Bank of South Carolina Corporation (NASDAQ:BKSC) is a bank holding company headquartered in Charleston, South Carolina, with $648.4 million in assets as of June 30, 2023. The company's wholly-owned subsidiary, The Bank of South Carolina, operates primarily in Charleston, Dorchester, and Berkeley counties of South Carolina, offering a broad range of financial services to its customers.

Business Overview

The Bank of South Carolina was organized in 1986 and opened for business in 1987, with the goal of being a full-service financial institution specializing in personal service, responsiveness, and attention to detail to foster long-standing relationships. Over the years, the bank has maintained its focus on serving the needs of small and middle-market businesses, professionals, and individuals in its local markets.

The bank's lending activities are concentrated in commercial, commercial real estate, and consumer loans, with a strong emphasis on building lasting relationships with its customers. The investment portfolio is primarily composed of high-quality, highly liquid securities, which the bank uses to manage interest rate risk and provide liquidity.

Financial Performance

Bank of South Carolina Corporation has demonstrated consistent financial performance, even in the face of a challenging economic environment. For the fiscal year ended December 31, 2022, the company reported annual net income of $5,493,616, annual revenue of $26,078,366, annual operating cash flow of $6,180,911, and annual free cash flow of $5,711,865.

In the first six months of 2023, the company continued to deliver solid results. Net income for the six-month period was $2,866,496, while revenue totaled $11,658,894. Operating cash flow for the first half of 2023 was $2,264,547, and free cash flow amounted to $2,206,880.

Quarterly Performance

On a quarterly basis, the company's performance has remained strong. For the three months ended June 30, 2023, Bank of South Carolina Corporation reported net income of $1,277,717, with revenue of $6,027,060. Operating cash flow for the quarter was $1,264,547, and free cash flow was $1,206,880.

Compared to the same period in the prior year, the company's net income decreased by 17.19% in the second quarter of 2023, primarily due to a 26.37% decline in non-interest income, which was partially offset by a 1.35% increase in net interest income. The decrease in non-interest income was mainly attributable to a $145,638 reduction in mortgage banking income.

Liquidity and Capital Resources

Bank of South Carolina Corporation maintains a strong liquidity position, with primary liquid assets (cash, interest-bearing deposits at the Federal Reserve, investment securities available for sale, and mortgage loans held for sale) accounting for 43.79% of total assets as of June 30, 2023. The company's core deposits, which include non-interest-bearing accounts, NOW accounts, money market accounts, time deposits, and savings accounts, provide a stable funding source for the bank's lending and investment activities.

The company's capital position remains robust, with a community bank leverage ratio of 9.35% as of June 30, 2023, well above the regulatory minimum of 9% required for the company to be considered "well capitalized." This strong capital base provides the bank with the flexibility to support future growth and withstand potential economic challenges.

Risks and Challenges

Like any financial institution, Bank of South Carolina Corporation faces a variety of risks and challenges, including interest rate risk, credit risk, and operational risk. The company's management team actively monitors these risks and implements appropriate strategies to mitigate them.

One key risk factor is the company's geographic concentration, with the majority of its operations and loan portfolio centered in the Charleston, Dorchester, and Berkeley counties of South Carolina. This regional focus exposes the bank to potential economic fluctuations and changes in the local real estate market.

Additionally, the highly competitive banking environment in the company's markets, particularly for deposits, presents an ongoing challenge. The bank must continually adapt its product offerings and pricing to remain competitive and retain its customer base.

Outlook and Guidance

Bank of South Carolina Corporation has not provided any formal guidance for the remainder of 2023. However, the company's management has expressed cautious optimism about the bank's ability to navigate the evolving banking landscape and continue delivering solid financial performance.

The bank's focus on building strong customer relationships, maintaining a prudent risk profile, and leveraging its community-based approach are expected to serve it well in the current environment. Additionally, the bank's robust liquidity and capital positions provide a solid foundation for future growth and expansion opportunities.

Conclusion

Bank of South Carolina Corporation has demonstrated its ability to deliver consistent financial results, even in the face of economic challenges. The company's focus on serving the needs of its local communities, coupled with its prudent risk management and strong capital position, positions it well to navigate the evolving banking landscape.

As the company continues to adapt to changing market conditions, investors will be closely watching its ability to maintain its competitive edge, manage risks effectively, and capitalize on growth opportunities. With its solid foundation and experienced management team, Bank of South Carolina Corporation appears poised to continue its trajectory of steady performance and value creation for its shareholders.