United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ Quarterly Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2023
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission file number: 0-27702000-27702
Bank of South Carolina Corporation
(Exact name of registrant issuer as specified in its charter)
South Carolina | 57-1021355 | |
(State or other jurisdiction of | (IRS Employer | |
incorporation or organization) | Identification |
256 Meeting Street, Charleston, SC | 29401 | |
(Address of principal executive offices) | (Zip Code) |
(843)724-1500
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock | BKSC | The NASDAQ Stock Market LLC |
256 Meeting Street, Charleston, SC 29401
(Address of principal executive offices)
(843) 724-1500
(Registrant’s telephone number)
Indicate by check mark whether the 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.
Yes ☒ No☐
Indicate by check mark whether the registrant has submitted electronically 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).
Yes ☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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:
Large accelerated filer ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
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 ☒
As of November 9, 2017May 1, 2023, there were 4,984,479 Common Shares outstanding.
Bank of South Carolina Corporation and Subsidiary
Table of Contents
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
(Unaudited) | ||||||||
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 7,099,250 | $ | 14,772,564 | ||||
Interest-bearing deposits at the Federal Reserve | 14,885,733 | 12,999,135 | ||||||
Investment securities available for sale | 267,439,924 | 271,172,226 | ||||||
Mortgage loans to be sold | 1,278,158 | 866,594 | ||||||
Loans | 333,789,455 | 330,981,782 | ||||||
Less: Allowance for credit losses | (3,688,503 | ) | (4,291,221 | ) | ||||
Net loans | 330,100,952 | 326,690,561 | ||||||
Premises, equipment and leasehold improvements, net | 4,005,565 | 3,988,607 | ||||||
Right of use asset | 13,275,236 | 13,433,692 | ||||||
Accrued interest receivable | 1,842,995 | 2,145,522 | ||||||
Other assets | 7,433,816 | 7,276,708 | ||||||
Total assets | $ | 647,361,629 | $ | 653,345,609 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Liabilities | ||||||||
Deposits: | ||||||||
Non-interest bearing demand | $ | 211,238,078 | $ | 223,117,903 | ||||
Interest bearing demand | 149,605,230 | 195,143,514 | ||||||
Money market accounts | 102,387,646 | 100,014,125 | ||||||
Time deposits $250,000 and over | 52,635,553 | 5,303,509 | ||||||
Other time deposits | 11,919,031 | 11,266,099 | ||||||
Other savings deposits | 59,806,921 | 63,825,108 | ||||||
Total deposits | 587,592,459 | 598,670,258 | ||||||
Accrued interest payable and other liabilities | 2,986,116 | 2,430,272 | ||||||
Lease liability | 13,275,236 | 13,433,692 | ||||||
Total liabilities | 603,853,811 | 614,534,222 | ||||||
Shareholders' equity | ||||||||
Common stock - | par shares authorized; Issued shares at both March 31, 2023 and December 31, 2022. Shares outstanding at both March 31, 2023 and December 31, 2022.— | — | ||||||
Additional paid in capital | 48,058,836 | 48,028,689 | ||||||
Retained earnings | 14,647,449 | 14,002,571 | ||||||
Treasury stock: | shares at March 31, 2023 and December 31, 2022(2,817,392 | ) | (2,817,392 | ) | ||||
Accumulated other comprehensive loss, net of income taxes | (16,381,075 | ) | (20,402,481 | ) | ||||
Total shareholders' equity | 43,507,818 | 38,811,387 | ||||||
Total liabilities and shareholders' equity | $ | 647,361,629 | $ | 653,345,609 |
(Unaudited) September 30, | (Audited) December 31, 2016 | |||||||
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 SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended | ||||||||||||||||
THREE MONTHS ENDED SEPTEMBER 30, | March 31, | |||||||||||||||
2017 | 2016 | 2023 | 2022 | |||||||||||||
Interest and fee income | ||||||||||||||||
Loans, including fees | $ | 3,364,293 | $ | 3,360,151 | $ | 4,668,099 | $ | 3,551,875 | ||||||||
Taxable securities | 409,055 | 379,039 | 690,324 | 559,670 | ||||||||||||
Tax-exempt securities | 251,172 | 255,231 | 161,444 | 109,129 | ||||||||||||
Other | 92,512 | 35,722 | 111,967 | 34,286 | ||||||||||||
Total interest and fee income | 4,117,032 | 4,030,143 | 5,631,834 | 4,254,960 | ||||||||||||
Interest expense | ||||||||||||||||
Deposits | 110,625 | 96,467 | 931,101 | 36,797 | ||||||||||||
Short-term borrowings | — | — | ||||||||||||||
Total interest expense | 110,625 | 96,467 | 931,101 | 36,797 | ||||||||||||
Net interest income | 4,006,407 | 3,933,676 | 4,700,733 | 4,218,163 | ||||||||||||
Provision for loan losses | 20,000 | 210,000 | ||||||||||||||
Net interest income after provision for loan losses | 3,986,407 | 3,723,676 | ||||||||||||||
Provision for credit losses | 45,000 | (75,000 | ) | |||||||||||||
Net interest income after provision for credit losses | 4,655,733 | 4,293,163 | ||||||||||||||
Other income | ||||||||||||||||
Service charges and fees | 278,204 | 265,769 | 327,073 | 307,593 | ||||||||||||
Mortgage banking income | 149,379 | 409,674 | 112,160 | 258,896 | ||||||||||||
Gains on sales of securities | 45,820 | — | ||||||||||||||
Gain on sales of securities | — | 61,780 | ||||||||||||||
Other non-interest income | 8,479 | 11,143 | 9,968 | 6,285 | ||||||||||||
Total other income | 481,882 | 686,586 | 449,201 | 634,554 | ||||||||||||
Other expense | ||||||||||||||||
Salaries and employee benefits | 1,487,207 | 1,485,621 | 1,966,523 | 1,812,155 | ||||||||||||
Net occupancy expense | 399,534 | 377,075 | 654,062 | 620,942 | ||||||||||||
Other operating expenses | 597,797 | 721,572 | 305,181 | 294,733 | ||||||||||||
Net other real estate owned expenses | — | — | ||||||||||||||
Total other expenses | 2,484,538 | 2,584,268 | ||||||||||||||
Professional fees | 167,777 | 139,642 | ||||||||||||||
Data processing fees | 156,818 | 149,090 | ||||||||||||||
Total other expense | 3,250,361 | 3,016,562 | ||||||||||||||
Income before income tax expense | 1,983,751 | 1,825,994 | 1,854,573 | 1,911,155 | ||||||||||||
Income tax expense | 543,098 | 399,656 | 265,794 | 447,049 | ||||||||||||
Net income | $ | 1,440,653 | $ | 1,426,338 | $ | 1,588,779 | $ | 1,464,106 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 4,978,515 | 4,931,185 | 5,552,351 | 5,544,546 | ||||||||||||
Diluted | 5,067,561 | 5,054,723 | 5,640,313 | 5,688,619 | ||||||||||||
Basic income per common share | $ | 0.29 | $ | 0.29 | $ | 0.29 | $ | 0.26 | ||||||||
Diluted income per common share | $ | 0.28 | $ | 0.28 | $ | 0.28 | $ | 0.26 |
See accompanying notes to consolidated financial statements.
4
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
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 | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Net income | $ | 1,588,779 | $ | 1,464,106 | ||||
Other comprehensive income | ||||||||
Unrealized gain (loss) on securities arising during the period | 3,928,218 | (12,152,716 | ) | |||||
Reclassification adjustment for securities gains realized in net income | — | (61,780 | ) | |||||
Other comprehensive income (loss) before tax | 3,928,218 | (12,214,496 | ) | |||||
Income tax effect related to items of other comprehensive income before tax | 93,188 | 2,565,043 | ||||||
Other comprehensive income (loss) after tax | 4,021,406 | (9,649,453 | ) | |||||
Total comprehensive income (loss) | $ | 5,610,185 | $ | (8,185,347 | ) |
See accompanying notes to consolidated financial statements.
5
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMESHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
Shares Outstanding | Additional Paid in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||
December 31, 2022 | - | 5,552,351 | $ | 48,028,689 | $ | 14,002,571 | $ | (2,817,392 | ) | $ | (20,402,481 | ) | $ | 38,811,387 | ||||||||||
Adoption of ASU 2016-13 | — | — | — | — | — | — | ||||||||||||||||||
Net income | - | — | — | 1,588,779 | — | — | 1,588,779 | |||||||||||||||||
Other comprehensive income | — | — | — | — | 4,021,406 | 4,021,406 | ||||||||||||||||||
Stock-based compensation expense | — | 30,147 | — | — | — | 30,147 | ||||||||||||||||||
Cash dividends ($ | per common share)— | — | (943,901 | ) | — | — | (943,901 | ) | ||||||||||||||||
March 31, 2023 | - | 5,552,351 | $ | 48,058,836 | $ | 14,647,449 | $ | (2,817,392 | ) | $ | (16,381,075 | ) | $ | 43,507,818 |
Shares Outstanding | Additional Paid in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||
December 31, 2021 | - | 5,541,266 | $ | 47,745,285 | $ | 11,122,710 | $ | (2,817,392 | ) | $ | (2,132,970 | ) | $ | 53,917,633 | ||||||||||
Net income | - | — | — | 1,464,106 | — | — | 1,464,106 | |||||||||||||||||
Other comprehensive loss | — | — | — | — | (9,649,453 | ) | (9,649,453 | ) | ||||||||||||||||
Stock option exercises, net of surrenders | 9,210 | 141,618 | — | — | — | 141,618 | ||||||||||||||||||
Stock-based compensation expense | — | 27,989 | — | — | — | 27,989 | ||||||||||||||||||
Cash dividends ($ | per common share)— | — | (943,580 | ) | — | — | (943,580 | ) | ||||||||||||||||
March 31, 2022 | - | 5,550,476 | $ | 47,914,892 | $ | 11,643,236 | $ | (2,817,392 | ) | $ | (11,782,423 | ) | $ | 44,958,313 |
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 |
See accompanying notes to consolidated financial statements.
6
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYCASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (UNAUDITED)
ADDITIONAL PAID IN CAPITAL | RETAINED EARNINGS | TREASURY STOCK | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | TOTAL | ||||||||||||||||
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 | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 1,588,779 | $ | 1,464,106 | ||||
Adjustments to reconcile net income net cash provided by operating activities: | ||||||||
Depreciation expense | 85,157 | 97,694 | ||||||
Gain on sale of investment securities | — | (61,780 | ) | |||||
Provision for credit losses | 45,000 | (75,000 | ) | |||||
Stock-based compensation expense | 30,147 | 27,989 | ||||||
Deferred income taxes and other assets | (63,922 | ) | (344,938 | ) | ||||
Net amortization of unearned discounts on investment securities available for sale | 198,522 | 214,931 | ||||||
Origination of mortgage loans held for sale | (8,412,515 | ) | (17,582,370 | ) | ||||
Proceeds from sale of mortgage loans held for sale | 8,000,951 | 17,729,759 | ||||||
Decrease (increase) in accrued interest receivable | 302,527 | (68,881 | ) | |||||
(Decrease) increase in accrued interest payable and other liabilities | (44,156 | ) | 302,580 | |||||
Net cash provided by operating activities | 1,730,490 | 1,704,090 | ||||||
Cash flows from investing activities: | ||||||||
Proceeds from calls and maturities of investment securities available for sale | 7,462,000 | 2,718,000 | ||||||
Proceeds from sale of investment securities available for sale | — | 15,120,000 | ||||||
Purchase of investment securities available for sale | — | (75,764,462 | ) | |||||
Net increase in loans | (2,855,391 | ) | (8,271,231 | ) | ||||
Purchase of premises, equipment, and leasehold improvements, net | (102,115 | ) | (31,563 | ) | ||||
Net cash provided by (used in) investing activities | 4,504,494 | (66,229,256 | ) | |||||
Cash flows from financing activities: | ||||||||
Net decrease in deposit accounts | (11,077,799 | ) | (5,420,096 | ) | ||||
Dividends paid | (943,901 | ) | (942,015 | ) | ||||
Stock options exercised, net of surrenders | — | 141,618 | ||||||
Net cash used in financing activities | (12,021,700 | ) | (6,220,493 | ) | ||||
Net decrease in cash and cash equivalents | (5,786,716 | ) | (70,745,659 | ) | ||||
Cash and cash equivalents at the beginning of the period | 27,771,699 | 140,111,988 | ||||||
Cash and cash equivalents at the end of the period | $ | 21,984,983 | $ | 69,366,329 | ||||
Supplemental disclosure of cash flow data: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 578,256 | $ | 37,340 | ||||
Income taxes, net | $ | 616,245 | $ | — | ||||
Supplemental disclosures for non-cash investing and financing activity: | ||||||||
Change in unrealized gain (loss) on securities available for sale, net of income taxes | $ | 4,021,406 | $ | (9,649,453 | ) | |||
Change in dividends payable | $ | — | $ | 1,565 |
See accompanying notes to consolidated financial statements.
7
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW (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 | $ | — |
See accompanying notes to consolidated financial statements.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Nature of Business and Basis of Presentation1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
OrganizationOrganization:
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-ownedwholly 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.stock.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Company and its wholly-ownedwholly 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, 2017.2, 2023. 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 loancredit losses, impaired loans, other real estate owned, deferred tax assets, and the fair value of financial instruments and other-than-temporary impairment of investment securities.instruments.
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. Retroactive recognition has been given formethod and the effectsaverage market price of all stock dividends.common stock.
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.
8
In May 2014,June 2016, the Financial Accounting Standards Board (“FASB”(the “FASB”) issuedASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The Accounting Standards Update, or ASU, introduced a new credit loss methodology, the Current Expected Credit Loss (“ASU”CECL”) 2014-09,Revenue from Contracts with Customers, Topic 606.The core principlemethodology, which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the new standard is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equalFASB has issued several updates to the considerationoriginal ASU.
The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the entity receivesrecognition of credit losses for loans, held-to-maturity securities, and other receivables at the time the financial asset is originated or expectsacquired. It also applies to receive. This guidance also includes expanded disclosure requirementsoff-balance sheet credit exposures such as unfunded commitments to extend credit. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current GAAP, which generally require that resulta loss be incurred before it is recognized. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in an entity providing users of financial statements with comprehensive information aboutcredit risk.
On January 1, 2023, 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,Company adopted the guidance will be effective for the Companyprospectively. Results for reporting periods beginning after December 15, 2017. WeJanuary 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the previously applicable incurred loss accounting methodology. The adoption of CECL resulted in an increase in the allowance for unfunded commitments of $600,000, a decrease in the allowance for credit losses of $600,000 and no change to the Company’s investment securities portfolio. There was no adjustment to retained earnings as of January 1, 2023. Federal banking regulatory agencies provided optional relief to delay the adverse regulatory capital impact of CECL at adoption. The Company did not elect to use this optional relief.
Significant Accounting Policy Changes
Upon adoption of ASC 326, the Company revised the accounting policy for the Allowance for Credit Losses as detailed below.
Allowance for Credit Losses - Securities Available for Sale
For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will apply this guidance usingbe required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income with the establishment of an allowance under CECL compared to a modified retrospective approach. Becausedirect write down of the amendment does not apply to revenue associated with financial instruments, such as loans and investmentsecurity under Incurred Loss. For debt securities available for sale wethat do not expectmeet the aforementioned criteria, the Company evaluates whether any decline in fair value is due to credit loss factors. In making this amendmentassessment, management considers any changes to have a material effect on our consolidated financial statements. We are still evaluating the effectsrating of the amendment regarding its applicabilitysecurity by a rating agency and adverse conditions specifically 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 investmentssecurity, among other factors. If this assessment indicates 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 oncredit loss exists, the present value of unpaid lease payments ascash flows expected to be collected from the security are compared to the amortized cost basis of the datesecurity. If the present value 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),cash flows expected to clarifybe collected is less than the implementation guidance on principal versus agent considerationsamortized cost basis, a credit loss exists and address how an entity should assess whether itallowance for credit losses is the principal or the agent in contracts that include three or more parties. The amendments will be effectiverecorded for the Companycredit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for reporting periods beginning after December 15, 2017. The Company does not expect this amendment to have a material effect on its financial statements.credit losses is recognized in other comprehensive income.
In March 2016,Changes in the FASB issued ASU 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share – Based Payment Accounting, to simplify several aspectsallowance for credit losses under CECL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of an available-for-sale security is confirmed or when either of the accountingcriteria regarding intent or requirement to sell is met. At March 31, 2023, there was no allowance for share-based payment award transactions includingcredit losses related to the income tax consequences,available-for-sale portfolio.
Accrued interest receivable on available for sale debt securities totaled $436,000 at March 31, 2023 and was excluded from the classificationestimate of awards as either equity or liabilities, andcredit losses.
Allowance for Credit Losses - Loans
Under the classificationcurrent expected credit loss model, the allowance for credit losses on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the statementloans.
Management assesses the adequacy of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them applyallowance on a practical expedientquarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Management believes the level of the allowance for credit losses is adequate to absorb all expected termfuture losses inherent in the loan portfolio at the balance sheet date. The allowance is increased through provision for all awardscredit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off, or negative provisions, when appropriate.
The allowance for credit losses is measured on a collective basis for pools of loans with performancesimilar risk characteristics. The Company uses the Loss Rate Approach to estimate the current expected credit losses. The Bank calculates the annual loss rate by dividing the annual net charge-offs by the average balance of loans. The Bank used the simple average of the prior year and current year balance to get the average balance by segment and is adjusted by the estimated prepayment rate to get the lifetime historical loss rate, which is further adjusted by qualitative and forecast adjustments to get the estimated lifetime loss rate.
The forecast adjustments (House Price Index, Vacancy Rate, and Unemployment Rate) are discussed by the Management Asset Liability Committee (ALCO) on a periodic basis. Upon ALCO’s recommendation, the calculation can be adjusted accordingly to reflect the current market and economic conditions.
The Company uses the loan purpose codes to segment loans based on similar purpose and risk characteristics. The Bank manages these loans on a collective basis. This segmentation is used for call report purposes and the Bank believes it is appropriate for the CECL calculations. Due to the size of the Bank’s loan portfolio, further segmentation would be granular and segments would be statistically insignificant.
Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated loan pools. Individual loan evaluations are generally performed for impaired loans, which includes nonaccrual loans. Such loans are evaluated for credit losses based on either discounted cash flows 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 atthe fair value of collateral. The Company has elected the practical expedient under ASC 326 to measuring themestimate expected credit losses based on the fair value of collateral, which considers selling costs in the event of the sale of the collateral.
While the Company’s policies and procedures used to estimate the allowance for credit losses, as well as the resultant provision for credit losses charged to income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. There are factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets or particular industry conditions which may materially impact asset quality and the adequacy of the allowance for credit losses and thus the resulting provision for credit losses.
Allowance for Credit Losses - Accrued Interest Receivable
Accrued interest receivable related to loans totaled $1.8 million at intrinsic value.March 31, 2023 and was reported in accrued interest receivable on the consolidated balance sheets. The amendments became effectiveCompany elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectable interest.
Allowance for Credit Loss - Unfunded Commitments
Effective with the adoption of CECL, the Company estimates expected credit losses on commitments to extend credit over the contractual period in which the Company is exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancelable by the Company. The allowance for off-balance sheet credit exposures, which is reflected within accrued interest payable and other liabilities on the consolidated balance sheet, is adjusted for as an increase or decrease to the provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance is calculated using the same aggregate reserve rates calculated for the Company on January 1, 2017funded portion of loans at the portfolio level applied to the amount of commitments expected to fund.
The Company’s CECL allowances will fluctuate over time due to macroeconomic conditions and this amendment did not have a material effect on its financial statements.forecasts as well as the size and composition of the loan portfolios.
9
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2016,March 2022, the FASB issued ASU 2016-10,2022-02, Revenue from Contracts with CustomersFinancial Instruments—Credit Losses (Topic 606)326): Identifying Performance ObligationsTroubled Debt Restructurings and LicensingVintage Disclosures, which eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-402 and amends the guidance on “vintage disclosures” to clarify guidancerequire disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to identifying performance obligations and accounting for licensescredit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The Company adopted the amendments in ASU 2022-02 upon the Company’s adoption of intellectual property. The amendments will be effectiveASU 2016-13 as of January 1, 2023.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. In December 2022, the Company for reporting periods beginning afterFASB extended the sunset date of ASC 848 from December 15, 2017.31, 2022 to December 31, 2024. The Company does not expect these amendments to have a material effect on its consolidated 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. The amendments 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. 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.
In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In December 2016, the FASB issued ASU 2016-20,Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. 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, 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) of assets or businesses. The update is intended to address concerns that the existing definition 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 amendments are 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. The Company does not expect this amendment to have a material effect on its financial statements.
In February 2017, the FASB issued ASU 2017-05,Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, to clarify the scope of established 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. The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. This amendment is effective for annual periods beginning after December 15, 2017. The Company does not expect this amendment to have a material effect on its financial statements.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2017, the FASB issued ASU 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization 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 after December 15, 2018. Early adoption is permitted. The Company does not expect this amendment 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:
March 31, 2023 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
U.S. Treasury Notes | $ | 180,171,098 | $ | — | $ | (9,934,568 | ) | $ | 170,236,530 | |||||||
Government-Sponsored Enterprises | 67,332,674 | — | (9,254,200 | ) | 58,078,474 | |||||||||||
Municipal Securities | 41,833,858 | 2,679 | (2,711,617 | ) | 39,124,920 | |||||||||||
Total | $ | 289,337,630 | $ | 2,679 | $ | (21,900,385 | ) | $ | 267,439,924 |
There is no allowance for credit losses on available for sale securities at March 31, 2023.
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 | December 31, 2022 | ||||||||||||||||||||||||||||
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 | $ | 180,298,301 | $ | — | $ | (12,110,986 | ) | $ | 168,187,315 | ||||||||||||||
Government-Sponsored Enterprises | 51,737,930 | 129,482 | (833,321 | ) | 51,034,091 | 67,384,808 | — | (10,310,084 | ) | 57,074,724 | ||||||||||||||||||||||
Municipal Securities | 45,056,390 | 765,813 | (816,413 | ) | 45,005,790 | 49,315,041 | 2,510 | (3,407,364 | ) | 45,910,187 | ||||||||||||||||||||||
Total | $ | 120,942,615 | $ | 936,448 | $ | (1,900,119 | ) | $ | 119,978,944 | $ | 296,998,150 | $ | 2,510 | $ | (25,828,434 | ) | $ | 271,172,226 |
The amortized cost and estimated fair value of investment securities available for sale as of September 30, 2017March 31, 2023 and December 31, 2016,2022, by contractual maturity are as follows:in the following table.
SEPTEMBER 30, 2017 | DECEMBER 31, 2016 | |||||||||||||||||||||||||||||||
AMORTIZED | FAIR | AMORTIZED | FAIR | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||
Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | |||||||||||||||||||||||||||||
Due in one year or less | $ | 8,561,255 | $ | 8,586,020 | $ | 3,343,347 | $ | 3,350,205 | $ | 63,661,723 | $ | 61,990,046 | $ | 42,722,655 | $ | 41,698,011 | ||||||||||||||||
Due in one year to five years | 70,669,406 | 71,024,994 | 82,848,411 | 82,682,901 | 174,605,470 | 162,191,737 | 190,569,869 | 176,217,530 | ||||||||||||||||||||||||
Due in five years to ten years | 43,799,734 | 43,853,008 | 29,662,030 | 29,169,228 | 41,765,078 | 35,399,509 | 53,995,700 | 45,386,818 | ||||||||||||||||||||||||
Due in ten years and over | 3,141,741 | 3,032,862 | 5,088,827 | 4,776,610 | 9,305,359 | 7,858,632 | 9,709,926 | 7,869,867 | ||||||||||||||||||||||||
Total | $ | 126,172,136 | $ | 126,496,884 | $ | 120,942,615 | $ | 119,978,944 | $ | 289,337,630 | $ | 267,439,924 | $ | 296,998,150 | $ | 271,172,226 |
Investment securitiesSecurities pledged to secure public deposits and for other purposes required or permitted by law at September 30, 2017March 31, 2023 and December 31, 2016,2022, had a fair value of $54.2$30.6 million and $47.6$30.1 million, respectively. During the first quarter of 2023, the Federal Reserve established the Bank Term Funding Program in order to make available additional funding to eligible depository institutions so as to help assure banks have the ability to meet the needs of all their depositors. Securities pledged to secure funding made available by this program were $25.0 million at March 31, 2023.
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 September 30, 2017March 31, 2023 and December 31, 2016. We2022. Unrealized losses have not been recognized into income as 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.
10
March 31, 2023 | ||||||||||||||||||||||||||||||||||||
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 | 2 | $ | 9,711,525 | $ | (186,791 | ) | 23 | $ | 160,525,005 | $ | (9,747,777 | ) | 25 | $ | 170,236,530 | $ | (9,934,568 | ) | ||||||||||||||||||
Government-Sponsored Enterprises | 1 | 1,294,810 | (3,283 | ) | 10 | 56,783,664 | (9,250,917 | ) | 11 | 58,078,474 | (9,254,200 | ) | ||||||||||||||||||||||||
Municipal Securities | 5 | 9,004,486 | (88,018 | ) | 66 | 29,583,232 | (2,623,599 | ) | 71 | 38,587,718 | (2,711,617 | ) | ||||||||||||||||||||||||
Total | 8 | $ | 20,010,821 | $ | (278,092 | ) | 99 | $ | 246,891,901 | $ | (21,622,293 | ) | 107 | $ | 266,902,722 | $ | (21,900,385 | ) |
December 31, 2022 | ||||||||||||||||||||||||||||||||||||
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 | 7 | $ | 38,181,255 | $ | (1,790,134 | ) | 18 | $ | 130,006,060 | $ | (10,320,852 | ) | 25 | $ | 168,187,315 | $ | (12,110,986 | ) | ||||||||||||||||||
Government-Sponsored Enterprises | 2 | 6,212,285 | (84,170 | ) | 9 | 50,862,439 | (10,225,914 | ) | 11 | 57,074,724 | (10,310,084 | ) | ||||||||||||||||||||||||
Municipal Securities | 46 | 26,068,218 | (932,565 | ) | 31 | 14,859,459 | (2,474,799 | ) | 77 | 40,927,677 | (3,407,364 | ) | ||||||||||||||||||||||||
Total | 55 | $ | 70,461,758 | $ | (2,806,869 | ) | 58 | $ | 195,727,958 | $ | (23,021,565 | ) | 113 | $ | 266,189,716 | $ | (25,828,434 | ) |
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 | ) |
We receivedThe 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 | ||||||||||||||||
For the Nine Months Ended September 30, | March 31, | |||||||||||||||
2017 | 2016 | 2023 | 2022 | |||||||||||||
Gross proceeds | $ | 20,231,265 | $ | 25,667,359 | $ | — | $ | 15,120,000 | ||||||||
Gross realized gains | 154,692 | 446,041 | — | 61,780 | ||||||||||||
Gross realized losses | 108,872 | — | — | — |
ForThere was a tax provision of $12,974 related to gains for the three months ended September 30, 2017 and 2016, the tax provision related to these gains was $15,578 and $36,154, respectively. For the nine months ended September 30, 2017 and 2016, the tax provision related to these gains was $15,578 and $165,035, respectively.March 31, 2022.
BANK OF SOUTH CAROLINA CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3: Loans and Allowance for LoanCredit Losses
Major classifications of loans (net of deferred loan fees of $149,640$144,055 and $159,434 at September 30, 2017March 31,2023 and $136,446 at December 31, 2016)2022, respectively) are as follows:shown in the table below.
March 31, 2023 | December 31, 2022 | |||||||
Commercial | $ | 46,212,003 | $ | 45,072,059 | ||||
Commercial real estate: | ||||||||
Construction | 20,146,368 | 17,524,260 | ||||||
Other | 174,860,808 | 172,897,387 | ||||||
Consumer: | ||||||||
Real estate | 88,962,556 | 91,636,538 | ||||||
Other | 3,607,720 | 3,851,538 | ||||||
333,789,455 | 330,981,782 | |||||||
Allowance for credit losses | (3,688,503 | ) | (4,291,221 | ) | ||||
Loans, net | $ | 330,100,952 | $ | 326,690,561 |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Commercial loans | $ | 53,348,364 | $ | 52,262,209 | ||||
Commercial real estate: | ||||||||
Construction | 1,842,668 | 1,208,901 | ||||||
Other | 134,779,206 | 122,968,126 | ||||||
Consumer: | ||||||||
Real Estate | 74,254,387 | 77,131,816 | ||||||
Other | 4,908,006 | 7,005,063 | ||||||
269,132,631 | 260,576,115 | |||||||
Allowance for loan losses | (3,886,959 | ) | (3,851,617 | ) | ||||
Loans, net | $ | 265,245,672 | $ | 256,724,498 |
We had $101.1$107.9 million and $101.2$93.1 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at September 30, 2017March 31, 2023 and at December 31, 2016,2022, respectively.
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.
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. |
11
● | 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, |
● | 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 illustratetable illustrates credit quality by class indicators by year of origination at March 31, 2023:
Term Loans by Year of Origination | ||||||||||||||||||||||||||||||||
2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving | Total | |||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||||||
Pass | $ | 6,126,737 | $ | 15,777,976 | $ | 5,724,744 | $ | 5,283,844 | $ | 954,143 | $ | 436,185 | $ | 9,651,873 | $ | 43,955,503 | ||||||||||||||||
Watch | 193,968 | 517,215 | 38,787 | 101,971 | — | — | 183,423 | 1,035,364 | ||||||||||||||||||||||||
OAEM | — | 824 | 15,845 | — | — | — | 130,000 | 146,670 | ||||||||||||||||||||||||
Substandard | — | 939,656 | — | 134,810 | — | — | — | 1,074,466 | ||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | $ | 6,320,705 | $ | 17,235,671 | $ | 5,779,376 | $ | 5,520,626 | $ | 954,143 | $ | 436,185 | $ | 9,965,297 | $ | 46,212,003 | ||||||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 46,341 | $ | — | $ | 46,341 | ||||||||||||||||
Commercial Real Estate Construction | ||||||||||||||||||||||||||||||||
Pass | $ | 2,717,256 | $ | 9,691,545 | $ | 3,159,648 | $ | 4,577,919 | $ | — | $ | — | $ | — | $ | 20,146,368 | ||||||||||||||||
Watch | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
OAEM | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Substandard | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | $ | 2,717,256 | $ | 9,691,545 | $ | 3,159,648 | $ | 4,577,919 | $ | — | $ | — | $ | — | $ | 20,146,368 | ||||||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Commercial Real Estate Other | ||||||||||||||||||||||||||||||||
Pass | $ | 6,648,022 | $ | 56,736,163 | $ | 52,765,365 | $ | 25,416,225 | $ | 10,612,328 | $ | 8,085,081 | $ | 5,573,442 | $ | 165,836,625 | ||||||||||||||||
Watch | 3,621,749 | 442,699 | 779,071 | 933,712 | — | — | 248,029 | 6,025,260 | ||||||||||||||||||||||||
OAEM | 863,683 | — | 648,343 | 14,244 | — | — | 297,909 | 1,824,180 | ||||||||||||||||||||||||
Substandard | — | — | 863,493 | — | — | 311,249 | — | 1,174,743 | ||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | $ | 11,133,454 | $ | 57,178,862 | $ | 55,056,273 | $ | 26,364,181 | $ | 10,612,328 | $ | 8,396,330 | $ | 6,119,380 | $ | 174,860,808 | ||||||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Consumer Real Estate | ||||||||||||||||||||||||||||||||
Pass | $ | 4,439,050 | $ | 29,475,217 | $ | 8,479,952 | $ | 9,320,267 | $ | 291,943 | $ | 29,311 | $ | 34,899,380 | $ | 86,935,121 | ||||||||||||||||
Watch | — | — | — | — | — | — | 1,503,232 | 1,503,232 | ||||||||||||||||||||||||
OAEM | — | — | — | — | — | — | 274,445 | 274,445 | ||||||||||||||||||||||||
Substandard | — | — | — | — | — | — | 249,758 | 249,758 | ||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | $ | 4,439,050 | $ | 29,475,217 | $ | 8,479,952 | $ | 9,320,267 | $ | 291,943 | $ | 29,311 | $ | 36,926,815 | $ | 88,962,556 | ||||||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Consumer Other | ||||||||||||||||||||||||||||||||
Pass | $ | 633,324 | $ | 1,204,254 | $ | 626,934 | $ | 359,183 | $ | 116,129 | $ | 51,352 | $ | 389,933 | $ | 3,381,110 | ||||||||||||||||
Watch | 4,055 | 87,544 | 21,822 | 40,864 | — | — | 28,469 | 182,755 | ||||||||||||||||||||||||
OAEM | — | — | — | 6,324 | — | — | — | 6,324 | ||||||||||||||||||||||||
Substandard | 37,530 | — | — | — | — | — | — | 37,530 | ||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | $ | 674,909 | $ | 1,291,799 | $ | 648,757 | $ | 406,372 | $ | 116,129 | $ | 51,352 | $ | 418,402 | $ | 3,607,720 | ||||||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | 1,977 | $ | — | $ | — | $ | — | $ | — | $ | 1,977 |
12
The following table illustrates credit quality by class and internally assigned grades as of September 30, 2017 andat December 31, 2016. “Pass”2022. "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 |
December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other |
| Consumer Other | Total | |||||||||||||||||||||||||||||||||||||||||||||
December 31, 2022 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Total | |||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 48,289,944 | $ | 798,884 | $ | 116,490,396 | $ | 74,115,426 | $ | 6,728,367 | $ | 246,423,017 | $ | 42,724,289 | $ | 17,524,260 | $ | 167,518,577 | $ | 86,183,899 | $ | 3,597,886 | $ | 317,548,911 | ||||||||||||||||||||||||||
Watch | 1,004,957 | 410,017 | 2,625,079 | 899,306 | 147,992 | 5,087,351 | 976,966 | — | 3,223,532 | 4,928,437 | 208,417 | 9,337,352 | ||||||||||||||||||||||||||||||||||||||
OAEM | 1,666,048 | — | 995,549 | 630,957 | 28,939 | 3,321,493 | 94,803 | — | 968,611 | 274,445 | 7,345 | 1,345,204 | ||||||||||||||||||||||||||||||||||||||
Sub-Standard | 1,301,260 | — | 2,857,102 | 1,486,127 | 99,765 | 5,744,254 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | 1,276,001 | — | 1,186,667 | 249,757 | 37,890 | 2,750,315 | ||||||||||||||||||||||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Total | $ | 52,262,209 | $ | 1,208,901 | $ | 122,968,126 | $ | 77,131,816 | $ | 7,005,063 | $ | 260,576,115 | $ | 45,072,059 | $ | 17,524,260 | $ | 172,897,387 | $ | 91,636,538 | $ | 3,851,538 | $ | 330,981,782 |
The following tables include an aging analysis of the recorded investment in loans segregated by class:class.
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2023 | March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | 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 | $ | 78,271 | $ | 150,000 | $ | 13,902 | $ | 242,173 | $ | 53,106,191 | $ | 53,348,364 | $ | 13,902 | $ | — | $ | — | $ | — | $ | — | $ | 46,212,003 | $ | 46,212,003 | $ | — | ||||||||||||||||||||||||||||
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 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate Construction | — | — | — | — | 20,146,368 | 20,146,368 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate Other | 360,029 | — | 627,927 | 987,956 | 173,872,852 | 174,860,808 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Consumer Real Estate | 153,112 | 564,877 | — | 717,989 | 73,536,398 | 74,254,387 | — | — | 274,444 | — | 274,444 | 88,688,112 | 88,962,556 | — | ||||||||||||||||||||||||||||||||||||||||||
Consumer Other | 11,547 | — | — | 11,547 | 4,896,459 | 4,908,006 | — | — | — | — | — | 3,607,720 | 3,607,720 | — | ||||||||||||||||||||||||||||||||||||||||||
Total | $ | 917,930 | $ | 714,877 | $ | 1,429,640 | $ | 3,062,447 | $ | 266,070,184 | $ | 269,132,631 | $ | 13,902 | $ | 360,029 | $ | 274,444 | $ | 627,927 | $ | 1,262,400 | $ | 332,527,055 | $ | 333,789,455 | $ | — |
December 31, 2022 | ||||||||||||||||||||||||||||
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 | $ | 16,451 | $ | 178,975 | $ | — | $ | 195,426 | $ | 44,876,633 | $ | 45,072,059 | $ | — | ||||||||||||||
Commercial Real Estate Construction | — | — | — | — | 17,524,260 | 17,524,260 | — | |||||||||||||||||||||
Commercial Real Estate Other | 45,425 | — | 631,453 | 676,878 | 172,220,509 | 172,897,387 | — | |||||||||||||||||||||
Consumer Real Estate | 274,445 | — | — | 274,445 | 91,362,093 | 91,636,538 | — | |||||||||||||||||||||
Consumer Other | — | — | — | — | 3,851,538 | 3,851,538 | — | |||||||||||||||||||||
Total | $ | 336,321 | $ | 178,975 | $ | 631,453 | $ | 1,146,749 | $ | 329,835,033 | $ | 330,981,782 | $ | — |
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 March 31, 2023 and December 31, 2022.
The following table summarizes the balances of non-accrual loans:
CECL | Incurred Loss | |||||||||||||||||||||||
Loans Receivable on Non-Accrual | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
September 30, 2017 | December 31, 2016 | Nonaccrual Loans with No Allowance | Nonaccrual Loans with an Allowance | Total Nonaccrual Loans | Nonaccrual Loans | |||||||||||||||||||
Commercial | $ | 46,899 | $ | 61,781 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Commercial Real Estate - Construction | — | — | ||||||||||||||||||||||
Commercial Real Estate - Other | 1,554,368 | 1,678,876 | ||||||||||||||||||||||
Commercial Real Estate Construction | — | — | — | — | ||||||||||||||||||||
Commercial Real Estate Other | 627,927 | — | 627,927 | 631,453 | ||||||||||||||||||||
Consumer Real Estate | — | — | — | — | — | — | ||||||||||||||||||
Consumer Other | — | 964 | — | — | — | — | ||||||||||||||||||
Total | $ | 1,601,267 | $ | 1,741,621 | $ | 627,927 | $ | — | $ | 627,927 | $ | 631,453 |
We designate individually evaluated loans on nonaccrual status as collateral dependent loans, as well other loans that management designates as having higher risk. Collateral dependent loans are loans for which repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral dependent loans, we adopted the practical expedient to measure the allowance for credit losses based on the fair value of the collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
The following tablestable details the amortized cost of collateral dependent loans:
March 31, 2023 | ||||
Commercial | $ | — | ||
Commercial Real Estate Construction | — | |||
Commercial Real Estate Other | 1,188,986 | |||
Consumer Real Estate | 249,758 | |||
Consumer Other | — | |||
Total | $ | 1,438,744 |
13
The following table set forth the changes in the allowance for credit losses and an allocation of the allowance for credit losses by class for the three months ended March 31, 2023 under the CECL methodology.
Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Total | |||||||||||||||||||
Allowance for Credit Losses: | ||||||||||||||||||||||||
Beginning balance | $ | 735,759 | $ | 230,625 | $ | 2,216,484 | $ | 1,014,777 | $ | 93,576 | $ | 4,291,221 | ||||||||||||
Adoption of ASU 2016-13 | (82,001 | ) | (36,509 | ) | (314,522 | ) | (160,802 | ) | (6,166 | ) | (600,000 | ) | ||||||||||||
Charge-offs | (46,341 | ) | — | — | — | (1,977 | ) | (48,318 | ) | |||||||||||||||
Recoveries | 600 | — | — | — | — | 600 | ||||||||||||||||||
Provisions | (93,936 | ) | 42,873 | 98,558 | 6,524 | (9,019 | ) | 45,000 | ||||||||||||||||
Ending balance | $ | 514,081 | $ | 236,989 | $ | 2,000,520 | $ | 860,498 | $ | 76,415 | $ | 3,688,503 |
Prior to the adoption of ASC 326 on January 1, 2023, we calculated the allowance for loan losses under the incurred loss methodology. The following table sets forth the changes in the allowance for loan losses and an allocationfor the three months ended March 31, 2022.
Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate Construction | Commercial Real Estate Other | Consumer Real Estate | Consumer Other | Paycheck Protection Program | Total | ||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 795,689 | $ | 175,493 | $ | 2,376,306 | $ | 924,784 | $ | 104,715 | $ | — | $ | 4,376,987 | ||||||||||||||
Charge-offs | — | — | — | (2,035 | ) | — | (10 | ) | (2,045 | ) | ||||||||||||||||||
Recoveries | — | — | — | — | 4,200 | 360 | 4,560 | |||||||||||||||||||||
Provisions | (7,596 | ) | 28,075 | (82,296 | ) | (2,777 | ) | (10,056 | ) | (350 | ) | (75,000 | ) | |||||||||||||||
Ending balance | $ | 788,093 | $ | 203,568 | $ | 2,294,010 | $ | 919,972 | $ | 98,859 | $ | — | $ | 4,304,502 |
Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses by class forunder the three and nine months ended September 30, 2017 and September 30, 2016.incurred loss methodology. The allowance for loan losses consists of specific and general components. The specific component relatestables are are disclosures related 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 |
BANK OF SOUTH CAROLINA CORPORATION
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 |
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 class and reserving methodology, the allocation of the allowance for loan losses and the gross investment in loans.prior periods.
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 | ||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | Commercial Real Estate-Construction | Commercial Real Estate-Other | Consumer Real Estate | Consumer Other | Total | 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 | $ | 179,230 | $ | — | $ | — | $ | — | $ | 37,889 | $ | 217,119 | ||||||||||||||||||||||||
Collectively evaluated for impairment | 493,969 | 51,469 | 1,050,119 | 683,272 | 64,816 | 2,343,645 | 556,529 | 230,625 | 2,216,484 | 1,014,777 | 55,687 | 4,074,102 | ||||||||||||||||||||||||||||||||||||
Total Allowance for Losses | $ | 1,545,188 | $ | 51,469 | $ | 1,374,706 | $ | 726,391 | $ | 153,863 | $ | 3,851,617 | ||||||||||||||||||||||||||||||||||||
Total Allowance for Loan Losses | $ | 735,759 | $ | 230,625 | $ | 2,216,484 | $ | 1,014,777 | $ | 93,576 | $ | 4,291,221 | ||||||||||||||||||||||||||||||||||||
Loans Receivable | ||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,301,259 | $ | — | $ | 3,225,351 | $ | 1,286,127 | $ | 89,047 | $ | 5,901,784 | $ | 1,276,001 | $ | — | $ | 1,202,412 | $ | 249,758 | $ | 37,889 | $ | 2,766,060 | ||||||||||||||||||||||||
Collectively evaluated for impairment | 50,960,950 | 1,208,901 | 119,742,775 | 75,845,689 | 6,916,016 | 254,674,331 | 43,796,058 | 17,524,260 | 171,694,975 | 91,386,780 | 3,813,649 | 328,215,722 | ||||||||||||||||||||||||||||||||||||
Total Loans Receivable | $ | 52,262,209 | $ | 1,208,901 | $ | 122,968,126 | $ | 77,131,816 | $ | 7,005,063 | $ | 260,576,115 | $ | 45,072,059 | $ | 17,524,260 | $ | 172,897,387 | $ | 91,636,538 | $ | 3,851,538 | $ | 330,981,782 |
14
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2017 and December 31, 2016,2022, 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 |
Impaired Loans as of | ||||||||||||
December 31, 2022 | ||||||||||||
Unpaid Principal Balance | Recorded Investment | Related Allowance | ||||||||||
With no related allowance recorded: | ||||||||||||
Commercial | $ | 317,553 | $ | 317,553 | $ | — | ||||||
Commercial Real Estate Construction | — | — | — | |||||||||
Commercial Real Estate Other | 1,202,412 | 1,202,412 | — | |||||||||
Consumer Real Estate | 249,758 | 249,758 | — | |||||||||
Consumer Other | — | — | — | |||||||||
Total | 1,769,723 | 1,769,723 | — | |||||||||
With an allowance recorded: | ||||||||||||
Commercial | 958,448 | 958,448 | 179,230 | |||||||||
Commercial Real Estate Construction | — | — | — | |||||||||
Commercial Real Estate Other | — | — | — | |||||||||
Consumer Real Estate | — | — | — | |||||||||
Consumer Other | 37,889 | 37,889 | 37,889 | |||||||||
Total | 996,337 | 996,337 | 217,119 | |||||||||
Commercial | 1,276,001 | 1,276,001 | 179,230 | |||||||||
Commercial Real Estate Construction | — | — | — | |||||||||
Commercial Real Estate Other | 1,202,412 | 1,202,412 | — | |||||||||
Consumer Real Estate | 249,758 | 249,758 | — | |||||||||
Consumer Other | 37,889 | 37,889 | 37,889 | |||||||||
Total | $ | 2,766,060 | $ | 2,766,060 | $ | 217,119 |
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, | Three Months Ended March 31, | |||||||||||||||||||||||
2017 | 2016 | 2022 | ||||||||||||||||||||||
Average Recorded Investment | Interest Income Recognized | 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 | $ | 181,347 | $ | 2,720 | ||||||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||||||||||
Commercial Real Estate-Other | 1,276,906 | 9,999 | 2,253,994 | 19,738 | ||||||||||||||||||||
Commercial Real Estate Construction | — | — | ||||||||||||||||||||||
Commercial Real Estate Other | 1,226,665 | 7,706 | ||||||||||||||||||||||
Consumer Real Estate | 451,318 | 5,972 | 1,243,008 | 16,205 | 249,758 | 2,617 | ||||||||||||||||||
Consumer Other | — | — | — | — | — | — | ||||||||||||||||||
$ | 1,893,498 | $ | 18,400 | $ | 3,877,935 | $ | 40,617 | 1,657,770 | 13,043 | |||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Commercial | $ | 1,685,930 | $ | 26,484 | $ | 1,085,201 | $ | 19,406 | 1,186,718 | 19,382 | ||||||||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||||||||||
Commercial Real Estate-Other | 933,243 | 2,792 | 1,068,622 | 5,330 | ||||||||||||||||||||
Commercial Real Estate Construction | — | — | ||||||||||||||||||||||
Commercial Real Estate Other | — | — | ||||||||||||||||||||||
Consumer Real Estate | 43,119 | 462 | 71,963 | 770 | — | — | ||||||||||||||||||
Consumer Other | 34,579 | 463 | 95,367 | 473 | 39,822 | 638 | ||||||||||||||||||
$ | 2,696,871 | $ | 30,201 | $ | 2,321,153 | $ | 25,979 | 1,226,540 | 20,020 | |||||||||||||||
Total | ||||||||||||||||||||||||
Commercial | $ | 1,851,204 | $ | 28,913 | $ | 1,466,134 | $ | 24,080 | 1,368,065 | 22,102 | ||||||||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||||||||||
Commercial Real Estate-Other | 2,210,149 | 12,791 | 3,322,617 | 25,068 | ||||||||||||||||||||
Commercial Real Estate Construction | — | — | ||||||||||||||||||||||
Commercial Real Estate Other | 1,226,665 | 7,706 | ||||||||||||||||||||||
Consumer Real Estate | 494,437 | 6,434 | 1,314,971 | 16,975 | 249,758 | 2,617 | ||||||||||||||||||
Consumer Other | 34,579 | 463 | 95,367 | 473 | 39,822 | 638 | ||||||||||||||||||
$ | 4,590,369 | $ | 48,601 | $ | 6,199,088 | $ | 66,596 | $ | 2,884,310 | $ | 33,063 |
For the Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
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 | ||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||
Commercial Real Estate-Other | 1,275,402 | 23,084 | 2,263,927 | 69,962 | ||||||||||||
Consumer Real Estate | 451,025 | 16,938 | 1,242,373 | 43,220 | ||||||||||||
Consumer Other | — | — | — | — | ||||||||||||
$ | 1,900,391 | $ | 47,438 | $ | 3,899,126 | $ | 128,575 | |||||||||
With an allowance recorded: | ||||||||||||||||
Commercial | $ | 1,711,259 | $ | 76,544 | $ | 1,095,411 | $ | 49,770 | ||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||
Commercial Real Estate-Other | 930,420 | 5,367 | 1,070,048 | 12,008 | ||||||||||||
Consumer Real Estate | 43,119 | 1,296 | 72,025 | 1,776 | ||||||||||||
Consumer Other | 36,056 | 1,419 | 99,864 | 3,777 | ||||||||||||
$ | 2,720,854 | $ | 84,626 | $ | 2,337,348 | $ | 67,331 | |||||||||
Total | ||||||||||||||||
Commercial | $ | 1,885,223 | $ | 83,960 | $ | 1,488,237 | $ | 65,163 | ||||||||
Commercial Real Estate-Construction | — | — | — | — | ||||||||||||
Commercial Real Estate-Other | 2,205,822 | 28,451 | 3,333,976 | 81,970 | ||||||||||||
Consumer Real Estate | 494,144 | 18,234 | 1,314,398 | 44,996 | ||||||||||||
Consumer Other | 36,056 | 1,419 | 99,864 | 3,777 | ||||||||||||
$ | 4,621,245 | $ | 132,064 | $ | 6,236,474 | $ | 195,906 |
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RestructuredThe allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. We use the loss rate approach to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, we modify loans also knownby providing principal forgiveness on certain real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, we will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as troubled debt restructurings (“TDR”), area term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.
There were no loans still accruing interest, which have been renegotiated at below-market interest rates or have been granted other concessions.modified during the first quarter of 2023. As of September 30, 2017 and DecemberMarch 31, 2016,2023, there were $33,300 (1 loan) and $378,392 (2 loans) in restructuredfive loans respectively. Our restructured loanswith a balance of $1.0 million that were granted extended payment terms with no principal or rate reductions. All TDRs werereduction. The structure of two of the loans changed to interest only. One loan was performing as agreed as of September 30, 2017March 31, 2023, while the other loan was not performing and we are considering further collection actions, including potential foreclosure proceedings.
15
The following table shows the amortized cost basis as of March 31, 2023 of the loans modified for borrowers experiencing financial difficulty, disaggregated by class of loans and describes the financial effect of the modifications made for borrowers experiencing financial difficulty:
Term Extension | ||||||||||
Amortized Cost Basis | % of Total Loan Type | Financial Effect | ||||||||
Commercial | $ | 303,143 | 0.7 | % | Reduced monthly payment | |||||
Commercial Real Estate Other | 613,682 | 0.4 | % | Forbearance agreement signed for one loan and provided eleven months deferral to second borrower and added to the end of the original term loan | ||||||
Consumer Other | 37,529 | 1.0 | % | Reduced monthly payment | ||||||
Total | $ | 954,354 |
We maintain an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $644,912 at March 31, 2023 and December 31, 2016,2022 is classified on the balance sheet within Accrued interest payable and other liabilities.
Note 4: Leases
As of March 31, 2023 and December 31, 2022, the Company had operating right of use (“ROU”) assets of $13.3 million and $13.4 million, respectively, and had operating lease liabilities of $13.3 million and $13.4 million, respectively. There were no additional loans identified as a TDR duringThe 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.
As of March 31, 2023, the weighted average remaining lease term was 15.3 years and the weighted average incremental borrowing rate was 4.18%.
The table below shows lease expense components for the three or nine months ended September 30, 2017 or 2016. No TDRs defaulted duringMarch 31, 2023 and 2022.
March 31, | ||||||||
2023 | 2022 | |||||||
Operating lease expense | $ | 302,645 | $ | 299,571 | ||||
Short-term lease expense | — | — | ||||||
Total lease expense | $ | 302,645 | $ | 299,571 |
Total rental expense was $302,645 and $299,571 for the three or nine months ended September 30, 2017March 31, 2023 and 2016, which were modified2022, respectively and was included in net occupancy expense within the previous twelve months.consolidated statements of income.
As of March 31, 2023 and December 31, 2022, we did not maintain any finance leases, and we determined that the number and dollar amount of equipment leases was immaterial. As of March 31, 2023, we had no operating leases that had not yet commenced.
Note 4:5: Disclosures 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. GAAP 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 also significantly 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.
16
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 backedmortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backedmunicipal 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.treatment as of March 31, 2023 and December 31, 2022. We havehad freestanding derivative instruments consisting of fixed rate conforming loan commitments aswith 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 valueshort-term nature of the mortgage loans held for saleto be sold (derivative contract)contracts), our derivative instruments were immaterial to our consolidated financial statements as of September 30, 2017March 31, 2023 and December 31, 2016.2022.
Assets and liabilitiesThe following table presents information about assets measured at fair value on a recurring basis at September 30, 2017as of March 31, 2023 and December 31, 2016 are as follows:2022:
March 31, 2023 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
U.S. Treasury Notes | $ | 170,236,530 | $ | — | $ | — | $ | 170,236,530 | ||||||||
Government-Sponsored Enterprises | — | 58,078,474 | — | 58,078,474 | ||||||||||||
Municipal Securities | — | 16,575,620 | 22,549,300 | 39,124,920 | ||||||||||||
Total | $ | 170,236,530 | $ | 74,654,094 | $ | 22,549,300 | $ | 267,439,924 |
September 30, 2017 | ||||||||||||||||
Quoted Market Price in active markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
U.S. Treasury Notes | $ | 26,097,501 | $ | — | $ | — | $ | 26,097,501 | ||||||||
Government Sponsored Enterprises | — | 59,369,405 | — | 59,369,405 | ||||||||||||
Municipal Securities | — | 29,120,850 | 11,909,128 | 41,029,978 | ||||||||||||
Total | $ | 26,097,501 | $ | 88,490,255 | $ | 11,909,128 | $ | 126,496,884 |
December 31, 2016 | ||||||||||||||||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||||||||||
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 | $ | 168,187,315 | $ | — | $ | — | $ | 168,187,315 | ||||||||||||||||
Government Sponsored Enterprises | — | 51,034,091 | — | 51,034,091 | ||||||||||||||||||||||||||||
Government-Sponsored Enterprises | — | 57,074,724 | — | 57,074,724 | ||||||||||||||||||||||||||||
Municipal Securities | — | 31,027,933 | 13,977,857 | 45,005,790 | — | 16,448,375 | 29,461,812 | 45,910,187 | ||||||||||||||||||||||||
Total | $ | 23,939,063 | $ | 82,062,024 | $ | 13,977,857 | $ | 119,978,944 | $ | 168,187,315 | $ | 73,523,099 | $ | 29,461,812 | $ | 271,172,226 |
There were no liabilities recorded at fair value on a recurring basis as of September 30, 2017March 31, 2023 or December 31, 2016.2022.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 nine months ended September 30, 2017March 31, 2023 and 2016:2022:
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 March 31, | ||||||||
2023 | 2022 | |||||||
Beginning balance | $ | 29,461,812 | $ | 24,484,047 | ||||
Total gains or (losses) (realized/unrealized) | ||||||||
Included in other comprehensive income (loss) | 549,488 | (1,444,393 | ) | |||||
Purchases, issuances, and settlements net of maturities | (7,462,000 | ) | (2,413,000 | ) | ||||
Ending balance | $ | 22,549,300 | $ | 20,626,654 |
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 nine months ended September 30, 2017March 31, 2023 or September 30, 2016.2022.
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”)Individually Assessed Loans
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.
Impaired Loans
ImpairedIndividually assessed 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, impairedindividually assessed 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 impairedindividually assessed loans are classified as Level 3. ImpairedIndividually assessed loans measured using discounted future cash flows are not deemed to be measured at fair value.
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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 present information about certain assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2017as of March 31, 2023 and December 31, 2016:2022:
March 31, 2023 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Individually assessed loans | $ | — | $ | — | $ | 1,438,744 | $ | 1,438,744 | ||||||||
Mortgage loans to be sold | — | 1,278,158 | — | 1,278,158 | ||||||||||||
Total | $ | — | $ | 1,278,158 | $ | 1,438,744 | $ | 2,716,902 |
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 |
December 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Impaired loans | $ | — | $ | — | $ | 1,452,170 | $ | 1,452,170 | ||||||||
Mortgage loans to be sold | — | 866,594 | — | 866,594 | ||||||||||||
Total | $ | — | $ | 866,594 | $ | 1,452,170 | $ | 2,318,764 |
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 |
There were no liabilities measured at fair value on a nonrecurring basis as of September 30, 2017March 31, 2023 or December 31, 2016.2022.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at September 30, 2017:March 31, 2023 and December 31, 2022:
Accounting 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
The carrying value approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.
The For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for individually assessed loans are estimated based on
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).
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.
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.
The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments as of 19
The following
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This
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 We derive most of our income from interest on loans and investments 21
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 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 Critical Our critical accounting policies Balance Sheet Cash and Cash Equivalents Total cash and cash equivalents 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 As of
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets. Substantially all of our loans Net loans increased In January 2020, the Bank began originating 30-year, fixed rate consumer mortgage loans in excess of the conforming loan amount which are held for investment rather than for sale in the secondary market. Prior to January 2020, 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 mortgage product continues to be well-received by the Bank’s customers, and the associated volume of originations has continued to contribute to the increase in The following table is a summary of our loan portfolio composition (net of deferred fees and costs of 22
Nonperforming Nonperforming
The following table is a summary of our
Allowance for The allowance for At During the three months ended Deposits Deposits remain our primary source of funding for loans and investments. Average The breakdown of total deposits by type and the respective percentage of total deposits are as follows: 23
Deposits
At March 31, 2023 and December 31, 2022, deposits with an aggregate deficit balance of Comparison of Three Months Ended Net income increased 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 The average balance of interest bearing deposits at the Federal Reserve Provision for We have established an allowance for Non-Interest Income Other income decreased
Income Tax Expense Income tax expense was
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 Standby letters of credit represent our obligation to a 24 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 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 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 Historically, we have maintained our liquidity at levels believed 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 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, During the first quarter of 2023, the Federal Reserve authorized all twelve Reserve Banks to establish the Bank Term Funding Program (the “Program”) to make available additional funding to eligible depository institutions in order to help assure banks have the ability to meet the needs of all their depositors. The Program offers advances of up to one year in length to banks, savings associations, credit unions and other eligible depository institutions pledging any collateral eligible for purchase by the Federal Reserve Bank in open market options, such as U.S. Treasuries, U.S. agency securities and U.S. agency mortgage-backed securities. Advances are limited to the par value of the eligible collateral pledged by the eligible borrower. The Bank established a $25.0 million credit line under the Program during the Our core deposits consist of 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 On July 2, 2013, the Federal Reserve Board approved the final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for The purpose of Basel III On 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 September 30, 2020 and is no longer subject to other capital and leverage requirements. A CBLR bank meeting qualifying criterion is deemed to have met the “well capitalized” ratio requirements and be in compliance with
There are no current conditions or events that we are aware of
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures Evaluation of 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
The Audit and Compliance Committee, composed entirely of independent Directors, meets periodically with management, the Bank’s Audit and Compliance
Item 1. Legal 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.
Item 2. Unregistered Sales of Equity Securities and Use of None. Item 3. Defaults Upon Senior None. Item 4. Mine Safety None. Item 5. Other None. Item 6. Exhibits.
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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