<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 September 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 November 3, 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
September 30, 2000
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 2000
and December 31, 1999.................................................3
Consolidated Statements of Operations - Three months
ended September 30, 2000 and 1999.....................................4
Consolidated Statements of Operations - Nine months
ended September 30, 2000 and 1999.....................................5
Consolidated Statements of Shareholders' Equity and Comprehensive
Income - Nine months ended September 30, 2000 and 1999................6
Consolidated Statements of Cash Flows - Nine months
ended September 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..........................................................13
Capital Resources..................................................13
Accounting and Reporting Changes...................................13
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
2
<PAGE> 3
PART I - ITEM 1 - FINANCIAL STATEMENTS
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Assets:
Cash and due from banks $ 7,270,118 $ 6,955,256
Interest bearing deposits in other banks 7,154 6,919
Federal funds sold 3,075,000 16,255,000
Investment securities available for sale 38,472,271 35,873,009
Investment securities held to maturity -- 600,208
Loans 102,519,973 90,748,717
Allowance for loan losses (1,425,200) (1,250,138)
------------- -------------
Net loans 101,094,773 89,498,579
Premises and equipment, net 3,634,195 3,818,406
Accrued interest receivable and other assets 1,827,440 1,646,025
------------- -------------
Total assets $ 155,380,951 $ 154,653,402
============= =============
Liabilities and shareholders' equity:
Deposits:
Non-interest bearing demand $ 34,241,368 $ 35,959,630
Interest bearing demand 29,641,411 28,602,488
Money market accounts 20,960,850 22,117,510
Certificates of deposit $100,000 and over 16,483,040 17,418,882
Other time deposits 18,629,715 15,767,175
Other savings deposits 5,548,708 5,414,765
------------- -------------
Total deposits 125,505,092 125,280,450
Short-term borrowings 10,654,613 11,439,333
Other liabilities 1,136,813 1,068,315
------------- -------------
Total liabilities 137,296,518 137,788,098
------------- -------------
Common Stock - No par value; 6,000,000 shares authorized;
issued 2,682,597 shares at September 30, 2000 and
December 31, 1999 -- --
Additional paid in capital 16,456,624 16,456,624
Retained earnings 2,322,779 1,380,578
Accumulated other comprehensive income (loss),
net of income taxes 208,067 (156,099)
Treasury stock - 102,000 and 95,769 shares at
September 30, 2000 and December 31, 1999, respectively (903,037) (815,799)
------------- -------------
Total shareholders' equity 18,084,433 16,865,304
------------- -------------
Total liabilities and shareholders' equity $ 155,380,951 $ 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
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Interest and fee income
Interest and fees on loans $2,758,546 $2,161,526
Interest and dividends on investment securities 622,985 489,799
Other interest income 49,608 171,503
---------- ----------
Total interest and fee income 3,431,139 2,822,828
---------- ----------
Interest expense
Interest on deposits 931,942 775,170
Interest on short-term borrowings 166,668 96,488
---------- ----------
Total interest expense 1,098,610 871,658
---------- ----------
Net interest income 2,332,529 1,951,170
Provision for loan losses 90,000 30,000
---------- ----------
Net interest income after provision for loan losses 2,242,529 1,921,170
---------- ----------
Other income
Service charges, fees and commissions 275,543 313,707
Other non-interest income 5,500 6,068
---------- ----------
Total other income 281,043 319,775
---------- ----------
Other expense
Salaries and employee benefits 844,333 784,345
Net occupancy expense 293,573 233,084
Other operating expenses 400,692 441,703
---------- ----------
Total other expense 1,538,598 1,459,132
---------- ----------
Income before income tax expense 984,974 781,813
Income tax expense 341,700 275,000
---------- ----------
Net income $ 643,274 $ 506,813
========== ==========
Basic earnings per share $ .25 $ .19
========== ==========
Diluted earnings per share $ .25 $ .19
========== ==========
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>
Nine Months Nine Months
Ended Ended
September 30, 2000 September 30, 1999
------------------ ------------------
S> <C> <C>
Interest and Fee Income
Interest and fees on loans $7,809,104 $6,332,537
Interest and dividends on investment securities 1,756,588 1,424,317
Other interest income 240,978 443,733
---------- ----------
Total interest and fee income 9,806,670 8,200,587
---------- ----------
Interest Expense
Interest on deposits 2,637,530 2,358,946
Interest on short-term borrowings 520,636 211,612
---------- ----------
Total interest expense 3,158,166 2,570,558
---------- ----------
Net Interest Income 6,648,504 5,630,029
Provision for loan losses 210,000 35,000
---------- ----------
Net interest income after provision for loan losses 6,438,504 5,595,029
---------- ----------
Other Income
Service charges, fees and commissions 797,941 825,168
Other non-interest income 16,706 14,775
---------- ----------
Total other income 814,647 839,943
---------- ----------
Other Expense
Salaries and employee benefits 2,468,322 2,273,446
Net occupancy expense 858,254 809,187
Other operating expenses 1,259,389 1,204,835
---------- ----------
Total other expense 4,585,965 4,287,468
---------- ----------
Income before income tax expense 2,667,186 2,147,504
Income tax expense 925,000 765,200
---------- ----------
Net Income $1,742,186 $1,382,304
========== ==========
Basic Earnings Per Share $ .68 $ .53
========== ==========
Diluted Earnings Per Share $ .68 $ .53
========== ==========
Dividends per common share $ .31 $ .25
========== ==========
</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 NINE MONTHS SEPTEMBER 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 -- -- 1,382,304 -- -- 1,382,304
Net unrealized losses
on securities (net of
tax effect of $140,028) -- -- -- -- (238,426) (238,426)
------------
Total comprehensive income -- -- -- -- -- 1,143,878
------------
Cash dividends -- -- (651,399) -- -- (651,399)
----------- ----------- ----------- --------- --------- ------------
September 30, 1999 $ -- $16,456,624 $ 1,338,864 $(550,686) $ (74,790) $ 17,170,012
=========== =========== =========== ========= ========= ============
December 31, 1999 -- 16,456,624 1,380,578 (815,799) (156,099) 16,865,304
Comprehensive income:
Net income -- -- 1,742,186 -- -- 1,742,186
Net unrealized gains on
securities (net of tax
effect of $213,451) -- -- -- -- 364,166 364,166
------------
Total comprehensive income -- -- -- -- -- 2,106,352
Cash dividends -- -- (799,985) -- -- (799,985)
Purchase of treasury stock -- -- -- (87,238) -- (87,238)
----------- ----------- ----------- --------- --------- ------------
September 30, 2000 $ -- $16,456,624 $ 2,322,779 $(903,037) $ 208,067 $ 18,084,433
=========== =========== =========== ========= ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
BANK OF SOUTH CAROLINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,742,186 $ 1,382,304
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 273,102 301,996
Net accretion of unearned discounts on investments (24,668) (21,617)
(Increase) decrease in accrued interest receivable
and other assets (322,972) 41,369
Provision for loan losses 210,000 35,000
Increase in other liabilities 68,498 21,662
------------ ------------
Net cash provided by operating activities 1,946,146 1,760,714
------------ ------------
Cash flows from investing activities:
Purchase of investment securities available for sale (19,309,531) (5,651,342)
Purchase of investment securities held to maturity -- (600,625)
Maturities of investment securities available for sale 17,312,762 4,000,000
Maturities of investment securities held to maturity 600,000 --
Net increase in loans (11,878,088) (6,845,065)
Purchase of premises and equipment (88,891) (156,396)
------------ ------------
Net cash used in investing activities (13,363,748) (9,253,428)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts 224,642 (1,060,380)
Net increase (decrease) in short-term borrowings (784,720) 6,056,715
Dividends paid (799,985) (651,399)
Purchase of treasury stock (87,238) --
------------ ------------
Net cash provided by (used in) financing activities (1,447,301) 4,344,936
------------ ------------
Net decrease in cash and cash equivalents (12,864,903) (3,147,778)
Cash and cash equivalents, beginning of period 23,217,175 22,921,060
------------ ------------
Cash and cash equivalents, end of period $ 10,352,272 $ 19,773,282
============ ============
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest $ 3,020,350 $ 2,662,292
Income taxes 898,848 775,081
Supplemental disclosure of non-cash investing activities:
Loans transferred to other real estate owned 71,894 --
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September 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
On September 21, 2000, a regular quarterly cash dividend of $.11 per share was
approved for shareholders of record at October 2, 2000, payable October 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 nine months of 2000, the Company reported net income of $1,742,186
or basic and diluted earnings per share of $.68, an increase of $359,882 or
26.03% compared to the net income for the first nine months of 1999 of
$1,382,304 or basic and diluted earnings per share of $.53. Total assets
increased $727,549 from December 31, 1999 to September 30, 2000.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS ENDED
SEPTEMBER 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 $136,461 or 26.93% to $643,274 for the
three months ended September 30, 2000, from $506,813 for the three months ended
September 30, 1999. The increase is primarily due to an increase in net interest
income.
NET INTEREST INCOME
Net interest income increased $381,359 or 19.55% to $2,332,529 for the three
months ended September 30, 2000, from $1,951,170 for the three months ended
September 30, 1999. Total interest and fee income increased $608,311 or 21.55%
for the three months ended September 30, 2000, to $3,431,139 from $2,822,828 for
the three months ended September 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 $139.3
million for the three months ended September 30, 1999 to $144.5 million for the
three months ended September 30, 2000 primarily due to an increase in average
loans receivable of $11.3 million between periods. The yield on interest earning
assets increased 138 basis points between periods to 9.42% for the three months
ended September 30, 2000 compared to 8.04% 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 128 basis points to 10.89% for the
three months ended September 30, 2000 compared to 9.61% for the three months
ended September 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 8.25% at September 30, 2000 and 1999,
respectively.
9
<PAGE> 10
Total interest expense increased $226,952 or 26.04% to $1,098,610 for the three
months ended September 30, 2000, from $871,658 for three months ended September
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 September 30, 2000,
was $931,942 compared to $775,170 for the three months ended September 30, 1999,
an increase of $156,772 or 20.22%. Total interest bearing deposits averaged
approximately $89.9 million for the three months ended September 30, 2000 as
compared to $91.0 million for the three months ended September 30, 1999.
Interest on short-term borrowings increased $70,180 or 72.73% to $166,668 for
the period ended September 30, 2000, from $96,488 for the three months ended
September 30, 1999. Short-term borrowings consist of demand notes to the U. S.
Treasury and securities sold under agreements to repurchase. Short-term
borrowings averaged approximately $11.0 million for the three months ended
September 30, 2000 compared to approximately $8.1 million for the three months
ended September 30, 1999. The average cost of interest bearing liabilities was
4.32% and 3.49% for the three months ended September 30, 2000 and 1999,
respectively.
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 September 30, 2000, $90,000 was provided for loan
losses, compared to $30,000 for the quarter ended September 30, 1999. This
increase is due to an increase in the loan portfolio during the quarter. At
September 30, 2000, the allowance for loan losses was $1,425,200 or 1.39% of
total loans compared to an allowance of $1,276,685 or 1.40% of total loans at
September 30, 1999. During the quarter ended September 30, 2000, the Bank
incurred net charge-offs totaling $37,067 as compared to net charge-offs
totaling $23,818 for the quarter ended September 30, 1999. There were three
loans on non-accrual status at September 30, 2000, totaling $21,763 and four
loans on non-accrual status totaling $95,811 at September 30, 1999. Loans past
due over 30 days totaled $821,577 or 0.80% of total loans at September 30, 2000,
compared to $220,886 or 0.24% of total loans at September 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 September 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 September 30, 2000, decreased $38,732 or
12.11% to $281,043 from $319,775 for the three months ended September 30, 1999.
The decrease is due largely to a decrease in overdraft fees charged. Service
charges, fees and commissions were $275,543 for the three months ended September
30, 2000, compared to $313,707 for the three months ended September 30, 1999, a
decrease of $38,164 or 12.17%.
10
<PAGE> 11
OTHER EXPENSE
Bank overhead increased $79,466 or 5.45% to $1,538,598 for the three months
ended September 30, 2000, from $1,459,132 for the three months ended September
30, 1999. Salaries and employee benefits increased $59,988 or 7.65% to $844,333
for the three months ended September 30, 2000, from $784,345 for the three
months ended September 30, 1999. This increase is primarily attributed to annual
merit raises given to the employee, an increase in ESOP contributions, and the
addition of several new employees. Net occupancy expense increased $60,489 or
25.95% to $293,573 for the three months ended September 30, 2000, from $233,084
for the three months ended September 30, 1999. This increase is primarily due to
an increase in depreciation expense. Other operating expenses decreased $41,011
or 9.28% to $400,692 for the three months ended September 30, 2000, from
$441,703 for the three months ended September 30, 1999. This decrease is
primarily due to a loss of $27,000 on the sale of a mortgage loan held for sale
in the quarter ended September 30, 1999. Also contributing to the decrease was
decreased loan origination costs due to decreased mortgage originations.
INCOME TAX EXPENSE
During the quarter ended September 30, 2000, the Company's effective tax rate
was 34.7% compared to 35.1% during the quarter ended September 30, 1999.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net income increased $359,882 or 26.03% to $1,742,186 for the nine months ended
September 30, 2000, from $1,382,304 for the nine months ended September 30,
1999. The increase is primarily due to an increase in net interest income.
NET INTEREST INCOME
Net interest income increased $1,018,475 or 18.09% to $6,648,504 for the nine
months ended September 30, 2000, from $5,630,029 for the nine months ended
September 30, 1999. Total interest and fee income increased $1,606,083 or 19.58%
for the nine months ended September 30, 2000, to $9,806,670 from $8,200,587 for
the nine months ended September 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 $135.8
million for the nine months ended September 30, 1999 to $143.8 million for the
nine months ended September 30, 2000 primarily due to an increase in average
loans receivable of $9.9 million between periods. The yield on interest earning
assets increased 105 basis points between periods to 9.12% for the nine months
ended September 30, 2000 compared to 8.07% 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 104 basis points to 10.67% for the nine
months ended September 30, 2000 compared to 9.63% for the nine months ended
September 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 8.25% at September 30, 2000 and 1999, respectively.
11
<PAGE> 12
Total interest expense increased $587,608 or 22.86% to $3,158,166 for the nine
months ended September 30, 2000 from $2,570,558 for nine months ended September
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 nine months ended September 30, 2000,
was $2,637,530 compared to $2,358,946 for the nine months ended September 30,
1999, an increase of $278,584 or 11.81%. Total interest bearing deposits
averaged approximately $89.9 million for the nine months ended September 30,
2000 compared to $90.9 million for the nine months ended September 30, 1999.
Interest on short-term borrowings increased $309,024 or 146.03% to $520,636 for
the nine months ended September 30, 2000, from $211,612 for the nine months
ended September 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 $12.1 million for the nine months ended
September 30, 2000 compared to approximately $6.2 million for the nine months
ended September 30, 1999. The average cost of interest bearing liabilities was
4.14% and 3.54% for the nine months ended September 30, 2000 and 1999,
respectively.
PROVISION FOR LOAN LOSSES
During the nine months ended September 30, 2000, $210,000 was provided for loan
losses compared to $35,000 for the nine months ended September 30, 1999. This
increase is due to loan growth during the nine months ended September 30, 2000.
At September 30, 2000 the allowance for loan losses was $1,425,200, or 1.39% of
total loans. This compares to an allowance of $1,276,685 or 1.40% of total loans
at September 30, 1999. During the nine months ended September 30, 2000, the Bank
incurred net charge-offs totaling $34,938 as compared to net recoveries totaling
$1,717 for the same period in 1999.
OTHER INCOME
Other income for the nine months ended September 30, 2000, decreased $25,296 or
3.01% to $814,647 from $839,943 for the nine months ended September 30, 1999.
This decrease is due to a decrease in service release premiums received from
mortgage loans sold.
OTHER EXPENSE
Other expenses increased $298,497 or 6.96% to $4,585,965 for the nine months
ended September 30, 2000, from $4,287,468 for the nine months ended September
30, 1999. Salaries and employee benefits increased $194,876 or 8.57% to
$2,468,322 for the nine months ended September 30, 2000, from $2,273,446 for the
nine months ended September 30, 1999. This increase is primarily attributed to
annual merit raises given to the employees, an increase in ESOP contributions,
and the addition of several new employees. Occupancy expense increased $49,067
or 6.06% to $858,254 for the nine months ended September 30, 2000, from $809,187
for the nine months ended September 30, 1999. This increase is due to increased
depreciation expense and property taxes. Other operating expenses increased
$54,554 or 4.53% to $1,259,389 for the nine months ended September 30, 2000,
from $1,204,835 for the nine months ended September 30, 1999. This increase is
due to outside professional fees related to internet banking activities offset
by a decrease in loss on sale of mortgage loans held for sale.
INCOME TAX EXPENSE
For the nine months ended September 30, 2000, the Company's effective tax rate
was 34.7% compared to 35.6% for the nine months ended September 30, 1999.
12
<PAGE> 13
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 34.49% and 37.34% of average
assets at September 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 September 30, 2000 and 1999, the
Bank's liquidity ratio was 31.50% and 31.96%, 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 September 30, 2000, of $18,084,433. 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 September 30, 2000. The
risk based capital ratio at September 30, 2000, for the Bank is 17.03% and at
September 30, 1999, was 18.04%. 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.
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.
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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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27.1 Financial Data Schedule for September 30, 2000.
There were no reports on Form 8-K filed during the quarter ended September 30,
2000.
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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
November 10, 2000
BY: /s/ Huch C. Lane, Jr.
------------------------------------
Hugh C. Lane, Jr.
President
BY: /s/ William L. Hiott, Jr.
------------------------------------
William L. Hiott, Jr.
Executive Vice President & Treasurer
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