2022 ANNUAL REPORT
FIVE-YEAR FINANCIAL PERFORMANCE
Year Ended December 31
Net Income
Performance Ratios:
Return on Average Equity
Return on Average Assets
Average Equity to Average Assets
Net Interest Margin
Net (Recoveries) Charge-offs to Average Loans
Allowance for Loan Losses as a
Percentage of Total Loans (1)
Per Share Data:
Basic Income (2)
Diluted Income (2)
Year End Book Value (2)
Cash Dividends Declared
Dividend Payout Ratio
Selected Average Balances:
Total Assets
Total Loans (3)
Total Deposits
Total Shareholders’ Equity
2022
$ 6,655,140
2021
2020
2019
2018
$ 6,744,865
$ 6,460,631
$ 7,318,433
$ 6,922,934
15.26%
1.01%
6.64%
3.01%
0.00%
1.30%
$ 1.20
$ 1.18
$ 6.99
$ 0.68
56.73%
12.30%
1.14%
9.30%
3.06%
-0.02%
1.43%
$ 1.22
$ 1.19
$ 9.73
$ 0.78
63.98%
11.96%
1.29%
10.75%
3.52%
0.02%
1.30%
$ 1.17
$ 1.14
$ 9.96
$ 0.66
56.44%
14.86%
1.66%
11.18%
4.28%
0.14%
1.46%
$ 1.33
$ 1.31
$ 9.25
$ 0.74
55.58%
15.85%
1.61%
10.15%
4.15%
-0.01%
1.53%
$ 1.26
$ 1.24
$ 8.25
$ 0.58
54.68%
$ 656,833,125
$ 320,826,946
$ 596,881,098
$ 43,602,112
$ 589,379,985
$ 502,628,318
$ 440,615,140
$ 430,495,412
$ 324,078,445
$ 313,303,363
$ 281,508,711
$ 277,223,600
$ 519,900,412
$ 434,071,108
$ 381,687,960
$ 386,025,147
$ 54,838,166
$ 54,021,647
$ 49,242,545
$ 43,691,359
(1) Excluding mortgage loans to be sold
(2) Adjusted to retroactively reflect 10% stock dividend issued during the year ended December 31, 2018
(3) Including mortgage loans to be sold
EARNINGS & CASH DIVIDENDS PAID SINCE 1987
CUMULATIVE EARNINGS
$105.0M
CUMULATIVE CASH DIVIDENDS
$59.5M
T H E B A N K O F S O U T H C A R O L I N A
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
These statements have not been reviewed, or confirmed for accuracy or relevance,
by the Federal Deposit Insurance Corporation.
effective on April 17, 1995.
DE AR S HARE HOLDE RS , CU STOM E RS ,
E M PLOYE ES , AN D FRIE N DS:
We are very proud to report annual profits that were the fourth best in our 36-year history. With 2023
reigning in and the shadow of COVID waning, hopes for financial normalcy have once again returned.
We were reminded in 2022, though, of just how fast change can
At the 2022 Annual Shareholders Meeting, we welcomed Josette R.
come about. For the banking industry and its customers, this
E. Pelzer, Ph.D. as a new Director, electing her to serve on both
meant a dramatic change in the interest rate environment, as the
the Bank and Corporate Boards. We will miss the contributions of
Federal Reserve increased its target rate seven times last year - and
Dr. Edmund Rhett and Mr. Steve Swanson and thank them for their
at an unprecedented pace! Your bank is well positioned to benefit
years of dedicated service to the Bank and Corporate Boards. Their
from additional Federal Reserve increases, which we believe are
presence will be missed.
imminent as the ongoing fight to curb inflation continues. Although
interest rate spreads have improved, mortgage activity has slowed
We are proud of our successes, but we are also proud of our
considerably, and intense competition for deposits has emerged.
commitment to our shareholders. We value and appreciate your
Bond portfolio values have also been impaired by higher rates, which
support, which is why we are committed to continuing shareholder
have an indirect impact on our capital and book value. However, we
rewards in the form of dividends and long-term stock value
expect these declines to be temporary as investments mature over
appreciation. Warren Buffet said, “To make money in stocks, you
the coming months.
must have the vision to see them, the courage to buy them, and the
patience to hold them.” For those of you who have been long-term
We continue to invest in our future with the opening of a new James
investors or recent owners of our stock, we thank you.
Island office in the second quarter of this year. This location will be
our sixth full-service office in the Lowcountry. The Bank was founded
with a focus on maintaining safe and sound banking practices, which
has served us well over the years, as evidenced by our excellent asset
quality and strong loan portfolio. 2023 will bring challenges, but your
bank is well positioned for continued long-term success.
Fleetwood S. Hassell
President & CEO
Eugene H. Walpole, IV
Executive Vice President
& CFO
Hugh C. Lane, Jr.
Chairman
Douglas H. Sass
Executive Vice President
& Senior Lender
Susanne K. Boyd
Executive Vice President & COO
BANK OF SOUTH CAROLINA CORPORATION
256 Meeting Street
Charleston, South Carolina 29401
(843) 724-1500
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 11, 2023
Dear Shareholder:
I cordially invite you to attend the Annual Meeting of Shareholders of Bank of South Carolina Corporation, to be held on April 11,
2023 at 2:00 p.m. EDT at 256 Meeting Street, Charleston, South Carolina 29401, for the following purposes:
1.
2.
to elect eighteen Directors to our Board of Directors to serve a one-year term;
to ratify the appointment of Elliott Davis, LLC as the Company’s independent registered public accounting firm for the year
ended December 31, 2023;
3.
to transact such other business as may properly come before the Annual Meeting or any adjournment of the meeting.
The Board of Directors has set the close of business on February 23, 2023 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 by sending you this full set of proxy materials, including a proxy card, and notifying you of the availability of our proxy
materials on the internet.
Although we would like each Shareholder to attend the Annual Meeting, we 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 2023 Proxy Statement and Annual Report for the year ended December 31, 2022 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 2, 2023
PROXY STATEMENT
FOR
THE ANNUAL MEETING OF SHAREHOLDERS
OF BANK OF SOUTH CAROLINA CORPORATION
TO BE HELD ON APRIL 11, 2023
PROXY STATEMENT
The Board of Directors of Bank of South Carolina Corporation (the “Company”) is using this Proxy Statement to solicit Proxies from
the Company’s Shareholders for the 2023 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 2, 2023. The mailing address of the Company’s principal
executive offices is 256 Meeting Street, Charleston, South Carolina 29401.
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: April 11, 2023
Time: 2:00 p.m. Eastern Daylight Time
Place: The Bank of South Carolina, 256 Meeting Street, Charleston, South Carolina
Matters to be Considered at the Annual Meeting
At the meeting, you will be asked to consider and vote upon the following matters:
Proposal 1: To elect eighteen Directors of Bank of South Carolina Corporation to serve until the Company’s 2024 Annual
Meeting of Shareholders;
Proposal 2: To ratify the appointment of Elliott Davis, LLC as the Company’s independent registered public accounting
firm for the year ended December 31, 2023;
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, 2023
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 2022 Annual Report to Shareholders are available at http://www.banksc.com and at http://www.proxyvote.com.
1
Who is Entitled to Vote?
The Board of Directors of the Company has fixed the close of business on February 23, 2023, 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, 2023, there were 5,552,351 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
or voting in person at the Annual Meeting.
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 the Company’s Common Stock
are held in your name. If you are a beneficial owner of the Company’s 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 the Company’s 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 the Company’s 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 election of each of the eighteen nominees named in Proposal 1 and “For
Proposal 2. 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 the Company’s 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 example, you will receive three separate Proxy cards to vote.
What if My Shares Are Held in Street Name?
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 the
Company’s 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. All proxy solicitation expenses, including the cost of printing and mailing of all Proxy materials, will be 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.
2
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 the Company’s 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?
Yes. Per Article II, Section 13 of the Company’s by-laws, every shareholder entitled to vote on the election of directors has the right
to vote the number of shares owned for as many persons as there are directors to be elected, or to cumulate their votes by giving
one candidate a number of votes equal to the number of directors multiplied by the number of shares owned by the shareholder, or
by distributing such votes among any number of candidates. A shareholder who intends to cumulate their votes shall either (1) give
written notice of such intention to the President or other officer of the Company at least 48 hours before the Annual Meeting, or (2)
announce their intention at the Annual Meeting before the voting for directors begins.
How will votes be counted?
“Withhold” votes, abstentions, and broker non-votes are counted as present or represented for purposes of determining the presence of
absence of a quorum for the Annual Meeting. A broker non-vote occurs when a nominee holding shares in street name for a beneficial
owner votes on one proposal but does not vote on another proposal because, with respect to such other proposal, the nominee does not
have discretionary voting power and has not received voting instructions from the beneficial owner.
Under New York Stock Exchange (“NYSE”) rules, Proposal 2, the ratification of the appointment of Elliott Davis, LLC, as the
Company’s independent registered public accounting firm for 2023, is considered a “routine” matter, which means that brokerage
firms may vote in their discretion on this proposal on behalf of clients who have not furnished voting instructions. However, Proposal
1, the election of directors, is a non-routine matter under the NYSE rules, which means that brokerage firms that have not received
voting instructions from their clients on this matter may not vote on this proposal.
With respect to Proposal 1, the election of directors, only “for” and “withhold” votes may be cast. Broker non-votes are not considered
votes cast for the foregoing purpose and will therefore have no effect on the election of director nominees. “Withhold” votes will also
generally have no effect on the election of director nominees.
With respect to Proposal 2, you may vote “for” or “against” this proposal or you may “abstain” from voting on this proposal.
Abstentions will be counted as votes present or represented and entitled to vote on this proposal and will therefore have the same
effect as a vote “against” this proposal. Because Proposal 2 is considered a “routine” matter, we do not expect any broker non-votes
with respect to this proposal.
What vote is required to approve each of the proposals?
The following sets forth the voting requirement to approve each of the proposals:
Proposal 1, Election of Directors. Directors are elected by a plurality of votes cast (meaning that the 18 director nominees who receive
the highest number of votes cast “for” their election will be elected as directors).
Proposal 2, Ratification of the Appointment of Independent Registered Public Accounting Firm. Ratification of the appointment of
Elliott Davis, LLC, to serve as the Company’s independent registered public accounting firm for 2023 requires the affirmative vote
of the holders of a majority of shares present in person or represented by proxy and entitled to vote on the proposal (meaning that
of the shares represented at the Annual Meeting and entitled to vote, a majority of them must be voted “for” the proposal for it to be
approved).
Other Items. Approval of any other matters requires the affirmative vote of the holders of a majority of shares present in person or
represented by proxy and entitled to vote on the item (meaning that of the shares represented at the Annual Meeting and entitled to
vote, a majority of them must be voted “for” the item for it to be approved).
3
How do I revoke my proxy or change my vote?
You may revoke your proxy or change your vote at any time before the vote is taken at the Annual Meeting. If you are a shareholder of
record, you may revoke your proxy or change your vote by (1) submitting a written notice of revocation to the Company’s President;
(2) delivered a proxy bearing a later date via the internet, by telephone, or by mail until the applicable deadline for each method; or (3)
attending the Annual Meeting and voting in person. Attending the Annual Meeting will not cause your previously granted proxy to be
revoked unless you vote during the meeting. For all methods of voting, the last vote cast will supersede all previous votes. If you hold
your shares in street name and you have instructed your broker, bank, trustee, or other nominee to vote your shares, you may revoke or
change your voting instructions by following the specific instructions provided to you by your broker, bank, trustee, or other nominee.
4
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 eighteen nominees described below be elected for a new term expiring at the 2024 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.
The Board of Directors believes that it is necessary for each one of our Directors to possess many qualities and skills to fulfill his
or her role successfully. 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, community involvement, 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. The Company’s board diversity matrix
is available on its website, http//:www.banksc.com, under “Investor Relations - Overview - Committee Charting.” 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 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, recommends
each of the nominees to the Board of Directors. The Nominating Committee also looks at the individual strengths of Directors, his or
her ability to contribute to the Board, and whether his or her skills and experience complement those of the other Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR ALL” OF THE NOMINEES.
5
Executive Officer Directors
Susanne K. Boyd
Age 46
First elected to the Board 2018
Ms. Boyd has been with the Bank since 1997 and has served as the Courier Teller, Check Card Specialist, Electronic Banking Officer,
Information Security Officer, Assistant Vice President, Vice President, and Senior Vice President of Operations and Technology. She
has served as the Chief Operating Officer for the Bank and the Corporation since November 2015 and was named Executive Vice
President for the Bank and Corporation in December 2017. Ms. Boyd is a graduate of College of Charleston, South Carolina Bankers
School and Georgia Bankers Association Southern Operations and Technology School. She has received training in Information
Security, Administration of the Bank’s core system, Internet Banking Compliance and Cyber Crime and is a Certified Regulatory
Vendor Program Manager. Ms. Boyd has served on the South Carolina Bankers Association Operations Committee and has been a
member of the InfraGard South Carolina Chapter. Ms. Boyd serves on the Executive/Long-Range Planning Committee and Asset
Liability/Investment Committee.
The Nominating Committee recommends the re-election of Ms. Boyd to the Board of Directors given her broad and unique experience
in banking, in-depth knowledge of the technology and its risks related to banks, and continued commitment to the success of the
Company.
Fleetwood S. Hassell
Age 63
First elected to the Board 2006
Mr. Hassell has been with the Bank since its organization in 1986. During his career of over thirty-six years in banking, Mr. Hassell has
held the position of Assistant Vice President, Vice President, Senior Vice President, Executive Vice President, Senior Lender, and now,
President/Chief Executive Officer. Born and raised in Charleston, SC, Mr. Hassell earned a BS and MBA from the University of South
Carolina School of Business. He was elected to the Board of Directors of the Bank and the Company in 2006. Mr. Hassell serves as an
Administrator and Trustee of the Bank of South Carolina Employee Stock Ownership Plan and Trust. Mr. Hassell previously served
on the boards of the South Carolina State Board of Financial Institutions and the Association of the Blind and Visually Impaired.
Currently, he serves on the Board of the Trident United Way (Past Chairman), The College of Charleston Foundation Board, and
the South Carolina Bankers Association (Chariman). Mr. Hassell serves on the Executive/Long-Range Planning Committee, Asset
Liability/Investment Committee, Community Reinvestment Act Committee, and Loan Committee.
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 recommends his re-
election to the Board.
Hugh C. Lane, Jr.
Age 74
First elected to the Board 1995
Mr. Lane, brother of Charles G. Lane, organized the Bank in 1986, where he served as President/Chief Executive Officer of the Bank
from 1986 until 2012. He served as Chairman of the Board of Directors of the Bank since its organization in 1986, and Chairman of the
Board of Directors of the Company since its organization in 1995. Mr. Lane was born in Charleston, SC. He 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 in 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 is the former
Chairman of the Charleston County Conservation Board, former Vice Chairman of the Baruch Foundation, and is the past Treasurer
of Board of Trustees of Ashley Hall School. 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. Mr. Lane serves on the Executive/Long-Range Planning Committee, Asset Liability/Investment Committee, Community
Reinvestment Act Committee, and Loan Committee.
The Nominating Committee recommends the re-election of Mr. Lane to the Board of Directors based on his unique and valuable
perspective relevant to our Bank’s business and financial performance and 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.
6
Douglas H. Sass
Age 65
First Elected to the Board 2013
Mr. Sass joined the Bank in January 1994. He has over thirty-eight years of experience in banking and oversaw the implementation
of the Bank’s Real Estate Appraisal Review Program. He has served in various officer level positions at the Bank, including Security
Officer, Appraisal Officer, and CRA Officer before becoming Executive Vice President and Senior Lender in April 2012. Additionally,
he oversees the Bank’s Loan Department and Credit Department. Mr. Sass serves as an Administrator and Trustee of the Bank of South
Carolina Employee Stock Ownership Plan and Trust. 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 and The Graduate School of Bank Management at the
University of Virginia. Mr. Sass is the immediate past President of The Charleston Museum Board of Trustees, and is active in various
civic organizations. Mr. Sass serves on the Executive/Long-Range Planning Committee, Asset Liability/Investment Committee,
Community Reinvestment Act Committee, and Loan Committee.
Based on Mr. Sass’s experience in banking, appraising, his robust background in commercial lending and business development, and
his continued devotion to the success of the Company, the Nominating Committee recommends his re-election to the Board.
Eugene H. Walpole, IV
Age 37
First elected to the Board 2018
Mr. Walpole joined the Bank in September 2012. Since that time, he has served as an Assistant Vice President, Vice President, and
Senior Vice President in the role of Risk Management Officer. In March 2016, Mr. Walpole was named Chief Financial Officer of
the Bank and Corporation and, in December 2017, was named Executive Vice President of the Bank and Corporation. Mr. Walpole
also serves as Administrator and Trustee of the Bank of South Carolina Employee Stock Ownership Plan and Trust. Prior to joining
the Bank, Mr. Walpole spent four years performing financial statement audits, regulatory filing reviews, and Sarbanes-Oxley 404
compliance testing for publicly traded and privately held financial institutions. Mr. Walpole is a Charleston native and graduate of
Presbyterian College, University of South Carolina, and South Carolina Bankers School. He holds the designations of Certified Public
Accountant, Certified Financial Services Auditor, and a Certification in Risk Management Assurance. Mr. Walpole previously served
on the Board of the Lowcountry Land Trust and currently serves on the Boards of Coastal Conservation Association of South Carolina
as well as the Preservation Society of Charleston. Mr. Walpole serves on the Executive/Long-Range Planning Committee, Asset
Liability/Investment Committee, Community Reinvestment Act Committee, and Loan Committee and oversees the Bank’s Mortgage
Department.
The Nominating Committee recommends the re-election of Mr. Walpole to the Board of Directors given his experience in banking,
in-depth knowledge of the financials of the Company, commitment to the local community, and continued devotion to the success of
the Company.
Non-Employee Directors and Nominee
David W. Bunch
Age 72
First elected to the Board 2009
Mr. Bunch has been a member of the Board of Directors of the Bank and the Company since 2009. He was born in Charleston,
South Carolina and graduated from Clemson University. He has been employed by XO Bunch Organizations since 1973, serving
as President, Hughes Motors, Inc.; Vice-President, Bunch Leasing Co.; Vice-President, Florence Truck Center, Inc.; Partner, Bunch
Truck & Equipment, LLC; Partner, Bunch & Sons-Real Estate; Managing member, Wando Properties, LLC; and President, Double
D Leasing Co., Inc. In addition to serving on the Board of Directors of the Bank and Company, Mr. Bunch serves as Chairman of the
Loan Committee and Community Reinvestment Act Committee.
The Nominating Committee recommends the re-election of David Bunch to the Board of Directors based on his valuable knowledge
of business and his participation on the Loan, Community Reinvestment Act, and Audit & Compliance Committees.
Graham M. Eubank, Jr.
Age 55
First elected to the Board 2005
Mr. Eubank has been a member of the Board of Directors of the Bank and the Company 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 various 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
and the Company, Mr. Eubank currently serves on the Nominating Committee and is the Chairman of the Compensation Committee.
As a local business owner, Mr. Eubank provides an important perspective on economic issues relevant to our community and company,
which is why the Nominating Committee recommends Mr. Eubank for re-election to the Board of Directors.
7
Elizabeth M. Hagood
Age 61
First elected to the Board 2013
Mrs. Hagood is the former Executive Director of the Lowcountry Land Trust. Mrs. Hagood grew up in Charlotte, NC and graduated
from Davidson College and the Darden School of Business at the University of Virginia. Mrs. Hagood currently serves on the Boards
of the Preservation Society of Charleston, Conservation Loan Fund of the Coastal Community Foundation, Open Space Institute
Advisory Board, and the Charleston County Greenbelt Advisory Board. In addition to serving on the Board of Directors of the
Bank and Company, Ms. Hagood serves on the Loan Committee, Community Reinvestment Act Committee, and the Nominating
Committee.
Her education, distinct perspective on social responsibility and diversity, experience on various committees within the organization, and
continued service to the Charleston community through her leadership roles in various organizations, led the Nominating Committee
to recommend Mrs. Hagood for re-election to the Board of Directors.
Glen B. Haynes, DVM
Age 68
First elected to the Board 2007
Dr. Haynes has been a member of the Board of Directors of the Bank and the Company since 2007. He was born in Charlottesville,
Virginia and has lived in Summerville, South Carolina for 33 years. He graduated from Virginia Tech with a BS in Biology. He
received a DVM from the University of Georgia. In addition to serving on the Board of Directors of the Bank and the Company, Dr.
Haynes has served as former President of the Summerville Rotary Club, President of Frances Willis SPCA, Chairman of the South
Carolina Board of Veterinary Medical Examiners, and former 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 and is a construction volunteer for Habitat
for Humanity. In addition to serving on the Board of Directors of the Bank and Company, Dr. Haynes serves on the Loan Committee,
Community Reinvestment Act Committee, and is the Chairman of the Nominating Committee.
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 having run his own practice.
William L. Hiott, Jr.
Age 78
First elected to the Board 1995
Mr. Hiott was with the Bank from its organization in 1986 until his retirement in 2011. He held various positions including the
Executive Vice President and Cashier of the Bank and the Executive Vice President and Treasurer of the Company. He has served
on the Board of Directors of the Bank since its organization in 1986 and the Company since its organization in 1995. He received a
BS in Accounting from Charleston Southern University and is a graduate of South Carolina Bankers School and the University of
Wisconsin’s Bank Administration Graduate School. In addition to serving on the Board of Directors of the Bank and Company, Mr.
Hiott serves on the Asset Liability/Investment Committee, Community Reinvestment Act Committee, Loan Committee, Audit &
Compliance Committee, Executive/Long-Range Planning Committee, and Compensation Committee.
The Nominating Committee recommends 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 of Directors.
Richard W. Hutson, Jr.
Age 65
First elected to the Board 2005
Mr. Hutson has been a member of the Board of Directors of the Bank and Company since 2005. He received a BA from The University
of the South. Mr. Hutson is the Manager of William M. Means Insurance Company. Mr. Hutson has served on the Boards of the South
Carolina Historical Society and the Historic Charleston Foundation. He has served as President of the South Carolina Historical
Society. Mr. Hutson serves on the Asset Liability/Investment Committee, Audit & Compliance Committee, and is the Secretary of the
Board of Directors in addition to serving on the Board of Directors of the Bank and Company.
The Nominating Committee recommends Mr. Hutson for re-election to the Board due to his business experience, commitment to the
Bank and Company, and strong ties to the Charleston community.
Charles G. Lane
Age 68
First elected to the Board 1995
Mr. Lane is the brother of Hugh C. Lane, Jr. and has been a member of the Board of Directors of the Bank since its organization in
1986, and a member of the Board of Directors of the Company since its organization in 1995. He has devoted nearly thirty years to
ensuring the success of the Company. He is a graduate of Clemson University. Mr. Lane is a Managing Member of Holcombe, Fair
and Lane, LLC - a commercial real estate company. He currently serves on the Executive/Long-Range Planning Committee, Asset
Liability/Investment Committee, Loan Committee, and Community Reinvestment Act Committee.
Mr. Lane’s expertise in the real estate market and the local community has been valuable to the Board in its decision-making and is
why the Nominating Committee recommends his re-election.
8
Alan I. Nussbaum, MD
Age 71
First elected to the Board 1999
Dr. Nussbaum has been a member of the Board of Directors of the Bank since 1999. 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 and has practiced rheumatology in Charleston since 1982. Dr. Nussbaum serves as the Lead Director of the Bank and
Company and has held this position since 2011. He is the Chairman of the Executive/Long-Range Planning Committee and serves on
the Asset Liability/Investment Committee and Compensation Committee.
The Nominating Committee recommends the re-election of Dr. Alan Nussbaum to the Board of Directors based on the commitment
that he has made to the Board of Directors, community involvement, and knowledge of the Company.
Josette R. E. Pelzer, PhD, CPA
Age 39
First elected to the Board 2022
Dr. Pelzer is an assistant professor in the department of Accounting and Business Law at the College of Charleston (SC). She currently
teaches introductory accounting, intermediate accounting, and audit courses in the undergraduate program. Dr. Pelzer has five years
of audit experience with a global CPA firm, and seven years in academia during which time she has published several articles on
auditor reporting and audit education. She is a member of the American Accounting Association and a former member of the American
Institute of CPAs. Dr. Pelzer is a native Charlestonian and earned both a BS in Business Administration and a Master of Accountancy
from the University of South Carolina, as well as a PhD in Accounting from Florida State University. In addition to serving on the
Board of Directors of the Bank and Company, Dr. Pelzer serves on the Audit & Compliance Committee.
The Nominating Committee recommends Dr. Pelzer for re-election due to her leadership within the community, financial expertise,
and unique perspective relevant to financial performance.
Karen J. Phillips
Age 62
First elected to the Board 2017
Mrs. Phillips received a BA in Political Science from The University of the South 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 a member of the Board of Directors of Kanuga Conferences, Inc., the past Chairman of the Board of Trustees of Ashley
Hall School where she currently serves as a Trustee, and previous board member of Life Resources, Inc. In addition to serving on the
Board of Directors of the Bank and Company, Mrs. Phillips serves on the Audit & Compliance Committee, Nominating Committee,
Loan Committee, and Community Reinvestment Act Committee.
The Nominating Committee recommends Mrs. Phillips for re-election due to her leadership within the community, financial expertise,
and unique perspective relevant to financial performance.
Malcolm M. Rhodes, MD
Age 63
First elected to the Board 2005
Dr. Rhodes has been a member of the Board of Directors of the Bank and Company since 2005. He received a BA from Duke
University and a MD from the Medical University of South Carolina. He has been a partner at Parkwood Pediatric Group since 1988;
however after 35 years of service he retired from the practice in 2022. He remains on the clinical faculty at MUSC and Bon-Secours
St. Francis Hospitals. In addition to serving on the Board of Directors of the Bank and the Company, Dr. Rhodes represents South
Carolina on the Atlantic States Marine Fisheries Commission and serves on the boards of the Carolina Gold Rice Foundation and
the TriCounty Forestry Association. He has served previously on the boards of Charleston Stage Company, Coastal Conservation
Association and the Board of Trustees at Ashley Hall School.
The Nominating Committee recommends the re-election of Dr. Rhodes to the Board of Directors based on his knowledge of business
including running a medical practice and involvement with several local hospitals.
Sheryl G. Sharry
Age 68
First elected to the Board 2010
Mrs. Sharry was with the Bank since its organization in 1986 until her retirement in 2016. She held various positions in the Bank, including
Assistant Vice President – Operations Department, Vice President – Operations & Technology, Senior Vice President – Operations
& Technology, and Chief Financial Officer/Executive Vice President. 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 and Company in
2010. She is a graduate of the College of Charleston, South Carolina Bankers School, and the School of Bank Investments and Financial
Management. In addition to serving on the Board of Directors of the Bank and the Company, Mrs. Sharry serves on the Executive/Long-
Range Planning Committee, Asset Liability/Investment Committee, and is the Chairman of the Audit & Compliance Committee.
The Nominating Committee recommends Mrs. Sharry to re-election of the Board of Directors based on her strong background in
operations and technology of the Company, experience in banking, valuable knowledge of financial reporting and performance of the
Company, and continued devotion to the success of the Company.
9
Thaddeus T. Shuler
Age 43
Director Nominee
Mr. Shuler is a Charleston native. After receiving a BS in Industrial Management and minor in German at Clemson University, he
worked overseas for a large multi-national corporation. When he returned home to Charleston, he began working for his family
business, Southern Lumber and Millwork Corporation, and assumed the role of President and CEO in 2016. Mr. Shuler has served on
the Board of the Building Materials Supplier Association for over 10 years, and served as Chairman in 2019. Mr. Shuler has served
on the Clemson University Wood Utilization Department Board. He currently serves on the Lumbermen Merchandising Corporation
Education Committee.
The Nominating Committee recommends the election of Mr. Shuler to the Board of Directors based on his valuable knowledge of
business and local industry as well as his strong ties to the community.
10
The following tables set forth, as of February 23, 2023, information regarding share ownership of:
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
•
•
•
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; and
each employee Director
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
(“Exchange Act”). 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 December 31, 2022.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In accordance with Rule 13d-3 under
the Exchange 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 tables below include 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.
The table below shows the security ownership of certain owners known to us to beneficially own more than 5 percent of any class of
Common Stock.
Name and Address of Beneficial Owner
Title of class
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hugh C. Lane, Jr.(1)
256 Meeting Street
Charleston, South Carolina 29401
The Bank of South Carolina
Employee Stock Ownership
Plan and Trust (“the ESOP”)
256 Meeting Street
Charleston, South Carolina 29401
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The table below shows the security ownership of management, directors, and nominees.
Name of Beneficial Owner
Eugene H. Walpole, IV(3)
Title of class
Executive Officers/Directors
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hugh C. Lane, Jr.(1)
Fleetwood S. Hassell(3)
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Susanne K. Boyd
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Douglas H. Sass(3)
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current Directors
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . David W. Bunch
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Graham M. Eubank, Jr.
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glen B. Haynes, DVM
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . William L. Hiott, Jr.
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alan I. Nussbaum, MD
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Karen J. Phillips
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Malcolm M. Rhodes, MD
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard W. Hutson, Jr.
Charles G. Lane(1)
Sheryl G. Sharry
Steve D. Swanson
Edmund Rhett, Jr., MD
Elizabeth M. Hagood
Josette R. E. Pelzer, PhD, CPA
11
Amount and Nature
of Beneficial Ownership
818,843(2)
Percent of Class
14.75%
336,088(3)
6.05%
Amount and Nature
of Beneficial Ownership
Percent of Class
818,843(2)
126,283(4)
13,410(4)
44,683(4)
16,420(4)
3,710
1,041
421
8,173
210,171(4)
10,231
260,511(4)
4,302
110
6,624(4)
7,554(4)
4,918
99,918
16,538
14.75%
2.27%
*
*
*
*
*
*
*
3.79%
*
4.69%
*
*
*
*
*
1.80%
*
Title of class
Nominee
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Name of Beneficial Owner
Amount and Nature
of Beneficial Ownership
Percent of Class
Thaddeus T. Shuler
—
1,653,860
*
29.79%
*
Represents less than 1%
(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 455,507 shares or 8.20% 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 277,445 shares; as a Trustee for the Mills Bee Lane Memorial Foundation, he has shared voting and investment power with respect to 13,084
shares; he is indirectly beneficial owner of 16,986 shares owned by his wife and 49,964 shares owned by the ESOP in which he has a vested interest. Hugh C.
Lane, Jr. disclaims any beneficial interest in the 461,360 shares owned by extended family members. 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’), Fleetwood S. Hassell, President/Chief Executive Officer and Director of the Bank and Company;
Eugene H. Walpole, IV, Chief Financial Officer/Executive Vice President and Director of the Bank and Company; Douglas H. Sass, Senior Lender/Executive Vice
President and Director of the Bank and Company; and Sheryl G. Sharry, Director of the Bank and Company disclaim beneficial ownership of the 336,088 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 61,450 shares owned by his wife; held by him as a co-Trustee with Charles G. Lane for the children of Hugh C. Lane,
Jr.; and shares owned by the ESOP in which he has a vested interest; Douglas H. Sass – an aggregate of 25,022 shares owned by the ESOP in which he has a
vested interest and held by his wife; William L. Hiott, Jr. – an aggregate of 10,713 shares directly owned by his wife; Charles G. Lane – an aggregate of 65,384
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 – 3,649 shares owned by her husband; Edmund Rhett, Jr. MD – 1,005
shares owned by his wife; Susanne K. Boyd – an aggregate of 9,384 shares owned by children and shares owned by the ESOP in which she has a vested interest;
Eugene H. Walpole, IV – 6,037 shares owned by the ESOP in which he 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.
No Director or Executive Officer was involved in or has any pending legal proceedings related to bankruptcy, securities, or commodities
laws nor have any members been convicted in criminal proceedings in the past 10 years.
12
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
AND CORPORATE GOVERNANCE MATTERS
Introduction
The Company’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 six meetings (including all
regularly scheduled and special meetings) during the year ended December 31, 2022. 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. The Company does not have a policy with regard to board members’ attendance at annual
meetings of shareholders. The Company has historically not retained records with respect to director attendance at annual meetings of
shareholders, but intends to do so on a going-forward basis.
Director Independence
The Board of Directors is comprised of a majority of independent Directors in compliance with SEC and NASDAQ rules. All members
of the Audit & 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 or Company that may interfere
with the exercise of their independence from management. None of the members of the Nominating Committee are current or former
officers or employees of the Bank or Company. One member of the Compensation Committee and Audit & Compliance Committee,
William L. Hiott, Jr., retired from the Bank in April 2010. Two members of the Executive/Long-Range Planning Committee, William
L. Hiott, Jr. and Sheryl G. Sharry, retired from the Bank in April 2010 and 2016, respectively. 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, Susanne K. Boyd, Chief Operations Officer/Executive Vice President, Eugene H.
Walpole, IV, Chief Financial Officer/Executive Vice President and Charles G. Lane, brother of Hugh C. Lane, Jr.
Board Leadership Structure
The Board of Directors currently separates the roles of Chairman of the Board and CEO. The Board of Directors believes that Hugh
C. Lane, Jr., is the best person to serve as Chairman 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 believes that the combined experience as Chairman and past President/Chief
Executive Officer promotes strategic 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 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
The Board of Directors selected Alan I. Nussbaum, MD, an independent director, 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. Under NASDAQ
rules, non-management Directors of the Board of Directors are required to meet on a regular scheduled basis without the presence of
Directors that are not considered independent. The Lead Director chairs these sessions.
Risk Management
The Board of Directors has an active role, as a whole and 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 & 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. The Board of Directors monitors financial and
independence risks and oversees the management of such risks through committee reports. In addition, the Audit & Compliance
Officer oversees internal controls.
13
Committees and Committee Charters
The Board of Directors of the Company has four standing committees: the Executive/Long-Range Planning Committee, the
Compensation Committee, the Nominating Committee, and the Audit & Compliance Committee. Each committee serves in a dual
capacity as a committee of the Company and the Bank.
The following table lists the membership of the standing committees of the Board of Directors of the Company.
Director
Susanne K. Boyd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David W. Bunch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Graham M. Eubank, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elizabeth M. Hagood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fleetwood S. Hassell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Glen B. Haynes, DVM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William L. Hiott, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard W. Hutson, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charles G. Lane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hugh C. Lane, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alan I. Nussbaum, MD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Josette R. E. Pelzer, PhD, CPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Karen J. Phillips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edmund Rhett, Jr. MD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Malcolm M. Rhodes, MD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Douglas H. Sass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sheryl G. Sharry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steve D. Swanson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eugene H. Walpole, IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit & Compliance Committee
Audit &
Compliance
Executive/
Long-Range
Planning
•
Compensation
Committee
Nominating
Committee
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The Board of Directors appoints and approves the members of the Audit & Compliance Committee annually. Under the terms of its
Charter, the Audit & 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 2022, the Audit & Compliance Committee held four meetings. Members are considered
independent of the Company under applicable rules and regulations.
The Audit & 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 Board of Directors may amend the Charter at any time. The most recent Audit & Compliance Committee Charter may
be obtained at our internet website http://www.banksc.com.
The Audit & 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, 2022
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 & Compliance Committee’s responsibility is to monitor and
oversee the process.
In this context, the Audit & Compliance Committee has met and held discussions with management and Elliott Davis, LLC, our
independent auditors, in 2022. The Audit Committee has discussed with the independent auditors their independence from the
Company and management. The Audit & Compliance Committee also discussed with management, the internal auditors and the
independent auditors the quality and adequacy of our internal controls. The Audit & Compliance Committee reviewed the audit plans,
audit scope and identification of audit risks with the independent auditor.
14
The Audit & Compliance Committee reviewed and discussed with the independent auditors all communications required by
generally accepted auditing standards, including those described in the PCAOB Auditing Standard 16, as modified or supplemented,
“Communications with Audit Committees,” and Rule 2-07 of Regulation S-X, 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 & Compliance Committee also discussed the results of the internal audit examinations.
The Audit & Compliance Committee reviewed and discussed the audited consolidated financial statements of the Company as of and
for the year ended December 31, 2022, with management and the independent auditors. The Audit & Compliance Committee has also
(i) discussed with Elliott Davis the matters required to be discussed by the applicable requirements of the Public Company Accounting
Oversight Board (“PCAOB”) and the SEC, (ii) reviewed the written disclosures from Elliott Davis as required by the rules of the
PCOAB regarding the independent registered public accounting firm’s communications with the Audit & Compliance Committee
concerning independence and (iii) discussed with Elliott Davis its independence from the Company.
Based on the above-mentioned review and discussion with management and the independent auditors, the Audit & Compliance
Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements be included in its
Annual Report on Form 10-K for the year ended December 31, 2022, for filing with the SEC. During 2022, the Committee appointed
Elliott Davis, LLC as our independent auditors for the year ending December 31, 2022.
Sheryl G. Sharry, Chairman
Richard W. Hutson, Jr.
William L. Hiott, Jr.
Dr. Josette R. E. Pelzer, PhD, CPA
Karen J. Phillips
Executive/Long-Range Planning Committee
The Executive/Long-Range Planning Committee consists of our President/Chief Executive Officer, Chairman, Senior Lender/
Executive Vice President, Chief Operating Officer/Executive Vice President, Chief Financial Officer/Executive Vice President and
five designated Directors. Alan I. Nussbaum, MD, an independent Director, serves as Chairman of the Committee. During 2022, the
Executive/Long-Range Planning Committee held one meeting. 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:
•
•
•
•
•
•
•
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 administer the 2021 Stock Incentive Plan for Independent Directors;
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, 2022.
15
The Board of Directors has determined that each of the Directors serving on our Compensation Committee is independent and satisfies
other requirements imposed by:
• NASDAQ;
• The Exchange Act and the rules and regulations of the SEC under the Exchange Act; and
• Any other laws, rules or regulations applicable to us.
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 three times during 2022 and did not consult independent legal counsel or compensation consultants. The Compensation Committee
operates under a written Charter adopted by the Board of Directors which is reviewed and reassessed for adequacy on an annual basis.
The most recent Compensation Committee charter may be obtained at our 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 operates under a written Charter adopted by the
Board of Directors which is reviewed and reassessed for adequacy on an annual basis. A copy of this Charter may be obtained at our
website http://www.banksc.com. The Nominating Committee met once during 2022.
Nominations, other than those made by the Nominating Committee, may be made in writing and delivered or mailed to the President/
Chief Executive Officer 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:
•
•
•
•
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 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, employees, and Directors 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 website http://www.banksc.com.
Pledging, Hedging and Other Transactions
We do not currently have a policy prohibiting our officers, directors and employees from pledging their Company common shares as
collateral to secure loans, utilizing their common shares as collateral for margin loans, engaging in hedging transactions and otherwise
speculating on short-term movements in the price of our common shares.
16
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 email such communication to Fleetwood S. Hassell, President/Chief Executive Officer, at
fhassell@banksc.com. A Shareholder is free to address any communication to any Director at the address of the Bank of South
Carolina. Any communication from a Shareholder received by the President/Chief Executive Officer 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 & Compliance Committee by writing to one or both of the following addresses:
Bank of South Carolina Corporation Audit & Compliance Committee
c/o Sheryl G. Sharry, Chairman
Bank of South Carolina Corporation
1550 Kentwood Circle
Charleston, SC 29412
ssharry@banksc.com
Related Party Transactions
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, 2022. Our officers other than the Secretary do not receive payment for their participation
on the Board of Directors or its Committees.
Name
Susanne K. Boyd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David W. Bunch(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Graham M. Eubank, Jr.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elizabeth M. Hagood(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fleetwood S. Hassell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Glen B. Haynes, DVM(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William L. Hiott, Jr.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard W. Hutson, Jr.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charles G. Lane(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hugh C. Lane, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alan I. Nussbaum, MD(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Josette R. E. Pelzer, PhD, CPA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Karen J. Phillips(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edmund Rhett, Jr. MD(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Malcolm M. Rhodes, MD(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Douglas H. Sass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sheryl G. Sharry(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steve D. Swanson(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eugene H. Walpole, IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees Earned or
Paid in Cash
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
—
9,000
7,650
9,500
—
10,200
12,400
7,950
10,950
—
8,650
6,050
11,200
5,800
6,700
—
9,200
5,750
—
(1)
Independent Director
17
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 $500.00 for each meeting of the Board of Directors of the Bank
attended. Directors of the Company and the Bank also receive $250.00 for each Company or Bank board committee meeting attended.
Stock Incentive Plan for Independent Directors
The 2021 Stock Incentive Plan for Independent Directors (“2021 Stock Incentive Plan”) is the sole plan for providing equity incentive
compensation to eligible Independent Directors. The Board of Directors believes that the 2021 Stock Incentive Plan helps attract,
motivate, and retain Independent Directors and align Independent Director and shareholder interests. The 2021 Stock Incentive Plan
was approved by Shareholders at the Company’s 2021 Annual Meeting. No more than 150,000 total shares of the Company’s common
stock may be issued under the 2021 Stock Incentive Plan and all stock options granted must have an exercise price equal to or greater
than 100% of the fair market value of the Company’s common stock on the grant date.
During 2021, the Compensation Committee granted each Independent Director options to purchase 5,000 shares of the Company’s
common stock on April 19, 2021. The stock options have an exercise price of $21.10 per share, which was the fair market value of the
Company’s common stock on the date of grant. During 2022, the Compensation Committee granted Dr. Josette R. E. Pelzer options
to purchase 5,000 shares of the Company’s common stock on May 26, 2022. The stock options have an exercise price of $17.10 per
share, which was the fair market value of the Company’s common stock on the date of grant. The stock options vest ratably over 5
years and expire 10 years from the date of grant.
18
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:
EXECUTIVE COMPENSATION
•
•
Susanne K. Boyd, Chief Operating Officer/Executive Vice President, Director
Fleetwood S. Hassell, President/Chief Executive Officer, Director
• Hugh C. Lane, Jr., Chairman, Director
• Douglas H. Sass, Senior Lender/Executive Vice President, Director
• Eugene. H. Walpole, IV, Chief Financial Officer/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:
•
•
•
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 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 2010 Omnibus Stock Incentive
Plans and 2020 Stock Incentive Plan.
Base Salary
The Compensation Committee sets the base salary for the five Executive Officers. The Committee’s objectives are:
•
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, 2022, 2021, and 2020, by the Bank to
the Chairman of the Board of Directors and the two most highly compensated Executive officers of the Company and the Bank 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. We did not issue any stock awards to our Executive Officers during the years ended December 31,
2022, 2021, and 2020. No options were granted to any Executive Officer during the years ended December 31, 2022 and 2021. All
Executive Officers received 10,000 stock option grants during the year ended December 31, 2020. Additionally, there was no non-
equity incentive plan compensation or nonqualified deferred compensation earnings given during the years ended December 31, 2022,
2021, and 2020.
19
Name and Principal Position
Hugh C. Lane, Jr. . . . . . . . . . . . . . . . . . . . .
Chairman
Fleetwood S. Hassell . . . . . . . . . . . . . . . . . .
President/Chief Executive Officer
Douglas H. Sass . . . . . . . . . . . . . . . . . . . . .
Senior Lender/Executive Vice President
Summary Compensation Table
Year
Salary(1)
$
2022
2021
$
2020 $
$
2022
2021
$
2020 $
$
2022
$
2021
$
2020
$
335,000
320,000
$
305,000 $
$
331,313
316,313
$
301,313 $
$
250,708
$
235,708
$
220,708
Bonus
All Other
Compensation(2)
$
30,641
$
20,400
28,452
20,400
$
$
25,330 $
20,250 $
$
30,641
$
20,400
28,452
20,400
$
$
25,330 $
20,250 $
$
27,237
$
20,400
$
25,128
$
20,400
$
21,416
$
20,250
Total
386,041
368,852
350,580
382,354
365,165
346,893
298,345
281,236
262,374
(1) The Compensation Committee, consisting of Graham M. Eubank, Jr., Alan I. Nussbaum, and William L. Hiott, Jr., compares salaries for similar positions at
similar sized banks within South Carolina as well as the overall bank and individual performance. Once the Compensation Committee establishes the salary levels,
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 $15,000 increase in salary for the Chairman of the Board, a $15,000 increase in the salary of the President/
Chief Executive Officer and a $15,000 increase in salary for the Senior Lender/Executive Vice President for the year ended December 31, 2022. The Compensation
Committee recommended and the Board of Directors approved a $15,000 increase in salary for the Chairman of the Board, a $15,000 increase in the salary of the
President/Chief Executive Officer and a $15,000 increase in salary for the Senior Lender/Executive Vice President for the year ended December 31, 2021. The
Compensation Committee recommended and the Board of Directors approved a $15,000 increase in salary for the Chairman of the Board, a $15,000 increase in
the salary of the President/Chief Executive Officer and a $10,000 increase in salary for the Senior Lender/Executive Vice President for the year ended December
31, 2020.
(2) 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 $50,053 as of December 31, 2022 and $49,305 as of
December 31, 2021.
Employee Stock Ownership Plan and Trust Agreement
Fleetwood S. Hassell, Douglas H. Sass, Sheryl G. Sharry, and Eugene H. Walpole, IV 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 $540,000 to the ESOP for the fiscal year ended December 31, 2022. The
contribution was made during 2022.
A participant becomes vested in the ESOP based upon the employee’s credited years of service. The vesting schedule is as follows:
•
•
•
•
•
1 Year of Service
0% Vested
2 Years of Service
25% Vested
3 Years of Service
50% Vested
4 Years of Service
75% Vested
5 Years of Service
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 was submitted to the IRS for approval and a determination letter was issued November 17, 2017, stating that the plan
satisfies the requirements of Code Section 4975(e)(7).
20
The Plan currently owns 336,088 shares or 6.05% 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
$
$
$
30,641
30,641
27,237
$
$
$
Total
30,641
30,641
27,237
Stock Incentive Plans
The Shareholders approved the 2010 Omnibus Stock Incentive Plan on April 13, 2010. Under this 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. This plan expired on April 14, 2020. The remaining outstanding options granted
under this plan can still be exercised in accordance with the plan.
The Shareholders approved the 2020 Stock Incentive Plan on April 14, 2020. Under this 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. This plan expires on February 27, 2030. Options granted before that date
shall remain valid in accordance with their terms. The Executive/ Long-Range Planning Committee will obtain approval from the
Compensation Committee for all stock options granted to Executive Officers.
The following information with respect to the outstanding equity awards as of December 31, 2022, is presented for the named
Executive Officers with additional discussion below.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2022
OPTION AWARDS
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares of
Units of
Stock That
Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
STOCK AWARDS
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
Equity
Incentive
Plan
Awards:
Market or
Payout Value
or Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)
—
—
—
10,000
10,000
10,000
— $ 16.73 April 15, 2025
— $ 15.21 April 15, 2030
— $ 15.21 April 15, 2030
—
—
—
—
—
—
—
—
—
—
—
—
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Name
Hugh C. Lane, Jr. . . . .
Fleetwood S. Hassell . .
Douglas H. Sass . . . . .
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.
21
In the event the option holder remains in the continuous employment 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 employment 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 employment 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 2010 and 2020 Stock Incentive Plans 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.
No options were exercised to purchase shares by Hugh C. Lane, Jr, Fleetwood S. Hassell and Douglas H. Sass during 2022.
Equity Compensation Plan Information
The following table summarizes the total outstanding options and the weighted-average exercise price of the Company’s equity
compensation plans as of December 31, 2022:
Plan Category
2010 Omnibus Stock Incentive Plan approved by Shareholders(2) (3) . . . . . . . . .
2020 Stock Incentive Plan approved by Shareholders . . . . . . . . . . . . . . . . . . . .
2021 Stock Incentive Plan approved by Shareholders(4) . . . . . . . . . . . . . . . . . . .
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
30,912
153,500
70,000
254,412
$
$
$
$
15.89
16.40
20.81
17.56
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans(1)
—
133,000
80,000
213,000
(1)
In accordance with the 2010 Omnibus Stock Incentive Plan, options are no longer granted under this Plan. This Plan expired April 14, 2020. Options granted
before this date remain valid in accordance with their terms.
(2) The number of securities to be issued upon exercise of the outstanding options represents the total outstanding options under the 2010 Omnibus Stock Incentive
Plan. As per the agreement, the above options remain valid in accordance with their terms.
(3) The 2010 Omnibus Stock Incentive Plan was approved by the Shareholders at the 2010 Annual Meeting. There were 363,000 shares reserved under this Plan. All
shares have been adjusted to reflect two 10% stock dividends declared August 27, 2015 and April 10, 2018.
(4) Participants in the 2021 Stock Incentive Plan are limited to Independent Directors of the Company that the Compensation Committee, in its sole discretion,
determines has contributed or can be expected to contribute to the profits or growth of the Company.
During the fiscal year ended December 31, 2022, 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
Employee Stock Ownership Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical and Dental Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life and Disability Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive
Officers
x
x
x
x
Officers
x
x
x
x
Full Time
Employees
x
x
x
x
22
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 safe and sound practices in the industry.
Pay versus Performance Information
The following table sets forth information concerning the compensation of our principal executive officer, or “PEO,” and, on an
average basis, the compensation of our other named executive officers, or “NEOs,” for each of the fiscal years ending December 31,
2022 and 2021, as such compensation relates to our financial performance for each such fiscal year.
Value of Intial Fixed $100
Investment(5) Based on:
Summary
Compensation
Table Total for
PEO(1)
386,041 $
368,852 $
$
$
Compensation
Actually Paid
to PEO(1)(2)(3)
Year
2022
2021
Average
Summary
Compensation
Table Total
for Non-PEO
NEO’s(1)
Average
Compensation
Actually Paid
to Non-PEO
NEO’s(1)(2)(4)
Total
Shareholder
Return
385,424 $
382,653 $
340,350 $
323,201 $
339,789 $
335,747 $
102.31
127.89
Peer Group
Total
Shareholder
Return
*
*
Net Income
$ 6,655,140
$ 6,744,865
Company-
Selected
Measure
*
*
*
Not required for smaller reporting companies
(1) For each of 2022 and 2021, the PEO is Hugh C. Lane, Jr., Chairman, and the non-PEO NEOs are Fleetwood S. Hassell, President/Chief Executive Officer, and
Douglas H. Sass, Senior Lender/Executive Vice President.
(2) We do not have pensions; therefore, an adjustment to the Summary Compensation Table (SCT) totals related to pension value for any of the years in this table is
not needed.
(3) To calculate Compensation Actually Paid (CAP) for the PEO, adjustments were made to SCT total compensation, calculated in accordance with the SEC
methodology for determining CAP for each year. Adjustments to CAP of ($617) and $13,801 for the years 2022 and 2021, respectively, consisted solely of the
change in value of prior years’ award unvested at the respective year end.
(4) To calculate Compensation Actually Paid (CAP) for the non-PEO NEO’s, adjustments were made to SCT total compensation, calculated in accordance with the
SEC methodology for determining CAP for each year. Adjustments to CAP of ($561) and $12,547 for the years 2022 and 2021, respectively, consisted solely of
the change in value of prior years’ award unvested at the respective year end.
(5) Total Shareholder Return assumes $100 was invested on December 31, 2020.
23
PROPOSAL 2: TO RATIFY THE APPOINTMENT OF ELLIOTT DAVIS, LLC AS THE COMPANY’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDED DECEMBER 31, 2023.
The Audit & Compliance Committee of the Board of Directors has appointed Elliott Davis, LLC as our independent registered public
accounting firm for the year ended December 31, 2023, and that appointment is being submitted to Shareholders for ratification. The
appointment of Elliott Davis, LLC as independent public accountants was approved by the Audit & Compliance Committee of the
Board of Directors and ratified by the Shareholders at the 2022 Annual Shareholders’ Meeting. At the 2023 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, 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, 2023, is hereby ratified.
If ratification is not achieved, the selection of an independent registered public accounting firm 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.
Auditing and Related Fees
Before an accounting firm is engaged by the Company or the Bank to render audit or non-audit services, the engagement must be
approved by the Audit & Compliance Committee.
The services provided by Elliott Davis, LLC include the audit of the consolidated 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, LLC assisted in the preparation of the Company’s and Bank’s tax returns for the fiscal years ending December 31, 2022
and 2021. These non-audit services were routine in nature and did not compose more than 25% of the total fees paid to Elliott Davis,
LLC in 2022 or 2021 and were approved by the Audit & Compliance Committee..
A representative of Elliott Davis, 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.
Before the independent registered public accounting firm 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 & Compliance Committee. All of the audit and tax services
provided by Elliott Davis, LLC for the fiscal year ending December 31, 2022 and 2021 were preapproved by the Audit & Compliance
Committee.
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total audit and related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2022
2021
65,000
34,000
99,000
13,250
112,250
$
$
73,000
23,500
96,500
13,100
109,600
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE RATIFICATION
OF THE APPOINTMENT OF ELLIOTT DAVIS, LLC AS THE COMPANY’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2023.
24
OTHER MATTERS
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.
ANNUAL REPORT
The Annual Report for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission on Form 10-K,
is mailed herewith to all Shareholders.
SHAREHOLDER PROPOSALS FOR THE 2024 ANNUAL SHAREHOLDERS’ MEETING
Shareholders may present proposals for action at meetings of shareholders only if they comply with the proxy rules established by the
SEC, applicable South Carolina law, and our by-laws.
Any shareholder proposal intended to be included in the Company’s proxy statement and form of proxy relating to the 2024 Annual
Meeting of shareholders must be in writing and received by the Company no later than November 3, 2023. However, if the date of
the 2024 Annual Meeting is more than 30 days before April 11, 2024, a shareholder proposal must be received by a reasonable time
before the Company begins to print and mail its proxy solicitation materials for such Annual Meeting. Any such shareholder proposal
must also comply with SEC Rule 14a-8, which lists the requirements for the inclusion of shareholder proposals in company-sponsored
proxy materials. Shareholder proposals should be addressed to the attention of our President at our principal executive offices, 256
Meeting Street, Charleston, South Carolina 29401. Pursuant to SEC rules, submitting a proposal will not guarantee that it will be
included in the Company’s proxy materials.
Our by-laws permit any shareholder of any outstanding class of the Company’s capital stock to nominate directors. Nominations by
shareholders must be made in writing and delivered or mailed to the President of the Company no less than 14 days nor more than
50 days prior to any meeting of shareholders called for the election of directors. If less than 21 days’ notice of the meeting is given
to shareholders, such nomination shall be mailed or delivered to the President 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. Such notification must contain the following information
to the extent known by the notifying shareholder: (1) the name and address of such proposed nominee; (2) the principal occupation of
such proposed nominee; (3) the total number of shares of capital stock of the Company that will be voted for each proposed nominee;
(4) the name and residence address of the notifying shareholder; and (5) the number of shares of capital stock of the Company owned
by the notifying shareholder. In addition to satisfying the foregoing requirements under our by-laws, to comply with the “universal
proxy rules,” shareholders who intend to solicit proxies in support of director nominees at the 2024 Annual Meeting must include the
additional information required by SEC Rule 14a-19(b).
Management’s proxy holders for the 2024 Annual Meeting will have discretion to vote proxies given to them on any shareholder
proposal of which the Company does not have notice on or before January 17, 2024.
HOUSEHOLDING MATTERS
The SEC has adopted rules that permit companies to deliver a single copy of proxy materials to multiple shareholders sharing an
address unless a company has received contrary instructions from one or more of the shareholders at that address. This means that only
one copy of the proxy materials may have been sent to multiple shareholders in your household. If you would prefer to receive separate
copies of the proxy materials either now or in the future, please contact our President at the Company’s offices at 256 Meeting Street,
Charleston, South Carolina 29401 or at (803) 724-1500. Upon written or oral request to the President, the Company will provide a
separate copy of the proxy materials. In addition, shareholders at a shared address who receive multiple copies of proxy materials may
request to receive a single copy of proxy materials in the future in the same manner as described above.
25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒
☐
For the transition period from __________ to __________
Commission file number: 0-27702
BANK OF SOUTH CAROLINA CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina
(State or other jurisdiction of
incorporation or organization)
256 Meeting Street, Charleston, SC
(Address of principal executive offices)
57-1021355
(IRS Employer
Identification Number)
29401
(Zip Code)
Issuer’s telephone number: (843) 724-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading Symbol(s)
BKSC
Name of each exchange on which registered
NASDAQ
Securities registered pursuant to 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 ☒ 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 ☒ 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted
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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period by complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Aggregate market value of the voting stock held by non-affiliates, computed by reference to the closing price of such stock on June 30,
2022 was $70,780,472.
As of February 24, 2023, the Registrant has outstanding 5,552,351 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2023 Annual Meeting of Shareholders are incorporated by reference into Part
III of this report.
BANK OF SOUTH CAROLINA CORPORATION
AND SUBSIDIARY
Table of Contents
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
2
8
8
9
9
9
10
11
12
29
30
65
65
65
65
66
66
66
67
67
68
68
PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report, including information included or incorporated by reference in this document, contains statements that constitute “forward-
looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. We desire to take advantage of the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995 and are including this statement for the express purpose
of availing the Bank of South Carolina Corporation (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 the 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 below:
• Risk from changes in economic, monetary policy, and industry conditions
• Changes in interest rates, shape of the yield curve, deposit rates, the net interest margin and funding sources
• Market risk (including net income at risk analysis and economic value of equity risk analysis) and inflation
• Risk inherent in making loans including repayment risks and changes in the value of collateral
• Loan growth, the adequacy of the allowance for loan losses, provisions for loan losses, and the assessment of problem loans
• Level, composition, and re-pricing characteristics of the securities portfolio
• Deposit growth and changes in the mix or type of deposit products and services
• Continued availability of senior management and ability to attract and retain key personnel
• Technological changes
•
Increased cybersecurity risk, including potential business disruptions or financial losses
• Ability to control expenses
• Ability to compete in our industry and competitive pressures among depository and other financial institutions
• Changes in compensation
• Risks associated with income taxes including potential for adverse adjustments
• Changes in accounting policies and practices
• Changes in regulatory actions, including the potential for adverse adjustments
• Recently enacted or proposed legislation and changes in political conditions
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.
1
Item 1.
Business
References in this report to “we,” “us,” “our,” “the Bank,” or “the Company” refer to the registrant and its subsidiary that are
consolidated for financial reporting purposes.
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 the
Company, effective April 17, 1995. At the time of the reorganization, each outstanding share of the Bank was exchanged for two
shares of Company stock.
Market Area
The Bank operates as an independent, community oriented, commercial bank providing a broad range of financial services and
products to the Charleston – North Charleston metro area, which includes Charleston, Berkeley, and Dorchester counties. We have
five banking house locations: 256 Meeting Street, Charleston, SC; 100 North Main Street, Summerville, SC; 1337 Chuck Dawley
Boulevard, Mt. Pleasant, SC; 2027 Sam Rittenberg Boulevard, Charleston, SC; and 9403 Highway 78, North Charleston, SC. We also
have a future banking house location at 1730 Maybank Highway, Charleston, SC we expect to open in June 2023.
The Charleston – North Charleston metro area grew 8.24% from 2018 to 2021 according to the U.S. Bureau of Economic Analysis
based on real gross domestic product despite the economic contraction experienced in 2020 resulting from government-imposed
shutdowns imposed at the onset of the COVID-19 pandemic in March 2020. Charleston and Berkeley counties are ranked in the
top ten economies in South Carolina based on real gross domestic product according to the U.S. Bureau of Economic Analysis. The
largest nonfarm employers in our market area are from trade, transportation, utilities, government and professional and business
services. Trade, transportation and utilities have been the main economic drivers of the growth in the area over the last five years. This
includes manufacturing campuses for Boeing, Volvo Cars, and Mercedes-Benz Vans in the area. Based on Bureau of Labor Statistics,
in October 2022 the Charleston area unemployment rate was 3.1% compared to 3.7% nationally. The Charleston area continues to
rank higher than the other major metropolitan areas of the state of South Carolina in talent, innovative capacity, entrepreneurial and
business environment, and livability.
The Company (ticker symbol: BKSC) is publicly traded on The Nasdaq Stock Market LLC (“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:
•
•
•
•
•
•
•
•
•
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
relative lending limits in the case of loans
increase in non-banking financial institutions providing similar services
continued consolidation, and
legislative, regulatory, economic, and technological changes.
2
We compete with commercial banks, savings institutions, finance companies, credit unions, financial technology companies 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 by
emphasizing exceptional service and knowledge of local trends and conditions.
Lending Activities
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets
and typically require personal guarantees. Our primary lending activities are for commercial, commercial real estate, and consumer
purposes with the largest category being commercial real estate. Most of our lending activity is to borrowers within our market area.
Commercial Loans
As of December 31, 2022, $45.1 million, or 13.6%, of our loan portfolio consisted of commercial loans. We originate various types
of secured and unsecured commercial loans to customers in our market area in order to provide customers with working capital and
funds for other general business purposes. The terms of these loans generally range from less than one year to 10 years. These loans
bear either a fixed interest rate or an interest rate linked to a variable market index, depending on the individual loan, its purpose, and
underwriting of that loan.
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 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 a 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 adequacy of any collateral.
Commercial Real Estate Loans
As of December 31, 2022, commercial real estate construction loans comprised $17.5 million, or 5.3%, of our loan portfolio. Advances
on construction loans are made in accordance with a schedule reflecting the cost of construction. Loans are typically underwritten
with a maximum loan to value ratio of 80% based on current appraisals with value defined as the purchase price, appraised value,
or cost of construction, whichever is lower. Repayment of construction loans on non-residential and income-producing properties is
normally attributable to rental income, income from the borrower’s operating entity, or the sale of the property. Construction loans
are interest-only during the construction period, which typically does not exceed twelve months, and are often amortized or 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 estimated 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.
As of December 31, 2022, $172.9 million, or 52.2%, of our loan portfolio consisted of other 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.
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 a deduction for an appropriate vacancy factor and reasonable expenses. We typically require property
casualty insurance, title insurance, earthquake insurance, wind and hail coverage, 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 than our other lending activities, as they typically involve larger loan
balances concentrated with single borrowers or a group 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 largely
dependent upon 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.
3
Consumer Loans
Consumer real estate loans were $91.6 million, or 27.7%, of the loan portfolio as of December 31, 2022. Consumer real estate loans
consist of consumer construction loans, home equity lines of credit (“HELOCs”), and mortgage originations. We make mortgage
and construction loans for owner-occupied residential properties. Advances on construction loans are in accordance with a schedule
reflecting the cost of construction, but are limited to a maximum loan-to-value ratio of 80%. 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. Similar to commercial real estate construction
financing, consumer 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 estimated 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 plans, specifications,
and projected costs.
This category of loans consists of loans secured by first or second mortgages on primary residences and originate as adjustable-rate
or fixed-rate loans. Owner-occupied properties located in the Company’s market area serve as the collateral for these loans. The
Company currently originates residential mortgage loans for our portfolio with a maximum loan-to-value ratio of 80% for traditional
owner-occupied homes.
We offer home equity loans and lines of credit secured by the borrower’s primary or secondary residence. Our home equity loans
and lines of credit currently originate with an adjustable-rate with a floor. We generally underwrite home equity loans and lines of
credit with the same criteria that we use to underwrite mortgage loans to be sold. For a borrower’s primary and secondary residences,
home equity loans and lines of credit are typically underwritten with a maximum loan-to-value ratio of 80% 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.
Other consumer loans totaled $3.9 million, or 1.2% of the loan portfolio, as of December 31, 2022. These loans are originated for
various purposes, including the purchase of automobiles, boats, and other personal items or needs.
Consumer loans may entail greater credit risk than mortgage loans to be sold, 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.
Paycheck Protection Program
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established
the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. On December 27,
2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”) was enacted, which
reauthorized lending under the PPP through March 31, 2021, with an additional $325.0 billion. Under the program, the U.S. Small
Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for payroll and
other permitted purposes in accordance with the requirements of the program. These loans were originated to assist small businesses
affected by the coronavirus, or COVID-19. The Bank originated $55.3 million in PPP loans to 480 customers. PPP loans were $8.0
million, or 2.6% of the loan portfolio as of December 31, 2021. As of December 31, 2022, there were no PPP loans outstanding.
These loans were 100% guaranteed by the SBA, subject to compliance with PPP requirements.
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 the 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 other 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
4
2. Provide a sound and profitable loan portfolio to:
a) Minimize risk to depositors’ 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 underwriting standards and loan origination procedures include officer lending limits, which are approved by the Board of
Directors. The individual secured/unsecured lending authority of the President/Chief Executive Officer of the Bank is set at $1,500,000,
and the individual secured/unsecured lending authority of the Senior Lender/Executive Vice President is set at $1,000,000. 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. 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, Chairman of the Board of Directors, and a majority of the Loan Committee or two-
thirds of the Board of Directors.
All new credit which results in aggregate direct, indirect, and related credit, not under an approved line of credit of a threshold set
forth in our loan policy, 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. Certain new credits that meet a higher threshold than required for the Loan Committee are reviewed by the Board
of Directors of the Bank at its regular monthly meeting.
Employees
At December 31, 2022, we employed 80 people, with one individual considered hourly, 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; and health, life, disability and other insurance. We believe our relationship with our employees is excellent.
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,
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. This legislation continues to affect the lending, deposit, investment,
trading and operating activities of financial institutions and their holding companies, including the Company and the Bank.
The Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”) to centralize responsibility for consumer
financial protection, including implementing, examining and enforcing compliance with federal consumer financial laws. The CFPB
exercises supervisory review of banks under its jurisdiction, which includes banks with assets over $10 billion. The CFPB focuses
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. 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.
Governmental intervention and new regulations could materially and adversely affect our business, financial condition and results
of operations.
5
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. As of December 31, 2022, the Company has evaluated our
securities portfolio and has determined that we do not hold any covered funds.
Further, pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in 2018, the Volcker Rule was
amended by modifying the definition of ‘‘banking entity’’ to exclude certain community banks and their affiliates. Under the Volcker
Rule, as amended, community banks are excluded from the restrictions of the Volcker Rule if (i) the community bank, and every entity
that controls it, has total consolidated assets equal to or less than $10 billion and (ii) trading assets and liabilities of the community
bank, and every entity that controls it, are equal to or less than five percent of its total consolidated assets.
Bank Holding Company Act
The Company is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended. As a result, the
Company is primarily subject to the supervision, examination and reporting requirements of the Board of Governors of the Federal
Reserve System (the “Federal Reserve Board”) under the act and its regulations promulgated thereunder. The Federal Reserve Board,
together with the applicable Federal Reserve Bank that is delegated with primary supervision responsibilities over the Company
(collectively, the “Federal Reserve”), is the Company’s primary federal banking regulator.
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 or a community bank leverage ratio for
qualifying community banking organizations. 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 consolidated financial statements (see Note 18). The ability
of the Company to pay dividends to shareholders depends on the Bank’s ability to pay dividends to the Company, which is subject to
regulatory restrictions as described below in the section titled “Dividends.”
Standards for Safety and Soundness
The Federal Deposit Insurance Act requires the federal banking regulatory agencies to prescribe, by regulation or guidelines, 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. As a state-chartered bank
located in South Carolina, the Bank is also subject to the regulations of the South Carolina State Board of Financial Institutions.
The federal banking regulatory agencies prescribe, by regulation, standards for all insured depository institutions and depository
institution holding companies relating to, among other things, the following:
•
•
Internal controls
Information systems and audit systems
• Loan documentation
• Credit underwriting
6
•
Interest rate risk exposure
• Asset quality
• Liquidity
• Capital adequacy
• Bank Secrecy Act
•
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 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 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, without regulatory
approval, if payment would cause the institution to become undercapitalized or if it already is undercapitalized.
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:
• The federal Truth-In-Lending Act, which governs disclosures of credit terms to consumer borrowers
• The Home Mortgage Disclosure Act of 1975, which requires 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
• The Fair Lending Act, which requires fair, equitable, and nondiscriminatory access to credit for consumers
• The Equal Credit Opportunity Act, which prohibits discrimination on the basis of race, creed or other prohibited factors
in extending credit
• The Fair Credit Reporting Act of 1978, which governs the use and provision of information to credit reporting agencies
• The Fair Debt Collection Act, which governs the manner in which consumer debt may be collected by collection agencies
• The Gramm - Leach - Bliley Act, which governs the protection of consumer information
• 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:
• 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
• The Electronic Funds Transfer Act and Regulation E, which govern automatic deposits to and withdrawals from deposit
accounts and customer’s rights and liabilities arising from the use of automated teller machines and other electronic
banking services
• Regulation DD, which implements the Truth in Savings Act to enable consumers to make informed decisions about
deposit accounts at depository institutions.
7
Enforcement Powers
The Company is subject to supervision and examination by the FDIC, 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.
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 (“USA Patriot Act”). We must maintain a Bank Secrecy Act Program that includes established internal policies, procedures, and
controls; a designated compliance officer; an ongoing employee-training program; and testing of the program by an independent audit
function. The enactment of the USA Patriot Act amended and expanded the focus of the Bank Secrecy Act to facilitate information
sharing among governmental entities and the Company for the purpose of combating terrorism and money laundering. It improves
anti-money laundering and financial transparency laws, information collection tools and the enforcement mechanics for the U.S.
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.
Similar in purpose to the Bank Secrecy Act, the Office of Foreign Assets Control (“OFAC”), a division of the U.S. Department of
Treasury, controls and imposes economic and trade sanctions based on U.S. foreign policy and national security goals against targeted
countries and individuals based on threats to foreign policy, national security, or the U.S. economy. OFAC has and will send banking
regulatory agencies lists of names of individuals and organizations suspected of aiding, concealing, or engaging in terrorist acts. Among
other things, the Bank must block transactions with or accounts of sanctioned persons and report those transactions after their occurrence.
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”).
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.” 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.
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.
8
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 the Bank. The Bank also operates from four additional locations: 100 North Main Street, Summerville, SC;
1337 Chuck Dawley Boulevard, Mount Pleasant, SC; 2027 Sam Rittenberg Boulevard, Charleston, SC; and 9403 Highway 78, North
Charleston, SC. The Bank also plans to open an additional banking location in June 2023 at 1730 Maybank Highway, Charleston, SC.
The Company owns the 2027 Sam Rittenberg Boulevard location, which houses the Operations Department of the Bank as well as a
banking office. The Company leases all other locations, including the future banking location. 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 legal proceedings pending other than routine litigation incidental to the Company’s business involving
amounts that are not material to our financial condition.
Item 4.
Mine Safety Disclosures
Not applicable.
9
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
The Company’s common stock is traded on the NASDAQ Capital Market under the trading symbol “BKSC”.
Holders
As of January 31, 2023, there were approximately 456 holders of the Company’s common stock.
Dividends
The future payment of cash dividends is subject to the discretion of the Board of Directors and depends on a number of factors
including future earnings, financial condition, cash requirements, and general business conditions. Cash dividends, when declared, have
historically been paid by the Bank to the Company for distribution to shareholders of the Company. Certain regulatory requirements
restrict the dividend amount that the Bank can pay to the Company.
Securities Authorized for Issuance under Equity Compensation Plans
See Item 12 of this report for disclosure regarding securities authorized for issuance under equity compensation plans required by Item
201(d) of Regulation S-K.
Recent Sales of Unregistered Securities
There were no equity securities of the Company sold by the Company during the period covered by the report that were not registered
under the Securities Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
There were no repurchases of the Company’s common stock during the fourth quarter of the fiscal year covered by this report.
At the Annual Meeting in 2020, the Company’s Board of Directors authorized a stock repurchase plan of up to $1.0 million. The
Company repurchased 25,067 shares of its common stock for $398,868 during the year ended December 31, 2020. The Company did
not repurchase any shares of its common stock during the years ended December 31, 2022 and 2021.
10
Item 6.
[Reserved]
11
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis is included to assist the reader 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
The Company is a bank holding company headquartered in Charleston, South Carolina, with $653.3 million in assets as of December 31,
2022 and net income of $6.7 million for the year ended December 31, 2022. The Company offers a broad range of financial services
through its wholly owned subsidiary, 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 investment securities. The primary source of funding for making these loans
and purchasing investment securities is our interest-bearing 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-earning 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 portfolio as affected by economic conditions such as rising interest rates and the financial performance
of borrowers. The reserve for credit losses consists of the allowance for loan losses (the “allowance”) and a reserve for unfunded
commitments (the “unfunded reserve”). The allowance provides for probable and estimable losses inherent in our loan portfolio
while the unfunded reserve provides for potential losses related to unfunded lending commitments. For a detailed discussion on the
allowance for loan losses, see “Allowance for Loan Losses”.
In addition to earning interest on loans and investment securities, 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 and operating results as of and for the year ended
December 31, 2022 as compared to December 31, 2021 and our operating results for 2021 compared to 2020, 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.
12
The following table sets forth certain summary financial information concerning the Company and its wholly-owned subsidiary for
the last five years. The information was derived from the audited consolidated financial statements. The information should be read
in conjunction with this section of the report, and the audited consolidated financial statements and notes, which are presented in Item
8 of this report.
For December 31:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected year end balances: . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Total loans1 . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale . .
Interest-bearing deposits at the
2022
2021
2020
2019
2018
$
6,655,140 $
6,744,865 $
6,460,631 $
7,318,433 $
6,922,934
653,345,609
331,848,376
271,172,226
679,220,646
309,406,617
212,347,489
532,494,599
333,768,406
134,819,818
445,012,520
279,134,958
100,449,956
429,135,198
275,863,705
119,668,874
Federal Reserve . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . .
12,999,135
616,019,737
598,670,258
38,811,387
128,971,429
650,725,535
609,191,576
53,917,633
42,348,085
510,936,309
462,197,631
54,980,356
39,320,526
418,905,440
379,191,655
51,168,032
25,506,784
421,039,363
382,378,388
45,462,561
Weighted Average Shares
Outstanding - basic . . . . . . . . . . . . . . . . .
5,550,078
5,531,518
5,526,948
5,522,025
5,500,027
Weighted Average Shares
Outstanding - diluted . . . . . . . . . . . . . . . .
5,644,698
5,680,482
5,678,543
5,588,090
5,589,012
For the Year:
Selected average balances:
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Total loans1 . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale . .
Interest-bearing deposits at the
Federal Reserve . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . .
Performance Ratios:
Return on average equity . . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . .
Average equity to average assets . . . . . . . . . .
Net interest margin . . . . . . . . . . . . . . . . . . . . .
Net (recoveries) charge-offs to average loans . .
Allowance for loan losses as a percentage of
total loans2 . . . . . . . . . . . . . . . . . . . . . . . .
$ 656,833,125 $ 589,379,985 $ 502,628,318 $ 440,615,140 $ 430,495,412
277,223,600
313,303,363
320,826,946
123,347,669
112,970,054
266,432,504
324,078,445
167,250,568
281,508,711
106,421,507
41,131,016
628,390,466
596,881,098
43,602,112
75,734,060
567,063,073
519,900,412
54,838,166
54,231,372
480,504,789
434,071,108
54,021,647
34,713,982
422,644,200
381,687,960
49,242,545
20,151,823
420,723,092
386,025,147
43,691,359
15.26%
1.01%
6.64%
3.01%
0.00%
12.30%
1.14%
9.30%
3.06%
-0.02%
11.96%
1.29%
10.75%
3.52%
0.02%
14.86%
1.66%
11.18%
4.28%
0.14%
15.85%
1.61%
10.15%
4.15%
-0.01%
1.30%
1.43%
1.30%
1.46%
1.53%
Per Share:
Basic income per common share3 . . . . . . . . . .
Diluted income per common share3 . . . . . . . .
Year end book value3 . . . . . . . . . . . . . . . . . . . .
Dividends per common share . . . . . . . . . . . . .
Dividend payout ratio . . . . . . . . . . . . . . . . . . .
Full time employee equivalents . . . . . . . . . . .
$
$
$
$
1.20 $
1.18 $
6.99 $
0.68 $
56.73%
80
1.22 $
1.19 $
9.73 $
0.78 $
63.98%
79
1.17 $
1.14 $
9.96 $
0.66 $
56.44%
76
1.33 $
1.31 $
9.25 $
0.74 $
55.88%
79
1.26
1.24
8.25
0.58
54.68%
79
Including mortgage loans to be sold.
Excluding mortgage loans to be sold.
(1)
(2)
(3) Adjusted to retroactively reflect 10% stock dividend issued during the year ended December 31, 2018.
13
We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United
States (“GAAP”) 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 Item 8 of this report.
Certain accounting policies involve significant judgments and assumptions made 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 factors that we believe to be reasonable under the circumstances. Because of the number of
judgments and assumptions that we make, actual results could differ and have a material impact on the carrying values of our assets
and liabilities and our results of operations.
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”.
COVID-19
On March 11, 2020, the World Health Organization (“WHO”) declared COVID-19 a pandemic. Due to orders issued by the governor
of South Carolina and in an abundance of caution for the health of our customers and employees, in March 2020 the Bank closed
lobbies to all 5 offices but remained fully operational. The Bank subsequently reopened all of the lobbies in June 2021.
As discussed elsewhere in the report (See “Part I – Paycheck Protection Program” and Note 4 to the Company’s Notes to Consolidated
Financial Statements included in Part II – Item 8 of this report), on March 27, 2020, the PPP was established under the CARES Act in
response to the COVID-19 pandemic.
While the impacts of COVID-19 and its variants appeared to create less economic disruption during 2022 as compared to 2021 and
2020, COVID-19 continues to evolve, along with governmental support and/or restrictions in response to it. As of December 31, 2021,
the Bank had received 391 PPP forgiveness applications, in the amount of $49.1 million in principal, and submitted 361 applications
and decisions to the SBA, in the amount of $47.7 million in principal. Of the 391 PPP submissions, 351 loans, in the amount of $46.9
million, were forgiven as of December 31, 2021. The remaining 129 loans, in the amount of $8.4 million, were forgiven during the year
ended December 31, 2022. There were no PPP loans outstanding as of December 31, 2022. Upon forgiveness the Bank recognized the
deferred fee income in accordance with ASC 310-20. The Bank received processing fees of $2.4 million and recognized $0.4 million
and $1.3 million during the years ended December 31, 2022 and 2021, respectively.
Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working
with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), encouraged financial
institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of
the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive
actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for
working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related
to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of
the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed
on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of
December 31, 2020 or 60 days after the date of termination of the National Emergency. All short- term loan modifications made on
a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning
in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers
negatively impacted by COVID-19. During 2020, the Bank processed approximately $0.7 million in principal deferments to 84
customers, with an aggregate loan balance of $29.7 million. The principal deferments represented 0.24% of our total loan portfolio
as of December 31, 2020. The Bank did not process any principal deferments during the years ended December 31, 2022 and 2021.
The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and classified 9 loans, with an
aggregate loan balance of $4.0 million, that were granted payment accommodations as TDRs given the continued financial difficulty
of the customer, associated industry risk, and multiple deferral requests. All other borrowers were current prior to relief, were not
experiencing financial difficulty prior to COVID-19, and the Bank determined they were not considered TDRs. As of December 31,
2021, 4 of the TDRs were removed from TDR status due to improvement in financial condition and sustained performance under the
restructured terms, 2 TDRs were paid off through refinancing into new loans at market terms, and 1 TDR was paid off. Two loans with
a balance of $0.5 million remained in TDR status as of December 31, 2021. Additionally, of the 75 customers that received payment
14
accommodations that were not classified as TDRs, 41 customers, with an aggregate loan balance of $9.9 million, had paid their loan
in full as of December 31, 2021. An additional loan was removed from TDR status during 2022. The remaining loan with a balance of
$0.1 million is paying as agreed as of December 31, 2022. There are no loans that received payment accommodation past due greater
than 30 days. The Bank will continue to examine payment accommodations as requested by borrowers.
While the effects of COVID-19 have impacted all industries to varying degrees, during 2020 the Bank assessed the retail and/or
service, food and beverage, and short-term rental industries in our geographic area as having a higher risk due to the possibility of
the primary source of repayment not materializing. These industries are dependent upon the hospitality industry and were affected by
the mandates issued by the Governor of South Carolina to limit occupancy or close for a period of time. Our loans in these industries
represented 3.96% of our loan portfolio at December 31, 2020 and were temporarily downgraded to our “Watch” category during
2020. In May 2021, due to improving economic conditions, increased vaccination rates and a continued reopening of the South
Carolina economy, these loans were upgraded to our “Satisfactory” category.
Effects of COVID-19 or its variants may still negatively impact management assumptions and estimates, such as the allowance for
loan losses. However, it is difficult to assess or predict how, and to what extent, COVID-19 will affect the Bank in the future.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2022 TO DECEMBER 31, 2021
Net income decreased $0.1 million or 1.3% to $6.66 million, or basic and diluted income per share of $1.20 and $1.18, respectively, for
the year ended December 31, 2022 from $6.74 million or basic and diluted income per share of $1.22 and $1.19, respectively, for the
year ended December 31, 2021. This decrease was primarily due to lower mortgage banking income and gains on sales of securities
largely offset by higher average earning asset balances coupled with increased asset yields in our investment securities and a reduction
in the provision for loan losses. Our returns on average assets and average equity for the year ended December 31, 2022 were 1.01%
and 15.26%, respectively, compared to 1.14% and 12.30%, respectively, for the year ended December 31, 2021.
Net interest income increased $1.5 million or 8.74% to $18.9 million for the year ended December 31, 2022 from $17.4 million for the
year ended December 31, 2021. This increase was primarily due to higher balances of average earning assets coupled with an increase
in asset yields on our investment securities and increased interest rates on variable rate loans and new originations and renewals of
fixed rate loans.
Average earning assets increased $61.3 million or 10.81% to $628.4 million for the year ended December 31, 2022 from $567.1
million for the year ended December 31, 2021. This is primarily related to an increase in the average balance of investment securities
and interest-bearing deposits at the Federal Reserve and, to a lesser extent, loans. The increase in investment securities and interest-
bearing balances at the Federal Reserve reflect the deployment of excess funds resulting from a $77.0 million increase in average
deposits during the year.
We recorded a $75,000 reduction to the allowance for loan losses for the year ended December 31, 2022 compared to a provision for
loan losses of $120,000 for the year ended December 31, 2021. The decrease was primarily driven by the composition of our loan
portfolio in accordance with our allowance for loan loss methodology and our analysis of the adequacy of the allowance for loan
losses. The Board of Directors determined that this provision was appropriate based upon the adequacy of our reserve. Charge-offs
of $42,644 and recoveries of $31,878, together with the reduction in the allowance, resulted in an allowance for loan losses of $4.3
million or 1.30% of total loans as of December 31, 2022.
Other income decreased $1.8 million or 46.62% to $2.1 million for the year ended December 31, 2022, from $3.9 million for the year
ended December 31, 2021. Other income reflects lower mortgage banking income and decreases in gain on sales of securities of $0.2
million. Our mortgage banking income decreased $1.6 million or 71.17% to $0.7 million for the year ended December 31, 2022 from
$2.3 million for the year ended December 31, 2021 due to decreased volume associated with the higher interest rate environment
experienced in 2022. Mortgage banking income is highly influenced by mortgage interest rates and the housing market.
Other expense increased $0.1 million or 0.77% to $12.4 million for the year ended December 31, 2022, from $12.3 million for the year
ended December 31, 2021. Salaries and employee benefits increased approximately $0.1 million, or 1.47%, due to increased benefits,
payroll taxes and other employee-related costs. Net occupancy expense increased approximately $0.1 million due to rent escalation
provisions in certain of our leases. Other operating expenses decreased $0.1 million, or 0.77%.
For the year ended December 31, 2022, the Company’s effective tax rate was 22.91% compared to 23.50% during the year ended
December 31, 2021.
15
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2021 TO DECEMBER 31, 2020
Net income increased $0.2 million or 4.40% to $6.7 million, or basic and diluted income per share of $1.22 and $1.19, respectively,
for the year ended December 31, 2021 from $6.5 million or basic and diluted income per share of $1.17 and $1.14, respectively, for
the year ended December 31, 2020. This increase was primarily due to higher average earning asset balances coupled with a decline
in our cost of funds. Our returns on average assets and average equity for the year ended December 31, 2021 were 1.14% and 12.30%,
respectively, compared to 1.29% and 11.96%, respectively, for the year ended December 31, 2020.
Net interest income increased $0.5 million or 2.61% to $17.4 million for the year ended December 31, 2021 from $16.9 million for
the year ended December 31, 2020. This increase was primarily due to an increase in interest and fees on PPP loans and investment
securities. Interest and fees on loans and investment securities increased $0.4 million or 2.35% to $17.1 million for the year ended
December 31, 2021 from $16.7 million for the year ended December 31, 2020, as the result of higher balances of average earning assets.
Average earning assets increased $86.6 million or 18.01% to $567.1 million for the year ended December 31, 2021 from $480.5
million for the year ended December 31, 2020. This is primarily related to an increase in the average balance of investment securities
and interest-bearing deposits at the Federal Reserve and, to a lesser extent, loans. The increase in investment securities and interest-
bearing balances at the Federal Reserve reflect the deployment of excess funds resulting from an $85.8 million increase in average
deposits during the year.
The provision to the allowance for loan losses for the year ended December 31, 2021 was $120,000 compared to $240,000 for the
year ended December 31, 2020. The decrease was primarily driven by the composition of our loan portfolio in accordance with
our allowance for loan loss methodology. The Board of Directors determined that this provision was appropriate based upon the
adequacy of our reserve. Charge-offs of $20,990 and recoveries of $92,283, together with the provision to the allowance, resulted in
an allowance for loan losses of $4.4 million or 1.43% of total loans as of December 31, 2021. The allowance for loan losses is 1.47%
of total loans net of PPP loans.
Other income increased $0.5 million or 13.61% to $3.9 million for the year ended December 31, 2021, from $3.4 million for the year
ended December 31, 2020. Other income reflects increases in gain on sales of securities of $0.3 million and service charges and fees
of $0.2 million. Our mortgage banking income increased $46,700 or 2.06% to $2.3 million for the year ended December 31, 2021
from $2.3 million for the year ended December 31, 2020 due to elevated volume associated with a continuation of the low interest rate
environment. Mortgage banking income is highly influenced by mortgage interest rates and the housing market.
Other expense increased $0.6 million or 5.45% to $12.3 million for the year ended December 31, 2021, from $11.7 million for the year
ended December 31, 2020. Salaries and employee benefits increased approximately $0.2 million, or 3.03%, due to increased benefits,
payroll taxes and other employee-related costs. Net occupancy expense increased approximately $0.2 million due to rent escalation
provisions in certain of our leases. Other operating expense increased $0.2 million, or 14.45%, due to certain loan-related costs and
higher FDIC insurance assessments resulting from an increase in deposit balances.
For the year ended December 31, 2021, the Company’s effective tax rate was 23.50% compared to 23.33% during the year ended
December 31, 2020.
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, and 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 Asset Liability/Investment Committee (“ALCO”)
manages asset and liability procedures though the ultimate responsibility rests with the President/Chief Executive Officer. At
December 31, 2022, total assets decreased 3.81% to $653.3 million from $679.2 million as of December 31, 2021 and total deposits
decreased 1.73% to $598.7 million from $609.2 million as of December 31, 2021.
As of December 31, 2022, earning assets, which are composed of U.S. Treasury, Government Sponsored Enterprises and Municipal
Securities in the amount of $271.2 million, interest-bearing deposits at the Federal Reserve in the amount of $13.0 million and total
loans, including mortgage loans held for sale, in the amount of $331.8 million, constituted approximately 94.29% of our total assets.
The yield on a majority of our earning assets adjusts in tandem 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.
16
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 the funding by deposit and borrowing activities.
Our policy is to minimize interest rate risk between interest-earning assets and interest-bearing liabilities at various maturities and to
attempt to maintain an asset sensitive position over a one-year period. By adhering to this policy, we anticipate that our net interest
margins will not be materially affected, unless there is an extraordinary and or precipitous change in interest rates. The average net
interest rate margin for 2022 decreased to 3.01% from 3.06% for 2021. At December 31, 2022 and 2021, 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.
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, 2022, the average maturity of the investment portfolio was 3.45 years with an average yield of 1.18% compared to
4.76 years with an average yield of 1.02% at December 31, 2021.
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, 2022.
Less than
three
months
Three
months to
less than six
months
Six months
to less than
one year
One year
to less than
five years
One Day
Five years
or more
Total
Estimated
Fair Value
(in thousands)
Interest-earning assets
Loans1 . . . . . . . . . . . . . . . . . . . . . . . $ 73,798 $ 19,037 $ 13,451 $ 22,603 $ 167,122 $ 35,996 $ 332,007 $ 304,250
Investment securities available
for sale2 . . . . . . . . . . . . . . . . . .
—
7,462
9,919
25,341 212,327
41,948 296,997 271,172
Interest-bearing deposits at the
Federal Reserve . . . . . . . . . . . .
12,999
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 86,797 $ 26,499 $ 23,370 $ 47,944 $ 379,449 $ 77,944 $ 642,003 $ 588,421
12,999
12,999
—
—
—
—
—
Interest-bearing liabilities
CD’s and other time deposits less
than $250,000 . . . . . . . . . . . . . $
— $
3,852 $
2,269 $
3,643 $
1,502 $
— $ 11,266 $ 14,156
CD’s and other time deposits
$250,000 and over . . . . . . . . . .
—
2,088
549
2,667
—
—
5,304
7,272
Money Market and Interest Bearing
Demand Accounts . . . . . . . . . . 296,235
Savings . . . . . . . . . . . . . . . . . . . . . .
63,825
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 360,060 $
—
—
5,940 $
—
—
2,818 $
—
—
6,310 $
—
—
1,502 $
— 296,235 518,276
—
63,825
— $ 376,630 $ 603,529
63,825
Net
Cumulative . . . . . . . . . . . . . . . . . . .
$ (276,263) $ 20,559 $ 20,552 $ 41,634 $ 377,947 $ 77,944 $ 265,373
$ (252,704) $ (232,152) $ (190,518) $ 187,429 $ 265,374
Including mortgage loans to be sold and deferred fees.
(1)
(2) At amortized cost based on the earlier of the call date or scheduled maturity.
17
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, 2022.
Total
Less than
one year
One to
five years
After
five years
Contractual Obligations
(in thousands)
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total contractual cash obligations . . . . . . . . . . . . . .
$
$
16,569
18,223
34,792
$
$
14,829
1,183
16,012
$
$
1,740
5,914
7,416
$
$
—
11,126
11,126
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, investment securities available for sale, interest-bearing deposits at the Federal Reserve, and
mortgage loans held for sale. Our primary liquid assets accounted for 45.89% and 52.30% of total assets at December 31, 2022 and
2021, respectively. Investment 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 investment 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, 2022, we had unused
short-term lines of credit totaling approximately $41 million (which can be withdrawn at the lender’s option). Additional sources of
funds available to us for liquidity include 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, 2022, we could borrow
up to $78.3 million.
Our core deposits consist of non-interest bearing demand accounts, NOW accounts, money market accounts, time deposits and savings
accounts. We closely monitor our reliance on certificates of deposit greater than $250,000 and other large deposits. We maintain a
Contingency Funding Plan (“CFP”) that identifies liquidity needs and weighs alternate courses of action designed to address these
needs in emergency situations. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the expected funding
needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to meet our operating needs
and do not know of any trends, events or uncertainties that may result in a significant adverse effect on our liquidity position. At
December 31, 2022 and 2021, our liquidity ratio was 48.09% and 56.43%, respectively.
The following table shows the composition of average assets over the past five fiscal years.
Loans1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale . . . . . . .
Interest-bearing deposits at the Federal Reserve . .
Non-earning assets . . . . . . . . . . . . . . . . . . . . . . .
Total average assets . . . . . . . . . . . . . . . . . . . . . . .
1
Including mortgage loans to be sold and deferred fees.
2021
2022
2020
$ 320,826,946 $ 324,078,445 $ 313,303,363 $ 277,395,432 $ 277,223,600
266,432,504 167,250,568 112,970,054 106,421,507 123,347,669
41,131,016 75,734,060 54,231,372 34,713,982 20,151,823
28,442,659 22,316,912 22,123,529 22,084,219
9,772,320
$ 656,833,125 $ 589,379,985 $ 502,628,318 $ 440,615,140 $ 430,495,412
2019
2018
18
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.
2022 vs. 2021
2021 vs. 2020
2020 vs. 2019
Volume
Rate
$ (153,327) $ 545,916 $ 392,589 $ 519,830 $ (290,799) $ 229,031 $1,798,561 $(2,736,870) $ (938,309)
Volume
Volume
Rate
Rate
Net Dollar
Change1
Net Dollar
Change1
Net Dollar
Change1
Loans2 . . . . . . . . . . . . . .
Investment securities
available for sale . .
1,274,919
(320,851)
954,068
963,531
(800,492) 163,039
136,175
(324,518)
(188,343)
Interest-bearing
deposits at the
Federal Reserve . . .
Interest income . . . . . . .
Interest-bearing
transaction
accounts . . . . . . . . .
Savings . . . . . . . . . . . . .
Time deposits . . . . . . . .
Interest expense . . . . . . .
Increase (decrease) in net
interest income . . .
(47,994) 348,709
(545,844)
$ 1,073,598 $ 573,774 $ 1,647,372 $ 1,555,703 $(1,244,348) $ 311,355 $2,344,230 $(4,016,726) $(1,672,496)
(153,057)
(955,338)
(80,715)
300,715
409,494
72,342
$
$
12,170 $ 121,959 $ 134,129 $
12,094
12,094
—
(5,559)
(18,430)
18,705 $ 109,088 $ 127,793 $
(12,871)
25,230 $ (103,212) $ (77,982) $
(11,432)
(21,710)
10,278
(2,531)
(42,000)
(39,469)
32,977 $ (164,391) $(131,414) $
56,917 $ (443,183) $ (386,266)
(57,881)
(81,423)
23,542
(34,106)
(65,610)
(31,504)
46,353 $ (556,110) $ (509,757)
$ 1,519,579
$ 442,769
$(1,162,739)
(1) Volume/rate changes have been allocated to each category based on the percentage of each change to the total change.
(2)
Including mortgage loans to be sold.
YIELDS ON AVERAGE EARNING ASSETS AND RATES ON AVERAGE INTEREST-BEARING LIABILITIES
The following table shows the yields on average earning assets and average interest-bearing liabilities.
2022
2021
2020
Average
Balance
Interest Paid/
Earned
Average
Yield/
Rate1
Average
Balance
Interest Paid/
Earned
Average
Yield/
Rate1
Average
Balance
Interest Paid/
Earned
Average
Yield/
Rate1
Interest-earning assets
Loans2 . . . . . . . . . . . . . . $320,826,946 $ 15,677,601
Investment Securities
4.89% $ 324,078,445 $ 15,285,012
4.72% $ 313,303,363 $ 15,055,981
4.81%
Available for Sale . 266,432,504 3,116,858
1.17% 167,250,568 2,162,790
1.29% 112,970,054 1,999,751
1.77%
Federal Funds Sold &
Interest bearing
deposits . . . . . . . . . 41,131,016
404,024
Total earning assets . . . . $628,390,466 $ 19,198,483
103,309
0.98% 75,734,060
3.06% $ 567,063,073 $ 17,551,111
184,024
0.14% 54,231,372
3.10% $ 480,504,789 $ 17,239,756
0.34%
3.59%
Interest-bearing
liabilities
Interest-bearing
transaction
accounts . . . . . . . . . $269,510,451 $
Savings . . . . . . . . . . . . . 65,816,763
Time Deposits . . . . . . . . 18,443,811
$353,771,025 $
222,493
40,488
38,812
301,793
0.08% $ 242,617,530 $
0.06% 51,608,804
0.21% 20,435,199
0.09% $ 314,661,533 $
88,364
28,394
57,242
174,000
0.04% $ 208,940,724 $
0.06% 40,770,588
0.28% 20,964,940
0.06% $ 270,676,252 $
166,346
39,826
99,242
305,414
Net interest spread . . . . .
Net interest margin . . . .
Net interest income . . . .
2.97%
3.01%
3.04%
3.06%
$ 18,896,690
$ 17,377,111
$ 16,934,342
The effect of forgone interest income as a result of non-accrual loans was not considered in the above analysis.
(1)
(2) Average balance includes non-accrual loans and mortgage loans to be sold.
19
0.08%
0.10%
0.47%
0.11%
3.48%
3.52%
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, 2022. Weighted-average yields are determined based on the amortized cost and book yield of the
individual investment securities comprising each investment security type and maturity classification.
INVESTMENT PORTFOLIO
Within One
Year
After One
Year through
Five Years
Amortized Cost
After Five
Years through
Ten Years
After Ten
Years
Total
Estimated
Fair Value
(in thousands)
U.S. Treasury Notes . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . .
Municipal Securities . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Weighted average yields
U.S. Treasury Notes . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . .
Municipal Securities . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,341
4,998
12,383
42,722
$ 154,957
20,000
15,613
$ 190,570
$
$
—
42,387
11,609
53,996
$
$
—
—
9,710
9,710
$ 180,298
67,385
49,315
$ 296,998
$ 168,187
57,075
45,910
$ 271,172
0.32%
0.52%
1.85%
0.79%
1.11%
0.90%
1.62%
1.13%
0.00%
1.23%
1.76%
1.34%
0.00%
0.00%
2.05%
2.05%
1.17%
The following tables present the amortized cost and estimated fair value of investment securities for the past three years.
December 31, 2022
Amortized
Cost
Estimated
Fair Value
(in thousands)
U.S. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 180,298 $ 168,187
57,075
45,910
$ 296,998 $ 271,172
67,385
49,315
December 31, 2021
Amortized
Cost
Estimated
Fair Value
(in thousands)
U.S. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 101,270 $ 100,062
74,721
37,564
$ 215,048 $ 212,347
76,356
37,422
December 31, 2020
(in thousands)
U.S. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
Estimated
Fair Value
$
20,037 $
96,614
16,055
20,411
97,853
16,556
$ 132,706 $ 134,820
As of December 31, 2022, we had 25 U.S. Treasury Notes and 77 Municipal Securities with an unrealized loss of $12.1 million and
$3.4 million, respectively. As of December 31, 2021, we had fifteen U.S. Treasury Notes and nineteen Municipal Securities with an
unrealized loss of $1.3 million and $0.2 million, respectively. As of December 31, 2020, we had no U.S. Treasury Notes or Municipal
Securities with an unrealized loss. As of December 31, 2022, we had 11 securities issued by Government-Sponsored Enterprises with
an unrealized loss of $10.3 million compared to nine Government-Sponsored Enterprises with an unrealized loss of $1.9 million as of
December 31, 2021. The unrealized losses on these securities are related to changes in the interest rate environment from the date of
purchase. 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.
20
The primary purpose of the investment portfolio is to fund loan demand, manage fluctuations in deposits and liquidity, satisfy
pledging requirements and 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. The Board of Directors of the Bank reviews the entire investment portfolio at each
regular monthly meeting, including any purchases, sales, calls, and maturities during the previous month. Furthermore, the Credit
Department conducts a financial underwriting assessment of all municipal securities and their corresponding municipalities annually
and management reviews the assessments.
LOAN PORTFOLIO COMPOSITION
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic market. At
December 31, 2022, outstanding loans (including deferred loan fees of $159,434) totaled $331.0 million, which equaled 55.29% of
total deposits and 50.66% of total assets.
The following table presents our loan portfolio, excluding both mortgage loans to be sold and deferred loan fees, as of December 31,
2022, compared to the prior four years.
(in thousands)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate construction . . . . . . . . . . . . . . . . .
Commercial real estate other . . . . . . . . . . . . . . . . . . . . . .
Consumer real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paycheck protection program . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2022
45,072 $
17,524
172,897
91,637
3,852
—
2018
54,829
7,304
143,703
63,787
5,040
—
$ 330,982 $ 306,632 $ 320,803 $ 274,073 $ 274,663
2019
52,848 $
12,491
143,824
59,532
5,378
—
2020
51,041 $
14,814
146,188
71,836
4,481
32,443
2021
45,804 $
12,054
165,719
71,307
3,769
7,979
During the year ended December 31, 2022, total loans increased $24.3 million. This is primarily due to growth in our consumer real
estate and commercial real estate portfolios.
We had no foreign loans or loans to fund leveraged buyouts at any time during the years ended December 31, 2018 through December 31,
2022.
The following table presents the contractual terms to maturity for loans outstanding at December 31, 2022. 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.
(in thousands)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate construction . . . . . . . . . . . . . . . . .
Commercial real estate other . . . . . . . . . . . . . . . . . . . . . .
Consumer real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paycheck protection program . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Loans maturing after one year with:
Fixed interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Loan Maturity as of December 31, 2022
One Year
or Less
Over One
Year but
Less Than
5 Years
After 5 Years
Through
15 Years
Over
15 Years
Total
17,634 $
3,734
28,684
10,747
1,498
—
25,142 $
13,790
138,107
9,967
2,354
—
62,297 $ 189,360 $
2,296 $
—
4,007
31,704
—
—
38,007 $
— $
—
2,099
39,219
—
—
45,072
17,524
172,897
91,637
3,852
—
41,318 $ 330,982
$ 203,054
—
$ 203,054
21
A loan is impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan
agreement based on current information and events. All loans with a principal balance over $50,000 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.
IMPAIRED LOANS
Impairment loss is measured by:
a. The present value of the future cash flow discounted at the loan’s effective interest rate, or
b. The fair value of the collateral if the loan is collateral dependent.
The following is a schedule of our impaired loans and non-accrual loans as of December 31, 2018 through 2022.
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022
2020
$ 631,453 $ 814,614 $ 1,155,930 $ 1,666,301 $ 823,534
$ 2,766,060 $ 3,406,508 $ 7,805,600 $ 4,776,928 $ 4,278,347
2021
2018
2019
Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to
borrowers negatively impacted by COVID-19. During 2020, the Bank processed approximately $0.7 million in principal deferments
to 84 customers, with an aggregate loan balance of $29.7 million. The Bank did not process any principal deferments during the years
ended December 31, 2022 and 2021. The principal deferments represented 0.24% of our total loan portfolio as of December 31, 2020.
TROUBLED DEBT RESTRUCTURINGS
According to GAAP, we are required to account for certain loan modifications or restructurings 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, and
3. We grant a concession that we would not otherwise consider.
The following is a schedule of our TDR’s including the number of loans represented.
2022
2021
2020
2019
2018
Number of TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
$ 971,150 $ 1,039,909 $ 5,803,163 $ 573,473 $
14
5
5
—
—
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-20-35-9 allows 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 other circumstances.
Nine TDRs with a balance of $4.7 million at December 31, 2020 were removed from TDR status during the year ended December 31,
2021. Five TDRs with a balance of $3.8 million were removed from TDR status due to improvement in financial condition and
sustained performance under the restructured terms, two TDRs with a balance of $0.5 million were paid off, and two TDRs with a
balance of $0.4 million were paid off through refinancing into new loans at market terms. One TDR with a balance of $33,300 at
December 31, 2017 was removed from TDR status during the year ended December 31, 2018 since, at the most recent renewal, the
loan was amortized at market rate and no concessions were granted. We do not know of any potential problem loans which will not
meet their contractual obligations that are not otherwise discussed herein.
Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working
with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial
institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the
effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions
that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with
borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19
may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act,
banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was
22
not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020
or 60 days after the date of termination of the National Emergency. All short- term loan modifications made on a good faith basis in
response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank
provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19.
The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and classified 9 loans, with an
aggregate loan balance of $4.0 million, that were granted payment accommodations as TDRs given the continued financial difficulty of
the customer, associated industry risk, and multiple deferral requests. As of December 31, 2021, 4 of the TDRs were removed from TDR
status due to improvement in financial condition and sustained performance under the restructured terms, 2 TDRs were paid off through
refinancing into new loans at market terms, and 1 TDR was paid off. Two loans with a balance of $0.5 million remained in TDR status as
of December 31, 2021. An additional loan was removed from TDR status during 2022. The remaining loan with a balance of $0.1 million
is paying as agreed as of December 31, 2022. The Bank will continue to examine payment accommodations as requested by the borrowers.
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 consistent with GAAP, the methodology employed for this analysis has been modified over the years to reflect
the economic environment and new accounting pronouncements. The Credit Department reviews this calculation on a quarterly basis.
In addition, an independent third party validates the allowance calculation on a periodic basis. 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 FASB ASC 310-10-35, Receivables - Overall
2) General reserve analysis applying historical loss rates based on FASB ASC 450-20, Contingencies: Loss Contingencies
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) The loan is on non-accrual
2) The loan is a troubled debt restructuring
3) The loan is over 60 days past due
4) The loan is rated substandard, 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 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. Loans are segregated into similar risk groups and a historical loss ratio is determined
for each group over a five-year period. The five-year average loss ratio by loan type is then used to calculate the estimated loss based
on the current balance of each group.
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
23
5)
Industry conditions
6) Effects of changes in credit concentrations
a) Loan concentration
b) Geographic concentration
c) Regulatory concentration
7) Loan and credit administration risk
a) Collateral documentation
b)
Insurance risk
c) Maintenance of financial information risk
Portfolio Risk
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 over- margined 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 the conversion of the
collateral to cash. 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. We refer to these loans as over-
margined real estate loans. These loans are monitored and the balances reported to the Board of Directors 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 over-margined 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 require a
strong secondary source of repayment.
Although significantly under our policy threshold of 100% of capital (currently approximately $38.8 million), the amount of over-
margined real estate loans currently totals approximately $2.9 million or approximately 0.88% of our loan portfolio at December 31,
2022 compared to $1.5 million or approximately 0.48% of the loan portfolio at December 31, 2021.
A credit rating matrix is used to rate all extensions of credit and to provide a more specific 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, debt coverage ratio, and the borrower’s leverage position.
The matrix is designed to meet our standards and expectations of loan quality. It is based on experience with similarly graded loans,
industry best practices, and regulatory guidance. Our loan portfolio is graded in its entirety, with the exception of PPP loans. Because
PPP loans were 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they were not graded.
There were no PPP loans outstanding at December 31, 2022.
National and local economic trends and conditions
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, including the rise of sea levels, political uncertainty, increasing levels of consumer price inflation, supply-chain disruptions
and international instability are a few of the trends and conditions that are currently affecting the national and local economies.
Additionally, the national and local economy has been affected by COVID-19 during the years ended December 31, 2022 and 2021.
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.
Effects of changes in risk selection and underwriting practices
The quality of our loan portfolio is contingent upon our risk selection and underwriting practices. All new loans (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 exposure over $300,000 are reviewed by the Loan Committee on a monthly basis. The Board of
24
Directors review credits over $750,000 monthly. Annual credit analyses are conducted on credits over $500,000 upon the receipt of
updated financial information. Prior to extensions of credit, significant loan opportunities go through sound credit underwriting. Our
Credit Department conducts a detailed cash flow analysis on each proposal using the most current financial information.
Experience, ability and depth of lending management staff
We have over 300 combined years of lending experience among our lending staff. 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 perspective.
Industry conditions
There continues to be an influx of new banks and consolidation of existing banks in our geographic area, which creates pricing
competition. We believe that our borrowing base is well established and therefore unsound price competition is not necessary.
Effects of changes in credit concentrations
The risks associated with the effects of changes in credit concentration include loan, geographic and regulatory concentrations. As of
December 31, 2022, two Standard Industrial Code groups, activities related to real estate and redi-mix concrete, comprised more than
2% of our total loans outstanding.
Effects of changes in geographic concentrations
We are located along the east coast of the United States and on an earthquake fault line, increasing the chances that a natural disaster
may impact our borrowers and us. 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
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.
Financial Information 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 appreciating.
Based on our analysis of the adequacy of the allowance for loan loss model, we recorded a reduction in the allowance for loan
loss of $0.1 million for the year ended December 31, 2022 compared to a provision for loan loss of $0.1 million for the year ended
December 31, 2021. At December 31, 2022, the five-year average loss ratios were: 0.19% Commercial, 0.00% Commercial Real
Estate Construction, -0.02% Commercial Real Estate Other, -0.03% Consumer Real Estate, and 0.46% Consumer Other.
With regard to jumbo loans, we obtain peer data for use to calculate historical loss ratios. At December 31, 2022, the 5-year average
loss for the jumbo loan portfolio was 0.01%.
During the year ended December 31, 2022, charge-offs of $42,644 and recoveries of $31,878 were recorded to the allowance for loan
losses, resulting in an allowance for loan losses of $4.3 million or 1.30% of total loans at December 31, 2022. During the year ended
December 31, 2021, charge-offs of $20,990 and recoveries of $0.1 million were recorded to the allowance for loan losses, resulting in
an allowance for loan losses of $4.4 million or 1.43% of total loans at December 31, 2021. During the year ended December 31, 2020,
charge-offs of $0.3 million and recoveries of $0.2 million were recorded to the allowance for loan losses, resulting in an allowance
for loan losses of $4.2 million or 1.30% of total loans at December 31, 2020. We believe loss exposure in the portfolio is identified,
reserved against, and closely monitored to ensure that economic changes are promptly addressed in the analysis of reserve adequacy.
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 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 six to nine months,
they are reviewed individually to determine if they should be returned to accrual status. At December 31, 2022 and 2021, there were
no loans over 90 days past due still accruing interest.
25
The following table represents a summary of loan loss experience for the past five years.
(in thousands)
Balance of the allowance of loan losses at the
beginning of the period . . . . . . . . . . . . . . . . . . . . . .
$
4,377
$
4,186
$
4,004
$
4,214
$
3,875
2022
2021
2020
2019
2018
Charge-offs
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Construction . . . . . . . . . . . . . . .
Commercial Real Estate Other . . . . . . . . . . . . . . . . . . . . .
Consumer Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . . . . . . . . . . . . . .
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Construction . . . . . . . . . . . . . . .
Commercial Real Estate Other . . . . . . . . . . . . . . . . . . . . .
Consumer Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . . . . . . . . . . . . . .
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (charge-offs) recoveries . . . . . . . . . . . . . . . . . . . . . .
Provision charged to operations . . . . . . . . . . . . . . . . . .
Balance of the allowance for loan losses at the
(41)
—
—
(2)
—
(0)
(43)
1
—
18
—
12
1
32
(11)
(75)
—
—
—
—
(11)
(10)
(21)
21
—
—
48
22
1
92
71
120
(172)
—
—
—
(116)
(2)
(290)
89
—
100
—
43
—
232
(58)
240
(399)
—
—
—
(8)
—
(407)
12
—
—
—
5
—
17
(390)
180
(31)
—
—
—
(85)
—
(116)
14
—
57
45
14
—
130
14
325
end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,291
$
4,377
$
4,186
$
4,004
$
4,214
We believe the allowance for loan losses at December 31, 2022 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.
The following table presents a breakdown of the allowance for loan losses for the past five years.
(in thousands)
Commercial . . . . . . . . . . . . . . . . . . .
Commercial Real Estate
Construction . . . . . . . . . . . . . . .
Commercial Real Estate Other . . . .
Consumer Real Estate . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .
2022
$
%(1)
2021
$
%(1)
2020
$
%(1)
2019
$
%(1)
2018
$
%(1)
$ 736
14% $ 796
15% $ 1,030
16% $ 1,430
19% $ 1,665
20%
231
2,216
1,015
94
175
5%
52% 2,376
925
28%
105
1%
— —% —
100% $ 4,377
$ 4,291
4%
199
54% 1,909
925
23%
1%
123
3% —
100% $ 4,186
3%
5%
109
52%
46% 1,271
23%
496
22%
1%
2%
698
10% — —% — —%
100%
100% $ 4,004
5%
64
52% 1,292
387
22%
806
2%
100% $ 4,214
(1)
Loan category as a percentage of total loans.
26
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. During the years ended December 31, 2022 and 2021, no
provisions were recorded. The balance for the reserve for unfunded lending commitments was $44,912 as of December 31, 2022 and 2021.
NONPERFORMING ASSETS
Nonperforming assets include other real estate owned (“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:
Nonperforming Assets
(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 . . . . . . . . . . . . . . . . . . .
2022
2021
2020
2019
2018
$
631
$
815
$
1,156
$
1,666
$
—
631
—
631
$
—
815
—
815
$
—
1,156
—
1,156
$
—
1,666
—
1,666
$
$
824
—
824
—
824
Allowance for loan losses to nonaccrual loans . . . .
Nonaccrual loans to total loans . . . . . . . . . . . . . . . .
Nonperforming loans to total loans . . . . . . . . . . . . .
Nonperforming assets to total assets . . . . . . . . . . . .
679.60%
0.19%
0.19%
0.10%
537.36%
0.27%
0.27%
0.12%
362.11%
0.36%
0.36%
0.22%
240.34%
0.61%
0.61%
0.37%
511.41%
0.30%
0.30%
0.19%
DEPOSITS
The following table shows the contractual maturities of time deposits in denominations of $100,000 or more at December 31, 2022
and the amount of time deposits in excess of FDIC insurance limits.
One Day
Less than
three months
Three
months to
less than
six months
Six months
to less than
one year
One year
to less than
five years
Five years
or more
Total
(in thousands)
CD’s and other time deposits less
than $100,000 . . . . . . . . . . . . . .
$
— $
1,875
$
1,158
$
1,486
$
1,130
$
— $
5,649
CD’s and other time deposits
$100,000 and over . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
— $
4,065
5,940
$
1,660
2,818
$
4,574
6,060
$
622
1,752
$
10,921
—
— $ 16,570
CD’s and other time deposits in excess
of FDIC insurance limit . . . . . . .
$
— $
838
$
299
$
917
$
— $
—
2,054
Certificates of Deposit $100,000 and over decreased $4.3 million or 28.3% to $10.9 million as of December 31, 2022 from $15.2
million as of December 31, 2021. The higher balance in 2021 for these demand deposits was temporary in nature.
27
The following table presents average deposits by category.
(in thousands)
Non-interest-bearing demand . . . . . . . . . .
Interest-bearing transaction accounts . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . .
2022
2021
2020
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
$ 243,110
269,510
65,817
18,444
$ 596,881
N/A
0.08%
0.06%
0.21%
$ 205,238
242,618
51,609
20,435
$ 519,900
N/A
0.04%
0.06%
0.28%
$ 163,394
208,941
40,771
20,965
$ 434,071
N/A
0.08 %
0.10 %
0.47 %
Deposits decreased $10.5 million or 1.73% to $598.7 million as of December 31, 2022, from $609.2 million as of December 31, 2021.
Non-interest bearing deposits decreased $32.7 million to $223.1 million as of December 31, 2022. The higher balance in 2021 for
these demand deposits was temporary in nature.
We fund growth through core deposits. We do not have, nor do we rely on, Brokered Deposits or Internet Deposits.
SHORT-TERM BORROWINGS
At December 31, 2022 and 2021, 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 $78.3 million. We established this arrangement
as an additional source of liquidity.
At December 31, 2022 and 2021, the Bank had unused short-term lines of credit totaling approximately $41 million (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 GAAP, 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 customer needs.
General 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, 2022 and 2021, the balance of this reserve was $44,912. At December 31, 2022 and
2021, 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 $145.4 million and $117.5 million as of December 31, 2022 and 2021, 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. 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, 2022 and 2021 was $2.5 million and $0.6 million, respectively.
We originate certain fixed rate residential loans and commit these loans for sale. The commitments to originate fixed rate residential
loans and the sales commitments are freestanding derivative instruments. We had forward sales commitments, totaling $0.9 million at
December 31, 2022, to sell loans held for sale of $0.9 million, compared to forward sales commitments of $2.8 million at December 31,
2021, to sell loans held for sale of $2.8 million. The fair value of these commitments was not significant at December 31, 2022 or
2021. We had no embedded derivative instruments requiring separate accounting treatment.
28
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 $8.9 million at December 31, 2022 and $30.8 million at December 31, 2021. For the years ended December 31, 2022
and December 31, 2021, there were two loans and one loan repurchased, respectively.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements have been prepared in accordance with 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 like the Company are primarily monetary in nature. As
a result, interest rates generally have a more significant impact on our performance than 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 rate 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 $10.6 million 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, 2022 was $38.8 million. The
rate of asset growth since our inception has not negatively impacted our 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 U.S. 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.
The purpose of Basel III 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
raised 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 implemented a strict eligibility criteria for regulatory capital instruments and improved the methodology for
calculating risk-weighted assets to enhance risk sensitivity.
On November 4, 2019, the federal banking agencies jointly issued a final rule on an optional, simplified measure of capital adequacy
for qualifying community banking organizations called the community bank leverage ratio (“CBLR”) framework effective on January
1, 2020. A qualifying community banking organization is defined as having less than $10 billion in total consolidated assets, a leverage
ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or
less of total consolidated assets. Additionally, the qualifying community banking institution must be a non-advanced approaches FDIC
supervised institution. The final rule adopts Tier 1 capital and existing leverage ratio into the CBLR framework. The Bank adopted this
rule as of September 30, 2020 and is no longer subject to other capital and leverage requirements. A CBLR bank meeting qualifying
criterion is deemed to have met the “well capitalized” ratio requirements and be in compliance with the generally applicable capital
rule. The Bank’s CBLR as of December 31, 2022 was 9.03%. As of December 31, 2022, the Company and the Bank were categorized
as “well capitalized.” We believe, as of December 31, 2022, 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 capital adequacy
category.
Please see “Notes to Consolidated Financial Statements” for additional information regarding the Company’s and the Bank’s capital
ratios at December 31, 2022.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, the Company is not required to provide the information required by this item.
See the Market Risk section in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included
in Item 7 of this report for a discussion of certain market risks we face, including interest rate risk.
29
Item 8.
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Bank of South Carolina Corporation:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bank of South Carolina Corporation (the “Company”) as of
December 31, 2022 and 2021 and the related consolidated statements of income, comprehensive income, shareholders’ equity and
cash flows for the years then ended, and the related notes to the consolidated financial statements and schedules (collectively, the
financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As
part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
Allowance for Loan Losses
As described in Note 4 to the Company’s financial statements, the Company has a gross loan portfolio of approximately $331.0
million and related allowance for loan losses of approximately $4.3 million as of December 31, 2022. As described by the Company
in Note 1, the evaluation of the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available. The allowance for loan losses is evaluated on a regular basis and is
based upon the Company’s 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, estimated value of any underlying collateral, and
prevailing economic conditions.
30
We identified the Company’s estimate of the allowance for loan losses as a critical audit matter. The principal considerations for our
determination of the allowance for loan losses as a critical audit matter related to the high degree of subjectivity in the Company’s
judgments in determining the qualitative factors. Auditing these complex judgments and assumptions by the Company involves
especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters,
including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included the following:
• We evaluated the relevance and the reasonableness of assumptions related to evaluation of the loan portfolio, current
economic conditions, and other risk factors used in development of the qualitative factors for collectively evaluated
loans.
• We validated the completeness and accuracy of the underlying data used to develop the factors.
• We validated the mathematical accuracy of the calculation.
• We evaluated the reasonableness of assumptions and data used by the Company in developing the qualitative factors by
comparing these data points to internally developed and third-party sources, as well as other audit evidence gathered.
• Analytical procedures were performed to evaluate the directional consistency of changes that occurred in the allowance
for loan losses for loans collectively evaluated for impairment.
We have served as the Company’s auditor since 2006.
Charleston, South Carolina
March 2, 2023
31
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits at the Federal Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale (amortized cost of $296,998,150 and $215,047,451 in
2021 and 2020, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loans to be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises, equipment and leasehold improvements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right of use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2022
December 31,
2021
$ 14,772,564
12,999,135
$ 11,140,559
128,971,429
271,172,226
866,594
330,981,782
(4,291,221)
326,690,561
3,988,607
13,433,692
2,145,522
7,276,708
212,347,489
2,774,388
306,632,229
(4,376,987)
302,255,242
3,782,936
14,041,843
1,404,227
2,502,533
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$653,345,609
$679,220,646
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits $250,000 and over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$223,117,903
195,143,514
100,014,125
5,303,509
11,266,099
63,825,108
598,670,258
$255,783,644
165,335,038
98,113,942
7,417,864
13,870,356
68,670,732
609,191,576
Accrued interest payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies in Note 11
Shareholders’ equity
Common stock - no par 12,000,000 shares authorized; Issued 5,852,325 and 5,841,240
shares at December 31, 2022 and December 31, 2021, respectively. Shares outstanding
5,552,351 and 5,541,266 at December 31, 2022 and December 31, 2021, respectively.
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock: 299,974 shares as of December 31, 2022 and 2021 . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss, net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,430,272
13,433,692
614,534,222
2,069,594
14,041,843
625,303,013
48,028,689
14,002,571
(2,817,392)
(20,402,481)
38,811,387
47,745,285
11,122,710
(2,817,392)
(2,132,970)
53,917,633
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$653,345,609
$679,220,646
See accompanying notes to consolidated financial statements.
32
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
2022
2021
2020
Interest and fee income
Loans, including fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest and fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,677,601
2,531,951
584,907
404,024
19,198,483
$ 15,285,012
1,849,347
313,443
103,309
17,551,111
$ 15,055,981
1,628,753
370,998
184,024
17,239,756
Interest expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
301,793
301,793
174,000
174,000
305,414
305,414
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . .
18,896,690
(75,000)
18,971,690
17,377,111
120,000
17,257,111
16,934,342
240,000
16,694,342
Other income
Service charges and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sales of securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,290,665
667,257
64,782
42,158
2,064,862
1,254,699
2,314,106
266,944
32,482
3,868,231
1,094,985
2,267,406
10,002
32,508
3,404,901
Other expense
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,547,306
2,514,904
562,228
448,248
1,331,354
12,404,040
7,437,787
2,428,082
622,536
395,115
1,425,454
12,308,974
7,219,005
2,216,727
646,590
345,126
1,245,485
11,672,933
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,632,512
1,977,372
8,816,368
2,071,503
8,426,310
1,965,679
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,655,140
$ 6,744,865
$ 6,460,631
Weighted average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,550,078
5,644,698
5,531,518
5,680,482
5,526,948
5,678,543
Basic income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.20
1.18
$
$
1.22
1.19
$
$
1.17
1.14
See accompanying notes to consolidated financial statements.
33
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income
$
2022
6,655,140 $ 6,744,865 $ 6,460,631
2021
2020
Unrealized (loss) gain on securities arising during the period . . . . . . . . . . . . . .
Reclassification adjustment for securities gains realized in net income . . . . . . .
Other comprehensive (loss) income before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect related to items of other comprehensive (loss) income
(23,061,180)
(64,782)
(23,125,962)
(4,546,773)
(266,944)
(4,813,717)
1,512,600
(10,002)
1,502,598
before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(315,546)
4,856,451
(18,269,511)
1,187,052
$ (11,614,371) $ 2,942,029 $ 7,647,683
1,010,881
(3,802,836)
See accompanying notes to consolidated financial statements.
34
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
December 31, 2019 . . . . . . . . . . . . . . .
5,530,001 $47,131,034 $ 5,879,409 $(2,325,225) $
482,814 $ 51,168,032
Shares
Outstanding
Additional
Paid
in Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive gain . . . . . . . . . .
Stock option exercises,
net of surrenders . . . . . . . . . . . . . .
Stock-based compensation expense . . .
Repurchase of common shares . . . . . . .
Cash dividends
($0.66 per common share) . . . . . . .
December 31, 2020 . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . .
Stock option exercises,
net of surrenders . . . . . . . . . . . . . .
Stock-based compensation expense . . .
Cash dividends
($0.78 per common share) . . . . . . .
December 31, 2021 . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . .
Stock option exercises,
net of surrenders . . . . . . . . . . . . . .
Stock-based compensation expense . . .
Cash dividends
($0.68 per common share) . . . . . . .
December 31, 2022 . . . . . . . . . . . . . . .
—
—
—
—
6,460,631
—
—
—
—
1,187,052
6,460,631
1,187,052
15,535
—
(25,067)
180,849
92,986
—
—
—
—
(63,805)
—
(398,868)
—
—
117,044
92,986
(398,868)
—
(3,646,521)
5,520,469 $47,404,869 $ 8,693,519 $(2,787,898) $ 1,669,866 $ 54,980,356
(3,646,521)
—
—
—
—
—
—
—
6,744,865
—
—
—
—
(3,802,836)
6,744,865
(3,802,836)
20,797
—
237,383
103,033
—
—
(29,494)
—
—
—
207,889
103,033
—
(4,315,674)
5,541,266 $47,745,285 $11,122,710 $(2,817,392) $ (2,132,970) $ 53,917,633
(4,315,674)
—
—
—
—
—
—
—
6,655,140
—
11,085
—
161,731
121,673
—
—
—
—
—
—
—
(18,269,511)
6,655,140
(18,269,511)
—
—
161,731
121,673
—
(3,775,279)
5,552,351 $48,028,689 $14,002,571 $(2,817,392) $(20,402,481) $ 38,811,387
(3,775,279)
—
—
—
See accompanying notes to consolidated financial statements.
35
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 expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization of unearned discounts on investment securities
available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2022
2021
2020
$
6,655,140
$
6,744,865
$
6,460,631
359,251
(64,782)
(75,000)
121,673
(171,800)
412,866
(266,944)
120,000
103,033
(46,751)
421,040
(10,002)
240,000
92,986
(422,345)
869,690
(60,017,637)
61,925,431
(487,217)
358,795
9,473,544
592,357
(163,176,146)
173,367,491
133,276
(520,403)
17,463,644
362,159
(181,781,058)
173,877,723
(38,312)
1,089,165
291,987
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale . .
Proceeds from sale of investment securities available for sale . . . . . . . . . . . . . .
Purchase of investment securities available for sale . . . . . . . . . . . . . . . . . . . . . .
Net (increase) decrease in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of premises, equipment, and leasehold improvements, net . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,539,000
18,525,780
(104,820,389)
(24,360,319)
(564,922)
(107,680,850)
36,967,000
15,572,500
(135,206,301)
14,241,737
(142,269)
(68,567,333)
23,491,000
11,550,000
(68,260,421)
(46,788,177)
(184,138)
(80,191,736)
Cash flows from financing activities:
Net (decrease) increase in deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the beginning of the period . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the end of the period . . . . . . . . . . . . . . . . . . . . . .
(10,521,318)
(3,773,396)
—
161,731
(14,132,983)
(112,340,289)
140,111,988
$ 27,771,699
146,993,945
(4,312,138)
—
207,889
142,889,696
91,786,007
48,325,981
$ 140,111,988
83,005,976
(3,592,841)
(398,868)
117,044
79,131,311
(768,438)
49,094,419
$ 48,325,981
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
275,700
1,582,810
$
$
179,793
2,845,420
$
$
323,455
814,052
Supplemental disclosures for non-cash investing and financing activity:
Change in unrealized (loss) gain on securities available for sale,
net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right of use assets obtained in exchange for lease obligation . . . . . . . . . . .
Change in right of use assets and lease liabilities . . . . . . . . . . . . . . . . . . . .
$ (18,269,511) $
$
$
$
$
$
$
1,883
—
608,151
(3,082,836) $
$
3,536
$
1,825,793
$
514,101
1,187,052
53,680
—
479,066
See accompanying notes to consolidated financial statements.
36
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 the Company and its wholly-owned subsidiary, 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
reporting purposes.
Accounting Estimates and Assumptions:
The financial statements are prepared in conformity with GAAP, which require management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ significantly from these estimates and assumptions. Material estimates generally susceptible to
significant change are related to the determination of the allowance for loan losses, impaired loans, other real estate owned, deferred
tax assets, the fair value of financial instruments and other-than-temporary impairment of investment securities.
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 as of 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 as of 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.
Cash and Cash Equivalents:
Cash and cash equivalents include working cash funds, due from banks, interest-bearing deposits at the Federal Reserve, 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, 2022 and 2021.
Interest-bearing Deposits at the Federal Reserve:
Interest-bearing deposits at the Federal Reserve mature daily and are carried at cost.
Investment Securities:
We classify investments into three categories: (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 securities that are bought and held principally for the purpose of selling them in the near term, which
37
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
are reported at fair value, with unrealized gains and losses included in earnings; and (3) Available for Sale - debt 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 2022 and 2021.
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 to be sold 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. Because of the short-term nature of these derivative contracts, the fair value of the mortgage loans to be sold in most cases
is materially 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 are surrendered and are included in
mortgage banking income in the consolidated statements of income.
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 that 1) are maintained on a cash
basis because of deterioration in the financial condition of the borrower; 2) the payment of full principal is not expected; or 3) the
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.
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 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) where 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.
38
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allowance for loan losses (the “allowance”) is our estimate of credit losses inherent in the loan portfolio. The allowance 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 uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited
to the allowance. The allowance 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 factors such 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.
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 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. As of December 31, 2022, 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.
Leases:
In accordance with ASU 2016-02, the Company determines if a contractual arrangement is a lease at inception. Operating leases are
included in the operating right of use (“ROU”) assets and current operating lease liabilities on the Company’s consolidated balance
sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the
Company’s obligation to make lease payments arising from the lease. Currently, the Company does not have any finance leases.
Operating lease ROU assets and lease liabilities are recognized at the commencement of the lease based on the present value of lease
payments over the lease term. The lease payments included in the present value are fixed payments and index-based variable lease
payments. The Company estimates the incremental borrowing rate, based on information available at the commencement of the lease,
as most of the Company’s leases do not include an implicit rate.
Revenue Recognition:
In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an
amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine
revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following
five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the
transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or
as) the Company satisfies a performance obligation.
39
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled
to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within
the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that
contain performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as
revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance
obligation is satisfied.
Service Fees on Deposit Accounts
The Bank earns fees from its deposit customers for account maintenance, transaction-based and overdraft services. Account
maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts on a monthly basis. The
performance obligation is satisfied and the fees are recognized on a monthly basis as the service period is completed. Transaction-
based fees on deposits accounts are charged to deposit customers for specific services provided to the customer, such as non-sufficient
funds fees, overdraft fees, and wire fees. The performance obligation is completed as the transaction occurs and the fees are recognized
at the time each specific service is provided to the customer.
ATM and Check Card Fee Income
Check card fee income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from
debit cardholder transactions through the Mastercard payment network. Interchange fees from cardholder transactions represent
a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services
provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged
to the card. Certain expenses directly associated with the debit card are recorded on a net basis with the fee income.
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, 2022 and 2021.
The income tax effects of unrealized gains and losses on investment securities available for sale are released from accumulated other
comprehensive income at the time such securities are sold or impaired.
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 expected term of
the stock options and is adjusted for forfeitures as they occur.
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, if any, through the date
of issuance of the consolidated financial statements.
Segment Information:
The Company operates and manages itself within one retail banking segment and therefore has not provided segment disclosures.
40
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022 and 2021.
We had no embedded derivative instruments requiring hedge accounting treatment at December 31, 2022 and 2021. 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 June 2016, the FASB issued ASU 2016-13, Financial instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, to change the accounting for credit losses and modify the impairment model for certain debt securities. ASU
2016-13 changes the impairment model for most financial assets to a current expected credit loss (“CECL”) model, replacing the
incurred loss model that is currently in use. The new guidance requires an entity to measure all expected credit losses for financial
instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The
CECL model will apply to financial assets measured at amortized cost, such as loans and investments, as well as certain off-balance
sheet credit exposures. In May 2019, the FASB issued guidance to provide entities with an option to irrevocably elect the fair value
option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit
Losses on Financial Instruments. In October 2019, the FASB voted to extend the implementation date for smaller reporting companies,
non-SEC public companies, and private companies. This amendment became effective for the Company on January 1, 2023.
In March 2020, the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument
guidance, including the current expected credit losses (CECL) guidance issued in 2016. The amendments related to conforming
amendments. For public business entities, the amendments are effective upon issuance of this final ASU. For the amendments related
to ASU 2016-13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies
(SRCs) as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. Early adoption will continue to be
permitted. For entities that have not yet adopted the guidance in ASU 2016-13, the effective dates and the transition requirements for
these amendments are the same as the effective date and transition requirements in ASU 2016-13.
The Company is finalizing its evaluation of the adoption of ASU 2016-13 and plans to adopt as of January 1, 2023. The Company to-
date has sourced and tested required data from the Company’s loan systems, tested data feeds to the model, contracted an independent
third party for model validation of the CECL model and process, determined appropriate segmentations of its portfolio, selected a
preliminary forecast period for reasonable and supportable forecasts, and has performed parallel runs of the model. The Company is
currently finalizing its assessment of current and forecasted macroeconomic factors, assumptions, testing, and finalization of internal
controls. The Company currently estimates a decrease in the allowance for loan losses between $25,000 and $125,000 upon adoption.
The Company is currently evaluating the impact of the reserve for unfunded commitments. The Company will finalize the adoption
during the first quarter of 2023.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and
Vintage Disclosures, which eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-402
and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The
ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors
with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The amendments in ASU 2022-02
are effective upon the Company’s adoption of ASU 2016-13.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting, which provides temporary optional guidance to ease the potential burden in accounting for reference
rate reform. In December 2022, the FASB extended the sunset date of ASC 848 from December 31, 2022 to December 31, 2024. The
Company does not expect these amendments to have a material effect on its consolidated financial statements.
41
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 2021, the FASB added a topic to the Accounting Standards Codification, Government Assistance, to require certain
annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model
by analogy to other accounting guidance. The guidance is effective for financial statements issued for annual periods beginning after
December 15, 2021. The amendment became effective January 1, 2022 and did not have a material effect on the consolidated 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.
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of investment securities available for sale are summarized as follows.
U.S. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . . . . .
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . . . . .
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
$180,298,301
67,384,808
49,315,041
$296,998,150
December 31, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
$
$
—
—
2,510
2,510
$ (12,110,986) $168,187,315
57,074,724
(10,310,084)
45,910,187
(3,407,364)
$(25,828,434) $271,172,226
December 31, 2021
Amortized
Cost
$101,269,851
76,355,720
37,421,880
$215,047,451
Gross
Unrealized
Gains
$
68,848
275,123
335,912
$ 679,883
Gross
Unrealized
Losses
Estimated
Fair Value
$ (1,276,399) $100,062,300
74,721,009
37,564,180
$ (3,379,845) $212,347,489
(1,909,834)
(193,612)
The amortized cost and estimated fair value of investment securities available for sale at December 31, 2022 and 2021, by contractual
maturity are in the following table.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2022
December 31, 2021
Amortized
Cost
$ 42,722,655
190,569,869
53,995,700
9,709,926
$296,998,150
Estimated
Fair Value
$ 41,698,011
176,217,530
45,386,818
7,869,867
$ 271,172,226
Amortized
Cost
$ 12,756,176
116,602,790
76,531,464
9,157,021
$215,047,451
Estimated
Fair Value
$ 12,859,086
115,896,465
74,575,862
9,016,076
$ 212,347,489
Securities pledged to secure deposits at December 31, 2022 and 2021, had a carrying amount of $30,103,249 and $33,292,124,
respectively.
42
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, 2022 and 2021. 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
December 31, 2022
12 Months or Longer
Total
U.S. Treasury Notes . . .
Government-Sponsored
Enterprises . . . . . . .
Municipal Securities . . .
Total . . . . . . . . . . . . . . .
U.S. Treasury Notes . . .
Government-Sponsored
Enterprises . . . . . . .
Municipal Securities . . .
Total . . . . . . . . . . . . . . .
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
#
7 $ 38,181,255 $(1,790,134) 18 $130,006,060 $(10,320,852) 25 $168,187,315 $ (12,110,986)
#
#
Fair
Value
Gross
Unrealized
Loss
2
9 50,862,439 (10,225,914) 11 57,074,724 (10,310,084)
6,212,285
46 26,068,218
(3,407,364)
55 $ 70,461,758 $(2,806,869) 58 $195,727,958 $(23,021,565) 113 $266,189,716 $(25,828,434)
(84,170)
(932,565) 31 14,859,459
(2,474,799) 77 40,927,677
Less Than 12 Months
December 31, 2021
12 Months or Longer
Total
#
Fair
Value
Gross
Unrealized
Loss
#
Fair
Value
Gross
Unrealized
Loss
#
Fair
Value
Gross
Unrealized
Loss
15 $ 94,994,915 $(1,276,399) — $
— $
— 15 $ 94,994,915 $ (1,276,399)
3 19,480,595
19 11,384,462
37 $125,859,972 $(1,989,416)
(519,405)
(193,612) —
6 39,909,134
—
(1,909,834)
(193,612)
6 $ 39,909,134 $ (1,390,429) 43 $165,769,106 $ (3,379,845)
9 59,389,729
— 19 11,384,462
(1,390,429)
The table below shows the proceeds received from sales of securities available for sale and gross realized gains and losses.
Gross proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the Year Ended December 31,
2022
$ 18,525,780
64,782
2021
$ 15,572,500
266,944
2020
$ 11,550,000
10,002
The tax provision related to these gains was $13,604, $56,058 and $2,100 for the years ended December 31, 2022, 2021 and 2020,
respectively.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans (net of deferred loan fees of $159,434 at December 31, 2022, and $488,481 at December 31, 2021) are
shown in the table below.
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate:
December 31,
2022
$ 45,072,059
December 31,
2021
$ 45,804,434
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,524,260
172,897,387
12,054,095
165,719,078
Consumer:
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paycheck protection program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91,636,538
3,851,538
—
330,981,782
(4,291,221)
$326,690,561
71,307,488
3,768,531
7,978,603
306,632,229
(4,376,987)
$302,255,242
43
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We had $93.1 million and $94.7 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”)
Discount Window at December 31, 2022 and 2021, respectively.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the
Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. Under the program,
the Small Business Administration (“SBA”) forgave loans, in whole or in part, made by approved lenders to eligible borrowers for
payroll and other permitted purposes in accordance with the requirements of the program. These loans carried a fixed rate of 1.00%
and a term of two years, if not forgiven, in whole or in part. The loans were 100% guaranteed by the SBA and as long as the borrower
submitted its loan forgiveness application within ten months of completion of the covered period. The borrower was not required to
make any payments until the forgiveness amount was remitted to the lender by the SBA. The Bank received a processing fee from the
SBA ranging from 1% to 5% based on the size of the loan. The fees are deferred and amortized over the life of the loans in accordance
with ASC 310-20. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was signed into law on
April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued
by financial institutions through the SBA. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and
Venues Act (“Economic Aid Act”) was enacted, which reauthorized lending under the PPP program through March 31, 2021, with an
additional $325 billion. Over the course of the PPP program, the Bank extended 480 loans with a total loan amount of $55.3 million.
Because these loans were 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they were not
graded and did not have an associated allowance.
Our portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements
as scheduled. Our internal credit risk grading system is based on experience with similarly graded loans, industry best practices, and
regulatory guidance. Our portfolio is graded in its entirety, with the exception of the PPP loans.
Our internally assigned grades pursuant to the Board-approved lending policy are as follows:
• Excellent (1) The borrowing entity has more than adequate cash flow, unquestionable strength, strong earnings and
capital, and where applicable, no overdrafts.
• Good (2) The borrowing entity has dependable cash flow, better than average financial condition, good capital and
usually no overdrafts.
•
Satisfactory (3) The borrowing entity has adequate cash flow, satisfactory financial condition, and explainable overdrafts
(if any).
• Watch (4) The borrowing entity has generally adequate, yet inconsistent cash flow, cyclical earnings, weak capital, loan
to/from stockholders, and infrequent overdrafts. The borrower has consistent yet sometimes unpredictable sales and
growth.
• OAEM (5) The borrowing entity has marginal cash flow, occasional past dues, and frequent and unexpected working
capital needs.
•
Substandard (6) The borrowing entity has cash flow barely sufficient to service debt, deteriorated financial condition,
and bankruptcy is a possibility. The borrowing entity has declining sales, rising costs, and may need to look for secondary
source of repayment.
• 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.
44
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables illustrate credit risks by category and internally assigned grades at December 31, 2022 and 2021. “Pass” includes
loans internally graded as excellent, good and satisfactory.
Pass . . . . . . . . . . . . . .
Watch . . . . . . . . . . . .
OAEM . . . . . . . . . . . .
Substandard . . . . . . . .
Doubtful . . . . . . . . . .
Loss . . . . . . . . . . . . . .
Total . . . . . . . . . . . . .
Commercial
$42,724,289
976,966
94,803
1,276,001
—
—
$45,072,059
December 31, 2022
Commerical
Real Estate
Construction
$17,524,260
—
—
—
—
—
$17,524,260
Commercial
Real Estate
Other
$167,518,577
3,223,532
968,611
1,186,667
—
—
$172,897,387
Consumer
Real Estate
$86,183,899
4,928,437
274,445
249,757
—
—
$91,636,538
Consumer
Other
$ 3,597,886
208,417
7,345
37,890
—
—
$ 3,851,538
Paycheck
Protection
Program
Total
$317,548,911
—
$
9,337,352
—
1,345,204
—
2,750,315
—
—
—
—
—
— $330,981,782
$
December 31, 2021
Pass . . . . . . . . . . . . .
Watch . . . . . . . . . . .
OAEM . . . . . . . . . . .
Substandard . . . . . . .
Doubtful . . . . . . . . .
Loss . . . . . . . . . . . . .
Total . . . . . . . . . . . .
Commerical
Real Estate
Construction
Commercial
Real Estate
Other
Consumer
Other
Consumer
Commercial
Real Estate
$43,853,889 $11,616,118 $159,825,281 $69,920,347 $3,565,716 $7,978,603 $296,759,954
4,967,060
1,498,706
3,406,509
—
—
$306,632,229
450,319
36,749
1,463,477
—
—
3,082,408
1,158,268
1,653,121
—
—
133,418
29,244
40,153
—
—
862,938
274,445
249,758
—
—
437,977
—
—
—
—
—
—
—
—
—
$45,804,434
$165,719,078
$71,307,488
$12,054,095
$3,768,531
$7,978,603
Total
Paycheck
Protection
Program
The following tables include an aging analysis of the recorded investment in loans segregated by class.
December 31, 2022
Commercial . . . . . . . . . . . . . .
Commercial Real Estate
Construction . . . . . . . . . .
Commercial Real Estate
Other . . . . . . . . . . . . . . .
Consumer Real Estate . . . . . .
Consumer Other . . . . . . . . . .
Paycheck Protection
30-59 Days
Past Due
$ 16,451
60-89 Days
Past Due
$178,975
—
45,425
274,445
—
—
—
—
—
Greater than
90 Days
$
—
—
Total
Past Due
$ 195,426
Current
$ 44,876,633
Total Loans
Receivable
$ 45,072,059
—
17,524,260
17,524,260
631,453
—
—
676,878
274,445
—
172,220,509
91,362,093
3,851,538
172,897,387
91,636,538
3,851,538
Program . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . .
—
$336,321
—
$178,975
—
$ 631,453
—
$1,146,749
—
$329,835,033
—
$330,981,782
$
45
Recorded
Investment ≥
90 Days and
Accruing
—
$
—
—
—
—
—
—
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
30-59 Days
Past Due
60-89 Days
Past Due
Greater than
90 Days
Total
Past Due
Current
Total Loans
Receivable
Recorded
Investment ≥
90 Days and
Accruing
—
Commercial . . . . . . . . . . . . . . . $ 88,659 $
Commercial Real Estate
— $
— $ 88,659 $ 45,715,775 $ 45,804,434 $
Construction . . . . . . . . . . .
Commercial Real Estate Other. .
Consumer Real Estate . . . . . . .
Consumer Other . . . . . . . . . . .
Paycheck Protection Program . .
Total . . . . . . . . . . . . . . . . . . . . $ 171,899 $ 288,464 $ 337,490 $ 797,853 $305,834,376 $306,632,229 $
12,054,095
165,033,855
71,307,488
3,744,560
7,978,603
12,054,095
165,719,078
71,307,488
3,768,531
7,978,603
—
288,464
—
—
—
—
59,269
—
23,971
—
—
685,223
—
23,971
—
—
337,490
—
—
—
—
—
—
—
—
—
There were no loans past due 90 days or more and still accruing interest at December 31, 2022 and 2021.
The following table summarizes the balances of non-accrual loans.
Loans Receivable
on Non-Accrual
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
— $
—
631,453
—
—
—
631,453 $
December 31,
2022
December 31,
2021
178,975
—
625,953
—
9,686
—
814,614
The following tables set forth the changes in the allowance and an allocation of the allowance by class at December 31, 2022, 2021,
and 2020. 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
Paycheck
Protection
Program
Total
December 31, 2022
Allowance for Loan Losses
Beginning Balance . . . . . . .
Charge-offs . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . .
Provisions . . . . . . . . . . . . . .
Ending Balance . . . . . . . . . .
$ 795,689
(40,600)
800
(20,130)
$ 735,759
$ 175,493
—
—
55,132
$ 230,625
$ 2,376,306
—
18,000
(177,822)
$ 2,216,484
$ 924,784
(2,034)
—
92,027
$ 1,014,777
$ 104,715
—
12,224
(23,363)
93,576
$
$
$
—
(10)
854
(844)
$ 4,376,987
(42,644)
31,878
(75,000)
— $ 4,291,221
Commercial
Commercial
Real Estate
Construction
Commercial
Real Estate
Other
Consumer
Real Estate
Consumer
Other
Paycheck
Protection
Program
Total
December 31, 2021
Allowance for Loan Losses
Beginning Balance
Charge-offs
Recoveries
Provisions
Ending Balance
$1,029,310
—
21,329
(254,950)
$ 795,689
$ 199,266
—
—
(23,773)
$ 175,493
$ 1,909,121
—
—
467,185
$ 2,376,306
$ 925,077
—
47,711
(48,004)
$ 924,784
$ 122,920
(11,440)
22,367
(29,132)
$ 104,715
$
$
—
(9,550)
876
8,674
—
$ 4,185,694
(20,990)
92,283
120,000
$ 4,376,987
46
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial
Commercial
Real Estate
Construction
Commercial
Real Estate
Other
Consumer
Real Estate
Consumer
Other
Paycheck
Protection
Program
Total
December 31, 2020
Allowance for Loan Losses
Beginning Balance . . . . . . .
Charge-offs . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . .
Provisions . . . . . . . . . . . . . .
Ending Balance . . . . . . . . . .
$ 1,429,917
(171,646)
88,811
(317,772)
$1,029,310
$
109,235
—
—
90,031
$ 199,266
$ 1,270,445
—
99,801
538,875
$ 1,909,121
$
496,221
—
—
428,856
$ 925,077
$
697,940
(116,001)
43,599
(502,618)
$ 122,920
$
$
—
(2,650)
22
2,628
—
$ 4,003,758
(290,297)
232,233
240,000
$ 4,185,694
The following tables present, by class and reserving methodology, the allocation of the allowance for loan losses and the gross
investment in loans.
Commercial
Commercial
Real Estate
Construction
Commercial
Real Estate
Other
Consumer
Real Estate
Consumer
Other
Paycheck
Protection
Program
Total
December 31, 2022
Allowance for Loan Losses
Individually evaluated
for impairment . . . . . . . .
$
179,230 $
— $
— $
— $
37,889 $
— $
217,119
Collectively evaluated
for impairment . . . . . . . .
556,529
230,625
2,216,484 1,014,777
55,687
—
4,074,102
Total Allowance for
Loan Losses . . . . . . . . .
735,759
230,625
2,216,484 1,014,777
93,576
—
4,291,221
Loans Receivable
Individually evaluated
for impairment . . . . . . . .
1,276,001
—
1,202,412
249,758
37,889
—
2,766,060
Collectively evaluated
for impairment . . . . . . . .
Total Loans Receivable . . . .
43,796,058 17,524,260 171,694,975 91,386,780 3,813,649
$45,072,059 $17,524,260 $172,897,387 $91,636,538 $ 3,851,538 $
— 328,215,722
— $330,981,782
Commercial
Commercial
Real Estate
Construction
Commercial
Real Estate
Other
Consumer
Real Estate
Consumer
Other
Paycheck
Protection
Program
Total
December 31, 2021
Allowance for Loan Losses
Individually evaluated for
impairment . . . . . . . . . . .
$
179,988 $
— $
— $
— $
40,153 $
— $
220,141
Collectively evaluated
for impairment . . . . . . . .
615,701
175,493
2,376,306
924,784
64,562
—
4,156,846
Total Allowance for
Loan Losses . . . . . . . . .
795,689
175,493
2,376,306
924,784
104,715
—
4,376,987
Loans Receivable
Individually evaluated
for impairment . . . . . . . .
1,463,477
—
1,653,121
249,758
40,153
—
3,406,509
Collectively evaluated
for impairment . . . . . . . .
Total Loans Receivable . . . .
44,340,957
303,225,720
$45,804,434 $12,054,095 $165,719,078 $71,307,488 $ 3,768,531 $7,978,603 $306,632,229
164,065,957
3,728,378
12,054,095
71,057,730
7,978,603
47
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021, loans individually evaluated for impairment and the corresponding allowance for loan losses are
presented in the following table.
Impaired and Restructured Loans As of
December 31, 2022
December 31, 2021
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
With no related allowance recorded:
Commercial . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Construction . . .
Commercial Real Estate Other . . . . . . . . .
Consumer Real Estate . . . . . . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$ 317,553
—
1,202,412
249,758
—
—
1,769,723
$ 317,553
—
1,202,412
249,758
—
—
1,769,723
$
—
—
—
—
—
—
—
$ 1,096,407
—
1,653,121
249,758
—
—
2,999,286
$ 1,096,407
—
1,653,121
249,758
—
—
2,999,286
—
—
—
—
—
—
—
With an allowance recorded:
Commercial . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Construction . . .
Commercial Real Estate Other . . . . . . . . .
Consumer Real Estate . . . . . . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Commercial . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Construction . . .
Commercial Real Estate Other . . . . . . . . .
Consumer Real Estate . . . . . . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
958,448
—
—
—
37,889
—
996,337
958,448
—
—
—
37,889
—
996,337
179,230
—
—
—
37,889
—
217,119
367,070
—
—
—
40,153
—
407,223
367,070
—
—
—
40,153
—
407,223
179,988
—
—
—
40,153
—
220,141
1,276,001
—
1,202,412
249,758
37,889
—
$ 2,766,060
1,276,001
—
1,202,412
249,758
37,889
—
$ 2,766,060
179,230
—
—
—
37,889
—
$ 217,119
1,463,477
—
1,653,121
249,758
40,153
—
$ 3,406,509
1,463,477
—
1,653,121
249,758
40,153
—
$ 3,406,509
179,988
—
—
—
40,153
—
$ 220,141
48
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,
2022
2021
2020
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 . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$ 344,592
—
1,231,015
249,758
—
—
1,825,365
With an allowance recorded:
Commercial . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Construction . . .
Commercial Real Estate Other . . . . . . . . .
Consumer Real Estate . . . . . . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
981,575
—
—
—
38,962
—
1,020,537
21,445
—
30,689
14,019
—
—
66,153
63,267
—
—
—
2,532
—
65,799
$ 1,142,667
—
1,645,375
249,777
—
—
3,037,819
$
68,602
—
68,031
10,615
—
—
147,248
$ 1,866,590
—
4,849,474
249,813
—
—
6,965,877
$ 102,636
—
218,372
11,580
—
—
332,588
378,499
—
—
—
41,133
—
419,632
22,130
—
—
—
2,674
—
24,804
578,399
—
337,304
36,483
42,089
—
994,275
37,663
—
—
(116)
2,743
—
40,290
Total
Commercial . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Construction . . .
Commercial Real Estate Other . . . . . . . . .
Consumer Real Estate . . . . . . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . .
1,326,167
—
1,231,015
249,758
38,962
—
$ 2,845,902
84,712
—
30,689
14,019
2,532
—
$ 131,952
1,521,166
—
1,645,375
249,777
41,133
—
$ 3,457,451
90,732
—
68,031
10,615
2,674
—
$ 172,052
2,444,989
—
5,186,778
286,296
42,089
—
$ 7,960,152
140,299
—
218,372
11,464
2,743
—
$ 372,878
In general, the modification or restructuring of a debt is considered a troubled debt restructuring (“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. As of
December 31, 2022 and December 31, 2021, there were five TDRs with a balance of $1.0 million. These TDRs were granted extended
payment terms with no principal reduction. The structure of two of the loans changed to interest only. One TDR was performing as
agreed as of December 31, 2022, while the other TDR is not performing as agreed and we are considering further collection actions,
including potential foreclosure proceedings. No other TDRs that were modified within the previous twelve months defaulted during
the following year for the years ended December 31, 2022, 2021, and 2020.
Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working
with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged
financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations
because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as
positive actions that may mitigate adverse effects on borrowers due to COVID- 19 and that the agencies will not criticize institutions
for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications
related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section
4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19,
executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the
earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short-term loan modifications
49
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs.
Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to
borrowers negatively impacted by COVID-19. During 2020, the Bank processed approximately $0.7 million in principal deferments
to 84 customers, with an aggregate loan balance of $25.9 million. The Bank did not process any principal deferments during the years
ended December 31, 2022 and 2021. The principal deferments represented 0.24% of our total loan portfolio as of December 31, 2020.
The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and classified 9 loans, with an
aggregate loan balance of $4.0 million, that were granted payment accommodations as TDRs given the continued financial difficulty
of the customer, associated industry risk, and multiple deferral requests. All other borrowers were current prior to relief, were not
experiencing financial difficulty prior to COVID- 19, and the Bank determined they were not considered TDRs. As of December 31,
2021, 4 of the TDRs were removed from TDR status due to improvement in financial condition and sustained performance under the
restructured terms, 2 TDRs were paid off through refinancing into new loans at market terms, and 1 TDR was paid off. Two loans with
a balance of $0.5 million remain in TDR status as of December 31, 2021. Additionally, of the 75 customers that received payment
accommodations that were not classified as TDRs, 41 customers, with an aggregate loan balance of $9.9 million, have paid their loan
in full as of December 31, 2021. An additional loan was removed from TDR status during 2022. The remaining loan with a balance of
$0.1 million is paying as agreed as of December 31, 2022. There are no loans that received payment accommodation past due greater
than 30 days. The Bank will continue to examine payment accommodations as requested by borrowers.
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, medical, and legal
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. The majority of the loan portfolio is located in our immediate
market area with a concentration in real estate related activities.
Our loans were concentrated in the following categories.
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Premises, equipment and leasehold improvements are summarized in the table below.
Bank buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises, equipment and leasehold improvements, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2022
December 31,
2021
13.62%
5.29%
52.24%
27.69%
1.16%
—%
100.00%
14.94%
3.93%
54.04%
23.26%
1.23%
2.60%
100.00%
December 31,
2022
$ 1,861,237
838,075
30,000
2,629,441
535,434
4,273,339
10,167,526
(6,178,919)
$ 3,988,607
2021
$ 1,861,237
838,075
30,000
2,595,825
31,654
4,241,305
9,598,096
(5,815,160)
$ 3,782,936
Depreciation on our bank premises and equipment charged to operating expense totaled $359,251, $412,866, and $421,040, during the
year ended December 31, 2022, 2021, and 2020, respectively.
50
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LEASES
As of December 31, 2022 and 2021, the Company had operating right of use (“ROU”) assets of $13.4 million and $14.0 million,
respectively, and operating lease liabilities of $13.4 million and $14.0 million, respectively. The Company maintains operating leases
on land, branch facilities, and parking. Operating leases generally contain initial fixed payment terms that adjust in future years
based on the consumer price index or similar measure. Most of the leases include one or more options to renew, with renewal terms
extending up to 20 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized in
lease expense.
As of December 31, 2022, the weighted average remaining lease term is 15.69 years and the weighted average incremental borrowing
rate is 4.08%.
The exercise of renewal options is based on the sole judgement of management and what they consider to be reasonably certain. Based
on the market areas, past practices, and contract terms of all leases, the Bank assumed all renewal options will be exercised. Minimum
rental commitments for these leases as of December 31, 2022 are presented in the table below.
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2028 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total undiscounted lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: effect of discounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of estimated lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,182,746
1,182,746
1,182,746
1,182,746
1,182,746
12,309,253
$ 18,222,983
(4,789,291)
$ 13,433,692
The table below shows lease expense components for the years ended December 31, 2022 and 2021.
Lease Expense Components:
Operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022
$ 1,192,292
—
$ 1,192,292
2021
$ 1,139,393
—
$ 1,139,393
December 31,
Total rental expense was $1,192,292, $1,139,393 and $972,815, during the years ended December 31, 2022, 2021 and 2020, respectively.
As of December 31, 2022, we did not maintain any finance leases and we determined that the number and dollar amount of equipment
leases was immaterial. As of December 31, 2022, we have no additional operating leases that have not yet commenced.
8. DEPOSITS
As of December 31, 2022 and 2021, time deposits of $250,000 or more totaled approximately $5,303,509 and $7,417,864, respectively.
The scheduled maturities of certificates of deposit as of December 31, 2022 are presented in the table below:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,820,344
581,665
34,427
780,208
352,964
$ 16,569,608
As of December 31, 2022 and 2021, deposits with a deficit balance of $80,524 and $28,549, respectively, were re-classified as other
loans.
51
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. SHORT-TERM BORROWINGS
At December 31, 2022 and 2021, 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 $78.3 million as of December 31, 2022. We
established this arrangement as an additional source of liquidity.
At December 31, 2022 and 2021, the Bank had unused short-term lines of credit totaling approximately $41.0 million and $41.0
million, respectively (which are withdrawable at the lender’s option).
10. INCOME TAXES
Total income taxes for the years ended December 31, 2022, 2021 and 2020 are presented in the table below.
For the year ended December 31,
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on securities available for sale presented in accumulated
other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense was as follows:
Current income taxes
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022
2021
$ 1,977,372 $ 2,071,503 $ 1,965,679
2020
(4,856,451)
315,546
$ (2,879,079) $ 1,060,622 $ 2,281,225
(1,010,881)
For the year ended December 31,
2022
2021
2020
$ 1,837,678 $ 1,796,283 $ 1,543,334
—
1,543,334
422,345
$ 1,977,372 $ 2,071,503 $ 1,965,679
311,494
2,149,172
(171,800)
321,971
2,118,254
(46,751)
The differences between actual income tax expense and the amounts computed by applying the U.S. federal income tax rate of 21%
to pretax income from continuing operations for the periods indicated are reconciled in the table below.
For the year ended December 31,
Computed “expected” tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (reduction) in income taxes resulting from:
2022
2021
$ 1,812,828 $ 1,851,433 $ 1,769,525
2020
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax exempt interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,901
(9,111)
22,389
246,080
(119,715)
$ 1,977,372
21,637
7,658
7,477
248,887
(65,589)
19,527
8,083
7,259
238,729
(77,444)
$ 2,071,503 $ 1,965,679
52
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 2022 and 2021 are presented below.
Deferred tax assets:
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loan fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass through income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross deferred tax assets, net of valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2022
2021
$
901,156 $
5,423,444
33,481
188,401
88,229
36,879
11,421
6,683,011
(88,544)
6,594,467
905,365
—
102,581
26,525
97,655
29,246
9,432
1,170,804
(97,655)
1,073,149
Deferred tax liabilities:
Fixed assets, principally due to differences in depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State credit carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(289,935)
—
—
(567)
(59,337)
(349,839)
(338,716)
(1,360,199)
(5,672)
(29,869)
(58,619)
(1,793,075)
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,244,628
$
(719,926)
There was a $88,544 and $97,655 valuation allowance for deferred tax assets at December 31, 2022 and 2021, respectively, associated
with the Company’s state tax credits. 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, 2022 and 2021. 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 measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary
differences are expected to be recovered or paid.
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 2019 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.
53
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $145,392,792 and
$117,450,893 at December 31, 2022 and 2021, 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. Commitments
under standby letters of credit are usually for one year or less. At December 31, 2022 and 2021, 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, 2022 and 2021 was $2,518,771
and $648,717, respectively.
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 past due loans to our Executive Officers and Directors as of
December 31, 2022 and 2021.
The table below summarizes related party loans.
Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New loans or advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2022
$ 5,513,146
806,053
(2,134,441)
$ 4,184,758
December 31,
2021
$ 5,970,014
3,693,836
(4,150,704)
$ 5,513,146
At December 31, 2022 and 2021, total deposits held by related parties were $7,426,656 and $11,405,076, respectively.
13. OTHER EXPENSE
The table below summarizes the components of other operating expense.
Telephone and postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and FDIC insurance and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Courier service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and business development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14. STOCK INCENTIVE PLANS
For the year ended December 31,
$
2022
205,296
258,541
61,551
48,475
55,178
11,480
690,833
$ 1,331,354
$
2021
233,667
212,284
63,850
44,825
56,748
8,114
805,966
$ 1,425,454
$
2020
219,065
95,353
74,472
48,048
53,000
9,045
746,502
$ 1,245,485
We have two employee Stock Incentive Plans: the first plan, which was approved in 2010, has 300,000 (363,000 adjusted for two 10%
stock dividends) shares reserved and the second plan, which was approved in 2020, has 300,000 shares reserved. No new options may
54
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
be granted under the 2010 plan, as it expired on April 14, 2020. Under the 2020 plan, 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 the 2020 plan if the Executive/Long-Range Planning
Committee, in its sole discretion, determines that such person has contributed or can be expected to contribute to our profits or growth.
With respect to Executive Officers, the Executive/ Long-Range Planning Committee will obtain approval from the Compensation
Committee for any options granted to them.
We also have a stock incentive plan to provide equity incentive compensation to the Company’s eligible independent directors.
The plan was approved by the shareholders in 2021 and has 150,000 shares reserved. Under the 2021 plan, options may be granted
to eligible independent directors at a price not less than the fair market value of the shares at the date of grant. Options granted to
independent directors become vested as to 20% of the options per year and will be fully vested after five years. 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. Each independent
director is eligible to participate in the 2021 plan if the Compensation Committee, in its sole discretion, determines that such person
has contributed or can be expected to contribute to our profits or growth.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022
2021
2020
2.75%
5.00
35.30%
4.15%
1.46%
5.99
34.18%
4.00%
0.63%
7.50
32.90%
4.26%
The following table presents a summary of the activity under the 2010, 2020 and 2021 Stock Incentive Plans for the years ended
December 31:
Outstanding, January 1 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . .
Outstanding, December 31 . . . . .
Exercisable at year end . . . . . . . .
2022
2021
2020
Weighted
Average
Exercise Price
17.50
$
17.10
14.58
18.68
17.56
17.76
$
$
Shares
273,747
5,000
(11,085)
(13,250)
254,412
20,626
Weighted
Average
Exercise Price
14.89
$
20.15
10.64
15.07
17.50
12.17
$
$
Shares
202,344
115,750
(22,305)
(22,042)
273,747
7,804
Weighted
Average
Exercise Price
12.92
$
15.31
9.39
15.19
14.89
9.77
$
$
Shares
86,097
145,750
(19,298)
(10,205)
202,344
21,113
55
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information pertaining to options outstanding at December 31, 2022.
Exercise Price
$
$
$
$
$
$
$
$
$
$
12.26
12.40
13.05
15.21
16.73
17.10
18.23
19.82
20.04
21.10
Number
of Options
Outstanding
3,508
969
7,260
106,250
10,000
5,000
28,950
7,225
20,250
65,000
254,412
Weighted
Average
Remaining
Contractual
Life
1.58
1.00
2.33
7.33
7.33
9.42
7.33
7.33
8.59
8.33
7.48
Weighted
Average
Exercise Price
of Options
Outstanding
12.26
12.40
13.05
15.21
16.73
17.10
18.23
19.82
20.04
21.10
17.56
$
$
$
$
$
$
$
$
$
$
$
Intrinsic Value
of Options
Outstanding
43,008
12,016
94,743
1,616,063
167,300
85,500
527,759
143,200
405,810
1,371,500
4,466,899
$
$
$
$
$
$
$
$
$
$
$
Number
of Options
Exercisable
Weighted
Average
Exercise Price
of Options
Exercisable
Intrinsic Value
of Options
Exercisable
2,806
969
4,356
—
—
—
—
495
—
12,000
20,626
$
$
$
$
$
$
$
$
$
$
$
12.26
12.40
13.05
15.21
16.73
16.73
18.23
19.82
20.04
21.10
17.76
$
$
$
$
$
$
$
$
$
$
$
13,038
4,366
16,796
—
—
—
—
—
—
—
34,200
The total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $161,740, $208,259 and
$139,837, respectively. Shares issued upon exercise of stock options are obtained from the authorized and unissued pool of common
stock. Shares surrendered as payment of the stock option exercise price are included in treasury stock.
We recognized compensation cost for the years ended December 31, 2022, 2021 and 2020 in the amount of $121,673, $103,033 and
$92,986, respectively, related to the granted options.
As of December 31, 2022, there was a total of $593,680 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 4.41 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.
The Company recognizes expense when the contribution is approved by the Board of Directors. The total expenses amounted to
$540,000, $540,000 and $540,000, during the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31,
2022, the plan owned 336,088 shares of common stock of the Company.
A participant vests in the ESOP based upon the participant’s credited years of service. The vesting schedule is as follows:
•
•
•
•
•
1 Year of Service
0% Vested
2 Years of Service
25% Vested
3 Years of Service
50% Vested
4 Years of Service
75% Vested
5 Years of Service
100% Vested
56
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 was submitted to the IRS for approval and a determination letter was issued
November 17, 2017, stating that the plan satisfies the requirements of Code Section 4975(e)(7).
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 $3.8 million, $4.3 million
and $3.6 million, to the Company during the years ended December 31, 2022, 2021 and 2020, respectively.
17. INCOME PER COMMON SHARE
The following table is a summary of the reconciliation of weighted average shares outstanding for the years ended December 31:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022
2021
$ 6,655,140 $ 6,744,865 $ 6,460,631
2020
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding - diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,550,078
94,620
5,644,698
5,531,518
148,964
5,680,482
5,526,948
151,595
5,678,543
Earnings per share - basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share - diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.20 $
1.18 $
1.22 $
1.19 $
1.17
1.14
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.
On July 2, 2013, the Federal Reserve Board approved the final rules implementing the Basel Committee on Banking Supervision’s
(“BCBS”) capital guidelines for U.S. 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 and its purpose is to improve the quality and increase the quantity of capital for all
banking organizations. The rule was phased in over a four-year period, with full implementation occurring on January 1, 2019. The
minimum requirements for the quantity and quality of capital were increased. The rule includes a new common equity Tier 1 capital
(as defined in the regulation) to risk-weighted assets ratio of 4.50% and a common equity Tier 1 capital conservation buffer of 2.50%
of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.00% to 6.00% and
requires a minimum leverage ratio of 4.00%. 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.
57
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 4, 2019, the federal banking agencies jointly issued a final rule on an optional, simplified measure of capital adequacy
for qualifying community banking organizations called the community bank leverage ratio (“CBLR”) framework effective on January
1, 2020. A qualifying community banking organization is defined as having less than $10 billion in total consolidated assets, a leverage
ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or
less of total consolidated assets. Additionally, the qualifying community banking institution must be a non-advanced approaches FDIC
supervised institution. The final rule adopts Tier 1 capital and existing leverage ratio into the CBLR framework. The Bank adopted
this rule as of September 30, 2020 and is no longer subject to other capital and leverage requirements. Under the CBLR framework,
a qualifying community banking organization is deemed to have met the “well capitalized” ratio requirements and be in compliance
with the generally applicable capital rule. As noted in the table below, the leverage ratio was below 9.0% at December 31, 2021 and
therefore we did not meet the “well capitalized” ratio requirements and was not in complinance.
The following table presents the actual CBLR for the Bank and Company at:
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.03%
9.30%
8.66%
8.59%
We believe that the Company and the Bank meet all capital adequacy requirements to which they were subject at December 31, 2022
and 2021.
December 31,
2022
December 31,
2021
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. GAAP
establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs. Observable inputs, which are developed based on market data we have obtained from independent sources, are
ones that market participants would use in pricing an asset or liability. Unobservable inputs, which are developed based on the best
information available in the circumstances, reflect our estimate of assumptions that market participants would use in pricing an asset
or liability.
The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down
into three levels based on the reliability of inputs as follows:
• Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.
• Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices
for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by market data.
• Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar
techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates
of assumptions that market participants would use in determining fair value.
Fair value estimates are made at a specific point of time, based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could result from offering for sale our entire holdings of
a particular financial instrument. Because no active market exists for a significant portion of our financial instruments, fair value
estimates are based on judgements regarding future expected loss experience, current economic conditions, current interest rates and
prepayment trends, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in any of
these assumptions used in calculating fair value would also 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.
58
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following paragraphs describe the valuation methodologies used for assets recorded at fair value on a recurring basis:
Investment Securities Available for Sale
Investment securities are recorded at fair value on a recurring basis and are based upon quoted prices if available. If quoted prices
are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the
present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit
loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, or by dealers
or brokers in active over-the counter markets. Level 2 securities include mortgage-backed securities issued by government sponsored
entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed and municipal 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.
We had no embedded derivative instruments requiring separate accounting treatment. We had freestanding derivative instruments
consisting of fixed rate conforming loan commitments with interest rate locks and commitments to sell fixed rate conforming loans
on a best-efforts basis. We do not currently engage in hedging activities. Based on the short-term nature of mortgage loans to be sold
(derivative contract), our derivative instruments were immaterial to our consolidated financial statements as of December 31, 2022
and 2021.
The following table presents information about assets measured at fair value on a recurring basis as of December 31, 2022 and 2021.
U.S. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . .
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . .
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 1
$ 168,187,315
—
—
$ 168,187,315
Balance as of December 31, 2022
Level 2
Level 3
$
—
57,074,724
16,448,375
$ 73,523,099
$
—
—
29,461,812
$ 29,461,812
Total
$ 168,187,315
57,074,724
45,910,187
$ 271,172,226
Level 1
$ 100,062,300
—
—
$ 100,062,300
Balance as of December 31, 2021
Level 2
Level 3
$
—
74,721,009
13,080,133
$ 87,801,142
$
—
—
24,484,047
$ 24,484,047
Total
$ 100,062,300
74,721,009
37,564,180
$ 212,347,489
There were no liabilities recorded at fair value on a recurring basis as of December 31, 2022 or 2021.
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, 2022 and 2021.
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total realized/unrealized gains (losses)
December 31,
2022
$ 24,484,047
December 31,
2021
$ 5,683,930
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(3,714,235)
8,692,000
—
$ 29,461,812
—
(79,883)
18,880,000
—
$ 24,484,047
59
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following paragraphs describe the valuation methodologies used for assets recorded at fair value on a nonrecurring basis:
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 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. These impaired loans are classified as Level 3. Impaired loans measured
using discounted future cash flows are not deemed to be measured at fair value.
Mortgage Loans to be Sold
Mortgage loans to be sold are carried at the lower of cost or market value. The fair values of mortgage loans to be sold are based on
current market rates from investors within the secondary market for loans with similar characteristics. Carrying value approximates
fair value. These loans are classified as Level 2.
Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). The following tables present information about certain assets
measured at fair value on a nonrecurring basis as of December 31, 2022 and 2021.
Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loans to be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loans to be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
Level 1
Level 2
Level 3
December 31, 2022
— $
—
866,594
— $ 866,594
— $ 1,452,170
—
$ 1,452,170
Total
$ 1,452,170
866,594
$ 2,318,764
Level 1
Level 2
Level 3
December 31, 2021
— $
— 2,774,388
— $ 2,774,388
— $ 1,902,879
Total
$ 1,902,879
— 2,774,388
$ 4,677,267
$ 1,902,879
There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2022 or 2021.
The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at
December 31, 2022:
Impaired Loans . . . . . . . . . . . . . . Appraisal Value/Comparison
Sales/Other Estimates
Valuation Technique
Inputs
Unobservable Input
Appraisals and/or Sales of
Comparable Properties
General Range of Inputs
Appraisals Discounted
10% to 20% for Sales
Commissions and Other
Holding Costs
60
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.
Under the accounting standard, fair value estimates are based on existing financial instruments without attempting to estimate the
value of anticipated future business and the value of the assets and liabilities that are not financial instruments. Accordingly, the
aggregate fair value amounts of existing financial instruments do not represent the underlying value of those instruments on our books.
The following paragraphs describe the methods and assumptions we use in estimating the fair values of financial instruments:
a. Cash and due from banks, interest-bearing deposits at the Federal Reserve Bank
The carrying value approximates fair value. All instruments 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 fair value of the Company’s loan portfolio includes a credit risk assumption in the determination of the fair value of its loans.
This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly
transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio
into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for
credit risk as described above. However, under the new guidance, the Company believes a further credit risk discount must be applied
through the use of a discounted cash flow model to compensate for illiquidity risk, based on certain assumptions included within the
discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime of a loan.
Additionally, in accordance with ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities, this consideration
of enhanced credit risk provides an estimated exit price for the Company’s loan portfolio.
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values.
Fair values for impaired loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral.
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 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.
61
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, 2022 and 2021, respectively.
Carrying
Amount
Fair Value Measurements at December 31, 2022
Estimated
Fair Value
Level 1
Level 2
Level 3
Financial Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . .
Interest-bearing deposits at the Federal Reserve . .
Investment securities available for sale . . . . . . .
Mortgage loans to be sold . . . . . . . . . . . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . .
Financial Liabilities:
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . .
$ 14,772,564
12,999,135
271,172,226
866,594
326,690,561
2,145,522
$ 14,772,564
12,999,135
271,172,226
866,594
304,249,626
2,145,522
582,100,650
16,569,608
41,007
582,100,650
16,933,818
41,007
$
$ 14,772,564
12,999,135
168,187,315
— $
—
—
—
29,461,812
—
— 304,249,626
73,523,099
866,594
2,145,522
—
—
—
— 582,100,650
— 16,933,818
41,007
—
—
—
—
Carrying
Amount
Fair Value Measurements at December 31, 2021
Estimated
Fair Value
Level 1
Level 2
Level 3
$
$ 11,140,559
128,971,429
100,062,300
— $
—
—
—
24,484,047
—
— 293,731,997
87,801,142
2,774,388
1,404,227
—
—
—
— 587,903,356
— 21,428,310
14,914
—
—
—
—
Financial Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . .
Interest-bearing deposits at the Federal Reserve . .
Investment securities available for sale . . . . . . .
Mortgage loans to be sold . . . . . . . . . . . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . .
Financial Liabilities:
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . .
$ 11,140,559
128,971,429
212,347,489
2,774,388
302,255,242
1,404,227
$ 11,140,559
128,971,429
212,347,489
2,774,388
293,731,997
1,404,227
587,903,356
21,288,220
14,914
587,903,356
21,248,310
14,914
62
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. 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, 2022 and 2021, and the related condensed statements of
income and cash flows for the years ended December 31, 2022, 2021 and 2020, are as follows:
Condensed Statements of Financial Condition
December 31,
2022
2021
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in wholly-owned bank subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,077,082
38,339,882
338,322
$ 39,755,286
$ 1,233,354
53,327,296
298,998
$ 54,859,648
Liabilities and shareholders’ equity
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
943,899
38,811,387
$ 39,755,286
$
942,015
53,917,633
$ 54,859,648
Condensed Statements of Income
For the year ended December 31,
2021
2022
2020
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received fom bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed earnings of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
287
(267,243)
3,640,000
3,282,096
$ 6,655,140
$
288
(256,471)
3,805,000
3,196,048
$ 6,744,865
$
759
(255,409)
4,700,000
2,015,281
$ 6,460,631
Condensed Statements of Cash Flows
For the year ended December 31,
2021
2022
2020
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed earnings of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,655,140
121,673
(3,282,096)
(39,324)
—
3,455,393
$ 6,744,865
103,033
(3,196,048)
(37,802)
(1)
3,614,047
$ 6,460,631
92,986
(2,015,280)
(36,590)
—
4,501,747
Cash flows from financing activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,773,396)
—
161,731
(3,611,665)
(4,312,138)
—
207,889
(4,104,249)
(3,592,841)
(398,868)
117,044
(3,874,665)
Net (decrease) increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(156,272)
1,233,354
$ 1,077,082
(490,202)
1,723,556
$ 1,233,354
627,082
1,096,474
$ 1,723,556
Supplemental disclosure for non-cash investing and financing activity
Change in dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,883
$
3,536
$
53,680
63
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below represent the quarterly results of operations for the years ended December 31, 2022 and 2021, respectively:
Total interest and fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for loan losses . . . . . . . . . . . . . . . . . .
Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022
Fourth
$ 5,312,520
189,653
5,122,867
Third
$ 5,047,752
37,519
5,010,233
Second
$ 4,583,251
37,824
4,545,427
—
—
—
5,122,867
393,270
3,181,330
2,334,807
527,022
$ 1,807,785
5,010,233
443,340
3,067,733
2,385,840
545,573
$ 1,840,267
4,545,427
593,698
3,138,415
2,000,710
457,728
$ 1,542,982
First
$ 4,254,960
36,797
4,218,163
(75,000)
4,293,163
634,554
3,016,562
1,911,155
447,049
$ 1,464,106
Basic income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.33
0.32
$
$
0.33
0.33
$
$
0.28
0.27
$
$
0.26
0.26
Total interest and fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for loan losses . . . . . . . . . . . . . . . . . .
Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021
Fourth
$ 4,345,017
37,840
4,307,177
Third
$ 4,201,069
39,319
4,161,750
Second
$ 4,363,910
42,317
4,321,593
—
—
—
4,307,177
842,935
3,146,129
2,003,983
464,814
$ 1,539,169
4,161,750
1,138,431
3,047,534
2,252,647
525,710
$ 1,726,937
4,321,593
946,951
3,084,596
2,183,948
515,264
$ 1,668,684
First
$ 4,641,115
54,524
4,586,591
120,000
4,466,591
939,914
3,030,715
2,375,790
565,715
$ 1,810,075
Basic income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.28
0.27
$
$
0.31
0.30
$
$
0.30
0.29
$
$
0.33
0.32
64
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 Exchange Act of 1934, as amended (the “Exchange Act”)) was carried out as of December 31, 2022 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/Executive 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/Executive Vice President concluded that, as of December 31, 2022, 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 Exchange Act has been (i) accumulated and communicated to management (including the President/Chief
Executive Officer and Chief Financial Officer/Executive 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/Executive Vice President, the Company’s management has evaluated the effectiveness of its internal control over
financial reporting as of December 31, 2022, 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,
2022. Based on this assessment, management believes that as of December 31, 2022, 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, 2022, 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 permits 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 Audit & Compliance Officer, and Elliott Davis, LLC (separately and jointly) to discuss audit, financial and related matters.
Elliott Davis, LLC and the Audit & Compliance Officer have direct access to the Audit and Compliance Committee.
Item 9B.
Other Information
There was no information required to be disclosed in a report on Form 8-K during the fourth quarter of 2022 that was not reported.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
65
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required by this item contained under the sections captioned “Proposal 1: Election of Directors” and “Meetings and
Committees of the Board of Directors and Corporate Governance Matters” included in the Company’s definitive Proxy Statement for
its Annual Meeting of Shareholders to be held on April 11, 2023, 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: Election of Directors” included in 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 Dr. Josette R. E. Pelzer, PhD, CPA; William L. Hiott, Jr.; Richard W. Hutson, Jr.; Karen J. Phillips, and Sheryl G. Sharry
(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 Dr. Josette R. E. Pelzer, CPA, qualifies as a financial expert within the meaning of SEC
rules and regulations and has designated Director Pelzer as the Audit and Compliance Committee financial expert. As noted above,
Director Pelzer is independent and satisfies the heightened independence standards required by NASDAQ for members of the audit
committee.
Code of Ethics. The Company has adopted a “Code of Ethics”, applicable to the Chairman of the Board of Directors, the President/
Chief Executive Officer, the Chief Financial Officer/Executive Vice President, the Chief Operating Officer/Executive Vice President
and the Senior Lender/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 website: http://www.banksc.com.
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 in the Proxy Statement.
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 in 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 in the Proxy Statement.
Securities Authorized for Issuance under Equity Compensation Plan
Information required by this Item is incorporated in this document by reference to the section captioned “Equity Compensation Plan
Information” included in 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.
66
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 Section captioned “Meetings and Committees
of the Board of Directors and Corporate Governance Matters”, included in the Proxy Statement.
Item 14.
Principal Accountant Fees and Services
The information required by this item is incorporated in this document by reference to “Proposal 2: To ratify the appointment of Elliott
Davis, LLC as the Company’s independent registered public accounting firm for the year ended December 31, 2023” and “Auditing
and Related Fees”, included in the Proxy Statement.
67
Item 15.
Exhibits and Financial Statement Schedules
PART IV
1.
The Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm are included in this
Form 10-K and listed on pages as indicated.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
30
32
33
34
35
36
37 - 64
2.
Exhibits
Exhibit No.
3.0
3.1
3.2
4.0
4.1
10.0
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Description of Exhibit
Articles of Incorporation of Registrant (filed herewith)
Articles of Amendment of Registrant filed April 17, 1998, and February 20, 2009, respectively (incorporated
by reference to Exhibit 4.1 to Registrant’s Form S-3 filed on June 23, 2011)
Amended and Restated By-laws of Registrant (filed herewith)
Form of Common Stock Certificate (incorporated by reference to Exhibit 4 to Registrant’s Form S-8 filed on
April 21, 2021)
Description of Securities registered under Section 12 of the Exchange Act (filed herewith)
2010 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit A to the Registrants definitive proxy
statement filed on March 8, 2010)
2020 Stock Incentive Plan (incorporated by reference to Exhibit A to the Registrant’s definitive proxy
statement filed on March 6, 2020)
2021 Stock Incentive Plan for Independent Directors (incorporated by reference to Exhibit A to the
Registrant’s definitive proxy statement filed on March 5, 2021)
Employee Stock Ownership Plan, as restated (incorporated by reference to Exhibit 10.6 to the Registrant’s
Form 10-K filed on March 3, 2017)
Amendment to Lease dated January 31, 2022, for 256 Meeting Street (incorporated by reference to Exhibit
10.17 to the Registrant’s Form 10-K filed on March 4, 2022)
Amendment to Sublease Agreement dated September 7, 2017, for Parking Facilities at 256 Meeting Street
(incorporated by reference to Exhibit 10.14 to the Registrant’s Form 10-Q filed on November 9, 2017)
Lease Extension Agreement dated March 6, 2017, for 256 Meeting Street (incorporated by reference to
Exhibit 10.12 to the Registrant’s Form 10-Q filed on November 8, 2017)
Lease Agreement dated July 31, 2017, pertaining to the Bank’s North Charleston location (incorporated by
reference to Exhibit 10.13 to the Registrant’s Form 10-Q filed August 10, 2017)
Commercial Lease dated September 16, 2021, for 1730 Maybank Highway, Charleston, SC (incorporated by
reference to Exhibit 10.17 to the Registrant’s Form 10-Q filed on November 5, 2021)
List of subsidiaries of the Registrant (filed herewith)
Consent of the Independent Registered Public Accounting Firm (filed herewith)
Certification pursuant to Rule 13a-14(a)/15d-14(a) by the Principal Executive Officer (filed herewith)
Certification pursuant to Rule 13a-14(a)/15d-14(a) by the Principal Financial Officer (filed herewith)
Certification pursuant to Section 1350 – Principal Executive Officer (furnished herewith)
Certification pursuant to Section 1350 – Principal Financial Officer (furnished herewith)
21.1
23.1
31.1
31.2
32.1
32.2
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE
104
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Item 16.
Form 10-K Summary
Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to
include such summary information.
68
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 2, 2023
BANK OF SOUTH CAROLINA CORPORATION
SIGNATURES
By:
By:
/s/ Fleetwood S. Hassell
Fleetwood S. Hassell
President/Chief Executive Officer
/s/ Eugene H. Walpole, IV
Eugene H. Walpole, IV
Chief Financial Officer/Executive Vice President
69
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
March 2, 2023
/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 Officer, Director
/s/ Glen B. Haynes, DVM
Glen B. Haynes, DVM, Director
/s/ William L. Hiott, Jr.
William L. Hiott, Jr., 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/ Alan I. Nussbaum
Alan I. Nussbaum, MD, Director
/s/ Josette R. E. Pelzer, PhD, CPA
Josette R. E. Pelzer, PhD, CPA, Director
/s/ Karen J. Phillips
Karen J. Phillips, Director
/s/ Edmund Rhett, Jr. MD
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
/s/ Sheryl G. Sharry
Sheryl G. Sharry, Director
/s/ Steve D. Swanson
Steve D. Swanson, Director
/s/ Susanne K. Boyd
Chief Operating Officer/Executive Vice President, Director
/s/ Eugene H. Walpole, IV
Chief Financial Officer/Executive Vice President, Director
70
EXHIBIT 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13A-14(A)/15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
CERTIFICATION
I, Fleetwood S. Hassell, 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 officer 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.
5. The registrant’s other certifying officer 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.
Date: March 2, 2023
/s/ Fleetwood S. Hassell
Fleetwood S. Hassell
President/Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13A-14(A)/15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
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 officer 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.
5. The registrant’s other certifying officer 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.
Date: March 2, 2023
/s/ Eugene H. Walpole, IV
Eugene H. Walpole, IV
Chief Financial Officer/Executive Vice President
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, 2022 of the
Company (the “Report”):
1.
2.
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
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: March 2, 2023
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/Executive 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,
2022 of the Company (the “Report”):
1.
2.
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
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: March 2, 2023
By: /s/ Eugene H. Walpole, IV
Eugene H. Walpole, IV
Chief Financial Officer/Executive Vice President
C O R P O R A T E I N F O R M A T I O N
B O A R D O F
D I R E C T O R S
* Chairman
** Lead Director
Hugh C. Lane, Jr.*
Chairman of the Board
Bank of South Carolina Corporation
Susanne K. Boyd
Executive Vice President & COO
Bank of South Carolina Corporation
David W. Bunch
Chairman & CEO
Hughes Motors
Graham M. Eubank, Jr.
President & CEO
Palmetto Ford
Elizabeth M. Hagood
Former Executive Director
Lowcountry Land Trust
Fleetwood S. Hassell
President & CEO
Bank of South Carolina Corporation
Glen B. Haynes, DVM
Retired
Westbury Veterinary Clinic
William L. Hiott, Jr.
Retired CFO
Bank of South Carolina Corporation
Richard W. Hutson, Jr.
Manager
William M. Means Co. Insurance
Charles G. Lane
Managing Member
Holcombe, Fair & Lane
Alan I. Nussbaum, MD**
Partner
Rheumatology Associates, P.A.
Josette R. E. Pelzer, Ph.D., CPA
Assistant Professor of Accounting
College of Charleston
Karen J. Phillips
President
Atlantic Coast Asset
Management
Edmund Rhett, Jr., MD
Founder and Partner
Rhett Women’s Center
Malcolm M. Rhodes, MD
Retired
Parkwood Pediatric Group
Douglas H. Sass
Executive Vice President
& Senior Lender
Bank of South Carolina
Corporation
Sheryl G. Sharry
Retired CFO
Bank of South Carolina Corporation
Steve D. Swanson
Philanthropist and Founder
Automated Trading Desk
Eugene H. Walpole, IV
Executive Vice President & CFO
Bank of South Carolina
Corporation
OFFICERS
Hugh C. Lane, Jr.
Chairman
Fleetwood S. Hassell
President & CEO
Eugene H. Walpole, IV
Executive Vice President & CFO
Douglas H. Sass
Executive Vice President & Senior Lender
Susanne K. Boyd
Executive Vice President & COO
Richard W. Hutson, Jr.
Secretary
Costa V. Thomas
Assistant Secretary
CORPORATE HEADQUARTERS
256 Meeting Street
P.O. Box 538
Charleston, SC 29401
(843) 724-1500
TRANSFER AGENT
Computershare Investor Services
150 Royall Street
Canton, MA 02021
(877) 373-6374
STOCK INFORMATION
The common stock of Bank of South Carolina
Corporation is traded on the NASDAQ
Capital Market under the symbol “BKSC.”
INDEPENDENT AUDITORS
Elliott Davis, LLC
355 South Main Street
Greenville, SC 29606-6286
ANNUAL MEETING
April 11, 2023
2:00 PM EST
256 Meeting Street
Charleston, SC 29401
FORWARD-LOOKING STATEMENTS
Certain statements herein may constitute forward-looking
statements, which involve a number of risks and uncertainties.
We caution readers that any forward-looking statements
are based largely on our expectations and are subject to
a number of known and unknown risks and uncertainties
that are subject to change based on factors which are, in
many instances, beyond our control. Additional information
regarding these risks and uncertainties to which our business
and future financial performance are subject is contained
in our most recent Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q on file with the Securities
and Exchange Commission (SEC), and other documents we
file with the SEC from time to time. Any forward-looking
statements presented herein are made only as of the date of
this annual report, and we do not undertake any obligation to
update or revise any forward-looking statements to reflect
changes in assumptions, new information, the occurrence
of unanticipated events, or otherwise, except as required
by law. All forward-looking statements, express or implied,
included in this annual report are qualified in their entirety by
this cautionary statement.
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256 Meeting Street
Charleston, SC 29401
P: 843-724-1500
F: 843-724-1513
100 North Main Street
Summerville, SC 29483
P: 843-832-7100
F: 843-832-7115
1337 Chuck Dawley Blvd.
2027 Sam Rittenberg Blvd.
9403 Highway 78
Mt. Pleasant, SC 29464
Charleston, SC 29407
North Charleston, SC 29456
P: 843-971-3300
F: 843-971-3315
P: 843-958-1041
F: 843-958-1050
P: 843-974-8701
F: 843-724-1530
Opening Soon:
1730 Maybank Hwy.
Charleston, SC 29412
Bank of South Carolina Corporation’s common stock trades on the NASDAQ Capital Market under the symbol “BKSC.”
www.banksc.com