NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1: Nature of Business and Basis of Presentation
Organization
The
Bank of South Carolina (the “Bank”) was organized on October 22, 1986 and opened for business as a state-chartered
financial institution on February 26, 1987, in Charleston, South Carolina. The Bank was reorganized into a wholly-owned subsidiary
of Bank of South Carolina Corporation (the “Company”), effective April 17, 1995. At the time of the reorganization,
each outstanding share of the Bank was exchanged for two shares of Bank of South Carolina Corporation Stock.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank.
In consolidation, all significant intercompany balances and transactions have been eliminated.
References
to “we”, “us”, “our”, “the Bank”, or “the Company” refer to the parent
and its subsidiary that are consolidated for financial purposes.
Basis
of Presentation
The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles, or GAAP, for the interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, our interim consolidated financial statements do not include all of the information and footnotes
required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K, filed
with the Securities and Exchange Commission (“SEC”) on March 4, 2019. In the opinion of management, these interim
financial statements present fairly, in all material respects, the Company’s consolidated financial position and results
of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative
of the results of operations that may be expected for a full year or any future period.
Accounting
Estimates and Assumptions
The
consolidated financial statements are prepared in conformity with GAAP, which require management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during
the reported periods. Actual results could differ significantly from these estimates and assumptions. Material estimates generally
susceptible to significant change are related to the determination of the allowance for loan losses, impaired loans, other real
estate owned, deferred tax assets, the fair value of financial instruments and other-than-temporary impairment of investment securities.
Reclassification
Certain
amounts in the prior years’ financial statements have been reclassified to conform to the current period’s presentation.
Such reclassifications had no effect on shareholders’ equity or the net income as previously reported.
Income
per share
Basic
income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period.
Dilutive income per share is computed by dividing net income by the weighted-average number of common shares and potential common
shares outstanding. Potential common shares consist of dilutive stock options determined using the treasury stock method and the
average market price of common stock. Retroactive recognition has been given for the effects of all stock dividends.
BANK
OF SOUTH CAROLINA CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Subsequent
Events
Subsequent
events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized
subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the
balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events
are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.
We have reviewed events occurring through the date the financial statements were available to be issued and no subsequent events
occurred requiring accrual or disclosure.
Recent
Accounting Pronouncements
The following is a summary of recent authoritative
pronouncements that could impact the accounting, reporting and/or disclosure of financial information by the Company.
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from
Contracts with Customers, Topic 606.
The core principle of the new standard is that an entity should recognize revenue to
reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or
expects to receive. This guidance also includes expanded disclosure requirements that result in an entity providing users of
financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash
flows arising from the entity’s contracts with customers. In March 2016, the FASB issued ASU 2016-08,
Revenue from
Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),
to
clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether
it is the principal or the agent in contracts that include three or more parties. In April 2016, the FASB issued ASU 2016-10,
Revenue
from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
, to clarify guidance related
to identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU
2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow- Scope Improvements and Practical Expedients
, to
clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. In December
2016, the FASB issued ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with
Customers
. These corrections make a limited number of revisions to several pieces of the revenue recognition standard
issued in 2014. The guidance became effective January 1, 2018. The Company completed an assessment of revenue streams and a
review of related contracts potentially affected by the ASU and, based on this assessment, the Company concluded that the ASU
did not materially change the method in which the Company currently recognizes revenue for these revenue streams. As such, a
cumulative effect adjustment to opening retained earnings was not deemed necessary. The Company derives most of our income
from interest on loans and investment securities that are not within the scope of Topic 606. The Company evaluated its
contracts with customers and determined that further disaggregation of revenue from contracts with customers beyond what is
reported in the Consolidated Statement of Income was not necessary. Performance obligations on its contracts with
customers are typically met as services are rendered and the transactions are charged on a periodic basis or based on
activity. The revenue streams affected by Topic 606 were service charges on deposits, interchange fees, and gains/losses on
sales of other real estate owned. The performance obligation for service charges on deposits is recognized over the period of
service provided. Interchange fees are transaction based fees recognized when the transaction is processed. Gains/losses on
sales of other real estate owned financed by the Bank were previously evaluated on the recognition of the buyer’s
initial investment. The primary consideration will be evaluated based on various factors including the loan to value, credit
quality of the borrower, structure of the loan, and any other factors affecting the collectability of the loan financing the
sale. Topic 606 will affect sales of other real estate owned if a significant financing component is present but did not have
a material effect on the consolidated financial statements. The adoption of Topic 606 did not have an impact on the revenue
recognition of these services.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall (Subtopic 825-10); Recognition and Measurement of Financial Instruments and Financial
Liabilities.
This update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.
In February 2018, the FASB issued ASU 2018-03,
Technical Corrections and Improvements to Financial Instruments—Overall
(Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities
to clarify certain aspects
of the guidance issued in ASU 2016-01. The amendments became effective on January 1, 2018 and did not have a material effect
on the financial statements.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842),
which revises certain aspects of recognition, measurement, presentation, and disclosure
of leasing transactions. In July 2018, the FASB issued ASU 2018-10,
Codification Improvements to Topic 842 –
Leases
. This update clarifies how to apply certain aspects of the new leases standard. In July 2018, the FASB issued ASU
2018-11
, Leases (Topic 842): Targeted Improvements
, which gives entities another option for transition and to
provide lessors with a practical expedient. In December 2018, the FASB issued ASU 2018-20,
Leases (Topic 842):
Narrow-Scope Improvements for Lessors,
providing narrow-scope improvements for lessors, that provides relief in the
accounting for sales, use and similar taxes, the accounting for other costs paid by a lessee that may benefit a lessor, and
variable payments when contracts have lease and non-lease components. The amendments became effective for January 1, 2019. A
modified retrospective transition approach is required, applying the new standard to all leases existing at the date of
initial application. The Bank has chosen to use the effective date, January 1, 2019, as its date of initial application;
therefore, the financial information will not be provided for dates or periods prior to January 1, 2019. The Bank considered
all relevant contractual provisions, including renewal and termination options, and determined the remaining lease terms of
each respective lease. The Bank considered past practices, market area, and contract terms of all leases and assumed all
renewal options will be exercised. The weighted average remaining lease term is 18.33 years. To determine the incremental
borrowing rate, the Bank used the rate of interest it would pay to borrow on a collateralized basis over a similar term an
amount equal to the lease payments in similar economic environment, which the Bank determined was 5.50%. The Bank does not
have any finance leases or material subleases or leasing arrangements in which it is the lessor of the property or
equipment. The adoption of this standard did not materially effect the change in the Bank's recognition of lease expense in
future periods. For the three months ended March 31, 2019, the Bank had total lease expense of $155,992, of which $15,420 is
for a short term lease. The most significant impact was the recognition of right of use assets and lease liabilities for
operating leases of approximately $7.3 million on January 1, 2019.
BANK
OF SOUTH CAROLINA CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2016, the FASB issued ASU 2016-13,
Financial instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
to change
the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective
for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all organizations for
periods beginning after December 15, 2018. The Company is currently evaluating the effect that implementation of the new standard
will have on its financial position, results of operations, and cash flows. It will be influenced by the quality, composition,
and characteristics of our loan and investment portfolios, as well as the expected economic conditions and forecasts at the time
of enactment and future reporting periods.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
to clarify how certain cash
receipts and cash payments are presented and classified in the statement of cash flows. The amendment became effective on January
1, 2018 and did not have a material effect on the financial statements.
In January 2017, the FASB issued ASU 2017-01,
Clarifying the Definition of a Business
, which provided guidance to assist with evaluating whether transactions should be
accounted for as acquisitions (or disposals) of assets or businesses. The update is intended to address concerns that the existing
definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions
that in substance are more akin to asset acquisitions. The amendments became effective on January 1, 2018 and did not have a material
effect on the financial statements.
In February 2017, the FASB issued ASU 2017-05,
Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
, to clarify
the scope of established guidance on nonfinancial asset derecognition, issued as part of ASU 2014-09,
Revenue from Contracts
with Customers
, as well as accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance
on nonfinancial assets with the model for transactions in the new revenue standard. The amendments became effective on January
1, 2018 and did not have a material effect on the financial statements.
In March 2017, the FASB issued ASU 2017-08,
Receivables – Nonrefundable Fees and Other Costs
(Subtopic 310-20):
Premium Amortization of Purchased Callable
Debt Securities
, which shortens the amortization period for the premium to the earliest call date. The amendment became effective
for the Company on January 1, 2019 and did not have a material effect on the financial statements.
In February 2018, the FASB issued ASU 2018-02,
Income Statement – Reporting Comprehensive Income
(Topic 220):
Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income
, which requires companies to reclassify the stranded effects in other comprehensive income to retained
earnings as a result of the change in the tax rates under the Tax Cuts and Jobs Act (the “2017 Tax Act”). The Company
adopted this pronouncement early by retrospective application to each period in which the effect of the change in the tax rate
under the 2017 Tax Act is recognized. The impact of the reclassification from other comprehensive income to retained earnings was
included in the Statement of Changes in Shareholders’ Equity for the year ended December 31, 2017.
In March 2018, the FASB issued ASU 2018-4,
Investments—Debt Securities
(Topic 320)
and Regulated Operations
(Topic 980):
Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273
which incorporate into the Accounting Standards
Codification (“ASC”) recent SEC guidance which was issued in order to make the relevant interpretive guidance consistent
with current authoritative accounting and auditing guidance and SEC rules and regulations. The amendments were effective upon issuance.
The Company does not expect these amendments to have a material effect on its financial statements.
BANK
OF SOUTH CAROLINA CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2018, the FASB issued ASU 2018-05,
Income Taxes
(Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
. The amendments
incorporate into the ASC recent SEC guidance related to the income tax accounting implications of the 2017 Tax Act. The amendments
were effective upon issuance. The amendments did not have a material effect on the financial statements.
In May 2018, the FASB amended the Financial
Services – Depository and Lending Topic of the ASC to remove outdated guidance related to Circular 202. The amendments were
effective upon issuance and did not have a material effect on the financial statements.
In August 2018, the FASB issued ASU 2018-13,
Fair
Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
. The
amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement,
Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments are effective for all
entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is
permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption
of the additional disclosures until their effective date. The Company does not expect these amendments to have a material effect
on its financial statements.
In August 2018, the FASB issued ASU 2018-15,
Intangibles
and Goodwill and Other-Internal Use Software (Subtopic 350-40):Customer’s Accounting for Implementation Costs Incurred in
a Cloud Computing Arrangement That Is a Service Contract),
which aligns the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred
to develop or obtain internal-use software. The amendments will be effective for the Company for fiscal years beginning after December
15, 2019. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial
statements.
In October 2018, the FASB issued ASU 2018-16,
Derivatives
and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark
Interest Rate for Hedge Accounting Purposes
, which expands the list of U.S. benchmark interest rates permitted in the
application of hedge accounting. The amendments will be effective for the Company for fiscal years beginning after December 15,
2018. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In October 2018, the FASB issued ASU 2018-07,
Consolidation
(Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities,
determining whether a decision-making
fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under
common control on a proportional basis rather than as the equivalent of a direct interest in its entirety. The amendments will
be effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
Early adoption is permitted. The Company will apply a full retrospective approach in which financial statements for each individual
prior period presented and the opening balances of the earliest period presented are adjusted to reflect the period-specific effects
of applying the amendments. The Company does not expect these amendments to have a material effect on its financial statements.
Other accounting standards that have been issued or proposed
by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of
operations or cash flows.
BANK OF SOUTH
CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2: Investment Securities
The amortized cost and fair value of investment
securities available for sale are summarized as follows:
|
|
March 31, 2019
|
|
|
|
A
MORTIZED
C
OST
|
|
|
G
ROSS
U
NREALIZED
G
AINS
|
|
|
G
ROSS
U
NREALIZED
L
OSSES
|
|
|
E
STIMATED
F
AIR
V
ALUE
|
|
U.S. Treasury Notes
|
|
$
|
32,963,569
|
|
|
$
|
—
|
|
|
$
|
(330,559
|
)
|
|
$
|
32,633,010
|
|
Government-Sponsored Enterprises
|
|
|
60,642,577
|
|
|
|
77,053
|
|
|
|
(651,740
|
)
|
|
|
60,067,890
|
|
Municipal Securities
|
|
|
24,789,595
|
|
|
|
137,368
|
|
|
|
(226,134
|
)
|
|
|
24,700,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
118,395,741
|
|
|
$
|
214,421
|
|
|
$
|
(1,208,433
|
)
|
|
$
|
117,401,729
|
|
|
|
December
31, 2018
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
U.S. Treasury Notes
|
|
$
|
32,965,693
|
|
|
$
|
—
|
|
|
$
|
(609,059
|
)
|
|
$
|
32,356,634
|
|
Government-Sponsored Enterprises
|
|
|
60,684,878
|
|
|
|
—
|
|
|
|
(1,315,598
|
)
|
|
|
59,369,280
|
|
Municipal Securities
|
|
|
28,267,930
|
|
|
|
112,971
|
|
|
|
(437,941
|
)
|
|
|
27,942,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
121,918,501
|
|
|
$
|
112,971
|
|
|
$
|
(2,362,598
|
)
|
|
$
|
119,668,874
|
|
The amortized cost and estimated fair value
of investment securities available for sale as of March 31, 2019 and December 31, 2018, by contractual maturity are in the following
table.
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
Due in one year or less
|
|
$
|
3,806,361
|
|
|
$
|
3,808,067
|
|
|
$
|
4,246,325
|
|
|
$
|
4,249,570
|
|
Due in one year to five years
|
|
|
98,775,637
|
|
|
|
97,936,820
|
|
|
|
99,753,174
|
|
|
|
97,915,185
|
|
Due in five years to ten years
|
|
|
15,399,508
|
|
|
|
15,265,041
|
|
|
|
17,504,456
|
|
|
|
17,128,425
|
|
Due in ten years and over
|
|
|
414,235
|
|
|
|
391,801
|
|
|
|
414,546
|
|
|
|
375,694
|
|
Total
|
|
$
|
118,395,741
|
|
|
$
|
117,401,729
|
|
|
$
|
121,918,501
|
|
|
$
|
119,668,874
|
|
Securities pledged to secure deposits
at both March 31, 2019 and December 31, 2018, had a fair value of $37.3 million and $41.5 million, respectively.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tables below summarize gross unrealized
losses on investment securities and the fair market value of the related securities, aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss position, at March 31, 2019 and December 31, 2018.
We believe that all unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit
deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced
in the table below before recovery of their amortized cost.
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
#
|
|
|
Fair Value
|
|
|
Gross Unrealized Loss
|
|
|
#
|
|
|
Fair Value
|
|
|
Gross Unrealized Loss
|
|
|
#
|
|
|
Fair Value
|
|
|
Gross Unrealized Loss
|
|
March 31, 2019
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Notes
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
7
|
|
|
$
|
32,633,010
|
|
|
$
|
(330,559
|
)
|
|
|
7
|
|
|
$
|
32,633,010
|
|
|
$
|
(330,559
|
)
|
Government-Sponsored Enterprises
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
50,008,405
|
|
|
|
(651,740
|
)
|
|
|
11
|
|
|
|
50,008,405
|
|
|
|
(651,740
|
)
|
Municipal Securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29
|
|
|
|
11,391,677
|
|
|
|
(226,134
|
)
|
|
|
29
|
|
|
|
11,391,677
|
|
|
|
(226,134
|
)
|
Total
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
47
|
|
|
$
|
94,033,092
|
|
|
$
|
(1,208,433
|
)
|
|
|
47
|
|
|
$
|
94,033,092
|
|
|
$
|
(1,208,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Notes
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
7
|
|
|
$
|
32,356,634
|
|
|
$
|
(609,059
|
)
|
|
|
7
|
|
|
$
|
32,356,634
|
|
|
$
|
(609,059
|
)
|
Government-Sponsored Enterprises
|
|
|
2
|
|
|
|
9,967,000
|
|
|
|
(14,302
|
)
|
|
|
11
|
|
|
|
49,402,280
|
|
|
|
(1,301,296
|
)
|
|
|
13
|
|
|
|
59,369,280
|
|
|
|
(1,315,598
|
)
|
Municipal Securities
|
|
|
2
|
|
|
|
1,362,286
|
|
|
|
(7,547
|
)
|
|
|
31
|
|
|
|
11,840,912
|
|
|
|
(430,394
|
)
|
|
|
33
|
|
|
|
13,203,198
|
|
|
|
(437,941
|
)
|
Total
|
|
|
4
|
|
|
$
|
11,329,286
|
|
|
$
|
(21,849
|
)
|
|
|
49
|
|
|
$
|
93,599,826
|
|
|
$
|
(2,340,749
|
)
|
|
|
53
|
|
|
$
|
104,929,112
|
|
|
$
|
(2,362,598
|
)
|
We received proceeds from sales of securities
available for sale and gross realized gains and losses as follows:
|
|
For the Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Gross proceeds
|
|
$
|
—
|
|
|
$
|
11,970,377
|
|
Gross realized gains
|
|
|
—
|
|
|
|
79,143
|
|
Gross realized losses
|
|
|
—
|
|
|
|
(74,795
|
)
|
For the three months ended March 31, 2018,
the tax provision related to these gains was $913.
Note 3: Loans and Allowance for Loan
Losses
Major classifications of loans (net of
deferred loan fees of $163,692 at March 31, 2019 and $156,309 at December 31, 2018) are as follows:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Commercial
|
|
$
|
51,839,425
|
|
|
$
|
54,829,078
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
9,268,042
|
|
|
|
7,304,300
|
|
Other
|
|
|
146,860,487
|
|
|
|
143,703,401
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
62,069,547
|
|
|
|
63,787,411
|
|
Other
|
|
|
5,060,773
|
|
|
|
5,040,077
|
|
|
|
|
275,098,274
|
|
|
|
274,664,267
|
|
Allowance for loan losses
|
|
|
(3,989,422
|
)
|
|
|
(4,214,331
|
)
|
Loans, net
|
|
$
|
271,108,852
|
|
|
$
|
270,449,936
|
|
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We had $98.7 million and $101.9 million
of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at March 31,
2019 and at December 31, 2018, 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 where applicable, and 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, explainable overdrafts (if any).
|
|
●
|
Watch
(4) The borrowing entity has generally adequate, yet inconsistent cash flow, cyclical earnings, weak capital, loan to/from stockholders, and infrequent overdrafts. The borrower has consistent yet sometimes unpredictable sales and growth.
|
|
●
|
OAEM
(5) The borrowing entity has marginal cash flow, occasional past dues, and frequent and unexpected working capital needs.
|
|
●
|
Substandard
(6) The borrowing entity has a cash flow barely sufficient to service debt, deteriorated financial condition, bankruptcy possible. 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.
|
The following tables illustrate credit
quality by class and internally assigned grades at March 31, 2019 and December 31, 2018. “Pass” includes loans internally
graded as excellent, good and satisfactory.
March 31, 2019
|
|
|
|
Commercial
|
|
|
Commercial
Real Estate
Construction
|
|
|
Commercial
Real Estate
Other
|
|
|
Consumer
Real Estate
|
|
|
Consumer Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
47,384,980
|
|
|
$
|
9,268,042
|
|
|
$
|
139,813,221
|
|
|
$
|
58,219,334
|
|
|
$
|
4,695,662
|
|
|
$
|
259,381,239
|
|
Watch
|
|
|
2,556,253
|
|
|
|
—
|
|
|
|
5,020,580
|
|
|
|
2,548,457
|
|
|
|
345,668
|
|
|
|
10,470,958
|
|
OAEM
|
|
|
172,196
|
|
|
|
—
|
|
|
|
665,531
|
|
|
|
422,004
|
|
|
|
—
|
|
|
|
1,259,731
|
|
Sub-standard
|
|
|
1,725,996
|
|
|
|
—
|
|
|
|
1,361,155
|
|
|
|
879,752
|
|
|
|
19,443
|
|
|
|
3,986,346
|
|
Doubtful
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
51,839,425
|
|
|
$
|
9,268,042
|
|
|
$
|
146,860,487
|
|
|
$
|
62,069,547
|
|
|
$
|
5,060,773
|
|
|
$
|
275,098,274
|
|
December 31, 2018
|
|
|
|
Commercial
|
|
|
Commercial
Real Estate
Construction
|
|
|
Commercial
Real Estate
Other
|
|
|
Consumer
Real Estate
|
|
|
Consumer Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
50,663,356
|
|
|
$
|
7,304,300
|
|
|
$
|
136,804,420
|
|
|
$
|
60,480,317
|
|
|
$
|
4,726,494
|
|
|
$
|
259,978,887
|
|
Watch
|
|
|
1,973,675
|
|
|
|
—
|
|
|
|
4,938,711
|
|
|
|
2,077,341
|
|
|
|
226,117
|
|
|
|
9,215,844
|
|
OAEM
|
|
|
157,300
|
|
|
|
—
|
|
|
|
590,294
|
|
|
|
350,000
|
|
|
|
—
|
|
|
|
1,097,594
|
|
Sub-standard
|
|
|
2,034,747
|
|
|
|
—
|
|
|
|
1,369,976
|
|
|
|
879,753
|
|
|
|
87,466
|
|
|
|
4,371,942
|
|
Doubtful
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
54,829,078
|
|
|
$
|
7,304,300
|
|
|
$
|
143,703,401
|
|
|
$
|
63,787,411
|
|
|
$
|
5,040,077
|
|
|
$
|
274,664,267
|
|
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:
March 31, 2019
|
|
|
30-59 Days Past Due
|
|
|
60-89 Days Past Due
|
|
|
Greater Than
90 Days
|
|
|
Total Past Due
|
|
|
Current
|
|
|
Total Loans Receivable
|
|
|
Recorded
Investment >
90 Days and Accruing
|
|
Commercial
|
|
$
|
49,220
|
|
|
$
|
347,824
|
|
|
$
|
—
|
|
|
$
|
397,044
|
|
|
$
|
51,442,381
|
|
|
$
|
51,839,425
|
|
|
$
|
—
|
|
Commercial Real Estate Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,268,042
|
|
|
|
9,268,042
|
|
|
|
—
|
|
Commercial Real Estate Other
|
|
|
209,880
|
|
|
|
—
|
|
|
|
571,292
|
|
|
|
781,172
|
|
|
|
146,079,315
|
|
|
|
146,860,487
|
|
|
|
—
|
|
Consumer Real Estate
|
|
|
3,539
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,539
|
|
|
|
62,066,008
|
|
|
|
62,069,547
|
|
|
|
—
|
|
Consumer Other
|
|
|
26,199
|
|
|
|
19,112
|
|
|
|
1,076
|
|
|
|
46,387
|
|
|
|
5,014,386
|
|
|
|
5,060,773
|
|
|
|
—
|
|
Total
|
|
$
|
288,838
|
|
|
$
|
366,936
|
|
|
$
|
572,368
|
|
|
$
|
1,228,142
|
|
|
$
|
273,870,132
|
|
|
$
|
275,098,274
|
|
|
$
|
—
|
|
December 31, 2018
|
|
|
30-59 Days Past Due
|
|
|
60-89 Days Past Due
|
|
|
Greater Than
90 Days
|
|
|
Total Past Due
|
|
|
Current
|
|
|
Total Loans Receivable
|
|
|
Recorded
Investment >
90 Days and Accruing
|
|
Commercial
|
|
$
|
266,567
|
|
|
$
|
17,492
|
|
|
$
|
229,395
|
|
|
$
|
513,454
|
|
|
$
|
54,315,624
|
|
|
$
|
54,829,078
|
|
|
$
|
—
|
|
Commercial Real Estate Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,304,300
|
|
|
|
7,304,300
|
|
|
|
—
|
|
Commercial Real Estate Other
|
|
|
35,000
|
|
|
|
215,049
|
|
|
|
571,292
|
|
|
|
821,341
|
|
|
|
142,882,060
|
|
|
|
143,703,401
|
|
|
|
—
|
|
Consumer Real Estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,787,411
|
|
|
|
63,787,411
|
|
|
|
—
|
|
Consumer Other
|
|
|
24,621
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,621
|
|
|
|
5,015,456
|
|
|
|
5,040,077
|
|
|
|
—
|
|
Total
|
|
$
|
326,188
|
|
|
$
|
232,541
|
|
|
$
|
800,687
|
|
|
$
|
1,359,416
|
|
|
$
|
273,304,851
|
|
|
$
|
274,664,267
|
|
|
$
|
—
|
|
There were no loans
as of March 31, 2019 and December 31, 2018 over 90 days past due and still accruing.
The following table summarizes the balances of non-accrual loans:
|
|
Loans Receivable on Non-Accrual
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Commercial
|
|
$
|
16,148
|
|
|
$
|
251,219
|
|
Commercial Real Estate Construction
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate Other
|
|
|
571,292
|
|
|
|
571,292
|
|
Consumer Real Estate
|
|
|
—
|
|
|
|
—
|
|
Consumer Other
|
|
|
1,076
|
|
|
|
1,023
|
|
Total
|
|
$
|
588,516
|
|
|
$
|
823,534
|
|
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth the changes
in the allowance for loan losses and an allocation of the allowance for loan losses by loan category for the three months ended
March 31, 2019 and March 31, 2018. The allowance for loan losses consists of specific and general components. The specific component
relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on
historical loss experience adjusted for current economic factors.
March 31, 2019
|
|
|
Commercial
|
|
|
Commercial Real Estate
Construction
|
|
|
Commercial
Real Estate Other
|
|
|
Consumer
Real Estate
|
|
|
Consumer
Other
|
|
|
Total
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,665,413
|
|
|
$
|
63,876
|
|
|
$
|
1,292,346
|
|
|
$
|
386,585
|
|
|
$
|
806,111
|
|
|
$
|
4,214,331
|
|
Charge-offs
|
|
|
(229,395
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,334
|
)
|
|
|
(235,729
|
)
|
Recoveries
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
320
|
|
|
|
820
|
|
Provisions
|
|
|
92,059
|
|
|
|
17,171
|
|
|
|
26,572
|
|
|
|
(8,944
|
)
|
|
|
(116,858
|
)
|
|
|
10,000
|
|
Ending balance
|
|
$
|
1,528,577
|
|
|
$
|
81,047
|
|
|
$
|
1,318,918
|
|
|
$
|
377,641
|
|
|
$
|
683,239
|
|
|
$
|
3,989,422
|
|
March 31, 2018
|
|
|
Commercial
|
|
|
Commercial
Real Estate
Construction
|
|
|
Commercial
Real Estate Other
|
|
|
Consumer
Real Estate
|
|
|
Consumer
Other
|
|
|
Total
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,403,588
|
|
|
$
|
23,638
|
|
|
$
|
1,549,755
|
|
|
$
|
796,918
|
|
|
$
|
101,499
|
|
|
$
|
3,875,398
|
|
Charge-offs
|
|
|
(31,250
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(71,843
|
)
|
|
|
(103,093
|
)
|
Recoveries
|
|
|
1,500
|
|
|
|
—
|
|
|
|
1,575
|
|
|
|
—
|
|
|
|
140
|
|
|
|
3,215
|
|
Provisions
|
|
|
(47,592
|
)
|
|
|
(12,502
|
)
|
|
|
(510,242
|
)
|
|
|
(229,843
|
)
|
|
|
855,179
|
|
|
|
55,000
|
|
Ending balance
|
|
$
|
1,326,246
|
|
|
$
|
11,136
|
|
|
$
|
1,041,088
|
|
|
$
|
567,075
|
|
|
$
|
884,975
|
|
|
$
|
3,830,520
|
|
The following tables present, by portfolio
segment and reserving methodology, the allocation of the allowance for loan losses and the gross investment in loans.
March 31, 2019
|
|
|
Commercial
|
|
|
Commercial
Real
Estate
Construction
|
|
|
Commercial
Real Estate Other
|
|
|
Consumer Real
Estate
|
|
|
Consumer
Other
|
|
|
Total
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
877,419
|
|
|
$
|
—
|
|
|
$
|
34,249
|
|
|
$
|
—
|
|
|
$
|
9,258
|
|
|
$
|
920,926
|
|
Collectively evaluated for impairment
|
|
|
651,158
|
|
|
|
81,047
|
|
|
|
1,284,669
|
|
|
|
377,641
|
|
|
|
673,981
|
|
|
|
3,068,496
|
|
Total Allowance for Loan Losses
|
|
$
|
1,528,577
|
|
|
$
|
81,047
|
|
|
$
|
1,318,918
|
|
|
$
|
377,641
|
|
|
$
|
683,239
|
|
|
$
|
3,989,422
|
|
Loans Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,725,995
|
|
|
$
|
—
|
|
|
$
|
1,370,606
|
|
|
$
|
879,753
|
|
|
$
|
19,444
|
|
|
$
|
3,995,798
|
|
Collectively evaluated for impairment
|
|
|
50,113,430
|
|
|
|
9,268,042
|
|
|
|
145,489,881
|
|
|
|
61,189,794
|
|
|
|
5,041,329
|
|
|
|
271,102,476
|
|
Total Loans Receivable
|
|
$
|
51,839,425
|
|
|
$
|
9,268,042
|
|
|
$
|
146,860,487
|
|
|
$
|
62,069,547
|
|
|
$
|
5,060,773
|
|
|
$
|
275,098,274
|
|
December 31, 2018
|
|
|
Commercial
|
|
|
Commercial Real Estate
Construction
|
|
|
Commercial
Real Estate Other
|
|
|
Consumer Real
Estate
|
|
|
Consumer
Other
|
|
|
Total
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,132,805
|
|
|
$
|
—
|
|
|
$
|
37,416
|
|
|
$
|
—
|
|
|
$
|
21,324
|
|
|
$
|
1,191,545
|
|
Allowance for
Loan Losses
|
|
|
532,608
|
|
|
|
63,876
|
|
|
|
1,254,930
|
|
|
|
386,585
|
|
|
|
784,787
|
|
|
|
3,022,786
|
|
Total
Allowance for Loan Losses
|
|
$
|
1,665,413
|
|
|
$
|
63,876
|
|
|
$
|
1,292,346
|
|
|
$
|
386,585
|
|
|
$
|
806,111
|
|
|
$
|
4,214,331
|
|
Loans Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,996,579
|
|
|
$
|
—
|
|
|
$
|
1,280,890
|
|
|
$
|
879,753
|
|
|
$
|
21,324
|
|
|
$
|
4,178,546
|
|
Collectively evaluated for impairment
|
|
|
52,832,499
|
|
|
|
7,304,300
|
|
|
|
142,422,511
|
|
|
|
62,907,658
|
|
|
|
5,018,753
|
|
|
|
270,485,721
|
|
Total Loans Receivable
|
|
$
|
54,829,078
|
|
|
$
|
7,304,300
|
|
|
$
|
143,703,401
|
|
|
$
|
63,787,411
|
|
|
$
|
5,040,077
|
|
|
$
|
274,664,267
|
|
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2019 and December 31, 2018, loans individually
evaluated and considered impaired are presented in the following table:
Impaired and Restructured Loans As of
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Related Allowance
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Related Allowance
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
124,115
|
|
|
$
|
124,115
|
|
|
$
|
—
|
|
|
$
|
115,983
|
|
|
$
|
115,983
|
|
|
$
|
—
|
|
Commercial Real Estate Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate Other
|
|
|
867,530
|
|
|
|
967,331
|
|
|
|
—
|
|
|
|
974,249
|
|
|
|
974,249
|
|
|
|
—
|
|
Consumer Real Estate
|
|
|
879,753
|
|
|
|
879,753
|
|
|
|
—
|
|
|
|
879,753
|
|
|
|
879,753
|
|
|
|
—
|
|
Consumer Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,871,398
|
|
|
|
1,971,199
|
|
|
|
—
|
|
|
|
1,969,985
|
|
|
|
1,969,985
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,601,880
|
|
|
|
1,601,880
|
|
|
|
877,419
|
|
|
|
1,880,596
|
|
|
|
1,880,596
|
|
|
|
1,132,805
|
|
Commercial Real Estate Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate Other
|
|
|
503,076
|
|
|
|
303,474
|
|
|
|
34,249
|
|
|
|
406,442
|
|
|
|
306,641
|
|
|
|
37,416
|
|
Consumer Real Estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer Other
|
|
|
19,444
|
|
|
|
19,444
|
|
|
|
9,258
|
|
|
|
21,324
|
|
|
|
21,324
|
|
|
|
21,324
|
|
|
|
|
2,142,400
|
|
|
|
1,924,798
|
|
|
|
920,926
|
|
|
|
2,308,362
|
|
|
|
2,208,561
|
|
|
|
1,191,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,725,995
|
|
|
|
1,725,995
|
|
|
|
877,419
|
|
|
|
1,996,579
|
|
|
|
1,996,579
|
|
|
|
1,132,805
|
|
Commercial Real Estate Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate Other
|
|
|
1,370,606
|
|
|
|
1,270,805
|
|
|
|
34,249
|
|
|
|
1,380,691
|
|
|
|
1,280,890
|
|
|
|
37,416
|
|
Consumer Real Estate
|
|
|
879,753
|
|
|
|
879,753
|
|
|
|
—
|
|
|
|
879,753
|
|
|
|
879,753
|
|
|
|
—
|
|
Consumer Other
|
|
|
19,444
|
|
|
|
19,444
|
|
|
|
9,258
|
|
|
|
21,324
|
|
|
|
21,324
|
|
|
|
21,324
|
|
|
|
$
|
3,995,798
|
|
|
$
|
3,895,997
|
|
|
$
|
920,926
|
|
|
$
|
4,278,347
|
|
|
$
|
4,178,546
|
|
|
$
|
1,191,545
|
|
The following table presents average impaired loans and interest
income recognized on those impaired loans, by class segment, for the periods indicated.
|
|
For the Three
Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
128,965
|
|
|
$
|
2,286
|
|
|
$
|
186,580
|
|
|
$
|
2,411
|
|
Commercial Real Estate Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate Other
|
|
|
970,774
|
|
|
|
10,346
|
|
|
|
1,055,999
|
|
|
|
7,006
|
|
Consumer Real Estate
|
|
|
879,753
|
|
|
|
14,100
|
|
|
|
249,754
|
|
|
|
3,702
|
|
Consumer Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,979,492
|
|
|
|
26,732
|
|
|
|
1,492,333
|
|
|
|
13,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,614,020
|
|
|
|
26,114
|
|
|
|
1,570,019
|
|
|
|
25,663
|
|
Commercial Real Estate Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate Other
|
|
|
504,566
|
|
|
|
2,763
|
|
|
|
529,297
|
|
|
|
2,995
|
|
Consumer Real Estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer Other
|
|
|
19,653
|
|
|
|
254
|
|
|
|
31,411
|
|
|
|
439
|
|
|
|
|
2,138,239
|
|
|
|
29,131
|
|
|
|
2,130,727
|
|
|
|
29,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,742,985
|
|
|
|
28,400
|
|
|
|
1,756,599
|
|
|
|
28,074
|
|
Commercial Real Estate Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate Other
|
|
|
1,375,539
|
|
|
|
13,109
|
|
|
|
1,585,296
|
|
|
|
10,001
|
|
Consumer Real Estate
|
|
|
879,753
|
|
|
|
14,100
|
|
|
|
249,754
|
|
|
|
3,702
|
|
Consumer Other
|
|
|
19,653
|
|
|
|
254
|
|
|
|
31,411
|
|
|
|
439
|
|
|
|
$
|
4,017,930
|
|
|
$
|
55,863
|
|
|
$
|
3,623,060
|
|
|
$
|
42,216
|
|
In general, the modification or
restructuring of a loan is considered a troubled debt restructuring (“TDR”) if we, for economic or legal reasons
related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise
consider. As of March 31, 2019, there was one TDR with a balance of $2,185, compared to no TDRs as of December 31, 2018. This
TDR was granted extended payment terms and a lower payment at renewal. No TDRs defaulted during the three months ended March
31, 2019 and 2018, which were modified within the previous twelve months.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4: Disclosure Regarding Fair
Value of Financial Statements
Fair value measurements apply whenever
GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value
is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market
in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes
exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary
for transactions involving such assets or liabilities; it is not a forced transaction. The fair value standard establishes a hierarchy
for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs.
Observable inputs, which are developed based on market data we have obtained from independent sources, are ones that market participants
would use in pricing an asset or liability. Unobservable inputs, which are developed based on the best information available in
the circumstances, reflect our estimate of assumptions that market participants would use in pricing an asset or liability.
The fair value hierarchy gives the highest
priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the
lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on
the reliability of inputs as follows:
|
●
|
Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.
|
|
●
|
Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.
|
|
●
|
Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.
|
Fair value estimates are made at a specific
point of time, based on relevant market information and information about the financial instrument. These estimates do not reflect
any premium or discount that could result from offering for sale our entire holdings of a particular financial instrument. Because
no active market exists for a significant portion of our financial instruments, fair value estimates are based on judgements regarding
future expected loss experience, current economic conditions, current interest rates and prepayment trends, risk characteristics
of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with precision. Changes in any of these assumptions used in calculating
fair value also would affect significantly the estimates. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these
estimates.
The following paragraphs are a description
of valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:
Investment Securities Available for
Sale
Investment securities are recorded at
fair value on a recurring basis and are based upon quoted prices if available. If quoted prices are not available, fair value
is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash
flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.
Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, or by dealers or brokers in
active over-the counter markets. Level 2 securities include mortgage backed securities issued by government sponsored entities,
municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed 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
as interest rate locks and commitments to sell fixed rate conforming loans on a best efforts basis. We do not currently engage
in hedging activities. Based on short term fair value of the mortgage loans held for sale (derivative contract), our derivative
instruments were immaterial to our consolidated financial statements as of March 31, 2019 and December 31, 2018.
Assets and liabilities measured at fair
value on a recurring basis at March 31, 2019 and December 31, 2018 are as follows:
Balance at March 31, 2019
|
|
|
Quoted
Market Price
in active
markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
U.S. Treasury Notes
|
|
$
|
32,633,010
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,633,010
|
|
Government-Sponsored Enterprises
|
|
|
—
|
|
|
|
60,067,890
|
|
|
|
—
|
|
|
|
60,067,890
|
|
Municipal Securities
|
|
|
—
|
|
|
|
18,962,211
|
|
|
|
5,738,618
|
|
|
|
24,700,829
|
|
Total
|
|
$
|
32,633,010
|
|
|
$
|
79,030,101
|
|
|
$
|
5,738,618
|
|
|
$
|
117,401,729
|
|
Balance at December 31, 2018
|
|
|
Quoted
Market Price
in active
markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
U.S. Treasury Notes
|
|
$
|
32,356,634
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,356,634
|
|
Government-Sponsored Enterprises
|
|
|
—
|
|
|
|
59,369,280
|
|
|
|
—
|
|
|
|
59,369,280
|
|
Municipal Securities
|
|
|
—
|
|
|
|
21,701,005
|
|
|
|
6,241,955
|
|
|
|
27,942,960
|
|
Total
|
|
$
|
32,356,634
|
|
|
$
|
81,070,285
|
|
|
$
|
6,241,955
|
|
|
$
|
119,668,874
|
|
There were no liabilities recorded at
fair value on a recurring basis as of March 31, 2019 or December 31, 2018.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the changes in assets measured
at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2019 and
2018:
|
|
2019
|
|
|
2018
|
|
Beginning balance
|
|
$
|
6,241,955
|
|
|
$
|
11,458,889
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
—
|
|
|
|
—
|
|
Included in other comprehensive income
|
|
|
56,663
|
|
|
|
64,807
|
|
Purchases, issuances, and settlements net of maturities
|
|
|
(560,000
|
)
|
|
|
(4,040,000
|
)
|
Transfers in and/or out of level 3
|
|
|
—
|
|
|
|
—
|
|
Ending balance
|
|
$
|
5,738,618
|
|
|
$
|
7,483,696
|
|
There were no transfers between fair value
levels during the three months ended March 31, 2019 or 2018.
The following paragraphs are a description
of valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:
Other Real Estate Owned (“OREO”)
Loans secured by real estate are adjusted
to the lower of the recorded investment in the loan or the fair value of the real estate upon transfer to OREO. Subsequently, OREO
is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of
the collateral, or our estimation of the value of the collateral. When the fair value of the collateral is based on an observable
market price or a current appraisal, we record the asset as nonrecurring Level 2. When an appraised value is not available or we
determine the fair value of the collateral is further impaired below the appraised value and there is no observable market price,
we record the asset as nonrecurring Level 3.
Impaired Loans
Impaired loans are carried at the lower
of recorded investment or fair value. The fair value of the collateral less estimated costs to sell is the most frequently used
method. Typically, we review the most recent appraisal and if it is over 12 to 18 months old we may request a new third party appraisal.
Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most
recent appraisal and the value of the collateral relative to the recorded investment in the loan, we may order an independent appraisal
immediately or, in some instances, may elect to perform an internal analysis. Specifically as an example, in situations where the
collateral on a nonperforming commercial real estate loan is out of our primary market area, we would typically order an independent
appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following the determination that
the loan is impaired. However, as a second example, on a nonperforming commercial real estate loan where we are familiar with the
property and surrounding areas and where the original appraisal value far exceeds the recorded investment in the loan, we may perform
an internal analysis whereby the previous appraisal value would be reviewed considering recent current conditions, and known recent
sales or listings of similar properties in the area, and any other relevant economic trends. This analysis may result in the call
for a new appraisal. These valuations are reviewed and updated on a quarterly basis.
In accordance with ASC 820 “Fair
Value Measurement”, impaired loans, where an allowance is established based on the fair value of collateral, require classification
in the fair value hierarchy. These impaired loans are classified as Level 3. Impaired loans measured using discounted future cash
flows are not deemed to be measured at fair value.
Mortgage Loans to be Sold
Mortgage loans to be sold are carried at
the lower of cost or market value. The fair values of mortgage loans to be sold are based on current market rates from investors
within the secondary market for loans with similar characteristics. Carrying value approximates fair value. These loans are classified
as Level 2.
Certain assets and liabilities are measured
at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject
to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
The following table presents information
about certain assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2019 and December 31, 2018:
March 31, 2019
|
|
|
|
|
Quoted
Market Price
in active
markets
(Level 1)
|
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
Total
|
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,216,110
|
|
|
$
|
2,216,110
|
|
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loans held for sale
|
|
|
—
|
|
|
|
2,437,420
|
|
|
|
—
|
|
|
|
2,437,420
|
|
Total
|
|
$
|
—
|
|
|
$
|
2,437,420
|
|
|
$
|
2,216,110
|
|
|
$
|
4,653,530
|
|
December 31, 2018
|
|
|
|
|
Quoted
Market Price
in active
markets
(Level 1)
|
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
Total
|
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,223,028
|
|
|
$
|
2,223,028
|
|
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loans held for sale
|
|
|
—
|
|
|
|
1,199,438
|
|
|
|
—
|
|
|
|
1,199,438
|
|
Total
|
|
$
|
—
|
|
|
$
|
1,199,438
|
|
|
$
|
2,223,028
|
|
|
$
|
3,422,466
|
|
There were no liabilities measured at fair
value on a nonrecurring basis as of March 31, 2019 or December 31, 2018.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information
describing the unobservable inputs used in Level 3 fair value measurements at March 31, 2019 and December 31, 2018:
|
|
|
|
Inputs
|
|
|
Valuation Technique
|
|
Unobservable Input
|
|
General Range of Inputs
|
|
|
|
|
|
|
|
Impaired Loans
|
|
Appraisal Value/ Comparison Sales/Other Estimates
|
|
Appraisals and/or Sales of Comparable Properties
|
|
Appraisals Discounted 10% to 20% for Sales Commissions and Other Holding Costs
|
|
|
|
|
|
|
|
Other Real Estate Owned
|
|
Appraisal Value/ Comparison Sales/Other Estimates
|
|
Appraisals and/or Sales of Comparable Properties
|
|
Appraisals Discounted 10% to 20% for Sales Commissions and Other Holding Costs
|
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 at the Federal Reserve
The
carrying value approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.
b.
Investment securities
available for sale
Investment securities available
for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If
quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques
such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other
factors such as credit loss assumptions.
c.
Loans, net
The fair value of the Company’s
loan portfolio has always included a credit risk assumption in the determination of the fair value of its loans. This credit risk
assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction.
The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio
into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account
for credit risk as described above. However, under the new guidance, the Company believes a further credit risk discount must
be applied through the use of a discounted cash flow model to compensate for illiquidity risk, based on certain assumptions included
within the discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime
of a loan. This consideration of enhanced credit risk provides an estimated exit price for the Company’s loan portfolio.
For variable-rate loans that
reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for impaired
loans are estimated based on the fair value of the underlying collateral. Impaired 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 to be a reasonable
estimate of fair value.
f.
Loan
commitments
Estimates of the fair value of
these off-balance sheet items are not made because of the short-term nature of these arrangements and the credit standing of the
counterparties.
BANK OF SOUTH CAROLINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the carrying
amount, fair value, and placement in the fair value hierarchy of our financial instruments as of March 31, 2019 and December 31,
2018.
Fair Value Measurements at March 31, 2019
|
|
|
|
Carrying
Amount
|
|
|
|
Estimated
Fair Value
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,022,081
|
|
|
$
|
7,022,081
|
|
|
$
|
7,022,081
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest-bearing deposits at the Federal Reserve
|
|
|
20,299,857
|
|
|
|
20,299,857
|
|
|
|
20,299,857
|
|
|
|
—
|
|
|
|
—
|
|
Investment securities available for sale
|
|
|
117,401,729
|
|
|
|
117,401,729
|
|
|
|
32,633,010
|
|
|
|
79,030,101
|
|
|
|
5,738,618
|
|
Mortgage loans to be sold
|
|
|
2,437,420
|
|
|
|
2,437,420
|
|
|
|
—
|
|
|
|
2,437,420
|
|
|
|
—
|
|
Loans, net
|
|
|
271,108,852
|
|
|
|
264,359,979
|
|
|
|
—
|
|
|
|
—
|
|
|
|
264,359,979
|
|
Accrued interest receivable
|
|
|
1,498,839
|
|
|
|
1,498,839
|
|
|
|
—
|
|
|
|
1,498,839
|
|
|
|
—
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
347,799,383
|
|
|
|
347,799,383
|
|
|
|
—
|
|
|
|
347,799,383
|
|
|
|
—
|
|
Time deposits
|
|
|
27,578,799
|
|
|
|
30,789,351
|
|
|
|
—
|
|
|
|
30,789,351
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
62,300
|
|
|
|
62,300
|
|
|
|
—
|
|
|
|
62,300
|
|
|
|
—
|
|
Fair Value Measurements at December 31, 2018
|
|
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
6,325,457
|
|
$
|
|
6,325,457
|
|
$
|
|
6,325,457
|
|
$
|
|
—
|
|
$
|
|
—
|
|
Interest-bearing deposits at the Federal Reserve
|
|
|
25,506,784
|
|
|
|
25,506,784
|
|
|
|
25,506,784
|
|
|
|
—
|
|
|
|
—
|
|
Investment securities available for sale
|
|
|
119,668,874
|
|
|
|
119,668,874
|
|
|
|
32,356,634
|
|
|
|
81,070,285
|
|
|
|
6,241,955
|
|
Mortgage loans to be sold
|
|
|
1,199,438
|
|
|
|
1,199,438
|
|
|
|
—
|
|
|
|
1,199,438
|
|
|
|
—
|
|
Loans, net
|
|
|
270,449,936
|
|
|
|
263,780,751
|
|
|
|
—
|
|
|
|
—
|
|
|
|
263,780,751
|
|
Accrued interest receivable
|
|
|
1,561,915
|
|
|
|
1,561,915
|
|
|
|
—
|
|
|
|
1,561,915
|
|
|
|
—
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
347,909,663
|
|
|
|
347,909,663
|
|
|
|
—
|
|
|
|
347,909,663
|
|
|
|
—
|
|
Time deposits
|
|
|
34,468,725
|
|
|
|
38,747,898
|
|
|
|
—
|
|
|
|
38,747,898
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
163,876
|
|
|
|
163,876
|
|
|
|
—
|
|
|
|
163,876
|
|
|
|
—
|
|
Note 5: Income Per Common Share
Basic income per share is computed by dividing
net income by the weighted-average number of common shares outstanding, after giving retroactive effect to a stock dividend payable
May 31, 2018. 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.
The following table is a summary of the
reconciliation of average shares outstanding for the three months ended March 31:
|
|
2019
|
|
|
2018
|
|
Net income
|
|
$
|
1,689,264
|
|
|
$
|
1,612,230
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
5,514,413
|
|
|
|
5,489,087
|
|
Effect of dilutive shares
|
|
|
77,939
|
|
|
|
94,284
|
|
Weighted average shares outstanding - diluted
|
|
|
5,592,352
|
|
|
|
5,583,371
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.31
|
|
|
$
|
0.29
|
|
Earnings per share - diluted
|
|
$
|
0.30
|
|
|
$
|
0.29
|
|