<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 For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 0-27702
-------
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
- ---------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (803) 724-1500
--------------
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 disclosure of delinquent filers in response to Item 405 of Regulation
S-B 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
Issuer's revenues for its most recent fiscal year: $9,160,575
Aggregate market value of the voting stock held by non-affiliates: $29,754,069
As of March 24, 1998, the Registrant has outstanding 2,341,514 shares of common
stock.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
<PAGE> 2
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...........................................................................6
Item 7. Financial Statements and Supplementary Data....................................................20
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Matters..............................................................................40
PART III
Item 9. Directors and Executive Officers of the Registrant.............................................40
Item 10. Compensation of Directors and Executive Officers...............................................42
Item 11. Security Ownership of Certain Beneficial Owners and Management.................................44
Item 12. Certain Relationships and Related Transactions.................................................48
PART IV
Item 13. Exhibits, Financial Statements and Reports on Form 8-K.........................................49
</TABLE>
2
<PAGE> 3
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
3
<PAGE> 4
Dawley Boulevard, Mt. Pleasant, SC. A complete listing of the Bank's services
may be referenced in its Annual Report on page 45.
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 70,000 shares of its common stock on the open
market from time to time. As of this date 70,000 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, 1997.
By year end 1997, the Bank employed 55 people, 7 of whom are part time
employees, 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.
4
<PAGE> 5
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.
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, 1997.
PART II
ITEM 5. MARKET FOR BANK'S COMMON STOCK AND RELATED MATTERS
There were issued and outstanding 2,341,514 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, 1997. These outstanding shares were held by approximately
900 shareholders of record on December 31, 1997. 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.
5
<PAGE> 6
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 1997, 1996 and 1995 has been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
HIGH LOW HIGH LOW HIGH LOW
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 13.75 8.75 8.125 7.125 5.50 5.375
Second Quarter 18.50 12.875 8.25 7 6.25 5.375
Third Quarter 17.75 16 8.125 7.25 6 5.50
Fourth Quarter 18.75 14.50 8.875 8.125 6.875 5.875
</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 a special one-time dividend of
$.25 per share to shareholders of record January 31, 1997, payable February 27,
1997, and quarterly dividends in 1997 of $.05 per share to shareholders of
record March 31, 1997, payable May 15, 1997, $.06 per share to shareholders of
record June 30, 1997, payable August 15, 1997, $.06 per share to shareholders
of record September 30, 1997, payable October 31, 1997, and $.06 per share to
shareholders of record December 31, 1997, payable January 31, 1998.
The Board of Directors of the Company declared quarterly dividends in 1996 of
$.05 per share to shareholders of record March 29, 1996, payable May 15, 1996,
$.05 per share to shareholders of record June 28, 1996, payable August 15,
1996, $.05 per share to shareholders of record September 30, 1996, payable
November 15, 1996, and $.05 per share to shareholders of record December 31,
1996, payable February 14, 1997.
During 1995, the Company declared quarterly dividends of $.03 per share to
shareholders of record March 31, 1995, payable May 15, 1995, $.04 per share to
shareholders of record June 30, 1995, payable August 15, 1995, $.04 per share
to shareholders of record September 29, 1995, payable November 15, 1995, and
$.04 per share to shareholders of record December 29, 1995, payable February
15, 1996.
As of December 31, 1997, there were approximately 900 shareholders of record
and shares held by individuals in street name and on March 20, 1998, the bid
and ask prices for the common stock were $19.625 and $21, respectively. It is
the intent of the Company to continue paying dividends in the future.
Cash dividends, when declared, are paid by the Bank to the Corporation for
distribution to shareholders of record of the Corporation.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 1997 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.
6
<PAGE> 7
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------- ------------- ------------ ------------- ---------------
FOR DECEMBER 31:
- ----------------
<S> <C> <C> <C> <C> <C>
Net Income $ 1,609,618 $ 1,388,808 $ 1,049,231 $ 705,323 $ 643,175
Selected Year End Balances
- - Total Assets 124,478,023 102,835,416 95,248,079 77,176,341 80,225,926
- - Total Loans 79,965,957 71,660,124 61,986,536 54,471,114 52,473,245
- - Investment Securities 19,483,167 19,231,905 12,505,634 15,955,605 15,105,901
- - Federal Funds Sold and Resale Agreements 15,600,000 4,675,000 15,025,000 725,000 9,575,000
- - Interest Bearing Deposits in Other Banks 6,421 6,185 5,957 5,742 5,592
- - Earning Assets 115,055,545 95,573,214 89,523,127 71,157,461 77,159,738
- - Deposits 104,469,073 84,830,237 78,990,344 62,465,429 64,814,531
- - Shareholders' Equity 15,521,347 14,893,813 14,515,232 13,287,736 12,955,888
Weighted Average Shares Outstanding (1)(2)(3) 2,339,795 2,339,922 2,352,926 2,332,000 2,332,000
FOR THE YEAR:
- -------------
Selected Average Balances
- - Total Assets 112,413,053 96,379,427 84,596,891 78,107,336 76,955,947
- - Total Loans 74,682,392 65,468,548 55,870,527 52,079,826 53,313,291
- - Investment Securities 19,517,222 17,614,422 14,564,163 16,742,283 13,503,873
- - Federal Funds Sold and Resale Agreements 10,824,383 7,622,131 8,653,014 4,358,411 6,468,675
- - Interest Bearing Deposits in Other Banks 6,309 6,092 5,868 5,668 5,796
- - Earning Assets 105,030,306 90,711,193 79,093,572 73,186,188 73,291,635
- - Deposits 93,055,877 79,671,917 68,974,795 63,427,727 62,201,593
- - Shareholders' Equity 15,005,232 14,656,129 13,852,365 13,169,210 12,789,832
PERFORMANCE RATIOS:
- -------------------
Return on Average Equity 10.73% 9.48% 7.57% 5.36% 5.04%
Return on Average Assets 1.43% 1.44% 1.24% .90% .84%
Average Equity to Average Assets 13.35% 15.21% 16.37% 16.86% 16.62%
Net Interest Margin 5.92% 6.09% 5.95% 5.39% 4.58%
Net Charge-offs to Average Loans .05% .09% .10% .29% .26%
Allowance for Loan Losses as a
Percentage of Average Loans 1.62% 1.59% 1.72% 1.91% 1.95%
PER SHARE: (1)(2)(3)
- --------------------
Basic Earnings $ .69 $ .59 $ .45 $ .30 $ .28
Diluted Earnings .68 .59 .44 .30 .28
Year End Book Value 6.63 6.44 6.15 5.70 5.56
Cash Dividends Declared .48 .20 .14 .10 .08
Dividend Payout Ratio 69.57% 33.90% 31.11% 33.33% 28.57%
Full Time Employee Equivalents 55 47 39 37 31
</TABLE>
1).On April 17, 1995, The Bank of South Carolina reorganized into Bank of South
Carolina Corporation, a one-bank holding company. 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 have been retroactively
restated to reflect the exchange.
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.
3).On April 8, 1997, Bank of South Carolina Corporation declared a 2 for 1
stock split for shareholders of record April 30, 1997, payable May 15,
1997.
All share and per share data have been restated to reflect the 2 for 1
stock split.
7
<PAGE> 8
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,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
Operating Data: ------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Interest and fee income $ 9,160,575 $ 7,899,225 $ 7,013,875 $ 5,513,791 $ 4,878,269
Interest expense 2,942,024 2,378,414 2,306,545 1,572,987 1,532,547
------------- ------------- -------------- -------------- --------------
Net interest income 6,218,551 5,520,811 4,707,330 3,940,804 3,345,722
Provision for loan losses 210,000 140,000 20,000 105,000 160,000
------------- ------------- -------------- -------------- --------------
Net interest income after
provision for loan losses 6,008,551 5,380,811 4,687,330 3,835,804 3,185,722
Other income 600,254 500,923 345,677 191,829 277,238
Other expense 4,093,687 3,658,787 3,366,776 2,915,310 2,466,285
------------- ------------- -------------- -------------- --------------
Income before income taxes 2,515,118 2,222,947 1,666,231 1,112,323 996,675
Income tax expense 905,500 834,139 617,000 407,000 353,500
------------- ------------- -------------- -------------- --------------
Net income $ 1,609,618 $ 1,388,808 $ 1,049,231 $ 705,323 $ 643,175
============= ============= ============== ============== ==============
Basic earnings per share (1)(2)(3) $ .69 $ .59 $ .45 $ .30 $ .28
============= ============= ============== ============== ==============
Diluted earnings per share (1)(2)(3) $ .68 $ .59 $ .44 $ .30 $ ..28
============= ============= ============== ============== ==============
Weighted average common shares (1)(2)(3) 2,339,795 2,339,922 2,352,926 2,332,000 2,332,000
Dividends per common share $ .48 $ .20 $ .14 $ .10 $ .08
<CAPTION>
AS OF
DECEMBER 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- -------------- -------------- --------------
Balance Sheet Data:
Total investment securities $ 19,483,167 $ 19,231,905 $ 12,505,634 $ 15,955,605 $ 15,105,901
Total loans 79,965,957 71,660,124 61,986,536 54,471,114 52,473,245
Allowance for loan losses 1,210,528 1,041,216 960,103 996,386 1,039,870
Total assets 124,478,023 102,835,416 95,248,079 77,176,341 80,225,926
Total deposits 104,469,073 84,830,237 78,990,344 62,465,429 64,814,531
Shareholders' equity 15,521,347 14,893,813 14,515,232 13,287,736 12,955,888
</TABLE>
1).On April 17, 1995, The Bank of South Carolina reorganized into Bank of South
Carolina Corporation, a one-bank holding company. 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 have been retroactively
restated to reflect the exchange.
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.
3).On April 8, 1997, Bank of South Carolina Corporation declared a 2 for 1
stock split for shareholders of record April 30, 1997, payable May 15, 1997.
All share and per share data have been restated to reflect the 2 for 1 stock
split.
8
<PAGE> 9
OVERVIEW
The Company earned $1,609,618 or $.69 per share compared to $1,388,808 or $.59
per share for 1996 on average daily assets of $112,413,056 in 1997, an increase
from $96,379,427 in 1996. The return on average assets of 1.43% for 1997 was
almost identical with 1.44% for 1996. The return on average shareholders'
equity for 1997 was 10.73%, up from 9.48% for 1996. Average deposits for 1997
were $93,055,877, up $13,383,960 or 17% from 1996.
During 1997, the Company declared a special one-time cash dividend of $.25 per
share to mark its tenth anniversary on February 27, 1997, one regular quarterly
cash dividend of $.05 per share and three regular quarterly cash dividends of
$.06 per share thereby sharing a greater portion of its profits with its
owners, compared to prior years.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996, TO DECEMBER 31, 1997
Net income increased $220,810 from $1,388,808 for December 31, 1996, to
$1,609,618 for December 31, 1997, or 16% increasing basic earnings per share
from $.59 to $.69 and diluted earnings per share from $.59 to $.68 for the same
periods. This increase is primarily attributable to increases in net interest
income and other income.
Net interest income increased $697,740 from $5,520,811 for 1996 to $6,218,551
for 1997. This increase is due to the Company's volume of interest earning
assets increasing at a sufficiently fast rate relative to the increase in
interest bearing liabilities to offset the decrease in net interest spread.
Total interest and fee income increased 16% or $1,261,350. This increase is due
to an increase in loans. Total loans increased from $71,660,124 at December 31,
1996, to $79,965,957 at December 31, 1997, an increase of 12%. The average
yield on loans increased from 9.71% to 9.80% for the same periods.
Total interest expense increased 24% or $563,610. This increase is due to an
increase in deposits as well as an increase in interest paid on deposits.
Deposits increased from $84,830,237 at December 31, 1996, to $104,469,073 at
December 31, 1997. The average rate on interest bearing liabilities increased
from 3.75% to 3.95% for the same periods.
The provision for loan losses increased from $140,000 for 1996 to $210,000 for
1997. The increase in the provision is a result of management's review of the
loan portfolio. The allowance for loan losses as a percentage of average total
loans increased from 1.59% to 1.62% 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 19.83% from $500,923 at December 31, 1996, to $600,254
at December 31, 1997, or $99,331. This increase is attributable to an increase
in service charges, fees and service release premiums from mortgage loans.
Other expense increased 11.89% or $434,900 from $3,658,787 for 1996 to
$4,093,687 for 1997. This increase is due in part to a 16.49% increase in
salaries and employee benefits as a result of the creation of five new
positions within the Company and an annual merit increase for the Company's
staff.
Occupancy expense increased $73,792 or 9.37% from $787,351 for 1996 to $861,143
for 1997. This increase is primarily due to a full year's occupancy expense for
the Mt. Pleasant office which opened in May 1996.
Other operating expense increased $107,826 or 11.78% from $915,006 for 1996 to
$1,022,832 for 1997. The increase is a result of an increase in the cost of
printed forms due to a long-term contract expiring, an
9
<PAGE> 10
increase in stationery and supplies due to a new office and that new office's
business development efforts in buying customer's check orders, while sundry
losses and the FDIC assessment were $6,000 and $8,000 higher, respectively,
from the previous year.
Income tax expense increased from $834,139 for 1996 to $905,500 for 1997. The
Company provides for income taxes at approximately 36% of pretax net income.
The increase in income tax expense is directly related to the increase in
pretax net income.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995, TO DECEMBER 31, 1996
Net income increased $339,577 from $1,049,231 for 1995 to $1,388,808 for 1996
increasing basic earnings per share from $.45 to $.59 and diluted earnings per
share from $.44 to $.59 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 1995 to $5,520,811
for 1996. This increase is due to the Company's volume of average interest
earning assets increasing at a sufficiently fast rate relative to the increase
in interest bearing liabilities to offset the decrease in net interest spread.
Total interest and fee income increased 12.62% or $885,350. This increase is
due primarily to an increase in loans. Total loans increased from $61,986,536
at December 31, 1995, to $71,660,124 at December 31, 1996, an increase of
15.6%. 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 to an
increase in deposits. 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 for 1995 to $140,000 for
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 for December 31, 1995, to $500,923
for 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 for December 31,
1995, to $787,351 for December 31, 1996. This increase is primarily due to the
addition of the Mt. Pleasant office which opened in May 1996.
Other operating expense increased $250,014 or 37.60% from $664,992 for December
31, 1995, to $915,006 for December 31, 1996. The increase is a result of
expenses relating to the opening of a new office in Mt. Pleasant during the
year as well as increases in other general operating expenses.
10
<PAGE> 11
Income tax expense increased from $617,000 for 1995 to $834,139 for 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.
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 1997, total assets were $124,478,023, an increase of 21.05% from the
end of the previous year. At year end 1997, deposits were $104,469,073, an
increase of 23.15% from the end of the previous year, primarily as a result of
an increase in all types of deposits, primarily NOW and Money Market accounts
and Certificates of Deposit under $100,000.
Approximately 93.43% of the Bank's average assets were earning assets composed
of U.S. Treasury and municipal securities in the amount of $19,517,222, Federal
Funds Sold and interest bearing deposits in other banks in the amount of
$10,830,692 and loans in the amount of $74,682,392. In conjunction with the
adoption of SFAS 115, the Company reclassified all of its investment securities
to available for sale on January 1, 1994.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. For the Company, this risk is constituted primarily of interest rate
risk in its lending and investing activities as they relate to their funding by
deposit and borrowing activities.
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 net interest rate spread for
1997 decreased to 4.77% from 4.96% for 1996 and the net interest margin for
1997 decreased to 5.92% from 6.09% for 1996. 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.
At December 31, 1997, the average maturity of the investment portfolio was 18
months with an average yield of 6.50% compared to 20 months with an average
yield of 6.41% at December 31, 1996.
The Bank does not own nor has it ever purchased derivative securities. The
Company does not take foreign exchange or commodity risks.
11
<PAGE> 12
The following table summarizes the Bank's interest sensitivity position as of
December 31, 1997:
<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 TOTAL
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans $ 66,583 $ 5,834 $ 2,197 $ 1,895 $ 2,138 $ 43 $ 78,690
Investment securities - - 1,194 3,980 13,888 220 19,282
Short term investments 6 - - - - - 6
Federal funds sold 15,600 - - - - - 15,600
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total $ 82,189 $ 5,834 $ 3,391 $ 5,875 $ 16,026 $ 263 $ 113,578
=========== =========== =========== =========== =========== =========== ==========
INTEREST BEARING LIABILITIES
(IN 000'S)
CD's 100,000 and over $ - $ 8,300 $ 4,605 $ 1,991 $ - $ - $ 14,896
Other time deposits 380 7,611 4,532 2,728 412 - 15,663
Money market and interest
bearing demand accounts 42,098 - - - - - 42,098
Savings 4,055 - - - - - 4,055
Borrowed money 3,788 - - - - - 3,788
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total $ 50,321 $ 15,911 $ 9,137 $ 4,719 $ 412 $ - $ 80,500
=========== =========== =========== =========== =========== =========== ==========
Net $ 31,868 $ (10,077) $ (5,746) $ 1,156 $ 15,614 $ 263 $ 33,078
Cumulative 21,791 16,045 17,201 32,815 33,078
</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 $126,653 at December 31, 1997, and the unrealized gain,
net of income taxes, was $108,810 at December 31, 1996.
At year end 1997, the Bank's federal funds sold totaled $15,600,000.
COMPOSITION OF AVERAGE ASSETS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Loans $ 74,682,392 $ 65,468,548 $ 55,870,527 $ 52,079,826 $ 53,313,291
Investments 19,517,222 17,614,422 14,564,163 16,742,283 13,503,873
Federal funds sold
other investments 10,830,692 7,628,223 8,658,882 4,364,079 6,474,471
Non-earning assets 7,382,747 5,668,234 5,503,319 4,921,148 3,664,312
---------------- ---------------- ---------------- ---------------- ----------------
Total average assets $ 112,413,053 $ 96,379,427 $ 84,596,891 $ 78,107,336 $ 76,955,947
================ ================ ================ ================ ================
</TABLE>
Average earning assets increased by $14,319,113 from 1996 to 1997 while average
non-earning assets increased by $1,714,513. Average earning assets increased
primarily as a result of loan growth and an increase in federal funds sold.
Average non-earning assets increased primarily as a result of the investment in
the land for the new West Ashley office and construction now in progress.
12
<PAGE> 13
Average loans for 1997 were up by $9,213,845 or 11.6% from 1996. The majority
of the growth, or approximately $4,841,000, was in commercial loans which are
tied to the Bank's prime rate while approximately $2,346,000 was related to
installment loans.
Deposit growth was used to fund the increase in the loan and investment
portfolios.
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>
1997 vs 1996 1996 vs 1995 1995 vs 1994
--------------------------------------------------------------------------------------------------------------
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 $ 895,095 $ 60,771 $ 955,866 $ 963,265 $(210,433) $ 752,832 $ 317,412 $ 928,916 $1,246,328
Investments 122,557 (3,315) 119,242 190,899 32,134 223,033 (128,266) 53,830 (74,436)
Fed funds sold &
other investments 169,920 16,322 186,242 (58,959) (31,556) (90,515) 164,394 163,798 328,192
---------- -------- ---------- ---------- --------- ---------- --------- ---------- ----------
Interest income $1,187,572 $ 73,778 $1,261,350 $1,095,205 $(209,855) $ 885,350 $ 353,540 $1,146,544 $1,500,084
========== ======== ========== ========== ========= ========== ========= ========== ==========
Transaction
accounts $ 50,706 $ 28,799 $ 79,505 $ 80,485 $(198,389) $ (117,904) $ (35,937) $ 187,422 $ 151,485
Savings (20,970) 4,560 25,530 7,628 (5,017) 2,611 (31,471) 15,757 (15,714)
Certificates of
deposit 337,671 (2,105) 339,776 247,991 (55,354) 192,637 221,870 347,289 569,159
Fed funds
purchased - 55 55 (5,023) - (5,023) 4,820 36 4,856
Securities sold
under agreements
to repurchase 98,701 1,249 99,950 6,876 (727) 6,149 (4,455) 9,511 5,056
Demand notes
issued to U.S.
Treasury 15,745 3,049 18,794 (308) (6,293) (6,601) 6,074 12,642 18,716
--------- -------- ---------- --------- --------- ---------- --------- ---------- ---------
Interest expense $ 523,793 $ 39,817 $ 563,610 $ 337,649 $(265,780) $ 71,869 $ 160,901 $ 572,657 $ 733,558
========= ======== ========== ========= ========= ========== ========= ========== =========
Increase in net
interest income $ 697,740 $ 813,481 $ 766,526
</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,
1997, as compared to December 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
BOOK VALUE (IN 000'S)
TYPE 1997 1996 1995
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
Commercial and industrial loans $ 40,692 $ 34,552 $ 31,073
Real estate loans 32,807 31,605 26,601
Loans to individuals for household, family and other
personal expenditures 6,406 5,434 4,257
All other loans (including overdrafts) 61 69 56
---------- ---------- ----------
Total loans (excluding unearned income) $ 79,966 $ 71,660 $ 61,987
========== ========== ==========
</TABLE>
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
1995, 1996 or 1997.
13
<PAGE> 14
IMPAIRED AND RESTRUCTURED LOANS
The Bank had impaired loans totaling $646,736 as of December 31, 1997, compared
to $101,486 as of December 31, 1996, and one restructured loan with a balance
of $57,292 and $69,791 as of December 31, 1997 and 1996, respectively. The
impaired loans include non-accrual loans with balances of $629,429 and $38,432,
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 $629,429 in non-accrual loans as of December 31, 1997, compared to
$38,432 as of December 31, 1996. The increase in non-accrual loans was the
result of three real estate loans which were over 90 days past due at year end
1997 and were placed on non-accrual. There were $40,239 in loans over 90 days
past due still accruing interest as of December 31, 1997, compared to $2,792 as
of December 31, 1996.
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 collectibility 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 1997 was $210,000
compared to $140,000 for 1996. During 1997, loan losses of $46,630 and
recoveries of $5,942 were recorded to the allowance for loan losses resulting
in an allowance for loan losses of $1,210,528 or 1.62% of average loans at
December 31, 1997, compared to $1,041,216 or 1.59% of average loans at December
31, 1996.
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.
14
<PAGE> 15
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. Some 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 1996 balance sheet structure. In the stable rate environment
which existed in 1997, the Bank's net interest margin was impacted by a change
in mix of earning assets with the deposit growth of the Bank being invested in
federal funds sold due to slow loan growth during the year.
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, in April of 1996 of $124,000 and in January of 1997 of $124,000 for a
total shareholders' equity at December 31, 1997, of $15,521,347. The rate of
asset growth from the Bank's inception has not negatively impacted 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 require a
risk based capital ratio of 8% for bank holding companies and banks. The risk
based capital ratio at December 31, 1997, for the Bank was 18.63% and at
December 31, 1996, was 20.70%. 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.
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, 1997, that the Company and the Bank
meet all capital adequacy requirements to which they are subject.
At December 31, 1997 and 1996, the Company and the Bank are categorized as
"well capitalized" under the regulatory framework for prompt corrective action.
To be categorized as "well capitalized" the Company and the Bank must maintain
minimum total risk based, Tier 1 risk based and Tier 1 leverage ratios of 10%,
6% and 5% and 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.
15
<PAGE> 16
Please see "Notes to Consolidated Financial Statements" for the Company's and
the Bank's various capital ratios at December 31, 1997.
YEAR 2000
The Company recognizes that there is a business risk in computerized systems as
the calendar rolls over into the next century. The Federal Financial
Institutions Examination Council ("FFIEC") issued an interagency statement on
May 5, 1997, outlining five phases for institutions to effectively manage the
Year 2000 challenge. The phases were awareness, assessment, renovation,
validation and implementation. The FFIEC encouraged institutions to have all
critical applications identified and priorities set by September 30, 1997, and
to have renovation work largely completed and testing well underway by December
31, 1998. The Company has an ongoing program designed to ensure that its
operational and financial systems will not be adversely affected by year 2000
software failures due to processing errors arising from calculations using the
year 2000 date. The Company has an internal task force assigned to this project
and the Board of Directors and management of the Company have established year
2000 compliance as a strategic initiative. The Company is well into the
assessment phase of the project. While the Company believes that it has
available resources to assure year 2000 compliance, it is to some extent
dependent on vendor cooperation.
The Company is presently communicating with its vendors and major borrowers and
conducting due diligence inquiries concerning Year 2000 readiness and making
plans to conduct appropriate tests of internal and external systems and their
interdependence. The Company expects to have completed programming changes and
have testing well underway by December 31, 1998. The Company anticipates that
its major investment in technology of approximately $850,000 in the first and
second quarters of 1998 will address most potential Year 2000 issues. The
Company has not yet determined the total cost of Year 2000 compliance.
ACCOUNTING AND REPORTING CHANGES
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 fiscal
years 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.
16
<PAGE> 17
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 Bank Insurance Fund (BIF) members with one-fifth of the assessment rate
imposed upon thrifts to cover the annual $780,000,000 Financing Corporation
(FICO) bond obligation. This assessment amounts to 1.256 basis points per $100
in deposits 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 per $100 in deposits
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 $165,048 to The Bank of South Carolina
Employee Stock Ownership Plan and Trust for the fiscal year ended December 31,
1997. The contribution was made during 1997. 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
161,416 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>
1997 1996 1995
------------------------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Paid/ Yield/ Average Paid/ Yield/ Average Paid/ Yield/
Balance Earned Rate Balance Earned Rate Balance Earned Rate
------------ ---------- ------ ----------- ---------- ------- ----------- ----------- -------
INTEREST-EARNING
ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 74,682,392 $7,315,908 9.80% $65,468,548 $6,360,042 9.71% $55,870,527 $5,607,210 10.04%
Investment
securities 19,517,222 1,253,767 6.42% 17,614,422 1,134,525 6.44% 14,564,163 911,492 6.26%
Federal funds
sold 10,824,383 590,664 5.46% 7,622,131 404,430 5.31% 8,653,014 494,958 5.72%
Other short-term
investments 6,309 236 3.74% 6,092 228 3.74% 5,868 215 3.66%
------------ ---------- ---- ----------- ---------- ---- ----------- ---------- -----
Total earning
assets $105,030,306 $9,160,575 8.72% $90,711,193 $7,899,225 8.71% $79,093,572 $7,013,875 8.87%
============ ========== ==== =========== ========== ==== =========== ========== ====
INTEREST-BEARING
LIABILITIES:
Interest bearing
transaction
accounts $37,238,108 $1,073,006 2.88% $35,429,864 $ 993,501 2.80% $33,037,384 $1,111,404 3.36%
Savings 5,619,137 192,176 3.42% 4,991,111 166,647 3.34% 4,769,316 164,036 3.44%
Certificates of
deposit 28,088,992 1,493,089 5.32% 21,727,528 1,153,312 5.31% 17,269,528 960,675 5.56%
Federal funds
purchased 1,027 55 5.36% - - 0.00% 85,863 5,023 5.85%
Securities sold
under agreement
to repurchase 2,427,057 124,714 5.14% 486,793 24,764 5.09% 355,488 18,615 5.24%
Demand notes
issued to U.S.
Treasury 1,142,098 58,984 5.16% 820,617 40,190 4.90% 826,061 46,792 5.66%
------------ ---------- ---- ----------- ---------- ---- ----------- ---------- ----
Total interest
bearing
liabilities $74,516,419 $2,942,024 3.95% $63,455,913 $2,378,414 3.75% $56,343,640 $2,306,545 4.09%
=========== ========== ==== =========== ========== ==== =========== ========== ====
Net interest spread 4.77% 4.96% 4.78%
Net interest margin 5.92% 6.09% 5.95%
Net interest income $6,218,551 $5,520,811 $4,707,330
</TABLE>
18
<PAGE> 19
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, 1997
and 1996, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1997. These 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick
Greenville, South Carolina
January 16, 1998
19
<PAGE> 20
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1997 1996
---------------- ---------------
<S> <C> <C>
Cash and due from banks $ 6,410,838 $ 5,980,344
Interest bearing deposits in other banks 6,421 6,185
Federal funds sold and resale agreements 15,600,000 4,675,000
Investment securities available for sale (note 2) 19,483,167 19,231,905
Loans (notes 3 and 8) 79,965,957 71,660,124
Less: Allowance for loan losses (1,210,528) (1,041,216)
---------------- ---------------
Net loans 78,755,429 70,618,908
Accrued interest receivable 815,935 778,966
Premises, equipment and leasehold
improvements, net (note 4) 1,928,735 1,149,994
Construction costs of new office (note 4) 684,558 -
---------------- ---------------
Total premises, equipment, leasehold improvements
and construction costs, net 2,613,293 1,149,994
Other assets (note 6) 792,940 394,114
---------------- ---------------
Total assets $ 124,478,023 $ 102,835,416
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing demand $ 27,757,108 $ 21,380,352
Interest bearing demand 20,336,818 16,969,563
Money market accounts 21,761,624 17,397,957
Certificates of deposit $100,000 and over 14,895,786 13,790,007
Other time deposits 15,663,178 11,577,303
Other savings deposits 4,054,559 3,715,055
---------------- ---------------
Total deposits 104,469,073 84,830,237
Short-term borrowings (note 5) 3,787,996 2,392,408
Accrued interest payable and other liabilities 699,607 718,958
---------------- ---------------
Total liabilities 108,956,676 87,941,603
---------------- ---------------
Commitments and contingencies (note 7)
Shareholders' equity (notes 10, 11 and 13):
Common stock - No par, 3,000,000 shares authorized,
Issued and outstanding 2,341,514 shares in 1997
and 2,314,234 shares in 1996 - -
Additional paid in capital 12,206,882 12,082,882
Retained earnings 3,738,498 3,252,807
Treasury stock (70,000 shares) (550,686) (550,686)
Unrealized gain on securities available for sale,
net of income taxes 126,653 108,810
---------------- ---------------
Total shareholders' equity 15,521,347 14,893,813
---------------- ---------------
Total liabilities and shareholders' equity $ 124,478,023 $ 102,835,416
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest and fee income
Interest and fees on loans $ 7,315,908 $ 6,360,042 $ 5,607,210
Interest and dividends
on investment securities 1,253,767 1,134,525 911,492
Other interest income 590,900 404,658 495,173
--------------- --------------- ---------------
Total interest and fee income 9,160,575 7,899,225 7,013,875
--------------- --------------- ---------------
Interest expense
Interest on deposits 2,758,270 2,313,460 2,236,115
Interest on short-term borrowings 183,754 64,954 70,430
--------------- --------------- ---------------
Total interest expense 2,942,024 2,378,414 2,306,545
--------------- --------------- ---------------
Net interest income 6,218,551 5,520,811 4,707,330
Provision for loan losses (note 3) 210,000 140,000 20,000
--------------- --------------- ---------------
Net interest income after
provision for loan losses 6,008,551 5,380,811 4,687,330
--------------- --------------- ---------------
Other income
Service charges, fees and commissions 594,036 488,794 331,959
Loss on sale of investment securities (16,544) (2,569) -
Other non-interest income 22,762 14,698 13,718
--------------- --------------- ---------------
Total other income 600,254 500,923 345,677
--------------- --------------- ---------------
Other expense
Salaries and employee benefits 2,209,712 1,896,964 1,682,957
Net occupancy expense 861,143 787,351 685,965
Net cost of other real estate owned - 1,088 19,822
Loss on other real estate owned - 58,378 313,040
Other operating expenses (note 9) 1,022,832 915,006 664,992
--------------- --------------- ---------------
Total other expense 4,093,687 3,658,787 3,366,776
--------------- --------------- ---------------
Income before income tax expense 2,515,118 2,222,947 1,666,231
Income tax expense (note 6) 905,500 834,139 617,000
--------------- --------------- ---------------
Net income $ 1,609,618 $ 1,388,808 $ 1,049,231
=============== =============== ===============
Basic earnings per common share $ .69 $ .59 $ .45
=============== =============== ===============
Diluted earnings per common share $ .68 $ .59 $ .44
=============== =============== ===============
Cash dividends per common share $ .48 $ .20 $ .14
=============== =============== ===============
Book value $ 6.63 $ 6.44 $ 6.15
=============== =============== ===============
Weighted average shares outstanding 2,339,795 2,339,922 2,352,926
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN 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, 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
Shares issued for the
exercise of stock options - 124,000 - - - 124,000
Net income - - 1,609,618 - - 1,609,618
Change in unrealized gain
(loss) on securities
available for sale,
net of income taxes - - - - 17,843 17,843
Common stock dividend - - (1,123,927) - - (1,123,927)
----------- --------------- ------------ -------------- --------------- -------------
December 31, 1997 $ - $ 12,206,882 $ 3,738,498 $ (550,686) $ 126,653 $ 15,521,347
=========== =============== ============ ============== =============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,609,618 $ 1,388,808 $ 1,049,231
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 210,315 157,223 121,587
Amortization of organizational costs 7,446 7,446 4,689
Provision for loan losses 210,000 140,000 20,000
Deferred income taxes (40,000) 71,000 (123,000)
Loss on other real estate owned - 58,378 313,040
Loss on sale of investment securities 16,544 2,569 -
Net (accretion) amortization of unearned
discounts/premiums on investment securities (8,989) 4,841 34,935
Increase in accrued interest receivable
and other assets (413,721) (192,429) (44,499)
Increase (decrease) in accrued interest payable and
other liabilities (19,351) 55,024 369,896
--------------- --------------- ---------------
Net cash provided by operating activities 1,571,862 1,692,860 1,745,879
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from sales/maturities of investment securities
available for sale 5,995,756 5,036,383 5,013,882
Purchase of investment securities available for sale (6,226,250) (11,970,311) (1,001,875)
Net increase in loans (8,346,521) (9,732,475) (7,571,705)
Proceeds from the sale of other real estate owned - 858,922 -
Purchase of premises, equipment and
leasehold improvements, net (1,673,614) (763,891) (65,613)
--------------- --------------- ---------------
Net cash used by investing activities (10,250,629) (16,571,372) (3,625,311)
--------------- --------------- ---------------
Cash flows from financing activities:
Net increase in deposit accounts 19,638,836 5,839,893 16,524,915
Net increase (decrease) in short-term borrowings 1,395,588 1,313,839 (50,569)
Dividends (1,123,927) (457,386) (320,975)
Treasury stock - (550,686) -
Stock options exercised 124,000 124,000 124,000
--------------- --------------- ---------------
Net cash provided by financing activities 20,034,497 6,269,660 16,277,371
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 11,355,730 (8,608,852) 14,397,939
Cash and cash equivalents at beginning of year 10,661,529 19,270,381 4,872,442
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 22,017,259 $ 10,661,529 $ 19,270,381
=============== =============== ===============
Supplemental disclosure of cash flow data: Cash paid during the year for:
Interest $ 2,833,817 $ 2,417,733 $ 2,145,329
Income taxes 1,043,090 766,382 582,218
Change in unrealized gain on securities available for sale,
net of income taxes 17,843 (126,155) 375,240
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
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 addition,
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, 1997 and 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.
PREMISES, 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.
EARNINGS PER COMMON SHARE: The Company has adopted the provisions of
SFAS No. 128, "Earnings Per Share" ("EPS"), for the year ended
December 31, 1997. The presentation of primary and fully diluted EPS
has been replaced with basic and diluted EPS. All prior period EPS
data have been restated to reflect the adoption of SFAS No. 128.
Basic earnings per share are computed by dividing net income
applicable to common shareholders by the weighted average number of
common shares outstanding. Diluted earnings per share are computed by
dividing net income by the weighted average number of shares of
common stock and common stock equivalents calculated based on the
average market price. Common stock equivalents consist of convertible
preferred stock, stock warrants and options and are computed using
the treasury stock method. Share and per share data have been
restated to reflect the April 17, 1995, two for one stock exchange,
the May 15, 1996, 10% stock dividend and the April 8, 1997, two for
one stock split.
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 $743,000 and $755,000 for the reserve periods ended
December 31, 1997, and 1996, respectively.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified
to conform to the 1997 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, 1997
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $ 17,976,606 $ 203,269 $ (2,232) $ 18,177,643
Municipal Securities 1,305,524 - - 1,305,524
--------------- -------------- -------------- ----------------
Total $ 19,282,130 $ 203,269 $ (2,232) $ 19,483,167
=============== ============== ============== ================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
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>
The amortized cost and market value of investment securities at
December 31, 1997, by contractual maturity are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
------------ ------------
<S> <C> <C>
Due in one year or less $ 5,173,775 $ 5,203,417
Due in one year to five years 14,108,355 14,279,750
------------ ------------
Total $ 19,282,130 $ 19,483,167
============ ============
</TABLE>
The Company had $1,981,876 proceeds from the sale of investment
securities which resulted in a realized loss of $16,544 during the
year ended December 31, 1997, $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 carrying value of investment securities pledged to secure deposits
and other balances was approximately $11,463,000 and $10,846,000 at
December 31, 1997 and 1996, respectively.
26
<PAGE> 27
3. LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
--------------- ----------------
<S> <C> <C>
Commercial loans $ 60,783,536 $ 55,027,846
Residential mortgage 9,081,225 7,869,543
Consumer loans 5,951,634 5,087,491
Personal bank lines 4,088,349 3,607,898
Other 61,213 67,346
--------------- ----------------
79,965,957 71,660,124
Allowance for loan losses (1,210,528) (1,041,216)
--------------- ----------------
Loans, net $ 78,755,429 $ 70,618,908
=============== ================
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,041,216 $ 960,103 $ 996,386
Provision for loan losses 210,000 140,000 20,000
Charge offs (46,630) (63,853) (67,535)
Recoveries 5,942 4,966 11,252
--------------- --------------- ----------------
Balance at end of year $ 1,210,528 $ 1,041,216 $ 960,103
=============== =============== ================
</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 tourism and medical
services. 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, in any type of property or to any one borrower.
As of December 31, 1997 and 1996, the Company had loans on non-accrual
totaling approximately $629,000 and $38,000, respectively. The
increase in non-accrual loans was the result of three real estate
loans which were over 90 days past due at year end 1997 and which were
placed on non-accrual status. The additional amount of gross income
that would have been recorded during 1997 and 1996 if these loans had
performed as agreed would have been approximately $18,316 and $438,
respectively.
At December 31, 1997 and 1996, impaired loans amounted to $646,736 and
$63,054, respectively. There is no specific reserve related to the
above impaired loans included in the allowance for loan losses at
December 31, 1997 and 1996. For the years ended December 31, 1997 and
1996, the average recorded investment in impaired loans was $685,394
and $68,256, respectively, and $48,445 in 1997 and $6,009 in 1996 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, 1997 and 1996, there was a troubled debt restructuring
which was modified prior to the adoption of SFAS No. 114 totaling
$57,292 and $69,791, respectively, and which was performing in
accordance with its modified terms.
27
<PAGE> 28
4. PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Premises, equipment and leasehold improvements are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
--------------- ----------------
<S> <C> <C>
Bank buildings $ 583,959 $ 583,959
Land 838,075 -
Lease purchase 30,000 30,000
Leasehold improvements 229,099 202,789
Equipment 1,204,474 1,079,803
Construction cost of new office 684,558 -
--------------- ----------------
3,570,165 1,896,551
Accumulated depreciation (956,872) (746,557)
--------------- ----------------
Total $ 2,613,293 $ 1,149,994
=============== ================
</TABLE>
5. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
--------------- ----------------
<S> <C> <C>
Securities sold under agreements to repurchase $ 987,996 $ 480,559
U.S. Treasury, Tax and Loan deposit notes 2,800,000 1,911,849
--------------- ----------------
Total $ 3,787,996 $ 2,392,408
=============== ================
</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 $961,856 and $558,220 and market values of
$1,017,394 and $557,431 at December 31, 1997 and 1996, respectively.
The agreements to repurchase had weighted average interest rates of
5.85%, 5.08% and 5.36% at December 31, 1997, 1996 and 1995,
respectively. The maximum amount outstanding at any month end was
$4,204,118 and $575,180 for the years ended December 31, 1997 and
1996, respectively. The average amount of outstanding agreements to
repurchase was $987,996, $486,793 and $355,488 during the periods
ended December 31, 1997, 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> 29
6. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------- --------------- -----------------
<S> <C> <C> <C>
Current:
Federal $ 874,500 $ 686,825 $ 697,000
State 71,000 76,314 43,000
--------------- --------------- ----------------
945,500 763,139 740,000
--------------- --------------- ----------------
Deferred:
Federal (40,000) 71,000 (123,000)
State - - -
--------------- --------------- ----------------
(40,000) 71,000 (123,000)
--------------- --------------- ----------------
Total $ 905,500 $ 834,139 $ 617,000
=============== =============== =================
</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,
1997 1996 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
Provision for tax at statutory federal income
tax rate $ 855,140 $ 755,802 $ 566,519
State income taxes, net of federal tax benefit 46,860 50,367 28,380
Other, net 3,500 27,970 22,101
--------------- --------------- ----------------
Provision for income tax $ 905,500 $ 834,139 $ 617,000
=============== =============== ================
</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, 1997 and 1996, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
--------------- ----------------
<S> <C> <C>
Deferred tax assets:
Bad debt reserves $ 361,000 $ 308,000
--------------- ----------------
Total gross deferred tax assets 361,000 308,000
--------------- ----------------
Deferred tax liabilities:
Unrealized gain on securities available for sale 74,384 63,904
Fixed assets, principally due to differences
in depreciation 32,500 35,000
Other 27,500 12,000
--------------- ----------------
Total gross deferred tax liabilities 134,384 110,904
--------------- ----------------
Net deferred tax asset $ 226,616 $ 197,096
=============== ================
</TABLE>
There was no valuation allowance for deferred tax assets at either
December 31, 1997 or December 31, 1996. 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 expense of $10,479 has been
recorded directly to shareholders'
29
<PAGE> 30
equity. The balance of the change in the net deferred tax asset
results from the current period deferred tax benefit of $40,000.
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, 1997, are as follows:
<TABLE>
<S> <C>
1998 384,012
1999 381,436
2000 370,068
2001 381,504
2002 383,796
2003 and thereafter 3,357,259
---------------
Total $ 5,258,075
===============
</TABLE>
Total rental expense was $359,041, $380,637, and $350,086 in 1997,
1996, and 1995, 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 $18,838,319 and
$16,897,267 at December 31, 1997 and 1996, 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 $1,374,263 and $1,437,650
at December 31, 1997 and 1996, 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, 1997. Related party loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
--------------- ----------------
<S> <C> <C>
Balance at beginning of year $ 2,590,948 $ 2,133,686
New loans or advances 1,012,421 2,178,429
Repayments (2,125,667) (1,721,167)
--------------- ----------------
Balance at end of year $ 1,477,702 $ 2,590,948
=============== ================
</TABLE>
9. OTHER OPERATING EXPENSE
A summary of the components of other operating expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
Advertising and business development $ 29,355 $ 85,966 $ 19,969
Supplies 150,900 110,396 91,063
Telephone and postage 109,243 106,379 83,672
Insurance 32,465 34,469 32,423
Professional fees 133,865 110,358 96,158
Data processing services 106,168 89,998 70,388
State and FDIC insurance and fees 23,822 14,927 85,857
Other 437,014 362,513 185,462
--------------- --------------- ----------------
Total $ 1,022,832 $ 915,006 $ 664,992
=============== =============== ================
</TABLE>
10. STOCK DIVIDEND AND STOCK SPLIT
The Board of Directors approved a 10% stock dividend on April 9, 1996,
for shareholders of record April 30, 1996, effective May 15, 1996. All
share and per share data have been retroactively restated to reflect
the 10% stock dividend.
The Board of Directors approved a two for one stock split on April 8,
1997, for 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 stock split.
31
<PAGE> 32
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 220,000 shares were
reserved and 198,000 shares have subsequently been granted under the
plan. Options for 55,880 shares with an exercise price of $4.55 and
33,000 shares with an exercise price of $4.72 have expired. No options
were granted during 1997. Options for 27,280 shares with an exercise
price of $4.55 remain outstanding. Options for 27,280 shares at $4.55
were exercised during 1997, 1996 and 1995. The remaining options for
27,280 shares at $4.55 are exercisable in 1998 and expire if not
exercised by April 23, 1998.
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 $165,048, $146,184 and $144,720 for the
years ended December 31, 1997, 1996 and 1995, respectively.
32
<PAGE> 33
12. EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
For the year ended December 31, 1997
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- ------------
<S> <C> <C> <C>
Net income $ 1,609,618
BASIC EPS
Net income 1,609,618 2,339,795 $ .69
EFFECT OF DILUTIVE SECURITIES
Options 20,395
DILUTED EPS
Net income $ 1,609,618 2,360,190 $ .68
<CAPTION>
For the year ended December 31, 1996
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- ------------
Net income $ 1,388,808
BASIC EPS
Net income 1,388,808 2,339,922 $ .59
EFFECT OF DILUTIVE SECURITIES
Options 24,215
DILUTED EPS
Net income $ 1,388,808 2,364,137 $ .59
<CAPTION>
For the year ended December 31, 1995
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- -------------- ------------
Net income $ 1,049,231
BASIC EPS
Net income 1,049,231 2,352,926 $ .45
EFFECT OF DILUTIVE SECURITIES
Options 15,376
DILUTED EPS
Net income $ 1,049,231 2,368,302 $ .44
</TABLE>
33
<PAGE> 34
13. 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, 1997,
that the Company and the Bank meet all capital adequacy requirements
to which they are subject.
At December 31, 1997 and 1996, the Company and the Bank are
categorized as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well capitalized" the
Company and the Bank must maintain minimum total risk based, Tier 1
risk based and Tier 1 leverage ratios of 10%, 6% and 5% and 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, 1997:
Total capital to
risk-weighted assets:
Company $16,478 19.02% $ 6,932 8.00% N/A 10.00%
Bank 16,139 18.63% 6,930 8.00% 8,663 10.00%
Tier 1 capital to
risk-weighted assets:
Company $15,394 17.77% $ 3,466 4.00% $ N/A 6.00%
Bank 15,055 17.38% 3,465 4.00% 5,198 6.00%
Tier 1 capital to total assets:
Company $15,394 12.69% $ 4,854 4.00% $ N/A 5.00%
Bank 15,055 12.41% 4,853 4.00% 6,066 5.00%
</TABLE>
34
<PAGE> 35
<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% $ N/A 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% $ N/A 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% $ N/A 5.00%
Bank 14,571 14.03% 4,154 4.00% 5,193 5.00%
</TABLE>
14. 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
35
<PAGE> 36
analysis and assumes the rate being offered on these types of
loans by the Company at December 31, 1997, 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, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997
----
CARRYING ESTIMATED
AMOUNT FAIR VALUE
--------------- ----------------
<S> <C> <C>
Cash and cash equivalents $ 6,410,838 $ 6,410,838
Interest bearing deposits in other banks 6,421 6,421
Fed funds sold and securities purchased
under resale agreements or similar arrangements 15,600,000 15,600,000
Investments available for sale 19,483,167 19,483,167
Loans 78,755,429 78,322,471
Deposits 104,469,073 104,672,281
Short-term borrowings 3,787,996 3,787,996
<CAPTION>
1996
----
CARRYING ESTIMATED
AMOUNT FAIR VALUE
--------------- ----------------
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 70,618,908 70,207,170
Deposits 84,830,237 84,823,402
Short-term borrowings 2,392,408 2,392,408
</TABLE>
36
<PAGE> 37
15. 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, 1997 and 1996, the
Bank had available retained earnings of approximately $3,055,463 and
$3,971,450, respectively, 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, 1997, and 1996, and the related condensed
statements of operations data and cash flow data for the period ended
December 31, 1997, and 1996, are as follows:
FINANCIAL CONDITION DATA
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ --------------- ----------------
<S> <C> <C>
Cash $ 459,014 $ 303,445
Investment in wholly-owned bank subsidiary 15,182,116 14,680,261
Capitalized organizational costs 17,370 24,816
Other assets 3,338 1,003
--------------- ----------------
Total assets $ 15,661,838 $ 15,009,525
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Dividends payable $ 140,491 $ 115,712
--------------- ----------------
Total liabilities 140,491 115,712
Shareholders' equity 15,521,347 14,893,813
--------------- ----------------
Total liabilities and shareholders' equity $ 15,661,838 $ 15,009,525
=============== ================
</TABLE>
OPERATIONS DATA
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
Interest income $ 14,578 $ 13,723 $ 3,924
Net operating expenses (35,973) (44,212) (12,434)
Dividends received from bank 1,147,000 470,000 600,000
Equity in undistributed earnings of subsidiary 484,013 949,297 457,741
--------------- --------------- ----------------
Net income $ 1,609,618 $ 1,388,808 $ 1,049,231
=============== =============== ================
</TABLE>
37
<PAGE> 38
CASH FLOW DATA
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,609,618 $ 1,388,808 $ 1,049,231
Equity in undistributed earnings of subsidiary (484,013) (949,297) (457,951)
Increase in other assets (2,335) (1,003) (36,951)
Amortization of organizational costs 7,446 7,446 4,688
--------------- --------------- ----------------
Net cash provided by operating activities 1,130,716 445,954 559,227
Cash flows from financing activities:
Dividends paid (1,099,147) (427,466) (171,584)
Treasury stock purchased - (550,686) -
Stock options exercised 124,000 124,000 124,000
--------------- --------------- ----------------
Net cash used by financing activities (975,147) (854,152) 152,416
Net increase (decrease) in cash 155,569 (408,198) 711,643
Cash at beginning of year 303,445 711,643 -
--------------- --------------- ----------------
Cash at end of year $ 459,014 $ 303,445 $ 711,643
=============== =============== ================
</TABLE>
38
<PAGE> 39
16. QUARTERLY RESULTS OF OPERATIONS
The tables below represent the quarterly results of operations for the
years ending December 31, 1997, 1996 and 1995, respectively:
(unaudited)
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
Fourth Third Second First
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income $ 2,454,588 $ 2,365,261 $ 2,241,162 $ 2,099,563
Total interest expense 799,915 765,674 712,726 663,708
-------------- ------------- -------------- -------------
Net interest income 1,654,673 1,599,587 1,528,436 1,435,855
Provision for loan losses 52,500 52,500 52,500 52,500
-------------- ------------- -------------- -------------
Net interest income after
provision for loan losses 1,602,173 1,547,087 1,475,936 1,383,355
Other income 164,272 171,491 115,911 148,580
Other expense 1,096,585 1,037,173 996,803 963,126
-------------- ------------- -------------- -------------
Income before taxes 669,860 681,405 595,044 568,809
Income tax expense 217,500 253,000 223,000 212,000
-------------- ------------- -------------- -------------
Net income $ 452,360 $ 428,405 $ 372,044 $ 356,809
============== ============= ============== =============
Basic earnings per share $ .20 $ .18 $ .16 $ .15
============== ============= ============== =============
Diluted earnings per share $ .19 $ .18 $ .16 $ .15
============== ============= ============== =============
</TABLE>
<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
============== ============= ============== =============
Basic earnings per share $ .16 $ .16 $ .14 $ .13
============== ============= ============== =============
Diluted earnings per share $ .16 $ .16 $ .14 $ .13
============== ============= ============== =============
</TABLE>
39
<PAGE> 40
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
Sixteen (16) 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 sixteen (16)
Nominees listed on pages 41, 42 and 43, all of whom are recommended by
management and have consented to be named and to serve if elected. James E.
Brown 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. Fourteen (14) 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 8, 1997, the date of the last Annual
Meeting of shareholders.
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES HELD BUSINESS EXPERIENCE
WITH FAMILY 1987-1998 AND
NAME AGE CORPORATION RELATIONSHIP OTHER DIRECTORSHIPS
- ---- --- -------------- ------------ -------------------
<S> <C> <C> <C> <C>
Nathaniel I. Ball, III 56 Executive None The Bank of South Carolina (banking)
Vice President, 1986-98
Secretary,
Director
William T. Cooper 68 Director None President, Southeastern Galleries, Inc. (retail furniture
and decorating)1983-98
C. Ronald Coward 62 Director None President - Coward-Hund Construction
Company, Inc. (construction) 1976-98
Louis Y. Dawson, III 69 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
Leonard C. Fulghum 68 Director None Chairman - Ferguson Fulghum, Inc. (painting contractors)
1972-98
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
Positions and
Offices Held Business Experience
With Family 1987-1998 and
Name Age Corporation Relationship Other Directorships
- ---- --- ------------- ------------ -------------------
<S> <C> <C> <C> <C>
T. Dean Harton 52 Director None President, Hawthorne Corporation (aviation) 1986-98
William L. Hiott, Jr. 53 Executive None The Bank of South Carolina
Vice President, (banking) 1986-98
Treasurer,
Director
James H. Holcombe 73 Director None Member - Holcombe, Fair & Lane, LLC (real estate) 1996-
-98; General and Limited Partner - Holcombe & Fair
Realtors
1970-95
Katherine M. Huger 56 Director None Assistant Professor of Economics - Charleston Southern
University (education) 1972-98
John E. Huguley 70 Director None Retired (1996) Chairman - John Huguley Company, Inc.
(retail office products) 1980-96
Charles G. Lane 43 Director Son-in-law of Member - Holcombe, Fair & Lane,
Louis Y. LLC (real estate) 1996-98;
Dawson, III; Associate - Holcombe & Fair Realtors
brother of 1987-96
Hugh C. Lane, Jr.
Hugh C. Lane, Jr. 50 President, Brother of The Bank of South Carolina (banking)
Chief Exec- Charles G. 1986-98
utive Officer, Lane
Director
Louise J. Maybank 58 Director None Active in community programs
Thomas W. Myers 63 Director None President - Myers & Associates (estate and business
insurance planning) 1963-98
Thomas C. Stevenson, 46 Director None President - Fabtech, Inc. (metal
III fabrication) 1991-98; Private Investor 1990-91; Chairman
of the Board - Stevenson Hagerty, Inc. (diversified holding
company) 1984-90
John M. Tupper 56 Director None President - Tupperway Tire and Service, Inc. (retail tires
and service) 1980-98
</TABLE>
41
<PAGE> 42
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, 1997, 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, 1997 $130,601.45 $10,000.00 $16,978.72 $16,978.72
Jr. - CEO 1996 $123,101.45 --- $17,682.79 $17,682.79
& President 1995 $113,101.37 $10,000.00 $17,596.33 $17,596.33
Nathaniel I. 1997 $116,101.37 $10,000.00 $14,729.98 $14,729.98
Ball, III - 1996 $108,601.37 --- $16,135.32 $16,135.32
Executive Vice 1995 $101,101.37 $10,000.00 $16,052.84 $16,052.84
President & Secretary
William L. 1997 $116,101.37 $10,000.00 $14,729.98 $14,729.98
Hiott, Jr. - 1996 $108,601.37 ___ $16,135.32 $16,135.32
Executive Vice 1995 $101,101.37 $10,000.00 $16,052.84 $16,052.84
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.
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.
42
<PAGE> 43
The Board of Directors of the Bank approved the contribution of One Hundred
Sixty Five Thousand Forty Eight and No/100 ($165,048.00) Dollars to the ESOP
for the fiscal year ended December 31, 1997. The contribution was made during
1997. 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 One Hundred Sixty One Thousand
Four Hundred Sixteen (161,416) shares or 6.89% of the Company's Common Stock.
During the fiscal year ended December 31, 1997, 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 1997. 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, the ten
percent (10%) stock dividend and the two for one stock split, options for six
thousand six hundred (6,600) shares of Common Stock of the Company with an
exercise price of Four and 55/100 ($4.55) Dollars per share remain outstanding
for each of the above Officers.
In the event of a prospective reorganization, consolidation or sale of
substantially all of the assets or any other form of corporate reorganization
in which the Company would not be the surviving entity or in the event of the
acquisition, directly or indirectly, of the beneficial ownership of twenty-four
(24%) percent of the Common Stock of the Company or the making, orally or in
writing, of a tender offer for, or any request or invitation for tender of, or
any advertisement making or inviting tenders of the Company stock by any
person, all options in effect at that time would accelerate so that all options
would become immediately exercisable and could be exercised within one year
immediately following the date of acceleration but not thereafter.
43
<PAGE> 44
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nathaniel I. Ball, III 26,400 $120,120 0 .00
William L. Hiott, Jr. 26,400 $120,120 0 .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,
1998, 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. 375,305.986 (1) (2) 16.03%
30 Church Street
Charleston, SC 29401
NationsBank, N.A. (4) 132,000 (3) 5.64%
NationsBank Plaza
Charlotte, NC 28255
N.B. Holdings Corporation (4) 132,000 (5) 5.64%
NationsBank Plaza
Charlotte, NC 28255
NationsBank Corporation (4) 132,000 (6) 5.64%
NationsBank Plaza
Charlotte, NC 28255
John M. Rivers, Jr. 117,920 (7) 5.04%
80 Alexander Street
Charleston, SC 29403
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- --------------------- -----------
<S> <C> <C>
The Bank of South Carolina 161,416 (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
694,497.996 shares or 29.66% 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 158,182 shares; as trustee for 11 trust accounts holding an
aggregate of 60,380 shares, he has sole voting and investment power
with respect to such shares; as co-trustee for one trust account
holding 4,400 shares, he has joint voting and investment power with
respect to such shares; he is indirectly beneficial owner of 6,880
shares owned by his wife and an aggregate of 101,926 shares held by
his wife as custodian for three minor children and 21,964.676 shares
owned by the Employee Stock Ownership Plan and Trust ("ESOP") in
which he has a vested interest. All of the 375,305.986 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
Corporation is the parent holding company of N.B. Holdings
Corporation. N.B. Holdings Corporation is the parent holding company
of NationsBank, N.A. The shares referred to in notes (4) and (5) are
a duplication of the shares referred to in note (3).
(4) To the extent known to the Board of Directors, N.B. Holdings
Corporation has sole voting power for 68,000 shares and shared
investment power for 132,000 shares (including 63,800 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 (4).
(5) To the extent known to the Board of Directors, NationsBank
Corporation has sole voting power for 68,000 shares and shared
investment power for 132,000 shares (including 63,800 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 (5).
(6) To the extent known to the Board of Directors, John M. Rivers, Jr.
directly owns and has sole voting and investment power for 117,920
shares. The John and Kathleen Rivers Foundation owns 10,560 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.
(7) The Trustee of the ESOP, Nathaniel I. Ball, III, an executive Officer
and Director of the Bank and the Company, disclaims beneficial
ownership of 161,416 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.
45
<PAGE> 46
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 February 23, 1998. 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 February 23, 1998, 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, 1998, the Officers,
Directors and Nominees beneficially owned 876,517.756 shares, representing
approximately 37.43% of the outstanding shares.
As of February 23, 1998, 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 61,001.863 (1) 2.61%
70 Legare Street
Charleston, SC 29401
James E. Brown, DDS 12,066 (1) .52%
6908 Rivers Avenue
Charleston Heights, SC 29418
William T. Cooper 4,840 (1) .21%
21 Jamestown Road
Charleston, SC 29407
C. Ronald Coward 30,760 (1) 1.31%
537 Planters Loop
Mt. Pleasant, SC 29464
Louis Y. Dawson, III 11,440 (1) .49%
33 Church Street
Charleston, SC 29401
Leonard C. Fulghum 31,432 (1) 1.34%
311 Middle Street
Mt. Pleasant, SC 29464
T. Dean Harton 7,004 (1) .30%
4620 Lazy Creek Lane
Wadmalaw, SC 29487
William L. Hiott, Jr. 90,177.907 (1) 3.85%
1831 Capri Drive
Charleston, SC 29407
James H. Holcombe 97,432 (1) 4.16%
16 Church Street
Charleston, SC 29401
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
Katherine M. Huger 4,840 (1) .21%
72 Murray Boulevard
Charleston, SC 29401
John E. Huguley 14,960 (1) .64%
22 Murray Boulevard
Charleston, SC 29401
Charles G. Lane 114,178 (1) 4.88%
10 Gillon Street
Charleston, SC 29401
Hugh C. Lane, Jr. 375,305.986 (1) 16.03%
30 Church Street
Charleston, SC 29401
Louise J. Maybank 11,000 .47%
8 Meeting Street
Charleston, SC 29401
Thomas W. Myers 8,400 .36%
500 Central Avenue
Summerville, SC 29483
Thomas C. Stevenson, III 440 .02%
173 Tradd Street
Charleston, SC 29401
John M. Tupper 1,240 .05%
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 5,276 shares directly owned by his wife and
19,536.209 shares owned by the ESOP, in which he has a vested
interest; James E. Brown - an aggregate of 11,846 shares owned jointly
with his wife; William T. Cooper - an aggregate of 4,400 shares held
by a pension plan; C. Ronald Coward - an aggregate of 1,000 shares
owned by a company of which he is president and director; Louis Y.
Dawson, III - an aggregate of 440 shares owned by his wife; Leonard C.
Fulghum - an aggregate of 3,232 shares owned by his wife; T. Dean
Harton - an aggregate of 1,940 shares owned by his wife and held by
his wife as custodian for his step-son; William L. Hiott, Jr. - an
aggregate of 8,960 shares directly owned by his wife and held by him
as custodian for two children and 19,536.231 shares owned by the ESOP,
in which he has a vested interest; James H. Holcombe - an aggregate of
50,352 shares owned by the Marjorie G. Detyens Irrevocable Trust for
which he serves as co-trustee; Katherine M. Huger - 440 shares owned
by her husband; John E. Huguley - 8,140 shares owned by his wife;
Charles G. Lane - an aggregate of 52,944 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 173,586 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
21,964.676 shares owned by the ESOP, in which
47
<PAGE> 48
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 876,517.756 shares, representing 37.43% 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 six thousand six hundred (6,600) 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 and operations
center in the West Ashley area of Charleston, South Carolina, with a final
contract price of $1,158,056.00. The Company also entered 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 office and
with Ferguson Fulghum, Inc., of which Leonard C. Fulghum, Director of the
Company, is a principal for painting the West Ashley office.
Thomas W. Myers failed to file one Statement of Changes in Beneficial Ownership
on Form 4 in a timely manner. Nathaniel I. Ball, III, filed one incorrect
Statement of Beneficial Interest on Form 4.
48
<PAGE> 49
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
1. The Consolidated Financial Statements and Report 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.........................................................................19
(2) Consolidated Balance Sheets............................................................................20
(3) Consolidated Statements of Operations..................................................................21
(4) Consolidated Statements of Changes in Shareholders' Equity.............................................22
(5) Consolidated Statements of Cash Flows..................................................................23
(6) Notes to Consolidated Financial Statements.............................................................24 - 39
2. Exhibits
2 Plan of Reorganization (Filed with 1995 10-KSB)
3.1 Articles of Incorporation of the Registrant (Filed with 1995 10-KSB)
3.2 By-laws of the Registrant (Filed with 1995 10-KSB)
10.1 Lease Agreement for 256 Meeting Street (Filed with 1995 10-KSB)
10.2 Sublease Agreement for Parking Facilities at 256 Meeting Street (Filed with 1995 10-KSB)
10.3 Lease Agreement for 100 N. Main Street, Summerville, SC (Filed with 1995 10-KSB)
10.4 Lease Agreement for 1337 Chuck Dawley Blvd., Mt. Pleasant, SC (Filed with 1995 10-KSB)
20 1998 Proxy Statement
21 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)
27 Financial Data Schedule (for SEC use only).
3. Reports on Form 8-K: No
</TABLE>
49
<PAGE> 50
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, 1998 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, 1998 /s/ Nathaniel I. Ball, III
-----------------------------------------------------
Nathaniel I. Ball, III, Executive Vice President,
Secretary and Director
March 24, 1998 /s/ James E. Brown, DDS
-----------------------------------------------------
James E. Brown, DDS, Director
March 24, 1998 /s/ William T. Cooper
-----------------------------------------------------
William T. Cooper, Director
March 24, 1998 /s/ C. Ronald Coward
-----------------------------------------------------
C. Ronald Coward, Director
March 24, 1998 /s/ Louis Y. Dawson, III
-----------------------------------------------------
Louis Y. Dawson, III, Director
March 24, 1998 /s/ Leonard C. Fulghum
-----------------------------------------------------
Leonard C. Fulghum, Director
March 24, 1998 /s/ T. Dean Harton
-----------------------------------------------------
T. Dean Harton, Director
March 24, 1998 /s/ William L. Hiott, Jr.
-----------------------------------------------------
William L. Hiott, Jr., Executive Vice President,
Treasurer & Director
March 24, 1998 /s/ James H. Holcombe
-----------------------------------------------------
James H. Holcombe, Director
March 24, 1998 /s/ Katherine M. Huger
-----------------------------------------------------
Katherine M. Huger, Director
March 24, 1998 /s/ John E. Huguley
-----------------------------------------------------
John E. Huguley, Director
March 24, 1998 /s/ Charles G. Lane
-----------------------------------------------------
Charles G. Lane, Director
March 24, 1998 /s/ Hugh C. Lane, Jr.
-----------------------------------------------------
Hugh C. Lane, Jr., President,
Chief Executive Officer & Director
March 24, 1998 /s/ Louise J. Maybank
-----------------------------------------------------
Louise J. Maybank, Director
March 24, 1998 /s/ Thomas W. Myers
-----------------------------------------------------
Thomas W. Myers, Director
March 24, 1998 /s/ Thomas C. Stevenson, III
-----------------------------------------------------
Thomas C. Stevenson, III, Director
March 24, 1998 /s/ John M. Tupper
-----------------------------------------------------
John M. Tupper, Director
</TABLE>
50
<PAGE> 1
[BANK OF SOUTH CAROLINA CHARLESTON LETTERHEAD]
March 6, 1998
Dear Shareholder:
The Annual Meeting of Shareholders of Bank of South Carolina
Corporation will be held at 6:00 p.m. on Tuesday, April 14, 1998, in the
Conference Room at the West Ashley office of The Bank of South Carolina at 2027
Sam Rittenberg Boulevard in the City of 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 James E. Brown 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 14, 1998
To Our Shareholders:
The Annual Meeting of Shareholders of Bank of South Carolina Corporation
(the "Company") will be held at 2027 Sam Rittenberg Boulevard, Charleston, South
Carolina, on Tuesday, April 14, 1998, at 6:00 p.m. for the following purposes:
1. To elect sixteen (16) Directors to serve until the Company's 1999
Annual Meeting of Shareholders;
2. To ratify the appointment of KPMG Peat Marwick, LLP, as independent
certified public accountants for 1998;
3. To approve Bank of South Carolina Corporation 1998 Omnibus Stock
Incentive Plan and Incentive Stock Option Agreement.
4. To amend the Articles of Incorporation to authorize the issuance of
six million (6,000,000) shares of common stock, no par value, and
reserve 180,000 shares for the 1998 Stock Incentive Plan.
5. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on February 23, 1998, 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 6, 1998
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 11, 1998, 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 1998 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, 1998, there were issued and outstanding 2,341,514 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 23, 1998, 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 who are of record on February 23, 1998, 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, 1998, 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. 375,305.986 (1) (2) 16.03%
30 Church Street
Charleston, SC 29401
NationsBank, N.A. (4) 132,000 (3) 5.64%
NationsBank Plaza
Charlotte, NC 28255
N.B. Holdings Corporation (4) 132,000 (5) 5.64%
NationsBank Plaza
Charlotte, NC 28255
NationsBank Corporation (4) 132,000 (6) 5.64%
NationsBank Plaza
Charlotte, NC 28255
John M. Rivers, Jr. 117,920 (7) 5.04%
80 Alexander Street
Charleston, SC 29403
The Bank of South Carolina 161,416 (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
694,497.996 shares or 29.66% 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
<PAGE> 5
(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 158,182
shares; as trustee for 11 trust accounts holding an aggregate of 60,380
shares, he has sole voting and investment power with respect to such
shares; as co-trustee for one trust account holding 4,400 shares, he has
joint voting and investment power with respect to such shares; he is
indirectly beneficial owner of 6,880 shares owned by his wife and an
aggregate of 101,926 shares held by his wife as custodian for three minor
children and 21,964.676 shares owned by the Employee Stock Ownership Plan
and Trust ("ESOP") in which he has a vested interest. All of the
375,305.986 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 Corporation is
the parent holding company of N.B. Holdings Corporation. N.B. Holdings
Corporation is the parent holding company of NationsBank, N.A. The shares
referred to in notes (4) and (5) are a duplication of the shares referred
to in note (3).
(4) To the extent known to the Board of Directors, N.B. Holdings Corporation
has sole voting power for 68,000 shares and shared investment power for
132,000 shares (including 63,800 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
(4).
(5) To the extent known to the Board of Directors, NationsBank Corporation has
sole voting power for 68,000 shares and shared investment power for
132,000 shares (including 63,800 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
(5).
(6) To the extent known to the Board of Directors, John M. Rivers, Jr.
directly owns and has sole voting and investment power for 117,920 shares.
The John and Kathleen Rivers Foundation owns 10,560 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.
(7) The Trustee of the ESOP, Nathaniel I. Ball, III, an executive Officer and
Director of the Bank and the Company, disclaims beneficial ownership of
161,416 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.
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 February 23, 1998. 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 February 23, 1998, 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, 1998, the Officers,
Directors and Nominees beneficially owned 876,517.756 shares, representing
approximately 37.43% of the outstanding shares.
3
<PAGE> 6
As of February 23, 1998, 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 61,001.863 (1) 2.61%
70 Legare Street
Charleston, SC 29401
James E. Brown, DDS 12,066 (1) .52%
6908 Rivers Avenue
Charleston Heights, SC 29418
William T. Cooper 4,840 (1) .21%
21 Jamestown Road
Charleston, SC 29407
C. Ronald Coward 30,760 (1) 1.31%
537 Planters Loop
Mt. Pleasant, SC 29464
Louis Y. Dawson, III 11,440 (1) .49%
33 Church Street
Charleston, SC 29401
Leonard C. Fulghum 31,432 (1) 1.34%
311 Middle Street
Mt. Pleasant, SC 29464
T. Dean Harton 7,004 (1) .30%
4620 Lazy Creek Lane
Wadmalaw, SC 29487
William L. Hiott, Jr. 90,177.907 (1) 3.85%
1831 Capri Drive
Charleston, SC 29407
James H. Holcombe 97,432 (1) 4.16%
16 Church Street
Charleston, SC 29401
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
Katherine M. Huger 4,840 (1) .21%
72 Murray Boulevard
Charleston, SC 29401
John E. Huguley 14,960 (1) .64%
22 Murray Boulevard
Charleston, SC 29401
Charles G. Lane 114,178 (1) 4.88%
10 Gillon Street
Charleston, SC 29401
Hugh C. Lane, Jr. 375,305.986 (1) 16.03%
30 Church Street
Charleston, SC 29401
Louise J. Maybank 11,000 .47%
8 Meeting Street
Charleston, SC 29401
Thomas W. Myers 8,400 .36%
500 Central Avenue
Summerville, SC 29483
Thomas C. Stevenson, III 440 .02%
173 Tradd Street
Charleston, SC 29401
John M. Tupper 1,240 .05%
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
5,276 shares directly owned by his wife and 19,536.209 shares owned by the
ESOP, in which he has a vested interest; James E. Brown - an aggregate of
11,846 shares owned jointly with his wife; William T. Cooper - an
aggregate of 4,400 shares held by a pension plan; C. Ronald Coward - an
aggregate of 1,000 shares owned by a company of which he is president and
director; Louis Y. Dawson, III - an aggregate of 440 shares owned by his
wife; Leonard C. Fulghum - an aggregate of 3,232 shares owned by his wife;
T. Dean Harton - an aggregate of 1,940 shares owned by his wife and held
by his wife as custodian for his step-son; William L. Hiott, Jr. - an
aggregate of 8,960 shares directly owned by his wife and held by him as
custodian for two children and 19,536.231 shares owned by the ESOP, in
which he has a vested interest; James H. Holcombe - an aggregate of 50,352
shares owned by the Marjorie G. Detyens Irrevocable Trust for which he
serves as co-trustee; Katherine M. Huger - 440 shares owned by her
husband; John E. Huguley - 8,140 shares owned by his wife; Charles G. Lane
- an aggregate
5
<PAGE> 8
of 52,944 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 173,586 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 21,964.676 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 876,517.756 shares, representing 37.43% 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 six thousand six hundred (6,600) shares of
Common Stock of the Company pursuant to the Bank's Incentive Stock Option Plan.
ELECTION OF DIRECTORS
Sixteen (16) 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 sixteen (16) Nominees listed
on pages 7 and 8, all of whom are recommended by management and have consented
to be named and to serve if elected. James E. Brown 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. Fourteen (14) 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 8, 1997, the date of the last Annual Meeting
of shareholders.
6
<PAGE> 9
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES HELD BUSINESS EXPERIENCE
WITH FAMILY 1987-1998 AND
NAME AGE CORPORATION RELATIONSHIP OTHER DIRECTORSHIPS
- ---- --- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
Nathaniel I. Ball, III 56 Executive None The Bank of South Carolina (banking)
Vice President, 1986-98
Secretary,
Director
William T. Cooper 68 Director None President, Southeastern
Galleries, Inc.(retail
furniture and decorating)
1983-98
C. Ronald Coward 62 Director None President - Coward-Hund Construction
Company, Inc. (construction) 1976-98
Louis Y. Dawson, III 69 Director Father-in-law Retired (1993) President-Dawson Engi-
of Charles G. neering, Inc. (general contracting)
Lane and of a 1954-93
bank officer,
F.S. Hassell
Leonard C. Fulghum 68 Director None Chairman - Ferguson Fulghum, Inc.
(painting Contractors) 1972-98
T. Dean Harton 52 Director None President, Hawthorne Corporation (aviation)
1986-98
William L. Hiott, Jr. 53 Executive None The Bank of South Carolina
Vice President, (banking) 1986-98
Treasurer,
Director
James H. Holcombe 73 Director None Member - Holcombe, Fair & Lane, LLC
(real estate) 1996-98; General and Limited
Partner - Holcombe & Fair Realtors 1970-95
Katherine M. Huger 56 Director None Assistant Professor of Economics -
Charleston Southern University (education)
1972-98
John E. Huguley 70 Director None Retired (1996) Chairman - John Huguley
Company, Inc. (retail office products)
1980-96
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES HELD BUSINESS EXPERIENCE
WITH FAMILY 1987-1998 AND
NAME AGE CORPORATION RELATIONSHIP OTHER DIRECTORSHIPS
- ---- --- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
Charles G. Lane 43 Director Son-in-law of Member - Holcombe, Fair & Lane,
Louis Y. LLC (real estate) 1996-98;
Dawson, III; Associate - Holcombe & Fair Realtors
brother of 1987-96
Hugh C. Lane, Jr.
Hugh C. Lane, Jr. 50 President, Brother of The Bank of South Carolina (banking)
Chief Exec- Charles G. 1986-98
utive Officer, Lane
Director
Louise J. Maybank 58 Director None Active in community programs
Thomas W. Myers 63 Director None President - Myers & Associates (estate and
business insurance planning) 1963-98
Thomas C. Stevenson, 46 Director None President - Fabtech, Inc. (metal
III fabrication) 1991-98; Private Investor 1990-
91; Chairman of the Board - Stevenson
Hagerty, Inc. (diversified holding
company) 1984-90
John M. Tupper 56 Director None President - Tupperway Tire and Service,
Inc. (retail tires and service) 1980-98
</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 1997, 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 James E. Brown, Louis Y. Dawson, III, Leonard C.
Fulghum, James H. Holcombe and John E. Huguley. The Company's internal auditor,
also sits on this Committee. During 1997, the Audit and Compliance Committee
held five (5) meetings. The functions of the Audit and Compliance Committee
include: reviewing
8
<PAGE> 11
and examining detailed reports of the internal auditor 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, William L. Hiott, Jr., James H. Holcombe, Charles G.
Lane, Louise J. Maybank and Thomas W. Myers. The Long Range Planning Committee
did not meet during 1997.
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 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 eight (8) meetings (including
an organizational meeting and all regularly scheduled and special meetings)
during the year ended December 31, 1997. 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, 1997, 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
($100,000.00) Dollars for their services in all capacities. Such Officers
receive no compensation from the Company as Officers or as Directors or in any
other capacity.
9
<PAGE> 12
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER SECURITIES
ANNUAL RESTRICTED UNDER- ALL OTHER
NAME AND COMPEN- STOCK LYING LTIP COMPEN-
PRINCIPAL SATION(1)(2) AWARD(S) OPTIONS/ PAYOUTS SATION(1)(2)
POSITION YEAR SALARY($) BONUS($) ($) ($) SARS(#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hugh C. Lane, 1997 $130,601.45 $10,000.00 $16,978.72 $16,978.72
Jr. - CEO 1996 $123,101.45 --- $17,682.79 $17,682.79
& President 1995 $113,101.37 $10,000.00 $17,596.33 $17,596.33
Nathaniel I. 1997 $116,101.37 $10,000.00 $14,729.98 $14,729.98
Ball, III - 1996 $108,601.37 --- $16,135.32 $16,135.32
Executive Vice 1995 $101,101.37 $10,000.00 $16,052.84 $16,052.84
President &
Secretary
William L. 1997 $116,101.37 $10,000.00 $14,729.98 $14,729.98
Hiott, Jr. - 1996 $108,601.37 --- $16,135.32 $16,135.32
Executive Vice 1995 $101,101.37 $10,000.00 $16,052.84 $16,052.84
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.
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.
10
<PAGE> 13
The Board of Directors of the Bank approved the contribution of One
Hundred Sixty Five Thousand Forty Eight and No/100 ($165,048.00) Dollars to the
ESOP for the fiscal year ended December 31, 1997. The contribution was made
during 1997. 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 One Hundred Sixty One Thousand
Four Hundred Sixteen (161,416) shares or 6.89% of the Company's Common Stock.
During the fiscal year ended December 31, 1997, 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 1997. 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
11
<PAGE> 14
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, the ten percent (10%) stock dividend and the two for
one stock split, options for six thousand six hundred (6,600) shares of Common
Stock of the Company with an exercise price of Four and 55/100 ($4.55) 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.
STOCK INCENTIVE PLAN
The existing Incentive Stock Option Plan of The Bank of South Carolina
was approved by the shareholders of The Bank of South Carolina on April 21,
1988, and expires on April 21, 1998. A number of deserving officers and
employees have joined the Bank in the intervening years who do not participate
in the existing plan.
The Board of Directors of the Company recommends that the Bank of South
Carolina Corporation 1998 Omnibus Incentive Plan be adopted by the shareholders
at the Annual Meeting of Shareholders to be held April 14, 1998.
A COPY OF THE "BANK OF SOUTH CAROLINA CORPORATION 1998 OMNIBUS STOCK
INCENTIVE PLAN" and "INCENTIVE STOCK OPTION AGREEMENT" (COLLECTIVELY, "STOCK
INCENTIVE PLAN") MAY BE OBTAINED BY WRITING NATHANIEL I. BALL, III, SECRETARY,
BANK OF SOUTH CAROLINA CORPORATION, P.O. BOX 538, CHARLESTON, SC 29402. THIS
COPY WILL BE SENT TO YOU AT THE COMPANY'S EXPENSE. THE STOCK INCENTIVE PLAN
CONTAINS VARIOUS TERMS AND PROVISIONS, CERTAIN OF WHICH ARE SUMMARIZED BELOW.
FOR A FULL AND COMPLETE STATEMENT OF ITS PROVISIONS, REFERENCE SHOULD BE MADE TO
THE "BANK OF SOUTH CAROLINA CORPORATION 1998 OMNIBUS STOCK INCENTIVE PLAN" AND
"INCENTIVE STOCK OPTION AGREEMENT."
If approved, the proposed Stock Incentive Plan would set aside 180,000
shares of the currently authorized but unissued and unreserved 614,436 shares of
the no par value Common Stock for options to be granted to eligible employees of
the Company or of a subsidiary, including employees who are members of the Board
of Directors. Non-employee directors of the Company would not be granted options
under the Stock Incentive Plan. The Stock Incentive Plan would be administered
by a Compensation Committee consisting of members of the Executive Committee
(exclusive of members who are also executive officers of the Company) of the
Board of Directors. No member of the Compensation Committee would be a
beneficiary of the Stock Incentive Plan.
Options under the Stock Incentive Plan will be granted by the Board of
Directors to eligible employees upon recommendation of the Compensation
Committee and will be vested with respect to twenty percent (20%) of the shares
subject to the Option on the fifth anniversary of the date of the grant and with
respect to an additional twenty percent (20%) of the shares subject to the
Option on each subsequent anniversary of the date of the grant so that the
Option shall be fully vested and fully exercisable on the tenth anniversary of
the Date
12
<PAGE> 15
of the Grant. The right to exercise each such twenty percent (20%) increment of
any option will be cumulative and will not expire until the tenth anniversary of
the date of the grant.
The option price would be the Fair Market Value on the date of the
grant (determined as of the day preceding the date of exercise which is not less
than the Option price). In the case of an employee, who at the time of the
grant, directly or indirectly owns more than ten percent (10%) of the total
combined voting power of the common stock of the Company or of a subsidiary, the
option price would be one hundred and ten percent (110%) of the market price on
the date of the grant. The market value of a share of common stock as of March
6, 1998, was $20.03.
The exercise of an option is to be by payment in full of the exercise
price by cashiers check or by the surrender of shares of Company common stock
with an aggregate Fair Market Value (determined as of the day preceding the date
of exercise) which is not less than the Option price, or a combination of cash
and Company common stock. All options would expire in ten (10) years, except in
the cash of termination of employment, retirement or legal disability, all as
described below, and except for an option to an employee who, at the time of the
grant, directly or indirectly owns more than ten percent (10%) of the total
combined voting power of the common stock of the Company or of a subsidiary,
which option would expire in five (5) years.
In the case of termination of an option holder other than involuntary
termination without just cause, retirement, death or legal disability, the
Option holder may exercise the option only with respect to those shares of
Company common stock as to which he or she has become vested. The option holder
may exercise the option with respect to such shares no more than thirty (30)
days after the date of termination of employment (but in any event prior to the
expiration date).
In the event that the option holder's employment is terminated without
just cause, the option shall become fully vested and fully exercisable as of the
date of his or her termination without regard to the five (5) year initial
vesting and exercisability or to the twenty percent (20%) annual increments
thereafter. The option holder may exercise the option following an involuntary
termination without just cause until the expiration date of the option.
In the event the option holder remains in the continuous employ of the
Company or any subsidiary from the date of the grant until the option holder's
retirement, the option shall become fully vested and fully exercisable as of the
date of his or her retirement without regard to the five (5) year initial
vesting and exercisability or to the twenty percent (20%) annual increments
thereafter. The option holder may exercise the option following his or her
retirement until the expiration date.
In the event the option holder remains in the continuous employ of the
Company or a subsidiary from the date of the grant until his or her death, the
option shall become fully vested and fully exercisable as of the date of death
without regard to the five (5) year initial vesting and exercisability or the
twenty percent (20%) annual increments thereafter. The person or persons
entitled to exercise the option following the option holder's death may exercise
the option until the expiration date.
In the event the option holder remains in the continuous employ of the
Company or any subsidiary from the date of the grant until the date of his or
her legal disability, the option shall become fully vested and fully exercisable
as of the date of his or her termination of employment on account of his or her
legal disability without regard to the five (5) year initial vesting and
exercisability or to the twenty percent (20%) annual increments thereafter. The
option holder may exercise the option following such termination of employment
until the expiration date.
13
<PAGE> 16
The Stock Incentive Plan would provide for adjustment in the number of
shares of common stock authorized under the Plan or granted to an optionee to
protect against dilution in the event of changes in the Bank's capitalization,
including stock splits and dividends.
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 Bank 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 Bank 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.
Although all options granted under the Stock Incentive Plan would be
intended to be "incentive stock options" within the meaning of Section 422A of
the Internal Revenue Code of 1986, to the extent that any options granted under
the Stock Incentive Plan failed to qualify as incentive stock options, they
would be permitted as non-qualified options under the Stock Incentive Plan. In
addition, the Compensation Committee would have the authority, in its sole
discretion, to grant non-qualified options to eligible employees.
An option granted under the Stock Incentive Plan of the Company may be
either an incentive stock option ("ISO") or a non-qualified option. Although the
intent is to issue only ISOs, if the option granted fails to meet the strict
tests of Internal Revenue Code Section 422A, the plan includes a provision to
issue the option as a non-qualified option. The tax treatment varies for the
different type options.
The Company generally is not entitled to a deduction when it issues
ISOs; however, if the required holding periods described in Section 422A are not
met, the Company is entitled to a deduction as compensation in the year of
disposition of the stock acquired by the employee. This deduction is measured by
the amount that the fair market value of the option at the exercise date
exceeded the exercise price, or the excess of sales proceeds over the exercise
price, if less. The employee is required to include an equal amount in income as
compensation.
The receipt of a non-qualified option by an employee is taxable under
Section 83 of the Code as property received for services rendered. If the option
has a readily ascertainable value, it is taxed at the time of the grant. If no
value can be determined at the grant date, taxation to the employee occurs on
exercise, at which time the employee is considered to receive compensation in an
amount equal to the fair market value of the stock acquired over the price paid.
At the time the employee is required to include an amount in compensation,
whether on the grant date or the exercise date, the employer is entitled to a
compensation deduction measured by the amount the employee is required to
include in income.
It is contemplated that all current employees of the Company will be
granted options to purchase shares of common stock under the Stock Incentive
Plan. The number of shares to be subject to each such individual option and the
number of options to be received by eligible employees (including officers, such
directors as are also employees, and all other employees) either individually,
or as a group, has not yet been determined by the Company.
Amendment of the Stock Incentive Plan will be only by written
instrument approved by the Board of Directors and the shareholders of the
Company. In no event, will there be any amendment changing the option price,
decreasing the option price after the grant of an option, increasing the period
of the option or increasing the aggregate shares available for option except
upon compliance with the above requirements.
14
<PAGE> 17
INCREASE IN AUTHORIZED SHARES
The Board of Directors of the Company has concluded that it would be in
the best interests of the Company and its shareholders for the Articles of
Incorporation of the Company to authorize the issuance of a greater number of
shares than the three million (3,000,000) shares of common stock the Company is
currently authorized to issue for possible future stock dividends, stock splits
or acquisitions. Accordingly, the Board recommends the Articles of Incorporation
of the Company be amended to authorize the issuance of six million (6,000,000)
shares of common stock, no par value. Assuming all of the remaining twenty seven
thousand two hundred eighty (27,280) shares subject to option under the 1998
Incentive Stock Option Plan are exercised and one hundred eighty thousand
(180,000) shares are reserved for the 1998 Stock Incentive Plan, the Company
will have in reserve approximately three million four hundred fifty one thousand
two hundred six (3,451,206) shares of authorized but unissued common stock. The
Board believes the availability of an ample reservoir of authorized but unissued
shares will enhance the flexibility of the Company in raising additional capital
and in negotiating the acquisition of other businesses through the issuance of
Company common stock.
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
and operations center in the West Ashley area of Charleston, South Carolina,
with a final contract price of $1,158,056.00. The Company also entered 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 office
and with Ferguson Fulghum, Inc., of which Leonard C. Fulghum, Director of the
Company, is a principal for painting the West Ashley office.
Thomas W. Myers failed to file one Statement of Changes in Beneficial
Ownership on Form 4 in a timely manner. Nathaniel I. Ball, III, filed one
incorrect Statement of Beneficial Interest on Form 4.
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, 1996 and 1997. At the 1998 Annual
Shareholders' Meeting the following resolution will be subject to ratification
by a simple majority vote of shares represented at the meeting:
15
<PAGE> 18
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, 1998, 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 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, 1996 and 1997. 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 1997. 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 pending litigation involving the Company.
Towne v. Oakbrook Auto Center v. Hunt, Auto Supply and Equipment Co., Nationwide
Leasing and Bank of South Carolina, 97-CP-18-203: The case arose out of a loan
made by the Bank to Oakbrook Auto Center, Inc., which was guaranteed by William
A. Towne, Jr. When the note was not paid according to terms, it was paid by the
guarantor, Mr. Towne, and assigned to him. Mr. Towne thereafter brought suit
against Oakbrook Auto Center, Inc., to collect the note and Oakbrook Auto
Center, Inc., filed a third party complaint against a number of parties,
including the Bank of South Carolina, alleging that, in making the original
loan, the president of Oakbrook, Gregory A. Hunt, committed an ultra vires act,
of which The Bank of South Carolina had knowledge or should have had knowledge.
Counsel for the Bank does not anticipate the Bank's incurring any liability for
this lawsuit and believe it will be resolved with minimal expense.
BVS Performance Systems, Inc., v. The Bank of South Carolina, C97-189 MJM: This
case was filed September 24, 1997, in the District Court for the Northern
District of Iowa. It involves an alleged copyright
16
<PAGE> 19
violation relating to some training materials leased by the Bank from BVS.
Counsel for the Bank does not believe the Bank has any material liability.
Anya McKnight v. The Bank of South Carolina, EEOC Charge No. 146970639: This
Equal Employment Opportunity Commission claim was filed by Anya McKnight, a
former Bank employee, who alleges a racial discrimination claim against The Bank
of South Carolina. Counsel for the Bank does not anticipate the Bank's incurring
any liability for this claim and believe it will be resolved with minimal
expense.
ANNUAL REPORT
The ANNUAL REPORT for December 31, 1997, 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 1999 ANNUAL SHAREHOLDERS' MEETING
Shareholder proposals, if any, for inclusion in the Proxy Statement
relating to the 1999 Annual Shareholders' meeting, must be addressed to and
received in the office of the President no later than December 7, 1998.
By Order of the Board of Directors
/s/ Nathaniel I. Ball, III
--------------------------
Nathaniel I. Ball, III
Secretary
March 6, 1998
17
<PAGE> 20
BANK OF
SOUTH CAROLINA
CORPORATION PROXY
256 Meeting Street
Charleston, SC 29401
KNOW ALL PERSONS BY THESE PRESENTS THAT I, the undersigned Shareholder of Bank
of South Carolina Corporation (the Company) do herby appoint William T. Cooper,
T. Dean Harton or Thomas W. Myers (no officer or employee of the Company or any
subsidiary may be appointed), or any one of them with full power to act alone,
my true and lawful attorney(s) with full power of substitution, to vote on
behalf of the undersigned all shares of common stock of the Company (the
Shares) which the undersigned would be entitled to vote at the annual meeting
of Shareholders to be held on Tuesday, April 14, 1998 at The Bank of South
Carolina, 2027 Sam Rittenberg Blvd., Charleston, South Carolina, at 6:00 p.m.,
or at any adjournments thereof, with all the powers the undersigned would
possess if personally present, hereby revoking all proxies heretofore given
with respect to such Shares, upon the propositions set forth below and more
fully described in the notice of the proxy statement for such annual meeting
(receipt of which is hereby acknowledged) as follows:
ELECTIONS OF DIRECTORS
[ ] FOR ALL nominees listed below (except as otherwise indicated by lining
through or otherwise striking out the name of any nominee or nominees)
[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed below
Nathaniel I. Ball, III; Williams T. Cooper; C. Ronald Coward; Louis Y. Dawson,
III; Leonard C. Fulghum; T. Dean Harton; William L. Hiott, Jr.; James H.
Holcombe; Katherine M. Huger; John E. Huguley; Charles G. Lane; Hugh C. Lane,
Jr.; Louise J. Maybank; Thomas W. Myers; Thomas C. Stevenson, III; John M.
Tupper.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE OR
NOMINEES, LINE THROUGH OR OTHERWISE STRIKE OUT THE NAME OF SUCH NOMINEE(S).
PROPOSITION TO APPROVE THE APPOINTMENT OF KPMG Peat Marwick as independent
auditors for the Company for the fiscal year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
TO APPROVE BANK OF SOUTH CAROLINA CORPORATION 1998 OMNIBUS STOCK INCENTIVE
PLAN AND INCENTIVE STOCK OPTION AGREEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
TO AMEND THE ARTICLES OF INCORPORATION TO AUTHORIZE THE ISSUANCE OF 6,500,000
SHARES OF COMMON STOCK NO PAR VALUE, AND RESERVE 180,000 SHARES FOR THE 1998
STOCK INCENTIVE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy, when properly executed, directors and confers authority to vote
"FOR" each proposition listed above unless "AGAINST", "ABSTAIN"' OR "WITHHOLD
AUTHORITY" is indicated. IF NO DIRECTION WITH RESPECT TO ANY PROPOSITION IS
MADE IN THIS PROXY, THIS PROXY WILL BE VOTED "FOR" SUCH PROPOSITION. If any
other matter is properly brought before the annual meeting to be held on April
14, 1998, this proxy shall be voted by the Proxy Solicitation Committee in
accordance with the recommendation of management.
<PAGE> 21
<TABLE>
<S> <C>
PLEASE DATE AND SIGN THIS PROXY BELOW AND RETURN IT IN THE ENCLOSED THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF
POSTAGE-PAID ENVELOPE. WHEN DATING AND SIGNING, PLEASE SIGN EXACTLY THE LISTED PROPOSITIONS. THIS PROXY IS SOLICITED BY THE
AS YOUR NAME APPEARS ON YOUR STOCK CERTIFICATE(S). PROXY SOLICITATION COMMITTEE ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY FOR USE AT A REGULAR ANNUAL
MEETING TO BE HELD ON APRIL 14, 1998 AND MAY BE REVOKED
PRIOR TO ITS EXERCISE.
Date: , 1998
-------------
SIGN -
HERE ----------------------------------------
-
----------------------------------------
-
----------------------------------------
(Signature of Shareholder)
---------------------------
No. of Shares
When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If
more than one executor, administrator, trustee, or
guardian, all should sign. ALL joint owners must sign.
If signing as a corporation, please sign in full the
corporate name by, and with the signature and title of,
the President or other authorized officer. If signing as
a partnership, please sign in name of partnership by, and
with the signature of, an authorized partner, or if
required, authorized partners.
PLEASE RETURN PROMPTLY
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,411
<INT-BEARING-DEPOSITS> 6
<FED-FUNDS-SOLD> 15,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,483
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 79,966
<ALLOWANCE> 1,210
<TOTAL-ASSETS> 124,478
<DEPOSITS> 104,469
<SHORT-TERM> 3,788
<LIABILITIES-OTHER> 700
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 15,521
<TOTAL-LIABILITIES-AND-EQUITY> 124,478
<INTEREST-LOAN> 7,316
<INTEREST-INVEST> 1,254
<INTEREST-OTHER> 591
<INTEREST-TOTAL> 9,161
<INTEREST-DEPOSIT> 2,758
<INTEREST-EXPENSE> 2,942
<INTEREST-INCOME-NET> 6,219
<LOAN-LOSSES> 210
<SECURITIES-GAINS> (17)
<EXPENSE-OTHER> 4,094
<INCOME-PRETAX> 2,515
<INCOME-PRE-EXTRAORDINARY> 2,515
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,610
<EPS-PRIMARY> .69
<EPS-DILUTED> .68
<YIELD-ACTUAL> 0
<LOANS-NON> 629
<LOANS-PAST> 40
<LOANS-TROUBLED> 57
<LOANS-PROBLEM> 647
<ALLOWANCE-OPEN> 1,041
<CHARGE-OFFS> 47
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 1,210
<ALLOWANCE-DOMESTIC> 1,210
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
