Business Overview

Bank of South Carolina Corporation (BKSC) is a bank holding company headquartered in Charleston, South Carolina, with a strong focus on serving the financial needs of individuals and small-to-medium sized businesses in its local markets. The company, through its wholly-owned subsidiary, The Bank of South Carolina, has established a reputation for providing personalized banking services and fostering long-standing customer relationships since its inception in 1987.

History and Development

The Bank of South Carolina was originally organized on October 22, 1986 and opened for business on February 26, 1987, operating as a state-chartered financial institution. In 1995, the bank was reorganized into a wholly-owned subsidiary of Bank of South Carolina Corporation, with each outstanding share of the bank exchanged for two shares of the holding company's stock. This strategic move has allowed the company to maintain its community banking model while benefiting from the operational and financial advantages of a publicly-traded entity.

The bank's founding concept was to be a full-service financial institution specializing in personal service, responsiveness, and attention to detail to foster long-standing relationships. This core philosophy has remained intact throughout the years, contributing to the bank's strong reputation and customer loyalty. The successful completion of its initial public offering in 1986, which raised $10.6 million in capital, provided a solid foundation for the bank's future growth and stability.

Over the years, Bank of South Carolina Corporation has demonstrated its ability to navigate various economic challenges, including changes in interest rates, the 2008 financial crisis, and the COVID-19 pandemic. The bank's conservative, risk-averse approach and focus on credit quality have been key factors in maintaining its financial strength during these turbulent times.

In the early 2000s, the bank began expanding its branch network, opening new locations in Charleston, Dorchester, and Berkeley counties to better serve its growing customer base. This strategic expansion has allowed the company to establish a strong presence in its local markets. Additionally, the bank has diversified its product offerings over time, adding services such as mortgage lending, wealth management, and commercial banking to meet the evolving needs of its customers.

Financials

Over the past three decades, Bank of South Carolina Corporation has demonstrated a steadfast commitment to prudent financial management and sustainable growth. The company's total assets have grown from $445.01 million as of December 31, 2019 to $653.35 million as of December 31, 2022, representing a compounded annual growth rate of 13.82%. As of June 30, 2023, the company's total assets stood at $648.41 million. This consistent expansion has been fueled by the bank's ability to attract and retain a loyal customer base, as well as its disciplined approach to loan underwriting and risk management.

The company's financial performance has been equally impressive, with net income increasing from $7.32 million in 2019 to $6.66 million in 2022. While the slight decline in net income over this period can be attributed to various macroeconomic factors, such as the COVID-19 pandemic and rising interest rates, Bank of South Carolina Corporation has maintained a strong balance sheet and demonstrated its resilience in the face of challenging market conditions.

For the most recent fiscal year (2022), the company reported revenue of $20.96 million, net income of $6.66 million, operating cash flow of $9.47 million, and free cash flow of $8.91 million. In the most recent quarter (Q2 2023), revenue was $7,334,037, and net income was $1,801,863. It's worth noting that the company experienced a 17.19% decrease in net income for Q2 2023 compared to Q2 2022, primarily due to a $0.2 million decrease in other income, particularly a $0.1 million decrease in mortgage banking income.

One of the key strengths of Bank of South Carolina Corporation is its diversified loan portfolio, which is composed of commercial, commercial real estate, consumer real estate, and consumer loans. As of June 30, 2023, the company's loan portfolio totaled $341.34 million, with the largest segments being commercial real estate (51.19%) and consumer real estate (27.22%). This balanced approach to lending has helped the company mitigate concentration risks and maintain a healthy credit profile, as evidenced by its low non-performing asset ratio of 0.18% as of June 30, 2023.

The loan portfolio is segmented into the following categories:

1. Commercial Loans: This segment includes commercial and industrial loans, with a balance of $46.17 million as of June 30, 2023, representing 13.53% of the total loan portfolio. The yield on average commercial loans, including fees, was 6.07% for the three months ended June 30, 2023, up from 5.07% in the same period in 2022, reflecting higher interest rates on variable-rate loans and new originations.

2. Commercial Real Estate Loans: This segment includes construction loans, with a balance of $23.75 million (6.96% of total loans), and other commercial real estate loans, with a balance of $174.74 million (51.19% of total loans). The increase in commercial real estate construction loans from December 31, 2022 to June 30, 2023 was primarily due to growth in this lending area.

3. Consumer Real Estate Loans: This segment, which includes residential mortgage loans, had a balance of $92.90 million, representing 27.22% of the total loan portfolio. The Bank began originating 30-year, fixed-rate consumer mortgage loans in excess of the conforming loan amount in January 2020, which are held for investment rather than for sale in the secondary market. This mortgage product has continued to contribute to the growth in consumer real estate lending.

4. Consumer Other Loans: This segment had a balance of $3.78 million, or 1.10% of the total loan portfolio.

The overall net loan portfolio increased by 3.35% from December 31, 2022 to June 30, 2023, driven by growth in the commercial real estate construction, commercial real estate other, and consumer real estate loan segments.

Liquidity

The company's strong liquidity position is another notable aspect of its financial profile. As of June 30, 2023, Bank of South Carolina Corporation's cash and cash equivalents, including interest-bearing deposits at the Federal Reserve, totaled $25.38 million, or 3.91% of total assets. Additionally, the company's investment securities portfolio, which primarily consists of U.S. Treasury notes, government-sponsored enterprises, and municipal securities, provides a reliable source of liquidity and interest income.

The Bank's liquid assets, including cash, interest-bearing deposits at the Federal Reserve, investment securities available for sale, and mortgage loans held for sale, accounted for 43.79% of total assets as of June 30, 2023. The Bank also has access to additional sources of liquidity, including short-term lines of credit and the Federal Reserve's Bank Term Funding Program, which the Bank utilized during the first quarter of 2023 to help meet its short-term liquidity needs.

As of December 31, 2022, the company reported a cash position of $27.77 million. The company has unused short-term lines of credit totaling approximately $41.00 million which can be withdrawn at the lender's option. Additionally, the company established a $25.00 million credit line under the Federal Reserve's Bank Term Funding Program during Q1 2023, which was increased by an additional $10.00 million to $35.00 million during Q2 2023. As of June 30, 2023, there were $25.00 million in borrowings under this program.

The company's liquidity ratios as of December 31, 2022, were as follows:

• Debt/Equity Ratio: 0
• Current Ratio: 0.04151308534037753
• Quick Ratio: 0.04151308534037753

In terms of capital adequacy, Bank of South Carolina Corporation has consistently maintained a well-capitalized position, as evidenced by its Common Equity Tier 1 capital ratio of 9.35% as of June 30, 2023. This strong capital base not only supports the company's growth initiatives but also allows it to withstand potential economic downturns and regulatory changes.

Recent Performance and Future Outlook

Despite the challenges posed by the COVID-19 pandemic, Bank of South Carolina Corporation has demonstrated its ability to navigate turbulent market conditions. The company's net income declined from $6.74 million in 2021 to $6.66 million in 2022, representing a decrease of 1.19%. However, the company's proactive measures to manage credit risk and control expenses have enabled it to maintain profitability and continue to serve its customers effectively.

As of June 30, 2023, the Bank had $625,680 in nonperforming loans, which represented 0.18% of total loans. The allowance for credit losses was $3.69 million, or 1.08% of outstanding loans, at June 30, 2023, compared to $4.29 million, or 1.30% of outstanding loans, at December 31, 2022. The decrease in the allowance for credit losses was primarily due to the adoption of the CECL accounting standard on January 1, 2023, which resulted in a $600,000 decrease in the allowance. Management believes the allowance for credit losses is adequate to absorb all expected future losses in the loan portfolio.

Looking ahead, Bank of South Carolina Corporation remains focused on its strategic priorities, which include organic growth, prudent risk management, and technological innovation. The company's management team has outlined plans to expand its market share in the Charleston, Dorchester, and Berkeley counties of South Carolina, leveraging its strong brand recognition and customer relationships to drive further growth.

Deposits remain the primary source of funding for the Bank's loans and investments. Total deposits decreased 5.67% from December 31, 2022 to June 30, 2023, primarily due to scheduled maturities of brokered time deposits and increased competition for deposits in the financial industry. As of June 30, 2023, brokered time deposits totaled $24.60 million, or 4.36% of total deposits.

Community Involvement

Throughout its history, Bank of South Carolina Corporation has remained a steadfast community partner, supporting local charitable organizations, sponsoring community events, and providing financial education to its customers. This deep-rooted commitment to the communities it serves has been a defining characteristic of the bank since its inception and continues to be a source of pride for the organization.

Conclusion

In conclusion, Bank of South Carolina Corporation is a well-established community bank that has consistently delivered solid financial performance and demonstrated a commitment to responsible growth. With its diversified loan portfolio, strong liquidity position, and robust capital base, the company is well-positioned to navigate the challenges of the current economic environment and continue to create value for its shareholders. The company's focus on serving small and middle-market businesses, professionals, and individuals in its local markets through its lending and deposit-taking activities remains a core strength, and its conservative approach to risk management should help it maintain its financial stability in the face of potential economic headwinds.