<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 June 30, 2000
-------------
[ ] 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)
(843) 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 August 5, 2000, there were 2,580,597 Common Shares outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
<PAGE> 2
Table of Contents
BANK OF SOUTH CAROLINA CORPORATION
Report on Form 10-QSB
for quarter ended
June 30, 2000
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 2000
and December 31, 1999...............................................3
Consolidated Statements of Operations - Three months
ended June 30, 2000 and 1999........................................4
Consolidated Statements of Operations - Six months
ended June 30, 2000 and 1999........................................5
Consolidated Statements of Shareholders'
Equity and Comprehensive Income - Six months ended
June 30, 2000 and 1999................................................6
Consolidated Statements of Cash Flows - Six months
ended June 30, 2000 and 1999........................................7
Notes to Consolidated Financial Statements............................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................9
Liquidity........................................................12
Capital Resources................................................12
Accounting and Reporting Changes.................................13
Effect of Inflation and Changing Prices..........................13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................14
Item 2. Changes in Securities............................................14
Item 3. Default Upon Senior Securities...................................14
Item 4. Submission of Matters to a Vote of Security Holders..............14
Item 5. Other Information................................................14
Item 6. Exhibits and Reports on Form 8-K.................................14
Signatures................................................................15
</TABLE>
2
<PAGE> 3
PART I - ITEM 1 - FINANCIAL STATEMENTS
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
Assets: June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Cash and due from banks $ 8,367,375 $ 6,955,256
Interest bearing deposits in other banks 7,071 6,919
Federal funds sold 7,350,000 16,255,000
Investment securities available for sale 43,086,171 35,873,009
Investment securities held to maturity -- 600,208
Loans 99,648,437 90,748,717
Allowance for loan losses (1,372,267) (1,250,138)
------------- -------------
Net loans 98,276,170 89,498,579
Premises and equipment, net 3,668,919 3,818,406
Accrued interest receivable and other assets 1,765,086 1,646,025
------------- -------------
Total assets $ 162,520,792 $ 154,653,402
============= =============
Liabilities and shareholders' equity:
Deposits:
Non-interest bearing demand $ 38,669,447 $ 35,959,630
Interest bearing demand 24,762,074 28,602,488
Money market accounts 24,544,959 22,117,510
Certificates of deposit $100,000 and over 17,560,690 17,418,882
Other time deposits 18,804,494 15,767,175
Other savings deposits 6,150,245 5,414,765
------------- -------------
Total deposits 130,491,909 125,280,450
Short-term borrowings 13,487,599 11,439,333
Other liabilities 1,042,702 1,068,315
------------- -------------
Total liabilities 145,022,210 137,788,098
------------- -------------
Common Stock - No par value;
6,000,000 shares authorized; issued
2,682,597 shares at June 30,
2000 and December 31, 1999 -- --
Additional paid in capital 16,456,624 16,456,624
Retained earnings 1,963,371 1,380,578
Accumulated other comprehensive loss,
net of income taxes (18,376) (156,099)
Treasury stock - 102,000 and 95,769 shares at June 30,
2000 and December 31, 1999, respectively (903,037) (815,799)
------------- -------------
Total shareholders' equity 17,498,582 16,865,304
------------- -------------
Total liabilities and shareholders' equity $ 162,520,792 $ 154,653,402
============= =============
</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>
Three Months Three Months
Ended Ended
June 30, 2000 June 30, 1999
----------------- -----------------
<S> <C> <C>
Interest and fee income
Interest and fees on loans $ 2,625,102 $ 2,103,060
Interest and dividends on investment securities 583,170 474,997
Other interest income 135,327 154,611
----------------- -----------------
Total interest and fee income 3,343,599 2,732,668
----------------- -----------------
Interest expense
Interest on deposits 898,583 780,384
Interest on short-term borrowings 180,215 74,613
----------------- -----------------
Total interest expense 1,078,798 854,997
----------------- -----------------
Net interest income 2,264,801 1,877,671
Provision for loan losses 80,000 --
----------------- -----------------
Net interest income after provision for loan losses 2,184,801 1,877,671
----------------- -----------------
Other income
Service charges, fees and commissions 257,287 243,229
Other non-interest income 6,250 4,712
----------------- -----------------
Total other income 263,537 247,941
----------------- -----------------
Other expense
Salaries and employee benefits 804,959 761,421
Net occupancy expense 288,118 303,635
Other operating expenses 455,248 361,813
----------------- -----------------
Total other expense 1,548,325 1,426,869
----------------- -----------------
Income before income tax expense 900,013 698,743
Income tax expense 311,300 250,200
----------------- -----------------
Net income $ 588,713 $ 448,543
================= =================
Basic earnings per share $ .23 $ .17
================= =================
Diluted earnings per share $ .23 $ .17
================= =================
Dividends per common share $ .11 $ .09
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
----------------- -----------------
<S> <C> <C>
Interest and Fee Income
Interest and fees on loans $ 5,050,558 $ 4,171,011
Interest and dividends on investment securities 1,133,603 934,519
Other interest income 191,370 272,230
----------------- -----------------
Total interest and fee income 6,375,531 5,377,760
----------------- -----------------
Interest Expense
Interest on deposits 1,705,587 1,583,776
Interest on short-term borrowings 353,969 115,124
----------------- -----------------
Total interest expense 2,059,556 1,698,900
----------------- -----------------
Net Interest Income 4,315,975 3,678,860
Provision for loan losses 120,000 5,000
----------------- -----------------
Net interest income after provision for loan losses 4,195,975 3,673,860
----------------- -----------------
Other Income
Service charges, fees and commissions 522,398 511,461
Other non-interest income 11,207 8,707
----------------- -----------------
Total other income 533,605 520,168
----------------- -----------------
Other Expense
Salaries and employee benefits 1,623,988 1,489,101
Net occupancy expense 564,682 576,102
Other operating expenses 858,697 763,133
----------------- -----------------
Total other expense 3,047,367 2,828,336
----------------- -----------------
Income before income tax expense 1,682,213 1,365,692
Income tax expense 583,300 490,200
----------------- -----------------
Net Income $ 1,098,913 $ 875,492
================= =================
Basic Earnings Per Share $ .43 $ .34
================= =================
Diluted Earnings Per Share $ .43 $ .34
================= =================
Dividends per common share $ .20 $ .16
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
FOR SIX MONTHS JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Accumulated Other
Common Additional Retained Treasury Comprehensive
Stock Paid In Capital Earnings Stock Income (loss) Total
----- --------------- -------- ----- ------------- -----
<S> <C> <C> <C> <C> C> <C>
December 31, 1998 $ -- $16,456,624 $ 607,959 $(550,686) $ 163,636 $ 16,677,533
Comprehensive income:
Net income -- -- 875,492 -- -- 875,492
Net unrealized losses
on securities (net
of tax effect of $145,575) -- -- -- -- (247,872) (247,872)
------------
Total comprehensive income -- -- -- -- -- 627,620
------------
Cash dividends -- -- (416,904) -- -- (416,904)
------------ ----------- ----------- --------- --------- ------------
June 30, 1999 $ -- $16,456,624 $ 1,066,547 $(550,686) $ (84,236) $ 16,888,249
============ =========== =========== ========= ========= ============
December 31, 1999 -- 16,456,624 1,380,578 (815,799) (156,099) 16,865,304
Comprehensive income:
Net income -- -- 1,098,913 -- -- 1,098,913
Net unrealized gain on
securities (net of tax
effect of 80,774) -- -- -- -- 137,723 137,723
------------
Total comprehensive income -- -- -- -- -- 1,236,636
Cash dividends -- -- (516,120) -- -- (516,120)
Purchase of treasury stock -- -- -- (87,238) -- (87,238)
------------ ----------- ----------- --------- --------- ------------
June 30, 2000 $ -- 16,456,624 1,963,371 (903,037) (18,376) 17,498,582
============ =========== =========== ========= ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,098,913 $ 875,492
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 182,570 239,153
Net amortization (accretion) of unearned
premiums (discounts) on investments 2,312 (2,938)
Increase in accrued interest receivable and other assets (199,835) (74,978)
Provision for loan losses 120,000 5,000
Decrease in other liabilities (25,613) (86,132)
------------ ------------
Net cash provided by operating activities 1,178,347 955,597
------------ ------------
Cash flows from investing activities:
Purchase of investment securities (19,309,531) (4,300,042)
Maturities of investment securities 12,912,762 --
Net decrease in federal funds sold 8,905,000 --
Net increase in loans (8,897,591) (3,950,394)
Purchase of premises and equipment (33,083) (104,172)
------------ ------------
Net cash used in investing activities (6,422,443) (8,354,608)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts 5,211,459 (1,997,474)
Net increase in short-term borrowings 2,048,266 6,541,837
Dividends (516,120) (416,904)
Purchase of Treasury Stock (87,238) --
------------ ------------
Net cash provided by financing activities 6,656,367 4,127,459
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,412,271 (3,271,552)
Cash and cash equivalents, beginning of period 6,962,175 22,921,060
------------ ------------
Cash and cash equivalents, end of period $ 8,374,446 $ 19,649,508
============ ============
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 2,018,302 $ 1,820,302
Income taxes 545,848 490,200
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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
consolidated 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 of the Company. The
results of operations for the three and six months ended June 30, 2000 are not
necessarily indicative of the results which may be expected for the entire
year.
The preparation of the consolidated 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.
NOTE 2: INVESTMENT SECURITIES
Investment securities classified as "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 carried at fair value 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.
NOTE 3: SHAREHOLDERS' EQUITY
A regular quarterly cash dividend of $.11 per share was approved for
shareholders of record at June 30, 2000, payable July 31, 2000.
8
<PAGE> 9
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 2000, the Company reported net income of $1,098,913
or basic and diluted earnings per share of $.43, an increase of $223,421 or
25.52% compared to the net income for the first six months of 1999 of $875,492
or basic and diluted earnings per share of $.34. Total assets increased
$7,867,390 or 5.09% from December 31, 1999 to June 30, 2000.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2000 TO THREE MONTHS ENDED JUNE 30,
1999
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 $140,170 or 31.25% to $588,713 for the
three months ended June 30, 2000, from $448,543 for the three months ended June
30, 1999. The increase is primarily due to an increase in net interest income.
NET INTEREST INCOME
Net interest income increased $387,130 or 20.62% to $2,264,801 for the three
months ended June 30, 2000, from $1,877,671 for the three months ended June 30,
1999. Total interest and fee income increased $610,931 or 22.36% for the three
months ended June 30, 2000, to $3,343,599 from $2,732,668 for the three months
ended June 30, 1999. This increase in interest and fee income is due to an
increase in both average volume and average yield of interest earning assets.
Average interest earning assets increased from $137.3 million for the three
months ended June 30, 1999 to $147.4 million for the three months ended June
30, 2000 primarily due to an increase in average loans receivable of $10.0
million between periods. The yield on interest earning assets increased 112
basis points between periods to 9.10% for the three months ended June 30, 2000
compared to 7.98% for the same period in 1999. The increase in yield on average
interest earning assets is due to an increase in the yield on average loans
receivable of 116 basis points to 10.74% for the three months ended June 30,
2000 compared to 9.58% for the three months ended June 30, 1999. This increase
in yield is due to the fact that the majority of the Bank's commercial loans
reprice with the Bank's prime rate. The Bank's prime rate was 9.5% and 7.75% at
June 30, 2000 and 1999, respectively.
Total interest expense increased $223,801 or 26.18% to $1,078,798 for the three
months ended June 30, 2000, from $854,997 for three months ended June 30, 1999.
The increase in interest expense is primarily due to the increase in average
interest bearing liabilities and an increase in the average cost of funds.
Interest paid on deposits for the three months ended June 30, 2000, was
$898,583 compared to $780,384 for the three months ended June 30, 1999, an
increase of $118,199 or 15.15%. Total interest bearing deposits averaged
approximately $92.1 million for the three months ended June 30, 2000 as
compared to $91.4 million for the three months ended June 30, 1999. Interest on
short-term borrowings increased $105,602 or 141.53% to $180,215 for the period
ended June 30, 2000, from $74,613 for the three months ended June 30, 1999.
Short-term borrowings consist of demand notes to the U. S. Treasury and
securities sold under agreement to repurchase. Short-term borrowings averaged
approximately $12.5 million for the three months ended June 30, 2000 compared
to approximately $6.7 million for the three months ended June 30, 1999. The
average cost of interest bearing liabilities was 4.14% and 3.50% for the three
months ended June 30, 2000 and 1999, respectively.
9
<PAGE> 10
PROVISION FOR LOAN LOSSES
The provision 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, 2000, $80,000 was provided for loan losses,
compared to zero for the quarter ended June 30, 1999. This increase is due to
an increase in the loan portfolio during the quarter. At June 30, 2000, the
allowance for loan losses was $1,372,267 or 1.38% of total loans compared to an
allowance of $1,270,503 or 1.44% of total loans at June 30, 1999. During the
quarter ended June 30, 2000, the Bank incurred net recoveries totaling $7,510
as compared to net recoveries totaling $6,617 for the quarter ended June 30,
1999. There were five loans on non-accrual status at June 30, 2000, totaling
$341,196 and five loans on non-accrual status totaling $69,109 at June 30,
1999. Loans past due over 30 days totaled $742,806 or 0.75% of total loans at
June 30, 2000, compared to $349,178 or 0.40% of total loans at June 30, 1999.
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, 2000, in management's opinion is adequate
for probable losses that may occur in the loan portfolio.
OTHER INCOME
Other income for the three months ended June 30, 2000, increased $15,596 or
6.29% to $263,537 from $247,941 for the three months ended June 30, 1999. The
increase is due largely to an increase in overdraft fees charged. Service
charges, fees and commissions were $257,287 for the three months ended June 30,
2000, compared to $243,229 for the three months ended June 30, 1999, an
increase of $14,058 or 5.78%.
OTHER EXPENSE
Bank overhead increased $121,456 or 8.51% to $1,548,325 for the three months
ended June 30, 2000, from $1,426,869 for the three months ended June 30, 1999.
Salaries and employee benefits increased $43,538 or 5.72% to $804,959 for the
three months ended June 30, 2000, from $761,421 for the three month period
ended June 30, 1999. This increase is primarily attributed to annual merit
raises given to the employees and the addition of eight new employees. Other
operating expenses increased $93,435 or 25.82% to $455,248 for the three months
ended June 30, 2000, from $361,813 for the three months ended June 30, 1999.
This increase is primarily due to an increase in professional fees due to
consulting services related to internet banking activities.
INCOME TAX EXPENSE
During the quarter ended June 30, 2000, the Company's effective tax rate was
34.6% compared to 35.8% during the quarter ended June 30, 1999.
10
<PAGE> 11
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 TO SIX MONTHS ENDED JUNE 30, 1999
Net income increased $223,421 or 25.52% to $1,098,913 for the six month ended
June 30, 2000, from $875,492 for the six months ended June 30, 1999. The
increase is primarily due to an increase in net interest income.
NET INTEREST INCOME
Net interest income increased $637,115 or 17.32% to $4,315,975 for the six
months ended June 30, 2000, from $3,678,860 for the six months ended June 30,
1999. Total interest and fee income increased $997,771 or 18.55% for the six
months ended June 30, 2000, to $6,375,531 from $5,377,760 for the six months
ended June 30, 1999. This increase in interest and fee income is due to an
increase in both average volume and average yield of interest earning assets.
Average interest earning assets increased from $134.1 million for the six
months ended June 30, 1999 to $143.4 million for the six months ended June 30,
2000 primarily due to an increase in average loans receivable of $9.2 million
between periods. The yield on interest earning assets increased 117 basis
points between periods to 9.35% for the six months ended June 30, 2000 compared
to 8.18% for the same period in 1999. The increase in yield on average interest
earning assets is due to an increase in the yield on average loans receivable
of 125 basis points to 10.92% for the six months ended June 30, 2000 compared
to 9.67% for the six months ended June 30, 1999. This increase in yield is due
to the fact that the majority of the Bank's commercial loans reprice with the
Bank's prime rate. The Bank's prime rate was 9.5% and 7.75% at June 30, 2000
and 1999, respectively.
Total interest expense increased $360,656 or 21.23% to $2,059,556 for the six
months ended June 30, 2000 from $1,698,900 for six months ended June 30, 1999.
The increase in interest expense is primarily due to the increase in average
interest bearing liabilities and an increase in the average cost of funds.
Interest paid on deposits for the six months ended June 30, 2000, was
$1,705,587 compared to $1,583,776 for the six months ended June 30, 1999, an
increase of $121,811 or 7.69%. Total interest bearing deposits averaged
approximately $89.9 million for the six months ended June 30, 2000 compared to
$90.8 million for the six months ended June 30, 1999. Interest on short-term
borrowings increased $238,845 or 207.47% to $353,969 for the period ended June
30, 2000, from $115,124 for the six months ended June 30, 1999. Short-term
borrowings consist of demand notes to the U. S. Treasury and securities sold
under agreement to repurchase. Short-term borrowings averaged approximately
$12.6 million for the six months ended June 30, 2000 compared to approximately
$5.3 million for the six months ended June 30, 1999. The average cost of
interest bearing liabilities was 4.22% and 3.57% for the six months ended June
30, 2000 and 1999, respectively.
PROVISION FOR LOAN LOSSES
During the six months ended June 30, 2000, $120,000 was provided for loan
losses compared to $5,000 for the six months ended June 30, 1999. This increase
is due to loan growth during the six months ended June 30, 2000. At June 30,
2000 the allowance for loan losses was $1,372,267, or 1.38% of total loans.
This compares to an allowance of $1,270,503 or 1.44% of total loans at June 30,
1999. During the six months ended June 30, 2000, the Bank incurred net
recoveries totaling $2,129 as compared to net recoveries totaling $25,534 for
the same period ended June 30, 1999.
OTHER INCOME
Other income for the six months ended June 30, 2000, increased $13,437 or 2.58%
to $533,605 from $520,168 for the six months ended June 30, 1999. This increase
is due to an increase in overdraft fees charged on deposit accounts.
11
<PAGE> 12
OTHER EXPENSE
Other expenses increased $219,031 or 7.74% to $3,047,367 for the six months
ended June 30, 2000, from $2,828,336 for the six months ended June 30, 1999.
Salaries and employee benefits increased $134,887 or 9.06% to $1,623,988 for
the six months ended June 30, 2000, from $1,489,101 for the six months ended
June 30, 1999. This increase is primarily attributed to annual merit raises
given to the employees and the addition of eight new employees. Other operating
expenses increased $95,564 or 12.52% to $858,697 for the six months ended June
30, 2000, from $763,133 for the six months ending June 30, 1999. This increase
is due to outside professional fees related to internet banking activities.
INCOME TAX EXPENSE
For the six months ended June 30, 2000, the Company's effective tax rate was
34.7% compared to 35.9% for the six months ended June 30, 1999.
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 35.10% and 38.99% of average
assets at June 30, 2000 and 1999, 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 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 closely monitors its reliance on certificates of 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, 2000 and 1999, the Bank's liquidity ratio was 33.15% and 33.17%,
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 for a total shareholders'
equity at June 30, 2000, of $17,498,582. 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 Company and
the Bank were in compliance with regulatory capital requirements and met or
exceeded the "well-capitalized" regulatory guidelines at June 30, 2000. The
risk based capital ratio at June 30, 2000, for the Bank is 17.04% and at June
30, 1999, was 18.25%. 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 does not plan on any
significant capital expenditures during 2000.
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ACCOUNTING AND REPORTING CHANGES
In June of 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes, for the
first time, comprehensive accounting and reporting standards for derivative
instruments and hedging activities. For accounting purposes, SFAS 133
comprehensively defines a derivative instrument. SFAS 133 requires that all
derivative instruments be recorded in the statement of financial position at
fair value. The accounting for the gain or loss due to change in fair value of
the derivative instrument depends on whether the derivative instrument
qualifies as a hedge. If the derivative does not qualify as a hedge, the gains
or losses are reported in earnings when they occur. However, if the derivative
instrument qualifies as a hedge, the accounting varies based on the type of
risk being hedged.
SFAS 137 "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of SFAS
133" delayed the effective date of this statement for one year. SFAS 138
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of Statement No. 133" addresses a limited number of issues causing
implementation difficulties for entities that apply SFAS 133. SFAS 133 applies
to all entities and is effective as of the beginning of the first quarter of
the fiscal year beginning after June 15, 2000. The Company does not expect the
adoption of SFAS 133 to have a materially adverse impact on the consolidated
financial position or results of operations of the Company.
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
At the Annual Meeting of Shareholders held April 11, 2000 pursuant to the
Notice of Annual Meeting of Shareholders and Proxy Statement dated March 6,
2000, the following matters were voted on:
(1) Election of 16 nominees for directors: 2,392,481 shares
(92.5% of the votes cast) voted FOR the election of
directors; and
(2) Ratification of the appointment of KPMG LLP as independent
certified public accountants for 2000; 2,390,357 shares
(92.4% of the votes cast) voted FOR the ratification.
No other matters were submitted for a vote at the Annual Meeting or at any
other time during the quarter.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27.1 Financial Data Schedule. (For SEC use only.)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK OF SOUTH CAROLINA CORPORATION
August 11, 2000
BY: /S/ Hugh C. Lane, Jr.
-------------------------------------
Hugh C. Lane, Jr.
President
BY: /S/ William L. Hiott, Jr.
-------------------------------------
William L. Hiott, Jr.
Executive Vice President & Treasurer
15
