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 2010

Documents found in this filing:

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

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, 2010
 
 
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 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports,) and (2) has been subject to such to 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 o
Accelerated filer o
     
 
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 15, 2010 there were 7,466,224 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, 2010 (Unaudited) and December 31, 2009 (Audited)
 
1
       
 
Consolidated Statements of Operations, Nine Months Ended September 30, 2010 and September 30, 2009 (Unaudited)
 
2
       
 
Consolidated Statements of Operations, Quarters Ended September 30, 2010 and September 30, 2009 (Unaudited)
 
3
       
 
Consolidated Statements of Cash Flows, Nine Months Ended September 30, 2010 and September 30, 2009 (Unaudited)
 
4
       
 
Notes to Consolidated Financial Statements (Unaudited)
 
5-15
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
15-26
       
Item 4T.
Controls and Procedures
 
26
       
Part II.  OTHER INFORMATION
 
27
       
Item 1.
Legal Proceedings
 
27
       
Item 6.
Exhibits
 
27
       
SIGNATURES
 
28
       
EXHIBIT INDEX
 
29

 
 

 

Waccamaw Bankshares, Inc.
Consolidated Balance Sheets
September 30, 2010 and December 31, 2009

 
   
(Unaudited)
   
(Audited)
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
             
Assets
           
             
Cash and due from banks
  $ 9,347,754     $ 13,973,474  
Cash in escrow     56,307,314       -  
Interest-bearing deposits with banks
    24,249,610       7,695,499  
Federal funds sold
    23,360,000       21,315,000  
Total cash and cash equivalents
    113,264,678       42,983,973  
                 
Investment securities, available-for-sale
    98,020,910       87,769,319  
Restricted equity securities
    3,815,550       4,041,350  
Loans, net of allowance for loan losses of $9,412,813 in 2010, and $10,148,927 in 2009
    301,395,076       340,020,798  
Foreclosed assets
    10,265,824       4,994,241  
Property and equipment, net
    16,575,498       17,035,644  
Intangible assets, net
    167,500       237,270  
Accrued income
    1,776,252       2,449,081  
Bank owned life insurance
    6,193,987       18,576,015  
Other assets
    14,591,815       15,113,381  
Total assets
  $ 566,067,090     $ 533,221,072  
                 
Liabilities and Stockholders’ Equity
               
                 
Liabilities
               
Noninterest-bearing deposits
  $ 34,238,883     $ 32,940,811  
Interest-bearing deposits
    431,947,317       400,597,148  
Total deposits
    466,186,200       433,537,959  
                 
Securities sold under agreements to repurchase
    20,462,000       20,615,000  
Other short-term borrowings
    5,900,000       3,500,000  
Long-term debt
    38,000,000       43,000,000  
Junior subordinated debentures
    12,372,000       12,372,000  
Accrued interest payable
    1,339,300       942,689  
Other liabilities
    2,061,842       2,098,993  
Total liabilities
    546,321,342       516,066,641  
                 
Commitments and contingencies
    -       -  
                 
Stockholders’ equity
               
Preferred stock, Series A, convertible, non-cumulative, non-voting, no par value; 1,000,000 shares authorized; 550 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively
    9,064       9,064  
Common stock, no par value; 50,000,000 shares authorized; 7,466,224 and 5,551,183 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively
    27,134,544       25,099,770  
Retained deficit
    (6,323,091 )     (5,129,490 )
Accumulated other comprehensive loss
    (1,074,769 )     (2,824,913 )
Total stockholders’ equity
    19,745,748       17,154,431  
Total liabilities and stockholders’ equity
  $ 566,067,090     $ 533,221,072  

See notes to consolidated financial statements

 
1

 

WACCAMAW BANKSHARES, INC.
Consolidated Statements of Operations
Nine-months ended September 30, 2010 and September 30, 2009 (Unaudited)

   
Nine-Months
   
Nine-Months
 
   
Ended
   
Ended
 
   
Sept 30, 2010
   
Sept 30, 2009
 
Interest income
           
Loans and fees on loans
  $ 13,176,541     $ 15,977,468  
Federal funds sold and interest earning deposits
    129,823       13,914  
Investment securities, taxable
    2,552,075       3,286,867  
Investment securities, nontaxable
    286,859       446,400  
Total interest income
    16,145,298       19,724,649  
                 
Interest expense
               
Deposits
    5,296,210       7,445,004  
Federal funds purchased and securities sold under agreements to repurchase
    506,349       558,197  
Short-term borrowings
    69,619       253,318  
Long-term borrowings
    1,685,633       1,651,178  
Total interest expense
    7,557,811       9,907,697  
Net interest income
    8,587,487       9,816,952  
                 
Provision for loan losses
    3,026,284       4,856,894  
Net interest income after provision for loan losses
    5,561,203       4,960,058  
                 
Non-interest income  (loss)
               
Service charges on deposit accounts
    2,102,135       2,263,858  
Mortgage origination income
    270,092       294,983  
Income from financial services
    68,988       110,423  
Earnings on bank owned life insurance
    511,632       547,060  
Net realized gains on sale or maturity of investment securities
    1,481,372       1,354,435  
Impairment on investment securities
    -       (2,319,476 )
Other operating income
    906,280       664,607  
Total non-interest income
    5,340,499       2,915,890  
                 
Non-interest expense
               
Salaries and employee benefits
    4,719,850       5,441,093  
Occupancy expense
    1,543,270       1,566,101  
Data processing
    856,821       895,189  
Regulatory agency expense
    1,343,430       848,758  
Amortization expense of intangible assets
    79,270       145,471  
Foreclosed assets, net
    1,439,606       -  
Other expense
    2,265,555       2,248,472  
Total non-interest expense
    12,247,802       11,145,084  
Loss before income taxes
    (1,346,100 )     (3,269,136 )
                 
Income tax benefit
    (763,766 )     (1,554,938 )
Net loss
  $ (582,334 )   $ (1,714,198 )
                 
Basic loss per share
  $ (.10 )   $ (.31 )
Diluted loss per share
  $ (.10 )   $ (.31 )
Weighted average shares outstanding
    5,796,701       5,529,540  
Diluted average shares outstanding
    5,796,701       5,529,540  

See notes to consolidated financial statements

 
2

 

WACCAMAW BANKSHARES, INC.
Consolidated Statements of Operations
Quarter ended September 30, 2010 and September 30, 2009 (Unaudited)

   
Quarter Ended
   
Quarter Ended
 
   
Sept 30, 2010
   
Sept 30, 2009
 
Interest income
           
Loans and fees on loans
  $ 4,502,513     $ 5,488,874  
Federal funds sold and interest earning deposits
    59,234       11,895  
Investment securities, taxable
    791,847       968,742  
Investment securities, nontaxable
    80,775       141,649  
Total interest income
    5,434,369       6,611,160  
                 
Interest expense
               
Deposits
    1,708,456       2,235,730  
Federal funds purchased and securities sold under agreements to repurchase
    174,967       187,358  
Short-term borrowings
    28,230       81,563  
Long-term borrowings
    565,854       552,413  
Total interest expense
    2,477,507       3,057,064  
Net interest income
    2,956,862       3,554,096  
                 
Provision for loan losses
    1,215,670       1,230,048  
Net interest income after provision for loan losses
    1,741,192       2,324,048  
                 
Non-interest income (loss)
               
Service charges on deposit accounts
    717,217       886,191  
Mortgage origination income
    100,168       91,576  
Income from financial services
    18,471       56,251  
Earnings on bank owned life insurance
    137,484       195,787  
Net realized gains on sale or maturity of investment securities
    833,180       483,758  
Impairment on investment securities
    -       (10,000 )
Other operating income
    359,523       100,645  
Total non-interest income
    2,166,043       1,804,208  
                 
Non-interest expense
               
Salaries and employee benefits
    1,548,684       1,736,058  
Occupancy expense
    551,479       519,374  
Data processing
    289,972       250,324  
Regulatory agency expense
    703,279       431,158  
Amortization expense of intangible assets
    10,667       46,119  
Foreclosed assets, net
    1,354,201       -  
Other expense
    763,515       858,244  
Total non-interest expense
    5,221,797       3,841,277  
Income (loss) before income taxes
    (1,314,562 )     286,979  
                 
Income tax expense (benefit)
    (571,566 )     (44,059 )
Net income (loss)
  $ (742,996 )   $ 331,038  
                 
Basic income (loss) per share
  $ (.12 )   $ .06  
Diluted income (loss) per share
  $ (.12 )   $ .06  
Weighted average shares outstanding
    6,279,731       5,540,833  
Diluted average shares outstanding
    6,279,731       5,548,564  

See notes to consolidated financial statements

 
3

 

WACCAMAW BANKSHARES, INC.
Consolidated Statements of Cash Flows
Nine-months ended September 30, 2010 and September 30, 2009 (Unaudited)

   
Nine-Months
   
Nine-Months
 
   
Ended
   
Ended
 
   
Sept 30, 2010
   
Sept 30, 2009
 
Cash flows from operating activities
           
             
Net income (loss)
  $ (582,334 )   $ (1,714,198 )
Adjustments to reconcile net income to net cash provided (used) by operations:
               
Depreciation and amortization
    621,234       704,609  
Stock-based compensation
    66,527       92,956  
Provision for loan losses
    3,026,284       4,856,894  
Accretion of discount on securities, net of amortization of premiums
    437,850       130,304  
Write-down of foreclosed assets
    1,612,917       -  
Gain on sale of investments
    (1,481,372 )     (1,354,435 )
Impairment of investment securities
    -       2,319,476  
Income from bank owned life insurance
    (511,632 )     (547,060 )
Changes in assets and liabilities:
               
Accrued income
    672,829       395,449  
Other assets
    1,130,042       (185,660 )
Accrued interest payable
    396,611       (251,091 )
Other liabilities
    (37,151 )     (766,349 )
Net cash provided by operating activities
    5,351,805       3,680,895  
                 
Cash flows from investing activities
               
Purchases of investment securities available-for-sale
    (114,552,164 )     (83,321,744 )
Sales (purchases) of restricted equity securities
    225,800       (62,100 )
Principal repayments of investments available-for-sale
    5,626,480       12,262,146  
Net decrease in loans
    27,464,450       8,478,686  
Sales and maturities of investment securities available-for-sale
    100,248,016       77,021,930  
Surrender of bank owned life insurance
    12,893,660       -  
Proceeds from the sale of foreclosed assets
    1,250,488       225,745  
Purchases of property and equipment
    (91,318 )     (167,920 )
Net cash provided by investing activities
    33,065,412       14,436,743  
                 
Cash flows from financing activities
               
Net increase in non-interest-bearing deposits
    1,298,072       2,355,202  
Net increase in interest-bearing deposits
    31,350,169       3,843,076  
Net decrease in securities sold under agreements to repurchase
    (153,000 )     (691,000 )
Proceeds (repayments) from short-term borrowings
    2,400,000       (3,500,000 )
Repayments of long-term debt
    (5,000,000 )     (2,500,000 )
Stock issuance costs
    (425,554 )     (54,230 )
Proceeds from issuance of common stock
    2,393,801       -  
Net cash (used in) provided by financing activities
    31,863,488       (546,952 )
Net increase in cash and cash equivalents
    70,280,705       17,570,686  
                 
Cash and cash equivalents, beginning
    42,983,973       15,913,493  
Cash and cash equivalents, ending
  $ 113,264,678     $ 33,484,179  
                 
Supplemental disclosure of cash flow information
               
Interest paid
  $ 7,161,200     $ 10,158,788  
Taxes paid
  $ -     $ 38,000  
Conversion of common stock to preferred stock
  $ -     $ 343,993  
                 
Supplemental disclosure of noncash activities
               
Real estate acquired in settlement of loans
  $ 8,134,988     $ 4,722,626  

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, 2009 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, 2010 and December 31, 2009, and its results of operations  and cash flows for the nine months ended September 30, 2010 and 2009. The results of operations for the nine months and three months ended September 30, 2010 and 2009 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, 2009.

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 appropriate 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.”

NOTE 2. REGULATORY CAPITAL AND REGULATORY MATTERS

WRITTEN AGREEMENT

Effective June 14, 2010, the Company and the Bank entered into a Written Agreement (the “Agreement”) with the Federal Reserve Bank of Richmond (the “Reserve Bank”) and the North Carolina Commissioner of Banks (“The Commissioner”).

The Agreement is a formal corrective action pursuant to which the Bank has agreed to address specific issues set forth below, through the adoption and implementation of procedures, plans and policies designed to enhance the safety and soundness of the Bank.

Among other things, the Agreement requires the Bank to:

 
Retain an independent consultant acceptable to the Reserve Bank and the Commissioner to conduct a review of the effectiveness of the Bank’s corporate governance, board and management structure, to assess staffing needs and to prepare a written report of findings and recommendations;

 
Formulate a plan to strengthen board oversight of the management and operations of the Bank;

 
Formulate and implement a plan to strengthen credit risk management practices;

 
Formulate a plan for the ongoing review and grading of the Bank’s loan portfolio by a qualified independent party or by qualified staff that is independent of the Bank’s lending function;

 
Develop a plan to maintain sufficient capital at the Company, on a consolidated basis;

 
Not pay cash dividends without the prior written consent of the Reserve Bank and the Commissioner;

 
Not accept any new brokered deposits (contractual renewals or rollovers of existing brokered deposits are permitted).

The Company must furnish periodic progress reports to the Reserve Bank and the Commissioner regarding its compliance with the Agreement. The Agreement will remain in effect until modified or terminated by the Reserve Bank and the Commissioner. The Bank reports regularly to its regulators on matters of compliance with the Agreement, and the progress made to comply with the Agreement.
 
NOTE 3. EARNINGS PER SHARE

Loss per share for the nine months and the quarters ended September 30, 2010 and 2009 was calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share for the nine months and the quarters ended September 30, 2010 and 2009 were calculated by dividing net income by the weighted average number of dilutive shares outstanding. For the nine months and three months ended September 30, 2010, as well as the nine months ended September 30, 2009, 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, 2010
   
Sept 30, 2009
 
             
Net income (loss) (income available to common shareholders)
  $ (582,334 )   $ (1,714,198 )
                 
Weighted average common shares outstanding
    5,796,701       5,529,540  
Effect of dilutive securities, options
    -       -  
Effect of dilutive securities, preferred stock
    -       -  
Weighted average common shares outstanding, diluted
    5,796,701       5,529,540  
                 
Basic loss per share
  $ (.10 )   $ (.31 )
Diluted loss per share
  $ (.10 )   $ (.31 )

   
Quarter
   
Quarter
 
   
ended
   
ended
 
   
Sept 30, 2010
   
Sept 30, 2009
 
             
Net income (loss) (income available to common shareholders)
  $ (742,996 )   $ 331,038  
                 
Weighted average common shares outstanding
    6,279,731       5,540,833  
Effect of dilutive securities, options
    -       420  
Effect of dilutive securities, preferred stock
    -       7,311  
Weighted average common shares outstanding, diluted
    6,279,731       5,548,564  
                 
Basic earnings (loss) per share
  $ (.12 )   $ .06  
Diluted earnings (loss) per share
  $ (.12 )   $ .06  

At September 30, 2010 and September 30, 2009, the Company had 296,889 warrants outstanding. At September 30, 2010 and September 30, 2009 these warrants were not included in the diluted earnings per share calculation as the effect would have been anti-dilutive. There were 314,539 anti-dilutive options at September 30, 2010 and 313,768 anti-dilutive options at September 30, 2009 which have been excluded from the diluted weighted shares outstanding. For the nine months ended September 30, 2010, the stock compensation expense of the Company was $66,527 compared to $92,956 for the nine months ended September 30, 2009. The unrecognized stock compensation expense for the nine months ended September 30, 2010 was $154,459 compared to $230,408 for the nine months ended September 30, 2009.

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 1998 Incentive Stock Option Plan and 1998 Non-statutory Stock Option Plan (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 stock option award can be granted after the tenth anniversary of the plan. Under the Omnibus Plan, the Company may grant incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights, or long-term incentive compensation units to eligible employees and directors. The compensation committee of 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. On September 30, 2010, Waccamaw Bank entered into an Asset Purchase and Sale Agreement with Augusta Holdings, LLC (“Augusta”) in which the Bank has committed to purchase approximately $56,000,000 of home equity lines of credit in the 4th quarter of 2010.  These loans are to be recorded at fair value prior the exchange and may result in a loss subject to valuation. A summary of the Bank’s commitments at September 30, 2010 and December 31, 2009 is as follows:

   
Sept 30, 2010
   
December 31, 2009
 
             
Commitments to extend credit
  $ 85,515,000     $ 41,072,000  
Standby letters of credit
    1,310,000       796,000  

NOTE 5.  RECENT ACCOUNTING PRONOUNCEMENTS

In March 2010, guidance related to derivatives and hedging was amended to exempt embedded credit derivative features related to the transfer of credit risk from potential bifurcation and separate accounting.  Embedded features related to other types of risk and other embedded credit derivative features are not exempt from potential bifurcation and separate accounting.  The amendments were effective for the Company on July 1, 2010.  These amendments will have no impact on the financial statements.

Income Tax guidance was amended in April 2010 to reflect an SEC Staff Announcement after the President signed the Health Care and Education Reconciliation Act of 2010 on March 30, 2010, which amended the Patient Protection and Affordable Care Act signed on March 23, 2010.   According to the announcement, although the bills were signed on separate dates, regulatory bodies would not object if the two Acts were considered together for accounting purposes. This view is based on the SEC staff's understanding that the two Acts together represent the current health care reforms as passed by Congress and signed by the President.  The amendment had no impact on the financial statements.

Stock compensation guidance was updated in April 2010 to address the classification of employee share-based payment awards with exercise prices dominated in the currency of a market in which a substantial portion of the entity’s equity securities trade.  The guidance states that these awards should not be considered to contain a condition that is not a market, performance, or service condition. Share based payments that contain conditions related to market, performance and service must be recorded as liabilities.  These awards should not be classified as liabilities if they otherwise qualify to be classified as equity.  The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  The Company does not expect the update to have an impact on the financial statements.
 
In April 2010, guidance was issued related to accounting for acquired troubled loans that are subsequently modified.    The guidance provides that if these loans meet the critieria to be accounted for within a pool, modifications to one or more of these loans does not result in the removal of the modified loan from the pool even if the modification would otherwise be considered a troubled debt restructuring. The pool of assets in which the loan is included will continue to be considered for impairment.  The amendments do not apply to loans not meeting the criteria to be accounted for within a pool. These amendments are effective for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010. These amendments had no impact on the financial statements.
 
In July 2010, the Receivables topic of the ASC was amended to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments will require the allowance disclosures to be provided on a disaggregated basis.  The Company is required to begin to comply with the disclosures in its financial statements for the year ended December 31, 2010.

 
8

 

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which significantly changes the regulation of financial institutions and the financial services industry.  The Dodd-Frank Act includes several provisions that will affect how community banks, thrifts, and small bank and thrift holding companies will be regulated in the future.  Among other things, these provisions abolish the Office of Thrift Supervision and transfer its functions to the other federal banking agencies, relax rules regarding interstate branching, allow financial institutions to pay interest on business checking accounts, change the scope of  federal deposit insurance coverage, and impose new capital requirements on bank and thrift holding companies.  The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which will be given the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks.  Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan origination standards affecting originator compensation, minimum repayment standards, and pre-payments.  Management is actively reviewing the provisions of the Dodd-Frank Act and assessing its probable impact on our business, financial condition, and results of operations.
 
In August 2010, two updates were issued to amend various SEC rules and schedules pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies and based on the issuance of SEC Staff Accounting Bulletin 112.  The amendments related primarily to business combinations and removed references to “minority interest” and added references to “controlling” and “noncontrolling interests(s)”.  The updates were effective upon issuance but had no impact on the Company’s financial statements.

NOTE 6.  FAIR VALUE

GAAP provides a framework for measuring and disclosing fair value which requires disclosures about the fair value of assets and liabilities recognized in the balance sheet, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans).

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures.  Securities available for sale are recorded at fair value on a recurring basis.  Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets.  These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These levels are:

Level 1 –
Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 –
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 –
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

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, 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.

 
9

 

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. 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, 2010, the Bank identified $41,544,302 in impaired loans.  Of these impaired loans, $11,588,058 was identified to have impairment of $1,337,506.  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.

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned.  Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure.  The initial recorded value may be subsequently reduced by additional allowances, which are charges to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded 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.

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. Based on management’s assessment of fair value of the Company, goodwill was determined to be impaired during 2009. The Company classifies 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:

September 30, 2010
 
Total
   
Level 1
   
Level 2
   
Level 3
 
                         
Mortgage backed securities
  $ 82,515,261     $ -     $ 82,515,261     $ -  
Corporate securities
    3,394,685       -       2,170,685       1,224,000  
Single issue trust preferred securities
    5,230,162       -       3,431,562       1,798,600  
Municipal securities
    6,880,802       -       6,880,802       -  
    $ 98,020,910     $ -     $ 94,998,310     $ 3,022,600  
                                 
December 31, 2009
                               
                                 
Mortgage backed securities
  $ 60,558,270     $ 3,890,233     $ 56,668,037     $ -  
Corporate securities
    4,501,810       -       3,381,810       1,120,000  
Single issue trust preferred securities
    10,552,149       -       8,802,149       1,750,000  
Pooled trust preferred securities
    82,255       -       82,255       -  
Municipal securities
    12,074,835       -       12,074,835       -  
    $ 87,769,319     $ 3,890,233     $ 81,009,086     $ 2,870,000  

There were no liabilities measured at fair value on a recurring basis at September 30, 2010 and December 31, 2009.

 
10

 

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 (in thousands):

September 30, 2010
 
Total
   
Level 1
   
Level 2
   
Level 3
 
                         
Construction and development impaired loans
  $ 10,251     $ -     $ -     $ 10,251  
Foreclosed assets
    10,266       -       -       10,266  
                                 
Total assets at fair value
  $ 20,517     $ -     $ -     $ 20,517  
                                 
December 31, 2009
                               
                                 
Impaired loans
  $ -     $ -     $ -     $ -  
Foreclosed assets
    4,994       -       -       4,994  
                                 
Total assets at fair value
  $ 4,994     $ -     $ -     $ 4,994  

There were no liabilities measured at fair value on a nonrecurring basis at September 30, 2010 and December 31, 2009.

The following table, which presents additional information about financial assets and liabilities measured at fair value at September 30, 2010 and 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  
         
Balance, January 1, 2010
  $ 2,870  
Total gains or losses (realized/unrealized)
    -  
Included in earnings (or changes in net assets)
    -  
Included in other comprehensive income
    153  
Purchases, issuances, and settlements
    -  
Transfers in and/or out of Level 3
    -  
Balance, September 30, 2010
  $ 3,023  

For the nine months ended September 30, 2010, there were no net transfers into Level 3.

Generally accepted accounting principles require 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, 2010 and December 31, 2009. 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.

 
11

 

The estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):

   
September 30, 2010
   
December 31, 2009
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
   
Amount
   
Value
   
Amount
   
Value
 
Financial Assets
                       
Cash and due from banks
  $ 65,655     $ 65,655     $ 13,973     $ 13,973  
Interest-bearing deposits with banks
    24,250       24,250       7,695       7,695  
Federal funds sold
    23,360       23,360       21,315       21,315  
Investment securities
    98,021       98,021       87,769       87,769  
Restricted equity securities
    3,816       3,816       4,041       4,041  
Loans, net of allowance for loan losses
    301,395       298,325       340,021       333,368  
                                 
Financial Liabilities
                               
Deposits
    466,186       469,174       433,538       431,370  
Securities sold under agreements to repurchase and federal funds purchased
    20,462       20,462       20,615       20,615  
Other short-term borrowings
    5,900       5,900       3,500       3,484  
Long-term debt
    38,000       35,266       43,000       41,450  
Junior subordinated debentures
    12,372       8,227       12,372       8,234  

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 (loss) is as follows:

   
Nine-Months
   
Nine-Months
 
   
ended
   
ended
 
   
Sept 30, 2010
   
Sept 30, 2009
 
             
Net income (loss)
  $ (582,334 )   $ (1,714,198 )
                 
Other comprehensive loss:
               
Gain on sale of investments
    (1,481,372 )     (1,354,435 )
Unrealized (losses) on available-for-sale investment securities
    3,334,711       6,762,778  
Tax effect
    (714,462 )     (1,663,021 )
Total other comprehensive loss
    1,138,877       3,745,322  
                 
Comprehensive income
  $ 556,543     $ 2,031,124  

 
12

 

 
   
Quarter ended
   
Quarter ended
 
   
Sept 30,
   
Sept 30,
 
   
2010
   
2009
 
             
Net income (loss)
  $ (742,996 )   $ 331,038  
                 
Other comprehensive loss:
               
Gain on sale of investments
    (833,180 )     (483,758 )
Unrealized (losses) on available-for-sale investment securities
    467,731       5,227,554  
Tax effect
    140,881       (1,828,733 )
Total other comprehensive income (loss)
    (224,568 )     2,915,063  
                 
Comprehensive income (loss)
  $ (967,564 )   $ 3,246,101  

NOTE 8 – INVESTMENT SECURITIES

Investments in available for sale securities of $98,020,910 consisted of corporate securities, single issue trust preferred securities, municipal securities, and mortgage backed securities (MBS) at September 30, 2010.

At September 30, 2010, we had 42 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 are due to credit quality, as well as liquidity. 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, 2010
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                         
Mortgage backed securities
  $ 82,386,842     $ 379,664     $ (251,245 )   $ 82,515,261  
Corporate securities
    4,253,097       -       (858,412 )     3,394,685  
Single issue trust preferred securities
    6,478,351       153,666       (1,401,855 )     5,230,162  
Municipal securities
    7,372,245       942       (492,385 )     6,880,802  
    $ 100,490,535     $ 534,272     $ (3,003,897 )   $ 98,020,910  

   
December 31, 2009
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                         
Mortgage backed securities
  $ 61,167,200     $ 159,880     $ (768,810 )   $ 60,558,270  
Corporate securities
    5,617,961       -       (1,116,151 )     4,501,810  
Single issue trust preferred securities
    12,089,781       148,661       (1,686,293 )     10,552,149  
Pooled trust preferred securities
    133,935       -       (51,680 )     82,255  
Municipal securities
    13,083,406       29,210       (1,037,781 )     12,074,835  
    $ 92,092,283     $ 337,751     $ (4,660,715 )   $ 87,769,319  

 
13

 

Gross realized gains and losses resulting from the sale of securities for the nine months ended and quarters ended September 30, 2010 and 2009 are as follows:

   
Nine-Months
   
Nine-Months
 
   
ended
   
ended
 
   
Sept 30, 2010
   
Sept 30, 2009
 
             
Realized gains
  $ 1,624,312     $ 1,484,189  
Realized losses
    (142,940 )     (129,754 )
    $ 1,481,372     $ 1,354,435  

   
Quarter
   
Quarter
 
   
ended
   
ended
 
   
Sept 30, 2010
   
Sept 30, 2009
 
             
Realized gains
  $ 833,180     $ 507,772  
Realized losses
    -       (24,014 )
    $ 833,180     $ 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.

   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
                                     
September 30, 2010
                                   
Mortgage backed securities
  $ 48,531,744     $ (251,245 )   $ -     $ -     $ 48,531,744     $ (251,245 )
Corporate securities
    -       -       3,394,685       (858,412 )     3,394,685       (858,412 )
Single issue trust preferred securities
    700,000       (301,455 )     1,899,600       (1,100,400 )     2,599,600       (1,401,855 )
Municipal securities
    514,305       (695 )     5,830,555       (491,690 )     6,344,860       (492,385 )
Total temporarily impaired securities
  $ 49,746,049     $ (553,395 )   $ 11,124,840     $ (2,450,502 )   $ 60,870,889     $ (3,003,897 )

   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
                                     
December 31, 2009
                                   
Mortgage backed securities
  $ 42,983,307     $ (768,810 )   $ -     $ -     $ 42,983,307     $ (768,810 )
Corporate securities
    1,398,872       (896,151 )     1,780,000       (220,000 )     3,178,872       (1,116,151 )
Single issue trust preferred securities
    1,994,732       (925,992 )     3,967,017       (760,301 )     5,961,749       (1,686,293 )
Pooled trust preferred securities
    33,118       (51,680 )     49,138       -       82,256       (51,680 )
Municipal securities
    1,356,260       (43,738 )     6,714,609       (994,043 )     8,070,869       (1,037,781 )
Total temporarily impaired securities
  $ 47,766,289     $ (2,686,371 )   $ 12,510,764     $ (1,974,344 )   $ 60,277,053     $ (4,660,715 )

The scheduled contractual maturities of securities (all available for sale) at September 30, 2010 and December 31, 2009 are as follows:

   
September 30, 2010
   
December 31, 2009
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
                         
Due in one year or less
  $ 2,000,000     $ 1,940,000     $ 1,322,937     $ 1,322,937  
Due in one through five years
    1,001,872       1,013,802       2,470,000       2,255,560  
Due in five through ten years
    31,233       31,474       1,002,184       952,851  
Due after ten years
    97,457,430       95,035,634       87,297,162       83,237,971  
    $ 100,490,535     $ 98,020,910     $ 92,092,283     $ 87,769,319  

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.

 
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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, 2010. 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.

NOTE 9 – OTHER ASSETS

Other assets of $14,591,815 consisted of prepaid FDIC assessment of $2,717,389, deferred tax charges less deferred tax valuation allowance of $2,438,014 and income tax receivable of $5,157,421 at September 30, 2010. Bank owned life insurance was $6,193,987 at September 30, 2010 compared to $18,576,015 at December 31, 2009. The Bank surrendered policies of $12,893,661 during the third quarter of 2010, but has committed to purchase $12,000,000 of bank owned life insurance in the fourth quarter of 2010.

NOTE 10 – ASSET PURCHASE AND SALE AGREEMENTS

On September 30, 2010, the bank entered into two separate agreements whereby Augusta Holdings, LLC “Augusta” would purchase nonperforming loans from the bank and the bank would purchase performing Home Equity Lines of Credit “HELOCs” from Augusta.  Under the first agreement Augusta purchased for approximately $11.2 million nonperforming loans that had a carrying value of approximately $7.8 million.  This amount included payment for back-interest of approximately $462,000.  This transaction was recorded in the third quarter.  In the second agreement which is expected to close in the fourth quarter, the bank agreed to purchase performing HELOC loans of approximately $56 million subject to certain underwriting criteria.  These criteria include the loan not being past due more than 30 days since origination, a current credit score of at least 725.  In addition, as a credit enhancement Augusta will place on deposit at Waccamaw $3.9 million for 4 years that will be available to absorb any credit losses related to this pool over this time period.

As of the date of this filing, Augusta has delivered a pool of HELOC loans and the bank is applying due diligence procedures related to the underwriting criteria.  As required by generally accepted accounting principles, the transaction will be recorded on the books of the bank at the fair value of the assets acquired as the value of those assets is more readily determinable than the fair value of assets disposed.  This value will be determined by an independent valuation once the specific HELOCs have been identified.  Based on valuations for similar transactions, management expects the valuation to result in a discount of approximately 1.5% to 2.5%.  Accordingly, the bank has included in the Allowance for Loan Losses as of September 30, 2010 a net recovery of the amount of the sale price of the nonperforming loans less the carrying value ($3.4 million), net of the estimated discount of the HELOCs to be acquired ($1.25 million).  The actual amount of the net recovery may vary when the actual HELOC valuation is performed.  The bank has deposited in escrow cash of approximately $56 million for the close of this transaction.
 
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 three and nine months ending September 30, 2010 and 2009 of Waccamaw Bankshares, Inc.  This discussion should be read in conjunction with the financial statements and related notes included in this report.

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 loss for the quarter ended September 30, 2010 was ($742,996) or ($.12) per weighted average basic share outstanding compared to $331,038 net income or $.06 per weighted average basic share outstanding for the quarter ended September 30, 2009.

On September 30, 2010, Waccamaw Bankshares, Inc. assets totaled $566,067,090 compared to $533,221,072 on December 31, 2009. Net loans on September 30, 2010 were $301,395,076 compared to $340,020,798 on December 31, 2009. Total deposits on September 30, 2010 were $466,186,200 compared to $433,537,959 at the end of 2009. Stockholders’ equity after adjustments for unrealized losses on securities available for sale increased by $2,591,317 resulting in a September 30, 2010 book value of $2.64 per common share, down from $3.09 on December 31, 2009.

Impact of Dodd-Frank Act. >On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) into law. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry in the United States. The Dodd-Frank Act includes, among other things:

 
·
the creation of a Financial Stability Oversight Council to identify emerging systemic risks posed by financial firms, activities and practices, and improve cooperation between federal agencies;

 
·
the creation of a Bureau of Consumer Financial Protection authorized to promulgate and enforce consumer protection regulations relating to financial products, which would affect both banks and non-bank financial companies;

 
·
the establishment of strengthened capital and prudential standards for banks and bank holding companies;

 
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·
enhanced regulation of financial markets, including derivatives and securitization markets;

 
·
the elimination of certain trading activities by banks;

 
·
a permanent increase of the previously implemented temporary increase of FDIC deposit insurance to $250,000 per account, an extension of unlimited deposit insurance on qualifying noninterest-bearing transaction accounts, and an increase in the minimum deposit insurance fund reserve requirement from 1.15% to 1.35%, with assessments to be based on assets as opposed to deposits;

 
·
amendments to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage originations, including originator compensation, minimum repayment standards, and prepayment considerations; and

 
·
new disclosure and other requirements relating to executive compensation and corporate governance.

The Company is unable to predict the extent to which the Dodd-Frank Act or the forthcoming rules and regulations will impact the Company’s business. However, the Company believes that certain aspects of the new legislation, including, without limitation, the additional cost of higher deposit insurance coverage and the costs of compliance with disclosure and reporting requirements and examinations could have a significant impact on the Company’s business, financial condition, and results of opera