Item
1. Financial Statements
BANK
OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited)
June 30, 2019
|
|
|
(Audited)
December
31, 2018
|
|
ASSETS
|
|
|
|
|
Cash and
due from banks
|
|
$
|
9,843,665
|
|
|
$
|
6,325,457
|
|
Interest-bearing deposits
at the Federal Reserve
|
|
|
35,252,826
|
|
|
|
25,506,784
|
|
Investment securities
available for sale
|
|
|
101,430,963
|
|
|
|
119,668,874
|
|
Mortgage loans to be
sold
|
|
|
2,874,982
|
|
|
|
1,199,438
|
|
Loans
|
|
|
283,847,630
|
|
|
|
274,664,267
|
|
Less:
Allowance for loan losses
|
|
|
(4,130,548
|
)
|
|
|
(4,214,331
|
)
|
Net
loans
|
|
|
279,717,082
|
|
|
|
270,449,936
|
|
Premises, equipment
and leasehold improvements, net
|
|
|
2,689,314
|
|
|
|
2,335,207
|
|
Right of use asset
|
|
|
7,218,644
|
|
|
|
—
|
|
Accrued interest receivable
|
|
|
1,565,145
|
|
|
|
1,561,915
|
|
Other
assets
|
|
|
1,781,824
|
|
|
|
2,087,587
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
442,374,445
|
|
|
$
|
429,135,198
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest
bearing demand
|
|
$
|
138,577,128
|
|
|
$
|
130,940,138
|
|
Interest
bearing demand
|
|
|
102,905,495
|
|
|
|
94,207,731
|
|
Money
market accounts
|
|
|
85,539,479
|
|
|
|
87,300,433
|
|
Time
deposits over $250,000
|
|
|
8,176,688
|
|
|
|
15,909,991
|
|
Other
time deposits
|
|
|
17,841,257
|
|
|
|
18,558,734
|
|
Other
savings deposits
|
|
|
30,769,858
|
|
|
|
35,461,361
|
|
Total deposits
|
|
|
383,809,905
|
|
|
|
382,378,388
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
and other liabilities
|
|
|
1,951,281
|
|
|
|
1,294,249
|
|
Lease
liability
|
|
|
7,218,644
|
|
|
|
—
|
|
Total
liabilities
|
|
|
392,979,830
|
|
|
|
383,672,637
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
Common
stock - no par 12,000,000 shares authorized; Issued 5,794,313 shares at
June 30, 2019 and 5,777,474
shares at December 31, 2018. Shares outstanding
5,525,278 and 5,510,917 at June 30, 2019 and
December 31, 2018,
respectively.
|
|
|
—
|
|
|
|
—
|
|
Additional
paid in capital
|
|
|
47,041,739
|
|
|
|
46,857,734
|
|
Retained
earnings
|
|
|
4,413,687
|
|
|
|
2,650,296
|
|
Treasury stock 269,035 shares at June 30, 2019 and 266,557 shares at December 31, 2018
|
|
|
(2,314,107
|
)
|
|
|
(2,268,264
|
)
|
Accumulated
other comprehensive income (loss), net of income taxes
|
|
|
253,296
|
|
|
|
(1,777,205
|
)
|
Total
shareholders' equity
|
|
|
49,394,615
|
|
|
|
45,462,561
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
442,374,445
|
|
|
$
|
429,135,198
|
|
See
accompanying notes to consolidated financial statements.
BANK
OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
|
|
Three
Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Interest and fee income
|
|
|
|
|
Loans,
including fees
|
|
$
|
4,090,423
|
|
|
$
|
3,704,752
|
|
Taxable
securities
|
|
|
423,211
|
|
|
|
470,411
|
|
Tax-exempt
securities
|
|
|
137,115
|
|
|
|
175,674
|
|
Other
|
|
|
162,596
|
|
|
|
73,030
|
|
Total
interest and fee income
|
|
|
4,813,345
|
|
|
|
4,423,867
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
245,226
|
|
|
|
139,697
|
|
Total
interest expense
|
|
|
245,226
|
|
|
|
139,697
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
4,568,119
|
|
|
|
4,284,170
|
|
Provision
for loan losses
|
|
|
135,000
|
|
|
|
75,000
|
|
Net
interest income after provision for loan losses
|
|
|
4,433,119
|
|
|
|
4,209,170
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
Service
charges and fees
|
|
|
300,553
|
|
|
|
296,372
|
|
Mortgage
banking income
|
|
|
256,379
|
|
|
|
250,554
|
|
Gain
on sales of securities
|
|
|
28,900
|
|
|
|
387
|
|
Other
non-interest income
|
|
|
6,907
|
|
|
|
7,783
|
|
Total
other income
|
|
|
592,739
|
|
|
|
555,096
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
1,664,436
|
|
|
|
1,576,452
|
|
Net
occupancy expense
|
|
|
427,247
|
|
|
|
422,059
|
|
Other
operating expenses
|
|
|
543,099
|
|
|
|
628,867
|
|
Net
other real estate owned expenses
|
|
|
—
|
|
|
|
24,137
|
|
Total
other expense
|
|
|
2,634,782
|
|
|
|
2,651,515
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax expense
|
|
|
2,391,076
|
|
|
|
2,112,751
|
|
Income
tax expense
|
|
|
550,229
|
|
|
|
386,394
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,840,847
|
|
|
$
|
1,726,357
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,517,236
|
|
|
|
5,492,896
|
|
Diluted
|
|
|
5,587,985
|
|
|
|
5,586,585
|
|
|
|
|
|
|
|
|
|
|
Basic
income per common share
|
|
$
|
0.33
|
|
|
$
|
0.31
|
|
Diluted
income per common share
|
|
$
|
0.33
|
|
|
$
|
0.31
|
|
See
accompanying notes to consolidated financial statements.
BANK
OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
|
|
Six
Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Interest and fee income
|
|
|
|
|
Loans,
including fees
|
|
$
|
8,042,142
|
|
|
$
|
7,263,738
|
|
Taxable
securities
|
|
|
886,665
|
|
|
|
940,914
|
|
Tax-exempt
securities
|
|
|
298,836
|
|
|
|
403,741
|
|
Other
|
|
|
278,535
|
|
|
|
135,483
|
|
Total
interest and fee income
|
|
|
9,506,178
|
|
|
|
8,743,876
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
488,984
|
|
|
|
249,527
|
|
Total
interest expense
|
|
|
488,984
|
|
|
|
249,527
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
9,017,194
|
|
|
|
8,494,349
|
|
Provision
for loan losses
|
|
|
145,000
|
|
|
|
130,000
|
|
Net
interest income after provision for loan losses
|
|
|
8,872,194
|
|
|
|
8,364,349
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
Service
charges and fees
|
|
|
580,486
|
|
|
|
591,663
|
|
Mortgage
banking income
|
|
|
380,041
|
|
|
|
390,469
|
|
Gain
on sales of securities
|
|
|
28,900
|
|
|
|
4,735
|
|
Other
non-interest income
|
|
|
12,095
|
|
|
|
16,174
|
|
Total
other income
|
|
|
1,001,522
|
|
|
|
1,003,041
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
3,320,960
|
|
|
|
3,149,172
|
|
Net
occupancy expense
|
|
|
814,379
|
|
|
|
805,391
|
|
Other
operating expenses
|
|
|
1,158,804
|
|
|
|
1,314,649
|
|
Net
other real estate owned expenses
|
|
|
—
|
|
|
|
24,137
|
|
Total
other expense
|
|
|
5,294,143
|
|
|
|
5,293,349
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax expense
|
|
|
4,579,573
|
|
|
|
4,074,041
|
|
Income
tax expense
|
|
|
1,049,462
|
|
|
|
735,454
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,530,111
|
|
|
$
|
3,338,587
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,515,832
|
|
|
|
5,339,187
|
|
Diluted
|
|
|
5,586,813
|
|
|
|
5,433,360
|
|
|
|
|
|
|
|
|
|
|
Basic
income per common share
|
|
$
|
0.64
|
|
|
$
|
0.63
|
|
Diluted
income per common share
|
|
$
|
0.63
|
|
|
$
|
0.61
|
|
See
accompanying notes to consolidated financial statements.
BANK
OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
June
30,
|
|
|
|
2019
|
|
|
2018
|
|
Net
income
|
|
$
|
1,840,847
|
|
|
$
|
1,726,357
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on securities arising during the period
|
|
|
1,343,539
|
|
|
|
(477,253
|
)
|
Reclassification
adjustment for securities gains realized in net income
|
|
|
(28,900
|
)
|
|
|
(387
|
)
|
Other
comprehensive income (loss) before tax
|
|
|
1,314,639
|
|
|
|
(477,640
|
)
|
Income
tax effect related to items of other comprehensive income before tax
|
|
|
(276,074
|
)
|
|
|
88,186
|
|
Other
comprehensive income (loss) after tax
|
|
|
1,038,565
|
|
|
|
(389,454
|
)
|
Total
comprehensive income
|
|
$
|
2,879,412
|
|
|
$
|
1,336,903
|
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
2019
|
|
|
2018
|
|
Net
income
|
|
$
|
3,530,111
|
|
|
$
|
3,338,587
|
|
Other comprehensive
income
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on securities arising during the period
|
|
|
2,599,154
|
|
|
|
(1,814,824
|
)
|
Reclassification
adjustment for securities gains realized in net income
|
|
|
(28,900
|
)
|
|
|
(4,735
|
)
|
Other
comprehensive income (loss) before tax
|
|
|
2,570,254
|
|
|
|
(1,819,559
|
)
|
Income
tax effect related to items of other comprehensive income before tax
|
|
|
(539,753
|
)
|
|
|
382,107
|
|
Other
comprehensive income (loss) after tax
|
|
|
2,030,501
|
|
|
|
(1,437,452
|
)
|
Total
comprehensive income
|
|
$
|
5,560,612
|
|
|
$
|
1,901,135
|
|
See
accompanying notes to consolidated financial statements.
BANK
OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)
|
|
Shares
Outstanding
|
|
Additional
Paid in Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
Total
|
December
31, 2018
|
|
|
5,510,917
|
|
|
$
|
46,857,734
|
|
|
$
|
2,650,296
|
|
|
$
|
(2,268,264
|
)
|
|
$
|
(1,777,205
|
)
|
|
$
|
45,462,561
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
1,689,264
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,689,264
|
|
Other comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
991,936
|
|
|
|
991,936
|
|
Exercise of stock options
|
|
|
5,808
|
|
|
|
51,265
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
51,265
|
|
Stock-based compensation
expense
|
|
|
—
|
|
|
|
18,881
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,881
|
|
Cash
dividends ($0.16 per common share)
|
|
|
—
|
|
|
|
—
|
|
|
|
(882,676
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(882,676
|
)
|
March
31, 2019
|
|
|
5,516,725
|
|
|
$
|
46,927,880
|
|
|
$
|
3,456,884
|
|
|
$
|
(2,268,264
|
)
|
|
$
|
(785,269
|
)
|
|
$
|
47,331,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
1,840,847
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,840,847
|
|
Other comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,038,565
|
|
|
|
1,038,565
|
|
Exercise of stock options
|
|
|
8,553
|
|
|
|
94,977
|
|
|
|
—
|
|
|
|
(45,843
|
)
|
|
|
—
|
|
|
|
49,134
|
|
Stock-based compensation
expense
|
|
|
—
|
|
|
|
18,882
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,882
|
|
Cash
dividends ($0.16 per common share)
|
|
|
—
|
|
|
|
—
|
|
|
|
(884,044
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(884,044
|
)
|
June
30, 2019
|
|
|
5,525,278
|
|
|
$
|
47,041,739
|
|
|
$
|
4,413,687
|
|
|
$
|
(2,314,107
|
)
|
|
$
|
253,296
|
|
|
$
|
49,394,615
|
|
|
|
Shares
Outstanding
|
|
Additional
Paid in Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
Total
|
December
31, 2017
|
|
|
4,989,279
|
|
|
$
|
37,236,566
|
|
|
$
|
8,847,164
|
|
|
$
|
(2,247,415
|
)
|
|
$
|
(1,071,680
|
)
|
|
$
|
42,764,635
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
1,612,230
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,612,230
|
|
Other comprehensive
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,047,998
|
)
|
|
|
(1,047,998
|
)
|
Exercise of stock options
|
|
|
1,600
|
|
|
|
18,768
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,768
|
|
Stock-based compensation
expense
|
|
|
—
|
|
|
|
18,882
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,882
|
|
Cash dividends ($0.14
per common share)
|
|
|
—
|
|
|
|
—
|
|
|
|
(749,668
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(749,668
|
)
|
Common
stock dividend, 10%
|
|
|
499,088
|
|
|
|
9,334,342
|
|
|
|
(9,334,342
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
March
31, 2018
|
|
|
5,489,967
|
|
|
$
|
46,608,558
|
|
|
$
|
375,384
|
|
|
$
|
(2,247,415
|
)
|
|
$
|
(2,119,678
|
)
|
|
$
|
42,616,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
1,726,357
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,726,357
|
|
Other comprehensive
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(389,454
|
)
|
|
|
(389,454
|
)
|
Exercise of stock options
|
|
|
10,649
|
|
|
|
104,528
|
|
|
|
—
|
|
|
|
(20,849
|
)
|
|
|
—
|
|
|
|
83,679
|
|
Stock-based compensation
expense
|
|
|
—
|
|
|
|
18,881
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,881
|
|
Cash
dividends ($0.15 per common share)
|
|
|
—
|
|
|
|
—
|
|
|
|
(831,578
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(831,578
|
)
|
June
30, 2018
|
|
|
5,500,616
|
|
|
$
|
46,731,967
|
|
|
$
|
1,270,163
|
|
|
$
|
(2,268,264
|
)
|
|
$
|
(2,509,132
|
)
|
|
$
|
43,224,734
|
|
See
accompanying notes to consolidated financial statements.
BANK
OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net
income
|
|
$
|
3,530,111
|
|
|
$
|
3,338,587
|
|
Adjustments
to reconcile net income net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
109,132
|
|
|
|
94,347
|
|
Gain
on sale of investment securities
|
|
|
(28,900
|
)
|
|
|
(4,735
|
)
|
Valuation
and other adjustments to other real estate owned
|
|
|
—
|
|
|
|
23,637
|
|
Provision
for loan losses
|
|
|
145,000
|
|
|
|
130,000
|
|
Stock-based
compensation expense
|
|
|
37,763
|
|
|
|
37,763
|
|
Deferred
income taxes
|
|
|
(21,966
|
)
|
|
|
(289,099
|
)
|
Net
amortization of unearned discounts on investment securities available for sale
|
|
|
140,730
|
|
|
|
152,517
|
|
Origination
of mortgage loans held for sale
|
|
|
(27,140,026
|
)
|
|
|
(29,065,349
|
)
|
Proceeds
from sale of mortgage loans held for sale
|
|
|
25,464,482
|
|
|
|
27,507,922
|
|
(Increase)
decrease in accrued interest receivable and other assets
|
|
|
(215,254
|
)
|
|
|
152,106
|
|
Increase
in accrued interest payable and other liabilities
|
|
|
599,626
|
|
|
|
208,777
|
|
Net
cash provided by operating activities
|
|
|
2,620,698
|
|
|
|
2,286,473
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from calls and maturities of investment securities available for sale
|
|
|
5,743,835
|
|
|
|
5,995,000
|
|
Proceeds
from sale of investment securities available for sale
|
|
|
14,952,500
|
|
|
|
21,434,634
|
|
Purchase
of investment securities available for sale
|
|
|
—
|
|
|
|
(9,978,050
|
)
|
Net
increase in loans
|
|
|
(9,412,146
|
)
|
|
|
(7,921,831
|
)
|
Purchase
of premises, equipment, and leasehold improvements, net
|
|
|
(463,239
|
)
|
|
|
(128,838
|
)
|
Net
cash provided by investing activities
|
|
|
10,820,950
|
|
|
|
9,400,915
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in deposit accounts
|
|
|
1,431,517
|
|
|
|
(20,548,691
|
)
|
Dividends
paid
|
|
|
(1,709,314
|
)
|
|
|
(1,497,024
|
)
|
Stock
options exercised
|
|
|
100,399
|
|
|
|
102,447
|
|
Net
cash used in financing activities
|
|
|
(177,398
|
)
|
|
|
(21,943,268
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
13,264,250
|
|
|
|
(10,255,880
|
)
|
Cash
and cash equivalents at the beginning of the period
|
|
|
31,832,241
|
|
|
|
32,520,219
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
45,096,491
|
|
|
$
|
22,264,339
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow data:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
589,058
|
|
|
$
|
210,971
|
|
Income
taxes
|
|
$
|
627,642
|
|
|
$
|
636,760
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures for non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
Change
in unrealized gain on securities available for sale, net of income taxes
|
|
$
|
(2,030,501
|
)
|
|
$
|
1,437,452
|
|
Change
in dividends payable
|
|
$
|
57,406
|
|
|
$
|
84,222
|
|
Right
of use assets obtained in exchange for lease obligations
|
|
$
|
7,334,079
|
|
|
$
|
—
|
|
Change
in right of use assets and lease liabilities
|
|
$
|
(115,435
|
)
|
|
$
|
—
|
|
See
accompanying notes to consolidated financial statements.
BANK
OF SOUTH CAROLINA CORPORATION
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.
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
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 18.10 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 a similar economic environment, which the Bank determined was 5.50% at the time of implementation. 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 affect the change in the Bank's recognition of lease expense in future periods.
For the six months ended June 30, 2019, the Bank had total lease expense of $317,859, of which $30,840 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.
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.
In May 2019, the FASB
issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an
instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13,
Measurement of Credit Losses on
Financial Instruments.
The amendments will be effective for the Company for fiscal years beginning after December 15,
2019. 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
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
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. The amendment did not
have a material effect on the 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.
In April 2019, the FASB issued guidance
that clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and
recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the
Company for the reporting period beginning after December 15, 2019. The amendments related to hedging became effective
January 1, 2019. The amendments related to recognition and measurement of financial instruments will be effective for the
Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. 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.
Note
2: Investment Securities
The
amortized cost and fair value of investment securities available for sale are summarized as follows:
|
|
June
30, 2019
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
U.S. Treasury
Notes
|
|
$
|
28,054,029
|
|
|
$
|
101,804
|
|
|
$
|
(9,430
|
)
|
|
$
|
28,146,403
|
|
Government-Sponsored
Enterprises
|
|
|
50,582,908
|
|
|
|
248,635
|
|
|
|
(114,198
|
)
|
|
|
50,717,345
|
|
Municipal
Securities
|
|
|
22,473,399
|
|
|
|
166,156
|
|
|
|
(72,340
|
)
|
|
|
22,567,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
101,110,336
|
|
|
$
|
516,595
|
|
|
$
|
(195,968
|
)
|
|
$
|
101,430,963
|
|
|
|
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 June 30, 2019 and December 31, 2018,
by contractual maturity are in the following table.
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
Due in one year or less
|
|
$
|
3,314,449
|
|
|
$
|
3,318,732
|
|
|
$
|
4,246,325
|
|
|
$
|
4,249,570
|
|
Due in one year to five years
|
|
|
82,244,256
|
|
|
|
82,503,885
|
|
|
|
99,753,174
|
|
|
|
97,915,185
|
|
Due in five years to ten years
|
|
|
15,551,630
|
|
|
|
15,608,346
|
|
|
|
17,504,456
|
|
|
|
17,128,425
|
|
Due in ten years
and over
|
|
|
—
|
|
|
|
—
|
|
|
|
414,546
|
|
|
|
375,694
|
|
Total
|
|
$
|
101,110,335
|
|
|
$
|
101,430,963
|
|
|
$
|
121,918,501
|
|
|
$
|
119,668,874
|
|
Securities
pledged to secure deposits at both June 30, 2019 and December 31, 2018, had a fair value of $37.7 million and $41.5 million, 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 June
30, 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
|
June 30, 2019
Available for sale
|
|
#
|
|
Fair Value
|
|
Gross Unrealized Loss
|
|
#
|
|
Fair Value
|
|
Gross Unrealized Loss
|
|
#
|
|
Fair Value
|
|
Gross Unrealized Loss
|
U.S. Treasury Notes
|
|
|
1
|
|
|
$
|
5,048,240
|
|
|
$
|
(702
|
)
|
|
|
2
|
|
|
$
|
8,025,118
|
|
|
$
|
(8,728
|
)
|
|
|
3
|
|
|
$
|
13,073,358
|
|
|
$
|
(9,430
|
)
|
Government-Sponsored Enterprises
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
10,397,565
|
|
|
|
(114,198
|
)
|
|
|
3
|
|
|
|
10,397,565
|
|
|
|
(114,198
|
)
|
Municipal Securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
|
|
9,267,063
|
|
|
|
(72,340
|
)
|
|
|
25
|
|
|
|
9,267,063
|
|
|
|
(72,340
|
)
|
Total
|
|
|
1
|
|
|
$
|
5,048,240
|
|
|
$
|
(702
|
)
|
|
|
30
|
|
|
$
|
27,689,746
|
|
|
$
|
(195,266
|
)
|
|
|
31
|
|
|
$
|
32,737,986
|
|
|
$
|
(195,968
|
)
|
|
|
Less Than 12 Months
|
|
12 Months or Longer
|
|
Total
|
December
31, 2018 Available for sale
|
|
#
|
|
Fair Value
|
|
Gross Unrealized Loss
|
|
#
|
|
Fair Value
|
|
Gross Unrealized Loss
|
|
#
|
|
Fair Value
|
|
Gross Unrealized Loss
|
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
|
)
|
The
tables below show the proceeds from sales of securities available for sale and gross realized gains and losses.
|
|
Three
Months Ended
|
|
|
June
30,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Gross proceeds
|
|
$
|
14,952,500
|
|
|
$
|
11,970,378
|
|
Gross realized gains
|
|
|
59,512
|
|
|
|
25,490
|
|
Gross realized losses
|
|
$
|
(30,612
|
)
|
|
$
|
(25,103
|
)
|
|
|
Six
Months Ended
|
|
|
June
30,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Gross proceeds
|
|
$
|
14,952,500
|
|
|
$
|
21,434,634
|
|
Gross realized gains
|
|
|
59,512
|
|
|
|
104,634
|
|
Gross realized losses
|
|
$
|
(30,612
|
)
|
|
$
|
(99,899
|
)
|
For
the three months ended June 30, 2019 and 2018, the tax provision related to these gains was $6,069 and $81, respectively. For
the six months ended June 30, 2019 and 2018, the tax provision related to these gains was $6,069 and $994, respectively.
Note
3: Loans and Allowance for Loan Losses
Major
classifications of loans (net of deferred loan fees of $165,854 at June 30, 2019 and $156,309 at December 31, 2018) are as follows:
|
|
June
30,
2019
|
|
|
December
31,
2018
|
|
Commercial
|
|
$
|
56,270,330
|
|
|
$
|
54,829,078
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
11,204,997
|
|
|
|
7,304,300
|
|
Other
|
|
|
148,569,431
|
|
|
|
143,703,401
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
62,167,172
|
|
|
|
63,787,411
|
|
Other
|
|
|
5,635,700
|
|
|
|
5,040,077
|
|
|
|
|
283,847,630
|
|
|
|
274,664,267
|
|
Allowance for loan
losses
|
|
|
(4,130,548
|
)
|
|
|
(4,214,331
|
)
|
Loans, net
|
|
$
|
279,717,082
|
|
|
$
|
270,449,936
|
|
We
had $94.0 million and $101.9 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”)
Discount Window at June 30, 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 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 a cash flow barely sufficient to service debt, deteriorated financial condition, and bankruptcy
is 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 June 30, 2019 and December 31, 2018. “Pass”
includes loans internally graded as excellent, good and satisfactory.
|
|
June 30, 2019
|
|
|
Commercial
|
|
Commercial
Real Estate - Construction
|
|
Commercial
Real Estate -
Other
|
|
Consumer
Real Estate
|
|
Consumer
Other
|
|
Total
|
Pass
|
|
$
|
51,732,759
|
|
|
$
|
11,204,997
|
|
|
$
|
141,999,065
|
|
|
$
|
58,154,814
|
|
|
$
|
5,147,378
|
|
|
$
|
268,239,013
|
|
Watch
|
|
|
2,533,865
|
|
|
|
—
|
|
|
|
4,557,264
|
|
|
|
2,615,352
|
|
|
|
394,714
|
|
|
|
10,101,195
|
|
OAEM
|
|
|
322,858
|
|
|
|
—
|
|
|
|
660,784
|
|
|
|
517,254
|
|
|
|
77,780
|
|
|
|
1,578,676
|
|
Sub-standard
|
|
|
1,680,848
|
|
|
|
—
|
|
|
|
1,352,318
|
|
|
|
879,752
|
|
|
|
15,828
|
|
|
|
3,928,746
|
|
Doubtful
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
56,270,330
|
|
|
$
|
11,204,997
|
|
|
$
|
148,569,431
|
|
|
$
|
62,167,172
|
|
|
$
|
5,635,700
|
|
|
$
|
283,847,630
|
|
|
|
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
|
|
The
following tables include an aging analysis of the recorded investment in loans segregated by class.
|
|
June 30, 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
|
|
$
|
49,948
|
|
|
$
|
194,058
|
|
|
$
|
—
|
|
|
$
|
244,006
|
|
|
$
|
56,026,324
|
|
|
$
|
56,270,330
|
|
|
$
|
—
|
|
Commercial Real Estate - Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,204,997
|
|
|
|
11,204,997
|
|
|
|
—
|
|
Commercial Real Estate - Other
|
|
|
409,860
|
|
|
|
273,190
|
|
|
|
571,292
|
|
|
|
1,254,342
|
|
|
|
147,315,089
|
|
|
|
148,569,431
|
|
|
|
—
|
|
Consumer Real Estate
|
|
|
271,691
|
|
|
|
—
|
|
|
|
—
|
|
|
|
271,691
|
|
|
|
61,895,481
|
|
|
|
62,167,172
|
|
|
|
—
|
|
Consumer Other
|
|
|
25,603
|
|
|
|
—
|
|
|
|
678
|
|
|
|
26,281
|
|
|
|
5,609,419
|
|
|
|
5,635,700
|
|
|
|
—
|
|
Total
|
|
$
|
757,102
|
|
|
$
|
467,248
|
|
|
$
|
571,970
|
|
|
$
|
1,796,320
|
|
|
$
|
282,051,310
|
|
|
$
|
283,847,630
|
|
|
$
|
—
|
|
|
|
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 June 30, 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
|
|
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
Commercial
|
|
$
|
13,210
|
|
|
$
|
251,219
|
|
Commercial
Real Estate - Construction
|
|
|
—
|
|
|
|
—
|
|
Commercial
Real Estate - Other
|
|
|
571,292
|
|
|
|
571,292
|
|
Consumer Real Estate
|
|
|
—
|
|
|
|
—
|
|
Consumer
Other
|
|
|
678
|
|
|
|
1,023
|
|
Total
|
|
$
|
585,180
|
|
|
$
|
823,534
|
|
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 and six months ended June 30, 2019 and 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.
|
|
Three Months Ended June 30, 2019
|
|
|
Commercial
|
|
Commercial
Real Estate - Construction
|
|
Commercial
Real Estate - Other
|
|
Consumer
Real Estate
|
|
Consumer
Other
|
|
Total
|
Allowance
for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
1,528,577
|
|
|
$
|
81,047
|
|
|
$
|
1,318,918
|
|
|
$
|
377,641
|
|
|
$
|
683,239
|
|
|
$
|
3,989,422
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,009
|
)
|
|
|
(2,009
|
)
|
Recoveries
|
|
|
5,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,635
|
|
|
|
8,135
|
|
Provisions
|
|
|
5,575
|
|
|
|
16,940
|
|
|
|
13,885
|
|
|
|
150,888
|
|
|
|
(52,288
|
)
|
|
|
135,000
|
|
Ending Balance
|
|
$
|
1,539,652
|
|
|
$
|
97,987
|
|
|
$
|
1,332,803
|
|
|
$
|
528,529
|
|
|
$
|
631,577
|
|
|
$
|
4,130,548
|
|
|
|
Six Months Ended June 30, 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
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,342
|
)
|
|
|
(237,737
|
)
|
Recoveries
|
|
|
6,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,954
|
|
|
|
8,954
|
|
Provisions
|
|
|
97,634
|
|
|
|
34,111
|
|
|
|
40,457
|
|
|
|
141,944
|
|
|
|
(169,146
|
)
|
|
|
145,000
|
|
Ending Balance
|
|
$
|
1,539,652
|
|
|
$
|
97,987
|
|
|
$
|
1,332,803
|
|
|
$
|
528,529
|
|
|
$
|
631,577
|
|
|
$
|
4,130,548
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
Commercial
|
|
Commercial Real Estate -
Construction
|
|
Commercial Real Estate - Other
|
|
Consumer Real Estate
|
|
Consumer Other
|
|
Total
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
1,326,246
|
|
|
$
|
11,136
|
|
|
$
|
1,041,088
|
|
|
$
|
567,075
|
|
|
$
|
884,975
|
|
|
$
|
3,830,520
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
1,000
|
|
|
|
—
|
|
|
|
55,252
|
|
|
|
45,412
|
|
|
|
280
|
|
|
|
101,944
|
|
Provisions
|
|
|
16,514
|
|
|
|
17,955
|
|
|
|
(124,302
|
)
|
|
|
(23,436
|
)
|
|
|
188,269
|
|
|
|
75,000
|
|
Ending Balance
|
|
$
|
1,343,760
|
|
|
$
|
29,091
|
|
|
$
|
972,038
|
|
|
$
|
589,051
|
|
|
$
|
1,073,524
|
|
|
$
|
4,007,464
|
|
|
|
Six Months Ended June 30, 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
|
|
|
2,500
|
|
|
|
—
|
|
|
|
56,827
|
|
|
|
45,412
|
|
|
|
420
|
|
|
|
105,159
|
|
Provisions
|
|
|
(31,078
|
)
|
|
|
5,453
|
|
|
|
(634,544
|
)
|
|
|
(253,279
|
)
|
|
|
1,043,448
|
|
|
|
130,000
|
|
Ending Balance
|
|
$
|
1,343,760
|
|
|
$
|
29,091
|
|
|
$
|
972,038
|
|
|
$
|
589,051
|
|
|
$
|
1,073,524
|
|
|
$
|
4,007,464
|
|
The
following tables present, by portfolio segment and reserving methodology, the allocation of the allowance for loan losses and
the gross investment in loans, for the periods indicated.
|
|
June 30, 2019
|
|
|
Commercial
|
|
Commercial Real Estate - Construction
|
|
Commercial
Real Estate - Other
|
|
Consumer Real Estate
|
|
Consumer
Other
|
|
Total
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
870,073
|
|
|
$
|
—
|
|
|
$
|
31,082
|
|
|
$
|
—
|
|
|
$
|
7,510
|
|
|
$
|
908,665
|
|
Collectively evaluated for impairment
|
|
|
669,579
|
|
|
|
97,987
|
|
|
|
1,301,721
|
|
|
|
528,529
|
|
|
|
624,067
|
|
|
|
3,221,883
|
|
Total Allowance for Loan Losses
|
|
$
|
1,539,652
|
|
|
$
|
97,987
|
|
|
$
|
1,332,803
|
|
|
$
|
528,529
|
|
|
$
|
631,577
|
|
|
$
|
4,130,548
|
|
Loans Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,680,847
|
|
|
$
|
—
|
|
|
$
|
1,360,884
|
|
|
$
|
879,753
|
|
|
$
|
15,828
|
|
|
$
|
3,937,312
|
|
Collectively evaluated for impairment
|
|
|
54,589,483
|
|
|
|
11,204,997
|
|
|
|
147,208,547
|
|
|
|
61,287,419
|
|
|
|
5,619,872
|
|
|
|
279,910,318
|
|
Total Loans Receivable
|
|
$
|
56,270,330
|
|
|
$
|
11,204,997
|
|
|
$
|
148,569,431
|
|
|
$
|
62,167,172
|
|
|
$
|
5,635,700
|
|
|
$
|
283,847,630
|
|
|
|
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
|
|
Collectively
evaluated for impairment
|
|
|
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
|
|
As
of June 30, 2019 and December 31, 2018, loans individually evaluated and considered impaired are presented in the following table.
|
Impaired Loans As of
|
|
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
|
|
Unpaid
Principal Balance
|
|
|
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Unpaid
Principal Balance
|
|
|
Recorded
Investment
|
|
|
Related
Allowance
|
|
With
no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
111,591
|
|
|
$
|
111,591
|
|
|
$
|
—
|
|
|
$
|
115,983
|
|
|
$
|
115,983
|
|
|
$
|
—
|
|
Commercial
Real Estate - Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
Real Estate - Other
|
|
|
860,975
|
|
|
|
860,975
|
|
|
|
—
|
|
|
|
974,249
|
|
|
|
974,249
|
|
|
|
—
|
|
Consumer
Real Estate
|
|
|
879,753
|
|
|
|
879,753
|
|
|
|
—
|
|
|
|
879,753
|
|
|
|
879,753
|
|
|
|
—
|
|
Consumer
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
1,852,319
|
|
|
|
1,852,319
|
|
|
|
—
|
|
|
|
1,969,985
|
|
|
|
1,969,985
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,569,256
|
|
|
|
1,569,256
|
|
|
|
870,073
|
|
|
|
1,880,596
|
|
|
|
1,880,596
|
|
|
|
1,132,805
|
|
Commercial
Real Estate - Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
Real Estate - Other
|
|
|
499,909
|
|
|
|
400,108
|
|
|
|
31,082
|
|
|
|
406,442
|
|
|
|
306,641
|
|
|
|
37,416
|
|
Consumer
Real Estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
Other
|
|
|
15,828
|
|
|
|
15,828
|
|
|
|
7,510
|
|
|
|
21,324
|
|
|
|
21,324
|
|
|
|
21,324
|
|
Total
|
|
|
2,084,993
|
|
|
|
1,985,192
|
|
|
|
908,665
|
|
|
|
2,308,362
|
|
|
|
2,208,561
|
|
|
|
1,191,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,680,847
|
|
|
|
1,680,847
|
|
|
|
870,073
|
|
|
|
1,996,579
|
|
|
|
1,996,579
|
|
|
|
1,132,805
|
|
Commercial
Real Estate - Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
Real Estate - Other
|
|
|
1,360,884
|
|
|
|
1,261,083
|
|
|
|
31,082
|
|
|
|
1,380,691
|
|
|
|
1,280,890
|
|
|
|
37,416
|
|
Consumer
Real Estate
|
|
|
879,753
|
|
|
|
879,753
|
|
|
|
—
|
|
|
|
879,753
|
|
|
|
879,753
|
|
|
|
—
|
|
Consumer
Other
|
|
|
15,828
|
|
|
|
15,828
|
|
|
|
7,510
|
|
|
|
21,324
|
|
|
|
21,324
|
|
|
|
21,324
|
|
Total
|
|
$
|
3,937,312
|
|
|
$
|
3,837,511
|
|
|
$
|
908,665
|
|
|
$
|
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.
|
|
Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
117,741
|
|
|
$
|
2,071
|
|
|
$
|
137,684
|
|
|
$
|
2,227
|
|
Commercial Real Estate - Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate - Other
|
|
|
863,351
|
|
|
|
10,354
|
|
|
|
916,094
|
|
|
|
10,518
|
|
Consumer Real Estate
|
|
|
879,753
|
|
|
|
14,257
|
|
|
|
249,754
|
|
|
|
3,548
|
|
Consumer Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,960,646
|
|
|
|
26,682
|
|
|
|
1,303,532
|
|
|
|
16,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,582,324
|
|
|
|
25,869
|
|
|
|
1,563,849
|
|
|
|
19,438
|
|
Commercial Real Estate - Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate - Other
|
|
|
501,279
|
|
|
|
2,735
|
|
|
|
517,936
|
|
|
|
1,840
|
|
Consumer Real Estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer Other
|
|
|
17,108
|
|
|
|
224
|
|
|
|
39,396
|
|
|
|
483
|
|
|
|
|
2,100,711
|
|
|
|
28,828
|
|
|
|
2,121,181
|
|
|
|
21,761
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,700,065
|
|
|
|
27,940
|
|
|
|
1,701,533
|
|
|
|
21,665
|
|
Commercial Real Estate - Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate - Other
|
|
|
1,364,630
|
|
|
|
13,089
|
|
|
|
1,434,030
|
|
|
|
12,358
|
|
Consumer Real Estate
|
|
|
879,753
|
|
|
|
14,257
|
|
|
|
249,754
|
|
|
|
3,548
|
|
Consumer Other
|
|
|
17,108
|
|
|
|
224
|
|
|
|
39,396
|
|
|
|
483
|
|
|
|
$
|
4,061,357
|
|
|
$
|
55,510
|
|
|
$
|
3,424,713
|
|
|
$
|
38,054
|
|
|
|
Six
Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
With
no related allowance recorded:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
123,509
|
|
|
$
|
4,334
|
|
|
$
|
141,909
|
|
|
$
|
4,430
|
|
Commercial Real Estate
- Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate
- Other
|
|
|
967,076
|
|
|
|
20,700
|
|
|
|
917,140
|
|
|
|
14,233
|
|
Consumer Real Estate
|
|
|
879,753
|
|
|
|
28,357
|
|
|
|
249,754
|
|
|
|
7,007
|
|
Consumer
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,970,338
|
|
|
|
53,391
|
|
|
|
1,308,803
|
|
|
|
25,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,597,013
|
|
|
|
51,983
|
|
|
|
1,584,430
|
|
|
|
48,660
|
|
Commercial Real Estate
- Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate
- Other
|
|
|
403,001
|
|
|
|
5,498
|
|
|
|
523,141
|
|
|
|
5,507
|
|
Consumer Real Estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
Other
|
|
|
18,279
|
|
|
|
478
|
|
|
|
41,823
|
|
|
|
1,131
|
|
|
|
|
2,018,293
|
|
|
|
57,959
|
|
|
|
2,149,394
|
|
|
|
55,298
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,720,522
|
|
|
|
56,317
|
|
|
|
1,726,339
|
|
|
|
53,090
|
|
Commercial Real Estate
- Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial Real Estate
- Other
|
|
|
1,370,077
|
|
|
|
26,198
|
|
|
|
1,440,281
|
|
|
|
19,740
|
|
Consumer Real Estate
|
|
|
879,753
|
|
|
|
28,357
|
|
|
|
249,754
|
|
|
|
7,007
|
|
Consumer
Other
|
|
|
18,279
|
|
|
|
478
|
|
|
|
41,823
|
|
|
|
1,131
|
|
|
|
$
|
3,988,631
|
|
|
$
|
111,350
|
|
|
$
|
3,458,197
|
|
|
$
|
80,968
|
|
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. There were no TDRs as of June 30, 2019 and December 31, 2018.
As of March 31,
2019, there was one TDR with a balance of $2,185. During the quarter ended June 30, 2019, the loan in the amount of $2,008 was
charged-off and the Bank received a recovery of $439. Not other TDRs defaulted during the six months ended June 30, 2019 and
2018, which were modified within the previous twelve months.
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 describe the 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 June 30,
2019 and December 31, 2018.
Assets
and liabilities measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 are as follows:
|
|
Balance as of June 30, 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
|
|
$
|
28,146,403
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,146,403
|
|
Government-Sponsored Enterprises
|
|
|
—
|
|
|
|
50,717,345
|
|
|
|
—
|
|
|
|
50,717,345
|
|
Municipal Securities
|
|
|
—
|
|
|
|
18,032,698
|
|
|
|
4,534,517
|
|
|
|
22,567,215
|
|
Total
|
|
$
|
28,146,403
|
|
|
$
|
68,750,043
|
|
|
$
|
4,534,517
|
|
|
$
|
101,430,963
|
|
|
|
Balance
as of 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 June 30, 2019 or December 31, 2018.
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 and six months ended June 30, 2019 and 2018:
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Beginning
balance
|
|
$
|
5,738,618
|
|
|
$
|
7,483,696
|
|
|
$
|
6,241,955
|
|
|
$
|
11,458,889
|
|
Total gains or (losses)
(realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Included
in other comprehensive income (loss)
|
|
|
44,734
|
|
|
|
2,660
|
|
|
|
101,397
|
|
|
|
67,467
|
|
Purchases,
issuances, and settlements net of maturities
|
|
|
(1,248,835
|
)
|
|
|
(390,000
|
)
|
|
|
(1,808,835
|
)
|
|
|
(4,430,000
|
)
|
Transfers
in and/or out of level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Ending balance
|
|
$
|
4,534,517
|
|
|
$
|
7,096,356
|
|
|
$
|
4,534,517
|
|
|
$
|
7,096,356
|
|
There
were no transfers between fair value levels during the six months ended June 30, 2019 or 2018.
The
following paragraphs describe the 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 June
30, 2019 and December 31, 2018:
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market Price in active markets
(Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,209,555
|
|
|
$
|
2,209,555
|
|
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loans held for sale
|
|
|
—
|
|
|
|
2,874,982
|
|
|
|
—
|
|
|
|
2,874,982
|
|
Total
|
|
$
|
—
|
|
|
$
|
2,874,982
|
|
|
$
|
2,209,555
|
|
|
$
|
5,084,537
|
|
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 June 30, 2019 or December 31, 2018.
The
following table provides information describing the unobservable inputs used in Level 3 fair value measurements at June 30, 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 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, 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. 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 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 six 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.
The
following tables present the carrying amount, fair value, and placement in the fair value hierarchy of our financial instruments
as of June 30, 2019 and December 31, 2018.
Fair Value Measurements at June 30, 2019
|
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and
due from banks
|
|
$
|
9,843,665
|
|
|
$
|
9,843,665
|
|
|
$
|
9,843,665
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest-bearing
deposits at the Federal Reserve
|
|
|
35,252,826
|
|
|
|
35,252,826
|
|
|
|
35,252,826
|
|
|
|
—
|
|
|
|
—
|
|
Investment securities
available for sale
|
|
|
101,430,963
|
|
|
|
101,430,963
|
|
|
|
28,146,403
|
|
|
|
68,750,043
|
|
|
|
4,534,517
|
|
Mortgage loans to be
sold
|
|
|
2,874,982
|
|
|
|
2,874,982
|
|
|
|
—
|
|
|
|
2,874,982
|
|
|
|
—
|
|
Loans, net
|
|
|
279,717,082
|
|
|
|
275,600,697
|
|
|
|
—
|
|
|
|
—
|
|
|
|
275,600,697
|
|
Accrued interest receivable
|
|
|
1,565,145
|
|
|
|
1,565,145
|
|
|
|
—
|
|
|
|
1,565,145
|
|
|
|
—
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
357,791,960
|
|
|
|
357,791,960
|
|
|
|
—
|
|
|
|
357,791,960
|
|
|
|
—
|
|
Time deposits
|
|
|
26,017,945
|
|
|
|
29,473,494
|
|
|
|
—
|
|
|
|
29,473,494
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
63,802
|
|
|
|
63,802
|
|
|
|
—
|
|
|
|
63,802
|
|
|
|
—
|
|
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 June 30:
|
|
2019
|
|
2018
|
Net income
|
|
$
|
1,840,847
|
|
|
$
|
1,726,357
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
5,517,236
|
|
|
|
5,492,896
|
|
Effect of dilutive shares
|
|
|
70,749
|
|
|
|
93,689
|
|
Weighted average shares outstanding - diluted
|
|
|
5,587,985
|
|
|
|
5,586,585
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.33
|
|
|
$
|
0.31
|
|
Earnings per share - diluted
|
|
$
|
0.33
|
|
|
$
|
0.31
|
|
The
following table is a summary of the reconciliation of average shares outstanding for the six months ended June 30:
|
|
2019
|
|
2018
|
Net income
|
|
$
|
3,530,111
|
|
|
$
|
3,338,587
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
5,515,832
|
|
|
|
5,339,187
|
|
Effect of dilutive shares
|
|
|
70,981
|
|
|
|
94,173
|
|
Weighted average shares outstanding - diluted
|
|
|
5,586,813
|
|
|
|
5,433,360
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.64
|
|
|
$
|
0.63
|
|
Earnings per share - diluted
|
|
$
|
0.63
|
|
|
$
|
0.61
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q, including information included or incorporated by reference in this document, contains statements
which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1934. We
desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1996 and
are including this statement for the express purpose of availing the Company of protections of such safe harbor with respect to
all “forward-looking statements” contained in this Form 10-Q. Forward-looking statements may relate to, among other
matters, the financial condition, results of operations, plans, objectives, future performance, and business of our Company. Forward-looking
statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ
materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure,
including many factors that are beyond our control. The words “may,” “would,” “could,” “should,”
“will,” “expect,” “anticipate,” “predict,” “project,” “potential,”
“continue,” “assume,” “believe,” “intend,” “plan,” “forecast,”
“goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements.
Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking
statements include, without limitations, those described under the heading “Risk Factors” in our Annual Report on
Form 10-K for the year ended December 31, 2018 as filed with the SEC and the following:
|
●
|
Risk from changes
in economic, monetary policy, and industry conditions
|
|
●
|
Changes in interest
rates, shape of the yield curve, deposit rates, the net interest margin and funding sources
|
|
●
|
Market risk (including
net income at risk analysis and economic value of equity risk analysis) and inflation
|
|
●
|
Risk inherent in
making loans including repayment risks and changes in the value of collateral
|
|
●
|
Loan growth, the
adequacy of the allowance for loan losses, provisions for loan losses, and the assessment of problem loans
|
|
●
|
Level, composition,
and re-pricing characteristics of the securities portfolio
|
|
●
|
Deposit growth,
change in the mix or type of deposit products and services
|
|
●
|
Continued availability
of senior management and ability to attract and retain key personnel
|
|
●
|
Ability to control
expenses
|
|
●
|
Changes in compensation
|
|
●
|
Risks associated
with income taxes including potential for adverse adjustments
|
|
●
|
Changes in accounting
policies and practices
|
|
●
|
Changes in regulatory
actions, including the potential for adverse adjustments
|
|
●
|
Recently enacted
or proposed legislation
|
|
●
|
Reputational risk
|
We
will undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which
such statement is made to reflect the occurrence of unanticipated events. In addition, certain statements in future filings with
the SEC, in our press releases, and in oral and written statements, which are not statements of historical fact, constitute forward-looking
statements.
Overview
Bank
of South Carolina Corporation (the “Company”) is a financial institution holding company headquartered in Charleston,
South Carolina, with $442.4 million in assets as of June 30, 2019 and net income of $3.5 million for the six months ended June
30, 2019. 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 primarily 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 investments (interest-earning assets). The primary source of funding for
making these loans and investments is our interest 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 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 and lease 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 investments, we earn income through fees and other expenses we charge to the customer.
The various components of non-interest income as well as non-interest expense are described in the following discussion. The discussion
and analysis also identifies significant factors that have affected our financial position and operating results as of and for
the periods ending June 30, 2019 and December 31, 2018, and should be read in conjunction with the financial statements and the
related notes included in this report. In addition, a number of tables have been included to assist in the discussion.
Critical
Accounting Policies
Our
critical accounting policies which involve significant judgements and assumptions that have a material impact on the carrying
value of certain assets and liabilities, and used in the preparation of the Consolidated Financial Statements as of June 30, 2019,
have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2018.
Balance
Sheet
Cash
and Cash Equivalents
Total
cash and cash equivalents increased 41.67% or $13.3 million to $45.1 million as of June 30, 2019, from $31.8 million at December
31, 2018. Funds are placed in interest bearing deposits at the Federal Reserve until opportunities arise for investment in higher
yielding assets.
Investment
Securities Available for Sale
Our
primary objective in managing the investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding
competitive returns. We are required under federal regulations to maintain adequate liquidity to ensure safe and sound operations.
We maintain investment balances based on continuing assessment of cash flows, the level of current and expected loan production,
current interest rate risk strategies and the assessment of potential future direction of market interest rate changes. Investment
securities differ in terms of default, interest rate, liquidity and expected rate of return risk.
We
use the investment securities portfolio for several purposes. It serves as a vehicle to manage interest rate and prepayment risk,
to generate interest and dividend income from investment of funds, to provide liquidity to meet funding requirements, and to provide
collateral for pledging of public funds.
As
of June 30, 2019, our available for sale investment portfolio included U. S. Treasury Notes, Government-Sponsored
Enterprises and Municipal Securities with a fair market value of $101.4 million and an amortized cost of $101.1 million for a
net unrealized loss of approximately $0.3 million. As of June 30, 2019 and December 31, 2018, our investment securities
portfolio represented approximately 22.93% and 27.89% of our total assets, respectively. The average yield on our investment
securities was 2.04% and 2.08% at June 30, 2019 and December 31, 2018, respectively.
During
the first quarter of 2019, five Municipal Securities totaling $3.0 million matured and one Municipal Security in the amount
of $0.5 million was called. During the second quarter of 2019, six Municipal Securities totaling $1.4 million were called,
two Municipal Securities totaling $0.9 million matured, two Government-Sponsored Enterprise securities were sold for
$10.0 million, and one U.S. Treasury Note in the amount of $5.0 million was sold.
Loans
We
focus our lending activities on small and middle market businesses, professionals and individuals in our geographic markets. Substantially
all of our loans are to borrowers located in our market area of Charleston, Dorchester and Berkeley Counties of South Carolina.
Net
loans increased $9.3 million, or 3.43%, to $279.7 million as of June 30, 2019 from $270.4 million as of December 31, 2018. The
increase in loans is related to increased loan demand due to the growing economy in Charleston. The following table is a
summary of our loan portfolio composition (net of deferred fees of $165,854 at June 30, 2019 and $156,309 at December 31, 2018)
and the corresponding percentage of total loans as of the dates indicated.
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
56,270,330
|
|
|
|
19.82
|
%
|
|
$
|
54,829,078
|
|
|
|
19.96
|
%
|
Commercial Real Estate - Construction
|
|
|
11,204,997
|
|
|
|
3.95
|
%
|
|
|
7,304,300
|
|
|
|
2.66
|
%
|
Commercial Real Estate - Other
|
|
|
148,569,431
|
|
|
|
52.34
|
%
|
|
|
143,703,401
|
|
|
|
52.32
|
%
|
Consumer Real Estate
|
|
|
62,167,172
|
|
|
|
21.90
|
%
|
|
|
63,787,411
|
|
|
|
23.23
|
%
|
Consumer Other
|
|
|
5,635,700
|
|
|
|
1.99
|
%
|
|
|
5,040,077
|
|
|
|
1.83
|
%
|
Total loans
|
|
|
283,847,630
|
|
|
|
100.00
|
%
|
|
|
274,664,267
|
|
|
|
100.00
|
%
|
Allowance for loan losses
|
|
|
(4,130,548
|
)
|
|
|
|
|
|
|
(4,214,331
|
)
|
|
|
|
|
Total loans, net
|
|
$
|
279,717,082
|
|
|
|
|
|
|
$
|
270,449,936
|
|
|
|
|
|
Nonperforming
Assets
Nonperforming
Assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure, loans on nonaccrual status and TDRs.
Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe,
after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such
that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified
as nonaccrual is recognized as a reduction in principal when received. Our policy with respect to nonperforming loans requires
the borrower to make a minimum of six consecutive payments in accordance with the loan terms and to show capacity to continue
performing into the future before that loan can be placed back on accrual status. As of June 30, 2019, we had no loans 90 days
past due still accruing interest.
We
consider a loan to be a TDR when the debtor experiences financial difficulties and we provide concessions such that we will not
collect all principal and interest in accordance with the original terms of the agreement. Concessions can relate to the contractual
interest rate, maturity date, or payment structure of the note. As part of our workout plan for individual loan relationships,
we may restructure loan terms to assist borrowers facing challenges. As of June 30, 2019 and December 31, 2018, there were no
TDRs.
Nonperforming
loans include all loans past due 90 days and over, certain impaired loans (some of which may be contractually current), and TDR
loans that have not yet established a satisfactory period of payment performance (some of which may be contractually current).
Nonperforming assets include other real estate owned, which remained unchanged compared to December 31, 2018.
The
following table is a summary of our nonperforming assets:
|
|
June 30, 2019
|
|
December 31, 2018
|
Commercial
|
|
$
|
13,210
|
|
|
$
|
251,219
|
|
Commercial Real Estate - Other
|
|
|
571,292
|
|
|
|
571,292
|
|
Consumer Other
|
|
|
678
|
|
|
|
1,023
|
|
Total nonaccruing loans
|
|
|
585,180
|
|
|
|
823,534
|
|
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
Total nonperforming assets
|
|
$
|
585,180
|
|
|
$
|
823,534
|
|
Allowance
for Loan Losses
The
allowance for loan losses was $4.1 million as of June 30, 2019 and $4.2 million as of December 31, 2018, or 1.46% and 1.53% of
outstanding loans for each respective period. At June 30, 2019 and December 31, 2018, the allowance for loan losses represented
705.86% and 511.74% of the total amount of nonperforming loans, respectively. Based on the level of coverage on nonperforming
loans and analysis of our loan portfolio, we believe the allowance for loan losses at June 30, 2019 is adequate.
At
June 30, 2019, impaired loans totaled $3.9 million, for which $2.0 million of these loans had a reserve of approximately $0.9
million allocated in the allowance for loan losses. Comparatively, impaired loans totaled $4.2 million at December 31, 2018, and
$2.2 million of these loans had a reserve of approximately $1.2 million allocated in the allowance for loan losses.
During
the six months ended June 30, 2019, we recorded $237,737 of charge-offs and $8,954 of recoveries on loans previously
charged-off, for net charge-offs of $228,783. Comparatively, we recorded $103,093 of charge-offs and $105,159 of recoveries
on loans previously charged-off, for net recoveries of $2,066 for the six months ended June 30, 2018.
Deposits
Deposits
remain our primary source of funding for loans and investments. Average interest bearing deposits provided funding for 58.98%
of average earning assets for the six months ended June 30, 2019, and 60.13% for the six months ended June 30, 2018. The Company
encounters strong competition from other financial institutions as well as consumer and commercial finance companies, insurance
companies and brokerage firms located in the primary service area of the Bank. However, the percentage of funding provided by
deposits has remained stable.
The
breakdown of total deposits by type and the respective percentage of total deposits are as follows:
|
|
June
30, 2019
|
|
December
31, 2018
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest
bearing demand
|
|
$
|
138,577,128
|
|
|
|
36.11
|
%
|
|
$
|
130,940,138
|
|
|
|
34.24
|
%
|
Interest
bearing demand
|
|
|
102,905,495
|
|
|
|
26.81
|
%
|
|
|
94,207,731
|
|
|
|
24.64
|
%
|
Money
market accounts
|
|
|
85,539,479
|
|
|
|
22.29
|
%
|
|
|
87,300,433
|
|
|
|
22.83
|
%
|
Time
deposits over $250,000
|
|
|
8,176,688
|
|
|
|
2.13
|
%
|
|
|
15,909,991
|
|
|
|
4.16
|
%
|
Other
time deposits
|
|
|
17,841,257
|
|
|
|
4.65
|
%
|
|
|
18,558,734
|
|
|
|
4.85
|
%
|
Other
savings deposits
|
|
|
30,769,858
|
|
|
|
8.01
|
%
|
|
|
35,461,361
|
|
|
|
9.28
|
%
|
Total
deposits
|
|
$
|
383,809,905
|
|
|
|
100.00
|
%
|
|
$
|
382,378,388
|
|
|
|
100.00
|
%
|
Deposits
increased 0.37% or $1.4 million from December 31, 2018 to June 30, 2019 primarily due to seasonal fluctuations.
At
June 30, 2019 and December 31, 2018, deposits with an aggregate deficit balance of $28,692 and $43,118, respectively, were re-classified
as other loans.
Comparison
of Three Months Ended June 30, 2019 to Three Months Ended June 30, 2018
Net
income increased $114,490 or 6.63% to $1.8 million, or basic and diluted earnings per share of $0.33, for the three months ended
June 30, 2019, from $1.7 million, or basic and diluted earnings per share of $0.31, for the three months ended June 30, 2018.
Our annualized return on average assets and average equity for the three months ended June 30, 2019 were 1.70% and 15.23%, respectively,
compared with 1.64% and 16.11%, respectively, for the three months ended June 30, 2018.
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
increased $283,949 or 6.63% to $4.6 million for the three months ended June 30, 2019 from $4.3 million for the three months ended
June 30, 2018. This increase was primarily due to interest and fee income on loans related to increases in market interest rates.
Average loans increased $7.9 million or 2.86% to $282.8 million for the three months ended June 30, 2019, compared to $274.9 million
for the three months ended June 30, 2018. The yield on average loans (including fees) was 6.15% and 5.71% for the three months
ended June 30, 2019 and June 30, 2018, respectively. Interest income on loans increased $385,671 for the three months ended June
30, 2019 to $4.1 million from $3.7 million for the three months ended June 30, 2018.
The
average balance of interest bearing deposits in other banks increased $11.4 million or 71.59% to $27.3 million for the three months
ended June 30, 2019, with a yield of 2.38% as compared to $15.9 million for the three months ended June 30, 2018, with a yield
of 1.84%.
Provision
for Loan Losses
We
have established an allowance for loan losses through a provision for loan losses charged as an expense on our
consolidated statements of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure
both the performance of the portfolio and the adequacy of our allowance for loan losses. For the three months ended June 30,
2019, we had a provision of $135,000 of loan losses compared to a provision of $75,000 for the same period in the prior year.
The increase in the provision for loan losses was based on our analysis of the adequacy of the allowance for
loan losses.
Non-Interest
Income
Other
income increased $37,643 or 6.78% to $592,739 for the three months ended June 30, 2019, from $555,096 for the three months ended
June 30, 2018. This increase was primarily due to gains on sales of investment securities in the amount of $28,900 for the three
months ended June 30, 2019 compared to gains on sales of investment securities of $387 during the same period in the prior year.
Non-Interest
Expense
Non-interest
expense decreased $16,733 or 0.63% to $2.6 million for the three months ended June 30, 2019 from $2.7 million for the
three months ended June 30, 2018. This decrease was primarily due to net other real estate owned expenses incurred during the
three months ended June 30, 2018 of $24,137 as compared to no net other real estate owned expenses incurred during the three
months ended June 30, 2019.
Income
Tax Expense
We
incurred income tax expense of $550,229 for the three months ended June 30, 2019 as compared to $386,394 during the same period
in 2018. Our effective tax rate was 23.01% and 18.29% for the three months ended June 30, 2019 and 2018, respectively. The increase
in the effective tax rate during the 2019 period is a result of the expiration of historic tax credits during 2018.
Comparison
of Six Months Ended June 30, 2019 to Six Months Ended June 30, 2018
Net
income increased $191,524 or 5.74% to $3.5 million, or basic and diluted earnings per share of $0.64 and $0.63, respectively,
for the six months ended June 30, 2019, from $3.3 million, or basic and diluted earnings per share of $0.63 and $0.61, respectively,
for the six months ended June 30, 2018. Our annualized returns on average assets and average equity for the six months ended June
30, 2019 were 1.65% and 14.99%, respectively, compared with 1.57% and 15.59%, respectively, for the six months ended June 30,
2018.
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
increased $522,845 or 6.16% to $9.0 million for the six months ended June 30, 2019 from $8.5 million for the six months ended
June 30, 2018. This increase was primarily due to interest and fee income from loans related to increases in market interest rates.
Average loans increased $5.6 million or 2.03% to $279.7 million for the six months ended June 30, 2019, compared to $274.1 million
for the six months ended June 30, 2018. The yield on average loans (including fees) was 6.09% and 5.61% for the six months ended
June 30, 2019 and 2018, respectively. Interest income on loans increased $778,404 for the six months ended June 30, 2019 to $8.0
million from $7.3 million for the six months ended June 30, 2018.
The
average balance of interest bearing deposits at the Federal Reserve increased $6.9 million or 42.57% to $23.1 million for the
six months ended June 30, 2019, with a yield of 2.43% as compared to $16.2 million for the six months ended June 30, 2018, with
a yield of 1.18%.
Provision
for Loan Losses
We
have established an allowance for loan losses through a provision for loan losses charged as an expense on our
consolidated statements of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure
both the performance of the portfolio of loan losses and the adequacy of our allowance for loan losses. For the six months
ended June 30, 2019, we had a provision of $145,000 compared to a provision of $130,000 for the same period in the prior
year. The increase in the provision for loan losses was based on our analysis of the adequacy of the allowance for loan
losses.
Non-Interest
Income
Other
income decreased $1,519 or 0.15% to $1.0 million for the six months ended June 30, 2019, from $1.0 million for the six
months ended June 30, 2018. This decrease was primarily due to a reduction in mortgage banking income and service charges and
fees offset by gains on sales of securities. Service charges and fees decreased $11,177 or 1.89%. Mortgage banking income
decreased $10,428 or 2.67% due to fewer originations. For the six months ended June 30, 2019, we realized gains of $28,900
from the sale of investment securities compared to gains of $4,735 for the six months ended June 30, 2018.
Non-Interest
Expense
Non-interest
expense increased $794 or 0.01% to $5.3 million for the six months ended June 30, 2019 from $5.3 million for the six months ended
June 30, 2018.
Income
Tax Expense
We
incurred income tax expense of $1.0 million for the six months ended June 30, 2019 as compared to $735,454 during the same period
in 2018. Our effective tax rate was 22.92% and 18.05% for the six months ended June 30, 2019 and 2018, respectively. The increase
in the effective tax rate during the 2019 period is a result of the expiration of historic tax credits during 2018.
Off
Balance Sheet Arrangements
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. The amount of collateral obtained if deemed necessary by the Company 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 $92.9
million and $96.1 million at June 30, 2019 and December 31, 2018, respectively.
Standby
letters of credit represent our obligation to a third party contingent upon the failure of 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. The
majority of these standby letters of credit are unsecured. Commitments under standby letters of credit are usually for one year
or less. The maximum potential amount of undiscounted future payments related to standby letters of credit at June 30, 2019 and
December 31, 2018 was $1.1 million and $1.2 million, respectively.
We
originate certain fixed rate residential loans and commit these loans for sale. The commitments to originate fixed
rate residential loans and the sales commitments are freestanding derivative instruments. We had forward sales commitments on
mortgage loans held for sale totaling $2.9 million and $1.2 million at June 30, 2019 and December 31, 2018, respectively. The fair value
of these commitments was not significant at June 30, 2019 or December 31, 2018. We had no embedded derivative
instruments requiring separate accounting treatment.
Once
we sell certain fixed rate residential loans, the loans are no longer reportable on our balance sheet. With most of these sales,
we have an obligation to repurchase the loan in the event of a default of principal or interest on the loan. This recourse period
ranges from three to nine months. Misrepresentation or fraud carries unlimited time for recourse. The unpaid principal balance
of loans sold with recourse was $1.7 million at June 30, 2019 and $0.7 million at December 31, 2018. For the six months ended
June 30, 2019 and June 30, 2018, there were no loans repurchased.
Liquidity
Historically,
we have maintained our liquidity at levels believed to be adequate to meet requirements of normal operations, potential deposit
outflows and strong loan demand and still allow for optimal investment of funds and return on assets.
We
manage our assets and liabilities to ensure there is sufficient liquidity to enable management to fund deposit withdrawals, loan
demand, capital expenditures, reserve requirements, operating expenses, dividends and to manage daily operations on an ongoing
basis. Funds are primarily provided by the Bank through customer deposits, principal and interest payments on loans, mortgage
loan sales, the sale or maturity of securities, temporary investments and earnings.
Proper
liquidity management is crucial to ensure that we are able to take advantage of new business opportunities as well as meet the
credit needs of our existing customers. Investment securities are an important tool in our liquidity management. Our primary liquid
assets are cash and due from banks, interest-bearing deposits in other banks, federal funds sold, investments available for sale,
other short-term investments and mortgage loans held for sale. Our primary liquid assets accounted for 33.77% and 35.58% of total
assets at June 30, 2019 and December 31, 2018, respectively. Securities classified as available for sale, which are not pledged,
may be sold in response to changes in interest rates and liquidity needs. All of the securities presently owned are classified
as available for sale. Net cash provided by operations and deposits from customers have been the primary sources of liquidity.
At June 30, 2019, we had unused short-term lines of credit totaling approximately $23.0 million (which can be withdrawn at the
lender’s option). Additional sources of funds available to us for additional liquidity needs include borrowing on a short-term
basis from the Federal Reserve System, increasing deposits by raising interest rates paid and sale of mortgage loans held for
sale. We established a Borrower-In-Custody arrangement with the Federal Reserve. This arrangement permits us to retain possession
of assets pledged as collateral to secure advances from the Federal Reserve Discount Window. At June 30, 2019, we could borrow
up to $74.7 million. There have been no borrowings under this arrangement.
Our
core deposits consist of non-interest bearing accounts, NOW accounts, money market accounts, time deposits and savings accounts.
We closely monitor our level of certificates of deposit greater than $250,000 and other large deposits. We maintain a Contingency
Funding Plan (“CFP’) that identifies liquidity needs and weighs alternate courses of action designed to address these
needs in emergency situations. We perform a quarterly cash flow analysis and stress test the CFP to evaluate the expected funding
needs and funding capacity during a liquidity stress event. We believe our liquidity sources are adequate to meet our operating
needs and do not know of any trends, events or uncertainties that may result in a significant adverse effect on our liquidity
position. At June 30, 2019 and December 31, 2018, our liquidity ratio was 33.68% and 34.27%, respectively.
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 stock options to purchase stock. Total shareholders’ equity as of June 30, 2019
was $49.4 million. The rate of asset growth since our inception has not negatively impacted this 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 US 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. The purpose 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 raises 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 also implements strict eligibility criteria for regulatory capital instruments
and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Full compliance with all of the
final rule requirements has be phased in over a multi-year schedule. The Bank’s total risk-based capital ratio at June 30, 2019 and December 31, 2018 was 16.25% and 16.69%, respectively.
At
June 30, 2019, the Company and the Bank were categorized as “well capitalized” under Basel III. To be categorized
as “well capitalized” the Company and the Bank must maintain minimum total risk based, Tier 1 risk based, common equity
Tier 1 risk based capital and Tier 1 leverage ratios of 10%, 8.0%, 6.5% and 5%, respectively, and to be categorized as “adequately
capitalized,” the Company and the Bank must maintain minimum total risk based, Tier 1 risk based, common equity Tier 1 risk
based capital, and Tier 1 leverage ratios of 8%, 6%, 4.5%, and 4.0%, respectively.
We
are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that,
if undertaken, could have a material effect on the financial statements. We must meet specific capital guidelines that involve
quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting
practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors. Current and previous quantitative measures established by regulation to ensure capital adequacy
require that we maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and to average assets.
Management expects that the capital ratios for the Company and the Bank under Basel III will continue to exceed the well-capitalized
minimum capital requirements.
We
intend to open a branch in North Charleston in the fourth quarter of 2019. The Bank of South Carolina will be the anchor tenant
of a two-story building located at 9403 Highway 78, occupying the entire first floor. At this time, we estimate
the capital expenditures associated with building the branch to be approximately $2.0 million.