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BANK OF SOUTH CAROLINA CORP (BKSC)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 2023 net income decreased 17.19% year over year to $1.28M, with diluted EPS of $0.23 as deposit interest expense surged; sequentially, net income fell from $1.59M in Q1 2023 to $1.28M in Q2 2023 .
  • Net interest income was resilient, up 1.35% YoY to $4.61M, but mortgage banking income declined and non-interest income fell 26% YoY, reflecting softer mortgage activity .
  • Management highlighted higher-for-longer rate dynamics and intense deposit competition; the bank opened its sixth office (James Island), maintained its quarterly cash dividend, and authorized a $2.0M share repurchase program; 4,112 shares were repurchased in Q2 .
  • Liquidity actions included $25M borrowings under the Fed’s Bank Term Funding Program and tactical brokered time deposits ($47.8M in Q1; $23.2M matured in Q2), providing near-term flexibility amid deposit pressures .
  • No formal guidance or Street consensus was available via S&P Global for Q2 2023, limiting beat/miss assessment; potential stock catalysts include the buyback authorization, deposit pricing trajectory, and branch expansion execution .

What Went Well and What Went Wrong

What Went Well

  • Net interest income grew 1.35% YoY to $4.61M, supported by higher loan yields (6.07% vs. 5.07% YoY) and loan growth; interest income on loans increased by $1.27M YoY .
  • Asset quality remained solid with nonperforming loans at $0.63M and allowance coverage of ~590% of NPLs; provision in Q2 was zero .
  • Strategic execution: the bank successfully opened its James Island office, maintained its dividend ($0.17/share), and initiated a $2.0M buyback program; repurchased 4,112 shares in Q2 .

What Went Wrong

  • Deposit interest expense increased sharply to $1.11M from $38K YoY, compressing earnings despite higher asset yields; management cited “intense competition” for deposits across banks, brokerages, and the U.S. Treasury .
  • Non-interest income fell 26% YoY to $0.44M driven by weaker mortgage banking income ($0.09M vs. $0.24M YoY) as mortgage volumes moderated .
  • Returns moderated: ROAA for the quarter declined to 0.79% (vs. 0.93% YoY), with ROAE flat at 11.24% for Q2; sequential net income fell from $1.59M (Q1) to $1.28M (Q2) .

Financial Results

MetricQ2 2022Q4 2022Q1 2023Q2 2023
Net Income ($USD)$1,542,982 $1,807,785 $1,588,779 $1,277,717
EPS - Basic ($)$0.28 $0.33 $0.29 $0.23
EPS - Diluted ($)$0.27 $0.32 $0.28 $0.23

Income statement detail (YoY comparison):

MetricQ2 2022Q2 2023
Total Interest & Fee Income ($USD)$4,583,251 $6,027,060
Net Interest Income ($USD)$4,545,427 $4,606,980
Interest Expense - Deposits ($USD)$37,824 $1,111,987
Interest Expense - Short-term Borrowings ($USD)$0 $308,093
Total Other Income ($USD)$593,698 $437,121
Total Other Expense ($USD)$3,138,415 $3,386,022
Income Tax Expense ($USD)$457,728 $380,362

KPIs and returns:

MetricQ2 2022Q1 2023Q2 2023
ROAA (Annualized, %)0.93% 1.00% 0.79%
ROAE (Annualized, %)11.24% 15.73% 11.24%
Total Assets (Period-end, $USD)$655,465,190 $646,761,629 $648,405,848
Liquidity Ratio (%)N/A48.09% (FY end) 47.75%

Loan portfolio composition:

CategoryJun 30, 2023 ($)Jun 30, 2023 (%)Dec 31, 2022 ($)Dec 31, 2022 (%)
Commercial$46,173,490 13.53% $45,072,059 13.62%
CRE - Construction$23,752,103 6.96% $17,524,260 5.29%
CRE - Other$174,739,069 51.19% $172,897,387 52.24%
Consumer Real Estate$92,895,470 27.22% $91,636,538 27.69%
Consumer Other$3,778,741 1.10% $3,851,538 1.16%
Total Loans$341,338,873 100.00% $330,981,782 100.00%
Allowance for Credit Losses$(3,689,863) —$(4,291,221) —

Deposit mix:

CategoryJun 30, 2023 ($)Jun 30, 2023 (%)Dec 31, 2022 ($)Dec 31, 2022 (%)
Non-interest Demand$206,034,702 36.49% $223,117,903 37.26%
Interest-bearing Demand$154,348,295 27.33% $195,143,514 32.60%
Money Market$104,930,669 18.58% $100,014,125 16.71%
Time Deposits ≥ $250K$30,596,097 5.42% $5,303,509 0.89%
Other Time Deposits$11,106,990 1.97% $11,266,099 1.88%
Other Savings$57,736,509 10.21% $63,825,108 10.66%
Total Deposits$564,753,262 100.00% $598,670,258 100.00%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue/EPS GuidanceQ2 2023None issuedNone issuedMaintained (no formal guidance)
Quarterly Dividend per ShareQ2 2023$0.17 (prior quarter) $0.17 (paid/declared)Maintained
Share Repurchase AuthorizationAnnounced May 25, 2023Prior program (approved Mar 26, 2020) New $2.0M authorization through May 2026Renewed/Replaced; repurchased 4,112 shares in Q2

Earnings Call Themes & Trends

Note: No Q2 2023 earnings call transcript was filed; themes are drawn from Q4 2022 and Q1/Q2 2023 press releases and 10-Q MD&A.

TopicQ-2 (Q4 2022)Q-1 (Q1 2023)Current (Q2 2023)Trend
Deposit Competition & Pricing“Intense competition for deposits has emerged” “Precipitous increases in deposit costs… intense competition amongst banks, brokerages, and U.S. Treasury” Deposit expense up sharply; competition remains intense per CEO Intensifying
Interest Rate OutlookExpect additional Fed rate increases in 2023 Potential for further rate increases uncertain Higher/longer rates becoming more possible Higher-for-longer
Mortgage Activity & Non-Interest IncomeMortgage activity slowed Margins thin; setup for weaker mortgage income Mortgage banking income down YoY; non-interest income down 26% Softer
Branch ExpansionJames Island office anticipated in Q2 2023 Opening later this quarter Sixth office successfully opened in Q2 Executed
Liquidity ActionsN/ABrokered time deposits deployed ($47.8M in Q1) BTFP borrowings at $25M; brokered deposits matured $23.2M in Q2 Active
Capital ReturnN/ADividend maintained Dividend maintained; $2.0M buyback authorized; 4,112 shares repurchased Shareholder-friendly
CECL/RegulatoryN/AN/ACECL adopted Jan 1, 2023; ACL methodology updated Implemented

Management Commentary

  • “Unfortunately, in the second quarter we fell behind our 2023 profit plan and 2022 earnings to date as a result of the continued increase in deposit expense… the reality of interest rates remaining higher/longer is becoming more of a possibility.” — Fleetwood S. Hassell, President & CEO .
  • “Although we are ahead of 2022 first quarter results, we are behind in our profit plan… precipitous increases in our deposit costs to meet the intense competition amongst banks, brokerages, and the U.S. Treasury… our margins remain thin.” — Fleetwood S. Hassell (Q1 2023) .
  • “Maintaining safe and sound banking practices… although interest rate spreads have improved, mortgage activity has slowed and intense competition for deposits has emerged.” — Fleetwood S. Hassell (Q4 2022) .

Q&A Highlights

  • No Q2 2023 earnings call transcript was filed; therefore, no Q&A commentary is available [ListDocuments earnings-call-transcript: none].

Estimates Context

  • S&P Global consensus estimates for Q2 2023 EPS and revenue were unavailable due to data access limits at the time of retrieval; as such, no beat/miss comparison to Street estimates can be provided. Values retrieved from S&P Global were not accessible due to daily request limit exceeded (GetEstimates error).

Key Takeaways for Investors

  • Earnings pressure was driven by a sharp increase in deposit interest expense ($1.11M vs. $38K YoY), despite higher loan yields and modest net interest income growth; watch deposit pricing competitiveness and mix shift to higher-cost funding .
  • Net interest income remained stable (+1.35% YoY), but non-interest income fell on weaker mortgage banking activity; mortgage volumes and fee income remain a swing factor in near-term profitability .
  • Liquidity actions and optionality are notable: $25M BTFP borrowings and tactical brokered deposits provide runway while securities maturities and loan repricing should aid asset yields over time .
  • Asset quality is solid with minimal NPLs ($0.63M) and robust ACL coverage (~590% of NPLs), supporting downside protection; the Q2 provision was zero .
  • Shareholder returns are supportive: dividend maintained at $0.17/share and buyback program authorized through May 2026, with 4,112 shares repurchased in Q2; capital remains well above “well-capitalized” thresholds (CBLR 9.35%) .
  • Near-term trading implication: sensitivity to deposit beta headlines and funding mix changes; medium-term thesis hinges on higher-for-longer rates benefiting asset yields, stabilization of deposit costs, and incremental growth from branch expansion and loan growth .
  • With no formal guidance or accessible Street consensus, monitor subsequent filings for margin trajectory (deposit pricing vs. asset yields), buyback execution pace, and mortgage banking activity recovery .