Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 15, 2010)
  • 10-Q (Aug 16, 2010)
  • 10-Q (May 14, 2010)
  • 10-Q (Nov 13, 2009)
  • 10-Q (Aug 13, 2009)
  • 10-Q (May 14, 2009)

 
8-K

 
Other

Waccamaw Bankshares 10-Q 2005

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32

United States Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

(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, 2005

 

 

o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Commission File Number 000-32985

WACCAMAW BANKSHARES, INC


(Name of Small Business Issuer in its Charter)


NORTH CAROLINA
 
52-2329563

(State or other Jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)


110 N. Powell Boulevard Whiteville, N.C. 28472


(address of Principal Executive Office)

 

(910) 641-0044


(Issuer’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 Exchange Act 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 to filing requirements for the past 90 days.

 

Yes

x

 

No

o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    

 

Yes

o

 

No

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    

 

Yes

o

 

No

x

 

As of November 8, 2005 there were 4,564,587 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, 2005 (Unaudited) and December 31, 2004

1

 

 

 

 

 

 

Consolidated Statements of Income, Nine Months  Ended September 30, 2005 and September 30, 2004 (Unaudited)

2

 

 

 

 

 

 

Consolidated Statements of Income, Quarters Ended September 30, 2005 and September 30, 2004 (Unaudited)

3

 

 

 

 

 

 

Consolidated Statements of Cash Flows,  Nine Months Ended September 30, 2005 and September 30, 2004 (Unaudited)

4

 

 

 

 

 

 

Notes to Consolidated Financial Statements

5-6

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

7-11

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

12

 

 

 

 

 

Item 4.

Controls and Procedures

12

 

 

 

 

Part II.  OTHER INFORMATION

13

 

 

 

 

SIGNATURES

14

 

 

 

 

 

Item 6.

Exhibits

15-17




WACCAMAW BANKSHARES, INC.
Consolidated Balance Sheets
September 30, 2005 and December 31, 2004

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

 

 


 


 

 

 

(Unaudited)

 

 

 

Assets:

 

 

 

 

 

 

 

Cash and due from banks

 

$

7,353,385

 

 

3,751,318

 

Interest-bearing deposits with banks

 

 

1,014,014

 

 

974,469

 

Federal funds sold

 

 

10,255,000

 

 

4,529,000

 

Investment securities, available for sale

 

 

30,534,447

 

 

28,599,527

 

Restricted equity securities

 

 

2,005,906

 

 

1,632,605

 

Loans, net of allowance for loan losses of $3,812,804 in 2005, and $2,791,008 in 2004

 

 

255,126,869

 

 

206,666,022

 

Other real estate owned

 

 

200,347

 

 

82,475

 

Property and equipment, net

 

 

3,279,222

 

 

3,301,220

 

Intangible assets, net

 

 

934,531

 

 

1,104,916

 

Accrued income

 

 

1,412,672

 

 

1,137,359

 

Bank owned life insurance

 

 

5,160,083

 

 

5,030,074

 

Other assets

 

 

1,998,391

 

 

1,603,456

 

 

 



 



 

Total assets

 

$

319,274,867

 

$

258,412,441

 

 

 



 



 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Demand deposits

 

$

27,149,641

 

$

19,065,902

 

Interest-bearing deposits

 

 

241,913,324

 

 

188,575,792

 

 

 



 



 

Total deposits

 

 

269,062,965

 

 

207,641,694

 

Securities sold under agreements to repurchase

 

 

2,710,000

 

 

3,268,000

 

Long-term debt

 

 

16,500,000

 

 

18,500,000

 

Guaranteed preferred beneficial interest in the company’s junior subordinated debentures

 

 

8,248,000

 

 

8,248,000

 

Accrued interest payable

 

 

825,646

 

 

546,324

 

Other liabilities

 

 

71,644

 

 

309,866

 

 

 



 



 

Total liabilities

 

 

297,418,255

 

 

238,513,884

 

 

 



 



 

Commitments and contingencies

 

 

—  

 

 

—  

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, no par value; 1,000,000 shares authorized; none outstanding

 

 

 

 

 

 

 

Common stock, no par value; 25,000,000 shares authorized; 4,551,787 shares issued in 2005 and 4,530,402 shares  issued in 2004

 

 

13,223,041

 

 

13,142,612

 

Retained earnings

 

 

8,657,712

 

 

6,529,502

 

Accumulated other comprehensive income

 

 

(24,141

)

 

226,443

 

 

 



 



 

Total stockholders’ equity

 

 

21,856,612

 

 

19,898,557

 

 

 



 



 

Total liabilities and stockholders’ equity

 

$

319,274,867

 

$

258,412,441

 

 

 



 



 

1



WACCAMAW BANKSHARES, INC.
Consolidated Statements of Income
Nine-months ended September 30, 2005 and Nine-months ended September 30, 2004 (Unaudited)

 

 

Nine-Months
Ended
Sept 30, 2005

 

Nine-Months
Ended
Sept 30, 2004

 

 

 


 


 

Interest income

 

 

 

 

 

 

 

Loans and fees on loans

 

$

11,638,840

 

$

7,164,974

 

Federal funds sold

 

 

296,428

 

 

23,944

 

Investment securities, taxable

 

 

990,963

 

 

868,231

 

Investment securities, nontaxable

 

 

68,971

 

 

77,857

 

 

 



 



 

Total interest income

 

 

12,995,202

 

 

8,135,006

 

 

 



 



 

Interest expense

 

 

 

 

 

 

 

Deposits

 

 

4,386,808

 

 

2,095,934

 

Federal funds purchased and securities sold under agreements to repurchase

 

 

57,615

 

 

31,293

 

Other borrowed funds

 

 

817,892

 

 

502,640

 

 

 



 



 

Total interest expense

 

 

5,262,315

 

 

2,629,867

 

 

 



 



 

Net interest income

 

 

7,732,887

 

 

5,505,139

 

Provision for loan losses

 

 

1,180,000

 

 

411,500

 

 

 



 



 

Net interest income after provision for loan losses

 

 

6,552,887

 

 

5,093,639

 

 

 



 



 

Noninterest income

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

818,760

 

 

728,749

 

Mortgage origination income

 

 

215,901

 

 

155,234

 

Other operating income

 

 

517,498

 

 

447,115

 

Gain attributable to minority interest in mortgage investee

 

 

—  

 

 

274,108

 

Earnings on bank owned life insurance

 

 

141,097

 

 

170,370

 

Net realized gains (losses) on sale or maturity of investment securities

 

 

(909

)

 

12,952

 

 

 



 



 

Total noninterest income

 

 

1,692,347

 

 

1,788,528

 

 

 



 



 

Noninterest expense

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,693,528

 

 

2,210,396

 

Occupancy and equipment

 

 

598,161

 

 

501,263

 

Data processing

 

 

463,396

 

 

306,485

 

Amortization expense of intangible assets

 

 

189,534

 

 

188,857

 

Other expense

 

 

1,101,790

 

 

943,989

 

 

 



 



 

Total noninterest expense

 

 

5,046,409

 

 

4,150,990

 

 

 



 



 

Income (loss) before income taxes

 

 

3,198,825

 

 

2,731,177

 

Income Tax Expense

 

 

1,070,615

 

 

965,108

 

 

 



 



 

Net income

 

$

2,128,210

 

$

1,766,069

 

 

 



 



 

Basic earnings income per share

 

$

.47

 

$

.39

 

 

 



 



 

Diluted earnings income per share

 

$

.45

 

$

.37

 

 

 



 



 

Weighted average shares outstanding

 

 

4,537,367

 

 

4,502,580

 

 

 



 



 

Diluted average shares outstanding

 

 

4,737,050

 

 

4,820,950

 

 

 



 



 

2



 

WACCAMAW BANKSHARES, INC.
Consolidated Statements of Income
Quarter ended September 30, 2005 and Quarter ended September 30, 2004 (Unaudited)

 

 

Quarter Ended
Sept 30, 2005

 

Quarter Ended
Sept 30, 2004

 

 

 


 


 

Interest income

 

 

 

 

 

 

 

Loans and fees on loans

 

$

4,418,248

 

$

2,602,310

 

Federal funds sold

 

 

138,696

 

 

12,308

 

Investment securities, taxable

 

 

346,342

 

 

305,175

 

Investment securities, nontaxable

 

 

22,991

 

 

23,983

 

 

 



 



 

Total interest income

 

 

4,926,277

 

 

2,943,776

 

Interest expense

 

 

 

 

 

 

 

Deposits

 

 

1,721,863

 

 

807,566

 

Fed funds purchased and securities sold under agreements to repurchase

 

 

21,765

 

 

11,773

 

Other borrowed funds

 

 

264,061

 

 

179,310

 

 

 



 



 

Total interest expense

 

 

2,007,689

 

 

998,649

 

 

 



 



 

Net interest income

 

 

2,918,588

 

 

1,945,127

 

Provision for loan losses

 

 

700,000

 

 

201,000

 

 

 



 



 

Net interest income after provision for loan losses

 

 

2,218,588

 

 

1,744,127

 

 

 



 



 

Noninterest income

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

285,805

 

 

262,984

 

Mortgage origination income

 

 

90,818

 

 

63,555

 

Other operating income

 

 

161,329

 

 

142,285

 

Gain attributable to minority interest in mortgage investee

 

 

—  

 

 

194,377

 

Earnings on bank owned life insurance

 

 

53,290

 

 

56,790

 

Net realized gains (losses) on sale or maturity of investment securities

 

 

(798

)

 

(1,848

)

 

 



 



 

Total noninterest income

 

 

590,444

 

 

718,143

 

 

 



 



 

Noninterest expense

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

921,658

 

 

780,933

 

Occupancy and equipment

 

 

204,834

 

 

187,236

 

Data processing

 

 

150,883

 

 

114,630

 

Amortization expense of intangible assets

 

 

63,177

 

 

75,267

 

Other expense

 

 

440,439

 

 

348,905

 

 

 



 



 

Total noninterest expense

 

 

1,780,991

 

 

1,506,971

 

 

 



 



 

Net income

 

 

1,028,041

 

 

955,299

 

Income Tax Expense

 

 

282,450

 

 

350,043

 

 

 



 



 

Net income

 

$

745,591

 

$

605,256

 

 

 



 



 

Basic earnings income per share

 

$

.16

 

$

.13

 

 

 



 



 

Diluted earnings income per share

 

$

.16

 

$

.13

 

 

 



 



 

Weighted average shares outstanding

 

 

4,546,312

 

 

4,509,367

 

 

 



 



 

Diluted average shares outstanding

 

 

4,753,358

 

 

4,828,617

 

 

 



 



 

3



WACCAMAW BANKSHARES, INC.
Consolidated Statements of Cash Flows
Nine-months ended September 30, 2005 and Nine-months ended September 30, 2004 (Unaudited)

 

 

Nine-Months
Ended
Sept 30, 2005

 

Nine-Months
Ended
Sept 30, 2004

 

 

 


 


 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

 

$

2,128,210

 

$

1,766,069

 

Adjustments to reconcile net income to net cash used by operations:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

387,068

 

 

364,922

 

Provision for loan losses

 

 

1,180,000

 

 

411,500

 

Accretion of discount on securities, net of amortization of premiums

 

 

69,066

 

 

55,943

 

(Gain) loss on sale of investment securities

 

 

909

 

 

(12,952

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accrued income

 

 

(275,313

)

 

(126,954

)

Other assets

 

 

(524,944

)

 

(325,284

)

Accrued interest payable

 

 

279,322

 

 

(64,776

)

Other liabilities

 

 

(238,222

)

 

(562,180

)

 

 



 



 

Net cash provided (used) by operating activities

 

 

3,006,096

 

 

1,506,288

 

 

 



 



 

Cash flows from investing activities

 

 

 

 

 

 

 

Net (increase) decrease in federal funds sold

 

 

(5,726,000

)

 

10,116,000

 

Purchases of investment securities

 

 

(9,412,917

)

 

(10,314,808

)

Maturities of investment securities

 

 

5,412,987

 

 

4,227,365

 

Net increase in loans

 

 

(49,758,719

)

 

(42,834,113

)

Sales of investment securities

 

 

1,371,150

 

 

782,689

 

Purchases of property and equipment

 

 

(194,685

)

 

(352,344

)

 

 



 



 

Net cash used in investing activities

 

 

(58,308,184

)

 

(38,375,211

)

 

 



 



 

Cash flows from financing activities

 

 

 

 

 

 

 

Net increase in noninterest-bearing deposits

 

 

8,083,739

 

 

3,817,542

 

Net increase in interest-bearing deposits

 

 

53,337,532

 

 

25,302,612

 

Net increase in securities sold under agreements to repurchase

 

 

(558,000

)

 

272,000

 

(Repayments) proceeds from long-term debt

 

 

(2,000,000

)

 

5,000,000

 

Net increase (decrease) in federal funds purchased

 

 

—  

 

 

1,774,000

 

Proceeds from exercise of stock options

 

 

80,429

 

 

197,005

 

Proceeds from issuance of common stock

 

 

—  

 

 

121,360

 

 

 



 



 

Net cash provided by financing activities

 

 

58,943,700

 

 

36,484,519

 

 

 



 



 

Increase (decrease) in cash and cash equivalents

 

 

3,641,612

 

 

(384,404

)

Cash and cash equivalents, beginning

 

 

4,725,787

 

 

5,363,317

 

 

 



 



 

Cash and cash equivalents, ending

 

$

8,367,399

 

$

4,978,913

 

 

 



 



 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Interest paid

 

$

4,982,993

 

$

2,694,643

 

 

 



 



 

Taxes paid

 

$

1,523,480

 

$

1,202,517

 

 

 



 



 

Supplemental disclosure of non cash activity

 

 

 

 

 

 

 

Other real estate acquired in settlement of loans

 

$

117,872

 

$

1,631

 

 

 



 



 

4



WACCAMAW BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

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 the 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, 2005 and December 31, 2004, and its cash flows for the nine months ended September 30, 2005 and 2004. The results of operations for the nine months and three months ended September 30, 2005 and 2004 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 10-KSB for the year ended December 31, 2004.

Waccamaw Bankshares, Inc. is located in Whiteville, North Carolina. The accounting and reporting polices 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 includes cash and amounts due from depository institutions (including cash items in process of collection) and interest-bearing deposits with banks which are considered to be cash equivalents. Federal funds sold are shown separately. 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 statement no. 104.  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.

Investment securities classified as held to maturity are those debt securities that the Bank has the ability and intent to hold to maturity. Accordingly, these securities are carried at cost adjusted for amortization of premiums and accretion of discount, computed by the interest-method over their contractual lives. At September 30, 2005 and December 31, 2004, the Bank had no investments classified as held to maturity.

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 adequate 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 makes continuous 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 adequacy of the allowance balance.

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.

5



Recent Accounting Developments

In December 2004, the Financial Accounting Standards Board (“FASB”) published FASB Statement No. 123 (R), Share-Based Payments.  FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees.  In April 2005, the Securities and Exchange Commission adopted a rule that defers the compliance of FAS 123 (R) from the first reporting period beginning after June 15, 2005 to the first fiscal year beginning after June 15, 2005, January 1, 2006 for the Company.  As of the effective date, the Company will apply the statement using a modified version of prospective application.  Under that method, compensation cost is recognized for (1) all options granted after the required effective date and to awards modified, cancelled, or repurchased after that date and (2) the portion of prior awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated for pro-forma disclosures under SFAS 123.  The impact of this Statement on the Company in 2006 and beyond will depend upon various factors, including compensation strategies.

NOTE 2. EARNINGS PER SHARE

Earnings per share for the nine months ended September 30, 2005 and 2004 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 ended September 30, 2005 and 2004 were calculated by dividing net income by the weighted average number of dilutive shares outstanding.

NOTE 3. BALANCE SHEETS

The balance sheet at December 31, 2004 has been taken from the audited financial statements at that date.

The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing need 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.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument 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, 2005 and December 31, 2004 is as follows:

 

 

September 30, 2005

 

December 31, 2004

 

 

 


 


 

Commitment to extend credit

 

 

48,998,000

 

 

47,127,000

 

Standby letters of credit

 

 

449,000

 

 

371,000

 

6



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 Waccamaw Bankshares, Inc. financial condition and results of operations for the nine months and three months ending September 30, 2005 and 2004. This discussion should be read in conjunction with the financial statements and related notes included in this report.

Waccamaw Bank is a North Carolina state chartered bank,  and is located in Whiteville, North Carolina. 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, 2005, was $745,591 or $.16  per average share outstanding compared to a $605,256  net profit or $.13 per share outstanding for the quarter ended September 30, 2004.

On September 30, 2005, Waccamaw Bankshares, Inc. assets totaled $319,274,867 compared to $258,412,441 on December 31, 2004. Net loans were $255,126,869 compared to $206,666,022 on December 31, 2004. Total deposits on September 30, 2005 were $269,062,965 compared to $207,641,694 at the end of 2004. Stockholders’ equity after adjustments for unrealized losses on securities available for sale as required by FASB 115 increased by  $1,958,055  resulting in a September 30, 2005 book value of $4.80 per share, up from $4.39 on December 31, 2004.

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. The Bank had no “Held to Maturity” securities at September 30, 2005 or December 31, 2004.

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.

Investments in available for sale securities of $30,534,447 consisted of corporate securities, municipal securities, U.S. Governmental agencies and mortgage backed securities (MBS) at September 30, 2005. Included in corporate securities are holdings of Ford Motor Company and General Motors Corporation, which were recently downgraded to junk status. The Company feels this is a temporary impairment and will not be written down due to the strong interest rates associated with these securities and the ability of both companies to turn around their sluggish sales in both the short and long term.

7



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 $10,255,000 and $4,529,000 on September 30, 2005 and December 31, 2004, respectively. No single loan  exceeds Waccamaw Bank’s legal lending limit. The increases were due to strong deposit growth over the past six months in which these funds were to be used to fund loan demand in the short term.

Loans

Net loans outstanding on September 30, 2005, were $255,126,869 compared to $206,666,022 on December 31, 2004.  The Bank maintains a loan portfolio dominated by real estate and commercial loans diversified among various industries. The $48,460,847 increase in loans was due to stronger real estate and commercial demand due to local economies improving in the areas covered by Waccamaw Bank.  This resulted in increased construction and development during the first nine months of 2005.

Deposits

Deposits on September 30, 2005, were $269,062,965 compared to $207,641,694 on December 31, 2004. Interest-bearing accounts represented 89.91% of total deposits at September 30, 2005 and 90.82% of total deposits at December 31, 2004. The significant increase in deposits was due to the strong loan demand  which necessitated that deposit rates be increased through advertising and aggressive marketing programs.

Liabilities

Securities sold under agreements to repurchase on September 30, 2005, was $2,710,000 compared to $3,268,000 on December 31, 2004. Long-term debt on September 30, 2005 was $16,500,000 compared to $18,500,000 on December 31, 2004. The strong increase in deposit demand enabled the Bank to pay down $2,000,000 of long-term debt. All long-term debt is funded by the Federal Home Loan Bank of Atlanta.

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, 2005 was $21,856,612 compared to $19,898,557 at December 31, 2004. This $1,958,055 increase was largely due to operating profits of $2,128,210. The Bank also exceeds all capital requirements under the leverage guidelines.

For the nine months ended September 30, 2005, the operating profit of the Bank was $2,128,210 compared to a $1,766,069  profit for the nine months ended  September 30, 2004.

There have been no cash  dividends declared during 2005.  On September 30, 2004, a 2 for 1 stock split effected in the form of a 100% stock dividend was paid to stockholders of record as of September 15, 2004. On May 14, 2004 a 6 for 5 stock split effected in the form of a 20% stock dividend was paid to shareholders of record as of April 30, 2004. As a result, all share and per share data have been adjusted to reflect the split.

Shareholders of record approved an amendment to Article II of the Company’ Articles of Incorporation to increase by 20,000,000 the number of authorized shares of the Company’s capital stock. The Company will have 25,000,000 of such shares classified as no par value common stock and 1,000,000 shares classified as preferred stock.

Asset Quality

The provision for possible loan losses charged to operations was $1,180,000 in the first nine months of 2005 and $411,500 for the same period of 2004. The reserve for loan losses on September 30, 2005, was $3,812,804  or 1.47% of period end loans.  The increase in the loan loss provision was due to stronger loan growth at the end of 2004 and the first nine months of 2005 along with a loan placed under non accrual in the amount of $1,471,000.

8



The level of reserve 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 a downturn in a particular market or industry will not have a significant impact on the loan portfolio or the Bank’s financial condition.

Management believes that its provision and reserve offer an adequate allowance for future loan losses and provide a sound reserve for the loan portfolio.

At September 30, 2005 the Bank had $1,685,042 loans in nonaccrual status as compared to $1,894,534 at September 30, 2004. There were no repossessed assets at September 30, 2005 and $40,034 at September 30, 2004.

Comparison of Results of Operations for the Three Months Ended September 30, 2005 and 2004

The Company reported net income of $745,591 or $.16 per share for the three months ended September 30, 2005, as compared with net income of $605,256 or $.13 per share for the three months ended September 30, 2004, an increase of $140,335 or 23.2% in net income. The Company had significant increases in net interest income in the third quarter of 2005 as compared to the third quarter of 2004, as these increases were due to strong growth in interest earning assets and increases in net interest margin. The Company has incurred additional non-interest expenses both as a result of growth from period to period, and also as a result of additional hiring and other costs incurred as a result of the branch expansion during 2004 and 2005.

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.

For the three months ended September 30, 2005, the net interest income of the Bank was $2,918,588 compared to $1,945,127 for the three months ended September 30, 2004. The increase in net interest income can be attributed to strong growth in loans and increases in net interest margin. 9

Provision for Loan Losses

The Company expensed $700,000 to provision for loan losses in the third quarter of 2005, as compared to the $201,000 provision for loan losses in the third quarter of 2004. 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 satisfactory based on loan volume, the current level of delinquencies, other non performing assets, prevailing economic conditions and other factors that my affect a borrower’s ability to repay. The increase in the provision for loan losses was due to the increase in real estate and commercial loan demand.

Non-Interest Income

Non-interest income totaled $590,000 for the three months ended September 30, 2005 as compared with $718,000 for the three months ended September 30, 2004. The principal reason for the decrease of $128,000 in total non-interest income for the current quarter was the loss of mortgage income from Sidus, LLC which was sold in the fourth quarter of 2004, as third quarter income from Sidus, LLC totaled $194,000 for the three months ending September 30, 2004. Increases of $23,000 in service charges on deposit accounts, $27,000 in net servicing fees from mortgage and investments and increases in other operating income of $19,000 made up the difference in the three months ending September 30, 2005 compared to the three months ending September 30, 2004.

9



Non-Interest Expenses

Non-interest expenses totaled $1.8 million for the three months ended September 30, 2005, an increase of $300,000 or 18.2% over the $1.5 million reported for the three months ended September 30, 2004. Substantially all of this increase resulted from the Bank’s growth and development, and reflects the additional expenses in the current quarter associated with new hires and the opening of a new branch. For the three months ending September 30, 2005, personnel costs increased by $140,000, or 18.0% to $921,000 as compared to $781,000 for the three months ended September 30, 2004.

Provision for Income Taxes

The Company provided $282,000 for income taxes during the three months ended September 30, 2005, at a tax rate of 27% compared to a provision for income taxes of $350,000 for the three months ended September 30, 2004 at a tax rate of 36%. The lower tax rate for the third quarter of 2005 is primarily due to a tax benefit of a nonqualified stock option exercise.

Comparison of Results of Operations for the Nine Months Ended September 30, 2005 and 2004

The Company reported net income of $2,128,210 or $.47 per share for the nine months ended September 30, 2005, as compared with net income of $1,766,069 or $.39 per share for the nine months ended September 30, 2004, an increase of $362,141 or 20.5% in net income. The Company had significant increases in net interest income in the first nine months of 2005 as compared to the first nine months of 2004, as these increases were due to strong growth in interest earning assets and increases in net interest margin. The Company has incurred additional non-interest expenses both as a result of growth from period to period, and also as a result of additional hiring and other costs incurred as a result of the branch expansion during 2004 and 2005.

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.

For the nine months ended September 30, 2005, the net interest income of the Bank was $7,732,887 compared to $5,505,139 for the nine months ended September 30, 2004. The increase in net interest income can be attributed to strong growth in loans and increases in net interest margin.

Provision for Loan Losses

The Company expensed $1,180,000 to provision for loan losses in 2005, as compared to the $411,500 provision for loan losses in 2004. 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 satisfactory based on loan volume, the current level of delinquencies, other non performing assets, prevailing economic conditions and other factors that my affect a borrower’s ability to repay. The increase in the provision for loan losses was due to the increase in real estate and commercial loan demand.

Non-Interest Income

Non-interest income totaled $1,692,000 for the nine months ended September 30, 2005 as compared with $1,788,000 for the nine months ended September 30, 2004. The principal reason for the decrease of $96,000 in total non-interest income for the nine months ending September 30, 2005 compared to the nine months ending September 30, 2004 was the loss of mortgage income from Sidus, LLC which was sold in the fourth quarter of 2004, as year to date income from Sidus, LLC totaled $274,000 for the nine months ending September 30, 2004. Increases of $90,000 in service charges on deposit accounts, $60,000 in net servicing fees from mortgage and investments and increases in other operating income of $70,000 made up the difference in the nine months ending September 30, 2005 compared to the nine months ending September 30, 2004.

10



Non-Interest Expenses

Non-interest expenses totaled $5.0 million for the nine months ended September 30, 2005, an increase of $900,000 or 21.6% over the $4.1 million reported for the nine months ended September 30, 2004. Substantially all of this increase resulted from the Bank’s growth and development, and reflects the additional expenses in the current year associated with new hires and the opening of a new branch. For the nine months ending September 30, 2005, personnel costs increased by $480,000, or 21.8% to $2.7 million as compared to $2.2 million for the nine months ended September 30, 2004.

Provision for Income Taxes

The Company provided $1,070,000 for income taxes during the nine months ended September 30, 2005, at a tax rate of 33% compared to a provision for income taxes of $965,000 for the nine months ended September 30, 2004 at a tax rate of 35%. The lower tax rate for the first nine months of 2005 is primarily due to a tax benefit of a nonqualified stock option exercise.

Interest Sensitivity and Liquidity

One of the principal duties of the Bank’s Asset/Liability Management Committee is management of interest rate risk. The Bank utilizes quarterly asset/liability reports prepared by a regional correspondent bank 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.

Another function of the Asset/Liability Committee 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.

At September 30, 2005, the liquidity position of the Bank was strong, with short-term liquid assets of $32,217,278 or 10.09% of total assets.

Stock-based Compensation

The Company accounts for its stock-based compensation plans using the accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. The Company is not required to adopt the fair value based recognition provisions prescribed under SFAS No. 123, Accounting for Stock Based Compensation, but complies with the disclosure requirements set forth in the Statement (as amended by SFAS No. 148), which include disclosing pro forma net income as if the fair value based method of accounting had been applied.

Stock Option Plans

The Company has adopted both the 1998 Incentive Stock Option Plan (Incentive Plan) and the 1998 Nonstatutory Stock Option Plan (Nonstatutory Plan).  Under each plan up to 458,258 shares may be issued for a total of 916,516 shares (adjusted for stock dividends).  Options granted under both plans expire no more than 10 years from date of grant. Option exercise price, under both plans shall be set by the Board of Directors at the date of grant, but shall not be less than 100% of fair market value of the related stock at the date of the grant.  Under both plans, vesting is determined by the specific option agreements.  Information related to pro forma net income for the periods presented is as follows:

 

 

September 30,

 

 

 


 

 

 

2005

 

2004

 

 

 


 


 

Compensation cost recognized in income for all stock-based compensation awards

 

$

—  

 

$

—  

 

 

 



 



 

Pro forma net income, based on SFAS No. 123

 

$

1,434,604

 

$

1,727,524

 

 

 



 



 

Pro forma earnings per common share, based on SFAS No. 123

 

$

.32

 

$

.38

 

 

 



 



 

Pro forma earnings per fully dilutive common share, based on SFAS No. 123

 

$

.30

 

$

.36

 

 

 



 



 

11



Item 3.          Quantitative and Qualitative Disclosures about Market Risk

The Company’s profitability is dependent to a large extent upon its net interest income, which is the difference between its interest income on interest-bearing assets, such as loans and investments, and its interest expense on interest-bearing liabilities, such as deposits and borrowings. The Company’s primary market risk is interest rate risk, which is the result of differing maturities or repricing intervals of interest-earning assets and interest-bearing liabilities with the goals of minimizing interest rate fluctuations in its net interest income.

The Company’s Asset/Liability Committee (“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-KSB for the year ended December 31, 2004. The Company has not had any material changes in the overall interest rate risk since December 31, 2004.

Item 4.          Controls and Procedures

Based on their evaluation, as of the end of the period covered by the 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 ensure 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 ensure 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. There have not been any changes in the Company’s internal control over financial reporting that occurred during the Company’s last quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

12



PART II - OTHER INFORMATION

Item 1.

 

Legal Proceedings

 

 

 

 

 

No significant changes in legal proceedings occurred during the quarter.

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

 

Not Applicable

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

 

 

 

 

Not Applicable

 

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

 

 

 

 

Not Applicable

 

 

 

Item 5.

 

Other Information

 

 

 

 

 

Not Applicable

 

 

 

Item 6.

 

Exhibits

 

 

 

 

 

31.1

Section 302 Certification – CEO

 

 

 

 

 

 

31.2

Section 302 Certification – CFO

 

 

 

 

 

 

32

Section 906 Certfication

13



SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Waccamaw Bankshares, Inc.

 

 

 

 

Date: November 8, 2005

By:

/s/David A. Godwin

 

 


 

 

David A. Godwin

 

 

Chief Financial Officer

 

 

(Principle Financial Officer)

14


Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki