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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period and six months ended June 30, 1997
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number: 0-27702
Bank of South Carolina Corporation
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(Exact name of small business issuer as specified in its charter)
South Carolina 57-1021355
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
256 Meeting Street, Charleston, SC 29401
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(Address of principal executive offices)
(803) 724-1500
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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As of August 11, 1997, there were 2,314,514 Common Shares outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
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Table of Contents
BANK OF SOUTH CAROLINA CORPORATION
Report on Form 10-QSB
for quarter and six months ended
June 30, 1997
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996.......................................................... 3
Consolidated Statements of Operations - Three months
ended June 30, 1997 and 1996 .................................................. 4
Consolidated Statements of Operations - Six months
ended June 30, 1997 and 1996 .................................................. 5
Consolidated Statements of Changes in Shareholders'
Equity - Six months ended June 30, 1997 ....................................... 6
Consolidated Statements of Cash Flows - Six months
ended June 30, 1997 and 1996 .................................................. 7
Notes to Consolidated Financial Statements................................... 8 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 9 - 12
Liquidity................................................................... 12
Capital Resources...................................................... 12 & 13
Impact of New Accounting Pronouncements..................................... 13
Effect of Inflation and Changing Prices................................ 13 & 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 14
Item 2. Changes in Securities....................................................... 14
Item 3. Default Upon Senior Securities.............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders......................... 14
Item 5. Other Information........................................................... 14
Item 6. Exhibits and Reports on Form 8-K............................................ 14
Signatures........................................................................... 15
</TABLE>
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PART I - ITEM 1 - FINANCIAL STATEMENTS
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
Assets: June 30, 1997 December 31, 1996
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<S> <C> <C>
Cash and due from banks $ 4,765,179 $ 5,980,344
Interest bearing deposits in other banks 6,243 6,185
Federal funds sold and repurchase agreements 9,850,000 4,675,000
Investment securities available for sale 19,186,734 19,231,905
Loans 76,493,710 71,660,124
Allowance for loan losses (1,113,514) (1,041,216)
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Net loans 75,380,196 70,618,908
Equipment and leasehold improvements, net 1,979,841 1,149,994
Other assets 1,250,409 1,173,080
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Total assets $ 112,418,602 $ 102,835,416
============= =============
Liabilities and shareholders' equity:
Deposits:
Non-interest bearing demand $ 22,371,950 $ 21,380,352
Interest bearing demand 15,357,302 16,969,563
Money market accounts 19,929,532 17,397,957
Certificates of deposit $100,000 and over 14,619,773 13,790,007
Other time deposits 13,578,632 11,577,303
Other savings deposits 4,326,203 3,715,055
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Total deposits 90,183,392 84,830,237
Short-term borrowings 6,738,771 2,392,408
Other liabilities 601,423 718,958
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Total liabilities 97,523,586 87,941,603
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Common Stock - No par value; 3,000,000 shares authorized; Issued and
outstanding 2,341,514 shares at June 30, 1997, and 2,314,234 shares
at December 31, 1996 -- --
Additional paid in capital 12,206,882 12,082,882
Retained earnings 3,139,260 3,252,807
Unrealized gain on securities
available for sale, net of income taxes 99,560 108,810
Treasury stock - 70,000 shares at June 30, 1997
and at December 31, 1997 (550,686) (550,686)
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Total shareholders' equity 14,895,016 14,893,813
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Total liabilities and shareholders' equity $ 112,418,602 $ 102,835,416
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
June 30, 1997 June 30, 1996
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<S> <C> <C>
Interest and Fee Income
Interest and fees on loans $ 1,821,184 $ 1,529,954
Interest and dividends on investment securities 322,909 283,951
Other interest income 97,069 111,195
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Total interest and fee income 2,241,162 1,925,100
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Interest Expense
Interest on deposits 666,733 551,748
Interest on short-term borrowings 45,993 16,192
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Total interest expense 712,726 567,940
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Net Interest Income 1,528,436 1,357,160
Provision for loan losses 52,500 20,000
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Net Interest Income After Provision for Loan Losses 1,475,936 1,337,160
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Other Income
Service charges, fees and commissions 128,525 103,709
Loss on investment securities (16,544) --
Other non-interest income 3,930 3,488
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Total other income 115,911 107,197
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Other Expense
Salaries and employee benefits 535,258 476,591
Net occupancy expense of premises 215,929 183,427
Other operating expenses 245,616 251,103
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Total other expense 996,803 911,121
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Income before income tax expense 595,044 533,236
Income tax expense 223,000 204,000
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Net Income $ 372,044 $ 329,236
=========== ===========
Net Income Per Common Share $ .16 $ .14
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Dividends Per Common Share $ .06 $ .05
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</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 June 30, 1996
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<S> <C> <C>
Interest and Fee Income
Interest and fees on loans $ 3,552,819 $ 3,018,310
Interest and dividends on investment securities 631,991 501,705
Other interest income 155,915 251,142
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Total interest and fee income 4,340,725 3,771,157
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Interest Expense
Interest on deposits 1,303,112 1,109,320
Interest on short-term borrowings 73,322 31,224
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Total interest expense 1,376,434 1,140,544
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Net Interest Income 2,964,291 2,630,613
Provision for loan losses 105,000 35,000
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Net Interest Income After Provision for Loan Losses 2,859,291 2,595,613
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Other Income
Service charges, fees and commissions 270,909 195,877
Loss on investment securities (16,544) (2,569)
Other non-interest income (expense) 10,126 (50,466)
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Total other income 264,491 142,842
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Other Expense
Salaries and employee benefits 1,063,535 918,811
Net occupancy expense of premises 432,124 369,125
Net cost of operation of other real estate -- 1,088
Other operating expenses 464,270 417,031
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Total other expense 1,959,929 1,706,055
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Income before income tax expense 1,163,853 1,032,400
Income tax expense 435,000 388,639
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Net Income $ 728,853 $ 643,761
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Net Income Per Common Share $ .31 $ .27
=========== ===========
Dividends Per Common Share $ .11 $ .10
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</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Unrealized
gain (loss)
on securities
Common Additional Retained Treasury available
Stock Paid In Capital Earnings Stock for sale Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 $ -- $ 12,082,882 $ 3,252,807 $ (550,686) $ 108,810 $ 14,893,813
Shares issued for the
exercise of stock options -- 124,000 -- -- -- 124,000
Net income -- -- 728,853 -- -- 728,853
Change in unrealized gain
(loss) on securities
available for sale,
net of income taxes -- -- -- -- (9,250) (9,250)
Cash dividends -- -- (842,400) -- -- (842,400)
------------ ------------ ------------ ------------ ------------ ------------
Balance,
June 30, 1997 $ -- $ 12,206,882 $ 3,139,260 $ (550,686) $ 99,560 $ 14,895,016
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 728,853 $ 643,761
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 105,388 63,825
Accretion/amortization of unearned
discounts/premiums on investments (3,374) 8,066
Change in discount on notes receivable -- 11,365
Amortization of organizational costs 3,723 3,723
Loss on sale of investment securities 16,544 2,569
Loss on sale of other real estate owned -- 58,378
Increase in other assets (75,620) (733,461)
Provision for loan losses 105,000 35,000
(Decrease) increase in other liabilities (117,535) 85,298
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Net cash provided by operating activities 762,979 178,524
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Cash flows from investing activities:
Proceeds from sale of investments 1,981,875 2,997,501
Proceeds from maturity of investments 1,013,881 1,013,881
Proceeds from sale of stock of
Business Development Corporation -- 25,000
Purchase of investment securities (2,978,437) (10,975,311)
Net increase in loans (4,866,288) (1,186,261)
Proceeds from sale of other real estate owned -- 858,922
Purchase of office property and equipment (935,235) (100,312)
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Net cash used in investing activities (5,784,204) (7,366,580)
------------ ------------
Cash flows from financing activities:
Net increase in deposit accounts 5,353,155 785,188
Net increase in short-term borrowings 4,346,363 723,967
Exercise of stock options 124,000 124,000
Dividends (842,400) (225,962)
Treasury stock -- (334,703)
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Net cash provided by financing activities 8,981,118 1,072,490
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Net increase (decrease) in cash and cash equivalents 3,959,893 (6,115,566)
Cash and cash equivalents, beginning of period 10,661,529 19,270,381
------------ ------------
Cash and cash equivalents, end of period $ 14,621,422 $ 13,154,815
============ ============
Supplemental disclosure of cash flow data: Cash paid during the year for:
Interest $ 1,357,456 $ 1,158,011
Income taxes 522,590 314,702
</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1: BASIS OF PRESENTATION
Bank of South Carolina Corporation (the Company) was organized as a South
Carolina Corporation on April 17, 1995, as a one-bank holding company. The
Company, through its bank subsidiary The Bank of South Carolina (the Bank),
provides a full range of banking services including the taking of demand and
time deposits and the making of commercial, consumer and mortgage loans. The
Bank currently has three locations, one in Charleston, South Carolina, one in
Summerville, South Carolina and one in Mt. Pleasant, South Carolina. Property
has been purchased in the West Ashley area of Charleston, South Carolina for a
branch site scheduled to open in the spring of 1998. The financial statements in
this report are unaudited. All adjustments consisting of normal recurring
accruals which are, in the opinion of management, necessary for fair
presentation of the interim consolidated financial statements have been included
and fairly and accurately present the financial position as of those dates of
the Company and the Bank, respectively. The results of operations for the period
ending June 30, 1997, are not necessarily indicative of the results which may be
expected for the entire year. Users of financial information, produced for
interim periods, are encouraged to refer to audited financial statements and
footnotes included in the Company's 1996 Annual Report.
NOTE 2: ORGANIZATION AND DEVELOPMENT
The organization of The Bank of South Carolina (the Bank) began on April 24,
1986, and the Bank received approval on October 22, 1986, to organize and
operate as a state-chartered bank. Common stock was issued on October 23, 1986.
The Federal Deposit Insurance Corporation (FDIC) issued approval to insure all
deposits to the full amount permitted by the law upon commencement of operations
on February 26, 1987. On the effective date (12:01 a.m., April 17, 1995),
shareholders of The Bank of South Carolina became shareholders of Bank of South
Carolina Corporation at which time one share of common stock in the Bank was
exchanged for two shares of common stock in the Company. All prior period
amounts have been retroactively restated to give the effect of the two-for-one
exchange.
NOTE 3: INVESTMENT SECURITIES
Investment securities to be "Held to Maturity" are carried at cost, adjusted for
amortization of premiums and accretion of discounts, computed by the interest
method. Investment securities classified as "Available for Sale" are marked to
market with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity (net of estimated tax effects).
Realized gains or losses on the sale of investments are based on the specific
identification method. All the Company's securities are classified as "Available
for Sale".
The amortized cost of U.S. Treasury Securities held by the Company at June 30,
1997, and classified as "Available for Sale" is $19,028,702. The aggregate
market value of securities "Available for Sale" on the basis of market
quotations as of June 30, 1997, is $19,186,734. The unrealized gain as of June
30, 1997, on such securities is $158,032.
The amortized cost of U.S. Treasury Securities held by the Company at December
31, 1996, and classified as "Available for Sale" was $19,059,191. The aggregate
market value of securities "Available for Sale" on the basis of market
quotations as of December 31, 1996, was $19,231,905. The unrealized gain as of
December 31, 1996, on such securities was $172,714.
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NOTE 4: SHAREHOLDERS' EQUITY
The Board of Directors approved a two for one stock split to shareholders of
record April 30, 1997, effective May 15, 1997. All share and per share data have
been retroactively restated to reflect the two for one common stock split. A
one-time cash dividend of $.25 per share was approved for shareholders of record
January 31, 1997, payable February 27, 1997. A regular quarterly cash dividend
of $.05 per share was approved for shareholders of record March 31, 1997,
payable May 15, 1997, and a regular quarterly cash dividend of $.06 per share
was approved for shareholders of record June 30, 1997, payable August 15, 1997.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Bank of South Carolina Corporation (the Company) is a financial institution
holding company headquartered in Charleston, South Carolina, with branch
operations in Summerville, South Carolina and Mt. Pleasant, South Carolina. It
offers a broad range of financial services through its wholly-owned subsidiary,
The Bank of South Carolina (the Bank). The Bank is a state-chartered commercial
bank which operates principally in the counties of Charleston, Dorchester and
Berkeley in South Carolina.
For the first six months of 1997, the Company reported net income of $728,853 or
$.31 per share, an increase of $85,092 compared to the net income for the first
six months of 1996 of $643,761 or $.27 per share. Total assets for the period
increased $9,583,186 or 9.32% from December 31, 1996, to June 30, 1997.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997, TO THREE MONTHS ENDED JUNE
30, 1996
The Company's results of operations depends primarily on the level of its net
interest income, its non-interest income and the level of its operating
expenses. Net interest income depends upon the volume of interest earning assets
and interest bearing liabilities which results in the net interest spread. Net
income increased $42,808 or 13.0% to $372,044 for the three months ended June
30, 1997, from $329,236 for the three months ended June 30, 1996. The increase
is primarily due to average earning assets for three months ended June 30, 1997,
of approximately $101,570,000 increasing from $88,651,000 for the three months
ended June 30, 1996.
Net Interest Income
Net interest income increased $171,276 or 12.6% to $1,528,436 for the three
months ended June 30, 1997, from $1,357,160 for the three months ended June 30,
1996. Total interest and fee income increased $316,062 or 16.4% for the three
months ended June 30, 1997, to $2,241,162 from $1,925,100 for the three months
ended June 30, 1996. This increase is a result of average total loans for the
three months ended June 30, 1997, averaging approximately $74,804,000 compared
to average total loans of approximately $62,684,000 for the three months ended
June 30, 1996. The loan portfolio produces the highest yield of all earning
assets. The investment portfolio income increased $38,958 or 13.7% to $322,909
for the period ended June 30, 1997, as compared to $283,951 for the three months
ended June 30, 1996. This increase in revenue is primarily a result of
increasing the investment securities portfolio from an average of approximately
$19,710,000 for the three months ending June 30, 1997, as compared to
approximately $17,399,000 for the same period ending June 30, 1996. Other
interest income decreased $14,126 or 12.7% to $97,069 for the three months ended
June 30, 1997, from $111,195 for the three months ended June 30, 1996. This
decrease in revenue is primarily attributed to the decrease in average available
overnight federal funds for the comparable periods. The net interest spread for
the
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three months ended June 30, 1997, was 4.4% compared to 4.7% for the same period
ended June 30, 1996.
Total interest expense increased $144,786 or 25.5% to $712,726 for the three
months ended June 30, 1997, from $567,940 for three months ended June 30, 1996.
The increase is due to average interest bearing deposits increasing for the
period June 30, 1997, to approximately $68,963,000 for the same period June 30,
1996, of approximately $61,196,000. Interest on deposits for the three months
ended June 30, 1997, was $666,733 compared to $551,748 for the same period June
30, 1996, an increase of $114,985 or 20.8%. Interest on short-term borrowings
was $45,993 for the three months ended June 30, 1997, compared to $16,192 for
the three months ended June 30, 1996, an increase of $29,801 or 184.1%.
Provision for Loan Losses
The amount charged to the provision for loan losses by the Bank is based on
management's evaluation as to the amounts required to maintain an allowance
adequate to provide for potential losses in the loan portfolio. The level of
this allowance is dependent upon the total amount of past due loans,
non-performing loans, general economic conditions and management's assessment of
potential losses based upon internal credit evaluations of the loans and
periodic reviews and assessments of credit risks associated with particular
loans. While management uses the best information available to make evaluations,
future adjustments to the allowance may be necessary if economic conditions
differ substantially from the assumptions used in making these evaluations. The
allowance for loan losses also is subject to periodic evaluations by various
regulatory authorities and may be subject to adjustment upon their examination.
During the quarter ended June 30, 1997, $52,500 was charged to the provision for
loan losses compared to $20,000 for the quarter ended June 30, 1996. At June 30,
1997, the allowance for loan losses was $1,113,514 or 1.46% of total loans. This
compares to an allowance of $971,322 or 1.54% as of June 30, 1996. During the
quarter ended June 30, 1997, the Bank incurred three charge offs totaling
$33,733 as compared to the same period quarter ended June 30, 1996, of one
charge off totaling $378. There were five loans on non-accrual status at June
30, 1997, for $666,248 as compared to the samed quarter ended June 30, 1996, of
one non-accrual loan totaling $82,280. There were 23 loans past due over 30 days
totaling $726,698 or .95% of total loans at June 30, 1997, compared to $439,273
or .7% of total loans at June 30, 1996, and one loan 90 days past due for
$205,333. Two recoveries totaling $1,452 occurred during the second quarter
ended June 30, 1997. Generally, loans are placed on non-accrual status at the
earlier of when they are 90 days past due or when the collection of interest
becomes doubtful. The allowance for loan losses at June 30, 1997, in
management's opinion is adequate for future losses that may occur in the loan
portfolio at this time.
Other Income
Other income for the three months ended June 30, 1997, increased $8,714 or 8.1%
to $115,911 from $107,197 for the same period ended June 30, 1996. Service
charges, fees and commissions was $128,525 for the three months ended June 30,
1997, compared to $103,709 for the three months ended June 30, 1996, an increase
of $24,816 or 23.9%. The increase is primarily a result of an increase in total
deposits resulting in more fees and fees generated by an increase in home
mortgage loans. A larger increase in other income was negated due to a loss of
$16,544 taken on a security which was exchanged during the second quarter ended
June 30, 1997.
Other Expense
Bank overhead increased $85,682 or 9.4% to $996,803 for the three months period
ended June 30, 1997, from $911,121 for the three months ended June 30, 1996.
Salaries and employee benefits increased
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$58,667 or 12.3% to $535,258 for the period ended June 30, 1997, from $476,591
for the three months period ended June 30, 1996. This increase is primarily
attributed to merit raises given to employees and additional personnel to staff
five new positions (two in the Mortgage Department, one in the Accounts
Receivable Financing Department, one in the Operations Department and one in the
Summerville office). Net occupancy expense increased $32,502 or 17.7% to
$215,929 for three months ended June 30, 1997, from $183,427 for three months
ended June 30, 1996. The increase is primarily attributed to the addition of a
branch operation in Mt. Pleasant, South Carolina, which opened during the latter
part of the second quarter ended June 30, 1996. Other operating expenses
decreased $5,487 or 2.2% to $245,616 for the period ending June 30, 1997, from
$251,103 for the period ending June 30, 1996.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997, TO THE SIX MONTHS ENDED JUNE
30, 1996
Net Income
Net income increased $85,092 or 13.2% to $728,853 for the six months ended June
30, 1997, from $643,761 for the six months ended June 30, 1996. The increase in
net income is primarily a result of an increase in net interest income of
$333,678 and the increase in total other income of $121,649.
Net Interest Income
Net interest income increased $333,678 or 12.7% to $2,964,291 for the six months
ended June 30, 1997, from $2,630,613 for the six months ended June 30, 1996.
Total interest and fee income increased $569,568 or 15.1% to $4,340,725 for the
six months ended June 30, 1997, from $3,771,157 for the six months ended June
30, 1996. This increase is primarily due to an increase in loan volume. Loans
averaged for the six months ended June 30, 1997, approximately $73,819,000
whereas loans for the same period ended June 30, 1996, averaged approximately
$62,646,000 producing interest and fee income of $3,552,819 for the six months
ended June 30, 1997, compared to $3,018,310 for the six months ended June 30,
1996, an increase of $534,509 or 17.7%. Investment income was $631,991 for the
six months ended June 30, 1997, compared to $501,705 for the period ended June
30, 1996, an increase of $130,286 or 26.0%. Other income (Daily Federal Funds
Sold) decreased $95,227 for the reporting period. Total interest expense
increased $235,890 or 20.7% to $1,376,434 for the six months ended June 30,
1997, from $1,140,544 for the six months ended June 30, 1996. The increase from
the reporting period 1996 to 1997 is primarily the growth in interest bearing
deposits averaging approximately $68,119,000 for the six months ended June 30,
1997, as opposed to $61,106,000 for the same period ended June 30, 1996. The net
interest spread for the six months ended June 30, 1997, was 4.4% compared to
4.7% for the same period ended June 30, 1996.
Provision for Loan Losses
The provision for loan losses was $105,000 for the six months ended June 30,
1997, as compared to $35,000 for the same period in the prior year. For the six
months ended June 30, 1997, the Bank incurred four charge offs totaling $35,445
as compared to the six months ended June 30, 1996, of three charge offs totaling
$25,445. Two recoveries totaling $2,743 occured during the six months ended June
30, 1997. The allowance for loan losses to total loans at June 30, 1997, was
1.46% compared to 1.54% as of June 30, 1996.
Other Income
Other income for the period ended June 30, 1997, was $264,491 compared to
$142,842 for the period ended June 30, 1996, an increase of $121,649 or 85.2%.
The increase is primarily due to service charges and fees for the six months
ended June 30, 1997, of $270,909 as compared to six months ended June 30, 1996,
of $195,877, an increase of $75,032 or 38.3%. An increase in average IPC
(individual, partnership and corporate) deposits from approximately $15,734,000
for the six months ended June 30, 1996, to $19,146,000 for the six months ended
June 30, 1997, attributed to the increase. IPC accounts
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generate service charges and fees. Other non-interest income reflects a $60,592
increase for the period ended June 30, 1997, from the same period ended June 30,
1996; however, the increase is a reflection of a $58,378 loss on other real
estate realized during the six month reporting period of June 30, 1996.
Other Expense
General and administrative expenses increased $253,874 or 14.9% to $1,959,929
for the six months ended June 30, 1997, from $1,706,055 for the six months ended
June 30, 1996. In part, this increase is due to an annual merit increase for the
Company's staff and the increase in employees needed to staff new positions due
to bank growth resulting in salary and benefits increasing $144,724 or 15.8% to
$1,063,535 for the six months ended June 30, 1997, compared to $918,811 for the
same period for 1996. Occupancy expense increased $62,999 or 17.1% to $432,124
for the six months ended June 30, 1997, from $369,125 for the six months ended
June 30, 1996. The increase in maintenance, taxes, depreciation and other costs
associated with the opening of a new office in Mt. Pleasant, South Carolina, are
the primary reasons for this increase.
LIQUIDITY
The Company must maintain an adequate liquidity position in order to respond to
the short-term demand for funds caused by the withdrawals from deposit accounts,
maturities of repurchase agreements, extensions of credit and for the payment of
operating expenses. Maintaining this position of adequate liquidity is
accomplished through the management of a combination of liquid assets; those
which can be converted into cash and access to additional sources of funds.
Primary liquid assets of the Company are cash and due from banks, federal funds
sold, investments available for sale and other short-term investments. The
Company's primary liquid assets accounted for 30.77% and 33.62% of average
assets at June 30, 1997, and 1996, respectively. Additional sources of funds
available through the Bank for additional liquidity needs include borrowing on a
short-term basis from the Federal Reserve System, the purchasing of federal
funds from other financial institutions and increasing deposits by raising rates
paid. The Company's core deposits consist of IPCs, NOW accounts, money market
accounts, time deposits and savings. Although such core deposits are becoming
increasingly more costly and interest sensitive for both the Company and the
industry as a whole, such core deposits continue to provide the Company with a
large and stable source of funds. Core deposits averaged 88.0% of earning assets
during the first six months of 1997 as compared to 87.3% of earning assets for
the first six months of 1996. The Company closely monitors its reliance on
certificates on deposit greater than $100,000. The Company plans to meet its
future liquidity needs through maturities of investments and loans and through
the generation of deposits. The Company's management believes its liquidity
sources are adequate to meet its operating needs and does not know of any
trends, events or uncertainties that may result in a significant adverse effect
on the Company's liquidity position. At six months ended June 30, 1997, the
Bank's liquidity ratio was 24.75% and for the same period ended June 30, 1996,
the liquidity ratio was 31.67%.
CAPITAL RESOURCES
The capital needs of the Company have been met to date through the $10,600,000
in capital raised at its initial offering, the retention of earnings less
dividends paid and the exercising of stock options in April of 1995 of $124,000,
the exercising of stock options in March of 1996 of $124,000 and the exercising
of stock options in January of 1997 of $124,000 for a total shareholders' equity
at June 30, 1997, of $14,895,016. 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
12
<PAGE> 13
June 30, 1997, for the Bank was 18.93% and at June 30, 1996, was 22.06%. The
Company received regulatory approval for another branch in its market area in
the first quarter of 1997 which should open in the spring of 1998. The Company's
management does not know of any trends, events or uncertainties that may result
in the Company's capital resources materially increasing or decreasing.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which is effective for both interim and annual periods ending after
December 15, 1997. This statement supersedes Accounting Principles Board Opinion
No. 15, "Earnings per Share". The purpose of this statement is to simplify
current reporting and make U.S. reporting comparable to international standards.
The statement requires dual presentation of basic and diluted EPS by entities
with complex capital structures (as defined by the statement). The adoption of
this standard did not have a material effect on EPS.
Also, in February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure", which is effective for financial statements for
periods ending after December 31, 1997. This statement applies to both public
and nonpublic entities. The new statement requires no change for entities
subject to the existing requirements. The Company anticipates that adoption of
this standard will not have a material effect on the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
Companies are required to classify items of "other comprehensive income" by
their nature in the financial statement and display the balance of other
comprehensive income separately in the equity section of a statement of
financial position. Statement 130 is effective for both interim and annual
periods beginning after December 15, 1997. Earlier application is permitted.
Comparative financial statements provided for earlier periods are required to be
reclassified to reflect the provisions of this statement. The Company will adopt
Statement 130 effective March 31, 1998, and will provide the required
disclosures in the Company's Form 10-QSB.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". Statement 131 establishes standards for the
way companies are to report information about operating segments in annual
financial statements and requires those companies to report selected information
about operating segments in interim financial reports issued to shareholders.
Statement 131 is effective for financial statements for period beginning after
December 15, 1997. Earlier application is encouraged. In the initial year of
application, comparative information for earlier years is to be restated, unless
it is impracticable to do so. Statement 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application shall be
reported in financial statements for interim periods in the second year of
application. It is not anticipated that this standard will materially effect the
Company's current method of financial reporting.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with generally accepted
accounting principles (GAAP) which require the measurement of financial position
and operating results in terms of historical dollars without considering the
changes in relative purchasing power of money over time due to inflation. The
primary impact of inflation on operations of the Bank is reflected in increased
operating costs. Unlike most industrial
13
<PAGE> 14
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily in the same direction or
to the same extent as the prices of goods and services.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiary from time to time is involved as plaintiff or
defendant in various legal actions incident to its business. These actions are
not believed to be material either individually or collectively to the
consolidated financial condition of the Company or its subsidiary.
ITEM 2. CHANGES IN SECURITIES
See footnotes to consolidated balance sheets, page 8.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
On April 8, 1997, Bank of South Carolina Corporation's Board of Directors
approved the issuance of a two for one stock split to shareholders of record
April 30, 1997, payable May 15, 1997.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK OF SOUTH CAROLINA CORPORATION
August 11, 1997
/s/ Hugh C. Lane, Jr.
----------------------------------
BY: Hugh C. Lane, Jr.
President
/s/ William L. Hiott, Jr.
----------------------------------
BY: William L. Hiott, Jr.
Executive Vice President & Cashier
15
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