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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 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
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(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
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(Address of principal executive offices)
(843) 724-1500
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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As of August 12, 1998, there were 2,605,597 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
June 30, 1998
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 1998
and December 31, 1997...........................................................3
Consolidated Statements of Operations - Three months
ended June 30, 1998 and 1997 ...................................................4
Consolidated Statements of Operations - Six months
ended June 30, 1998 and 1997...................................................5
Consolidated Statements of Changes in Shareholders
Equity - Six months ended June 30, 1998 and 1997................................6
Consolidated Statements of Cash Flows - Six months
ended June 30, 1998 and 1997 ...................................................7
Notes to Consolidated Financial Statements........................................8 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................9 - 12
Liquidity.....................................................................12 - 13
Capital Resources.............................................................13
Year 2000.....................................................................13
Accounting and Reporting Changes..............................................14
Effect of Inflation and Changing Prices.......................................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................................15
Item 2. Changes in Securities.........................................................15
Item 3. Default Upon Senior Securities................................................15
Item 4. Submission of Matters to a Vote of Security Holders...........................15
Item 5. Other Information.............................................................15
Item 6. Exhibits and Reports on Form 8-K..............................................15
Signatures.............................................................................16
</TABLE>
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PART I - ITEM 1 - FINANCIAL STATEMENTS
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
Assets: June 30, 1998 December 31, 1997
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<S> <C> <C>
Cash and due from banks $ 8,854,183 $ 6,410,838
Interest bearing deposits in other banks 6,542 6,421
Federal funds sold and resale agreements 27,325,000 15,600,000
Investment securities available for sale 20,269,575 19,483,167
Loans 82,605,511 79,965,957
Allowance for loan losses (1,227,269) (1,210,528)
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Net loans 81,378,242 78,755,429
Premises, equipment, leasehold improvements
and construction costs, net 4,190,084 2,613,293
Other assets 1,225,224 1,608,875
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Total assets $ 143,278,850 $ 124,478,023
============= =================
Liabilities and shareholders' equity:
Deposits:
Non-interest bearing demand $ 27,216,037 $ 27,757,108
Interest bearing demand 26,385,237 20,336,818
Money market accounts 23,559,283 21,761,624
Certificates of deposit $100,000 and over 19,346,204 14,895,786
Other time deposits 18,044,078 15,663,178
Other savings deposits 4,890,256 4,054,559
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Total deposits 119,441,095 104,469,073
Short-term borrowings 6,969,782 3,787,996
Other liabilities 755,940 699,607
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Total liabilities 127,166,817 108,956,676
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Common Stock - No par value;
6,000,000 shares authorized;
Issued and outstanding 2,605,597 shares
at June 30, 1998, and 2,575,589 shares
at December 31, 1997 - -
Additional paid in capital 12,330,882 12,206,882
Retained earnings 4,229,718 3,738,498
Accumulated other comprehensive
income, net of income taxes 102,119 126,653
Treasury stock 77,000 shares at June 30, 1998
and December 31, 1997 (550,686) (550,686)
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Total shareholders' equity 16,112,033 15,521,347
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Total liabilities and shareholders' equity $ 143,278,850 $ 124,478,023
============= =================
</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
June 30, 1998 June 30, 1997
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<S> <C> <C>
Interest and fee income
Interest and fees on loans $ 2,066,747 $ 1,821,184
Interest and dividends on investment securities 299,954 322,909
Other interest income 226,199 97,069
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Total interest and fee income 2,592,900 2,241,162
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Interest expense
Interest on deposits 843,517 666,733
Interest on short-term borrowings 67,117 45,993
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Total interest expense 910,634 712,726
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Net interest income 1,682,266 1,528,436
Provision for loan losses 15,000 52,500
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Net interest income after provision for loan losses 1,667,266 1,475,936
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Other income
Service charges, fees and commissions 220,449 128,525
Loss on securities - (16,544)
Other non-interest income 4,596 3,930
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Total other income 225,045 115,911
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Other expense
Salaries and employee benefits 675,238 535,258
Net occupancy expense of premises 267,417 215,929
Other operating expenses 356,376 245,616
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Total other expense 1,299,031 996,803
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Income before income tax expense 593,280 595,044
Income tax expense 213,000 223,000
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Net income $ 380,280 $ 372,044
============= ==============
Basic earnings per share $ .15 $ .14
============= ==============
Diluted earnings per share $ .15 $ .14
============= ==============
Dividends per common share $ .06 $ .05
============= ==============
Weighted average shares outstanding 2,605,634 2,341,514
</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 June 30, 1997
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<S> <C> <C>
Interest and fee income
Interest and fees on loans $ 4,102,116 $ 3,552,819
Interest and dividends on investment securities 626,407 631,991
Other interest income 391,935 155,915
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Total interest and fee income 5,120,459 4,340,725
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Interest expense
Interest on deposits 1,618,752 1,303,112
Interest on short-term borrowings 119,276 73,322
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Total interest expense 1,738,028 1,376,434
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Net interest income 3,352,431 2,964,291
Provision for loan losses 30,000 105,000
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Net interest income after provision for loan losses 3,352,431 2,859,291
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Other income
Service charges, fees and commissions 401,380 270,909
Loss on securities - (16,544)
Other non-interest income 7,857 10,126
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Total other income 409,237 264,491
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Other expense
Salaries and employee benefits 1,309,712 1,063,535
Net occupancy expense of premises 495,420 432,124
Other operating expenses 721,930 464,270
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Total other expense 2,527,062 1,959,929
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Income before income tax expense 1,234,606 1,163,853
Income tax expense 443,222 435,000
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Net income $ 791,384 $ 728,853
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Basic earnings per share $ .31 $ .28
============= =============
Diluted earnings per share $ .31 $ .28
============= =============
Dividends per common share $ .11 $ .32
============= =============
Weighted average shares outstanding 2,592,793 2,338,047
</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR SIX MONTHS ENDED JUNE 30, 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 - - 728,853 - - 728,853
Net unrealized losses on securities
(net of tax effect of $58,472) - - - - (9,250) (9,250)
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Comprehensive income - - - - - 719,603
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Shares issued for the
exercise of stock options - 124,000 - - - 124,000
Cash dividends - - (842,400) - - (842,400)
-------------- ------------ ------------ ------------ ------------ ------------
Balance,
June 30, 1997 $ - $ 12,206,882 $ 3,139,260 $ (550,686) $ 99,560 $ 14,895,016
============== ============ ============ ============ ============ ============
Balance,
December 31, 1997 $ - $ 12,206,882 $ 3,738,498 $ (550,686) $ 126,653 $ 15,521,347
Comprehensive income
Net income - - 791,384 - - 791,384
Net unrealized losses on securities
(net of tax effect of $59,975) - - - - (24,534) (24,534)
------------
Comprehensive income - - - - - 766,850
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Shares issued for the
exercise of stock options - 124,000 - - - 124,000
Cash dividends - - (300,164) - - (300,164)
------------ ------------ ------------ ------------ ------------ ------------
Balance,
June 30, 1998 $ - $ 12,330,882 $ 4,229,718 $ (550,686) $ 102,119 $ 16,112,033
============== ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 791,384 $ 728,853
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 147,020 105,388
Net accretion of unearned discounts on investments (6,888) (3,374)
Amortization of organizational costs 3,722 3,723
Loss on sale of investments - 16,544
Increase in receivables and other assets (1,048,896) (75,620)
Provision for loan losses 30,000 105,000
Increase (decrease) in other liabilities 56,333 (117,535)
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Net cash provided by operating activities 2,070,467 762,979
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Cash flows from investing activities:
Proceeds from the sale of investments - 1,981,875
Proceeds from the maturity of investments 1,193,881 1,013,881
Purchase of investment securities (2,012,344) (2,978,437)
Net increase in loans (2,652,813) (4,866,288)
Purchase of premises, equipment, leasehold
improvements and construction costs (2,408,369) (935,235)
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Net cash used in investing activities (5,879,645) (5,784,204)
------------ ------------
Cash flows from financing activities:
Net increase in deposit accounts 14,972,022 5,353,155
Net increase in short-term borrowings 3,181,786 4,346,363
Exercise of stock options 124,000 124,000
Dividends (300,164) (842,400)
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Net cash provided by financing activities 17,977,644 8,981,118
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Net increase in cash and cash equivalents 14,168,466 3,959,893
Cash and cash equivalents, beginning of period 22,017,259 10,661,529
------------ ------------
Cash and cash equivalents, end of period $ 36,185,725 $ 14,621,422
============ ============
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 1,737,128 $ 1,357,456
Income taxes 463,010 522,590
Non-cash investing activities:
Transfer of assets from prepaid account to
fixed asset account 1,191,442 -
</TABLE>
See accompanying notes to consolidated financial statements.
7
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BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 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 June 30,
1998, and classified as "Available for Sale" is $20,107,481. The aggregate fair
value of securities "Available for Sale" on the basis of market quotations as of
June 30, 1998, is $20,269,575. The unrealized gain as of June 30, 1998, on such
securities is $162,094.
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, and a regular
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<PAGE> 9
quarterly cash dividend of $.06 per share was approved for shareholders of
record June 30, 1998, payable July 31, 1998.
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, Mt. Pleasant, South Carolina and the
West Ashley community of Charleston, South Carolina. It offers a broad range of
financial services through its wholly owned subsidiary, The Bank of South
Carolina (the Bank). The Bank is a state-chartered commercial bank which
operates principally in the counties of Charleston, Dorchester and Berkeley in
South Carolina.
For the first six months of 1998, the Company reported net income of $791,384 or
basic and diluted earnings per share of $.31, an increase of $62,531 compared to
net income for the first six months of 1997 of $728,853 or basic and diluted
earnings per share of $.28. Total assets for the period increased $18,800,827 or
15.1% from December 31, 1997, to June 30, 1998.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998, TO THREE MONTHS ENDED JUNE 30,
1997
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 $8,236 or 2.2% to $380,280 for the three
months ended June 30, 1998, from $372,044 for the three months ended June 30,
1997. The three months ended June 30, 1998, represents the period in which the
Bank capitalized a new branch and operations center, and approximately $750,000
in new check processing equipment.
NET INTEREST INCOME
Net interest income increased $153,830 or 10.1% to $1,682,266 for the three
months ended June 30, 1998, from $1,528,436 for the three months ended June 30,
1997. Total interest and fee income increased $351,738 or 15.7% for the three
months ended June 30, 1998, to $2,592,900 from $2,241,162 for the three months
ended June 30, 1997. This increase in interest and fee income is the result of
loans averaging approximately $83,332,000 for the three months ended June 30,
1998, compared to average loans of approximately $74,800,000 for the three
months ended June 30, 1997. The Bank's prime rate of 8.50% was the same for both
periods.
Investment portfolio income decreased $22,955 or 7.1% to $299,954 for the period
ended June 30, 1998, as compared to $322,909 for the three months ended June 30,
1997. This decrease in revenue is primarily a result of a declining yield in the
investment portfolio. Other interest income increased $129,130 or 133.0% to
$226,199 for the three months ended June 30, 1998, from $97,069 for the three
months ended June 30,
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<PAGE> 10
1997. This increase in revenue is attributed to the increase in average federal
funds sold to approximately $17,142,000 for the three months ended June 30,
1998, from approximately $7,049,000 for the three months ended June 30, 1997.
Total interest expense increased $197,908 or 27.8% to $910,634 for the three
months ended June 30, 1998, from $712,726 for three months ended June 30, 1997.
The increase is primarily due to the increase in average interest bearing
deposits to approximately $83,917,000 for the three months ended June 30, 1998,
from approximately $68,963,000 for the three months ended June 30, 1997.
Interest on deposits for the three months ended June 30, 1998, was $843,517
compared to $666,733 for the three months ended June 30, 1997, an increase of
$176,784 or 26.5%. Interest on short-term borrowings increased $21,124 or 45.9%
to $67,117 for the period ended June 30, 1998, from $45,993 for the three months
ended June 30, 1997. Short-term borrowings consist of demand notes to the U.S.
Treasury and securities sold under agreements to repurchase.
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 June 30, 1998, $15,000 was charged to the provision for
loan losses compared to $52,500 for the quarter ended June 30, 1997. The
allowance for loan losses was $1,227,269 or 1.49% of total average loans for the
three months ended June 30, 1998. This compares to an allowance of $1,113,514 or
1.496% of total average loans for the three months ended June 30, 1997. During
the quarter ended June 30, 1998, the Bank incurred two charge offs totaling
$6,321 as compared to three charge offs totaling $33,733 for the same period
ended June 30, 1997. There were nine loans on non-accrual status at June 30,
1998, for $465,576 as compared to five loans on non-accrual status totaling
$666,248 at June 30, 1997. Loans past due over 30 days totaled $707,380 or .86%
of total loans at June 30, 1998, compared to $726,698 or .95% of total loans at
June 30, 1997, and no loans past due 90 days or more at June 30, 1998, compared
to one loan for $205,333 or .27% of total loans at June 30, 1997. Six recoveries
totaling $8,277 occurred during the three months ended June 30, 1998, as
compared to two recoveries totaling $1,452 for the three months ended June 30,
1997. Generally, loans are placed on non-accrual status at the earlier of when
they are 90 days past due or when the collection of interest becomes doubtful.
The allowance for loan losses at June 30, 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 June 30, 1998, increased $109,134 or
94.2% to $225,045 from $115,911 for the three months ended June 30, 1997. The
increase is due largely to a significant increase in mortgage loan generated
income. Service charges, fees and commissions was $220,449 for the three months
ended June 30, 1998, compared to $128,525 for the three months ended June 30,
1997, an increase of $91,924 or 71.5%. The increase is primarily the result of
an increase in total deposits resulting in additional service charges and fees.
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GENERAL AND ADMINISTRATIVE EXPENSES
Bank overhead increased $302,228 or 30.3% to $1,299,031 for the three months
ended June 30, 1998, from $996,803 for the three months ended June 30, 1997.
Salaries and employee benefits increased $139,980 or 26.1% to $675,238 for the
period ended June 30, 1998, from $535,258 for the three month period ended June
30, 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.
Net occupancy expense increased $51,488 or 23.8% to $267,417 for the three
months ended June 30, 1998, from $215,929 for the three months ended June 30,
1997. This increase is primarily due to the addition of a branch bank and
operations center in the West Ashley community which opened during the first
quarter of 1998 and increased depreciation expense due to the new imaging
equipment and the upgrade of the bank's hardware and software. Other operating
expenses increased $110,760 or 45.1% to $356,376 for the period ending June 30,
1998, from $245,616 for the period ending June 30, 1997. This increase is in
part the result of increased mortgage loan volume which resulted in an increase
in discount fees paid, advertising of a new office and supplies for that new
office.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998, TO SIX MONTHS ENDED JUNE 30, 1997
Net income increased $62,531 or 8.6% to $791,384 for the six months ended June
30, 1998, from $728,853 for the six months ended June 30, 1997. The increase is
primarily due to a higher volume of earning assets during the comparable
periods.
NET INTEREST INCOME
Net interest income increased $418,140 or 14.1% to $3,382,431 for the six months
ended June 30, 1998, from $2,964,291 for the six months ended June 30, 1997.
Total interest and fee income increased $779,734 or 18.0% for the six months
ended June 30, 1998, to $5,120,459 from $4,340,725 for the six months ended June
30, 1997. This increase in interest and fee income is the result of loan growth
for the comparable periods and an increase in federal funds sold of
approximately $11,725,000 or 75.2% from the six months ended June 30, 1997, to
the six months ended June 30, 1998.
Loans averaged for the six months ended June 30, 1998, approximately $82,862,000
compared to average loans of $73,819,000 for the six months ended June 30, 1997,
producing interest and fee income of $4,102,116 for the six months ended June
30, 1998, compared to $3,552,819 for the six months ended June 30, 1997, an
increase of $549,297 or 15.5%. Investment portfolio income was $626,407 for the
six months ended June 30, 1998, compared to $631,991, a decrease of $5,584 or
.9%. This decrease in revenue is primarily the result of a decline in the
investment portfolio yield. Other interest income increased $236,020 or 151.4%
to $391,935 for the six months ended June 30, 1998, compared to $155,915 for the
six months ended June 30, 1997. This increase in revenue is attributed to the
increase in average federal funds sold to approximately $14,437,000 for the six
months ended June 30, 1998, from approximately $5,855,000 for the six months
ended June 30, 1997.
Total interest expense increased $361,594 or 26.3% to $1,738,028 for the six
months ended June 30, 1998, from $1,376,434 for six months ended June 30, 1997.
The increase is primarily due to the increase in average interest bearing
deposits to approximately $81,389,000 for the six months ended June 30, 1998,
from approximately $68,119,000 for the six months ended June 30, 1997. Interest
on deposits for the six months ended June 30, 1998, was $1,618,752 compared to
$1,303,112 for the six months ended June 30, 1997, an increase of $315,640 or
24.2%. Interest on short-term borrowings increased $45,954 or 62.7% to $119,276
for the six months ended June 30, 1998, from $73,322 for the six months ended
June 30, 1997. Short-term borrowings consist of demand notes to the U.S.
Treasury and securities sold under agreements to repurchase.
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PROVISION FOR LOAN LOSSES
During the six months ended June 30, 1998, $30,000 was charged to the provision
for loan losses compared to $105,000 for the six months ended June 30, 1997. At
June 30, 1998, the allowance for loan losses was $1,227,269 or 1.48% of total
average loans for the first six months of 1998. This compares to an allowance of
$1,113,514 or 1.51% of total average loans for the first six months of 1997.
During the six months ended June 30, 1998, the Bank incurred five charge offs
totaling $21,836 as compared to four charge offs totaling $35,445 for the same
period ended June 30, 1997. Nine recoveries totaling $8,577 occurred during the
six months ended June 30, 1998, as compared to five recoveries totaling $2,743
for the six months ended June 30, 1997.
OTHER INCOME
Other income for the six months ended June 30, 1998, increased $144,746 or
264.4% to $409,237 from $264,491 for the six months ended June 30, 1997. The
increase is primarily due to a significant increase in mortgage loan premiums.
Service charges, fees and commissions was $401,380 for the six months ended June
30, 1998, compared to $270,909 for the six months ended June 30, 1997, an
increase of $130,471 or 48.2%. The increase is primarily the result of the
increase in total deposits resulting in additional service charges and fees.
Other non-interest income reflects a $2,269 decrease for the six months ended
June 30, 1998, to $7,857 from $10,126.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $567,133 or 28.9% to $2,527,062
for the six months ended June 30, 1998, from $1,959,929 for the six months ended
June 30, 1997. Salaries and employee benefits increased $246,177 or 23.1% to
$1,309,712 for the period ended June 30, 1998, from $1,063,535 for the six
months ended June 30, 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. Net occupancy expense increased $63,296 or 14.6% to
$495,420 for the six months ended June 30, 1998, from $432,124 for the six
months ended June 30, 1997. This increase is primarily due to the addition of a
branch bank and operations center in the West Ashley community which opened
during the first quarter of 1998 and increased depreciation expense due to the
new imaging equipment and the upgrade of the bank's hardware and software. Other
operating expenses increased $257,660 or 55.5% to $721,930 for the six months
ended June 30, 1998, from $464,270 for the period ending June 30, 1997. This
increase is due to discount fees paid on mortgage loans increasing from $42,260
during the six months ended June 30, 1997, to $120,285 for the six months ended
June 30, 1998. This is the result of a significant increase in mortgage loans
made by the Bank during the comparable reporting periods. Advertising and
customer relations increased due to the opening of a new bank office and
operations center during 1998, legal fees increased due to pending litigation
and supplies and printed forms cost increased due to supplying the new offices.
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 40.43% and 30.77% of average
assets at June 30, 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 non-interest bearing accounts, NOW
accounts, money market accounts, time deposits and savings. Although
12
<PAGE> 13
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. The Company's core
deposits accounted for 93.34% and 87.74% of average earning assets at June 30,
1998, and 1997, respectively. 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 June 30, 1998 and 1997, the Bank's liquidity
ratio was 36.96% and 24.75%, 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
June 30, 1998, of $16,112,033. 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 June 30,
1998, for the Bank is 18.04% and at June 30, 1997, was 18.95%. 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
had 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. 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 entering into the
testing 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
has conducted due diligence inquiries concerning Year 2000 readiness and is
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.
13
<PAGE> 14
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.
14
<PAGE> 15
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
(a) Exhibits
27.1 Financial Data Schedule for the six months
ended June 30, 1997.
27.2 Financial Data Schedule for the six months
ended June 30, 1998.
(b) Reports on Form 8-K
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK OF SOUTH CAROLINA CORPORATION
August 12, 1998
BY: /s/ Hugh C. Lane, Jr.
President
BY: /s/ William L. Hiott, Jr.
Executive Vice President & Cashier
16
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,765
<INT-BEARING-DEPOSITS> 6
<FED-FUNDS-SOLD> 9,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,187
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 76,494
<ALLOWANCE> 1,114
<TOTAL-ASSETS> 112,419
<DEPOSITS> 90,183
<SHORT-TERM> 6,739
<LIABILITIES-OTHER> 602
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 14,895
<TOTAL-LIABILITIES-AND-EQUITY> 112,419
<INTEREST-LOAN> 3,553
<INTEREST-INVEST> 632
<INTEREST-OTHER> 156
<INTEREST-TOTAL> 4,341
<INTEREST-DEPOSIT> 1,303
<INTEREST-EXPENSE> 74
<INTEREST-INCOME-NET> 2,964
<LOAN-LOSSES> 105
<SECURITIES-GAINS> (17)
<EXPENSE-OTHER> 1,960
<INCOME-PRETAX> 1,164
<INCOME-PRE-EXTRAORDINARY> 1,164
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 729
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 0
<LOANS-NON> 666
<LOANS-PAST> 205
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,041
<CHARGE-OFFS> 35
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,114
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SUMMARY CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANK OF SOUTH CAROLINA CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 8,854
<INT-BEARING-DEPOSITS> 7
<FED-FUNDS-SOLD> 27,325
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,270
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 82,605
<ALLOWANCE> 1,227
<TOTAL-ASSETS> 143,279
<DEPOSITS> 119,441
<SHORT-TERM> 6,970
<LIABILITIES-OTHER> 756
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 16,112
<TOTAL-LIABILITIES-AND-EQUITY> 143,279
<INTEREST-LOAN> 4,102
<INTEREST-INVEST> 626
<INTEREST-OTHER> 392
<INTEREST-TOTAL> 5,120
<INTEREST-DEPOSIT> 1,619
<INTEREST-EXPENSE> 1,738
<INTEREST-INCOME-NET> 3,352
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,527
<INCOME-PRETAX> 1,235
<INCOME-PRE-EXTRAORDINARY> 1,235
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<YIELD-ACTUAL> 0
<LOANS-NON> 466
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,211
<CHARGE-OFFS> 22
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 1,227
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
