Attached files
file | filename |
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EX-32 - WACCAMAW BANKSHARES INC | v166297_ex32.htm |
EX-31.1 - WACCAMAW BANKSHARES INC | v166297_ex31-1.htm |
EX-31.2 - WACCAMAW BANKSHARES INC | v166297_ex31-2.htm |
United
States Securities and Exchange Commission
Washington,
D.C. 20549
FORM
10-Q/A
(MARK
ONE)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER
30, 2009
|
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number 001-33046
WACCAMAW BANKSHARES,
INC.
(Exact
name of registrant as specified in its Charter)
NORTH
CAROLINA
|
52-2329563
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
110 North
J.K. Powell Boulevard, Whiteville,
N.C. 28472
(address
of principal executive
offices) (Zip
Code)
(910)
641-0044
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 of 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 x NO ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such files).
YES ¨ NO ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer (Do not check if
|
||
a smaller reporting
company) ¨
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES ¨ NO x
As of
November 10, 2009 there were 5,544,422 shares of the issuer’s common stock, no
par value, outstanding.
WACCAMAW
BANKSHARES, INC.
INDEX
|
Page Number
|
|
Part
I. FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
|
Consolidated
Balance Sheets September 30, 2009 (Unaudited)
|
||
and
December 31, 2008 (Audited)
|
1
|
|
Consolidated
Statements of Income, Nine Months Ended
|
||
September
30, 2009 and September 30, 2008 (Unaudited)
|
2
|
|
Consolidated
Statements of Income, Quarters Ended
|
||
September
30, 2009 and September 30, 2008 (Unaudited)
|
3
|
|
Consolidated
Statements of Cash Flows, Nine Months Ended
|
||
September
30, 2009 and September 30, 2008 (Unaudited)
|
4
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
5-15
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15-21
|
Item
4T.
|
Controls
and Procedures
|
22
|
Part
II. OTHER INFORMATION
|
22
|
|
Item
1.
|
Legal
Proceedings
|
22
|
Item
6.
|
Exhibits
|
23
|
SIGNATURES
|
24
|
|
EXHIBIT
INDEX
|
25
|
Waccamaw
Bankshares, Inc.
Consolidated
Balance Sheets
September
30, 2009 and December 31, 2008
(Unaudited)
|
(Audited)
|
|||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Cash
and due from banks
|
$ | 7,481,102 | $ | 8,947,752 | ||||
Interest-bearing
deposits with banks
|
5,113,077 | 2,684,741 | ||||||
Federal
funds sold
|
20,890,000 | 4,281,000 | ||||||
Total
cash and cash equivalents
|
33,484,179 | 15,913,493 | ||||||
Investment
securities, available-for-sale
|
86,303,949 | 87,402,799 | ||||||
Restricted
equity securities
|
4,041,350 | 4,131,906 | ||||||
Loans,
net of allowance for loan losses of $9,562,301 in 2009, and $7,187,981 in
2008
|
360,824,683 | 378,882,889 | ||||||
Other
real estate owned
|
5,453,713 | 956,832 | ||||||
Property
and equipment, net
|
17,196,786 | 17,597,502 | ||||||
Goodwill
|
2,727,152 | 2,727,152 | ||||||
Intangible
assets, net
|
280,222 | 416,194 | ||||||
Accrued
income
|
2,053,028 | 2,448,477 | ||||||
Bank
owned life insurance
|
18,381,823 | 17,834,763 | ||||||
Other
assets
|
7,263,235 | 9,138,427 | ||||||
Total
assets
|
$ | 538,010,120 | $ | 537,450,434 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Liabilities
|
||||||||
Demand
deposits
|
$ | 38,515,011 | $ | 36,159,809 | ||||
Interest-bearing
deposits
|
386,263,156 | 382,420,080 | ||||||
Total
deposits
|
424,778,167 | 418,579,889 | ||||||
Securities
sold under agreements to repurchase
|
23,139,000 | 23,830,000 | ||||||
Other
short-term borrowings
|
6,500,000 | 10,000,000 | ||||||
Long-term
debt
|
40,000,000 | 42,500,000 | ||||||
Junior
subordinated debentures
|
12,372,000 | 12,372,000 | ||||||
Accrued
interest payable
|
1,077,885 | 1,328,976 | ||||||
Other
liabilities
|
229,063 | 995,414 | ||||||
Total
liabilities
|
508,096,115 | 509,606,279 | ||||||
Commitments
and contingencies
|
- | - | ||||||
Stockholders’
equity
|
||||||||
Preferred
stock, Series A, non-cumulative, non-voting, no par value; 1,000,000
shares authorized; 7,311 and 28,184 issued and outstanding at September
30, 2009 and December 31, 2008, respectively
|
120,483 | 464,476 | ||||||
Common
stock, no par value; 25,000,000 shares authorized; 5,544,422 and 5,523,549
shares issued and outstanding at September 30, 2009 and December 31, 2008,
respectively
|
24,974,604 | 24,591,884 | ||||||
Retained
earnings
|
7,670,171 | 8,907,591 | ||||||
Accumulated
other comprehensive loss
|
(2,851,253 | ) | (6,119,796 | ) | ||||
Total
stockholders’ equity
|
29,914,005 | 27,844,155 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 538,010,120 | $ | 537,450,434 |
See
notes to consolidated financial statements
1
WACCAMAW
BANKSHARES, INC.
Consolidated
Statements of Income
Nine-months
ended September 30, 2009 and September 30, 2008 (Unaudited)
Nine-Months
|
Nine-Months
|
|||||||
Ended
|
Ended
|
|||||||
Sept 30, 2009
|
Sept 30, 2008
|
|||||||
Interest
income
|
||||||||
Loans
and fees on loans
|
$ | 15,977,468 | $ | 18,517,798 | ||||
Federal
funds sold
|
13,914 | 18,469 | ||||||
Investment
securities, taxable
|
3,286,867 | 4,232,671 | ||||||
Investment
securities, nontaxable
|
446,400 | 536,993 | ||||||
Total
interest income
|
19,724,649 | 23,305,931 | ||||||
Interest
expense
|
||||||||
Deposits
|
7,445,004 | 10,357,456 | ||||||
Federal
funds purchased and securities sold under agreements to
repurchase
|
558,197 | 891,687 | ||||||
Short-term
borrowings
|
253,318 | 270,545 | ||||||
Long-term
borrowings
|
1,651,178 | 1,329,829 | ||||||
Total
interest expense
|
9,907,697 | 12,849,517 | ||||||
Net
interest income
|
9,816,952 | 10,456,414 | ||||||
Provision
for loan losses
|
4,856,894 | 634,084 | ||||||
Net interest income after
provision for loan losses
|
4,960,058 | 9,822,330 | ||||||
Non-interest
income (loss)
|
||||||||
Service
charges on deposit accounts
|
2,263,858 | 1,583,581 | ||||||
Mortgage
origination income
|
294,983 | 260,564 | ||||||
Income
from financial services
|
110,423 | 200,240 | ||||||
Earnings
on bank owned life insurance
|
547,060 | 406,038 | ||||||
Net
realized gains on sale or maturity of investment
securities
|
1,354,435 | 40,446 | ||||||
Impairment
on investment securities
|
(2,319,476 | ) | (1,853,572 | ) | ||||
Other
operating income
|
664,607 | 712,179 | ||||||
Total
non-interest income
|
2,915,890 | 1,349,476 | ||||||
Non-interest
expense
|
||||||||
Salaries
and employee benefits
|
5,441,093 | 6,176,312 | ||||||
Occupancy
expense
|
1,566,101 | 1,449,299 | ||||||
Data
processing
|
895,189 | 960,140 | ||||||
Amortization
expense of intangible assets
|
145,471 | 214,052 | ||||||
Other
expense
|
3,097,230 | 2,717,222 | ||||||
Total
non-interest expense
|
11,145,084 | 11,517,025 | ||||||
Income
(loss) before income taxes
|
(3,269,136 | ) | (345,219 | ) | ||||
Income
tax expense (benefit)
|
(1,554,938 | ) | (408,791 | ) | ||||
Net
income (loss)
|
$ | (1,714,198 | ) | $ | 63,572 | |||
Basic
income (loss) per share
|
$ | (.31 | ) | $ | .01 | |||
Diluted
income (loss) per share
|
$ | (.31 | ) | $ | .01 | |||
Weighted
average shares outstanding
|
5,529,540 | 5,480,047 | ||||||
Diluted
average shares outstanding
|
5,529,540 | 5,508,231 |
See notes to consolidated
financial statements
2
WACCAMAW
BANKSHARES, INC.
Consolidated
Statements of Income
Quarter
ended September 30, 2009 and September 30, 2008 (Unaudited)
Quarter
Ended
|
Quarter
Ended
|
|||||||
Sept 30, 2009
|
Sept 30, 2008
|
|||||||
Interest
income
|
||||||||
Loans
and fees on loans
|
$ | 5,488,874 | $ | 5,845,701 | ||||
Federal
funds sold
|
11,895 | 9,334 | ||||||
Investment
securities, taxable
|
968,742 | 1,438,765 | ||||||
Investment
securities, nontaxable
|
141,649 | 179,678 | ||||||
Total
interest income
|
6,611,160 | 7,473,478 | ||||||
Interest
expense
|
||||||||
Deposits
|
2,235,730 | 3,109,265 | ||||||
Federal
funds purchased and securities sold under agreements to
repurchase
|
187,358 | 254,240 | ||||||
Short-term
borrowings
|
81,563 | 69,445 | ||||||
Long-term
borrowings
|
552,413 | 532,401 | ||||||
Total
interest expense
|
3,057,064 | 3,965,351 | ||||||
Net
interest income
|
3,554,096 | 3,508,127 | ||||||
Provision
for loan losses
|
1,230,048 | 528,084 | ||||||
Net interest income after
provision for loan losses
|
2,324,048 | 2,980,043 | ||||||
Non-interest
income (loss)
|
||||||||
Service
charges on deposit accounts
|
886,191 | 568,300 | ||||||
Mortgage
origination income
|
91,576 | 91,887 | ||||||
Income
from financial services
|
56,251 | 45,823 | ||||||
Earnings
on bank owned life insurance
|
195,787 | 145,824 | ||||||
Net
realized gains on sale or maturity of investment
securities
|
483,758 | - | ||||||
Impairment
on investment securities
|
(10,000 | ) | (1,853,572 | ) | ||||
Other
operating income
|
100,645 | 244,698 | ||||||
Total
non-interest income (loss)
|
1,804,208 | (757,040 | ) | |||||
Non-interest
expense
|
||||||||
Salaries
and employee benefits
|
1,736,058 | 2,050,830 | ||||||
Occupancy
expense
|
519,374 | 512,982 | ||||||
Data
processing
|
250,324 | 337,138 | ||||||
Amortization
expense of intangible assets
|
46,119 | 73,462 | ||||||
Other
expense
|
1,289,402 | 908,764 | ||||||
Total
non-interest expense
|
3,841,277 | 3,883,176 | ||||||
Income
(loss) before income taxes
|
286,979 | (1,660,173 | ) | |||||
Income
tax expense (benefit)
|
(44,059 | ) | (743,734 | ) | ||||
Net
income (loss)
|
$ | 331,038 | $ | (916,439 | ) | |||
Basic
income (loss) per share
|
$ | .06 | $ | (.17 | ) | |||
Diluted
income (loss) per share
|
$ | .06 | $ | (.17 | ) | |||
Weighted
average shares outstanding
|
5,540,833 | 5,523,549 | ||||||
Diluted
average shares outstanding
|
5,548,564 | 5,523,549 |
See notes to consolidated
financial statements
3
WACCAMAW
BANKSHARES, INC.
Consolidated
Statements of Cash Flows
Nine-months
ended September 30, 2009 and September 30, 2008 (Unaudited)
Nine-Months
|
Nine-Months
|
|||||||
Ended
|
Ended
|
|||||||
Sept 30, 2009
|
Sept 30, 2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income (loss)
|
$ | (1,714,198 | ) | $ | 63,572 | |||
Adjustments
to reconcile net income (loss) to net cash provided (used) by
operations:
|
||||||||
Depreciation
and amortization
|
704,609 | 727,106 | ||||||
Stock-based
compensation
|
92,956 | 91,477 | ||||||
Provision
for loan losses
|
4,856,894 | 634,084 | ||||||
Accretion
of discount on securities, net of amortization of premiums
|
130,304 | (5,442 | ) | |||||
Gain
on sale of investments
|
(1,354,435 | ) | (40,446 | ) | ||||
Impairment
of investment securities
|
2,319,476 | 1,853,572 | ||||||
Income
from bank owned life insurance
|
(547,060 | ) | (406,038 | ) | ||||
Changes
in assets and liabilities:
|
||||||||
Accrued
income
|
395,449 | 146,383 | ||||||
Other
assets
|
(185,660 | ) | 94,045 | |||||
Accrued
interest payable
|
(251,091 | ) | (721,835 | ) | ||||
Other
liabilities
|
(766,349 | ) | (1,451,388 | ) | ||||
Net
cash (used in) provided by operating activities
|
3,680,895 | 985,090 | ||||||
Cash
flows from investing activities
|
||||||||
Purchases
of investment securities available-for-sale
|
(83,321,744 | ) | (23,756,765 | ) | ||||
Purchases
of restricted equity securities
|
(62,100 | ) | (871,200 | ) | ||||
Principal
repayments of investments available-for-sale
|
12,262,146 | 2,609,463 | ||||||
Net
(increase) decrease in loans
|
8,478,686 | (23,034,984 | ) | |||||
Sales
and maturities of investment securities available-for-sale
|
77,021,930 | 12,780,970 | ||||||
Investment
in bank owned life insurance
|
- | (1,500,000 | ) | |||||
Proceeds
from the sale of other real estate owned
|
225,745 | - | ||||||
Purchases
of property and equipment
|
(167,920 | ) | (3,765,229 | ) | ||||
Net
cash (used in) providing investing activities
|
14,436,743 | (37,537,745 | ) | |||||
Cash
flows from financing activities
|
||||||||
Net
increase in non-interest-bearing deposits
|
2,355,202 | 991,596 | ||||||
Net
increase in interest-bearing deposits
|
3,843,076 | 29,411,493 | ||||||
Net
decrease in securities sold under agreements to repurchase
|
(691,000 | ) | (2,616,000 | ) | ||||
Net
increase in junior subordinated debentures
|
- | 4,000,000 | ||||||
Repayments
from short-term borrowings
|
(3,500,000 | ) | (2,000,000 | ) | ||||
Proceeds
(repayments) of long-term debt
|
(2,500,000 | ) | 21,000,000 | |||||
Net
decrease in federal funds purchased
|
- | (15,429,300 | ) | |||||
Proceeds
from exercise of stock options
|
- | 165,774 | ||||||
Excess
tax benefit from stock options
|
- | 184,011 | ||||||
Stock
issuance costs
|
(54,230 | ) | - | |||||
Net
cash provided by financing activities
|
(546,952 | ) | 35,707,574 | |||||
Net
increase in cash and cash equivalents
|
17,570,686 | (845,081 | ) | |||||
Cash
and cash equivalents, beginning
|
15,913,493 | 12,721,446 | ||||||
Cash
and cash equivalents, ending
|
$ | 33,484,179 | $ | 11,876,365 | ||||
Supplemental
disclosure of cash flow information
|
||||||||
Interest
paid
|
$ | 10,158,788 | $ | 13,695,353 | ||||
Taxes
paid
|
$ | 38,000 | $ | 1,754,200 | ||||
Conversion
of common stock to preferred stock
|
$ | 343,993 | $ | 329,941 | ||||
Adoption
of Topic 715 of ASC (formerly EITF 06-4)
|
$ | - | $ | 173,968 | ||||
Cumulative
effect adjustment of Topic 320 of ASC (formerly FAS 115-2), net of
tax
|
$ | 476,778 | $ | - | ||||
Supplemental
disclosure of noncash activities
|
||||||||
Real
estate acquired in settlement of loans
|
$ | 4,722,626 | $ | 407,002 |
See notes to consolidated
financial statements
4
WACCAMAW
BANKSHARES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. BASIS OF PRESENTATION
The
balance sheet at December 31, 2008 was derived from the audited financial
statements at that date.
The
accompanying unaudited financial statements were prepared in accordance with
instructions for Form 10-Q and therefore do not include all disclosures required
by generally accepted accounting principles for a complete presentation of
financial statements. In the opinion of management, the financial statements
contain all adjustments necessary to present fairly the financial condition of
Waccamaw Bankshares, Inc. (the “Company”) and its subsidiary, Waccamaw Bank (the
“Bank”) as of September 30, 2009 and December 31, 2008, and its results of
operations and cash flows for the nine months ended September 30,
2009 and 2008. The results of operations for the nine months and three months
ended September 30, 2009 and 2008 are not
necessarily indicative of the results expected for the full year. These
consolidated financial statements should be read in conjunction with the
Company’s Form 10-K for the year ended December 31, 2008.
Waccamaw
Bankshares, Inc. is located in Whiteville, North Carolina. Waccamaw Bank, the
primary subsidiary of Waccamaw Bankshares, Inc. is a state chartered bank
operating seventeen offices in Whiteville, Wilmington, Shallotte (2), Holden
Beach, Chadbourn, Tabor City, Southport (2), Sunset Beach, Oak Island and
Elizabethtown, North Carolina. Offices in South Carolina include Conway (2),
Socastee, Little River and Heath Springs. The accounting and
reporting policies of the Company and Bank follow generally accepted accounting
principles and general practices within the financial services
industry.
PRESENTATION
OF CASH FLOWS
For
purposes of reporting cash flows, cash and cash equivalents include cash and
amounts due from depository institutions, (including cash items in process of
collection) interest-bearing deposits with banks which are considered to be cash
equivalents and federal funds sold. Cash flows from demand deposits, NOW
accounts and savings accounts are reported net since their original maturities
are less than three months. Loans and time deposits are reported net per FASB
ASC Topic 205. Federal funds purchased are shown
separately.
INVESTMENT
SECURITIES
Investments
classified as available for sale can be held for indefinite periods of time and
include those securities that management may employ as part of asset/liability
strategy or that may be sold in response to changes in interest rates,
prepayments, regulatory capital requirements or similar factors. These
securities are carried at fair value and are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Declines
in the fair value of available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
In estimating other-than-temporary impairment losses, management considers (1)
the length of time and the extent to which the fair value has been less than
cost, (2) the financial condition and near-term prospects of the issuer, and (3)
the intent and ability of the Company to retain its investment in the issuer for
a period of time sufficient to allow for any anticipated recovery in fair value.
The declines in fair value are due to changes in market rates.
LOANS
Loans are
stated at the amount of unpaid principal, reduced by unearned fees and an
allowance for loan losses.
The
allowance for loan losses is maintained at a level considered appropriate to
provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operating expense and reduced by net
charge-offs. The Bank performs credit reviews of the loan portfolio and
considers economic conditions, historical loan loss experience, review of
specific problem loans and other factors in determining the balance of the
allowance for loan losses.
5
Interest
on all loans is accrued daily on the outstanding balance. Accrual of interest is
discontinued on a loan when management believes, after considering collection
efforts and other factors that the borrower’s financial condition is such that
collection of interest is doubtful.
Allowance
for loan losses, charge-offs, impaired loans and non-accrual loans along with
market conditions and loan portfolio concentrations are discussed further under
“Asset Quality” in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
RECLASSIFICATION
Certain
reclassifications have been made to the prior years' financial statements to
place them on a comparable basis with the current year. Net income
and stockholders' equity previously reported were not affected by these
reclassifications.
SUBSEQUENT
EVENTS
In
preparing these financial statements, the Company has evaluated events and
transactions for potential recognition or disclosure through November 12, 2009,
the date the financial statements were issued. The subsequent events
affecting the financial statements are discussed in Note 8.
NOTE
2. ADJUSTMENT TO EARNINGS
Due to a
system error discovered during the October 2009, dating back to the second
quarter of 2008 and extending to the second quarter of 2009, interest income on
certain loan participations was understated by $552,151 and net income
understated by $340,274. Interest income of $212,350 and net income of $130,480
relating to 2008 was corrected as an out-of period adjustment in the third
quarter of 2009. The correction of this error affected both the asset account,
“Interest accrual on loans” and income account “Interest income on commercial
loans”, as this was an accrual entry only there were no cash transactions
affected by this error.
The
following table details the income and tax effect of the error on the affected
previously issues financial statements:
Nine-Months
|
Three-Months
|
Six-Months
|
||||||||||||||
Ended
|
Year
ended
|
Ended
|
Ended
|
|||||||||||||
Sept. 30, 2008
|
2008
|
March 31, 2009
|
June 30, 2009
|
|||||||||||||
Interest
income
|
$ | 118,416 | $ | 212,350 | $ | 103,034 | $ | 339,801 | ||||||||
Income
tax expense
|
(45,649 | ) | (81,870 | ) | (36,470 | ) | (130,007 | ) | ||||||||
Net
income impact of error
|
$ | 72,767 | $ | 130,480 | $ | 66,564 | $ | 209,794 | ||||||||
Net
income (loss) as previously reported
|
$ | 63,572 | $ | (2,043,030 | ) | $ | (135,539 | ) | $ | (2,255,030 | ) | |||||
Net
income (loss), Pro Forma
|
$ | 136,339 | $ | (1,912,550 | ) | $ | (68,975 | ) | $ | (2,045,236 | ) |
As
management has determined the impact of this error is not material to the
previously issued financial statements, these statements will not be
revised.
NOTE
3. EARNINGS PER SHARE
Earnings
per share for the nine months and the quarters ended September 30, 2009 and 2008
were calculated by dividing net income by the weighted average number of shares
outstanding during the period. Diluted earnings per share for the nine months
and the quarters ended September 30, 2009 and 2008 were calculated by dividing
net income by the weighted average number of dilutive shares outstanding. For
the nine months ended September 30, 2009 and three months ended September 30,
2008, there was no dilutive effect as the Company reported a loss on
operations.
6
The
following table details the computation of basic and diluted earnings per
share:
Nine-Months
|
Nine-Months
|
|||||||
ended
|
ended
|
|||||||
Sept 30, 2009
|
Sept 30, 2008
|
|||||||
Net
income (loss) (income available to common shareholders)
|
$ | (1,714,198 | ) | $ | 63,572 | |||
Weighted
average common shares outstanding
|
5,529,540 | 5,480,047 | ||||||
Effect
of dilutive securities, options
|
- | - | ||||||
Effect
of dilutive securities, preferred stock
|
- | 28,184 | ||||||
Weighted
average common shares outstanding, diluted
|
5,529,540 | 5,508,231 | ||||||
Basic
earnings per share
|
$ | (.31 | ) | $ | .01 | |||
Diluted
earnings per share
|
$ | (.31 | ) | $ | .01 |
Quarter
|
Quarter
|
|||||||
ended
|
ended
|
|||||||
Sept 30, 2009
|
Sept 30, 2008
|
|||||||
Net
income (income available to common shareholders)
|
$ | 331,038 | $ | (916,439 | ) | |||
Weighted
average common shares outstanding
|
5,540,833 | 5,523,549 | ||||||
Effect
of dilutive securities, options
|
420 | - | ||||||
Effect
of dilutive securities, preferred stock
|
7,311 | - | ||||||
Weighted
average common shares outstanding, diluted
|
5,548,564 | 5,523,549 | ||||||
Basic
earnings per share
|
$ | .06 | $ | (.17 | ) | |||
Diluted
earnings per share
|
$ | .06 | $ | (.17 | ) |
At
September 30, 2009 and September 30, 2008, the Company had 296,889 warrants
outstanding. These warrants were not included in the diluted earnings per share
calculation as the effect would have been anti-dilutive. There were 313,768
anti-dilutive options at September 30, 2009 and 299,394 anti-dilutive options at
September 30, 2008 which have been excluded from the diluted weighted shares
outstanding. There
were 321,077 anti-dilutive options for the three months ending September 30,
2009 and 311,810 anti-dilutive options for the three months ending September 30,
2008 which have been excluded from the diluted weighted shares
outstanding.
In 2008,
the shareholders approved an equity compensation plan (the 2008 Omnibus Stock
Ownership and Long Term Incentive Plan (the “Omnibus Plan”)) which replaced the
Company’s Employee Stock and Director Stock Option Plans (the “Previous Plans”).
After the approval of the Omnibus Plan, no further options have been or will be
issued under the Previous Plans. The term of the Omnibus Plan is indefinite,
except that no incentive stock option award can be granted after the tenth
anniversary of the plan. The Omnibus Plan provides that shares of common stock
may be granted to certain key employees and outside directors through
non-qualified stock options, incentive stock options, stock appreciation rights,
restricted stock, performance awards or any other award made under the terms of
the plan. The Board of Directors determines the exercise price and all other
terms of all grants.
NOTE
4. COMMITMENTS AND CONTINGENCIES
The Bank
is party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve, to
varying degrees, credit risk in excess of the amount recognized in the balance
sheets.
7
The
Bank’s exposure to credit loss in the event of nonperformance by counterparties
to financial instruments for commitments to extend credit and standby letters of
credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as for on-balance-sheet instruments. A
summary of the Bank’s commitments at September 30, 2009 and December 31, 2008 is
as follows:
Sept 30, 2009
|
December 31, 2008
|
|||||||
Commitments
to extend credit
|
$ | 38,169,000 | $ | 41,067,000 | ||||
Standby
letters of credit
|
767,000 | 3,194,000 |
NOTE
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards
Codification TM and the
Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB
Statement No. 162,” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards
Codification TM
(“Codification”) as the source of authoritative generally accepted
accounting principles (“GAAP”) for nongovernmental entities. The
Codification does not change GAAP. Instead, it takes the thousands of individual
pronouncements that currently comprise GAAP and reorganizes them into
approximately 90 accounting Topics, and displays all Topics using a consistent
structure. Contents in each Topic are further organized first by
Subtopic, then Section and finally Paragraph. The Paragraph level is the only
level that contains substantive content. Citing
particular content in the Codification
involves specifying the unique numeric path to the content through the Topic,
Subtopic, Section and Paragraph structure. FASB suggests that all citations
begin with “FASB ASC,” where ASC stands for Accounting Standards
Codification. Changes to
the ASC subsequent to June 30, 2009 are referred to as Accounting Standards
Updates (“ASU”).
In
conjunction with the issuance of SFAS 168, the FASB also issued its first
Accounting Standards Update No. 2009-1, “Topic 105 –Generally Accepted
Accounting Principles” (“ASU 2009-1”) which includes SFAS 168 in its entirety as
a transition to the ASC. ASU 2009-1 is effective for
interim and annual periods ending after September 15, 2009 and will not have an
impact on the Company’s financial position or results of operations but will
change the referencing system for accounting standards. Certain of
the following pronouncements were issued prior to the issuance of the ASC and
adoption of the ASUs. For such pronouncements, citations to the applicable
Codification by Topic, Subtopic and Section are provided where applicable in
addition to the original standard type and number.
The FASB
issued SFAS 166 (not yet reflected in FASB ASC), “Accounting for Transfers of
Financial Assets – an amendment of FASB Statement No. 140,” (“SFAS 166”) in June
2009. SFAS 166 limits the circumstances in which a financial asset
should be derecognized when the transferor has not transferred the entire
financial asset by taking into consideration the transferor’s continuing
involvement. The standard requires that a transferor recognize and
initially measure at fair value all assets obtained (including a transferor’s
beneficial interest) and liabilities incurred as a result of a transfer of
financial assets accounted for as a sale. The concept of a qualifying
special-purpose entity is removed from SFAS 140 along with the exception from
applying FIN 46(R). The standard is effective for the first annual
reporting period that begins after November 15, 2009, for interim periods within
the first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. The Company
does not expect the standard to have any impact on the Company’s financial
statements.
SFAS 167
(not yet reflected in FASB ASC), “Amendments to FASB Interpretation No. 46(R),”
(“SFAS 167”) was also issued in June 2009. The standard amends FIN
46(R) to require a company to analyze whether its interest in a variable
interest entity (“VIE”) gives it a controlling financial interest. A
company must assess whether it has an implicit financial responsibility to
ensure that the VIE operates as designed when determining whether it has the
power to direct the activities of the VIE that significantly impact its economic
performance. Ongoing reassessments of whether a company is the
primary beneficiary is also required by the standard. SFAS 167 amends
the criteria to qualify as a primary beneficiary as well as how to determine the
existence of a VIE. The standard also eliminates certain exceptions
that were available under FIN 46(R). SFAS 167 is effective as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. Comparative
disclosures will be required for periods after the effective
date. The Company does not expect the standard to have any impact on
the Company’s financial position.
8
The FASB
issued ASU 2009–05, “Fair Value Measurements and Disclosures (Topic 820) –
Measuring Liabilities at Fair Value” in August, 2009 to provide guidance when
estimating the fair value of a liability. When a quoted price in an
active market for the identical liability is not available, fair value should be
measured using (a) the quoted price of an identical liability when traded as an
asset; (b) quoted prices for similar liabilities or similar liabilities when
traded as assets; or (c) another valuation technique consistent with the
principles of Topic 820 such as an income approach or a market
approach. If a restriction exists that prevents the transfer of the
liability, a separate adjustment related to the restriction is not required when
estimating fair value. The ASU was effective October 1, 2009 for the
Company and will have no impact on financial position or
operations.
ASU
2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in
Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),”
issued in September, 2009, allows a company to measure the fair value of an
investment that has no readily determinable fair market value on the basis of
the investee’s net asset value per share as provided by the investee. This
allowance assumes that the investee has calculated net asset value in accordance
with the GAAP measurement principles of Topic 946 as of the reporting entity’s
measurement date. Examples of such investments include
investments in hedge funds, private equity funds, real estate funds and venture
capital funds. The update also provides guidance on how the investment should be
classified within the fair value hierarchy based on the value for which the
investment can be redeemed. The amendment is effective for interim
and annual periods ending after December 15, 2009 with early adoption
permitted. The Company does not have investments in such entities
and, therefore, there will be no impact to our financial
statements.
ASU
2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements – a consensus of the FASB Emerging Issues Task Force” was issued in
October, 2009 and provides guidance on accounting for products or services
(deliverables) separately rather than as a combined unit utilizing a selling
price hierarchy to determine the selling price of a deliverable. The
selling price is based on vendor-specific evidence, third-party evidence or
estimated selling price. The amendments in the Update are effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010 with early adoption
permitted. The Company does not expect the update to have an impact
on its financial statements.
Issued
October, 2009, ASU 2009-15, “Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance or Other Financing” amends ASC Topic
470 and provides guidance for accounting and reporting for own-share lending
arrangements issued in contemplation of a convertible debt
issuance. At the date of issuance, a share-lending arrangement
entered into on an entity’s own shares should be measured at fair value in
accordance with Topic 820 and recognized as an issuance cost, with an offset to
additional paid-in capital. Loaned shares are excluded from basic and
diluted earnings per share unless default of the share-lending arrangement
occurs. The amendments also require several disclosures including a
description and the terms of the arrangement and the reason for entering into
the arrangement. The effective dates of the amendments are dependent
upon the date the share-lending arrangement was entered into and include
retrospective application for arrangements outstanding as of the beginning of
fiscal years beginning on or after December 15, 2009. The
Company has no plans to issue convertible debt and, therefore, does not expect
the update to have an impact 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 the
Company’s financial position, results of operations or cash flows.
NOTE
6. FAIR VALUE
The
Company adopted FASB ASC Topic 820, Fair Value Measurements and Disclosures
(“ASC 820”), effective January 1, 2008. ASC 820 defines fair value,
establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. The Company utilizes fair value
measurements to record fair value adjustments to certain assets and liabilities
and to determine fair value disclosures. Securities available-for-sale are
recorded at fair value on a recurring basis. From time to time, the Company may
be required to adjust at fair value other assets on a nonrecurring basis, such
as loans held for sale and other certain assets. These nonrecurring fair value
adjustments typically involve application of lower of cost or market accounting
write-downs of individual assets.
ASC 820
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. Therefore, a fair value measurement should be determined based on
the assumptions that market participants would use in pricing the asset or
liability. As a basis for considering market participant assumptions in fair
value measurements, ASC 820 establishes a fair value hierarchy that
distinguishes between market participant assumptions based on market data
obtained from sources independent of the reporting entity (observable inputs
that are classified within Levels 1 and 2 of the hierarchy) and the reporting
entity’s own assumptions about market participant assumptions (unobservable
inputs classified within Level 3 of the hierarchy).
9
Fair Value
Hierarchy
Level
1
|
Valuation
is based upon quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Company has
the ability to access.
|
|||
Level
2
|
Valuation
is based upon quoted prices for similar assets and liabilities in active
markets, as well as inputs that are observable for the asset or liability
(other than quoted prices), such as interest rates, foreign exchange
rates, and yield curves that are observable at commonly quoted
intervals.
|
|||
Level
3
|
Valuation
is generated from model-based techniques that use at least one significant
assumption based on unobservable inputs for the asset or liability, which
are typically based on an entity’s own assumptions, as there is little, if
any, related market activity. In instances where the determination of the
fair value measurement is based on inputs from different levels of the
fair value hierarchy, the level in the fair value hierarchy within which
the entire fair value measurement falls is based on the lowest level input
that is significant to the fair value measurement in its entirety. The Company’s
assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors
specific to the asset or liability.
|
The
following is a description of valuation methodologies used for assets and
liabilities recorded at fair value.
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 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, U.S.
Treasury securities that are traded by dealers or brokers in active
over-the-counter markets and money market funds. 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.
Loans
The
Company does not record loans at fair value on a recurring basis. However, from
time to time, a loan is considered impaired and an allowance for loan losses is
established. Loans for which it is probable that payment of interest and
principal will not be made in accordance with the contractual terms of the loan
agreement are considered impaired. Once a loan is identified as individually
impaired, management measures impairment in accordance with the Receivables
Topic of the FASB ASC. The fair value of impaired loans is estimated using one
of several methods, including collateral value, market value of similar debt,
enterprise value, liquidation value, and discounted cash flows. Those impaired
loans not requiring an allowance represent loans for which the fair value of the
expected repayments or collateral exceed the recorded investments in such loans.
As of September 30, 2009, the Bank
identified $29.4 million in impaired loans. Of these impaired loans,
$21.1 million were identified to have impairment of $4.8 million. The
determination of impairment was based on the fair market value of collateral for
each loan. In situations where management discounts appraised values in
determining fair value of appraisals, these levels will be considered to be a
Level 3 input.
Other Real Estate
Owned
Other
real estate owned (“OREO”) is adjusted to fair value upon transfer of the loans
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 management’s estimation of the value of the collateral. When
the fair value of the collateral is based on an observable market price or a
current appraised value, the Company records the foreclosed asset as
nonrecurring Level 2. When an appraised value is not available or management
determines the fair value of the collateral is further impaired below the
appraised value and there is no observable market price, the Company records the
OREO as nonrecurring Level 3.
10
Goodwill and Other
Intangible Assets
Goodwill
and identified intangible assets are subject to impairment testing. The
Company’s approach to testing goodwill for impairment is to compare the business
unit’s carrying value to the implied fair value based on multiples of
earnings and tangible book value for recently completed merger transactions. In
the event the fair value is determined to be less than the carrying value, the
asset is recorded at fair value as determined by the valuation model. As such,
the Company classifies goodwill and other intangible assets subjected to
nonrecurring fair value adjustments as Level 3.
Assets and Liabilities
Recorded at Fair Value on a Recurring Basis
The
following table presents the recorded amount of assets and liabilities measured
at fair value on a recurring basis:
(Dollars
in thousands)
Sept
30,
|
||||||||||||||||
Description
|
2009
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Investment
Securities
|
||||||||||||||||
Available-for-Sale
|
$ | 86,304 | $ | - | $ | 81,904 | $ | 4,400 | ||||||||
Total
assets at fair value
|
$ | 86,304 | $ | - | $ | 81,904 | $ | 4,400 |
Assets and Liabilities
Recorded at Fair Value on a Nonrecurring Basis
The
Company may be required, from time to time, to measure certain assets at fair
value on a nonrecurring basis in accordance with U.S. generally accepted
accounting principles. These include assets that are measured at the lower of
cost or market that were recognized at fair value below cost at the end of the
period. Assets measured at fair value on a nonrecurring basis are included in
the following tables:
(Dollars
in thousands)
Sept
30,
|
||||||||||||||||
Description
|
2009
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Loans
|
$ | 16,290 | $ | - | $ | - | $ | 16,290 | ||||||||
Other
real estate owned
|
5,454 | - | - | 5,454 | ||||||||||||
Goodwill
|
2,727 | - | - | 2,727 | ||||||||||||
Total
assets at fair value
|
$ | 24,471 | $ | - | $ | - | $ | 24,471 |
The
following table, which presents additional information about financial assets
and liabilities measured at fair value at September 30, 2009, on a
recurring basis and for which Level 3 inputs are utilized to determine fair
value:
Available
|
||||
for
Sale
|
||||
Securities
|
||||
(In
thousands)
|
||||
Balance,
January 1, 2009
|
$ | 3,939 | ||
Total
gains or losses (realized/unrealized)
|
- | |||
Included
in earnings (or changes in net assets)
|
- | |||
Included
in other comprehensive income
|
830 | |||
Purchases,
issuances, and settlements
|
(1,990 | ) | ||
Transfers
in and/or out of Level 3
|
1,661 | |||
Balance,
September 30, 2009
|
$ | 4,440 |
11
FASB ASC
825, Financial Instruments, requires disclosure of fair value information about
financial instruments, whether or not recognized in the Statement of Condition,
for which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. Also, the fair value estimates presented herein
are based on pertinent information available to Management as of September 30,
2009 and December 31, 2008. Such amounts have not been comprehensively
revalued for purposes of these financial statements since those dates, and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
The
estimated fair values of the Company’s financial instruments are as follows
(dollars in thousands):
September 30, 2009
|
December 31, 2008
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
Financial
Assets
|
||||||||||||||||
Cash
and due from banks
|
$ | 7,481 | $ | 7,481 | $ | 8,948 | $ | 8,948 | ||||||||
Interest-bearing
deposits with banks
|
5,113 | 5,113 | 2,685 | 2,685 | ||||||||||||
Federal
funds sold
|
20,890 | 20,890 | 4,281 | 4,281 | ||||||||||||
Investment
securities
|
86,304 | 86,304 | 87,403 | 87,403 | ||||||||||||
Restricted
equity securities
|
4,041 | 4,041 | 4,132 | 4,132 | ||||||||||||
Loans,
net of allowance for loan losses
|
360,825 | 363,265 | 378,883 | 381,398 | ||||||||||||
Financial
Liabilities
|
||||||||||||||||
Deposits
|
424,778 | 425,668 | 418,580 | 418,815 | ||||||||||||
Securities
sold under agreements to repurchase and federal funds
purchased
|
23,139 | 22,989 | 23,830 | 23,830 | ||||||||||||
Other
short-term borrowings
|
6,500 | 6,455 | 10,000 | 10,000 | ||||||||||||
Long-term
debt
|
40,000 | 38,037 | 42,500 | 40,375 | ||||||||||||
Junior
subordinated debentures
|
12,372 | 12,000 | 12,372 | 12,000 |
NOTE
7. COMPREHENSIVE INCOME (LOSS)
Recognized
revenue, expenses, gains, and losses must be included in net income or loss.
Although certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component of
the equity section of the balance sheet, such items, along with the operating
net income or loss, are components of comprehensive income or loss. A summary of
comprehensive income is as follows (in thousands):
Nine-Months
|
Nine-Months
|
|||||||
ended
|
ended
|
|||||||
Sept 30, 2009
|
Sept 30, 2008
|
|||||||
Net
income (loss)
|
$ | (1,714,198 | ) | $ | 63,572 | |||
Other
comprehensive loss:
|
||||||||
Unrealized
losses on available-for-sale investment securities
|
5,408,343 | (7,272,989 | ) | |||||
Tax
effect
|
(1,663,021 | ) | 2,472,816 | |||||
Total
other comprehensive loss
|
3,745,322 | (4,800,173 | ) | |||||
Comprehensive
income (loss)
|
$ | 2,031,124 | $ | (4,736,601 | ) |
12
Quarter
ended
|
Quarter
ended
|
|||||||
Sept 30,
|
Sept
30,
|
|||||||
2009
|
2008
|
|||||||
Net
income (loss)
|
$ | 331,038 | $ | (916,449 | ) | |||
Other
comprehensive loss:
|
||||||||
Unrealized
(losses) on available-for-sale investment securities
|
4,743,796 | (4,455,935 | ) | |||||
Tax
effect
|
(1,828,733 | ) | 1,515,018 | |||||
Total
other comprehensive loss
|
2,915,063 | (2,940,917 | ) | |||||
Comprehensive
income (loss)
|
$ | 3,246,101 | $ | (3,857,366 | ) |
NOTE
8. SUBSEQUENT EVENT – SERIES B PREFERRED STOCK OFFERING
In
December 2009, the Company is offering
up to 400,000 shares of Series B Mandatory Convertible 6% Non-cumulative
Perpetual Preferred Stock. The Series B stock is being offered at a
price of $25.00 per share, a liquidation amount of $25.00 per security, is
convertible into eight shares of our common stock anytime after issue and
mandatorily convertible on the third anniversary of its date of issuance. In a
rights offering to shareholders, we are offering up to 300,000 shares of the
Series B Mandatory Convertible 6% Non-cumulative Perpetual Preferred Stock to
our shareholders as of a record date to be determined. Each shareholder has the
right to purchase one share for every eighteen shares of common stock owned. In
the public offering, we are offering any shares that are not purchased in the
rights offering plus an additional 100,000 shares on a best efforts basis with
McKinnon & Company, Inc. as the selling agent. We also reserve the right to
increase the total number of shares being offered in the public offering by not
more than 60,000 shares.
NOTE
9. INVESTMENT SECURITIES
Investments
in available for sale securities of $86,303,949 consisted of corporate
securities, municipal securities, U.S. Governmental agencies and mortgage backed
securities (MBS) at September 30, 2009.
At
September 30, 2009, we had 32 individual available for sale investments that
were in an unrealized loss position. The unrealized losses on investments in
corporate securities, municipal securities, U.S. Governmental agencies and
mortgage backed securities (MBS) summarized below were attributable to market
turmoil and liquidity. The unrealized losses on the corporate securities is due
to credit quality, as well as liquidity. As of September 30, 2009, both of our
collateralized debt
obligations (“CDOs”) have been downgraded below investment
grade by Moody’s.
After
analyzing the expected cash flows, one of these CDOs was written down in the
previous year. The remaining CDO is performing based on the expected cash flows
and collateral coverage. We have the intent and the ability to hold
the remaining investments until a market price recovery or maturity, and
therefore these investments are not considered impaired on an
other-than-temporary basis.
The
following is a summary of the securities portfolio by major classification at
the dates presented.
September 30, 2009
|
||||||||||||||||
Amortized Cost
|
Gross Unrealized
Gains |
Gross Unrealized
Losses |
Fair Value
|
|||||||||||||
Securities
available for sale:
|
|
|
|
|
||||||||||||
U.
S. government agencies
|
$ | 2,055,679 | $ | 18,335 | $ | - | $ | 2,074,014 | ||||||||
Mortgage-backed
securities
|
56,587,088 | 284,162 | 319,481 | 56,551,769 | ||||||||||||
Municipal
securities
|
13,192,777 | 96,901 | 696,473 | 12,593,205 | ||||||||||||
Corporate
Securities
|
18,332,480 | 158,163 | 3,405,682 | 15,084,961 | ||||||||||||
$ | 90,168,024 | $ | 557,561 | $ | 4,421,636 | $ | 86,303,949 |
13
December 31, 2008
|
||||||||||||||||
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Fair Value
|
|||||||||||||
Securities
available for sale:
|
|
|
|
|
||||||||||||
U.
S. government agencies
|
$ | 10,500,000 | $ | 106,465 | $ | - | $ | 10,606,465 | ||||||||
Mortgage-backed
securities
|
40,090,699 | 824,260 | 4,582 | 40,910,377 | ||||||||||||
Municipal
securities
|
16,577,067 | 12,741 | 1,818,275 | 14,771,533 | ||||||||||||
Corporate
Securities
|
29,507,451 | 184,874 | 8,577,901 | 21,114,424 | ||||||||||||
$ | 96,675,217 | $ | 1,128,340 | $ | 10,400,758 | $ | 87,402,799 |
Gross
realized gains and losses resulting from the sale of securities for the six
months ended September 30, 2009 and 2008 are as follows:
Nine-Months
|
Nine-Months
|
|||||||
ended
|
ended
|
|||||||
Sept 30, 2009
|
Sept 30, 2008
|
|||||||
Realized
gains
|
$ | 1,484,189 | $ | 53,464 | ||||
Realized
losses
|
(129,754 | ) | (13,018 | ) | ||||
$ | 1,354,435 | $ | 40,446 |
Gross
realized gains and losses resulting from the sale of securities for the three
months ended September 30, 2009 and 2008 are as follows:
Quarter
|
Quarter
|
|||||||
ended
|
ended
|
|||||||
Sept 30, 2009
|
Sept 30, 2008
|
|||||||
Realized
gains
|
$ | 507,772 | $ | - | ||||
Realized
losses
|
(24,014 | ) | - | |||||
$ | 483,758 | $ | - |
The
following tables show the gross unrealized losses and fair values for our
investments and length of time that the individual securities have been in a
continuous unrealized loss position.
September 30, 2009
|
||||||||||||||||||||||||
Less than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||
Fair Value
|
Unrealized
losses
|
Fair Value
|
Unrealized
losses
|
Fair Value
|
Unrealized
losses
|
|||||||||||||||||||
U. S. government
agencies
|
$ | - | $ | - | $ | - | $- | $ | - | $ | - | |||||||||||||
Mortgage-backed
securities
|
24,076,071 | 319,481 | - | - | 24,076,071 | 319,481 | ||||||||||||||||||
Municipal
securities
|
- | - | 7,014,818 | 696,473 | 7,014,818 | 696,473 | ||||||||||||||||||
Corporate
Securities
|
6,113,387 | 2,292,058 | 7,050,324 | 1,113,624 | 13,163,711 | 3,405,682 | ||||||||||||||||||
Total
temporarily impaired securities
|
$ | 30,189,458 | $ | 2,611,539 | $ | 14,065,142 | $ | 1,810,097 | $ | 44,254,600 | $ | 4,421,636 |
14
December 31, 2008
|
||||||||||||||||||||||||
Less than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||
Fair Value
|
Unrealized
losses
|
Fair Value
|
Unrealized
losses
|
Fair Value
|
Unrealized
losses
|
|||||||||||||||||||
U. S. government
agencies
|
$ | - | $ | - | $ | - | $- | $ | - | $ | - | |||||||||||||
Mortgage-backed
securities
|
230,539 | 3,626 | 26,554 | 956 | 257,093 | 4,582 | ||||||||||||||||||
Municipal
securities
|
8,046,371 | 625,298 | 5,162,622 | 1,192,977 | 13,208,993 | 1,818,275 | ||||||||||||||||||
Corporate
Securities
|
15,692,445 | 6,583,894 | 2,080,803 | 1,994,006 | 17,773,248 | 8,577,900 | ||||||||||||||||||
Total
temporarily impaired securities
|
$ | 23,969,355 | $ | 7,212,818 | $ | 7,269,979 | $ | 3,187,939 | $ | 31,239,334 | $ | 10,400,757 |
The
scheduled contractual maturities of securities (all available for sale) at
September 30, 2009 and December 31, 2008 are as follows:
September 30, 2009
|
December 31, 2008
|
|||||||||||||||
Amortized
|
Fair
|
Amortized
|
Fair
|
|||||||||||||
Cost
|
Value
|
Cost
|
Value
|
|||||||||||||
Due
in one year or less
|
$ | 1,322,937 | $ | 1,322,937 | $ | 3,213,907 | $ | 3,183,493 | ||||||||
Due
in one through five years
|
2,575,000 | 2,108,539 | 2,575,000 | 1,130,068 | ||||||||||||
Due
in five through ten years
|
1,002,288 | 944,511 | 4,502,600 | 4,600,165 | ||||||||||||
Due
after ten years
|
85,267,799 | 81,927,962 | 86,383,710 | 78,489,073 | ||||||||||||
$ | 90,168,024 | $ | 86,303,949 | $ | 96,675,217 | $ | 87,402,799 |
The
Company’s unrealized losses on other securities relate to its investment in
bank-only pooled trust preferred securities, corporate securities, municipal
securities and mortgage backed securities (MBS). The Company is closely
monitoring its investments in these securities in light of recent price
volatility in the marketplace. Due to uncertainty in the credit markets broadly,
and the lack of both trading and new issuance in pooled trust preferred
securities, market price indications generally reflect the illiquidity in these
markets and not the credit quality of the individual securities. Due to this
illiquidity, it is unlikely that the Company would be able to recover its
investment in these securities if it sold them at this time. The Company has the
intent and ability to hold these securities until a recovery of costs, which may
be at maturity. Based on an assessment of the credit quality of the underlying
issuers, the Company did not consider the investment in these securities to be
other-than-temporarily impaired at September 30, 2009. The Company will continue
to monitor the market price of these securities and the default rates of the
underlying issuers and continue to evaluate these securities for possible
other-than-temporary impairment, which could result in a future non-cash charge
to earnings.
For the
nine month period ended September 30, 2009, the Company wrote down $2,166,820 in
two single issue trust preferred securities and $152,656 of stock in Silverton
Bank, which was closed by the Office of the Comptroller of the Currency on May
1, 2009 and placed into receivership. For the nine month period ended
September 30, 2008, the Company wrote down $1,853,572 in Federal Agency
Preferred Securities.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
This
discussion, analysis and related financial information is presented to explain
the significant factors which affected the financial condition and results of
operations for the nine months and three months ending September 30, 2009 and
2008 of Waccamaw Bankshares, Inc. This discussion should be read in conjunction
with the financial statements and related notes included in this
report.
15
Waccamaw
Bank, the primary subsidiary of Waccamaw Bankshares, is a state chartered bank
operating seventeen offices in Whiteville, Wilmington, Shallotte (2), Holden
Beach, Chadbourn, Tabor City, Southport (2), Sunset Beach, Oak Island and
Elizabethtown, North Carolina. Offices in South Carolina include Conway (2),
Socastee, Little River and Heath Springs. The Bank began
operations on September 2, 1997. Waccamaw Bankshares, Inc. acquired all
outstanding shares of Waccamaw Bank on July 1, 2001.
HIGHLIGHTS
Net income
for the quarter ended September 30, 2009, was $331,038 or $.06 per weighted
average basic share and diluted share outstanding compared to a ($916,439) net
loss or ($.17) per weighted average basic share outstanding for the quarter
ended September 30, 2008.
On
September 30, 2009, Waccamaw Bankshares, Inc. assets totaled $538,010,120
compared to $537,450,434 on December 31, 2008. Net loans on September 30, 2009
were $360,824,683 compared to $378,882,889 on December 31, 2008. Total deposits
on September 30, 2009 were $424,778,167 compared to $418,579,889 at the end of
2008. Stockholders’ equity after adjustments for unrealized losses on securities
available for sale as required by SFAS No. 115 increased
by $2,069,850 resulting in a September 30, 2009 book value of $5.40
per common share, up from $5.04 on December 31, 2008.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
INVESTMENTS
The Bank
maintains a portfolio of securities as part of its asset/liability and liquidity
management programs which emphasize effective yields and maturities to match its
needs. The composition of the investment portfolio is examined periodically and
appropriate realignments are initiated to meet liquidity and interest rate
sensitivity needs for the Bank.
Held to
maturity securities are bonds, notes and debentures for which the Bank has the
positive intent and ability to hold to maturity and which are reported at cost,
adjusted by premiums and discounts that are recognized in interest income using
the interest method over the period to maturity or to call dates. At September
30, 2009 and at December 31, 2008, the Bank had no investments classified
as held to maturity. Available for sale securities are reported at fair value
and consist of bonds, notes, debentures and certain equity securities not
classified as trading securities or as held to maturity securities.
Unrealized
holding gains and losses, net of tax, on available for sale securities are
reported as a net amount in a separate component of stockholders’ equity.
Realized gains and losses on the sale of available for sale securities are
determined using the specific-identification method. Premiums and discounts are
recognized in interest income using the interest method over the period to
maturity or to call dates.
Declines
in the fair value of individual held to maturity and available for sale
securities below cost that are other than temporary are reflected as write-downs
of the individual securities to fair value. Related write-downs are included in
earnings as realized losses. For the nine month period ended September 30, 2009,
the Company wrote down $2,166,820 in two single issue trust preferred securities
and $152,656 of stock in Silverton Bank, which was closed by the Office of the
Comptroller of the Currency on May 1, 2009 and placed into
receivership. For the nine month period ended September 30, 2008, the
Company wrote down $1,853,572 million in Federal Agency Preferred
Securities.
Investments
in available for sale securities of $86,303,949 consisted of corporate
securities, municipal securities, U.S. Governmental agencies and mortgage backed
securities (MBS) at September 30, 2009.
FEDERAL FUNDS
SOLD
Federal
funds sold consist of short-term loans to other financial institutions. These
loans are made to various financial institutions and were $20,890,000 on
September 30, 2009 and $4,281,000 on December 31, 2008.
16
LOANS
Net loans
outstanding on September 30, 2009, were $360,824,683 compared to $378,882,889 on
December 31, 2008. The Bank maintains a loan portfolio dominated by
real estate and commercial loans diversified among various industries. The
$18,058,206 decrease in loans was due to weaker than expected loan demand in
some of the market areas covered by Waccamaw Bank.
DEPOSITS
Deposits
on September 30, 2009, were $424,778,167 compared to $418,579,889 on December
31, 2008. Interest-bearing accounts represented 90.9% of total deposits at
September 30, 2009 and 91.4% of total deposits at December 31, 2008. The
increase in deposits was the result of an increase in the amount of core
deposits needed to pay down brokered deposits which started maturing in the
third quarter of 2009.
LIABILITIES
Securities
sold under agreements to repurchase on September 30, 2009, were $23,139,000
compared to $23,830,000 on December 31, 2008. Long-term debt on September 30,
2009 was $40,000,000 compared to $42,500,000 on December 31, 2008. All long-term
debt is funded by the Federal Home Loan Bank of Atlanta. Short-term borrowings
at September 30, 2009 were $6,500,000 compared to $10,000,000 at December 31,
2008. Included in short-term borrowings at September 30, 2009 and December 31,
2008 were $2,500,000 and $6,000,000, respectively, funded by the Federal Home
Loan Bank of Atlanta. Also included in other short-term borrowings at September
30, 2009 and December 31, 2008 were $1,000,000 which is funded by Nexity Bank
that will mature on July 1, 2010 at the Prime lending rate. Also included in
other short-term borrowings is $3,000,000 of subordinated notes funded by Nexity
Bank that will mature on July 1, 2015 and that bear interest at 3-month LIBOR
plus 350 basis points. Other liabilities at September 30, 2009 were $229,063
compared to $995,414 on December 31, 2008. This decrease was primarily due to a
decrease in accrual for income taxes.
The
Company’s loan agreement with Nexity Bank, for the two debt obligations noted
above, includes financial covenants requiring the Bank to maintain a minimum
weighted average return on assets of greater than 0.35% on an annualized basis,
maintain total equity capital of $43,499,000 at all times and the percentage of
non-performing loans to gross loans shall not exceed 4.00%. The
Company did not meet these covenants through the third quarter of 2009, but
obtained a waiver through September 30, 2009. As such, both debt
obligations have been classified in other short-term borrowings due to the
covenant violations.
TRUST PREFERRED
SECURITIES
In
December 2003, the Company privately issued $8.0 million aggregate liquidation
amount of floating rate trust preferred securities through Waccamaw Statutory
Trust I, which was formed for the sole purpose of issuing the securities. We may
redeem these trust preferred securities at our option with prior regulatory
approval. In July 2008, the Company completed a private offering of trust
preferred securities through a Delaware statutory trust sponsored by the
Company. Waccamaw Statutory Trust II, wholly owned by the Company, issued $4.1
million of preferred securities. The proceeds from the offering have been used
to continue to support Waccamaw Bank’s growth. The interest payable on the trust
preferred securities resets quarterly, and is equal to LIBOR plus
4.00%.
STOCKHOLDERS’
EQUITY
Waccamaw
Bankshares, Inc. maintains a strong capital position which exceeds all capital
adequacy requirements of Federal regulatory authorities. Total stockholders’
equity at September 30, 2009 was $29,914,005 compared to $27,844,155 at December
31, 2008. This $2,069,850 increase was primarily due to unrealized losses on
securities available for sale decreasing $3,268,543, net of tax, offset by an
operating loss of $1,714,198 for the nine month period ended September 30, 2009.
The Company and the Bank exceed all capital requirements under the applicable
Federal regulations.
17
ASSET
QUALITY
During
2008, management refined its allowance for loan losses methodology taking into
account existing Securities and Exchange Commission (SEC) and regulatory
guidance. The refinement in methodology focused on revised loss factors that are
more indicative of actual loss experience in recent years and current borrower
analysis. The results of the allowance for loan loss model indicated that a
$1,230,048 provision was needed for the quarter ended September 30, 2009. The
increase in the provision is the result of an increase in non performing loans
along with loans identified as impaired under SFAS 114 as discussed under “Fair
Value”. As of September 30, 2009 the Bank identified $29.4 million in impaired
loans. Of these impaired loans, $21.1 million were identified to have
impairment of $4.8 million. This compared to $25.2 million in impaired loans of
which $22.8 million were identified to have impairment of $3.6 million at
December 31, 2008. The increase in impaired loans consisted of 14
business and development loan relationships totaling $13.2 million.
The
allowance for loan losses on September 30, 2009, was $9,562,301 or 2.58% of
period end loans compared to $7,187,981 and 1.86% at December 31, 2008. At
September 30, 2009 the Bank had loans totaling $22,806,702 in nonaccrual status
as compared to $12,333,662 at September 30, 2008. The increase in non-accrual
loans includes increases in fifteen non-performing commercial real estate loans
totaling $12.3 million. The largest non-accrual loan relationship totaled $4.2
million with the average balance for the ninety-two non-accrual loans totaling
$248,000. At September 30, 2009 there was $2,482,575 in net charge-offs compared
to $419,047 at September 30, 2008. There was $1,600 in repossessed assets at
September 30, 2009 compared to $6,681 at September 30, 2008. At September 30,
2009 there was $5,453,713 in other real estate owned compared to $725,237 at
September 30, 2008. The increase in other real estate owned consisted of 17
properties totaling $4.7 million.
In
addition to the impact on our allowance for loan losses resulting from our loan
portfolio rebalancing efforts, which have reduced our concentrations in
construction and development sector loans, our refined allowance for loan losses
methodology, as previously discussed, has resulted in an overall increase in the
allowance for loan losses as a percent of total loans. In management’s judgment,
an appropriate allowance for estimated losses has been established; however,
there can be no assurance that actual losses will not exceed the estimated
amounts in the future.
The level
of the allowance for loans losses is established based upon management’s
evaluation of portfolio composition, current and projected national and local
economic conditions and results of independent reviews of the loan portfolio by
internal and external examination. Management recognizes the inherent risk
associated with commercial and consumer lending, including whether or not a
borrower’s actual results of operations will correspond to those projected by
the borrower when the loan was funded, economic factors such as the number of
housing starts and fluctuations in interest rates, etc., depression of
collateral values, and completion of projects within the original cost and time
estimates. As a result, management continues to actively monitor the Bank’s
asset quality and lending policies. Management believes that its loan portfolio
is diversified so that it is less likely that a downturn in a particular market
or industry will have a significant impact on the loan portfolio or the Bank’s
financial condition.
COMPARISON OF RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
The
Company reported a net profit of $331,038 or $.06 per basic share and diluted
share for the three months ended September 30, 2009, as compared with a net
loss of ($916,439) or ($.17) per share for the three months ended
September 30, 2008, an increase of $1,247,477 in net income. The Company
had increases in net interest income in the third quarter of 2009 as compared to
the third quarter of 2008. The increase in net interest income can primarily be
attributed to the decrease of interest rates on deposits. The Company
has reduced noninterest expenses as a result of cost cutting initiatives in
salaries and employee benefits.
NET INTEREST
INCOME
Like most
financial institutions, the primary component of earnings for the Company is net
interest income. Net interest income is the difference between the interest
earned on loans, the investment portfolio and interest earning deposits and the
cost of funds, consisting primarily of the interest paid on deposits and
borrowings. Changes in net interest income result from changes in volume, spread
and margin. For this purpose, volume refers to the average dollar level of
interest-earning assets and interest-bearing liabilities, spread refers to the
difference between the average yield on interest-earning assets and the average
cost of interest-bearing liabilities, and margin refers to net interest income
divided by average interest-earning assets. Margin is influenced by the level
and relative mix of interest-earning assets and interest-bearing liabilities, as
well as by levels of non-interest-bearing liabilities and stockholders’
equity.
18
For the
three months ended September 30, 2009, the net interest income of the Company was $3,554,096
compared to $3,508,127 for the three months ended September 30, 2008. The
increase in net interest income can primarily be attributed to the decrease of
interest rates on deposits.
PROVISION FOR LOAN
LOSSES
The
Company expensed $1,230,048 to the provision for loan losses in the third
quarter of 2009, as compared to the $528,084 provision for loan losses in the
third quarter of 2008. The increase in the provision was due to higher levels on
nonperforming loans over the periods under comparison. Provisions for loan
losses are charged to income to bring the allowance for loan losses to a level
deemed appropriate by management. Management considers the current level of the
loan loss allowance to be appropriate based on loan volume, the current level of
delinquencies, other nonperforming assets, prevailing economic conditions and
other factors that may affect a borrower’s ability to repay.
NON-INTEREST
INCOME
Non-interest
income totaled $1,804,208 for the three months ended September 30, 2009 as
compared with ($757,040) for the three months ended September 30, 2008. The
principal reason for the increase of $2,561,248 in total non-interest income for
the current quarter was that the Company had to write down $1,853,572 million in
Federal Agency Preferred Securities for the three months ended September 30,
2008 and had a write down of $10,000 in a trust preferred security for the three
months ended September 30, 2009. The Company had realized gains of $483,758, had
increases in service charges in deposit accounts of $317,891, increases of
$49,963 in earnings on bank owned life insurance and increases of $10,428 in
financial services income. Decreases of $144,053 in other operating
income accounted for the additional difference in non-interest income for the
three months ended September 30, 2009 compared to the three months ended
September 30, 2008.
NON-INTEREST
EXPENSES
Non-interest
expenses totaled $3,841,277 for the three months ended September 30, 2009, a
decrease of approximately $42,000 or 1.1% over the $3,883,176 reported for the
three months ended September 30, 2008. For the three months ended September 30,
2009, personnel costs decreased by approximately $315,000, or 15.3% to
$1,736,058 as compared to $2,050,830 for the three months ended September 30,
2008. Other expenses totaled $1,289,402 for the three months ended September 30,
2009, an increase of approximately $381,000 or 41.9% over the $908,764 reported
for the three months ended September 30, 2008. The FDIC expense increased
$326,000 in other expenses for the three months ended September 30, 2009
compared to the three months ended September 30, 2008.
PROVISION FOR INCOME
TAXES
The
Company provided $44,059 for income taxes during the three months ended
September 30, 2009 and recognized an income tax benefit of $743,734 for the
three months ended September 30, 2008.
COMPARISON
OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008
The
Company reported a net loss of ($1,714,198) or ($.31) per share for the nine
months ended September 30, 2009, as compared with net income of $63,572 or
$.01 per basic share and diluted share for the nine months ended
September 30, 2008, a decrease of $1,777,770 in net income. The Company had
decreases in net interest income in the first nine months of 2009 as compared to
the first nine months of 2008. The decrease in net interest income for the first
nine months of 2009 compared to 2008 can primarily be attributed to the decrease
of 450 basis points in the Prime lending rate, as a result of which the majority
of the Company’s loans re-priced immediately, and the higher relative cost of
funding loans, due to the fact that the Company’s deposits were not able to
re-price as quickly as the loans. The Company has reduced noninterest expenses
as a result of cost cutting initiatives in salaries and employee
benefits.
19
NET INTEREST
INCOME
For the
nine months ended September 30, 2009, the net interest income of the Bank was
$9,816,952 compared to $10,456,414 for the nine months ended September 30, 2008.
The decrease in net interest income can primarily be attributed to the decrease
of 450 basis points in the Prime lending rate, as a result of which the majority
of the Company’s loans re-priced immediately, and the higher relative cost of
funding loans, due to the fact that the Company’s deposits were not able to
re-price as quickly as the loans.
PROVISION FOR LOAN
LOSSES
The
Company expensed $4,856,894 to the provision for loan losses for the nine months
ended September 30, 2009, as compared to the $634,084 provision for loan losses
for the nine months ended September 30, 2008. The increase in the provision was
due to higher levels on non performing loans over the periods under comparison.
Provisions for loan losses are charged to income to bring the allowance for loan
losses to a level deemed appropriate by management. Management considers the
current level of the loan loss allowance to be appropriate based on loan volume,
the current level of delinquencies, other non performing-assets, prevailing
economic conditions and other factors that may affect a borrower’s ability to
repay.
NON-INTEREST
INCOME
Non-interest
income totaled $2,915,890 for the nine months ended September 30, 2009 as
compared with $1,349,476 for the nine months ended September 30, 2008. The
principal reason for the increase of $1,566,414 in total non-interest income for
the nine months ended September 30, 2009 was that the Company had write-downs of
$2,166,820 in two single issue trust preferred securities and $152,656 of stock
in Silverton Bank. The Company had realized gains of $1,354,435, had increases
in service charges in deposit accounts of $680,277 and increases of $141,022 in
earnings on bank owned life insurance. Increases of $34,419 in fees
from mortgage origination income, decreases of $89,817 in financial services
income and decreases of $47,572 in other operating income accounted for the
additional difference in non-interest income for the nine months ended September
30, 2009 compared to the nine months ended September 30, 2008.
NON-INTEREST
EXPENSES
Non-interest
expenses totaled $11,154,084 for the nine months ended September 30, 2009,
a decrease of $371,941 or 3.2% of the $11,517,025 reported for the nine months
ended September 30, 2008. Substantially all of this decrease resulted from the
cost cutting initiatives in salaries and employee benefits. For the nine months
ended September 30, 2009, personnel costs decreased by $735,219, or 11.9%
to $5,441,093 as compared to $6,176,312 for the nine months ended September 30,
2008. Other expenses totaled $3,097,230 for the nine months ended
September 30, 2009, compared to $2,717,222 for the nine months ended
September 30, 2008. On May 22, 2009 the FDIC approved a final rule to impose a
special assessment of 5 basis points (b.p.) on each bank’s total assets minus
Tier 1 capital in order to replenish the Deposit Insurance Fund. This
represented $253,000 in other expenses for the nine months ended September 30,
2009.
PROVISION FOR INCOME
TAXES
The
Company recognized a benefit of $1,554,938 for income taxes during the nine
months ended September 30, 2009 compared to a benefit for income taxes of
$408,791 for the nine months ended September 30, 2008.
INTEREST SENSITIVITY AND
LIQUIDITY
One of
the principal duties of the Bank’s Asset/Liability Management Committee (“ALCO”)
is management of interest rate risk. The Bank utilizes quarterly asset/liability
reports prepared internally to project the impact on net interest income that
might occur with hypothetical interest rate changes. The committee monitors and
manages asset and liability strategies and pricing in order to manage interest
rate risk.
Another
function of ALCO is maintaining adequate liquidity and planning for future
liquidity needs. Having adequate liquidity means the ability to meet current
needs, including deposit withdrawals and commitments, in an orderly manner
without sacrificing earnings. The Bank funds its investing activities, including
making loans and purchasing investments, by attracting deposits and utilizing
short-term borrowings when necessary.
20
The
Company’s ALCO meets on a monthly basis in order to assess interest rate risk,
liquidity, capital and overall balance sheet management through rate shock
analysis measuring various interest rate scenarios over the future 12 months.
Through ALCO, the Company is able to determine fluctuations to net interest
income from changes in the Prime Rate of up to 300 basis points up or down
during a 12-month period. ALCO also reviews policies and procedures related to
funds management and interest rate risk based on local, national and global
economic conditions along with funding strategies and balance sheet management
to minimize the potential impact of earnings and liquidity from interest rate
movements.
Additional
information regarding interest rate risk is included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008. The Company has not
had any material changes in the overall interest rate risk profile since
December 31, 2008.
At
September 30, 2009, liquid assets (cash and due from banks, interest-earning
deposits with banks, fed funds sold, and investment securities available for
sale) were approximately $119.8 million, which represents 22.3% of total
assets.
GOODWILL
IMPAIRMENT
Under the
provisions of FASB ASC 350, Goodwill and Other (“ASC 350”), the Company is
required to perform an impairment test each year to determine if goodwill is
impaired. Since we adopted ASC 350, the annual impairment tests, which are
performed as of April 28 each year, have not indicated impairment
exists.
ASC 350
provides a two-step method to evaluate and calculate impairment. Step one
requires estimation of the South Carolina unit’s fair value. If the fair value
exceeds the carrying value, no further testing is required. If the carrying
value exceeds the fair value, the Company is required to determine whether an
impairment must be recorded and, if so, the amount of the impairment
charge.
Based on
the results of step one testing, there was no evidence of impairment for the
Company’s $2,727,152 of goodwill. Therefore, no impairment of goodwill was
recorded during the second quarter of 2009.
As of
September 30, 2009, the market price of our common stock continued to trade
below book value. If this situation persists or worsens, subsequent goodwill
impairment tests may indicate that impairment exists. A write-off of impaired
goodwill could have a significant impact on our consolidated income
statement.
FORWARD – LOOKING
INFORMATION
Statements
contained in this report, which are not historical facts, are forward-looking
statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. Actual results could vary as a result of market and other factors.
Such forward-looking statements are subject to risks and uncertainties which
could cause actual results to differ materially from those currently anticipated
due to a number of factors, which include, but are not limited to, factors
discussed in documents filed by the Company with the U.S. Securities and
Exchange Commission from time to time. Such forward-looking statements may be
identified by the use of such words as “believe,”
“expect,” “anticipate,” “should,” “might,” “planned,” “estimated,”
and “potential.” Examples of forward-looking statements include, but are not
limited to, estimates with respect to the financial condition, expected or
anticipated revenue, results of operations and business of the Company that are
subject to various factors which could cause actual results to differ materially
from these estimates. These factors include, but are not limited to, general
economic conditions, changes in interest rates, deposit flows, loan demand, real
estate values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
21
ITEM
4T.
|
CONTROLS
AND PROCEDURES
|
Based on
their evaluation, as of the end of the period covered by this report, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) are effective to provide reasonable
assurance that information required to be disclosed by the Company in the
reports filed or submitted by it under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in the applicable rules and forms, and include controls and procedures
designed to provide reasonable assurance that information required to be
disclosed by the Company in such reports is accumulated and communicated to the
Company’s management, including the Chief Executive Officer and the Chief
Financial Officer of the Company, as appropriate to allow timely decisions
regarding required disclosure. During the third quarter of 2009, the Company
identified a control deficiency that did not materially affect the financial
statements at September 30, 2009. This control deficiency has been corrected
through the Company’s internal control procedures.
PART
II - OTHER INFORMATION
ITEM
1.
|
LEGAL
PROCEEDINGS
|
On the
normal course of business, Waccamaw Bankshares’ subsidiary, Waccamaw Bank, may
be named as a party in legal disputes.
22
ITEM
6. EXHIBITS
EXHIBIT
NUMBER
|
DESCRIPTION OF EXHIBIT
|
|
3.1
|
Articles
of Incorporation(1)
|
|
3.2
|
Bylaws(2)
|
|
4.1
|
Form
of Series B Convertible Preferred Stock Certificate(3)
|
|
10.1
|
Change
of Control Agreement with J. Daniel Hardy(6)
|
|
10.2
|
Dividend
Reinvestment Plan
|
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act (Filed herewith)
|
|
31.2
|
Certification
of Principal Accounting Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act (Filed herewith)
|
|
32
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act (Filed
herewith)
|
(1)
|
Incorporated
by reference from Exhibit 3.1 to Registrant’s Registration Statement on
Form S-1, Registration No. 333-160436, as filed with the Commission on
July 2, 2009.
|
(2)
|
Incorporated
by reference from Exhibit 3.2 to Registrant’s Registration Statement on
Form S-1, Registration No. 333-160436, as filed with the Commission on
July 2, 2009.
|
(3)
|
Incorporated
by reference from Exhibit 4.2 to Registrant’s Registration Statement on
Form S-1, Registration No. 333-160436, as filed with the Commission on
July 2, 2009.
|
(4)
|
Incorporated
by reference from Exhibit 4.3 to Registrant’s Registration Statement on
Form S-1, Registration No. 333-160436, as filed with the Commission on
July 2, 2009.
|
(5)
|
Incorporated
by reference from Exhibit 4.4 to Registrant’s Registration Statement on
Form S-1, Registration No. 333-160436, as filed with the Commission on
July 2, 2009.
|
(6)
|
Incorporated
by reference from Exhibit 10.3 to Registrant’s Registration Statement on
Form S-1, Registration No. 333-160436, as filed with the Commission on
July 2, 2009.
|
23
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Waccamaw
Bankshares, Inc.
|
||
Date: November 12,
2009
|
By:
|
/s/ David A.
Godwin
|
David
A. Godwin
|
||
Chief
Financial Officer
|
||
(Principal
Financial Officer)
|
24
EXHIBIT
INDEX
EXHIBIT
NUMBER
|
DESCRIPTION OF EXHIBIT
|
|
3.1
|
Articles
of Incorporation*
|
|
3.2
|
Bylaws*
|
|
4.1
|
Form
of Series B Convertible Preferred Stock Certificate*
|
|
10.1
|
Change
of Control Agreement with J. Daniel Hardy(6)
|
|
10.2
|
Dividend
Reinvestment Plan
|
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act (Filed herewith)
|
|
31.2
|
Certification
of Principal Accounting Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act (Filed herewith)
|
|
32
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act (Filed
herewith)
|
*
Incorporated by reference
25