United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
For the quarterly period ended June 30, 2020 Commission file number: 0-27702 Bank of South Carolina Corporation (Exact name of registrant issuer as specified in its charter) 256 Meeting Street, Charleston, SC 29401 (Address of principal executive offices) (843) 724-1500 (Registrant’s telephone number) Indicate by check mark whether the Yes ☒ No☐ Indicate by check mark whether the registrant has submitted electronically Yes ☒ No☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Securities registered pursuant to Section 12(b) of the Act: As of BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY (Unaudited) September 30, (Audited) December 31, 2016 See accompanying notes to consolidated financial statements. BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) See accompanying notes to consolidated financial statements. BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF See accompanying notes to consolidated financial statements. BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS TREASURY STOCK ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) TOTAL See accompanying notes to consolidated financial statements. BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY See accompanying notes to consolidated financial statements. BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) See accompanying notes to consolidated financial statements. BANK OF SOUTH CAROLINA CORPORATION☒ Quarterly☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ☐ ForTransition report pursuant to Section 13 or 15(d) of the quarterly period endedSeptember 30, 2017Securities Exchange Act of 1934☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934South Carolina 57-1021355 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.and posted on its Company Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ (Do not check if a smaller reporting company) Emerging growth company ☐ Title of each class Trading symbol(s) Name of each exchange on which registered Common stock BKSC NASDAQ November 9, 2017July 15, 2020, there were 4,984,4795,526,408 Common Shares outstanding.Bank of South Carolina Corporation and SubsidiaryTable of Contents2
2017 ASSETS Cash and due from banks $ 8,009,824 $ 8,141,030 Interest-bearing deposits at the Federal Reserve Bank 22,159,373 18,101,300 Investment securities available for sale 126,496,884 119,978,944 Mortgage loans to be sold 3,117,830 4,386,210 Loans 269,132,631 260,576,115 Less: Allowance for loan losses (3,886,959 ) (3,851,617 ) Net loans 265,245,672 256,724,498 Premises, equipment and leasehold improvements, net 2,252,832 2,296,624 Other real estate owned 566,632 521,943 Accrued interest receivable 1,328,542 1,614,002 Other assets 2,296,720 2,185,085 Total assets $ 431,474,309 $ 413,949,636 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Deposits: Non-interest-bearing demand $ 124,661,171 $ 126,034,478 Interest-bearing demand 99,066,299 96,260,589 Money market accounts 84,417,700 77,307,662 Time deposits over $250,000 17,695,869 17,822,136 Other time deposits 25,993,812 26,019,121 Other savings deposits 34,712,187 29,078,865 Total deposits 386,547,038 372,522,851 Accrued interest payable and other liabilities 1,217,803 813,811 Total liabilities 387,764,841 373,336,662 Shareholders’ equity Common stock-no par, 12,000,000 shares authorized; 5,225,875 and 5,197,535 shares issued at September 30, 2017 and December 31, 2016, respectively; 4,984,479 and 4,956,139 shares outstanding at September 30, 2017 and December 31, 2016, respectively — — Additional paid in capital 37,172,768 36,824,022 Retained earnings 8,558,442 6,643,476 Treasury stock: 241,396 shares at September 30, 2017 and December 31, 2016 (2,247,415 ) (2,247,415 ) Accumulated other comprehensive income (loss), net of income taxes 225,673 (607,109 ) Total shareholders’ equity 43,709,468 40,612,974 Total liabilities and shareholders’ equity $ 431,474,309 $ 413,949,636 See accompanying notes to consolidated financial statements.3 BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED
SEPTEMBER 30, 2017 2016 Interest and fee income Loans, including fees $ 3,364,293 $ 3,360,151 Taxable securities 409,055 379,039 Tax-exempt securities 251,172 255,231 Other 92,512 35,722 Total interest and fee income 4,117,032 4,030,143 Interest expense Deposits 110,625 96,467 Short-term borrowings — — Total interest expense 110,625 96,467 Net interest income 4,006,407 3,933,676 Provision for loan losses 20,000 210,000 Net interest income after provision for loan losses 3,986,407 3,723,676 Other income Service charges and fees 278,204 265,769 Mortgage banking income 149,379 409,674 Gains on sales of securities 45,820 — Other non-interest income 8,479 11,143 Total other income 481,882 686,586 Other expense Salaries and employee benefits 1,487,207 1,485,621 Net occupancy expense 399,534 377,075 Other operating expenses 597,797 721,572 Net other real estate owned expenses — — Total other expenses 2,484,538 2,584,268 Income before income tax expense 1,983,751 1,825,994 Income tax expense 543,098 399,656 Net income $ 1,440,653 $ 1,426,338 Weighted average shares outstanding Basic 4,978,515 4,931,185 Diluted 5,067,561 5,054,723 Basic income per common share $ 0.29 $ 0.29 Diluted income per common share $ 0.28 $ 0.28 (Unaudited) (Audited) June 30, December 31, 2020 2019 ASSETS �� Cash and due from banks $ 6,886,753 $ 9,773,893 Interest-bearing deposits at the Federal Reserve 89,344,677 39,320,526 Investment securities available for sale 108,906,662 100,449,956 Mortgage loans to be sold 11,624,188 5,062,398 Loans 309,907,305 274,072,560 Less: Allowance for loan losses (4,110,630 ) (4,003,758 ) Net loans 305,796,675 270,068,802 Premises, equipment and leasehold improvements, net 4,161,381 4,290,435 Right of use asset 12,971,774 13,209,217 Accrued interest receivable 1,332,528 1,309,772 Other assets 1,596,912 1,527,521 Total assets $ 542,621,550 $ 445,012,520 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Deposits: Non-interest bearing demand $ 177,061,501 $ 125,621,031 Interest bearing demand 141,000,259 125,175,935 Money market accounts 90,750,383 68,964,879 Time deposits over $250,000 4,199,914 5,967,559 Other time deposits 17,045,826 16,215,228 Other savings deposits 43,639,294 37,247,023 Total deposits 473,697,177 379,191,655 Accrued interest payable and other liabilities 1,991,744 1,443,616 Lease liability 12,971,774 13,209,217 Total liabilities 488,660,695 393,844,488 Shareholders’ equity Common stock - no par 12,000,000 shares authorized; Issued 5,812,038 shares at June 30, 2020 and 5,799,637 shares at December 31, 2019. Shares outstanding 5,530,682 and 5,530,001 at June 30, 2020 and December 31, 2019, respectively. — — Additional paid in capital 47,290,003 47,131,034 Retained earnings 7,131,796 5,879,409 Treasury stock: 281,356 and 269,636 shares at June 30, 2020 and December 31, 2019, respectively. (2,515,472 ) (2,325,225 ) Accumulated other comprehensive income, net of income taxes 2,054,528 482,814 Total shareholders’ equity 53,960,855 51,168,032 Total liabilities and shareholders’ equity $ 542,621,550 $ 445,012,520 4 NINE MONTHS ENDED
SEPTEMBER 30, 2017 2016 Interest and fee income Loans, including fees $ 9,727,886 $ 9,603,030 Taxable securities 1,147,811 992,658 Tax-exempt securities 778,259 734,716 Other 187,782 102,472 Total interest and fee income 11,841,738 11,432,876 Interest expense Deposits 313,929 283,588 Short-term borrowings — 7 Total interest expense 313,929 283,595 Net interest income 11,527,809 11,149,281 Provision for loan losses 52,500 395,000 Net interest income after provision for loan losses 11,475,309 10,754,281 Other income Service charges and fees 835,643 792,036 Mortgage banking income 825,003 1,058,438 Gains on sales of securities 45,820 348,327 Other non-interest income 23,769 23,385 Total other income 1,730,235 2,222,186 Other expense Salaries and employee benefits 4,457,778 4,481,067 Net occupancy expense 1,157,442 1,133,784 Other operating expenses 1,884,928 1,928,994 Net other real estate owned expenses 46,143 13,450 Total other expenses 7,546,291 7,557,295 Income before income tax expense 5,659,253 5,419,172 Income tax expense 1,606,127 1,484,989 Net income $ 4,053,126 $ 3,934,183 Weighted average shares outstanding Basic 4,969,617 4,929,977 Diluted 5,058,958 5,058,837 Basic income per common share $ 0.82 $ 0.80 Diluted income per common share $ 0.80 $ 0.78 Three Months Ended June 30, 2020 2019 Interest and fee income Loans, including fees $ 3,721,184 $ 4,090,423 Taxable securities 382,993 423,211 Tax-exempt securities 82,783 137,115 Other 16,251 162,596 Total interest and fee income 4,203,211 4,813,345 Interest expense Deposits 76,005 245,226 Total interest expense 76,005 245,226 Net interest income 4,127,206 4,568,119 Provision for loan losses — 135,000 Net interest income after provision for loan losses 4,127,206 4,433,119 Other income Service charges and fees 250,337 300,553 Mortgage banking income 446,119 256,379 Gain on sales of securities — 28,900 Other non-interest income 7,166 6,907 Total other income 703,622 592,739 Other expense Salaries and employee benefits 1,812,832 1,664,436 Net occupancy expense 554,534 427,247 Other operating expenses 334,199 394,178 Data processing fees 168,658 148,921 Total other expense 2,870,223 2,634,782 Income before income tax expense 1,960,605 2,391,076 Income tax expense 459,582 550,229 Net income $ 1,501,023 $ 1,840,847 Weighted average shares outstanding Basic 5,529,632 5,517,236 Diluted 5,714,121 5,587,985 Basic income per common share $ 0.27 $ 0.33 Diluted income per common share $ 0.26 $ 0.33 5 COMPREHENSIVE INCOME (UNAUDITED) THREE MONTHS ENDED
SEPTEMBER 30, 2017 2016 Net income $ 1,440,653 $ 1,426,338 Other comprehensive income: Unrealized gain on securities arising during the period (339,956 ) — Reclassification adjustment for securities gains realized in net income 45,820 (387,289 ) Other comprehensive income, before tax (294,136 ) (387,289 ) Income tax effect related to items of other comprehensive income 100,006 104,687 Other comprehensive income, after tax (194,130 ) (282,602 ) Total comprehensive income $ 1,246,523 $ 1,143,736 NINE MONTHS ENDED
SEPTEMBER 30, 2017 2016 Net income $ 4,053,126 $ 3,934,183 Other comprehensive income: Unrealized gain on securities arising during the period 1,242,599 — Reclassification adjustment for securities gains realized in net income 45,820 944,314 Other comprehensive income, before tax 1,288,419 944,314 Income tax effect related to items of other comprehensive income (455,637 ) (388,005 ) Other comprehensive income, after tax 832,782 556,309 Total comprehensive income $ 4,885,908 $ 4,490,492 Six Months Ended June 30, 2020 2019 Interest and fee income Loans, including fees $ 7,392,166 $ 8,042,142 Taxable securities 746,432 886,665 Tax-exempt securities 207,408 298,836 Other 158,631 278,535 Total interest and fee income 8,504,637 9,506,178 Interest expense Deposits 170,077 488,984 Total interest expense 170,077 488,984 Net interest income 8,334,560 9,017,194 Provision for loan losses — 145,000 Net interest income after provision for loan losses 8,334,560 8,872,194 Other income Service charges and fees 525,927 580,486 Mortgage banking income 792,202 380,041 Gain on sale of securities — 28,900 Other non-interest income 13,124 12,095 Total other income 1,331,253 1,001,522 Other expense Salaries and employee benefits 3,584,613 3,320,960 Net occupancy expense 1,079,841 814,379 Other operating expenses 734,248 864,227 Data processing fees 328,042 294,577 Total other expense 5,726,744 5,294,143 Income before income tax expense 3,939,069 4,579,573 Income tax expense 916,915 1,049,462 Net income $ 3,022,154 $ 3,530,111 Weighted average shares outstanding Basic 5,529,944 5,515,832 Diluted 5,708,718 5,586,813 Basic income per common share $ 0.55 $ 0.64 Diluted income per common share $ 0.53 $ 0.63 6 SHAREHOLDERS’ EQUITYCOMPREHENSIVE INCOME (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (UNAUDITED) December 31, 2015 $ 36,341,744 $ 4,064,834 $ (2,247,415 ) $ 992,549 $ 39,151,712 Net income — 3,934,183 — — 3,934,183 Other comprehensive income — — — 556,309 556,309 Exercise of stock options 333,704 — — — 333,704 Stock-based compensation expense 58,112 — — — 58,112 Cash dividends ($0.40 per common share) — (1,974,529 ) — — (1,974,529 ) September 30, 2016 $ 36,733,560 $ 6,024,488 $ (2,247,415 ) $ 1,548,858 $ 42,059,491 December 31, 2016 $ 36,824,022 $ 6,643,476 $ (2,247,415 ) $ (607,109 ) $ 40,612,974 Net income — 4,053,126 — — 4,053,126 Other comprehensive income — — — 832,782 832,782 Exercise of stock options 294,342 — — — 294,342 Stock-based compensation expense 54,404 — — — 54,404 Cash dividends ($0.43 per common share) — (2,138,160 ) — — (2,138,160 ) September 30, 2017 $ 37,172,768 $ 8,558,442 $ (2,247,415 ) $ 225,673 $ 43,709,468 Three Months Ended June 30, 2020 2019 Net income $ 1,501,023 $ 1,840,847 Other comprehensive income Unrealized gain on securities arising during the period 1,228,734 1,343,539 Reclassification adjustment for securities gains realized in net income — (28,900 ) Other comprehensive income before tax 1,228,734 1,314,639 Income tax effect related to items of other comprehensive income before tax (258,036 ) (276,074 ) Other comprehensive income after tax 970,698 1,038,565 Total comprehensive income $ 2,471,721 $ 2,879,412 Six Months Ended June 30, 2020 2019 Net income $ 3,022,154 $ 3,530,111 Other comprehensive income Unrealized gain on securities arising during the period 1,989,513 2,599,154 Reclassification adjustment for securities gains realized in net income — (28,900 ) Other comprehensive income before tax 1,989,513 2,570,254 Income tax effect related to items of other comprehensive income before tax (417,799 ) (539,753 ) Other comprehensive income after tax 1,571,714 2,030,501 Total comprehensive income $ 4,593,868 $ 5,560,612 7
CONSOLIDATED STATEMENTS OF CASH FLOWSHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED) NINE MONTHS ENDED
SEPTEMBER 30, 2017 2016 Cash flows from operating activities: Net income $ 4,053,126 $ 3,934,183 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 142,859 140,276 Gain on sale of securities (45,820 ) (446,041 ) Loss on sale of other real estate — 13,450 Valuation and other adjustments to other real estate 46,143 — Provision for loan losses 52,500 395,000 Stock-based compensation expense 54,404 58,112 Deferred income taxes (567,272 ) — Net amortization of unearned discounts on investment securities 293,080 223,272 Origination of mortgage loans held for sale (43,420,076 ) (57,759,783 ) Proceeds from sale of mortgage loans held for sale 44,688,456 58,617,055 Decrease (increase) in accrued interest receivable and other assets 285,460 (721,562 ) Increase in accrued interest payable and other liabilities 350,649 744,530 Net cash provided by operating activities 5,933,509 5,198,492 Cash flows from investing activities: Proceeds from calls and maturities of investment securities available for sale 4,380,870 4,728,518 Proceeds from sale of available for sale securities 20,231,265 26,113,400 Purchase of investment securities available for sale (30,088,916 ) (24,759,858 ) Proceeds from sale of other real estate — 85,000 Net increase in loans (8,664,506 ) (23,828,667 ) Purchase of premises, equipment and leasehold improvements, net (99,067 ) (69,303 ) Net cash used in investing activities (14,240,354 ) (17,730,910 ) Cash flows from financing activities: Net increase in deposit accounts 14,024,187 6,687,942 Dividends paid (2,084,817 ) (1,920,866 ) Stock options exercised 294,342 333,704 Net cash provided by financing activities 12,233,712 5,100,780 Net increase (decrease) in cash and cash equivalents 3,926,867 (7,431,638 ) Cash and cash equivalents at beginning of period 26,242,330 29,194,786 Cash and cash equivalents at end of period $ 30,169,197 $ 21,763,148 Supplemental disclosure of cash flow data: Cash paid during the year for: Interest $ 365,558 $ 308,857 Income taxes $ 2,055,063 $ 1,669,840 Supplemental disclosure for non-cash investing and financing activity: Change in unrealized gain on securities available for sale, net of income taxes $ 832,782 $ 556,309 Change in dividends payable $ 53,343 $ 53,663 Transfer of loans to other real estate owned $ 90,832 $ — Shares Outstanding Additional Paid in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total December 31, 2019 5,530,001 $ 47,131,034 $ 5,879,409 $ (2,325,225 ) $ 482,814 $ 51,168,032 Net income — — 1,521,131 — — 1,521,131 Other comprehensive income — — — — 601,016 601,016 Stock option exercises 362 4,489 — — — 4,489 Stock-based compensation expense — 16,418 — — — 16,418 Cash dividends ($0.16 per common share) — — (884,859 ) — — (884,859 ) March 31, 2020 5,530,363 $ 47,151,941 $ 6,515,681 $ (2,325,225 ) $ 1,083,830 $ 52,426,227 Net income — — 1,501,023 — — 1,501,023 Other comprehensive income — — — — 970,698 970,698 Stock option exercises 9,619 108,757 — (41,697 ) — 67,060 Stock-based compensation expense — 29,305 — — — 29,305 Repurchase of common shares (9,300 ) — — (148,550 ) — (148,550 ) Cash dividends ($0.16 per common share) — — (884,908 ) — — (884,908 ) June 30, 2020 5,530,682 $ 47,290,003 $ 7,131,796 $ (2,515,472 ) $ 2,054,528 $ 53,960,855 Shares Outstanding Additional Paid in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total December 31, 2018 5,510,917 $ 46,857,734 $ 2,650,296 $ (2,268,264 ) $ (1,777,205 ) $ 45,462,561 Net income — — 1,689,264 — — 1,689,264 Other comprehensive income — — — — 991,936 991,936 Stock option exercises 5,808 51,265 — — — 51,265 Stock-based compensation expense — 18,881 — — — 18,881 Cash dividends ($0.16 per common share) — — (882,676 ) — — (882,676 ) March 31, 2019 5,516,725 $ 46,927,880 $ 3,456,884 $ (2,268,264 ) $ (785,269 ) $ 47,331,231 Net income — — 1,840,847 — — 1,840,847 Other comprehensive income — — — — 1,038,565 1,038,565 Stock option exercises 8,553 94,977 — (45,843 ) — 49,134 Stock-based compensation expense — 18,882 — — — 18,882 Cash dividends ($0.16 per common share) — — (884,044 ) — — (884,044 ) June 30, 2019 5,525,278 $ 47,041,739 $ 4,413,687 $ (2,314,107 ) $ 253,296 $ 49,394,615 8 Six Months Ended June 30, 2020 2019 Cash flows from operating activities: Net income $ 3,022,154 $ 3,530,111 Adjustments to reconcile net income net cash (used in) provided by operating activities: Depreciation expense 210,774 109,132 Gain on sale of investment securities — (28,900 ) Provision for loan losses — 145,000 Stock-based compensation expense 45,723 37,763 Deferred income taxes (487,188 ) (21,966 ) Net amortization of unearned discounts on investment securities available for sale 94,805 140,730 Origination of mortgage loans held for sale (69,441,770 ) (27,140,026 ) Proceeds from sale of mortgage loans held for sale 62,879,980 25,464,482 Increase in accrued interest receivable and other assets (22,756 ) (215,254 ) Increase in accrued interest payable and other liabilities 548,019 599,626 Net cash (used in) provided by operating activities (3,150,259 ) 2,620,698 Cash flows from investing activities: Proceeds from calls and maturities of investment securities available for sale 10,088,000 5,743,835 Proceeds from sale of investment securities available for sale — 14,952,500 Purchase of investment securities available for sale (16,650,000 ) — Net increase in loans (35,727,873 ) (9,412,146 ) Purchase of premises, equipment, and leasehold improvements, net (81,720 ) (463,239 ) Net cash (used in) provided by investing activities (42,371,593 ) 10,820,950 Cash flows from financing activities: Net increase in deposit accounts 94,505,522 1,431,517 Dividends paid (1,769,658 ) (1,709,314 ) Stock options exercised 71,549 100,399 Share repurchases (148,550 ) — Net cash provided by (used in) financing activities 92,658,863 (177,398 ) Net increase in cash and cash equivalents 47,137,011 13,264,250 Cash and cash equivalents at the beginning of the period 49,094,419 31,832,241 Cash and cash equivalents at the end of the period $ 96,231,430 $ 45,096,491 Supplemental disclosure of cash flow data: Cash paid during the period for: Interest $ 207,880 $ 589,058 Income taxes $ — $ 627,642 Supplemental disclosures for non-cash investing and financing activity: Change in unrealized gain on securities available for sale, net of income taxes $ (1,571,714 ) $ (2,030,501 ) Change in dividends payable $ 109 $ 57,406 Right of use assets obtained in exchange for lease obligations $ — $ 7,334,079 Change in right of use assets and lease liabilities $ (237,443 ) $ (115,435 )
Note 1: Nature of Business and Basis of Presentation
Organization
The Bank of South Carolina (the “Bank”) was organized on October 22, 1986 and opened for business as a state-chartered financial institution on February 26, 1987, in Charleston, South Carolina. The Bank was reorganized into a wholly-owned subsidiary of Bank of South Carolina Corporation (the “Company”), effective April 17, 1995. At the time of the reorganization, each outstanding share of the Bank was exchanged for two shares of Bank of South Carolina Corporation Stock.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. DuringIn consolidation, all significant intercompany balances and transactions have been eliminated.
References to “we”, “us”, “our”, “the Bank”, or “the Company” refer to the parent and its subsidiary that are consolidated for financial purposes.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or (“GAAP”), for the interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 3, 2017.6, 2020. In the opinion of management, these interim financial statements present fairly, in all material respects, the Company’s consolidated financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.
Accounting Estimates and Assumptions
The preparation of the consolidated financial statements requiresare prepared in conformity with GAAP, which require 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 as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ significantly from these estimates and assumptions. Material estimates generally susceptible to significant change are related to the determination of the allowance for loan losses, impaired loans, other real estate owned, deferred tax assets, the fair value of financial instruments and other-than-temporary impairment of investment securities.
Reclassification
Certain amounts in the prior years’ financial statements have been reclassified to conform to the current period’s presentation. Such reclassifications had no effect on shareholders’ equity or the net income as previously reported.
Income per share
Basic income per share representsis computed by dividing net income available to shareholders divided by the weighted-average number of common shares outstanding during the period. Dilutive income per share reflects additionalis computed by dividing net income by the weighted-average number of common shares that would have been outstanding if dilutiveand potential common shares had been issued. The only potentialoutstanding. Potential common share equivalents are those related toshares consist of dilutive stock options. Stock options that are anti-dilutive are excluded from the calculation of diluted net income per share. The dilutive effect of options outstanding under our stock compensation plan is reflected in diluted earnings per share by the application ofdetermined using the treasury stock method.method and the average market price of common stock. Retroactive recognition has been given for the effects of all stock dividends.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. We have reviewed events occurring through the date the financial statements were available to be issued and no subsequent events occurred requiring accrual or disclosure.
Recent Accounting Pronouncements
The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting and/or disclosure of financial information by the Company.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers, Topic 606.The core principle of the new standard is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. This guidance also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. In August 2015, the FASB deferred the effective date of the amendments. As a result of the deferral, the guidance will be effective for the Company for reporting periods beginning after December 15, 2017. We will apply this guidance using a modified retrospective approach. Because the amendment does not apply to revenue associated with financial instruments, such as loans and investment securities available for sale, we do not expect this amendment to have a material effect on our consolidated financial statements. We are still evaluating the effects of the amendment regarding its applicability and related impact on credit card fees and deposit service charges.
In January 2016, the FASB issued ASU 2016-01,Financial Instruments – Overall (Subtopic 825-10); Recognition and Measurement of Financial Instruments and Financial Liabilities.This update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect this amendment to have a material effect on its financial statements.
In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842),which revises certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the effect that implementation of the new standard will have on our results of operations and cash flows but expect the effect on the financial position to be considerable due to the fact that substantially all operating lease commitments will be recognized as right of use assets and lease liabilities based on the present value of unpaid lease payments as of the date of adoption.
In March 2016, the FASB issued ASU 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect this amendment to have a material effect on its financial statements.
In March 2016, the FASB issued ASU 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share – Based Payment Accounting, to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments became effective for the Company on January 1, 2017 and this amendment did not have a material effect on its financial statements.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2016, the FASB issued ASU 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.
In May 2016, the FASB issued ASU 2016-12,Revenue from Contracts with Customers (Topic 606): Narrow- Scope Improvements and Practical Expedients, to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.
In June 2016, the FASB issued ASU 2016-13,Financial instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,to change the accounting for credit losses and modify the impairment model for certain debt securities. In May 2019, the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. In October 2019, the FASB voted to extend the implementation date for smaller reporting companies, non-SEC public companies, and private companies. The amendmentsamendment will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all organizations for periods beginning after December 15, 2018.2022. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows. It will be influenced by the quality, composition, and characteristics of our loan and investment portfolios, as well as the expected economic conditions and forecasts at the time of enactment and future reporting periods.
In August 2016,2018, the FASB issued ASU 2016-15,2018-13, Statement of Cash FlowsFair Value Measurement (Topic 230)820): Classification of Certain Cash ReceiptsDisclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments remove, modify, and Cash Payments, to clarify howadd certain cash receipts and cash payments are presented and classifiedfair value disclosure requirements based on the concepts in the statementFASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles and Goodwill and Other-Internal Use Software (Subtopic 350-40):Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract),which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of cash flows.a direct interest in its entirety. The amendment became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.
In April 2019, the FASB issued guidance that clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for the reporting period beginning after December 15, 2019. The amendments related to hedging became effective January 1, 2019. The amendments related to recognition and measurement of financial instruments became effective for the Company on January 1, 2020 and did not have a material effect on the financial statements.
In July 2019, the FASB updated various Topics of the ASC to align the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. The amendments were effective upon issuance and did not have a material effect on the financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which provides guidance to simply accounting for income taxes by removing specific technical exceptions that can produce information investors do not understand. The amendments improve and simplify the application of GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The amendments are effective for fiscal years beginning after December 15, 20172020, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on itsthe financial statements.
In December 2016,January 2020, the FASB issued ASU 2016-20,Technical Correctionsguidance to address accounting for the transition into and Improvements to Topic 606, Revenue from Contracts with Customers. These corrections make a limited number of revisions to several piecesout of the revenue recognition standard issued in 2014.equity method and measuring certain purchased options and forward contracts to acquire investments. The effective date and transition requirements for the technical corrections will beamendments are effective for the Company for reporting periodsfiscal years beginning after December 15, 2017.2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company will continue to evaluate the impact of this ASU and does not expect these amendments to have a material effect on its financial statements.
In January 2017,February 2020, the FASB issued ASU 2017-01,Clarifying the Definition of a Business, which provided guidance to assist with evaluating whether transactions should be accounted for as acquisitions (or disposals)add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of assets or businesses. The update is intendedSEC Staff Accounting Bulletin No. 119 related to address concerns that the existing definitionnew credit losses standard and comments by the SEC staff related to the revised effective date of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions.the new leases standard. The amendments arewere effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective date.upon issuance. The Company does not expect this amendmentthese amendments to have a material effect on its financial statements.
In February 2017,March 2020, the FASB issued ASU 2017-05,Clarifyingguidance that makes narrow-scope improvements to various aspects of the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, to clarifyfinancial instrument guidance, including the scope of establishedcurrent expected credit losses (CECL) guidance on nonfinancial asset derecognition, issued as part of ASU 2014-09,Revenue from Contracts with Customers, as well as accounting for partial sales of nonfinancial assets.in 2016. The amendments conformrelated to conforming amendments. For public business entities, the derecognition guidance on nonfinancial assets withamendments are effective upon issuance of this final ASU. The effective date of the modelamendments to ASU 2016-01 is for transactions in the new revenue standard. This amendment is effective for annual periodsfiscal years beginning after December 15, 2017.2019, including interim periods within those fiscal years. For the amendments related to ASU 2016-13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies (SRCs) as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. Early adoption will continue to be permitted. For entities that have not yet adopted the guidance in ASU 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. The Company does not expect this amendmentthese amendments to have a material effect on its financial statements.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2017,2020, the FASB issued ASU 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortizationguidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of Purchased Callable Debt Securities, which shortens the amortization period for the premium to the earliest call date. The amendment will be effective for the Company for interim and annual periods beginning afterMarch 12, 2020 through December 15, 2018. Early adoption is permitted.31, 2022. The Company does not expect this amendmentthese amendments to have a material effect on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations or cash flows.
Note 2: Investment Securities
The amortized cost gross unrealized gains and losses, and fair value of investment securities available for sale are summarized as follows:
SEPTEMBER 30, 2017 | ||||||||||||||||
AMORTIZED COST | GROSS UNREALIZED GAINS | GROSS UNREALIZED LOSSES | FAIR VALUE | |||||||||||||
U.S. Treasury Notes | $ | 26,112,531 | $ | 24,169 | $ | (39,199 | ) | $ | 26,097,501 | |||||||
Government-Sponsored Enterprises | 59,497,890 | 179,426 | (307,911 | ) | 59,369,405 | |||||||||||
Municipal Securities | 40,561,715 | 765,902 | (297,639 | ) | 41,029,978 | |||||||||||
Total | $ | 126,172,136 | $ | 969,497 | $ | (644,749 | ) | $ | 126,496,884 |
DECEMBER 31, 2016 | ||||||||||||||||||||||||||||||||
AMORTIZED COST | GROSS UNREALIZED GAINS | GROSS UNREALIZED LOSSES |
VALUE | June 30, 2020 | ||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||||||||||||
U.S. Treasury Notes | $ | 24,148,295 | $ | 41,153 | $ | (250,385 | ) | $ | 23,939,063 | $ | 23,058,684 | $ | 542,757 | $ | — | $ | 23,601,441 | |||||||||||||||
Government-Sponsored Enterprises | 51,737,930 | 129,482 | (833,321 | ) | 51,034,091 | 66,754,370 | 1,593,682 | (9,967 | ) | 68,338,085 | ||||||||||||||||||||||
Municipal Securities | 45,056,390 | 765,813 | (816,413 | ) | 45,005,790 | 16,492,938 | 474,198 | — | 16,967,136 | |||||||||||||||||||||||
Total | $ | 120,942,615 | $ | 936,448 | $ | (1,900,119 | ) | $ | 119,978,944 | $ | 106,305,992 | $ | 2,610,637 | $ | (9,967 | ) | $ | 108,906,662 |
December 31, 2019 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
U.S. Treasury Notes | $ | 23,080,465 | $ | 99,735 | $ | — | $ | 23,180,200 | ||||||||
Government-Sponsored Enterprises | 50,139,959 | 401,336 | (43,100 | ) | 50,498,195 | |||||||||||
Municipal Securities | 26,618,375 | 169,640 | (16,454 | ) | 26,771,561 | |||||||||||
Total | $ | 99,838,799 | $ | 670,711 | $ | (59,554 | ) | $ | 100,449,956 |
The amortized cost and estimated fair value of investment securities available for sale as of SeptemberJune 30, 20172020 and December 31, 2016,2019, by contractual maturity are as follows:in the following table.
SEPTEMBER 30, 2017 | DECEMBER 31, 2016 | |||||||||||||||
AMORTIZED | FAIR | AMORTIZED | FAIR | |||||||||||||
Due in one year or less | $ | 8,561,255 | $ | 8,586,020 | $ | 3,343,347 | $ | 3,350,205 | ||||||||
Due in one year to five years | 70,669,406 | 71,024,994 | 82,848,411 | 82,682,901 | ||||||||||||
Due in five years to ten years | 43,799,734 | 43,853,008 | 29,662,030 | 29,169,228 | ||||||||||||
Due in ten years and over | 3,141,741 | 3,032,862 | 5,088,827 | 4,776,610 | ||||||||||||
Total | $ | 126,172,136 | $ | 126,496,884 | $ | 120,942,615 | $ | 119,978,944 |
June 30, 2020 | December 31, 2019 | |||||||||||||||
Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | |||||||||||||
Due in one year or less | $ | 10,189,841 | $ | 10,320,371 | $ | 9,185,615 | $ | 9,191,226 | ||||||||
Due in one year to five years | 69,550,840 | 71,471,655 | 77,261,123 | 77,815,119 | ||||||||||||
Due in five years to ten years | 26,565,311 | 27,114,636 | 13,392,061 | 13,443,611 | ||||||||||||
Due in ten years and over | — | — | — | — | ||||||||||||
Total | $ | 106,305,992 | $ | 108,906,662 | $ | 99,838,799 | $ | 100,449,956 |
Investment securitiesSecurities pledged to secure public deposits and for other purposes required or permitted by law at Septemberboth June 30, 20172020 and December 31, 2016,2019, had a fair value of $54.2$41.2 million and $47.6$37.6 million, respectively.
BANK OF SOUTH CAROLINA CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at SeptemberJune 30, 20172020 and December 31, 2016.2019. We believe that all unrealized losses have resulted from temporary changes in the interest rates and currentrate market conditions and not as a result of credit deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below before recovery of their amortized cost.
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||||||||||||||
# | Fair Value | Loss | # | Fair Value | Loss | # | Fair Value | Loss | ||||||||||||||||||||||||||||
September 30, 2017 Available for sale | ||||||||||||||||||||||||||||||||||||
U.S. Treasury notes | 3 | $ | 15,146,094 | $ | (39,199 | ) | — | $ | — | $ | — | 3 | $ | 15,146,094 | $ | (39,199 | ) | |||||||||||||||||||
Government-sponsored enterprises | 4 | 17,620,585 | (129,779 | ) | 2 | 5,347,950 | (178,132 | ) | 6 | 22,968,535 | (307,911 | ) | ||||||||||||||||||||||||
Municipal securities | 11 | 3,541,927 | (50,316 | ) | 20 | 8,246,598 | (247,323 | ) | 31 | 11,788,525 | (297,639 | ) | ||||||||||||||||||||||||
Total | 18 | $ | 36,308,606 | $ | (219,294 | ) | 22 | $ | 13,594,548 | $ | (425,455 | ) | 40 | $ | 49,903,154 | $ | (644,749 | ) | ||||||||||||||||||
December 31, 2016 Available for sale | ||||||||||||||||||||||||||||||||||||
U.S. Treasury notes | 4 | $ | 17,968,594 | $ | (250,385 | ) | — | $ | — | $ | — | 4 | $ | 17,968,594 | $ | (250,385 | ) | |||||||||||||||||||
Government-sponsored enterprises | 8 | 30,136,720 | (833,321 | ) | — | — | — | 8 | 30,136,720 | (833,321 | ) | |||||||||||||||||||||||||
Municipal securities | 54 | 22,606,430 | (816,413 | ) | — | — | — | 54 | 22,606,430 | (816,413 | ) | |||||||||||||||||||||||||
Total | 66 | $ | 70,711,744 | $ | (1,900,119 | ) | — | $ | — | $ | — | 66 | $ | 70,711,744 | $ | (1,900,119 | ) |
June 30, 2020 | ||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||||||||||||
# | Fair Value | Gross Unrealized Loss | # | Fair Value | Gross Unrealized Loss | # | Fair Value | Gross Unrealized Loss | ||||||||||||||||||||||||||||
U.S. Treasury Notes | — | $ | — | $ | — | — | $ | — | $ | — | — | $ | — | $ | — | |||||||||||||||||||||
Government-Sponsored Enterprises | 1 | 11,624,020 | (9,967 | ) | — | — | — | 1 | 11,624,020 | (9,967 | ) | |||||||||||||||||||||||||
Municipal Securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total | 1 | $ | 11,624,020 | $ | (9,967 | ) | — | $ | — | $ | — | 1 | $ | 11,624,020 | $ | (9,967 | ) |
December 31, 2019 | ||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||||||||||||
Available for sale | # | Fair Value | Gross Unrealized Loss | # | Fair Value | Gross Unrealized Loss | # | Fair Value | Gross Unrealized Loss | |||||||||||||||||||||||||||
U.S. Treasury Notes | — | $ | — | $ | — | — | $ | — | $ | — | — | $ | — | $ | — | |||||||||||||||||||||
Government-Sponsored Enterprises | 1 | 5,039,550 | (43,100 | ) | — | — | — | 1 | 5,039,550 | (43,100 | ) | |||||||||||||||||||||||||
Municipal Securities | 9 | 3,199,517 | (13,335 | ) | 1 | 330,880 | (3,119 | ) | 10 | 3,530,397 | (16,454 | ) | ||||||||||||||||||||||||
Total | 10 | $ | 8,239,067 | $ | (56,435 | ) | 1 | $ | 330,880 | $ | (3,119 | ) | 11 | $ | 8,569,947 | $ | (59,554 | ) |
We received
The tables below show the proceeds and gross realized gains and losses from sales of securities available for sale as follows:and gross realized gains and losses.
For the Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Gross proceeds | $ | 20,231,265 | $ | 4,902,286 | ||||
Gross realized gains | 154,692 | 97,714 | ||||||
Gross realized losses | 108,872 | — |
Three Months Ended | ||||||||
June 30, | ||||||||
2020 | 2019 | |||||||
Gross proceeds | $ | — | $ | 14,952,500 | ||||
Gross realized gains | — | 59,512 | ||||||
Gross realized losses | — | (30,612 | ) |
Six Months Ended | ||||||||||||||||
For the Nine Months Ended September 30, | June 30, | |||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Gross proceeds | $ | 20,231,265 | $ | 25,667,359 | $ | — | $ | 14,952,500 | ||||||||
Gross realized gains | 154,692 | 446,041 | — | 59,512 | ||||||||||||
Gross realized losses | 108,872 | — | — | (30,612 | ) |
ForThere was no tax provision related to gains for the three and six months ended SeptemberJune 30, 2017 and 2016, the2020. The tax provision related to these gainssales was $15,578$6,069 for the three and $36,154, respectively. For the ninesix months ended SeptemberJune 30, 2017 and 2016, the tax provision related to these gains was $15,578 and $165,035, respectively.2019.
BANK OF SOUTH CAROLINA CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3: Loans and Allowance for Loan Losses
Major classifications of loans (net of deferred loan fees and costs of $149,640$1,128,775 at SeptemberJune 30, 20172020 and $136,446$155,697 at December 31, 2016)2019, respectively) are as follows:
September 30, | December 31, | June 30, 2020 | December 31, 2019 | |||||||||||||
2017 | 2016 | |||||||||||||||
Commercial loans | $ | 53,348,364 | $ | 52,262,209 | ||||||||||||
Commercial real estate: | ||||||||||||||||
Commercial | $ | 42,680,070 | $ | 52,848,455 | ||||||||||||
Commercial Real Estate: | ||||||||||||||||
Construction | 1,842,668 | 1,208,901 | 14,301,901 | 12,491,078 | ||||||||||||
Other | 134,779,206 | 122,968,126 | 140,469,962 | 143,821,990 | ||||||||||||
Consumer: | ||||||||||||||||
Real Estate | 74,254,387 | 77,131,816 | 71,183,544 | 59,533,045 | ||||||||||||
Other | 4,908,006 | 7,005,063 | 4,728,864 | 5,377,992 | ||||||||||||
Paycheck Protection Program | 36,542,964 | — | ||||||||||||||
269,132,631 | 260,576,115 | 309,907,305 | 274,072,560 | |||||||||||||
Allowance for loan losses | (3,886,959 | ) | (3,851,617 | ) | (4,110,630 | ) | (4,003,758 | ) | ||||||||
Loans, net | $ | 265,245,672 | $ | 256,724,498 | $ | 305,796,675 | $ | 270,068,802 |
We had $101.1$68.7 million and $101.2$85.2 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at SeptemberJune 30, 20172020 and at December 31, 2016,2019, respectively.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. Under the program, the Small Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for Paycheck and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. The loans are 100% guaranteed by the SBA and payments are deferred for the first six months of the loan. The Bank receives a processing fee ranging from 1% to 5% based on the size of the loan from the SBA. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued by financial institutions through the SBA. The Bank has provided $36.5 million in funding to 266 customers through the PPP as of June 30, 2020. Because these loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve.
Our portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Our internal credit risk grading system is based on experience with similarly graded loans, industry best practices, and regulatory guidance. Our portfolio is graded in its entirety.entirety, with the exception of the PPP loans.
Our internally assigned grades pursuant to the Board-approved lending policy are as follows:
● | Excellent(1) The borrowing entity has |
● | Good(2) The borrowing entity has dependable cash flow, better than average financial condition, good capital and usually no overdrafts. |
● | Satisfactory(3) The borrowing entity has adequate cash flow, satisfactory financial condition, and explainable overdrafts (if any). |
● | Watch(4) The borrowing entity has generally adequate, yet inconsistent cash flow, cyclical earnings, weak capital, loan to/from stockholders, and infrequent overdrafts. The borrower has consistent yet sometimes unpredictable sales and growth. |
● | OAEM(5) The borrowing entity has marginal cash flow, occasional past dues, and frequent and unexpected working capital needs. |
● | Substandard(6) The borrowing entity has a cash flow barely sufficient to service debt, deteriorated financial condition, and bankruptcy is |
● | Doubtful(7) The borrowing entity has negative cash flow. Survival of the business is at risk, full repayment is unlikely, and there are frequent and unexplained overdrafts. The borrowing entity shows declining trends and no operating profits. |
BANK OF SOUTH CAROLINA CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
● | Loss(8) The borrowing entity has negative cash flow with no alternatives. Survival of the business is unlikely. |
The following tables illustrate credit quality by class and internally assigned grades as of Septemberat June 30, 20172020 and December 31, 2016.2019. “Pass” includes loans internally graded as excellent, good and satisfactory.
September 30, 2017 | |||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other |
Real Estate | Consumer Other | Total | ||||||||||||||||||||
Pass | $ | 49,209,010 | $ | 1,453,646 | $ | 129,338,835 | $ | 73,172,945 | $ | 4,665,789 | $ | 257,840,225 | |||||||||||||
Watch | 2,260,670 | 389,022 | 2,942,987 | 587,005 | 208,110 | 6,387,794 | |||||||||||||||||||
OAEM | 49,164 | — | 291,128 | — | — | 340,292 | |||||||||||||||||||
Sub-Standard | 1,829,520 | — | 2,206,256 | 494,437 | 34,107 | 4,564,320 | |||||||||||||||||||
Doubtful | — | — | — | — | — | — | |||||||||||||||||||
Loss | — | — | — | — | — | — | |||||||||||||||||||
Total | $ | 53,348,364 | $ | 1,842,668 | $ | 134,779,206 | $ | 74,254,387 | $ | 4,908,006 | $ | 269,132,631 |
June 30, 2020 | |||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Paycheck Protection Program | Total | |||||||||||||||||||||||
Pass | $ | 35,665,736 | $ | 13,461,039 | $ | 118,080,815 | $ | 68,776,698 | $ | 4,430,294 | $ | — | $ | 240,414,582 | |||||||||||||||
Watch | 4,701,530 | 840,862 | 20,069,519 | 869,152 | 219,765 | — | 26,700,828 | ||||||||||||||||||||||
OAEM | 388,727 | — | 238,227 | 622,731 | 36,909 | — | 1,286,594 | ||||||||||||||||||||||
Substandard | 1,924,077 | — | 2,081,401 | 914,963 | 41,896 | — | 4,962,337 | ||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | ||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | ||||||||||||||||||||||
Unrated | — | — | — | — | — | 36,542,964 | 36,542,964 | ||||||||||||||||||||||
Total | $ | 42,680,070 | $ | 14,301,901 | $ | 140,469,962 | $ | 71,183,544 | $ | 4,728,864 | $ | 36,542,964 | $ | 309,907,305 |
December 31, 2016 | |||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other |
| Consumer Other | Total | ||||||||||||||||||||
Pass | $ | 48,289,944 | $ | 798,884 | $ | 116,490,396 | $ | 74,115,426 | $ | 6,728,367 | $ | 246,423,017 | |||||||||||||
Watch | 1,004,957 | 410,017 | 2,625,079 | 899,306 | 147,992 | 5,087,351 | |||||||||||||||||||
OAEM | 1,666,048 | — | 995,549 | 630,957 | 28,939 | 3,321,493 | |||||||||||||||||||
Sub-Standard | 1,301,260 | — | 2,857,102 | 1,486,127 | 99,765 | 5,744,254 | |||||||||||||||||||
Doubtful | — | — | — | — | — | — | |||||||||||||||||||
Loss | — | — | — | — | — | — | |||||||||||||||||||
Total | $ | 52,262,209 | $ | 1,208,901 | $ | 122,968,126 | $ | 77,131,816 | $ | 7,005,063 | $ | 260,576,115 |
December 31, 2019 | |||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Paycheck Protection Program | Total | |||||||||||||||||||||||
Pass | $ | 48,098,936 | $ | 12,005,834 | $ | 137,641,011 | $ | 56,034,247 | $ | 4,966,615 | $ | — | $ | 258,746,643 | |||||||||||||||
Watch | 2,303,568 | 485,244 | 3,758,220 | 2,096,445 | 315,375 | — | 8,958,852 | ||||||||||||||||||||||
OAEM | 460,551 | — | 649,039 | 522,600 | 44,232 | — | 1,676,422 | ||||||||||||||||||||||
Substandard | 1,985,400 | — | 1,773,720 | 879,753 | 51,770 | — | 4,690,643 | ||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | ||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | ||||||||||||||||||||||
Unrated | — | — | — | — | — | — | — | ||||||||||||||||||||||
Total | $ | 52,848,455 | $ | 12,491,078 | $ | 143,821,990 | $ | 59,533,045 | $ | 5,377,992 | $ | — | $ | 274,072,560 |
The following tables include an aging analysis of the recorded investment in loans segregated by class:class.
September 30, 2017 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days | Total Past Due | Current | Total | Recorded Investment > 90 Days and Accruing | ||||||||||||||||||||||
Commercial | $ | 78,271 | $ | 150,000 | $ | 13,902 | $ | 242,173 | $ | 53,106,191 | $ | 53,348,364 | $ | 13,902 | ||||||||||||||
Commercial Real Estate - Construction | — | — | — | — | 1,842,668 | 1,842,668 | — | |||||||||||||||||||||
Commercial Real Estate - Other | 675,000 | — | 1,415,738 | 2,090,738 | 132,688,468 | 134,779,206 | — | |||||||||||||||||||||
Consumer Real Estate | 153,112 | 564,877 | — | 717,989 | 73,536,398 | 74,254,387 | — | |||||||||||||||||||||
Consumer Other | 11,547 | — | — | 11,547 | 4,896,459 | 4,908,006 | — | |||||||||||||||||||||
Total | $ | 917,930 | $ | 714,877 | $ | 1,429,640 | $ | 3,062,447 | $ | 266,070,184 | $ | 269,132,631 | $ | 13,902 |
June 30, 2020 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days | Total Past Due | Current | Total Loans Receivable | Recorded Investment ≥ 90 Days and Accruing | ||||||||||||||||||||||
Commercial | $ | — | $ | 210,121 | $ | — | $ | 210,121 | $ | 42,469,949 | $ | 42,680,070 | $ | — | ||||||||||||||
Commercial Real Estate Construction | — | — | — | — | 14,301,901 | 14,301,901 | — | |||||||||||||||||||||
Commercial Real Estate Other | 335,448 | 423,170 | 638,139 | 1,396,757 | 139,073,205 | 140,469,962 | — | |||||||||||||||||||||
Consumer Real Estate | — | — | 665,114 | 665,114 | 70,518,430 | 71,183,544 | — | |||||||||||||||||||||
Consumer Other | — | 2,560 | — | 2,560 | 4,726,304 | 4,728,864 | — | |||||||||||||||||||||
Paycheck Protection Program | — | — | — | — | 36,542,964 | 36,542,964 | — | |||||||||||||||||||||
Total | $ | 335,448 | $ | 635,851 | $ | 1,303,253 | $ | 2,274,552 | $ | 307,632,753 | $ | 309,907,305 | $ | — |
December 31, 2019 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days | Total Past Due | Current | Total Loans Receivable | Recorded Investment ≥ 90 Days and Accruing | ||||||||||||||||||||||
Commercial | $ | 39,329 | $ | — | $ | 178,975 | $ | 218,304 | $ | 52,630,151 | $ | 52,848,455 | $ | — | ||||||||||||||
Commercial Real Estate Construction | — | — | — | — | 12,491,078 | 12,491,078 | — | |||||||||||||||||||||
Commercial Real Estate Other | 620,837 | 300,240 | 582,419 | 1,503,496 | 142,318,494 | 143,821,990 | — | |||||||||||||||||||||
Consumer Real Estate | — | 2,965 | 629,999 | 632,964 | 58,900,081 | 59,533,045 | — | |||||||||||||||||||||
Consumer Other | 32,842 | — | — | 32,842 | 5,345,150 | 5,377,992 | — | |||||||||||||||||||||
Paycheck Protection Program | — | — | — | — | — | — | — | |||||||||||||||||||||
Total | $ | 693,008 | $ | 303,205 | $ | 1,391,393 | $ | 2,387,606 | $ | 271,684,954 | $ | 274,072,560 | $ | — |
BANK OF SOUTH CAROLINA CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days | Total Past Due | Current | Total | Recorded Investment > 90 Days and Accruing | ||||||||||||||||||||||
Commercial | $ | 438,159 | $ | — | $ | — | $ | 438,159 | $ | 51,824,050 | $ | 52,262,209 | $ | — | ||||||||||||||
Commercial Real Estate - Construction | — | — | — | — | 1,208,901 | 1,208,901 | — | |||||||||||||||||||||
Commercial Real Estate - Other | 6,363 | — | 1,501,153 | 1,507,516 | 121,460,610 | 122,968,126 | 89,908 | |||||||||||||||||||||
Consumer Real Estate | 415,457 | — | — | 415,457 | 76,716,359 | 77,131,816 | — | |||||||||||||||||||||
Consumer Other | 56,784 | — | 33,322 | 90,106 | 6,914,957 | 7,005,063 | 33,322 | |||||||||||||||||||||
Total | $ | 916,763 | $ | — | $ | 1,534,475 | $ | 2,451,238 | $ | 258,124,877 | $ | 260,576,115 | $ | 123,230 |
As of September 30, 2017 and December 31, 2016, thereThere were one and twono loans over 90 days past due and still accruing respectively.as of June 30, 2020 and December 31, 2019.
The following table summarizes the balances of non-accrual loans:
Loans Receivable on Non-Accrual | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Commercial | $ | 46,899 | $ | 61,781 | ||||
Commercial Real Estate - Construction | — | — | ||||||
Commercial Real Estate - Other | 1,554,368 | 1,678,876 | ||||||
Consumer Real Estate | — | — | ||||||
Consumer Other | — | 964 | ||||||
Total | $ | 1,601,267 | $ | 1,741,621 |
Loans Receivable on Non-Accrual | ||||||||
June 30, 2020 | December 31, 2019 | |||||||
Commercial | $ | 190,751 | $ | 178,975 | ||||
Commercial Real Estate Construction | — | — | ||||||
Commercial Real Estate Other | 912,067 | 857,327 | ||||||
Consumer Real Estate | 665,114 | 629,999 | ||||||
Consumer Other | 13,450 | — | ||||||
Paycheck Protection Program | — | — | ||||||
Total | $ | 1,781,382 | $ | 1,666,301 |
The following tables set forth the changes in the allowance for loan losses and an allocation of the allowance for loan losses by classloan category for the three and ninesix months ended SeptemberJune 30, 20172020 and September 30, 2016.2019. The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.
Three Months Ended September 30, 2017 | ||||||||||||||||||||||||
Commercial | Commercial Real Estate-Construction | Commercial Real Estate-Other | Consumer Real Estate | Consumer Other | Total | |||||||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||||||
Beginning Balance | $ | 1,628,672 | $ | 52,763 | $ | 1,382,919 | $ | 771,853 | $ | 91,308 | $ | 3,927,515 | ||||||||||||
Charge-offs | — | — | — | (80,787 | ) | (2,489 | ) | (83,276 | ) | |||||||||||||||
Recoveries | — | — | — | 21,000 | 1,720 | 22,720 | ||||||||||||||||||
Provisions | 403,920 | (7,235 | ) | (209,108 | ) | (150,697 | ) | (16,880 | ) | 20,000 | ||||||||||||||
Ending Balance | $ | 2,032,592 | $ | 45,528 | $ | 1,173,811 | $ | 561,369 | $ | 73,659 | $ | 3,886,959 |
Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Paycheck Protection Program | Total | ||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 1,416,267 | $ | 123,069 | $ | 1,212,647 | $ | 562,000 | $ | 700,230 | $ | — | $ | 4,014,213 | ||||||||||||||
Charge-offs | — | — | — | — | (76,410 | ) | — | (76,410 | ) | |||||||||||||||||||
Recoveries | 71,511 | — | 99,801 | — | 1,515 | — | 172,827 | |||||||||||||||||||||
Provisions | (469,228 | ) | 27,738 | 164,571 | 321,300 | (44,381 | ) | — | — | |||||||||||||||||||
Ending balance | $ | 1,018,550 | $ | 150,807 | $ | 1,477,019 | $ | 883,300 | $ | 580,954 | $ | — | $ | 4,110,630 |
Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Paycheck Protection Program | Total | ||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 1,429,917 | $ | 109,235 | $ | 1,270,445 | $ | 496,221 | $ | 697,940 | $ | — | $ | 4,003,758 | ||||||||||||||
Charge-offs | — | — | — | — | (116,002 | ) | — | (116,002 | ) | |||||||||||||||||||
Recoveries | 87,011 | — | 99,801 | — | 36,062 | — | 222,874 | |||||||||||||||||||||
Provisions | (498,378 | ) | 41,572 | 106,773 | 387,079 | (37,046 | ) | — | — | |||||||||||||||||||
Ending balance | $ | 1,018,550 | $ | 150,807 | $ | 1,477,019 | $ | 883,300 | $ | 580,954 | $ | — | $ | 4,110,630 |
BANK OF SOUTH CAROLINA CORPORATION
Three Months Ended June 30, 2019 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Paycheck Protection Program | Total | ||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 1,528,577 | $ | 81,047 | $ | 1,318,918 | $ | 377,641 | $ | 683,239 | $ | — | $ | 3,989,422 | ||||||||||||||
Charge-offs | — | — | — | — | (2,009 | ) | — | (2,009 | ) | |||||||||||||||||||
Recoveries | 5,500 | — | — | — | 2,635 | — | 8,135 | |||||||||||||||||||||
Provisions | 5,575 | 16,940 | 13,885 | 150,888 | (52,288 | ) | — | 135,000 | ||||||||||||||||||||
Ending balance | $ | 1,539,652 | $ | 97,987 | $ | 1,332,803 | $ | 528,529 | $ | 631,577 | $ | — | $ | 4,130,548 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||
Commercial | Commercial Real Estate-Construction | Commercial Real Estate-Other | Consumer Real Estate | Consumer Other | Total | |||||||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||||||
Beginning Balance | $ | 1,545,188 | $ | 51,469 | $ | 1,374,706 | $ | 726,391 | $ | 153,863 | $ | 3,851,617 | ||||||||||||
Charge-offs | — | — | — | (80,786 | ) | (4,863 | ) | (85,649 | ) | |||||||||||||||
Recoveries | — | — | — | 63,000 | 5,491 | 68,491 | ||||||||||||||||||
Provisions | 487,404 | (5,941 | ) | (200,895 | ) | (147,236 | ) | (80,832 | ) | 52,500 | ||||||||||||||
Ending Balance | $ | 2,032,592 | $ | 45,528 | $ | 1,173,811 | $ | 561,369 | $ | 73,659 | $ | 3,886,959 | ||||||||||||
Three Months Ended September 30, 2016 | ||||||||||||||||||||||||
Commercial | Commercial Real Estate-Construction | Commercial Real Estate-Other | Consumer Real Estate | Consumer Other | Total | |||||||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||||||
Beginning Balance | $ | 1,490,327 | $ | 57,374 | $ | 1,186,524 | $ | 629,773 | $ | 148,448 | $ | 3,512,446 | ||||||||||||
Charge-offs | — | — | — | — | — | — | ||||||||||||||||||
Recoveries | 1,500 | — | 20,000 | — | 1,165 | 22,665 | ||||||||||||||||||
Provisions | 4,512 | 524 | 98,398 | 119,044 | (12,478 | ) | 210,000 | |||||||||||||||||
Ending Balance | $ | 1,496,339 | $ | 57,898 | $ | 1,304,922 | $ | 748,817 | $ | 137,135 | $ | 3,745,111 |
Six Months Ended June 30, 2019 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Paycheck Protection Program | Total | ||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 1,665,413 | $ | 63,876 | $ | 1,292,346 | $ | 386,585 | $ | 806,111 | $ | — | $ | 4,214,331 | ||||||||||||||
Charge-offs | (229,395 | ) | — | — | — | (8,342 | ) | — | (237,737 | ) | ||||||||||||||||||
Recoveries | 6,000 | — | — | — | 2,954 | — | 8,954 | |||||||||||||||||||||
Provisions | 97,634 | 34,111 | 40,457 | 141,944 | (169,146 | ) | — | 145,000 | ||||||||||||||||||||
Ending balance | $ | 1,539,652 | $ | 97,987 | $ | 1,332,803 | $ | 528,529 | $ | 631,577 | $ | — | $ | 4,130,548 |
Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||
Commercial | Commercial Real Estate-Construction | Commercial Real Estate-Other | Consumer Real Estate | Consumer Other | Total | |||||||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||||||
Beginning Balance | $ | 896,854 | $ | 59,861 | $ | 1,345,094 | $ | 941,470 | $ | 174,548 | $ | 3,417,827 | ||||||||||||
Charge-offs | (33,045 | ) | — | — | (82,015 | ) | (1,591 | ) | (116,651 | ) | ||||||||||||||
Recoveries | 2,784 | — | 44,000 | — | 2,151 | 48,935 | ||||||||||||||||||
Provisions | 629,746 | (1,963 | ) | (84,172 | ) | (110,638 | ) | (37,973 | ) | 395,000 | ||||||||||||||
Ending Balance | $ | 1,496,339 | $ | 57,898 | $ | 1,304,922 | $ | 748,817 | $ | 137,135 | $ | 3,745,111 |
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present, by classportfolio segment and reserving methodology, the allocation of the allowance for loan losses and the gross investment in loans.
September 30, 2017 | ||||||||||||||||||||||||
Commercial | Commercial Real Estate-Construction | Commercial Real Estate-Other | Consumer Real Estate | Consumer Other | Total | |||||||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,621,074 | $ | — | $ | 268,347 | $ | 43,119 | $ | 34,107 | $ | 1,966,647 | ||||||||||||
Collectively evaluated for impairment | 411,518 | 45,528 | 905,464 | 518,250 | 39,552 | 1,920,312 | ||||||||||||||||||
Total Allowance for Losses | $ | 2,032,592 | $ | 45,528 | $ | 1,173,811 | $ | 561,369 | $ | 73,659 | $ | 3,886,959 | ||||||||||||
Loans Receivable | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,829,520 | $ | — | $ | 2,224,537 | $ | 494,437 | $ | 34,107 | $ | 4,582,601 | ||||||||||||
Collectively evaluated for impairment | 51,518,844 | 1,842,668 | 132,554,669 | 73,759,950 | 4,873,899 | 264,550,030 | ||||||||||||||||||
Total Loans Receivable | $ | 53,348,364 | $ | 1,842,668 | $ | 134,779,206 | $ | 74,254,387 | $ | 4,908,006 | $ | 269,132,631 |
December 31, 2016 | ||||||||||||||||||||||||
Commercial | Commercial Real Estate-Construction | Commercial Real Estate-Other | Consumer Real Estate | Consumer Other | Total | |||||||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,051,219 | $ | — | $ | 324,587 | $ | 43,119 | $ | 89,047 | $ | 1,507,972 | ||||||||||||
Collectively evaluated for impairment | 493,969 | 51,469 | 1,050,119 | 683,272 | 64,816 | 2,343,645 | ||||||||||||||||||
Total Allowance for Losses | $ | 1,545,188 | $ | 51,469 | $ | 1,374,706 | $ | 726,391 | $ | 153,863 | $ | 3,851,617 | ||||||||||||
Loans Receivable | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,301,259 | $ | — | $ | 3,225,351 | $ | 1,286,127 | $ | 89,047 | $ | 5,901,784 | ||||||||||||
Collectively evaluated for impairment | 50,960,950 | 1,208,901 | 119,742,775 | 75,845,689 | 6,916,016 | 254,674,331 | ||||||||||||||||||
Total Loans Receivable | $ | 52,262,209 | $ | 1,208,901 | $ | 122,968,126 | $ | 77,131,816 | $ | 7,005,063 | $ | 260,576,115 |
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSloans, for the periods indicated.
June 30, 2020 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Paycheck Protection Program | Total | ||||||||||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 466,463 | $ | — | $ | 29,199 | $ | 170,794 | $ | — | $ | — | $ | 666,456 | ||||||||||||||
Collectively evaluated for impairment | 552,087 | 150,807 | 1,447,820 | 712,506 | 580,954 | — | 3,444,174 | |||||||||||||||||||||
Total Allowance for Loan Losses | $ | 1,018,550 | $ | 150,807 | $ | 1,477,019 | $ | 883,300 | $ | 580,954 | $ | — | $ | 4,110,630 | ||||||||||||||
Loans Receivable | ||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,924,077 | $ | — | $ | 2,084,973 | $ | 914,964 | $ | 41,896 | $ | — | $ | 4,965,910 | ||||||||||||||
Collectively evaluated for impairment | 40,755,993 | 14,301,901 | 138,384,989 | 70,268,580 | 4,686,968 | 36,542,964 | 304,941,395 | |||||||||||||||||||||
Total Loans Receivable | $ | 42,680,070 | $ | 14,301,901 | $ | 140,469,962 | $ | 71,183,544 | $ | 4,728,864 | $ | 36,542,964 | $ | 309,907,305 |
December 31, 2019 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Paycheck Protection Program | Total | ||||||||||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 683,278 | $ | — | $ | 1,782 | $ | — | $ | 90 | $ | — | $ | 685,150 | ||||||||||||||
Collectively evaluated for impairment | 746,639 | 109,235 | 1,268,663 | 496,221 | 697,850 | — | 3,318,608 | |||||||||||||||||||||
Total Allowance for Loan Losses | $ | 1,429,917 | $ | 109,235 | $ | 1,270,445 | $ | 496,221 | $ | 697,940 | $ | — | $ | 4,003,758 | ||||||||||||||
Loans Receivable | ||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 2,065,732 | $ | — | $ | 1,679,872 | $ | 879,753 | $ | 51,770 | $ | — | $ | 4,677,127 | ||||||||||||||
Collectively evaluated for impairment | 50,782,723 | 12,491,078 | 142,142,118 | 58,653,292 | 5,326,222 | — | 269,395,433 | |||||||||||||||||||||
Total Loans Receivable | $ | 52,848,455 | $ | 12,491,078 | $ | 143,821,990 | $ | 59,533,045 | $ | 5,377,992 | $ | — | $ | 274,072,560 |
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, loans individually evaluated for impairment and the corresponding allowance for loan lossesconsidered impaired are presented in the following table:table.
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
Unpaid Principal Balance | Recorded Investment | Related Allowance | Unpaid Principal Balance | Recorded Investment | Related Allowance | |||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Commercial | $ | 161,880 | $ | 161,880 | $ | — | $ | 250,040 | $ | 250,040 | $ | — | ||||||||||||
Commercial Real Estate-Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial Real Estate-Other | 1,283,137 | 1,283,137 | — | 2,174,770 | 2,174,770 | — | ||||||||||||||||||
Consumer Real Estate | 451,318 | 451,318 | — | 1,243,008 | 1,243,008 | — | ||||||||||||||||||
Consumer Other | — | — | — | — | — | — | ||||||||||||||||||
$ | 1,896,335 | $ | 1,896,335 | $ | — | $ | 3,667,818 | $ | 3,667,818 | $ | — | |||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Commercial | $ | 1,667,640 | $ | 1,667,640 | $ | 1,621,074 | $ | 1,051,219 | $ | 1,051,219 | $ | 1,051,219 | ||||||||||||
Commercial Real Estate- Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial Real Estate-Other | 941,400 | 941,400 | 268,347 | 1,050,581 | 1,050,581 | 324,587 | ||||||||||||||||||
Consumer Real Estate | 43,119 | 43,119 | 43,119 | 43,119 | 43,119 | 43,119 | ||||||||||||||||||
Consumer Other | 34,107 | 34,107 | 34,107 | 89,047 | 89,047 | 89,047 | ||||||||||||||||||
$ | 2,686,266 | $ | 2,686,266 | $ | 1,966,647 | $ | 2,233,966 | $ | 2,233,966 | $ | 1,507,972 | |||||||||||||
Total | ||||||||||||||||||||||||
Commercial | $ | 1,829,520 | $ | 1,829,520 | $ | 1,621,074 | $ | 1,301,259 | $ | 1,301,259 | $ | 1,051,219 | ||||||||||||
Commercial Real Estate-Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial Real Estate-Other | 2,224,537 | 2,224,537 | 268,347 | 3,225,351 | 3,225,351 | 324,587 | ||||||||||||||||||
Consumer Real Estate | 494,437 | 494,437 | 43,119 | 1,286,127 | 1,286,127 | 43,119 | ||||||||||||||||||
Consumer Other | 34,107 | 34,107 | 34,107 | 89,047 | 89,047 | 89,047 | ||||||||||||||||||
$ | 4,582,601 | $ | 4,582,601 | $ | 1,966,647 | $ | 5,901,784 | $ | 5,901,784 | $ | 1,507,972 |
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impaired Loans as of | ||||||||||||||||||||||||
June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
Unpaid Principal Balance | Recorded Investment | Related Allowance | Unpaid Principal Balance | Recorded Investment | Related Allowance | |||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Commercial | $ | 956,102 | $ | 956,102 | $ | — | $ | 1,355,875 | $ | 1,355,875 | $ | — | ||||||||||||
Commercial Real Estate Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial Real Estate Other | 1,749,438 | 1,749,438 | — | 1,432,988 | 1,432,988 | — | ||||||||||||||||||
Consumer Real Estate | 249,850 | 249,850 | — | 879,753 | 879,753 | — | ||||||||||||||||||
Consumer Other | 41,896 | 41,896 | — | — | — | — | ||||||||||||||||||
Paycheck Protection Program | — | — | — | — | — | — | ||||||||||||||||||
Total | 2,997,286 | 2,997,286 | — | 3,668,616 | 3,668,616 | — | ||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Commercial | 967,975 | 967,975 | 466,463 | 709,857 | 709,857 | 683,278 | ||||||||||||||||||
Commercial Real Estate Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial Real Estate Other | 435,336 | 335,535 | 29,199 | 346,685 | 246,884 | 1,782 | ||||||||||||||||||
Consumer Real Estate | 665,114 | 665,114 | 170,794 | — | — | — | ||||||||||||||||||
Consumer Other | — | — | — | 51,770 | 51,770 | 90 | ||||||||||||||||||
Paycheck Protection Program | — | — | — | — | — | — | ||||||||||||||||||
Total | 2,068,425 | 1,968,624 | 666,456 | 1,108,312 | 1,008,511 | 685,150 | ||||||||||||||||||
Commercial | 1,924,077 | 1,924,077 | 466,463 | 2,065,732 | 2,065,732 | 683,278 | ||||||||||||||||||
Commercial Real Estate Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial Real Estate Other | 2,184,774 | 2,084,973 | 29,199 | 1,779,673 | 1,679,872 | 1,782 | ||||||||||||||||||
Consumer Real Estate | 914,964 | 914,964 | 170,794 | 879,753 | 879,753 | — | ||||||||||||||||||
Consumer Other | 41,896 | 41,896 | — | 51,770 | 51,770 | 90 | ||||||||||||||||||
Paycheck Protection Program | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | 5,065,711 | $ | 4,965,910 | $ | 666,456 | $ | 4,776,928 | $ | 4,677,127 | $ | 685,150 |
The following tables presenttable presents average investment in impaired loans and the related interest income recognized on those impaired loans, by class segment, for the periods indicated.
For the Three Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
With no related allowance recorded: | ||||||||||||||||
Commercial | $ | 165,274 | $ | 2,429 | $ | 380,933 | $ | 4,674 | ||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||
Commercial Real Estate-Other | 1,276,906 | 9,999 | 2,253,994 | 19,738 | ||||||||||||
Consumer Real Estate | 451,318 | 5,972 | 1,243,008 | 16,205 | ||||||||||||
Consumer Other | — | — | — | — | ||||||||||||
$ | 1,893,498 | $ | 18,400 | $ | 3,877,935 | $ | 40,617 | |||||||||
With an allowance recorded: | ||||||||||||||||
Commercial | $ | 1,685,930 | $ | 26,484 | $ | 1,085,201 | $ | 19,406 | ||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||
Commercial Real Estate-Other | 933,243 | 2,792 | 1,068,622 | 5,330 | ||||||||||||
Consumer Real Estate | 43,119 | 462 | 71,963 | 770 | ||||||||||||
Consumer Other | 34,579 | 463 | 95,367 | 473 | ||||||||||||
$ | 2,696,871 | $ | 30,201 | $ | 2,321,153 | $ | 25,979 | |||||||||
Total | ||||||||||||||||
Commercial | $ | 1,851,204 | $ | 28,913 | $ | 1,466,134 | $ | 24,080 | ||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||
Commercial Real Estate-Other | 2,210,149 | 12,791 | 3,322,617 | 25,068 | ||||||||||||
Consumer Real Estate | 494,437 | 6,434 | 1,314,971 | 16,975 | ||||||||||||
Consumer Other | 34,579 | 463 | 95,367 | 473 | ||||||||||||
$ | 4,590,369 | $ | 48,601 | $ | 6,199,088 | $ | 66,596 |
For the Nine Months Ended September 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||||||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||||||||||
Commercial | $ | 173,964 | $ | 7,416 | $ | 392,826 | $ | 15,393 | $ | 960,398 | $ | 14,480 | $ | 117,741 | $ | 2,071 | ||||||||||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||||||||||||||||||
Commercial Real Estate-Other | 1,275,402 | 23,084 | 2,263,927 | 69,962 | ||||||||||||||||||||||||||||
Commercial Real Estate Construction | — | — | — | — | ||||||||||||||||||||||||||||
Commercial Real Estate Other | 1,752,669 | 21,646 | 863,351 | 10,354 | ||||||||||||||||||||||||||||
Consumer Real Estate | 451,025 | 16,938 | 1,242,373 | 43,220 | 249,800 | 2,647 | 879,753 | 14,257 | ||||||||||||||||||||||||
Consumer Other | — | — | — | — | 42,163 | 683 | — | — | ||||||||||||||||||||||||
Paycheck Protection Program | — | — | — | — | ||||||||||||||||||||||||||||
$ | 1,900,391 | $ | 47,438 | $ | 3,899,126 | $ | 128,575 | 3,005,030 | 39,456 | 1,860,845 | 26,682 | |||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||||||
Commercial | $ | 1,711,259 | $ | 76,544 | $ | 1,095,411 | $ | 49,770 | 1,052,358 | 11,434 | 1,582,324 | 25,869 | ||||||||||||||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||||||||||||||||||
Commercial Real Estate-Other | 930,420 | 5,367 | 1,070,048 | 12,008 | ||||||||||||||||||||||||||||
Commercial Real Estate Construction | — | — | — | — | ||||||||||||||||||||||||||||
Commercial Real Estate Other | 235,734 | — | 501,279 | 2,735 | ||||||||||||||||||||||||||||
Consumer Real Estate | 43,119 | 1,296 | 72,025 | 1,776 | 665,058 | — | — | — | ||||||||||||||||||||||||
Consumer Other | 36,056 | 1,419 | 99,864 | 3,777 | — | — | 17,108 | 224 | ||||||||||||||||||||||||
$ | 2,720,854 | $ | 84,626 | $ | 2,337,348 | $ | 67,331 | |||||||||||||||||||||||||
Paycheck Protection Program | — | — | — | — | ||||||||||||||||||||||||||||
1,953,150 | 11,434 | 2,100,711 | 28,828 | |||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Commercial | $ | 1,885,223 | $ | 83,960 | $ | 1,488,237 | $ | 65,163 | 2,012,756 | 25,914 | 1,700,065 | 27,940 | ||||||||||||||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||||||||||||||||||
Commercial Real Estate-Other | 2,205,822 | 28,451 | 3,333,976 | 81,970 | ||||||||||||||||||||||||||||
Commercial Real Estate Construction | — | — | — | — | ||||||||||||||||||||||||||||
Commercial Real Estate Other | 1,988,403 | 21,646 | 1,364,630 | 13,089 | ||||||||||||||||||||||||||||
Consumer Real Estate | 494,144 | 18,234 | 1,314,398 | 44,996 | 914,858 | 2,647 | 879,753 | 14,257 | ||||||||||||||||||||||||
Consumer Other | 36,056 | 1,419 | 99,864 | 3,777 | 42,163 | 683 | 17,108 | 224 | ||||||||||||||||||||||||
Paycheck Protection Program | — | — | — | — | ||||||||||||||||||||||||||||
$ | 4,621,245 | $ | 132,064 | $ | 6,236,474 | $ | 195,906 | $ | 4,958,180 | $ | 50,890 | $ | 3,961,556 | $ | 55,510 |
Six Months Ended June 30, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
With no related allowance recorded: | ||||||||||||||||
Commercial | $ | 1,024,907 | $ | 29,570 | $ | 123,509 | $ | 4,334 | ||||||||
Commercial Real Estate - Construction | — | — | — | — | ||||||||||||
Commercial Real Estate - Other | 1,772,945 | 37,824 | 967,076 | 20,700 | ||||||||||||
Consumer Real Estate | 249,754 | 6,472 | 879,753 | 28,357 | ||||||||||||
Consumer Other | 43,903 | 1,342 | — | — | ||||||||||||
Paycheck Protection Program | — | — | — | — | ||||||||||||
3,091,509 | 75,208 | 1,970,338 | 53,391 | |||||||||||||
With an allowance recorded: | ||||||||||||||||
Commercial | 1,184,428 | 26,662 | 1,597,013 | 51,983 | ||||||||||||
Commercial Real Estate - Construction | — | — | — | — | ||||||||||||
Commercial Real Estate - Other | 229,149 | — | 403,001 | 5,498 | ||||||||||||
Consumer Real Estate | 664,701 | — | — | — | ||||||||||||
Consumer Other | — | — | 18,279 | 478 | ||||||||||||
Paycheck Protection Program | — | — | — | — | ||||||||||||
2,078,278 | 26,662 | 2,018,293 | 57,959 | |||||||||||||
Total | ||||||||||||||||
Commercial | 2,209,335 | 56,232 | 1,720,522 | 56,317 | ||||||||||||
Commercial Real Estate - Construction | — | — | — | — | ||||||||||||
Commercial Real Estate - Other | 2,002,094 | 37,824 | 1,370,077 | 26,198 | ||||||||||||
Consumer Real Estate | 914,455 | 6,472 | 879,753 | 28,357 | ||||||||||||
Consumer Other | 43,903 | 1,342 | 18,279 | 478 | ||||||||||||
Paycheck Protection Program | — | — | — | — | ||||||||||||
$ | 5,169,787 | $ | 101,870 | $ | 3,988,631 | $ | 111,350 |
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructured loans, also known asIn general, the modification or restructuring of a loan is considered a troubled debt restructuringsrestructuring (“TDR”), are loans, still accruing interest, which have been renegotiated at below-market interest rates if we, for economic or have been granted other concessions.legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise consider. As of SeptemberJune 30, 2017 and2020, there were 6 TDRs with a balance of $1.7 million compared to 3 TDRs with a balance of $573,473 as of December 31, 2016, there were $33,300 (1 loan) and $378,392 (2 loans) in restructured loans, respectively. Our restructured loans2019. These TDRs were granted extended payment terms with no principal or rate reductions.reduction. The structure of two of the loans changed to interest only. All TDRs were performing as agreed as of SeptemberJune 30, 2017 and December 31, 2016, respectively. There were no additional loans identified as a TDR during the three or nine months ended September 30, 2017 or 2016.2020. No TDRs defaulted during the three or nineand six months ended SeptemberJune 30, 20172020 and 2016,2019, which were modified within the previous twelve months.
Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. The Bank processed approximately $0.6 million in principal deferments to 80 customers during the six months ended June 30, 2020. This represents 0.18% of our total loan portfolio as of June 30, 2020. The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and found that all borrowers were current prior to relief and were not experiencing financial difficulty prior to COVID-19.
Note 4: Leases
As of June 30, 2020 and December 31, 2019, the Company had operating right of use (“ROU”) assets of $13.0 million and $13.2 million, respectively, and operating lease liabilities of $13.0 million and $13.2 million, respectively. The Company maintains operating leases on land, branch facilities, and parking. Most of the leases include one or more options to renew, with renewal terms extending up to 20 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized in lease expense.
The weighted average remaining lease term is 17.56 years. The weighted average incremental borrowing rate is 4.34%.
The table below shows lease expense components for the three months ended June 30, 2020.
Lease Expense Components | ||||
Operating lease expense | $ | 250,121 | ||
Short-term lease expense | — | |||
Total lease expense | $ | 250,121 |
The table below shows lease expense components for the six months ended June 30, 2020.
Lease Expense Components | ||||
Operating lease expense | $ | 484,080 | ||
Short-term lease expense | — | |||
Total lease expense | $ | 484,080 |
Total rental expense was $250,121 and $161,867 for the three months ended June 30, 2020 and 2019, respectively, and $484,080 and $317,859 for the six months ended June 30, 2020 and 2019, respectively, and was included in net occupancy expense within the consolidated statements of income.
As of June 30, 2020 and December 31, 2019, we did not maintain any finance leases and we determined that the number and dollar amount of equipment leases was immaterial. As of June 30, 2020 and December 31, 2019, we have no additional operating leases that have not yet commenced.
Note 5: Disclosure Regarding Fair Value of Financial InstrumentsStatements
Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or the most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. GAAPThe fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs, which are developed based on market data we have obtained from independent sources, are ones that market participants would use in pricing an asset or liability. Unobservable inputs, which are developed based on the best information available in the circumstances, reflect our estimate of assumptions that market participants would use in pricing an asset or liability.
The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
● | Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets. | |
● | Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data. | |
● | Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value. | |
Fair value estimates are made at a specific point of time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale our entire holdings of a particular financial instrument. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based on judgements regarding future expected loss experience, current economic conditions, current interest rates and prepayment trends, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in any of these assumptions used in calculating fair value also would affect significantly the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.
The following paragraphs describe the valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:basis.
Investment Securities Available for Sale
Investment securities are recorded at fair value on a recurring basis and are based upon quoted prices if available. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, or by dealers or brokers in active over-the counter markets. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Instruments
Derivative instruments include interest rate lock commitments and forward sale commitments. These instruments are valued based on the change in the value of the underlying loan between the commitment date and the end of the period. We classify these instruments as Level 3. The fair value of these commitments was not significant at September 30, 2017 or December 31, 2016.
We havehad no embedded derivative instruments requiring separate accounting treatment. We havehad freestanding derivative instruments consisting of fixed rate conforming loan commitments as interest rate locks and commitments to sell fixed rate conforming loans on a best efforts basis. We do not currently engage in hedging activities. Based on the short term fair value of the mortgage loans held for sale (derivative contract), our derivative instruments were immaterial to our consolidated financial statements as of SeptemberJune 30, 20172020 and December 31, 2016.2019.
Assets and liabilities measured at fair value on a recurring basis at SeptemberJune 30, 20172020 and December 31, 20162019 are as follows:
September 30, 2017 | ||||||||||||||||||||||||||||||||
June 30, 2020 | ||||||||||||||||||||||||||||||||
Quoted Market Price in active markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
U.S. Treasury Notes | $ | 26,097,501 | $ | — | $ | — | $ | 26,097,501 | $ | 23,601,441 | $ | — | $ | — | $ | 23,601,441 | ||||||||||||||||
Government Sponsored Enterprises | — | 59,369,405 | — | 59,369,405 | ||||||||||||||||||||||||||||
Government-Sponsored Enterprises | — | 68,338,085 | — | 68,338,085 | ||||||||||||||||||||||||||||
Municipal Securities | — | 29,120,850 | 11,909,128 | 41,029,978 | — | 10,880,794 | 6,086,342 | 16,967,136 | ||||||||||||||||||||||||
Total | $ | 26,097,501 | $ | 88,490,255 | $ | 11,909,128 | $ | 126,496,884 | $ | 23,601,441 | $ | 79,218,879 | $ | 6,086,342 | $ | 108,906,662 |
December 31, 2016 | ||||||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||
Quoted Market Price in active markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
U.S. Treasury Notes | $ | 23,939,063 | $ | — | $ | — | $ | 23,939,063 | $ | 23,180,200 | $ | — | $ | — | $ | 23,180,200 | ||||||||||||||||
Government Sponsored Enterprises | — | 51,034,091 | — | 51,034,091 | ||||||||||||||||||||||||||||
Government-Sponsored Enterprises | — | 50,498,195 | — | 50,498,195 | ||||||||||||||||||||||||||||
Municipal Securities | — | 31,027,933 | 13,977,857 | 45,005,790 | — | 14,817,110 | 11,954,451 | 26,771,561 | ||||||||||||||||||||||||
Total | $ | 23,939,063 | $ | 82,062,024 | $ | 13,977,857 | $ | 119,978,944 | $ | 23,180,200 | $ | 65,315,305 | $ | 11,954,451 | $ | 100,449,956 |
There were no liabilities recorded at fair value on a recurring basis as of SeptemberJune 30, 20172020 or December 31, 2016.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS2019.
The following table reconciles the changes in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016:2019:
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Beginning balance | $ | 12,488,995 | $ | 7,704,814 | ||||
Total gains or (losses) (realized/unrealized) | ||||||||
Included in earnings | — | — | ||||||
Included in other comprehensive income | 13,852 | (27,965 | ) | |||||
Purchases, issuances and settlements, net of maturities | (593,719 | ) | 3,717,482 | |||||
Transfers in and/or out of Level 3 | — | — | ||||||
Ending balance | $ | 11,909,128 | $ | 11,394,331 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Beginning balance | $ | 6,403,720 | $ | 5,738,618 | $ | 11,954,451 | $ | 6,241,955 | ||||||||
Total gains or (losses) (realized/unrealized) | ||||||||||||||||
Included in other comprehensive income | 81,622 | 44,734 | 109,891 | 101,397 | ||||||||||||
Purchases, issuances, and settlements net of maturities | (399,000 | ) | (1,248,835 | ) | (5,978,000 | ) | (1,808,835 | ) | ||||||||
Ending balance | $ | 6,086,342 | $ | 4,534,517 | $ | 6,086,342 | $ | 4,534,517 |
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Beginning balance | $ | 13,977,857 | $ | 5,217,678 | ||||
Total gains or (losses) (realized/unrealized) | ||||||||
Included in earnings | — | — | ||||||
Included in other comprehensive income | 254,990 | 5,171 | ||||||
Purchases, issuances and settlements, net of maturities | (2,323,719 | ) | 6,171,482 | |||||
Transfers in and/or out of Level 3 | — | — | ||||||
Ending balance | $ | 11,909,128 | $ | 11,394,331 |
There were no transfers between fair value levels during the three or nineand six months ended SeptemberJune 30, 20172020 or September 30, 2016.2019.
The following paragraphs describe the valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:basis.
Other Real Estate Owned (“OREO”)
Loans secured by real estate are adjusted to the lower of the recorded investment in the loan or the fair value of the real estate upon transfer to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral, or our estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraisal, we record the asset as nonrecurring Level 2. When an appraised value is not available or we determine the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the asset as nonrecurring Level 3.
The Bank does not have any OREO as of June 30, 2020 or December 31, 2019.
Impaired Loans
Impaired loans are carried at the lower of recorded investment or fair value. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, we review the most recent appraisal and if it is over 12 to 18 months old, we may request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, we may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. Specifically, as an example, in situations where the collateral on a nonperforming commercial real estate loan is out of our primary market area, we would typically order an independent appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following the determination that the loan is impaired.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
However, as a second example, on a nonperforming commercial real estate loan where we are familiar with the property and surrounding areas and where the original appraisal value far exceeds the recorded investment in the loan, we may perform an internal analysis whereby the previous appraisal value would be reviewed considering recent current conditions, and known recent sales or listings of similar properties in the area, and any other relevant economic trends. This analysis may result in the call for a new appraisal. These valuations are reviewed and updated on a quarterly basis.
In accordance with ASC 820,Fair Value Measurement, impaired loans, where an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. At September 30, 2017 and December 31, 2016, substantially all of the impaired loans were evaluated based on the fair value of the collateral. These impaired loans are classified as Level 3. Impaired loans measured using discounted future cash flows are not deemed to be measured at fair value.
Mortgage Loans Held for Saleto be Sold
Loans held for sale include mortgageMortgage loans andto be sold are carried at the lower of cost or market value. The fair values of mortgage loans held for saleto be sold are based on current market rates from investors within the secondary market for loans with similar characteristics. Carrying value approximates fair value. These loans are classified as Level 2.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
The following tables presenttable presents information about certain assets and liabilities measured at fair value on a nonrecurring basis at SeptemberJune 30, 20172020 and December 31, 2016:2019:
September 30, 2017 | ||||||||||||||||
Quoted Market Price in active markets (Level 1) | Significant (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
Impaired loans | $ | — | $ | — | $ | 2,407,508 | $ | 2,407,508 | ||||||||
Other real estate owned | — | — | 566,632 | 566,632 | ||||||||||||
Loans held for sale | — | 3,117,830 | — | 3,117,830 | ||||||||||||
Total | $ | — | $ | 3,117,830 | $ | 2,974,140 | $ | 6,091,970 |
June 30, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Impaired loans | $ | — | $ | — | $ | 2,799,944 | $ | 2,799,944 | ||||||||
Mortgage loans to be sold | — | 11,624,188 | — | 11,624,188 | ||||||||||||
Total | $ | — | $ | 11,624,188 | $ | 2,799,944 | $ | 14,424,132 |
December 31, 2016 | ||||||||||||||||
Quoted Market Price in active markets (Level 1) | Significant (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
Impaired loans | $ | — | $ | — | $ | 4,143,772 | $ | 4,143,772 | ||||||||
Other real estate owned | — | — | 521,943 | 521,943 | ||||||||||||
Loans held for sale | — | 4,386,210 | — | 4,386,210 | ||||||||||||
Total | $ | — | $ | 4,386,210 | $ | 4,665,715 | $ | 9,051,925 |
December 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Impaired loans | $ | — | $ | — | $ | 2,657,644 | $ | 2,657,644 | ||||||||
Mortgage loans to be sold | — | 5,062,398 | — | 5,062,398 | ||||||||||||
Total | $ | — | $ | 5,062,398 | $ | 2,657,644 | $ | 7,720,042 |
There were no liabilities measured at fair value on a nonrecurring basis as of SeptemberJune 30, 20172020 or December 31, 2016.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS2019.
The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at SeptemberJune 30, 2017:2020 and December 31, 2019:
Inputs | ||||||
Valuation Technique | Unobservable Input | General Range of Inputs | ||||
Impaired Loans | ||||||
Appraisal Value/ Comparison Sales/Other Estimates | Appraisals and/or Sales of Comparable Properties | Appraisals Discounted 10% to 20% for Sales Commissions and Other Holding Costs | ||||
GAAP requiresAccounting standards require disclosure of fair value information for all of our assets and liabilities that are considered financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate fair value.
Under the accounting standard, fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of the assets and liabilities that are not financial instruments. Accordingly, the aggregate fair value amounts of existing financial instruments do not represent the underlying value of those instruments on our books.
The following paragraphs describe the methods and assumptions we use in estimating the fair values of financial instruments that have not been previously discussed:instruments:
a.Cash and due from banks, interest-bearing deposits at the Federal Reserve Bank
a. | Cash and due from banks, interest-bearing deposits at the Federal Reserve |
The carrying value approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.
b. | Investment securities available for sale |
b.LoansInvestment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.
c. | Loans, net |
The carrying valuesfair value of the Company’s loan portfolio includes a credit risk assumption in the determination of the fair value of its loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate consumer and commercialloans, impaired loans and consumer and commercial loans with remaining maturitiesall other loans. The results are then adjusted to account for credit risk as described above. However, under the new guidance, the Company believes a further credit risk discount must be applied through the use of three months or less, approximate fair value. The fair values of fixed rate consumer and commercial loans with maturities greater than three months are determined using a discounted cash flow analysismodel to compensate for illiquidity risk, based on certain assumptions included within the discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime of a loan. Additionally, in accordance with ASU 2016-01, Recognition and assumeMeasurement of Financial Assets and Liabilities, this consideration of enhanced credit risk provides an estimated exit price for the rate being offered on these types of loans at September 30, 2017 and December 31, 2016, approximate market.Company’s loan portfolio.
22
For linesvariable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for impaired loans are estimated based on the fair value of credit, the carrying value approximatesunderlying collateral. Impaired loans measured using discounted future cash flows are not deemed to be measured at fair value.
c.Deposits
d. | Deposits |
The estimated fair value of deposits with no stated maturity is equal to the carrying amount. The fair value of time deposits is estimated by discounting contractual cash flows, using interest rates currently being offered on the deposit products. The fair value estimates for deposits do not include the benefit that results from the low cost funding provided by the deposit liabilities as compared to the cost of alternative forms of funding (deposit base intangibles).
d.Accrued interest receivable and payable
e. | Accrued interest receivable and payable |
Since these financial instruments will typically be received or paid within three months, the carrying amounts of such instruments are deemed to be a reasonable estimate of fair value.
e.Loan commitments
f. | Loan commitments |
Estimates of the fair value of these off-balance sheet items are not made because of the short-term nature of these arrangements and the credit standing of the counterparties.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of SeptemberJune 30, 20172020 and December 31, 2016.2019.
Fair Value Measurements at September 30, 2017 | ||||||||||||||||||||
| Carrying Amount |
| Estimated Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and due from banks | $ | 8,009,824 | $ | 8,009,824 | $ | 8,009,824 | $ | — | $ | — | ||||||||||
Interest-bearing deposits at the Federal Reserve | 22,159,373 | 22,159,373 | 22,159,373 | — | — | |||||||||||||||
Investment securities available for sale | 126,496,884 | 126,496,884 | 26,097,501 | 88,490,255 | 11,909,128 | |||||||||||||||
Mortgage loans to be sold | 3,117,830 | 3,117,830 | — | 3,117,830 | — | |||||||||||||||
Net loans | 265,245,672 | 264,645,984 | — | — | 264,645,984 | |||||||||||||||
Accrued interest receivable | 1,328,542 | 1,328,542 | — | 1,328,542 | — | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Demand deposits | 342,857,357 | 342,857,357 | — | 342,857,357 | — | |||||||||||||||
Time deposits | 43,689,681 | 43,577,033 | — | 43,577,033 | — | |||||||||||||||
Accrued interest payable | 76,360 | 76,360 | — | 76,360 | — |
Fair Value Measurements at June 30, 2020 | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and due from banks | $ | 6,886,753 | $ | 6,886,753 | $ | 6,886,753 | $ | — | $ | — | ||||||||||
Interest-bearing deposits at the Federal Reserve | 89,344,677 | 89,344,677 | 89,344,677 | — | — | |||||||||||||||
Investment securities available for sale | 108,906,662 | 108,906,662 | 23,601,441 | 79,218,879 | 6,086,342 | |||||||||||||||
Mortgage loans to be sold | 11,624,188 | 11,624,188 | — | 11,624,188 | — | |||||||||||||||
Loans, net | 305,796,675 | 298,879,296 | — | — | 298,879,296 | |||||||||||||||
Accrued interest receivable | 1,332,528 | 1,332,528 | — | 1,332,528 | — | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Demand deposits | 452,451,437 | 452,451,437 | — | 452,451,437 | — | |||||||||||||||
Time deposits | 21,245,740 | 23,478,635 | — | 23,478,635 | — | |||||||||||||||
Accrued interest payable | 29,492 | 29,492 | — | 29,492 | — |
Fair Value Measurements at December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements at December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||
| Carrying Amount |
| Estimated Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||
Financial Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | $ | 8,141,030 | $ | 8,141,030 | $ | 8,141,030 | $ | — | $ | — | $ | 9,773,893 | $ | 9,773,893 | $ | 9,773,893 | $ | — | $ | — | ||||||||||||||||||||
Interest-bearing deposits at the Federal Reserve | 18,101,300 | 18,101,300 | 18,101,300 | — | — | 39,320,526 | 39,320,526 | 39,320,526 | — | — | ||||||||||||||||||||||||||||||
Investment securities available for sale | 119,978,944 | 119,978,944 | 23,939,063 | 82,062,024 | 13,977,857 | 100,449,956 | 100,449,956 | 23,180,200 | 65,315,305 | 11,954,451 | ||||||||||||||||||||||||||||||
Mortgage loans to be sold | 4,386,210 | 4,386,210 | — | 4,386,210 | — | 5,062,398 | 5,062,398 | — | 5,062,398 | — | ||||||||||||||||||||||||||||||
Net loans | 256,724,498 | 256,555,052 | — | — | 256,555,052 | |||||||||||||||||||||||||||||||||||
Loans, net | 270,068,802 | 271,736,572 | — | — | 271,736,572 | |||||||||||||||||||||||||||||||||||
Accrued interest receivable | 1,614,002 | 1,614,002 | — | 1,614,002 | — | 1,309,772 | 1,309,772 | — | 1,309,772 | — | ||||||||||||||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Demand deposits | 328,681,594 | 328,681,594 | — | 328,681,594 | — | 357,008,868 | 357,008,868 | — | 357,008,868 | — | ||||||||||||||||||||||||||||||
Time deposits | 43,841,257 | 43,856,383 | — | 43,856,383 | — | 22,182,787 | 21,962,039 | — | 21,962,039 | — | ||||||||||||||||||||||||||||||
Accrued interest payable | 51,629 | 51,629 | — | 51,629 | — | 38,748 | 38,748 | — | 38,748 | — |
Note 5:6: Income Per Common Share
Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and potential common shares outstanding. Potential common shares consist of dilutive stock options determined using the treasury stock method and the average market price of common stock.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables aretable is a summary of the reconciliation of weighted average shares outstanding:outstanding for the three months ended June 30:
Three Months Ended September 30, | ||||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Net income | $ | 1,440,653 | $ | 1,426,338 | $ | 1,501,023 | $ | 1,840,847 | ||||||||
Weighted average shares outstanding - basic | 4,978,515 | 4,931,185 | ||||||||||||||
Weighted average shares outstanding | 5,529,632 | 5,517,236 | ||||||||||||||
Effect of dilutive shares | 89,046 | 123,538 | 184,489 | 70,749 | ||||||||||||
Weighted average shares outstanding - diluted | 5,067,561 | 5,054,723 | 5,714,121 | 5,587,985 | ||||||||||||
Earnings per share - basic | $ | 0.29 | $ | 0.29 | $ | 0.27 | $ | 0.33 | ||||||||
Earnings per share - diluted | $ | 0.28 | $ | 0.28 | $ | 0.26 | $ | 0.33 |
The following table is a summary of the reconciliation of weighted average shares outstanding for the six months ended June 30:
Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Net income | $ | 4,053,126 | $ | 3,934,183 | $ | 3,022,154 | $ | 3,530,111 | ||||||||
Weighted average shares outstanding - basic | 4,969,617 | 4,929,977 | ||||||||||||||
Weighted average shares outstanding | 5,529,944 | 5,515,832 | ||||||||||||||
Effect of dilutive shares | 89,341 | 128,860 | 178,774 | 70,981 | ||||||||||||
Weighted average shares outstanding - diluted | 5,058,958 | 5,058,837 | 5,708,718 | 5,586,813 | ||||||||||||
Earnings per share - basic | $ | 0.82 | $ | 0.80 | $ | 0.55 | $ | 0.64 | ||||||||
Earnings per share - diluted | $ | 0.80 | $ | 0.78 | $ | 0.53 | $ | 0.63 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is designed to provide a better understanding of various factors related to the Company’s consolidated financial condition, results of operations, liquidity, and capital resources. It should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10k for the year ended December 31, 2016 and other financial information appearing elsewhere in this report.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report,Quarterly Report on Form 10-Q, including information included or incorporated by reference in this document, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1934. We desire to take advantage of the safe harbor“safe harbor” provisions of the Private Securities Litigation Reform Act of 1996 and are including this statement for the express purpose of availing the Company of protections of such safe harbor with respect to all “forward-looking statements” contained in this Form 10-Q. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of our Company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors that are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitations, those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20162019 as filed with the SEC and the following:
● | Risk from changes in economic, monetary policy, and industry conditions |
● | Changes in interest rates, shape of the yield curve, deposit rates, the net interest margin and funding sources |
● | Market risk (including net income at risk analysis and economic value of equity risk analysis) and inflation |
● | Risk inherent in making loans including repayment risks and changes in the value of collateral |
● | Loan growth, the adequacy of the allowance for loan losses, provisions for loan losses, and the assessment of problem loans |
● | Level, composition, and re-pricing characteristics of the securities portfolio |
● | Deposit growth, change in the mix or type of deposit products and services |
● | Continued availability of senior management and ability to attract and retain key personnel |
● | Technological changes |
● | Ability to control expenses |
● | Changes in compensation |
● | Risks associated with income taxes |
● | Changes in accounting policies and practices |
● | Changes in regulatory actions, including the potential for adverse adjustments |
● | Recently enacted or proposed legislation |
● | Reputational risk | |
● ● ● | Pandemic risk, including COVID-19, and related quarantine and/or stay-at home policies and restrictions Impact of COVID-19 on the collectability of loans Changes in legislation as related to PPP loans |
These risks are exacerbated by the developments over the last ten years in national and international markets. Sweeping reform has entered our industry yet we are unable to fully predict its impact and perhaps its unintentional consequences. There can be no assurance that these changes will not materially and adversely affect our business, financial condition and results of operation.
We will undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. In addition, certain statements in future filings with the SEC, in our press releases, and in oral and written statements, which are not statements of historical fact, constitute forward-looking statements.
Overview
Bank of South Carolina Corporation (the “Company”) is a financial institution holding company headquartered in Charleston, South Carolina, with $431.5$542.6 million in assets as of SeptemberJune 30, 2017 and net income of $1.4 million and $4.1 million for the three and nine months ended September 30, 2017.2020. The Company 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 primarily in the Charleston, Dorchester and Berkeley counties of South Carolina. The Bank’s original and current concept is to be a full servicefull-service financial institution specializing in personal service, responsiveness, and attention to detail to foster long standing relationships.
We derive most of our income from interest on loans and investments (interest bearing(interest-earning assets). The primary source of funding for making these loans and investments is our interest and non-interest bearingnon-interest-bearing deposits. Consequently, one of the key measures of our success is the amount of net interest income, or the difference between the income on our interest bearinginterest-earning assets and the expense on our interest bearinginterest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest bearinginterest-earning assets and the rate we pay on our interest bearinginterest-bearing liabilities.
A consequence of lending activities is that we may incur credit losses. The amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrowers. The reserve for credit losses consists of the allowance for loan losses (the “allowance”) and a reserve for unfunded commitments (the “unfunded reserve”). The allowance provides for probable and estimable losses inherent in our loan portfolio while the unfunded reserve provides for potential losses related to unfunded lending commitments.
In addition to earning interest on loans and investments, we earn income through fees and other expenses we charge to the customer. The various components of non-interest income as well as non-interest expense are described in the following discussion. The discussion and analysis also identifiesidentify significant factors that have affected our financial position and operating results as of Septemberand for the periods ending June 30, 20172020 and December 31, 2016,2019, and should be read in conjunction with the financial statements and the related notes included in this report. In addition, a number of tables have been included to assist in the discussion.
COVID-19
On March 11, 2020, the World Health Organization (“WHO”) declared COVID-19 a pandemic. Due to orders issued by the governor of South Carolina and in an abundance of caution for the health of our customers and employees, on March 23, 2020 the Bank closed lobbies to all 5 offices but remained fully operational.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. Under the program, the Small Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for Paycheck and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. The loans are 100% guaranteed by the SBA and payments are deferred for the first six months of the loan. The Bank receives a processing fee ranging from 1% to 5% based on the size of the loan from the SBA. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued by financial institutions through the SBA. The Bank has provided $36.5 million in funding to 266 customers through the PPP as of June 30, 2020. Because these loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve.
Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. The Bank processed approximately $0.6 million in principal deferments to 80 customers during the six months ended June 30, 2020. This represents 0.18% of our total loan portfolio as of June 30, 2020. In accordance with the FDIC guidance, borrowers who were current prior to becoming affected by COVID-19, that received payment accommodations as a result of the pandemic, generally should not be reported as past due. All borrowers who received payment accommodations did not experience financial difficulty and were current prior to COVID-19. There were no interest deferments granted and all loans given payment accommodations are still paying interest. The Bank is tracking all payment accommodations to customers to identify and quantify any impact they might have on the Bank.
While the effects of COVID-19 have impacted all industries to varying degrees, the Bank believes the retail and/or service, food and beverage, and short term rental industries in our geographic area are considered a higher risk due to the primary source of repayment. These industries are dependent upon the hospitality industry and were affected by the mandates issued by the Governor of South Carolina to limit occupancy or close for a period of time.
The table below shows the total loans receivable for these segments as a percentage of total gross loans as of June 30, 2020.
June 30, 2020 | ||||||||
Amount | Percentage of Total Gross Loans | |||||||
Retail and/or Service | $ | 2,577,101 | 0.83 | % | ||||
Food and Beverage | 1,378,126 | 0.44 | % | |||||
Short Term Rental | 13,791,316 | 4.45 | % | |||||
Total | $ | 17,746,543 | 5.73 | % |
These loans have been temporarily downgraded and the Bank is continuing to monitor the effects of COVID-19 on these segments of our loan portfolio. The Bank granted payment accommodations of approximately $6.0 million, or 33.59%, of these loans. The Bank will reevaluate these loans in the third quarter of 2020 based on actual performance.
Effects of COVID-19 may negatively impact management assumptions and estimates, such as the allowance for loan losses. However, it is difficult to assess or predict how, and to what extent, COVID-19 will affect the Bank in the future.
Critical Accounting Policies
Our critical accounting policies, which involve significant judgements and assumptions that have a material impact on the carrying value of certain assets and liabilities, and used in the preparation of the Consolidated Financial Statements as of SeptemberJune 30, 2017,2020, have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2016.2019.
Balance Sheet
Cash and Cash Equivalents
Total cash and cash equivalents increased 14.96%96.01% or $3.9$47.1 million to $30.2$96.2 million as of SeptemberJune 30, 2017,2020, from $26.2$49.1 million as of December 31, 2016. This2019. The increase was primarilyin total cash and cash equivalents is due to an increase in deposit balances for both newdeposits driven by a combination of various government stimulus programs, delayed income tax payments, and existing customers. Funds are placed in interest bearing deposits at the Federal Reserve Bank until opportunities arise for investment in higher yielding assets.decreased consumer spending.
Investment Securities Available for Sale
Our primary objective in managing the investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding competitive returns. We are required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. We maintain investment balances based on continuing assessment of cash flows, the level of current and expected loan production, current interest rate risk strategies and the assessment of potential future direction of market interest rate changes. Investment securities differ in terms of default, interest rate, liquidity and expected rate of return risk.
We use the investment securities portfolio for several purposes. It serves as a vehicle to manage interest rate and prepayment risk, to generate interest and dividend income from investment of funds, to provide liquidity to meet funding requirements, and to provide collateral for pledging of public funds.
As of SeptemberJune 30, 2017,2020, our available for sale investment portfolio included U. S. Treasury Notes, Government-Sponsored Enterprises and Municipal Securities with a fair market value of $126.5$108.9 million and an amortized cost of $126.2$106.3 million for a net unrealized gain of $324,748.approximately $2.6 million. As of SeptemberJune 30, 20172020 and December 31, 2016,2019, our investment securities portfolio represented approximately 29.32%20.07% and 28.98%22.57% of our total assets, respectively. The average yield on our investment securities was 2.03%1.85% and 1.99%2.00% at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively.
We had eight Municipal Securities with an approximate total book valueDuring the second quarter of $3.4 million that matured and2020, three Municipal Securities with an approximate total book value oftotaling $1.0 million that were called and one Municipal Security totaling $.4 million matured. During the first quarter of 2020, five Municipal Securities totaling $3.4 million were called and five Municipal Securities totaling $5.4 million matured. The Bank purchased $16.7 million in Government-Sponsored Enterprise securities during the second quarter of 2020.
During the first quarter of 2019, five Municipal Securities totaling $3.0 million matured and one Municipal Security in the nine months ended September 30, 2017. Additionally, weamount of $0.5 million was called. During the second quarter of 2019, six Municipal Securities totaling $1.4 million were called, two Municipal Securities totaling $0.9 million matured, two Government-Sponsored Enterprise securities were sold five investment securities issued by Government Sponsored Enterprisesfor $10.0 million, and one USU.S. Treasury Note with a total ending book valuein the amount of $20.2 million, resulting in a net gain of $45,820 during the nine months ended September 30, 2017. We also purchased five investment securities issued by Government Sponsored Enterprises and one US Treasury Note, with a total face value of $30.1 million during the nine months ended September 30, 2017.$5.0 was sold.
Loans
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets. Substantially all of our loans wereare to borrowers located in our market area of Charleston, Dorchester and Berkeley Countiescounties of South Carolina.
Net loans increased $8.5$35.7 million, or 3.31%13.23%, to $265.2$305.8 million at Septemberas of June 30, 20172020 from $256.7$270.1 million atas of December 31, 2016. We attribute2019. The increase is primarily related to the increase in net loans to multiple largePPP loans originated late inby the quarter as well as an increase in the usage of lines of credit. Early payoffs of real estate loans continued, which we attribute to Charleston’s strong real estate market and national popularity.Bank.
The following table is a summary of our loan portfolio composition (net of deferred fees and costs of $149,640$1,128,775 at SeptemberJune 30, 20172020 and $136,446$155,697 at December 31, 2016)2019, respectively) and the corresponding percentage of total loans as of the dates indicated.
September 30, 2017 | December 31, 2016 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Commercial loans | $ | 53,348,364 | 19.82 | % | $ | 52,262,209 | 20.06 | % | ||||||||
Commercial real estate – construction | 1,842,668 | 0.68 | % | 1,208,901 | 0.46 | % | ||||||||||
Commercial real estate – other | 134,779,206 | 50.08 | % | 122,968,126 | 47.19 | % | ||||||||||
Consumer real estate | 74,254,387 | 27.59 | % | 77,131,816 | 29.60 | % | ||||||||||
Consumer other | 4,908,006 | 1.83 | % | 7,005,063 | 2.69 | % | ||||||||||
Total | 269,132,631 | 100.00 | % | 260,576,115 | 100.00 | % | ||||||||||
Allowance for loan loss | (3,886,959 | ) | (3,851,617 | ) | ||||||||||||
Total loans, net | $ | 265,245,672 | $ | 256,724,498 |
June 30, 2020 | December 31, 2019 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Commercial | $ | 42,680,070 | 13.77 | % | $ | 52,848,455 | 19.28 | % | ||||||||
Commercial Real Estate Construction | 14,301,901 | 4.61 | % | 12,491,078 | 4.56 | % | ||||||||||
Commercial Real Estate Other | 140,469,962 | 45.33 | % | 143,821,990 | 52.48 | % | ||||||||||
Consumer Real Estate | 71,183,544 | 22.97 | % | 59,533,045 | 21.72 | % | ||||||||||
Consumer Other | 4,728,864 | 1.53 | % | 5,377,992 | 1.96 | % | ||||||||||
Paycheck Protection Program | 36,542,964 | 11.79 | % | — | 0.00 | % | ||||||||||
Total loans | 309,907,305 | 100.00 | % | 274,072,560 | 100.00 | % | ||||||||||
Allowance for loan losses | (4,110,630 | ) | (4,003,758 | ) | ||||||||||||
Total loans, net | $ | 305,796,675 | $ | 270,068,802 |
In January 2020, the Bank began originating 30-year, fixed rate consumer mortgage loans, which are held for investment rather than for sale in the secondary market. Prior to January, all consumer mortgage loans made by the Bank were originated for the purpose of sale and reflected on the consolidated balance sheet as mortgage loans held for sale. This new mortgage product has been well-received by the Bank’s customers, and the associated volume of originations through the first half of the year has contributed to the increase in Consumer Real Estate lending.
The increase in the deferred fees is directly associated with the processing fees the Bank received from the SBA for the PPP loans. The fees are deferred and amortized over the life of the loan in accordance with ASC 310-20.
Nonperforming assetsAssets
Nonperforming assetsAssets include real estate acquired through foreclosure or deedsdeed taken in lieu of foreclosure and loans on nonaccrual status and TDRs.status. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms and to show capacity to continue performing into the future before that loan can be placed back on accrual status. As of SeptemberJune 30, 2017, we had one loan2020, there were no loans 90 days past due still accruing interest.
We consider a loan to be a TDR when the debtor experiences financial difficulties and we provide concessions such that we will not collect all principal and interestOn March 18, 2020, in accordance with the original termsrecognition of the agreement. Concessions can relate todifficulties of COVID-19, the contractual interest rate, maturity date, or payment structureChief Justice of South Carolina declared a statewide moratorium on evictions and foreclosures until directed by subsequent order of the note. As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges. As of September 30, 2017, we determined that we had one loan totaling $33,300 that we considered a TDR. As of December 31, 2016, we had two loans totaling $378,382 that we considered TDRs.
Nonperforming loans include all loans past due 90 days and over, certain impaired loans (some of which may be contractually current), and TDR loans that have not yet established a satisfactory period of payment performance (some of which may be contractually current). Nonperforming assets include other real estate owned, which increased $44,689 from $521,943 as of December 31, 2016 to $566,632 as of September 30, 2017.Chief Justice. The increase is attributed to the transfer of one loan to OREO. This balance represents two properties.South Carolina Supreme Court lifted its moratorium effective May 15, 2020.
The following table is a summary of our nonperforming assets:Nonperforming Assets:
September 30, 2017 | December 31, 2016 | |||||||
Commercial loans | $ | 46,899 | $ | 61,781 | ||||
Commercial real estate - other | 1,554,368 | 1,678,876 | ||||||
Consumer other | — | 964 | ||||||
Total nonaccrual loans | 1,601,267 | 1,741,621 | ||||||
Other real estate owned | 566,632 | 521,943 | ||||||
Total nonperforming assets | $ | 2,167,899 | $ | 2,263,564 |
June 30, 2020 | December 31, 2019 | |||||||
Commercial | $ | 190,751 | $ | 178,975 | ||||
Commercial Real Estate Other | 912,067 | 857,327 | ||||||
Consumer Real Estate | 665,114 | 629,999 | ||||||
Consumer Other | 13,450 | — | ||||||
Total nonaccruing loans | 1,781,382 | 1,666,301 | ||||||
Total nonperforming assets | $ | 1,781,382 | $ | 1,666,301 |
Allowance for Loan Losses
The allowance for loan losses was $3.9$4.1 million as of SeptemberJune 30, 20172020 and $4.0 million as of December 31, 2019, or 1.50% and 1.46%, respectively, of outstanding loans, net of PPP loans, for each respective period. Because PPP loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process they are not graded and do not have an associated reserve. At June 30, 2020 and December 31, 2016, or 1.44% and 1.48% of outstanding loans, respectively. At September 30, 2017 and December 31, 2016,2019, the allowance for loan losses represented 179.30%230.76% and 170.16%240.28% of the total amount of nonperforming assets,loans, respectively. Based on the level of coverage on nonperforming loans and analysis of our loan portfolio, we believe the allowance for loan losses at SeptemberJune 30, 20172020 is adequate.
At SeptemberJune 30, 2017,2020, impaired loans totaled $4.6$5.0 million, for which $2.7$2.1 million of these loans had a reserve of approximately $2.0$0.7 million allocated in the allowance for loan losses. Comparatively, impaired loans totaled $5.9$4.7 million at December 31, 2016,2019, and $2.2$1.1 million of these loans had a reserve of approximately $1.5$0.7 million allocated in the allowance for loan losses.
During the three months ended SeptemberJune 30, 2017,2020, we recorded $83,276$76,410 of charge-offs and $22,720$172,827 of recoveries on loans previously charged-off, resulting infor net charge-offsrecoveries of $60,556.$96,417. Comparatively, we recorded $22,665$2,009 of charge-offs and $8,135 of recoveries on loans previously charged-off, and no charge-offs, resulting infor net recoveries of $22,665 during$6,126 for the three months ended SeptemberJune 30, 2016.2019. During the ninesix months ended SeptemberJune 30, 2017,2020, we recorded $85,649$116,002 of charge-offs and $68,491$222,874 of recoveries, for net recoveries of $106,872. Comparatively, we recorded $237,737 of charge-offs and $8,954 of recoveries on loans previously charged-off, resulting infor net charge-offs of $17,158. Comparatively, during the same period in 2016, we recorded $116,651 of charge-offs and $48,935 of recoveries on loans previously charged-off, resulting in net charge-offs of $67,716$228,783 for the ninesix months ended SeptemberJune 30, 2016.2019.
Deposits
Deposits remain our primary source of funding for loans and investments. Average interest bearinginterest-bearing deposits provided funding for 61.17%57.11% of average earning assets for the ninesix months ended SeptemberJune 30, 2017,2020, and 65.70%58.98% for the twelvesix months ended December 31, 2016.June 30, 2019. The Company encounters strong competition from other financial institutions as well as consumer and commercial finance companies, insurance companies and brokerage firms located in the primary service area of the Bank. However, the percentage of funding provided by deposits has remained stable.
The breakdown of total deposits by type and the respective percentage of total deposits are as follows:
September 30, 2017 | December 31, 2016 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Deposits: | ||||||||||||||||
Non-interest-bearing demand | $ | 124,661,171 | 32.25 | % | $ | 126,034,478 | 33.83 | % | ||||||||
Interest-bearing demand | 99,066,299 | 25.63 | % | 96,260,589 | 25.84 | % | ||||||||||
Money market accounts | 84,417,700 | 21.84 | % | 77,307,662 | 20.75 | % | ||||||||||
Time deposits over $250,000 | 17,695,869 | 4.58 | % | 17,822,136 | 4.78 | % | ||||||||||
Other time deposits | 25,993,812 | 6.72 | % | 26,019,121 | 6.98 | % | ||||||||||
Other savings deposits | 34,712,187 | 8.98 | % | 29,078,865 | 7.81 | % | ||||||||||
Total deposits | $ | 386,547,038 | 100.00 | % | $ | 372,522,851 | 100.00 | % |
June 30, 2020 | December 31, 2019 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Deposits | ||||||||||||||||
Non-interest bearing demand | $ | 177,061,501 | 37.38 | % | $ | 125,621,031 | 33.13 | % | ||||||||
Interest bearing demand | 141,000,259 | 29.77 | % | 125,175,935 | 33.01 | % | ||||||||||
Money market accounts | 90,750,383 | 19.16 | % | 68,964,879 | 18.19 | % | ||||||||||
Time deposits over $250,000 | 4,199,914 | 0.89 | % | 5,967,559 | 1.57 | % | ||||||||||
Other time deposits | 17,045,826 | 3.59 | % | 16,215,228 | 4.28 | % | ||||||||||
Other savings deposits | 43,639,294 | 9.21 | % | 37,247,023 | 9.82 | % | ||||||||||
Total deposits | $ | 473,697,177 | 100.00 | % | $ | 379,191,655 | 100.00 | % |
Deposits increased 3.76%24.92% or $14.0$94.5 million from December 31, 20162019 to SeptemberJune 30, 2017. These increases were primarily2020 due to larger balancesan increase in existing customer accounts as well as the additiondeposits driven by a combination of new accounts during the period.various government stimulus programs, delayed income tax payments, and decreased consumer spending.
At SeptemberJune 30, 20172020 and December 31, 2016,2019, deposits with an aggregate deficit balance of $16,947$24,813 and $24,963,$25,319, respectively, were re-classified as other loans.
Comparison of Three Months Ended SeptemberJune 30, 20172020 to Three Months Ended SeptemberJune 30, 20162019
The net income reflected for the three months ended June 30, 2020 on the Company’s earnings press release filed on July 9, 2020 was inaccurately stated. The net income shown and reflected in this report is correct. Net income increased $14,315decreased $0.3 million or 1.00%18.46% to $1.4$1.5 million, or basic and diluted earnings per share of $0.29$0.27 and $0.28,$0.26, respectively, for the three months ended SeptemberJune 30, 2017,2020, from $1.4$1.8 million, or basic and diluted earnings per share of $0.29 and $0.28, respectively,$0.33 for the three months ended SeptemberJune 30, 2016.2019. Our annualized returns on average assets and average equity for the three months ended SeptemberJune 30, 20172020 were 1.32%1.19% and 13.01%11.19%, respectively, compared with 1.39%1.70% and 13.74%15.23%, respectively, for the three months ended SeptemberJune 30, 2016.2019.
Net Interest Income
Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is a measure of the difference between interest income on earning assets and interest paid on interest bearing liabilities relative to the amount of interest bearinginterest-bearing assets. Net interest income increased $72,731decreased $0.5 million or 1.85%9.65% to $4.0$4.1 million for the three months ended SeptemberJune 30, 20172020 from $3.9$4.6 million for the three months ended SeptemberJune 30, 2016.2019. This increasedecrease was primarily due to higherinterest and fee income received on loans tied to changes in variable interest rates as a result of the significant decrease in interest rates at the Federal Reserve during the end of the first quarter of 2020, combined with below market interest rates on PPP loans. Average loans and our cash balances tied to the Federal Funds target rate, which increased 25 basis points in March 2017 and an additional 25 basis points in June 2017. Meanwhile, average loans decreased $10.7$27.7 million or 3.88%9.80% to $264.0$310.5 million for the three months ended SeptemberJune 30, 2017,2020, compared to $274.8$282.8 million for the three months ended SeptemberJune 30, 2016. However, the2019. The yield on average loans (including fees) was 5.29%5.32% and 4.86%6.15% for the three months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 2016,2019, respectively. Interest income on loans increased $4,142 for the three months ended September 30, 2017 to $3.4 million from $3.4decreased $0.4 million for the three months ended SeptemberJune 30, 2016.2020 to $3.7 million from $4.1 million for the three months ended June 30, 2019.
The average balance of interest bearing deposits at the Federal Reserve Bank increased $1.2$47.9 million or 4.50%174.97% to $28.5$75.2 million for the three months ended SeptemberJune 30, 2017,2020, with a yield of 1.30%0.09% as compared to $27.3 million for the three months ended SeptemberJune 30, 2016,2019, with a yield of 0.52%2.38%.
Provision for Loan Losses
We have established an allowance for loan losses through a provision for loan losses charged as an expense on our consolidated statements of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of our allowance for loan losses. For the three months ended SeptemberJune 30, 2017,2020, we had ano provision of $20,000loan losses compared to a provision of $210,000$135,000 for the same period in the prior year. The decrease in the provision for loan losses was supported bybased on our analysis of the adequacy of the allowance for loan losses.
Non-Interest Income
Other income decreased $204,704increased $0.1 million or 29.81%18.71% to $481,882 for the three months ended September 30, 2017, from $686,586 for the three months ended September 30, 2016. This reduction was primarily due to less income derived from mortgage banking activities but was partially offset by increases in service charges and fees, as well as gains realized on the sale of investment securities.
Non-Interest Expense
Non-interest expense decreased $99,730 or 3.86% to $2.5$0.7 million for the three months ended SeptemberJune 30, 20172020, from $0.6 million for the three months ended June 30, 2019. This increase was primarily due to improved mortgage banking activity. Rates have remained consistently low, fueling demand for refinancing and new home purchases. Accordingly, mortgage banking income increased $0.1 million or 74.01% from $0.3 million for the three months ended June 30, 2019 to $0.4 million for the three months ended June 30, 2020.
Non-Interest Expense
Non-interest expense increased $0.3 million or 8.94% to $2.9 million for the three months ended June 30, 2020 from $2.6 million for the three months ended SeptemberJune 30, 2016.2019. This decreaseincrease was primarily due to a reduction in other operatingdriven by salaries, employee benefits, and net occupancy expenses of $123,775, largely comprisedour new North Charleston office, which opened in the fourth quarter of a lower FDIC assessment and other miscellaneous operating expenses. This was partially offset by increases in net occupancy expenses.2019.
Income Tax Expense
We incurred income tax expense of $543,098$0.5 million for the three months ended SeptemberJune 30, 20172020 as compared to $399,656$0.6 million during the same period in 2016.2019. Our effective tax rate was 27.38%23.44% and 21.89%23.01% for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The effective tax rate for both periods was directly related to our investment in a South Carolina Rehabilitation Tax Credit in 2016.
Comparison of NineSix Months Ended SeptemberJune 30, 20172020 to NineSix Months Ended SeptemberJune 30, 20162019
Net income increased $118,943decreased $0.5 million or 3.02%14.39% to $4.1$3.0 million, or basic and diluted earnings per share of $0.82$0.55 and $0.80,$0.53, respectively, for the ninesix months ended SeptemberJune 30, 2017,2020, from $3.9$3.5 million, or basic and diluted earnings per share of $0.80$0.64 and $0.78,$0.63, respectively, for the ninesix months ended SeptemberJune 30, 2016.2019. Our returnannualized returns on average assets and average equity for the ninethree months ended SeptemberJune 30, 20172020 were 1.28% and 12.66%11.46%, respectively, compared with 1.29%1.65% and 12.73%14.99%, respectively, for the ninesix months ended SeptemberJune 30, 2016.2019.
Net Interest Income
Net interest income increased $378,528is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is a measure of the difference between interest income on earning assets and interest paid on interest bearing liabilities relative to the amount of interest-bearing assets. Net interest income decreased $0.7 million or 3.40%7.57% to $11.5$8.3 million for the ninesix months ended SeptemberJune 30, 20172020 from $11.1$9.0 million for the ninesix months ended SeptemberJune 30, 2016.2019. This increasedecrease was primarily due to increasedinterest and fee income derived from investment securities. Additionally,received on loans tied to changes in variable interest rates as a result of the increasesignificant decrease in interest and fees on loans was primarily due to higherrates at the Federal Reserve during the end of the first quarter of 2020, combined with below market interest rates on PPP loans and our cash balances tied tooriginated in the Federal Funds target rate, which increased 25 basis points in March 2017 and an additional 25 basis points in June 2017.second quarter. Average loans decreased $2.4increased $14.6 million or 0.91%5.22% to $262.0$294.3 million for the ninesix months ended SeptemberJune 30, 2017,2020, compared to $264.4$279.7 million for the ninesix months ended SeptemberJune 30, 2016. However, the2019. The yield on average loans (including fees) was 5.33%5.47% and 4.85%6.06% for the ninesix months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 2016,2019, respectively. Interest income on loans increased $124,856 for the nine months ended September 30, 2017 to $9.7 million from $9.6decreased $0.6 million for the ninesix months ended SeptemberJune 30, 2016.2020 to $7.4 million from $8.0 million for the six months ended June 30, 2019.
The average balance of interest bearing deposits at the Federal Reserve Bank decreased $3.5increased $37.0 million or 13.08%160.19% to $60.0 million for the six months ended June 30, 2020, with a yield of 0.25% as compared to $23.0 million for the ninesix months ended SeptemberJune 30, 2017,2019, with a yield of 1.09% as compared to $26.5 million for the nine months ended September 30, 2016, with a yield of 0.52%2.42%.
Provision for Loan Losses
We have established an allowance for loan losses through a provision for loan losses charged as an expense on our consolidated statements of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of our allowance for loan losses. For the ninesix months ended SeptemberJune 30, 2017,2020, we had ano provision of $52,500loan losses compared to a provision of $395,000$145,000 for the same period in the prior year. The decrease in the provision for loan losses was supported bybased on our analysis of the adequacy of the allowance for loan losses.
Non-Interest Income
Other income decreased $491,951increased $0.3 million or 22.14%32.92% to $1.7$1.3 million for the ninesix months ended SeptemberJune 30, 2017,2020, from $2.2$1.0 million for the ninesix months ended SeptemberJune 30, 2016.2019. This reduction is primarily due to less income derived from the sale of investment securities and mortgage banking activities. For the nine months ended September 30, 2017, we realized gains on the sale of investment securities of $45,820 compared to realized gains on the sale of investment securities of $348,327 during the same period in 2016.
Non-Interest Expense
Non-interest expense decreased $11,004 or 0.15% to $7.5 million for the nine months ended September 30, 2017 from $7.6 million for the nine months ended September 30, 2016. This decreaseincrease was primarily due to a reduction in other operatingimproved mortgage banking activity. Rates have remained consistently low, fueling demand for refinancing and new home purchases. Accordingly, mortgage banking income increased $0.4 million or 108.45% from $0.4 million for the six months ended June 30, 2019 to $0.8 million for the six months ended June 30, 2020.
Non-Interest Expense
Non-interest expense increased $0.4 million or 8.17% to $5.7 million for the six months ended June 30, 2020 from $5.3 million for the six months ended June 30, 2019. This increase was primarily driven by salaries, employee benefits, and net occupancy expenses of $44,066, largely comprised of a lower FDIC assessment. This was offset by a write-down of OREOour new North Charleston office, which opened in the amountfourth quarter of $46,143 as well as increases in net occupancy expenses.2019.
Income Tax Expense
We incurred income tax expense of $1.6$0.9 million for the ninesix months ended SeptemberJune 30, 20172020 as compared to $1.5$1.0 million during the same period in 2016.2019. Our effective tax rate was 28.38%23.28% and 27.40%22.92% for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The effective tax rate for both periods was directly related to our investment in a South Carolina Rehabilitation Tax Credit in 2016.
Off BalanceOff-Balance Sheet Arrangements
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on our credit evaluation of the borrower. Collateral held varies but may include accounts receivable, negotiable instruments, inventory, property, plant and equipment, and real estate. Commitments to extend credit, including unused lines of credit, amounted to $96.7$114.2 million and $85.4$105.5 million at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively.
Standby letters of credit represent our obligation to a third partythird-party contingent upon the failure of our customer to perform under the terms of an underlying contract with the third party or obligates us to guarantee or stand as surety for the benefit of the third party. The underlying contract may entail either financial or nonfinancial obligations and may involve such things as the shipment of goods, performance of a contract, or repayment of an obligation. Under the terms of a standby letter, generally drafts will be drawn only when the underlying event fails to occur as intended. We can seek recovery of the amounts paid from the borrower. The majority of these standby letters of credit are unsecured. Commitments under standby letters of credit are usually for one year or less. The maximum potential amount of undiscounted future payments related to standby letters of credit at SeptemberJune 30, 20172020 and December 31, 20162019 was $969,644$1.0 million and $793,992,$1.1 million, respectively.
We originate certain fixed rate residential loans and commit these loans for sale. The commitments to originate fixed rate residential loans and the sales commitments are freestanding derivative instruments. We had forward sales commitments totaling $2.3 million at September 30, 2017, to sellon mortgage loans held for sale of $3.1totaling $11.6 million compared to forward sales commitments of $4.4and $5.1 million at June 30, 2020 and December 31, 2016, to sell loans held for sale of $4.4 million.2019, respectively. The fair value of these commitments was not significant at SeptemberJune 30, 20172020 or December 31, 2016.2019. We had no embedded derivative instruments requiring separate accounting treatment.
Once we sell certain fixed rate residential loans, the loans are no longer reportable on our balance sheet. With most of these sales, we have an obligation to repurchase the loan in the event of a default of principal or interest on the loan. This recourse period ranges from three to nine months. Misrepresentation or fraud carries unlimited time for recourse. The unpaid principal balance of loans sold with recourse was $44.7$36.4 million at SeptemberJune 30, 20172020 and $18.1$19.1 million at December 31, 2016.2019. For the three and ninesix months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 2016,2019, there were no loans repurchased.
Historically, we have maintained our liquidity at levels believed by management to be adequate to meet requirements of normal operations, potential deposit outflows and strong loan demand and still allow for optimal investment of funds and return on assets.
We manage our assets and liabilities to ensure there is sufficient liquidity to enable management to fund deposit withdrawals, loan demand, capital expenditures, reserve requirements, operating expenses, dividends, stock repurchases, and to manage daily operations on an ongoing basis. Funds are primarily provided by the Bank through customer deposits, principal and interest payments on loans, mortgage loan sales, the sale or maturity of securities, temporary investments and earnings.
Proper liquidity management is crucial to ensure that we are able to take advantage of new business opportunities as well as meet the credit needs of our existing customers. Investment securities are an important tool in our liquidity management. Our primary liquid assets are cash and due from banks, interest-bearing deposits in other banks, federal funds sold, investments available for sale, other short-term investments and mortgage loans held for sale. Our primary liquid assets accounted for 37.03%39.95% and 36.38%34.74% of total assets at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. Securities classified as available for sale, which are not pledged, may be sold in response to changes in interest rates and liquidity needs. All of the securities presently owned are classified as available for sale. Net cash provided by operations and deposits from customers have been the primary sources of liquidity. At SeptemberJune 30, 2017,2020, we had unused short-term lines of credit totaling approximately $23$23.0 million (which can be withdrawn at the lender’s option). Additional sources of funds available to us for additional liquidity needs include borrowing on a short-term basis from the Federal Reserve System, increasing deposits by raising interest rates paid and liquidationsale of mortgage loans held for sale. We haveestablished a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits us to retain possession of assets pledged as collateral to secure advances from the Federal Reserve Discount Window. At SeptemberJune 30, 2017,2020, we could borrow up to $78$50.9 million. There have been no borrowings under this arrangement during the reporting periods.arrangement.
During the second quarter of 2020, we established an agreement with the Federal Reserve through the Paycheck Protection Program Liquidity Facility ("PPPLF"). Under this facility, the Bank can borrow from this arrangement on a non-recourse basis, using PPP loans as collateral. As of June 30, 2020, we could borrow up to $37.8 million. There have been no borrowings under this arrangement.
Our core deposits consist of non-interest bearingnon-interest-bearing accounts, NOW accounts, money market accounts, time deposits and savings accounts. We closely monitor our level of certificates of deposit greater than $250,000 and other large deposits. We maintain a Contingency Funding Plan (“CFP’) that identifies liquidity needs and weighs alternate courses of action designed to address these needs in emergency situations. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the expected funding needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to meet our operating needs and do not know of any trends, events or uncertainties that may result in a significant adverse effect on our liquidity position. At SeptemberJune 30, 20172020 and December 31, 2016,2019, our liquidity ratio was35.08% 41.60% and 38.27%36.18%, respectively.
Our capital needs have been met to date through the $10.6 million in capital raised in our initial offering, the retention of earnings less dividends paid and the exercise of stock options to purchase.purchase stock. Total shareholders’ equity at Septemberas of June 30, 20172020 was $43.7$54.0 million. The rate of asset growth since our inception has not negatively impacted this capital base.
On March 26, 2020, the Board of Directors of the Company approved a stock repurchase of up to $1.0 million through March 2021.
On July 2, 2013, the Federal Reserve Board approved the final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for US banks (“Basel III”). Following the actions by the Federal Reserve, the FDIC also approved regulatory capital requirements on July 9, 2013. The FDIC’s rules arerule is identical in substance to the final rules issued by the Federal Reserve Bank.
Basel III became effective on January 1, 2015. The purpose is to improve the quality and increase the quantity of capital for all banking organizations. The minimum requirements for the quantity and quality of capital were increased. The rule includes a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and requires a minimum leverage ratio of 4%. In addition, the rule also implements strict eligibility criteria for regulatory capital instruments and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Full compliance with all of the final rule requirements will behas been phased in over a multi-year schedule. The Bank’s total risk-based capital ratio at September 30, 2017 and December 31, 20162019 was 16.13% and 15.36%, respectively.16.46%.
At SeptemberOn November 4, 2019, the federal banking agencies jointly issued a final rule on an optional, simplified measure of capital adequacy for qualifying community banking organizations called the community bank leverage ratio (“CBLR”) framework effective on January 1, 2020. A qualifying community banking organization is defined as having less than $10 billion in total consolidated assets, a leverage ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets. Additionally, the qualifying community banking institution must be a non-advanced approaches FDIC supervised institution. The final rule adopts Tier 1 capital and existing leverage ratio into the CBLR framework. The Bank adopted this rule as of June 30, 2017,2020 and will no longer be subject to other capital and leverage requirements. A CBLR bank meeting qualifying criteria is deemed to have met the “well capitalized” ratio requirements and be in appliance with the generally applicable capital rule. The Bank’s CBLR as of June 30, 2020 was 10.26%. As of June 30, 2020, the Company and the Bank were categorized as “well capitalized” under Basel III. To be categorized as “well capitalized” the Company and the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital and Tier 1 leverage ratios of 10%, 8.0%, 6.5% and 5%, respectively, and to be categorized as “adequately capitalized,capitalized.” the Company and the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital, and Tier 1 leverage ratios of 8%, 6%, 4.5%, and 4.0%, respectively.
We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a material effect on the financial statements. We must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Current and previous quantitative measures established by regulation to ensure capital adequacy require that we maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and to average assets. Management expects that the capital and leverage ratios for the Company and the Bank under Basel IIICBLR will enable each of the Company and the Bank to continue to exceed the well-capitalized minimum capital requirements.
The Company had no material commitments for capital expendituresbe categorized as of September 30, 2017 and December 31, 2016, respectively.“well capitalized.”
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures and internal controls and procedures for financial reporting
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities and Exchange Act of 1934 as amended (the “Act”) was carried out as of SeptemberJune 30, 20172020 under the supervision and with the participation of the Bank of South Carolina Corporation’s management, including its President/Chief Executive Officer and the Chief Financial Officer/SeniorExecutive Vice President and several other members of the Company’s senior management. Based upon that evaluation, Bank of South Carolina Corporation’s management, including the President/Chief Executive Officer and the Chief Financial Officer/SeniorExecutive Vice President concluded that, as of SeptemberJune 30, 2017,2020, the Company’s disclosure controls and procedures were effective in ensuring that the information the Company is required to disclose in the reports filed or submitted under the Act has been (i) accumulated and communicated to management (including the President/Chief Executive Officer and Chief Financial Officer/SeniorExecutive Vice President) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.
Under the supervision and with the participation of management, including the President/Chief Executive Officer and the Chief Financial Officer/SeniorExecutive Vice President, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of SeptemberJune 30, 2017,2020, based on the 2013 framework established in a report entitled“Internal Control-Integrated Framework”issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of SeptemberJune 30, 2017.2020. Based on this assessment, management believes that as of SeptemberJune 30, 2017,2020, the Company’s internal control over financial reporting was effective. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 2017,2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Audit and Compliance Committee, composed entirely of independent Directors, meets periodically with management, the Bank’s Compliance Officer, Risk Management Officer and Elliott Davis, LLC (separately and jointly) to discuss audit, financial and related matters. Elliott Davis, LLC, the Compliance Officer, and the Risk Management Officer have direct access to the Audit and Compliance Committee.
In our opinion, there are no other legal proceedings pending other than routine litigation incidental to our business involving amounts which are not material to our financial condition.
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.The Company’s repurchases of its common stock during the second quarter of 2020 were as follows:
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) | |||||||||||||
April 1 – April 30, 2020 | — | — | — | 1,000,000 | |||||||||||||
May 1 – May 31, 2020 | 2,200 | $ | 15.99 | 2,200 | 997,800 | ||||||||||||
June 1 – June 30, 2020 | 7,100 | $ | 15.97 | 7,100 | 990,700 | ||||||||||||
Total | 9,300 | $ | 15.97 | 9,300 | 990,700 |
(1) | On March 26, 2020, the Company adopted a $1.0 million stock repurchase program. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
None.
None.
1. | The Consolidated Financial Statements are included in this Form 10-Q and listed on pages as indicated. | ||
Page | |||
(1) | Consolidated Balance Sheets | 3 | |
(2) | Consolidated Statements of Income | 4-5 | |
(3) | Consolidated Statements of Comprehensive Income | 6 | |
(4) | Consolidated Statements of Shareholders’ Equity | 7 | |
(5) | Consolidated Statements of Cash Flows | 8 | |
(6) | Notes to Consolidated Financial Statements | 9-22 |
Exhibits
Exhibits | ||
2.0 | Plan of Reorganization (Filed with 1995 10-KSB) |
3.0 | Articles of Incorporation of the Registrant (Filed with 1995 10-KSB) |
3.1 | By-laws of the Registrant (Filed with 1995 10-KSB) |
3.2 | Amendments to the Articles of Incorporation of the Registrant (Filed with Form S on June 23, 2011) |
4.0 |
10.0 | Lease Agreement for 256 Meeting Street (Filed with 1995 10-KSB) |
10.1 | Sublease Agreement for Parking Facilities at 256 Meeting Street (Filed with 1995 10-KSB) |
10.2 | Lease Agreement for 100 N. Main Street, Summerville, SC (Filed with 1995 10-KSB) |
10.3 | Lease Agreement for 1337 Chuck Dawley Blvd., Mt. Pleasant, SC (Filed with 1995 10-KSB) |
10.4 | Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed |
Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed with |
10.5 | 1998 Omnibus Stock Incentive Plan (Filed with 2008 10-K/A) |
10.6 | Employee Stock Ownership Plan (Filed with 2008 10-K/A) |
Employee Stock Ownership Plan, Restated (Filed with 2011 Proxy Statement) |
Employee Stock Ownership Plan, Restated (Filed with 2016 10-K) |
10.7 | 2010 Omnibus Incentive Stock Option Plan (Filed with 2010 Proxy Statement) |
10.8 | Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2013 10-K) |
10.9 | Assignment and Assumption of Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K) |
10.10 | First Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K) |
10.11 | Second Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2015 10-K) |
10.12 | Extension to Lease Agreement for 256 Meeting Street (Filed |
10.13 | North Charleston Lease Agreement (Filed with June 30, 2017 |
10.14 | Sublease Amendment for Parking Facilities at 256 Meeting Street (Filed | |
10.15 | 2020 Stock Incentive Plan (Filed with 2020 Proxy Statement) |
14.0 | Code of Ethics (Filed with 2004 10-KSB) |
21.0 | List of Subsidiaries of the Registrant (Filed with 1995 10-KSB) |
The Registrant’s only subsidiary is The Bank of South Carolina (Filed with 1995 10-KSB) |
31.1 | Certification pursuant to Rule 13a-14(a)/15d-14(a) by Chief Executive Officer |
31.2 | Certification pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial Officer |
32.1 | Certification pursuant to Section 1350 |
32.2 | Certification pursuant to Section 1350 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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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 | ||
By: | /s/Fleetwood S. Hassell | |
Fleetwood S. Hassell | ||
President/Chief Executive Officer | ||
By: | /s/Eugene H. Walpole, IV | |
Eugene H. Walpole, IV | ||
Chief Financial Officer/ | ||
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