Introduction
Bank of South Carolina Corporation (BKSC) is a bank holding company headquartered in Charleston, South Carolina, with a history dating back to 1987. The company's wholly-owned subsidiary, The Bank of South Carolina, operates primarily in the Charleston, Dorchester, and Berkeley counties, offering a range of financial services to individuals and businesses. Over the years, the bank has established itself as a reliable and trusted financial institution, weathering various economic challenges and maintaining a steadfast presence in the Palmetto State.
History and Origins
The company's origins can be traced back to 1986, when a group of local business leaders recognized the need for a community-focused bank in the Charleston area. On October 22, 1986, the Bank of South Carolina was organized, and on February 26, 1987, it opened its doors for business. The bank's original concept was to be a full-service financial institution, specializing in personal service, responsiveness, and attention to detail, in order to foster long-standing relationships with its customers.
Strategic Focus and Growth
Since its inception, Bank of South Carolina Corporation has demonstrated a consistent commitment to its core values and strategic objectives. The company's emphasis on personalized service, local decision-making, and community involvement has enabled it to establish a strong foothold in its target markets. As of December 31, 2023, the company reported total assets of $633.82 million, an increase of 3.13% from the previous year's figure of $653.35 million.
Over the years, the Bank has expanded its presence in the local market, opening additional branch locations in North Charleston, Summerville, Mt. Pleasant, James Island, and the West Ashley community of Charleston. This growth has allowed the bank to better serve its customer base and strengthen its position in the region. The Bank has faced challenges common to the banking industry, such as navigating changes in interest rates, deposit competition, and loan portfolio composition. However, it has successfully maintained its commitment to its original concept of providing personalized service and fostering long-standing relationships with customers.
Corporate Structure
On April 17, 1995, the bank underwent a significant organizational change, reorganizing into a wholly-owned subsidiary of Bank of South Carolina Corporation. As part of this restructuring, each outstanding share of the Bank was exchanged for two shares of Bank of South Carolina Corporation stock. This move helped to streamline the company's corporate structure and potentially provide more flexibility for future growth and capital management.
Loan Portfolio and Asset Quality
One of the key strengths of Bank of South Carolina Corporation is its diversified loan portfolio, which includes commercial, commercial real estate, consumer real estate, and consumer other loans. As of June 30, 2023, the company's loan portfolio stood at $341.34 million, up from $330.98 million as of December 31, 2022, reflecting a 3.13% increase. The bank's focus on relationship-based lending and careful underwriting has contributed to the overall quality of its loan book, with nonperforming assets accounting for just 0.18% of total assets as of June 30, 2023.
The largest segments of the loan portfolio as of June 30, 2023, were Commercial Real Estate Other ($174.74 million), Consumer Real Estate ($92.90 million), and Commercial ($46.17 million). This diversification helps to mitigate risk and provides a balanced approach to lending across various sectors of the local economy.
Investment Securities Portfolio
The company's investment securities portfolio also plays a crucial role in its overall strategy. As of June 30, 2023, the fair value of the available-for-sale investment securities portfolio stood at $255.70 million, down from $271.17 million as of December 31, 2022. The portfolio's composition includes U.S. Treasury notes, government-sponsored enterprises, and municipal securities, providing the bank with a stable source of liquidity and interest income.
The investment securities portfolio represented approximately 39.43% of the Company's total assets as of June 30, 2023. This portfolio is managed to maintain liquidity, manage interest rate risk, generate income, and provide collateral for pledging, which is essential for the bank's overall financial strategy.
Financials
In terms of financial performance, Bank of South Carolina Corporation has maintained a solid track record. For the year ended December 31, 2023, the company reported net income of $5.49 million, or $0.98 per diluted share, compared to $6.66 million, or $1.18 per diluted share, in the previous year. The company's annualized returns on average assets and average equity for the year ended December 31, 2023 were 0.87% and 11.71%, respectively, indicating a relatively strong profitability profile.
The most recent fiscal year saw annual revenue of $20.29 million, annual net income of $5.49 million, annual operating cash flow of $4.92 million, and annual free cash flow of $4.45 million. For the most recent quarter, the company reported revenue of $7.33 million and net income of $1.80 million. This represents a 42.62% increase in net income compared to the same quarter in the prior year, driven by higher net interest income and lower provision for credit losses.
The company's net interest income increased by 6.21% to $9.31 million for the six months ended June 30, 2023, compared to $8.76 million for the same period in 2022. This increase was driven by growth in the loan portfolio and higher yields on interest-earning assets, partially offset by higher deposit costs. The net interest margin improved to 2.89% for the six-month period ended June 30, 2023, compared to 2.78% for the same period in 2022.
Liquidity and Capital Position
One area of focus for the company has been its commitment to maintaining a strong capital position. As of June 30, 2023, the bank's Community Bank Leverage Ratio (CBLR) stood at 9.35%, well above the 9.00% threshold required for classification as a "well-capitalized" institution. This solid capital position provides the bank with the flexibility to support its growth initiatives and weather potential economic headwinds.
The company's liquidity position remains strong, with a debt-to-equity ratio of 0.23 and current and quick ratios of 0.04. The bank has $25 million in short-term borrowings and access to a $41 million unused short-term line of credit that can be withdrawn at the lender's option, providing additional financial flexibility if needed.
Asset Quality and Credit Risk Management
The allowance for credit losses totaled $3.69 million as of June 30, 2023, or 1.08% of outstanding loans, compared to $4.29 million, or 1.30% of outstanding loans, as of December 31, 2022. The decrease in the allowance was primarily due to the adoption of the CECL accounting standard, which resulted in a $600,000 reduction in the allowance. Non-performing assets, which include non-accrual loans and real estate acquired through foreclosure, decreased from $631,450 as of December 31, 2022 to $625,680 as of June 30, 2023, reflecting the bank's continued focus on maintaining strong asset quality.
Non-Interest Income and Expense Management
In addition to interest income, the Company generates non-interest income from service charges and fees, mortgage banking activities, and other sources. Mortgage banking income, which includes revenue from the sale of mortgage loans, decreased from $498,730 in the first six months of 2022 to $206,350 in the same period of 2023, reflecting a decline in mortgage loan origination and sales volume. This decline highlights the impact of changing market conditions on certain aspects of the bank's business.
Shareholder Value
The Bank has consistently demonstrated its commitment to shareholders by paying quarterly cash dividends since its inception. This steady stream of dividends has provided investors with a reliable source of income and reflects the company's financial stability and long-term focus on shareholder value.
Market Position and Industry Trends
Bank of South Carolina Corporation operates in a banking industry that has seen moderate growth in recent years, with a compound annual growth rate (CAGR) of around 3-5% for loans and deposits. However, the COVID-19 pandemic has led to increased economic uncertainty and higher credit risks for banks. Smaller regional banks like Bank of South Carolina have had to navigate these challenges while maintaining their focus on community-oriented banking.
The company's position as a community bank serving the Charleston, Dorchester, and Berkeley counties of South Carolina continues to be a key competitive advantage. This local focus allows the bank to maintain strong relationships with customers and tailor its services to the specific needs of the communities it serves.
Future Outlook
Looking ahead, Bank of South Carolina Corporation remains cautiously optimistic about its future prospects. The company's management has highlighted the importance of maintaining a disciplined approach to risk management, while also exploring opportunities for organic growth and strategic expansion within its target markets. The bank's focus on personalized service, community involvement, and prudent financial management has positioned it well to navigate the evolving banking landscape in South Carolina.
Conclusion
In conclusion, Bank of South Carolina Corporation has established itself as a reliable and respected financial institution in the Charleston region. With its strong balance sheet, diversified loan portfolio, and commitment to community-focused banking, the company is well-positioned to continue its steady growth and maintain its position as a trusted partner for individuals and businesses in the Palmetto State. The bank's solid financial performance, strong liquidity position, and focus on asset quality provide a strong foundation for future success in an increasingly competitive banking environment.