2023
A N N U A L R E P O R T
FIVE-YEAR FINANCIAL PERFORMANCE
Year Ended December 31
2023
2022
2021
2020
2019
Net Income
$ 5,493,616
$ 6,655,140
$ 6,744,865
$ 6,460,631
$ 7,318,433
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
Diluted Income
Year-End Book Value
Cash Dividends Declared
Dividend Payout Ratio
Selected Average Balances:
Total Assets
Total Loans (2)
Total Deposits
12.90%
0.86%
6.66%
3.04%
15.26%
1.01%
6.64%
3.01%
12.30%
1.14%
9.30%
3.06%
11.96%
1.29%
10.75%
3.52%
14.86%
1.66%
11.18%
4.28%
0.00%
0.00%
-0.02%
0.02%
0.14%
1.07%
1.30%
1.43%
1.30%
1.46%
$ 0.99
$ 0.98
$ 8.61
$ 0.68
68.25%
$ 1.20
$ 1.18
$ 6.99
$ 0.68
56.73%
$ 1.22
$ 1.19
$ 9.73
$ 0.78
$ 1.17
$ 1.14
$ 9.96
$ 0.66
63.98%
56.44%
$ 1.33
$ 1.31
$ 9.25
$ 0.74
55.58%
$ 639,728,141 $ 656,833,125 $ 589,379,985 $ 502,628,318 $ 440,615,140
$ 339,912,450 $ 320,826,946 $ 324,078,445 $ 313,303,363 $ 281,508,711
$ 552,955,814 $ 596,881,098 $ 519,900,412 $ 434,071,108 $ 381,687,960
Total Shareholders’ Equity
$ 42,597,908 $ 43,602,112 $ 54,838,166 $ 54,021,647 $ 49,242,545
(1) Excluding mortgage loans to be sold
(2) Including mortgage loans to be sold
EARNINGS & CASH DIVIDENDS PAID SINCE 1987
CUMULATIVE EARNINGS
CUMULATIVE CASH DIVIDENDS
$110.5M $63.5M
ANNUAL CASH DIVIDEND HISTORY
The Bank of South Carolina is a state-
chartered financial
institution with
depository accounts
insured by the
FDIC. The Bank was organized on
October 23, 1986, and our first office
opened for business on February 26,
1987. It is a wholly owned subsidiary
of Bank of South Carolina Corporation
which became effective on April 17, 1995.
These statements have not been reviewed, or confirmed for accuracy or relevance, by the Federal Deposit Insurance Corporation.
DE AR SHAREHOLDERS , CUSTOMERS ,
EMPLOYEES , AND FRIENDS:
On behalf of the Directors and Employees of Bank of South
Carolina Corporation and its subsidiary, The Bank of South
Carolina, it is our privilege to invite you to attend the annual
meeting of shareholders on April 9, 2024 at 2:00 p.m. at our
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an election of Directors, vote on other matters described in the
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no exception. The Federal Reserve continued its steady march
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these rate increases has been felt on our balance sheet; namely,
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Company. In addition, intense competition from other sectors of
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• Community Bank Leverage Ratio for the Bank and Company
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James Island. This location is the second one to open in the
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our brand of banking to James Island and the surrounding sea
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make it happen.
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market yields and our capital levels support. It is our fervent
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providing and increasing shareholder value.
Other notable activity this past year included the relocation
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of a fraud prevention product for our commercial banking
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as a Director.
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devotion and dedication to the Bank, our customers, and
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The Federal Reserve appears poised to make a shift in monetary
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to the next interest rate cycle. The Bank of South Carolina
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the marketplace through our commitment to responsiveness,
attention to detail, customer service, and relationship banking.
Thank you for trusting us to do so.
Eugene H. Walpole, IV
President & CEO
Hugh C. Lane, Jr.
Chairman
Susanne K. Boyd
Executive Vice President
& COO
Douglas H. Sass
Executive Vice President
& Senior Lender
BSC 2023_AR_10-K letter.indd 1
BSC 2023_AR_10-K letter.indd 1
(cid:21)(cid:18)(cid:21)(cid:22)(cid:18)(cid:21)(cid:23)(cid:3)(cid:3)(cid:3)(cid:21)(cid:29)(cid:24)(cid:25)(cid:592)(cid:51)(cid:48)
(cid:21)(cid:18)(cid:21)(cid:22)(cid:18)(cid:21)(cid:23)(cid:3)(cid:3)(cid:3)(cid:21)(cid:29)(cid:24)(cid:25)(cid:592)(cid:51)(cid:48)
BANK OF SOUTH CAROLINA CORPORATION
AND SUBSIDIARY
Table of Contents
Notice of Annual Meeting of Shareholders……………………………………………………….…………..1
Proxy Statement……………………………………………………………………………....………………3
Management’s Discussion and Analysis of Financial Condition
and Results of Operations…………………………………………………………..………………….…….19
Selected Financial Data…………………………………………………………………………………..….22
Independent Auditor’s Report……………………………………………….…………..………..…….…...23
Consolidated Balance Sheets…………………………………………….……………….…….……….…..25
Consolidated Statements of Income ………………………….…………..……………..…....….………… 26
Consolidated Statements of Comprehensive Income (Loss)….…………………………..……..……..……27
Consolidated Statements of Shareholders’ Equity……...……………………………………………………28
Consolidated Statements of Cash Flows………………….…………….……………………………………29
Notes to Consolidated Financial Statements…………………………...……………………………………30
(cid:3)
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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 9, 2024
Dear Shareholder:
I cordially invite you to attend the Annual Meeting of Shareholders of Bank of South Carolina Corporation, to be held on April 9,
2024 at 2:00 p.m. EDT at 9403 Highway 78, North Charleston, South Carolina 29456, for the following purposes:
1.
to elect eighteen Directors to our Board of Directors to serve a one-year term;
2.
to ratify the appointment of Elliott Davis, LLC as the Company’s independent auditors for the year ending December 31,
2024;
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 22, 2024 as the record date to determine the Shareholders who are
entitled to vote at the Annual Meeting. 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 2024 Proxy Statement and Annual Report for the year ended December 31, 2023 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 8, 2024
1
PROXY STATEMENT
FOR
THE ANNUAL MEETING OF SHAREHOLDERS
OF BANK OF SOUTH CAROLINA CORPORATION
TO BE HELD ON APRIL 9, 2024
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 2024 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 8, 2024. 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 9, 2024
Time: 2:00 p.m. Eastern Daylight Time
Place: The Bank of South Carolina, 9403 Highway 78, North 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 2025 Annual
Meeting of Shareholders;
Proposal 2: To ratify the appointment of Elliott Davis, LLC as the Company’s independent auditors for the year ended
December 31, 2024;
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 9, 2024
This Proxy Statement (providing important information for the Annual Meeting) and the Company’s Annual Report accompany this
Notice. The Proxy Statement and 2023 Annual Report to Shareholders are available at http://www.banksc.com and at
http://www.proxyvote.com.
3
Who is Entitled to Vote?
The Board of Directors of the Company has fixed the close of business on February 22, 2024, 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 22, 2024, there were 5,462,794 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 to 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.
4
Who Will Pay the Expenses of the Proxy Solicitation?
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.
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 (as defined below) 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 auditors for 2024, 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 on Proposal 1 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.
5
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 Auditors. Ratification of the appointment of Elliott Davis, LLC, to serve as
the Company’s independent auditors for 2024 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).
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) delivering 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.
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 2025 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. 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.
6
Executive Officer Directors
Susanne K. Boyd
Age 47
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 Company since November 2015 and was named Executive Vice President for
the Bank and Company 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.
Hugh C. Lane, Jr.
Age 75
First elected to the Board 1995
Mr. Lane, brother of Charles G. Lane, organized the Bank in 1986 and he served as President/Chief Executive Officer of the Bank from
1986 until 2012. He has 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 Chairman of the Baruch Foundation, and is the former Treasurer of the 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.
Douglas H. Sass
Age 66
First Elected to the Board 2013
Mr. Sass joined the Bank in January 1994. He has over forty 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 Community Reinvestment Act 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 previously served as President of The Charleston Museum Board of Trustees, was previously on
the Board of the Regents Tri-County Family Ministries, 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.
The Nominating Committee recommends the re-election of Mr. Sass to the Board of Directors based on his experience in banking,
appraising, his robust background in commercial lending and business development, and his continued devotion to the success of the
Company.
7
Eugene H. Walpole, IV
Age 38
First elected to the Board 2018
Mr. Walpole joined the Bank in September 2012. Since that time, he has served as 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 Company and, in December 2017, was named Executive Vice President of the Bank and Company. On October 1, 2023, Mr.
Walpole assumed the role of President & Chief Executive Officer of the Bank and Company. 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.
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
David W. Bunch
Age 73
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 both the Loan
Committee and Community Reinvestment Act Committee.
The Nominating Committee recommends the re-election of Mr. Bunch to the Board of Directors based on his valuable knowledge of
business and local industry, as well as this strong ties to the community and continued devotion to the success of the Company.
Graham M. Eubank, Jr.
Age 56
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 Executive/Long-Range Planning Committee and Nominating Committee, and he is
Chairman of the Compensation Committee.
The Nominating Committee recommends the re-election of Mr. Eubank to the Board of Directors based on his ability to provide an
important perspective on economic issues relevant to our community and company as a local business owner.
Elizabeth M. Hagood
Age 62
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, the Darden School Foundation, the LAMB Institute, and the Charleston County Greenbelt
Advisory Board. In addition to serving on the Board of Directors of the Bank and Company, Mrs. Hagood serves on the Loan Committee,
Community Reinvestment Act Committee, and the Nominating Committee.
The Nominating Committee recommends the re-election of Mrs. Hagood to the Board of Directors based on 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.
8
Fleetwood S. Hassell
Age 64
First elected to the Board 2006
Mr. Hassell had been with Bank since its organization in 1986, and retired in 2023. During his career of over thirty-five years in
banking, Mr. Hassell has held the position of Assistant Vice President, Vice President, Senior Vice President, Executive Vice President,
Senior Lender, and 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 a 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. Mr. Hassell 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. Hassell to the Board of Directors based on his 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.
Glen B. Haynes, DVM
Age 69
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 40 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 President of the Summerville Rotary Club, President of Frances Willis SPCA, Chairman of the South Carolina Board of
Veterinary Medical Examiners, and President of Trident Veterinary Medical Association. Dr. Haynes is a member of the American
Veterinary Medical Association and a member of St. Paul’s Anglican Church where he has served on the vestry. Currently, Dr. Haynes
is Chairman of the Frances Willis SPCA Endowment Board and is a construction volunteer for Habitat for Humanity. He and his
therapy dog, Gracie, also visit rehab and nursing homes. 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 Chairman of the Nominating Committee.
The Nominating Committee recommends the re-election of Dr. Haynes to the Board of Directors based on his experience as well as his
strong ties to the Summerville community and his work ethic demonstrated by having run his own practice.
William L. Hiott, Jr.
Age 79
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 66
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.
9
Charles G. Lane
Age 69
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.
The Nominating Committee recommends the re-election of Mr. Lane to the Board of Directors based on his expertise in the real estate
market and the local community has been valuable to the Board in its decision-making.
Alan I. Nussbaum, MD
Age 72
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 practiced rheumatology in Charleston from 1982 to 2023. Dr. Nussbaum serves as the Lead Director of the Bank and
Company and has held this position since 2011. He is 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. 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 40
First elected to the Board 2022
Dr. Pelzer is an associate professor in the department of Accounting and Business Law at the College of Charleston (SC). She currently
teaches introductory accounting, intermediate accounting, and an audit course in the graduate 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 Columbia, as well as a PhD in Accounting from Florida State University. In addition to serving on the
Board of Directors of the Bank and the Company, Dr. Pelzer is Chairman of the Audit & Compliance Committee.
The Nominating Committee recommends Dr. Pelzer for re-election due to 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 past member of the Board of Directors of Kanuga Conferences, Inc. and the past Chairman of the Board of Trustees of
Ashley Hall School, where she previously served as a Trustee. In addition to serving on the Board of Directors of the Bank and
Company, Mrs. Phillips serves on the Executive/Long-Range Planning Committee, 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.
10
Malcolm M. Rhodes, MD
Age 64
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 is a Fellow of the American Board of Pediatrics and former partner at
Parkwood Pediatric Group. Dr. Rhodes served 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 serves on the Audit & Compliance Committee. He also
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 69
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 but not limited to Assistant Vice President – Operations Department, Vice President – Operations & Technology, Senior Vice
President – Operations & Technology, and Executive Vice President – Chief Financial Officer. 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 and is Chairman of the Asset Liability/Investment
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.
Thaddeus T. Shuler
Age 44
First elected to the Board 2023
Mr. Shuler is a Charleston native. After receiving a BS in Industrial Management and a 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 & CEO in 2016. Mr. Shuler previously served on the Clemson
University Wood Utilization Department Board, and he currently serves on the Board of the Building Materials Supplier Association (past
Chairman) as well as the Education Committee of the Lumbermens Merchandising Corporation.
The Nominating Committee recommends the re-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.
11
The following tables set forth, as of February 22, 2024, 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 employee Director; and
each non-employee Director
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 February 22, 2024.
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, each employee Director and each non-employee Director.
Title of class
Common Stock…………………
Common Stock…………………
Common Stock…………………
Name and Address of Beneficial Owner
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
Charles G. Lane(1)
256 Meeting Street
Charleston, South Carolina 29401
The table below shows the security ownership of management and directors.
Title of class
Executive Officers/Directors
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Current Directors
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Common Stock …………………
Total …………………
* Represents less than 1%
Name of Beneficial Owner
Susanne K. Boyd(3)
Hugh C. Lane, Jr.(1)
Douglas H. Sass(3)
Eugene H. Walpole, IV(3)
David W. Bunch
Graham M. Eubank, Jr.
Elizabeth M. Hagood
Fleetwood S. Hassell(3)
Glen B. Haynes, DVM
William L. Hiott, Jr.
Richard W. Hutson, Jr.
Charles G. Lane(1)
Alan I. Nussbaum, MD
Josette R. E. Pelzer, PhD, CPA
Karen J. Phillips
Malcolm M. Rhodes, MD
Sheryl G. Sharry
Thaddeus T. Shuler
12
Amount and Nature of
Beneficial Ownership
814,519(2)
Percent of Class
14.91%
360,597(3)
6.60%
298,624(4)
5.47%
Amount and Nature of
Beneficial Ownership
14,547 (4)
814,519 (2)
46,110 (4)
18,792 (4)
3,858
1,041
421
116,008 (4)
9,583
211,773 (4)
10,231
298,624 (4)
3,168
114
8,743 (4)
4,918
99,918
100
1,662,468
Percent of Class
*
14.91 %
*
*
*
*
*
2.12 %
*
3.88 %
*
5.47 %
*
*
*
*
1.83 %
*
30.43%
(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 461,360 shares or 8.45% 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 271,410 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 51,679 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, Director of the Bank and Company; Eugene H. Walpole, IV,
President/Chief Executive Officer and Director of the Bank and Company; Douglas H. Sass, Senior Lender/Executive Vice President and Director of the Bank
and Company; and Susanne K. Boyd, Chief Operating Officer/Executive Vice President and Director of the Bank and Company disclaim beneficial ownership
of the 360,597 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 (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 62,994 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 26,480 shares owned by the ESOP in which he has a vested interest and held
by his wife; William L. Hiott, Jr. – an aggregate of 12,315 shares directly owned by his wife; Charles G. Lane – an aggregate of 65,729 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 – 4,649 shares owned by her husband; Susanne K. Boyd – an aggregate of
10,521 shares owned by children and shares owned by the ESOP in which she has a vested interest; Eugene H. Walpole, IV – 7,501 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.
13
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, 2023. 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 Directors’ attendance at annual
meetings of shareholders. However, Directors are expected to attend the annual meeting of shareholders absent a valid reason for not
doing so.
Director Independence
The Board of Directors is comprised of a majority of non-employee Directors. All members of the Audit & Compliance Committee, the
Compensation Committee, and the Nominating Committee are non-employee. 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. Three
members of the Executive/Long-Range Planning Committee, William L. Hiott, Jr., Sheryl G. Sharry, and Fleetwood S. Hassell retired
from the Bank in April 2010, April 2016, and September 2023, respectively. All members of the Board of Directors are non-employee
except Hugh C. Lane, Jr., Chairman of the Board, Fleetwood S. Hassell, former President/Chief Executive Officer, Douglas H. Sass,
Senior Lender/Executive Vice President, Susanne K. Boyd, Chief Operating Officer/Executive Vice President, Eugene H. Walpole,
IV, President/Chief Executive Officer 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.
Non-employee Directors and management have different perspectives and roles in strategy development. Our non-employee 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 a non-employee 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, a non-employee 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.
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.
14
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Malcolm M. Rhodes, MD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Douglas H. Sass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sheryl G. Sharry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thaddeus T. Shuler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 2023, 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.
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, and seven designated Directors. Alan I.
Nussbaum, MD, a non-employee Director, serves as Chairman of the Committee. During 2023, 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.
15
Compensation Committee
The Compensation Committee consists of three non-employee 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 non-employee Directors;
to oversee regulatory compliance and risk management with respect to compensation matters;
to make regular reports to the Board of Directors; 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 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. The Committee met two times during 2023 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 non-employee 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 2023.
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 to consider any and all Director candidates recommended by Shareholders. 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.
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 Eugene H. Walpole, IV, President/Chief Executive Officer, Bank of South Carolina Corporation, 256
Meeting Street, Charleston, South Carolina 29401, or email such communication to Eugene H. Walpole, IV, President/Chief
Executive Officer, at gwalpole@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/Long-Range Planning Committee and, if any member of the Executive/Long-
Range Planning Committee so directs, will be sent to all members of the Board of Directors.
PROPOSAL 2: TO RATIFY THE APPOINTMENT OF ELLIOTT DAVIS, LLC AS THE COMPANY’S INDEPENDENT
AUDITORS FOR THE YEAR ENDED DECEMBER 31, 2024.
The Audit & Compliance Committee of the Board of Directors has appointed Elliott Davis, LLC as our independent auditors for
the year ended December 31, 2024, and that appointment is being submitted to Shareholders for ratification. The appointment
of Elliott Davis, LLC as our independent auditors was approved by the Audit & Compliance Committee of the Board of
Directors and ratified by the Shareholders at the 2023 Annual Shareholders’ Meeting. At the 2024 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 auditors 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, 2024, is hereby ratified.
If ratification is not achieved, the selection of an independent auditors 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 auditors 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
RATIFICATION OF THE APPOINTMENT OF ELLIOTT DAVIS, LLC AS THE COMPANY’S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2024.
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 Annual 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, 2023 is mailed herewith to all Shareholders. Additional copies may
be obtained without charge by written request or by visiting https://www.otcmarkets.com.
If you and others who share your address own your shares in street name, your broker or other holder of record may be sending
one copy only of the annual report and proxy statement to your address. Known as “householding,” this practice reduces the
Company’s printing and postage costs. However, if you wish to receive a separate annual report or proxy statement in the future,
you should contact your broker or other holder of record. If you own your shares in street name and are receiving multiple
copies of our annual report and proxy statement, you can request householding by contacting your broker or other holder of
record.
17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Bank of South Carolina Corporation (the “Company”) is a bank holding company headquartered in Charleston, South Carolina, with $633.8 million
in assets as of December 31, 2023 and net income of $5.5 million for the year ended December 31, 2023. The Company offers a broad range of
financial services through its wholly owned subsidiary, The Bank of South Carolina (the “Bank”). The Bank is a state-chartered commercial bank,
which operates principally in the Charleston, Dorchester, and Berkeley counties of South Carolina. The Bank’s original and current concept is to
be a full-service financial institution specializing in personal service, responsiveness, and attention to detail to foster long-standing relationships.
We derive most of our income from interest on loans and 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.
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 identify
significant factors that have affected our financial position and operating results as of and for the year ended December 31, 2023 as compared to
December 31, 2022, and should be read in conjunction with the consolidated financial statements and the related notes included in this report.
LOANS
We focus our lending activities on small and middle market businesses, professionals and individuals in our geographic market. At December 31,
2023, outstanding loans (including deferred loan fees of $212,006) totaled $347.0 million, which equaled 65.26% of total deposits and 54.75%
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, 2023,
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
2023
2022
2021
2020
2019
$
$
54,954 $
25,884
170,774
91,592
3,787
—
346,991 $
45,072 $
17,524
172,897
91,637
3,852
—
330,982 $
45,804 $
12,054
165,719
71,307
3,769
7,979
306,632 $
51,041 $
14,814
146,188
71,836
4,481
32,443
320,803 $
52,848
12,491
143,824
59,532
5,378
—
274,073
During the year ended December 31, 2023, total loans increased $16.0 million or 4.84%. This increase is primarily due to growth in our
commercial and commercial real estate portfolios.
ALLOWANCE FOR CREDIT LOSSES
At December 31, 2023, the allowance for credit losses totaled $3.7 million or 1.07% of loans, a decrease of $0.6 million from $4.3 million as of
December 31, 2022. The adoption of ASU 2016-16 resulted in a decrease the allowance for credit losses of $0.6 million and an increase in the
allowance for unfunded commitments of $0.6 million. The adequacy of the allowance for credit 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 also
reviews this calculation on a quarterly basis. In addition, an independent third party validates the allowance calculation on a periodic basis.
DEPOSITS
During the year ended December 31, 2023, deposits decreased $67.0 million or 11.19% to $531.7 million from $598.7 million as of December 31,
2022. Non-interest bearing deposits decreased $41.1 million to $182.1 million as of December 31, 2023. The decline in deposits stems principally
from increased deposit rates paid from other sectors of the financial industry that continue to create intense competition.
19
The following table presents average deposits by category.
(in thousands)
Non-interest-bearing demand
Interest-bearing transaction
accounts
Savings
Time deposits
2023
2022
2021
Average
Balance
Average Rate
Paid
Average
Balance
Average Rate
Paid
Average
Balance
Average Rate
Paid
$
202,745
N/A
$
243,110
N/A
$
205,238
N/A
257,104
56,259
36,848
552,956
$
1.65%
0.67%
0.71%
$
269,510
65,817
18,444
596,881
0.08%
0.06%
0.21%
$
242,618
51,609
20,435
519,900
0.04%
0.06%
0.28%
The following table shows the contractual maturities of time deposits in denominations of $100,000 or more at December 31, 2023 and the amount of
time deposits in excess of FDIC insurance limits.
Less than
three
months
Three
months to
less than six
months
One Day
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
$
— $
1,213 $
1,195 $
1,491 $
1,131 $
— $
5,030
CD’s and other time deposits
$100,000 and over
Total
CD’s and other time deposits in
excess of FDIC insurance
limit
$
—
— $
6,535
7,748 $
8,499
9,694 $
3,588
5,079 $
1,142
2,273 $
—
— $
19,764
24,794
$
— $
4,166 $
6,089 $
300 $
— $
—
10,555
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, 2023 was $47.1 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
criterion 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, 2023 was 9.73%. As of December 31, 2023, the
Company and the Bank were categorized as “well capitalized.” We believe, as of December 31, 2023, 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.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2023 TO DECEMBER 31, 2022
Net income decreased $1.2 million or 17.5% to $5.5 million, or basic and diluted income per share of $0.99 and $0.98, respectively, for the year ended
December 31, 2023 from $6.7 million or basic and diluted income per share of $1.20 and $1.18, respectively, for the year ended December 31,
2022. This decrease was primarily due to a decrease in net interest income, lower mortgage banking income, higher salaries and employee benefits,
and occupancy expense. Our returns on average assets and average equity for the year ended December 31, 2023 were 0.86% and 12.90%,
respectively, compared to 1.01% and 15.26%, respectively, for the year ended December 31, 2022.
20
Net Interest Income
Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and
interest paid on liabilities. Net interest margin is a measure of the difference between interest income on earning assets and interest paid on interest
bearing liabilities relative to the amount of interest-bearing assets. Net interest income decreased $0.4 million or 1.99% to $18.5 million for the year
ended December 31, 2023 from $18.9 million for the year ended December 31, 2022.
Average loans increased $19.1 million or 5.95% to $339.9 million for the year ended December 31, 2023, compared to $320.8 million for the
year ended December 31, 2022. The yield on average loans (including fees) was 6.20% and 5.16% for the years ended December 31, 2023 and
December 31, 2022, respectively. The increase in the yield on average loans was the result of interest rates on variable rate loans, as well as higher
interest rates on new originations and renewals of fixed rate loans. Interest income on loans increased $4.8 million for the year ended December
31, 2023 to $20.5 million from $15.7 million for the year ended December 31, 2022.
The average balance of interest bearing deposits at the Federal Reserve decreased $29.1 million or 70.77% to $12.0 million for the year ended
December 31, 2023, with a yield of 5.11% as compared to $41.1 million for the year ended December 31, 2022, with a yield of 0.98%.
Average earning assets decreased $19.5 million or 3.10% to $608.9 million for the year ended December 31, 2023 from $628.4 million for the
year ended December 31, 2022. This change is primarily related to a decrease in the average balance of investment securities and interest-bearing
deposits at the Federal Reserve, partially offset by an increase in the average balance of loans.
The average balance of deposits decreased $43.9 million or 7.36% to $553.0 million for the year ended December 31, 2023, with a yield of
0.78% as compared to $596.9 million for the year ended December 31, 2022, with a yield of 0.04%. Deposit rates paid have increased as deposit
rates paid from other sectors of the financial industry continue to create intense competition.
We incurred $1.5 million of interest on short-term borrowings during the year ended December 31, 2023.
Provision for Credit Losses
We recorded a provision for credit losses of $45,000 for the year ended December 31, 2023 compared to a $75,000 reduction to the allowance for
credit losses for the year ended December 31, 2022. The Board of Directors determined that this provision was appropriate based upon our analysis
of the adequacy of the allowance for credit losses. Charge-offs of $48,418 and recoveries of $34,410, together with the provision for credit losses
of $45,000, resulted in an allowance for credit losses of $3.7 million or 1.07% of total loans as of December 31, 2023.
Non-Interest Income
Other income decreased $0.3 million or 14.54% to $1.8 million for the year ended December 31, 2023, from $2.1 million for the year ended
December 31, 2022. The decrease in other income reflects lower mortgage banking income, which decreased $0.3 million or 42.71% to $0.4 million
for the year ended December 31, 2023 from $0.7 million for the year ended December 31, 2022 due to decreased volume associated with the
higher interest rate environment experienced in 2023. Mortgage banking income is highly influenced by mortgage interest rates and the housing
market.
Non-interest Expense
Other expense increased $0.9 million or 7.44% to $13.3 million for the year ended December 31, 2023, from $12.4 million for the year ended
December 31, 2022. Salaries and employee benefits increased approximately $0.5 million, or 6.21%, 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 expenses increased $0.2 million or 0.77%. The Bank opened its new James Island location in the second quarter of 2023,
which contributed to the increase in salaries and employee benefits as well as net occupancy expense.
Income Tax Expense
Income tax expense was $1.4 million for the year ended December 31, 2023 as compared to $2.0 million for the year ended December 31, 2022.
Our effective tax rate was 20.55% and 22.91% for the years ended December 31, 2023 and 2022, respectively. The lower effective tax rate in
2023 is the result of the prior year tax provision calculation.
21
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.
Selected Financial Data
For December 31:
Net income
Selected year end balances:
2023
2022
2021
2020
2019
$
5,493,616
$
6,655,140
$
6,744,865
$
6,460,631
$ 7,318,433
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Total loans1 . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale . . .
633,815,719
349,120,944
241,216,453
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
Interest-bearing deposits at the
Federal Reserve . . . . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . .
Weighted Average Shares
7,250,912
597,588,309
531,702,538
47,080,862
12,999,135
128,971,429
42,348,085
616,019,737
598,670,258
38,811,387
650,725,535
609,191,576
53,917,633
510,936,309
462,197,631
54,980,356
39,320,526
418,905,440
379,191,655
51,168,032
Outstanding - basic . . . . . . . . . . . . . . . . . . . .
5,528,596
5,550,078
5,531,518
5,526,948
5,522,025
Weighted Average Shares
Outstanding - diluted . . . . . . . . . . . . . . . . . . .
5,626,139
5,644,698
5,680,482
5,678,543
5,588,090
For the Year:
Selected average balances:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 639,728,141 $
Total loans1 . . . . . . . . . . . . . . . . . . . . . . . .
339,912,450
Investment securities available for sale . . 257,007,704
656,833,125 $ 589,379,985 $ 502,628,318 $ 440,615,140
281,508,711
320,826,946
106,421,507
266,432,504
313,303,363
112,970,054
324,078,445
167,250,568
Interest-bearing deposits at the
Federal Reserve . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . .
12,021,914
608,942,068
552,955,814
42,597,908
41,131,016
75,734,060
54,231,372
628,390,466
596,881,098
43,602,112
567,063,073
519,900,412
54,838,166
480,504,789
434,071,108
54,021,647
34,713,982
422,644,200
381,687,960
49,242,545
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
12.90%
0.86%
6.66%
3.04%
0.00%
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%
1.07%
1.30%
1.43
%
1.30%
1.46%
Per Share:
Basic income per common share
Diluted income per common share
Year end book value
Dividends per common share
Dividend payout ratio
Full time employee equivalents
(1)
(2)
Including mortgage loans to be sold
Excluding mortgage loans to be sold
$
$
$
$
$
$
$
$
0.99
0.98
8.61
0.68
68.25%
78
$
$
$
$
1.20
1.18
6.99
0.68
56.73%
79
$
$
$
$
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
22
The Audit & Compliance Committee of the Board of Directors Bank of South Carolina Corporation
Independent Auditor’s Report
Opinion
We have audited the consolidated financial statements of Bank of South Carolina Corpora(cid:415)on (the “Company”), which
comprise the consolidated balance sheets as of December 31, 2023 and 2022, the related consolidated statements of
income, comprehensive income (loss), changes in shareholders’ equity and cash flows for the years then ended, and
the related notes to the consolidated financial statements (collec(cid:415)vely, the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial posi(cid:415)on of
the Company as of December 31, 2023 and 2022, and the results of its opera(cid:415)ons and its cash flows for the years
then ended in accordance with accoun(cid:415)ng principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit for the year ended December 31, 2023 in accordance with audi(cid:415)ng standards generally
accepted in the United States of America (GAAS). We conducted our audit for the year ended December 31, 2022 in
accordance with standards of the Public Company Accoun(cid:415)ng Oversight Board (United States) (PCAOB). Our
responsibili(cid:415)es under those standards are further described in the Auditor’s Responsibili(cid:415)es for the Audit of the
Financial Statements sec(cid:415)on of our report. We are required to be independent of the Company and to meet our other
ethical responsibili(cid:415)es, in accordance with the relevant ethical requirements rela(cid:415)ng to our audits. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Ma(cid:425)er
As discussed in Note 1 to the financial statements, the Company has elected to change its method of accoun(cid:415)ng for
credit losses effec(cid:415)ve January 1, 2023 due to the adop(cid:415)on of Financial Accoun(cid:415)ng Standards Board Accoun(cid:415)ng
Standards Codifica(cid:415)on No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit
loss standard using the modified retrospec(cid:415)ve method such that prior period amounts are not adjusted and con(cid:415)nue
to be reported in accordance with previously applicable generally accepted accoun(cid:415)ng principles. Our opinion is not
modified with respect to this ma(cid:425)er.
Responsibili(cid:415)es of Management for the Financial Statements
Management is responsible for the prepara(cid:415)on and fair presenta(cid:415)on of the financial statements in accordance with
accoun(cid:415)ng principles generally accepted in the United States of America, and for the design, implementa(cid:415)on, and
maintenance of internal control relevant to the prepara(cid:415)on and fair presenta(cid:415)on of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are condi(cid:415)ons or events,
considered in the aggregate, that raise substan(cid:415)al doubt about the Company’s ability to con(cid:415)nue as a going concern
within one year a(cid:332)er the date that the financial statements are issued or available to be issued.
23
Auditor’s Responsibili(cid:415)es for the Audit of the Financial Statements
Our objec(cid:415)ves are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an
audit conducted in accordance with GAAS or the standards of the PCAOB will always detect a material misstatement
when it exists. The risk of not detec(cid:415)ng a material misstatement resul(cid:415)ng from fraud is higher than for one resul(cid:415)ng
from error, as fraud may involve collusion, forgery, inten(cid:415)onal omissions, misrepresenta(cid:415)ons, or the override of internal
control. Misstatements are considered material if there is a substan(cid:415)al likelihood that, individually or in the aggregate,
they would influence the judgment made by a reasonable user based on the financial statements
In performing an audit in accordance with GAAS and the standards of the PCAOB, we:
•
Exercise professional judgment and maintain professional skep(cid:415)cism throughout the audit.
•
Iden(cid:415)fy and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements.
•
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effec(cid:415)veness of the
Company’s internal control. Accordingly, no such opinion is expressed.
•
es(cid:415)mates made by management, as well as evaluate the overall presenta(cid:415)on of the financial statements.
•
substan(cid:415)al doubt about the Company’s ability to con(cid:415)nue as a going concern for a reasonable period of (cid:415)me.
Evaluate the appropriateness of accoun(cid:415)ng policies used and the reasonableness of significant accoun(cid:415)ng
Conclude whether, in our judgment, there are condi(cid:415)ons or events, considered in the aggregate, that raise
We are required to communicate with those charged with governance regarding, among other ma(cid:425)ers, the planned
scope and (cid:415)ming of the audit, significant audit findings, and certain internal control‐related ma(cid:425)ers that we iden(cid:415)fied
during the audit.
Other Informa(cid:415)on Included in the Annual Report
Management is responsible for the other informa(cid:415)on included in the annual report. The other informa(cid:415)on comprises
the Management’s Discussion and Analysis but does not include the financial statements and our auditor's report
thereon. Our opinion on the financial statements does not cover the other informa(cid:415)on, and we do not express an
opinion or any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and consider
whether a material inconsistency exists between the other information and the financial statements, or the other
information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an
uncorrected material misstatement of the other information exists, we are required to describe it in our report.
Greenville, South Carolina
February 21, 2024
24
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 $258,788,034 and $296,998,150 in 2023
and 2022, respectively)
Mortgage loans to be sold
Loans
Less: Allowance for credit losses
Net loans
Premises, equipment and leasehold improvements, net
Right of use asset
Accrued interest receivable
Other assets
December 31,
2023
December 31,
2022
$
14,665,148 $
7,250,912
14,772,564
12,999,135
241,216,453
2,130,899
346,990,045
(3,722,213)
343,267,832
4,084,703
12,799,866
2,380,972
6,018,934
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
Total assets
$
633,815,719 $
653,345,609
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
Short-term borrowings
Accrued interest payable and other liabilities
Lease liability
Total liabilities
Commitments and contingencies in Note 11
Shareholders’ equity
$
182,053,144 $
163,353,919
104,919,984
15,054,652
9,738,823
50,582,016
525,702,538
46,000,000
2,232,453
12,799,866
586,734,857
223,117,903
195,143,514
100,014,125
5,303,509
11,266,099
63,825,108
598,670,258
—
2,430,272
13,433,692
614,534,222
Common stock - no par 12,000,000 shares authorized; Issued 5,852,325 shares at both
December 31, 2023 and December 31, 2022. Shares outstanding 5,469,251 and 5,552,351 at
December 31, 2023 and December 31, 2022, respectively
Additional paid in capital
Retained earnings
Treasury stock: 383,074 shares and 299,974 shares as of December 31, 2023 and 2022,
respectively
Accumulated other comprehensive loss, net of income taxes
Total shareholders’ equity
48,097,586
15,746,736
48,028,689
14,002,571
(3,800,022)
(12,963,438)
47,080,862
(2,817,392)
(20,402,481)
38,811,387
Total liabilities and shareholders’ equity
$
633,815,719 $
653,345,609
See accompanying notes to consolidated financial statements.
25
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
2022
2023
$
Interest and fee income
Loans, including fees
Taxable securities
Tax-exempt securities
Other
Total interest and fee income
Interest expense
Deposits
Short-term borrowings
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Other income
Service charges and fees
Mortgage banking income
Gain on sales of securities, net
Other non-interest income
Total other income
Other expense
Salaries and employee benefits
Net occupancy expense
Data processing fees
Professional expenses
Other operating expenses
Total other expense
Income before income tax expense
Income tax expense
20,470,618 $
2,711,453
517,104
614,450
24,313,625
4,331,944
1,460,254
5,792,198
18,521,427
45,000
18,476,427
1,346,521
382,303
—
35,917
1,764,741
8,016,197
2,699,335
674,350
481,980
1,455,167
13,327,029
6,914,139
1,420,523
15,677,601
2,531,951
584,907
404,024
19,198,483
301,793
—
301,793
18,896,690
(75,000)
18,971,690
1,290,665
667,257
64,782
42,158
2,064,862
7,547,306
2,514,904
562,228
448,248
1,331,354
12,404,040
8,632,512
1,977,372
Net income
$
5,493,616 $
6,655,140
Weighted average shares outstanding
Basic
Diluted
Basic income per common share
Diluted income per common share
5,528,596
5,626,139
5,550,078
5,644,698
$
$
0.99 $
0.98 $
1.20
1.18
See accompanying notes to consolidated financial statements.
26
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income
Other comprehensive income (loss)
Years Ended December 31,
2023
2022
$
5,493,616 $
6,655,140
Unrealized gain (loss) on securities arising during the period
Reclassification adjustment for securities gains realized in net income
Other comprehensive income (loss) before tax
Income tax effect related to items of other comprehensive (loss) income before
tax
Other comprehensive income (loss) after tax
Total comprehensive income (loss)
$
8,254,343
—
8,254,343
(815,300)
7,439,043
12,932,659 $
(23,061,180)
(64,782)
(23,125,962)
4,856,451
(18,269,511)
(11,614,371)
See accompanying notes to consolidated financial statements.
27
BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2023 AND 2022
Shares
Outstanding
Additional
Paid
in Capital
Retained
Earnings
December 31, 2021
5,541,266 $
47,745,285 $
11,122,710 $
Treasury
Stock
(2,817,392 ) $
Accumulated
Other
Comprehensive
Income (Loss)
(2,132,970) $
Total
53,917,633
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
Net income
Other comprehensive income
Repurchase of common shares
Stock-based compensation
expense
Cash dividends ($0.68 per
common share)
December 31, 2023
—
—
—
—
6,655,140
—
11,085
161,731
—
121,673
—
—
—
—
—
—
—
(18,269,511)
6,655,140
(18,269,511)
—
161,731
—
121,673
—
5,552,351 $
—
48,028,689 $
(3,775,279)
14,002,571 $
—
(2,817,392 ) $
—
(20,402,481) $
(3,775,279)
38,811,387
—
—
(83,100)
—
—
—
5,493,616
—
—
—
—
(982,630 )
—
7,439,043
—
5,493,616
7,439,043
(982,630)
—
68,897
—
—
—
68,897
—
5,469,251 $
—
48,097,586 $
(3,749,451)
15,746,736 $
—
(3,800,022 ) $
—
(12,963,438) $
(3,749,451)
47,080,862
See accompanying notes to consolidated financial statements.
28
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 credit 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
Decrease (increase) in accrued interest receivable and other assets
(Decrease) increase in accrued interest payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale
Proceeds from sale of investment securities available for sale
Purchase of investment securities available for sale
Net increase in loans
Purchase of premises, equipment, and leasehold improvements, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net increase in short-term borrowings
Net decrease in deposit accounts
Dividends paid
Repurchase of common shares
Stock options exercised
Net cash used in financing activities
Net decrease 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
Cash paid during the period for:
Interest
Income taxes
Supplemental disclosures for non-cash investing and financing activity:
Change in unrealized gain (loss) on securities available for sale, net of income
taxes
Change in dividends payable
$
$
$
$
$
Years Ended December 31,
2023
2022
5,493,616 $
6,655,140
372,950
—
45,000
68,897
73,401
777,116
(40,661,879)
39,397,574
133,623
(783,692)
4,916,606
37,433,000
—
—
(16,022,271)
(469,046)
20,941,683
46,000,000
(72,967,720)
(3,763,578)
(982,630)
—
(31,713,928)
(5,855,639)
27,771,699
21,916,060 $
359,251
(64,782)
(75,000)
121,673
(171,800)
869,690
(60,017,637)
61,925,431
(487,217)
358,795
9,473,544
3,539,000
18,525,780
(104,820,389)
(24,360,319)
(564,922)
(107,680,850)
—
(10,521,318)
(3,773,396)
—
161,731
(14,132,983)
(112,340,289)
140,111,988
27,771,699
5,631,429 $
1,666,396 $
275,700
1,582,810
7,439,043 $
(14,127) $
(18,269,511)
1,883
See accompanying notes to consolidated financial statements.
29
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 credit losses, individually assessed loans, other real estate owned, deferred tax assets and the fair value of financial instruments.
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 February 21,
2024 the date the financial statements were available to be issued and no subsequent events occurred requiring accrual or disclosure.
We have disclosed deposit concentrations in Note 8. In relation to current economic conditions, we have monitored deposit concentrations through
the date the financial statements were issued noting no significant changes to concentrations. In addition, there has been no significant deterioration
through the date the financial statements were issued.
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 as of December 31, 2023 and 2022.
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 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 credit
loss factors are recognized when it is determined that present value of cash flows expected to be collected is than the amortized cost basis of the securities.
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 2023 and 2022.
30
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Credit Losses - Securities Available for Sale:
For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it
will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the
security’s amortized cost basis is written down to fair value through income with the establishment of an allowance under the Current Expected Credit Loss
(“CECL”) model compared to a direct write down of the security under Incurred Loss. For debt securities available for sale that do not meet the aforementioned
criteria, the Company evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes
to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that
a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the
present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded
for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any loss that has not been recorded through an allowance for
credit losses is recognized in other comprehensive income.
Changes in the allowance for credit losses under CECL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the
allowance when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or
requirement to sell is met. At December 31, 2023, there was no allowance for credit losses related to the available-for-sale portfolio.
Accrued interest receivable on available for sale debt securities totaled $1.1 million at December 31, 2023 and was excluded from the estimate of credit
losses.
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 Credit Losses:
Under the current expected credit loss model, the allowance for credit losses on loans is a valuation allowance estimated at each balance sheet date in
accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.
Management assesses the adequacy of the allowance on a quarterly basis. This assessment includes procedures to estimate the allowance and test the
adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of historical default and loss
experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect
the borrowers’ ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan
quality indications and other pertinent factors, including regulatory recommendations. Management believes the level of the allowance for credit losses
is adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased through a provision for
credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off, or negative provisions, when appropriate.
The allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics. The Company uses the Loss Rate
Approach to estimate the current expected credit losses. The Bank calculates the annual loss rate by dividing the annual net charge-offs by the average
balance of loans. The Bank used the simple average of the prior year and current year balance to get the average balance by segment which is adjusted by
the estimated prepayment rate to get the lifetime historical loss rate. This loss rate is further adjusted by qualitative and forecast adjustments to get the
estimated lifetime loss rate.
The forecast adjustments (House Price Index, Vacancy Rate, and Unemployment Rate) are discussed by the Management Asset/Liability Committee
(ALCO) on a periodic basis. Upon ALCO’s recommendation, the calculation can be adjusted accordingly to reflect the current market and economic
conditions.
The Company uses loan purpose codes to segment loans based on similar purpose and risk characteristics. The Bank manages these loans on a collective
basis. This segmentation is used for call report purposes, and the Bank believes it is appropriate for the CECL calculations. Due to the size of the Bank’s
loan portfolio, management determined that further segmentation would be too granular and segments would be statistically insignificant.
31
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans and Allowance for Credit Losses (Continued):
Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the
collectively evaluated loan pools. Individual loan evaluations are generally performed for individually assessed loans, which includes nonaccrual loans.
Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral. The Company has elected the practical
expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, which considers selling costs in the event of the sale of
the collateral.
While the Company’s policies and procedures used to estimate the allowance for credit losses, as well as the resultant provision for credit losses charged
to income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily
approximate and imprecise. There are factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets or
particular industry conditions which may materially impact asset quality and the adequacy of the allowance for credit losses and thus the resulting
provision for credit losses.
Allowance for Credit Losses - Accrued Interest Receivable
Accrued interest receivable related to loans totaled $1.3 million at December 31, 2023 and was reported in accrued interest receivable on the consolidated
balance sheets. The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest
income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company
believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectable interest.
Allowance for Credit Loss - Unfunded Commitments
Effective with the adoption of CECL, the Company estimates expected credit losses on commitments to extend credit over the contractual period in which
the Company is exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancelable by the Company. The allowance
for credit loss – unfunded commitments, which is reflected within accrued interest payable and other liabilities on the consolidated balance sheet, is
adjusted for as an increase or decrease to the provision for credit losses. The estimate includes consideration of the likelihood of funding and a credit loss
will occur. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to
the amount of commitments expected to fund.
Concentration of Credit Risk:
Our primary market consists of the counties of Berkeley, Charleston and Dorchester, South Carolina. As of December 31, 2023, 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.
32
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition (Continued):
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, 2023 and 2022.
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.
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, 2023 and 2022.
33
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We had no embedded derivative instruments requiring hedge accounting treatment at December 31, 2023 and 2022. We do not currently engage in hedging
activities.
Recent Accounting Pronouncements:
The following is a summary of recent authoritative pronouncements that could or have impacted the accounting, reporting and/or disclosure of financial
information by the Company.
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The
Accounting Standards Update, or ASU, introduced a new credit loss methodology, the Current Expected Credit Loss (“CECL”) methodology, which
requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB
has issued several updates to the original ASU.
The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity
securities, and other receivables at the time the financial asset is originated or acquired. It also applies to off-balance sheet credit exposures such as
unfunded commitments to extend credit. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The
methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized.
For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses
and adjusted each period for changes in credit risk.
On January 1, 2023, the Company adopted the guidance. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior
period amounts continue to be reported in accordance with the previously applicable incurred loss accounting methodology. The adoption of CECL resulted
in an increase in the allowance for unfunded commitments of $600,000, a decrease in the allowance for credit losses of $600,000 and no change to the
Company’s investment securities portfolio. There was no adjustment to retained earnings as of January 1, 2023. Federal banking regulatory agencies provided
optional relief to delay the adverse regulatory capital impact of CECL at adoption. The Company did not elect to use this optional relief.
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 Company adopted the amendments in ASU 2022-02 upon the Company’s adoption of ASU 2016-13 as of January
1, 2023.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. In December 2022, the 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.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disclosures of specific categories in the rate
reconciliation and additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires disaggregated
disclosure of the amount of income taxes paid (net of refunds received) by tax jurisdiction. ASC 2023-09 is effective for the Company’s annual financial
statements for the year ending December 31, 2024. The Company is currently in the process of evaluating the impacts on the consolidated financial
statements of adopting ASU 2023-09.
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.
Amortized Cost
December 31, 2023
Gross
Unrealized
Gains
Gross Unrealized
Losses
Estimated Fair
Value
153,081,516
53,738,156
34,396,781
241,216,453
(6,726,584) $
(8,435,620)
(2,414,871)
(17,577,075) $
U.S. Treasury Notes .................................................. $
Government-Sponsored Enterprises ..........................
Municipal Securities .................................................
Total .......................................................................... $
159,808,100 $
62,173,776
36,806,158
258,788,034 $
— $
—
5,494
5,494 $
34
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Amortized Cost
Gross
Unrealized
Gains
U.S. Treasury Notes .................................................. $
Government-Sponsored Enterprises ..........................
Municipal Securities .................................................
Total .......................................................................... $
180,298,301 $
67,384,808
49,315,041
296,998,150 $
Gross Unrealized
Losses
(12,110,986) $
(10,310,084)
(3,407,364)
(25,828,434) $
Estimated Fair
Value
168,187,315
57,074,724
45,910,187
271,172,226
— $
—
2,510
2,510 $
The amortized cost and estimated fair value of investment securities available for sale at December 31, 2023 and 2022 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, 2023
December 31, 2022
Amortized
Cost
Estimated Fair
Value
$
$
78,840,342 $
134,373,684
36,787,552
8,786,456
258,788,034 $
77,638,329 $
124,608,670
31,468,308
7,501,146
241,216,453 $
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
Securities pledged to secure deposits at December 31, 2023 and 2022, had a carrying amount of $76,663,644 and $30,103,249, respectively.
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, 2023 and 2022.
Unrealized losses have not been recognized into income because the issuer(s) bonds are of high credit quality (rated AA or higher), we do not intend
to sell prior to their anticipated recovery and the decline in fair value is largely due to changes in interest rates and other market conditions. The
issuer(s) continue to make timely principal and interest payments on the securities. The fair value is expected to recover as the securities near
maturity. At December 31, 2023, there was no allowance for credit losses – securities available for sale.
Less Than 12 Months
December 31, 2023
12 Months or Longer
Fair Value
- $
- $
Gross
Unrealized
Loss
#
Fair Value
-
22 $ 148,081,516 $
Gross
Unrealized
Loss
(6,726,584 )
Total
#
Fair Value
Gross
Unrealized
Loss
22 $ 148,081,516 $ (6,726,584)
1
1,278,016
1,310,114
1
2 $ 2,588,130 $
(20,267)
(2,838)
(23,105)
9
(8,415,353 )
(2,412,033 )
67
98 $ 232,594,154 $ (17,553,970 )
52,460,140
32,052,498
10
68
(8,435,620)
(2,414,871)
100 $ 235,182,284 $ (17,577,075)
53,738,156
33,362,612
#
U.S. Treasury Notes
Government-Sponsored
Enterprises
Municipal Securities
Total
Less Than 12 Months
Gross
Unrealized
Loss
Fair Value
7 $ 38,181,255 $ (1,790,134)
#
December 31, 2022
12 Months or Longer
#
Fair Value
Gross
Unrealized
Loss
Total
#
Fair Value
Gross
Unrealized
Loss
18 $ 130,006,060 $ (10,320,852 )
25 $ 168,187,315 $ (12,110,986)
2
(84,170)
6,212,285
46 26,068,218
(932,565)
55 $ 70,461,758 $ (2,806,869)
(10,225,914 )
9
31
(2,474,799 )
58 $ 195,727,958 $ (23,021,565 )
50,862,439
14,859,459
11
77
57,074,724 (10,310,084)
(3,407,364)
40,927,677
113 $ 266,189,716 $ (25,828,434)
U.S. Treasury Notes
Government-Sponsored
Enterprises
Municipal Securities
Total
The table below shows the proceeds received from sales of securities available for sale and gross realized gains and losses.
For the Year Ended December 31,
Gross proceeds
Gross realized gains
The tax provision related to these gains was $13,604 for the year ended December 31, 2022.
35
2023
$
2022
$ 18,525,780
64,782
—
—
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Major classifications of loans (net of deferred loan fees and costs of $212,006 at December 31, 2023, and $159,434 at December 31, 2022) are
shown in the table below.
Commercial
Commercial Real Estate:
Construction
Other
Consumer:
Real Estate
Other
Allowance for credit losses
Loans, net
December 31, 2023
$
54,953,535 $
December 31, 2022
25,884,216
170,773,511
91,592,183
3,786,600
346,990,045
(3,722,213)
343,267,832 $
$
45,072,059
17,524,260
172,897,387
91,636,538
3,851,538
330,981,782
(4,291,221)
326,690,561
We had $138.4 million and $93.1 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at
December 31, 2023 and 2022, respectively.
Our portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Our
internal credit risk grading system is based on experience with similarly graded loans, industry best practices, and regulatory guidance. Our portfolio is
graded in its entirety.
Our internally assigned grades pursuant to the Board-approved lending policy are as follows:
• Excellent (1) The borrowing entity has 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.
36
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table illustrates credit quality by class indicators by year of origination at December 31, 2023. “Pass” includes loans internally graded as
excellent, good and satisfactory.
2023
2022
Term Loans by Year of Origination
2019
2020
2021
Prior
Revolving
Total
Commercial
Pass
Watch
OAEM
Substandard
Doubtful
Loss
Total
Current period gross
charge-offs
Commercial Real Estate
Construction
Pass
Watch
OAEM
Substandard
Doubtful
Loss
Total
Current period gross
charge-offs
Commercial Real Estate Other
Pass
Watch
OAEM
Substandard
Doubtful
Loss
Total
Current period gross
charge-offs
Consumer Real Estate
Pass
Watch
OAEM
Substandard
Doubtful
Loss
Total
Current period gross
charge-offs
Consumer Other
Pass
Watch
OAEM
Substandard
Doubtful
Loss
Total
Current period gross
charge-offs
$ 23,071,516 $ 7,939,040 $ 3,026,211 $ 3,891,097 $
14,186
—
—
—
—
$ 23,766,224 $ 9,057,397 $ 3,026,211 $ 3,905,283 $
388,324
—
730,033
—
—
453,708
241,000
—
—
—
—
—
—
—
—
742,486 $
5,812
—
—
—
—
748,298 $
7,654 $ 14,104,085 $ 52,782,089
1,200,413
338,383
241,000
—
730,033
—
—
—
—
—
7,654 $ 14,442,468 $ 54,953,535
—
—
—
—
—
$
— $
— $
— $
— $
— $
46,341 $
— $
46,341
$ 10,473,495 $ 7,664,760 $ 3,292,829 $ 4,453,132 $
—
—
—
—
—
$ 10,473,495 $ 7,664,760 $ 3,292,829 $ 4,453,132 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
— $
— $
—
—
—
—
—
— $
— $ 25,884,216
—
—
—
—
—
—
—
—
—
—
— $ 25,884,216
$
— $
— $
— $
— $
— $
— $
— $
—
$ 32,161,087 $ 43,468,700 $ 45,481,726 $ 23,104,565 $ 9,564,467 $ 2,576,408 $ 4,667,248 $ 161,024,201
8,025,748
2,500,509
423,390
873,679
—
873,679
849,883
—
—
—
—
—
—
—
—
$ 35,535,275 $ 43,896,539 $ 51,005,619 $ 23,527,955 $ 9,564,467 $ 2,576,408 $ 4,667,248 $ 170,773,511
427,839 4,674,010
—
849,883
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
— $
— $
— $
— $
— $
— $
— $
—
$ 17,313,427 $ 21,420,283 $ 8,141,547 $ 8,494,119 $
—
—
—
—
—
$ 17,313,427 $ 21,420,283 $ 8,141,547 $ 8,494,119 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
317,645 $
—
—
248,776
—
—
566,421 $
74,408 $ 34,194,701 $ 89,956,130
1,137,636
—
498,417
—
—
74,408 $ 35,581,978 $ 91,592,183
— 1,137,636
—
—
249,641
—
—
—
—
—
$
— $
— $
— $
— $
— $
$ 1,846,061 $
82,605
—
36,155
—
—
$ 1,964,821 $
809,330 $
10,865
—
—
—
—
820,195 $
341,652 $
16,518
—
—
—
—
358,170 $
125,233 $
414
3,173
—
—
—
128,820 $
47,302 $
—
—
—
—
—
47,302 $
— $
— $
—
—
—
—
—
— $
— $
—
439,764 $
27,528
—
—
—
—
467,292 $
3,609,342
137,930
3,173
36,155
—
—
3,786,600
$
— $
— $
2,077 $
— $
— $
— $
— $
2,077
37
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table illustrates credit risks by category and internally assigned grades at December 31, 2022.
Commercial
Real Estate
Construction
Commercial
Real Estate
Commercial
Other
$ 42,724,289 $ 17,524,260 $ 167,518,577 $ 86,183,899 $ 3,597,886 $
208,417
7,345
37,890
—
—
$ 45,072,059 $ 17,524,260 $ 172,897,387 $ 91,636,538 $ 3,851,538 $
3,223,532
968,611
1,186,667
—
—
4,928,437
274,445
249,757
—
—
976,966
94,803
1,276,001
—
—
Consumer
Real Estate
—
—
—
—
—
Consumer
Other
Total
317,548,911
9,337,352
1,345,204
2,750,315
—
—
330,981,782
Pass
Watch
OAEM
Substandard
Doubtful
Loss
Total
38
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables include an aging analysis of the recorded investment in loans segregated by class.
December 31, 2023
30-59 Days
Past Due
60-89 Days
Past Due
Greater
than 90
Days
Nonaccrual
Total
Past Due
Current
Total Loans
Receivable
Recorded
Investment
≥
90 Days
and
Accruing
$
171,000
$
-
$
-
$
- $
171,000
$
54,782,535
$
54,953,535
$
-
Commercial
Commercial Real
Estate
Construction
Commercial
Real
Estate Other
Consumer Real
Estate
-
-
796,588
-
278,944
-
-
-
-
-
-
-
25,884,216
25,884,216
-
327,471
1,124,059
169,649,452
170,773,511
248,776
527,720
91,064,463
91,592,183
-
22,987
3,763,613
3,786,600
-
-
-
Consumer Other
22,987
-
Total
$
1,269,519
$
-
$
-
$
576,247
$
1,845,766
$
345,144,279
$
346,990,045
$
-
December 31, 2022
30-59 Days
Past Due
60-89 Days
Past Due
Greater
than 90
Days
Nonaccrual
Total
Past Due
Current
Total Loans
Receivable
Recorded
Investment
≥
90 Days
and
Accruing
$
16,451
$
178,975
$
- $
- $
195,426
$
44,876,633
$
45,072,059
$
-
Commercial
Commercial Real
Estate
Construction
Commercial
Real
Estate Other
Consumer Real
Estate
-
-
45,425
-
274,445
-
Consumer Other
-
-
-
-
-
-
-
-
17,524,260
17,524,260
-
631,453
676,878
172,220,509
172,897,387
-
-
274,445
91,362,093
91,636,538
-
3,851,538
3,851,538
-
-
-
Total
$
336,321
$
178,975
$
- $
631,453
$
1,146,749
$
329,835,033
$
330,981,782
$
-
39
The following table summarizes the balances of non-accrual loans.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nonaccrual
Loans with No
Allowance
CECL
December 31, 2023
Nonaccrual
Loans with an
Allowance
Total
Nonaccrual
Loans
Incurred Loss
December 31, 2022
Nonaccrual Loans
Commercial
Commercial Real Estate Construction
Commercial Real Estate Other
Consumer Real Estate
Consumer Other
Total
$
$
—
—
327,471
248,776
—
576,247
$
$
—
—
—
—
—
—
$
$
—
—
327,471
248,776
—
576,247
$
$
—
—
631,453
—
—
631,453
We designate individually evaluated loans on nonaccrual status as collateral dependent loans, as well as other loans that management designates as having
higher risk. Collateral dependent loans are loans for which repayment is expected to be provided substantially through the operation or sale of the collateral
and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively
evaluated loans for determining the allowance for credit losses. Under CECL, for collateral dependent loans, we adopted the practical expedient to measure
the allowance for credit losses based on the fair value of the collateral. The allowance for credit losses is calculated on an individual loan basis based on
the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the
collateral exceeds the amortized cost, no allowance is required.
The following table details the amortized cost of collateral dependent loans:
Commercial
Commercial Real Estate Construction
Commercial Real Estate Other
Consumer Real Estate
Consumer Other
Total
December 31,
2023
$
$
—
—
859,879
498,417
—
1,358,296
The following table sets forth the changes in the allowance for credit losses and an allocation of the allowance for credit losses by class for the year ended
December 31, 2023 under the CECL methodology.
Year Ended December 31, 2023
Commercial
Real Estate
Construction
Commercial
Real Estate
Other
Commercial
Consumer Real
Estate
Consumer
Other
Total
Allowance for Credit Losses:
Beginning balance
Adoption of ASU 2016-13
Charge-offs
Recoveries
Provisions
Ending balance
$
$
735,759 $
(82,001)
(46,341)
2,400
6,196
616,013 $
230,625 $
(36,509)
—
—
209,049
403,165 $
2,216,484 $
(314,522)
—
24,000
(828,455)
1,097,507 $
1,014,777 $
(160,802)
—
—
707,481
1,561,456 $
93,576 $
(6,166)
(2,077)
8,010
(49,271)
44,072 $
4,291,221
(600,000)
(48,418)
34,410
45,000
3,722,213
Prior to the adoption of ASC 326 on January 1, 2023, we calculated the allowance for credit losses under the incurred loss methodology. The following
table sets forth the changes in the allowance for loan losses for the year ended December 31, 2022.
40
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Commercial
Real Estate
Construction
Commercial
Real Estate
Other
Consumer
Real Estate
Consumer
Other
Paycheck
Protection
Program
Total
Commercial
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 $
(2,034)
—
—
18,000
(177,822)
92,027
2,216,484 $ 1,014,777 $
924,784 $ 104,715 $
—
12,224
(23,363)
93,576 $
— $ 4,376,987
(42,644)
(10)
31,878
854
(75,000)
(844)
— $ 4,291,221
Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology. The
following table includes disclosures related to the allowance for loan losses in prior periods.
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
Collectively evaluated
for impairment
Loans Receivable
Individually evaluated
for impairment
Collectively evaluated
for impairment
Total Loans
Receivable
$
179,230 $
— $
— $
— $
37,889 $
— $
217,119
556,529
735,759
230,625
230,625
2,216,484 1,014,777
2,216,484 1,014,777
55,687
93,576
—
—
4,074,102
4,291,221
1,276,001
—
1,202,412
249,758
37,889
—
2,766,060
43,796,058
17,524,260 171,694,975 91,386,780 3,813,649
— 328,215,722
$
45,072,059 $
17,524,260 $ 172,897,387 $ 91,636,538 $ 3,851,538 $
— $ 330,981,782
As of December 31, 2022, loans individually evaluated for impairment and the corresponding allowance for loan losses are presented in the following
table.
With no related allowance recorded:
Commercial
Commercial Real Estate Construction
Commercial Real Estate Other
Consumer Real Estate
Consumer Other
Total
With an allowance recorded:
Commercial
Commercial Real Estate Construction
Commercial Real Estate Other
Consumer Real Estate
Consumer Other
Total
Commercial
Commercial Real Estate Construction
Commercial Real Estate Other
Consumer Real Estate
Consumer Other
Total
Unpaid Principal
Balance
Impaired Loans as of
December 31, 2022
Recorded
Investment
Related Allowance
317,553 $
—
1,202,412
249,758
—
1,769,723
958,448
—
—
—
37,889
996,337
1,276,001
—
1,202,412
249,758
37,889
2,766,060 $
317,553 $
—
1,202,412
249,758
—
1,769,723
958,448
—
—
—
37,889
996,337
1,276,001
—
1,202,412
249,758
37,889
2,766,060 $
—
—
—
—
—
—
179,230
—
—
—
37,889
217,119
179,230
—
—
—
37,889
217,119
$
$
41
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 year ended December
31, 2022.
With no related allowance recorded:
Commercial
Commercial Real Estate Construction
Commercial Real Estate Other
Consumer Real Estate
Consumer Other
With an allowance recorded:
Commercial
Commercial Real Estate Construction
Commercial Real Estate Other
Consumer Real Estate
Consumer Other
Total
Commercial
Commercial Real Estate Construction
Commercial Real Estate Other
Consumer Real Estate
Consumer Other
Year Ended December 31, 2022
Average Recorded
Investment
Interest Income
Recognized
$
$
344,592 $
—
1,231,015
249,758
—
1,825,365
981,575
—
—
—
38,962
1,020,537
1,326,167
—
1,231,015
249,758
38,962
2,845,902 $
21,445
—
30,689
14,019
—
66,153
63,267
—
—
—
2,532
65,799
84,712
—
30,689
14,019
2,532
131,952
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition.
The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables
to borrowers experiencing financial difficulty. We use the loss rate approach to determine the allowance for credit losses. An assessment of whether a
borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because
of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.
Occasionally, we modify loans by providing principal forgiveness on certain real estate loans. When principal forgiveness is provided, the amortized cost
basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore,
that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, we will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is
granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.
There were no loans modified during the year ended December 31, 2023. As of December 31, 2023, there were three loans with a balance of $0.5 million
that were granted extended payment terms with no principal reduction during the year ended December 31, 2022. The structure of two of the loans changed
to interest only. With respect to these two loans, one loan was performing as agreed as of December 31, 2023, while the other loan was not performing and
we are considering further collection actions, including potential foreclosure proceedings.
The following table shows the amortized cost basis as of December 31, 2023 of the loans modified for borrowers experiencing financial difficulty,
disaggregated by class of loans, and describes the financial effect of the modifications made for borrowers experiencing financial difficulty:
42
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortized Cost
Basis
% of Total
Loan Type
Financial Effect
Term Extension
Commercial
$
151,588
0.3%
Reduced monthly payment
Commercial Real Estate Other
317,475
0.2%
Forbearance agreement signed for one loan and provided eleven
months deferral to second borrower and added to the end of the
original term loan.
Consumer Other
Total
$
36,155
505,218
1.0%
Reduced monthly payment
We maintain an allowance for credit loss – unfunded commitments for off-balance sheet credit exposures such as unfunded balances for existing lines of
credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit
and when this extension of credit is not unconditionally cancellable (i.e., commitment cannot be canceled at any time). The allowance for credit loss –
unfunded commitments is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur,
which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be
funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit
losses for unfunded loan commitments of $539,912 and $44,912 at December 31, 2023 and December 31, 2022, respectively, is classified on the balance
sheet within Accrued interest payable and other liabilities. The adoption of CECL resulted in an increase to the allowance for credit loss – unfunded
commitments of $600,000. During the year ended December 31, 2023, there was a subsequent reduction in the allowance for credit loss – unfunded
commitments of $105,000, which was made based on our analysis of the adequacy of the allowance.
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
Total
6. PREMISES, EQUIPMENT AND LEASEDHOLD IMPROVEMENTS
Premises, equipment and leasehold improvements are summarized in the table below.
Bank buildings
Land
Leasehold purchases
Leasehold improvements
Construction in progress
Equipment
Accumulated depreciation
Total
December 31, 2023
December 31, 2022
15.84%
7.46%
49.22%
26.40%
1.08%
100.00%
13.62%
5.29%
52.24%
27.69%
1.16%
100.00%
December 31,
2023
2022
$
$
1,861,237 $
838,075
30,000
3,240,292
31,654
4,635,314
10,636,572
(6,551,869)
4,084,703 $
1,861,237
838,075
30,000
2,629,441
535,434
4,273,339
10,167,526
(6,178,919)
3,988,607
Depreciation on our bank premises and equipment charged to operating expense totaled $372,950 and $359,251 during the years ended December 31, 2023
and 2022, respectively.
43
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.
LEASES
As of December 31, 2023 and 2022, the Company had operating right of use (“ROU”) assets of $12.8 million and $13.4 million, respectively, and operating
lease liabilities of $12.8 million and $13.4 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, 2023, the weighted average remaining lease term is 14.82 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, 2023 are presented in the table below.
2024
2025
2026
2027
2028
2029 and thereafter
Total undiscounted lease payments
Less: effect of discounting
Present value of estimated lease payments
$
$
$
1,182,745
1,182,745
1,182,745
1,182,745
1,182,745
11,126,506
17,040,231
(4,240,365)
12,799,866
The table below shows lease expense components for the years ended December 31, 2023 and 2022.
Lease Expense Components:
Operating lease expense
Short-term lease expense
Total lease expense
December 31,
2023
$
$
1,239,861 $
—
1,239,861 $
2022
1,192,292
—
1,192,292
As of December 31, 2023, 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, 2023, we have no additional operating leases that have not yet commenced.
8. DEPOSITS
As of December 31, 2023 and 2022, time deposits exceeding the FDIC insurance limit of $250,000 or more totaled approximately $15,054,652 and $5,303,509,
respectively, representing 60.7% and 32.0%, respectively, of time deposits. In addition, we consider any deposit customers with balances in excess of 5% of
total deposits to be large deposit customers. As of December 31, 2023 and 2022, we had no large deposit customers.
The scheduled maturities of certificates of deposit as of December 31, 2023 are presented in the table below:
2024
2025
2026
2027
2028 and thereafter
$
$
22,522,232
872,885
822,719
353,942
221,697
24,793,475
As of December 31, 2023 and 2022, deposits with a deficit balance of $29,666 and $80,524, respectively, were re-classified as other loans.
44
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. SHORT-TERM BORROWINGS
During the first quarter of 2023, the Federal Reserve authorized all twelve Reserve Banks to establish the Bank Term Funding Program (the “Program”)
to make available additional funding to eligible depository institutions in order to help assure banks have the ability to meet the needs of all their depositors.
The Program offers advances of up to one year in length to banks, savings associations, credit unions and other eligible depository institutions pledging
any collateral eligible for purchase by the Federal Reserve Bank in open market options, such as U.S. Treasuries, U.S. agency securities and U.S. agency
mortgage-backed securities. Advances are limited to the par value of the eligible collateral pledged by the eligible borrower. The Bank established a $25.0
million credit line under the Program during the first quarter of 2023 and subsequently increased the credit line by an additional $25.0 million during the
second quarter of 2023 to $50.0 million. As of December 31, 2023, there were $46.0 million in borrowings under the Program. The interest rate on
borrowings under the Program is the one-year overnight swap rate plus 10 basis points and is fixed for the term of the advance. The interest rate ranged
from a low of 4.37% to a high of 5.59% during the year ended December 31, 2023. All borrowings at year end have maturity dates from March 28, 2024
through July 1, 2024. The borrowings will be repaid with proceeds from the maturities of the investment securities pledged as collateral.
We have a Borrower-In-Custody arrangement with the Federal Reserve, which we established as an additional source of liquidity. 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 $126.8 million as of December 31, 2023. We had no outstanding borrowings under this arrangement at December 31,
2023 and 2022.
At December 31, 2023 and 2022, the Bank had unused short-term lines of credit totaling approximately $41.0 million (which are withdrawable at the
lender’s option).
10. INCOME TAXES
Total income taxes for the years ended December 31, 2023 and 2022 are presented in the table below.
Current income taxes
Federal
State
Total current tax expense
Deferred income tax expense (benefit)
Total income tax expense
Year ending December 31,
2023
2022
$
$
1,089,154 $
257,968
1,347,122
73,401
1,420,523 $
1,837,678
311,494
2,149,172
(171,800)
1,977,372
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.
Computed “expected” tax expense
Increase (reduction) in income taxes resulting from:
Stock based compensation
Valuation allowance
Other
State income tax, net of federal benefit
Tax exempt interest income
Year ending December 31,
2023
$
1,470,959 $
14,276
2,047
(212,588)
203,795
(57,966)
1,420,523 $
$
2022
1,812,828
24,901
(9,111)
22,389
246,080
(119,715)
1,977,372
45
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, 2023
and 2022 are presented below.
Deferred tax assets:
Allowance for credit 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
Deferred tax liabilities:
Fixed assets, principally due to differences in depreciation
Prepaid expenses
Other
Total gross deferred tax liabilities
$
As of December 31,
2023
2022
781,665 $
4,608,144
44,484
185,753
90,555
10,048
113,611
5,834,260
(90,591)
5,743,669
(334,153)
—
(55,636)
(389,789)
901,156
5,423,444
33,481
188,401
88,229
36,879
11,421
6,683,011
(88,544)
6,594,467
(289,935)
(567)
(59,337)
(349,839)
Net deferred tax asset
$
5,353,880 $
6,244,628
There was a $90,591 and $88,544 valuation allowance for deferred tax assets at December 31, 2023 and 2022, 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, 2023 and 2022. 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 2020 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.
46
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 $140,058,580 and $145,392,792 at December 31, 2023 and 2022, 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, 2023 and 2022, 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, 2023 and 2022 was $2,646,283 and
$2,518,771, 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, 2023 and 2022.
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, 2023 December 31, 2022
5,513,146
$
806,053
(2,134,441)
4,184,758
4,184,758 $
1,439,574
(833,611)
4,790,721 $
$
At December 31, 2023 and 2022, total deposits held by related parties were $18,928,881 and $7,426,656, 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,
2023
2022
$
$
217,090 $
333,357
87,360
55,765
54,075
12,954
694,566
1,455,167 $
205,296
258,541
61,551
48,475
55,178
11,480
690,833
1,331,354
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 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.
47
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2023
2022
4.15 %
6.19
36.95 %
4.08 %
2.75%
5.00
35.30%
4.15%
The following table presents a summary of the activity under the 2010, 2020 and 2021 Stock Incentive Plans for the years ended December 31:
2023
2022
Weighted
Average Exercise
Price
Shares
Weighted
Average Exercise
Price
Outstanding, January 1
Granted
Exercised
Forfeited
Outstanding, December 31
Exercisable at year end
254,412 $
133,250
—
(129,469)
258,193 $
9,316 $
Shares
17.56 273,747 $
5,000
13.43
(11,085)
—
18.43
(13,250)
14.93 254,412 $
20,626 $
12.75
17.50
17.10
14.58
18,68
17.56
17.76
The following table presents information pertaining to options outstanding at December 31, 2023.
Exercise
Price
Number of
Options
Outstanding
Weighted
Average
Remaining
Contractual
Life
Weighted
Average Exercise
Price of Options
Outstanding
Intrinsic Value
of Options
Outstanding
Number of
Options
Exercisable
Weighted
Average
Exercise Price
of Options
Exercisable
$
$
$
$
$
$
$
$
$
12.26
13.05
13.31
13.47
14.64
15.21
18.23
19.82
20.04
3,508
7,260
105,000
16,750
10,000
65,500
28,950
7,225
14,000
258,193
0.58 $
1.33 $
10.00 $
9.59 $
10.00 $
6.33 $
4.25 $
6.33 $
7.59 $
7.79 $
12.26 $
13.05 $
13.31 $
13.47 $
14.64 $
15.21 $
18.23 $
19.82 $
20.04 $
14.93 $
5,877
6,428
65,570
7,796
—
—
—
—
—
85,671
3,508 $
5,808 $
— $
— $
— $
— $
— $
— $
— $
9,316 $
Intrinsic
Value of
Options
Exercisable
5,877
5,143
—
—
—
—
—
—
—
11,020
12.26 $
13.05 $
13.31 $
13.47 $
14.64 $
15.21 $
18.23 $
19.82 $
20.04 $
12.75 $
The total intrinsic value of options exercised during the years ended December 31, 2023 and 2022 was $0 and $161,731, 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, 2023 and 2022 in the amount of $68,897 and $121,673, respectively, related to the
granted options.
As of December 31, 2023, there was a total of $487,398 in unrecognized compensation cost related to nonvested share-based compensation arrangements
granted under the Plan. The cost is expected to be recognized over a weighted average period of 5.38 years.
48
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $600,000 and $540,000
during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the plan owned 356,002 and 336,088 shares,
respectively, 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
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. 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. 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). On June 30, 2020, the IRS issued an opinion letter for a non-standardized pre-approved profit sharing/CODA/ESOP plan document.
On May 25, 2023, the Board of Directors approved a restated plan utilizing this pre-approved document.
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 $4.0 million and $3.6 million, to the Company during the years ended December 31, 2023 and 2022, 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
Weighted average shares outstanding
Effect of dilutive shares
Weighted average shares outstanding – diluted
Earnings per share – basic
Earnings per share – diluted
18. REGULATORY CAPITAL REQUIREMENTS
2023
5,493,616 $
2022
6,655,140
$
5,528,596
97,543
5,626,139
5,550,078
94,620
5,644,698
$
$
0.99 $
0.98 $
1.20
1.18
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.
49
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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.
The following table presents the actual CBLR for the Bank and Company at:
Bank
Company
December 31, 2023
9.73%
9.64%
December 31, 2022
9.03%
9.30%
We believe that the Company and the Bank meet all capital adequacy requirements to which they were subject at December 31, 2023 and 2022.
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 judgement 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.
The following paragraphs describe the valuation methodologies used for assets recorded at fair value on a recurring basis:
50
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2023 and 2022.
The following table presents information about assets measured at fair value on a recurring basis as of December 31, 2023 and 2022.
U.S. Treasury Notes
Government-Sponsored Enterprises
Municipal Securities
Total
U.S. Treasury Notes
Government-Sponsored Enterprises
Municipal Securities
Total
Balance as of December 31, 2023
Level 1
Level 2
Level 3
153,081,516 $
—
—
153,081,516 $
— $
53,738,156
16,505,244
70,243,400 $
— $
—
17,891,537
17,891,537 $
Total
153,081,516
53,738,156
34,396,781
241,216,453
Balance as of December 31, 2022
Level 1
Level 2
Level 3
168,187,315 $
—
—
168,187,315 $
— $
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
$
$
$
$
There were no liabilities recorded at fair value on a recurring basis as of December 31, 2023 or 2022.
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, 2023 and 2022.
Beginning balance
Total realized/unrealized gains (losses)
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
December 31, 2023
$
29,461,812 $
December 31, 2022
—
(10,684,275)
(886,000)
—
17,891,537 $
$
24,484,047
—
(3,714,235)
8,692,000
—
29,461,812
The following paragraphs describe the valuation methodologies used for assets recorded at fair value on a nonrecurring basis:
Individually Assessed Loans
Individually assessed loans are carried at the lower of recorded investment or fair value. The fair value of the collateral less estimated costs to sell is the
most frequently used method. Typically, we review the most recent appraisal and if it is over 12 to 18 months old, we may request a new third-party
appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal
and the value of the collateral relative to the recorded investment in the loan, we may order an independent appraisal immediately or, in some instances,
may elect to perform an internal analysis. Specifically, as an example, in situations where the collateral on a nonperforming commercial real estate loan is
out of our primary market area, we would typically order an independent appraisal immediately when the loan becomes nonperforming.
51
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
However, as a second example, on a nonperforming commercial real estate loan where we are familiar with the property and surrounding areas and where
the original appraisal value far exceeds the recorded investment in the loan, we may perform an internal analysis whereby the previous appraisal value
would be reviewed considering recent current conditions and known recent sales or listings of similar properties in the area, and any other relevant economic
trends. This analysis may result in the call for a new appraisal. These valuations are reviewed and updated on a quarterly basis.
In accordance with ASC 820, Fair Value Measurement, individually assessed loans, where an allowance is established based on the fair value of collateral,
require classification in the fair value hierarchy. These individually assessed loans are classified as Level 3. Individually assessed 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, 2023 and 2022.
Individually assessed loans
Mortgage loans to be sold
Total
Impaired loans
Mortgage loans to be sold
Total
December 31, 2023
Level 1
Level 2
Level 3
Total
— $
—
— $
— $
2,130,899
2,130,899 $
1,358,296 $
—
1,358,296 $
1,358,296
2,130,899
3,489,195
December 31, 2022
Level 1
Level 2
Level 3
Total
— $
—
— $
— $
866,594
866,594 $
1,452,170 $
—
1,452,170 $
1,452,170
866,594
2,318,764
$
$
$
$
There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2023 or 2022.
The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at December 31, 2023
and December 31, 2022.
Individually Assessed Loans
Appraisal Value/Comparison
Sales/Other Estimates
Appraisals and/or Sales of
Comparable Properties
Valuation Technique
Inputs
Unobservable
Input
General Range of Inputs
Appraisals Discounted
10% to 20% for Sales
Commissions and Other
Holding Costs
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.
52
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
individually assessed loans and all other loans. The results are then adjusted to account for credit risk as described above. However, under ASC 326,
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
individually assessed loans are estimated based on the fair value of the underlying collateral. Individually assessed loans measured using discounted
future cash flows are not deemed to be measured at fair value.
d. Deposits
The estimated fair value of deposits with no stated maturity is equal to the carrying amount. The fair value of time deposits is estimated by discounting
contractual cash flows, using interest rates currently being offered on the deposit products. The fair value estimates for deposits do not include the benefit
that results from the low-cost funding provided by the deposit liabilities as compared to the cost of alternative forms of funding (deposit base intangibles).
e. Accrued interest receivable and payable
Since these financial instruments will typically be received or paid within three months, the carrying amounts of such instruments are deemed 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.
e. Short-term borrowings
Due to the short-term nature of the borrowings, the carrying amount of such instruments are deemed to be a reasonable estimate of fair value.
53
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,
2023 and 2022, respectively.
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
Short-term borrowings
Fair Value Measurements at December 31, 2023
Carrying
Amount
Estimated Fair
Value
Level 1
Level 2
Level 3
$
14,665,148 $
14,665,148 $
14,665,148 $
— $
—
7,250,912
241,216,453
2,130,899
343,267,832
2,380,972
7,250,912
241,216,453
2,130,899
316,792,809
2,380,972
7,250,912
153,081,516
—
—
—
—
70,243,400
2,130,899
—
2,380,972
—
17,891,537
—
316,792,809
—
500,909,063
24,793,475
201,776
46,000,000
500,909,063
29,580,987
201,776
46,000,000
—
—
—
—
500,909,063
29,580,987
201,776
46,000,000
—
—
—
—
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
Fair Value Measurements at December 31, 2022
Carrying
Amount
Estimated Fair
Value
Level 1
Level 2
Level 3
$
14,772,564 $
14,772,564 $
14,772,564 $
— $
—
12,999,135
271,172,226
866,594
326,690,561
2,145,522
12,999,135
271,172,226
866,594
304,249,626
2,145,522
12,999,135
168,187,315
—
—
—
—
73,523,099
866,594
—
2,145,522
—
29,461,812
—
304,249,626
582,100,650
16,569,608
41,007
582,100,650
16,933,818
41,007
—
—
—
582,100,650
16,933,818
41,007
—
—
—
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, 2023 and 2022, and the related condensed statements of income and cash flows for the years ended December 31, 2023 and
2022, are as follows:
Condensed Statements of Financial Condition
Assets
Cash
Investment in wholly-owned bank subsidiary
Other assets
Total assets
Liabilities and shareholders’ equity
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2023
2022
$
$
$
$
1,040,661 $
46,561,551
408,422
48,010,634 $
929,772 $
47,080,862
48,010,634 $
1,077,082
38,339,882
338,322
39,755,286
943,899
38,811,387
39,755,286
54
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statements of Income
Interest income
Net operating expenses
Dividends received from subsidiary
Distribution from subsidiary for repurchase of common
$
shares
Equity in undistributed earnings of subsidiary
Net income
$
For the Year Ended December 31,
2023
2022
$
1,221
(240,231)
3,950,000
1,000,000
782,626
5,493,616
$
287
(267,243)
3,640,000
—
3,282,096
6,655,140
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income
Stock-based compensation expense
Equity in undistributed earnings of subsidiary
Increase in other assets
Net cash provided by operating activities
Cash flows from financing activities:
Dividends paid
Repurchase of common shares
Stock options exercised
Net cash used in financing activities
Net decrease in cash
Cash at the beginning of the year
Cash at the end of the year
Supplemental disclosure for non-cash investing and
financing activity
Change in dividends payable
For the Year Ended December 31,
2023
2022
5,493,616 $
68,897
(782,626)
(70,100)
4,709,787
(3,763,578)
(982,630)
—
(4,746,208)
(36,421)
1,077,082
1,040,661 $
6,655,140
121,673
(3,282,096)
(39,324)
3,455,393
(3,773,396)
—
161,731
(3,611,665)
(156,272)
1,233,354
1,077,082
(14,127) $
3,536
$
$
$
55
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
Retired 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**
Retired
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
Malcolm M. Rhodes, MD
Retired
Parkwood Pediatric Group
Douglas H. Sass
Executive Vice President
& Senior Lender
Bank of South Carolina
Corporation
Thaddeus T. Shuler
President & CEO
Southern Lumber and
Millwork
Sheryl G. Sharry
Retired CFO
Bank of South Carolina
Corporation
Eugene H. Walpole, IV
President & CEO
Bank of South Carolina
Corporation
OFFICERS
Hugh C. Lane, Jr.
Chairman
Eugene H. Walpole, IV
President & CEO
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 OTCQX®
Best Market under the symbol “BKSC.”
INDEPENDENT AUDITORS
Elliott Davis, LLC
355 South Main Street
Greenville, SC 29601
ANNUAL MEETING
April 9, 2024
2:00 PM EST
9403 Highway 78
North Charleston, SC 29456
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. 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
law. All forward-looking statements,
required by
express or implied, included in this Annual Report are
qualified in their entirety by this cautionary statement.
www.banksc.com
256 Meeting Street
100 North Main Street
1337 Chuck Dawley Blvd.
2027 Sam Rittenberg Blvd.
9403 Highway 78
1730 Maybank Hwy.
Charleston, SC 29401
Summerville, SC 29483
Mt. Pleasant, SC 29464
Charleston, SC 29407
North Charleston, SC 29456
Charleston, SC 29412
P: 843-724-1500
F: 843-724-1513
P: 843-832-7100
F: 843-832-7115
P: 843-971-3300
F: 843-971-3315
P: 843-958-1041
F: 843-958-1050
P: 843-974-8701
F: 843-724-1530
P: 843-974-8680
F: 843-212-8330