<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period and nine months ended September 30, 1997
------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 0-27702
Bank of South Carolina Corporation
----------------------------------
(Exact name of small business issuer as specified in its charter)
South Carolina 57-1021355
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
256 Meeting Street, Charleston, SC 29401
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(Address of principal executive offices)
(803) 724-1500
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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As of November 7, 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 nine months ended
September 30, 1997
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996...........................................................3
Consolidated Statements of Operations - Three months
ended September 30, 1997 and 1996 ..............................................4
Consolidated Statements of Operations - Nine months
ended September 30, 1997 and 1996 ..............................................5
Consolidated Statements of Changes in Shareholders'
Equity - Nine months ended September 30, 1997...................................6
Consolidated Statements of Cash Flows - Nine months
ended September 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 & 13
Capital Resources............................................................13
Impact of New Accounting Pronouncements......................................13
Effect of Inflation and Changing Prices......................................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>
2
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PART I - ITEM 1 - FINANCIAL STATEMENTS
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
Assets: September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Cash and due from banks $ 9,065,979 $ 5,980,344
Interest bearing deposits in other banks 6,360 6,185
Federal funds sold and repurchase agreements 18,150,000 4,675,000
Investment securities available for sale 20,470,125 19,231,905
Loans 73,779,853 71,660,124
Allowance for loan losses (1,161,830) (1,041,216)
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Net loans 72,618,023 70,618,908
Equipment and leasehold improvements, net 1,953,988 1,149,994
Other assets 1,373,636 1,173,080
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Total assets $ 123,638,111 $ 102,835,416
============= =============
Liabilities and shareholders' equity:
Deposits:
Non-interest bearing demand $ 25,716,879 $ 21,380,352
Interest bearing demand 20,709,937 16,969,563
Money market accounts 21,184,712 17,397,957
Certificates of deposit $100,000 and over 15,635,944 13,790,007
Other time deposits 14,218,110 11,577,303
Other savings deposits 4,494,273 3,715,055
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Total deposits 101,959,855 84,830,237
Short-term borrowings 5,703,034 2,392,408
Other liabilities 773,478 718,958
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Total liabilities 108,436,367 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 September 30, 1997, and 2,314,234
shares at December 31, 1996 -- --
Additional paid in capital 12,206,882 12,082,882
Retained earnings 3,426,628 3,252,807
Unrealized gain on securities
available for sale, net of income taxes 118,920 108,810
Treasury stock - 70,000 shares at September 30,
1997 and at December 31, 1996 (550,686) (550,686)
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Total shareholders' equity 15,201,744 14,893,813
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Total liabilities and shareholders' equity $ 123,638,111 $ 102,835,416
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Interest and Fee Income
Interest and fees on loans $1,870,884 $1,626,154
Interest and dividends on investment securities 317,500 324,314
Other interest income 176,877 85,232
---------- ----------
Total interest and fee income 2,365,261 2,035,700
---------- ----------
Interest Expense
Interest on deposits 704,460 589,499
Interest on short-term borrowings 61,214 15,429
---------- ----------
Total interest expense 765,674 604,928
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Net Interest Income 1,599,587 1,430,772
Provision for loan losses 52,500 45,000
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Net Interest Income After Provision for Loan Losses 1,547,087 1,385,772
---------- ----------
Other Income
Service charges, fees and commissions 163,451 135,427
Other non-interest income 8,040 4,316
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Total other income 171,491 139,743
---------- ----------
Other Expense
Salaries and employee benefits 556,851 491,307
Net occupancy expense of premises 219,385 208,574
Other operating expenses 260,937 240,838
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Total other expense 1,037,173 940,719
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Income before income tax expense 681,405 584,796
Income tax expense 253,000 218,000
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Net Income $ 428,405 $ 366,796
========== ==========
Net Income Per Common Share $ .18 $ .16
========== ==========
Dividends Per Common Share $ .06 $ .05
========== ==========
Weighted Average Shares 2,341,514 2,329,896
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1997 September 30, 1996
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<S> <C> <C>
Interest and Fee Income
Interest and fees on loans $ 5,423,703 $ 4,644,464
Interest and dividends on investment securities 949,492 826,019
Other interest income 332,791 336,374
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Total interest and fee income 6,705,986 5,806,857
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Interest Expense
Interest on deposits 2,007,572 1,698,818
Interest on short-term borrowings 134,536 46,654
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Total interest expense 2,142,108 1,745,472
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Net Interest Income 4,563,878 4,061,385
Provision for loan losses 157,500 80,000
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Net Interest Income After Provision for Loan Losses 4,406,378 3,981,385
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Other Income
Service charges, fees and commissions 434,360 331,304
Loss on investment securities (16,544) (2,569)
Other non-interest income (expense) 18,166 (46,150)
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Total other income 435,982 282,585
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Other Expense
Salaries and employee benefits 1,620,386 1,410,119
Net occupancy expense of premises 651,508 577,699
Net cost of operation of other real estate -- 1,088
Other operating expenses 725,208 657,868
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Total other expense 2,997,102 2,646,774
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Income before income tax expense 1,845,258 1,617,196
Income tax expense 688,000 606,639
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Net Income $ 1,157,258 $ 1,010,557
=========== ===========
Net Income Per Common Share $ .49 $ .44
=========== ===========
Dividends Per Common Share $ .17 $ .15
=========== ===========
Weighted Average Shares 2,339,216 2,348,580
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 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 -- -- 1,157,258 -- -- 1,157,258
Change in unrealized gain
(loss) on securities
available for sale,
net of income taxes -- -- -- -- 10,110 10,110
Cash dividends -- -- (983,437) -- -- (983,437)
--------------- ----------- ----------- --------- -------- ------------
Balance,
September 30, 1997 $ -- $12,206,882 $ 3,426,628 $(550,686) $118,920 $ 15,201,744
=============== =========== =========== ========= ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,157,258 $ 1,010,557
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 158,918 109,048
Net (Accretion)/amortization of unearned
discounts/premiums on investments (5,722) 6,451
Amortization of organizational costs 5,584 5,584
Loss on sale of investment securities 16,544 2,569
Loss on sale of other real estate owned -- 58,378
Increase in other assets (212,078) (259,793)
Provision for loan losses 157,500 80,000
Increase in other liabilities 54,520 127,104
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Net cash provided by operating activities 1,332,524 1,139,898
------------ ------------
Cash flows from investing activities:
Proceeds from sale of investments 1,981,875 2,997,501
Proceeds from maturity of investments 2,013,881 1,013,881
Proceeds from sale of stock of
Business Development Corporation -- 25,000
Purchase of investment securities (5,228,750) (11,970,311)
Net increase in loans (2,156,615) (7,066,314)
Proceeds from sale of other real estate owned -- 858,922
Purchase of office property and equipment (962,912) (723,580)
------------ ------------
Net cash used in investing activities (4,352,521) (14,864,901)
------------ ------------
Cash flows from financing activities:
Net increase in deposit accounts 17,129,618 2,551,684
Net increase in short-term borrowings 3,310,626 817,295
Exercise of stock options 124,000 124,000
Dividends (983,437) (341,674)
Treasury stock -- (550,686)
------------ ------------
Net cash provided by financing activities 19,580,807 2,600,619
------------ ------------
Net increase (decrease) in cash and cash equivalents 16,560,810 (11,124,384)
Cash and cash equivalents, beginning of period 10,661,529 19,270,381
------------ ------------
Cash and cash equivalents, end of period $ 27,222,339 $ 8,145,997
============ ============
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 2,063,915 $ 1,769,944
Income taxes 744,590 520,542
</TABLE>
See accompanying notes to consolidated financial statements.
7
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BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 of the
Company as of the date indicated. The results of operations for the period
ending September 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 the 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 reflect 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 included in
earnings and 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 September
30, 1997, and classified as "Available for Sale" is $20,281,363. The aggregate
market value of securities "Available for Sale" on the basis of market
quotations as of September 30, 1997, is $20,470,125. The unrealized gain as of
September 30, 1997, on such securities is $188,762.
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, a regular quarterly cash dividend of $.06 per share
was approved for shareholders of record June 30, 1997, payable August 15, 1997
and a regular quarterly cash dividend of $.06 per share was approved for
shareholders of record September 30, 1997, payable October 31, 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, Mt. Pleasant, South Carolina and has
a full service branch operation under construction at 2027 Sam Rittenberg
Boulevard that is scheduled to open in the spring of 1998. It offers a broad
range of financial services through its wholly-owned subsidiary, The Bank of
South Carolina (the Bank). The Bank is a state-chartered commercial bank which
operates principally in the counties of Charleston, Dorchester and Berkeley in
South Carolina.
For the first nine months of 1997, the Company reported net income of
$1,157,258 or $.49 per share, an increase of $146,701 or 14.52% compared to the
net income for the first nine months of 1996 of $1,010,557 or $.43 per share.
Total assets for the period increased $20,802,695 or 20.23% from December 31,
1996, to September 30, 1997.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997, TO THREE MONTHS ENDED
SEPTEMBER 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 $61,609 or 16.80% to $428,405 for the three months
ended September 30, 1997, from $366,796 for the three months ended September
30, 1996. The increase is primarily due to average earning assets for three
months ended September 30, 1997, of approximately $107,861,000 increasing from
$92,398,000 for the three months ended September 30, 1996.
Net Interest Income
Net interest income increased $168,815 or 11.80% to $1,599,587 for the three
months ended September 30, 1997, from $1,430,772 for the three months ended
September 30, 1996. Total interest and fee income increased $329,561 or 16.19%
for the three months ended September 30, 1997, to $2,365,261 from $2,035,700
for the three months ended September 30, 1996. This increase is a result of
average total loans for the three months ended September 30, 1997, averaging
approximately $75,420,000 compared to average total loans of approximately
$65,908,000 for the three months ended September 30, 1996. The loan portfolio
produces the highest yield of all earning assets. The investment portfolio
income decreased $6,814 or 2.10% to $317,500 for the period ended September 30,
1997, as compared to $324,314 for the three months ended September 30, 1996.
This decrease in revenue is primarily a result of maturities in investment
securities portfolio which were not reinvested. Other interest income
9
<PAGE> 10
increased $91,645 or 107.52% to $176,877 for the three months ended September
30, 1997, from $85,232 for the three months ended September 30, 1996. This
increase in revenue is primarily attributed to the increase in average
available overnight federal funds for the comparable periods. The net interest
spread for the three months ended September 30, 1997, was 4.32% compared to
4.60% for the same period ended September 30, 1996.
Total interest expense increased $160,746 or 26.57% to $765,674 for the three
months ended September 30, 1997, from $604,928 for three months ended September
30, 1996. The increase is due to average interest bearing deposits increasing
for the period September 30, 1997, to approximately $72,545,000 from the same
period September 30, 1996, of approximately $63,986,000. Interest on deposits
for the three months ended September 30, 1997, was $704,460 compared to
$589,499 for the same period September 30, 1996, an increase of $114,961 or
19.50%. Interest on short-term borrowings was $61,214 for the three months
ended September 30, 1997, compared to $15,429 for the three months ended
September 30, 1996, an increase of $45,785 or 296.75%. Short-term borrowings
consisted of Securities Sold Under Agreements to Repurchase and Demand Notes
Issued to the U.S. Treasury for both periods.
Provision for Loan Losses
The amount charged to the provision for loan losses by the Bank is based on
management's evaluation as to the amounts required to maintain an allowance
adequate to provide for potential losses in the loan portfolio. The level of
this allowance is dependent upon the total amount of past due loans,
non-performing loans, general economic conditions and management's assessment
of potential losses based upon internal credit evaluations of the loans and
periodic reviews and assessments of credit risks associated with particular
loans. While management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making these
evaluations. The allowance for loan losses also is subject to periodic
evaluations by various regulatory authorities and may be subject to adjustment
upon their examination.
During the quarter ended September 30, 1997, $52,500 was charged to the
provision for loan losses compared to $45,000 for the quarter ended September
30, 1996. At September 30, 1997, the allowance for loan losses was $1,161,830
or 1.57% of total loans. This compares to an allowance of $983,957 or 1.43% as
of September 30, 1996. During the quarter ended September 30, 1997, the Bank
incurred two charge offs totaling $4,185 as compared to the same period quarter
ended September 30, 1996, of four charge offs totaling $32,365. There were
seven loans on non-accrual status at September 30, 1997, in the amount of
$682,655 as compared to none in the same quarter ended September 30, 1996.
There were 24 loans past due over 30 days totaling $561,112 or .8% of total
loans at September 30, 1997, compared to 22 loans totaling $991,018 or 1.4% of
total loans at September 30, 1996, and four loans 90 days past due at September
30, 1997, for $285,020 as compared to the same quarter ended September 30,
1996, of no loans 90 days past due. No recoveries occurred during the quarter
ended September 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 September 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 September 30, 1997, increased $31,748
or 22.72% to $171,491 from $139,743 for the same period ended September 30,
1996. Service charges, fees and commissions was $163,451 for the three months
ended September 30, 1997, compared to $135,427 for the three months ended
September 30, 1996, an increase of $28,024 or 20.69%. The increase is primarily
a result of an increase in total deposits resulting in more service charges and
fees generated by an increase in home mortgage loans.
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<PAGE> 11
Other Expense
Bank overhead increased $96,454 or 10.25% to $1,037,173 for the three months
period ended September 30, 1997, from $940,719 for the three months ended
September 30, 1996. Salaries and employee benefits increased $65,544 or 13.34%
to $556,851 for the period ended September 30, 1997, from $491,307 for the
three months period ended September 30, 1996. This increase is primarily
attributed to merit raises given to employees and additional personnel to staff
five new positions. Net occupancy expense increased $10,811 or 5.18% to
$219,385 for three months ended September 30, 1997, from $208,574 for three
months ended September 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 increased $20,099 or 8.35% to $260,937 for the period ending
September 30, 1997, from $240,838 for the period ending September 30, 1996.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997, TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
Net Income
Net income increased $146,701 or 14.52% to $1,157,258 for the nine months ended
September 30, 1997, from $1,010,557 for the nine months ended September 30,
1996. The increase in net income is primarily a result of an increase in net
interest income of $502,493 and the increase in total other income of $153,397.
Net Interest Income
Net interest income increased $502,493 or 12.37% to $4,563,878 for the nine
months ended September 30, 1997, from $4,061,385 for the nine months ended
September 30, 1996. Total interest and fee income increased $899,129 or 15.48%
to $6,705,986 for the nine months ended September 30, 1997, from $5,806,857 for
the nine months ended September 30, 1996. This increase is primarily due to an
increase in loan volume. Loans averaged for the nine months ended September 30,
1997, approximately $74,353,000 whereas loans for the same period ended
September 30, 1996, averaged approximately $63,733,000 producing interest and
fee income of $5,423,703 for the nine months ended September 30, 1997, compared
to $4,644,464 for the nine months ended September 30, 1996, an increase of
$779,239 or 16.78%. Investment income was $949,492 for the nine months ended
September 30, 1997, compared to $826,019 for the period ended September 30,
1996, an increase of $123,473 or 14.95%. Other income (Daily Federal Funds
Sold) decreased $3,583 for the reporting period. Total interest expense
increased $396,636 or 22.72% to $2,142,108 for the nine months ended September
30, 1997, from $1,745,472 for the nine months ended September 30, 1996. The
increase from the reporting period 1996 to 1997 is primarily due to the growth
in interest bearing deposits averaging approximately $69,594,000 for the nine
months ended September 30, 1997, as opposed to $61,678,000 for the same period
ended September 30, 1996. The net interest spread for the nine months ended
September 30, 1997, was 4.40% compared to 4.65% for the same period ended
September 30, 1996.
Provision for Loan Losses
The provision for loan losses was $157,500 for the nine months ended September
30, 1997, as compared to $80,000 for the same period in the prior year. For the
nine months ended September 30, 1997, the Bank incurred six charge offs
totaling $39,630 as compared to the nine months ended September 30, 1996, of
seven charge offs totaling $58,221. There were seven loans on non-accrual
status for the nine month period ended September 30, 1997, in the amount of
$682,655 as compared to none in the nine month period ended September 30, 1996.
There were 24 loans past due 30 days totaling $561,112 or .8% of total loans at
September 30, 1997, as compared to 22 loans totaling $991,018 or 1.4% of total
at September 30, 1996. Five recoveries totaling $2,743 occurred during the nine
months ended
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September 30, 1997. The allowance for loan losses to total loans at September
30, 1997, was 1.57% compared to 1.43% as of September 30, 1996.
Other Income
Other income for the period ended September 30, 1997, was $435,982 compared to
$282,585 for the period ended September 30, 1996, an increase of $153,397 or
54.28%. The increase is primarily due to service charges and fees for the nine
months ended September 30, 1997, of $434,360 as compared to nine months ended
September 30, 1996, of $331,304, an increase of $103,056 or 31.11%. An increase
in average IPC (individual, partnership and corporate) deposits from
approximately $20,209,000 for the nine months ended September 30, 1997, from
$15,719,000 for the nine months ended September 30, 1996, attributed to the
increase. IPC accounts generate service charges and fees. Other non-interest
income reflects a $64,316 increase for the period ended September 30, 1997,
from the same period ended September 30, 1996.
Other Expense
General and administrative expenses increased $350,328 or 13.24% to $2,997,102
for the nine months ended September 30, 1997, from $2,646,774 for the nine
months ended September 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 $210,267 or 14.91% to $1,620,386 for the nine months ended September
30, 1997, compared to $1,410,119 for the same period for 1996. Occupancy
expense increased $73,809 or 12.78% to $651,508 for the nine months ended
September 30, 1997, from $577,699 for the nine months ended September 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. Other operating expenses increased $67,340
or 10.24% to $725,208 for the nine months ended September 30, 1997, from
$657,868 for the nine months ended September 30, 1996.
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 39.98% and 28.56% of average
assets at September 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 90.71%
of earning assets during the first nine months of 1997 as compared to 88.81% of
earning assets for the first nine 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 nine months ended
12
<PAGE> 13
September 30, 1997, the Bank's liquidity ratio was 36.12% and for the same
period ended September 30, 1996, the liquidity ratio was 25.75%.
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 September 30, 1997, of $15,201,744. 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 September 30, 1997, for the Bank was 18.21% and at September
30, 1996, was 20.13%. 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 will not have a material effect on EPS.
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.
13
<PAGE> 14
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with generally accepted
accounting principles (GAAP) which require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in relative purchasing power of money over time due to
inflation. The primary impact of inflation on operations of the Bank is
reflected in increased operating costs. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily in the same direction or
to the same extent as the prices of goods and services.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiary from time to time 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 purposes 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
November 7, 1997 /s/ Hugh C. Lane, Jr.
---------------------------------------
BY: Hugh C. Lane, Jr.
President
November 7, 1997 /s/ William L. Hiott, Jr.
---------------------------------------
BY: William L. Hiott, Jr.
Executive Vice President & Cashier
15
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