2016 Annual Report
In A Vibrant Community...
Charleston - A Great Place
to Live, Work, and Play.
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“Every time we open our doors to serve our
constituency further validates our brand of
community banking, our model of consistency,
and our culture of relationship banking –
all fostered from extraordinary service,
responsiveness and attention to detail.”
Fleetwood S. Hassell
President & CEO
100 North Main Street, Summerville, SC 29483
P: 843-832-7100 // F: 843-832-7115
2027 Sam Rittenberg Blvd., Charleston, SC 29407
P: 843-958-1041 // F: 843-958-1050
256 Meeting Street, Charleston, SC 29401
P: 843-724-1500 // F: 843-724-1513
1337 Chuck Dawley Blvd., Mt. Pleasant, SC 29464
P: 843-971-3300 // F: 843-971-3315
www.banksc.com
NASDAQ: BKSC
ST RONG. SECU R E . STA BLE .
2016 Annual Report
Our Profile
The Bank of South Carolina is a state-chartered financial
institution with depository accounts insured by the FDIC.
The Bank was organized on October 23, 1986, and our
first office opened for business on February 26, 1987. It
is a wholly-owned subsidiary of Bank of South Carolina
Corporation which became effective on April 17, 1995.
2016 Annual Report
In A Vibrant Community...
Charleston - A Great Place
to Live, Work, and Play.
2
0
1
6
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A
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P
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“Every time we open our doors to serve our
constituency further validates our brand of
community banking, our model of consistency,
and our culture of relationship banking –
all fostered from extraordinary service,
responsiveness and attention to detail.”
Fleetwood S. Hassell
President & CEO
100 North Main Street, Summerville, SC 29483
P: 843-832-7100 // F: 843-832-7115
2027 Sam Rittenberg Blvd., Charleston, SC 29407
P: 843-958-1041 // F: 843-958-1050
256 Meeting Street, Charleston, SC 29401
P: 843-724-1500 // F: 843-724-1513
1337 Chuck Dawley Blvd., Mt. Pleasant, SC 29464
P: 843-971-3300 // F: 843-971-3315
www.banksc.com
NASDAQ: BKSC
ST RONG. SECU R E . STA BLE .
2016 Annual Report
Our Profile
The Bank of South Carolina is a state-chartered financial
institution with depository accounts insured by the FDIC.
The Bank was organized on October 23, 1986, and our
first office opened for business on February 26, 1987. It
is a wholly-owned subsidiary of Bank of South Carolina
Corporation which became effective on April 17, 1995.
Employees Share
Their Experiences
30 Years Together!
“THE BANK’S COMMITMENT TO ITS
EMPLOYEES AND THEIR FAMILIES IS
WHAT STANDS OUT TO ME THE MOST. I
HAVE ALWAYS APPRECIATED THE BANK
LETTING ME PUT MY FAMILY FIRST.”
Rovina C. Andrade
Vice President
Mt. Pleasant – 16 years
79500
206700
365700
540600
742000
975200
1296175
1763790
2882856
3544471
4686184
6028094
7163557
8668467
9818813
11053282
12594418
15099099
17546356
20087193
21363877
23051962
24917529
A HISTORY OF ST RONG
26918196
29145426
DIVIDEND PER FOR M A NCE
31911487
34350626
37017712
* $37 million returned
to shareholders since
inception
* Amounts based on the record date.
Rhett D. Bearden
Senior Vice President
West Ashley – 23 years
“OUR BANK MAKES BANKING
A PERSONAL EXPERIENCE. OUR
EMPLOYEES TAKE GREAT PRIDE
IN MAKING THAT EXPERIENCE
HAPPEN FOR OUR CUSTOMERS.
I’M PROUD TO BE A PART OF IT.”
“ IN 1989 WE PAID OUR FIRST DIVIDEND
AND BEGAN LOOKING AT OUR
RETIREMENT PLAN OPTIONS. IT BECAME
IMMEDIATELY APPARENT THAT AN
ESOP WAS THE BEST FORM OF PROFIT
SHARING WE COULD PROVIDE. OUR
ESOP HAS PROVIDED AN ENORMOUS
FINANCIAL INCENTIVE FOR OUR
EMPLOYEES BY ALLOWING THEM AN
OPPORTUNITY TO PARTICIPATE AND
BE REWARDED FOR THEIR EFFORTS IN
MAKING OUR COMPANY A SUCCESS.”
Hugh C. Lane, Jr.
Chairman
Meeting Street – 30 years
40000000
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
3000000
2500000
2000000
1500000
1000000
500000
0
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
$37,017,712
2016
COR POR AT E INFOR M ATION
Douglas H. Sass
Hugh C. Lane, Jr.
Alan I. Nussbaum, MD
Linda J. Bradley McKee, PhD, CPA
Glen B. Haynes, DVM
Fleetwood S. Hassell
Sheryl G. Sharry
Graham M. Eubank, Jr.
Katherine M. Huger
David W. Bunch
Steve D. Swanson
Malcolm M. Rhodes, MD
Richard W. Hutson, Jr.
Charles G. Lane
Elizabeth M. Hagood
William L. Hiott, Jr.
Edmund Rhett, Jr., MD
BOA R D OF DIR EC TORS
OF F ICERS
* Hugh C. Lane, Jr.
Chairman
* Fleetwood S. Hassell
President & Chief Executive Officer
* Eugene H. Walpole, IV
Senior Vice President &
Chief Financial Officer
* Douglas H. Sass
Executive Vice President
& Senior Lender
* Susanne K. Boyd
Senior Vice President &
Chief Operating Officer
* Richard W. Hutson, Jr.
Secretary
* Costa V. Thomas
Assistant Secretary
Sally I. Altman
Senior Vice President
Rovina Andrade
Vice President
Jennifer A. Arato
Senior Vice President
Stacy Arnett
Assistant Vice President
Lucy E. Ashley
Senior Vice President
Ann Baker
Branch Manager
Rhett D. Bearden
Senior Vice President
Patti Black
Branch Manager
Mignonne H. Buhrmaster
Senior Vice President
Tracy Searson Causby
Vice President
C. Lynn Christian
Senior Vice President
Michelle Crisp
Training Officer
Leon B. de Brux
Senior Vice President
Ryan Gesser
Vice President
Ann S. Gregorie
Senior Vice President
Robert Hollings III
Assistant Vice President
Thomas Johnson
Assistant Vice President
Ford Menefee
Senior Vice President
Linda Menor
Assistant Vice President
Helene H. Mixon
Senior Vice President
Candice L. Nicodin
Senior Vice President
Lauren Nilan
Vice President
*Officers of the Corporation and of the Bank. Other Officers are Officers of the Bank only.
Willette M. Parker
Vice President
Timeela Rivers
Remote Deposit Officer
Bret Roesner
Vice President
Zachary Shaw
Loan Officer
Gregory R. Shuler
Senior Vice President
Valerie C. Stone
Senior Vice President
Ronald L. Strawn
Senior Vice President
Terry S. Strawn
Senior Vice President
Chase Talbert
Vice President
Perry Trouche
Branch Manager
Tammy Tucker
Vice President
Carson Williams
Vice President
EMPLOY EE S
Emily Bailey
Tammy Barker
Heyward Bonner
Suzanne Bostick
Allison Bussells
Markita Chisolm
Allison Corcoran
Rebecca Foster
Susan Getz
Sharon Gillespie
Bree Greer
David Gregorie
Maggie Harken
Rio Hirsch
Bryn Hite
Eugenia Hollington
August Howenstein
Gail Johanson
Lawson Johnson
Brittany Liles
Jessica Little
Jo-Chi Mao
Susan Martin
Nicole McCarson
Lisa Morgan
Sandy Osborne
Melanie Pasheluk
Bo Patterson
Sarah Pearson
Mark Shannon
Traci Stone
Kathy Sutler
Kelly Welch
Laura Wells
Susan West
Bank of South Carolina Corporation’s common stock trades
on the NASDAQ Stock Market under the symbol “BKSC”
Visit www.banksc.com
Employees Share
Their Experiences
30 Years Together!
“THE BANK’S COMMITMENT TO ITS
EMPLOYEES AND THEIR FAMILIES IS
WHAT STANDS OUT TO ME THE MOST. I
HAVE ALWAYS APPRECIATED THE BANK
LETTING ME PUT MY FAMILY FIRST.”
Rovina C. Andrade
Vice President
Mt. Pleasant – 16 years
79500
206700
365700
540600
742000
975200
1296175
1763790
2882856
3544471
4686184
6028094
7163557
8668467
9818813
11053282
12594418
15099099
17546356
20087193
21363877
23051962
24917529
A HISTORY OF ST RONG
26918196
29145426
DIVIDEND PER FOR M A NCE
31911487
34350626
37017712
* $37 million returned
to shareholders since
inception
* Amounts based on the record date.
Rhett D. Bearden
Senior Vice President
West Ashley – 23 years
“OUR BANK MAKES BANKING
A PERSONAL EXPERIENCE. OUR
EMPLOYEES TAKE GREAT PRIDE
IN MAKING THAT EXPERIENCE
HAPPEN FOR OUR CUSTOMERS.
I’M PROUD TO BE A PART OF IT.”
“ IN 1989 WE PAID OUR FIRST DIVIDEND
AND BEGAN LOOKING AT OUR
RETIREMENT PLAN OPTIONS. IT BECAME
IMMEDIATELY APPARENT THAT AN
ESOP WAS THE BEST FORM OF PROFIT
SHARING WE COULD PROVIDE. OUR
ESOP HAS PROVIDED AN ENORMOUS
FINANCIAL INCENTIVE FOR OUR
EMPLOYEES BY ALLOWING THEM AN
OPPORTUNITY TO PARTICIPATE AND
BE REWARDED FOR THEIR EFFORTS IN
MAKING OUR COMPANY A SUCCESS.”
Hugh C. Lane, Jr.
Chairman
Meeting Street – 30 years
40000000
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
3000000
2500000
2000000
1500000
1000000
500000
0
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
$37,017,712
2016
COR POR AT E INFOR M ATION
Douglas H. Sass
Hugh C. Lane, Jr.
Alan I. Nussbaum, MD
Linda J. Bradley McKee, PhD, CPA
Glen B. Haynes, DVM
Fleetwood S. Hassell
Sheryl G. Sharry
Graham M. Eubank, Jr.
Katherine M. Huger
David W. Bunch
Steve D. Swanson
Malcolm M. Rhodes, MD
Richard W. Hutson, Jr.
Charles G. Lane
Elizabeth M. Hagood
William L. Hiott, Jr.
Edmund Rhett, Jr., MD
BOA R D OF DIR EC TORS
OF F ICERS
* Hugh C. Lane, Jr.
Chairman
* Fleetwood S. Hassell
President & Chief Executive Officer
* Eugene H. Walpole, IV
Senior Vice President &
Chief Financial Officer
* Douglas H. Sass
Executive Vice President
& Senior Lender
* Susanne K. Boyd
Senior Vice President &
Chief Operating Officer
* Richard W. Hutson, Jr.
Secretary
* Costa V. Thomas
Assistant Secretary
Sally I. Altman
Senior Vice President
Rovina Andrade
Vice President
Jennifer A. Arato
Senior Vice President
Stacy Arnett
Assistant Vice President
Lucy E. Ashley
Senior Vice President
Ann Baker
Branch Manager
Rhett D. Bearden
Senior Vice President
Patti Black
Branch Manager
Mignonne H. Buhrmaster
Senior Vice President
Tracy Searson Causby
Vice President
C. Lynn Christian
Senior Vice President
Michelle Crisp
Training Officer
Leon B. de Brux
Senior Vice President
Ryan Gesser
Vice President
Ann S. Gregorie
Senior Vice President
Robert Hollings III
Assistant Vice President
Thomas Johnson
Assistant Vice President
Ford Menefee
Senior Vice President
Linda Menor
Assistant Vice President
Helene H. Mixon
Senior Vice President
Candice L. Nicodin
Senior Vice President
Lauren Nilan
Vice President
*Officers of the Corporation and of the Bank. Other Officers are Officers of the Bank only.
Willette M. Parker
Vice President
Timeela Rivers
Remote Deposit Officer
Bret Roesner
Vice President
Zachary Shaw
Loan Officer
Gregory R. Shuler
Senior Vice President
Valerie C. Stone
Senior Vice President
Ronald L. Strawn
Senior Vice President
Terry S. Strawn
Senior Vice President
Chase Talbert
Vice President
Perry Trouche
Branch Manager
Tammy Tucker
Vice President
Carson Williams
Vice President
EMPLOY EE S
Emily Bailey
Tammy Barker
Heyward Bonner
Suzanne Bostick
Allison Bussells
Markita Chisolm
Allison Corcoran
Rebecca Foster
Susan Getz
Sharon Gillespie
Bree Greer
David Gregorie
Maggie Harken
Rio Hirsch
Bryn Hite
Eugenia Hollington
August Howenstein
Gail Johanson
Lawson Johnson
Brittany Liles
Jessica Little
Jo-Chi Mao
Susan Martin
Nicole McCarson
Lisa Morgan
Sandy Osborne
Melanie Pasheluk
Bo Patterson
Sarah Pearson
Mark Shannon
Traci Stone
Kathy Sutler
Kelly Welch
Laura Wells
Susan West
Bank of South Carolina Corporation’s common stock trades
on the NASDAQ Stock Market under the symbol “BKSC”
Visit www.banksc.com
To Our Stockholders, Customers, Employees and Friends,
We are extremely pleased and proud of the Bank’s year. 2016 profits of over $5 million and earnings per share in excess
of $1.00 represent record milestones for our institution. As we celebrate the 30th anniversary of the Bank’s opening,
we are reminded of the fundamental values and principles we are founded upon – namely, PERSONAL SERVICE,
RESPONSIVENESS, ATTENTION TO DETAIL, AND LONG-STANDING RELATIONSHIPS.
“ W E A R E H E R E TO S TAY. A S PA RT O F T H E C OM M U NI T Y, W E WON’ T A BA N D ON OU R C US TOM E R S F O R A
MO R E LUC R AT I V E M A R K E T O R L O CAT ION ; A N D W E W I LL G O OU T OF OU R WAY TO M A K E T H EI R BA N K I NG
C ON V E NI E N T A N D E A S Y.” [A N N UA L R EP O RT 19 95 ]
Other financial highlights include return on equity and assets consistently above 10% and 1%, respectively, stable net
interest margins, exceptional expense control, resulting in an efficiency ratio below 60% - all the while growing loan,
deposit, and capital ratios to exceptional levels. We are also the beneficiary of the purchase of the state portion of a tax
credit generated from the extensive renovation of one of Charleston’s iconic historic buildings. This investment in our
community will result in positive treatment of our state income tax for some time.
“ OU R R EPU TAT ION A N D C OM M I T M E N T A R E A S D EPE N DA B LE A S T H E T I D E S T H AT NOU R ISH T H E LOWC OU N T RY
L A N D S CA PE . OU R C ON T R IBU T ION D O E S NO T B E GI N A N D E N D W I T H A C H E C K W R I T T E N TO A C H A R I TA B LE
O RGA NI Z AT ION. I NS T E A D, W E A R E AC T I V E LY I N VO LV ED I N A N U M B E R OF C I V IC A N D C OM M U NI T Y GROU P S
T H AT A R E D EDICAT ED TO I M PROV I NG T H E Q UA LI T Y OF LI F E F O R A LL T H E R E SI D E N T S OF T H E LOWC OU N T RY.”
[A N N UA L R EP O RT 19 95 ]
The future remains unclear as to what impact the new Presidential leadership will have on our industry; however, for the
first time in many years, we remain optimistic that there will be some meaningful legislation regarding regulatory relief.
We believe we are slowly returning to a more traditional interest rate environment – albeit at a pace which is unknown.
Regardless, we are prepared to continue manufacturing earnings on a consistent and traditional basis.
“ W I N T H E R E L AT IONSH I P GA M E A N D B E A C L O S E F O LLOW E R TO I N NOVAT ION A N D T E C H NO LO GY. OU R
PH I LO S OPH Y IS TO US E T E C H NO LO GY TO E N H A NC E S E RV IC E – NO T TO R EPL AC E I T. T H IS IS A G O OD
F O R M U L A F O R S UC C E S S.” [A N N UA L R EP O RT 20 0 0 ]
We were again named a 5-Star Bank by Bauer Financial, Inc., and remained at or near the top of the banks in the state
rated by the Financial Management Consulting Group. We remain committed to the opening of our North Charleston
office despite significant development delays. In the third quarter, we were pleased to increase our quarterly cash
dividend 8% to $0.14 per share and, once again, pay out approximately 50% of our profits while maintaining strong
capital levels.
Ms. Katherine Huger, an organizer and founding Bank Director, is retiring from our Board following the Annual
Meeting on April 11, 2017. She will remain on as a Director Emeritus and a permanent member of our Bank family.
“ I N F EB RUA RY 26, 1987, T H E BA N K OF S OU T H CA RO LI NA B E GA N I T S M IS SION OF PROV I DI NG T H E F I N E S T Q UA LI T Y
OF S E RV IC E T H ROUGH PROF E S SIONA L BA N K E R S TO I N DI V I D UA L S, BUSI N E S S E S, A N D G OV E R N M E N T S I N T H E
T R I- C OU N T Y A R E A.” [A N N UA L R EP O RT 1987 ]
Over the past thirty years, we have developed our own brand of community banking, our own model of consistency,
and our own culture of relationship banking. We stand on the shoulders of the many that have come before us and
we look forward to a future that is STRONG, SECURE, AND STABLE.
Fleetwood S. Hassell
President & CEO
Douglas H. Sass
Executive Vice President
Eugene H. Walpole, IV
Senior Vice President
Susanne K. Boyd
Senior Vice President
Hugh C. Lane, Jr.
Chairman
& Senior Lender
& CFO
& COO
March 7, 2017
Dear Shareholder:
The Annual
April 11, 2017, at The Gibbes Museum of Art, 135 Mee
you will find the formal No ce of Annual
of Shareholders of Bank of South Carolina Corpora
n will be held at 5:30 p.m. on Tuesday,
g Street in the City of Charleston, South Carolina. Enclosed
of Shareholders, Proxy Card, and Proxy Statement detailing the
the enclosed Annual Report on Form 10K, as
ers which will be acted upon. Again this year, we are inco
filed with the Securi es and Exchange Commission, as our Annual Report to Shareholders.
We urge you to be a part of your Company by
we are giving you three ways to cast your vote. Even if you plan to
soon as possible by using one of the following:
on the business to come before the Annual
nd the
This year
we encourage you to vote as
(cid:127) Vote by Internet – www.proxyvote.com
(cid:127) Vote by Phone – 1 800 690 6903
(cid:127) Vote by Mail – Use the postage paid envelope provided or return it to Vote Processing, c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717
We appreciate your
ed interest and investment in Bank of South Carolina Corp
n.
Sincerely,
Fleetwood S. Hassell
President & CEO
P.O. BOX 538 : CHARLESTON, SC 29402 : P 843 724 1500 : F 843 724 1513
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant (cid:95)
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for use of the Commission only (as permitted by Rule 14a-6(e) (2))
(cid:95)(cid:3) Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under Rule 14a-12
Bank of South Carolina Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(cid:95) No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated and state how it was determined):
(4)
Proposed maximum aggregate value of transaction:
(5)
Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2)
Form, Schedule or Registration Statement No.:
(3)
Filing Party:
(4) Date Filed:
PROXY MATERIAL OF
BANK OF SOUTH CAROLINA CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 11, 2017
Dear Shareholder:
I cordially invite you to attend the Annual Meeting of Shareholders of Bank of South Carolina Corporation, to
be held on Tuesday, April 11, 2017 at 5:30pm EDT at the Gibbes Museum of Art, 135 Meeting Street,
Charleston, South Carolina 29401, for the following purposes:
1.
2.
3.
to elect seventeen Directors to our Board of Directors to serve a one-year term;
to ratify the appointment of Elliott Davis Decosimo, LLC as the Company’s independent registered
public accounting firm for the year ended December 31, 2017;
to transact such other business as may properly come before the Annual Meeting or any adjournment
of the meeting.
In recognition and celebration of the Bank of South Carolina’s 30th anniversary, a reception will be held
immediately following the close of the meeting.
The Board of Directors set the close of business on February 23, 2017 as the record date to determine the
Shareholders who are entitled to vote at the Annual Meeting. Under rules of the Securities and Exchange
Commission, we are providing access to our proxy materials both by sending you this full set of proxy
materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet.
Although we would like each Shareholder to attend the Annual Meeting, I realize that for some of you this is
not possible. Whether or not you plan to attend the Annual Meeting, we encourage you to vote as soon as
possible through the Internet, by telephone or by signing, dating and mailing your proxy card in the enclosed
postage-paid envelope. Internet voting permits you to vote at your convenience, 24 hours a day, seven days a
week. For specific instructions on voting, please refer to the instructions on the enclosed proxy card.
Our 2017 proxy statement and Annual Report for the year Ended December 31, 2016 are available free of
charge at http://www.banksc.com and http://www.proxyvote.com.
Your vote is very important, and I appreciate the time and consideration that I am sure you will give it.
On behalf of the Board of Directors
/s/Richard W. Hutson, Jr.
Richard W. Hutson, Jr., Secretary
March 3, 2017
PROXY STATEMENT
FOR
THE ANNUAL MEETING OF SHAREHOLDERS
OF BANK OF SOUTH CAROLINA CORPORATION
TO BE HELD ON APRIL 11, 2017
PROXY STATEMENT
The Board of Directors of Bank of South Carolina Corporation are using this Proxy Statement to solicit Proxies from its Shareholders for
the 2017 Annual Meeting of Shareholders. The Company is making this Proxy Statement and the enclosed form of Proxy available to its
Shareholders on or about March 7, 2017.
The information provided in this Proxy Statement contains important information for you to consider when deciding how to vote on the
matters brought before the meeting. The Board encourages you to read it carefully.
INFORMATION ABOUT THE ANNUAL MEETING
Time and Place of the Annual Meeting
The Annual Meeting will be held as follows:
Date: Tuesday, April 11, 2017
Time:
Place: The Gibbes Museum of Art, 135 Meeting Street, Charleston, South Carolina
5:30 p.m. Eastern Standard Time
Matters to be Considered at the Annual Meeting
At the meeting, you will be asked to consider and vote upon the following proposals:
Proposal 1: To elect seventeen Directors of Bank of South Carolina Corporation to serve until the Company’s 2018 Annual Meeting
of Shareholders;
Proposal 2: To ratify the appointment by the Audit and Compliance Committee of the Company’s Board of Directors of Elliott
Davis Decosimo, LLC as the Company’s independent registered public accounting firm for the year ended December
31, 2017;
Proposal 3: To transact such other business as may properly come before the meeting and any adjournment or postponement of the
meeting.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDERS’ MEETING TO BE HELD APRIL 11, 2017
This Proxy Statement (providing important information for the Annual Meeting) and the Company’s Annual Report (which includes its
Annual Report on Form 10-K as filed with the Securities and Exchange Commission) accompany this Notice. The Proxy Statement and
2016 Annual Report to Shareholders are available at http://www.banksc.com and at http://www.proxyvote.com.
Who is Entitled to Vote?
The Board of Directors of the Company has fixed the close of business on February 23, 2017, as the record date for Shareholders entitled to
notice of and to vote at the Annual Meeting of Shareholders. Only holders of record of Bank of South Carolina Corporation’s Common
Stock on that date are entitled to notice of and to vote at the Annual Meeting. Each Shareholder is entitled to one vote for each share of
Bank of South Carolina Corporation Common Stock that the Shareholder owns; provided, however, that the Shareholders have cumulative
voting rights for the election of Directors. The right to cumulate votes means that the Shareholders are entitled to multiply the number of
votes they are entitled to cast by the number of Directors for whom they are entitled to vote and cast the product for a single candidate or
distribute the product among two or more candidates. On February 23, 2017, there were 4,962,189 shares of Bank of South Carolina
Corporation’s Common Stock outstanding and entitled to vote at the Annual Meeting.
How Do I Vote?
If you are the “record holder” of your shares, meaning that you own your shares in your own name and not through a bank, broker or other
nominee, you may vote in one of four ways.
1. You may vote over the Internet. If you have Internet access, you may vote your shares from any location in the world by
following the “Vote by Internet” instructions on the enclosed proxy card.
2. You may vote by telephone. You may vote your shares by following the “Vote by Telephone” instructions on the enclosed proxy
card.
3. You may vote by mail. You may vote by completing and signing the proxy card enclosed with this proxy statement and promptly
mailing it in the enclosed postage-prepaid envelope. You do not need to put a stamp on the enclosed envelope if you mail it in the
United States.
4. You may vote in person. If you attend the Annual Meeting, you may vote by delivering your completed proxy card in person.
How Do I Vote at the Annual Meeting?
Proxies are solicited to provide all Shareholders of record on the voting record date an opportunity to vote on matters scheduled for the
Annual Meeting and described in these materials. You are a Shareholder of record if your shares of Bank of South Carolina Corporation
Common Stock are held in your name. If you are a beneficial owner of Bank of South Carolina Corporation Common Stock held by a
broker, bank or other nominee (i.e., in “street name”), please see the instructions in the following question.
Shares of Bank of South Carolina Corporation Common Stock can only be voted if the Shareholder is present in person or by Proxy at the
Annual Meeting. To ensure your representation at the Annual Meeting, the Board recommends that you vote by Proxy even if you plan to
attend the Annual Meeting. You can always change your vote at the meeting if you are a Shareholder of record.
Voting instructions are included in this material. Shares of Bank of South Carolina Corporation Common Stock represented by properly
executed Proxies will be voted by the individuals named on the Proxy (selected by The Board of Directors) in accordance with the
Shareholder’s instructions. Where properly executed Proxies are returned with no specific instructions as how to vote at the Annual
Meeting, the persons named in the Proxy will vote the shares “For” the proposals as recommended by the Board of Directors. If any other
matters are properly presented at the Annual Meeting for action, the persons named in the enclosed Proxy and acting thereunder will have
the discretion to vote on these matters in accordance with their best judgment.
As a Shareholder of Bank of South Carolina Corporation Common Stock, you may receive more than one Proxy card depending on how
your shares are held. For example, you may hold some of your shares individually, some jointly with your spouse and some in trust for
your children. In this case, you will receive three separate Proxy cards to vote.
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What if My Shares Are Held in Street Name?
If you hold your shares in street name, it is critical that you cast your vote if you want it to count in the election of Director Nominees.
In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of
Directors, your bank or broker was allowed to vote those shares on your behalf as they deemed appropriate. Due to changes in
regulations, your bank or broker no longer has the ability to vote your uninstructed shares on a discretionary basis. Thus, if you hold
your shares in street name and you do not instruct your bank or broker how to vote in the election of Directors, no votes will be cast on
your behalf.
If your shares are held in street name, you will need proof of ownership to be admitted to the Annual Meeting. A recent brokerage
statement or a letter from the record holder of your shares, are examples of proof of ownership. If you want to vote your shares of Common
Stock held in street name in person at the Annual Meeting, you will have to get a written Proxy in your name from the broker, bank or other
nominee who holds your shares.
The solicitation of Proxies on behalf of the Board of Directors is conducted by Directors, officers and regular employees of the Company
and its wholly owned subsidiary, The Bank of South Carolina (the "Bank"), at no additional compensation over regular salaries. The cost of
printing and mailing of all Proxy materials has been paid by the Company. Brokers and others involved in handling and forwarding the
Proxy materials to their customers having beneficial interests in the stock of the Company registered in the names of Nominees will be
reimbursed for their reasonable expenses in doing so.
How Many Shares Must Be Present to Hold the Meeting?
A quorum must be present at the meeting for any business to be conducted. The presence at the meeting, in person or by Proxy, of at least a
majority of the shares of Bank of South Carolina Corporation Common Stock entitled to vote at the Annual Meeting as of the record date
shall constitute a quorum. Proxies received but marked as abstentions or broker non-votes will be included in the calculation of the number
of shares considered to be present at the meeting.
What if a Quorum is Not Present at the Meeting?
If a quorum is not present at the scheduled time of the meeting, a majority of the Shareholders present or represented by Proxy may adjourn
the meeting until a quorum is present. The time and place of the adjourned meeting will be announced at the time the adjournment is taken,
and no other notice will be given unless the meeting is adjourned for 30 days or more. An adjournment will have no effect on the business
that may be conducted at the meeting.
Will Cumulative Voting Apply for the Election of Directors?
The solicitation of Proxies on behalf of the Board of Directors includes a solicitation for discretionary authority to cumulate votes.
How will votes be counted?
With respect to all proposals, shares will not be voted in favor of the matter, and will not be counted as voting on the matter, if they either
(1) abstain from voting on a particular matter, or (2) are “broker non-votes.” Banks, brokers and other nominees who do not receive
instructions with respect to Proposals 1 or 2 will not be allowed to vote these shares, and all such shares will be “broker non-votes” rather
than votes “for” or “against.” Accordingly, abstentions and “broker non-votes” for a particular proposal will not be counted as votes cast to
determine the outcome of a particular proposal. With respect to Proposal 1, the election of Directors of the Company, cumulative voting
will be allowed and election will be by plurality of votes cast. With respect to Proposal 2, it will be approved if more votes are cast for the
proposal than votes cast against.
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May I Revoke My Proxy?
Any Shareholder executing a Proxy for the meeting on the Proxy Form provided may revoke the Proxy in writing delivered to the President
of the Company prior to the meeting or by attending the meeting and voting in person.
PROPOSAL 1 – ELECTION OF DIRECTORS:
Our by-laws provide for a Board of Directors consisting of not fewer than 15 individuals and not more than 25 individuals. The number of
Directors may be increased or decreased from time to time by majority vote of the Board of Directors or the Shareholders.
The Board of Directors proposes that the 17 nominees described below be elected for a new term expiring at the 2018 Annual Meeting of
Shareholders or until their respective successors are duly elected and qualified. Each nominee has agreed to serve if elected. If any named
nominee is unable to serve, the Board of Directors, upon the recommendation of the Nominating Committee, may select different nominees
for election as Directors.
The name of each Nominee designated by the Board of Directors of the Company for election as a Director of the Company and certain
information provided by such Nominee to the Company are set forth in the table below. Two of the current Nominees served as initial
Directors of the Bank from October 22, 1986, when the Bank's charter was issued until the first Annual Meeting of Shareholders on April
14, 1987, and were elected to serve a one-year term at such Annual Meeting. These two Directors of the Bank were elected to serve one-
year terms at subsequent Annual Meetings. These two original Directors of the Bank were elected Directors of the Company upon its
organization in 1995. Alan I. Nussbaum, MD and Edmund Rhett, Jr., MD, were first elected as Directors of the Company during 1999. Dr.
Linda J. Bradley McKee, CPA was first elected as a Director of the Company during 2002. They were all re-elected as Directors of the
Company to serve one-year terms at subsequent Annual Meetings. Graham M. Eubank, Jr., Richard W. Hutson, Jr. and Malcolm M.
Rhodes, MD were elected pursuant to the By-Laws of the Company on December 16, 2004, and were elected to serve one-year terms at
subsequent Annual Meetings. Fleetwood S. Hassell was first elected by the Shareholders on April 11, 2006 at the Annual Meeting, and was
elected to serve one-year terms at subsequent Annual Meetings. Glen B. Haynes, DVM was first elected by the Shareholders on April 10,
2007, at the Annual Meeting and was elected to serve one-year terms at subsequent Annual Meetings. David W. Bunch was first elected by
the Shareholders on April 14, 2009, at the Annual Meeting and was elected to serve one-year terms at subsequent Annual Meetings. Sheryl
G. Sharry, previously serving as an Executive Officer, was first elected by the Shareholders on April 13, 2010, and was elected to serve
one-year terms at subsequent Annual Meetings. Steve D. Swanson served on the Board from 2002 to 2007. Mr. Swanson rejoined the
Board of Directors after being elected by the shareholders on April 12, 2011, and was elected to serve one-year terms at subsequent Annual
Meetings. Douglas H. Sass, an Executive Officer, and Elizabeth M. Hagood were first elected by the Shareholders on April 9, 2013, and
were elected to serve a one-year term at subsequent Annual Meetings.
Karen J. Philips was recommended for nomination by the Nominating Committee of the Board of Directors. This recommendation was
approved by the Board of Directors on January 26, 2017 and will be voted on at the 2017 Annual Meeting.
The Board of Directors believes that it is necessary for each of our Directors to possess many qualities and skills. When searching for new
candidates, the Nominating Committee considers the evolving needs of the Board of Directors and searches for candidates that fill any
current or anticipated future gap. The Board of Directors also believes that all Directors must possess a considerable amount of business
management (such as experience as a Chief Executive Officer or Chief Financial Officer) and educational experience. The Nominating
Committee first considers management experience and then considers issues of judgment, background, stature, conflicts of interest,
integrity, ethics and commitment to the goal of maximizing Shareholder value when considering Director candidates. The Nominating
Committee focuses on issues of diversity, such as diversity in gender, race and national origin, education, professional experience and
differences in viewpoints and skills. The Nominating Committee does not have a formal policy with respect to diversity; however, the
Board of Directors and the Nominating Committee believe that it is essential that the Board Members represent diverse viewpoints. In
considering candidates for the Board of Directors, the Nominating Committee considers the entirety of each candidate’s credentials in the
context of these standards. With respect to the nomination of continuing Directors for re-election, the individual’s contributions to the Board
are also considered.
Certain information with respect to each of the nominees is set forth below, including his or her principal occupation, qualifications, and
directorships during the past five years. The nominees were each recommended to the Board of Directors by the Nominating Committee
whose goal is to assemble a Board that operates cohesively, encourages candid communication and discussion, and focuses on activities that
help us maximize Shareholder value. The Nominating Committee also looks at the individual strengths of Directors, their ability to
contribute to the Board, and whether their skills and experience complement those of the other Directors.
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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE NOMINEES.
Age 57
First elected to the Board 2006
Executive Officer Directors and Nominees
Fleetwood S. Hassell
Mr. Hassell has been with The Bank of South Carolina since its organization in 1986. He began as an Assistant Vice President for
commercial lending and business development. Mr. Hassell held the position of Vice President, Senior Vice President, Executive Vice
President, and Senior Lender. Effective April 11, 2012 Mr. Hassell was elected President/Chief Executive Officer. Born and raised in
Charleston, SC, Mr. Hassell graduated from Porter Gaud High School and earned a BS and MBA from the University Of South Carolina
School Of Business. Mr. Hassell began his banking career in 1983 as a management trainee at the Citizens and Southern National Bank of
South Carolina. He was elected to the Board of Directors of the Bank of South Carolina and its parent Company in 2006. In addition to
serving on the Board of the Bank and the Company, Mr. Hassell has served on the Boards of the Kidney Foundation, Crime Stoppers,
Atlantic Coast Conservation Association, Trident Tech Foundation, Charleston Breakfast Rotary Club (President), Charleston Day School
(Treasurer), Porter Gaud School Alumni, the Preservation Society, and South Carolina Bankers Association. Currently, Mr. Hassell serves
on the College of Charleston Foundation Board, the Association of the Blind and Visually Impaired Board and the Trident United Way
Board. In January 2012, Mr. Hassell was appointed to the South Carolina State Board of Financial Institutions.
Given Mr. Hassell’s experience in banking, his strong background in commercial lending and business development and his current
participation and contributions made to the Board of Directors and its committees, the Nominating Committee recommended his re-election
to the Board.
Age 69
First elected to the Board 1995
Hugh C. Lane, Jr.,
Mr. Lane, brother of Charles G. Lane, has been with The Bank of South Carolina since its organization in 1986. He served as
President/Chief Executive Officer of the Bank from 1986 and of the Company from 1995. On April 11, 2012, he announced his retirement
as President/Chief Executive Officer. He has served as Chairman of the Board of Directors of The Bank of South Carolina since its
organization in 1986, and Chairman of the Board of Directors of Bank of South Carolina Corporation since its organization in 1995. Mr.
Lane was born in Charleston, SC. He graduated from Choate School in Wallingford, Connecticut and earned a BA in economics from the
University of Pennsylvania. Mr. Lane began his banking career at Citizens and Southern National Bank of Georgia in Atlanta. His banking
career also included working in the Bond, Leasing, and International Departments at the Chemical Bank in New York, City Executive of
Citizens and Southern National Bank, Sumter South Carolina, and Executive Vice President, heading the Citizens and Southern National
Bank’s Southern Region. Mr. Lane also served on the Board of Directors of Citizens and Southern National Bank of South Carolina for 14
years. Mr. Lane formerly served as an Administrator and Trustee of the Bank of South Carolina Employee Stock Ownership Plan and
Trust. In addition to his responsibilities at The Bank of South Carolina, Mr. Lane has served as a member of the Advisory Committee for
the ACE Basin National Estuarine Research Reserve System and is currently Chairman of the Charleston County Conservation Bank Board.
He is a Trustee and past Chairman of the Belle W. Baruch Foundation, Trustee and past Chairman of the Board at Wofford College, past
Chairman of South Carolina Independent Colleges & Universities, Trustee and past President of Charleston Museum, past Co-Chairman of
the Community Relations Committee, past member of Advisory Committee for the Storm Eye Institute of the Medical University of South
Carolina, and past member of the Board of Trident Urban League. He has been the recipient of Honorary Doctorates from Charleston
Southern University, The Citadel, and Wofford College. He has also received the “Distinguished Citizen Award” from Wofford College
National Alumni Council, the Avery Citizenship Award for outstanding community service, the Joseph P. Riley Leadership Award, and the
Order of the Palmetto presented by the Governor of South Carolina. In 2015, Mr. Lane was inducted into the South Carolina Business Hall
of Fame.
The Nominating Committee has recommended the re-election of Hugh C. Lane, Jr., to the Board of Directors based on his background in
economics, banking experience, knowledge of the financials of the Company, and his strong commitment to the local community. In
addition, the Committee considered his current contribution to the Board and his continued devotion to serving the Shareholders of the
Company.
5
Age 59
First Elected to the Board 2013
Douglas H. Sass
Mr. Sass joined The Bank of South Carolina (“the Bank”) in January 1994. He began his banking career in 1980 as management associate
with Citizens and Southern National Bank of South Carolina. Over a ten year period he was promoted to Branch Manager and then Retail
and Commercial Lender. Mr. Sass serves as an Administrator and Trustee of the Bank of South Carolina Employee Stock Ownership Plan
and Trust. He spent three years in the real estate appraisal business wherein he obtained a state real estate appraisal license. Mr. Sass
joined the Bank as a Commercial Lender and Business Development Officer and oversaw implementation of its Real Estate Appraisal
Review Program. He served as the Bank’s Security Officer, Appraisal Officer, and CRA Officer before becoming Executive Vice President
and Senior Lender in April of 2012. He is charged with overseeing the Bank’s Loan Department, Credit Department, and Mortgage
Origination Department. Mr. Sass is a native of Charleston and a graduate of The Citadel with a degree in Business Administration. He is a
graduate of the South Carolina Bankers School at the University of South Carolina and The Graduate School of Bank Management at the
University of Virginia. Mr. Sass has served on various committees of the South Carolina Bankers Association, currently serves as Vice
President of The Charleston Museum and is on the Board of the Regents Tri-County Family Ministries, and is active in various civic
organizations.
Given Mr. Sass’s experience in banking, his strong background in commercial lending and business development, and his continued
devotion to the success of the Company, the Nominating Committee recommended his re-election to the Board.
Age 66
First elected to the Board 2009
Non-Employee Directors and Nominees
David W. Bunch
Mr. Bunch has been a member of the Board of Directors of The Bank of South Carolina and Bank of South Carolina Corporation since
2009. He was born in Charleston, South Carolina and graduated from North Charleston High School and Clemson University. In addition,
Mr. Bunch attended a South Carolina Bankers School program specific for bank Directors. He has been employed by XO Bunch
Organizations since 1973, serving as President, Hughes Motors, Inc.; as Vice-President, Bunch Leasing Co.; as Vice-President, Florence
Truck Center, Inc.; as Partner, Bunch Truck & Equipment, LLC; as Partner, Bunch & Sons-Real Estate; as Managing member, Wando
Properties, LLC; and President, Double D Leasing Co., Inc. In addition to serving on the Board of Directors of the Bank of South Carolina
Corporation and The Bank of South Carolina, Mr. Bunch served as a Board member of South Carolina Federal Savings Bank. He is a past
President of the Rotary Club of North Charleston, a Paul Harris Fellow of the Rotary Club of North Charleston, a member of South Carolina
Trucking Association, a member of the Executive Association of Greater Charleston, and a member of North Charleston United Methodist
Church. Mr. Bunch was elected to the South Carolina Automobile Dealers Association Board in 2013.
The Nominating Committee has recommended the re-election of David Bunch to the Board of Directors based on his strong knowledge of
business including successfully starting and running several companies and his participation on the Loan and Audit and Compliance
Committees and various community Boards.
First elected to the Board 2005
Graham M. Eubank, Jr. Age 49
Mr. Eubank has been a member of the Board of Directors of The Bank of South Carolina and Bank of South Carolina Corporation since
2005. He was born in Fayetteville, North Carolina and raised in Charleston, South Carolina. He received a BS in Management from
Clemson University. He is also a graduate of the National Automobile Dealers Association Dealer Candidate Academy. In 1992, Mr.
Eubank began working with his family’s business, Palmetto Ford, Inc., where he has held many positions including New Car Sales
Manager, Used Car Sales Manager and Parts and Service Director. Currently Mr. Eubank is President and CEO of the Palmetto Car and
Truck Group which is comprised of Ford, Lincoln, Mama’s Used Cars and Quick Lane Auto and Tire Center. In addition to serving on the
Board of Directors of The Bank of South Carolina and Bank of South Carolina Corporation, Mr. Eubank has served on the Board of
Carolina Ford Dealer Advertising Association, the Board of the East Cooper Rotary Club, and the Board of The Boy Scouts of America. In
addition, he has served as President of the Trident New Car Dealers Association and President of the South Carolina Automobile Dealers
Association.
Graham Eubank has been on the Board of Directors since 2005. He has served on various committees including the Audit and Compliance
Committee, Compensation Committee and the Nominating Committee. His background in business has been an asset to the current Board.
For these reasons, the Nominating Committee has recommended Mr. Eubank for re-election to the Board of Directors.
Age 55
First elected to the Board 2013
Elizabeth M. Hagood
Mrs. Hagood is the former Executive Director of the Lowcountry Land Trust. Mrs. Hagood moved to Charleston with her husband,
Maybank, following their graduations from the Darden School of Business at the University of Virginia (MBA, 1989). Mrs. Hagood grew
up in Charlotte, NC, graduated from St. Catherine’s School in Richmond, Virginia (1979) and from Davidson College (BA, 1983). Mrs.
Hagood served as a Trustee of Woodberry Forest School in Virginia and on the Vestry of St. Philip’s Church. In addition, she has recently
served as a Trustee of Historic Charleston Foundation and the Episcopal Diocese of South Carolina, on the Board of Advisors of the
Gaylord M. Donnelley Foundation, as Chairman of the SC DHEC board, and as Chairman of the Alumnae Board of St. Catherine’s School.
Mrs. Hagood has served on the Loan Committee and the Nominating Committee. Her experience on these committees, in addition to her
continued service to the Charleston community through her leadership roles in various eleemosynary organizations, led the Nominating
Committee to recommend Mrs. Hagood for re-election to the Board of Directors.
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Age 62
First elected to the Board 2007
Glen B. Haynes, DVM
Dr. Haynes has been a member of the Board of Directors of The Bank of South Carolina and Bank of South Carolina Corporation since
2007. He was born in Charlottesville, Virginia and has lived in Summerville, South Carolina for 32 years. He is a graduate of Virginia
Tech where he received a BS in Biology. He received a DVM from the University of Georgia and attended a South Carolina Bankers
School program specifically for Bank Directors. In addition to serving on the Board of Directors of The Bank of South Carolina and Bank
of South Carolina Corporation, Dr. Haynes has served as President of the Summerville Rotary Club, President of Frances Willis SPCA,
Chairman of the South Carolina Board of Veterinary Medical Examiners, and President of Trident Veterinary Medical Association. Dr.
Haynes is a member of the American Veterinary Medical Association and a member of St. Paul’s Anglican Church where he has served on
the vestry. Currently, Dr. Haynes is Chairman of the Frances Willis SPCA Endowment Board.
Dr. Haynes has been committed to the success of the Company, serving on several committees including the Audit and Compliance
Committee, Loan Committee, Community Reinvestment Act Committee, and Nominating Committees. In recommending Dr. Haynes for
re-election to the Board of Directors, the Nominating Committee considered this experience as well as his strong ties to the Summerville
community and his work ethic demonstrated in running his own practice.
Age 72
First elected to the Board 1995
William L. Hiott, Jr.
Mr. Hiott has been with The Bank of South Carolina since its organization in 1986. He served as Executive Vice President and Cashier of
the Bank from 1986 until his retirement in April 2010. He also served as Executive Vice President and Treasurer of the Company from its
organization in 1995 until retirement in April 2010. He has served on the Board of Directors of The Bank of South Carolina since its
organization in 1986 and Bank of South Carolina Corporation since its organization in 1995. Mr. Hiott was born and raised in Colleton
County, South Carolina where he graduated from Walterboro High School. He received a BS in Accounting from Charleston Southern
University. He is a graduate of South Carolina Bankers School and a graduate of the University of Wisconsin’s Bank Administration
Graduate School. Mr. Hiott began his banking career at Citizens and Southern National Bank of South Carolina where he held the position
of Vice President of Operations. In addition to serving on the Board of the Bank and the Company, Mr. Hiott has served on the Boards of
the Harry Hampton Memorial Wildlife Fund (Chairman), SC Nature Conservancy, and the Lowcountry Land Trust (Treasurer). He has also
served on the SC Department of Natural Resources Marine Advisory Board (Vice-Chairman), DNR SC Governor’s Cup Advisory Board,
DNR Waterfowl Advisory Board (Chairman), and the DNR Migratory Waterfowl Stamp Advisory Board (Chairman). Currently, Mr. Hiott
serves on the DNR Wildlife and Freshwater Fisheries Board.
The Nominating Committee recommended Mr. Hiott for re-election to the Board of Directors based on his experience in banking, in-depth
knowledge of the financials of the Company, his strong commitment to the local community, and his current contributions to the Board.
Richard W. Hutson, Jr. Age 59
Mr. Hutson has been a member of the Board of Directors of The Bank of South Carolina and Bank of South Carolina Corporation since
2005. Mr. Hutson was born and raised in Charleston, South Carolina. He majored in economics and received a BA from The University of
the South. In addition to serving on the Board of the Bank and the Company, Mr. Hutson has served on the Boards of the SC Historical
Society and the Historic Charleston Foundation. In addition, Mr. Hutson has served as President of the SC Historical Society. Mr. Hutson
is the Manager of William M. Means Insurance Company.
First elected to the Board 2005
Richard W. Hutson, Jr. has served on the Audit and Compliance Committee, Investment Committee and the Loan Committee. His
experience on these committees, in addition to his business background in running a large insurance company, led the Nominating
Committee to recommend Mr. Hutson for re-election to the Board. The Committee also considered his strong ties to the Charleston
community and his experience of serving on other Boards.
Age 62
First elected to the Board 1995
Charles G. Lane
Mr. Lane has been a member of the Board of Directors of The Bank of South Carolina since its organization in 1986, and a member of the
Board of Directors of Bank of South Carolina Corporation since its organization in 1995. Mr. Lane was born and raised in Charleston,
South Carolina. He is a graduate of Clemson University. Mr. Lane served on the Advisory Board of Citizens and Southern National Bank
of Greenville, South Carolina. In addition, Mr. Lane served on the Boards of Ducks Unlimited, Delta Waterfowl, The Nature Conservancy,
The Coastal Conservation League, The Donnelley Foundation, and the ACE Basin Task Force. Mr. Lane served as The First Chairman of
the South Carolina Conservation Bank. Mr. Lane is a Managing Member of Holcombe, Fair and Lane, LLC - a commercial real estate
company.
Charles G. Lane, brother of Hugh C. Lane, Jr., has been with the Company since its organization. He has served on the Executive
Committee, the Long-Range Planning Committee (currently Executive/Long-range Planning), and the Loan Committee. He has devoted
nearly thirty years to ensuring the success of the Company. His experiences in the real estate market and the local community have been
valuable to the Board in its decision-making. Based on these aspects, the Nominating Committee has recommended the re-election of
Charles Lane to the Board.
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First elected to the Board 2002
Linda J. Bradley McKee, PhD, CPA Age 66
Dr. McKee has been a member of the Board of Directors of The Bank of South Carolina and Bank of South Carolina Corporation since
2002. Born in Hereford, Texas, Dr. McKee has lived in Charleston for over twenty years. Dr. McKee earned a BS in Mathematics from the
University of Texas at Arlington, a MS in Accounting from Texas Tech, and a PhD in Accounting from the University of North Texas. She
is an Associate Professor of Accounting at the College of Charleston. In addition to serving on the Board of the Bank and the Company,
she also served on the Board of Directors of Hospice of Colorado Springs. She served as President of the Charleston Estate Planning
Council and Program Director of Charleston Tax Roundtable. Dr. McKee is a member of First Methodist Church. She is also a member of
the following professional organizations: AICPA, American Accounting Association, Taxation Division of American Accounting
Association, Charleston Estate Planning Council, and Charleston Tax Roundtable.
Dr. McKee is considered by the Board of Directors to be a financial expert under applicable guidelines of the Securities and Exchange
Commission. She has an extensive background in accounting and taxation and has been an asset to the Board and the Audit and
Compliance Committee. For the above reasons, the Nominating Committee has recommended Dr. McKee for re-election to the Board of
Directors.
First elected to the Board 1999
Alan I. Nussbaum, MD Age 65
Dr. Nussbaum has been a member of the Board of Directors of The Bank of South Carolina and Bank of South Carolina Corporation since
1999. Born and raised in Charleston, South Carolina, Dr. Nussbaum graduated from Porter Gaud High School. He received a BA from
Johns Hopkins University and a MD from Harvard Medical School. Dr. Nussbaum completed his internship and residency in Internal
Medicine at Duke University Medical Center. In addition, Dr. Nussbaum completed a Fellowship in Rheumatology and Immunology at the
Medical University of South Carolina. He has practiced rheumatology in Charleston since 1982 and has served on the Board and as
President of the Medical Society of South Carolina, the nonprofit physicians’ organization which is the majority owner of Roper St. Francis
Health System. He has also served on the Board of Directors of the Roper St. Francis Health System and on the Board of Directors of
Roper Hospital, completing a term as Chairman in 2011. Dr. Nussbaum has served on the Board of the Charleston County Concert
Association, as President of Synagogue Emanu-El, and as a member of the Hebrew Orphan Society.
The Nominating Committee has recommended the re-election of Dr. Alan Nussbaum to the Board of Directors based on the commitment
that he has made to the Board, the Executive Committee, and the Compensation Committee. In addition to having his own medical practice
and serving on several Boards in the medical community; Dr. Nussbaum served as Chairman of the Audit and Compliance Committee and
is dedicated to the success of the Company.
Age 55
Karen J. Phillips
Mrs. Phillips was born in Charleston, South Carolina and graduated from Ashley Hall School. She received a BA in Political Science from
The University of the South (Sewanee) and an MBA in Finance from The University of South Carolina. She is a Certified Financial Planner
® and is President of Atlantic Coast Asset Management, Inc., a financial management firm. She is Past President of The Junior League of
Charleston and Past Chair of the Board of Directors of Ashley Hall School, where she currently serves as a Trustee. She has previously
served on the Board of Directors of The Girl Scouts of Eastern South Carolina and Community Health Partners.
Nominee
Mrs. Phillips has been dedicated to her work as the President of Atlantic Coast Asset Management, Inc. showing great leadership and work
ethic. The Nominating Committee considered this work along with her experience serving as Trustee and Chairman of various boards in
recommending Mrs. Phillips to the Board of Directors.
First elected to the Board 1999
Edmund Rhett, Jr., MD Age 69
Dr. Rhett has been a member of the Board of Directors of The Bank of South Carolina and Bank of South Carolina Corporation since 1999.
Dr. Rhett was born in Charleston, SC and raised in Atlanta, Georgia. He has lived in the Charleston area for 37 years. Dr. Rhett received a
BA from The University of the South and a MD from the Medical College of Georgia. He has a private gynecological practice, Rhett
Women’s Center. Dr. Rhett has been on the Board of Directors of the Canterbury house for over thirty years and has served as President of
its Board for nearly twenty years. In addition, he has served on the Boards of both the East Cooper Regional Medical Center and
Charleston Day School.
The Nominating Committee has recommended the re-election of Dr. Rhett to the Board of Directors, based on his commitment and years of
service on the Mount Pleasant Local Advisory Board, Nominating Committee, Asset & Liability/Investment Committee, and the
Executive/Planning Committee.
8
First elected to the Board 2005
Malcolm M. Rhodes, MD Age 57
Dr. Rhodes has been a member of the Board of Directors of The Bank of South Carolina and Bank of South Carolina Corporation since
2005. Born and raised in Charleston, South Carolina, Dr. Rhodes graduated from Porter Gaud High School. He received a BA from Duke
University and a MD from the Medical University of South Carolina. He is a Fellow of the American Board of Pediatrics and has been a
partner at Parkwood Pediatric Group since 1988. He is on the clinical faculty at MUSC and active staff at Roper and Bon-Secours St.
Francis Hospitals, serving on the Credentials Committee. He and his wife own The Charleston Angler. In addition to serving on the Board
of Directors of the Bank and the Company, Dr. Rhodes currently represents South Carolina on the Atlantic States Marine Fisheries
Commission where he is Chairman of the Governor's Appointees, and serves on the Executive Committee and Administrative Oversight
Committee. He is Past Chairman of the Board of Trustees of Ashley Hall School and treasurer of the Carolina Gold Rice Foundation. He
has served as a Trustee of Charleston Stage Company, Chairman of the Shad and River Herring Board and on the vestry of St. Philip's
Church where he is still actively involved.
The Nominating Committee has recommended the re-election of Dr. Rhodes to the Board of Directors based on the commitment that Dr.
Rhodes has made to the Board including as Past Chairman of the Audit and Compliance Committee. In addition, the Nominating
Committee also considered Dr. Rhodes’ knowledge of business including running a medical practice and serving on staff of several local
hospitals. Dr. Rhodes is dedicated to the success of the Company.
Age 62
First elected to the Board 2010
Sheryl G. Sharry
Mrs. Sharry has been with The Bank of South Carolina since its organization in 1986. She has served as Assistant Vice President –
Operations Department, Vice President – Operations & Technology, Senior Vice President – Operations & Technology, and served as Chief
Financial Officer/ Executive Vice President from 2010 until her retirement in April 2016. Mrs. Sharry serves as a Trustee of the Bank of
South Carolina Employee Stock Ownership Plan and Trust. Mrs. Sharry became a member of the Board of Directors of The Bank of South
Carolina and Bank of South Carolina Corporation in 2010. Mrs. Sharry has lived in South Carolina for 52 years. She is a graduate of the
College of Charleston, South Carolina Bankers School, and the School of Bank Investments and Financial Management. Mrs. Sharry
started her banking career at Citizens and Southern National Bank of South Carolina where she served as Utility Staff, CSR, teller, and CSR
trainer, and Operations Officer-Internal Operations Department. Mrs. Sharry has attended classes covering Network Security and
Administration, Administration of the Bank’s core software; Information Technology Risk Assessment, Internet Banking Compliance,
Cyber Crime, Liquidity Contingency Planning, Asset Liability Management and Interest Rate Risk, Budgeting and Forecasting, Bank
Insurance, Stress Testing, and Income Tax Issues. In 2010, she attended an SEC Reporting Skills Workshop. In 2011, she completed The
Darden/SNL Executive Program in Bank Financial Leadership and in 2012, she attended an SEC Institute 10-K In Depth Workshop.
Sheryl Sharry was recommended for re-election to the Board of Directors by the Nominating Committee based on her strong background in
operations and technology of the Company, experience in banking, in-depth knowledge of the financials of the Company, and continued
devotion to the success of the Company.
Age 49
First elected to the Board 2002-2007 Re-elected 2011
Steve D. Swanson
Mr. Swanson founded Automated Trading Desk (ATD), a pioneering electronic trading firm based in South Carolina. As President and
CEO, Mr. Swanson grew the business from pure proprietary trading to creating a fully automated market maker servicing the broker-dealer
community. After its acquisition by Citigroup in 2007, Mr. Swanson became responsible for global equity and option electronic trading
operations. Mr. Swanson serves on the Board of the College of Charleston Foundation, the College of Charleston School of Business
Board, the Honors College Advisory Board and the Board of Trustees of South Carolina University. He is a past chair of the NASDAQ
Quality of Markets Committee, and a past member of the SIFMA Trading and Markets Committee. Prior to the acquisition of ATD, Mr.
Swanson served on the Board of Trustees at Ashley Hall and The Bank of South Carolina and the Bank of South Carolina Corporation. Mr.
Swanson currently serves as chair of the Audit and Compliance Committee.
Mr. Swanson’s extensive experience in both starting and running a business, his commitment to the success of the Company and his
extensive community involvement qualify him for the Board of Directors. Therefore, the Nominating Committee recommends Mr.
Swanson for re-election to the Board of Directors.
9
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, as of February 23, 2017, the voting record date, information regarding share ownership of:
(cid:120)
(cid:120)
(cid:120)
those persons or entities (or groups of affiliated persons or entities) known by management to beneficially own more
than five percent of our common stock;
each non-employee Director (including Director nominees) ; and
each employee Director (including Director nominees).
Persons and groups who beneficially own more than five percent of our common stock are required to file with the Securities and Exchange
Commission (“SEC”), and provide us, reports disclosing their ownership pursuant to the Securities Exchange Act of 1934. To the extent
known to the Board of Directors, no other person or entity, other than those set forth below, beneficially owned more than five percent of
the outstanding shares our common stock as of the close of business on the voting record date, February 23, 2017.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In accordance with Rule 13d-3 of the
Securities Act, a person is deemed the beneficial owner of any shares of Common Stock if he or she has voting and/or investment power
with respect to those shares. Therefore, the table below includes shares owned by spouses, other immediate family members in trust, shares
held in retirement accounts or funds for the benefit of the named individuals, and other forms of ownership over which shares the persons
named in the table may possess voting and/or investment power.
Title of class
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent of
Class
More than Five Percent Beneficial Ownership
Common Stock Hugh C. Lane, Jr. (1)
30 Church Street
Charleston, SC 29401
Common Stock The Bank of South Carolina
Employee Stock Ownership
Plan and Trust ("the ESOP")
256 Meeting Street
Charleston, SC 29401
Executive Officers/Directors
Common Stock Hugh C. Lane, Jr. (1)
30 Church Street
Charleston, SC 29401
Common Stock Fleetwood S. Hassell
3 Woody Lane
Folly Beach, SC 29439
Common Stock Douglas H. Sass
26 Gadsden Street
Charleston, SC 29401
Current Directors and Director Nominees
Common Stock David W. Bunch
6605 Seewee Road
Awendaw, SC 29429
750,759(2)
15.130%
335,604(3)
6.763%
750,759 (2)
15.130%
99,230 (4)
2.000%
23,969 (4)
.483%
1,928
.039%
Common Stock Graham M. Eubank, Jr.
947
.019 %
2614 Raven Drive
Sullivans Island, SC 29482
10
Current Directors and Director Nominees (Continued)
Title of Class
Name and Address of Beneficial Owner
Common Stock Elizabeth M. Hagood
24 Lamboll Street
Charleston, SC 29401
Common Stock Glen B. Haynes, DVM
101 Drayton Drive
Summerville, SC 29483
Common Stock William L. Hiott, Jr.
1831 Capri Drive
Charleston, SC 29407
Common Stock Katherine M. Huger
1 Bishop Gadsden Way, Cottage 17
Charleston, SC 29412
Amount and Nature of
Beneficial Ownership
110
Percent of
Class
.002%
7,430
.150%
189,410(4)
3.817%
11,884(4)
.239%
Common Stock Richard W. Hutson, Jr.
6,574
.132%
124 Tradd Street
Charleston, SC 29401
Common Stock Charles G. Lane (1)
1 Tradd Street
Charleston, SC 29401
228,658(4)
4.608%
Common Stock Dr. Linda J. Bradley McKee, CPA
2,141
.043%
3401 Waterway Blvd.
Isle of Palms, SC 29451
Common Stock Alan I. Nussbaum, MD
4,911
.099%
37 Rebellion Road
Charleston, SC 29407
Common Stock Karen J. Phillips (nominee)
40 Murray Boulevard
Charleston, SC 29401
Common Stock Edmund Rhett, Jr. MD
17 Country Club Drive
Charleston, SC 29412
Common Stock Malcolm M. Rhodes, MD
450 McLeod Road
Charleston, SC 29407
Common Stock Sheryl G. Sharry
1550 Kentwood Drive
James Island, SC 29412
4,818(4)
5,065(4)
.097%
.102%
4,471
.090%
90,761(4)
1.829%
Common Stock Steve D. Swanson
15,035
.303%
615 Pitt Street
Mount Pleasant, SC 29464
All current
Directors,
Director
nominees, and
Executive
Officers as a
group (18
people)
1,432,409
28.866%
11
(1) To the extent known to the Board, the emancipated children and grandchildren of Hugh C. Lane, Jr. and Charles G. Lane,
collectively, have beneficial ownership of 979,418 shares or 19.738% of the outstanding shares. As more fully described in the
following footnotes, Hugh C. Lane, Jr., is the only one of the above who has a beneficial ownership interest in more than 5% percent
of our common stock. Hugh C. Lane, Jr., disclaims any beneficial interest in those shares in which other members of his family have
a beneficial interest other than those shares his wife owns directly and those for which he serves as Trustee or she serves as custodian
(as more fully described in the following footnote).
(2) To the extent known to the Board, Hugh C. Lane, Jr., Chairman of the Board of both the Bank and the Company, directly owns and
has sole voting and investment power with respect to 274,245 shares; as a Trustee for the Mills Bee Lane Memorial Foundation, he
has shared voting and investment power with respect to 11,895 shares; he is indirectly beneficial owner of 15,444 shares owned by
his wife and 38,848 shares owned by the ESOP in which he has a vested interest. Hugh C. Lane, Jr., disclaims any beneficial interest
in the 410,327 shares owned by extended family members. All of the shares beneficially owned by Hugh C. Lane, Jr., are currently
owned. Hugh C. Lane, Jr., has had beneficial ownership of more than 5% of our common stock since October 23, 1986.
(3) The Trustees of the Employee Stock Ownership Plan (“ESOP’), Sheryl G. Sharry, a Director of the Bank and the Company,
Fleetwood S. Hassell, President/Chief Executive Officer and Director of the Bank and Company, Eugene H. Walpole, IV, Chief
Financial Officer/ Senior Vice President, and Douglas H. Sass, Senior Lender/Executive Vice President and Director of the Bank and
Company, disclaim beneficial ownership of the 335,604 shares owned by the ESOP with all shares allocated to members of the Plan
each of whom under the terms of the Plan has the right to direct the Trustees as to the manner in which voting rights are to be
exercised.
(4) To the extent known to the Board of Directors, each of the following Directors and nominees for election as Director (each of whom
directly owns and has sole voting and investment power of all shares beneficially owned by him or her except as set forth in this
footnote) indirectly owns the following number of shares: Fleetwood S. Hassell - an aggregate of 12,879 shares owned by his wife,
held by him as a co-Trustee with Charles G. Lane for the children of Hugh C. Lane, Jr., unallocated shares held by him as a Trustee
of the ESOP, and 37,182 shares owned by the ESOP, in which he has a vested interest; Douglas H. Sass – 16,163 shares owned by
the ESOP in which he has a vested interest; William L. Hiott, Jr. - an aggregate of 9,739 shares directly owned by his wife;
Katherine M. Huger - 884 shares held by the Estate of her husband; Charles G. Lane - an aggregate of 52,884 shares owned by his
wife, held by him as a co-Trustee with Fleetwood S. Hassell for the children of Hugh C. Lane, Jr., held by him as a Trustee of Mills
Bee Lane Memorial Foundation, and held by him as a Trustee of Holcombe Trust; Karen J. Phillips – 3,318 shares owned by her
husband; Edmund Rhett, Jr., MD - 914 shares owned by his wife; Sheryl G. Sharry – 35,706 shares owned by the ESOP, in which
she has a vested interest. All such indirectly owned shares are included in the totals of the number of shares set forth in the above
table and beneficially owned by the Directors and nominees.
No Director or Executive Officer was involved in any legal proceedings, nor have any members been convicted in criminal proceedings in
the past 10 years. In addition there are no pending legal proceedings against any Executive Officer or Director.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
AND CORPORATE GOVERNANCE MATTERS
Introduction
Bank of South Carolina Corporation’s Board of Directors conducts its business through Board meetings and through its committees. Hugh
C. Lane, Jr. presently serves as Chairman of the Board of Directors. The Board of Directors of the Company held 6 meetings (including all
regularly scheduled and special meetings) during the year ended December 31, 2016. No Directors attended fewer than 75% of the
aggregate of (i) the total number of meetings of the Board of Directors and (ii) the total number of meetings held by all committees of the
Board of Directors on which they served.
12
Director Independence: The Board of Directors is comprised of a majority of independent Directors in compliance with SEC and National
Association of Securities Dealers Automated Quotations (“NASDAQ”) rules. All members of the Audit and Compliance Committee, the
Compensation Committee, and the Nominating Committee are independent pursuant to SEC and NASDAQ rules. The members of these
committees do not have any relationship to The Bank of South Carolina or Bank of South Carolina Corporation that may interfere with the
exercise of their independence from management. None of the members of these committees are current or former officers or employees of
The Bank of South Carolina or Bank of South Carolina Corporation except for William L. Hiott, Jr., who retired from The Bank of South
Carolina in April 2010 and Sheryl G. Sharry, who retired from the Bank of South Carolina in April 2016. All members of the Board of
Directors are independent except Hugh C. Lane, Jr., Chairman of the Board, Fleetwood S. Hassell, President/Chief Executive Officer,
Douglas H. Sass, Senior Lender/Executive Vice President, Charles G. Lane, brother of Hugh C. Lane, Jr. and Sheryl G. Sherry, who served
as Chief Financial Officer/Executive Vice President through April 2016.
Board of Directors
Our Board of Directors conducts its business through meetings and through its committees. Hugh C. Lane, Jr., presently serves as
Chairman of the Board. The Board of Directors held 6 meetings (including all regularly scheduled and special meetings) during the year
ended December 31, 2016.
Board Leadership Structure
The Board of Directors believes that Hugh C. Lane, Jr., is best situated to serve as Chairman of the Board because he is the Director most
familiar with our business and industry, and most capable of effectively identifying strategic priorities and leading the discussion and
execution of strategy.
Independent Directors and management have different perspectives and roles in strategy development. Our independent Directors bring
experience, oversight and expertise from outside the company and industry, while Hugh C. Lane, Jr., brings company-specific experience
and expertise. The Board of Directors believe that the combined experience as Chairman of the Board and past President/Chief Executive
Officer promotes strategy development and executions, and facilitates information flow between management and the Board of Directors,
which are essential to effective governance.
One of the key responsibilities of the Board of Directors is to develop strategic direction and hold management accountable for the
execution of strategy once it is developed. The Board believes the combined role of the Chairman of the Board and an independent Lead
Director, having the duties described below, is in the best interest of Shareholders as it provides the appropriate balance between strategy
development and independent oversight of management.
Lead Director
Alan I. Nussbaum, MD, an independent Director was selected by the Board of Directors to serve as the Lead Director of all meetings of
the non-management Directors held in executive session. Dr. Nussbaum has held this position since April 12, 2011. Non-management
Directors of the Board of Directors are required to meet on a regular scheduled basis without the presence of management (IM-5605-2
NASDAQ Corporate Governance Rules). The Lead Director chairs these sessions.
Risk Management
The Board of Directors has an active role, as a whole and also at the committee level, in overseeing the management of our risks. The Board
of Directors regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. The Audit
and Compliance Committee oversees the management of financial risks. The Nominating Committee manages risks associated with the
independence of the Board of Directors and potential conflicts of interest. While each committee is responsible for evaluating certain risks
and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about such
risks. In addition, Lauren Nilan, CPA, serves as Risk Management Officer/Vice President overseeing our internal controls.
Committees and Committee Charters
The Board of Directors has four committees: the Executive/Long-Range Planning Committee, the Compensation Committee, the
Nominating Committee, and the Audit and Compliance Committee. Each committee serves in a dual capacity as a committee of the
Company and the Bank.
13
The following table lists the membership of the standing committees of the Board of Directors.
Director
David W. Bunch
Graham M. Eubank, Jr.
Elizabeth M. Hagood
Fleetwood S. Hassell
Glen B. Haynes, DVM
William L. Hiott, Jr.
Katherine M. Huger
Richard W. Hutson, Jr.
Charles G. Lane
Hugh C. Lane, Jr.
Dr. Linda J. Bradley
McKee, PhD, CPA
Alan I. Nussbaum, MD
Edmund Rhett, Jr., MD
Malcolm M. Rhodes, MD
Douglas H. Sass
Sheryl G. Sharry
Steve D. Swanson
Audit/Compliance
X
Executive/Long-
Range Planning
Compensation
Committee
Nominating
Committee
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Audit and Compliance Committee
The Audit and Compliance Committee members are appointed and approved by the Board of Directors, annually. The Audit and
Compliance Committee is to be comprised of not less than four members of the Board or such larger number as approved by the Board of
Directors. During 2016, the Audit and Compliance Committee held four meetings. Members are considered to be independent of the
Company under applicable rules and regulations, including Rule 4200(a) (15) of the NASDAQ. The Board of Directors has determined that
Linda J. Bradley McKee, PhD CPA, Chairman of the Audit and Compliance Committee, qualifies as a financial expert under the applicable
guidelines of the Securities and Exchange Act.
The Audit and Compliance Committee operates under a written Charter adopted by the Board of Directors which is renewed and reassessed
for adequacy on an annual basis. The Charter outlines the Committee’s responsibilities for overseeing the entire audit function and
appraising the effectiveness of internal and external audit efforts including: reviewing our financial statements, evaluating internal
accounting controls, reviewing reports of regulatory authorities, and determining that all examinations required by law are performed. The
Charter may be amended by the Board of Directors at any time. The most recent Audit and Compliance Committee charter may be obtained
at our Internet website http://www.banksc.com.
The Audit and Compliance Committee recommends to the Board of Directors the appointment of the independent auditors for the next fiscal
year, reviews and approves the auditors’ audit plan, and reviews with the independent auditors the results of the audit and management’s
response.
Review of the Company’s Audited Financial Statements for the Fiscal Year Ended
December 31, 2016
Management is responsible for our internal controls and the financial reporting process. The independent auditors are responsible for
performing an independent audit of our consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America and issuing a report thereon. The Audit and Compliance Committee’s responsibility is to monitor and oversee the
process.
In this context, the Audit and Compliance Committee has met and held discussions with management and Elliott Davis Decosimo, LLC, our
independent auditors, in 2016. In discharging its oversight responsibility as to the audit process, the Audit and Compliance Committee has
received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company
Accounting Oversight Board (“PCAOB”) regarding the independent auditor’s communications with the Audit and Compliance Committee
concerning independence and has discussed with the independent auditors their independence from the Company and management. The
Audit and Compliance Committee also discussed with management, the internal auditors and the independent auditors the quality and
adequacy of our internal controls. The Audit and Compliance Committee reviewed with the independent auditor their audit plans, audit
scope and identification of audit risks.
14
The Audit and Compliance Committee reviewed and discussed with the independent auditors all communications required by generally
accepted auditing standards, including those described in the Public Company Accounting Oversight Board’s Auditing Standard (“AS”) 16,
as modified or supplemented, “Communications with Audit Committees,” and Rule 2-07 of Regulation S-K, promulgated by the SEC, and,
with and without management present, discussed and reviewed the results of the independent auditors’ examination of the financial
statements. The Audit and Compliance Committee also discussed the results of the internal audit examinations.
The Audit and Compliance Committee reviewed and discussed the audited consolidated financial statements of Bank of South Carolina
Corporation as of and for the year ended December 31, 2016, with management and the independent auditors.
Based on the above-mentioned review and discussion with management and the independent auditors, the Audit and Compliance
Committee recommended to the Board of Directors that Bank of South Carolina Corporation’s audited consolidated financial statements be
included in its annual Report on Form 10-K for the year ended December 31, 2016, for the filing with the SEC. During 2016, the
Committee appointed Elliott Davis Decosimo, LLC as our independent auditors for the year ending December 31, 2017.
Submitted by:
Steve D. Swanson, Chairman
David W. Bunch
William L. Hiott, Jr.
Katherine M. Huger
Dr. Linda J. Bradley McKee, CPA
Executive/Long-Range Planning Committee
The Executive/Long-Range Planning Committee consists of our President, the Chairman of the Board, one Executive Officer and six
designated Directors. Alan I. Nussbaum, MD, an independent Director, serves as Chairman of the Committee. During 2016, the
Executive/Long-Range Planning Committee held three meetings. In addition to long-range and strategic planning, the principal function of
the Committee is to exercise all authority of the Board of Directors in the management and affairs of the Company and the Bank. In
addition, the Committee acts on behalf of the entire Board of Directors between the regular Board meetings.
Compensation Committee
The Compensation Committee consists of three independent Directors appointed by the Board of Directors to assist the Board in fulfilling
its oversight responsibilities. The Committee also functions as the Compensation Committee of the Bank. The duties and responsibilities of
the Compensation Committee are as follows:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
to review and approve compensation of the Executive Officers in light of our goals and objectives. (Executive Officers may not be
present during voting or deliberations on their compensation);
to oversee regulatory compliance and risk management with respect to compensation matters;
to make regular reports to the Board of Directors.
to review and approve the Report of Compensation for inclusion in our annual Proxy Statement, in accordance with applicable
rules and regulations;
to review and approve the Compensation Discussion and Analysis of the Company’s annual Proxy Statement, and recommend to
management that it be included in the annual Proxy Statement; and
to perform any other duties or responsibilities expressly delegated to the Committee by the Board of Directors from time to time.
The Compensation Committee’s policies and procedures for decisions did not change since the positive advisory vote by the
shareholders on the compensation of the most highly compensated Executive Officers at the Annual Meeting held April 12, 2016.
The Board of Directors has determined that each of the Directors serving on our Compensation Committee is independent and satisfies
other requirements imposed by:
(cid:120) NASDAQ;
(cid:120)
The Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the SEC under the
Exchange Act; and
(cid:120) Any other laws, rules or regulations applicable to us.
15
The Compensation Committee has sole discretion to hire, retain, terminate and approve fees and other retention terms of independent legal,
accounting or other advisors (including compensation consultants) as it deems appropriate without management or Board approval. In
doing so, the Compensation Committee shall comply with all applicable rules of the SEC or NASDAQ. The Committee met one time in
2016 and did not consult independent legal counsel or compensation consultants.
The most recent Compensation Committee charter may be obtained at our Internet website http://www.banksc.com.
Nominating Committee
The Nominating Committee consists of four independent Directors. The function of the Nominating Committee is to recommend a slate of
proposed Directors to the Board of Directors. The Nominating Committee has adopted a written Charter. A copy of this Charter may be
obtained at our Internet website http://www.banksc.com. The Nominating Committee met one time during 2016.
Nominations, other than those made by the Nominating Committee, may be made in writing and delivered or mailed to the President of the
Company not less than 14 days or no more than 50 days prior to any meeting of Shareholders calling for election of Directors; provided
however, that if less than 21 days notice of the meeting is given to Shareholders, such nomination shall be mailed or delivered to the
President/Chief Executive Officer of the Company not later than the close of business on the 7th day following the day on which the Notice
of Meeting was mailed. Nominations not made according to these procedures will be disregarded.
The Nominating Committee has a policy with regard to consideration of any Director candidates recommended by Shareholders and that
policy is to consider any and all such recommendations. The Nominating Committee has adopted specific minimum qualifications which
the Nominating Committee believes must be met by a nominee for a position on our Board of Directors. The qualifications include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
nominee must be recognized as successful in such nominee's business or community efforts;
have a recognized reputation for honesty and integrity;
have demonstrated a commitment to the community in which we operate;
have demonstrated in meetings with the Nominating Committee a commitment to the best interest of the Company, its subsidiary
Bank, and their officers, Directors, employees and Shareholders
The Nominating Committee's process for identifying and evaluating nominees for Director, including nominees recommended by
Shareholders, is to investigate whether or not such nominee meets the specific minimum qualifications adopted as a policy by the
Committee through contacts the members have in their community. There are no differences in the manner in which the Committee
evaluates nominees for Director whether the nominee is recommended by a committee member or a Shareholder.
We do not utilize or pay a fee to any third party (compensation consultant) to evaluate nominees for Director.
Code of Business Conduct and Ethics: We expect all of our employees to conduct themselves honestly and ethically. Our Board of
Directors has adopted a Code of Ethics that applies to all employees. The Code of Ethics requires the officers, Directors and employees to
maintain the highest standards of professional ethical conduct. The Code includes guidelines relating to the ethical handling of actual or
potential conflicts of interest, compliance with laws, accurate financial reporting and procedures for promoting compliance with, and
reporting violations of the Code. The Code of Ethics may be obtained at our Internet website http://www.banksc.com.
Shareholder Communication with the Board of Directors: The Board of Directors has adopted a process by which Shareholders may
communicate with them. Shareholders may send a written communication to Fleetwood S. Hassell, President/Chief Executive Officer,
Bank of South Carolina Corporation, 256 Meeting Street, Charleston, South Carolina 29401, or fax such communication to Fleetwood S.
Hassell, President/Chief Executive Officer, at (843) 724-1513. A Shareholder is free to address any communication to any Director at the
address of such Director set forth in this Proxy Statement. Any communication from a Shareholder received by the President shall be sent
to all members of the Executive Committee and, if any member of the Executive Committee so directs, will be sent to all members of the
Board of Directors.
In addition, any Shareholder or interested party who has any concerns or complaints relating to accounting, internal accounting controls or
auditing matters, may contact the Audit and Compliance Committee by writing to the following address:
Bank of South Carolina Corporation Audit and Compliance Committee
c/o Steve D. Swanson, Chairman
Bank of South Carolina Corporation
615 Pitt Street
Mt. Pleasant, SC 29464
16
Related Party Transactions: We entered into a rental contract on May 27, 2010, with Holcombe, Fair and Lane, LLC. Charles G. Lane,
Director and brother of Hugh C. Lane, Jr., Chairman of the Board of Directors, is a Managing Member of Holcombe, Fair and Lane, LLC.
The original contract was a two year lease on office space at a rate of $2,095 a month. A copy of the lease was filed with the 2010 10-K.
The contract was renegotiated on April 5, 2013, for larger office space at a rate of $4,000 a month. A copy of this lease was filed with the
March 31, 2013 10-Q. In addition, Sass, Herrin and Associates, Inc. an appraisal firm, is on our list of approved appraisal companies.
Herbert R. Sass, III, MAI, SRA, fifty percent owner of Sass, Herrin and Associates, Inc., is the brother of Douglas H. Sass, Executive Vice
President. We do not have any other existing continuing contractual relationships with any Director, nominee for election as Director or
Executive Officer, or any Shareholder owning, directly or indirectly, more than 5% of the shares of our common stock, or any associate of
the foregoing persons. Related party transactions have been and will continue to be made as any other ordinary business transaction using
substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other
persons. These transactions did not and will not involve more than the normal risk of collectability or present any other unfavorable
features.
DIRECTOR COMPENSATION
The following table sets forth the information regarding the compensation earned by each Director who served on the Board of Directors
during the year ended December 31, 2016. Our officers other than the Secretary do not receive payment for their participation on the Board
of Directors or its Committees.
Transactions and Relations with Directors, Executive Officers, and their Associates and Affiliates of Directors
NAME
David W. Bunch
Graham M. Eubank, Jr.
Elizabeth M. Hagood
Fleetwood S. Hassell
Glen B. Haynes, DVM
William L. Hiott, Jr.
Katherine M. Huger
Richard W. Hutson, Jr.
Charles G. Lane
Hugh C. Lane, Jr.
Dr. Linda J. Bradley McKee, CPA
Alan I. Nussbaum, MD
Edmund Rhett, Jr. MD
Malcolm M. Rhodes, MD
Douglas H. Sass
David R. Schools
Sheryl G. Sharry
Steve D. Swanson
DIRECTOR COMPENSATION
FEES EARNED OR PAID IN
CASH
TOTAL
$6,900
$4,800
$5,850
-
$8,050
$8,100
$7,350
$4,450
$7,150
-
$5,100
$6,800
$6,350
$5,550
-
$750
$4,800
$5,900
$6,900
$4,800
$5,850
-
$8,050
$8,100
$7,350
$4,450
$7,150
-
$5,100
$6,800
$6,350
$5,550
-
$750
$4,800
$5,900
Non-Executive-Officer Directors of the Company received $200.00 for each meeting of the Board of Directors of the Company attended.
Non-Executive-Officer Directors of the Bank received $350.00 for each meeting of the Board of the Bank attended. Directors of the
Company and the Bank also receive $150.00 for each Company or Bank board committee meeting attended. In addition, non-Executive-
Officer Directors of the Bank received $250.00 for each Advisory Board meeting attended.
Section 16A Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our Directors, Executive Officers and persons who own beneficially more
than 10% of our outstanding common stock to file with the SEC initial reports of ownership and reports of changes in their ownership of our
common stock. Directors, Executive Officers and greater than 10% Shareholders are required by SEC regulations to furnish us with copies
of the forms they file. To our knowledge, no person beneficially owned more than 10% of our common stock during 2016. Based solely on
a review of the copies of such reports furnished to us, during the fiscal year ended December 31, 2016, our Directors and Executive Officers
complied with all applicable Section 16(a) filing requirements.
17
Executive Compensation-Compensation Discussion and Analysis
This section discusses our compensation program, including how it relates to the Executive Officers named in the compensation tables
which follow in this section. The Executive Officers of the Company and the Bank consist of:
Fleetwood S. Hassell, President/Chief Executive Officer, Director
(cid:120)
(cid:120) Hugh C. Lane, Jr., Chairman of the Board
(cid:120) Douglas H. Sass, Senior Lender/Executive Vice President, Director
Set forth below is an analysis of the objectives of our compensation program, the material compensation policy made under this program
and the material factors that the Compensation Committee considers in making those decisions.
Overview of Compensation Program
The Compensation Committee of the Board of Directors, which consists solely of independent Directors, has the responsibility for
developing, implementing and monitoring adherence to our compensation philosophies and program. Our compensation program is based
upon the following philosophies:
(cid:120)
(cid:120)
(cid:120)
preserve the financial strength, safety and soundness of the Company and the Bank;
reward and retain key personnel by compensating them in the midpoint salary ranges at comparable financial institutions and
making them eligible for the Employee Stock Ownership Plan and Trust (“ESOP”) and the Omnibus Stock Incentive Plans; and
focus management on maximizing earnings while managing risk by maintaining high asset quality, managing interest rate risk
within Board guidelines, emphasizing cost control, and maintaining appropriate levels of capital.
Our primary forms of compensation for Executive Officers include base salary, the ESOP, and the 1998 and 2010 Omnibus Stock Incentive
Plans.
Base Salary
The Compensation Committee sets the base salary for the three Executive Officers. The Committee’s objectives are:
(cid:120)
(cid:120)
to encourage the achievement of our long-range objectives by providing compensation that reflects the performance of the
individual and the achievement of our objectives. The level of compensation shall be reasonable based upon our goals and
objectives, normal and customary levels of compensation within the banking industry (taking into consideration geographic and
competitive factors), our asset quality, capital level, operations and profitability, and the duties performed and responsibilities held
by the individual.
to establish compensation guidelines that will attract and retain qualified personnel through an overall level of compensation
opportunity that is competitive within the banking industry.
The following table sets forth all remuneration paid during the years ended December 31, 2016, 2015, and 2014 by the Bank to the
Chairman of the Board of Directors and the two Executive officers of the Company and the Bank whose cash remuneration from the Bank
exceeded $100,000.00 dollars for their services in all capacities. Such Executive Officers receive no compensation from the Company as
Executive Officers or as Directors or in any other capacity.
18
Name
and
Principal
Position
Hugh C. Lane,
Jr., Chairman of
the Board,
Retired
President and
Chief Executive
Officer
Fleetwood S.
Hassell
President/Chief
Executive
Officer
Douglas H. Sass,
Senior
Lender/Executive
Vice President
SUMMARY COMPENSATION TABLE
Year
Salary (1)
Bonus
(2)
Stock
Awards
(3)
Option
Awards
(4)
Non-Equity
Incentive Plan
Compensation
Nonqualified
Deferred
Compensation
Earnings
All
Other
Compensation
(5)
Total
2016
2015
2014
$240,002.41
$240,002.41
$240,002.41
$15,100.00
$15,100.00
$15,100.00
2016
2015
2014
$231,127.45
$215,673.26
$200,001.38
$15,100.00
$15,100.00
$15,100.00
2016
2015
2014
$161,471.55
$150,675.80
$139,706.42
$12,600.00
$15,100.00
$15,100.00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$17,542.21
$16,305.15
$16,148.11
$272,644.62
$271,407.56
$271,250.52
$16,931.92
$14,750.12
$13,616.03
$263,159.37
$245,523.38
$228,717.41
$11,970.10
$10,595.74
$9,799.32
$186,041.65
$176,371.54
$164,604.74
1) The Compensation Committee consisting of Graham M. Eubank, Jr., Alan I. Nussbaum, and William L. Hiott, Jr. compare salaries
for similar positions at similar sized banks within South Carolina as well as the overall bank and individual performance. Once the
salary levels are established by the Compensation Committee, the salaries are recommended to the Board of Directors for approval.
(See “Compensation Committee” for further discussion.) The Compensation Committee recommended and the Board of Directors
approved a $10,000 increase in salary for the Chairman of the Board, a $17,334 increase in the salary of the President/Chief
Executive Officer and a $12,110 increase in salary for the Senior Lender/Executive Vice President for the year ended December 31,
2017. The Board of Directors approved this recommendation on December 15, 2016. The Compensation Committee recommended
and the Board of Directors approved a $16,125 increase in the salary of the President/Chief Executive Officer and an $11,265
increase in salary for the Senior Lender/Executive Vice President for the year ended December 31, 2016. The Board of Directors
approved this recommendation on December 17, 2015. The Compensation Committee recommended and the Board of Directors
approved a $15,000 increase in the salary of the President/Chief Executive Officer and a $10,500 increase in salary for the Senior
Lender/Executive Vice President for the year ended December 31, 2015. The Board of Directors approved this recommendation on
December 18, 2014. The Compensation Committee recommended and the Board of Directors approved a $15,000 increase in the
salaries of all Executive Officers for the year ended December 31, 2014. This recommendation was approved by the Board of
Directors December 19, 2013.
2) The bonus consists of a $100 bonus presented to all employees at Christmas for the years ended December 31, 2014, 2015 and 2016.
In addition to the $100 bonus, the Executive Officers also received a $15,000 bonus in 2014 and 2015. In 2016, in addition to the
$100 bonus, the Chairman of the Board and the President/Chief Executive Officer received a $15,000 bonus and the Senior
Lender/Executive Vice President received a bonus of $12,500. The bonuses were recommended by the Compensation Committee
and approved by the Board of Directors for the outstanding performance of the Company.
3) We did not issue any stock awards to our Executive Officers during the years ended December 31, 2016, 2015 or 2014.
4) No options were granted to any Executive Officer during the years ended December 31, 2016, 2015 or 2014.
5) On November 2, 1989, the Bank adopted an ESOP to provide retirement benefits to eligible employees for long and faithful service.
The other compensation represents the amount contributed to the Bank’s ESOP. (See table and discussion below for other
compensation.)
The median salary for all employees other than the Executive Officers was $53,338.
19
Employee Stock Ownership Plan and Trust Agreement
Eugene H. Walpole, IV, Fleetwood S. Hassell, Sheryl G. Sharry and Douglas H. Sass currently serve as Plan Administrators and as Trustees
for the ESOP. Any employee of the Bank is eligible to become a participant in the ESOP upon reaching 21 years of age and credited with
one-year of service (1,000 hours of service). The employee may enter the Plan on the January 1st that occurs nearest the date on which the
employee first satisfies the age and service requirements described above. No contributions by employees are permitted. The amount and
time of contributions to the Plan are at the sole discretion of the Board of Directors. The contribution for all participants is based solely on
each participant's respective regular or base salary and wages paid by the Bank including commissions, bonuses and overtime, if any.
The Board of Directors approved the contribution of $345,000 to the ESOP for the fiscal year ended December 31, 2016. The contribution
was made during 2016.
A participant becomes vested in the ESOP based upon the employee’s credited years of service. The vesting schedule is as follows;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
1 Year of Service
2 Years of Service
3 Years of Service
4 Years of Service
5 Years of Service
0% Vested
25% Vested
50% Vested
75% Vested
100% Vested
The Plan became effective as of January 1, 1989, was amended effective January 1, 2007, and approved by the Board of Directors on
January 18, 2007. This amendment was made to comply with the Pension Protection Act of 2006. Periodically the Internal Revenue
Service (“IRS”) requires a restatement of a qualified retirement plan to ensure that the plan document includes provisions required by
legislative and regulatory changes made since the last restatement. There have been no substantive changes to the plan. The Board of
Directors approved a restated plan, on January 26, 2012 (incorporated as Exhibit 10.5 in the 2011 10-K). The Plan was submitted to the IRS
for approval and a determination letter was issued September 26, 2013, stating that the plan satisfies the requirements of Code Section 4975
(e) (7). On January 26, 2017, the Board of Directors approved a restated plan (incorporated as Exhibit 10.6 in the 2016 10-K).
The Plan currently owns 335,604 shares or 6.763% of our common stock outstanding.
The following table sets forth details of “All Other Compensation” as presented above in the Summary Compensation Table.
Name
Hugh C. Lane, Jr.
Fleetwood S. Hassell
Douglas H. Sass
Employee Stock Ownership Plan
$17,542.21
$16,931.92
$11,970.10
Total
$17,542.21
$16,931.92
$11,970.10
Omnibus Stock Incentive Plan
On April 14, 1998, the Shareholders approved the 1998 Omnibus Stock Incentive Plan. The plan was established to assist us in recruiting
and retaining employees with ability and initiative by enabling employees to participate in its future success and to associate their interests
with those of the Company and the Shareholders. This plan expired on April 14, 2008. The remaining outstanding options granted under
this plan can still be exercised in accordance with the plan.
The Shareholders approved the 2010 Omnibus Stock Incentive Plan on April 13, 2010. Like the 1998 Plan, under the 2010 Plan any
employee of the Company or the Bank is eligible to participate in the Plan if the Executive Committee, in its sole discretion, determines that
such a person has contributed or can be expected to contribute to the profits or growth of the Company or the Bank. No member of the
Committee may participate in this Plan during the time that their participation would prevent the Committee from being “disinterested” for
purposes of the Securities and Exchange Commission Rule 16b-3.
20
The following information with respect to the outstanding equity awards as of December 31, 2016, is presented for the named Executive
Officers with additional discussion below.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2016 (CONTINUED)
OPTION AWARDS
Name
(a)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b)
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c)
Option
Exercise
Price (#)
(e)
Option
Expiration
Date
(f)
Number of
Shares of
Units of
Stock That
Have Not
Vested (#)
(g)
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
(d)
STOCK AWARDS
Market
Equity
Value of
Incentive
Shares or
Plan
Units of
Awards:
Stock
Number
That
of
Have Not
Unearned
Vested
Shares,
($)
Units or
(h)
Other
Rights
That
Have Not
Vested (#)
(i)
Equity
Incentive
Plan
Awards:
Market or
Payout
Value or
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
(#)
(j)
Hugh C.
Lane, Jr.
Fleetwood S.
Hassell
Douglas H.
Sass
-
-
-
-
-
8,800
4,400
5,500
-
-
-
-
-
$9.47
$9.47
$10.10
-
June 23,
2021
June 23,
2021
June 28,
2022
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
In the event of a prospective reorganization, consolidation or sale of substantially all of the assets or any other form of corporate
reorganization in which the Company would not be the surviving entity or in the event of the acquisition, directly or indirectly, of the
beneficial ownership of 24% of our common stock or the making, orally or in writing, of a tender offer for, or any request or invitation for
tender of, or any advertisement making or inviting tenders of our stock by any person, all options in effect at that time would accelerate so
that all options would become immediately exercisable and could be exercised within one-year immediately following the date of
acceleration but not thereafter.
In the case of termination of employment of an option holder other than involuntary termination without just cause, retirement, death or
legal disability, the option holder may exercise the option only with respect to those shares of common stock as to which he or she has
become vested. The option holder may exercise the option with respect to such shares no more than 30 days after the date of termination of
employment (but in any event prior to the expiration date).
In the event that the option holder's employment is terminated without just cause, the option shall become fully vested and fully exercisable
as of the date of his or her termination without regard to the five year vesting schedule. The option holder may exercise the option
following an involuntary termination without just cause until the expiration date of the option.
In the event the option holder remains in the continuous employ of the Company or any subsidiary from the date of the grant until the option
holder's retirement, the option shall become fully vested and fully exercisable as of the date of his or her retirement without regard to the
five year schedule. The option holder may exercise the option following his or her retirement until the expiration date.
In the event the option holder remains in the continuous employ of the Company or a subsidiary from the date of the grant until his or her
death, the option shall become fully vested and fully exercisable as of the date of death without regard to the five year vesting schedule. The
person or persons entitled to exercise the option following the option holder's death may exercise the option until the expiration date.
In the event the option holder remains in the continuous employ of the Company or any subsidiary from the date of the grant until the date
of his or her legal disability, the option shall become fully vested and fully exercisable as of the date of his or her termination of
employment on account of his or her legal disability without regard to the five year vesting schedule. The option holder may exercise the
option following such termination of employment until the expiration date.
The 1998 and 2010 Omnibus Stock Incentive Plan provides for adjustment in the number of shares of common stock authorized under the
Plan or granted to an employee to protect against dilution in the event of changes in the Company's capitalization, including stock splits and
dividends.
21
As shown below Fleetwood S. Hassell, President/Chief Executive Officer exercised options to purchase 2,200 shares at $9.47 on September
13, 2016. The price per share on the date of exercise was $17.50. Douglas H. Sass exercised options to purchase 1,100 shares at $9.47 on
June 23, 2016. The price per share on the date of exercise was $15.95.
Name
(a)
2016 OPTION EXERCISES AND STOCK VESTED
OPTION AWARDS
STOCK AWARDS
Number of Shares
Acquired on
Exercise
(#)
(b)
Value Realized on
Exercise
($)
(c)
Number of Shares
Acquired on
Vesting (#)
(d)
Value Realized on
Vesting
($)
(e)
Hugh C. Lane, Jr.
Fleetwood S. Hassell
Douglas H. Sass
-
2,200
1,100
-
17,666
7,128
-
-
-
-
-
-
Equity Compensation Plan Information
The following table summarizes the total outstanding options and the weighted-average exercise price of the Company’s equity
compensation Plan as of December 31, 2016 (as adjusted for a 10% stock dividend declared August 27, 2015):
Plan Category
1998 Omnibus
Stock Incentive
Plan approved by
Shareholders
2
2010 Omnibus
Stock Incentive
Plan approved by
Shareholders3
Total
Number of Securities to be
Issued Upon Exercise of
Outstanding Options
Warrants and Rights
Weighted-Average Exercise
Price of Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans 1
7,650
$12.91
133,255
140,905
$10.95
$11.06
-
130,458
130,458
1
2
3
In accordance with the 1998 Omnibus Stock Incentive Plan, options are no longer granted under this Plan. This Plan expired April 14,
2008. Options granted before this date shall remain valid in accordance with their terms.
The number of securities to be issued upon exercise of the outstanding options represents the total outstanding options under the 1998
Omnibus Stock Incentive Plan. As per the agreement, the above options shall remain valid in accordance with their terms.
The 2010 Omnibus Stock Incentive Plan was approved by the Shareholders at the 2010 Annual Meeting. There were 330,000 shares
reserved under this Plan. On September 24, 2010, options to purchase 36,300 shares were granted to 21 employees (other than
Executive Officers) with options to purchase 825 shares forfeited with the resignation of one employee in 2010. On March 24, 2011,
options to purchase 5,500 shares were granted to 1 employee and on June 23, 2011, options to purchase 105,600 shares were granted to
22 employees including Sheryl G. Sharry, and Fleetwood S. Hassell, both Executive Officers who each received options to purchase
11,000 shares. Douglas H. Sass, Executive Vice President, also received options on June 23, 2011, to purchase 5,500 shares. During
the year ended December 31, 2011, options to purchase 6,325 shares were forfeited with the resignation of 2 employees. On June 28,
2012, the Executive Committee granted options to purchase 9,900 shares to 5 employees including Douglas H. Sass, Executive Vice
President, who received options to purchase 5,500 shares. In addition, the Board of Directors granted options to purchase 2,750 shares
to 1 employee on September 24, 2012. Options to purchase 4,400 shares were forfeited during the year ended December 31, 2012
(3.025 had been issued under the 1998 Plan) with the resignation of 3 employees. On June 27, 2013, options to purchase 5,500 shares
were granted to 5 employees. Options to purchase 2,200 shares were granted to 3 employees on December 19, 2013. Options to
purchase 10,618 (1,815 issued under the 1998 Plan) shares were forfeited during the year ended December 31, 2013, with the
resignation of 10 employees. On July 24, 2014, options to purchase 11,000 shares were granted to 12 employees. Options to purchase
7,150 shares were forfeited during the year ended December 31, 2014, with the resignation of 5 employees. On April 23, 2015 options
to purchase 20,350 shares were granted to 9 employees and options to purchase 3,300 shares were granted on June 29, 2015. Options
to purchase 7,150 shares were forfeited during the year ended December 31, 2015. (all shares have been adjusted to reflect a 10% stock
22
dividend declared August 27, 2015). On March 24, 2016, options to purchase 10,000 shares were granted to 2 employees and options
to purchase 12,858 shares were forfeited during 2016.
During the fiscal year ended December 31, 2016, we had no plans or arrangements pursuant to which any Executive Officer, Director or
principal Shareholder received contingent remuneration or personal benefits other than the contingent remuneration and life, disability,
dental and health insurance benefits. Life, disability, dental and health insurance benefits are available for all employees of the Bank who
work at least 30 hours a week. Benefit programs provided to Executive Officers, officers and employees are listed in the table below.
Benefit Plan
Executive
Officers
Officers
Full Time
Employees
Employee Stock Ownership Plan
Medical and Dental Plans
Life and Disability Plans
Stock Option Plans
x
x
x
x
x
x
x
x
x
x
x
x
We do not have an employment agreement with any officer or employee. We currently believe that the named Executive Officers receive
sufficient compensation that employment agreements are not necessary to induce them to remain with the Company. In addition, we do not
have any agreement with the Company’s Executive Officers that provide for cash severance payments upon termination of employment or
in connection with a change in control.
Although there is inherent risk in the business of banking, we do not believe that any of our compensation policies and practices provide
incentives to our employees to take risks that are reasonably likely to have a material adverse effect on us. We believe that our
compensation policies and practices are consistent with those of similar bank holding companies and their banking subsidiaries and are
intended to encourage and reward performance that is consistent with sound practice in the industry.
PROPOSAL 2: TO RATIFY THE APPOINTMENT BY THE AUDIT AND COMPLIANCE COMMITTEE OF THE
COMPANY’S BOARD OF DIRECTORS OF ELLIOTT DAVIS DECOSIMO, LLC AS THE COMPANY’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDED DECEMBER 31, 2017.
The Audit and Compliance Committee of the Board of Directors has appointed Elliott Davis Decosimo, LLC as our independent accounting
firm for the year ended December 31, 2017, and that appointment is being submitted to Shareholders for ratification. The appointment of
Elliott Davis Decosimo, LLC as independent public accountants was approved by the Audit and Compliance Committee of the Board of
Directors and ratified by the Shareholders at the 2016 and 2015 annual Shareholders’ Meetings. At the 2017 Annual Shareholders’ Meeting
the following resolution will be subject to ratification by a simple majority vote of shares represented at the meeting:
RESOLVED, that the selection of Elliott Davis Decosimo, LLC as the independent certified public accountants of Bank of South
Carolina Corporation (the "Company") and its sole subsidiary, The Bank of South Carolina (the "Bank"), for the fiscal year ending
December 31, 2017, is hereby ratified.
If ratification is not achieved, the selection of an independent certified public accountant will be reconsidered and made by the Board of
Directors. Even if selection is ratified, the Board of Directors reserves the right to, and in its discretion may, direct the appointment of any
other independent certified public accounting firm at any time if the Board of Directors decides that such a change would be in the best
interests of the Company and our Shareholders.
Independent Registered Public Accounting Firm
Auditing and Related Fees
The services provided by Elliott Davis Decosimo, LLC include the audit of the financial statements of the Company. These services have
been furnished at customary rates and terms. There are no existing direct or indirect agreements or understandings that fix a limit on current
or future fees for these audit services.
Elliott Davis Decosimo, LLC assisted in the preparation of the Company’s and Bank’s tax returns for the fiscal years ending December 31,
2016 and 2015. These non-audit services were routine in nature and did not compose more than 25% of the total fees paid to Elliott Davis
Decosimo, LLC in 2016 or 2015.
A representative of Elliott Davis Decosimo, LLC is expected to attend the Annual Meeting of Shareholders with the opportunity to make a
statement, if desired, and is expected to be available to respond to appropriate questions.
23
Before the independent certified public accountants of the Company and the Bank are engaged to render non-audit services for the
Company or the Bank, each engagement is approved by the Audit and Compliance Committee. All of the audit and tax services
provided by Elliott Davis Decosimo, LLC for the fiscal year ending December 31, 2016 and 2015 were preapproved by the Audit and
Compliance Committee.
Audit Fees
Audit related fees
Total audit and
related fees
Tax Fees
Total Fees
$
$
2016
86,100 $
-
86,100
12,300
98,400 $
2015
84,450
-
84,450
9,850
94,300
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF
THE APPOINTMENT OF ELLIOTT DAVIS DECOSIMO, LLC AS THE COMPANY’S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2017.
PROPOSAL 3: TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
AND ANY ADJOURNMENT OR POSTPONEMENT OF THE MEETING.
We are not aware of any matters to come before the meeting that will require the vote of Shareholders other than those matters
indicated in the Notice of Meeting and this Proxy Statement.
However, if any other matter calling for Shareholder action should properly come before the meeting or any adjournments thereof,
those persons named as Proxies in the enclosed Proxy Form will vote thereon according to their best judgment.
In the opinion of Management, there are no legal proceedings pending other than routine litigation incidental to our business involving
amounts which are not material to the financial condition of the Company or the Bank.
PENDING LITIGATION
ANNUAL REPORT
The Annual Report for the fiscal year ended December 31, 2016, filed with the Securities and Exchange Commission on Form 10-K, is
mailed herewith to all Shareholders.
SHAREHOLDER PROPOSALS FOR THE 2018 ANNUAL SHAREHOLDERS’ MEETING
Shareholder proposals, if any, for inclusion in the Proxy Statement relating to the 2018 Annual Shareholders’ meeting, must be
addressed to and received in the office of the President no later than December 1, 2017. To ensure prompt receipt by the Company, the
proposal should be sent certified mail, return receipt requested.
By Order of the Board of Directors
/s/Richard W. Hutson, Jr.
Richard W. Hutson, Jr., Secretary
March 3, 2017
24
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]
[ ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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: U0-27702U
BANK OF SOUTH CAROLINA CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina
(State or other jurisdiction of
incorporation or organization)
57-1021355
(IRS Employer
Identification Number)
256 Meeting Street, Charleston, SC
(Address of principal executive offices)
29401
(Zip Code)
Issuer's telephone number: (843) 724-1500
Securities registered under Section 12(b) of the Exchange Act:
Common Stock
(Title of Class)
Securities registered under Section 12(g) of the Exchange Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes X No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
____ Yes X No
Indicate by check mark whether the registrant (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 X No ____
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 a shorter period that the registrant was required to submit and post such files).
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment to this Form 10-K.
____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
Large accelerated filer ___ Accelerated filer ___ Non-accelerated filer ___ Smaller reporting company X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
Aggregate market value of the voting stock held by non-affiliates, computed by reference to the closing price of such stock on June 30,
2016 was: $51,069,297
As of February 23, 2017, the Registrant has outstanding 4,962,189 shares of common stock.
BANK OF SOUTH CAROLINA CORPORATION
AND SUBSIDIARY
Table of Contents
PART I
Page
Item 1. Business ................................................................................................................................ 4
Item 1A. Risk Factors ......................................................................................................................... 12
Item 1B. Unresolved Staff Comments ............................................................................................... 12
Item 2. Properties ............................................................................................................................ 12
Item 3. Legal Proceedings ............................................................................................................... 12
Item 4. Mine Safety Disclosures ..................................................................................................... 12
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities ........................................................................ 13
Item 6. Selected Financial Data ...................................................................................................... 16
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations ................................................................................ 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................................ 35
Item 8. Financial Statements and Supplementary Data ................................................................... 36
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure ......................................................................................................... 81
Item 9A. Controls and Procedures ..................................................................................................... 81
Item 9B. Other Information ................................................................................................................ 82
PART III
Item 10. Directors, Executive Officers, and Corporate Governance................................................. 82
Item 11. Executive Compensation .................................................................................................... 82
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ......................................................................................................... 84
Item 13. Certain Relationships and Related Transactions, and Director Independence ................... 84
Item 14. Principal Accounting Fees and Services ............................................................................. 84
Item 15. Exhibits and Financial Statement Schedules ...................................................................... 84
PART IV
2
PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report, including information included or incorporated by reference in this document, contains statements which
constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1934. We desire to take
advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1996 and are including this
statement for the express purpose of availing the Company of protections of such safe harbor with respect to all “forward-
looking statements” contained in this Form 10-K. Forward-looking statements may relate to, among other matters, the financial
condition, results of operations, plans, objectives, future performance, and business of our Company. Forward-looking
statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may
differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which
we are unsure, including many factors that are beyond our control. The words “may,” “would,” “could,” “should,” “will,”
“expect,” “anticipate,” “predict,” “project,”, “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,”
and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and
uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements
include, without limitations, those described under the heading “Risk Factors” in this Annual Report on Form 10-K for the
year ended December 31, 2016 as filed with the Securities and Exchange Commission (the “SEC”) and the following:
(cid:120) Risk from changes in economic, monetary policy, and industry conditions
(cid:120) Changes in interest rates, shape of the yield curve, deposit rates, the net interest margin and funding sources
(cid:120) Market risk (including net income at risk analysis and economic value of equity risk analysis) and inflation
(cid:120) Risk inherent in making loans including repayment risks and changes in the value of collateral
(cid:120) Loan growth, the adequacy of the allowance for loan losses, provisions for loan losses, and the assessment of problem
loans
(cid:120) Level, composition, and re-pricing characteristics of the securities portfolio
(cid:120) Deposit growth, change in the mix or type of deposit products and services
(cid:120) Continued availability of senior management
(cid:120) Technological changes
(cid:120) Ability to control expenses
(cid:120) Changes in compensation
(cid:120) Risks associated with income taxes including potential for adverse adjustments
(cid:120) Changes in accounting policies and practices
(cid:120) Changes in regulatory actions, including the potential for adverse adjustments
(cid:120) Recently enacted or proposed legislation
Much has been done to eliminate or mitigate these risks that have been exacerbated by the developments over the last ten years
in national and international markets. Sweeping reform has entered our industry yet we are unable to fully predict its impact
and perhaps its unintentional consequences for some time. There can be no assurance that these changes will not materially
and adversely affect our business, financial condition and results of operation.
We will undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events. In addition, certain statements in future filings
with the SEC, in our press releases, and in oral and written statements, which are not statements of historical fact, constitute
forward-looking statements.
3
Item 1. Business
General
The Bank of South Carolina (the “Bank”) was organized on October 22, 1986 and opened for business as a state-chartered
financial institution on February 26, 1987, in Charleston, South Carolina. The Bank was reorganized into a wholly-owned
subsidiary of Bank of South Carolina Corporation (the “Company”), effective April 17, 1995. At the time of the
reorganization, each outstanding share of the Bank was exchanged for two shares of Bank of South Carolina Corporation
Stock.
Market Area
The Bank operates as an independent, community oriented, commercial bank providing a broad range of financial services and
products. We have four banking house locations: 256 Meeting Street, Charleston, SC, 100 North Main Street, Summerville,
SC, 1337 Chuck Dawley Boulevard, Mt. Pleasant, SC and 2027 Sam Rittenberg Boulevard, Charleston, SC. We intend to
open a banking office in North Charleston, SC on Highway 78 and Ingleside Boulevard in the future (copy of the lease
incorporated as Exhibit 10.8 in the 2013 10-K and copy of the Assignment and Assumption of Lease incorporated as Exhibit
10.9, First Amendment to the Lease incorporated as Exhibit 10.10 and Second Amendment to the Lease incorporated as
Exhibit 10.11 in the 2015 10-K).
The primary economic drivers of our market area are tourism, manufacturing and medical services. In addition, we have one
of the busiest container ports in the United States as well as a Boeing plant in North Charleston, SC. In October 2009, Boeing
selected a site in North Charleston SC, for a 787 Dreamliner final assembly and delivery line. Boeing South Carolina has
added the IT Centers of Excellence, Engineering Design Center, Boeing Research & Technology Center and Propulsion South
Carolina to its North Charleston campus and added a painting facility in 2016. Future development in our market area includes
both a Volvo and Mercedes plant.
References to “we,” “us,” “our,” “the Bank,” or “the Company” refer to the parent and its subsidiary, that are consolidated for
financial purposes.
The Company (“BKSC”) is publicly traded on the National Association of Securities Dealers Automated Quotations
(“NASDAQ”), and is under the reporting authority of the SEC. All of our electronic filings with the SEC, including our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are accessible at no cost on our website,
http://www.banksc.com, through the “Investor Relations” link. Our filings are also available through the SEC’s web site at
http://www.sec.gov or by calling 1-800-SEC-0330.
Competition
The financial services industry is highly competitive. We face competition in attracting deposits and originating loans based
upon a variety of factors including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
interest rates offered on deposit accounts
interest rates charged on loans
credit and service charges
the quality of services rendered
the convenience of banking facilities and other delivery channels
in the case of loans, relative lending limits and
technology
We compete with commercial banks, savings institutions, finance companies, credit unions and other financial services
companies. Many of our larger commercial bank competitors have greater name recognition and offer certain services that we
do not. However, we believe that we have developed an effective competitive advantage in our market area that includes
Charleston, Berkeley and Dorchester counties of South Carolina by emphasizing our exceptional service levels, and knowledge
of local trends and conditions.
4
Lending Activities
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic
markets and typically require a personal guarantee. Our primary lending activities are commercial real estate, one-to-four-
family residential mortgage loans, commercial business loans and home equity loans and lines of credit. Our largest category
of loans is commercial real estate. Most loans are to borrowers located in our market area of Charleston, Dorchester and
Berkeley Counties of South Carolina.
Commercial Real Estate Loans
At December 31, 2016, $123.0 million, or 47.19%, of our loan portfolio consisted of commercial real estate loans, excluding
commercial construction loans. Properties securing our commercial real estate loans are primarily comprised of business
owner-occupied properties, small office buildings and office suites, and income-producing real estate.
In the underwriting of commercial real estate loans, we generally lend up to the lesser of 80% of the appraised value or the
purchase price of the property. We base our decision to lend primarily on the economic viability of the property and the
creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we emphasize the ratio of the
property’s projected net cash flow to the loan’s debt service requirement computed after deduction for an appropriate vacancy
factor and reasonable expenses. We typically require property casualty insurance, title insurance, earthquake insurance,
casualty insurance, and, if appropriate, flood insurance, in order to protect our security interest in the underlying property.
Commercial real estate loans generally carry higher credit risks, as they typically involve larger loan balances concentrated
with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing
properties typically depends on the successful operation of the property, as repayment of the loan generally is dependent, in
large part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic
conditions not within the control of the borrower or lender could affect the value of the underlying collateral or the future cash
flow of the property.
Commercial Loans
At December 31, 2016, $52.3 million, or 20.06%, of our loan portfolio consisted of commercial loans. We originate various
types of secured and unsecured commercial loans to customers in our market areas in order to provide customers with working
capital and for other general business purposes. The terms of these loans generally range from less than one year to a
maximum of 10 years. These loans bear either a fixed interest rate or an interest rate linked to a variable market index.
Commercial credit decisions are based upon our credit assessment of each applicant. We evaluate the applicant’s ability to
repay in accordance with the proposed terms of the loan and we assess the risks involved. In addition to evaluating the
applicant’s financial statements, we consider the adequacy of the primary and secondary sources of repayment for the loan.
Credit agency reports of the applicant’s personal credit history supplement our analysis of the applicant’s creditworthiness. In
addition, collateral supporting a secured transaction is analyzed to determine its marketability. Commercial business loans
generally have higher interest rates than residential loans of similar duration because they have a higher risk of default with
repayment generally depending on the successful operation of the borrower’s business and the sufficiency of any collateral.
One-to-Four-Family Residential Loans
One-to-four family residential loans were $30.7 million, or 11.78% of the loan portfolio at December 31, 2016. One-to-four
family residential loans consist primarily of loans secured by first or second mortgages on primary residences, and are
originated as adjustable-rate or fixed-rate loans for the purchase or refinancing of a mortgage. These loans are collateralized by
owner-occupied properties located in the Company's market area. The Company currently originates residential mortgage loans
for our portfolio with loan-to-value ratios of up to 80% for traditional owner-occupied homes.
5
Home Equity Loans and Lines of Credit
At December 31, 2016, $41.6 million, or 15.99% of our loan portfolio consisted of home equity loans and lines of credit. In
addition to traditional one-to-four-family residential mortgage loans, we offer home equity loans and lines of credit that are
secured by the borrower’s primary or secondary residence. Our home equity loans and lines of credit are currently originated
with adjustable rates of interest, with a floor. Home equity loans and lines of credit are generally underwritten with the same
criteria that we use to underwrite one-to-four-family residential mortgage loans. For a borrower’s primary residence, home
equity loans and lines of credit are typically underwritten with a loan-to-value ratio of 80% when combined with the principal
balance of the existing mortgage loan, while the maximum loan-to-value ratio on secondary residences is 70% when combined
with the principal balance of the existing mortgage loan. We require a current appraisal or internally prepared real estate
evaluations on home equity loans and lines of credit. At the time we close a home equity loan or line of credit, we record a
mortgage to perfect our security interest in the underlying collateral.
Construction Loans
At December 31, 2016, our portfolio included $4.8 million of one-to-four-family residential construction loans or 1.83% of our
loan portfolio. Other construction loans comprised $1.2 million, or 0.46% of our loan portfolio. We make construction loans
to owner-occupiers of residential properties, and to businesses for commercial properties. Advances on construction loans are
made in accordance with a schedule reflecting the cost of construction, but are generally limited to 80% loan-to-value ratio
based on the appraised value upon completion. Repayment of construction loans on non-residential properties is normally
attributable to rental income, income from the borrower’s operating entity or the sale of the property. Repayment of loans on
income-producing property is normally scheduled following completion of construction, when permanent financing is
obtained. Construction loans are interest-only during the construction period, which typically does not exceed 12 months and
are often paid-off with permanent financing.
Before making a commitment to fund a construction loan, we require an appraisal of the property by a state-certified or state-
licensed appraiser. We review and inspect properties before disbursement of funds during the term of the construction loan.
Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property
at completion of construction compared to the estimated cost (including interest) of construction and other assumptions.
Construction loans also expose us to risk that improvements will not be completed on time in accordance with specifications
and projected costs.
Consumer Loans
Consumer loans totaled $7.0 million and were 2.69% of the loan portfolio at December 31, 2016. These loans are originated
for various consumer purposes, including the purchase of automobiles, boats, and for other legitimate personal purposes. These
loans generally have relatively low balances.
Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that
are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal
circumstances. The application of various federal and state laws, including bankruptcy and insolvency laws, may also limit the
amount which can be recovered on such loans.
Mortgage Loan Originations
All residential loans that we originate are underwritten pursuant to our policies and procedures. We originate both adjustable-
rate and fixed-rate loans. Our loan origination and sales activity may be adversely affected by a rising interest rate
environment that typically results in decreased loan demand.
6
Loan Approval Procedures and Authority
Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established
by the Board of Directors of the Bank. The loan approval process is intended to assess the borrower’s ability to repay the loan
and value of the collateral that will secure the loan. To assess the borrower’s ability to repay, we review the borrower’s
employment, credit history, and information on the historical and projected income and expenses of the borrower.
The objectives of our lending program are to:
1. Establish a sound asset structure.
2. Provide a sound and profitable loan portfolio to:
a) Protect the depositor’s funds
b) Maximize the shareholders’ return on their investment
3. Promote the stable economic growth and development of the market area served by the Bank.
4. Comply with all Regulatory Agency requirements and applicable law.
The individual secured/unsecured lending authority of the President/Chief Executive Officer of the Bank is set at $1,000,000
and the individual secured/unsecured lending authority of the Senior Lender/Executive Vice President is set at $500,000. The
President/Chief Executive Officer of the Bank and the Senior Lender/Executive Vice President may jointly lend up to 10% of
the Bank’s unimpaired capital for the previous quarter end. In the absence of either of the above, the other may, jointly with
the approval of either the Chairman of the Board of Directors or a majority of the Loan Committee of the Board of Directors,
lend up to 10% of the Bank’s unimpaired capital for the previous quarter end. The Board of Directors, with two-thirds vote,
may approve the aggregate credit in excess of this limit but may not exceed 15% of the Bank’s unimpaired capital.
The Senior Lender/Executive Vice President may establish the unsecured loan authority of the individual loan officers of the
Bank not to exceed $100,000 and secured loan authority not to exceed $250,000. With the concurrence of the President/Chief
Executive Officer, the Senior Lender/Executive Vice President may approve unsecured lending authority of individual lending
officers up to $250,000. Loan limits apply to the total direct and indirect liability of the borrower. All loans above the loan
officer’s authority must have the approval of a loan officer with the authority to approve a loan of that amount. Pooling of
loan authority is not allowed except as outlined above for the President/Chief Executive Officer, Senior Lender/Executive Vice
President and a majority of the Loan Committee or two-thirds of the Board of Directors.
Every new and renewed loan is graded according to a loan rating matrix and assigned a risk rating of excellent, good,
satisfactory, watch, OAEM, substandard, doubtful, or loss based on cash flow, collateral, guarantor, financial condition,
management, operating performance, financial statements, loan performance, leverage, and debt service coverage. A weighted
average method is used to compute the rating with cash flow, financial condition, and debt service being weighted three times,
and financial statements being weighted two times the amount of the other factors. When a loan rating is between (and
including) 3.5 and 4.4, it is placed on the watch list. When the rating is 4.5 or higher, it is placed on the classified loan list in
the appropriate risk grade. The ratings are included on the loan summary, when applicable, and are reviewed by the
President/Chief Executive Officer and Senior Loan Officer/Executive Vice President.
All new credit which results in aggregate direct, indirect, and related credit, not under an approved line of credit, of $200,000
or more, with the exceptions of mortgage loans in the process of being sold to investors and loans secured by properly
margined negotiable securities traded on an established market or other cash collateral, are reviewed in detail on a monthly
basis by the Loan Committee. Those new credits which result in aggregate direct, indirect and related credit, not under an
approved line of credit, of $500,000 or more are reported to the Board of Directors at its regular monthly meeting.
Employees
At December 31, 2016, we employed 74 people, with two individuals considered part time, none of whom are subject to a
collective bargaining agreement. We provide a variety of benefit programs including an Employee Stock Ownership Plan and
Trust, Stock Incentive Plan, health, life, disability and other insurance. We believe our relationship with our employees is
excellent.
7
Supervision and Regulation
We are subject to extensive state and federal banking laws and regulations that impose specific requirements or restrictions and
provide for general regulatory oversight of virtually all aspects of operations. The regulations are primarily intended to protect
depositors, customers, and the integrity of the U.S. banking system and capital markets. The following information describes
some of the more significant laws and regulations applicable to us. The description is qualified in its entirety by reference to
the applicable laws and regulations. Proposals to change the laws and regulations governing the banking industry are
frequently raised in Congress, in state legislatures, and with the various bank regulatory agencies. Changes in applicable laws
or regulations, or a change in the way such laws or regulations are interpreted by regulatory agencies or courts, may have a
material impact on our business operations and earnings.
Dodd-Frank Act
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became
effective. This law has broadly affected the financial services industry by implementing changes to the financial regulatory
landscape aimed at strengthening the sound operation of the financial services industry, and will continue to significantly
change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of
financial institutions and their holding companies, including the Company and the Bank. Under the Dodd-Frank Act a broad
range of new rules and regulations by various federal agencies have been implemented, and further rulemaking must be
proposed and adopted which will take effect over several years. Although we have already experienced some decrease in
revenue because of the rules implemented under the Dodd-Frank Act, the overall financial impact the Act will have on the
Company, our customers, or the financial industry in general remains difficult to anticipate.
The Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”) as an agency to centralize responsibility
for consumer financial protection, including implementing, examining and enforcing compliance with federal consumer
financial laws. The CFPB has begun exercising supervisory review of banks under its jurisdiction. The CFPB is expected to
focus its rulemaking in several areas, particularly in the areas of mortgage reform involving the Real Estate Settlement
Procedures Act, the Truth in Lending Act, the Equal Credit Opportunity Act, and the Fair Debt Collection Practices Act;
however, the content of the final rules and impact to our businesses are uncertain at this time. There are many provisions in the
Dodd-Frank Act mandating regulators to adopt new regulations and conduct studies upon which future regulation may be
based. While some have been issued, many remain to be issued. Governmental intervention and new regulations could
materially and adversely affect our business, financial condition and results of operations.
Bank Holding Company Act
The Company is a one-bank holding company under the federal Bank Holding Company Act of 1956, as amended (the “Bank
Holding Company Act”). As a result, the Company is primarily subject to the supervision, examination and reporting
requirements of the Board of Governors of the Federal Reserve (the “Federal Reserve”) under the Bank Holding Company Act
and its regulations promulgated thereunder. Moreover, as a bank holding company located in South Carolina, the Company is
also subject to the regulations of the South Carolina State Board of Financial Institutions.
Capital Requirements
The Federal Reserve Board imposes certain capital requirements on the Company under the Bank Holding Company Act,
including a minimum leverage ratio and minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are
essentially the same as those that apply to the Bank and are described under “Regulatory Capital Requirements” in the notes to
the financial statements. The ability of the Company to pay dividends depends on the Bank’s ability to pay dividends to the
Company, which is subject to regulatory restrictions as described below in “Dividends”.
8
Standards for Safety and Soundness
The Federal Deposit Insurance Act requires the federal banking regulatory agencies to prescribe, by regulation or guideline,
operational and managerial standards for all insured depository institutions relating to (1) internal controls, information
systems and internal audit systems, (2) loan documentation, (3) credit underwriting, (4) interest rate risk exposure, and (5)
asset growth. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards
for compensation, fees, and benefits. The federal banking agencies have adopted regulations and “Interagency Guidelines
Establishing Standards for Safety and Soundness” to implement these required standards. These guidelines set forth the safety
and soundness standards that the federal banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired.
Regulatory Examination
All insured institutions must undergo regular on-site examinations by their appropriate banking agency. The cost of
examinations of insured depository institutions and any affiliates may be assessed by the appropriate banking agency against
each institution or affiliate, as it deems necessary or appropriate. Insured institutions are required to submit annual reports to
the Federal Deposit Insurance Corporation (“FDIC”), their federal regulatory agency, and state supervisor when applicable.
The federal banking regulatory agencies prescribe, by regulation, standards for all insured depository institutions and
depository institution holding companies relating, among other things, to the following:
Internal controls
Information systems and audit systems
Interest rate risk exposure
(cid:120)
(cid:120)
(cid:120) Loan documentation
(cid:120) Credit underwriting
(cid:120)
(cid:120) Asset quality
(cid:120) Liquidity
(cid:120) Capital adequacy
(cid:120) Bank Secrecy Act
(cid:120)
Sensitivity to market risk
Transactions with Affiliates and Insiders
We are subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and
their related interests. Such extensions of credit (1) must be made on substantially the same terms, including interest rates, and
collateral, as those prevailing at the time for comparable transactions with third parties and (2) must not involve more than the
normal risk of repayment or present other unfavorable features.
Dividends
The Company’s principal source of cash flow, including cash flow to pay dividends to its shareholders, is dividends it receives
from the Bank. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Company. As a general
rule, the amount of a dividend may not exceed, without prior regulatory approval, the sum of net income in the calendar year to
date and the retained net earnings of the immediately preceding two calendar years. A depository institution may not pay any
dividend if payment would cause the institution to become undercapitalized or if it already is undercapitalized.
9
Consumer Protection Regulations
Activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers. Interest and other
charges collected by the Bank are subject to state usury laws and federal laws concerning interest rates. Our loan operations
are also subject to federal laws applicable to credit transactions such as:
(cid:120) The federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers
(cid:120) The Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the
public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the
housing needs of the community it serves
Fair Lending Act, fair equitable, and nondiscriminatory access to credit for consumers
(cid:120)
(cid:120) The Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in
extending credit
(cid:120) The Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies
(cid:120) The Fair Debt Collection Act, governing the manner in which consumer debt may be collected by collection agencies
(cid:120) The rules and regulations of the various federal agencies charged with the responsibility of implementing such federal
laws.
The deposit operations of the Bank also are subject to:
(cid:120) The Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of financial records
(cid:120) The Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that Act,
which governs automatic deposits to and withdrawals from deposit and customer’s rights and liabilities arising from
the use of automated teller machines and other electronic banking services
(cid:120) Regulation DD which implements the Truth in Savings Act to enable consumers to make informed decisions about
deposit accounts at depository institutions. Regulation DD requires depository institutions to provide disclosures so
that consumers can make meaningful comparisons among depository institutions.
Enforcement Powers
The Company is subject to supervision and examination by the Federal Reserve and the South Carolina State Board of
Financial Institutions. The Bank is subject to extensive federal and state regulations that significantly affect business and
activities. These regulatory bodies have broad authority to implement standards and to initiate proceedings designed to prohibit
depository institutions from engaging in activities that represent unsafe or unsound banking practices or constitute violations of
applicable laws, rules, regulations, administrative orders, or written agreements with regulators. These regulatory bodies are
authorized to take action against institutions that fail to meet such standards, including the assessment of civil monetary
penalties, the issuance of cease-and-desist orders, and other actions.
10
Bank Secrecy Act/Anti-Money Laundering
We are subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA Patriot Act
of 2001. We must maintain a Bank Secrecy Act Program that includes (1) established internal policies, procedures, and
controls, (2) a designated compliance officer, (3) an ongoing employee training program and, (4) testing of the program by an
independent audit function. The USA Patriot Act, amended, in part, the Bank Secrecy Act and provides for the facilitation of
information sharing among governmental entities and the Company for the purpose of combating terrorism and money
laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection
tools and enforcement mechanics for the US government. These provisions include (a) standards for verifying customer
identification at account opening; (b) rules to promote cooperation among financial institutions, regulators, and law
enforcement entities in identifying parties that may be involved in terrorism or money laundering; (c) reports by nonfinancial
trades and businesses filed with the U.S. Treasury’s Financial Crimes Enforcement Network for transactions exceeding
$10,000; (d) suspicious activities reports by brokers and dealers if they believe a customer may be violating U.S. laws; and (e)
regulations and enhanced due diligence requirements for financial institutions that administer, maintain, or manage private
bank accounts or correspondent accounts for non-U.S. persons. Bank regulators routinely examine institutions for compliance
with these obligations and are required to consider compliance in connection with the regulatory review of applications.
Privacy and Credit Reporting
In connection with our lending activities, we are subject to a number of federal laws designed to protect borrowers and
promote lending to various sectors of the economy and population. These include the Equal Credit Opportunity Act, the Truth-
in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the Community
Reinvestment Act (the "CRA"). In addition, federal banking regulators, pursuant to the Gramm-Leach-Bliley Act, have enacted
regulations limiting the ability of banks and other financial institutions to disclose nonpublic consumer information to non-
affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal
information from being shared with nonaffiliated third parties. The CRA requires the appropriate federal banking agency, in
connection with its examination of a bank, to assess the bank's record in meeting the credit needs of the communities served by
the bank, including low and moderate income neighborhoods. Under the CRA, institutions are assigned a rating of
"outstanding," "satisfactory," "needs to improve," or "substantial non-compliance."
Volcker Rule
Section 619 of the Dodd-Frank Act, known as the “Volcker Rule,” prohibits any bank, bank holding company, or affiliate
(referred to collectively as “banking entities”) from engaging in two types of activities: “proprietary trading” and the
ownership or sponsorship of private equity or hedge funds that are referred to as “covered funds.” Proprietary trading, in
general, is trading in securities on a short-term basis for a banking entity’s own account. In December 2013, federal banking
agencies, the SEC and the Commodity Futures Trading Commission, finalized a regulation to implement the Volcker Rule. At
December 31, 2016, the Company has evaluated our securities portfolio and has determined that we do not hold any covered
funds.
11
Item 1A. Risk Factors
Under the filer category of “smaller reporting company”, as defined in Rule 12b-2 of the Exchange Act, the Company is not
required to provide information requested by Part I, Item 1A of its Form 10-K.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company’s headquarters is located at 256 Meeting Street in downtown Charleston, South Carolina. This site is also the
location of the main office of its subsidiary, The Bank of South Carolina. In addition to the Meeting Street location, the Bank
currently operates from three additional locations: 100 North Main Street, Summerville, SC, 1337 Chuck Dawley Boulevard,
Mount Pleasant, SC, and 2027 Sam Rittenberg Boulevard, Charleston, SC. The Bank’s mortgage department is located at
1071 Morrison Drive, Charleston, SC. On January 28, 2014, we signed a lease to open a banking office on Highway 78 and
Ingleside Boulevard, North Charleston, SC in the future (copy of the lease incorporated as Exhibit 10.8 in the 2013 10-K and
copy of the Assignment and Assumption of Lease incorporated as Exhibit 10.9, First Amendment to the Lease incorporated as
Exhibit 10.10 and Second Amendment to the Lease incorporated as Exhibit 10.11 in the 2015 10-K). The Company owns the
2027 Sam Rittenberg Boulevard location which also houses the Operations Department of the Bank. All other locations are
leased. The owned location is not encumbered and all of the leases have renewal options. Each banking location is suitable
and adequate for banking operations.
Item 3. Legal Proceedings
In our opinion, there are no other legal proceedings pending other than routine litigation incidental to the Company’s business
involving amounts which are not material to our financial condition.
Item 4. Mine Safety Disclosures
Not applicable.
12
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
There were issued and outstanding 4,956,139 shares of the 12,000,000 authorized shares of common stock of the Company at
the close of our fiscal year ended December 31, 2016. Our common stock is traded on The NASDAQ Capital Market under
the trading symbol “BKSC”.
Information regarding the historical market prices of our common stock and dividends declared on that stock is shown below.
High
Low
Dividends
2016
Quarter ended March 31, 2016
Quarter ended June 30, 2016
Quarter ended September 30, 2016
Quarter ended December 31, 2016
2015
Quarter ended March 31, 2015
Quarter ended June 30, 2015
Quarter ended September 30, 2015
Quarter ended December 31, 2015
2014
Quarter ended March 31, 2014
Quarter ended June 30, 2014
Quarter ended September 30, 2014
Quarter ended December 31, 2014
$
$
$
$
$
$
$
$
$
$
$
$
16.75 $
16.25 $
18.63 $
23.47 $
13.72 $
15.92 $
16.86 $
16.87 $
14.46 $
14.11 $
14.09 $
13.87 $
14.91
15.51
15.95
18.39
13.35
13.59
13.48
16.00
13.29
13.46
13.32
12.96
$
$
$
$
$
$
$
$
$
$
$
$
0.13
0.13
0.14
0.14
0.13
0.13
0.13
0.13
0.13
0.13
0.23
0.13
As of February 23, 2017, there were approximately 1,769 shareholders of record with shares held by individuals and in
nominee names. The market price for our common stock as of February 23, 2017, was $20.68.
The future payment of cash dividends is subject to the discretion of the Board of Directors and depends upon a number of
factors, including future earnings, financial condition, cash requirements, and general business conditions. Cash dividends,
when declared, are paid by the Bank to the Company for distribution to shareholders of the Company. Certain regulatory
requirements restrict the amount of dividends that the Bank can pay to the Company.
13
At our December, 1995 Board Meeting, the Board of Directors authorized the repurchase of up to 140,918 shares of its
common stock on the open market. At our October, 1999 Board Meeting, the Board of Directors authorized the repurchase of
up to 45,752 shares of its common stock on the open market and again at our September, 2001 Board meeting, the Board of
Directors authorized the repurchase of up to 54,903 shares of its common stock on the open market. As of the date of this
report, the Company owns 241,396 shares. Shares have been adjusted for three 10% stock dividends, a 10% stock distribution,
and a 25% stock dividend. At the Annual Meeting April, 2007, the shareholders’ voted to increase the number of authorized
shares from 6,000,000 to 12,000,000. As of February 23, 2017, there were 5,203,585 shares of common stock issued and
4,962,189 shares of common stock outstanding.
THE BANK OF SOUTH CAROLINA EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
During 1989, the Board of Directors of the Bank adopted an Employee Stock Ownership Plan and Trust Agreement (“ESOP”)
to provide retirement benefits to eligible employees of the Bank for long and faithful service. An amendment and restatement
was made to the ESOP effective January 1, 2007 and approved by the Board of Directors January 18, 2007. Periodically, the
Internal Revenue Service (“IRS”) requires a restatement of a qualified retirement plan to ensure that the plan document
includes provisions required by legislative and regulatory changes made since the last restatement. There have been no
substantive changes to the plan, however, to comply with the IRS rules, the Board of Directors approved a restated plan, on
January 26, 2012 (incorporated as Exhibit 10.5 in the 2011 10-K). The Plan was submitted to the IRS for approval and a
determination letter was issued September 26, 2013, stating that the plan satisfies the requirements of Code Section 4975 (e)
(7). On January 26, 2017, the Board of Directors approved a restated plan (incorporated as Exhibit 10.6 in the 2016 10-K).
The Board of Directors of the Bank approved a cash contribution of $345,000 to The Bank of South Carolina ESOP for the
fiscal year ended December 31, 2016. The Board of Directors of the Bank approved cash contributions of $315,000 and
$280,000 for the fiscal years ended December 31, 2015 and 2014, respectively. The contributions were made during the
respective fiscal years.
An employee of the Bank who is not a member of an ineligible class of employees is eligible to participate in the plan upon
reaching 21 years of age and being credited with one year of service (1,000 hours of service). All employees are eligible
employees except for the following ineligible classes of employees:
(cid:120) Employees whose employment is governed by a collective bargaining agreement between employee representatives
and the Company in which retirement benefits were the subject of good faith bargaining unless the collective
bargaining agreement expressly provides for the inclusion of such employees in the plan
(cid:120) Employees who are non-resident aliens who do not receive earned income from the Company which constitutes
income from sources within the United States
(cid:120) Any person who becomes an employee as the result of certain asset or stock acquisitions, mergers, or similar
transactions (but only during a transitional period)
(cid:120) Certain leased employees
(cid:120) Employees who are employed by an affiliated Company that does not adopt the plan
(cid:120) Any person who is deemed by the Company to be an independent contractor on his or her employment
commencement date and on the first day of each subsequent plan year, even if such person is later determined by a
court or a governmental agency to be or to have been an employee.
14
The employee may enter the Plan on the January 1st that occurs nearest the date on which the employee first satisfies the age
and service requirements described above. No contributions by employees are permitted. The amount and time of
contributions are at the sole discretion of the Board of Directors of the Bank. The contribution for all participants is based
solely on each participant's respective regular or base salary and wages paid by the Bank including commissions, bonuses and
overtime, if any.
A participant becomes vested in the ESOP based upon the employee’s credited years of service. The vesting schedule is as
follows:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
1 Year of Service
2 Years of Service
3 Years of Service
4 Years of Service
5 Years of Service
0% Vested
25% Vested
50% Vested
75% Vested
100% Vested
The Bank is the Plan Administrator. Eugene W. Walpole, IV, Fleetwood S. Hassell, Sheryl G. Sharry and Douglas H. Sass,
currently serve as the Plan Administrative Committee and as Trustees for the Plan. The Plan currently owns 335,604 shares of
common stock of Bank of South Carolina Corporation.
THE BANK OF SOUTH CAROLINA STOCK INCENTIVE PLAN
We have a Stock Incentive Plan which was approved in 1998 with 180,000 (329,422 adjusted for three 10% stock dividends, a
10% stock distribution, and a 25% stock dividend) shares reserved and a Stock Incentive Plan which was approved in 2010
with 300,000 (330,000 adjusted for a 10% stock dividend) shares reserved. Under both Plans, options are periodically granted
to employees at a price not less than the fair market value of the shares at the date of grant. Participating employees become
20% vested after five years and then vest 20% each year until fully vested. The right to exercise each such 20% of the options
is cumulative and will not expire until the tenth anniversary of the date of the grant. Employees are eligible to participate in
this plan if the Executive Committee, in its sole discretion, determines that an employee has contributed or can be expected to
contribute to our profits or growth.
The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes)
model. Expected volatilities are based on historical volatilities of our common stock. The expected term of the options granted
will not exceed ten years from the date of grant (the amount of time options granted are expected to be outstanding). The risk-
free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
15
Item 6. Selected Financial Data
The following table sets forth certain selected financial information concerning the Company and its wholly-owned subsidiary.
The information was derived from audited consolidated financial statements. The information should be read in conjunction
with “Management's Discussion and Analysis of Financial Condition and Results of Operations”, which follows, and the
audited consolidated financial statements and notes which are presented elsewhere in this report.
For December 31:
Net Income
Selected Year End Balances:
Total Assets
Total Loans (1)
Investment Securities Available for Sale
Interest-bearing Deposits in Other Banks
Earning Assets
Deposits
Shareholders' Equity
Weighted Average Shares Outstanding-Basic
Weighted Average Shares Outstanding-Diluted
UFor the Year:
Selected Average Balances:
Total Assets
Total Loans (1)
Investment Securities Available for Sale
Federal Funds Sold and Resale Agreements
Interest-bearing Deposits in Other Banks
Earning Assets
Deposits
Shareholders' Equity
UPerformance Ratios:
Return on Average Equity
Return on Average Assets
Average Equity to Average Assets
Net Interest Margin
Net Charge-offs to Average Loans
Allowance for Loan Losses as a
Percentage of Total Loans (excluding
mortgage loans to be sold)
UPer Share:
Basic Income
Diluted Income
Year End Book Value
Cash Dividends Declared
Dividend Payout Ratio
Full Time Employee Equivalents
(1)
Including mortgage loans to be sold
U 2016
U 2015
2014
2013
2012
$
5,247,063
$
4,884,288
$ 4,398,820
$
4,076,924
$
3,666,828
413,949,636
264,962,325
119,978,944
18,101,300
403,042,569
372,522,851
40,612,974
4,935,349
5,054,114
399,172,512
248,442,944
119,997,585
23,898,862
392,339,391
358,718,612
39,151,712
4,912,499
5,067,085
367,225,802
241,442,873
113,994,112
5,680,613
361,117,598
322,419,027
36,759,982
4,907,208
5,032,211
340,893,703
223,059,647
94,648,221
16,080,721
333,788,589
305,242,655
34,739,143
4,897,902
4,906,234
410,581,560
265,151,258
110,762,289
-
26,474,258
402,387,805
367,822,900
41,479,755
379,527,104
243,729,630
110,633,399
-
17,549,903
371,912,932
337,969,217
38,631,718
358,774,284
232,281,473
99,488,314
-
19,588,597
351,358,384
319,131,466
36,283,441
332,092,490
226,267,071
67,484,036
-
31,524,293
325,275,400
296,482,622
34,800,116
12.65%
1.28%
10.10%
3.71%
.05%
12.64%
1.29%
10.18%
3.72%
.04%
12.12%
1.23%
10.11%
3.70%
.02%
11.72%
1.23%
10.48%
3.79%
.15%
325,410,646
235,608,502
58,514,216
25,903,960
320,026,678
291,073,843
33,930,442
4,890,310
4,890,310
317,438,538
220,780,471
57,982,652
7,578,169
32,386,509
311,149,632
283,365,379
33,415,008
10.97%
1.16%
10.53%
3.86%
.01%
1.48%
1.41%
1.42%
1.51%
1.58%
$
$
1.06
1.04
8.19
0.54
50.86%
74
0.99
0.96
7.96
0.52
49.94%
81
$
$
0.90
0.87
7.49
0.62
62.88%
77
$
0.83
0.83
7.79
0.50
54.63%
77
0.75
0.75
7.63
0.45
54.56%
76
16
U
U
U
U
U
U
U
U
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis is included to assist the shareholder in understanding our financial condition, results of
operations, and cash flow. This discussion should be reviewed in conjunction with the audited consolidated financial
statements and accompanying notes presented in Item 8 of this report and the supplemental financial data appearing throughout
this report. Since the primary asset of the Company is its wholly-owned subsidiary, most of the discussion and analysis relates
to the Bank.
OVERVIEW
Bank of South Carolina Corporation (the “Company”) is a financial institution holding company headquartered in Charleston,
South Carolina, with $413,949,636 in assets as of December 31, 2016 and net income of $1,312,879 and $5,247,063,
respectively, for the three and twelve months ended December 31, 2016. The Company offers a broad range of financial
services through its wholly-owned subsidiary, The Bank of South Carolina (the “Bank”). The Bank is a state-chartered
commercial bank, which operates principally in the Charleston, Dorchester, and Berkeley counties of South Carolina. The
Bank’s original and current concept is to be a full service financial institution specializing in personal service, responsiveness,
and attention to detail to foster long-standing relationships.
We derive most of our income from interest on loans and investments (interest-bearing assets). The primary source of funding
for making these loans and investments is our interest and non-interest-bearing deposits. Consequently, one of the key
measures of our success is the amount of net interest income, or the difference between the income on our interest earning
assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key
measure is the spread between the yield we earn on these interest-bearing assets and the rate we pay on our interest-bearing
liabilities.
A consequence of lending activities is that we may incur credit losses. The amount of such losses will vary depending upon the
risk characteristics of the loan and lease portfolio as affected by economic conditions such as rising interest rates and the
financial performance of borrowers. The reserve for credit losses consists of the allowance for loan and lease losses (the
"allowance") and a reserve for unfunded commitments (the "unfunded reserve"). The allowance provides for probable and
estimable losses inherent in our loan and lease portfolio while the unfunded reserve provides for potential losses related to
unfunded lending commitments. The Allowance is increased or decreased through the provisioning process. For a detailed
discussion on the allowance for loan losses see “Allowance for Loan Losses”.
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 other income and other expenses are described in the following discussion. The
discussion and analysis also identifies significant factors that have affected our financial position as of December 31, 2016 as
compared to December 31, 2015 and our operating results for 2016 as compared to 2015 and 2015 as compared to 2014, and
should be read in conjunction with the consolidated financial statements and the related notes included in this report. In
addition, a number of tables have been included to assist in the discussion.
CRITICAL ACCOUNTING POLICIES
We have adopted various accounting policies that govern the application of principles generally accepted in the United States
and with general practices within the banking industry in the preparation of our consolidated financial statements. Our
significant accounting policies are set forth in the notes to the consolidated financial statements in this report.
Certain accounting policies involve significant judgments and assumptions by the Company that have a material impact on the
carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The
judgment and assumptions we use are based on historical experience and other factors, which we believe to be reasonable
under the circumstances. Because of the number of judgments and assumptions that we make, actual results could differ from
these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our
results of operations.
17
We consider our policy regarding the allowance for loan losses to be our most subjective accounting policy due to the
significant degree of judgment. We have developed what we believe to be appropriate policies and procedures for assessing
the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and estimates
with respect to our loan portfolio. Our assessments may be impacted in future periods by changes in economic conditions, the
impact of regulatory examinations and the discovery of information with respect to borrowers which were not known at the
time of the issuance of the consolidated financial statements. For additional discussion concerning our allowance for loan
losses and related matters, see “Allowance for Loan Losses”.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2016 TO DECEMBER 31, 2015
Net income increased $362,775 or 7.43% to $5,247,063, or basic and diluted income per share of $1.06 and $1.04, respectively
for the year ended December 31, 2016 from $4,884,288 or basic and diluted income per share of $0.99 and $0.96, respectively
for the year ended December 31, 2015. This increase is primarily due to increases in interest and fees on loans offset by higher
provision for loan losses expense and lower mortgage banking income. Our returns on average assets and average equity for
the year ended December 31, 2016 were 1.28% and 12.65%, respectively, compared with 1.29% and 12.64%, respectively, for
the year ended December 31, 2015.
Net interest income increased $1,089,304 or 7.88% to $14,916,857 for the year ended December 31, 2016 from $13,827,553
for the year ended December 31, 2015. This increase was primarily due to increases in interest and fees on loans and other
interest income. Interest and fees on loans increased $1,056,597 or 8.96% to $12,851,900 for the year ended December 31,
2016 from $11,795,303 for the year ended December 31, 2015, as the result of higher average loan balances, an improving
local economy, and consumer confidence. Other interest income, earned mostly on interest-bearing deposits in other banks,
increased $93,057 or 204.22% to $138,623 for the year ended December 31, 2016 from $45,566 for the year ended December
31, 2015.
Average earning assets increased $30,474,873 or 8.19% to $402,387,805 for the year ended December 31, 2016 from
$371,912,932 for the year ended December 31, 2015. Average loans increased $21,421,628 or 8.79% for the year ended
December 31, 2016. Average interest-bearing deposits in other banks increased $8,924,355 or 50.85% to $26,474,258 for the
year ended December 31, 2016 from $17,549,903 for the year ended December 31, 2015.
The provision to the allowance for loan losses for the year ended December 31, 2016 was $570,000 compared to $192,500 for
the year ended December 31, 2015. The increase was primarily a result of loan growth. The Board of Directors determined
that this provision was appropriate based upon the strength of our reserve and the anticipation of continued loan growth and an
improving economy. Charge-offs of $208,295, recoveries of $72,085, together with the provision to the allowance, resulted in
an allowance for loan losses of $3,851,617 or 1.48% of total loans at December 31, 2016.
Non-interest income decreased $188,875 or 6.19% to $2,861,083 for the year ended December 31, 2016. Our mortgage
banking income decreased $217,936 or 13.57% to $1,387,740 for the year ended December 31, 2016 from $1,605,676 for the
year ended December 31, 2015 due to the loss of two loan originators during 2016. Mortgage banking income is highly
influenced by mortgage interest rates and the housing market. According to local real estate market reports, the sales volume
in the Charleston market increased 10% for the year ended December 31, 2016 compared to the year ended December 31,
2015. The Charleston market had 17,114 home sales during 2016 with a median sales price of $245,000 compared to 16,202
home sales in 2015 at a median price of $229,000. Mortgage loan originations decreased $15,021,252 or 16.50% to
$76,032,671 for the year ended December 31, 2016 from $91,053,923 for the year ended December 31, 2015. Service charges,
fees and commissions increased $70,342 to $1,061,349 for the year ended December 31, 2016 from $991,007 for the year
ended December 31, 2015. This increase was primarily due to an increase of $52,416 in debit card fees resulting from
increased usage particularly by our business customers. We also had gains of $380,904 on the sales of investment securities
during the year ended December 31, 2016 compared to gains of $423,832 during the year ended December 31, 2015.
Other expense increased $758,969 or 7.98% to $10,272,444 for the year ended December 31, 2016, from $9,513,475 for the
year ended December 31, 2015. Salaries and employee benefits increased $228,726 or 3.90% from $5,859,203 for the year
ended December 31, 2015 to $6,087,929 for the year ended December 31, 2016. Base wages increased $134,013 to $4,768,176
for the year ended December 31, 2016. This increase was primarily due to annual merit increases. Our contribution to the
ESOP increased from $315,000 in 2015 to $345,000 for 2016.
18
Other operating expenses increased $471,394. During 2016, the Company invested in a South Carolina Historic Rehabilitation
Tax Credit of $937,211. The credit will be amortized over three years. For the year ended December 31, 2016, the Company
amortized $325,000 of the credit.
Our net occupancy expense increased $47,442 or 3.20% to $1,528,048 for the year ended December 31, 2016, from
$1,480,606 for the year ended December 31, 2015. Our net occupancy expense includes rent and insurance on our banking
locations as well as the cost of repairs and maintenance on these facilities. Occupancy expense increased primarily due to
annual rent increases at our Meeting Street and Summerville banking locations as well as an increase in insurance on banking
locations, offset by a decrease in the cost of maintenance and repairs and depreciation on furniture, fixtures and equipment.
For the year ended December 31, 2016, the Company’s effective tax rate was 24.34% compared to 31.89% during the year
ended December 31, 2015. The Company invested in a South Carolina Historic Rehabilitation Tax Credit during 2016 which
resulted in a decrease to the effective rate.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2015 TO DECEMBER 31, 2014
Net income increased $485,468 or 11.04% to $4,884,288, or basic and diluted income per share of $.99 and $.96, respectively
for the year ended December 31, 2015 from $4,398,820 or basic and diluted income per share of $.90 and $.87, respectively
for the year ended December 31, 2014. This increase is primarily due to increases in interest and fees on loans, interest and
dividends earned on investment securities, and mortgage banking income as well as gains recognized on the sale of investment
securities available for sale. Our returns on average assets and average equity for the year ended December 31, 2015 were
1.29% and 12.64%, respectively, compared with 1.23% and 12.12%, respectively, for the year ended December 31, 2014.
Net interest income increased $818,246 or 6.29% to $13,827,553 for the year ended December 31, 2015 from $13,009,307 for
the year ended December 31, 2014. This increase was primarily due to increases in interest and fees on loans and interest and
dividends on investment securities. Interest and fees on loans increased $532,255 or 4.73% to $11,795,303 for the year ended
December 31, 2015 from $11,263,048 for the year ended December 31, 2014, as the result of an improving local economy and
consumer confidence. Interest and dividends on investment securities increased $283,604 or 13.47% to $2,389,079 for the
year ended December 31, 2015 from $2,105,475 for the year ended December 31, 2014.
Average earning assets increased $20,554,548 or 5.85% to $371,912,932 for the year ended December 31, 2015 from
$351,358,384 for the year ended December 31, 2014. Average loans increased $11,448,157 million or 4.93% for the year
ended December 31, 2015. Average investments increased $11,145,085 million or 11.20% to $110,633,399 for the year ended
December 31, 2015 from $99,488,314 for the year ended December 31, 2014.
The provision to the allowance for loan losses for the year ended December 31, 2015 was $192,500 compared to $82,500
for the year ended December 31, 2014. The Board of Directors determined that this provision was appropriate based
upon the strength of our reserve and the anticipation of continued loan growth and an improving economy. Charge-offs
of $201,071, recoveries of $91,550, together with the provision to the allowance, resulted in an allowance for loan losses
of $3,417,827 or 1.41% of total loans at December 31, 2015.
Non-interest income increased $471,257 or 18.27% to $3,049,958 for the year ended December 31, 2015. Our mortgage
banking income increased $290,656 or 22.10% to $1,605,676 for the year ended December 31, 2015 from $1,315,020 for the
year ended December 31, 2014. Mortgage banking income is highly influenced by mortgage interest rates and the housing
market. According to local real estate market reports, the sales volume in the Charleston market increased 14% for the year
ended December 31, 2015 compared to the year ended December 31, 2014. The Charleston market had 16,202 home sales
during 2015 with a median sales price of $229,000 compared to 14,256 home sales in 2014 at a median price of $215,000.
Mortgage loan originations increased $19,286,123 or 26.87% to $91,053,923 for the year ended December 31, 2015 from
$71,767,800 for the year ended December 31, 2014. Service charges, fees and commissions increased $69,369 to $991,007 for
the year ended December 31, 2015 from $921,638 for the year ended December 31, 2014. This increase was primarily due to
an increase of $71,267 in debit card fees resulting from increased usage particularly by our business customers. We also had a
gain of $423,832 on the sales of investment securities during the year ended December 31, 2015 compared to a gain of
$312,577 on the sales of investment securities during the year ended December 31, 2014.
19
Other expense increased $404,653 or 4.44% to $9,513,475 for the year ended December 31, 2015, from $9,108,822 for the
year ended December 31, 2014. Salaries and employee benefits increased $392,757 or 7.18% from $5,466,446 for the year
ended December 31, 2014 to $5,859,203 for the year ended December 31, 2015. Base wages increased $290,826 to $4,634,163
for the year ended December 31, 2015. This increase was primarily due to annual merit increases and the addition of new
positions in our Credit and Technology Departments. The cost of providing insurance for employees including workers
compensation increased $44,308 from $576,305 for the year ended December 31, 2014 to $620,613 for the year ended
December 31, 2015. Our monthly contribution to the ESOP increased from $22,500 in 2014 to $25,000 for the first six months
of 2015 with an additional increase in July 2015 to $27,500. Total contributions for the year ended December 31, 2015
increased 12.50% to $315,000 compared to $280,000 for the year ended December 31, 2014.
Our net occupancy expense increased $6,906 or .47% to $1,480,606 for the year ended December 31, 2015, from $1,473,700
for the year ended December 31, 2014. Our net occupancy expense includes rent and insurance on our banking locations as
well as the cost of repairs and maintenance on these facilities. Occupancy expense increased primarily due to annual rent
increases at our Meeting Street and Summerville banking locations as well as an increase in insurance on banking locations,
offset by a decrease in the cost of maintenance and repairs and depreciation on furniture, fixtures and equipment.
For the year ended December 31, 2015, the Company’s effective tax rate was 31.89% compared to 31.23% during the year
ended December 31, 2014.
ASSET AND LIABILITY MANAGEMENT
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. The responsibility of managing
asset and liability procedures is directed by the Asset and Liability/Investment Committee (“ALCO”) with the ultimate
responsibility resting with the Chief Executive Officer. At December 31, 2016, total assets were $413,949,636, an increase of
3.70% from December 31 2015; total deposits were $372,522,851, an increase of 3.85% from the end of the previous year.
At December 31, 2016, approximately 97.37% of our assets were earning assets composed of U.S. Treasury, Government
Sponsored Enterprises and Municipal Securities in the amount of $119,978,944, interest-bearing deposits in other banks in the
amount of $18,101,300 and total loans including mortgage loans held for sale in the amount of $264,962,325.
The yield on a majority of our earning assets adjusts simultaneously with changes in the general level of interest rates. Some of
the Company’s liabilities are issued with fixed terms and can be repriced only at maturity.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our risk consists primarily of interest
rate risk in our lending and investing activities as they relate to their funding by deposit and borrowing activities.
Our policy is to minimize interest rate risk between interest-bearing assets and liabilities at various maturities and to attempt to
maintain an asset sensitive position over a six-month period. By adhering to this policy, we anticipate that our net interest
margins will not be materially affected, unless there is an extraordinary precipitous change in interest rates. The average net
interest rate spread for 2016 decreased to 3.64% from 3.65% for 2015 and the average net interest margin for 2016 decreased
to 3.71% from 3.72% for 2015. At December 31, 2016 and 2015, our net cumulative gap was liability sensitive for periods
less than one year and asset sensitive for periods of one year or more. The reason for the shift in sensitivity is the direct result
of management’s strategic decision to invest excess funds held at the Federal Reserve into fixed rate investment securities that
match our investment policy objectives. Management is aware of this departure from policy and will continue to closely
monitor our sensitivity position going forward.
20
Since the rates on most of our interest-bearing liabilities can vary on a daily basis, we continue to maintain a loan portfolio
priced predominately on a variable rate basis. However, in an effort to protect future earnings in a declining rate environment,
we offer certain fixed rates, interest rate floors, and terms primarily associated with real estate transactions. We seek stable,
long-term deposit relationships to fund our loan portfolio. Furthermore, we do not have any brokered deposits or internet
deposits.
At December 31, 2016, the average maturity of the investment portfolio was 4.13 years with an average yield of 1.99%
compared to 4.28 years with an average yield of 2.16% at December 31, 2015.
We do not take foreign exchange or commodity risks. In addition, we do not own mortgage-backed securities nor do we have
any exposure to the sub-prime market or any other distressed debt instruments.
The following table summarizes our interest sensitivity position as of December 31, 2016:
Earning Assets
(in 000’s)
Less
Than 3
1 Day Months
3 Months
to Less
Than 6
Months
6 Months
to Less
Than 1
Year
1 Year
to Less
Than 5
Years
5 years
or More
Total
Estimated
Fair
Value
Loans (1)
Investment securities (2)
Interest-bearing deposits
Total
$
$
143,900 $
-
18,101
162,001 $
22,783 $
995
-
23,778 $
17,725 $
1,835
-
19,560 $
22,830 $
513
-
678
34,750
-
23,343 $ 139,895 $ 35,428
57,046 $
82,849
-
$
264,962 $
120,942
18,101
$ 404,005 $
264,793
119,979
18,101
402,873
Interest-bearing Liabilities
(in 000's)
CD's and other time deposits
100,000 and over
$
CD's and other time deposits
under 100,000
Money market and interest
bearing demand accounts
Savings
Total
$
225 $
13,280 $
8,419 $
8,236 $
1,297 $
-
$
31,457 $
31,470
17
3,904
3,401
3,539
1,520
173,569
29,079
202,890 $
-
-
-
-
-
-
17,184 $
11,820 $
11,775 $
-
-
2,817 $
3
-
-
3
12,384
12,386
173,569
29,079
246,489 $
173,569
29,079
246,504
157,516
$
$
Net
Cumulative
$
(40,889) $
$
6,594 $
(34,295) $
7,740 $
11,568 $ 137,078 $ 35,425
(26,555) $ (14,987) $ 122,091 $ 157,516
(1) Including mortgage loans to be sold and deferred fees.
(2) At amortized cost
21
LIQUIDITY
Historically, we have maintained our liquidity at levels believed by management to be adequate to meet requirements of
normal operations, potential deposit outflows and strong loan demand and still allow for optimal investment of funds and
return on assets.
The following table summarizes future contractual obligations as of December 31, 2016:
Total
Payment Due by Period
Less than
1 Year
1-5
Years
After 5
Years
Contractual Obligations (in 000's)
Time deposits
Operating leases
Total contractual cash obligations
$
$
43,841 $
7,760
51,601 $
41,021 $
615
41,636 $
2,817 $
2,436
5,253 $
3
4,709
4,712
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, investments available for sale, interest-bearing deposits in other banks, and
mortgage loans held for sale. Our primary liquid assets accounted for 36.38% and 38.83% of total assets at December 31,
2016 and 2015, respectively. Securities classified as available for sale, which are not pledged, may be sold in response to
changes in interest rates and liquidity needs. All of the securities presently owned are classified as Available for Sale. Net cash
provided by operations and deposits from customers have been the primary sources of liquidity. At December 31, 2016, we
had unused short-term lines of credit totaling approximately $21 million (which can be withdrawn at the lender's option).
Additional sources of funds available to us for additional liquidity needs include borrowing on a short-term basis from the
Federal Reserve System, increasing deposits by raising interest rates paid and selling mortgage loans held for sale. We also
established a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits us to retain possession of
assets pledged as collateral to secure advances from the Federal Reserve Discount Window. At December 31, 2016 we could
borrow up to $75 million. There have been no borrowings under this arrangement.
Our core deposits consist of non-interest bearing accounts, NOW accounts, money market accounts, time deposits and savings
accounts. We closely monitor our reliance on certificates of deposit greater than $100,000 and other large deposits. We
maintain a Contingency Funding Plan (“CFP”) that identifies liquidity needs and weighs alternate courses of action designed to
address these needs in emergency situations. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the
expected funding needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to
meet our operating needs and do not know of any trends, events or uncertainties that may result in a significant adverse effect
on our liquidity position. At December 31, 2016 and 2015, our liquidity ratio was 38.27% and 37.27%, respectively.
Composition of Average Assets
Loans (1)
Investment securities available
for sale
Federal funds sold and other
investments including
interest-bearing deposits in
other banks
Non-earning assets
Total average assets
2016
2015
2014
2013
2012
$
265,151,258 $
243,729,630 $
232,281,473 $
226,267,071 $
220,780,471
110,762,289
110,633,399
99,488,314
67,484,036
57,982,652
26,474,258
8,193,75
410,581,560 $
17,549,903
7,614,17
379,527,104 $
19,588,597
7,415,90
358,774,284 $
31,524,293
6,817,09
332,092,490 $
32,386,509
6,288,90
317,438,538
$
(1) Including mortgage loans to be sold and deferred fees.
22
Average earning assets increased by $30,474,873 from 2015 to 2016. This increase was primarily due to a $21,421,628
increase in average loans and an $8,924,355 increase in average interest-bearing deposits in other banks. We have seen an
increase in loan demand primarily due to our business development efforts coupled with an improving economy.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table shows changes in interest income and expense based upon changes in volume and changes in rates:
Loans (2)
Investment securities
available for sale
Interest-bearing deposits
in other banks
Interest Income
Interest-bearing
transaction
accounts
Savings
Time deposits
Securities sold
under agreement
to repurchase
Interest expense
Increase in net
interest income
2016 vs. 2015
2015 vs. 2014
Volume
$ 1,038,280
Rate
$
18,317
Net Dollar
Change (1)
$ 1,056,597
Volume
$
554,074
Rate
$
(21,819) $
Net Dollar
Change (1)
532,255
2014 vs. 2013
Volume
294,070
$
Rate
$
(219,770)
Net Dollar
Change (1)
74,300
$
2,780
(86,785)
(84,005)
239,933
43,671
283,604
679,162
(56,281)
622,881
31,025
$ 1,072,085
$
28,628
3,061
(48,234)
$
$
62,032
(6,436)
93,057
$ 1,065,649
1,050
295
(7,529)
$
29,678
3,356
(55,763)
(1,817)
(18,362) $
891
(5,293)
(926)
(23,655)
$
$
(5,272)
788,735
9,146
3,474
(17,738)
(160)
(5,278)
$
$
$
$
$
$
1,107
22,959
215
(268)
(1,633)
$
$
(4,165)
811,694
9,361
3,206
(19,371)
$
$
(30,304)
942,928
(415)
(276,466)
$
(203)
4,584
15,375
$
68
107
(27,793)
$
$
(30,719)
666,462
(135)
4,691
(12,418)
412
(1,274) $
252
(6,552)
681
20,437
-
(27,618)
$
$
$
681
(7,181)
$ 1,089,304
$
818,246
$
673,643
(1) Volume/Rate changes have been allocated to each category based on the percentage of each to the total change.
(2) Including mortgage loans to be sold
YIELDS ON AVERAGE EARNING ASSETS AND RATES ON AVERAGE INTEREST-BEARING
LIABILITIES
2016
Interest
Paid/
Earned
Average
Balance
Average
Yield/
Rate (1)
Average
Balance
2015
Interest
Paid/
Earned
Average
Yield/
Rate (1)
Average
Balance
2014
Interest
Paid/
Earned
Average
Yield/
Rate (1)
Interest-Earning
Assets
Loans (2)
Investment securities
available for sale
Interest-bearing deposits
in other banks
Total earning assets
Interest-Bearing
Liabilities:
Interest-bearing
transaction
accounts
Savings
Time deposits
Securities sold
under agreement
to repurchase
Total interest-bearing
liabilities
Net interest spread
Net interest margin
Net interest income
$ 265,151,258 $ 12,851,900
4.85%
$ 243,729,630
$ 11,795,303
4.84%
$ 232,281,473
$ 11,263,048
4.85%
110,762,289
2,305,074
2.08%
110,633,399
2,389,079
2.16%
99,488,314
2,105,475
2.12%
26,474,258
138,623
$ 402,387,805 $ 15,295,597
0.52%
3.80%
17,549,903
$ 371,912,932
45,566
$ 14,229,948
0.26%
3.83%
19,588,597
$ 351,358,384
49,731
$ 13,418,254
0.25%
3.82%
$ 167,534,223 $
28,687,719
47,930,721
164,286
34,271
180,176
0.10%
0.12%
0.38%
$ 138,332,181
26,123,223
60,726,160
$
134,608
30,915
235,939
0.10%
0.12%
0.39%
$ 128,932,314
23,189,946
65,289,165
$
125,247
27,709
255,310
0.10%
0.12%
0.39%
751
7
0.93%
1,934,493
933
0.05%
2,426,044
681
0.03%
$ 244,153,414 $
378,740
0.16%
3.64%
3.71%
$ 227,116,057
$
402,395
0.18%
3.65%
3.72%
$ 219,837,469
$
408,947
0.19%
3.63%
3.70%
$ 14,916,857
$ 13,827,553
$ 13,009,307
(1) The effect of forgone interest income as a result of non-accrual loans was not considered in the above analysis.
(2) Average loan balances include non-accrual loans and mortgage loans to be sold.
23
INVESTMENT PORTFOLIO
The following tables summarize the carrying value of investment securities as of the indicated dates and the weighted-average
yields of those securities at December 31, 2016.
December 31, 2016 (in thousands)
Due
Within
One Year
Amortized Cost Due
After One
Through
Five Years
After Five
Through
Ten Years
After Ten
Years
Total
Market
Value
Investment securities
U.S. Treasury Notes .....................................
Government-sponsored Enterprises ..............
Municipal securities......................................
Total ......................................................
$
$
Weighted average yields
U.S. Treasury Notes .....................................
Government-sponsored Enterprises ..............
Municipal securities......................................
Total ......................................................
-
-
3,343
3,343
$
$
24,148
40,897
17,804
82,849
$
$
-
10,841
18,821
29,662
$
$
-
-
5,089
5,089
$
$
24,148
51,738
45,057
120,943
$
$
23,939
51,034
45,006
119,979
-%
-%
1.92%
1.92%
1.70%
1.81%
2.43%
1.91%
-%
1.46%
2.64%
2.21%
-%
-%
2.11%
2.11%
December 31, 2015 (in thousands)
Investment securities
U.S. Treasury Notes ........................................................................................................................................
Government-sponsored Enterprises .................................................................................................................
Municipal securities.........................................................................................................................................
Total .........................................................................................................................................................
December 31, 2014 (in thousands)
Investment securities
U.S. Treasury Notes ........................................................................................................................................
Government-sponsored Enterprises .................................................................................................................
Municipal securities.........................................................................................................................................
Total ........................................................................................................................................................
1.99%
Book
Value
Market
Value
$
34,518 $
51,136
32,768
$
118,422 $
34,634
51,284
34,080
119,998
Book
Value
Market
Value
$
$
29,162 $
50,195
32,664
112,021 $
29,248
50,143
34,603
113,994
At December 31, 2016, we had four US Treasury Notes with an unrealized loss of $250,385, eight Agency Notes with an
unrealized loss of $833,321 and fifty-four Municipal Securities with an unrealized loss of $816,413 compared to two US
Treasury Notes with an unrealized loss of $45,360, three Agency Notes with an unrealized loss of $133,744 and six Municipal
Securities with an unrealized loss of $28,724 at December 31, 2015. The unrealized losses on these investments were caused
by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price
less than the amortized cost of the investment. Therefore, these investments are not considered other-than-temporarily
impaired. We have the ability to hold these investments until market price recovery or maturity.
The primary purpose of the investment portfolio is to fund loan demand, to help manage fluctuations in deposits and liquidity,
to satisfy pledging requirements and, at the same time, to generate a favorable return on investment. In doing these things, our
main objective is to adhere to sound investment practices. To that end, all purchases and sales of investment securities are
made through reputable securities dealers that have been approved by the Board of Directors, who also review the entire
investment portfolio at each regular monthly meeting. In addition, we report to the Board on a monthly basis any purchases,
sales, calls, and maturities during the previous month. Furthermore, a financial underwriting review of all municipal securities
and their corresponding municipalities is conducted annually by Credit Personnel and reviewed by management.
24
LOAN PORTFOLIO COMPOSITION
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic
markets. At December 31, 2016, outstanding loans (including mortgage loans and deferred loan fees of $136,446) totaled
$264,959,325, which equaled 71.13% of total deposits and 64.01% of total assets. Substantially all loans were to borrowers
located in our market area of Charleston, Dorchester and Berkeley counties of South Carolina.
The following is a schedule of our loan portfolio, excluding both mortgage loans to be sold and deferred loan fees, as of
December 31, 2016, as compared to the prior four years:
Type
Commercial and industrial
loans
Real estate loans
Loans to individuals for
household, family and
other personal
expenditures
All other loans (including
overdrafts)
Total Loans (excluding
unearned income)
Book Value (in 000’s)
As of December 31,
2016
2015
2014
2013
2012
$
52,393
200,016
$
50,871
185,453
$
49,643
179,238
$
53,183
160,819
$
54,959
157,525
6,976
1,055
4,985
1,196
4,989
158
4,029
223
4,365
159
$
260,440
$
242,505
$
234,028
$
218,254
$
217,008
We had no foreign loans or loans to fund leveraged buyouts (“LBO’s”) at any time during the years ended December 31, 2012
through December 31, 2016.
The following table presents the contractual terms to maturity for loans outstanding at December 31, 2016. Demand loans,
loans having no stated schedule of repayment or stated maturity, and overdrafts are reported as due in one year or less. The
table does not include an estimate of prepayments, which can significantly affect the average life of loans and may cause our
actual principal experience to differ from that shown.
SELECTED LOAN MATURITY (in 000’s)
AT DECEMBER 31, 2016
One year or
less
Over one but less
than five years
Over five
years
Total
Type
Commercial and industrial
loans
Real estate loans
Loans to individuals for
household, family and other
personal expenditures
All other loans (including
overdrafts)
Total Loans (excluding
unearned income)
$
42,117
133,339
$
10,216
54,411
$
60
12,266
$
52,393
200,016
4,341
25
2,600
1,030
35
-
6,976
1,055
$
179,822
$
68,257
$
12,361 $
260,440
Loans maturing after one year with:
Fixed interest rates
Floating interest rates
$
$
57,458
23,160
80,618
25
IMPAIRED LOANS
A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts
due according to the contractual terms of the loan agreement. All loans placed on non-accrual status are classified as impaired.
However, not all impaired loans are on non-accrual status nor do they all represent a loss.
Impairment loss is measured by:
a. The present value of the future cash flow discounted at the loan’s effective interest rate, or, alternatively,
b. The fair value of the collateral if the loan is collateral dependent.
The following is a schedule of our impaired loans (non-accrual loans included) and non-accrual loans.
2016
$5,901,784
2015
$6,542,707
2016
$1,741,621
2015
$2,061,088
Impaired Loans
At December 31,
2014
$7,051,127
Non-Accrual Loans
At December 31,
2014
$882,413
2013
$7,136,907
2012
$11,498,279
2013
$1,575,440
2012
$3,993,816
TROUBLED DEBT RESTRUCTURINGS
According to GAAP, we are required to account for certain loan modifications or restructuring as a troubled debt restructuring
(“TDR”), when appropriate. In general, the modification or restructuring of a debt is considered a TDR if we, for economic or
legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise
consider. Three factors must always be present:
1. An existing credit must formally be renewed, extended, or modified.
2. The borrower is experiencing financial difficulties.
3. We grant a concession that we would not otherwise consider.
(cid:3)
The following is a schedule of our TDR’s including the number of loans represented.
(cid:3)
Troubled Debt Restructurings
2016
#
2
$378,382
#
3
2015
$458,268
#
2
At December 31,
2014
2013
2012
$466,541
#
4
$1,196,341
#
5
$1,618,278
One TDR with a balance of $72,919 at December 31, 2015, paid out during 2016. During the year ended December 31, 2014 a
loan receivable with a balance of $496,090, was removed from TDR status. The borrower consistently paid as agreed and
made substantial reductions to principal. Refinance guidance Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) 310-20-35-9 allows for a loan to be removed from TDR status if the terms of the loan reflect current
market rates and the loan has been performing under modified terms for an extended period of time or under certain
circumstances. In addition, one loan receivable with a balance of $106,194 at December 31, 2013, was paid off during the year
ended December 31, 2014. We do not know of any potential problem loans which will not meet their contractual obligations
that are not otherwise discussed herein.
26
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents our estimate of probable losses inherent in our loan portfolio. The adequacy of the
allowance for loan losses (the “allowance”) is reviewed by the Loan Committee and by the Board of Directors on a quarterly
basis. For purposes of this analysis, adequacy is defined as a level sufficient to absorb estimated losses in the loan portfolio as
of the balance sheet date presented. To remain GAAP compliant, the methodology employed for this analysis has been
modified over the years to reflect the economic environment. This allowance is reviewed on a quarterly basis by Credit
Personnel. In addition, the allowance is validated on a periodic basis by the Company’s Risk Management Officer. The
methodology is based on a Reserve Model that is comprised of the three components listed below:
1) Specific reserve analysis for impaired loans based on Financial Accounting Standards Board (“FASB”) “receivables”
topic ASC 310-10-35.
2) General reserve analysis applying historical loss rates based on FASB “contingencies” topic ASC 450-20.
3) Qualitative or environmental factors.
Loans greater than $50,000 are reviewed for impairment on a quarterly basis if any of the following criteria are met:
1) Any loan on non-accrual
2) Any loan that is a troubled debt restructuring
3) Any loan over 60 days past due
4) Any loan rated sub-standard, doubtful, or loss
5) Excessive principal extensions are executed
6)
If we are provided information that indicates we will not collect all principal and interest as scheduled
Impairment is measured by the present value of the future cash flow discounted at the loan’s effective interest rate, or,
alternatively the fair value of the collateral if the loan is collateral dependent. An impaired loan may not represent an expected
loss.
A general reserve analysis is performed on all loans, excluding impaired loans. This analysis includes a pool of loans that are
reviewed for impairment but are not found to be impaired. Historical losses are segregated into risk-similar groups and a loss
ratio is determined for each group over a five-year period. The five-year average loss ratio by type is then used to calculate the
estimated loss based on the current balance of each group. The five-year historical loss percentage was .058% and .115% at
December 31, 2016 and 2015, respectively.
Qualitative and environmental loss factors are also applied against the portfolio, excluding impaired loans. These factors
include external risk factors that we believe are representative of our overall lending environment. We believe that the
following factors create a more comprehensive loss projection which we can use to monitor the quality of the loan portfolio.
1) Portfolio risk
a) Levels and trends in delinquencies and impaired loans and changes in loan rating matrix
b) Trends in volume and terms of loans
c) Over-margined real estate lending risk
2) National and local economic trends and conditions
3) Effects of changes in risk selection and underwriting practices
4) Experience, ability and depth of lending management staff
5)
6) Effects of changes in credit concentrations
Industry conditions
a) Loan concentration
b) Geographic concentration
c) Regulatory concentration
7) Loan and credit administration risk
a) Collateral documentation
b)
c) Maintenance of financial information risk
Insurance risk
The sum of each component’s analysis contributes to the “estimated loss” within our total portfolio.
27
Portfolio risk includes the levels and trends in delinquencies, impaired loans and changes in the loan rating matrix, trends in
volume and terms of loans and overmargined real estate lending. We are satisfied with the stability of the past due and non-
performing loans and believe there has been no decline in the quality of our loan portfolio due to any trend in delinquent or
adversely classified loans. Sizable unsecured principal balances on a non-amortizing basis are monitored. Although the vast
majority of our real estate loans are underwritten on a cash flow basis, the secondary source of repayment is typically tied to
our ability to realize on the collateral. Accordingly, we closely monitor loan to value ratios. The maximum collateral advance
rate is 80% on all real estate transactions, with the exception of raw land at 65% and land development at 70%.
Occasionally, we extend credit beyond our normal collateral advance margins in real estate lending. Although infrequent, the
aggregate of these loans represent a notable part of our portfolio. Accordingly, these loans are monitored and the balances
reported to the Board every quarter. An excessive level of this practice (as a percentage of capital) could result in additional
regulatory scrutiny, competitive disadvantages and potential losses if forced to convert the collateral. The consideration of
overmargined real estate loans directly relates to the capacity of the borrower to repay. We often request additional collateral to
bring the loan to value ratio within the policy objectives and also require a strong secondary source of repayment in addition to
the primary source of repayment.
Although significantly under the threshold of 100% of capital (currently approximately $41 million), the number of
overmargined real estate loans currently totals approximately $10,015,945 or approximately 3.84% of our loan portfolio at
December 31, 2016 compared to $11,441,700 or approximately 4.61% of the loan portfolio at December 31, 2015.
A credit rating matrix is used to rate all extensions of credit and to provide a more specified picture of the risk each loan poses
to the quality of the loan portfolio. There are eight possible ratings used to determine the quality of each loan based on the
following characteristics: cash flow, collateral quality, guarantor strength, financial condition, management quality, operating
performance, the relevancy of the financial statements, historical loan performance, and the borrower’s leverage position. The
matrix is designed to meet our standards and expectations of loan quality. One hundred percent of our loans are graded.
National and local economic trends and conditions are constantly changing and both positively and negatively impact
borrowers. Most macroeconomic conditions are not controllable by us and are incorporated into the qualitative risk factors.
Natural and environmental disasters, political uncertainty, international instability, as well as problems in the traditional
mortgage market are a few of the trends and conditions that are currently affecting the national and local economies. These
changes have impacted borrowers’ ability, in many cases, to repay loans in a timely manner. On occasion, a loan’s primary
source of repayment (i.e., personal income, cash flow, or lease income) may be eroded as a result of unemployment, lack of
revenues, or the inability of a tenant to make rent payments.
The quality of our loan portfolio is contingent upon our risk selection and underwriting practices. All new credits (except for
mortgage loans in the process of being sold to investors and loans secured by properly margined negotiable securities traded on
an established market or other cash collateral) with over $200,000 in exposure are reviewed by the Loan Committee on a
monthly basis. The Board of Directors review credits over $500,000 monthly. Annual credit analyses are conducted on credits
over $350,000 upon the receipt of updated financial information. Prior to any extension of credit, every significant
commercial loan goes through sound credit underwriting. The Credit Department conducts a detailed cash flow on each
proposal using the most current financial information.
We have over 350 years of lending experience among our lending staff. In addition to the lending staff, we have an Advisory
Board for each office comprised of business and community leaders from the specific office market area. An additional
Advisory Board was created during the year ended December 31, 2012, to support our business efforts in the North Charleston
area of South Carolina. We meet with these advisory boards quarterly to discuss the trends and conditions in each respective
market. We are aware of the many challenges currently facing the banking industry. As other banks look to increase earnings
in the short term, we will continue to emphasize the need to maintain safe and sound lending practices and core deposit growth
managed with a long term objective.
28
There continues be an influx of new banks in our geographic area. This increase has decreased the local industry’s overall
margins as a result of pricing competition. We believe that our borrowing base is well established and therefore unsound price
competition is not necessary.
The risks associated with the effects of changes in credit concentration include loan concentration, geographic concentration
and regulatory concentration.
As of December 31, 2016, there were only two Standard Industrial Code groups that comprised more than 2% of our total
outstanding loans. The two groups are activities related to real estate and offices and clinics of doctors.
We are located along the coast and on an earthquake fault, increasing the chances that a natural disaster may impact us and our
borrowers. We have a Disaster Recovery Plan in place; however, the amount of time it would take for our customers to return
to normal operations is unknown. Our plan is reviewed and tested annually.
Loan and credit administration risk includes collateral documentation, insurance risk and maintaining financial information
risk.
The majority of our loan portfolio is collateralized with a variety of our borrowers’ assets. The execution and monitoring of
the documentation to properly secure the loan is the responsibility of our lenders and Loan Department. We require insurance
coverage naming us as the mortgagee or loss payee. Although insurance risk is also considered collateral documentation risk,
the actual coverage, amounts of coverage and increased deductibles are important to management. Recent legislation passed
by Congress addresses the need for reform to the National Flood Insurance Program. This legislation, known as the Biggert
Waters Flood Insurance Reform and Modernization Act of 2012, resulted in significant unintended consequences causing
dramatic increases in the cost of flood insurance coverage and its potential unaffordability. However, on March 14, 2014 the
Office of the President signed the 2014 Homeowner Flood Insurance Affordability Act. This law allows most properties to
retain their subsidized premiums. Annual rate increases are also limited to 18% per year and the grandfather plan has been
reinstated. In addition, the law requires the Federal Emergency Management Agency (“FEMA”) to refund policy holders who
overpaid for premiums under the Biggert Waters Flood Insurance Reform and Modernization Act of 2012.
Risk includes a function of time during which the borrower’s financial condition may change; therefore, keeping financial
information up to date is important to us. Our policy requires all new loans (with a credit exposure of $10,000 or more),
regardless of the customer’s history with us, to have updated financial information. In addition, we monitor appraisals closely
as real estate values are improving.
Based on our allowance for loan loss model, we recorded a provision for loan loss of $570,000 for the year ended December
31, 2016 primarily based on loan growth, compared to $192,500 for the year ended December 31, 2015. At December 31,
2016, the five-year average loss ratios were: 0.110% Commercial, 0.059% Consumer, 0.102% 1-4 Residential, 0.000% Real
Estate Construction and 0.018% Real Estate Mortgage.
During the year ended December 31, 2016, charge-offs of $208,295 and recoveries of $72,085 were recorded to the allowance
for loan losses, resulting in an allowance for loan losses of $3,851,617 or 1.48% of total loans, compared to charge-offs of
$201,071 and recoveries of $91,550 resulting in an allowance for loan losses of $3,417,827 or 1.41% of total loans at
December 31, 2015.
We had impaired loans totaling $5,901,784 as of December 31, 2016 compared to $6,542,707 at December 31, 2015. Impaired
loans include non-accrual loans with balances at December 31, 2016, and 2015, of $1,741,621 and $2,061,088, respectively
and TDRs with balances at December 31, 2016 and 2015 of $378,392 and $458,268, respectively. We had two restructured
loans at December 31, 2016 and three restructured loans at December 31, 2015. According to GAAP, we are required to
account for certain loan modifications or restructuring as a troubled debt restructuring, when appropriate. In general, the
modification or restructuring of a debt is considered a TDR if we, for economic or legal reasons related to a borrower’s
financial difficulties, grant a concession to the borrower that we would not otherwise consider. We do not know of any loans
which will not meet their contractual obligations that are not otherwise discussed herein.
29
The accrual of interest is generally discontinued on loans which become 90 days past due as to principal or interest. The
accrual of interest on some loans, however, may continue even though they are 90 days past due if the loans are well secured
or in the process of collection and we deem it appropriate. If non-accrual loans decrease their past due status to less than 30
days for a period of 6 to 9 months, they are reviewed individually to determine if they should be returned to accrual status. At
December 31, 2016 there were two loans over 90 days past due still accruing interest compared to one loan over 90 days past
due still accruing interest at December 31, 2015. The loans at December 31, 2016 were both considered impaired. One loan
subsequently renewed and payments were brought current. The other loan was put on nonaccrual status subsequent to year-
end.
Net charge-offs for the year ended December 31, 2016, were $136,210 as compared to net charge-offs of $109,521 for the year
ended December 31, 2015. Although uncertainty in the national and international economic outlook still exists, we believe
loss exposure in the portfolio is identified, reserved against, and closely monitored, to ensure that changes are promptly
addressed in the analysis of reserve adequacy.
The following table represents a summary of loan loss experience for the past five years.
Summary of Loan Loss Experience
(Dollars in thousands)
Balance of allowance for loan losses at beginning of period ...... $
2016
2015
2014
2013
2012
3,418 $
3,335
$
3,292
$
3,433
$
3,107
Charge offs:
Commercial ............................................................................
Commercial real estate - construction .....................................
Commercial real estate - other ................................................
Consumer real estate ...............................................................
Consumer other .......................................................................
Total charge-offs ............................................................
Recoveries:
Commercial ............................................................................
Commercial real estate - construction .....................................
Commercial real estate - other ................................................
Consumer real estate ...............................................................
Consumer other .......................................................................
Total recoveries ..............................................................
Net charge-offs ...............................................................
(33)
-
(78)
(82)
(15)
(208)
-
-
65
-
7
72
(136)
(100)
-
(55)
(6)
(40)
(201)
9
-
54
6
22
91
(110)
Provision charged to operations .................................................
570
193
(83)
-
(16)
-
(14)
(113)
-
-
46
-
27
73
(40)
83
(245)
-
-
-
(146)
(391)
23
-
15
-
5
43
(348)
207
(60)
-
(44)
(56)
(12)
(172)
110
-
13
10
15
148
(24)
350
Balance of allowance for loan losses at end of period............ $
3,852
$
3,418
$
3,335
$
3,292
$
3,433
We believe the allowance for loan losses at December 31, 2016, is adequate to cover estimated losses in the loan portfolio;
however, assessing the adequacy of the allowance is a process that requires considerable judgment. Our judgments are based
on numerous assumptions about current events that we believe to be reasonable, but may or may not be valid. Thus, there can
be no assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the
allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio in light of
changing economic conditions and other relevant circumstances will not require significant future additions to the allowance,
thus adversely affecting our operating results.
30
The following table presents a breakdown of the allowance for loan losses for the past five years.
(in thousands)
Commercial .........
Commercial:
Real Estate -
Construction.....
Real Estate -
Other ................
Consumer:
Real Estate .......
Other ................
2016
$
$ 1,545
%(1)
2015
$
%(1)
20%
$
897
21%
$
December 31,
2014
$
1,211
%(1)
21%
$
2013
$
1,449
%(1)
24%
$
2012
$
1,576
%(1)
25%
52
1%
60
1%
43
1%
22
1%
31
1%
1,375
47%
1,345
47%
1,112
49%
1,064
49%
767
50%
726
154
29%
3%
$ 3,852 100%
941
175
29%
2%
3,418 100%
$
863
105
3,335
27%
2%
100%
673
84
25%
2%
3,292 100%
$
$
947
112
3,433
22%
2%
100%
$
(1) Loan category as a percentage of total loans.
The allowance is also subject to examination testing by regulatory agencies, which may consider such factors as the
methodology used to determine adequacy and the size of the allowance relative to that of peer institutions, and other adequacy
tests. In addition, such regulatory agencies could require us to adjust our allowance based on information available to them at
the time of their examination.
The methodology used to determine the reserve for unfunded lending commitments, which is included in other liabilities, is
inherently similar to the methodology used to determine the allowance for loan losses described above, adjusted for
factors specific to binding commitments, including the probability of funding and historical loss ratio. A provision of
$4,001 was recorded during the year ended December 31, 2016. No provision was considered necessary for the year
ended December 31, 2015. The balance for the reserve for unfunded lending commitments was $24,826 and $20,825 as of
December 31, 2016 and 2015, respectively.
OTHER REAL ESTATE OWNED
Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned
(“OREO”) until it is sold. When the property is acquired, it is recorded at the lesser of fair value of the property less estimated
selling costs or the total loan balance. It is in our best interest to determine the fair market value by engaging an independent
appraisal within 30 days of property being acquired into OREO. We cannot hold the property for a period of more than five
years unless we have prior approval from the Commissioner of Banking of the State Board of Financial Institutions. The Bank
will pay property taxes along with insurance expenses until the property is sold. OREO at December 31, 2016 consisted of one
property in the amount of $521,943 compared to two properties in the total amount of $620,394 at December 31, 2015. One
property was sold during the year ended December 31, 2016 for a loss of $13,450. One loan receivable valued at $35,473 was
moved to OREO during the year ended December 31, 2014, and ultimately sold at a gain of $2,382. We had no OREO during
the years ended December 31, 2012 and December 31, 2013.
31
NONPERFORMING ASSETS
Nonperforming assets include OREO, nonaccrual loans and loans past due 90 days or more and still accruing interest. The
following table summarizes nonperforming assets for the five years ended December 31, 2016:
Nonperforming Assets
(Dollars in thousands)
Nonaccrual loans ................................................
Loans past due 90 days or more and still accruing
interest ............................................................
Total nonperforming loans ..........................
Other real estate owned .....................................
Total nonperforming assets .........................
2016
2015
2014
2013
2012
$
1,742
$
2,061
$
882
$
1,575 $
3,994
123
1,865
522
2,387
2
2,063
620
2,683
$
1,274
2,156
522
2,678
-
1,575
-
1,575 $
-
3,994
-
3,994
$
$
$
Nonperforming assets to total assets ............
Nonperforming loans to total loans .............
0.58%
0.72%
0.67%
0.85%
0.73%
0.92%
0.46%
0.72%
1.23%
1.84%
(in 000’s)
1 Day
Less
Than 3
Months
3 Months
to Less
Than 6
Months
6 Months
to Less
Than 1
Year
1 Year
to Less
Than 5
Years
5 years
or More
Total
DEPOSITS
CD's and other time deposits
100,000 and over
CD's and other time deposits
under 100,000
$
$
225 $
13,280 $
8,419 $
8,236 $
1,297 $
- $
31,457
17 $
3,904 $
3,401 $
3,539 $
1,520 $
3 $
12,384
Certificates of Deposit $100,000 and over decreased $9,816,652 or 23.78% for the year ended December 31, 2016, from
$41,273,428 at December 31, 2015. This decrease was primarily due to the maturity of Public Funds that were used for
construction projects.
The following table presents average deposits by category:
2016
Average
(Dollars in thousands)
Average
Amount
Rate
Paid
Average
Amount
2015
Average
Rate
Paid
2014
Average
Average
Amount
Rate
Paid
Non-interest-bearing demand .....................
Interest-bearing transaction accounts .........
Savings .......................................................
Time deposits .............................................
Total average deposits .........................
$
$
123,670
167,534
28,688
47,931
367,823
n/a
0.10%
0.12%
0.38%
$
$
112,788
138,332
26,123
60,726
337,969
n/a
0.10%
0.12%
0.39%
$
$
101,720
128,932
23,190
65,289
319,131
n/a
0.10%
0.12%
0.39%
Deposits increased $13,804,239 or 3.85% to $372,522,851 at December 31, 2016, from $358,718,612 at December 31, 2015.
Non-interest bearing deposits increased $3,961,082 to $126,034,478 at December 31, 2016, primarily from new account
growth and an improved economy. We also experienced larger balances in existing customer accounts as well as large escrow
deposits resulting in an increase in our interest-bearing demand deposit accounts.
We fund growth through core deposits and do not have and therefore do not rely on Brokered Deposits or Internet Deposits as
a source to do so.
32
SHORT-TERM BORROWINGS
Securities sold under agreements to repurchase with customers mature on demand. At December 31, 2016 and 2015, there
were no securities sold under agreements to repurchase. There was no amount outstanding at any month end during 2016. The
maximum amount of securities sold under agreements to repurchase outstanding at any month end was $5,480,927 for the year
ended December 31, 2015. The average amount of outstanding securities sold under agreements to repurchase was $751 and
$1,873,507 during the years ended December 31, 2016 and 2015, respectively. The securities underlying repurchase
agreements are held in safekeeping by an authorized broker. At the maturity date of the agreement, the securities are returned
to our account.
At December 31, 2016 and 2015, we had no outstanding federal funds purchased. We have a Borrower-In-Custody
arrangement with the Federal Reserve. This arrangement permits the Company to retain possession of loans pledged as
collateral to secure advances from the Federal Reserve Discount Window. Under this agreement, we may borrow up to $75
million. We established this arrangement as an additional source of liquidity. There have been no borrowings under this
arrangement.
At December 31, 2016 and 2015, the Bank had unused short-term lines of credit totaling approximately $21,000,000 and
$18,000,000, respectively (which are withdrawable at the lender’s option).
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted
accounting principles, are not recorded in the financial statements, or are recorded in amounts that differ from the notional
amounts. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. We use such
transactions for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage
credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customer requests for
funding.
Our off-balance sheet arrangements consist principally of commitments to extend credit described below. We estimate
probable losses related to binding unfunded lending commitments and record a reserve for unfunded lending commitments in
other liabilities on the consolidated balance sheet. At December 31, 2016 and 2015, the balance of this reserve was $24,827
and $20,825, respectively. At December 31, 2016 and 2015, we had no interests in non-consolidated special purpose entities.
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 $81,234,269 and $87,622,437 at December 31, 2016 and 2015, respectively.
Standby letters of credit represent our obligation to a third party contingent upon the failure of our customer to perform under
the terms of an underlying contract with the third party or obligates us to guarantee or stand as surety for the benefit of the
third party. The underlying contract may entail either financial or nonfinancial obligations and may involve such things as the
shipment of goods, performance of a contract, or repayment of an obligation. Under the terms of a standby letter, generally
drafts will be drawn only when the underlying event fails to occur as intended. We can seek recovery of the amounts paid
from the borrower. The majority of these standby letters of credit are unsecured. Commitments under standby letters of credit
are usually for one year or less. The maximum potential amount of undiscounted future payments related to standby letters of
credit at December 31, 2016 and 2015 was $793,992 and $745,187, respectively.
33
We originate certain fixed rate residential loans and commit these loans for sale. The commitments to originate fixed rate
residential loans and the sales commitments are freestanding derivative instruments. We had forward sales commitments,
totaling $4,386,210 at December 31, 2016, to sell loans held for sale of $4,386,210, compared to forward sales commitments
of $5,820,239 at December 31, 2015, to sell loans held for sale of $5,820,239. The fair value of these commitments was not
significant at December 31, 2016 or 2015. We had no embedded derivative instruments requiring separate accounting
treatment.
Once we sell certain fixed rate residential loans, the loans are no longer reportable on our balance sheet. With most of these
sales, we have an obligation to repurchase the loan in the event of a default of principal or interest on the loan. This recourse
period ranges from three to nine months. Misrepresentation or fraud carries unlimited time for recourse. The unpaid principal
balance of loans sold with recourse was $18.1 million at December 31, 2016 and $13.1 million at December 31, 2015. For the
twelve months ended December 31, 2016 and December 31, 2015, there were no loans repurchased.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles
(“GAAP”) which require the measurement of financial position and results of operations in terms of historical dollars without
consideration of changes in the relative purchasing power over time due to inflation.
Unlike most other industries, the assets and liabilities of financial institutions such as the Company are primarily monetary in
nature. As a result, interest rates generally have a more significant impact on our performance than do the effects of general
levels of inflation and changes in prices. In addition, interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. We strive to manage the relationship between interest-sensitive assets and
liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.
CAPITAL RESOURCES
Our capital needs have been met to date through the $10,600,000 in capital raised in our initial offering, the retention of
earnings less dividends paid and the exercise of options to purchase stock. Total shareholders’ equity at December 31, 2016
was $40,612,974. The rate of asset growth since our inception has not negatively impacted this capital base.
On July 2, 2013, the Federal Reserve Board approved the final rules implementing the Basel Committee on Banking
Supervision’s (“BCBS”) capital guidelines for US banks (“Basel III”). Following the actions by the Federal Reserve, the FDIC
also approved regulatory capital requirements on July 9, 2013. The FDIC’s rule is identical in substance to the final rules
issued by the Federal Reserve Bank.
Basel III became effective on January 1, 2015. The purpose is to improve the quality and increase the quantity of capital for
all banking organizations. The minimum requirements for the quantity and quality of capital were increased. The rule includes
a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation
buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from
4% to 6% and requires a minimum leverage ratio of 4%. In addition, the rule also implements strict eligibility criteria for
regulatory capital instruments and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity.
Full compliance with all of the final rule requirements will be phased in over a multi-year schedule.
At December 31, 2016, the Bank was categorized as “well capitalized”. To be categorized as “well capitalized” the Bank
must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based capital and Tier 1 leverage ratios
of 10%, 8.0%, 6.5% and 5%, respectively, and to be categorized as “adequately capitalized,” the Bank must maintain minimum
total risk based, Tier 1 risk based, common equity Tier 1 risk based capital, and Tier 1 leverage ratios of 8%, 6%, 4.5%, and
4.0%, respectively.
34
We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators
that, if undertaken, could have a material effect on the financial statements. We must meet specific capital guidelines that
involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors. Current and previous quantitative measures established by regulation to ensure
capital adequacy require that we maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and
to average assets. We believe, as of December 31, 2016, that the Company and the Bank meet all capital adequacy
requirements to which we are subject.
There are no current conditions or events that we are aware of that would change the Company’s or the Bank’s category.
Please see “Notes to Consolidated Financial Statements” for the Company’s and the Bank’s various capital ratios at December
31, 2016.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See the Market Risk section in “Management's Discussion and Analysis of Financial Condition and Results of Operation”
included in Item 7 of this report.
35
Item 8. Financial Statements and Supplementary Data
(cid:3)
(cid:3)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Bank of South Carolina Corporation and Subsidiary
Charleston, South Carolina
We have audited the accompanying consolidated balance sheets of Bank of South Carolina Corporation and Subsidiary as of
December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, shareholders'
equity, and cash flows for each of the three years in the period ended December 31, 2016. These consolidated financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Bank of South Carolina Corporation and Subsidiary as of December 31, 2016 and 2015, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S.
generally accepted accounting principles.
/s/ Elliott Davis Decosimo, LLC
Columbia, South Carolina
March 3, 2017
36
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
2016
2015
$
$
$
ASSETS
Cash and due from banks
Interest-bearing deposits in other banks
Investment securities available for sale (amortized cost of
$120,942,615 and $118,422,116 in 2016 and 2015, respectively)
Mortgage loans to be sold
Loans
Less: Allowance for loan losses
Net loans
Premises, equipment and leasehold improvements, net
Other real estate owned
Accrued interest receivable
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest-bearing demand
Interest-bearing demand
Money market accounts
Time deposits over $250,000
Other time deposits
Other savings deposits
Total deposits
Accrued interest payable and other liabilities
Total liabilities
Commitments and contingencies Notes 6 and 11
Shareholders’ equity
Common stock-no par, 12,000,000 shares authorized; 5,197,535 and
5,157,996 shares issued at December 31, 2016 and 2015,
respectively; 4,956,139 and 4,916,600 shares outstanding at
December 31, 2016 and 2015, respectively
Additional paid in capital
Retained earnings
Treasury stock: 241,396 shares at December 31, 2016 and 2015
Accumulated other comprehensive income (loss), net of income taxes
Total shareholders’ equity
8,141,030 $
18,101,300
119,978,944
4,386,210
260,576,115
(3,851,617)
256,724,498
2,296,624
521,943
1,614,002
2,185,085
413,949,636 $
126,034,478 $
96,260,589
77,307,662
17,822,136
26,019,121
29,078,865
372,522,851
813,811
373,336,662
-
36,824,022
6,643,476
(2,247,415)
(607,109)
40,612,974
Total liabilities and shareholders’ equity
$
413,949,636 $
See accompanying notes to consolidated financial statements.
5,295,924
23,898,862
119,997,585
5,820,239
242,622,705
(3,417,827)
239,204,878
2,289,228
620,394
1,284,063
761,339
399,172,512
122,073,396
84,977,640
70,233,422
25,896,768
28,871,044
26,666,342
358,718,612
1,302,188
360,020,800
-
36,341,744
4,064,834
(2,247,415)
992,549
39,151,712
399,172,512
37
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2016
2015
2014
Interest and fee income
Loans, including fees
Taxable securities
Tax-exempt securities
Other
Total interest and fee income
Interest expense
Deposits
Short-term borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan
losses
Other income
Service charges, fees and commissions
Mortgage banking income
Gains on sales of securities
Other non-interest income
Total other income
Other expense
Salaries and employee benefits
Net occupancy expense
Net other real estate owned expenses
Other operating expenses
Total other expenses
Income before income tax expense
Income tax expense
Net income
Weighted average shares outstanding
Basic
Diluted
Basic income per common share
Diluted income per common share
$
$
$
$
12,851,900 $
1,297,636
1,007,438
138,623
15,295,597
378,733
7
378,740
14,916,857
570,000
14,346,857
1,061,349
1,387,740
380,904
31,090
2,861,083
6,087,929
1,528,048
16,691
2,639,776
10,272,444
6,935,496
1,688,433
11,795,303 $
1,376,441
1,012,638
45,566
14,229,948
401,463
932
402,395
13,827,553
192,500
11,263,048
1,045,592
1,059,883
49,731
13,418,254
408,266
681
408,947
13,009,307
82,500
13,635,053
12,926,807
991,007
1,605,676
423,832
29,443
3,049,958
5,859,203
1,480,606
5,284
2,168,382
9,513,475
7,171,536
2,287,248
921,638
1,315,020
312,577
29,466
2,578,701
5,466,446
1,473,700
16,440
2,152,236
9,108,822
6,396,686
1,997,866
5,247,063 $
4,884,288 $
4,398,820
4,935,349
5,054,114
1.06 $
1.04 $
4,912,499
5,067,085
.99 $
.96 $
4,907,208
5,032,211
.90
.87
See accompanying notes to consolidated financial statements.
38
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income
Other comprehensive income (loss):
$
Unrealized gain (loss) on securities
arising during the period
Reclassification adjustment for
securities gains realized in net
income
Other comprehensive income (loss),
before tax
Income tax effect related to items of
other comprehensive income (loss)
Other comprehensive income (loss),
after tax
Total comprehensive income
$
YEARS ENDED DECEMBER 31,
2016
2015
2014
5,247,063 $
4,884,288 $
4,398,820
(2,158,236)
26,255
768,326
(380,904)
(2,539,140)
939,482
(423,832)
(397,577)
147,104
(1,599,658)
3,647,405 $
(250,473)
4,633,815 $
(312,577)
455,749
(168,627)
287,122
4,685,942
See accompanying notes to consolidated financial statements.
39
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2016, 2015, 2014
ADDITIONAL
PAID IN
CAPITAL
RETAINED
EARNINGS
$
28,678,150
-
$
7,007,532
4,398,820
$
TREASURY
STOCK
(1,902,439)
-
$
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
955,900
-
$
TOTAL
34,739,143
4,398,820
-
26,050
74,908
-
28,779,108
-
-
122,946
-
-
-
(2,766,061)
8,640,291
4,884,288
-
-
-
-
-
287,122
287,122
-
-
26,050
74,908
-
(1,902,439)
-
1,243,022
(2,766,061)
36,759,982
-
-
-
-
4,884,288
(250,473)
(250,473)
-
-
-
122,946
(4,778)
78,987
-
992,549
(2,439,240)
39,151,712
-
5,247,063
(1,599,658)
(1,599,658)
-
-
405,749
76,529
7,360,703
(7,020,505)
(344,976)
-
-
78,987
-
36,341,744
-
-
405,749
76,529
(2,439,240)
4,064,834
5,247,063
-
-
-
-
(2,247,415)
-
-
-
-
-
36,824,022
$
(2,668,421)
6,643,476
$
-
(2,247,415)
$
$
-
(607,109)
$
(2,668,421)
40,612,974
December 31, 2013
Net income
Other comprehensive
income
Exercise of stock
options
2,500 common
Stock-based
compensation
expense
Cash dividends ($0.62
per common share)
December 31, 2014
Net income
Other comprehensive
loss
Exercise of stock
options
8,615 common
10% stock dividend
446,597 common
21,945 treasury at
$15.72
Stock-based
compensation
expense
Cash dividends ($0.52
per common share)
December 31, 2015
Net income
Other comprehensive
loss
Exercise of stock
options 39,539
common
Stock-based
compensation
expense
Cash dividends ($0.54
per common share)
December 31, 2016
See accompanying notes to consolidated financial statements.
40
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
Gain on sale of securities
(Loss) gain on sale of other real estate
Provision for loan losses
Stock-based compensation expense
Deferred income taxes
Net amortization of unearned discounts on
investment securities
Origination of mortgage loans held for sale
Proceeds from sale of mortgage loans held for sale
(Increase) decrease in accrued interest receivable
and other assets
Increase (decrease) in accrued interest payable and
other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from calls and maturities of investment
securities available for sale
Proceeds from sale of available for sale securities
Purchase of investment securities available for sale
Proceeds from sale of other real estate
Net increase in loans
Purchase of premises, equipment and leasehold
improvements, net
Net cash used by investing activities
Cash flows from financing activities:
Net increase in deposit accounts
Net (decrease) increase in short-term borrowings
Dividends paid
Stock options exercised
Cash in lieu of fractional shares
Net cash (used) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
2016
2015
$
5,247,063
$
4,884,288
$
2014
4,398,820
YEARS ENDED DECEMBER 31,
189,188
(380,904)
13,450
570,000
76,529
(750,254)
250,755
(76,032,671)
77,466,700
(63,949)
(543,083)
6,042,824
9,630,804
36,218,087
(48,239,241)
85,001
(18,089,620)
(196,584)
(20,591,553)
13,804,239
-
(2,613,715)
405,749
-
11,596,273
(2,952,456)
29,194,786
196,827
(423,832)
-
192,500
78,987
4,748
109,311
(91,053,923)
92,558,765
391,043
176,898
7,115,612
2,315,000
16,564,118
(25,389,485)
-
(8,712,885)
(133,632)
(15,356,884)
36,299,585
(6,980,681)
(2,380,062)
122,946
(4,778)
27,057,110
18,815,738
10,379,048
200,178
(312,577)
(2,382)
82,500
74,908
134,478
303,036
(71,767,800)
69,182,061
(274,201)
153,882
2,172,903
1,920,000
37,159,363
(57,959,964)
37,855
(16,394,833)
(97,740)
(35,335,319)
17,176,372
6,980,681
(2,765,735)
26,050
-
21,417,368
(11,745,048)
22,124,096
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Interest
Income taxes
Supplemental disclosure for non-cash investing and
financing activity:
Change in unrealized gain (loss) on securities
available for sale, net of income taxes
Change in dividends payable
Change in other real estate owned
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
26,242,330
$
29,194,786
$
10,379,048
400,531
2,320,830
(1,599,658)
54,706
-
$
$
$
$
$
419,004
2,196,000
(250,473)
59,178
186,210
$
$
$
$
$
429,758
1,819,000
287,122
325
521,943
41
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
The Bank of South Carolina (the “Bank”) was organized on October 22, 1986 and opened for business as a state-
chartered financial institution on February 26, 1987, in Charleston, South Carolina. The Bank was reorganized into a
wholly-owned subsidiary of Bank of South Carolina Corporation (the “Company”), effective April 17, 1995. At the
time of the reorganization, each outstanding share of the Bank was exchanged for two shares of Bank of South Carolina
Corporation Stock.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our accounting and reporting policies conform, in all material respects, to U.S. generally accepted accounting principles
(“GAAP”), and to general practices within the banking industry. The following summarizes the more significant of
these policies and practices.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of Bank of South Carolina Corporation (the
"Company") and its wholly-owned subsidiary, The Bank of South Carolina (the "Bank"). In 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.
We provide financial services through our four banking house locations: 256 Meeting Street, Charleston, SC, 100 North
Main Street, Summerville, SC, 1337 Chuck Dawley Boulevard, Mt. Pleasant, SC and 2027 Sam Rittenberg Boulevard,
Charleston, SC. Our primary deposit products are checking, savings, and term certificate accounts, and our primary
lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by
specific items of collateral including business assets, consumer assets, and commercial and residential real estate.
Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant
concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans may be
dependent on the general economic conditions in the area.
Accounting Estimates and Assumptions:
The preparation of the financial statements are in conformity with GAAP, which require management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could differ significantly from these estimates and
assumptions. Material estimates generally susceptible to significant change are related to the determination of the
allowance for loan losses, impaired loans, other real estate owned, asset prepayment rates and other-than-temporary
impairment of investment securities.
Reclassification:
Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year’s
presentation. Such reclassifications had no effect on shareholders’ equity or the net income as previously reported.
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.
42
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents:
Cash and cash equivalents include working cash funds, due from banks, interest-bearing deposits in other banks, items
in process of collection and federal funds sold. All cash equivalents are readily convertible to cash and have maturities
of less than 90 days.
Depository institutions are required to maintain reserve and clearing balances at the Federal Reserve Bank. Vault cash
satisfied our daily reserve requirement for the years ended December 31, 2016 and 2015, respectively.
Interest-bearing Deposits in Other Financial Institutions:
Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.
Investment Securities:
We classify investments into three categories as follows: (1) Held to Maturity - debt securities that we have the positive
intent and ability to hold to maturity, which are reported at amortized cost, adjusted for the amortization of any related
premiums or the accretion of any related discounts into interest income using a methodology which approximates a level
yield of interest over the estimated remaining period until maturity, (2) Trading - debt and equity securities that are
bought and held principally for the purpose of selling them in the near term, which are reported at fair value, with
unrealized gains and losses included in earnings, and (3) Available for Sale - debt and equity securities that may be sold
under certain conditions, which are reported at fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of shareholders' equity, net of income taxes. Unrealized losses on securities due to
fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has
occurred.
Realized gains or losses on the sale of investments are recognized on a specific identification, trade date basis. All
securities were classified as available for sale for 2016 and 2015. We do not have any mortgage-backed securities nor
have we ever invested in mortgage-backed securities.
Mortgage Loans to be Sold:
We originate fixed and variable rate residential mortgage loans on a service release basis in the secondary market. Loans
closed but not yet settled with an investor are carried in our loans held for sale portfolio. Virtually all of these loans
have commitments to be purchased by investors and the majority of these loans were locked in by price with the
investors on the same day or shortly thereafter that the loan was locked in with our customers. Therefore, these loans
present very little market risk. We usually deliver to, and receive funding from, the investor within 30 to 60
days. Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a
“best efforts" basis. We are not obligated to deliver a loan or pay a penalty if a loan is not delivered to the investor. As a
result of the short-term nature of these derivative contracts, the fair value of the mortgage loans held for sale in most
cases is the same as the value of the loan amount at its origination.
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated
market value in the aggregate. Net unrealized losses are provided for in a valuation allowance by charges to operations
as a component of mortgage banking income. Gains or losses on sales of loans are recognized when control over these
assets has been surrendered and are included in mortgage banking income in the consolidated statements of operations.
Loans and Allowance for Loan Losses:
Loans are carried at principal amounts outstanding. Loan origination fees, net of certain direct origination costs, are
deferred and recognized over the weighted average life of the loan as an adjustment to yield. Interest income on all
loans is recorded on an accrual basis. The accrual of interest and the amortization of net loan fees are generally
discontinued on loans which 1) are maintained on a cash basis because of deterioration in the financial condition of the
borrower; 2) for which payment of full principal is not expected; or 3) upon which principal or interest has been in
default for a period of 90 days or more. We define past due loans based on contractual payment and maturity dates.
43
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accrual of interest is generally discontinued on loans that become 90 days past due as to principal or interest. The
accrual of interest on some loans, however, may continue even though they are 90 days past due if the loans are well
secured or in the process of collection and management deems it appropriate. If non-accrual loans decrease their past
due status to less than 30 days for a period of six to nine months, they are reviewed individually by management to
determine if they should be returned to accrual status.
When the ultimate collectability of an impaired loan's principal is in doubt, wholly or partially, all cash receipts are
applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to
interest income, to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any
amounts previously charged off. When this doubt does not exist, cash receipts are applied under the contractual terms of
the loan agreement first to interest income and then to principal.
We account for impaired loans by requiring that all loans (greater than $50,000) for which it is estimated that we will be
unable to collect all amounts due according to the terms of the loan agreement be recorded at the loan's fair value. Fair
value may be determined based upon the present value of expected future cash flows discounted at the loan's effective
interest rate, or the fair value of the collateral less cost to sell, if the loan is collateral dependent.
Additional accounting guidance allows us to use existing methods for recognizing interest income on an impaired loan.
The guidance also requires additional disclosures about how we estimate interest income related to our impaired loans.
A loan is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). For this type of
impaired loan, cash receipts are typically applied to principal and interest receivable in accordance with the terms of the
restructured loan agreement. Interest income is recognized on these loans using the accrual method of accounting,
provided they are performing in accordance with their restructured terms.
The allowance for loan losses is our estimate of credit losses inherent in the loan portfolio. The allowance for loan
losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.
Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular
basis and is based upon our periodic review of the collectability of the loans in light of historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value
of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available.
We believe that the allowance is adequate to absorb inherent losses in the loan portfolio; however, there can be no
assurance that loan losses in future periods will not exceed the current allowance amount or that future increases in the
allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio, in light of
changing economic conditions and other relevant circumstances, will not require significant future additions to the
allowance, thus adversely affecting our operating results.
The allowance is also subject to examination by regulatory agencies, which may consider such factors as the
methodology used to determine adequacy and the size of the allowance relative to that of peer institutions and other
adequacy tests. In addition, such regulatory agencies could require us to adjust our allowance based on information
available at the time of the examination.
44
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The methodology used to determine the reserve for unfunded lending commitments, which is included in other
liabilities, is inherently similar to the methodology used to determine the allowance for loan losses adjusted for factors
specific to binding commitments, including the probability of funding and historical loss ratio.
Concentration of Credit Risk:
Our primary market consists of the counties of Berkeley, Charleston and Dorchester, South Carolina. At December 31,
2016, the majority of the total loan portfolio, as well as a substantial portion of the commercial and real estate loan
portfolios, were to borrowers within this region. No other areas of significant concentration of credit risk have been
identified.
Premises, Equipment and Leasehold Improvements and Depreciation:
Land is carried at cost. Buildings and equipment are stated at cost less accumulated depreciation. Depreciation is
recorded using the straight-line method for financial reporting purposes and accelerated methods for income tax
purposes over the estimated useful lives of the assets ranging from 40 years for buildings and 3 to 15 years for
equipment. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term,
including renewal periods when reasonably assured. The cost of maintenance and repairs is charged to operating
expense as incurred.
Other Real Estate Owned:
Real estate properties acquired through foreclosure are initially recorded at the lower of the recorded investment in the
loan or fair value less costs to sell. Losses arising from the initial foreclosure are charged against the allowance for loan
losses. Subsequent to foreclosure, real estate owned is recorded at the lower of cost or fair value, adjusted for net selling
costs. Fair value is based upon independent market prices, appraised values of the collateral, or our estimation of the
value of the collateral. Gains and losses on the sale of other real estate owned (“OREO”) and subsequent write-downs
from periodic re-evaluation are charged to net other real estate owned expenses.
Income Taxes:
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Net deferred tax assets are included in other assets in the consolidated balance sheet.
Accounting standards require the accounting for uncertainty in income taxes recognized in an enterprise’s financial
statements. These standards also prescribe a recognition threshold and measurement of a tax position taken or expected
to be taken in an enterprise’s tax return. We believe that we had no uncertain tax positions for the years ended
December 31, 2016 and 2015.
Stock-Based Compensation:
Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at the
date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Compensation cost is
recognized over the required service period, generally defined as the vesting period (10 years).
Income Per Common Share:
Basic income per share is computed by dividing net income by the weighted-average number of common shares
outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of
common shares and potential common shares outstanding. Potential common shares consist of dilutive stock options
determined using the treasury stock method and the average market price of common stock. Earnings per share are
restated for all stock splits and stock dividends through the date of issuance of the financial statements.
45
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive Income:
We apply accounting standards which establish guidance for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive income consists of net income and net
unrealized gains or losses on securities.
Segment Information:
The Company operates and manages itself within one retail banking segment and has, therefore, not provided segment
disclosures.
Interest Rate Lock Commitments and Forward Sale Contracts:
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward
commitments for the future delivery of these mortgage loans are accounted for as free-standing derivatives. The fair
value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is
adjusted for the expected exercise of the commitments before the loan is funded. In order to hedge the change in interest
rates resulting from commitments to fund the loans, we enter into forward commitments for the future delivery of
mortgage loans when the interest rate is locked. Fair values of these mortgage derivatives are estimated based on
changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these
derivatives are included in income when they occur. As a result of the short-term nature of mortgage loans held for sale
(derivative contract), our derivative instruments were considered to be immaterial as of December 31, 2016 and 2015.
We had no embedded derivative instruments requiring hedge accounting treatment at December 31, 2016. We do not
currently engage in hedging activities.
Recent Accounting Pronouncements:
The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting and/or
disclosure of financial information by the Company.
In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core
principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to
customers in an amount equal to the consideration the entity receives or expects to receive. This guidance also includes
expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive
information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s
contracts with customers. In August 2015, the FASB deferred the effective date of the amendments. As a result of the
deferral, the guidance will be effective for the Company for reporting periods beginning after December 15, 2017. We
will apply this guidance using a modified retrospective approach. We do not expect this amendment to have a material
effect on our consolidated financial statements.
In June 2014, the FASB issued guidance which makes limited amendments to the guidance on accounting for certain
repurchase agreements. The new guidance (1) requires entities to account for repurchase-to-maturity transactions as
secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on
linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial
assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and
repurchase-to-maturity transactions) accounted for as secured borrowings. The amendments became effective for the
Company for the first interim or annual period beginning after December 31, 2014. We applied the guidance by making
a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This adjustment did
not have a material effect on our financial statements.
46
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2015, the FASB issued guidance to eliminate from U.S. GAAP the concept of an extraordinary item, which is
an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the new guidance, an
entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an
extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income
taxes and earnings-per-share data applicable to an extraordinary item. The amendments were effective January 1, 2016
and did not have a material effect on our financial statements.
In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes
the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the
deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The
amendments were effective January 1, 2016 and did not have a material effect on our financial statements.
In June 2015, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended
application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on
current accounting practice or create a significant administrative cost to most entities. The amendments were effective
upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to
transition guidance were effective January 1, 2016 and did not have a material effect on our financial statements.
In August 2015, the FASB issued amendments to the Interest topic of the Accounting Standards Codification to clarify
the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit
arrangements. The amendments were effective upon issuance. The Company does not expect these amendments to have
a material effect on its financial statements.
In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to
address 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 ear of adoption. The amendments related to equity securities without readily determinable fair
values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. We
do not expect this amendment to have a material effect on our financial statements.
In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to require all leases
with lease terms over 12 months to be capitalized as a right-of-use asset and lease liability on the balance sheet at the
date of lease commencement. Leases will be classified as either finance leases or operating leases. This distinction will
be relevant for the pattern of expense recognition in the income statement. The amendments will be effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is
permitted. The Company is currently in the process of evaluating the impact of adoption of this guidance on its financial
statements.
In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards
Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity
should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will
be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect
these amendments to have a material effect on its financial statements.
In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award
transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the
classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other
than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with
performance or service conditions that have certain characteristics and also allowing them to make a one-time election to
switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments
were effective January 1, 2017. The Company does not expect these amendments to have a material effect on its
financial statements.
47
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards
Codification to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual
property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017.
The Company does not expect these amendments to have a material effect on its financial statements.
In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards
Codification 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 guidance to change the accounting for credit losses and modify the impairment model for
certain debt securities. The guidance requires a financial asset (including trade receivables) measured at amortized cost
basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the
measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of
expected credit losses that have taken place during the period. 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 in the process of evaluating the impact of adoption of
this guidance on its financial statements.
In August 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification 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 October 2016, the FASB amended the Income Taxes topic of the Accounting Standards Codification to modify the
accounting for intra-entity transfers of assets other than inventory. 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 October 2016, the FASB amended the Consolidation topic of the Accounting Standards Codification to revise the
consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE)
should treat indirect interests in the entity held through related parties that are under common control with the reporting
entity when determining whether it is the primary beneficiary of that VIE. The amendments will be effective for the
Company for fiscal years beginning after December 15, 2016, 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 November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to
clarify how restricted cash is 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 amendments to clarify the Accounting Standards Codification (ASC), correct
unintended application of guidance, and make minor improvements to the ASC that are not expected to have a
significant effect on current accounting practice or create a significant administrative cost to most entities. The
amendments were effective upon issuance (December 14, 2016) for amendments that do not have transition guidance.
Amendments that are subject to transition guidance were effective January 1, 2017. The Company does not expect these
amendments to have a material effect on its financial statements.
48
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with
Customers Topic. 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 does not expect these
amendments to have a material effect on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not
expected to have a material impact on our financial position, results of operations or cash flows.
49
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of investment securities available for sale are summarized as follows:
AMORTIZED
COST
DECEMBER 31, 2016
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
ESTIMATED
FAIR
VALUE
U.S. Treasury Notes
Government-Sponsored
Enterprises
Municipal Securities
$
24,148,295 $
41,153
$
(250,385) $
23,939,063
51,737,930
45,056,390
129,482
765,813
(833,321)
(816,413)
51,034,091
45,005,790
Total
$ 120,942,615 $
936,448
$
(1,900,119) $ 119,978,944
AMORTIZED
COST
DECEMBER 31, 2015
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
ESTIMATED
FAIR
VALUE
U.S. Treasury Notes
Government-Sponsored
Enterprises
Municipal Securities
$
34,517,996 $
161,037
$
(45,360) $
34,633,673
51,136,426
32,767,694
281,650
1,340,610
(133,744)
(28,724)
51,284,332
34,079,580
Total
$ 118,422,116 $
1,783,297
$
(207,828) $ 119,997,585
The amortized cost and estimated fair value of investment securities available for sale at December 31, 2016 and
December 31, 2015, by contractual maturity are as follows:
DECEMBER 31, 2016
DECEMBER 31, 2015
AMORTIZED
COST
ESTIMATED
FAIR
VALUE
AMORTIZED
COST
Due in one year or less
Due in one year to five years
Due in five years to ten years
Due in ten years and over
$
3,343,347 $
3,350,205 $
3,311,346 $
82,848,411
29,662,030
5,088,827
82,682,901
29,169,228
4,776,610
69,870,930
41,930,801
3,309,039
ESTIMATED
FAIR
VALUE
3,326,249
70,584,179
42,670,986
3,416,171
Total
$
120,942,615 $
119,978,944 $
118,422,116 $
119,997,585
Securities pledged to secure deposits and repurchase agreements at December 31, 2016 and 2015, had a carrying amount
of $47,619,232 and $48,027,575, respectively.
50
#
December 31, 2016
Available for sale
U.S. Treasury
notes
Government-
sponsored
enterprises
Municipal
securities
Total
8
December 31, 2015
Available for sale
U.S. Treasury
notes
Government-
sponsored
enterprises
Municipal
securities
Total
2
6
BANK OF SOUTH CAROLINA CORPORATION
NOTES 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 December 31, 2016 and 2015. We believe that all unrealized losses have resulted from
temporary changes in the interest rate market and not as a result of credit deterioration. We do not intend to sell and it is
not likely that we will be required to sell any of the securities referenced in the table below before recovery of their
amortized cost.
Less Than 12 Months
12 Months or Longer
Total
Gross
Unrealized
Loss
Fair Value
#
Fair Value
Gross
Unrealized
Loss
#
Fair Value
Gross
Unrealized
Loss
4 $ 17,968,594 $
(250,385)
- $
- $
-
4
$ 17,958,594 $
(250,385)
30,136,720
(833,321)
-
22,606,430
54
(816,413)
66 $ 70,711,744 $ (1,900,119)
-
- $
-
-
- $
-
8
30,136,720
(833,321)
-
-
54
66
22,606,430
(816,413)
$ 70,711,744 $ (1,900,119)
2 $ 10,064,063 $
(45,360)
- $
- $
-
2
$ 10,064,063 $
(45,360)
7,475,445
(38,538)
1
5,002,335
(95,206) 2
12,477,780
(133,744)
4,361,148
10 $ 21,900,656 $
(28,724)
(112,622)
-
1 $ 5,002,335 $
-
6
-
(95,2016) 10
4,361,148
$ 26,902,991 $
(28,724)
(207,828)
We received proceeds from sales of securities available for sale and gross realized gains and losses as follows:
Gross proceeds
Gross realized gains
Gross realized losses
2016
For the Year Ended December 31,
2015
$ 36,218,087 $ 16,564,118 $ 37,159,363
312,577
-
423,832
-
(4,059)
384,963
2014
The tax provision related to these gains was $140,934 and $156,818 for the year ended December 31, 2016 and 2015,
respectively.
51
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
LOANS AND ALLOWANCE FOR LOAN LOSSSES
Major classifications of loans (net of deferred loan fees of $136,446 at December 31, 2016, and $118,188 at December
31, 2015) are as follows:
Commercial loans
Commercial real estate:
Construction
Other
Consumer:
Real estate
Other
Allowance for loan losses
Loans, net
December 31
2016
2015
$ 52,262,209 $ 50,938,265
1,208,901
122,968,126
1,005,118
115,736,034
77,131,816
7,005,063
260,576,115
69,777,307
5,165,981
242,622,705
(3,417,827)
$ 256,724,498 $ 239,204,878
(3,851,617)
We had $101.2 million and $102.1 million of loans pledged as collateral to secure funding with the Federal Reserve
Bank (“FRB”) Discount Window at December 31, 2016 and 2015, 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 internally assigned grades pursuant to the Board-approved lending policy are as follows:
(cid:120)
(cid:120)
(cid:120)
Excellent (1) The borrowing entity has more than adequate cash flow, unquestionable strength, strong
earnings and capital where applicable, and usually no overdrafts.
Good (2) The Borrowing entity has dependable cash flow, better than average financial condition, good
capital and no overdrafts.
Satisfactory (3) The borrowing entity has adequate cash flow, satisfactory financial condition,
explainable overdrafts (if any).
(cid:120) Watch (4) The borrowing entity has generally adequate, yet inconsistent cash flow, cyclical earnings, soft
capital, loan to/from stockholders, and infrequent overdrafts. The borrower has consistent yet sometimes
unpredictable sales and growth.
(cid:120)
(cid:120)
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, bankruptcy possible. The borrowing entity has declining sales, rising costs, and may
need to look for secondary source of repayment.
52
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(cid:120)
(cid:120)
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.
Loss (8) The borrowing entity has negative cash flow with no alternatives. Survival of the business is
unlikely.
The following table illustrates credit risks by category and internally assigned grades at December 31, 2016 and
December 31, 2015. “Pass” includes loans internally graded as excellent, good and satisfactory.
Commercial
Commercial
Real Estate
Construction
December 31, 2016
Commercial
Real Estate
Other
Consumer
Real Estate
Consumer
Other
Total
Pass
Watch
OAEM
Sub-
Standard
Doubtful
Loss
$
48,289,944 $
1,004,957
1,666,048
798,884 $
410,017
-
116,490,396 $
2,625,079
995,549
74,115,426 $
899,306
630,957
6,728,367 $
147,992
28,939
246,423,017
5,087,351
3,321,493
1,301,260
-
-
-
-
-
2,857,102
-
-
1,486,127
-
-
99,765
-
-
5,744,254
-
-
Total
$
52,262,209 $
1,208,901 $
122,968,126 $
77,131,816 $
7,005,063 $
260,576,115
Commercial
December 31, 2015
Commercial
Real Estate
Construction
Commercial
Real Estate
Other
Consumer
Real Estate
Consumer
Other
Total
Pass
Watch
OAEM
Sub-
Standard
Doubtful
Loss
$
46,865,088 $
1,096,200
1,337,002
572,101 $
433,017
-
110,040,948 $
940,073
1,203,518
65,941,806 $
2,490,339
99,743
4,857,576 $
175,489
26,961
228,277,519
5,135,118
2,667,224
1,639,975
-
-
-
-
-
3,551,495
-
-
1,245,419
-
-
105,955
-
-
6,542,844
-
-
Total
$
50,938,265 $
1,005,118 $
115,736,034 $
69,777,307 $
5,165,981 $
242,622,705
53
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables include an aging analysis of the recorded investment of past-due financing receivable by class:
30-59
Days Past
Due
60-89
Days Past
Due
Greater
Than 90
Days
December 31, 2016
Total
Past Due
Current
Total Loans
Receivable
Recorded
Investment >
90 Days and
Accruing
$
438,159 $
- $
- $
438,159 $
51,824,050 $
52,262,209 $
Commercial
Commercial
Real Estate:
Commercial
Real Estate -
Construction
Commercial
Real Estate -
Other
Consumer:
Consumer
Real Estate
Consumer-
Other
Total
Commercial
Commercial
Real Estate:
Commercial
Real Estate -
Construction
Commercial
Real Estate -
Other
Consumer:
Consumer
Real Estate
Consumer-
Other
Total
-
-
-
6,363
415,457
56,784
$
916,763 $
-
-
-
-
-
1,208,901
1,208,901
1,501,153
1,507,516
121,460,610
122,968,126
89,908
-
415,457
76,716,359
77,131,816
-
-
- $
33,322
1,534,475 $
90,106
2,451,238 $
6,914,957
258,124,877 $
7,005,063
260,576,115 $
33,322
123,230
30-59
Days Past
Due
60-89
Days Past
Due
Greater
Than 90
Days
December 31, 2015
Total
Past Due
Current
Total Loans
Receivable
Recorded
Investment >
90 Days and
Accruing
$
1,162,676 $
250,370 $
4,317 $
1,417,363 $
49,520,902 $
50,938,265 $
-
-
-
-
1,005,118
1,005,118
91,607
1,215,473
1,152,774
2,459,854
113,276,180
115,736,034
68,240
249,754
82,015
400,009
69,377,298
69,777,307
-
-
-
-
69,333
1,391,856 $
58,116
1,773,713 $
6,056
1,245,162 $
133,505
4,410,731 $
5,032,476
238,211,974 $
$
5,165,981
242,622,705 $
1,606
1,606
There were two loans over 90 days past due and still accruing interest at December 31, 2016. There was one loan over
90 days past due still accruing interest at December 31, 2015. The following table summarizes the balances of non-
accrual loans:
Loans Receivable on Non-Accrual
December 31, 2016
December 31, 2015
Commercial
Commercial Real Estate:
Commercial Real Estate -
Construction
Commercial Real Estate - Other
Consumer:
Consumer - Real Estate
Consumer - Other
$
61,781 $
-
1,678,876
-
964
4,317
-
1,970,306
82,015
4,450
Total
$
1,741,621 $
2,061,088
54
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth the changes in the allowance and an allocation of the allowance by loan category at
December 31, 2016, December 31, 2015 and December 31, 2014. The allowance consists of specific and general
components. The specific component relates to loans that are individually classified as impaired. The general
component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.
Commercial
Commercial
Real Estate-
Construction
Commercial
Real Estate-Other
Consumer
Real Estate
Consumer
Other
Total
December 31, 2016
Allowance
for Loan
Losses
Beginning
Balance
Charge-offs
Recoveries
Provisions
Ending
Balance
Allowance
for Loan
Losses
Beginning
Balance
Charge-offs
Recoveries
Provisions
Ending
Balance
Allowance
for Loan
Losses
Beginning
Balance
Charge-offs
Recoveries
Provisions
Ending
Balance
$
896,854 $
(33,046)
-
681,380
$
59,861
-
-
(8,392)
$
1,345,094
(78,300)
65,000
42,912
941,470 $
(82,015)
-
(133,064)
$
174,548
(14,934)
7,085
(12,836)
3,417,827
(208,295)
72,085
570,000
$
1,545,188 $
51,469
$
1,374,706
$
726,391 $
153,863
$
3,851,617
Commercial
Commercial
Real Estate-
Construction
Commercial
Real Estate-Other
Consumer
Real Estate
Consumer
Other
Total
December 31, 2015
$
$
1,211,130
(99,737)
9,164
(223,703)
$
42,904
-
-
16,957
$
1,112,387
(55,252)
53,753
234,206
$
863,351
(6,075)
6,075
78,119
$
105,076
(40,007)
22,558
86,921
3,334,848
(201,071)
91,550
192,500
$
896,854
$
59,861
$
1,345,094
$
941,470 $
174,548
$
3,417,827
Commercial
Commercial
Real Estate-
Construction
Commercial
Real Estate-Other
Consumer
Real Estate
Consumer
Other
Total
December 31, 2014
$
$
1,448,804
(83,042)
-
(154,632)
$
22,137
-
-
20,767
$
1,064,363
(15,834)
46,000
17,858
$
672,813
-
-
190,538
$
84,160
(14,154)
27,101
7,969
3,292,277
(113,030)
73,101
82,500
$
1,211,130 $
42,904 $
1,112,387
$
863,351 $
105,076
$
3,334,848
55
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present, by portfolio segment and reserving methodology, the allocation of the allowance for
loan losses and the gross investment in loans.
Commercial
Real Estate-
Construction
December 31, 2016
Commercial
Real Estate-
Other
Consumer
Real
Estate
Commercial
Consumer
Other
Total
Allowance
for Loan
Losses
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total
Allowance
for Losses
Loans
Receivable
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total
Loans
Receivable
Allowance
for Loan
Losses
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total
Allowance
for Loan
Losses
Loans
Receivable
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
$
1,051,219 $
- $
324,587
$
43,119 $
89,047 $
1,507,972
493,969
51,469
1,050,119
683,272
64,816
2,343,645
$
1,545,188 $
51,469 $
1,374,706
$
726,391 $
153,863 $
3,851,617
$
1,301,259 $
- $
3,225,351
$
1,286,127 $
89,047 $
5,901,784
50,960,950
1,208,901
119,742,775
75,845,689
6,916,016
254,674,331
$
52,262,209 $
1,208,901 $
122,968,126
$
77,131,816 $
7,005,063 $
260,576,115
Commercial
Real Estate-
Construction
December 31, 2015
Commercial
Real Estate-
Other
Consumer
Real
Estate
Commercial
Consumer
Other
Total
$
387,979 $
- $
253,105 $
342,320 $
100,103 $
1,083,507
508,875
59,861
1,091,989
599,150
74,445
2,334,320
$
896,854 $
59,861 $
1,345,094 $
941,470 $
174,548 $
3,417,827
$
1,639,974 $
- $
3,551,495 $
1,245,419 $
105,819 $
6,542,707
49,298,291
50,938,265 $
$
1,005,118
1,005,118 $
112,184,539
115,736,034 $
68,531,888
69,777,307 $
5,060,162
5,165,981 $
236,079,998
242,622,705
56
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2016 and 2015, loans individually evaluated and considered impaired are presented in the following
table:
Impaired and Restructured Loans
As of The Year Ended
December 31,
2016
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
2015
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
$
250,040 $
250,040 $
- $
692,831 $
692,831 $
-
-
2,174,770
2,174,770
1,243,008
1,243,008
-
-
-
-
-
2,476,018
2,476,018
450,402
450,402
-
-
$
3,667,818 $
3,667,818 $
-
- $
5,715
3,624,966 $
5,715
3,624,966 $
-
-
-
-
-
-
$
1,051,219 $
1,051,219 $
1,051,219 $
947,143 $
947,143 $
387,979
-
-
-
-
-
-
1,050,581
1,050,581
324,587
1,075,477
1,075,477
253,105
43,119
43,119
43,119
795,017
795,017
342,320
89,047
2,233,966 $
$
89,047
2,233,966 $
89,047
1,507,972 $
100,104
100,104
2,917,741 $
2,917,741 $
100,103
1,083,507
$
1,301,259 $
1,301,259 $
1,051,219 $
1,639,974 $
1,639,974 $
387,979
-
-
-
-
-
-
3,225,351
3,225,351
324,587
3,551,495
3,551,495
253,105
1,286,127
1,286,127
43,119
1,245,419
1,245,419
342,320
89,047
5,901,784 $
$
89,047
5,901,784 $
89,047
1,507,972 $
105,819
6,542,707 $
105,819
6,542,707 $
100,103
1,083,507
With no related
allowance
recorded:
Commercial
Commercial
Real Estate-
Construction
Commercial
Real Estate-Other
Consumer
Real Estate
Consumer
Other
With an allowance
recorded:
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
57
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents average impaired loans and interest income recognized on those impaired loans, by
class segment, for the periods indicated.
For the Year Ended December 31,
2016
2015
2014
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
With no
related
allowance
recorded:
Commercial
Commercial
Real Estate-
Construction
Commercial
Real Estate-
Other
Consumer
Real Estate
Consumer-
Other
With an
allowance
recorded:
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
$
267,747 $
12,282 $
750,350 $
43,853 $
647,135 $
18,129
-
-
-
-
-
-
2,267,288
1,242,515
-
81,582
22,111
-
$
3,777,550 $
115,975 $
2,500,204
450,117
128,352
17,035
3,515,431
351,550
56,758
3,757,429 $
2,557
191,797 $
-
4,514,116 $
177,416
12,877
-
208,422
$
1,087,559 $
49,985 $
1,009,765
$
49,166 $
1,222,383
$
56,432
-
-
-
-
-
-
1,047,685
16,138
1,066,896
43,155
1,514
811,014
48,945
32,362
790,998
688,922
94,945
2,273,344 $
$
5,533
73,170 $
55,439
2,943,114 $
3,540
134,013 $
41,631
2,743,934 $
29,218
34,154
1,923
121,727
$
1,355,306 $
62,267 $
1,760,115 $
93,019 $
1,869,518 $
74,561
-
-
-
-
-
-
3,314,973
1,285,670
97,720
23,625
3,567,100
177,297
4,306,429
1,261,131
49,397
1,040,472
94,945
6,050,894 $
5,533
189,145 $
112,197
6,700,543 $
$
6,097
325,810 $
41,631
7,258,050 $
206,634
47,031
1,923
330,149
58
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructured loans (loans, still accruing interest, which have been renegotiated at below-market interest rates or for
which other concessions have been granted) were $378,392 (2 loans) and $458,268 (3 loans) at December 31, 2016 and
December 31, 2015, respectively. Restructured loans were granted extended payment terms with no principal reduction.
All restructured loans were performing as agreed as of December 31, 2016 and 2015, respectively.
No TDRs defaulted during the years ended December 31, 2016 and 2015, which were modified within the previous
twelve months.
5.
CONCENTRATIONS OF CREDIT RISK
We grant short to intermediate term commercial and consumer loans to customers throughout our primary market area of
Charleston, Berkeley and Dorchester counties of South Carolina. Our primary market area is heavily dependent on
tourism and medical services. Although we have a diversified loan portfolio, a substantial portion of our debtors' ability
to honor their contracts is dependent upon the stability of the economic environment in their primary market including
the government, tourism and medical industries. The majority of the loan portfolio is located in our immediate market
area with a concentration in Real Estate Related Activities and Offices and Clinics of Medical Doctors.
Our loans were concentrated in the following categories.
Commercial
Commercial Real Estate-Construction
Commercial Real Estate-Other
Consumer Real Estate
Consumer-Other
Total Loans
December 31, 2016
December 31, 2015
20.06%
0.46%
47.20%
29.59%
2.69%
100.00%
21.00%
0.41%
47.70%
28.76%
2.13%
100.00%
6.
PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Premises, equipment and leasehold improvements are summarized as follows:
Bank buildings
Land
Leasehold purchase
Lease improvements
Construction in process
Equipment
Accumulated depreciation
Total
December 31,
2016
2015
$
$
1,824,613
838,075
30,000
690,212
11,754
3,264,488
6,659,142
(4,362,518)
2,296,624
$
$
1,824,613
838,075
30,000
687,333
11,754
3,070,783
6,462,558
(4,173,330)
2,289,228
Depreciation and amortization on our bank premises and equipment charged to operating expense totaled $189,188
in 2016, $196,827 in 2015, and $200,178 in 2014.
59
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We entered into agreements to lease equipment and office facilities under non-cancellable operating lease agreements
expiring on various dates through 2039. We may, at our option, extend the lease of our office facility at 256 Meeting
Street in Charleston, South Carolina, for one additional ten year period to 2027; extend the lease of our Summerville
office at 100 North Main Street for two additional ten year periods; and extend the land lease where the Mt. Pleasant
office is located for six additional five year periods.
We rent office space at 1071 Morrison Drive, Charleston, South Carolina, from a related party, to house our Mortgage
Department. Rent expense for this lease was $51,690 and $50,184 for the years ended December 31, 2016 and 2015,
respectively. This lease renews every two years.
Management intends to exercise its option on the lease agreements. Lease payments below include the lease renewals.
Minimum rental commitments for these leases as of December 31, 2016 are as follows:
2017
2018
2019
2020
2021
2022 and thereafter
Total
$ 615,122
622,890
614,103
591,067
608,257
4,708,393
$ 7,759,832
Total rental expense was $594,567, $591,058 and $572,395 in 2016, 2015 and 2014, respectively.
On January 28, 2014, we signed a lease to open a banking office located on Highway 78, North Charleston, South
Carolina (copy of the lease incorporated as Exhibit 10.8 in the 2013 10-K and copy of the Assignment and Assumption
of Lease incorporated as Exhibit 10.9, First Amendment to the Lease incorporated as Exhibit 10.10 and Second
Amendment to the Lease incorporated as Exhibit 10.11 in the 2015 10-K). The building is expected to be completed in
the future. Rental payments do not commence until we take control of our space.
7. OTHER REAL ESTATE OWNED
The following table summarizes the activity in other real estate owned at December 31, 2016 and December 31, 2015.
December 31,
2016
December 31,
2015
Balance, beginning of year
Additions-foreclosure
Sales
Write-downs
Balance, end of year
$
$
620,394
-
(98,451)
-
521,943
$
$
521,943
98,451
-
-
620,394
We had one property valued at $521,943 classified as OREO at December 31, 2016. At December 31, 2015, we had two
properties with an aggregate balance of $620,394 classified as OREO. Another property valued at $98,451 classified as
OREO during 2015, was ultimately sold at a loss of $13,450.
60
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8.
DEPOSITS
At December 31, 2016 and 2015, certificates of deposit of $250,000 or more totaled approximately $15,822,136 and
$25,896,768, respectively.
At December 31, 2016, the scheduled maturities of certificates of deposit are as follows:
2017
2018
2019
2020
2021 and thereafter
$
$
41,020,714
1,242,741
516,921
472,367
588,514
43,841,257
At December 31, 2016, deposits with a deficit balance of $24,963 were re-classified as other loans, compared to
$121,331 at December 31, 2015.
9.
SHORT-TERM BORROWINGS
Securities sold under agreements to repurchase with customers mature on demand. At December 31, 2016 and 2015,
there were no securities sold under agreements to repurchase. There was no amount outstanding at any month end during
2016. The maximum amount of securities sold under agreements to repurchase outstanding at any month end was
$5,480,927 for the year ended December 31, 2015. The average amount of outstanding securities sold under agreements
to repurchase was $751 and $1,873,507 during the years ended December 31, 2016 and 2015, respectively. The
securities underlying repurchase agreements are held in safekeeping by an authorized broker. At the maturity date of the
agreement, the securities are returned to our account.
At December 31, 2016 and 2015, we had no outstanding federal funds purchased. We have a Borrower-In-Custody
arrangement with the Federal Reserve. This arrangement permits the Company to retain possession of loans pledged as
collateral to secure advances from the Federal Reserve Discount Window. Under this agreement, we may borrow up to
$75 million. We established this arrangement as an additional source of liquidity. There have been no borrowings under
this arrangement.
At December 31, 2016 and 2015, the Bank had unused short-term lines of credit totaling approximately
$21,000,000 and $18,000,000, respectively (which are withdrawable at the lender’s option).
10.
INCOME TAXES
Total income taxes for the years ended December 31, 2016, 2015 and 2014 are as follows:
For the Year Ended December 31,
2015
$ 1,688,433 $ 2,287,248 $ 1,997,866
2014
2016
(939,482)
168,627
(147,104)
748,951 $ 2,140,144 $ 2,166,493
$
Income tax expense
Unrealized gains (losses) on securities available
for sale presented in accumulated other
comprehensive income (loss)
Total
61
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense was as follows:
Current income taxes
Federal
State
Total current tax expense
Deferred income tax (benefit) expense
Income tax expense
For the Year Ended December 31,
2015
2016
2014
$ 2,438,687 $ 2,102,154 $ 1,703,444
200,361
1,903,805
94,061
$ 1,688,433 $ 2,287,248 $ 1,997,866
-
2,438,687
(750,254)
224,083
2,326,237
(38,989)
The differences between actual income tax expense and the amounts computed by applying the U.S. federal income tax
rate of 34% to pretax income from continuing operations for the periods indicated are reconciled as follows:
Computed “expected” tax expense
Increase (reduction) in income taxes
resulting from:
State income tax, net of federal benefit
Tax exempt interest income
Other, net
For the Year Ended December 31,
2015
$ 2,358,069 $ 2,438,322 $ 2,174,873
2014
2016
(156,114)
(339,994)
(173,528)
132,238
(357,834)
48,589
$ 1,688,433 $ 2,287,248 $ 1,997,866
147,895
(341,970)
43,001
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 2016 and 2015 are presented below:
December 31
2016
2015
Deferred tax assets:
Allowance for loan losses
State net operating loss carryforward
State credit carryforward
Unrealized loss on securities available for sale
Other
Total gross deferred tax assets
Valuation allowance
Deferred tax liabilities:
Prepaid expenses
Unrealized gain on securities available for sale
Deferred loan fees
Fixed assets, principally due to differences
in depreciation
Other bond accretion
Total gross deferred tax liabilities
Net deferred tax assets
62
$ 1,248,551 $ 1,064,916
45,987
-
-
23,749
1,134,652
(45,987)
50,301
236,536
356,562
45,661
1,937,611
(50,301)
(2,779)
-
(46,392)
(1,363)
(582,926)
(40,184)
(52,236)
(78,877)
(180,284)
(24,611)
(65,735)
(714,819)
$ 1,707,026 $ 373,846
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2016, the Company invested in a South Carolina Rehabilitation Credit. The tax credit is included in deferred tax
assets and is being amortized. Amortization expense recognized for the year ended December 31, 2016 was $325,000
and was included in other operating expense on the statement of operations.
There was a $50,301 valuation allowance for deferred tax assets at December 31, 2016 and $45,987 at December 31,
2015 associated with the Company’s state net operating loss. In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible and prior to their expiration
governed by the income tax code. Management considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods during which the deferred income tax assets are
expected to be deductible, management believes it is more likely than not the Company will realize the benefits of these
deductible differences, net of the existing valuation allowance at December 31, 2016. The amount of the deferred
income tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income
during the carry forward period are reduced.
The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no
liability related to uncertain tax positions in accordance with applicable regulations.
Tax returns for 2013 and subsequent years are subject to examination by taxing authorities.
11. COMMITMENTS AND CONTINGENCIES
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing
needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Our exposure to
credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is essentially the same as that involved in extending loan facilities to customers. We
use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet
instruments.
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. If deemed necessary, the amount of
collateral obtained 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 $81,234,269 and $87,622,437 at December
31, 2016 and 2015, respectively.
Standby letters of credit represent our obligation to a third party contingent upon the failure by our customer to perform
under the terms of an underlying contract with the third party or obligates us to guarantee or stand as surety for the
benefit of the third party. The underlying contract may entail either financial or nonfinancial obligations and may
involve such things as the shipment of goods, performance of a contract, or repayment of an obligation. Under the terms
of a standby letter, generally drafts will be drawn only when the underlying event fails to occur as intended. We can
seek recovery of the amounts paid from the borrower. The majority of these standby letters of credit are unsecured.
Commitments under standby letters of credit are usually for one year or less. At December 31, 2016 and 2015, we have
recorded no liability for the current carrying amount of the obligation to perform as a guarantor; as such amounts are not
considered material. The maximum potential amount of undiscounted future payments related to standby letters of
credit at December 31, 2016 and 2015 was $793,992 and $745,187, respectively.
63
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. RELATED PARTY TRANSACTIONS
In the opinion of management, loans to our executive officers and directors are made on substantially the same terms,
including interest rates and collateral, as those terms prevailing at the time for comparable loans with persons not related
to the lender that do not involve more than the normal risk of collectability. There were no outstanding loans to our
executive officers as of December 31, 2016 and 2015. Related party loans are summarized as follows:
Balance at beginning of year
New loans or advances
Repayments
Balance at end of year
DECEMBER 31,
2016
2015
$
$
6,523,137 $
4,833,545
(7,412,542)
3,944,140 $
6,664,467
6,662,930
(6,804,260)
6,523,137
At December 31, 2016 and 2015, total deposits held by related parties were $4,376,563 and $7,760,342, respectively.
The Company also leased office space from a related party as discussed in the Premises, Equipment and Leasehold
Improvements footnote.
13. OTHER EXPENSE
A summary of the components of other operating expense is as follows:
For the Year Ended December 31,
2015
2016
2014
Advertising and business development
Supplies
Telephone and postage
Insurance
Professional fees
Data processing services
State and FDIC insurance and fees
Courier service
Amortization of state tax credit
Other
14. STOCK INCENTIVE PLAN
$
16,159 $
94,006
194,853
42,192
431,424
594,550
242,926
96,823
325,000
601,843
12,695
123,087
193,039
44,271
411,742
493,977
216,129
104,366
-
552,930
$ 2,639,776 $ 2,168,382 $ 2,152,236
16,662 $
111,604
188,052
42,504
423,319
518,788
228,627
95,877
-
542,949
We have a Stock Incentive Plan which was approved in 1998 with 180,000 (329,422 adjusted for three 10% stock
dividends, a 10% stock distribution, and a 25% stock dividend) shares reserved and a Stock Incentive Plan which was
approved in 2010 with 300,000 (330,000 adjusted for a 10% stock dividend) shares reserved. Under both Plans, options
are periodically granted to employees at a price not less than the fair market value of the shares at the date of grant.
Employees become 20% vested after five years and then vest 20% each year until fully vested. The right to exercise
each such 20% of the options is cumulative and will not expire until the tenth anniversary of the date of the grant. All
employees are eligible to participate in this plan if the Executive Committee, in its sole discretion, determines that such
person has contributed or can be expected to contribute to our profits or growth.
64
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at
the date of grant. The fair value of each option award is estimated on the date of grant using a closed form option
valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on
historical volatilities of our common stock. The expected term of the options granted shall not exceed ten years from the
date of grant (the amount of time options granted are expected to be outstanding). The risk-free interest rate for the
expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
The fair value of options granted was determined using the following weighted-average assumptions as of grant date:
Risk free interest rate
Expected life (in years)
Expected stock price volatility
Dividend yield
2016
2.33%
10
27.95%
3.47%
2015
1.96%
10
19.62%
4.13%
2.33%
10
19.62%
4.13%
2014
2.94%
10
36.34%
3.98%
There are currently options to purchase 7,650 shares outstanding and exercisable under the 1998 Omnibus Stock
Incentive Plan with options to purchase 7,170 shares exercisable at December 31, 2016. This plan has expired, however,
those shares granted before the expiration date may still be exercised.
The following table presents a summary of the activity under the 1998 and 2010 Omnibus Stock Incentive Plans for
the years ended December 31:
2016
Weighted
2015
Weighted
2014
Weighted
Average
Exercise
Price
10.81
15.99
-
10.26
13.84
11.06
11.50
Shares
183,302 $
10,000
-
(39,539)
(12,858)
140,905 $
12,620 $
Average
Exercise
Price
10.48
14.44
-
13.11
11.64
10.81
12.95
Shares
176,181 $
23,650
-
(9,378)
(7,151)
183,302 $
17,457 $
Average
Exercise
Price
10.31
13.49
-
9.74
11.15
10.48
13.39
Shares
175,081 $
11,000
-
(2,750)
(7,150)
176,181 $
19,012 $
Outstanding, January 1
Granted
Expired
Exercised
Forfeited
Outstanding, December 31
Exercisable at year end
Information has been retroactively adjusted for the 2015 10% stock dividend as applicable.
65
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information pertaining to options outstanding at December 31, 2016:
December 31, 2016
Weighted
Average
Remaining
Contractual
Life
Number of
Options
Outstanding
Weighted
Average
Exercise
Price
Intrinsic
Value of
Outstanding
Options
Number of
Options
Exercisable
Weighted
Average
Exercise
Price
Intrinsic
Value of
Exercisable
Options
6,050
1,600
11,220
4,400
71,610
9,075
2,750
2,200
4,950
13,750
3,300
10,000
140,905
- $
1.2 $
3.7 $
4.2 $
4.5 $
5.6 $
5.9 $
6.9 $
7.6 $
8.5 $
8.6 $
9.3
5.26
$
$
13.22
11.73
9.79
10.61
9.47
10.10
10.91
13.64
13.49
14.35
14.98
15.99
11.06
$
$
$
$
$
$
$
$
$
$
$
$
$
23,535
8,608
82,130
28,600
54,710
63,616
17,050
694
17,919
37,950
7,029
11,200
6,050
1,120
1,270
-
4,180
-
-
-
-
-
-
-
353,041
12,620
$
$
$
$
$
$
$
$
$
$
$
$
$
13.22
11.73
9.79
-
9.47
-
-
-
-
-
-
-
11.50
$
$
$
$
$
$
$
$
$
$
$
$
$
23,535
6,026
9,296
-
31,935
-
-
-
-
-
-
-
70,792
Exercise
Price:
$ 13.22
$ 11.73
$
9.79
$ 10.61
$
9.47
$ 10.10
$ 10.91
$ 13.64
$ 13.49
$ 14.35
$ 14.98
$ 15.99
All relevant information has been retroactively adjusted for the 2015 10% stock dividend.
The total intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014, were
$273,979, $14,272, and $12,775, respectively.
We recognized compensation cost for the years ended December 31, 2016, 2015 and 2014 in the amount of $76,529,
$78,987, and $74,908, respectively, related to the granted options.
As of December 31, 2016, there was a total of $346,974 in unrecognized compensation cost related to nonvested share-
based compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted
average period of 5.26 years.
15. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
We established an Employee Stock Ownership Plan (“ESOP”) effective January 1, 1989. Any employee of the Bank is
eligible to become a participant in the ESOP upon reaching 21 years of age and credited with one-year of service (1,000
hours of service). The employee may enter the Plan on the January 1st that occurs nearest the date on which the
employee first satisfies the age and service requirements described above. No contributions by employees are permitted.
The amount and time of contributions are at the sole discretion of the Board of Directors of the Bank. The contribution
for all participants is based solely on each participant's respective regular or base salary and wages paid by the Bank
including commissions, bonuses and overtime, if any.
66
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes expense when the contribution is approved by the Board of Directors. The total expenses
amounted to $345,000 during the year ended December 31, 2016, $315,000 for the year ended December 31, 2015 and
$280,000 for the year ended 2014. The plan currently owns 335,604 shares of common stock of Bank of South Carolina
Corporation.
A participant becomes vested in the ESOP based upon the employee’s credited years of service. The vesting schedule is
as follows;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
1 Year of Service
2 Years of Service
3 Years of Service
4 Years of Service
5 Years of Service
0% Vested
25% Vested
50% Vested
75% Vested
100% Vested
Periodically the Internal Revenue Service “IRS” requires a restatement of a qualified retirement plan to ensure that the
plan document includes provisions required by legislative and regulatory changes made since the last restatement. There
have been no substantive changes to the plan. The Board of Directors approved a restated plan, on January 26, 2012
(incorporated as Exhibit 10.5 in the 2011 10-K). The Plan was submitted to the IRS for approval and a determination
letter was issued September 26, 2013, stating that the plan satisfies the requirements of Code Section 4975 (e) (7). On
January 26, 2017, the Board of Directors approved a restated plan (incorporated as Exhibit 10.6 in the 2016 10-K).
16. DIVIDENDS
The Bank’s ability to pay dividends to the Company is restricted by the laws and regulations of the State of South
Carolina. Generally, these restrictions allow the Bank to pay dividends from current earnings without the prior written
consent of the South Carolina Commissioner of Banking, if it received a satisfactory rating at its most recent
examination. Cash dividends when declared, are paid by the Bank to the Company for distribution to shareholders of the
Company. The Bank paid dividends of $2,340,000, $2,475,000 and $2,865,000 to the Company during the years ended
December 31, 2016, 2015 and 2014, respectively.
On August 27, 2015, the Company’s Board of Directors declared a ten percent stock dividend to our shareholders. The
record date was September 8, 2015 and the distribution date was September 28, 2015. Earnings per share and average
shares outstanding have been adjusted to reflect the stock dividend in our consolidated financial statements.
17. INCOME PER COMMON SHARE
Basic income per share is computed by dividing net income by the weighted-average number of common shares
outstanding. Diluted income per share is computed by dividing net income by the weighted-average number of common
shares and potential common shares outstanding. Potential common shares consist of dilutive stock options determined
using the treasury stock method and the average market price of common stock.
67
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table is a summary of the reconciliation of average shares outstanding for the years ended December 31:
Numerator:
Net income
Denominator:
2016
2015
2014
$
5,247,063 $
4,884,288 $
4,398,820
Weighted average shares outstanding
Effect of dilutive shares
Weighted average shares outstanding-
diluted
4,935,349
118,765
4,912,499
154,586
5,054,114
5,067,085
Earnings per share -basic
Earnings per share - diluted
$
$
1.06 $
1.04 $
0.99 $
0.96 $
4,907,208
125,003
5,032,211
0.90
0.87
18. REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary
actions by regulators that, if undertaken, could have a direct material effect on the Company and the Bank’s financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off balance
sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk weightings, and other factors.
Current quantitative measures established by regulation to ensure capital adequacy require that we maintain minimum
amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulation) to risk-weighted
assets (as defined) and to average assets. We believe that the Company and the Bank meet all capital adequacy
requirements to which they were subject at December 31, 2016 and 2015.
On July 2, 2013, the Federal Reserve Board approved the final rules implementing the Basel Committee on Banking
Supervision’s (“BCBS”) capital guidelines for US banks (“Basel III”). Following the actions by the Federal Reserve, the
FDIC also approved regulatory capital requirements on July 9, 2013. The FDIC’s rule is identical in substance to the
final rules issued by the Federal Reserve Bank.
Basel III became effective on January 1, 2015. The purpose is to improve the quality and increase the quantity of capital
for all banking organizations. The minimum requirements for the quantity and quality of capital were increased. The
rule includes a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1
capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to
risk-weighted assets from 4% to 6% and requires a minimum leverage ratio of 4%. In addition, the rule also implements
strict eligibility criteria for regulatory capital instruments and improves the methodology for calculating risk-weighted
assets to enhance risk sensitivity. All final rule requirements will be phased in over a multi-year schedule. The capital
conservation buffer in effect for the year ended December 31, 2016 was 0.625%.
At December 31, 2016, the Bank was categorized as “well capitalized” under Basel III. To be categorized as “well
capitalized” the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based
capital and Tier 1 leverage ratios of 10%, 8.0%, 6.5% and 5%, respectively, and to be categorized as “adequately
capitalized,” the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk based
capital, and Tier 1 leverage ratios of 8%, 6%, 4.5%, and 4.0%, respectively.
68
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the actual and required capital amounts and ratios for the Company and Bank at December
31, 2016 and 2015:
December 31, 2016
(Dollars in Thousands)
Actual
Amount Ratio
For Capital
Adequacy Purposes
Ratio
Amount
Total capital to risk-weighted assets:
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
Company
Bank
$ 44,850
$ 44,544
15.46%
15.36%
$23,213
$23,207
8.00%
8.00%
N/A
$29,009
N/A
10.00%
Tier 1 capital to risk-weighted assets:
Company
Bank
$41,220
$40,915
14.21%
14.10%
$17,410
$17,405
6.00%
6.00%
N/A
$23,207
N/A
8.00%
Tier 1 capital to average assets:
Company
Bank
$41,220
$40,915
9.85%
9.78%
$16,738
$16,735
4.00%
4.00%
N/A
$20,919
N/A
5.00%
Common equity Tier 1 capital
Company
Bank
$41,220
$40,915
14.21%
14.10%
$13,058
$13,054
4.50%
4.50%
N/A
$18,856
N/A
6.50%
69
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Dollars in Thousands)
Actual
Amount Ratio
For Capital
Adequacy Purposes
Ratio
Amount
Total capital to risk-weighted assets:
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
Company
Bank
$ 41,497
$ 41,169
15.54%
15.42%
$ 21,359
$21,357
8.00%
8.00%
N/A
$ 26,696
N/A
10.00%
Tier 1 capital to risk-weighted assets:
Company
Bank
$ 38,159
$ 37,831
14.29%
14.17%
$ 16,019
$16,018
6.00%
6.00%
N/A
$ 21,357
N/A
8.00%
Tier 1 capital to average assets:
Company
Bank
$38,159
$ 37,831
9.63%$
9.55%
15,850
$ 15,843
4.00%
4.00%
N/A
$ 19,803
N/A
5.00%
Common equity Tier 1 capital
Company
Bank
$38,159
$37,831
14.29%
14.17%
$12,014
$ 12,013
4.50%
4.50%
N/A
$ 17,353
N/A
6.50%
19. DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS
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 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. The fair value standard establishes a hierarchy for inputs used in
measuring fair value that maximizes the use of observable inputs and minimizes the use of inputs by requiring that
observable inputs be used when available. Observable inputs that market participants would use in pricing an asset or
liability are developed based on market data we have obtained from independent sources. Unobservable inputs reflect
our estimate of assumptions that market participants would use in pricing an asset or liability, which are developed based
on the best information available in the circumstances.
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:
(cid:120) Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active
markets.
(cid:120) 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.
70
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(cid:120) 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 could significantly affect the estimates. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of
these estimates.
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a
recurring basis:
Investment Securities Available for Sale
Securities available for sale are recorded at fair value on a recurring basis and are based upon quoted prices if available.
If quoted prices are not available, fair value is measured using independent pricing models or other model-based
valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment
assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active
exchange such as the New York Stock Exchange, or by dealers or brokers in active over-the counter markets. Level 2
securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate
debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.
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 December 31,
2016 or 2015.
71
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and liabilities measured at fair value on a recurring basis at December 31, 2016 and December 31, 2015 are as
follows:
Balance
at
December 31, 2016
Quoted
Market Price
in active
markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
23,939,063 $
-
$
US Treasury
Notes
Government
Sponsored
Enterprises
Municipal
Securities
US Treasury
Notes
Government
Sponsored
Enterprises
Municipal
Securities
Total $
23,939,063 $
51,034,091
31,027,933
82,062,024
$
13,977,857
13,977,857 $
Balance
at
December 31, 2015
Quoted
Market Price
in active
markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
34,633,673
$
-
$
51,284,332
Total $
34,633,673 $
28,861,902
80,146,234
$
5,217,678
5,217,678 $
-
-
-
-
- $
-
- $
-
Total
23,939,063
51,034,091
45,005,790
119,978,944
Total
34,633,673
51,284,332
34,079,580
119,997,585
There were no liabilities recorded at fair value on a recurring basis as of December 31, 2016 or December 31, 2015.
The following table reconciles the changes in assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the years ended December 31, 2016 and 2015:
Beginning Balance
Total gains or (losses)
(realized/unrealized)
Included in earnings
Included in other comprehensive income
Purchases, issuances and settlements, net of
maturities
Transfers in and/or out of level 3
Ending Balance
$
$
Level 3
Municipal Securities
December 31,
2016
2015
5,217,678 $
1,377,089
-
(818,821)
9,579,000
-
13,977,857 $
-
(34,411)
3,875,000
-
5,217,678
72
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no transfers between fair value levels in 2016 or 2015.
Following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a
nonrecurring basis:
Other Real Estate Owned (OREO)
Loans, secured by real estate, are adjusted to the lower of the recorded investment in the loan or the fair value of the real
estate upon transfer to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is
based upon independent market prices, appraised values of the collateral or our estimation of the value of the collateral.
When the fair value of the collateral is based on an observable market price or a current appraisal, we record the asset as
nonrecurring Level 2. When an appraised value is not available or we determine the fair value of the collateral is further
impaired below the appraised value and there is no observable market price, we record the asset as nonrecurring Level 3.
Impaired Loans
Impaired loans are carried at the lower of recorded investment or fair value. The fair value of the collateral less
estimated costs to sell is the most frequently used method. Typically, we review the most recent appraisal and if it is
over 12 to 18 months old we may request a new third party appraisal. Depending on the particular circumstances
surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the
collateral relative to the recorded investment in the loan, we may order an independent appraisal immediately or, in
some instances, may elect to perform an internal analysis. Specifically as an example, in situations where the collateral
on a nonperforming commercial real estate loan is out of our primary market area, we would typically order an
independent appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following
the determination that the loan is impaired. 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 Accounting Standards Codification (“ASC”) 820 “Fair Value Measurement”, impaired loans, where
an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. At
December 31, 2016 and December 31, 2015, substantially all of the impaired loans were evaluated based on the fair
value of the collateral. These impaired loans are classified as Level 3. Impaired loans measured using discounted future
cash flows are not deemed to be measured at fair value.
Loans Held for Sale
Loans held for sale include mortgage loans and are carried at the lower of cost or market value. The fair values of
mortgage loans held for sale 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 on going basis but are subject to fair value adjustments in certain circumstances (for example, when
there is evidence of impairment). The following table presents information about certain assets and liabilities measured
at fair value on a nonrecurring basis at December 31, 2016, and 2015:
73
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
Quoted
Market Price
in active
markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
- $
-
-
- $
- $
4,143,772 $
-
521,943
4,386,210
4,386,210 $
-
4,665,715 $
December 31, 2015
Quoted
Market Price
in active
markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
-
-
-
- $
-
-
5,820,239
5,820,239 $
$
5,459,200
$
620,394
-
6,079,594 $
Impaired
loans
Other real
estate owned
Loans held
for sale
Total
Impaired
loans
Other real
estate owned
Loans held
for sale
Total
$
$
$
$
Total
4,143,772
521,943
4,386,210
9,051,925
Total
5,459,200
620,394
5,820,239
11,899,833
There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2016 or 2015.
The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at
December 31, 2016:
Valuation Technique
Unobservable Input
General Range of
Inputs
Inputs
Impaired Loans
Discounted Appraisals
Collateral Discounts
0 – 35%
Other Real Estate Owned
Appraisal Value/
Comparison Sales/Other
Estimates
Appraisals and/or Sales of
Comparable Properties
Appraisals Discounted
10% to 20% for Sales
Commissions and Other
Holding Costs
74
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and the
relevant market information. When available, quoted market prices are used. In other cases, fair values are based on
estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly
affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments,
discount rates, prepayments, and estimates of future cash flows, future expected loss experience and other factors.
Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, may or may not be realized in an immediate sale of the instrument.
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 describes the methods and assumptions we use in estimating the fair values of financial instruments:
a. Cash and due from banks, interest-bearing deposits in other banks
The carrying value approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.
b. Investment securities available for sale
Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based
upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing
models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the
security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.
c. Loans
The carrying values of variable rate consumer and commercial loans and consumer and commercial loans with
remaining maturities of three months or less, approximate fair value. The fair values of fixed rate consumer and
commercial loans with maturities greater than three months are determined using a discounted cash flow analysis and
assume the rate being offered on these types of loans at December 31, 2016 and December 31, 2015, approximate
market.
The carrying value of mortgage loans held for sale approximates fair value. For lines of credit, the carrying value
approximates fair value.
d. Deposits
The estimated fair value of deposits with no stated maturity is equal to the carrying amount. The fair value of time
deposits is estimated by discounting contractual cash flows, using interest rates currently being offered on the deposit
products. The fair value estimates for deposits do not include the benefit that results from the low cost funding provided
by the deposit liabilities as compared to the cost of alternative forms of funding (deposit base intangibles).
e. Accrued interest receivable and payable
Since these financial instruments will typically be received or paid within three months, the carrying amounts of such
instruments are deemed to be a reasonable estimate of fair value.
f. Loan commitments
Estimates of the fair value of these off-balance sheet items are not made because of the short-term nature of these
arrangements and the credit standing on the counterparties.
75
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial
instruments as of December 31, 2016 and December 31, 2015.
Fair Value Measurements at December 31, 2016
Carrying
Amount
Estimated
Fair Value
Level
1
Level
2
Level
3
Financial Assets:
Cash and due
from banks
Interest-bearing
deposits in other
banks
Investments
available for
sale
Mortgage loans
to be sold
Loans
Accrued interest
receivable
Financial
Liabilities:
Demand
deposits
Time
deposits
Accrued interest
payable
Financial Assets:
Cash and due
from banks
Interest-bearing
deposits in
other banks
Investments
available for
sale
Mortgage loans
to be sold
Loans
Accrued interest
receivable
Financial
Liabilities:
Demand
deposits
Time
deposits
Accrued interest
payable
$
8,141,030 $
8,141,030
$
8,141,030 $
- $
18,101,300
18,101,300
18,101,300
-
-
-
119,978,944
119,978,944
23,939,063
82,062,024
13,977,857
4,386,210
260,576,115
4,386,210
260,406,669
1,614,002
1,614,002
328,681,594
328,681,594
43,841,257
43,856,383
51,629
51,629
-
-
-
-
-
-
4,386,210
-
1,614,002
328,681,594
43,856,383
51,629
-
260,406,669
-
-
-
-
Fair Value Measurements at December 31, 2015
Carrying
Amount
Estimated
Fair Value
Level 1
Level 2
Level 3
$
5,295,924
$
5,295,924
$
5,295,924
$
23,898,862
23,898,862
23,898,862
- $
-
-
-
119,997,585
119,997,585
34,633,673
80,146,234
5,217,678
5,820,239
242,622,705
5,820,239
242,581,154
1,284,063
1,284,063
-
-
5,820,239
-
1,284,063
-
242,581,154
303,950,800
303,950,800
54,767,812
54,780,915
73,421
73,421
-
-
-
303,950,800
54,780,915
73,421
-
-
-
76
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table summarizes the components of accumulated other comprehensive income (loss) and changes in
those components as of and for the years ended December 31:
Available for sale securities
Beginning Balance December 31, 2013
Change in net unrealized gains (losses) on securities
available for sale, net of income taxes
Reclassification adjustment for net securities gains
included in net income
Income tax expense (benefit)
$
Balance December 31, 2014
Change in net unrealized gains (losses) on securities
available for sale, net of income taxes
Reclassification adjustment for net securities gains
included in net income
Income tax expense (benefit)
Balance December 31, 2015
Change in net unrealized gains (losses) on securities
available for sale, net of income taxes
Reclassification adjustment for net securities gains
included in net income
Income tax expense
Balance December 31, 2016
$
955,900
768,326
(312,577)
(168,627)
1,243,022
26,255
(423,832)
147,104
992,549
(2,158,236)
(380,904)
939,482
(607,109)
The following table shows the line items in the consolidated Statements of Operations affected by amounts reclassified
from accumulated other comprehensive income (loss):
Year Ended December 31,
2016
2015
Gain on sale of investments, net
Tax effect
Total reclassification, net of tax
$
$
380,904 $
(140,934)
239,970 $
423,832 $
-
423,832 $
2014
312,577
-
312,577
77
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. BANK OF SOUTH CAROLINA CORPORATION - PARENT COMPANY
The Company's principal source of income is dividends from the Bank. Certain regulatory requirements restrict the
amount of dividends which the Bank can pay to the Company. The Company's principal asset is its investment in its
Bank subsidiary. The Company's condensed statements of financial condition as of December 31, 2016 and 2015, and
the related condensed statements of operations and cash flows for the years ended December 31, 2016, 2015 and 2014,
are as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
2016
2015
Assets
Cash
Investment in wholly-owned bank subsidiary
Other assets
Total assets
Liabilities and shareholders’ equity
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
922,595 $
$
40,308,166
76,077
946,996
38,823,720
20,154
$ 41,306,838 $ 39,790,870
693,864 $
639,158
$
40,612,974
39,151,712
$ 41,306,838 $ 39,790,870
CONDENSED STATEMENTS OF OPERATIONS
2016
2015
2014
$
302 $
571 $
306
(187,284)
2,865,000
1,720,798
$ 5,247,063 $ 4,884,288 $ 4,398,820
(177,612)
2,340,000
3,084,104
(195,636)
2,475,000
2,604,622
Interest income
Net operating expenses
Dividends received from bank
Equity in undistributed earnings of subsidiary
Net income
78
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS
2016
2015
2014
Cash flows from operating activities:
Net income
Stock-based compensation expense
Equity in undistributed earnings of subsidiary
Decrease (increase) in other assets
Net cash provided by operating activities
Cash flows from financing activities:
Dividends paid
Cash in lieu of fractional shares
Stock options exercised
Net cash used by financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at ending of year
$ 5,247,063 $ 4,884,288 $ 4,398,820
74,908
(1,720,798)
(40,418)
2,712,512
78,987
(2,604,622)
202,043
2,560,696
76,529
(3,084,104)
(55,923)
2,183,565
(2,613,715)
-
405,749
(2,207,966)
(2,380,062)
(4,778)
122,946
(2,261,894)
(2,765,735)
-
26,050
(2,739,685)
(24,401)
946,996
922,595 $
298,802
648,194
946,996 $
(27,173)
675,367
648,194
$
Supplemental disclosure for non-cash investing and financing activity:
$
Change in dividends payable
54,706 $
59,178 $
325
79
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below represent the quarterly results of operations for the years ended December 31, 2016 and 2015,
respectively:
FOURTH
THIRD
SECOND
FIRST
2016
Total interest and fee income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after
provisions for loan losses
Other income
Other expense
Income before income tax expense
Income tax expense
Net income
Basic income per common share
Diluted income per common share
Total interest and fee income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after
provisions for loan losses
Other income
Other expense
Income before income tax expense
Income tax expense
Net income
Basic income per common share
Diluted income per common share
$ 3,862,720 $ 4,030,143 $ 3,770,669 $ 3,632,065
94,139
3,537,926
45,000
92,988
3,677,681
140,000
96,467
3,933,676
210,000
95,146
3,767,574
175,000
3,723,676
686,586
2,584,268
1,825,994
399,656
3,592,574
638,896
2,715,147
1,516,323
203,444
3,492,926
806,029
2,536,148
1,762,807
567,071
$ 1,312,879 $ 1,426,338 $ 1,312,110 $ 1,195,736
0.24
$
0.24
$
3,537,681
729,572
2,436,881
1,830,372
518,262
0.27 $
0.26 $
0.28 $
0.28 $
0.27 $
0.26 $
FOURTH
THIRD
SECOND
FIRST
2015
$ 3,635,011 $ 3,569,672 $ 3,550,663 $ 3,474,602
93,471
3,381,131
5,000
108,115
3,526,896
110,000
99,579
3,451,084
70,000
101,230
3,468,442
7,500
3,460,942
662,038
2,372,742
1,750,238
551,319
3,416,896
788,770
2,402,221
1,803,445
576,474
3,376,131
730,658
2,339,054
1,767,737
562,775
$ 1,226,971 $ 1,198,919 $ 1,253,438 $ 1,204,960
0.25
$
0.22
$
3,381,084
868,492
2,399,458
1,850,118
596,680
0.26 $
0.25 $
0.24 $
0.24 $
0.25 $
0.24 $
80
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
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 December 31,
2016 under the supervision and with the participation of the Bank of South Carolina Corporation’s management,
including its President/Chief Executive Officer and the Chief Financial Officer/Senior Vice President and several other
members of the Company’s senior management. Based upon that evaluation, Bank of South Carolina Corporation’s
management, including the President/Chief Executive Officer and the Chief Financial Officer/Senior Vice President
concluded that, as of December 31, 2016, the Company’s disclosure controls and procedures were effective in ensuring
that the information the Company is required to disclose in the reports filed or submitted under the Act has been (i)
accumulated and communicated to management (including the President/Chief Executive Officer and Chief Financial
Officer/Senior Vice President) to allow timely decisions regarding required disclosure, and (ii) recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal controls over financial
reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of published financial statements in accordance with generally accepted accounting principles.
Under the supervision and with the participation of management, including the President/Chief Executive Officer and
the Chief Financial Officer/Senior Vice President, the Company’s management has evaluated the effectiveness of its
internal control over financial reporting as of December 31, 2016, based on the 2013 framework established in a report
entitled “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2016. Based on this assessment, management believes that as of December 31, 2016, the Company’s
internal control over financial reporting was effective. There were no changes in the Company’s internal control over
financial reporting that occurred during the year ended December 31, 2016, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report is not subject to attestation by the Company’s registered
public accounting firm pursuant to the final ruling by the Securities and Exchange Commission that permit the Company
to provide only management’s report in its annual report.
The Audit and Compliance Committee, composed entirely of independent Directors, meets periodically with
management, the Company’s Compliance Officer, Risk Management Officer and Elliott Davis Decosimo, LLC
(separately and jointly) to discuss audit, financial and related matters. Elliott Davis Decosimo, LLC, the Compliance
Officer, and the Risk Management Officer have direct access to the Audit and Compliance Committee.
81
Item 9B. Other Information
There was no information required to be disclosed in a report on Form 8-K during the fourth quarter of 2016 that was
not reported.
Item 10. Directors, Executive Officers, Promoters and Corporate Governance
PART III
The information required by this item contained under the sections captioned “Proposal 1: To elect seventeen Directors
of Bank of South Carolina Corporation to serve until the Company’s 2018 Annual Meeting of Shareholders” and
“Meetings and Committees of the Board of Directors and Corporate Governance Matters” included on pages 12-24 in
the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 11, 2017, a copy
of which has been filed with the SEC, the “Proxy Statement”, is incorporated in this document by reference.
Executive Officers The information concerning the Company’s executive officers is contained under the section
captioned “ Proposal 1: To elect seventeen Directors of Bank of South Carolina Corporation to serve until the
Company’s 2018 Annual Meeting of Shareholders,” included on pages 4-9 of the Company’s Proxy Statement, and is
incorporated in this document by reference.
Audit and Compliance Committee Financial Expert The Audit and Compliance Committee of the Company is
composed of Directors Linda J. Bradley McKee, PhD, CPA, David W. Bunch, William L. Hiott, Jr., Katherine M.
Huger, and Steve D. Swanson (Chairman). The Board has selected the Audit and Compliance Committee members
based on its determination that they are qualified to oversee the accounting and financial reporting processes of the
Company and audits of the Company’s financial statements. Each member of the Audit and Compliance Committee is
“independent” as defined in the NASDAQ Stock Market listing standards for audit committee members.
The Board of Directors has determined that Linda J. Bradley McKee, PhD, CPA, qualifies as a financial expert within
the meaning of SEC rules and regulations and has designated Dr. Bradley McKee as the Audit and Compliance
Committee financial expert. Director Bradley McKee is independent as that term is used in Schedule 14A promulgated
under the Exchange Act.
Code of Ethics The Company has adopted a “Code of Ethics”, applicable to the Chairman of the Board, the
President/Chief Executive Officer, the Executive Vice President/CFO and the Executive Vice President and a “Code of
Conduct” for Directors, officers and employees. A copy of these policies may be obtained at the Company’s internet
website: http:// www.banksc.com.
Compliance with Insider Reporting The information contained under the section captioned “Section 16(a) Beneficial
Ownership Reporting Compliance” is included on page 17 of the Company’s Proxy Statement and is incorporated in this
document by reference.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the Section captioned “Directors Compensation”
and “Executive Compensation-Compensation Discussion and Analysis” included on pages 17-23 of the Proxy
Statement.
82
Equity Compensation Plan Information
The following table summarizes share and exercise price information about the Stock Incentive Plan of the
Company as of December 31, 2016:
Plan Category
1998 Omnibus
Stock
Incentive Plan
approved by
Shareholders 2
2010 Omnibus
Stock
Incentive Plan
approved by
Shareholders3
Total
Number of Securities to be
Issued Upon Exercise of
Outstanding Options Warrants
and Rights
Weighted-Average Exercise
Price of Outstanding Options,
Warrants and Rights
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation Plans 1
7,650
$12.91
-
133,255
140,905
$10.95
$11.06
130,458
130,458
1
2
3
In accordance with the 1998 Omnibus Stock Incentive Plan, no options may be granted under this Plan after April 14,
2008, due to its expiration. Options granted before this date shall remain valid in accordance with their terms.
The number of securities to be issued upon exercise of the outstanding options represents the total outstanding
options under the 1998 Omnibus Stock Incentive Plan. As per the agreement, the referenced options shall remain
valid in accordance with their terms. During the year ended December 31, 2016, options to purchase 7,859 shares
were exercised and 3,508 shares were forfeited from the 1998 Omnibus Stock Incentive Plan.
The 2010 Omnibus Stock Incentive Plan was approved by the Shareholders at the 2010 Annual Meeting. There were
330,000 shares reserved under this Plan. On September 24, 2010, options to purchase 36,300 shares were granted to
21 employees (other than Executive Officers) with options to purchase 825 shares forfeited with the resignation of one
employee in 2010. On March 24, 2011, options to purchase 5,500 shares were granted to 1 employee and on June 23,
2011, options to purchase 105,600 shares were granted to 22 employees including Sheryl G. Sharry and Fleetwood S.
Hassell, both Executive Officers who each received options to purchase 11,000 shares. Douglas H. Sass, Executive
Vice President, also received options on June 23, 2011 to purchase 5,500 shares. During the year ended December 31,
2011, options to purchase 6,325 shares were forfeited with the resignation of two employees. On June 28, 2012 the
Executive Committee granted options to purchase 9,900 shares to 5 employees including Douglas H. Sass, Executive
Vice President, who received options to purchase 5,500 shares. In addition, the Board of Directors granted options to
purchase 2,750 shares to 1 employee on September 24, 2012. There were options to purchase 4,400 shares forfeited
during the year ended December 31, 2012. On June 27, 2013 options to purchase 5,500 shares were granted to 5
employees. Options to purchase 2,200 shares were granted to 3 employees on December 19, 2013. Options to
purchase 10,618 shares were forfeited during the year ended December 31, 2013. On July 24, 2014, options to
purchase an aggregate of 11,000 shares were granted to twelve employees. Options to purchase 7,150 shares were
forfeited with the resignation of 4 employees during the year ended December 31, 2014. On April 23, 2015, options to
purchase an aggregate of 20,350 shares were granted to nine employees and on June 29, 2015, options to purchase
3,300 shares were granted to one employee. Options to purchase 7,150 shares were forfeited in 2015. (All shares have
been adjusted to reflect a 10% stock dividend declared August 27, 2015). On March 24, 2016, options to purchase
10,000 shares were granted to 2 employees and options to purchase 12,858 shares were forfeited during 2016.
83
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Security Ownership and Certain Beneficial Owners
Information required by this item is incorporated in this document by reference to the Section captioned “Security
Ownership of Certain Beneficial Owners and Management”, included on page 10-12 of the Proxy Statement.
Security Ownership of Management
Information required by this item is incorporated in this document by reference to the Section captioned “Security
Ownership of Certain Beneficial Owners and Management”, included on pages 10-12 of the Proxy Statement.
Changes in Control
Management is not aware of any arrangements, including any pledge by any shareholder of the Company, the
operation of which may at a subsequent date result in a change of control of the Company.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated in this document by reference to the Sections captioned
“Proposal 1: To elect seventeen Directors of Bank of South Carolina Corporation to serve until the Company’s 2018
Annual Meeting of Shareholders” and “Meetings and Committees of the Board of Directors and Corporate
Governance Matters”, included on pages 4-17 of the Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated in this document by reference to “Proposal 2: To ratify the
appointment by the Audit and Compliance Committee of the Company’s Board of Directors of Elliott Davis
Decosimo, LLC as the Company’s independent registered public accounting firm for the year ended December 31,
2017” and “Auditing and Related Fees”, included on page 23-24 of the Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules
PART IV
1.
The Consolidated Financial Statements and Report of Independent Auditors are included in this Form 10-K and
listed on pages as indicated.
(1)
(2)
(3)
(4)
(6)
(7)
(8)
Report of Independent Registered Public Accounting Firm .......................................................... 36
Consolidated Balance Sheets .......................................................................................................... 37
Consolidated Statements of Operations .......................................................................................... 38
Consolidated Statements of Comprehensive Income ..................................................................... 39
Consolidated Statements of Shareholders' Equity .......................................................................... 40
Consolidated Statements of Cash Flows ........................................................................................ 41
Notes to Consolidated Financial Statements .................................................................................. 42 - 80
Page
84
2.
Exhibits
Plan of Reorganization (Filed with 1995 10-KSB)
Articles of Incorporation of the Registrant (Filed with 1995 10-KSB)
By-laws of the Registrant (Filed with 1995 10-KSB)
Amendments to the Articles of Incorporation of the Registrant (Filed with Form S on June 23, 2011)
2017 Proxy Statement (Filed with 2016 10-K)
2.0
3.0
3.1
3.2
4.0
10.0 Lease Agreement for 256 Meeting Street (Filed with 1995 10-KSB)
10.1 Sublease Agreement for Parking Facilities at 256 Meeting Street (Filed with 1995 10-KSB)
10.2 Lease Agreement for 100 N. Main Street, Summerville, SC (Filed with 1995 10-KSB)
10.3 Lease Agreement for 1337 Chuck Dawley Blvd., Mt. Pleasant, SC (Filed with 1995 10-KSB)
10.4 Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed with 2010 10-K)
Lease Agreement for 1071 Morrison Drive, Charleston, SC (Filed with March 31, 2013 10-Q)
10.5 1998 Omnibus Stock Incentive Plan (Filed with 2008 10-K/A)
10.6 Employee Stock Ownership Plan (Filed with 2008 10-K/A)
Employee Stock Ownership Plan, Restated (Filed with 2011 Proxy Statement)
Employee Stock Ownership Plan, Restated (Incorporated herein)
10.7 2010 Omnibus Incentive Stock Option Plan (Filed with 2010 Proxy Statement)
10.8 Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC (Filed with 2013 10-K)
10.9 Assignment and Assumption of Lease Agreement for Highway 78 Ingleside Boulevard North Charleston,
SC
(Filed with 2015 10-K)
10.10 First Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC
(Filed with 2015 10-K)
10.11 Second Amendment to Lease Agreement for Highway 78 Ingleside Boulevard North Charleston, SC
(Filed with 2015 10-K)
13.0 2016 10-K (Incorporated herein)
14.0 Code of Ethics (Filed with 2004 10-KSB)
21.0 List of Subsidiaries of the Registrant (Filed with 1995 10-KSB)
The Registrant's only subsidiary is The Bank of South Carolina (Filed with 1995 10-KSB)
31.1 Certification pursuant to Rule 13a-14(a)/15d-14(a) by the Principal Executive Officer
31.2 Certification pursuant to Rule 13a-14(a)/15d-14(a) by the Principal Financial Officer
32.1 Certification pursuant to Section 1350
Certification pursuant to Section 1350
32.2
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 3, 2017
BANK OF SOUTH CAROLINA CORPORATION
BY: /s/Fleetwood S. Hassell
Fleetwood S. Hassell
President/Chief Executive Officer
By: /s/Eugene H. Walpole, IV
Eugene H. Walpole, IV
Chief Financial Officer/Senior Vice President
86
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person
behalf of the registrant and in the capacities and on the dates indicated:
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
/s/David W. Bunch
David W. Bunch, Director
/s/Graham M. Eubank, Jr.
Graham M. Eubank, Jr., Director
/s/Elizabeth M. Hagood
Elizabeth M. Hagood, Director
/s/Fleetwood S. Hassell
Fleetwood S. Hassell, President/Chief
Executive Office, Director
/s/Glen B. Haynes, DVM
Glen B. Haynes, DVM, Director
/s/William L. Hiott, Jr.
William L. Hiott, Jr., Director
/s/Katherine M. Huger
Katherine M. Huger, Director
/s/Richard W. Hutson, Jr.
Richard W. Hutson, Jr., Director
/s/Charles G. Lane
Charles G. Lane, Director
/s/Hugh C. Lane, Jr.
Hugh C. Lane, Jr., Chairman of
the Board, Director
/s/Linda. J. Bradley McKee, PHD, CPA
Linda J. Bradley McKee, PHD, CPA, Director
/s/Alan I. Nussbaum
Alan I. Nussbaum, MD, Director
/s/Edmund Rhett, Jr.
Edmund Rhett, Jr., MD, Director
/s/Malcolm M. Rhodes
Malcolm M. Rhodes, MD, Director
/s/Douglas H. Sass
Douglas H. Sass, Executive Vice President, Director
87
March 3, 2017
March 3, 2017
/s/Sheryl G. Sharry
Sheryl G. Sharry. Director
/s/Steve D. Swanson
Steve D. Swanson, Director
88
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 31.1
I, Fleetwood S. Hassell, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of the Bank of South Carolina Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for the periods presented in this report.
4. The registrant’s other certifying officer (s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within the entity, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of registrant’s disclosure controls and procedures within 90 days prior to the filing
date of the report and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any changes in registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting: and
89
5. The registrant’s other certifying officer (s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the Audit and Compliance Committee of the
registrant’s Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
March 3, 2017
/s/Fleetwood S. Hassell
Fleetwood S. Hassell
President/Chief Executive Officer
90
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 31.2
CERTIFICATION
I, Eugene H. Walpole, IV, certify that:
1.
I have reviewed this Annual Report on Form 10-K of the Bank of South Carolina Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for the periods presented in this report.
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within the entity, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures within 90 days prior to the
filing date of the report and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred
during registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonable likely to materially affect, registrant’s internal control
over financial reporting: and
91
5. The registrant’s other certifying officer (s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the Audit and Compliance Committee of the
registrant’s Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in registrant’s internal control over financial reporting.
March 3, 2017
/s/ Eugene H. Walpole, IV
Eugene H. Walpole, IV
Chief Financial Officer/Senior Vice President
92
Exhibit 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Fleetwood S. Hassell, President/Chief Executive Officer of Bank of South Carolina Corporation (the “Company”),
certify, that to the best of my knowledge, based upon a review of the annual report on Form 10-K for the period ended
December 31, 2016 of the Company (the “Report”):
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, (U.S.C. 78m or 78o(d)); and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: March 3, 2017
BY:
/s/Fleetwood S. Hassell
Fleetwood S. Hassell
President/Chief Executive Officer
Exhibit 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Eugene H. Walpole, IV, Chief Financial Officer/Senior Vice President of Bank of South Carolina Corporation (the
“Company”), certify that to the best of my knowledge, based upon a review of the annual report on Form 10-K for the
period ended December 31, 2016 of the Company (the “Report):
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, (U.S.C. 78m or 78o(d)); and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: March 3, 2017
BY:
/s/Eugene H. Walpole, IV
Eugene H. Walpole, IV
Chief Financial Officer/Senior Vice President
93
Employees Share
Their Experiences
30 Years Together!
“THE BANK’S COMMITMENT TO ITS
EMPLOYEES AND THEIR FAMILIES IS
WHAT STANDS OUT TO ME THE MOST. I
HAVE ALWAYS APPRECIATED THE BANK
LETTING ME PUT MY FAMILY FIRST.”
Rovina C. Andrade
Vice President
Mt. Pleasant – 16 years
79500
206700
365700
540600
742000
975200
1296175
1763790
2882856
3544471
4686184
6028094
7163557
8668467
9818813
11053282
12594418
15099099
17546356
20087193
21363877
23051962
24917529
A HISTORY OF ST RONG
26918196
29145426
DIVIDEND PER FOR M A NCE
31911487
34350626
37017712
* $37 million returned
to shareholders since
inception
* Amounts based on the record date.
Rhett D. Bearden
Senior Vice President
West Ashley – 23 years
“OUR BANK MAKES BANKING
A PERSONAL EXPERIENCE. OUR
EMPLOYEES TAKE GREAT PRIDE
IN MAKING THAT EXPERIENCE
HAPPEN FOR OUR CUSTOMERS.
I’M PROUD TO BE A PART OF IT.”
“ IN 1989 WE PAID OUR FIRST DIVIDEND
AND BEGAN LOOKING AT OUR
RETIREMENT PLAN OPTIONS. IT BECAME
IMMEDIATELY APPARENT THAT AN
ESOP WAS THE BEST FORM OF PROFIT
SHARING WE COULD PROVIDE. OUR
ESOP HAS PROVIDED AN ENORMOUS
FINANCIAL INCENTIVE FOR OUR
EMPLOYEES BY ALLOWING THEM AN
OPPORTUNITY TO PARTICIPATE AND
BE REWARDED FOR THEIR EFFORTS IN
MAKING OUR COMPANY A SUCCESS.”
Hugh C. Lane, Jr.
Chairman
Meeting Street – 30 years
40000000
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
3000000
2500000
2000000
1500000
1000000
500000
0
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0
1
9
8
9
1
9
9
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1
9
9
1
1
9
9
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9
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9
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6
$37,017,712
2016
COR POR AT E INFOR M ATION
Douglas H. Sass
Hugh C. Lane, Jr.
Alan I. Nussbaum, MD
Linda J. Bradley McKee, PhD, CPA
Glen B. Haynes, DVM
Fleetwood S. Hassell
Sheryl G. Sharry
Graham M. Eubank, Jr.
Katherine M. Huger
David W. Bunch
Steve D. Swanson
Malcolm M. Rhodes, MD
Richard W. Hutson, Jr.
Charles G. Lane
Elizabeth M. Hagood
William L. Hiott, Jr.
Edmund Rhett, Jr., MD
BOA R D OF DIR EC TORS
OF F ICERS
* Hugh C. Lane, Jr.
Chairman
* Fleetwood S. Hassell
President & Chief Executive Officer
* Eugene H. Walpole, IV
Senior Vice President &
Chief Financial Officer
* Douglas H. Sass
Executive Vice President
& Senior Lender
* Susanne K. Boyd
Senior Vice President &
Chief Operating Officer
* Richard W. Hutson, Jr.
Secretary
* Costa V. Thomas
Assistant Secretary
Sally I. Altman
Senior Vice President
Rovina Andrade
Vice President
Jennifer A. Arato
Senior Vice President
Stacy Arnett
Assistant Vice President
Lucy E. Ashley
Senior Vice President
Ann Baker
Branch Manager
Rhett D. Bearden
Senior Vice President
Patti Black
Branch Manager
Mignonne H. Buhrmaster
Senior Vice President
Tracy Searson Causby
Vice President
C. Lynn Christian
Senior Vice President
Michelle Crisp
Training Officer
Leon B. de Brux
Senior Vice President
Ryan Gesser
Vice President
Ann S. Gregorie
Senior Vice President
Robert Hollings III
Assistant Vice President
Thomas Johnson
Assistant Vice President
Ford Menefee
Senior Vice President
Linda Menor
Assistant Vice President
Helene H. Mixon
Senior Vice President
Candice L. Nicodin
Senior Vice President
Lauren Nilan
Vice President
*Officers of the Corporation and of the Bank. Other Officers are Officers of the Bank only.
Willette M. Parker
Vice President
Timeela Rivers
Remote Deposit Officer
Bret Roesner
Vice President
Zachary Shaw
Loan Officer
Gregory R. Shuler
Senior Vice President
Valerie C. Stone
Senior Vice President
Ronald L. Strawn
Senior Vice President
Terry S. Strawn
Senior Vice President
Chase Talbert
Vice President
Perry Trouche
Branch Manager
Tammy Tucker
Vice President
Carson Williams
Vice President
EMPLOY EE S
Emily Bailey
Tammy Barker
Heyward Bonner
Suzanne Bostick
Allison Bussells
Markita Chisolm
Allison Corcoran
Rebecca Foster
Susan Getz
Sharon Gillespie
Bree Greer
David Gregorie
Maggie Harken
Rio Hirsch
Bryn Hite
Eugenia Hollington
August Howenstein
Gail Johanson
Lawson Johnson
Brittany Liles
Jessica Little
Jo-Chi Mao
Susan Martin
Nicole McCarson
Lisa Morgan
Sandy Osborne
Melanie Pasheluk
Bo Patterson
Sarah Pearson
Mark Shannon
Traci Stone
Kathy Sutler
Kelly Welch
Laura Wells
Susan West
Bank of South Carolina Corporation’s common stock trades
on the NASDAQ Stock Market under the symbol “BKSC”
Visit www.banksc.com
2016 Annual Report
In A Vibrant Community...
Charleston - A Great Place
to Live, Work, and Play.
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“Every time we open our doors to serve our
constituency further validates our brand of
community banking, our model of consistency,
and our culture of relationship banking –
all fostered from extraordinary service,
responsiveness and attention to detail.”
Fleetwood S. Hassell
President & CEO
100 North Main Street, Summerville, SC 29483
P: 843-832-7100 // F: 843-832-7115
2027 Sam Rittenberg Blvd., Charleston, SC 29407
P: 843-958-1041 // F: 843-958-1050
256 Meeting Street, Charleston, SC 29401
P: 843-724-1500 // F: 843-724-1513
1337 Chuck Dawley Blvd., Mt. Pleasant, SC 29464
P: 843-971-3300 // F: 843-971-3315
www.banksc.com
NASDAQ: BKSC
ST RONG. SECU R E . STA BLE .
2016 Annual Report
Our Profile
The Bank of South Carolina is a state-chartered financial
institution with depository accounts insured by the FDIC.
The Bank was organized on October 23, 1986, and our
first office opened for business on February 26, 1987. It
is a wholly-owned subsidiary of Bank of South Carolina
Corporation which became effective on April 17, 1995.