulation, of which regular bank examinations are
a part, promulgated and enforced primarily by the Federal Deposit Insurance
Corporation and the South Carolina State Board of Financial Institutions.
The Company was authorized by its Board of Directors at its December 1995, board
meeting to repurchase up to 35,000 shares of its common stock on the open market
from time to time. As of this date 35,000 shares have been repurchased by the
Company.
Compliance with federal, state and local provisions regulating the discharge of
materials into the environment had no material effect on the capital
expenditures, earnings and competitive position of the Bank in the fiscal year
ended December 31, 1996.
By year end 1996, the Bank employed 49 people, 18 of whom are engaged in
management and administrative functions and 31 of whom are engaged in customer
service, none of whom are subject to a collective bargaining agreement.
Management believes its relationship with its employees is excellent.
The business of the Bank is not considered to be seasonal nor is the Bank's
business dependent on any one industry.
In the Bank's primary service area, there are 11 commercial banks, of which only
one is considered to have its headquarters in the Bank's service area. Of the 11
commercial banks, two have a large share of the market. These two are Wachovia
Bank of North Carolina, N.A. and NationsBank. In addition, there are three
savings and loan associations and various credit unions with offices in the
Tri-County Area. The Bank encounters strong competition from these financial
institutions as well as consumer and commercial finance companies, insurance
companies, brokerage firms and other financial institutions, some of which are
not subject to the same degree of regulation and restrictions as the Bank. Many
of these competitors have substantially greater resources and lending limits
than the Bank has and offer certain services, such as trust and international
banking services, which the Bank is not providing. The Bank does, however,
provide a means for clearing international checks and drafts through a third
party or correspondent bank.
Since January 1, 1986, South Carolina law has permitted regional interstate
banking. Pursuant to such law, several of the banks in the Tri-County Area have
been acquired by banks with headquarters outside the State of South Carolina. In
addition, South Carolina laws permit statewide branching by banks and savings
and loan associations. Accordingly, the Bank could face increased competition
from other banks and savings and loan associations not currently located in the
Tri-County Area.
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ITEM 2. DESCRIPTION OF PROPERTY
The Bank leases its headquarters and office facilities at 256 Meeting Street in
downtown Charleston. The lease of these facilities provides for an initial term
of ten years beginning on March 1, 1987, with at least three ten year renewal
options upon the same terms as the original lease term with notice of exercise
of each option being given at least six months prior to the expiration of each
term. Base rent is payable in equal monthly installments of $26,432 in advance.
The base rent will increase at the end of each rental year period by the lesser
of (i) 8% of the base rent or (ii) the percentage increase in the Consumer Price
Index, Urban Index, For All Wage Earners, issued by the U.S. Department of
Labor. Since the origination of the Bank's lease, the effective increase was 4%
in 1988, 4.4% in 1989, 4.6% in 1990, 6.1% in 1991, 3.1% in 1992, 2.9% in 1993,
2.7% in 1994 and 2.8% in 1995.
On June 30, 1995, the Bank was successful in renegotiating its 256 Meeting
Street facilities lease for one hundred forty (140) months with two additional
ten year terms. Base rent will be $26,432 monthly payable in advance for the
first twenty (20) months and the remaining one hundred twenty (120) months of
the term (which began March 1, 1997) and any of the two (2) extensions of the
original term of $24,801 per month in advance and is adjustable by 4% of the
base rent every two years. In addition, the Bank leases adjacent parking
facilities at $1,815 per month.
In October of 1993, the Bank opened an office at 100 N. Main Street,
Summerville, SC and entered into a lease agreement on August 9, 1993, with an
original termination date of June 30, 1999, and two 5 year options to renew.
Rent is $2,261 a month with no increase for the duration of both the original
and renewal periods.
On November 1, 1995, the Bank entered into an agreement with an individual to
lease property for construction of a new banking facility at 1337 Chuck Dawley
Boulevard, Mt. Pleasant, SC. The original term of the lease is for fifteen (15)
years with six (6) additional terms of five (5) years each. The base rent for
the first ten (10) years will be $2,250 per month paid in advance. Rent for
years 11 through 15 and each six (6) option periods shall be adjusted to reflect
an annualized return determined by multiplying the average yield on five (5)
year U.S. Treasury Notes plus 150 basis points times an assumed raw land value
of $325,000. The monthly rent, however, shall never be less than the original
rent of $2,250 per month.
The lessors of the Bank facilities are not affiliated with any of the officers
or directors of the Bank or the Company or any stockholders having more than
five percent (5%) beneficial ownership of the Common Stock of the Company.
All leased properties are in good order and condition.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of management, there are no legal proceedings pending other than
routine litigation incidental to its business. To the knowledge of management,
no proceedings have been instituted or are contemplated by or against any
governmental authority against or by the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR BANK'S COMMON STOCK AND RELATED MATTERS
There were issued and outstanding 1,157,117 shares of the 3,000,000 authorized
shares of common stock of the Company at the close of the Company's fiscal year
ended December 31, 1996. These outstanding shares were held by
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approximately 900 shareholders of record on December 31, 1996. The common stock
of the Company is traded in the "over-the-counter" (OTC) market by three market
making investment banking firms. These firms are The Robinson-Humphrey Company,
Inc., Interstate/Johnson Lane, and Sterne, Agee & Leach, Inc. Stock quotations
are available through the National Association of Securities Dealers Automated
Quotations (NASDAQ) where the Company's shares are listed as BKSC.
According to information supplied by the National Association of Securities
Dealers, Inc., the range of high and low bid quotations for each quarterly
period in the fiscal years 1996 and 1995 has been as follows:
<TABLE>
<CAPTION>
1996 1995
HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
First Quarter 16 1/4 14 1/4 11 10 3/4
Second Quarter 16 1/2 14 12 1/2 10 3/4
Third Quarter 16 1/4 14 1/2 12 11
Fourth Quarter 17 3/4 16 1/4 13 3/4 11 3/4
</TABLE>
On April 17, 1995, The Bank of South Carolina became a subsidiary of Bank of
South Carolina Corporation, a one-bank holding company, and each share of common
stock of the Bank was exchanged for two shares of common stock of the Company.
All quotations prior to the second quarter of 1995 were for common stock of The
Bank of South Carolina. Average shares outstanding and per share data reflect
the common stock exchange after the reorganization and have been retroactively
restated.
The Board of Directors of the Company declared quarterly dividends in 1996 of
$.10 per share to shareholders of record March 29, 1996, payable May 15, 1996,
$.10 per share to shareholders of record June 28, 1996, payable August 15, 1996,
$.10 per share to shareholders of record September 30, 1996, payable November
15, 1996, and $.10 per share to shareholders of record December 31, 1996,
payable February 14, 1997.
During 1995, the Company declared quarterly dividends of $.06 per share to
shareholders of record March 31, 1995, payable May 15, 1995, $.08 per share to
shareholders of record June 30, 1995, payable August 15, 1995, $.08 per share to
shareholders of record September 29, 1995, payable November 15, 1995, and $.08
per share to shareholders of record December 29, 1995, payable February 15,
1996.
As of December 31, 1996, there were approximately 900 shareholders of record and
shares held by individuals in street name and on March 11, 1997, the bid and ask
prices for the common stock were 23 and 24, respectively. It is the intent of
the Company to continue paying dividends in the future.
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SUMMARY OF SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FOR DECEMBER 31:
- ----------------
Net Income $ 1,388,808 $ 1,049,231 $ 705,323 $ 643,175 $ 677,568
Selected Year End Balances
- - Total Assets 102,835,416 95,248,079 77,176,341 80,225,926 77,073,836
- - Total Loans 71,660,124 61,986,536 54,471,114 52,473,245 55,362,015
- - Investment Securities 19,231,905 12,505,634 15,955,605 15,105,901 13,201,743
- - Federal Funds Sold and Repurchase Agreements 4,675,000 15,025,000 725,000 9,575,000 4,700,000
- - Interest Bearing Deposits in Other Banks 6,185 5,957 5,742 5,592 5,462
- - Earning Assets 95,573,214 89,523,127 71,157,461 77,159,738 73,269,219
- - Deposits 84,830,237 78,990,344 62,465,429 64,814,531 62,005,067
- - Shareholders' Equity 14,893,813 14,515,232 13,287,736 12,955,888 12,514,113
Weighted Average Shares Outstanding (1) (2) 1,169,961 1,176,463 1,166,000 1,166,000 1,166,000
FOR THE YEAR:
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Selected Average Balances
- - Total Assets 96,379,427 84,596,891 78,107,336 76,955,947 75,298,229
- - Total Loans 65,468,548 55,870,527 52,079,826 53,313,291 54,427,295
- - Investment Securities 17,614,422 14,564,163 16,742,283 13,503,873 13,845,103
- - Federal Funds Sold and Repurchase Agreements 7,622,131 8,653,014 4,358,411 6,468,675 3,507,388
- - Interest Bearing Deposits in Other Banks 6,092 5,868 5,668 5,796 94,473
- - Earning Assets 90,711,193 79,093,572 73,186,188 73,291,635 71,874,259
- - Deposits 79,671,917 68,974,795 63,427,727 62,201,593 60,343,442
- - Shareholders' Equity 14,656,129 13,852,365 13,169,210 12,789,832 12,282,707
PERFORMANCE RATIOS:
- -------------------
Return on Average Equity 9.48% 7.57% 5.36% 5.04% 5.52%
Return on Average Assets 1.44% 1.24% .90% .84% .90%
Average Equity to Average Assets 15.21% 16.37% 16.86% 16.62% 16.31%
Net Interest Margin 6.09% 5.95% 5.39% 4.58% 4.63%
Net Charge-offs to Average Loans .09% .10% .29% .26% .37%
Allowance for Loan Losses as a
Percentage of Average Loans 1.59% 1.72% 1.91% 1.95% 1.87%
PER SHARE: (1) (2)
- ------------------
Net Income $ 1.19 $ .89 $ .60 $ .55 $ .58
Year End Book Value 12.87 12.30 11.40 11.11 10.73
Cash Dividend Declared .39 .27 .20 .17 .15
Dividend Payout Ratio 32.93% 30.59% 33.06% 31.31% 25.81%
Full Time Employee Equivalents 47 39 37 31 27
</TABLE>
1) On April 17, 1995, The Bank of South Carolina reorganized into Bank of
South Carolina Corporation, a one-bank holding company when each share
of common stock of the Bank was exchanged for two shares of common
stock of the Corporation. Average shares outstanding and per share data
reflect the common stock exchange after the reorganization and have
been retroactively restated.
2) On May 15, 1996, Bank of South Carolina Corporation issued a 10% stock
dividend. All share and per share data have been retroactively
restated.
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The following tables, as well as the previously presented consolidated financial
highlights, set forth certain selected financial information concerning the
Company and its wholly-owned subsidiary. The information was derived from
audited consolidated financial statements. The information should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations which follows and the audited consolidated financial
statements and notes which are presented elsewhere in this report.
<TABLE>
<CAPTION>
FOR YEARS ENDED
DECEMBER 31,
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Operating Data:
Interest and fee income $7,899,225 $7,013,875 $5,513,791 $4,878,269 $5,303,102
Interest expense 2,378,414 2,306,545 1,572,987 1,532,547 1,933,158
---------- ---------- ---------- ---------- ----------
Net interest income 5,520,811 4,707,330 3,940,804 3,345,722 3,369,944
Provision for loan losses 140,000 20,000 105,000 160,000 420,000
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 5,380,811 4,687,330 3,835,804 3,185,722 2,949,944
Other income 500,923 345,677 191,829 277,238 285,791
Other expense 3,658,787 3,366,776 2,915,310 2,466,285 2,194,367
---------- ---------- ---------- ---------- ----------
Income before income taxes 2,222,947 1,666,231 1,112,323 996,675 1,041,368
Income tax expense 834,139 617,000 407,000 353,500 363,800
---------- ---------- ---------- ---------- ----------
Net income $1,388,808 $1,049,231 $ 705,323 $ 643,175 $ 677,568
========== ========== ========== ========== ==========
Net income per common share (1) (2) $ 1.19 $ .89 $ .60 $ .55 $ .58
========== ========== ========== ========== ==========
Weighted average common shares (1) (2) 1,169,961 1,176,463 1,166,000 1,166,000 1,166,000
Dividends per common share $ .39 $ .27 $ .20 $ .17 $ .15
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total investment securities $ 19,231,905 $ 12,505,634 $ 15,955,605 $ 15,105,901 $ 13,201,742
Total loans 71,660,124 61,986,536 54,471,114 52,473,245 55,362,015
Allowance for loan losses 1,041,216 960,103 996,386 1,039,870 1,017,962
Total assets 102,835,416 95,248,079 77,176,341 80,225,926 77,073,836
Total deposits 84,830,237 78,990,344 62,465,429 64,814,531 62,005,067
Shareholders' equity 14,893,813 14,515,232 13,287,736 12,955,888 12,514,113
</TABLE>
1) On April 17, 1995, The Bank of South Carolina reorganized into Bank of
South Carolina Corporation, a one-bank holding company when each share
of common stock of the Bank was exchanged for two shares of common
stock of the Corporation. Average shares outstanding and per share data
reflect the common stock exchange after the reorganization and have
been retroactively restated.
2) On May 15, 1996, Bank of South Carolina Corporation issued a 10% stock
dividend. All share and per share data have been retroactively restated
to reflect the 10% stock dividend.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis is included to provide the shareholders
with an expanded narrative of the Company's results of operations, changes in
financial condition, liquidity and capital adequacy. This narrative should be
reviewed in conjunction with the audited consolidated financial statements and
notes included in this annual
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report and the Company's 1996 Annual Report on Form 10-KSB. Since the primary
asset of the Company is its wholly-owned subsidiary, most of the discussion and
analysis relates to the Bank.
On average daily assets of $96,379,427 in 1996, an increase from $84,596,891 in
1995, the Company earned $1,388,808 or $1.19 per share compared to $1,049,231 or
$.89 per share for 1995. The return on average assets of 1.44% for 1996 was up
from 1.24% for 1995. The return on average shareholders' equity for 1996 was
9.48%, up from 7.57% for 1995. Total average deposits at December 31, 1996, were
$79,671,917, up $10,697,122 or 15.51% from year end 1995.
During 1996, the Company declared four quarterly cash dividends of $.10 per
share thereby sharing a greater portion of its profits with its owners, compared
to prior years.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995, TO DECEMBER 31, 1996
Net income increased $339,577 from $1,049,231 for December 31, 1995, to
$1,388,808 for December 31, 1996, increasing net income per common share from
$.89 to $1.19 for the same periods. This increase is primarily attributable to
increases in net interest income and other income and a loss on other real
estate owned in the prior year.
Net interest income increased $813,481 from $4,707,330 for December 31, 1995, to
$5,520,811 for December 31, 1996. This increase is due to the Company's volume
of average interest earning assets increasing at a faster rate than the average
interest bearing liabilities while maintaining a fairly consistent net interest
spread for the year.
Total interest and fee income increased 12.62% or $885,350. This increase is due
primarily to an increase in interest and fees on loans from $5,607,210 at
December 31, 1995, to $6,360,042 at December 31, 1996. Total loans increased
from $61,986,536 at December 31, 1995, to $71,660,124 at December 31, 1996. The
average yield on loans decreased from 10.04% to 9.71% for the same periods.
Total interest expense increased 3.12% or $71,869. This increase is due
primarily to an increase in interest on deposits from $2,236,115 at December 31,
1995, to $2,313,460 at December 31, 1996. Deposits increased from $78,990,344 at
December 31, 1995, to $84,830,237 at December 31, 1996. The average rate on
interest bearing liabilities decreased from 4.09% to 3.75% for the same periods.
The provision for loan losses increased from $20,000 at December 31, 1995, to
$140,000 at December 31, 1996. The increase in the provision is directly related
to the 16% growth in the loan portfolio. The allowance for loan losses as a
percentage of average total loans decreased from 1.72% to 1.59% for the same
period due to the increase in loans. Management believes the allowance for loan
losses is adequate to absorb inherent losses in the loan portfolio. For further
discussion, see "Non-accrual and Past Due Loans" and "Allowance for Loan
Losses."
Other income increased 44.91% from $345,677 at December 31, 1995, to $500,923 at
December 31, 1996, or $155,246. This increase is attributable to an increase in
service charges, fees and service release premiums from mortgage loans.
Other expense increased 8.67% or $292,011 from December 31, 1995, to December
31, 1996. This increase is due in part to a 12.72% increase in salaries and
employee benefits as a result of the creation of new positions within the
Company and an annual merit increase for the Company's staff. This was offset by
a loss on other real estate owned in 1995.
Occupancy expense increased $101,386 or 14.78% from $685,965 at December 31,
1995, to $787,351 at December 31, 1996. This increase is primarily due to the
addition of the Mt. Pleasant office which opened in May 1996.
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Other operating expense increased $250,014 or 37.60% from $664,992 at December
31, 1995, to $915,006 at December 31, 1996. The increase is a result of expenses
relating to the opening a new office in Mt. Pleasant during the year as well as
increases in other general operating expenses.
Income tax expense increased from $617,000 at December 31, 1995, to $834,139 at
December 31, 1996. The Company provides for income taxes at approximately 37% of
pretax net income. The increase in income tax expense is directly related to the
increase in pretax net income from $1,666,231 at December 31, 1995, to
$2,222,947 at December 31, 1996.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994, TO DECEMBER 31, 1995
Net income increased $343,908 from $705,323 for December 31, 1994, to $1,049,231
for December 31, 1995, increasing net income per common share from $.60 to $.89
for the same periods. This increase is primarily attributable to an increase in
net interest income, a reduction in the provision for loan losses and increases
in both other income and expense.
Net interest income increased $766,526 from $3,940,804 for December 31, 1994, to
$4,707,330 for December 31, 1995. This increase is due to the Company's volume
of average interest earning assets increasing at a faster rate than the average
interest bearing liabilities as well as the weighted average rate on interest
bearing assets increasing more than the rate on the interest bearing
liabilities.
Total interest and fee income increased 27% or $1,500,084. This increase is due
primarily to an increase in interest and fees on loans from $4,360,882 at
December 31, 1994, to $5,607,210 at December 31, 1995. Total loans increased
from $54,471,114 at December 31, 1994, to $61,986,536 at December 31, 1995. The
average yield on loans also increased from 8.37% to 10.04% for the same periods.
Total interest expense increased 47% or $733,558. This increase is due primarily
to an increase in interest on deposits from $1,531,186 at December 31, 1994, to
$2,236,115 at December 31, 1995. Deposits increased from $62,465,429 at December
31, 1994, to $78,990,344 at December 31, 1995. The average rate on interest
bearing liabilities also increased from 3.01% to 4.09% for the same periods.
The provision for loan losses decreased from $105,000 at December 31, 1994, to
$20,000 at December 31, 1995. The allowance for loan losses as a percentage of
total loans also decreased from 1.83% to 1.55% for the same period. Management
believes the allowance for loan losses is adequate to absorb inherent losses in
the loan portfolio. For further discussion, see "Non-accrual and Past Due Loans"
and "Allowance for Loan Losses."
Other income increased from $191,829 at December 31, 1994, to $345,677 at
December 31, 1995. This increase is attributable to a 14% increase in service
charges, fees and commissions as well as a loss on sale of investment securities
in 1994 of $140,443, which was not repeated in 1995.
Other expense increased 15.5% or $451,466 from December 31, 1994, to December
31, 1995. This increase is due to a 13% increase in salaries and employee
benefits as a result of the creation of two new positions within the Company and
an annual merit increase for the Company's staff. Additionally, in 1995 there
was a loss on other real estate owned of $313,000 due to the write down and
subsequent sale of other real estate owned. See discussion under "Allowance for
Loan Losses."
Income tax expense increased from $407,000 at December 31, 1994, to $617,000 at
December 31, 1995. The Company provides for income taxes at approximately 37% of
pretax net income. The increase in income tax expense is directly related to the
increase in pretax net income from $1,112,323 at December 31, 1994, to
$1,666,231 at December 31, 1995.
-10-
<PAGE> 11
ASSET AND LIABILITY MANAGEMENT
The assets and liabilities of the Company are managed to provide a consistent
level of liquidity to accommodate normal fluctuations in loans and deposits. At
year end 1996, total assets were $102,835,416, an increase of 7.97% from the end
of the previous year. At year end 1996, deposits were $84,830,237, an increase
of 7.39% from the end of the previous year, primarily as a result of an increase
in all deposit services with the exception of money market accounts.
Approximately 94.12% of the Bank's average assets were earning assets composed
of U.S. Treasury and municipal securities in the amount of $17,614,422, Federal
Funds Sold and interest bearing deposits in other banks in the amount of
$7,628,223 and loans in the amount of $65,468,548. In conjunction with the
adoption of SFAS 115, the Company reclassified all of its investment securities
to available for sale on January 1, 1994.
The Bank's policy is to minimize interest rate risk between interest bearing
assets and liabilities at various maturities and to attempt to maintain an asset
positive position over a 12 month period. In adhering to this policy, it is
anticipated that the Bank's net interest margins will not be materially affected
by inflation and changing prices. The interest rate spread for 1996 increased to
4.96% from 4.78% for 1995 and the net interest margin for 1996 increased to
6.09% from 5.95% for 1995 as the result of the decrease in the Bank's average
prime rate during 1996 of 8.27% from an average of 8.83% during 1995. Management
will continue to monitor its asset sensitive position in times of lower interest
rates which might adversely effect its net interest margin.
Since the rates on most of the Bank's interest bearing liabilities can vary on a
daily basis, management continues to maintain a loan portfolio priced
predominately on a variable rate basis. The Bank seeks stable, long-term deposit
relationships to fund its loan portfolio.
Investment securities with relatively short-term remaining maturities were used
to fund the increase in loans during 1996. At December 31, 1996, the average
maturity of the investment portfolio was 20 months with an average yield of
6.41% compared to 19 months with an average yield of 6.75% at December 31, 1995.
The Bank does not own nor has it ever purchased derivative securities.
-11-
<PAGE> 12
The following table summarizes the Bank's interest sensitivity position as of
December 31, 1996:
<TABLE>
<CAPTION>
3 MONTHS 6 MONTHS 1 YEAR
LESS TO LESS TO LESS TO LESS
EARNING ASSETS THAN 3 THAN 6 THAN 1 THAN 5 5 YEARS
(IN 000'S) 1 DAY MONTHS MONTHS YEAR YEARS OR MORE
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 60,988 $ 4,922 $ 1,805 $ 1,879 $ 1,230 $ --
Investment securities -- -- 1,014 3,004 15,040 --
Short term investments 6 -- -- -- -- --
Federal funds sold 4,675 -- -- -- -- --
-------- -------- -------- -------- -------- -----------
Total $ 65,669 $ 4,922 $ 2,819 $ 4,883 $ 16,270 $ --
======== ======== ======== ======== ======== ===========
INTEREST BEARING LIABILITIES
(IN 000'S)
CD's 100,000 and over $ -- $ 8,490 $ 4,573 $ 936 $ -- $ --
Other time deposits 365 4,943 3,399 2,500 161 --
Money market and interest
bearing demand accounts 34,671 -- -- -- -- --
Savings 3,715 -- -- -- -- --
Borrowed money 2,392 -- -- -- -- --
-------- -------- -------- -------- -------- -----------
Total $ 41,143 $ 13,433 $ 7,972 $ 3,436 $ 161 $ --
======== ======== ======== ======== ======== ===========
Net $ 24,526 $ (8,511) $ (5,153) $ 1,447 $ 16,109 $ --
Cumulative 16,015 10,862 12,309 28,418 28,418
</TABLE>
LIQUIDITY
The Bank's liquidity is monitored on a daily basis to insure funds are available
to meet the Bank's liquidity requirements. All securities owned by the Bank are
classified as available for sale and, as a result, are carried at market value
with changes in market value, net of tax adjusted through shareholders' equity.
The unrealized gain on securities available for sale, net of income taxes was
$108,810 at December 31, 1996, and the unrealized gain net of income taxes was
$234,965 at December 31, 1995. At year end 1996, the Bank's federal funds sold
totaled $4,675,000.
COMPOSITION OF AVERAGE ASSETS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loans $65,468,548 $55,870,527 $52,079,826 $53,313,291 $54,427,295
Investments 17,614,422 14,564,163 16,742,283 13,503,873 13,845,103
Federal funds sold &
other investments 7,628,223 8,658,882 4,364,079 6,474,471 3,601,861
Non-earning assets 5,668,234 5,503,319 4,921,148 3,664,312 3,423,970
----------- ----------- ----------- ----------- -----------
Total average assets $96,379,427 $84,596,891 $78,107,336 $76,955,947 $75,298,229
=========== =========== =========== =========== ===========
</TABLE>
Average earning assets increased by $11,617,621 from 1995 to 1996 while average
non-earning assets increased by $164,915 primarily as a result of loan growth
and an increase in the investment portfolio.
-12-
<PAGE> 13
Average loans for 1996 were up by $9,598,021 from 1995 as a result of stronger
loan demand. The majority of the growth, or approximately $5,661,000, was in
commercial loans which are tied to the Bank's prime rate.
Deposit growth was used to fund the increase in the loan and investment
portfolios.
INTEREST INCOME
In 1996, interest income was $7,899,225 compared to $7,013,875 in 1995, an
increase of $885,350 or 12.62% from 1995. At the same time, interest expense
increased from $2,306,545 in 1995 to $2,378,414 in 1996 an increase of $71,869
or 3.12% resulting in net interest income of $5,520,811 compared to $4,707,330
for 1995, an increase of $813,481 or 17.28%.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
As set forth in the below table, the increase in net interest income of $813,481
for 1996 was the result of increases in volume for loans and investments. The
increase in loan income of $752,832 was a result of a decrease of $210,433 due
to rate and an increase of $963,265 due to volume. The increase in investment
income of $223,033 was due to volume increasing $190,899 and rate increasing
$32,134.
The following table shows changes in interest income and expense based upon
changes in volume and changes in rates:
<TABLE>
<CAPTION>
1996 vs 1995 1995 vs 1994 1994 vs 1993
----------------------------------- ------------------------------------ ----------------------------------
Net Dollar Net Dollar Net Dollar
Volume Rate Change(1) Volume Rate Change(1) Volume Rate Change(1)
---------- --------- ---------- --------- ---------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 963,265 $(210,433) $ 752,832 $ 317,412 $ 928,916 $1,246,328 $(107,822) $ 727,022 $619,200
Investments 190,899 32,134 223,033 (128,266) 53,830 (74,436) 208,849 (167,037) 41,812
Fed funds sold &
other investments (58,959) (31,556) (90,515) 164,394 163,798 328,192 (68,439) 42,949 (25,490)
---------- --------- --------- --------- ---------- ---------- --------- --------- --------
Interest income $1,095,205 $(209,855) $ 885,350 $ 353,540 $1,146,544 $1,500,084 $ 32,588 $ 602,934 $635,522
========== ========= ========= ========= ========== ========== ========= ========= ========
Transaction
accounts $ 80,485 $(198,389) $(117,904) $ (35,937) $ 187,422 $ 151,485 $ (50,989) $ 53,199 $ 2,210
Savings 7,628 (5,017) 2,611 (31,471) 15,757 (15,714) 80,875 13,026 93,901
Certificates of
deposit 247,991 (55,354) 192,637 221,870 347,289 569,159 (62,918) 128 (62,790)
Fed funds
purchased (5,023) -- (5,023) 4,820 36 4,856 84 84 168
Securities sold
under agreements
to repurchase 6,876 (727) 6,149 (4,455) 9,511 5,056 (800) 596 (204)
Demand notes
issued to U.S.
Treasury (308) (6,293) (6,601) 6,074 12,642 18,716 (2,459) 9,613 7,154
---------- --------- --------- --------- ---------- ---------- --------- --------- --------
Interest expense $ 337,649 $(265,780) $ 71,869 $ 160,901 $ 572,658 $ 733,557 $ (36,207) $ 76,646 $ 40,439
========== ========= ========= ========= ========== ========== ========= ========= ========
Increase in net
interest income $ 813,481 $ 766,526 $595,082
</TABLE>
(1) VOLUME/RATE CHANGES HAVE BEEN ALLOCATED TO EACH CATEGORY BASED ON THE
PERCENTAGE OF EACH TO THE TOTAL CHANGE.
-13-
<PAGE> 14
LOAN PORTFOLIO COMPOSITION
The following is a schedule of the Bank's loan portfolio as of December 31,
1996, as compared to December 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
BOOK VALUE (IN 000'S)
TYPE 1996 1995 1994
- ---- ------- ------- -------
<S> <C> <C> <C>
Commercial and industrial loans $34,552 $31,073 $24,281
Real estate loans 31,605 26,601 25,043
Loans to individuals for household, family and other
personal expenditures 5,434 4,257 4,896
All other loans (including overdrafts) 69 56 251
------- ------- -------
Total loans (excluding unearned income) $71,660 $61,987 $54,471
======= ======= =======
</TABLE>
The only material change in the composition of the Bank's loan portfolio was a
19% increase in real estate loans due to increased loan demand in the market. As
a Bank whose mission is to serve its community, there is a geographic
concentration of loans in Charleston, Dorchester and Berkeley counties.
The Bank had no foreign loans or loans to fund leveraged buyouts (LBO's) during
1994, 1995 or 1996.
IMPAIRED AND RESTRUCTURED LOANS
The Bank had three impaired loans with aggregate balances of $63,054 and $73,287
as of December 31, 1996, and 1995, respectively, and one restructured loan with
a balance of $69,791 and $82,291 as of December 31, 1996 and 1995, respectively.
Management does not know of any loans which will not meet their contractual
obligations that are not otherwise discussed herein.
NON-ACCRUAL AND PAST DUE LOANS
The Bank had $38,432 in non-accrual loans as of December 31, 1996, compared to
$111,258 as of December 31, 1995. There were $2,792 in loans over 90 days past
due still accruing interest as of December 31, 1996, and none as of December 31,
1995.
A loan is generally placed on non-accrual status when principal or interest is
over 90 days past due or there is doubt about the collectability of the loan.
ALLOWANCE FOR LOAN LOSSES
The provision to the allowance for loan losses is based on management's and the
Loan Committee's ongoing review and evaluation of the loan portfolio and general
economic conditions on a monthly basis and by the Board of Directors on a
quarterly basis. Management's review and evaluation of the allowance for loan
losses is based on an analysis of historical trends, significant problem loans,
current market value of real estate or collateral and certain economic and other
factors affecting loans and real estate or collateral securing these loans.
Loans are charged off when, in the opinion of management, they are deemed to be
uncollectible. Recognized losses are charged against the allowance and
subsequent recoveries are added to the allowance. 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 evaluation. The allowance for loan losses is
subject to periodic evaluation by various regulatory authorities and may be
subject to adjustment based upon information that is available to them at the
time of their examination.
The total provision to the allowance for loan losses for 1996 was $140,000
compared to $20,000 for 1995. During 1996, loan losses of $63,853 and recoveries
of $4,966 were recorded to the allowance for loan losses resulting in a year end
-14-
<PAGE> 15
allowance for loan losses of $1,041,216 which represents 1.45% of total loans
compared to $960,103 or 1.55% of total loans at December 31, 1995.
In May, 1994, the Bank acquired real estate of $951,063 at a foreclosure sale.
Also in 1994, after a charge of $148,418 to the allowance for loan losses, the
real estate was recorded as other real estate owned at $1,222,000 which was the
property's fair value minus estimated selling costs. During 1995, the real
estate was written down to $917,300 with the loss being charged to loss on other
real estate owned. In January, 1996, the real estate was sold for $980,000 which
resulted in proceeds to the Bank of $918,066 after incurring a real estate
commission and other selling expenses.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and results of operations in terms of historical dollars
without consideration of changes in the relative purchasing power over time due
to inflation.
Unlike most other industries, virtually all of 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 does the effect of inflation.
The yield on a majority of the Company's earning assets adjusts simultaneously
with changes in the general level of interest rates. Most of the Company's
liabilities are issued with fixed terms and can be repriced only at maturity.
During periods of falling interest rates, as experienced from 1991 through 1993,
the yield on the Company's assets declines faster than the rates paid on
supporting liabilities. This causes a decline in the net interest margin because
the difference between what the Company earns on its assets and what it pays on
its liabilities becomes narrower. After interest rates have stabilized, there is
a period of time until the rates paid on interest-bearing liabilities declines
enough to restore the net interest margin. As demonstrated by the improving net
interest margin in 1994 and 1995, the opposite effect of increasing net interest
income is realized in a rising rate environment given the Company's current
balance sheet structure.
CAPITAL RESOURCES
The capital needs of the Company have been met to date through the $10,600,000
in capital raised in the Bank's initial offering and the retention of earnings
less dividends paid and the exercising of stock options in April of 1995 of
$124,000 and April of 1996 of $124,000 for a total shareholders' equity at
December 31, 1996, of $14,893,813. 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 December
31, 1996, for the Bank was 19.45% and at December 31, 1995, was 20.95%. The
Company has applied for another branch in its market area for construction to
begin in mid-1997 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.
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a material
effect on the financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of the
Company's and the Bank's assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. The Company's and the
Bank's capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings and other
factors.
-15-
<PAGE> 16
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
and Tier 1 capital to risk-weighted assets and to total assets. Management
believes, as of December 31, 1996, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
At December 31, 1996 and 1995, the Company and the Bank are categorized as "well
capitalized", respectively, under the regulatory framework for prompt corrective
action. To be categorized as "adequately capitalized," the Company and the Bank
must maintain minimum total risk based, Tier 1 risk based and Tier 1 leverage
ratios of 8%, 4% and 4%, respectively. There are no current conditions or events
that management believes would change the Company's or the Bank's category.
Please see "Notes to Consolidated Financial Statements" for the Company's and
the Bank's various capital ratios at December 31, 1996.
ACCOUNTING AND REPORTING CHANGES
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("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 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. The Company
recently commenced the origination and sale of mortgage loans. Currently the
Company is pre-selling all mortgages and their related servicing and, based upon
the Company's present mortgage lending operation. This statement did not have a
material adverse 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 after 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. The Company elected to continue to record stock-based
compensation in accordance with APB 25 and disclose proforma changes to net
income and earnings per share in the footnotes to the financial statements.
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. The statement
is effective for transactions occurring after December 31, 1996. 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
those assets it no longer controls and liabilities it has satisfied. This
statement contains special provisions that deal with servicing assets and
liabilities, which supersede SFAS No. 122, but this statement retains the
impairment and amortization approaches contained in SFAS No. 122. The Company
does not anticipate that adoption of this standard will have a material effect
on the Company's financial statements in 1997.
In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective Date
of Certain Provisions of SFAS No. 125, an amendment to SFAS No. 125, which is
effective December 31, 1996. This statement delays the effective date of certain
provisions of SFAS No. 125 until after December 31, 1997. The amended provisions
include those related to the transfers of financial assets and secured
borrowings. The provisions in SFAS No. 125 related to servicing assets and
liabilities are not delayed by this amendment. The Company does not anticipate
that adoption of this standard will
-16-
<PAGE> 17
have a material effect on the Company's financial statements.
INDUSTRY DEVELOPMENTS
Certain recently enacted and proposed legislation could have an effect on both
the costs of doing business and the competitive factors facing the financial
institution's industry. Among the recently enacted bills is legislation to
assess BIF members with one-fifth of the assessment rate imposed upon thrifts to
cover the annual $780,000,000 Financing Corp. (FICO) bond obligation. This
assessment computes to 130 basis points for banks in the years 1997 through
1999. Starting in the year 2000 until the FICO bonds are retired, banks and
thrifts will pay the assessment on a pro rata basis (estimated to run about 2.5
basis points for banks). The Company is unable to assess the impact of other
legislation on its financial condition or operations at this time.
THE BANK OF SOUTH CAROLINA EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
During 1989, the Board of Directors of the Bank adopted an Employee Stock
Ownership Plan and Trust Agreement to provide retirement benefits to eligible
employees of the Bank for long and faithful service. The Board of Directors of
the Bank approved the contribution of $146,184 to The Bank of South Carolina
Employee Stock Ownership Plan and Trust for the purchase of 10,178 shares of
common stock for the fiscal year ended December 31, 1996. The contribution was
made during 1996. T. Dean Harton, Sheryl G. Sharry and Nathaniel I. Ball, III,
currently serve as Plan Administrator. Nathaniel I. Ball, III, currently serves
as Trustee for the Plan. The Plan currently owns 79,708 shares of common stock
of Bank of South Carolina Corporation.
-17-
<PAGE> 18
YIELDS ON AVERAGE EARNING ASSETS AND RATES ON AVERAGE INTEREST-BEARING
LIABILITIES
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Paid/ Yield/ Average Paid/ Yield/ Average Paid/ Yield/
Balance Earned Rate Balance Earned Rate Balance Earned Rate
----------- ---------- ------- ----------- ---------- ------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING
ASSETS:
Loans $65,468,548 $6,360,042 9.71% $55,870,527 $5,607,210 10.04% $52,079,826 $4,360,882 8.37%
Investment
securities 17,614,422 1,134,525 6.44% 14,564,163 911,492 6.26% 16,742,283 985,928 5.89%
Federal funds
sold 7,622,131 404,430 5.31% 8,653,014 494,958 5.72% 4,358,411 166,832 3.83%
Other short-term
investments 6,092 228 3.74% 5,868 215 3.66% 5,668 149 2.63%
----------- ---------- ----- ----------- ---------- ------ ----------- ---------- ------
Total earning
assets $90,711,193 $7,899,225 8.71% $79,093,572 $7,013,875 8.87% $73,186,188 $5,513,791 7.53%
=========== ========== ===== =========== ========== ====== =========== ========== ======
INTEREST-BEARING
LIABILITIES:
Interest bearing
transaction
accounts $35,429,864 $ 993,501 2.80% $33,037,384 $1,111,404 3.36% $34,312,343 $ 959,919 2.80%
Savings 4,991,111 166,647 3.34% 4,769,316 164,036 3.44% 5,781,571 179,751 3.11%
Certificates of
deposit 21,727,528 1,153,312 5.31% 17,269,528 960,675 5.56% 11,022,901 391,516 3.55%
Federal funds
purchased -- -- 0.00% 85,863 5,023 5.85% 2,877 167 5.80%
Securities sold
under agreement
to repurchase 486,793 24,764 5.09% 355,488 18,615 5.24% 529,451 13,558 2.56%
Demand notes
issued to U.S.
Treasury 820,617 40,190 4.90% 826,061 46,792 5.66% 679,126 28,075 4.13%
----------- ---------- ----- ----------- ---------- ------ ----------- ---------- ------
Total interest
bearing
liabilities $63,455,913 $2,378,414 3.75% $56,343,640 $2,306,545 4.09% $52,338,269 $1,572,987 3.01%
=========== ========== ===== =========== ========== ====== =========== ========== ======
Net interest spread 4.96% 4.78% 4.52%
Net interest margin 6.09% 5.95% 5.39%
Net interest income $5,520,811 $4,707,330 $3,940,804
</TABLE>
-18-
<PAGE> 19
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Bank of South Carolina Corporation and subsidiary
Charleston, South Carolina
We have audited the accompanying consolidated balance sheets of Bank of South
Carolina Corporation and subsidiary (the "Corporation") as of December 31, 1996
and 1995, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the three year period ended
December 31, 1996. The consolidated financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Corporation at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick
Greenville, South Carolina
January 17, 1997
-19-
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
Cash and due from banks $ 5,980,344 $ 4,239,424
Interest bearing deposits in other banks 6,185 5,957
Federal funds sold and repurchase agreements 4,675,000 15,025,000
Investment securities available for sale (note 2) 19,231,905 12,505,634
Loans (note 3 and note 8) 71,660,124 61,986,536
Less: Allowance for loan losses (1,041,216) (960,103)
------------- ------------
Net loans 70,618,908 61,026,433
Accrued interest receivable 778,966 667,280
Premise, equipment and leasehold
improvements, net (note 4) 1,149,994 543,326
Other real estate owned -- 917,300
Other assets (note 6) 394,114 317,725
------------- ------------
Total assets $ 102,835,416 $ 95,248,079
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing demand $ 21,380,352 $ 19,398,922
Interest bearing demand 16,969,563 15,410,415
Money market accounts 17,397,957 19,414,137
Certificates of deposit $100,000 and over 13,790,007 11,941,512
Other time deposits 11,577,303 9,143,811
Other savings deposits 3,715,055 3,681,547
------------- ------------
Total deposits 84,830,237 78,990,344
Short-term borrowings (note 5) 2,392,408 1,078,569
Accrued interest payable and other liabilities 718,958 663,934
------------- ------------
Total liabilities 87,941,603 80,732,847
------------- ------------
Commitments and contingencies (note 7)
Shareholders' equity (notes 10, 11 and 12):
Common stock - No par, 3,000,000 authorized,
Issued and outstanding 1,157,117 shares in 1996
and 1,179,640 shares in 1995 -- --
Additional paid in capital 12,082,882 10,724,000
Retained earnings 3,252,807 3,556,267
Treasury stock (35,000 shares) (550,686) --
Unrealized gain on securities available for sale,
net of income taxes 108,810 234,965
------------- ------------
Total shareholders' equity 14,893,813 14,515,232
------------- ------------
Total liabilities and shareholders' equity $ 102,835,416 $ 95,248,079
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE> 21
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Interest and fee income
Interest and fees on loans $ 6,360,042 $5,607,210 $ 4,360,882
Interest and dividends
on investment securities 1,134,525 911,492 985,928
Other interest income 404,658 495,173 166,981
----------- ---------- -----------
Total interest and fee income 7,899,225 7,013,875 5,513,791
----------- ---------- -----------
Interest expense
Interest on deposits 2,313,460 2,236,115 1,531,186
Interest on short-term borrowings 64,954 70,430 41,801
----------- ---------- -----------
Total interest expense 2,378,414 2,306,545 1,572,987
----------- ---------- -----------
Net interest income 5,520,811 4,707,330 3,940,804
Provision for loan losses (note 3) 140,000 20,000 105,000
----------- ---------- -----------
Net interest income after
provision for loan losses 5,380,811 4,687,330 3,835,804
----------- ---------- -----------
Other income
Service charges, fees and commissions 488,794 331,959 291,213
Loss on sale of investment securities (2,569) -- (140,443)
Other non-interest income 14,698 13,718 41,059
----------- ---------- -----------
Total other income 500,923 345,677 191,829
----------- ---------- -----------
Other expense
Salaries and employee benefits 1,896,964 1,682,957 1,484,683
Net occupancy expense 787,351 685,965 648,084
Net cost of other real estate owned 1,088 19,822 21,646
Loss on other real estate owned 58,378 313,040 --
Other operating expenses (note 9) 915,006 664,992 760,897
----------- ---------- -----------
Total other expense 3,658,787 3,366,776 2,915,310
----------- ---------- -----------
Income before income tax expense 2,222,947 1,666,231 1,112,323
Income tax expense (note 6) 834,139 617,000 407,000
----------- ---------- -----------
Net income $ 1,388,808 $1,049,231 $ 705,323
=========== ========== ===========
Net income per common share $ 1.19 $ .89 $ .60
=========== ========== ===========
Cash dividends per common share $ .39 $ .27 $ .20
=========== ========== ===========
Book value $ 12.87 $ 12.30 $ 11.40
=========== ========== ===========
Weighted average shares outstanding 1,169,961 1,176,463 1,166,000
=========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE> 22
CONSOLIDATED STATEMENTS SHAREHOLDERS' EQUITY
<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>
December 31, 1993 $ 5,300,000 $ 5,300,000 $ 2,355,888 $ -- $ -- $ 12,955,888
Net income -- -- 705,323 -- -- 705,323
Unrealized loss
on securities
available for sale,
net of income taxes -- -- -- -- (140,275) (140,275)
Cash dividends -- -- (233,200) -- -- (233,200)
----------- ----------- ----------- --------- --------- ------------
December 31, 1994 $ 5,300,000 $ 5,300,000 $ 2,828,011 $ -- $(140,275) $ 13,287,736
Reorganization of The Bank
of South Carolina into a
one-bank holding company (5,300,000) 5,300,000 -- -- -- --
Shares issued for the
exercise of stock options -- 124,000 -- -- -- 124,000
Net income -- -- 1,049,231 -- -- 1,049,231
Change in unrealized gain
(loss) on securities
available for sale,
net of income taxes -- -- -- -- 375,240 375,240
Cash dividends -- -- (320,975) -- -- (320,975)
----------- ----------- ----------- --------- --------- ------------
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 -- -- -- (550,686) -- (550,686)
Net income -- -- 1,388,808 -- -- 1,388,808
Change in unrealized gain
(loss) on securities
available for sale,
net of income taxes -- -- -- -- (126,155) (126,155)
Common stock dividend -- 1,234,882 (1,234,882) -- -- --
Cash dividends -- -- (457,386) -- -- (457,386)
----------- ----------- ----------- --------- --------- ------------
December 31, 1996 $ -- $12,082,882 $ 3,252,807 $(550,686) $ 108,810 $ 14,893,813
=========== =========== =========== ========= ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,388,808 $ 1,049,231 $ 705,323
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 157,223 121,587 116,125
Amortization of organizational costs 7,446 4,689 --
Provision for loan losses 140,000 20,000 105,000
Deferred income taxes 71,000 (123,000) 6,000
Loss on other real estate owned 58,378 313,040 --
Loss on sale of investment securities 2,569 -- 140,443
Net accretion (amortization) of unearned
discounts/premiums on investment securities 4,841 34,935 10,514
(Increase) in accrued interest receivable
and other assets (192,429) (44,499) (389,138)
Increase in accrued interest payable and
other liabilities 55,024 369,896 235,512
------------ ------------ ------------
Net cash provided by operating activities 1,692,860 1,745,879 929,779
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales/maturities of investment securities
available for sale 5,036,383 5,013,882 9,939,797
Purchase of investment securities available for sale (11,970,311) (1,001,875) (11,080,733)
Net increase in loans (9,732,475) (7,571,705) (3,368,353)
Proceeds from the sale of other real estate owned 858,922 -- --
Purchase of premise, equipment and
leasehold improvement, net (763,891) (65,613) (79,715)
------------ ------------ ------------
Net cash provided (used) by investing activities (16,571,372) (3,625,311) (4,589,004)
------------ ------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts 5,839,893 16,524,915 (2,349,102)
Net increase (decrease) in short-term borrowings 1,313,839 (50,569) (1,180,096)
Dividends (457,386) (320,975) (233,200)
Treasury stock (550,686) -- --
Stock options exercised 124,000 124,000 --
------------ ------------ ------------
Net cash provided (used) by financing activities 6,269,660 16,277,371 (3,762,398)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (8,608,852) 14,397,939 (7,421,623)
Cash and cash equivalents at beginning of year 19,270,381 4,872,442 12,294,065
------------ ------------ ------------
Cash and cash equivalents at end of year $ 10,661,529 $ 19,270,381 $ 4,872,442
============ ============ ============
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 2,417,733 $ 2,145,329 $ 1,564,142
Income taxes 766,382 582,218 410,050
Transfer of investment securities held to
maturity to available for sale -- -- 15,105,901
Transfer of loans to other real estate owned -- -- 1,222,000
Change in unrealized gain on securities available for sale,
net of income taxes 126,155 375,240 140,275
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the more significant accounting policies
used in preparation and presentation of the accompanying consolidated
financial statements. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements. In addtion, they affect the reported amounts of
income and expense during the reporting period. Actual results could
differ from these estimates and assumptions.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of Bank of South Carolina Corporation
(the "Company") and its wholly-owned subsidiary, The Bank of South
Carolina (the "Bank"). In consolidation, all significant intercompany
balances and transactions have been eliminated. Bank of South Carolina
Corporation is a one-bank holding company organized under the laws of
the State of South Carolina. The Bank provides a broad range of
consumer and commercial banking services, concentrating on individuals
and small and medium-sized businesses desiring a high level of
personalized services.
The reorganization of the Bank into a one-bank holding company became
effective on April 17, 1995. All issued and outstanding shares of the
Bank's stock were converted into two shares of the Company's stock.
INVESTMENT SECURITIES: The Company accounts for its investment
securities in accordance with the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities.
Investments are classified into three categories as follows: (1) Held
to Maturity - debt securities that the Company has the positive intent
and ability to hold to maturity, which are reported at amortized cost;
(2) Trading - debt and equity securities that are bought and held
principally for the purpose of selling them in the near term, which are
reported at fair value, with unrealized gains and losses included in
earnings; and (3) Available for Sale - debt and equity securities that
may be sold under certain conditions, which are 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.
LOANS AND ALLOWANCE FOR LOAN LOSSES: The Company adopted SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, on January 1, 1995.
This statement requires that all creditors value loans for which it is
probable that the creditor will be unable to collect all amounts due
according to the terms of the loan agreement at the loan's fair value.
Fair value may be determined based upon the present value of expected
cash flows, market price of the loan, if available, or value of the
underlying collateral. Expected cash flows are required to be
discounted at the loan's effective interest rate.
SFAS No. 114 was amended by SFAS No. 118 to allow a creditor to use
existing methods for recognizing interest income on an impaired loan
and by requiring additional disclosures about how a creditor recognizes
interest income related to impaired loans.
When the ultimate collectibility of an impaired loan's principal is in
doubt, wholly or partially, all cash receipts are applied to principal.
When this doubt does not exist, cash receipts are applied under the
contractual terms of the loan agreement first to principal and then to
interest income. Once the recorded principal balance has been reduced
to zero, future cash receipts are applied to interest income, to the
extent that any interest has been foregone. Further cash receipts are
recorded as recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a
troubled debt restructuring after January 1, 1995. For these accruing
impaired loans, cash receipts are typically applied to principal and
interest receivable in accordance with the terms of the restructured
loan agreement. Interest income is recognized on these loans using the
accrual method of accounting. As of December 31, 1996, all impaired
loans were accruing interest.
-24-
<PAGE> 25
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 based upon information that is available to them at the time
of their examination.
PREMISE, EQUIPMENT AND LEASEHOLD IMPROVEMENT AND DEPRECIATION:
Buildings and equipment are carried at cost less accumulated
depreciation, calculated on the straight-line method over the estimated
useful life of the related assets ranging from 20 years and 3 to 15
years, respectively, 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.
OTHER REAL ESTATE OWNED: Other real estate owned is recorded at the
lower of fair value minus estimated selling costs or cost. Gains and
losses on the sale of other real estate owned and write-downs from
periodic reevaluation are charged to other operating expenses.
INCOME TAXES: Effective January 1, 1993, the Company adopted SFAS No.
109 with no material effect on the Company. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
INCOME PER COMMON SHARE: Income per common share is based on the
weighted average number of shares outstanding. Outstanding stock
options are common stock equivalents but have no material dilutive
effect on income per common share.
CASH FLOWS: Cash and cash equivalents includes working cash funds, due
from banks, items in process of collection and federal funds sold. To
comply with Federal Reserve regulations, the Bank is required to
maintain certain average cash reserve balances. The daily average
reserve requirement was $755,000 and $618,000 for the reserve periods
ended December 31, 1996, and 1995, respectively.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to the 1996 presentation. Such reclassifications had no impact
on net income or retained earnings as previously reported.
-25-
<PAGE> 26
2. INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and market values of investment securities available
for sale are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $18,989,786 $202,132 $(29,418) $19,162,500
Municipal Securities 69,405 -- -- 69,405
----------- -------- -------- -----------
Total $19,059,191 $202,132 $(29,418) $19,231,905
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $12,024,384 $372,961 $ -- $12,397,345
Municipal Securities 83,289 -- -- 83,289
Corporate Stock 25,000 -- -- 25,000
----------- -------- -------- -----------
Total $12,132,673 $372,961 $ -- $12,505,634
=========== ======== ======== ===========
</TABLE>
The amortized cost and market value of investment securities at
December 31, 1996, by contractual maturity are as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less $ 4,018,751 $ 4,048,881
Due in one year to five years 15,040,440 15,183,024
----------- -----------
Total $19,059,191 $19,231,905
=========== ===========
</TABLE>
The Company had $2,997,500 proceeds from the sale of investment
securities which resulted in a realized loss of $2,569 during the year
ended December 31, 1996 and no proceeds from the sale of investment
securities during the year ended December 31, 1995. The Company had
proceeds of $4,836,297 from the sale of investment securities which
resulted in a realized loss of $140,443 during the year ended December
31, 1994.
The carrying value of investment securities pledged to secure deposits
and other balances was approximately $10,846,000 and $9,880,000 at
December 31, 1996 and 1995, respectively.
-26-
<PAGE> 27
3. LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Commercial loans $ 55,027,846 $ 49,367,028
Residential mortgage 7,869,543 5,881,511
Consumer loans 5,087,491 3,792,685
Personal bank lines 3,607,898 2,910,414
Other 67,346 34,898
------------ ------------
71,660,124 61,986,536
Allowance for loan losses (1,041,216) (960,103)
------------ ------------
Loans, net $ 70,618,908 $ 61,026,433
============ ============
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
----------- --------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 960,103 $ 996,386 $ 1,039,870
Provision for loan losses 140,000 20,000 105,000
Charge offs (63,853) (67,535) (163,892)
Recoveries 4,966 11,252 15,408
----------- --------- -----------
Balance at end of year $ 1,041,216 $ 960,103 $ 996,386
=========== ========= ===========
</TABLE>
The Company grants short to intermediate term commercial and consumer
loans to customers throughout its primary market area of Charleston,
Berkeley and Dorchester Counties, South Carolina. The Company's primary
market area is heavily dependent on the tourism and military
industries. Although the Company has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon the stability of the economic environment in their
primary market including the tourism and military industries. Except
for the fact that the majority of the loan portfolio is located in the
Bank's immediate market area, there were no concentrations of loans in
any type of industry, type of property or to one borrower.
As of December 31, 1996 and 1995, the Company had loans on non-accrual
totalling approximately $38,000 and $111,000, respectively. The
additional amount of gross income that would have been recorded during
1996 and 1995 if these loans had performed as agreed would have been
approximately $438 and $4,497, respectively.
At December 31, 1996 and 1995, impaired loans amounted to $63,054 and
$73,287, respectively. Included in the allowance for loan losses is $0
and $11,740 related to the above impaired loans. For the years ended
December 31, 1996 and 1995, the average recorded investment in impaired
loans was $68,256 and $78,145, respectively, and $6,009 in 1996 and
$8,439 in 1995 of interest income was recognized on loans while they
were impaired. All of this income was recognized using the accrual
method of accounting.
At December 31, 1996 and 1995, there was a troubled debt restructuring
totaling $69,791 and $82,291, respectively, which was modified prior to
the adoption of SFAS No. 114 and which was performing in accordance
with its modified terms.
-27-
<PAGE> 28
4. PREMISE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Premise, equipment and leasehold improvements are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Bank buildings $ 583,959 $ --
Lease purchase 30,000 30,000
Leasehold improvements 202,789 187,136
Equipment 1,079,803 925,541
----------- -----------
1,896,551 1,142,677
Accumulated depreciation (746,557) (599,351)
----------- -----------
Total $ 1,149,994 $ 543,326
=========== ===========
</TABLE>
5. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
Securities sold under agreements to repurchase $ 480,559 $ 642,266
U.S. Treasury, Tax and Loan deposit notes 1,911,849 436,303
---------- ----------
Total $2,392,408 $1,078,569
========== ==========
</TABLE>
Securities sold under agreements to repurchase with customers mature on
demand. These borrowings were collateralized by U.S. Treasury Notes
with carrying values of $558,220 and $800,776 and market values of
$557,431 and $808,405 at December 31, 1996 and 1995, respectively. The
agreements to repurchase had weighted average interest rates of 5.08%
and 5.36% at December 31, 1996 and 1995, respectively. The maximum
amount outstanding at any month end was $575,180 and $709,913 for the
years ended December 31, 1996 and 1995, respectively. The average
amount of outstanding agreements to repurchase was $486,793 and
$355,488 during the periods ended December 31, 1996 and 1995,
respectively. The securities underlying the repurchase agreements were
held in safekeeping by an authorized broker. At the maturity dates of
these transactions, the securities are returned to the account of the
Bank.
6. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal $ 686,825 $ 697,000 $369,000
State 76,314 43,000 32,000
--------- --------- --------
763,139 740,000 401,000
--------- --------- --------
Deferred:
Federal 71,000 (123,000) 6,000
State -- -- --
--------- --------- --------
71,000 (123,000) 6,000
--------- --------- --------
Total $ 834,139 $ 617,000 $407,000
========= ========= ========
</TABLE>
-28-
<PAGE> 29
The Company's effective income tax rate differs from the statutory
Federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Provision for tax at statutory federal income
tax rate $755,802 $566,519 $378,190
State income taxes, net of federal tax benefit 50,367 28,380 21,120
Other, net 27,970 22,101 7,690
-------- -------- --------
Provision for income tax $834,139 $617,000 $407,000
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Bad debt reserves $308,000 $290,000
Tax basis of real estate versus carrying value
for financial reporting purposes -- 106,000
-------- --------
Total gross deferred tax assets 308,000 396,000
-------- --------
Deferred tax liabilities:
Unrealized gain on securities available for sale 63,904 137,995
Fixed assets, principally due to differences
in depreciation 35,000 49,000
Other 12,000 15,000
-------- --------
Total gross deferred tax liabilities 110,904 201,995
-------- --------
Net deferred tax asset $197,096 $194,005
======== ========
</TABLE>
There was no valuation allowance for potential deferred tax assets at
either December 31, 1996 or December 31, 1995. No valuation allowance
has been established as it is management's belief that realization of
the deferred tax asset is more likely than not. The net deferred tax
asset is included in other assets on the consolidated balance sheets.
A portion of the change in the net deferred tax asset relates to the
unrealized gains and losses on securities available for sale. The
related current period deferred tax benefit of $74,091 has been
recorded directly to shareholders' equity. The balance of the change in
the net deferred tax asset results from the current period deferred tax
expense of $71,000.
-29-
<PAGE> 30
7. COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements to lease equipment and its
office facilities under noncancellable operating lease agreements
expiring on various dates through 2010. The Company may, at its option,
extend the lease of its office facility at 256 Meeting Street in
Charleston, South Carolina, for two additional ten year periods, extend
the lease of its office facility at 100 N. Main Street, Summerville,
South Carolina, for two additional five year periods and extend the
land lease where the Mt. Pleasant office is constructed for six
additional five year periods. Minimum rental commitments for these
leases as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 381,901
1998 384,012
1999 381,436
2000 370,068
2001 and thereafter 4,122,558
----------
Total $5,639,975
==========
</TABLE>
Total rental expense was $380,637, $350,086, and $336,810 in 1996,
1995, and 1994, respectively.
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments involve,
to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the financial statements. The Company's
exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
standby letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Company uses the same
credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The amount of collateral obtained if deemed necessary by
the Company upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies, but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties. Commitments to extend credit,
including unused lines of credit, amounted to $16,897,267 and
$15,163,000 at December 31, 1996 and 1995, respectively.
Standby letters of credit are commitments issued by the Company to
guarantee the performance of a customer to a third party. Commitments
under standby letters of credit amounted to $1,437,650 and $1,055,000
at December 31, 1996 and 1995, respectively.
-30-
<PAGE> 31
8. RELATED PARTY TRANSACTIONS
In the opinion of management, loans to officers and directors of the
Company are made on substantially the same terms as those prevailing at
the time for comparable transactions with unaffiliated persons and do
not involve more than the normal risk of collectibility. There were no
outstanding loans to executive officers of the Company as of December
31, 1996. Related party loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 2,133,686 $ 2,670,941
New loans or advances 2,178,429 893,470
Repayments (1,721,167) (1,430,725)
----------- -----------
Balance at end of year $ 2,590,948 $ 2,133,686
=========== ===========
</TABLE>
9. OTHER EXPENSE
A summary of the components of other operating expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Advertising and business development $ 85,966 $ 19,969 $ 18,735
Supplies 110,396 91,063 117,533
Telephone and postage 106,379 83,672 74,429
Insurance 34,469 32,423 28,783
Professional fees 110,358 96,158 120,555
Data processing services 89,998 70,388 72,156
State and FDIC insurance and fees 14,927 85,857 159,526
Other 362,513 185,462 169,180
-------- -------- --------
Total $915,006 $664,992 $760,897
======== ======== ========
</TABLE>
10. STOCK DIVIDEND
The Board of Directors approved a 10% stock dividend on April 9, 1996,
for shareholders of record April 30, 1996, and effective May 15, 1996.
All share and per share data have been retroactively restated to
reflect the 10% stock dividend.
11. INCENTIVE STOCK OPTION PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The Company has an incentive stock option plan for the benefit of
eligible officers and employees. A total of 110,000 shares were
reserved and 99,000 shares have subsequently been granted under the
plan. Options for 27,940 shares with an exercise price of $9.09 and
16,500 shares with an exercise price of $9.44 have expired. No options
were granted during 1996. Options for 27,280 shares with an exercise
price of $9.09 remain outstanding. Options for 13,640 shares at $9.09
were exercised during 1996 and 1995. Of the remaining options for
27,280 shares at $9.09, options for 13,640 shares are exercisable
annually in 1997 and 1998 and expire if not exercised by the end of the
exercise period each year.
In the event of a prospective reorganization, consolidation or sale of
substantially all of the assets or any other form of corporate
reorganization in which the Company would not be the surviving entity
or in the event of the acquisition, directly or indirectly, of the
beneficial ownership of twenty-four percent (24%) of the Common Stock
-31-
<PAGE> 32
of the Company or the making, orally or in writing, of a tender offer
for, or any request or invitation for tender of, or any advertisement
making or inviting tenders of the Company stock by any person, all
options in effect at that time would accelerate so that all options
would become immediately exercisable and could be exercised within one
year immediately following the date of acceleration but not thereafter.
The Company established an Employee Stock Ownership Plan (ESOP)
effective January 1, 1989. Each employee who has attained age
twenty-one and has completed at least 1,000 hours of service in a Plan
year is eligible to participate in the Plan. Contributions are
determined annually by the Board of Directors and amounts allocable to
individual participants may be limited pursuant to the provisions of
Internal Revenue Code section 415. The Company recognizes expense when
the contribution is approved by the Board. The total expenses charged
by the Company amounted to $146,184, $144,720 and $103,699 for the
years ended December 31, 1996, 1995 and 1994, respectively.
12. REGULATORY CAPITAL REQUIREMENTS
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier 1 capital
(as defined in the regulation) to risk-weighted assets (as defined) and
to total assets. Management believes, as of December 31, 1996, that the
Company and the Bank meet all capital adequacy requirements to which
they are subject.
At December 31, 1996 and 1995, the Company and the Bank are categorized
as "well capitalized," respectively, under the regulatory framework for
prompt corrective action. To be categorized as "adequately
capitalized," the Company and the Bank must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the table below. There are no current conditions or events that
management believes would change the Company's or the Bank's category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital to
risk-weighted assets:
Company $15,722 20.98% $ 5,996 8.00% $ 7,495 10.00%
Bank 15,508 20.70% 5,994 8.00% 7,492 10.00%
Tier 1 capital to risk-weighted assets:
Company $14,785 19.73% $ 2,998 4.00% $ 4,497 6.00%
Bank 14,571 19.45% 2,997 4.00% 4,495 6.00%
Tier 1 capital to total assets:
Company $14,785 14.23% $ 4,155 4.00% $ 5,194 5.00%
Bank 14,571 14.03% 4,154 4.00% 5,193 5.00%
</TABLE>
-32-
<PAGE> 33
13. DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosure About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial
instruments whether or not recognized on the balance sheet, for which
it is practicable to estimate fair value. Fair value estimates are made
as of a specific point in time based on the characteristics of the
financial instruments and the relevant market information. Where
available, quoted market prices are used. In other cases, fair values
are based on estimates using present value or other valuation
techniques. These techniques involve uncertainties and are
significantly affected by the assumptions used and the judgements made
regarding risk characteristics of various financial instruments,
discount rates, prepayments, estimates of future cash flows, future
expected loss experience and other factors. Changes in assumptions
could significantly affect these estimates. Derived fair value
estimates cannot be substantiated by comparison to independent markets
and, in many cases, may or may not be realized in an immediate sale of
the instrument.
Under SFAS No. 107, fair value estimates are based on existing
financial instruments without attempting to estimate the value of
anticipated future business and the value of the assets and liabilities
that are not financial instruments. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Company.
The following describes the methods and assumptions used by the Company
in estimating the fair values of financial instruments:
a. Cash and cash equivalents, interest bearing deposits in other
banks, federal funds sold and securities under resale
agreements or similar arrangements The carrying value
approximates fair value.
b. Investment securities available for sale The fair value of
investment securities is derived from quoted market prices.
c. Loans
The current value of variable rate consumer and commercial
loans or consumer and commercial loans with remaining
maturities of three months or less approximates fair value.
The fair value of fixed rate consumer and commercial loans
with maturities greater than three months are valued using a
discounted cash flow analysis and assumes the rate being
offered on these types of loans by the Company at December 31,
1996, approximates market.
For lines of credit, the carrying value approximates fair
value. No value has been placed on the underlying credit card
relationship rights.
Unused loan commitments are at adjustable rates which
fluctuate with the prime rate or are funded within ninety
days. Current amounts are considered to be their fair value.
d. Deposits
Under SFAS No. 107, the estimated fair value of deposits with
no stated maturity is equal to the carrying amount. The fair
value of time deposits is estimated by discounting contractual
cash flows, by applying interest rates currently being offered
on the deposit products. Under SFAS No. 107, the fair value
estimates for deposits do not include the benefit that results
from the low cost funding provided by the deposit liabilities
as compared to the cost of alternative forms of funding
(deposit base intangibles).
e. Short-term borrowings
The carrying amount approximates fair value due to the
short-term nature of these instruments.
-33-
<PAGE> 34
The estimated fair values of the Company's financial instruments at
December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996
----
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 5,980,344 $ 5,980,344
Interest bearing deposits in other banks 6,185 6,185
Fed funds sold and securities purchased
under resale agreements or similar arrangements 4,675,000 4,675,000
Investments available for sale 19,231,905 19,231,905
Loans 71,660,124 71,248,386
Deposits 84,830,237 84,823,402
Short-term borrowings 2,392,408 2,392,408
</TABLE>
<TABLE>
<CAPTION>
1995
----
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 4,239,424 $ 4,239,424
Interest bearing deposits in other banks 5,957 5,957
Fed funds sold and securities purchased
under resale agreements or similar arrangements 15,025,000 15,025,000
Investments available for sale 12,505,634 12,505,634
Loans 61,986,535 61,808,325
Deposits 78,990,344 79,005,349
Short-term borrowings 1,078,569 1,078,569
</TABLE>
14. BANK OF SOUTH CAROLINA CORPORATION - PARENT COMPANY
The Company's principal source of income is dividends from the Bank.
Certain regulatory requirements restrict the amount of dividends which
the Bank can pay to the Company. At December 31, 1996, the Bank had
available retained earnings of approximately $3,971,450 for payment of
dividends.
The Company's principal asset is its investment in its bank subsidiary.
The Company's condensed statements of financial condition data as of
December 31, 1996, and 1995, and the related condensed statements of
operations data and cash flow data for the period ended December 31,
1996, and 1995, are as follows:
-34-
<PAGE> 35
FINANCIAL CONDITION DATA
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
Cash $ 303,445 $ 711,643
Investment in wholly-owned bank subsidiary 14,680,261 13,857,119
Capitalized organizational costs 24,816 32,262
Other assets 1,003 --
------------ ------------
Total assets $ 15,009,525 $ 14,601,024
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 115,712 $ 85,792
------------ ------------
Total liabilities 115,712 85,792
Shareholders' equity 14,893,813 14,515,232
------------ ------------
Total liabilities and shareholders' equity $ 15,009,525 $ 14,601,024
============ ============
</TABLE>
<TABLE>
<CAPTION>
OPERATIONS DATA
1996 1995
------------ ------------
<S> <C> <C>
Interest income $ 13,723 $ 3,924
Net operating expenses (44,212) (12,434)
Dividends received from bank 470,000 600,000
Equity in undistributed earnings of subsidiary 949,297 457,741
------------ ------------
Net income $ 1,388,808 $ 1,049,231
============ ============
</TABLE>
-35-
<PAGE> 36
CASH FLOW DATA
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,388,808 $ 1,049,231
Equity in undistributed earnings of subsidiary (949,297) (457,741)
(Increase) in other assets (1,003) (36,951)
Amortization of organizational costs 7,446 4,688
----------- -----------
Net cash provided by operating activities 445,954 559,227
Cash flows from financing activities:
Increase in dividends payable 29,920 85,792
Dividends paid (457,386) (257,376)
Treasury stock purchased (550,686) --
Stock options exercised 124,000 124,000
----------- -----------
Net cash (used) provided by financing activities (854,152) 152,416
Net increase (decrease) in cash (408,198) 711,643
Cash at beginning of year 711,643 --
----------- -----------
Cash at end of year $ 303,445 $ 711,643
=========== ===========
</TABLE>
-36-
<PAGE> 37
15. QUARTERLY RESULTS OF OPERATIONS
The tables below represent the quarterly results of operations for the
years ending December 31, 1996, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
1996
-------------------------------------------------------
Fourth Third Second First
-------------------------------------------------------
<S> <C> <C> <C>
Total interest income $ 2,092,368 $ 2,035,700 $ 1,925,100 $ 1,846,027
Total interest expense 632,942 604,928 567,940 572,604
----------- ----------- ----------- -----------
Net interest income 1,459,426 1,430,772 1,357,160 1,273,453
Provision for loan losses 60,000 45,000 20,000 15,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 1,399,426 1,385,772 1,337,160 1,258,453
Other income 159,960 139,743 107,197 94,023
Other expense 953,635 940,719 911,121 853,312
----------- ----------- ----------- -----------
Income before taxes 605,751 584,796 533,236 499,164
Income tax expense 227,500 218,000 204,000 184,639
----------- ----------- ----------- -----------
Net income $ 378,251 $ 366,796 $ 329,236 $ 314,525
=========== =========== =========== ===========
Net income per share $ .33 $ .31 $ .28 $ .27
=========== =========== =========== ===========
1995
-------------------------------------------------------
Fourth Third Second First
-------------------------------------------------------
Total interest income $ 1,870,300 $ 1,854,311 $ 1,685,855 $ 1,603,409
Total interest expense 633,255 647,270 542,473 483,547
----------- ----------- ----------- -----------
Net interest income 1,237,045 1,207,041 1,143,382 1,119,862
Provision for loan losses -- -- 5,000 15,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 1,237,045 1,207,041 1,138,382 1,104,862
Other income (loss) 24,177 92,820 (40,658) (43,702)
Other expense 791,184 734,737 764,042 763,773
----------- ----------- ----------- -----------
Income before taxes 470,038 565,124 333,682 297,387
Income tax expense 175,000 214,000 123,000 105,000
----------- ----------- ----------- -----------
Net income $ 295,038 $ 351,124 $ 210,682 $ 192,387
=========== =========== =========== ===========
Net income per share $ .25 $ .30 $ .18 $ .16
=========== =========== =========== ===========
1994
-------------------------------------------------------
Fourth Third Second First
-------------------------------------------------------
Total interest income $ 1,506,642 $ 1,451,635 $ 1,353,110 $ 1,202,404
Total interest expense 435,446 400,275 381,330 335,936
----------- ----------- ----------- -----------
Net interest income 1,071,196 1,051,360 971,780 846,468
Provision for loan losses -- 10,000 35,000 60,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 1,071,196 1,041,360 936,780 786,468
Other income (loss) (58,164) 87,854 85,995 76,144
Other expense 722,736 766,610 719,776 706,188
----------- ----------- ----------- -----------
Income before taxes 290,296 362,604 302,999 156,424
Income tax expense 106,000 136,500 109,000 55,500
----------- ----------- ----------- -----------
Net income $ 184,296 $ 226,104 $ 193,999 $ 100,924
=========== =========== =========== ===========
Net income per share $ .16 $ .19 $ .16 $ .09
=========== =========== =========== ===========
</TABLE>
-37-
<PAGE> 38
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ELECTION OF DIRECTORS
Seventeen (17) Directors, constituting the entire Board of Directors will be
elected at the Annual Meeting, each to hold office for one year and until a
successor shall have been duly elected or appointed and shall have qualified. In
the absence of instructions to the contrary, shares of Common stock represented
by properly executed proxies will be voted for the seventeen (17) Nominees
listed on pages 7, 8, and 9, all of whom are recommended by management and have
consented to be named and to serve if elected. John F. Hassell, Jr., has
notified the Company that he will not stand for reelection as a Director in
accordance with the retirement policy of the Board of Directors.
The Company does not presently know of anything that would preclude any Nominee
from serving; however, should any Nominee for any reason become unable or
unwilling to serve as a Director, the number of Directors to be elected will be
reduced accordingly.
The name of each Nominee designated by the Board of Directors of the Company for
election as Director of the Company and certain information provided by such
Nominee to the Company is set forth in the table below. Fifteen (15) of the
current nominees served as initial directors of the Bank from October 22, 1986,
when the Bank's charter was issued until the first annual meeting of
Shareholders on April 14, 1987, and were elected to serve a one-year term at
such annual meeting. John M. Tupper and Thomas W. Myers were first elected as
Directors of the Bank during 1993. They were all re-elected to serve one year
terms at subsequent annual meetings. All of the current Nominees served as
Directors of the Company from April 9, 1996, the date of the last Annual Meeting
of shareholders.
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES HELD BUSINESS EXPERIENCE
WITH FAMILY 1987-1997 AND
NAME AGE CORPORATION RELATIONSHIP OTHER DIRECTORSHIPS
- ---- --- ------------- ------------ -------------------
<S> <C> <C> <C> <C>
Nathaniel I. Ball,III 55 Executive None The Bank of South Carolina (banking)
Vice President, 1986-97
Secretary,
Director
James E. Brown, DDS 74 Director None Dentist in private practice for last five
years
William T. Cooper 67 Director None President, Southeastern Galleries, Inc. (retail
furniture and decorating) 1983-97
C. Ronald Coward 61 Director None President - Coward-Hund Construction
Company, Inc. (construction) 1976-97
Louis Y. Dawson, III 68 Director Father-in-law Retired (1993) President-Dawson
of Charles G. Engineering, Inc. (general contracting)
Lane and of a 1954-93
bank officer,
F.S. Hassell
</TABLE>
-38-
<PAGE> 39
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES HELD BUSINESS EXPERIENCE
WITH FAMILY 1987-1997 AND
NAME AGE CORPORATION RELATIONSHIP OTHER DIRECTORSHIPS
- ---- --- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
Leonard C. Fulghum 67 Director None Retired President - Ferguson Fulghum, Inc.
(painting contractors) 1972-97
T. Dean Harton 51 Director None President, Hawthorne Corporation (aviation)
1986-97
William L. Hiott, Jr. 52 Executive None The Bank of South Carolina
Vice President, (banking) 1986-97
Treasurer,
Director
James H. Holcombe 72 Director None Member - Holcombe, Fair & Lane, LLC (real estate)
1996-97; General and Limited Partner -
Holcombe & Fair Realtors 1970-95
Katherine M. Huger 55 Director None Assistant Professor of Economics - Charleston
Southern University (education) 1972-97
John E. Huguley 69 Director None Retired (1996) Chairman - John Huguley
Company, Inc. (retail office products) 1980-96
Charles G. Lane 42 Director Son-in-law of Member - Holcombe, Fair & Lane,
Louis Y. LLC (real estate) 1996-97;
Dawson, III; Associate - Holcombe & Fair Realtors
brother of 1987-96
Hugh C. Lane, Jr.
Hugh C. Lane, Jr. 49 President, Brother of The Bank of South Carolina (banking)
Chief Executive Charles G. 1986-97
Officer, Lane
Director
Louise J. Maybank 57 Director None Active in community programs
Thomas W. Myers 62 Director None President - Myers & Associates (estate and
business insurance planning) 1963-97
Thomas C. Stevenson, III 46 Director None President - Fabtech, Inc. (metal
fabrication) 1991-97; Private Investor
1990-91; Chairman of the Board - Stevenson
Hagerty, Inc. (diversified holding company)
1984-90
John M. Tupper 55 Director None President - Tupperway Tire and Service, Inc.
(retail tires and service) 1980-97
</TABLE>
-39-
<PAGE> 40
ITEM 10. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth all remuneration (including remuneration under
any contract, authorization or arrangement, whether or not set forth in a formal
document) paid during the year ended December 31, 1996, by the Bank to the three
(3) Executive Officers of the Company and the Bank whose total remuneration from
the Bank exceeded One Hundred Thousand and No/100 ($100,000.00) Dollars for
their services in all capacities. Such Officers receive no compensation from the
Company as Officers or as Directors or in any other capacity.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER SECURITIES
ANNUAL RESTRICTED UNDER- ALL OTHER
NAME AND COMPEN- STOCK LYING LTIP COMPEN-
PRINCIPAL SATION(1)(2) AWARD(S) OPTIONS/ PAYOUTS SATION(1)(2)
POSITION YEAR SALARY($) BONUS($) ($) SARS(#) ($) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hugh C. Lane, 1996 $123,101.45 --- $17,682.79 $17,682.79
Jr. - CEO 1995 $113,101.37 $10,000.00 $17,596.33 $17,596.33
& President 1994 $113,101.37 --- $16,015.82 $16,015.82
Nathaniel I. 1996 $108,601.37 --- $16,135.32 $16,135.32
Ball, III - 1995 $101,101.37 $10,000.00 $16,052.84 $16,052.84
Executive Vice 1994 $101,101.37 --- $14,640.01 $14,640.01
President &
Secretary
William L. 1996 $108,601.37 --- $16,135.32 $16,135.32
Hiott, Jr. - 1995 $101,101.37 $10,000.00 $16,052.84 $16,052.84
Executive Vice 1994 $101,101.37 --- $14,640.01 $14,640.01
President &
Treasurer
</TABLE>
- ----------------------------------
(1) Includes same life, disability and health insurance benefits as all
other employees of the Bank who work at least thirty (30) hours a week.
(2) Includes Bank contribution to the ESOP.
- ---------------------------------
Non-officer Directors of the Company received One Hundred and No/100 ($100.00)
Dollars for each meeting of the Board of Directors attended and non-officer
Directors of the Bank received Two Hundred and No/100 ($200.00) Dollars for each
meeting of the Board of Directors attended and One Hundred and No/100 ($100.00)
Dollars for each Board Committee meeting attended.
On November 2, 1989, the Bank adopted an Employee Stock Ownership Plan and Trust
Agreement, to provide retirement benefits to eligible employees for long and
faithful service.
An employee of the Bank is eligible to become a participant in the ESOP upon
reaching twenty-one (21) years of age and upon completion of one thousand
(1,000) hours of service in a plan year. No contributions by employees are
permitted. The amount and time of contributions are at the sole discretion of
the Board of Directors of the Bank. The contribution for all participants is
based solely on each participant's respective regular or base salary and wages
paid by the Bank including commissions, bonuses and overtime, if any.
-40-
<PAGE> 41
A participant becomes vested in the Plan upon completion of five (5) years of
service. There is no vesting prior to the completion of five (5) years of
service.
The Plan became effective as of January 1, 1989.
The Board of Directors of the Bank approved the contribution of One Hundred
Forty-Six Thousand One Hundred Eight Four and No/100 ($146,184.00) Dollars to
the ESOP for the fiscal year ended December 31, 1996. The contribution was made
during 1996. T. Dean Harton, Sheryl G. Sharry, and Nathaniel I. Ball, III,
currently serve as Plan Administrators. Nathaniel I. Ball, III, currently serves
as Trustee for the Plan. The Plan currently owns eighty thousand seven hundred
eight (80,708) shares or 6.89% of the Company's Common Stock.
During the fiscal year ended December 31, 1996, the Company had no plans or
arrangements pursuant to which any Officer, Director or principal Shareholder
received contingent remuneration or personal benefits other than the contingent
remuneration and life, disability and health insurance benefits referred to in
the footnotes to the preceding table.
The Bank has an Incentive Stock Option Plan for the benefit of eligible Officers
and employees of the Bank. A total of fifty thousand (50,000) shares were
reserved and on April 21, 1988, the Bank granted options to purchase Common
Stock in the aggregate amount of forty-five thousand (45,000) shares to eighteen
(18) employees of the Bank (including officers, such Directors as are also
employees and other employees) pursuant to the Incentive Stock Option Plan.
These grants include those to Hugh C. Lane, Jr., Nathaniel I. Ball, III, and
William L. Hiott, Jr., Executive Officers and Directors, as more specifically
set forth below. Options for twelve thousand seven hundred (12,700) shares with
an exercise price of Twenty and No/100 ($20.00) Dollars and seven thousand five
hundred (7,500) shares with an exercise price of Twenty and 7625/10,000ths
($20.7625) Dollars have expired. No options were granted during 1996. Options
for six thousand two hundred (6,200) shares with an exercise price of Twenty and
No/100 ($20.00) Dollars remain outstanding. Adjusted for the exchange of two (2)
shares of Company Common Stock for each share of Bank Common Stock on April 17,
1995, the options for eighteen thousand six hundred (18,600) shares at Twenty
and No/100 ($20.00) Dollars per share were converted to options for thirty-seven
thousand two hundred (37,200) shares at Ten and No/100 ($10.00) Dollars per
share. Adjusted for the above-mentioned exchange, options for twelve thousand
four hundred (12,400) shares at Ten and No/100 ($10.00) Dollars per share were
exercised during 1995 and the same amount during 1996. Adjusted for a ten
percent (10%) stock dividend on May 15, 1996, the remaining twelve thousand four
hundred (12,400) shares at Twenty and No/100 ($20.00) Dollars per share were
converted to options for twenty seven thousand two hundred eighty (27,280)
shares at Nine and 09/100 ($9.09) Dollars. Adjusted for the above-mentioned
exchange and ten percent (10%) stock dividend, options for thirteen thousand six
hundred forty (13,640) shares at Nine and 09/100 ($9.09) Dollars were exercised
on January 22, 1997.
Nathaniel I. Ball, III, Executive Vice President and Secretary, and William L.
Hiott, Jr., Executive Vice President and Treasurer, were each granted the option
to purchase seven thousand five hundred (7,500) shares of Common Stock of the
Bank pursuant to the Incentive Stock Option Plan at a price of Twenty and No/100
($20.00) Dollars. These options are exercisable in five (5) twenty (20%) percent
increments beginning on and for one year following April 21, 1993, with an
additional twenty (20%) percent to be exercisable on and for one year following
each successive anniversary. The right to exercise each such twenty (20%)
percent of each option is not cumulative and expires at the end of the one year
period following the date on which such right becomes effective. Adjusted for
the above-mentioned exchange, options for six thousand (6,000) shares of Common
Stock of the Company at Ten and No/100 ($10.00) Dollars per share were exercised
by the two (2) Officers during 1995 at a time when the average between quoted
bid and ask in the markets in which the shares were traded was Twelve and 75/100
($12.75) Dollars per share and options for six thousand (6,000) shares were
exercised during 1996 at a time when the average between bid and ask in the
markets in which the Common Stock was traded was $16.75. Adjusted for the
above-mentioned exchange and ten percent (10%) stock dividend, options for six
thousand six hundred (6,600) shares of common stock of the Company at Nine and
09/100 ($9.09) Dollars were exercised in January, 1997, by the two officers at a
time when the average between quoted bid and ask in the markets in which the
shares were traded was Twenty Two and 75/100 ($22.75) Dollars per share.
Adjusted for the above-mentioned exchange and the ten percent (10%) stock
dividend, options for three thousand three hundred (3,300) shares of Common
Stock of the Company with an exercise price of Nine and 09/100 ($9.09) Dollars
per share remain outstanding for each of the above Officers.
-41-
<PAGE> 42
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nathaniel I. Ball, III 9,300 75,888.00 3,300 26,928.00
William L. Hiott, Jr. 9,300 75,888.00 3,300 26,928.00
</TABLE>
In the event of a prospective reorganization, consolidation or sale of
substantially all of the assets or any other form of corporate reorganization in
which the Company would not be the surviving entity or in the event of the
acquisition, directly or indirectly, of the beneficial ownership of 24% of the
Common Stock of the Company or the making, orally or in writing, of a tender
offer for, or any request or invitation for tender of, or any advertisement
making or inviting tenders of the Company stock by any person, all options in
effect at that time would accelerate so that all options would become
immediately exercisable and could be exercised within one year immediately
following the date of acceleration but not thereafter.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the extent known to the Board of Directors of the Company, as of March 3,
1997, the only Shareholders of the Company having beneficial ownership of more
than five (5%) percent of the shares of Common Stock of the Company are as set
forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
Hugh C. Lane, Jr. 173,070.66 (1) (2) 14.78%
30 Church Street
Charleston, SC 29401
NationsBank South, N.A. (4) 70,400 (3) 6.01%
600 Peachtree Street, N.E., 55th Floor
Atlanta, GA 30308
N.B. Holdings (4) 70,400 (5) 6.01%
NationsBank Plaza
Charlotte, NC 28255
NationsBank Corporation (4) 70,400 (6) 6.01%
NationsBank Plaza
Charlotte, NC 28255
John M. Rivers, Jr. 58,960 (7) 5.04%
80 Alexander Street
Charleston, SC 29403
</TABLE>
-42-
<PAGE> 43
<TABLE>
<S> <C> <C>
The Bank of South Carolina 80,708 (8) 6.89%
Employee Stock Ownership
Plan and Trust ("ESOP")
256 Meeting Street
Charleston, SC 29401
</TABLE>
- ------------------------------
(1) To the extent known to the Board of Directors, Hugh C. Lane and his
children, individually and collectively, have beneficial ownership of
322,666.66 shares or 27.56% of the outstanding shares. As more fully
described in the following footnote, Hugh C. Lane, Jr. is the only one
of the above who has a beneficial ownership interest in more than five
(5%) percent of the Company's common stock. Hugh C. Lane, Jr. disclaims
any beneficial interest in those shares in which other members of his
family have a beneficial interest other than those shares his wife owns
directly and those for which he serves as trustee or she serves as
custodian (as more fully described in the following footnote).
(2) To the extent known to the Board of Directors, Hugh C. Lane, Jr.
directly owns and has sole voting and investment power with respect to
77,810 shares; as trustee for 11 trust accounts holding an aggregate of
24,090 shares, he has sole voting and investment power with respect to
such shares; as co-trustee for one trust account holding 2,200 shares,
he has joint voting and investment power with respect to such shares;
he is indirectly beneficial owner of 2,400 shares owned by his wife and
an aggregate of 49,963 shares held by his wife as custodian for three
minor children and 10,786.655 shares owned by the ESOP in which he has
a vested interest. All of the 173,070.66 shares beneficially owned by
Hugh C. Lane, Jr. are currently owned. Hugh C. Lane, Jr. has had
beneficial ownership of more than five (5%) percent of the Bank's
Common Stock since October 23, 1986 and more than ten (10%) percent
since November 16, 1988.
(3) To the extent known to the Board of Directors, NationsBank South, N.A.,
has sole voting power for 34,100 shares, shared voting power for 4,400
shares and shared investment power for 66,000 shares (including 31,900
shares held as trustee under the will of Mills B. Lane for the benefit
of Hugh C. Lane).
(4) To the extent known to the Board of Directors, NationsBank Corporation
is the parent holding company of N.B. Holdings Corporation. N.B.
Holdings Corporation is the parent holding company of NationsBank
South, N.A. The shares referred to in notes (5) and (6) are a
duplication of the shares referred to in note (3).
(5) To the extent known to the Board of Directors, N.B. Holdings
Corporation has sole voting power for 34,100 shares, sole investment
power for 3,000 shares, shared voting power for 4,400 shares and shared
investment power for 66,000 shares (including 31,900 shares held as
trustee under the will of Mills B. Lane for the benefit of Hugh C.
Lane). N.B. Holdings Corporation disclaims beneficial ownership for the
shares referred to in this note (5).
(6) To the extent known to the Board of Directors, NationsBank Corporation
has sole voting power for 34,100 shares, shared voting power for 4,400
shares and shared investment power for 66,000 shares (including 31,900
shares held as trustee under the will of Mills B. Lane for the benefit
of Hugh C. Lane). NationsBank Corporation disclaims beneficial
ownership for the shares referred to in this note (6).
(7) To the extent known to the Board of Directors, John M. Rivers, Jr.
directly owns and has sole voting and investment power for 58,960
shares. The John and Kathleen Rivers Foundation owns 5,280 shares. Mr.
Rivers is the President of the Foundation but does not serve on its
Investment Committee or have authority to vote or dispose of shares
owned by the Foundation. Mr. Rivers disclaims beneficial ownership of
the shares owned by the Foundation.
(8) The Trustee of the ESOP, Nathaniel I. Ball, III, an executive Officer
and Director of the Bank and the Company, disclaims beneficial
ownership of 79,708 shares owned by the ESOP which have been allocated
to members of the plan, each of whom under the terms of the plan has
the right to direct the Trustee as to the manner in which voting rights
are to be exercised. Mr. Ball claims beneficial ownership of 1,000
shares owned by the ESOP which have not yet been allocated to members
of the plan.
-43-
<PAGE> 44
BENEFICIAL OWNERSHIP OF COMMON STOCK OF THE COMPANY
The table below sets forth the number of shares of Common Stock (the only class
of outstanding equity securities of the Company) known by the Company to be
beneficially owned by each Nominee for election as Director and by the Officers
and Directors of the Company as a group as of March 3, 1997. Except as otherwise
indicated in the footnotes to the table, the persons named possess sole voting
power and investment power with respect to the shares shown opposite their
names. As of March 3, 1997, no Officer, Director or Nominee beneficially owned
more than ten (10%) percent of the outstanding shares of the Company other than
Hugh C. Lane, Jr. As of March 3, 1997, the Officers, Directors and Nominees
beneficially owned 425,064 shares, representing approximately 36.31% of the
outstanding shares.
As of February 18, 1997, the beneficial ownership of Common Stock of the Company
by all current Directors and each Nominee for Director was as set forth in the
following table:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
Nathaniel I. Ball, III 30,682.827 (1) 2.62%
2630 Bayonne Street
Sullivans Island, SC 29482
James E. Brown, DDS 5,849 (1) 0.50%
6908 Rivers Avenue
Charleston Heights, SC 29418
William T. Cooper 2,420 (1) 0.21%
21 Jamestown Road
Charleston, SC 29407
C. Ronald Coward 20,330 (1) 1.74%
537 Planters Loop
Mt. Pleasant, SC 29464
Louis Y. Dawson, III 5,720 (1) 0.49%
33 Church Street
Charleston, SC 29401
Leonard C. Fulghum 14,896 (1) 1.27%
311 Middle Street
Mt. Pleasant, SC 29464
T. Dean Harton 3,502 (1) 0.30%
4620 Lazy Creek Lane
Wadmalaw, SC 29487
John F. Hassell, Jr. 5,218 0.45%
1536 Rifle Range Road
Mt. Pleasant, SC 29464
William L. Hiott, Jr. 35,020.84 (1) 2.99%
1831 Capri Drive
Charleston, SC 29407
James H. Holcombe 53,116 (1) 4.54%
16 Church Street
Charleston, SC 29401
</TABLE>
-44-
<PAGE> 45
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
Katherine M. Huger 2,420 (1) 0.21%
72 Murray Boulevard
Charleston, SC 29401
John E. Huguley 7,480 (1) 0.64%
22 Murray Boulevard
Charleston, SC 29401
Charles G. Lane 57,199 (1) 4.89%
10 Gillon Street
Charleston, SC 29401
Hugh C. Lane, Jr. 173,070.66 (1) 14.78%
30 Church Street
Charleston, SC 29401
Louise J. Maybank 5,500 (1) 0.47%
8 Meeting Street
Charleston, SC 29401
Thomas W. Myers 4,400 0.38%
90 Gaillard Lane
Summerville, SC 29483
Thomas C. Stevenson, III 220 0.02%
173 Tradd Street
Charleston, SC 29401
John M. Tupper 220 0.02%
113 Linwood Drive
Summerville, SC 29483
</TABLE>
(1) To the extent known to the Board of Directors, each of the following
Directors and Nominees for election as Directors (each of whom directly
owns and has sole voting and investment power of all shares
beneficially owned by him or her except as set forth in this footnote)
indirectly owns the following number of shares: Nathaniel I. Ball, III
- an aggregate of 6,638 shares directly owned by his wife and 9,599.827
shares owned by the ESOP, in which he has a vested interest, and 1,000
shares owned by the ESOP which have not been allocated to members of
the Plan; James E. Brown - an aggregate of 5,739 shares owned jointly
with his wife; William T. Cooper - an aggregate of 2,200 shares held by
a pension plan; C. Ronald Coward - an aggregate of 5,500 shares owned
by a company of which he is president and director; Louis Y. Dawson,
III - an aggregate of 220 shares owned by his wife; Leonard C. Fulghum
- an aggregate of 1,366 shares owned by his wife; T. Dean Harton - an
aggregate of 970 shares owned by his wife and held by his wife as
custodian for his step-son; William L. Hiott, Jr. - an aggregate of
4,180 shares directly owned by his wife and held by him as custodian
for two children and 9,599.838 shares owned by the ESOP, in which he
has a vested interest; James H. Holcombe - an aggregate of 29,576
shares owned by the Marjorie G. Detyens Irrevocable Trust for which he
serves as co-trustee and held by a third party trustee for his
grandchildren; Katherine M. Huger - 220 shares owned by her husband;
John E. Huguley - 4,070 shares owned by his wife; Charles G. Lane - an
aggregate of 26,432 shares owned by his wife, held by her as custodian
for children, held by him as co-trustee with Hugh C. Lane, Jr., for a
sister's children and held by him as a co-trustee for the children of
Hugh C. Lane, Jr.; and Hugh C. Lane, Jr. - an aggregate of 77,893
shares owned by his wife, held by his wife as custodian for each of
three children, held by him as co-trustee with Charles G. Lane for a
sister's children and held by him as trustee for his and his brother's
and sisters' children (as more fully described in the footnote to the
preceding table) and 10,786.655 shares owned by
-45-
<PAGE> 46
the ESOP, in which he has a vested interest. All such indirectly owned
shares are included in the totals of the number of shares set forth in
the above table and beneficially owned by the Directors and Nominees.
- ------------------------------
As a group, all Directors and Executive Officers (including Hugh C. Lane, Jr.,
President and Chief Executive Officer; Nathaniel I. Ball, III, Executive Vice
President and Secretary; and William L. Hiott, Jr., Executive Vice President and
Treasurer) are seventeen (17) in number and beneficially own an aggregate of
425,064 shares, representing 36.31% of the issued and outstanding Common Stock
of the Company. All of these shares beneficially owned by the Directors,
Nominees and Executive Officers are currently owned: two executive officers
(Nathaniel I. Ball, III, Executive Vice President and Secretary; and William L.
Hiott, Jr., Executive Vice President and Treasurer) each have a future right to
acquire three thousand three hundred (3,300) shares of Common Stock of the
Company pursuant to the Bank's Incentive Stock Option Plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company does not have any existing continuing contractual relationships with
any Director, Nominee for election as Director or principal Officer of the
Company or the Bank, or any Shareholder owning, directly or indirectly, more
than five (5%) percent of the shares of Common Stock of the Company, or any
associate of the foregoing persons. Directors, Principal Officers, nominees for
election as Directors, and members of the immediate family of any of the
foregoing have had in the past, have at present, and will have in the future,
customer relationships with the Bank. Such transactions have been and will
continue to be made in the ordinary course of business, made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and such transactions
did not and will not involve more than the normal risk of collectability or
present other unfavorable features. The Company entered into a contract with
Coward-Hund Construction Co., Inc., of which C. Ronald Coward, Director of the
Company, is a principal for the construction of a branch office in Mount
Pleasant, South Carolina, with a final contract price of $468,052. The Company
intends to enter into a contract with Coward-Hund Construction Company, Inc. for
the construction of a branch office and operations center in the West Ashley
area of Charleston, South Carolina. The building is presently in the conceptual
design stage so no dollar value can be assigned at this time. The building will
in all probability be more expensive than the recently completed Mount Pleasant
Office. The Company also intends to enter into a contract with Southeastern
Galleries, Inc. of which William T. Cooper, Director of the Company, is a
principal, for the furnishings for the West Ashley branch.
C. Ronald Coward and Charles G. Lane each failed to file one Statement of
Changes in Beneficial Ownership on Form 4 in a timely manner.
-46-
<PAGE> 47
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
1. The Consolidated Financial Statements and Reports of Independent
Auditors are included in this Form 10-KSB and listed on pages as
indicated.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(1) Report of Independent Auditors...............................................18
(2) Consolidated Statements of Condition.........................................19
(3) Consolidated Statements of Operation.........................................20
(4) Consolidated Statements of Changes in Shareholders' Equity...................21
(5) Consolidated Statements of Cash Flows........................................22
(6) Notes to Consolidated Financial Statements..............................23 - 36
</TABLE>
2. Exhibits
1.1 Articles of Incorporation of the Registrant (Filed with 1995
10-KSB)
1.2 By-laws of the Registrant (Filed with 1995 10-KSB)
1.5 Lease Agreement for 256 Meeting Street (Filed with 1995 10-KSB)
1.6 Sublease Agreement for Parking Facilities at 256 Meeting Street
(Filed with 1995 10-KSB)
1.7 Lease Agreement for 100 N. Main Street, Summerville, SC (Filed
with 1995 10-KSB)
1.8 Lease Agreement for 1337 Chuck Dawley Blvd., Mt. Pleasant, SC
(Filed with 1995 10-KSB)
1.9 List of Subsidiaries of the Registrant (Filed with 1995 10-KSB)
The Registrant's only subsidiary is The Bank of South Carolina
(Filed with 1995 10-KSB)
1.10 Plan of Reorganization (Filed with 1995 10-KSB)
13 1996 Annual Report to Shareholders
20 1997 Proxy Statement
27 Financial Data Schedule
3. Reports on Form 8-K: No
-47-
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 24, 1997 BANK OF SOUTH CAROLINA CORPORATION
By: /s/ William L. Hiott, Jr.
-----------------------------------------
William L. Hiott, Jr.
Executive Vice President and Treasurer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons in the
capacities indicated:
<TABLE>
<S> <C>
March 24, 1997 /s/ Nathaniel I. Ball, III
-------------------------------------------------
Nathaniel I. Ball, III, Executive Vice President,
Secretary and Director
March 24, 1997 /s/ James E. Brown, DDS
-------------------------------------------------
James E. Brown, DDS, Director
March 24, 1997 /s/ William T. Cooper
-------------------------------------------------
William T. Cooper, Director
March 24, 1997 /s/ C. Ronald Coward
-------------------------------------------------
C. Ronald Coward, Director
March 24, 1997 /s/ Louis Y. Dawson, III
-------------------------------------------------
Louis Y. Dawson, III, Director
March 24, 1997 /s/ Leonard C. Fulghum
-------------------------------------------------
Leonard C. Fulghum, Director
March 24, 1997 /s/ T. Dean Harton
-------------------------------------------------
T. Dean Harton, Director
March 24, 1997 /s/ John F. Hassell, Jr.
-------------------------------------------------
John F. Hassell, Jr., Director
March 24, 1997 /s/ William L. Hiott, Jr.
-------------------------------------------------
William L. Hiott, Jr., Executive Vice President,
Treasurer & Director
March 24, 1997 /s/ James H. Holcombe
-------------------------------------------------
James H. Holcombe, Director
March 24, 1997 /s/ Katherine M. Huger
-------------------------------------------------
Katherine M. Huger, Director
March 24, 1997 /s/ John E. Huguley
-------------------------------------------------
John E. Huguley, Director
March 24, 1997 /s/ Charles G. Lane
-------------------------------------------------
Charles G. Lane, Director
</TABLE>
-48-
<PAGE> 49
<TABLE>
<S> <C>
March 24, 1997 /s/ Hugh C. Lane, Jr.
-------------------------------------------------
Hugh C. Lane, Jr., President,
Chief Executive Officer & Director
March 24, 1997 /s/ Louise J. Maybank
-------------------------------------------------
Louise J. Maybank, Director
March 24, 1997 /s/ Thomas W. Myers
-------------------------------------------------
Thomas W. Myers, Director
March 24, 1997 /s/ Thomas C. Stevenson, III
-------------------------------------------------
Thomas C. Stevenson, III, Director
March 24, 1997 /s/ John M. Tupper
-------------------------------------------------
John M. Tupper, Director
</TABLE>
-49-
<PAGE> 1
EXHIBIT 13
BANK OF SOUTH CAROLINA CORPORATION SUMMARY OF SELECTED FINANCIAL DATA
A. SUMMARY OF SELECTED FINANCIAL DATA
The following tables, as well as the previously presented consolidated financial
highlights, set forth certain selected financial information concerning the
Company and its wholly-owned subsidiary. The information was derived from
audited consolidated financial statements. The information should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations which follows and the audited consolidated financial
statements and notes which are presented elsewhere in this report.
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Interest and fee income $7,899,225 $7,013,875 $5,513,791 $4,878,269 $5,303,102
Interest expense 2,378,414 2,306,545 1,572,987 1,532,547 1,933,158
---------- ---------- ---------- ---------- ----------
Net interest income 5,520,811 4,707,330 3,940,804 3,345,722 3,369,944
Provision for loan losses 140,000 20,000 105,000 160,000 420,000
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 5,380,811 4,687,330 3,835,804 3,185,722 2,949,944
Other income 500,923 345,677 191,829 277,238 285,791
Other expense 3,658,787 3,366,776 2,915,310 2,466,285 2,194,367
---------- ---------- ---------- ---------- ----------
Income before income taxes 2,222,947 1,666,231 1,112,323 996,675 1,041,368
Income tax expense 834,139 617,000 407,000 353,500 363,800
---------- ---------- ---------- ---------- ----------
Net income $1,388,808 $1,049,231 $ 705,323 $ 643,175 $ 677,568
========== ========== ========== ========== ==========
Net income per common share(1)(2) $ 1.19 $ .89 $ .60 $ .55 $ .58
========== ========== ========== ========== ==========
Weighted average common shares(1)(2) 1,169,961 1,176,463 1,166,000 1,166,000 1,166,000
Dividends per common share $ .39 $ .27 $ .20 $ .17 $ .15
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total investment securities $ 19,231,905 $12,505,634 $15,955,605 $15,105,901 $13,201,742
Total loans 71,660,124 61,986,536 54,471,114 52,473,245 55,362,015
Allowance for loan losses 1,041,216 960,103 996,386 1,039,870 1,017,962
Total assets 102,835,416 95,248,079 77,176,341 80,225,926 77,073,836
Total deposits 84,830,237 78,990,344 62,465,429 64,814,531 62,005,067
Shareholders' equity 14,893,813 14,515,232 13,287,736 12,955,888 12,514,113
</TABLE>
1) On April 17, 1995, The Bank of South Carolina reorganized into Bank of
South Carolina Corporation, a one-bank holding company when each share
of common stock of the Bank was exchanged for two shares of common
stock of the Corporation. Average shares outstanding and per share data
reflect the common stock exchange after the reorganization and have
been retroactively restated.
2) On May 15, 1996, Bank of South Carolina Corporation issued a 10% stock
dividend. All share and per share data have been retroactively restated
to reflect the 10% stock dividend.
11
<PAGE> 2
BANK OF SOUTH CAROLINA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS
B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis is included to provide the shareholders
with an expanded narrative of the Company's results of operations, changes in
financial condition, liquidity and capital adequacy. This narrative should be
reviewed in conjunction with the audited consolidated financial statements and
notes included in this annual report and the Company's 1996 Annual Report on
Form 10-KSB. Since the primary asset of the Company is its wholly-owned
subsidiary, most of the discussion and analysis relates to the Bank.
[GRAPH]
OVERVIEW
On average daily assets of $96,379,427 in 1996, an increase from $84,596,891 in
1995, the Company earned $1,388,808 or $1.19 per share compared to $1,049,231 or
$.89 per share for 1995. The return on average assets of 1.44% for 1996 was up
from 1.24% for 1995. The return on average shareholders' equity for 1996 was
9.48%, up from 7.57% for 1995. Total average deposits at December 31, 1996, were
$79,671,917, up $10,697,122 or 15.51% from year end 1995.
During 1996, the Company declared four quarterly cash dividends of $.10 per
share thereby sharing a greater portion of its profits with its owners, compared
to prior years.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995, TO DECEMBER 31, 1996
Net income increased $339,577 from $1,049,231 for December 31, 1995, to
$1,388,808 for December 31, 1996, increasing net income per common share from
$.89 to $1.19 for the same periods. This increase is primarily attributable to
increases in net interest income and other income and a loss on other real
estate owned in the prior year.
Net interest income increased $813,481 from $4,707,330 for December 31, 1995, to
$5,520,811 for December 31, 1996. This increase is due to the Company's volume
of average interest earning assets increasing at a faster rate than the average
interest bearing liabilities while maintaining a fairly consistent net interest
spread for the year.
Total interest and fee income increased 12.62% or $885,350. This increase is due
primarily to an increase in interest and fees on loans from $5,607,210 at
December 31, 1995, to $6,360,042 at December 31, 1996. Total loans increased
from $61,986,536 at December 31, 1995, to $71,660,124 at December 31, 1996. The
average yield on loans decreased from 10.04% to 9.71% for the same periods.
[GRAPH]
Total interest expense increased 3.12% or $71,869. This increase is due
primarily to an increase in interest on deposits from $2,236,115 at December 31,
1995, to $2,313,460 at December 31, 1996. Deposits increased from $78,990,344 at
December 31, 1995, to $84,830,237 at December 31, 1996. The average rate on
interest bearing liabilities decreased from 4.09% to 3.75% for the same periods.
The provision for loan losses increased from $20,000 at December 31, 1995, to
$140,000 at December 31, 1996. The increase in the provision is directly related
to the 16% growth in the loan portfolio. The allowance for loan losses as a
percentage of average total loans decreased from 1.72% to 1.59% for the same
period due to the increase in loans. Management believes the allowance for loan
losses is adequate to absorb inherent losses in the loan portfolio. For further
discussion, see "Non-accrual and Past Due Loans" and "Allowance for Loan
Losses."
Other income increased 44.91% from $345,677 at December 31, 1995, to $500,923 at
December 31, 1996, or $155,246. This increase is attributable to an increase in
service charges, fees and service release premiums from mortgage loans.
12
<PAGE> 3
BANK OF SOUTH CAROLINA CORPORATION SUMMARY OF SELECTED FINANCIAL DATA
Other expense increased 8.67% or $292,011 from December 31, 1995, to December
31, 1996. This increase is due in part to a 12.72% increase in salaries and
employee benefits as a result of the creation of new positions within the
Company and an annual merit increase for the Company's staff. This was offset by
a loss on other real estate owned in 1995.
Occupancy expense increased $101,386 or 14.78% from $685,965 at December 31,
1995, to $787,351 at December 31, 1996. This increase is primarily due to the
addition of the Mt. Pleasant office which opened in May 1996.
[GRAPH]
Other operating expense increased $250,014 or 37.60% from $664,992 at December
31, 1995, to $915,006 at December 31, 1996. The increase is a result of expenses
relating to the opening a new office in Mt. Pleasant during the year as well as
increases in other general operating expenses.
Income tax expense increased from $617,000 at December 31, 1995, to $834,139 at
December 31, 1996. The Company provides for income taxes at approximately 37% of
pretax net income. The increase in income tax expense is directly related to the
increase in pretax net income from $1,666,231 at December 31, 1995, to
$2,222,947 at December 31, 1996.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994, TO DECEMBER 31, 1995
Net income increased $343,908 from $705,323 for December 31, 1994, to $1,049,231
for December 31, 1995, increasing net income per common share from $.60 to $.89
for the same periods. This increase is primarily attributable to an increase in
net interest income, a reduction in the provision for loan losses and increases
in both other income and expense.
Net interest income increased $766,526 from $3,940,804 for December 31, 1994, to
$4,707,330 for December 31, 1995. This increase is due to the Company's volume
of average interest earning assets increasing at a faster rate than the average
interest bearing liabilities as well as the weighted average rate on interest
bearing assets increasing more than the rate on the interest bearing
liabilities.
[GRAPH]
Total interest and fee income increased 27% or $1,500,084. This increase is due
primarily to an increase in interest and fees on loans from $4,360,882 at
December 31, 1994, to $5,607,210 at December 31, 1995. Total loans increased
from $54,471,114 at December 31, 1994, to $61,986,536 at December 31, 1995. The
average yield on loans also increased from 8.37% to 10.04% for the same periods.
Total interest expense increased 47% or $733,558. This increase is due primarily
to an increase in interest on deposits from $1,531,186 at December 31, 1994, to
$2,236,115 at December 31, 1995. Deposits increased from $62,465,429 at December
31, 1994, to $78,990,344 at December 31, 1995. The average rate on interest
bearing liabilities also increased from 3.01% to 4.09% for the same periods.
The provision for loan losses decreased from $105,000 at December 31, 1994, to
$20,000 at December 31, 1995. The allowance for loan losses as a percentage of
total loans also decreased from 1.83% to 1.55% for the same period. Management
believes the allowance for loan losses is adequate to absorb inherent losses in
the loan portfolio. For further discussion, see "Non-accrual and Past Due Loans"
and "Allowance for Loan Losses."
Other income increased from $191,829 at December 31, 1994, to $345,677 at
December 31, 1995. This increase is attributable to a 14% increase in service
charges, fees and commissions as well as a loss on sale of investment securities
in 1994 of $140,443, which was not repeated in 1995.
13
<PAGE> 4
BANK OF SOUTH CAROLINA CORPORATION SUMMARY OF SELECTED FINANCIAL DATA
Other expense increased 15.5% or $451,466 from December 31, 1994, to December
31, 1995. This increase is due to a 13% increase in salaries and employee
benefits as a result of the creation of two new positions within the Company and
an annual merit increase for the Company's staff. Additionally, in 1995 there
was a loss on other real estate owned of $313,000 due to the write down and
subsequent sale of other real estate owned. See discussion under "Allowance for
Loan Losses."
Income tax expense increased from $407,000 at December 31, 1994, to $617,000 at
December 31, 1995. The Company provides for income taxes at approximately 37% of
pretax net income. The increase in income tax expense is directly related to the
increase in pretax net income from $1,112,323 at December 31, 1994, to
$1,666,231 at December 31, 1995.
ASSET AND LIABILITY MANAGEMENT
The assets and liabilities of the Company are managed to provide a consistent
level of liquidity to accommodate normal fluctuations in loans and deposits. At
year end 1996, total assets were $102,835,416, an increase of 7.97% from the end
of the previous year. At year end 1996, deposits were $84,830,237, an increase
of 7.39% from the end of the previous year, primarily as a result of an increase
in all deposit services with the exception of money market accounts.
[GRAPH]
Approximately 94.12% of the Bank's average assets were earning assets composed
of U.S. Treasury and municipal securities in the amount of $17,614,422, Federal
Funds Sold and interest bearing deposits in other banks in the amount of
$7,628,223 and loans in the amount of $65,468,548. In conjunction with the
adoption of SFAS 115, the Company reclassified all of its investment securities
to available for sale on January 1, 1994.
[GRAPH]
The Bank's policy is to minimize interest rate risk between interest bearing
assets and liabilities at various maturities and to attempt to maintain an asset
positive position over a 12 month period. In adhering to this policy, it is
anticipated that the Bank's net interest margins will not be materially affected
by inflation and changing prices. The interest rate spread for 1996 increased to
4.96% from 4.78% for 1995 and the net interest margin for 1996 increased to
6.09% from 5.95% for 1995 as the result of the decrease in the Bank's average
prime rate during 1996 of 8.27% from an average of 8.83% during 1995. Management
will continue to monitor its asset sensitive position in times of lower interest
rates which might adversely effect its net interest margin.
Since the rates on most of the Bank's interest bearing liabilities can vary on a
daily basis, management continues to maintain a loan portfolio priced
predominately on a variable rate basis. The Bank seeks stable, long-term deposit
relationships to fund its loan portfolio.
Investment securities with relatively short-term maturities were used to fund
the increase in loans during 1996. At December 31, 1996, the average maturity of
the investment portfolio was 20 months with an average yield of 6.41% compared
to 19 months with an average yield of 6.75% at December 31, 1995.
The Bank does not own nor has it ever purchased derivative securities.
14
<PAGE> 5
BANK OF SOUTH CAROLINA CORPORATION SUMMARY OF SELECTED FINANCIAL DATA
The following table summarizes the Bank's interest sensitivity position as of
December 31, 1996:
<TABLE>
<CAPTION>
3 MONTHS 6 MONTHS 1 YEAR
LESS TO LESS TO LESS TO LESS
EARNING ASSETS THAN 3 THAN 6 THAN 1 THAN 5 5 YEARS
(IN 000'S) 1 DAY MONTHS MONTHS YEAR YEARS OR MORE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 60,988 $ 4,922 $ 1,805 $ 1,879 $ 1,230 $ --
Investment securities -- -- 1,014 3,004 15,040 --
Short term investments 6 -- -- -- -- --
Federal funds sold 4,675 -- -- -- -- --
-------- -------- -------- -------- -------- ------
Total $ 65,669 $ 4,922 $ 2,819 $ 4,883 $ 16,270 $ --
======== ======== ======== ======== ======== ======
INTEREST BEARING LIABILITIES
(IN 000'S)
CD's 100,000 and over $ -- $ 8,490 $ 4,573 $ 936 $ -- $ --
Other time deposits 365 4,943 3,399 2,500 161 --
Money market and interest
bearing demand accounts 34,671 -- -- -- -- --
Savings 3,715 -- -- -- -- --
Borrowed money 2,392 -- -- -- -- --
-------- -------- -------- -------- -------- ------
Total $ 41,143 $ 13,433 $ 7,972 $ 3,436 $ 161 $ --
======== ======== ======== ======== ======== ======
Net $ 24,526 $ (8,511) $ (5,153) $ 1,447 $ 16,109 $ --
Cumulative 16,015 10,862 12,309 28,418 28,418
</TABLE>
LIQUIDITY
The Bank's liquidity is monitored on a daily basis to insure funds are available
to meet the Bank's liquidity requirements. All securities owned by the Bank are
classified as available for sale and, as a result, are carried at market value
with changes in market value, net of tax adjusted through shareholders' equity.
The unrealized gain on securities available for sale, net of income taxes was
$108,810 at December 31, 1996, and the unrealized gain net of income taxes was
$234,965 at December 31, 1995. At year end 1996, the Bank's federal funds sold
totaled $4,675,000.
COMPOSITION OF AVERAGE ASSETS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $65,468,548 $55,870,527 $52,079,826 $53,313,291 $54,427,295
Investments 17,614,422 14,564,163 16,742,283 13,503,873 13,845,103
Federal funds sold &
other investments 7,628,223 8,658,882 4,364,079 6,474,471 3,601,861
Non-earning assets 5,668,234 5,503,319 4,921,148 3,664,312 3,423,970
----------- ----------- ----------- ----------- -----------
Total average assets $96,379,427 $84,596,891 $78,107,336 $76,955,947 $75,298,229
=========== =========== =========== =========== ===========
</TABLE>
Average earning assets increased by $11,617,621 from 1995 to 1996 while average
non-earning assets increased by $164,915 primarily as a result of loan growth
and an increase in the investment portfolio.
[GRAPH]
Average loans for 1996 were up by $9,598,021 from 1995 as a result of stronger
loan demand. The majority of the growth, or approximately $5,661,000, was in
commercial loans which are tied to the Bank's prime rate.
Deposit growth was used to fund the increase in the loan and investment
portfolios.
15
<PAGE> 6
BANK OF SOUTH CAROLINA CORPORATION SUMMARY OF SELECTED FINANCIAL DATA
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table shows changes in interest income and expense based upon
changes in volume and changes in rates:
<TABLE>
<CAPTION>
1996 vs 1995 1995 vs 1994 1994 vs 1993
---------------------------------- ---------------------------------- ---------------------------------
Net Dollar Net Dollar Net Dollar
Volume Rate Change(1) Volume Rate Change (1) Volume Rate Change(1)
---------------------------------- ---------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 963,265 $(210,433) $ 752,832 $ 317,412 $ 928,916 $1,246,328 $(107,822) $ 727,022 $619,200
Investments 190,899 32,134 223,033 (128,266) 53,830 (74,436) 208,849 (167,037) 41,812
Fed funds sold &
other investments (58,959) (31,556) (90,515) 164,394 163,798 328,192 (68,439) 42,949 (25,490)
---------- --------- --------- --------- ---------- ---------- --------- --------- --------
Interest income $1,095,205 $(209,855) $ 885,350 $ 353,540 $1,146,544 $1,500,084 $ 32,588 $ 602,934 $635,522
========== ========= ========= ========= ========== ========== ========= ========= ========
Transaction
accounts $ 80,485 $(198,389) $(117,904) $ (35,937) $ 187,422 $ 151,485 $ (50,989) $ 53,199 $ 2,210
Savings 7,628 (5,017) 2,611 (31,471) 15,757 (15,714) 80,875 13,026 93,901
Certificates of
deposit 247,991 (55,354) 192,637 221,870 347,289 569,159 (62,918) 128 (62,790)
Fed funds
purchased (5,023) -- (5,023) 4,820 36 4,856 84 84 168
Securities sold
under agreements
to repurchase 6,876 (727) 6,149 (4,455) 9,511 5,056 (800) 596 (204)
Demand notes
issued to U.S.
Treasury (308) (6,293) (6,601) 6,074 12,642 18,716 (2,459) 9,613 7,154
---------- --------- --------- --------- ---------- ---------- --------- --------- --------
Interest expense $ 337,649 $(265,780) $ 71,869 $ 160,901 $ 572,657 $ 733,558 $ (36,207) $ 76,646 $ 40,439
========== ========= ========= ========= ========== ========== ========= ========= ========
Increase in net
interest income $ 813,481 $ 766,526 $595,082
</TABLE>
(1) VOLUME/RATE CHANGES HAVE BEEN ALLOCATED TO EACH CATEGORY BASED ON THE
PERCENTAGE OF EACH TO THE TOTAL CHANGE.
LOAN PORTFOLIO COMPOSITION
The following is a schedule of the Bank's loan portfolio as of December
31, 1996, as compared to December 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
BOOK VALUE (IN 000'S)
TYPE 1996 1995 1994
- ---- ------- ------- -------
<S> <C> <C> <C>
Commercial and industrial loans $34,552 $31,073 $24,281
Real estate loans 31,605 26,601 25,043
Loans to individuals for household, family and other
personal expenditures 5,434 4,257 4,896
All other loans (including overdrafts) 69 56 251
------- ------- -------
Total loans (excluding unearned income) $71,660 $61,987 $54,471
======= ======= =======
</TABLE>
16
<PAGE> 7
BANK OF SOUTH CAROLINA CORPORATION SUMMARY OF SELECTED FINANCIAL DATA
The only material change in the composition of the Bank's loan portfolio was a
19% increase in real estate loans due to increased loan demand in the market. As
a Bank whose mission is to serve its community, there is a geographic
concentration of loans in Charleston, Dorchester and Berkeley counties.
The Bank had no foreign loans or loans to fund leveraged buyouts (LBO's) during
1994, 1995 or 1996.
IMPAIRED AND RESTRUCTURED LOANS
The Bank had three impaired loans with aggregate balances of $63,054 and $73,287
as of December 31, 1996, and 1995, respectively, and one restructured loan with
a balance of $69,791 and $82,291 as of December 31, 1996 and 1995, respectively.
Management does not know of any loans which will not meet their contractual
obligations that are not otherwise discussed herein.
NON-ACCRUAL AND PAST DUE LOANS
The Bank had $38,432 in non-accrual loans as of December 31, 1996, compared to
$111,258 as of December 31, 1995. There were $2,792 in loans over 90 days past
due still accruing interest as of December 31, 1996, and none as of December 31,
1995.
A loan is generally placed on non-accrual status when principal or interest is
over 90 days past due or there is doubt about the collectability of the loan.
ALLOWANCE FOR LOAN LOSSES
The provision to the allowance for loan losses is based on management's and the
Loan Committee's ongoing review and evaluation of the loan portfolio and general
economic conditions on a monthly basis and by the Board of Directors on a
quarterly basis. Management's review and evaluation of the allowance for loan
losses is based on an analysis of historical trends, significant problem loans,
current market value of real estate or collateral and certain economic and other
factors affecting loans and real estate or collateral securing these loans.
Loans are charged off when, in the opinion of management, they are deemed to be
uncollectible. Recognized losses are charged against the allowance and
subsequent recoveries are added to the allowance. 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 evaluation. The allowance for loan losses is
subject to periodic evaluation by various regulatory authorities and may be
subject to adjustment based upon information that is available to them at the
time of their examination.
The total provision to the allowance for loan losses for 1996 was $140,000
compared to $20,000 for 1995. During 1996, loan losses of $63,853 and recoveries
of $4,966 were recorded to the allowance for loan losses resulting in a year end
allowance for loan losses of $1,041,216 which represents 1.45% of total loans
compared to $960,103 or 1.55% of total loans at December 31, 1995.
In May, 1994, the Bank acquired real estate of $951,063 at a foreclosure sale.
Also in 1994, after a charge of $148,418 to the allowance for loan losses, the
real estate was recorded as other real estate owned at $1,222,000 which was the
property's fair value minus estimated selling costs. During 1995, the real
estate was written down to $917,300 with the loss being charged to loss on other
real estate owned. In January, 1996, the real estate was sold for $980,000 which
resulted in proceeds to the Bank of $918,066 after incurring a real estate
commission and other selling expenses.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and results of operations in terms of historical dollars
without consideration of changes in the relative purchasing power over time due
to inflation.
Unlike most other industries, virtually all of 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 does the effect of inflation.
The yield on a majority of the Company's earning assets adjusts simultaneously
with changes in the general level of interest rates. Most of the Company's
liabilities are issued with fixed terms and can be repriced only at maturity.
During periods of falling interest rates, as experienced from 1991 through 1993,
the yield on the Company's assets declines faster than the rates paid on
supporting liabilities. This causes a decline in the net interest margin because
the difference between what the Company earns on its assets and what it pays on
its liabilities becomes narrower. After interest rates have stabilized, there is
a period of time until the rates paid on interest-bearing liabilities declines
enough to restore the net interest margin. As demonstrated by the improving net
interest margin in 1994 and 1995, the opposite effect of increasing net interest
income is realized in a rising rate environment given the Company's current
balance sheet structure.
CAPITAL RESOURCES
The capital needs of the Company have been met to date through the $10,600,000
in capital raised in the Bank's initial offering and the retention of earnings
less dividends paid and the exercising of stock options in April of 1995 of
$124,000 and April of 1996 of $124,000 for a total shareholders' equity at
December 31, 1996, of $14,893,813. 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 December
31, 1996, for the Bank was 19.45% and at December 31, 1995, was 20.95%. The
Company has applied for another branch in its market area for construction to
begin in mid-1997 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.
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a material
effect on the financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of the
Company's and the Bank's assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. The Company's and the
Bank's capital amounts and classification
17
<PAGE> 8
BANK OF SOUTH CAROLINA CORPORATION SUMMARY OF SELECTED FINANCIAL DATA
are also subject to qualitative judgements by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
and Tier 1 capital to risk-weighted assets and to total assets. Management
believes, as of December 31, 1996, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
At December 31, 1996 and 1995, the Company and the Bank are categorized as "well
capitalized", respectively, under the regulatory framework for prompt corrective
action. To be categorized as "adequately capitalized," the Company and the Bank
must maintain minimum total risk based, Tier 1 risk based and Tier 1 leverage
ratios of 8%, 4% and 4%, respectively. There are no current conditions or events
that management believes would change the Company's or the Bank's category.
Please see "Notes to Consolidated Financial Statements" for the Company's and
the Bank's various capital ratios at December 31, 1996.
ACCOUNTING AND REPORTING CHANGES
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("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 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. The Company
recently commenced the origination and sale of mortgage loans. Currently the
Company is pre-selling all mortgages and their related servicing and, based upon
the Company's present mortgage lending operation. This statement did not have a
material adverse 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 after 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. The Company elected to continue to record stock-based
compensation in accordance with APB 25 and disclose proforma changes to net
income and earnings per share in the footnotes to the financial statements.
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. The statement
is effective for transactions occurring after December 31, 1996. 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
those assets it no longer controls and liabilities it has satisfied. This
statement contains special provisions that deal with servicing assets and
liabilities, which supersede SFAS No. 122, but this statement retains the
impairment and amortization approaches contained in SFAS No. 122. The Company
does not anticipate that adoption of this standard will have a material effect
on the Company's financial statements in 1997.
In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective Date
of Certain Provisions of SFAS No. 125, an amendment to SFAS No. 125, which is
effective December 31, 1996. This statement delays the effective date of certain
provisions of SFAS No. 125 until after December 31, 1997. The amended provisions
include those related to the transfers of financial assets and secured
borrowings. The provisions in SFAS No. 125 related to servicing assets and
liabilities are not delayed by this amendment. The Company does not anticipate
that adoption of this standard will have a material effect on the Company's
financial statements.
INDUSTRY DEVELOPMENTS
Certain recently enacted and proposed legislation could have an effect on both
the costs of doing business and the competitive factors facing the financial
institution's industry. Among the recently enacted bills is legislation to
assess BIF members with one-fifth of the assessment rate imposed upon thrifts to
cover the annual $780,000,000 Financing Corp. (FICO) bond obligation. This
assessment computes to 130 basis points for banks in the years 1997 through
1999. Starting in the year 2000 until the FICO bonds are retired, banks and
thrifts will pay the assessment on a pro rata basis (estimated to run about 2.5
basis points for banks). The Company is unable to assess the impact of other
legislation on its financial condition or operations at this time.
THE BANK OF SOUTH CAROLINA EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
During 1989, the Board of Directors of the Bank adopted an Employee Stock
Ownership Plan and Trust Agreement to provide retirement benefits to eligible
employees of the Bank for long and faithful service. The Board of Directors of
the Bank approved the contribution of $146,184 to The Bank of South Carolina
Employee Stock Ownership Plan and Trust for the purchase of 10,178 shares of
common stock for the fiscal year ended December 31, 1996. The contribution was
made during 1996. T. Dean Harton, Sheryl G. Sharry and Nathaniel I. Ball, III,
currently serve as Plan Administrator. Nathaniel I. Ball, III, currently serves
as Trustee for the Plan. The Plan currently owns 79,708 shares of common stock
of Bank of South Carolina Corporation.
18
<PAGE> 9
BANK OF SOUTH CAROLINA CORPORATION SUMMARY OF SELECTED FINANCIAL DATA
YIELDS ON AVERAGE EARNING ASSETS AND RATES ON AVERAGE INTEREST-BEARING
LIABILITIES
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------- ----------------------------------- ----------------------------------
Interest Average Interest Average Interest Average
Average Paid/ Yield/ Average Paid/ Yield/ Average Paid/ Yield/
Balance Earned Rate Balance Earned Rate Balance Earned Rate
------------------------------- ----------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING
ASSETS:
Loans $65,468,548 $6,360,042 9.71% $55,870,527 $5,607,210 10.04% $52,079,826 $4,360,882 8.37%
Investment
securities 17,614,422 1,134,525 6.44% 14,564,163 911,492 6.26% 16,742,283 985,928 5.89%
Federal funds
sold 7,622,131 404,430 5.31% 8,653,014 494,958 5.72% 4,358,411 166,832 3.83%
Other short-term
investments 6,092 228 3.74% 5,868 215 3.66% 5,668 149 2.63%
----------- ---------- ---- ----------- ---------- ----- ----------- ---------- ----
Total earning
assets $90,711,193 $7,899,225 8.71% $79,093,572 $7,013,875 8.87% $73,186,188 $5,513,791 7.53%
=========== ========== ==== =========== ========== ===== =========== ========== ====
INTEREST-BEARING
LIABILITIES:
Interest bearing
transaction
accounts $35,429,864 $ 993,501 2.80% $33,037,384 $1,111,404 3.36% $34,312,343 $ 959,919 2.80%
Savings 4,991,111 166,647 3.34% 4,769,316 164,036 3.44% 5,781,571 179,751 3.11%
Certificates of
deposit 21,727,528 1,153,312 5.31% 17,269,528 960,675 5.56% 11,022,901 391,516 3.55%
Federal funds
purchased -- -- 0.00% 85,863 5,023 5.85% 2,877 167 5.80%
Securities sold
under agreement
to repurchase 486,793 24,764 5.09% 355,488 18,615 5.24% 529,451 13,558 2.56%
Demand notes
issued to U.S.
Treasury 820,617 40,190 4.90% 826,061 46,792 5.66% 679,126 28,075 4.13%
----------- ---------- ---- ----------- ---------- ----- ----------- ---------- ----
Total interest
bearing
liabilities $63,455,913 $2,378,414 3.75% $56,343,640 $2,306,545 4.09% $52,338,269 $1,572,987 3.01%
=========== ========== ==== =========== ========== ===== =========== ========== ====
Net interest spread 4.96% 4.78% 4.52%
Net interest margin 6.09% 5.95% 5.39%
Net interest income $5,520,811 $4,707,330 $3,940,804
</TABLE>
19
<PAGE> 10
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Bank of South Carolina Corporation and subsidiary
Charleston, South Carolina
We have audited the accompanying consolidated balance sheets of Bank of
South Carolina Corporation and subsidiary (the "Corporation") as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1996. The consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Corporation at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick
Greenville, South Carolina
January 17, 1997
20
<PAGE> 11
BANK OF SOUTH CAROLINA CORPORATION CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
ASSETS 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 5,980,344 $ 4,239,424
Interest bearing deposits in other banks 6,185 5,957
Federal funds sold and repurchase agreements 4,675,000 15,025,000
Investment securities available for sale (note 2) 19,231,905 12,505,634
Loans (note 3 and note 8) 71,660,124 61,986,536
Less: Allowance for loan losses (1,041,216) (960,103)
------------- ------------
Net loans 70,618,908 61,026,433
Accrued interest receivable 778,966 667,280
Premise, equipment and leasehold
improvements, net (note 4) 1,149,994 543,326
Other real estate owned -- 917,300
Other assets (note 6) 394,114 317,725
------------- ------------
Total assets $ 102,835,416 $ 95,248,079
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
Liabilities:
Deposits:
Non-interest bearing demand $ 21,380,352 $ 19,398,922
Interest bearing demand 16,969,563 15,410,415
Money market accounts 17,397,957 19,414,137
Certificates of deposit $100,000 and over 13,790,007 11,941,512
Other time deposits 11,577,303 9,143,811
Other savings deposits 3,715,055 3,681,547
------------- ------------
Total deposits 84,830,237 78,990,344
Short-term borrowings (note 5) 2,392,408 1,078,569
Accrued interest payable and other liabilities 718,958 663,934
------------- ------------
Total liabilities 87,941,603 80,732,847
------------- ------------
Commitments and contingencies (note 7)
Shareholders' equity (notes 10, 11 and 12):
Common stock - No par, 3,000,000 authorized,
Issued and outstanding 1,157,117 shares in 1996
and 1,179,640 shares in 1995 -- --
Additional paid in capital 12,082,882 10,724,000
Retained earnings 3,252,807 3,556,267
Treasury stock (35,000 shares) (550,686) --
Unrealized gain on securities available for sale,
net of income taxes 108,810 234,965
------------- ------------
Total shareholders' equity 14,893,813 14,515,232
------------- ------------
Total liabilities and shareholders' equity $ 102,835,416 $ 95,248,079
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 12
BANK OF SOUTH CAROLINA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Interest and fee income
Interest and fees on loans $ 6,360,042 $5,607,210 $ 4,360,882
Interest and dividends
on investment securities 1,134,525 911,492 985,928
Other interest income 404,658 495,173 166,981
----------- ---------- -----------
Total interest and fee income 7,899,225 7,013,875 5,513,791
----------- ---------- -----------
Interest expense
Interest on deposits 2,313,460 2,236,115 1,531,186
Interest on short-term borrowings 64,954 70,430 41,801
----------- ---------- -----------
Total interest expense 2,378,414 2,306,545 1,572,987
----------- ---------- -----------
Net interest income 5,520,811 4,707,330 3,940,804
Provision for loan losses (note 3) 140,000 20,000 105,000
----------- ---------- -----------
Net interest income after
provision for loan losses 5,380,811 4,687,330 3,835,804
----------- ---------- -----------
Other income
Service charges, fees and commissions 488,794 331,959 291,213
Loss on sale of investment securities (2,569) -- (140,443)
Other non-interest income 14,698 13,718 41,059
----------- ---------- -----------
Total other income 500,923 345,677 191,829
----------- ---------- -----------
Other expense
Salaries and employee benefits 1,896,964 1,682,957 1,484,683
Net occupancy expense 787,351 685,965 648,084
Net cost of other real estate owned 1,088 19,822 21,646
Loss on other real estate owned 58,378 313,040 --
Other operating expenses (note 9) 915,006 664,992 760,897
----------- ---------- -----------
Total other expense 3,658,787 3,366,776 2,915,310
----------- ---------- -----------
Income before income tax expense 2,222,947 1,666,231 1,112,323
Income tax expense (note 6) 834,139 617,000 407,000
----------- ---------- -----------
Net income $ 1,388,808 $1,049,231 $ 705,323
=========== ========== ===========
Net income per common share $ 1.19 $ .89 $ .60
=========== ========== ===========
Cash dividends per common share $ .39 $ .27 $ .20
=========== ========== ===========
Book value $ 12.87 $ 12.30 $ 11.40
=========== ========== ===========
Weighted average shares outstanding 1,169,961 1,176,463 1,166,000
=========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 13
BANK OF SOUTH CAROLINA CORPORATION CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
<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>
December 31, 1993 $ 5,300,000 $ 5,300,000 $ 2,355,888 $ -- $ -- $ 12,955,888
Net income -- -- 705,323 -- -- 705,323
Unrealized loss
on securities
available for sale,
net of income taxes -- -- -- -- (140,275) (140,275)
Cash dividends -- -- (233,200) -- -- (233,200)
----------- ----------- ----------- --------- --------- ------------
December 31, 1994 $ 5,300,000 $ 5,300,000 $ 2,828,011 $ -- $(140,275) $ 13,287,736
Reorganization of The Bank
of South Carolina into a
one-bank holding company (5,300,000) 5,300,000 -- -- -- --
Shares issued for the
exercise of stock option- -- 124,000 -- -- 124,000
Net income -- -- 1,049,231 -- -- 1,049,231
Change in unrealized gain
(loss) on securities
available for sale,
net of income taxes -- -- -- -- 375,240 375,240
Cash dividends -- -- (320,975) -- -- (320,975)
----------- ----------- ----------- --------- --------- ------------
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 -- -- -- (550,686) -- (550,686)
Net income -- -- 1,388,808 -- -- 1,388,808
Change in unrealized gain
(loss) on securities
available for sale,
net of income taxes -- -- -- -- (126,155) (126,155)
Common stock dividend -- 1,234,882 (1,234,882) -- -- --
Cash dividends -- -- (457,386) -- -- (457,386)
----------- ----------- ----------- --------- --------- ------------
December 31, 1996 $ -- $12,082,882 $ 3,252,807 $(550,686) $ 108,810 $ 14,893,813
=========== =========== =========== ========= ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 14
BANK OF SOUTH CAROLINA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,388,808 $ 1,049,231 $ 705,323
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 157,223 121,587 116,125
Amortization of organizational costs 7,446 4,689 --
Provision for loan losses 140,000 20,000 105,000
Deferred income taxes 71,000 (123,000) 6,000
Loss on other real estate owned 58,378 313,040 --
Loss on sale of investment securities 2,569 -- 140,443
Net accretion (amortization) of unearned
discounts/premiums on investment securities 4,841 34,935 10,514
(Increase) in accrued interest receivable
and other assets (192,429) (44,499) (389,138)
Increase in accrued interest payable and
other liabilities 55,024 369,896 235,512
------------ ------------ ------------
Net cash provided by operating activities 1,692,860 1,745,879 929,779
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales/maturities of investment securities
available for sale 5,036,383 5,013,882 9,939,797
Purchase of investment securities available for sale (11,970,311) (1,001,875) (11,080,733)
Net increase in loans (9,732,475) (7,571,705) (3,368,353)
Proceeds from the sale of other real estate owned 858,922 -- --
Purchase of premise, equipment and
leasehold improvements, net (763,891) (65,613) (79,715)
------------ ------------ ------------
Net cash provided (used) by investing activities (16,571,372) (3,625,311) (4,589,004)
------------ ------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts 5,839,893 16,524,915 (2,349,102)
Net increase (decrease) in short-term borrowings 1,313,839 (50,569) (1,180,096)
Dividends (457,386) (320,975) (233,200)
Treasury stock (550,686) -- --
Stock options exercised 124,000 124,000 --
------------ ------------ ------------
Net cash provided (used) by financing activities 6,269,660 16,277,371 (3,762,398)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (8,608,852) 14,397,939 (7,421,623)
Cash and cash equivalents at beginning of year 19,270,381 4,872,442 12,294,065
------------ ------------ ------------
Cash and cash equivalents at end of year $ 10,661,529 $ 19,270,381 $ 4,872,442
============ ============ ============
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 2,417,733 $ 2,145,329 $ 1,564,142
Income taxes 766,382 582,218 410,050
Transfer of investment securities held to
maturity to available for sale -- -- 15,105,901
Transfer of loans to other real estate owned -- -- 1,222,000
Change in unrealized gain on securities available for sale,
net of income taxes 126,155 375,240 140,275
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 15
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the more significant accounting policies used in
preparation and presentation of the accompanying consolidated financial
statements. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements. In addtion, they affect the reported
amounts of income and expense during the reporting period. Actual results could
differ from these estimates and assumptions.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Bank of South Carolina Corporation (the "Company") and
its wholly-owned subsidiary, The Bank of South Carolina (the "Bank"). In
consolidation, all significant intercompany balances and transactions have been
eliminated. Bank of South Carolina Corporation is a one-bank holding company
organized under the laws of the State of South Carolina. The Bank provides a
broad range of consumer and commercial banking services, concentrating on
individuals and small and medium-sized businesses desiring a high level of
personalized services.
The reorganization of the Bank into a one-bank holding company became effective
on April 17, 1995. All issued and outstanding shares of the Bank's stock were
converted into two shares of the Company's stock.
INVESTMENT SECURITIES: The Company accounts for its investment securities in
accordance with the Financial Accounting Standards Board's (FASB) Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Investments are classified into three
categories as follows: (1) Held to Maturity - debt securities that the Company
has the positive intent and ability to hold to maturity, which are reported at
amortized cost; (2) Trading - debt and equity securities that are bought and
held principally for the purpose of selling them in the near term, which are
reported at fair value, with unrealized gains and losses included in earnings;
and (3) Available for Sale - debt and equity securities that may be sold under
certain conditions, which are 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.
LOANS AND ALLOWANCE FOR LOAN LOSSES: The Company adopted SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, on January 1, 1995. This
statement requires that all creditors value loans for which it is probable that
the creditor will be unable to collect all amounts due according to the terms of
the loan agreement at the loan's fair value. Fair value may be determined based
upon the present value of expected cash flows, market price of the loan, if
available, or value of the underlying collateral. Expected cash flows are
required to be discounted at the loan's effective interest rate.
SFAS No. 114 was amended by SFAS No. 118 to allow a creditor to use existing
methods for recognizing interest income on an impaired loan and by requiring
additional disclosures about how a creditor recognizes interest income related
to impaired loans.
When the ultimate collectibility of an impaired loan's principal is in doubt,
wholly or partially, all cash receipts are applied to principal. When this doubt
does not exist, cash receipts are applied under the contractual terms of the
loan agreement first to principal and then to interest income. Once the recorded
principal balance has been reduced to zero, future cash receipts are applied to
interest income, to the extent that any interest has been foregone. Further cash
receipts are recorded as recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled debt
restructuring after January 1, 1995. For these accruing impaired loans, cash
receipts are typically applied to principal and interest receivable in
accordance with the terms of the restructured loan agreement. Interest income is
recognized on these loans using the accrual method of accounting. As of December
31, 1996, all impaired loans were accruing interest.
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
based upon information that is available to them at the time of their
examination.
PREMISE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS AND DEPRECIATION: Buildings and
equipment are carried at cost less accumulated depreciation, calculated on the
straight-line method over the estimated useful life of the related assets
ranging from 20 years and 3 to 15 years, respectively, 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.
OTHER REAL ESTATE OWNED: Other real estate owned is recorded at the lower of
fair value minus estimated selling costs or cost. Gains and losses on the sale
of other real estate owned and write-downs from periodic reevaluation are
charged to other operating expenses.
INCOME TAXES: Effective January 1, 1993, the Company adopted SFAS No. 109 with
no material effect on the Company. Under the asset and liability method of SFAS
No. 109, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
INCOME PER COMMON SHARE: Income per common share is based on the weighted
average number of shares outstanding. Outstanding stock options are common stock
equivalents but have no material dilutive effect on income per common share.
CASH FLOWS: Cash and cash equivalents includes working cash funds, due from
banks, items in process of collection and federal funds sold. To comply with
Federal Reserve regulations, the Bank is required to maintain certain average
cash reserve balances. The daily average reserve requirement was $755,000 and
$618,000 for the reserve periods ended December 31, 1996, and 1995,
respectively.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform
to the 1996 presentation. Such reclassifications had no impact on net income or
retained earnings as previously reported.
25
<PAGE> 16
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and market values of investment securities available for sale
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- -------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $18,989,786 $202,132 $(29,418) $19,162,500
Municipal Securities 69,405 -- -- 69,405
----------- -------- -------- -----------
Total $19,059,191 $202,132 $(29,418) $19,231,905
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- -------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $12,024,384 $372,961 $ -- $12,397,345
Municipal Securities 83,289 -- -- 83,289
Corporate Stock 25,000 -- -- 25,000
----------- -------- -------- -----------
Total $12,132,673 $372,961 $ -- $12,505,634
=========== ======== ======== ===========
</TABLE>
The amortized cost and market value of investment securities at December 31,
1996, by contractual maturity are as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less $ 4,018,751 $ 4,048,881
Due in one year to five years 15,040,440 15,183,024
----------- -----------
Total $19,059,191 $19,231,905
=========== ===========
</TABLE>
The Company had $2,997,500 proceeds from the sale of investment securities which
resulted in a realized loss of $2,569 during the year ended December 31, 1996
and no proceeds from the sale of investment securities during the year ended
December 31, 1995. The Company had proceeds of $4,836,297 from the sale of
investment securities which resulted in a realized loss of $140,443 during the
year ended December 31, 1994.
The carrying value of investment securities pledged to secure deposits and other
balances was approximately $10,846,000 and $9,880,000 at December 31, 1996 and
1995, respectively.
26
<PAGE> 17
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Commercial loans $ 55,027,846 $ 49,367,028
Residential mortgage 7,869,543 5,881,511
Consumer loans 5,087,491 3,792,685
Personal bank lines 3,607,898 2,910,414
Other 67,346 34,898
------------ ------------
71,660,124 61,986,536
Allowance for loan losses (1,041,216) (960,103)
------------ ------------
Loans, net $ 70,618,908 $ 61,026,433
============ ============
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- --------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 960,103 $ 996,386 $ 1,039,870
Provision for loan losses 140,000 20,000 105,000
Charge offs (63,853) (67,535) (163,892)
Recoveries 4,966 11,252 15,408
----------- --------- -----------
Balance at end of year $ 1,041,216 $ 960,103 $ 996,386
=========== ========= ===========
</TABLE>
The Company grants short to intermediate term commercial and consumer loans to
customers throughout its primary market area of Charleston, Berkeley and
Dorchester Counties, South Carolina. The Company's primary market area is
heavily dependent on the tourism and military industries. Although the Company
has a diversified loan portfolio, a substantial portion of its debtors' ability
to honor their contracts is dependent upon the stability of the economic
environment in their primary market including the tourism and military
industries. Except for the fact that the majority of the loan portfolio is
located in the Bank's immediate market area, there were no concentrations of
loans in any type of industry, type of property or to one borrower.
As of December 31, 1996 and 1995, the Company had loans on non-accrual totalling
approximately $38,000 and $111,000, respectively. The additional amount of gross
income that would have been recorded during 1996 and 1995 if these loans had
performed as agreed would have been approximately $438 and $4,497, respectively.
At December 31, 1996 and 1995, impaired loans amounted to $63,054 and $73,287,
respectively. Included in the allowance for loan losses is $0 and $11,740
related to the above impaired loans. For the years ended December 31, 1996 and
1995, the average recorded investment in impaired loans was $68,256 and $78,145,
respectively, and $6,009 in 1996 and $8,439 in 1995 of interest income was
recognized on loans while they were impaired. All of this income was recognized
using the accrual method of accounting.
At December 31, 1996 and 1995, there was a troubled debt restructuring totaling
$69,791 and $82,291, respectively, which was modified prior to the adoption of
SFAS No. 114 and which was performing in accordance with its modified terms.
27
<PAGE> 18
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PREMISE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Premise, equipment and leasehold improvements are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Bank buildings $ 583,959 $ --
Lease purchase 30,000 30,000
Leasehold improvements 202,789 187,136
Equipment 1,079,803 925,541
----------- -----------
1,896,551 1,142,677
Accumulated depreciation (746,557) (599,351)
----------- -----------
Total $ 1,149,994 $ 543,326
=========== ===========
</TABLE>
5. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Securities sold under agreements to repurchase $ 480,559 $ 642,266
U.S. Treasury, Tax and Loan deposit notes 1,911,849 436,303
---------- ----------
Total $2,392,408 $1,078,569
========== ==========
</TABLE>
Securities sold under agreements to repurchase with customers mature on demand.
These borrowings were collateralized by U.S. Treasury Notes with carrying values
of $558,220 and $800,776 and market values of $557,431 and $808,405 at December
31, 1996 and 1995, respectively. The agreements to repurchase had weighted
average interest rates of 5.08% and 5.36% at December 31, 1996 and 1995,
respectively. The maximum amount outstanding at any month end was $575,180 and
$709,913 for the years ended December 31, 1996 and 1995, respectively. The
average amount of outstanding agreements to repurchase was $486,793 and $355,488
during the periods ended December 31, 1996 and 1995, respectively. The
securities underlying the repurchase agreements were held in safekeeping by an
authorized broker. At the maturity dates of these transactions, the securities
are returned to the account of the Bank.
28
<PAGE> 19
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal $ 686,825 $ 697,000 $369,000
State 76,314 43,000 32,000
--------- --------- --------
763,139 740,000 401,000
--------- --------- --------
Deferred:
Federal 71,000 (123,000) 6,000
State -- -- --
--------- --------- --------
71,000 (123,000) 6,000
--------- --------- --------
Total $ 834,139 $ 617,000 $407,000
========= ========= ========
</TABLE>
The Company's effective income tax rate differs from the statutory Federal
income tax rate of 34% as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Provision for tax at statutory federal income
tax rate $755,802 $566,519 $378,190
State income taxes, net of federal tax benefit 50,367 28,380 21,120
Other, net 27,970 22,101 7,690
-------- -------- --------
Provision for income tax $834,139 $617,000 $407,000
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Bad debt reserves $308,000 $290,000
Tax basis of real estate versus carrying value
for financial reporting purposes -- 106,000
-------- --------
Total gross deferred tax assets 308,000 396,000
-------- --------
Deferred tax liabilities:
Unrealized gain on securities available for sale 63,904 137,995
Fixed assets, principally due to differences
in depreciation 35,000 49,000
Other 12,000 15,000
-------- --------
Total gross deferred tax liabilities 110,904 201,995
-------- --------
Net deferred tax asset $197,096 $194,005
======== ========
</TABLE>
There was no valuation allowance for potential deferred tax assets at either
December 31, 1996 or December 31, 1995. No valuation allowance has been
established as it is management's belief that realization of the deferred tax
asset is more likely than not. The net deferred tax asset is included in other
assets on the consolidated balance sheets.
A portion of the change in the net deferred tax asset relates to the unrealized
gains and losses on securities available for sale. The related current period
deferred tax benefit of $74,091 has been recorded directly to shareholders'
equity. The balance of the change in the net deferred tax asset results from the
current period deferred tax expense of $71,000.
29
<PAGE> 20
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements to lease equipment and its office
facilities under noncancellable operating lease agreements expiring on various
dates through 2010. The Company may, at its option, extend the lease of its
office facility at 256 Meeting Street in Charleston, South Carolina, for two
additional ten year periods, extend the lease of its office facility at 100 N.
Main Street, Summerville, South Carolina, for two additional five year periods
and extend the land lease where the Mt. Pleasant office is constructed for six
additional five year periods. Minimum rental commitments for these leases as of
December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 381,901
1998 384,012
1999 381,436
2000 370,068
2001 and thereafter 4,122,558
----------
Total $5,639,975
==========
</TABLE>
Total rental expense was $380,637, $350,086, and $336,810 in 1996, 1995, and
1994, respectively.
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
financial statements. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained if deemed
necessary by the Company upon extension of credit is based on management's
credit evaluation of the counterparty. Collateral held varies, but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties. Commitments to extend credit, including
unused lines of credit, amounted to $16,897,267 and $15,163,000 at December 31,
1996 and 1995, respectively.
Standby letters of credit are commitments issued by the Company to guarantee the
performance of a customer to a third party. Commitments under standby letters of
credit amounted to $1,437,650 and $1,055,000 at December 31, 1996 and 1995,
respectively.
8. RELATED PARTY TRANSACTIONS
In the opinion of management, loans to officers and directors of the Company are
made on substantially the same terms as those prevailing at the time for
comparable transactions with unaffiliated persons and do not involve more than
the normal risk of collectibility. There were no outstanding loans to executive
officers of the Company as of December 31, 1996. Related party loans are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 2,133,686 $ 2,670,941
New loans or advances 2,178,429 893,470
Repayments (1,721,167) (1,430,725)
----------- -----------
Balance at end of year $ 2,590,948 $ 2,133,686
=========== ===========
</TABLE>
30
<PAGE> 21
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OTHER EXPENSE
A summary of the components of other operating expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Advertising and business development $ 85,966 $ 19,969 $ 18,735
Supplies 110,396 91,063 117,533
Telephone and postage 106,379 83,672 74,429
Insurance 34,469 32,423 28,783
Professional fees 110,358 96,158 120,555
Data processing services 89,998 70,388 72,156
State and FDIC insurance and fees 14,927 85,857 159,526
Other 362,513 185,462 169,180
-------- -------- --------
Total $915,006 $664,992 $760,897
======== ======== ========
</TABLE>
10. STOCK DIVIDEND
The Board of Directors approved a 10% stock dividend on April 9, 1996, for
shareholders of record April 30, 1996, and effective May 15, 1996. All share and
per share data have been retroactively restated to reflect the 10% stock
dividend.
11. INCENTIVE STOCK OPTION PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The Company has an incentive stock option plan for the benefit of eligible
officers and employees. A total of 110,000 shares were reserved and 99,000
shares have subsequently been granted under the plan. Options for 27,940 shares
with an exercise price of $9.09 and 16,500 shares with an exercise price of
$9.44 have expired. No options were granted during 1996. Options for 27,280
shares with an exercise price of $9.09 remain outstanding. Options for 13,640
shares at $9.09 were exercised during 1996 and 1995. Of the remaining options
for 27,280 shares at $9.09, options for 13,640 shares are exercisable annually
in 1997 and 1998 and expire if not exercised by the end of the exercise period
each year.
In the event of a prospective reorganization, consolidation or sale of
substantially all of the assets or any other form of corporate reorganization in
which the Company would not be the surviving entity or in the event of the
acquisition, directly or indirectly, of the beneficial ownership of twenty-four
percent (24%) of the Common Stock of the Company or the making, orally or in
writing, of a tender offer for, or any request or invitation for tender of, or
any advertisement making or inviting tenders of the Company stock by any person,
all options in effect at that time would accelerate so that all options would
become immediately exercisable and could be exercised within one year
immediately following the date of acceleration but not thereafter.
The Company established an Employee Stock Ownership Plan (ESOP) effective
January 1, 1989. Each employee who has attained age twenty-one and has completed
at least 1,000 hours of service in a Plan year is eligible to participate in the
Plan. Contributions are determined annually by the Board of Directors and
amounts allocable to individual participants may be limited pursuant to the
provisions of Internal Revenue Code section 415. The Company recognizes expense
when the contribution is approved by the Board. The total expenses charged by
the Company amounted to $146,184, $144,720 and $103,699 for the years ended
December 31, 1996, 1995 and 1994, respectively.
31
<PAGE> 22
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. REGULATORY CAPITAL REQUIREMENTS
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulation) to risk-weighted assets (as defined) and to total assets. Management
believes, as of December 31, 1996, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
At December 31, 1996 and 1995, the Company and the Bank are categorized as "well
capitalized," respectively, under the regulatory framework for prompt corrective
action. To be categorized as "adequately capitalized," the Company and the Bank
must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the table below. There are no current conditions or
events that management believes would change the Company's or the Bank's
category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------ ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital to
risk-weighted assets:
Company $15,722 20.98% $5,996 8.00% $7,495 10.00%
Bank 15,508 20.70% 5,994 8.00% 7,492 10.00%
Tier 1 capital to
risk-weighted assets:
Company $14,785 19.73% $2,998 4.00% $4,497 6.00%
Bank 14,571 19.45% 2,997 4.00% 4,495 6.00%
Tier 1 capital to
total assets:
Company $14,785 14.23% $4,155 4.00% $5,194 5.00%
Bank 14,571 14.03% 4,154 4.00% 5,193 5.00%
</TABLE>
32
<PAGE> 23
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosure About Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments whether or not
recognized on the balance sheet, for which it is practicable to estimate fair
value. Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and the relevant market
information. Where available, quoted market prices are used. In other cases,
fair values are based on estimates using present value or other valuation
techniques. These techniques involve uncertainties and are significantly
affected by the assumptions used and the judgements made regarding risk
characteristics of various financial instruments, discount rates, prepayments,
estimates of future cash flows, future expected loss experience and other
factors. Changes in assumptions could significantly affect these estimates.
Derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, may or may not be realized in an
immediate sale of the instrument.
Under SFAS No. 107, fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated future
business and the value of the assets and liabilities that are not financial
instruments. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following describes the methods and assumptions used by the Company in
estimating the fair values of financial instruments:
a. Cash and cash equivalents, interest bearing deposits in other banks, federal
funds sold and securities under resale agreements or similar arrangements
The carrying value approximates fair value.
b. Investment securities available for sale
The fair value of investment securities is derived from quoted market prices.
c. Loans
The current value of variable rate consumer and commercial loans or consumer and
commercial loans with remaining maturities of three months or less approximates
fair value. The fair value of fixed rate consumer and commercial loans with
maturities greater than three months are valued using a discounted cash flow
analysis and assumes the rate being offered on these types of loans by the
Company at December 31, 1996, approximates market.
For lines of credit, the carrying value approximates fair value. No value has
been placed on the underlying credit card relationship rights.
Unused loan commitments are at adjustable rates which fluctuate with the prime
rate or are funded within ninety days. Current amounts are considered to be
their fair value.
d. Deposits
Under SFAS No. 107, the estimated fair value of deposits with no stated maturity
is equal to the carrying amount. The fair value of time deposits is estimated by
discounting contractual cash flows, by applying interest rates currently being
offered on the deposit products. Under SFAS No. 107, the fair value estimates
for deposits do not include the benefit that results from the low cost funding
provided by the deposit liabilities as compared to the cost of alternative forms
of funding (deposit base intangibles).
e. Short-term borrowings
The carrying amount approximates fair value due to the short-term nature of
these instruments.
The estimated fair values of the Company's financial instruments at December 31,
1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996
-------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 5,980,344 $ 5,980,344
Interest bearing deposits in other banks 6,185 6,185
Fed funds sold and securities purchased
under resale agreements or similar arrangements 4,675,000 4,675,000
Investments available for sale 19,231,905 19,231,905
Loans 71,660,124 71,248,386
Deposits 84,830,237 84,823,402
Short-term borrowings 2,392,408 2,392,408
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 4,239,424 $ 4,239,424
Interest bearing deposits in other banks 5,957 5,957
Fed funds sold and securities purchased
under resale agreements or similar arrangements 15,025,000 15,025,000
Investments available for sale 12,505,634 12,505,634
Loans 61,986,535 61,808,325
Deposits 78,990,344 79,005,349
Short-term borrowings 1,078,569 1,078,569
</TABLE>
33
<PAGE> 24
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. BANK OF SOUTH CAROLINA CORPORATION - PARENT COMPANY
The Company's principal source of income is dividends from the Bank. Certain
regulatory requirements restrict the amount of dividends which the Bank can pay
to the Company. At December 31, 1996, the Bank had available retained earnings
of approximately $3,971,450 for payment of dividends.
The Company's principal asset is its investment in its bank subsidiary. The
Company's condensed statements of financial condition data as of December 31,
1996, and 1995, and the related condensed statements of operations data and cash
flow data for the period ended December 31, 1996, and 1995, are as follows:
<TABLE>
<CAPTION>
FINANCIAL CONDITION DATA
- ------------------------
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Cash $ 303,445 $ 711,643
Investment in wholly-owned bank subsidiary 14,680,261 13,857,119
Capitalized organizational costs 24,816 32,262
Other assets 1,003 --
------------ ------------
Total assets $ 15,009,525 $ 14,601,024
============ ============
Liabilities and Shareholders' Equity
Dividends payable $ 115,712 $ 85,792
------------ ------------
Total liabilities 115,712 85,792
Shareholders' equity 14,893,813 14,515,232
------------ ------------
Total liabilities and shareholders' equity $ 15,009,525 $ 14,601,024
============ ============
<CAPTION>
OPERATIONS DATA
- ---------------
1996 1995
------------ ------------
<S> <C> <C>
Interest income $ 13,723 $ 3,924
Net operating expenses (44,212) (12,434)
Dividends received from bank 470,000 600,000
Equity in undistributed earnings of subsidiary 949,297 457,741
------------ ------------
Net income $ 1,388,808 $ 1,049,231
============ ============
<CAPTION>
CASH FLOW DATA
- --------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,388,808 $ 1,049,231
Equity in undistributed earnings of subsidiary (949,297) (457,741)
Increase in other assets (1,003) (36,951)
Amortization of organizational costs 7,446 4,688
------------ ------------
Net cash provided by operating activities 445,954 559,227
Cash flows from financing activities:
Increase in dividends payable 29,920 85,792
Dividends paid (457,386) (257,376)
Treasury stock purchased (550,686) --
Stock options exercised 124,000 124,000
------------ ------------
Net cash (used) provided by financing activities (854,152) 152,416
Net increase (decrease) in cash (408,198) 711,643
Cash at beginning of year 711,643 --
------------ ------------
Cash at end of year $ 303,445 $ 711,643
============ ============
</TABLE>
34
<PAGE> 25
BANK OF SOUTH CAROLINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. QUARTERLY RESULTS OF OPERATIONS
The tables below represent the quarterly results of operations for the years
ending December 31, 1996, 1995 and 1994, respectively: (unaudited)
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
FOURTH THIRD SECOND FIRST
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Total interest income $ 2,092,368 $2,035,700 $ 1,925,100 $ 1,846,027
Total interest expense 632,942 604,928 567,940 572,604
----------- ---------- ----------- -----------
Net interest income 1,459,426 1,430,772 1,357,160 1,273,453
Provision for loan losses 60,000 45,000 20,000 15,000
----------- ---------- ----------- -----------
Net interest income after
provision for loan losses 1,399,426 1,385,772 1,337,160 1,258,453
Other income 159,960 139,743 107,197 94,023
Other expense 953,635 940,719 911,121 853,312
----------- ---------- ----------- -----------
Income before taxes 605,751 584,796 533,236 499,164
Income tax expense 227,500 218,000 204,000 184,639
----------- ---------- ----------- -----------
Net income $ 378,251 $ 366,796 $ 329,236 $ 314,525
=========== ========== =========== ===========
Net income per share $ .33 $ .31 $ .28 $ .27
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------------
FOURTH THIRD SECOND FIRST
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Total interest income $ 1,870,300 $1,854,311 $ 1,685,855 $ 1,603,409
Total interest expense 633,255 647,270 542,473 483,547
----------- ---------- ----------- -----------
Net interest income 1,237,045 1,207,041 1,143,382 1,119,862
Provision for loan losses -- -- 5,000 15,000
----------- ---------- ----------- -----------
Net interest income after
provision for loan losses 1,237,045 1,207,041 1,138,382 1,104,862
Other income (loss) 24,177 92,820 (40,658) (43,702)
Other expense 791,184 734,737 764,042 763,773
----------- ---------- ----------- -----------
Income before taxes 470,038 565,124 333,682 297,387
Income tax expense 175,000 214,000 123,000 105,000
----------- ---------- ----------- -----------
Net income $ 295,038 $ 351,124 $ 210,682 $ 192,387
=========== ========== =========== ===========
Net income per share $ .25 $ .30 $ .18 $ .16
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------------------------------------
FOURTH THIRD SECOND FIRST
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Total interest income $ 1,506,642 $1,451,635 $ 1,353,110 $ 1,202,404
Total interest expense 435,446 400,275 381,330 335,936
----------- ---------- ----------- -----------
Net interest income 1,071,196 1,051,360 971,780 846,468
Provision for loan losses -- 10,000 35,000 60,000
----------- ---------- ----------- -----------
Net interest income after
provision for loan losses 1,071,196 1,041,360 936,780 786,468
Other income (loss) (58,164) 87,854 85,995 76,144
Other expense 722,736 766,610 719,776 706,188
----------- ---------- ----------- -----------
Income before taxes 290,296 362,604 302,999 156,424
Income tax expense 106,000 136,500 109,000 55,500
----------- ---------- ----------- -----------
Net income $ 184,296 $ 226,104 $ 193,999 $ 100,924
=========== ========== =========== ===========
Net income per share $ .16 $ .19 $ .16 $ .09
=========== ========== =========== ===========
</TABLE>
35
<PAGE> 1
EXHIBIT 20
March 3, 1997
Dear Shareholder:
The Annual Meeting of Shareholders of Bank of South Carolina
Corporation will be held at 2:00 p.m. on Tuesday, April 8, 1997, in the Board
Room of The Bank of South Carolina, 256 Meeting Street, Charleston, South
Carolina. Enclosed you will find the formal Notice, Proxy and Proxy Statement
detailing the matters which will be acted upon.
We urge you to sign and date the proxy and return it as soon as
possible in the enclosed postage-paid envelope. Should you decide to attend the
meeting and vote in person, you may withdraw your proxy.
On behalf of the Corporation, I would like to take this opportunity to
thank John F. Hassell, Jr., for his advice and counsel as an organizer of The
Bank of South Carolina and as a director of the Bank and of the Corporation. In
accordance with our retirement policy, he is not offering for reelection as a
director.
We appreciate your continued interest and investment in Bank of South
Carolina Corporation.
Sincerely,
/s/ Hugh C. Lane, Jr.
-----------------------------------
Hugh C. Lane, Jr.
President
<PAGE> 2
PROXY MATERIAL OF
BANK OF SOUTH CAROLINA CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 8, 1997
To Our Shareholders:
The Second Annual Meeting of Shareholders of Bank of South Carolina
Corporation (the "Company") will be held at 256 Meeting Street, Charleston,
South Carolina, on Tuesday, April 8, 1997, at 2:00 p.m. for the following
purposes:
1. To elect seventeen (17) Directors to serve until the Company's
1998 Annual Meeting of Shareholders;
2. To ratify the appointment of KPMG Peat Marwick, LLP, as
independent certified public accountants for 1997; and
3. To transact such other business as may properly come before
the meeting.
Shareholders of record at the close of business on February 18, 1997,
will be entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
You may revoke your Proxy at any time prior to its exercise by written
notice to the Company prior to the meeting or by attending the meeting
personally and voting. The accompanying form of Proxy is solicited by the Board
of Directors of the Company.
PLEASE SIGN AND DATE THE ACCOMPANYING PROXY AND PROMPTLY RETURN IT IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
By Order of the Board of Directors
/s/ Nathaniel I. Ball, III
-----------------------------------
Nathaniel I. Ball, III
Secretary
March 3, 1997
A COPY OF THE COMPANY'S ANNUAL DISCLOSURE STATEMENT AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON FORM 10-KSB MAY BE OBTAINED AT NO COST BY
WRITING WILLIAM L. HIOTT, JR., TREASURER, AT BANK OF SOUTH CAROLINA CORPORATION,
P.O. BOX 538, CHARLESTON, SOUTH CAROLINA 29402 (803-724-1500). ADDITIONAL COPIES
MAY BE OBTAINED AT A COST OF $5.00 EACH.
<PAGE> 3
BANK OF SOUTH CAROLINA CORPORATION
256 MEETING STREET
CHARLESTON, SOUTH CAROLINA 29401
PROXY STATEMENT
This Proxy Statement, which is first being mailed to shareholders on or
about March 3, 1997, is provided in conjunction with the solicitation of proxies
by the Board of Directors of Bank of South Carolina Corporation (the "Company")
for use at the 1997 Annual Shareholders' Meeting of the Company. The Notice of
Meeting, Proxy Form and Annual Report are enclosed in this package.
THE PROXY
The persons named as proxies on the enclosed Proxy Form were selected
by the Board of Directors of the Company. No officer or employee of the Company
or any subsidiary may be named as proxy.
The solicitation of proxies on behalf of the Board of Directors is
conducted by Directors, Officers and regular employees of the Company and its
wholly owned subsidiary, The Bank of South Carolina (the "Bank"), at no
additional compensation over regular salaries. The cost of printing and mailing
of all proxy materials has been paid by the Company. Brokers and others involved
in handling and forwarding the proxy materials to their customers having
beneficial interests in the stock of the Company registered in the names of
nominees will be reimbursed for their reasonable expenses in doing so.
VOTING RIGHTS
The Common Stock of the Company is its only class of voting securities.
On March 3, 1997, there were issued and outstanding 1,170,757 shares of Common
Stock (no par value). Each share is entitled to one vote; provided, however,
that Shareholders have cumulative voting rights for the election of Directors.
The right to cumulate votes means that the Shareholders are entitled to multiply
the number of votes they are entitled to cast by the number of directors for
whom they are entitled to vote and cast the product for a single candidate or
distribute the product among two or more candidates.
CUMULATIVE VOTING SHALL APPLY FOR THE ELECTION OF DIRECTORS.
The solicitation of proxies on behalf of the Board of Directors
includes a solicitation for discretionary authority to cumulate votes.
The Board of Directors of the Company has fixed the close of business
February 18, 1997, as the record date for the determination of Shareholders
entitled to notice of and to vote at the Annual Meeting. Proxies properly
executed by Shareholders of record on February 18, 1997, and received in time
for the meeting will be voted as specified on all business to be acted upon at
the meeting and any adjournment thereof.
<PAGE> 4
RIGHT OF REVOCATION
Any Shareholder executing a Proxy for the meeting on the Proxy Form
provided may revoke the Proxy in a writing delivered to the President of the
Company prior to the meeting or by attending the meeting and voting in person.
PRINCIPAL SHAREHOLDERS OF THE COMPANY
To the extent known to the Board of Directors of the Company, as of
March 3, 1997, the only Shareholders of the Company having beneficial ownership
of more than five (5%) percent of the shares of Common Stock of the Company are
as set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
Hugh C. Lane, Jr. 173,070.66 (1)(2) 14.78%
30 Church Street
Charleston, SC 29401
NationsBank South, N.A. (4) 70,400 (3) 6.01%
600 Peachtree Street, N.E., 55th Floor
Atlanta, GA 30308
N.B. Holdings (4) 70,400 (5) 6.01%
NationsBank Plaza
Charlotte, NC 28255
NationsBank Corporation (4) 70,400 (6) 6.01%
NationsBank Plaza
Charlotte, NC 28255
John M. Rivers, Jr. 58,960 (7) 5.04%
80 Alexander Street
Charleston, SC 29403
The Bank of South Carolina 80,708 (8) 6.89%
Employee Stock Ownership
Plan and Trust ("ESOP")
256 Meeting Street
Charleston, SC 29401
</TABLE>
- ------------------------------
(1) To the extent known to the Board of Directors, Hugh C. Lane and his
children, individually and collectively, have beneficial ownership of
322,666.66 shares or 27.56% of the outstanding shares. As more fully
described in the following footnote, Hugh C. Lane, Jr. is the only one
of the above who has a beneficial ownership interest in more than five
(5%) percent of the Company's common stock. Hugh C. Lane, Jr. disclaims
any beneficial interest in those shares in which other members of his
family have a beneficial interest other
- 2 -
<PAGE> 5
than those shares his wife owns directly and those for which he serves
as trustee or she serves as custodian (as more fully described in the
following footnote).
(2) To the extent known to the Board of Directors, Hugh C. Lane, Jr.
directly owns and has sole voting and investment power with respect to
77,810 shares; as trustee for 11 trust accounts holding an aggregate of
24,090 shares, he has sole voting and investment power with respect to
such shares; as co-trustee for one trust account holding 2,200 shares,
he has joint voting and investment power with respect to such shares;
he is indirectly beneficial owner of 2,400 shares owned by his wife and
an aggregate of 49,963 shares held by his wife as custodian for three
minor children and 10,786.655 shares owned by the ESOP in which he has
a vested interest. All of the 173,070.66 shares beneficially owned by
Hugh C. Lane, Jr. are currently owned. Hugh C. Lane, Jr. has had
beneficial ownership of more than five (5%) percent of the Bank's
Common Stock since October 23, 1986 and more than ten (10%) percent
since November 16, 1988.
(3) To the extent known to the Board of Directors, NationsBank South, N.A.,
has sole voting power for 34,100 shares, shared voting power for 4,400
shares and shared investment power for 66,000 shares (including 31,900
shares held as trustee under the will of Mills B. Lane for the benefit
of Hugh C. Lane).
(4) To the extent known to the Board of Directors, NationsBank Corporation
is the parent holding company of N.B. Holdings Corporation. N.B.
Holdings Corporation is the parent holding company of NationsBank
South, N.A. The shares referred to in notes (5) and (6) are a
duplication of the shares referred to in note (3).
(5) To the extent known to the Board of Directors, N.B. Holdings
Corporation has sole voting power for 34,100 shares, sole investment
power for 3,000 shares, shared voting power for 4,400 shares and shared
investment power for 66,000 shares (including 31,900 shares held as
trustee under the will of Mills B. Lane for the benefit of Hugh C.
Lane). N.B. Holdings Corporation disclaims beneficial ownership for the
shares referred to in this note (5).
(6) To the extent known to the Board of Directors, NationsBank Corporation
has sole voting power for 34,100 shares, shared voting power for 4,400
shares and shared investment power for 66,000 shares (including 31,900
shares held as trustee under the will of Mills B. Lane for the benefit
of Hugh C. Lane). NationsBank Corporation disclaims beneficial
ownership for the shares referred to in this note (6).
(7) To the extent known to the Board of Directors, John M. Rivers, Jr.
directly owns and has sole voting and investment power for 58,960
shares. The John and Kathleen Rivers Foundation owns 5,280 shares. Mr.
Rivers is the President of the Foundation but does not serve on its
Investment Committee or have authority to vote or dispose of shares
owned by the Foundation. Mr. Rivers disclaims beneficial ownership of
the shares owned by the Foundation.
(8) The Trustee of the ESOP, Nathaniel I. Ball, III, an executive Officer
and Director of the Bank and the Company, disclaims beneficial
ownership of 79,708 shares owned by the ESOP which have been allocated
to members of the plan, each of whom under the terms of the plan has
the right to direct the Trustee as to the manner in which voting rights
are to be
- 3 -
<PAGE> 6
exercised. Mr. Ball claims beneficial ownership of 1,000 shares owned
by the ESOP which have not yet been allocated to members of the plan.
BENEFICIAL OWNERSHIP OF COMMON STOCK OF THE COMPANY
The table below sets forth the number of shares of Common Stock (the
only class of outstanding equity securities of the Company) known by the Company
to be beneficially owned by each Nominee for election as Director and by the
Officers and Directors of the Company as a group as of March 3, 1997. Except as
otherwise indicated in the footnotes to the table, the persons named possess
sole voting power and investment power with respect to the shares shown opposite
their names. As of March 3, 1997, no Officer, Director or Nominee beneficially
owned more than ten (10%) percent of the outstanding shares of the Company other
than Hugh C. Lane, Jr. As of March 3, 1997, the Officers, Directors and Nominees
beneficially owned 425,064 shares, representing approximately 36.31% of the
outstanding shares.
As of February 18, 1997, the beneficial ownership of Common Stock of
the Company by all current Directors and each Nominee for Director was as set
forth in the following table:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
Nathaniel I. Ball, III 30,682.827 (1) 2.62%
2630 Bayonne Street
Sullivans Island, SC 29482
James E. Brown, DDS 5,849 (1) 0.50%
6908 Rivers Avenue
Charleston Heights, SC 29418
William T. Cooper 2,420 (1) 0.21%
21 Jamestown Road
Charleston, SC 29407
C. Ronald Coward 20,330 (1) 1.74%
537 Planters Loop
Mt. Pleasant, SC 29464
Louis Y. Dawson, III 5,720 (1) 0.49%
33 Church Street
Charleston, SC 29401
Leonard C. Fulghum 14,896 (1) 1.27%
311 Middle Street
Mt. Pleasant, SC 29464
T. Dean Harton 3,502 (1) 0.30%
4620 Lazy Creek Lane
Wadmalaw, SC 29487
</TABLE>
- 4 -
<PAGE> 7
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
John F. Hassell, Jr. 5,218 0.45%
1536 Rifle Range Road
Mt. Pleasant, SC 29464
William L. Hiott, Jr. 35,020.84 (1) 2.99%
1831 Capri Drive
Charleston, SC 29407
James H. Holcombe 53,116 (1) 4.54%
16 Church Street
Charleston, SC 29401
Katherine M. Huger 2,420 (1) 0.21%
72 Murray Boulevard
Charleston, SC 29401
John E. Huguley 7,480 (1) 0.64%
22 Murray Boulevard
Charleston, SC 29401
Charles G. Lane 57,199 (1) 4.89%
10 Gillon Street
Charleston, SC 29401
Hugh C. Lane, Jr. 173,070.66 (1) 14.78%
30 Church Street
Charleston, SC 29401
Louise J. Maybank 5,500 (1) 0.47%
8 Meeting Street
Charleston, SC 29401
Thomas W. Myers 4,400 0.38%
90 Gaillard Lane
Summerville, SC 29483
Thomas C. Stevenson, III 220 0.02%
173 Tradd Street
Charleston, SC 29401
John M. Tupper 220 0.02%
113 Linwood Drive
Summerville, SC 29483
</TABLE>
- 5 -
<PAGE> 8
(1) To the extent known to the Board of Directors, each of the following
Directors and Nominees for election as Directors (each of whom directly
owns and has sole voting and investment power of all shares
beneficially owned by him or her except as set forth in this footnote)
indirectly owns the following number of shares: Nathaniel I. Ball, III
- an aggregate of 6,638 shares directly owned by his wife and 9,599.827
shares owned by the ESOP, in which he has a vested interest, and 1,000
shares owned by the ESOP which have not been allocated to members of
the Plan; James E. Brown - an aggregate of 5,739 shares owned jointly
with his wife; William T. Cooper - an aggregate of 2,200 shares held by
a pension plan; C. Ronald Coward - an aggregate of 5,500 shares owned
by a company of which he is president and director; Louis Y. Dawson,
III - an aggregate of 220 shares owned by his wife; Leonard C. Fulghum
- an aggregate of 1,366 shares owned by his wife; T. Dean Harton - an
aggregate of 970 shares owned by his wife and held by his wife as
custodian for his step-son; William L. Hiott, Jr. - an aggregate of
4,180 shares directly owned by his wife and held by him as custodian
for two children and 9,599.838 shares owned by the ESOP, in which he
has a vested interest; James H. Holcombe - an aggregate of 29,576
shares owned by the Marjorie G. Detyens Irrevocable Trust for which he
serves as co-trustee and held by a third party trustee for his
grandchildren; Katherine M. Huger - 220 shares owned by her husband;
John E. Huguley - 4,070 shares owned by his wife; Charles G. Lane - an
aggregate of 26,432 shares owned by his wife, held by her as custodian
for children, held by him as co-trustee with Hugh C. Lane, Jr., for a
sister's children and held by him as a co-trustee for the children of
Hugh C. Lane, Jr.; and Hugh C. Lane, Jr. - an aggregate of 77,893
shares owned by his wife, held by his wife as custodian for each of
three children, held by him as co-trustee with Charles G. Lane for a
sister's children and held by him as trustee for his and his brother's
and sisters' children (as more fully described in the footnote to the
preceding table) and 10,786.655 shares owned by the ESOP, in which he
has a vested interest. All such indirectly owned shares are included in
the totals of the number of shares set forth in the above table and
beneficially owned by the Directors and Nominees.
- ---------------------------------
As a group, all Directors and Executive Officers (including Hugh C.
Lane, Jr., President and Chief Executive Officer; Nathaniel I. Ball, III,
Executive Vice President and Secretary; and William L. Hiott, Jr., Executive
Vice President and Treasurer) are seventeen (17) in number and beneficially own
an aggregate of 425,064 shares, representing 36.31% of the issued and
outstanding Common Stock of the Company. All of these shares beneficially owned
by the Directors, Nominees and Executive Officers are currently owned: two
executive officers (Nathaniel I. Ball, III, Executive Vice President and
Secretary; and William L. Hiott, Jr., Executive Vice President and Treasurer)
each have a future right to acquire three thousand three hundred (3,300) shares
of Common Stock of the Company pursuant to the Bank's Incentive Stock Option
Plan.
ELECTION OF DIRECTORS
Seventeen (17) Directors, constituting the entire Board of Directors
will be elected at the Annual Meeting, each to hold office for one year and
until a successor shall have been duly elected or appointed and shall have
qualified. In the absence of instructions to the contrary, shares of Common
stock represented by properly executed proxies will be voted for the seventeen
(17) Nominees listed on pages 7, 8, and 9, all of whom are recommended by
management and have consented to be named and to serve if elected. John F.
Hassell, Jr., has notified the Company that
- 6 -
<PAGE> 9
he will not stand for reelection as a Director in accordance with the retirement
policy of the Board of Directors.
The Company does not presently know of anything that would preclude any
Nominee from serving; however, should any Nominee for any reason become unable
or unwilling to serve as a Director, the number of Directors to be elected will
be reduced accordingly.
The name of each Nominee designated by the Board of Directors of the
Company for election as Director of the Company and certain information provided
by such Nominee to the Company is set forth in the table below. Fifteen (15) of
the current nominees served as initial directors of the Bank from October 22,
1986, when the Bank's charter was issued until the first annual meeting of
Shareholders on April 14, 1987, and were elected to serve a one-year term at
such annual meeting. John M. Tupper and Thomas W. Myers were first elected as
Directors of the Bank during 1993. They were all re-elected to serve one year
terms at subsequent annual meetings. All of the current Nominees served as
Directors of the Company from April 9, 1996, the date of the last Annual Meeting
of shareholders.
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES HELD BUSINESS EXPERIENCE
WITH FAMILY 1987-1997 AND
NAME AGE CORPORATION RELATIONSHIP OTHER DIRECTORSHIPS
- ---- --- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
Nathaniel I. Ball, III 55 Executive None The Bank of South Carolina (banking)
Vice President, 1986-97
Secretary,
Director
James E. Brown, DDS 74 Director None Dentist in private practice for last five
years
William T. Cooper 67 Director None President, Southeastern Galleries,
Inc. (retail furniture and decorating)
1983-97
C. Ronald Coward 61 Director None President - Coward-Hund Construction
Company, Inc. (construction) 1976-97
Louis Y. Dawson, III 68 Director Father-in-law Retired (1993) President-Dawson Eng-
of Charles G. ineering, Inc. (general contracting)
Lane and of a 1954-93
bank officer,
F.S. Hassell
Leonard C. Fulghum 67 Director None Retired President - Ferguson
Fulghum, Inc. (painting contractors)
1972-97
T. Dean Harton 51 Director None President, Hawthorne Corporation
(aviation) 1986-97
</TABLE>
- 7 -
<PAGE> 10
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES HELD BUSINESS EXPERIENCE
WITH FAMILY 1987-1997 AND
NAME AGE CORPORATION RELATIONSHIP OTHER DIRECTORSHIPS
- ---- --- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
William L. Hiott, Jr. 52 Executive None The Bank of South Carolina
Vice President, (banking) 1986-97
Treasurer,
Director
James H. Holcombe 72 Director None Member - Holcombe, Fair & Lane,
LLC (real estate) 1996-97; General
and Limited Partner - Holcombe &
Fair Realtors 1970-95
Katherine M. Huger 55 Director None Assistant Professor of Economics -
Charleston Southern University
(education) 1972-97
John E. Huguley 69 Director None Retired (1996) Chairman - John
Huguley Company, Inc. (retail office
products) 1980-96
Charles G. Lane 42 Director Son-in-law of Member - Holcombe, Fair & Lane,
Louis Y. LLC (real estate) 1996-97;
Dawson, III; Associate - Holcombe & Fair Realtors
brother of 1987-96
Hugh C. Lane, Jr.
Hugh C. Lane, Jr. 49 President, Brother of The Bank of South Carolina (banking)
Chief Charles G. 1986-97
Executive Lane
Officer,
Director
Louise J. Maybank 57 Director None Active in community programs
Thomas W. Myers 62 Director None President - Myers & Associates
(estate and business insurance
planning) 1963-97
Thomas C. Stevenson, III 46 Director None President - Fabtech, Inc. (metal
fabrication) 1991-97; Private Investor
1990-91; Chairman of the Board -
Stevenson Hagerty, Inc. (diversified
holding company) 1984-90
</TABLE>
- 8 -
<PAGE> 11
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES HELD BUSINESS EXPERIENCE
WITH FAMILY 1987-1997 AND
NAME AGE CORPORATION RELATIONSHIP OTHER DIRECTORSHIPS
- ---- --- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
John M. Tupper 55 Director None President - Tupperway Tire and
Service, Inc. (retail tires and service)
1980-97
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
Hugh C. Lane, Jr. presently serves as President of the Board of
Directors. The Board has three (3) committees: the Executive Committee, the Long
Range Planning Committee, and the Audit and Compliance Committee. The Board does
not have a Nominating Committee; however, the Board as a whole performs the
functions that such a committee would normally perform. The Board does not have
a Compensation Committee; however, the Executive Committee performs those
functions.
The Executive Committee consists of the President of the Company and
six (6) designated Directors. The President of the Company chairs the Committee.
At present, the fixed membership of the Committee consists of Hugh C. Lane, Jr.,
Nathaniel I. Ball, III, T. Dean Harton, William L. Hiott, Jr., James H.
Holcombe, Thomas W. Myers, and Thomas C. Stevenson, III. During 1996, this
Committee held two (2) meetings. The principal function of the Executive
Committee is to exercise all authority of the Board of Directors in the
management and affairs of the Company and the Bank. In addition, the Executive
Committee acts on behalf of the entire Board of the Company between the regular
Board Meetings.
The Audit and Compliance Committee presently consists of Katherine M.
Huger, as Chairman, and William T. Cooper, T. Dean Harton, John F. Hassell, Jr.,
and James H. Holcombe. The Company's internal auditor, also sits on this
Committee. During 1996, the Audit and Compliance Committee held three (3)
meetings. The functions of the Audit and Compliance Committee include: reviewing
and examining detailed reports of the internal auditors for the Bank; meeting
periodically with the internal auditor; reviewing reports of regulatory bodies
having jurisdiction over the Company and the Bank; evaluating internal
accounting controls; recommending the engagement and continuation of engagement
of independent auditors; and meeting with, and receiving and considering
recommendations of, the independent auditors for the Company and the Bank.
The Long Range Planning Committee consists of Hugh C. Lane, Jr., the
President of the Company, as Chairman, and Nathaniel I. Ball, III, William T.
Cooper, T. Dean Harton, John F. Hassell, Jr., William L. Hiott, Jr., James H.
Holcombe, Charles G. Lane, and Louise J. Maybank. The Long Range Planning
Committee held five (5) meetings during 1996.
NOMINATIONS FOR DIRECTOR
Nominations, other than those made by or on behalf of the existing
management of the Company, shall be made in writing and shall be delivered or
mailed to the President of the Company not less than seven (7) days, nor more
than fifty (50) days prior to any meeting of Shareholders calling for election
of Directors; provided, however, that if less than twenty-one (21) days' notice
of the meeting is given to Shareholders, such nomination shall be mailed or
delivered to the President of the
- 9 -
<PAGE> 12
Company not later than the close of business on the seventh (7th) day following
the day on which the Notice of Meeting was mailed. Nominations not made
according to these procedures will be disregarded.
DIRECTORS' MEETINGS
The Board of Directors of the Company held nine (9) meetings (including
an organizational meeting and all regularly scheduled and special meetings)
during the year ended December 31, 1996. No Director during such year, attended
fewer than seventy-five (75%) percent of the aggregate of (i) the total number
of meetings of the Board of Directors and (ii) the total number of meetings held
by all committees of the Board of Directors on which he or she served.
COMPENSATION OF OFFICERS AND DIRECTORS
The following table sets forth all remuneration (including remuneration
under any contract, authorization or arrangement, whether or not set forth in a
formal document) paid during the year ended December 31, 1996, by the Bank to
the three (3) Executive Officers of the Company and the Bank whose total
remuneration from the Bank exceeded One Hundred Thousand and No/100
($100,000.00) Dollars for their services in all capacities. Such Officers
receive no compensation from the Company as Officers or as Directors or in any
other capacity.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER SECURITIES
ANNUAL RESTRICTED UNDER- ALL OTHER
NAME AND COMPEN- STOCK LYING LTIP COMPEN-
PRINCIPAL SATION(1)(2) AWARD(S) OPTIONS/ PAYOUTS SATION(1)(2)
POSITION YEAR SALARY($) BONUS($) ($) ($) SARS(#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hugh C. Lane, 1996 $123,101.45 --- $17,682.79 $17,682.79
Jr. - CEO 1995 $113,101.37 $10,000.00 $17,596.33 $17,596.33
& President 1994 $113,101.37 --- $16,015.82 $16,015.82
Nathaniel I. 1996 $108,601.37 --- $16,135.32 $16,135.32
Ball, III - 1995 $101,101.37 $10,000.00 $16,052.84 $16,052.84
Executive Vice 1994 $101,101.37 --- $14,640.01 $14,640.01
President &
Secretary
William L. 1996 $108,601.37 --- $16,135.32 $16,135.32
Hiott, Jr. - 1995 $101,101.37 $10,000.00 $16,052.84 $16,052.84
Executive Vice 1994 $101,101.37 --- $14,640.01 $14,640.01
President &
Treasurer
</TABLE>
- ----------------------------------
- 10 -
<PAGE> 13
(1) Includes same life, disability and health insurance benefits as all
other employees of the Bank who work at least thirty (30) hours a week.
(2) Includes Bank contribution to the ESOP.
- ---------------------------------
Non-officer Directors of the Company received One Hundred and No/100
($100.00) Dollars for each meeting of the Board of Directors attended and
non-officer Directors of the Bank received Two Hundred and No/100 ($200.00)
Dollars for each meeting of the Board of Directors attended and One Hundred and
No/100 ($100.00) Dollars for each Board Committee meeting attended.
On November 2, 1989, the Bank adopted an Employee Stock Ownership Plan
and Trust Agreement, to provide retirement benefits to eligible employees for
long and faithful service.
An employee of the Bank is eligible to become a participant in the ESOP
upon reaching twenty-one (21) years of age and upon completion of one thousand
(1,000) hours of service in a plan year. No contributions by employees are
permitted. The amount and time of contributions are at the sole discretion of
the Board of Directors of the Bank. The contribution for all participants is
based solely on each participant's respective regular or base salary and wages
paid by the Bank including commissions, bonuses and overtime, if any.
A participant becomes vested in the Plan upon completion of five (5)
years of service. There is no vesting prior to the completion of five (5) years
of service.
The Plan became effective as of January 1, 1989.
The Board of Directors of the Bank approved the contribution of One
Hundred Forty-Six Thousand One Hundred Eight Four and No/100 ($146,184.00)
Dollars to the ESOP for the fiscal year ended December 31, 1996. The
contribution was made during 1996. T. Dean Harton, Sheryl G. Sharry, and
Nathaniel I. Ball, III, currently serve as Plan Administrators. Nathaniel I.
Ball, III, currently serves as Trustee for the Plan. The Plan currently owns
eighty thousand seven hundred eight (80,708) shares or 6.89% of the Company's
Common Stock.
During the fiscal year ended December 31, 1996, the Company had no
plans or arrangements pursuant to which any Officer, Director or principal
Shareholder received contingent remuneration or personal benefits other than the
contingent remuneration and life, disability and health insurance benefits
referred to in the footnotes to the preceding table.
The Bank has an Incentive Stock Option Plan for the benefit of eligible
Officers and employees of the Bank. A total of fifty thousand (50,000) shares
were reserved and on April 21, 1988, the Bank granted options to purchase Common
Stock in the aggregate amount of forty-five thousand (45,000) shares to eighteen
(18) employees of the Bank (including officers, such Directors as are also
employees and other employees) pursuant to the Incentive Stock Option Plan.
These grants include those to Hugh C. Lane, Jr., Nathaniel I. Ball, III, and
William L. Hiott, Jr., Executive Officers and Directors, as more specifically
set forth below. Options for twelve thousand seven hundred (12,700) shares with
an exercise price of Twenty and No/100 ($20.00) Dollars and seven thousand five
hundred (7,500) shares with an exercise price of Twenty and 7625/10,000ths
($20.7625) Dollars have expired.
- 11 -
<PAGE> 14
No options were granted during 1996. Options for six thousand two hundred
(6,200) shares with an exercise price of Twenty and No/100 ($20.00) Dollars
remain outstanding. Adjusted for the exchange of two (2) shares of Company
Common Stock for each share of Bank Common Stock on April 17, 1995, the options
for eighteen thousand six hundred (18,600) shares at Twenty and No/100 ($20.00)
Dollars per share were converted to options for thirty-seven thousand two
hundred (37,200) shares at Ten and No/100 ($10.00) Dollars per share. Adjusted
for the above-mentioned exchange, options for twelve thousand four hundred
(12,400) shares at Ten and No/100 ($10.00) Dollars per share were exercised
during 1995 and the same amount during 1996. Adjusted for a ten percent (10%)
stock dividend on May 15, 1996, the remaining twelve thousand four hundred
(12,400) shares at Twenty and No/100 ($20.00) Dollars per share were converted
to options for twenty seven thousand two hundred eighty (27,280) shares at Nine
and 09/100 ($9.09) Dollars. Adjusted for the above-mentioned exchange and ten
percent (10%) stock dividend, options for thirteen thousand six hundred forty
(13,640) shares at Nine and 09/100 ($9.09) Dollars were exercised on January 22,
1997.
Nathaniel I. Ball, III, Executive Vice President and Secretary, and
William L. Hiott, Jr., Executive Vice President and Treasurer, were each granted
the option to purchase seven thousand five hundred (7,500) shares of Common
Stock of the Bank pursuant to the Incentive Stock Option Plan at a price of
Twenty and No/100 ($20.00) Dollars. These options are exercisable in five (5)
twenty (20%) percent increments beginning on and for one year following April
21, 1993, with an additional twenty (20%) percent to be exercisable on and for
one year following each successive anniversary. The right to exercise each such
twenty (20%) percent of each option is not cumulative and expires at the end of
the one year period following the date on which such right becomes effective.
Adjusted for the above-mentioned exchange, options for six thousand (6,000)
shares of Common Stock of the Company at Ten and No/100 ($10.00) Dollars per
share were exercised by the two (2) Officers during 1995 at a time when the
average between quoted bid and ask in the markets in which the shares were
traded was Twelve and 75/100 ($12.75) Dollars per share and options for six
thousand (6,000) shares were exercised during 1996 at a time when the average
between bid and ask in the markets in which the Common Stock was traded was
$16.75. Adjusted for the above-mentioned exchange and ten percent (10%) stock
dividend, options for six thousand six hundred (6,600) shares of common stock of
the Company at Nine and 09/100 ($9.09) Dollars were exercised in January, 1997,
by the two officers at a time when the average between quoted bid and ask in the
markets in which the shares were traded was Twenty Two and 75/100 ($22.75)
Dollars per share. Adjusted for the above-mentioned exchange and the ten percent
(10%) stock dividend, options for three thousand three hundred (3,300) shares of
Common Stock of the Company with an exercise price of Nine and 09/100 ($9.09)
Dollars per share remain outstanding for each of the above Officers.
In the event of a prospective reorganization, consolidation or sale of
substantially all of the assets or any other form of corporate reorganization in
which the Company would not be the surviving entity or in the event of the
acquisition, directly or indirectly, of the beneficial ownership of twenty-four
(24%) percent of the Common Stock of the Company or the making, orally or in
writing, of a tender offer for, or any request or invitation for tender of, or
any advertisement making or inviting tenders of the Company stock by any person,
all options in effect at that time would accelerate so that all options would
become immediately exercisable and could be exercised within one year
immediately following the date of acceleration but not thereafter.
- 12 -
<PAGE> 15
TRANSACTIONS AND RELATIONS WITH DIRECTORS, OFFICERS, AND THEIR ASSOCIATES AND
AFFILIATES OF DIRECTORS
The Company does not have any existing continuing contractual
relationships with any Director, Nominee for election as Director or principal
Officer of the Company or the Bank, or any Shareholder owning, directly or
indirectly, more than five (5%) percent of the shares of Common Stock of the
Company, or any associate of the foregoing persons. Directors, Principal
Officers, nominees for election as Directors, and members of the immediate
family of any of the foregoing have had in the past, have at present, and will
have in the future, customer relationships with the Bank. Such transactions have
been and will continue to be made in the ordinary course of business, made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and such
transactions did not and will not involve more than the normal risk of
collectability or present other unfavorable features. The Company entered into a
contract with Coward-Hund Construction Co., Inc., of which C. Ronald Coward,
Director of the Company, is a principal for the construction of a branch office
in Mount Pleasant, South Carolina, with a final contract price of $468,052. The
Company intends to enter into a contract with Coward-Hund Construction Company,
Inc. for the construction of a branch office and operations center in the West
Ashley area of Charleston, South Carolina. The building is presently in the
conceptual design stage so no dollar value can be assigned at this time. The
building will in all probability be more expensive than the recently completed
Mount Pleasant Office. The Company also intends to enter into a contract with
Southeastern Galleries, Inc. of which William T. Cooper, Director of the
Company, is a principal, for the furnishings for the West Ashley branch.
C. Ronald Coward and Charles G. Lane each failed to file one Statement
of Changes in Beneficial Ownership on Form 4 in a timely manner.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick, LLP, has served as the Bank's independent certified
public accountants for the fiscal year ending December 31, 1994, and as
independent certified public accountants for the Company and its Bank subsidiary
for the fiscal years ending December 31, 1995 and 1996. At the 1997 Annual
Shareholders' Meeting the following resolution will be subject to ratification
by a simple majority vote of shares represented at the meeting:
RESOLVED, that the selection of KPMG Peat Marwick, LLP, as the
independent certified public accountants of Bank of South Carolina
Corporation (the "Company") and its sole subsidiary, The Bank of South
Carolina (the "Bank"), for the fiscal year ending December 31, 1997, is
hereby ratified.
If ratification is not achieved, the selection of an independent
certified public accountant will be reconsidered and made by the Board of
Directors. Even if selection is ratified, the Board of Directors reserves the
right to, and in its discretion may, direct the appointment of any other
independent certified public accounting firm at any time if the Board decides
that such a change would be in the best interests of the Company and its
shareholders.
The services provided by KPMG Peat Marwick, LLP include the examination
and reporting of the financial status of the Company and the Bank. These
services have been furnished at customary
- 13 -
<PAGE> 16
rates and terms. There are no existing direct or indirect agreements or
understandings that fix a limit on current or future fees for these audit
services.
KPMG Peat Marwick, LLP assisted in the preparation of the Company's and
Bank's tax returns in 1995 an 1996. These non-audit services were routine in
nature and composed twenty-five (25%) percent of the total fees paid to KPMG
Peat Marwick, LLP in 1996. These services do not affect their independence.
A representative of KPMG Peat Marwick, LLP is expected to attend the
Annual Shareholder's Meeting with the opportunity to make a statement, if
desired, and is expected to be available to respond to Shareholder's inquires.
OTHER MATTERS
Management is not aware of any matters to come before the meeting which
will require the vote of Shareholders other than those matters indicated in the
Notice of Meeting and this Proxy Statement.
However, if any other matter calling for Shareholder action should
properly come before the meeting or any adjournments thereof, those persons
named as Proxies in the enclosed Proxy Form will vote thereon according to their
best judgment.
PENDING LITIGATION
There is no pending litigation involving the Company.
ANNUAL REPORT
The ANNUAL REPORT for December 31, 1996, is mailed herewith to all
Shareholders. Copies of the Annual Report as filed with the Securities and
Exchange Commission on Form 10-KSB may be obtained by request to William L.
Hiott, Jr., Treasurer of the Company.
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL SHAREHOLDER'S MEETING
Shareholder proposals, if any, for inclusion in the Proxy Statement
relating to the 1998 Annual Shareholder's meeting, must be addressed to and
received in the office of the President no later than December 6, 1997.
By Order of the Board of Directors
/s/ Nathaniel I. Ball, III
--------------------------------------------
Nathaniel I. Ball, III
Secretary
March 3, 1997
- 14 -
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,980
<INT-BEARING-DEPOSITS> 6
<FED-FUNDS-SOLD> 4,675
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,232
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 71,660
<ALLOWANCE> 1,041
<TOTAL-ASSETS> 102,835
<DEPOSITS> 84,830
<SHORT-TERM> 2,392
<LIABILITIES-OTHER> 719
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 14,894
<TOTAL-LIABILITIES-AND-EQUITY> 102,835
<INTEREST-LOAN> 6,360
<INTEREST-INVEST> 1,134
<INTEREST-OTHER> 405
<INTEREST-TOTAL> 7,899
<INTEREST-DEPOSIT> 2,313
<INTEREST-EXPENSE> 65
<INTEREST-INCOME-NET> 2,378
<LOAN-LOSSES> 140
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 3,659
<INCOME-PRETAX> 2,223
<INCOME-PRE-EXTRAORDINARY> 2,223
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,389
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 0
<LOANS-NON> 38
<LOANS-PAST> 3
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 63
<ALLOWANCE-OPEN> 960
<CHARGE-OFFS> 64
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,041
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
