United States
Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2022

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 0-27702

Bank of South Carolina Corporation

(Exact name of registrant issuer as specified in its charter)

South Carolina		57-1021355
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification Number)

256 Meeting Street, Charleston, SC 29401

(Address of principal executive offices)

(843) 724-1500

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common stock		BKSC		NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ☐	Accelerated filer	☐
Non-accelerated filer ☐	Smaller reporting company	☒
(Do not check if a smaller reporting company)	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 15, 2022, there were 5,550,476 Common Shares outstanding.

Part I. Financial Information	Page

Item 1. Financial Statements	3
Consolidated Balance Sheets – March 31, 2022 and December 31, 2021	3
Consolidated Statements of Income – Three months ended March 31, 2022 and 2021	4
Consolidated Statements of Comprehensive Loss – Three months ended March 31, 2022 and 2021	5
Consolidated Statements of Shareholders’ Equity – Three months ended March 31, 2022 and 2021	6
Consolidated Statements of Cash Flows – Three months ended March 31, 2022 and 2021	7
Notes to Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Off-Balance Sheet Arrangements	25
Liquidity	25
Capital Resources	26

Item 3. Quantitative and Qualitative Disclosures About Market Risk	26

Item 4. Controls and Procedures	26

Part II. Other Information

Item 1. Legal Proceedings	27
Item 1A. Risk Factors	27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3. Defaults Upon Senior Securities	27
Item 4. Mine Safety Disclosure	27
Item 5. Other Information	27
Item 6. Exhibits	27

Signatures	29
Certifications	30

Part I. Financial Information

Item 1. Financial Statements

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	(Unaudited)			(Audited)
	March 31,			December 31,
	2022			2021
ASSETS
Cash and due from banks	$	7,946,158		$	11,140,559
Interest-bearing deposits at the Federal Reserve		61,420,171			128,971,429
Investment securities available for sale		257,906,304			212,347,489
Mortgage loans to be sold		2,626,999			2,774,388
Loans		314,905,975			306,632,229
Less: Allowance for loan losses		(4,304,502	)		(4,376,987	)
Net loans		310,601,473			302,255,242
Premises, equipment and leasehold improvements, net		3,716,805			3,782,936
Right of use asset		13,889,805			14,041,843
Accrued interest receivable		1,473,108			1,404,227
Other assets		5,412,514			2,502,533
Total assets	$	664,993,337		$	679,220,646

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing demand	$	258,738,170		$	255,783,644
Interest bearing demand		159,954,068			165,335,038
Money market accounts		92,136,722			98,113,942
Time deposits $250,000 and over		7,668,871			7,417,864
Other time deposits		13,424,001			13,870,356
Other savings deposits		71,849,648			68,670,732
Total deposits		603,771,480			609,191,576
Accrued interest payable and other liabilities		2,373,739			2,069,594
Lease liability		13,889,805			14,041,843
Total liabilities		620,035,024			625,303,013

Shareholders’ equity
Common stock - no par 12,000,000 shares authorized; Issued 5,850,450 shares at March 31, 2022 and 5,841,240 shares at December 31, 2021. Shares outstanding 5,550,476 and 5,541,266 at March 31, 2022 and December 31, 2021, respectively.		—			—
Additional paid in capital		47,914,892			47,745,285
Retained earnings		11,643,236			11,122,710
Treasury stock: 299,974 shares at March 31, 2022 and December 31, 2021		(2,817,392	)		(2,817,392	)
Accumulated other comprehensive loss, net of income taxes		(11,782,423	)		(2,132,970	)
Total shareholders’ equity		44,958,313			53,917,633
Total liabilities and shareholders’ equity	$	664,993,337		$	679,220,646

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended
	March 31,
	2022			2021
Interest and fee income
Loans, including fees	$	3,551,875		$	4,106,171
Taxable securities		559,670			453,457
Tax-exempt securities		109,129			69,606
Other		34,286			11,881
Total interest and fee income		4,254,960			4,641,115

Interest expense
Deposits		36,797			54,524
Total interest expense		36,797			54,524

Net interest income		4,218,163			4,586,591
Provision for loan losses		(75,000	)		120,000
Net interest income after provision for loan losses		4,293,163			4,466,591

Other income
Service charges and fees		307,593			288,224
Mortgage banking income		258,896			645,895
Gain on sales of securities		61,780			—
Other non-interest income		6,285			5,795
Total other income		634,554			939,914

Other expense
Salaries and employee benefits		1,812,155			1,799,006
Net occupancy expense		620,942			612,268
Other operating expenses		294,733			311,465
Professional fees		139,642			145,542
Data processing fees		149,090			162,434
Total other expense		3,016,562			3,030,715

Income before income tax expense		1,911,155			2,375,790
Income tax expense		447,049			565,715

Net income	$	1,464,106		$	1,810,075

Weighted average shares outstanding
Basic		5,544,546			5,521,707
Diluted		5,688,619			5,685,151

Basic income per common share	$	0.26		$	0.33
Diluted income per common share	$	0.26		$	0.32

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)


	Three Months Ended
	March 31,
	2022			2021
Net income	$	1,464,106		$	1,810,075
Other comprehensive loss
Unrealized loss on securities arising during the period		(12,152,716	)		(2,967,059	)
Reclassification adjustment for securities gains realized in net income		(61,780	)		—
Other comprehensive loss before tax		(12,214,496	)		(2,967,059	)
Income tax effect related to items of other comprehensive loss before tax		2,565,043			623,082
Other comprehensive loss after tax		(9,649,453	)		(2,343,977	)
Total comprehensive loss	$	(8,185,347	)	$	(533,902	)

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED March 31, 2022 AND 2021 (UNAUDITED)


	Shares Outstanding		Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
December 31, 2021	-	5,541,266	$	47,745,285	$	11,122,710		$	(2,817,392	)	$	(2,132,970	)	$	53,917,633
Net income	-	—		—		1,464,106			—			—			1,464,106
Other comprehensive loss		—		—		—			—			(9,649,453	)		(9,649,453	)
Stock option exercises, net of surrenders		9,210		141,618		—			—			—			141,618
Stock-based compensation expense		—		27,989		—			—			—			27,989
Cash dividends ($0.17 per common share)		—		—		(943,580	)		—			—			(943,580	)
March 31, 2022	-	5,550,476	$	47,914,892	$	11,643,236		$	(2,817,392	)	$	(11,782,423	)	$	44,958,313


	Shares Outstanding		Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
December 31, 2020	-	5,520,469	$	47,404,869	$	8,693,519		$	(2,787,898	)	$	1,669,866		$	54,980,356
Net income	-	—		—		1,810,075			—			—			1,810,075
Other comprehensive loss		—		—		—			—			(2,343,977	)		(2,343,977	)
Stock option exercises, net of surrenders		4,147		39,589		—			(8,344	)		—			31,245
Stock-based compensation expense		—		22,997		—			—			—			22,997
Cash dividends ($0.27 per common share)		—		—		(1,491,646	)		—			—			(1,491,646	)
March 31, 2021	-	5,524,616	$	47,467,455	$	9,011,948		$	(2,796,242	)	$	(674,111	)	$	53,009,050

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


	Three Months Ended
	March 31,
	2022			2021
Cash flows from operating activities:
Net income	$	1,464,106		$	1,810,075
Adjustments to reconcile net income net cash provided by operating activities:
Depreciation expense		97,694			106,414
Gain on sale of investment securities		(61,780	)		—
Provision for loan losses		(75,000	)		120,000
Stock-based compensation expense		27,989			22,997
Deferred income taxes and other assets		(344,938	)		(813,220	)
Net amortization of unearned discounts on investment securities available for sale		214,931			96,917
Origination of mortgage loans held for sale		(17,582,370	)		(48,008,560	)
Proceeds from sale of mortgage loans held for sale		17,729,759			47,744,276
(Increase) decrease in accrued interest receivable		(68,881	)		220,448
Increase in accrued interest payable and other liabilities		302,580			699,515
Net cash provided by operating activities		1,704,090			1,998,862

Cash flows from investing activities:
Proceeds from calls and maturities of investment securities available for sale		2,718,000			4,817,000
Proceeds from sale of investment securities available for sale		15,120,000			—
Purchase of investment securities available for sale		(75,764,462	)		(15,728,575	)
Net increase in loans		(8,271,231	)		(1,490,085	)
Purchase of premises, equipment, and leasehold improvements, net		(31,563	)		(29,223	)
Net cash used in investing activities		(66,229,256	)		(12,430,883	)

Cash flows from financing activities:
Net (decrease) increase in deposit accounts		(5,420,096	)		22,448,381
Dividends paid		(942,015	)		(938,480	)
Stock options exercised, net of surrenders		141,618			31,245
Net cash (used in) provided by financing activities		(6,220,493	)		21,541,146
Net (decrease) increase in cash and cash equivalents		(70,745,659	)		11,109,125
Cash and cash equivalents at the beginning of the period		140,111,988			48,325,981
Cash and cash equivalents at the end of the period	$	69,366,329		$	59,435,106

Supplemental disclosure of cash flow data:
Cash paid during the period for:
Interest	$	37,340		$	75,231
Income taxes, net	$	—		$	231,375

See accompanying notes to consolidated financial statements.

BANK OF SOUTH CAROLINA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2022. 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.

Income Per Common 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.

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 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. ASU 2016-13 changes the impairment model for most financial assets to a current expected credit loss (“CECL”) model, replacing the incurred loss model that is currently in use. The new guidance requires an entity to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The CECL model will apply to financial assets measured at amortized cost, such as loans and investments, as well as certain off-balance sheet credit exposures. 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. In October 2019, the FASB voted to extend the implementation date for smaller reporting companies, non-SEC public companies, and private companies. This amendment will become effective for the Company on January 1, 2023. In connection with its efforts to implement ASU 2016-13, the Company internally developed and tested a model to apply the provisions of this guidance upon adoption. The Company is currently in the process of evaluating the impact on the consolidated financial statements of adopting ASU 2016-13. The actual impact of adopting ASU 2016-13 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 2020, the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the current expected credit losses (CECL) guidance issued in 2016. The amendments related to conforming amendments. For public business entities, the amendments are effective upon issuance of this final ASU. For the amendments related to ASU 2016-13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies (SRCs) as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. Early adoption will continue to be permitted. For entities that have not yet adopted the guidance in ASU 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-402 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The amendments in ASU 2022-02 are effective upon the Company’s adoption of ASU 2016-13.

In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In November 2021, the FASB added a topic to the Accounting Standards Codification, Government Assistance, to require certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. The amendment became effective January 1, 2022 and did not have a material effect on the consolidated 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:


	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury Notes	$	170,849,901	$	—	$	(7,263,586	)	$	163,586,315
Government-Sponsored Enterprises		66,242,773		7,546		(5,628,550	)		60,621,769
Municipal Securities		35,728,088		6,525		(2,036,393	)		33,698,220
Total	$	272,820,762	$

SEC Form 10-Q filed by Bank of South Carolina Corp.