<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998
--------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number: 0-27702
Bank of South Carolina Corporation
(Exact name of small business issuer as specified in its charter)
South Carolina 57-1021355
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
256 Meeting Street, Charleston, SC 29401
(Address of principal executive offices)
(803) 724-1500
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 12, 1998, there were 2,605,673 Common Shares outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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Table of Contents
BANK OF SOUTH CAROLINA CORPORATION
Report on Form 10-QSB
for quarter ended
March 31, 1998
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1998
and December 31, 1997..............................................3
Consolidated Statements of Operations - Three months
ended March 31, 1998 and 1997 .....................................4
Consolidated Statements of Changes in Shareholders
Equity - Three months ended March 31, 1998 and 1997................5
Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1997 .....................................6
Notes to Consolidated Financial Statements...........................7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................8 - 10
Liquidity.......................................................10
Capital Resources...............................................10
Year 2000.......................................................10 - 11
Accounting and Reporting Changes................................11
Effect of Inflation and Changing Prices.........................11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................12
Item 2. Changes in Securities...........................................12
Item 3. Default Upon Senior Securities..................................12
Item 4. Submission of Matters to a Vote of Security Holders.............12
Item 5. Other Information...............................................12
Item 6. Exhibits and Reports on Form 8-K................................12
Signatures...............................................................13
2
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PART I - ITEM 1 - FINANCIAL STATEMENTS
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Assets:
Cash and due from banks $ 6,561,828 $ 6,410,838
Interest bearing deposits in other banks 6,482 6,421
Federal funds sold and repurchase agreements 12,200,000 15,600,000
Investment securities available for sale 21,498,883 19,483,167
Loans 83,565,830 79,965,957
Allowance for loan losses (1,210,313) (1,210,528)
------------- -------------
Net loans 82,355,517 78,755,429
Premises, equipment, leasehold improvements
and construction costs, net 2,382,238 2,613,293
Other assets 2,494,742 1,608,875
------------- -------------
Total assets $ 127,499,690 $ 124,478,023
============= =============
Liabilities and shareholders' equity:
Deposits:
Non-interest bearing demand $ 25,524,030 $ 27,757,108
Interest bearing demand 18,124,286 20,336,818
Money market accounts 22,125,081 21,761,624
Certificates of deposit $100,000 and over 17,370,584 14,895,786
Other time deposits 17,086,417 15,663,178
Other savings deposits 4,520,058 4,054,559
------------- -------------
Total deposits 104,750,456 104,469,073
Short-term borrowings 5,853,418 3,787,996
Other liabilities 991,522 699,607
------------- -------------
Total liabilities 111,595,396 108,956,676
------------- -------------
Common Stock - No par value;
6,000,000 shares authorized;
Issued and outstanding 2,605,673 shares
at March 31, 1998, and 2,575,665 shares
at December 31, 1997 -- --
Additional paid in capital 12,330,882 12,206,882
Retained earnings 4,007,474 3,738,498
Accumulated other comprehensive
income, net of income taxes 116,624 126,653
Treasury stock 77,000 shares at March 31, 1998
and December 31, 1997 (550,686) (550,686)
------------- -------------
Total shareholders' equity 15,904,294 15,521,347
------------- -------------
Total liabilities and shareholders' equity $ 127,499,490 $ 124,478,023
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Interest and fee income
Interest and fees on loans $2,035,369 $1,731,635
Interest and dividends on investment securities 326,454 309,082
Other interest income 165,736 58,846
---------- ----------
Total interest and fee income 2,527,559 2,099,563
---------- ----------
Interest expense
Interest on deposits 775,235 636,379
Interest on short-term borrowings 52,159 27,329
---------- ----------
Total interest expense 827,394 663,708
---------- ----------
Net interest income 1,700,165 1,435,855
Provision for loan losses 15,000 52,500
---------- ----------
Net interest income after provision for loan losses 1,685,165 1,383,355
---------- ----------
Other income
Service charges, fees and commissions 180,931 142,384
Other non-interest income 3,262 6,196
---------- ----------
Total other income 184,193 148,580
---------- ----------
Other expense
Salaries and employee benefits 634,475 528,277
Net occupancy expense of premises 228,003 216,195
Other operating expenses 365,554 218,654
---------- ----------
Total other expense 1,228,032 963,126
---------- ----------
Income before income tax expense 641,326 568,809
Income tax expense 230,222 212,000
---------- ----------
Net income $ 411,104 $ 356,809
========== ==========
Basic earnings per share $ .16 $ .14
========== ==========
Diluted earnings per share $ .16 $ .14
========== ==========
Dividends per common share $ .05 $ .27
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated Other
Common Additional Retained Treasury Comprehensive
Stock Paid In Capital Earnings Stock Income Total
-------------- --------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 $ - $ 12,082,882 $ 3,252,807 $ (550,686) $ 108,810 $ 14,893,813
Comprehensive income
Net income - - 356,809 - - 356,809
Net unrealized gains
on securities (net of
tax effect of $21,034) - - - - (72,995) (72,995)
--------------
Comprehensive income - - - - - 283,814
--------------
Shares issued for the
exercise of stock options - 124,000 - - - 124,000
Cash dividends - - (702,454) - - (702,454)
-------------- --------------- --------------- -------------- --------------- --------------
Balance,
March 31, 1997 $ - $ 12,206,882 $ 2,907,162 $ (550,686) $ 35,815 $ 14,599,173
============== =============== =============== ============== =============== ==============
Balance,
December 31, 1997 $ - $ 12,206,882 $ 3,738,498 $ (550,686) $ 126,653 $ 15,521,347
Comprehensive income
Net income - - 411,104 - - 411,104
Net unrealized gains
on securities (net of
tax effect of $68,493) - - - - (10,029) (10,029)
--------------
Comprehensive income - - - - - 401,075
--------------
Shares issued for the
exercise of stock options - 124,000 - - - 124,000
Cash dividends - - (142,128) - - (142,128)
-------------- --------------- --------------- -------------- --------------- --------------
Balance,
March 31, 1998 $ - $ 12,330,882 $ 4,007,474 $ (550,686) $ 116,624 $ 15,904,294
============== =============== =============== ============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 411,104 $ 356,809
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 56,220 51,549
Net accretion of unearned discounts on investments (19,290) (1,333)
Amortization of organizational costs 1,861 1,861
Increase in receivables and other assets (532,169) (49,547)
Provision for loan losses 15,000 52,500
Increase in other liabilities 291,915 70,430
------------ ------------
Net cash provided by operating activities 224,641 482,269
------------ ------------
Cash flows from investing activities:
Purchase of investment securities (2,012,344) (1,014,062)
Net increase in loans (3,615,088) (1,608,833)
Purchase of premises, equipment, leasehold
improvements and construction costs (174,835) (928,915)
------------ ------------
Net cash used in investing activities (5,802,267) (3,551,810)
------------ ------------
Cash flows from financing activities:
Net increase in deposit accounts 281,383 4,638,439
Net increase in short-term borrowings 2,065,422 795,892
Exercise of stock options 124,000 124,000
Dividends (142,128) (702,454)
------------ ------------
Net cash provided by financing activities 2,328,677 4,855,877
------------ ------------
Net (decrease) increase in cash and cash equivalents (3,248,949) 1,786,336
Cash and cash equivalents, beginning of period 22,017,259 10,661,529
------------ ------------
Cash and cash equivalents, end of period $ 18,768,310 $ 12,447,865
============ ============
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 893,222 $ 623,880
Income taxes 22,498 96,090
</TABLE>
See accompanying notes to consolidated financial statements.
6
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BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1: BASIS OF PRESENTATION
Bank of South Carolina Corporation (the Company) was organized as a South
Carolina Corporation on April 17, 1995, as a one-bank holding company. The
Company, through its bank subsidiary The Bank of South Carolina (the Bank),
provides a full range of banking services including the taking of demand and
time deposits and the making of commercial, consumer and mortgage loans. The
Bank currently has four locations, two in Charleston, South Carolina, one in
Summerville, South Carolina and one in Mt. Pleasant, South Carolina. The
financial statements in this report are unaudited. All adjustments consisting of
normal recurring accruals which are, in the opinion of management, necessary for
fair presentation of the interim consolidated financial statements have been
included and fairly and accurately present the financial position, results of
operations and cash flows as of those dates of the Company and the Bank,
respectively. The results of operations for the period ending March 31, 1998 are
not necessarily indicative of the results, which may be expected for the entire
year.
NOTE 2: ORGANIZATION AND DEVELOPMENT
The organization of The Bank of South Carolina (the Bank) began on April 24,
1986 and the Bank received approval on October 22, 1986, to organize and operate
as a state-chartered bank. Common stock was issued on October 23, 1986. The
Federal Deposit Insurance Corporation (FDIC) issued approval to insure all
deposits to the full amount permitted by the law upon commencement of operations
on February 26, 1987. On the effective date (12:01 a.m., April 17, 1995),
shareholders of The Bank of South Carolina became shareholders of Bank of South
Carolina Corporation at which time one share of common stock in the Bank was
exchanged for two shares of common stock in the Company. All prior period
amounts have been retroactively restated to give the effect of the two-for-one
exchange.
NOTE 3: INVESTMENT SECURITIES
Investment securities to be "Held to Maturity" are carried at cost, adjusted for
amortization of premiums and accretion of discounts, computed by the interest
method. Investment securities classified as "Available for Sale" are marked to
market with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity (net of estimated tax effects).
Realized gains or losses on the sale of investments are based on the specific
identification method. All the Company's securities are classified as "Available
for Sale".
The amortized cost of U.S. Treasury Securities held by the Company at March 31,
1998, and classified as "Available for Sale" is $21,313,765. The aggregate fair
value of securities "Available for Sale" on the basis of market quotations as of
March 31, 1998, is $21,498,883. The unrealized gain as of March 31, 1998, on
such securities is $185,118.
The amortized cost of U.S. Treasury Securities held by the Company at December
31, 1997, and classified as "Available for Sale" was $19,282,130. The aggregate
fair value of securities "Available for Sale" on the basis of market quotations
as of December 31, 1997, was $19,483,167. The unrealized gain as of December 31,
1997, on such securities was $201,037.
NOTE 4: SHAREHOLDERS' EQUITY
The Board of Directors approved a ten percent (10%) common stock dividend to
shareholders of record April 30, 1998, effective May 15, 1998. All share and per
share data have been retroactively restated to reflect the 10% common stock
dividend. A regular quarterly cash dividend of $.06 per share (before the 10%
stock dividend) was approved for shareholders of record March 31, 1998, payable
April 30, 1998.
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NOTE 5: COMPREHENSIVE INCOME
Effective March 31, 1998, the Company adopted 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. The Company adopted the Statement of Changes in
Equity approach to disclosing changes in comprehensive income.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Bank of South Carolina Corporation (the Company) is a financial institution
holding company headquartered in Charleston, South Carolina, with branch
operations in Summerville, South Carolina and Mt. Pleasant, South Carolina. It
offers a broad range of financial services through its wholly owned subsidiary,
The Bank of South Carolina (the Bank). The Bank is a state-chartered commercial
bank which operates principally in the counties of Charleston, Dorchester and
Berkeley in South Carolina.
For the first three months of 1998, the Company reported net income of $411,104
or basic and diluted earnings per share of $.16, an increase of $54,295 compared
to the net income for the first three months of 1997 of $356,809 or basic and
diluted earnings per share of $.14. Total assets for the period increased
$2,897,667 or 2.3% from December 31, 1997, to March 31, 1998.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997, TO THREE MONTHS ENDED MARCH 31,
1998
The Company's results of operations depends primarily on the level of its net
interest income, its non-interest income and its operating expenses. Net
interest income depends upon the volume of and rates associated with interest
earning assets and interest bearing liabilities which results in the net
interest spread. Net income increased $54,295 or 15.2% to $411,104 for the three
months ended March 31, 1998, from $356,809 for the three months ended March 31,
1997. The increase is primarily due to a higher than forecasted loan growth,
improved spreads and higher loan volume in the mortgage area due to lower rates
and refinancing activity.
NET INTEREST INCOME
Net interest income increased $264,310 or 18.4% to $1,700,165 for the three
months ended March 31, 1998, from $1,435,855 for the three months ended March
31, 1997. Total interest and fee income increased $427,996 or 20.4% for the
three months ended March 31, 1998, to $2,527,559 from $2,099,563 for the three
months ended March 31, 1997. This increase in interest and fee income is
primarily a result of average total loans for the three months ended March 31,
1998, of approximately $82,392,000 compared to average total loans of
approximately $72,834,000 for the three months ended March 31, 1997. The loan
portfolio produces the highest yield of all earning assets. Investment portfolio
income increased $17,372 or 5.6% to $326,454 for the period ended March 31,
1998, as compared to $309,082 for the three months ended March 31, 1997, due to
slightly better yields for the three months ended March 31, 1998, as compared to
the three months ended March 31, 1997. Other interest income increased $106,890
or 181.6% to $165,736 for the three months ended March 31, 1998, from $58,846
for the three months ended March 31, 1997. This increase in revenue is
attributed to the increase in average federal funds sold of approximately
$11,732,000 for the period ended March 31, 1998, as compared to approximately
$4,661,000 for the period ended March 31, 1997.
Total interest expense increased $163,686 or 24.7% to $827,394 for the three
months ended March 31, 1998, from $663,708 for three months ended March 31,
1997. The increase is due to an increase in interest bearing deposits. Interest
paid on deposits of $775,235 reflected an increase of 21.8% for the three months
ended
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March 31, 1998, compared to $636,379 of interest paid on deposits for the three
months ended March 31, 1997. Total interest bearing deposits averaged
approximately $78,861,000 for the three months ended March 31, 1998, as compared
to approximately $67,274,000 for the three months ended March 31, 1997. The
average cost of interest bearing liabilities for the three months ended March
31, 1997, was approximately 3.92% as compared to the average cost of interest
bearing liabilities of approximately 4.07% for the three months ended March 31,
1998. Interest on short-term borrowings increased $24,830 to $52,159 for the
period ended March 31, 1998, from $27,329 for the three months ended March 31,
1997. Short-term borrowings consisted of demand notes to the U.S. Treasury and
securities sold under agreements to repurchase for the three months ended March
31, 1998 and for the three months ended March 31, 1997.
PROVISION 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.
During the quarter ended March 31, 1998, $15,000 was charged to the provision
for loan losses compared to $52,500 for the quarter ended March 31, 1997. At
March 31, 1998, the allowance for loan losses was $1,210,313 or 1.45% of total
loans. This compares to an allowance of $1,093,295 or 1.49% as of March 31,
1997. During the quarter ended March 31, 1998, the Bank incurred three charge
offs totaling $15,515 as compared to one charge off totaling $1,712 for the same
period ended March 31, 1997. There were six loans on non-accrual status at March
31, 1998, totaling $436,498 and no loans on non-accrual at March 31, 1997. Loans
past due over 30 days totaled $1,055,538 or 1.26% of total loans at March 31,
1998, compared to $1,122,539 or 1.53% of total loans at March 31, 1997.
Generally, loans are placed on non-accrual status at the earlier of when they
are 90 days past due or when the collection of interest becomes doubtful. The
allowance for loan losses at March 31, 1998, in management's opinion, is
adequate for future losses that may occur in the loan portfolio.
OTHER INCOME
Other income for the three months ended March 31, 1998, increased $35,613 or
24.0% to $184,193 from $148,580 for the three months ended March 31, 1997. The
increase is due to an increase in service charges and fees on a larger volume of
deposits for the period ended March 31, 1998, as compared to the same period
ended March 31, 1997.
OTHER EXPENSE
Bank overhead increased $264,906 or 27.5% to $1,228,032 for the three months
ended March 31, 1998, from $963,126 for the three months ended March 31, 1997.
Salaries and employee benefits increased $106,198 or 20.1% to $634,475 for the
period ended March 31, 1998, from $528,277 for the three month period ended
March 31, 1997. This increase is primarily attributed to annual merit raises
given to the employees and the addition of employees to staff the new West
Ashley office. Other operating expenses increased $146,900 or 67.2% to $365,554
for the period ending March 31, 1998, from $218,654 for the period ending March
31, 1997. This increase resulted from costs incurred of approximately $29,000 in
advertising and promotion of
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the new West Ashley office and increases of approximately $18,000 in legal fees,
$7,500 in training for a new check imaging system and approximately $20,000 in
new forms and printed supplies related to the new check imaging system.
LIQUIDITY
The Company must maintain an adequate liquidity position in order to respond to
the short-term demand for funds caused by the withdrawals from deposit accounts,
maturities of repurchase agreements, extensions of credit and for the payment of
operating expenses. Maintaining this position of adequate liquidity is
accomplished through the management of a combination of liquid assets; those
which can be converted into cash and access to additional sources of funds.
Primary liquid assets of the Company are cash and due from banks, federal funds
sold, investments available for sale and other short-term investments. The
Company's primary liquid assets accounted for 31.71% and 30.43% of average
assets at March 31, 1998, and 1997, respectively. Additional sources of funds
available through the Bank for additional liquidity needs include borrowing on a
short-term basis from the Federal Reserve System, the purchasing of federal
funds from other financial institutions and increasing deposits by raising rates
paid. The Company's core deposits consist of IPCs, NOW accounts, money market
accounts, time deposits and savings. Although such core deposits are becoming
increasingly more costly and interest sensitive for both the Company and the
industry as a whole, such core deposits continue to provide the Company with a
large and stable source of funds. Core deposits averaged 89.90% of earning
assets during the first three months of 1998 as compared to 87.88% of earning
assets for the first three months of 1997. The Company closely monitors its
reliance on certificates on deposit greater than $100,000. The Company plans to
meet its future needs through maturities of investments and loans and through
the generation of deposits. The Company's management believes its liquidity
sources are adequate to meet its operating needs and does not know of any
trends, events or uncertainties that may result in a significant adverse effect
on the Company's liquidity position. At March 31, 1998 and 1997, the Bank's
liquidity ratio was 30.48% and 26.65%, respectively.
CAPITAL RESOURCES
The capital needs of the Company have been met to date through the $10,600,000
in capital raised at its initial offering, the retention of earnings less
dividends paid and the exercising of stock options in April of 1995, of
$124,000, the exercising of stock options in March of 1996, of $124,000, the
exercising of stock options in January of 1997 of $124,000 and the exercising of
stock options in March of 1998 of $124,000 for a total shareholders' equity at
March 31, 1998, of $15,904,294. The rate of asset growth from the Bank's
inception does not negatively impact this capital base. Effective December 31,
1990, regulatory authorities adopted risk based capital guidelines for financial
institutions. These risk-based guidelines are designed to highlight differences
in risk profiles among financial institutions and to account for off balance
sheet risk. The guidelines established require a risk based capital ratio of 8%
for bank holding companies and banks. The risk based capital ratio at March 31,
1998, for the Bank is 17.17% and at March 31, 1997, was 18.36%. 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 Bank
will have capital expenditures during the second quarter of 1998 of
approximately $1,334,000 representing the construction cost and furnishings of
its new West Ashley office and approximately $839,000 representing the cost of
upgrading personal computers and a new check processing and check imaging
system.
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.
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<PAGE> 11
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 adopted
Statement 130 effective March 31, 1998, and has provided the required
disclosures.
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.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with generally accepted
accounting principles (GAAP) which require the measurement of financial position
and operating results in terms of historical dollars without considering the
changes in relative purchasing power of money over time due to inflation. The
primary impact of inflation on operations of the Bank is reflected in increased
operating costs. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiary from time to time are involved as plaintiff or
defendant in various legal actions incident to its business. These actions are
not believed to be material either individually or collectively to the
consolidated financial condition of the Company or its subsidiary.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK OF SOUTH CAROLINA CORPORATION
May 12, 1998
BY: /s/ Hugh C. Lane, Jr.
President
BY: /s/ William L. Hiott, Jr.
Executive Vice President & Cashier
13
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