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| **UNITED STATES**                                                                                                                                                                                                                       |
| **SECURITIES AND EXCHANGE COMMISSION**                                                                                                                                                                                                  |
| **WASHINGTON,  D.C. 20549**                                                                                                                                                                                                             |
| ** **                                                                                                                                                                                                                              |
| **FORM 10-Q**                                                                                                                                                                                                                           |
| ** **                                                                                                                                                                                                                              |
| x**QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                          |
|                                                                                                                                                                                                                                    |
| **For the  Quarterly Period Ended September 30, 2009**                                                                                                                                                                                  |
|                                                                                                                                                                                                                                    |
| **OR**                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                    |
| o**TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                        |
|                                                                                                                                                                                                                                    |
| **For the  Transition Period from                       to**                                                                   |
|                                                                                                                                                                                                                                    |
| **Commission  file number 000-27719**                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                         |
| **SOUTHERN FIRST  BANCSHARES, INC.**                                                                                                                                                                                                    |
| (Exact name of  registrant as specified in its charter)                                                                                                                                                                                 |
|                                                                                                                                                                                                                                    |
| **South Carolina**                                                                                                                                                                                                                      | **58-2459561** |
| (State or  other jurisdiction of incorporation)                                                                                                                                                                                         | (I.R.S.  Employer Identification No.) |
|                                                                                                                                                                                                                                    |   |
| **100 Verdae  Boulevard, Suite 100**                                                                                                                                                                                                    | ** ** |
| **Greenville,  S.C.**                                                                                                                                                                                                                   | **29606** |
| (Address of  principal executive offices)                                                                                                                                                                                               | (Zip Code) |
|                                                                                                                                                                                                                                    |
| **864-679-9000**                                                                                                                                                                                                                        |
| (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 Exchange Act of 1934 during the preceding	12 months                                                        |
| (or for such shorter period that  the registrant was required to file such reports),  and (2) has been subject to such filing requirements for the past 90  days.  Yes x  No	o                                                |
|                                                                                                                                                                                                                                    |
| 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	besubmitted 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 o  No	o                           |
|                                                                                                                                                                                                                                    |
| Indicate  by check mark whether the registrant is a large accelerated filer, an  accelerated filer, or a non-accelerated filer.  See definitions  of “accelerated filer” and “large accelerated filer” in Rule |
| 12b-2 of the Exchange Act).                                                                                                                                                                                                             |
| Large  accelerated filer   o                                                                                                                                           |  Accelerated filer                   	  o |
| Non-accelerated  filer     o                                                                                                                                      | 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 o No	x                                                                                                     |
|                                                                                                                                                                                                                                    |
| Indicate  the number of shares outstanding of each of the issuer’s classes of common  stock, as of the latest practicable date:  3,078,695  shares of common stock, $.01 par value per share, were                            |
| issued and outstanding as of November 1, 2009.                                                                                                                                                                                          |

 

 

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**PARTI.  CONSOLIDATED FINANCIAL INFORMATION**

**Item1.  Consolidated Financial Statements**

 

***SOUTHERN FIRSTBANCSHARES, INC. AND SUBSIDIARY***

***CONSOLIDATEDBALANCE SHEETS***

*(dollars inthousands, except share data)*

 

|                                              |                                                                                                                                |                                                                 |                                                                     | **September 30,** | ** **    | **December 31,** |
|---------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------|--------------------------------------------------------------------------|-------------------|---------------|------------------|
|                                              |                                                                                                                                |                                                                 |                                                                     | **2009**          | ** **    | **2008**         |
|                                              | (Unaudited)                                                                                                                         |                                                                 | (Audited)                                                                |
| **ASSETS**                                        |                                                                                                                                |                                                                 |                                                                     |
| Cash  and cash equivalents:                       |                                                                                                                                |                                                                 |                                                                     |              |          |
|                                              | Cash  and due from banks                                                                                                            |  $                                                              | 6,916                                                               |              |  $       | 4,360       |
|                                              | Federal  funds sold                                                                                                                 | 21,963                                                          |                                                                     | 8,800        |
|                                              |                                                                                                                                | Total  cash and cash equivalents                                     | 28,879                                                              |              | 13,160   |
| Investment  securities:                           |                                                                                                                                |                                                                 |                                                                     |
|                                              | Investment  securities available for sale                                                                                           | 80,775                                                          |                                                                     | 64,432       |
|                                              | Investment  securities held to maturity (fair value $10,132 and $12,618)                                                            | 9,795                                                           |                                                                     | 12,519       |
|                                              | Other  investments, at cost                                                                                                         | 9,088                                                           |                                                                     | 8,461        |
|                                              |                                                                                                                                | Total  investment securities                                         | 99,658                                                              |              | 85,412   |
| Loans                                             | 569,687                                                                                                                        |                                                                 | 566,607                                                             |
|                                              | Less  allowance for loan losses                                                                                                     | (7,916)                                                              |                                                                     | (7,005)           |
|                                              |                                                                                                                                | Loans,  net                                                          | 561,771                                                             |              | 559,602  |
| Property  and equipment, net                      | 16,120                                                                                                                         |                                                                 | 11,701                                                              |
| Bank  owned life insurance                        | 13,828                                                                                                                         |                                                                 | 13,369                                                              |
| Deferred  income taxes                            | 3,108                                                                                                                          |                                                                 | 3,864                                                               |
| Other  assets                                     | 9,305                                                                                                                          |                                                                 | 5,871                                                               |
|                                              |                                                                                                                                |  Total  assets                                                  |  $                                                                  | 732,669      |          |  $          | 692,979  |
|                                              |                                                                                                                                |                                                                 |                                                                     |              |          |             |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**    |                                                                                                                                |                                                                 |                                                                     |
| Deposits                                          |  $                                                                                                                             | 494,816                                                         |              |  $           | 469,537  |
| Short-term  repurchase agreements                 | 5,000                                                                                                                          |                                                                 | -                                                                   |
| Note  payable                                     | 4,750                                                                                                                          |                                                                 | 15,000                                                              |
| Federal  Home Loan Bank advances and related debt | 149,675                                                                                                                        |                                                            | 149,675                                                             |
| Junior  subordinated debentures                   | 13,403                                                                                                                         |                                                                 | 13,403                                                              |
| Other  liabiliites                                | 4,793                                                                                                                          |                                                                 | 5,578                                                               |
|                                              |                                                                                                                                |                                                                 | Total  liabilities                                                       | 672,437      |          | 653,193     |
|                                              |                                                                                                                                |                                                                 |                                                                     |              |          |             |
| Shareholders’  equity:                       |                                                                                                                                |                                                                 |                                                                     |
|                                              | Preferred  stock, par value $.01 per share, 10,000,000 shares authorized, 17,299  shares issued and outstanding                     | 15,559                                                          |                                                                     | -            |
|                                              | Common  stock, par value $.01 per share, 10,000,000 shares authorized,    3,069,760 and  3,044,863 shares issued and |                                                                 |                                                                     |              |
|                                              |                                                                                                                                | outstanding at September 30, 2009and December 31, 2008, respectively | 31                                                                  |              | 30       |
|                                              | Nonvested  restricted stock                                                                                                         | (17)                                                                 |                                                                     | (27)              |
|                                              | Additional  paid-in capital                                                                                                         | 33,794                                                          |                                                                     | 31,850       |
|                                              | Accumulated  other comprehensive income (loss)                                                                                      | 990                                                             |                                                                     | (1,079)           |
|                                              | Retained  earnings                                                                                                                  | 9,875                                                           |                                                                     | 9,012        |
|                                              |                                                                                                                                |                                                                 | Total  shareholders’ equity                                         | 60,232       |          | 39,786      |
|                                              |                                                                                                                                |                                                                 | Total  liabilities and shareholders’ equity                         |  $           | 732,669  |             |  $ | 692,979  |
|                                                   |                                                                                                                                     |                                                                      |                                                                          |                   |               |                  |  |  |  |  |  |

                                                                                        

See notes toconsolidated financial statements that are an integral part of theseconsolidated statements.

                                                                                        

2

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***SOUTHERN FIRSTBANCSHARES, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOME***

*(dollars inthousands, except share data)*

 

|                                                    |                                                      |                                                 |        |            | **For the three  months ended** | ** **      | **For the nine  months ended** |
|---------------------------------------------------------|-----------------------------------------------------------|------------------------------------------------------|-------------|-----------------|---------------------------------|-----------------|--------------------------------|
|                                                    |                                                      |                                                 |        |            | **September 30,**               | ** **      | **September 30,**              |
|                                                    |                                                      |                                                 |        |            | **2009**                        | ** **      | **2008**                       | ** ** | **2009** | ** ** | **2008** |
|                                                    |                                                      |                                                 |        |            | (Unaudited)                     |
| **Interest  income**                                    |                                                      |                                                 |        |            |                            |            |                           |
|                                                    | Loans                                                     |  $                                              | 7,977  |            |  $                         | 8,720      |                           |  $ | 23,685  |   |  $ | 26,630  |
|                                                    | Investment  securities                                    | 1,129                                           |        | 1,282      |                            | 3,390      |                           | 3,837  |
|                                                    | Federal  funds sold                                       | 9                                               |        | 57         |                            | 17         |                           | 238  |
|                                                    |                                                      | Total  interest income                               | 9,115  |            | 10,059                     |            | 27,092                    |   | 30,705  |
|                                                    |                                                      |                                                 |        |            |                            |            |                           |
| **Interest  expense**                                   |                                                      |                                                 |        |            |                            |            |                           |
|                                                    | Deposits                                                  | 2,386                                           |        | 3,531      |                            | 7,621      |                           | 11,495  |
|                                                    | Borrowings                                                | 1,779                                           |        | 1,685      |                            | 5,141      |                           | 5,195  |
|                                                    |                                                      | Total  interest expense                              | 4,165  |            | 5,216                      |            | 12,762                    |   | 16,690  |
|                                                    | Net  interest income                                      | 4,950                                           |        | 4,843      |                            | 14,330     |                           | 14,015  |
|                                                    | Provision  for loan losses                                | 1,085                                           |        | 650        |                            | 2,810      |                           | 1,950  |
|                                                    |                                                      | Net  interest income after provision for loan losses | 3,865  |            | 4,193                      |            | 11,520                    |   | 12,065  |
|                                                    |                                                      |                                                 |        |            |                            |            |                           |   |   |   |   |
| **Noninterest  income (loss)**                          |                                                      |                                                 |        |            |                            |            |                           |
|                                                    | Loan  fee income                                          | 138                                             |        | 38         |                            | 297        |                           | 126  |
|                                                    | Service  fees on deposit accounts                         | 199                                             |        | 177        |                            | 551        |                           | 468  |
|                                                    | Income  from bank owned life insurance                    | 213                                             |        | 114        |                            | 459        |                           | 312  |
|                                                    | Gain  on sale of securities                               | 34                                              |        | 7          |                            | 34         |                           | 7  |
|                                                    | Other  than temporary impairment on investment securities | -                                               |        | (1,841)         |                            | -          |                           | (1,841) |
|                                                    | Real  estate owned activity                               | (148)                                                |        | (7)             |                            | (152)           |                           | (58) |
|                                                    | Other  income                                             | 97                                              |        | 85         |                            | 277        |                           | 245  |
|                                                    |                                                      | Total  noninterest income (loss)                     | 533    |            | (1,427)                         |            | 1,466                     |   | (741) |
|                                                    |                                                      |                                                 |        |            |                            |            |                           |   |   |   |   |
| **Noninterest  expenses**                               |                                                      |                                                 |        |            |                            |            |                           |
|                                                    | Compensation  and benefits                                | 1,980                                           |        | 1,625      |                            | 5,867      |                           | 5,149  |
|                                                    | Professional  fees                                        | 186                                             |        | 127        |                            | 478        |                           | 368  |
|                                                    | Marketing                                                 | 176                                             |        | 154        |                            | 495        |                           | 450  |
|                                                    | Insurance                                                 | 352                                             |        | 141        |                            | 1,143      |                           | 413  |
|                                                    | Occupancy                                                 | 550                                             |        | 437        |                            | 1,407      |                           | 1,134  |
|                                                    | Data  processing and related costs                        | 358                                             |        | 347        |                            | 1,077      |                           | 1,012  |
|                                                    | Telephone                                                 | 76                                              |        | 50         |                            | 186        |                           | 126  |
|                                                    | Other                                                     | 187                                             |        | 159        |                            | 605        |                           | 560  |
|                                                    |                                                      | Total  noninterest expenses                          | 3,865  |            | 3,040                      |            | 11,258                    |   | 9,212  |
|                                                    |                                                      |                                                 |        |            |                            |            |                           |   |   |   |   |
|                                                    | Income  (loss) before income tax expense                  | 533                                             |        | (274)           |                            | 1,728      |                           | 2,112  |
|                                                    | Income  tax expense (benefit)                             | 109                                             |        | (148)           |                            | 461        |                           | 630  |
|                                                    |                                                      | **Net  income (loss)**                               |  $     | 424        |                            |  $         | (126)                     |   |  $ | 1,267  |   |  $ | 1,482  |
|                                                    |                                                      |                                                 |        |            |                            |            |                           |   |   |   |   |
| Preferred  stock dividend to be paid                    | 218                                                  |                                                 | -      |            | 512                        |            | -                         |
| Dividend  accretion                                     | 127                                                  |                                                 | -      |            | 297                        |            | -                         |
| **Net  income (loss) available to common shareholders** |  $                                                   | 79                                              |        |  $         | (126)                           |            |  $                        | 458  |   |  $ | 1,482  |
| ** **                                              |                                                      |                                                 |        |            |                            |            |                           |
| **Earnings  (loss) per common share**                   |                                                      |                                                 |        |            |                            |            |                           |
|                                                    | Basic                                                     |  $                                              | 0.03   |            |  $                         | (0.04)          |                           |  $ | 0.15  |   |  $ | 0.50  |
|                                                    | Diluted                                                   |  $                                              | 0.03   |            |  $                         | (0.04)          |                           |  $ | 0.15  |   |  $ | 0.47  |
| **Weighted  average common shares outstanding**         |                                                      |                                                 |        |            |                            |            |                           |
|                                                    | Basic                                                     | 3,048,959                                       |        | 3,002,205  |                            | 3,046,228  |                           | 2,984,947  |
|                                                    | Diluted                                                   | 3,109,708                                       |        | 3,002,205  |                            | 3,069,794  |                           | 3,175,274  |
|                                                         |                                                           |                                                      |             |                 |                                 |                 |                                |  |  |  |  |  |  |  |  |  |

 

See notes toconsolidated financial statements that are an integral part of these consolidatedstatements.

 

3

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***SOUTHERN  FIRSTBANCSHARES, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009  AND 2008****(Unaudited)*

*(dollars inthousands, except share data)*

 

| ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **     | ** ** | **Accumulated** | ** ** | ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------|------------|------------|------------|------------|------------|------------|---------------|------------|----------------|------------|-----------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Nonvested** | ** ** | **Additional** | ** ** | ** other** | ** ** | ** ** | ** ** | **Total**
** **

**Common stock**

** **

**Preferred**

** **

**restricted**

** **

**paid-in**

** **

**comprehensive**

** **

**Retained**

** **

**shareholders’**

** **

**Shares**

** **

**Amount**

** **

**stock**

** **

**stock**

** **

**capital**

** **

**income(loss)**

** **

**Earnings**

** **

**equity**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**December  31, 2007**

2,946,456 

 

 $

29 

 

 $

- 

 

 $

(41)

 

 $

31,034 

 

 $

96 

 

 $

7,160 

 

 $

38,278 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net  income

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

1,482 

 

1,482 

Comprehensive  income, net of tax -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Unrealized  holding loss on securities available for sale

- 

 

- 

 

- 

 

- 

 

- 

 

(2,593)

 

- 

 

(2,593)

 

Total  comprehensive income

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

(1,111)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Proceeds  from exercise of stock options and warrants
69,662

 

1 

 

- 

 

- 

 

428

 

- 

 

- 

 

429 

Amortization  of deferred compensation  on restricted stock

- 

 

- 

 

- 

 

11 

 

- 

 

- 

 

- 

 

11 

Compensation  expense related to stock  options, net of tax

- 

 

- 

 

- 

 

- 

 

42

 

- 

 

- 

 

42 

**September  30, 2008**

3,096,118 

 

 $

30 

 

 $

- 

 

 $

(30)

 

 $

31,504 

 

 $

(2,497)

 

 $

8,642 

 

 $

37,649 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**December  31, 2008**

3,044,863 

 

 $

30 

 

 $

- 

 

 $

(27)

 

 $

31,850 

 

 $

(1,079)

 

 $

9,012 

 

 $

39,786 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net   income

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

1,267 

 

1,267 

Comprehensive  income, net of tax -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized  holding gain on  securities available for sale

- 

 

- 

 

- 

 

- 

 

- 

 

2,069 

 

- 

 

2,069 

 

Total  comprehensive income

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

3,336 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred  stock transactions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Proceeds  from issuance of 17,299shares  of preferred stock
- 

 

- 

 

15,856 

 

- 

 

- 

 

- 

 

- 

 

15,856 

 
Proceeds from issuance of common  stock warrants
- 

 

- 

 

- 

 

- 

 

1,418 

 

- 

 

- 

 

1,418 

 

Cash  dividends on Series T preferred at  annual dividend rate of 5%

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

(404)

 

(404)

 

Dividend  accretion

- 

 

- 

 

(297)

 

- 

 

297 

 

- 

 

- 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds  from exercise of stock warrants

24,897

 

1 

 

- 

 

- 

 

150 

 

- 

 

- 

 

151 

Amortization  of deferred compensation  on restricted stock

- 

 

- 

 

- 

 

10 

 

- 

 

- 

 

- 

 

10 

Compensation  expense related to stock  options

- 

 

- 

 

- 

 

- 

 

79 

 

- 

 

- 

 

79 

**September  30, 2009**

**3,069,760 **

** **

** $**

**31 **

** **

** $**

**15,559 **

** **

** $**

**(17)**

** **

** $**

**33,794 **

** **

** $**

**990 **

** **

** $**

**9,875 **

** **

** $**

**60,232 **

 

                                                                                                                             

See notes toconsolidated financial statements that are an integral part of theseconsolidated statements.

4

 

 

***SOUTHERN FIRSTBANCSHARES, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWS***

*(dollars inthousands)*

 

 

 

 

 

 

**For the nine  months ended**

 

 

 

 

 

**September 30,**

 

 

 

 

 

**2009**

** **

**2008**

 

 

 

 

 

(Unaudited)

**Operating  activities**

 

 

 

 

Net  income 

 $

1,267 

 

 $

1,482 

 

 

Adjustments  to reconcile net income to cash provided  by (used for) operating activities:

 

 

 

 

 

 
Provision  for loan losses
2,810 

 

1,950 

 

 
   
Depreciation  and other amortization

494 

 

389 

 

 
   
Accretion  and amortization of securities discounts and premium, net

286 

 

111 

 

 
   
Loss  (gain) on sale of real estate

(4)

 

67 

 

 
   
Write-down  of real estate owned

202 

 

- 

 

 
   
Gain  on sale of investment securities

(34)

 

(7)

 

 
   
Other  than temporary impairment on investment securities

- 

 

1,841 

 

 
   
Compensation  expense related to stock options and grants

89 

 

53 

 

 
   
Increase  in cash surrender value of bank owned life insurance

(459)

 

(312)

 

 
   
Decrease  (increase) in deferred tax asset

(302)

 

17 

 

 
   
Decrease  in other assets, net

243 

 

430 

 

 
   
Increase  (decrease) in other liabilities, net

(784)

 

880 

 

 

 

 

Net  cash provided by operating activities

3,808 

        

6,901 

 

 

 

 

 

 

 

 

**Investing  activities**

 

 

 

 

Increase  (decrease) in cash realized from:

 

 

 

 

 

Origination  of loans, net

(9,242)

 

(55,541)

 

 

Purchase  of property and equipment 

(4,913)

 

(4,918)

 

 

Purchase  of investment securities:

 

 

 

 

 

 

Available  for sale

(37,118)

 

(27,666)

 

 

      

Other  investments

(894)

 

(909)

 

 

Payments  and maturity of investment securities:

 

 

 

 

 

 

Available  for sale

23,675 

 

17,130 

 

 

 

Held  to maturity

2,698 

 

1,936 

 

 

 

Other  investments

266 

 

1,125 

 

 

Purchase  of life insurance policies

- 

 

(2,500)

 

 

Proceeds  from sale of real estate acquired in settlement of loans

389 

 

47 

 

 

 

 

Net  cash used for investing activities

(25,139)

 

(71,296)

 

 

 

 

 

 

 

 

**Financing  activities**

 

 

 

 

Increase  (decrease) in cash realized from:

 

 

 

 

 

Increase  in deposits, net

25,279 

 

65,007 

 

 

Increase  in short-term repurchase agreements, net

5,000 

 

- 

 

 

Decrease  in note payable

(10,250)

 

- 

 

 

Increase  in Federal Home Loan Bank advances and related debt

- 

 

3,180 

 

 

Proceeds  from the issuance of preferred stock

15,856 

 

- 

 

 

Proceeds  from the issuance of stock warrant

1,418 

 

- 

 

 

Cash  dividend on preferred stock

(404)

 

- 

 

 

Proceeds  from the exercise of stock options and warrants

151 

 

429 

 

 

 

 

Net  cash provided by financing activities

37,050 

 

68,616 

 

 

 

 

Net  increase in cash and cash equivalents

15,719 

 

4,221 

**Cash  and cash equivalents at beginning of  the period**

13,160 

 

16,971 

**Cash  and cash equivalents at end of the period**

$

28,879 

 

$

21,192 

** **

** **

 

 

 

 

 

 

**Supplemental  information**

 

 

 

 

**Cash  paid for**

 

 

 

 

 

Interest  

$

13,052 

 

$

17,366 

 

 

Income  taxes 

$

605 

   

$

1,317 

    **Schedule of non-cash transactions**

 

 

 

 

 

Real  estate acquired in settlement of loans

$

4,263 

 

$

1,907 

 

 

Unrealized  gain (loss) on securities, net of income taxes 

$

2,069 

 

$

(2,593)

 

See notes toconsolidated financial statements that are an integral part of theseconsolidated statements.

 

5

 

 

***SOUTHERN FIRSTBANCSHARES, INC.  AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS***

**NOTE1.  Nature of Business and Basis of Presentation**

 

*Businessactivity*

 

***Southern FirstBancshares, Inc.*** (the “Company”) is a South Carolina corporation that owns all of the capitalstock of Southern First Bank, N.A. (the “Bank”) and all of the stock ofGreenville First Statutory Trust I and II (collectively (the “Trusts”)).  OnJuly 2, 2007, the Company and Bank changed their names to Southern FirstBancshares, Inc. and Southern First Bank, N.A., respectively.  The Bank is anational bank organized under the laws of the United States located inGreenville County, South Carolina.  The Bank is primarily engaged in thebusiness of accepting demand deposits and savings deposits insured by theFederal Deposit Insurance Corporation (the “FDIC”), and providing commercial,consumer and mortgage loans to the general public.  The Trusts are specialpurpose subsidiaries organized for the sole purpose of issuing trust preferredsecurities.  

 

*Basisof Presentation*

 

The accompanyingfinancial statements have been prepared in accordance with generally acceptedaccounting principles for interim financial information and with theinstructions to Form 10-Q.  Accordingly, they do not include all theinformation and footnotes required by accounting principles generally acceptedin the United States of America for complete financial statements.  In theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended September 30, 2009are not necessarily indicative of the results that may be expected for the yearending December 31, 2009.  For further information, refer to the consolidatedfinancial statements and footnotes thereto included in the company’s Form 10-Kfor the year ended December 31, 2008 (Registration Number 000-27719) as filedwith the Securities and Exchange Commission.  The consolidated financialstatements include the accounts of Southern First Bancshares, Inc., and itswholly owned subsidiary Southern First Bank, N.A.  In accordance with FinancialAccounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)810, “Consolidation,” the financial statements related to the special purposesubsidiaries, Greenville First Statutory Trust I and Trust II, have not beenconsolidated.

 

*Cashand Cash Equivalents*

 

For purposes ofthe Consolidated Statements of Cash Flows, cash and federal funds sold areincluded in “cash and cash equivalents.”  These assets have contractualmaturities of less than three months.

 

*Reclassifications*

 

Certain amounts,previously reported, have been reclassified to state all periods on acomparable basis that had no effect on shareholders’ equity or net income.

 

*SubsequentEvents*

 

In accordancewith FASB ASC 855, “Subsequent Events,” issued in May 2009 and effective forperiods ending after June 15, 2009, management performed an evaluation todetermine whether or not there have been any subsequent events since thebalance sheet date.  The evaluation was performed through November 4,2009, the date on which the Company’s 10-Q was issued as filed with theSecurities and Exchange Commission.

 

**NOTE2.  Note Payable**

 

The Company hada $4.8 million term note with Silverton Bridge Bank, N.A. (“Silverton”) at September30, 2009.  The note matures on April 30, 2014 and bears interest at the primerate plus 0.5% with a floor rate of 4.0%.  The Company has pledged all of thestock of the Bank as collateral for this note. The loan agreement containsvarious financial covenants related to net income and asset quality.

 

 

 

6

 
**NOTE3.  Preferred Stock Issuance**
**           **On February 27,2009, as part of the Treasury Department's Capital Purchase Program (“CPP”),the Company entered into a Letter Agreement and a Securities Purchase Agreement(collectively, the “CPP Purchase Agreement”) with the Treasury Department,pursuant to which the Company sold 17,299 shares of its Fixed Rate CumulativePerpetual Preferred Stock, Series T (the “Series T Preferred Stock”) and awarrant (the “CPP Warrant”) to purchase 330,554 shares of the Company’s common stockfor an aggregate purchase price of $17.3 million in cash.  The Series TPreferred Stock qualifies as Tier 1 capital and is entitled to cumulativedividends at a rate of 5% per annum for the first five years, and 9% per annumthereafter.  The Company must consult with the Office of the Comptroller of theCurrency (“OCC”) before it may redeem the Series T Preferred Stock but,contrary to the original restrictions in the Emergency Economic StabilizationAct of 2008 (the "EESA"), will not necessarily be required to raiseadditional equity capital in order to redeem this stock.   The CPP Warrant hasa 10-year term and is immediately exercisable upon its issuance, with anexercise price, subject to anti-dilution adjustments equal to $7.85 per shareof the common stock.  The fair value allocation of the $17.3 million betweenthe shares of Series T Preferred Stock and the CPP Warrant resulted in $15.9million allocated to the shares of Series T Preferred Stock and $1.4 millionallocated to the CPP Warrant.  

**NOTE4.  Earnings per Common Share**

             The following schedule reconciles the numerators and denominatorsof the basic and diluted earnings per share computations for the three and ninemonth periods ended September 30, 2009 and 2008 (dollars in thousands, exceptshare data).  Dilutive common shares arisefrom the potentially dilutive effect of the company’s stock options andwarrants that are outstanding.  The assumed conversion of stock options andwarrants can create a difference between basic and dilutive net income percommon share.  

            

             At September 30, 2009 and2008, 442,079 and 59,750 options and warrants, respectively, were anti-dilutivein the calculation of earnings per share as their exercise price exceeded thefair market value.

            

 

**Three months  ended September 30,**

 

**2009**

** **

**2008**

Numerator:

 

 

 

 

 Net  income (loss)

 $

424 

 

 $

(126)

     

  Less:  

Preferred  stock dividends to be paid

218 

 

- 

         

Dividend  accretion (1)

127 

 

- 

 

Net  income (loss) available to common shareholders

$

79 

 

$

(126)

 

 

 

 

Denominator:

 

 

 

 

Weighted-average  common shares outstanding – basic 

3,048,959 

 

3,002,205 

 

Common  stock equivalents

60,749 

 

- 

 

Weighted-average  common shares outstanding – diluted 

3,109,708 

 

3,002,205 

 

 

 

 

Earnings  (loss) per common share:

 

 

 

 

Basic

 $

0.03 

 

 $

(0.04)

   

Diluted

 $

0.03 

 

 $

(0.04)

 

 

**Nine months  ended September 30,**

 

**2009**

 

**2008**

Numerator:

 

 

 

 

 Net  income

 $

1,267 

 

 $

1,482 

     

     Less:  

Preferred  stock dividends to be paid

512 

 

- 

         

Dividend  accretion (1)

297 

 

- 

 

Net  income available to common shareholders

$

458 

 

$

1,482 

 

 

 

 

Denominator:

 

 

 

 

Weighted-average  common shares outstanding – basic 

3,046,228 

 

2,984,947 

 

Common  stock equivalents

23,566 

 

190,327 

 

Weighted-average  common shares outstanding – diluted 

3,069,794 

 

3,175,274 

 

 

 

 

Earnings  per common share:

 

 

 

 

Basic

 $

0.15

 

 $

0.50 

   

Diluted

 $

0.15

 

 $

0.47 

                                                              

                                                    

                                                    (1) Preferred stock dividend required tobe accreted over estimated life of warrant issued in conjunction with preferredstock.

** **

7

 

**NOTE5.  Stock Based Compensation**

 

The Company hasa stock-based employee compensation plan.  On January 1, 2006, the Companyadopted the fair value recognition provisions of FASB ASC 718, “Compensation –Stock Compensation,” to account for compensation costs under its stock optionplan.  

 

In adopting FASBASC 718, the Company elected to use the modified prospective method to accountfor the transition from the intrinsic value method to the fair valuerecognition method.  Under the modified prospective method, compensation costis recognized from the adoption date forward for all new stock options grantedand for any outstanding unvested awards as if the fair value method had beenapplied to those awards as of the date of grant.             

     

The fair value ofthe option grant is estimated on the date of grant using the Black-Scholesoption-pricing model.  The following assumptions were used for grants: expectedvolatility of 26.76% for 2009 and 2008, risk-free interest rate of 3.72% for2009 and 2008, expected lives of the options were 10 years, and the assumeddividend rate was zero.  

 

**NOTE6.  Fair Value Accounting**

 

EffectiveJanuary 1, 2008, the Company adopted FASB ASC 820, “Fair Value Measurement andDisclosures,” which provides a framework for measuring and disclosing fairvalue under generally accepted accounting principles. FASB ASC 820 requiresdisclosures about the fair value of assets and liabilities recognized in thebalance sheet in periods subsequent to initial recognition, whether themeasurements are made on a recurring or on a nonrecurring basis. 

 

As of June 30,2009, the Company adopted FASB ASC 820, “Fair Value Measurement and Disclosures,”“Determining Fair Value When the Volume and Level of Activity for the Asset orLiability Have Significantly Decreased and Identifying Transactions That AreNot Orderly.”  FASB ASC 820, “Fair Value Measurement and Disclosures,” isintended to determine the fair value when there is no active market or wherethe inputs being used represent distressed sales.  

 

FASB ASC 820, “FairValue Measurement and Disclosures,” defines fair value as the exchange pricethat would be received for an asset or paid to transfer a liability (an exitprice) in the principal or most advantageous market for the asset or liabilityin an orderly transaction between market participants on the measurement date. FASBASC 820 also establishes a fair value hierarchy which requires an entity tomaximize the use of observable inputs and minimize the use of unobservableinputs when measuring fair value. The standard describes three levels of inputsthat may be used to measure fair value:

 

**Level 1**

Quoted prices inactive markets for identical assets or liabilities. Level 1 assets andliabilities include certain debt and equity securities and derivative contractsthat are traded in an active exchange market. 

 

**Level 2**

Observableinputs other than Level 1 prices such as quoted prices for similar assets orliabilities; quoted prices in markets that are not active; or other inputs thatare observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities. Level 2 assets and liabilitiesinclude fixed income securities and mortgage-backed securities that are held inthe Company’s available-for-sale portfolio, certain derivative contracts andimpaired loans.

 

**Level 3**

Unobservableinputs that are supported by little or no market activity and that aresignificant to the fair value of the assets or liabilities. Level 3 assets andliabilities include financial instruments whose value is determined usingpricing models, discounted cash flow methodologies, or similar techniques, as wellas instruments for which the determination of fair value requires significantmanagement judgment or estimation.  These methodologies may result in asignificant portion of the fair value being derived from unobservable data. 

 

8

 
                Following is adescription of valuation methodologies used for assets recorded at fair value.
 

*Investment Securities*

 

*               *Securities available for sale are valued on a recurring basis at quotedmarket prices where available.  If quoted market prices are not available,fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the NewYork Stock Exchange or U.S. Treasury securities that are traded by dealers orbrokers in active over-the-counter markets and money market funds.  Level2 securities include mortgage-backed securities and debentures issued bygovernment sponsored entities, municipal bonds and corporate debtsecurities.  In certain cases where there is limited activity or lesstransparency around inputs to valuations, securities are classified as Level 3within the valuation hierarchy.  Securities held to maturity are valued atquoted market prices or dealer quotes similar to securities available forsale.  The carrying value of Other Investments, such as Federal ReserveBank and Federal Home Loan Bank stock, approximates fair value based on theirredemption provisions.

 

*Loans*

* *

The Company does not record loans at fair value on a recurring basis.However, from time to time, a loan may be considered impaired and an allowancefor loan losses may be established.  Loans for which it is probable thatpayment of interest and principal will not be made in accordance with thecontractual terms of the loan agreement are considered impaired. Once a loan isidentified as individually impaired, management measures impairment inaccordance with FASB ASC 310, “Receivables.” The fair value of impaired loansis estimated using one of several methods, including collateral value, marketvalue of similar debt, enterprise value, liquidation value and discounted cashflows.  Those impaired loans not requiring an allowance represent loansfor which the fair value of the expected repayments or collateral exceed the recordedinvestments in such loans.  At September 30, 2009, substantially allof the impaired loans were evaluated based on the fair value of thecollateral.  In accordance with FASB ASC 820, “Fair Value Measurementand Disclosures,” impaired loans where an allowance is established basedon the fair value of collateral require classification in the fair valuehierarchy.  When the fair value of the collateral is based on anobservable market price or a current appraised value, the Company considers theimpaired loan as nonrecurring Level 2. When an appraised value is not availableor management determines the fair value of the collateral is further impairedbelow the appraised value and there is no observable market price, the Companyconsiders the impaired loan as nonrecurring Level 3.

 

*Other Real Estate Owned (“OREO”)*

* *

OREO, consisting of properties obtained through foreclosure or insatisfaction of loans, is reported at the lower of cost or fair value,determined on the basis of current appraisals, comparable sales, and otherestimates of value obtained principally from independent sources, adjusted forestimated selling costs (Level 2).  At the time of foreclosure, any excessof the loan balance over the fair value of the real estate held as collateralis treated as a charge against the allowance for loan losses.  Gains orlosses on sale and generally any subsequent adjustments to the value arerecorded as a component of OREO expense.

 

*Assets and Liabilities Recorded at Fair Value on aRecurring Basis*

* *

The table below presents the recorded amount of assets and liabilitiesmeasured at fair value on a recurring basis as of September 30, 2009 (dollarsin thousands).

 

 

**Quoted market  price**

** **

**Significant  other**

** **

**Significant**

 

**in active  markets**

** **

**observable  inputs**

** **

**unobservable  inputs**

 

**(Level 1)**

** **

**(Level 2)**

** **

**(Level 3)**

Securities  available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Government  sponsored enterprises

 $

- 

 

 

 $

7,497 

 

 

 $

- 

 

 

State  and political subdivisions

 

- 

 

 

 

4,018 

 

 

 

- 

 

 

Mortgage-backed  securities

 

- 

 

 

 

62,468 

 

 

 

6,792 

 

Other  investments

 

- 

 

 

 

- 

 

 

 

9,088 

 

 

 

 

 

 

 

     Total

 $

- 

 

 

 $

73,983 

 

 

 $

15,880 

 

 

The Company hasno liabilities carried at fair value or measured at fair value on a recurringor nonrecurring basis. 

 

9

 

 

The table belowpresents a reconciliation for the period of January 1, 2009 to September 30,2009, for all Level 3 assets that are measured at fair value on a recurringbasis (dollars in thousands).

 

 

 

**Collateralized**

** **

** **

 

 

**mortgage**

** **

**Other**

 

 

**obligations**

** **

**investments**

 

 

 

 

 

 

 

Beginning  balance

 

 $

5,213 

 

 $

8,461 

Total  realized and unrealized gains or losses:

 

 

 

 

    Included in earnings

 

- 

 

- 

    Included in other comprehensive income

 

2,259 

 

- 

Purchases,  sales and principal reductions

 

(680)

 

627 

Transfers  in and/or out of Level 3

 

- 

 

- 

Ending  Balance

 

 $

6,792 

 

 $

9,088 

 

*Assets and Liabilities Recorded at Fair Value on a NonrecurringBasis*

 

The Company ispredominantly an asset based lender with real estate serving as collateral onapproximately 78.7% of loans. Loans which are deemed to be impaired and realestate acquired in settlement of loans are valued on a nonrecurring basis atthe lower of cost or market value of the underlying real estate collateral.Such market values are generally obtained using independent appraisals, whichthe Company considers to be level 2 inputs.  The tablebelow presents the recorded amount of assets and liabilities measured at fairvalue on a nonrecurring basis as of September 30, 2009 (dollars in thousands).

 

 

**Quoted market  price**

** **

**Significant  other**

** **

**Significant**

 

**in active markets**

** **

**observable  inputs**

** **

**unobservable  inputs**

 

**(Level 1)**

** **

**(Level 2)**

** **

**(Level 3)**

 

 

 

 

 

 

 

 

 

 

 

 

Impaired  loans

 $

- 

 

 

 $

9,876 

 

 

 $

- 

 

Other  Real Estate Owned

 

- 

 

 

 

4,093 

 

 

 

- 

 

 

*Fair Value of Financial Instruments*

* *

FASB ASC 825, “FinancialInstruments,” requires disclosure of fair value information, whether or notrecognized in the consolidated balance sheets, when it is practical to estimatethe fair value.  FASB ASC 825 defines a financial instrument as cash, evidenceof an ownership interest in an entity or contractual obligations which requirethe exchange of cash or other financial instruments.  Certain items arespecifically excluded from the disclosure requirements, including the Company’scommon stock, premises and equipment and other assets and liabilities.

 

Following is adescription of valuation methodologies used to estimate fair value for certain otherfinancial instruments.

 

Fair valueapproximates carrying value for the following financial instruments due to the short-termnature of the instrument: cash and due from banks, federal funds sold, federalfunds purchased, securities sold under agreement to repurchase.  

 

*Bank Owned LifeInsurance*- The cash surrender value of bank owned life insurance policies held by theBank approximates fair values of the policies.

 

*DepositLiabilities*- Fair value for demand deposit accounts and interest-bearing accounts with nofixed maturity date is equal to the carrying value.  The fair value ofcertificate of deposit accounts are estimated by discounting cash flows fromexpected maturities using current interest rates on similar instruments.

 

*FHLB Advancesand Other Borrowings*-Fair value for FHLB advances and other borrowings are estimated by discountingcash flows from expected maturities using current interest rates on similarinstruments.

 

The Company hasused management’s best estimate of fair value based on the above assumptions. Thus, the fair values presented may not be the amounts that could be realizedin an immediate sale or settlement of the instrument.  In addition, any incometaxes or other expenses, which would be incurred in an actual sale orsettlement, are not taken into consideration in the fair value presented.

 

10

 

 

The estimated fair values of theCompany’s financial instruments at September 30, 2009 and December 31, 2008 areas follows:

 

** **

** **

**September 30,  2009**

** **

**December 31,  2008**

** **

** **

**Carrying**

** **

**Fair**

** **

**Carrying**

** **

**Fair**

** **

** **

**Amount**

** **

**Value**

** **

**Amount**

** **

**Value**

**Financial  Assets:**

 

 

 

 

 

 

 

 

Cash  and cash equivalents  

 $

28,879 

 

$

28,879 

 

 $

13,160 

 

 $

13,160 

 

Investment  securities available for sale      

80,775   

 

80,775 

 

64,432     

 

64,432 

 

Investment  securities held to maturity        

9,795 

 

10,132 

 

12,519 

 

12,618 

 

Other  investments     

9,088 

 

9,088 

 

8,461 

 

8,461 

 

Loans,  net

561,771 

 

571,789 

 

559,602 

 

564,573 

 

Bank  owned life insurance

13,828 

 

13,828 

 

13,369 

 

13,369 

 

 

 

 

 

 

 

 

 

**Financial  Liabilities:**

 

 

 

 

 

 

 

 

Deposits

494,816 

 

465,129 

 

469,537 

 

447,427 

 

Short-term  repurchase agreements

5,000 

 

5,000 

 

- 

 

- 

 

Federal  Home Loan Bank advances and related debt

149,675 

 

167,994 

 

149,675 

 

158,216 

 

Note  payable

4,750 

 

4,875 

 

15,000 

 

15,000 

 

Junior  subordinated debentures

13,403 

 

13,403 

 

13,403 

 

13,403 

 

 

**Item2.  Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

 

*The following discussion reviews ourresults of operations and assesses our financial condition.  You should readthe following discussion and analysis in conjunction with the accompanyingconsolidated financial statements.  The commentary should be read inconjunction with the discussion of forward-looking statements, the financialstatements and the related notes and the other statistical information includedin this report.*

**DISCUSSION OF FORWARD-LOOKING STATEMENTS**

 

This reportcontains statements which constitute forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. These statements are based on many assumptionsand estimates and are not guarantees of future performance.  Although webelieve that the assumptions underlying the forward-looking statements arereasonable, any of the assumptions could prove to be inaccurate.  Therefore, wecan give no assurance that the results contemplated in the forward-lookingstatements will be realized.  Our actual results may differ materially fromthose anticipated in any forward-looking statements, as they will depend onmany factors about which we are unsure, including many factors which are beyondour control.  The words “may,”  “would,” “could,” “will,” “expect,”“anticipate,” “believe,” “intend,” “plan,” and “estimate,” as well as similarexpressions, are meant to identify such forward-looking statements.  Potentialrisks and uncertainties that could cause our actual results to differ fromthose anticipated in any forward-looking statements include, but are notlimited to, those described in our Form 10-K for the year ended December 31,2008 under Item 1A- Risk Factors and the following:

 

•  significantincreases in competitive pressure in the banking and financial servicesindustries;

•  changesin the interest rate environment which could reduce anticipated or actualmargins;

•  changesin political conditions or the legislative or regulatory environment; 

•  generaleconomic conditions, either nationally or regionally and especially in ourprimary service area, becoming less favorable than expected resulting in, amongother things, a deterioration in credit quality;

•  changesoccurring in business conditions and inflation;

•  changesin technology;

•  changesin deposit flows;

•  changesin monetary and tax policies;

•  theadequacy of level of our allowance for loan loss;

•  therate of delinquencies and amounts of charge-offs; 

•  therates of loan growth and the lack of seasoning of our loan portfolio;

•  increasedfunding costs due to market illiquidity, increased competition for funding,and/or regulatory requirements;

•  ourability to retain our existing customers, including our deposit relationships;

•  adversechanges in asset quality and resulting credit risk-related losses and expenses;

•  theamount of our real estate-based loans, and the weakness in the commercial realestate market;

•  lossof consumer confidence and economic disruptions resulting from terroristactivities;

 

11

 

 

•  changesin the securities markets; and

•  otherrisks and uncertainties detailed from time to time in our filings with theSecurities and Exchange Commission.

 

We have basedour forward looking statements on our current expectations about futureevents.  Although we believe that the expectations reflected in ourforward-looking statements are reasonable, we cannot guarantee you that theseexpectations will be achieved.  We undertake no obligation to publicly updateor otherwise revise any forward-looking statements, whether as a result of newinformation, future events, or otherwise.

 

These risks areexacerbated by the recent developments in national and international financialmarkets, and we are unable to predict what effect these uncertain marketconditions will have on our Company.  During 2008 and continuing through thethird quarter of 2009, the capital and credit markets experienced unprecedentedlevels of volatility and disruption. There can be no assurance that theseunprecedented developments will not materially and adversely affect ourbusiness, financial condition and results of operations.

 

**Overview**

 

We wereincorporated in March 1999 to organize and serve as the holding company forGreenville First Bank, N.A.  On July 2, 2007, we changed the name of ourcompany and bank to Southern First Bancshares, Inc. and Southern First Bank,N.A., respectively.  Since we opened our bank in January 2000, we haveexperienced growth in total assets, loans, deposits, and shareholders’ equity. 

 

Like mostcommunity banks, we derive the majority of our income from interest received onour loans and investments.  Our primary source of funds for making these loansand investments is our deposits, on which we pay interest.  Consequently, oneof the key measures of our success is our amount of net interest income, or thedifference between the income on our interest-earning assets, such as loans andinvestments, and the expense on our interest-bearing liabilities, such asdeposits and borrowings.  Another key measure is the spread between the yieldwe earn on these interest-earning assets and the rate we pay on ourinterest-bearing liabilities, which is called our net interest spread. 

 

There are risksinherent in all loans, so we maintain an allowance for loan losses to absorbprobable losses on existing loans that may become uncollectible.  We maintainthis allowance by charging a provision for loan losses against our operatingearnings for each period.  We have included a detailed discussion of this process,as well as several tables describing our allowance for loan losses.

 

In addition toearning interest on our loans and investments, we earn income through fees andother charges to our customers.  We have also included a discussion of thevarious components of this noninterest income, as well as of our noninterestexpense.

 

Economicconditions, competition, and the monetary and fiscal policies of the Federalgovernment significantly affect most financial institutions, including SouthernFirst. Lending and deposit activities and fee income generation are influencedby levels of business spending and investment, consumer income, consumerspending and savings, capital market activities, and competition amongfinancial institutions, as well as customer preferences, interest rateconditions and prevailing market rates on competing products in our marketareas. 

 

Our businessmodel continues to be client-focused, utilizing relationship teams to provideour clients with a specific banker contact and support team responsible for allof their banking needs.  The purpose of this structure is to provide aconsistent and superior level of professional service, and we believe itprovides us with a distinct competitive advantage.  We consider exceptionalclient service to be a critical part of our culture, which we refer to as“ClientFIRST.” 

 

The followingdiscussion and analysis also identifies significant factors that have affectedour financial position and operating results during the periods included in theaccompanying financial statements.  We encourage you to read this discussionand analysis in conjunction with our financial statements and the otherstatistical information included in our filings with the Securities andExchange Commission.

 

**CriticalAccounting Policies**

 

We have adoptedvarious accounting policies that govern the application of accountingprinciples generally accepted in the United States and with general practiceswithin the banking industry in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to ouraudited consolidated financial statements as of December 31, 2008, as filed inour Annual Report on Form 10-K.

 

12

 

 

Certainaccounting policies involve significant judgments and assumptions by us thathave a material impact on the carrying value of certain assets andliabilities.  We consider these accounting policies to be critical accountingpolicies.  The judgment and assumptions we use are based on historicalexperience and other factors, which we believe to be reasonable under thecircumstances.  Because of the nature of the judgment and assumptions we make,actual results could differ from these judgments and estimates that could havea material impact on the carrying values of our assets and liabilities and ourresults of operations.

 

***Allowance forLoan Losses***

*** ***

We believe theallowance for loan losses is the critical accounting policy that requires themost significant judgment and estimates used in preparation of our consolidatedfinancial statements.  Some of the more critical judgments supporting theamount of our allowance for loan losses include judgments about the creditworthiness of borrowers, the estimated value of the underlying collateral,assumptions about cash flow, determination of loss factors for estimatingcredit losses, and the impact of current events, conditions, and other factorsimpacting the level of probable inherent losses.  Under different conditions,the actual amount of credit losses incurred by us may be different frommanagement’s estimates provided in our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loanlosses for a more complete discussion of our processes and methodology fordetermining our allowance for loan losses.

 

***                RealEstate Acquired in Settlement of Loans***

 

                Realestate acquired through foreclosure is initially recorded at the lower of costor estimated fair value.  Subsequent to the date of acquisition, it is carriedat the lower of cost or fair value, adjusted for net selling costs.  Fairvalues of real estate owned are reviewed regularly and writedowns are recordedwhen it is determined that the carrying value of real estate exceeds the fairvalue less estimated costs to sell.  Costs relating to the development andimprovement of such property are capitalized, whereas those costs relating toholding the property are expensed.

 
*                Income Taxes*
 

The financial statements have beenprepared on the accrual basis.  When income and expenses are recognized indifferent periods for financial reporting purposes versus for the purposes ofcomputing income taxes currently payable, deferred taxes are provided on suchtemporary differences.  The Company accounts for income taxes in accordancewith SFAS No. 109, “Accounting for Income Taxes” and FASB Interpretation No. 48(“FIN 48”), “*Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109**.”* Under SFAS No. 109 and FIN 48, deferred tax assets and liabilities arerecognized for the expected future tax consequences of events that have beenrecognized in the consolidated financial statements or tax returns.  Deferredtax assets and liabilities are measured using the enacted tax rates expected toapply to taxable income in the years in which those temporary differences areexpected to be realized or settled.  The Company believes that its income tax filing positionstaken or expected to be taken in an its tax returns will more likely than not be sustained upon audit by thetaxing authorities and does not anticipate any adjustments that will result ina material adverse impact on the Company’s financial condition, results ofoperations, or cash flow. Therefore, no reserves for uncertain income taxpositions have been recorded pursuant to FIN 48. 

 

**Effectof Economic Trends**

 

Thefirst nine months of 2009 continue to reflect the tumultuous economicconditions which have negatively impacted liquidity and credit quality.Concerns regarding increased credit losses from the weakening economy havenegatively affected capital and earnings of most financial institutions.Financial institutions have experienced significant declines in the value ofcollateral for real estate loans, heightened credit losses, which have resultedin record levels of non-performing assets, charge-offs and foreclosures. Inaddition, certain financial institutions failed or merged with otherinstitutions during 2008 and during the first nine months of 2009, and two ofthe government sponsored housing enterprises were placed into conservatorshipwith the U.S. Government. 

 

Liquidity in thedebt markets remains low in spite of efforts by the U.S. Department of theTreasury (“Treasury”) and the Federal Reserve Bank (“Federal Reserve”) toinject capital into financial institutions. The federal funds rate set by theFederal Reserve has remained at 0.25% since December 2008, following adecline from 4.25% to 0.25% during 2008 through a series of seven ratereductions. 

 

13

 

 

Treasury, theFDIC and other governmental agencies continue to enact rules and regulations toimplement the EESA, the Troubled Asset Relief Program (“TARP”), the FinancialStability Plan, the American Recovery and Reinvestment Act (“ARRA”) and relatedeconomic recovery programs, many of which contain limitations on the ability offinancial institutions to take certain actions or to engage in certainactivities if the financial institution is a participant in the TARP CapitalPurchase Program or related programs. Future regulations, or enforcement of theterms of programs already in place, may require financial institutions to raiseadditional capital and result in the conversion of preferred equity issuedunder TARP or other programs to common equity. There can be no assurance as tothe actual impact of the EESA, the FDIC programs or any other governmentalprogram on the financial markets. 

 

The weakeconomic conditions are expected to continue through the remainder of 2009.Financial institutions likely will continue to experience heightened creditlosses and higher levels of non-performing assets, charge-offs andforeclosures. In light of these conditions, financial institutions also faceheightened levels of scrutiny from federal and state regulators. These factorsnegatively influenced, and likely will continue to negatively influence,earning asset yields at a time when the market for deposits is intenselycompetitive. As a result, financial institutions experienced, and are expectedto continue to experience, pressure on credit costs, loan yields, deposit and otherborrowing costs, liquidity, and capital. 

 

**RecentLegislative and Regulatory Initiatives to Address Financial and Economic Crises**

 

Markets in theUnited States and elsewhere have experienced extreme volatility and disruptionfor more than 12 months.  These circumstances have exerted significant downwardpressure on prices of equity securities and virtually all other asset classes,and have resulted in substantially increased market volatility, severelyconstrained credit and capital markets, particularly for financialinstitutions, and an overall loss of investor confidence.  Loan portfolioperformances have deteriorated at many institutions resulting from, among otherfactors, a weak economy and a decline in the value of the collateral supportingtheir loans.  Dramatic slowdowns in the housing industry, due in part tofalling home prices and increasing foreclosures and unemployment, have createdstrains on financial institutions.  Many borrowers are now unable to repaytheir loans, and the collateral securing these loans has, in some cases,declined below the loan balance.   In response to the challenges facing thefinancial services sector, several regulatory andgovernmental actions have recently been announced including:

 

•  TheEESA, approved by Congress and signed by President Bush on October 3, 2008,which, among other provisions, allowed the Treasury Department to purchasetroubled assets from banks, authorized the Securities and Exchange Commissionto suspend the application of marked-to-market accounting, and raised the basiclimit of FDIC deposit insurance from $100,000 to $250,000 through December 31,2013;

 

•  OnOctober 7, 2008, the FDIC approved a plan to increase the rates banks pay fordeposit insurance;

 

•  OnOctober 14, 2008, the U.S. Treasury announced the creation of the CPP whichencourages and allows financial institutions to build capital through the saleof senior preferred shares to the Treasury Department on terms that arenon-negotiable; 

 

•  OnOctober 14, 2008, the FDIC announced the creation of the Temporary LiquidityGuarantee Program (“TLGP”), which seeks to strengthen confidence and encourageliquidity in the banking system.  The TLGP has two primary components that areavailable on a voluntary basis to financial institutions:

 

•       TheTransaction Account Guarantee Program (“TAGP”), which provides unlimiteddeposit insurance coverage for noninterest-bearing transaction accounts(typically business checking accounts) and certain funds swept intononinterest-bearing savings accounts.  The FDIC has extended the TAGP untilJune 30, 2010.  Institutions participating in the TLGP pay a 10 basis pointsfee (annualized) on the balance of each covered account in excess of $250,000,while the extra deposit insurance is in place;

 

•       TheDebt Guarantee Program (“DGP”), under which the FDIC guarantees certain seniorunsecured debt of FDIC-insured institutions and their holding companies.  Theunsecured debt must be issued on or after October 14, 2008 and not later thanJune 30, 2009, and the guarantee is effective through the earlier of thematurity date or June 30, 2012.  The DGP coverage limit is generally 125% ofthe eligible entity’s eligible debt outstanding on September 30, 2008 andscheduled to mature on or before June 30, 2009 or, for certain insured institutions,2% of their liabilities as of September 30, 2008.  Depending on the term of thedebt maturity, the nonrefundable DGP fee ranges from 50 to 100 basis points(annualized) for covered debt outstanding until the earlier of maturity or June30, 2012.  The TAGP and DGP are in effect for all eligible entities, unless theentity opted out on or before December 5, 2008.

 

•  OnFebruary 17, 2009, the American Recovery and Reinvestment Act (“ARRA”) wassigned into law in an effort to, among other things, create jobs and stimulategrowth in the United States economy.  The ARRA specifies appropriations ofapproximately $787 billion for a wide range of Federal programs and willincrease or extend certain benefits payable under the Medicaid, unemploymentcompensation, and nutrition assistance programs.  The Recovery Act also reducesindividual and corporate income tax collections and makes a variety of otherchanges to tax laws.  The ARRA also imposes certain limitations on compensationpaid by participants in the U.S. Treasury's Troubled Asset Relief Program.

 

14

 

 

•  OnMarch 23, 2009, the U.S. Treasury, in conjunction with the FDIC and the FederalReserve, announced the Public-Private Partnership Investment Program for LegacyAssets which consists of two separate plans, addressing two distinct assetgroups: 

 

•       TheLegacy Loan Program facilitates the sale of troubled mortgage loans by eligibleinstitutions, which include FDIC-insured federal or state banks and savingsassociations. Eligible assets may not be strictly limited to loans; however,what constitutes an eligible asset will be determined by participating banks,their primary regulators, the FDIC and the U.S. Treasury. The first sale underthis Program was made in the third quarter of 2009.

 

•       TheSecurities Program, which is administered by the U.S. Treasury, involves thecreation of public-private investment funds to target investments in eligibleresidential mortgage-backed securities and commercial mortgage-backedsecurities issued before 2009 that originally were rated AAA or the equivalentby two or more nationally recognized statistical rating organizations, withoutregard to rating enhancements (collectively, “Legacy Securities”). LegacySecurities must be directly secured by actual mortgage loans, leases or otherassets, and may be purchased only from financial institutions that meet TARPeligibility requirements.

 

In response tothe above regulatory initiatives, we entered into the CPP Purchase Agreementwith the Treasury Department on February 27, 2009, pursuant to which we sold17,299 shares of our Series T Preferred Stock and the CPP Warrant to purchase330,554 shares of our common stock for an aggregate purchase price of $17.3million in cash.  The Series T Preferred Stock qualifies as Tier 1 capital and isentitled to cumulative dividends at a rate of 5% per annum for the first fiveyears, and 9% per annum thereafter.  We must consult with the OCC before we mayredeem the Series T Preferred Stock but, contrary to the original restrictionsin the EESA, will not necessarily be required to raise additional equitycapital in order to redeem this stock.   The CPP Warrant has a 10-year term andis immediately exercisable upon its issuance, with an exercise price, subjectto anti-dilution adjustments equal to $7.85 per share of the common stock.  Thefair value allocation of the $17.3 million between the shares of Series TPreferred Stock and the CPP Warrant resulted in $15.9 million allocated to theshares of Series T Preferred Stock and $1.4 million allocated to the CPPWarrant. 

 

We have chosento participate in the TAGP through June 30, 2010 and have opted out of the DGP.

 

 

**RESULTSOF OPERATIONS**

** **

*Summary*

 

*Three months ended September 30, 2009and 2008     *

 

Our net incomewas $424,000 for the three months ended September 30, 2009, an increase of $550,000,over a net loss of $126,000 for the same period in 2008.  The increase in netincome resulted primarily from the $1.8 million pre-tax impairment charge onFannie Mae preferred stock during the three months ended September 30, 2008. Partially offsetting the impairment charge were increases of $825,000 in noninterestexpenses, $435,000 in provision for loan losses, and $257,000 in income taxexpense.  Our efficiency ratio, excluding real estate owned activity and the impairmentcharge, was 69.1% for the three months ended September 30, 2009 compared to 57.8%for the same period in 2008.  The higher efficiency ratio relates primarily tothe additional FDIC insurance costs during the third quarter of 2009 as well asadministrative costs associated with our two new retail offices.  

 

*Nine months ended September 30, 2009 and2008*

 

Our net incomewas $1.3 million and $1.5 million for the nine months ended September 30, 2009and 2008, respectively, a decrease of $215,000, or 14.5%.  The decrease in netincome resulted primarily from increases of $2.1 million in noninterestexpenses and $860,000 in the provision for loan losses, partially offset byincreases of $315,000 in net interest income and $2.2 million in noninterestincome and a decrease of $169,000 in income tax expense.  Our efficiency ratio,excluding real estate owned activity and the impairment charge, was 70.8% forthe nine months ended September 30, 2009 from 60.8% for the same period in 2008. The higher efficiency ratio relates primarily to the additional FDIC insurancecosts during 2009 as well as administrative costs associated with our two newretail offices.

 

15

 

 

*NetInterest Income*

 

Our level of netinterest income is determined by the level of earning assets and the managementof our net interest margin.  For the three months ended September 30, 2009 and2008, our net interest income was $5.0 million and $4.8 million, respectively. Our average earning assets increased $30.8 million during the three monthsended September 30, 2009 compared to the average for the three months ended September30, 2008, while our interest bearing liabilities increased only $15.4 million. The lesser increase in average interest bearing liabilities is due to theutilization of $17.3 million received for the issuance of preferred stock underthe Treasury’s Capital Purchase Program.  

 

Our net interestincome was $14.3 million and $14.0 million for the nine month periods ended September30, 2009 and 2008, respectively.  During the nine months ended September 30,2009, our average earning assets increased $27.6 million and our averageinterest bearing liabilities increased $21.0 million compared to the ninemonths ended September 30, 2008.  The increase in average earning assets isprimarily related to a $25.2 million increase in our average loans, while theincrease in average interest-bearing liabilities is related to an increase inour time deposits, specifically, wholesale certificates of deposit.

 

We have includeda number of tables to assist in our description of various measures of ourfinancial performance.  For example, the “Average Balances, Income andExpenses, Yields and Rates” table shows the average balance of each category ofour assets and liabilities as well as the yield we earned or the rate we paidwith respect to each category during the three and nine month periods ended September30, 2009 and 2008.  A review of this table shows that our loans typicallyprovide higher interest yields than do other types of interest-earning assets,which is why we direct a substantial percentage of our earning assets into ourloan portfolio.  Similarly, the “Rate/Volume Analysis” table demonstrates theeffect of changing interest rates and changing volume of assets and liabilitieson our financial condition during the periods shown.  We also track thesensitivity of our various categories of assets and liabilities to changes ininterest rates, and we have included tables to illustrate our interest ratesensitivity with respect to interest-earning accounts and interest-bearingaccounts.  Finally, we have included various tables that provide detail aboutour investment securities, our loans, our deposits, and other borrowings.

 

The followingtables set forth information related to our average balance sheets, averageyields on assets, and average costs of liabilities (dollars in thousands).  Wederived these yields by dividing income or expense by the average balance ofthe corresponding assets or liabilities.  We derived average balances from thedaily balances throughout the periods indicated.  During the three month and ninemonth periods ended September 30, 2009 and 2008, we had only $100,000 in interest-bearingdeposits at another bank and had no securities purchased with agreements toresell.  All investments owned have an original maturity of over one year. Nonaccrual loans are included in the following tables.  Loan yields have beenreduced to reflect the negative impact on our earnings of loans on nonaccrualstatus.  The net of capitalized loan costs and fees are amortized into interestincome on loans.

 

** **

** **

**Average  Balances, Income and Expenses, Yields and Rates**

** **

** **

**For the Three  Months Ended September 30,**

** **

** **

**2009**

** **

**2008**

** **

** **

**Average**

** **

**Income/**

** **

**Yield/**

** **

**Average**

** **

**Income/**

** **

**Yield/**

** **

** **

**Balance**

** **

**Expense**

** **

**Rate(1)**

** **

**Balance**

** **

**Expense**

** **

**Rate(1)**

Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal  funds sold

$

18,228 

$

9 

 

0.20%

$

11,684 

$

57 

 

1.94%

 

Investment  securities, taxable

 

96,754 

 

1,093 

 

4.48%

 

90,420 

 

1,246 

 

5.48%

 

Investment  securities, nontaxable (2)

 

3,774 

 

58 

 

6.10%

 

3,689 

 

60 

 

6.44%

 

Loans

 

570,244 

 

7,977 

 

5.55%

 

552,450 

 

8,720 

 

6.28%

 

   Total interest-earning assets

 

689,000 

 

9,137 

 

5.26%

 

658,243 

 

10,083 

 

6.09%

 

Noninterest-earning  assets

 

39,539 

 

 

 

 

 

29,767 

 

 

 

 

 

   Total assets

$

728,539 

 

 

 

 

$

688,010 

 

 

 

 

Interest-bearing  liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW  accounts

$

44,001 

 

77 

 

0.69%

$

41,363 

 

99 

 

0.95%

 

Savings  & money market

 

86,181 

 

241 

 

1.11%

 

91,634 

 

398 

 

1.73%

 

Time  deposits

 

317,059 

 

2,068 

 

2.59%

 

303,476 

 

3,034 

 

3.98%

 

Total  interest-bearing deposits

 

447,241 

 

2,386 

 

2.12%

 

436,473 

 

3,531 

 

3.22%

 

Note  payable and other borrowings

 

164,318 

 

1,681 

 

4.06%

 

159,713 

 

1,513 

 

3.77%

 

Junior  subordinated debentures

 

13,403 

 

98 

 

2.90%

 

13,403 

 

172 

 

5.11%

 

Total  interest-bearing liabilities

 

624,962 

 

4,165 

 

2.64%

 

609,589 

 

5,216 

 

3.40%

 

Noninterest-bearing  liabilities

 

43,436 

 

 

 

 

 

39,368 

 

 

 

 

Shareholders’  equity

 

60,141 

 

 

 

 

 

39,053 

 

 

 

 

 

Total  liabilities and shareholders’ equity

$

728,539 

 

 

 

 

$

688,010 

 

 

 

 

Net  interest spread

 

 

 

 

 

2.62%

 

 

 

 

 

2.69%

Net  interest income (tax equivalent) / margin

 

 

$

4,972 

 

2.86%

 

 

$

4,867 

 

2.94%

Less:   tax-equivalent adjustment (2)

 

 

 

22 

 

 

 

 

 

24 

 

 

Net  interest income

 

 

$

4,950 

 

 

 

 

$

4,843 

 

 
         
     (1) Annualized for the three month period.

     (2) The tax-equivalent adjustment to net interest income adjusts the yield  for assets earning tax-exempt income to a comparable yield on a taxable basis.

 

16

 

 

Our net interestmargin is calculated as net interest income, on an annualized basis, divided byaverage interest-earning assets.  Our net interest margin, on a tax-equivalentbasis, for the three months ended September 30, 2009 was 2.86% compared to 2.94%for the three months ended September 30, 2008.  During the third quarter of2009, interest-earning assets averaged $689.0 million compared to $658.2million in the third quarter of 2009.

  

Our net interestspread was 2.62% for the three months ended September 30, 2009 compared to 2.69%for the three months ended September 30, 2008.  The net interest spread is thedifference between the yield we earn on our interest-earning assets and therate we pay on our interest-bearing liabilities.

 

The 7 basispoint decrease in the net interest spread is primarily due to the fact thatmore of our rate-sensitive assets repriced downward than our rate-sensitive liabilitiesduring the twelve months ended September 30, 2009.  Given the 500 basis point decreasein short-term rates over the past two years, the rates on our new and maturingloans and deposits are much lower than they were in the past.  However, inresponse to the significant decrease in rates, we began instituting interestrate floors on our new and maturing loans during the second half of 2008 andhave recently changed our focus to increasing the amount of variable rate loansin our portfolio.  Our variable rate loans as a percentage of total loansincreased from 42% at September 30, 2008 to 50% at September 30, 2009.  Webelieve that interest rates are at or near their lowest levels and that thischange in focus will position us to benefit from future increases in theshort-term rates.  

 

Despite a 175basis point decline in short-term rates in the past 12 months, our loan yielddecreased only 73 basis points for the three months ended September 30, 2009compared to the three months ended September 30, 2008.  Offsetting the decreasein our loan yield was a 110 basis point decrease in the cost of ourinterest-bearing deposits for the third quarter of 2009 compared to the sameperiod in 2008, primarily related to the cost of our time deposits which have renewedat rates much lower than their original rates.  In addition, our investment andfederal funds sold yields combined decreased by 123 basis points for the 2009period compared to the same three months in 2008.

 

The cost of ourborrowings, specifically our junior subordinated debt, has declined in the thirdquarter of 2009 compared to the same period in 2008 due to the variable ratesof the debt.  As of September 30, 2009, all of our FHLB advances were at fixedrates, while all of our other borrowings, including notes payable and juniorsubordinated debt, had variable rates.

 

The $9.8 millionincrease in average noninterest-earning assets during the three months ended September30, 2009 compared to the same period in 2008 is due primarily to a $6.5 millionincrease in property and equipment related to the construction of our newregional headquarters facility in Columbia, SC.  In addition, the $21.1 millionincrease in average shareholders’ equity during the 2009 period is primarilyrelated to the $17.3 million received for the issuance of preferred stock underthe Treasury’s Capital Purchase Program.

 

17

 

 
 
** **

**Average Balances,  Income and Expenses, Yields and Rates**

** **

** **

**For the Nine  Months Ended September 30,**

** **

** **

**2009**

** **

**2008**

** **

** **

**Average**

** **

**Income/**

** **

**Yield/**

** **

**Average**

** **

**Income/**

** **

**Yield/**

** **

** **

**Balance**

** **

**Expense**

** **

**Rate(1)**

** **

**Balance**

** **

**Expense**

** **

**Rate(1)**

Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal  funds sold

$

12,713 

$

17 

 

0.18%

$

13,805 

$

238 

 

2.30%

 

Investment  securities, taxable

 

95,357 

 

3,282 

 

4.61%

 

91,935 

 

3,729 

 

5.42%

 

Investment  securities, nontaxable  (2)   

 

3,791 

 

174 

 

6.16%

 

3,746 

 

174 

 

6.21%

 

Loans

 

567,921 

 

23,685 

 

5.59%

 

542,729 

 

26,630 

 

6.55%

 

   Total interest earning assets

 

679,782 

 

27,158 

 

5.36%

 

652,215 

 

30,771 

 

6.30%

 

Non-interest  earning assets

 

38,153 

 

 

 

 

 

25,607 

 

 

 

 

 

  Total  assets

$

717,935 

 

 

 

 

$

677,822 

 

 

 

 

Interest  bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW  accounts

$

43,015 

 

220 

 

0.69%

$

39,135 

 

318 

 

1.09%

 

Savings  & money market

 

85,639 

 

723 

 

1.13%

 

90,125 

 

1,331 

 

1.97%

 

Time  deposits

 

317,516 

 

6,678 

 

2.82%

 

300,373 

 

9,846 

 

4.38%

 

Total  interest-bearing deposits

 

446,170 

 

7,621 

 

2.29%

 

429,633 

 

11,495 

 

3.57%

 

Note  payable and other borrowings

 

162,489 

 

4,803 

 

3.96%

 

157,991 

 

4,626 

 

3.91%

 

Junior  subordinated debentures

 

13,403 

 

338 

 

3.38%

 

13,403 

 

569 

 

5.67%

 

Total  interest bearing liabilities

 

622,062 

 

12,762 

 

2.75%

 

601,027 

 

16,690

 

3.71%

 

Non-interest  bearing liabilities

 

40,803 

 

 

 

 

 

37,447 

 

 

 

 

Shareholders’  equity

 

55,070 

 

 

 

 

 

39,348 

 

 

 

 

 

Total  liabilities and shareholders’ equity

$

717,935 

 

 

 

 

$

677,822 

 

 

 

 

Net  interest spread

 

 

 

 

 

2.61%

 

 

 

 

 

2.59%

Net  interest income (tax equivalent) / margin

 

 

$

14,396 

 

2.84%

 

 

$

14,081 

 

2.88%

Less:   tax-equivalent adjustment (2)

 

 

 

66 

 

 

 

 

 

66 

 

 

Net  interest income / margin

 

 

$

14,330 

 

 

 

 

$

14,015 

 

 
            
     (1) Annualized for the nine month period.

     (2) The tax-equivalent adjustment to net interest income adjusts the yield  for assets earning tax-exempt income to a comparable yield on a taxable basis.

 

Our net interestmargin, on a tax-equivalent basis, for the nine months ended September 30, 2009was 2.84% compared to 2.88% for the nine months ended September 30, 2008. During the first nine months of 2009, interest-earning assets averaged $679.8million compared to $652.2 million during the same period of 2008.  Our netinterest spread, was 2.61% for the nine months ended September 30, 2009compared to 2.59% for the nine months ended September 30, 2008.  

 

The slightincrease in the net interest spread is primarily due to the fact that more ofour rate-sensitive liabilities repriced downward than our rate-sensitive assetsduring the twelve months ended September 30, 2009.  Given the 500 basis pointdecrease in short-term rates over the past two years, the rates on our new andmaturing loans and deposits are much lower than they were in the past. However, in response to the significant decrease in rates, we have beguninstituting interest rate floors on our new and maturing loans and haverecently changed our focus to increasing the amount of variable rate loans inour portfolio.  We believe that interest rates are at or near their lowestlevels and that this change in focus will position us to benefit from futureincreases in the short-term rates.

 

Despite a 175basis point decline in short-term rates in the past 12 months, our loan yielddecreased only 96 basis points for the nine months ended September 30, 2009compared to the same period in 2008.  Offsetting the decrease in our loan yieldwas a 128 basis point decrease in the cost of our interest-bearing deposits forthe first nine months of 2009 compared to the nine months ended September 30,2008, primarily related to the cost of our time deposits which have renewed atrates much lower than their original rates.  In addition, our investment andfederal funds sold yields combined decreased by 90 basis points for the 2009period compared to the same three months in 2008.

 

The cost of ourborrowings, specifically our junior subordinated debt, has declined during the ninemonth period ended September 30, 2009 compared to the same period in 2008 dueto the variable rates of the debt.  As of September 30, 2009, all of our FHLBadvances were at fixed rates, while all of our other borrowings, includingnotes payable and junior subordinated debt, had variable rates.

 

18

 

 

The $12.6million increase in noninterest-earning assets during the nine months ended September30, 2009 compared to the same period in 2008 is due primarily to a $6.6 millionincrease in property and equipment related to the construction of our newregional headquarters facility in Columbia, SC as well as increases of $4.0million in bank-owned life insurance and $2.2 million in other real estateowned.  In addition, the $15.7 million increase in average shareholders’ equityduring the 2009 period is primarily related to the $17.3 million received onFebruary 27, 2009 for the issuance of preferred stock under the Treasury’sCapital Purchase Program.

 

*Rate/VolumeAnalysis*

 

Net interestincome can be analyzed in terms of the impact of changing interest rates andchanging volume.  The following tables set forth the effect which the varyinglevels of interest-earning assets and interest-bearing liabilities and theapplicable rates have had on changes in net interest income for the periodspresented (dollars in thousands).

 

** **

**Three Months  Ended**

** **

**September 30,  2009 vs. 2008**

** **

**September 30,  2008 vs. 2007**

** **

**Increase  (Decrease) Due to**

** **

**Increase  (Decrease) Due to**

** **

**Volume**

** **

**Rate**

** **

**Rate/  Volume**

** **

**Total**

** **

**Volume**

** **

**Rate**

** **

**Rate/  Volume**

** **

**Total**

 

 

Interest  income

 

 

 

 

 

 

 

 

 

 

   Loans

$

273 

$

(984)

$

(32)

$

(743)

$

1,631 

$

(1,719)

$

(289)

$

(377)

   Investment securities

 

86 

 

(224)

 

(15)

 

(153)

 

185 

 

(8)

 

(1)

 

176 

   Federal funds sold

 

32 

 

(51)

 

(29)

 

(48)

 

77 

 

(49)

 

(48)

 

(20)

       Total interest income

 

391 

 

(1,259)

 

(76)

 

(944)

 

1,893 

 

(1,776)

 

(338)

 

(221)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest  expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Deposits

 

108 

 

(1,216)

 

(37)

 

(1,145)

 

1,285 

 

(1,347)

 

(423)

 

(485)

   Note payable and other

 

45 

 

120 

 

3 

 

168 

 

315 

 

(309)

 

(58)

 

(52)

   Junior subordinated debt

 

- 

 

(74)

 

- 

 

(74)

 

(33)

 

(80)

 

9 

 

(104)

       Total interest expense

 

153 

 

(1,170)

 

(34)

 

(1,051)

 

1,567 

 

(1,736)

 

(472)

 

(641)

Net  interest income

$

238 

$

(89)

$

(42)

$

107 

$

326 

$

(40)

$

134 

$

420 

 

 

** **

**Nine Months  Ended**

** **

**September 30,  2009 vs. 2008**

** **

**September 30,  2008 vs. 2007**

** **

**Increase  (Decrease) Due to**

** **

**Increase  (Decrease) Due to**

** **

**Volume**

** **

**Rate**

** **

**Rate/  Volume**

** **

**Total**

** **

**Volume**

** **

**Rate**

** **

**Rate/  Volume**

** **

**Total**

** **

** **

Interest  income

 

 

 

 

 

 

 

 

 

 

   Loans

$

1,274 

$

(4,032)

$

(187)

$

(2,945)

$

5,207 

$

(3,198)

$

(694)

$

1,315 

   Investment securities

 

143 

 

(569)

 

(21)

 

(447)

 

608 

 

1 

 

- 

 

609 

   Federal funds sold

 

(19)

 

(219)

 

17 

 

(221)

 

102 

 

(248)

 

(57)

 

(203)

       Total interest income

 

1,398 

 

(4,820)

 

(191)

 

(3,613)

 

5,917 

 

(3,445)

 

(751)

 

1,721 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest  expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Deposits

 

497 

 

(4,191)

 

(180)

 

(3,874)

 

2,466 

 

(2,048)

 

(456)

 

(38)

   Note payable and other

 

119 

 

56 

 

2 

 

177 

 

1,045 

 

(589)

 

(149)

 

307 

   Junior subordinated debt

 

- 

 

(231)

 

- 

 

(231)

 

(39)

 

(175)

 

8 

 

(206)

       Total interest expense

 

616 

 

(4,366)

 

(178)

 

(3,928)

 

3,472 

 

(2,812)

 

(597)

 

63 

Net  interest income

$

782 

$

(454)

$

(13)

$

315 

$

2,445 

$

(633)

$

(154)

$

1,658 

 

Net interestincome, the largest component of our income, was $4.9 million and $4.8 millionfor the three months ended September 30, 2009 and 2008, respectively.  Theslight increase in the third quarter of 2009 related primarily to the neteffect of higher levels of both average interest-earning assets andinterest-bearing liabilities.  Average interest-earning assets were $30.8million higher during the three months ended September 30, 2009 compared to thesame period in 2008.  During the same period, average interest-bearingliabilities increased $15.4 million.  The higher average balances resulted in $238,000of additional net interest income for the three months ended September 30,2009, while lower rates on the average balances reduced net interest income by$89,000. 

 

19

 

 

In addition, netinterest income was $14.3 million and $14.0 million for the nine months ended September30, 2009 and 2008, respectively.  The small increase in the 2009 period relatedprimarily to the net effect of higher levels of both average interest-earningassets and interest-bearing liabilities.  Average interest-earning assets were$27.6 million higher during the nine months ended September 30, 2009 comparedto the same period in 2008.  During the same period, average interest-bearingliabilities increased $21.0 million.  The higher average balances resulted in $782,000of additional net interest income for the nine months ended September 30, 2009,while lower rates on the average balances reduced net interest income by $454,000.

            

*Three months ended September 30, 2009and 2008*

 

Interest incomefor the three months ended September 30, 2009 was $9.1 million, consisting of $8.0million on loans, $1.1 million on investments, and $9,000 on federal fundssold.  Interest income for the three months ended September 30, 2008 was $10.1million, consisting of $8.7 million on loans, $1.3 million on investments, and$57,000 on federal funds sold.  Interest on loans for the three months ended September30, 2009 and 2008 represented 87.5% and 86.7%, respectively, of total interestincome, while income from investments and federal funds sold represented only12.5% and 13.3%, respectively, of total interest income.  The high percentageof interest income from loans relates to our strategy to maintain a significantportion of our assets in higher earning loans compared to lower yieldinginvestments.  Average loans represented 82.8% and 83.9% of average interest-earningassets for the three months ended September 30, 2009 and 2008, respectively. Included in interest income on loans for the three months ended September 30,2009 and 2008 was $146,000 and $148,000, respectively, related to the netamortization of loan fees and capitalized loan origination costs.

 

Interest expensefor the three months ended September 30, 2009 was $4.2 million, consisting of$2.4 million related to deposits and $1.8 million related to other borrowings. Interest expense for the three months ended September 30, 2008 was $5.2million, consisting of $3.5 million related to deposits and $1.7 millionrelated to other borrowings.  Interest expense on deposits for the three monthsended September 30, 2009 and 2008 represented 57.3% and 67.7%, respectively, oftotal interest expense, while interest expense on other borrowings represented 42.7%and 32.3%, respectively, of total interest expense for the same three monthperiods.  During the three months ended September 30, 2009, average interest-bearingdeposits increased by $10.8 million over the same period in 2008, while our averagenotes payable and other borrowings increased $4.6 million during the threemonths ended September 30, 2009 over the same period in 2008.  The note payableand other borrowings provide us with the opportunity to obtain low cost fundingwith various maturities similar to the maturities on our loans andinvestments.  

 

*Nine months ended September 30, 2009 and2008*

 

Interest incomefor the nine months ended September 30, 2009 was $27.1 million, consisting of $23.7million on loans, $3.4 million on investments, and $17,000 on federal fundssold.  Interest income for the nine months ended September 30, 2008 was $30.7million, consisting of $26.6 million on loans, $3.8 million on investments, and$238,000 on federal funds sold.  Interest income on loans for the nine monthsended September 30, 2009 and 2008 represented 87.4% and 86.7%, respectively, oftotal interest income, while income from investments and federal funds soldrepresented only 12.6% and 13.3%, respectively, of total interest income.  Thehigh percentage of interest income from loans relates to our strategy tomaintain a significant portion of our assets in higher earning loans comparedto lower yielding investments.  Average loans represented 83.5% and 83.2% ofaverage interest-earning assets for the nine months ended September 30, 2009and 2008, respectively.  Included in interest income on loans for the nine monthsended September 30, 2009 and 2008 was $462,000 and $583,000, respectively,related to the net amortization of loan fees and capitalized loan originationcosts.

 

Interest expensefor the nine months ended September 30, 2009 was $12.8 million, consisting of $7.6million related to deposits and $5.1 million related to borrowings.  Interestexpense for the nine months ended September 30, 2008 was $16.7 million,consisting of $11.5 million related to deposits and $5.2 million related toborrowings.  Interest expense on deposits for the nine months ended September30, 2009 and 2008 represented 59.7% and 68.9%, respectively, of total interestexpense, while interest expense on other borrowings represented 40.3% and 31.1%,respectively, of total interest expense for the same nine month periods. During the nine months ended September 30, 2009, average interest-bearingdeposits increased by $16.5 million over the same period in 2008, while ournotes payable and other borrowings increased $4.5 million during the ninemonths ended September 30, 2009 over the same period in 2008.  The note payableand other borrowings provide us with the opportunity to obtain low cost fundingwith various maturities similar to the maturities on our loans andinvestments.  

* *

*Provisionfor Loan Losses*

 

We haveestablished an allowance for loan losses through a provision for loan lossescharged as an expense on our statement of income.  We review our loan portfolioperiodically to evaluate our outstanding loans and to measure both theperformance of the portfolio and the adequacy of the allowance for loanlosses.  Please see the discussion below under “Balance Sheet Review -Provision and Allowance for Loan Losses” for a description of the factors weconsider in determining the amount of the provision we expense each period tomaintain this allowance.

 

20

 

 

*Three and nine months ended September30, 2009 and 2008*

 

For the threemonths ended September 30, 2009 and 2008, we incurred a noncash expense relatedto the provision for loan losses of $1.1 million and $650,000, respectively,bringing the allowance for loan losses to $7.9 million and $6.5 million,respectively.  The allowance represented 1.39% of gross loans at September 30,2009 and 1.16% of gross loans at September 30, 2008.  During the three monthsended September 30, 2009, we charged-off $1.0 million of loans and recorded $91,000of recoveries on loans previously charged-off.  During the three months ended September30, 2008, we charged-off $621,000 of loans and recorded virtually no recoverieson loans previously charged-off.  The $909,000 and $621,000 net charge-offsduring the third quarters of 2009 and 2008, respectively, represented anannualized rate of 0.63% and 0.45% of the average outstanding loan portfoliofor the three months ended September 30, 2009 and 2008, respectively. 

 

For the ninemonths ended September 30, 2009, we incurred a noncash expense related to theprovision for loan losses of $2.8 million, bringing the allowance for loanlosses to $7.9 million, or 1.39% of gross loans, as of September 30, 2009.  The$2.8 million provision for the nine months ended September 30, 2009 relatedprimarily to the $2.0 million in charge-offs that occurred during thisperiod.   In contrast, for the nine months ended September 30, 2008, we added $2.0million to the provision for loan losses, resulting in an allowance of $6.5million at September 30, 2008.  We charged-off $1.2 million of loans andrecorded $10,000 of recoveries on loans previously charged-off during the ninemonths ended September 30, 2008.  The $1.9 million and $1.2 million netcharge-offs during the first nine months of 2009 and 2008, respectively,represented 0.45% and 0.30% of the average outstanding loan portfolio for the ninemonths ended September 30, 2009 and 2008, respectively. 

 

At September 30,2009, the allowance for loan losses represented less than one time the amountof non-performing loans, compared to 1.9 times at September 30, 2008.  Thecoverage level of the allowance at September 30, 2009 decreased from thecoverage level at September 30, 2008 due to an increase in non-performingloans.  A significant portion, or 79.6%, of nonperforming loans at September30, 2009 are secured by real estate.  We have evaluated the underlyingcollateral on these loans and believe that the collateral on these loans issufficient to minimize future losses.  As a result of this level of coverage onnon-performing loans, we believe the provision of $2.8 million for the ninemonths ended September 30, 2009 to be adequate.

 

*NoninterestIncome*             Thefollowing table sets forth information related to our noninterest income(dollars in thousands).  

 

 

**Three months  ended**

** **

**Nine months  ended**

 

 

**September 30,**

** **

**September 30,**

 

 

**2009**

** **

**2008**

** **

**2009**

** **

**2008**

 

 

 

 

 

 

 

 

 

Loan  fee income

$

138 

$

38 

$

297 

$

126 

Service  fees on deposit accounts

 

199 

 

177 

 

551 

 

468 

Income  from bank owned life insurance

 

213 

 

114 

 

459 

 

312 

Gain  on sale of securities

 

34 

 

7 

 

34 

 

7 

Loss  on other than temporary impairment

 

-

 

(1,841)

 

-

 

(1,841)

Real  estate owned activity

 

(148)

 

(7)

 

(152)

 

(58)

Other  income

 

97 

 

85 

 

277 

 

245 

   Total noninterest income (loss)

$

533 

$

(1,427)

$

1,466 

$

(741)

 

*Three months ended September 30, 2009and 2008*

 

Noninterestincome for the three month period ended September 30, 2009 was $533,000, an increaseof $2.0 million over a loss of $1.4 million for the same period of 2008.  The $2.0million increase during the 2009 period is related primarily to a pre-taximpairment charge of $1.8 million on Fannie Mae preferred stock as well as increasesof $100,000 in loan fee income and $99,000 in income from bank owned lifeinsurance, partially offset by a $141,000 increase in real estate ownedexpenses.

 

21

 

 

Loan fee incomewas $138,000 and $38,000 for the three months ended September 30, 2009 and2008, respectively, consisting primarily of late charge fees, fees fromissuance of lines and letters of credit, and mortgage origination fees wereceive on residential loans funded and closed by a third party.  The $100,000 increasefor the three months ended September 30, 2009 compared to the same period in2008 related primarily to a $96,000 increase in mortgage origination fees, aswell as a $5,000 increase in late fees.  Mortgage origination fees were $96,000for the three months ended September 30, 2009 compared to $0 for the sameperiod in 2008.  Income related to fees received from the issuance of lines andletters of credit was $12,000 and $11,000 for the third quarters of 2009 and2008, respectively, while late charge fees were $30,000 and $25,000 for thethree month periods ended September 30, 2009 and 2008, respectively. 

 

Service fees ondeposit accounts consist primarily of service charges on our checking, moneymarket, and savings accounts and the fee income received from client non-sufficientfunds (“NSF”) transactions.   Deposit fees were $199,000 and $177,000 for thethree months ended September 30, 2009 and 2008, respectively.  The $22,000increase is primarily related to a $24,000 increase in deposit related fees suchas service charges, partially offset by a $4,000 decrease in NSF fee income. Service charge fees were $67,000 and $43,000 for the three months ended September30, 2009 and 2008, respectively, while other fees such as overdraft andreturned item fees were $14,000 and $13,000 for the same periods in 2009 and2008, respectively.  NSF fee income was $118,000 and $122,000 for the thirdquarters of 2009 and 2008, respectively, representing 59.3% of total servicefees on deposits in the 2009 period compared to 68.9% of total service fees ondeposits in the 2008 period.

 

We purchased anadditional $4.0 million of bank owned life insurance during the second half of2008.  Income derived from life insurance was $213,000 and $114,000 for thethree months ended September 30, 2009 and 2008, respectively.  

                                  

Real estateowned activity includes income and expenses from property held for sale andother real estate we own, including real estate acquired in settlement ofloans.  For the three months ended September 30, 2009 and 2008, our incomereceived on the properties exceeded expenses related to owning the real estate by$44,000 and $8,000, respectively.  However, we also recorded a write-down onreal estate owned of $192,000 and $15,000 during the respective 2009 and 2008periods.  This net activity on real estate owned resulted in a loss of $148,000and $7,000 for the three months ending September 30, 2009 and 2008,respectively.

 

Other incomeconsists primarily of fees received on debit card transactions, sale ofcustomer checks, and wire transfers.  Other income was $97,000 and $85,000 forthe three months ended September 30, 2009 and 2008, respectively.  The $12,000 increaserelates primarily to a $9,000 increase in debit card transaction fees and a$4,000 increase in other client service related fees.  Debit card transactionfees were $70,000 and $61,000 for the three months ended September 30, 2009 and2008, respectively, and represented 72.2% and 71.8% of total other income forthe third quarters of 2009 and 2008, respectively.  The correspondingtransaction costs associated with debit card transactions are included innoninterest data processing and related costs.  The debit card transactioncosts were $27,000 and $25,000 for the three months ended September 30, 2009and 2008, respectively.  The net impact of the fees received and the relatedcost of the debit card transactions on earnings for the three months ended September30, 2009 and 2008 was $43,000 and $36,000, respectively.  Wire transfer andother deposit related fees were $27,000 and $24,000 for the third quartersended September 30, 2009 and 2008, respectively.

 

*Nine months ended September 30, 2009 and2008*

 

Noninterestincome for the nine month period ended September 30, 2009 was $1.5 million, anincrease of $2.2 million over a loss of $741,000 for the same period of 2008. The $2.2 million increase during the 2009 period is related primarily to apre-tax impairment charge of $1.8 million on Fannie Mae preferred stock as wellas increases of $171,000 in loan fee income, $83,000 in service fees on depositaccounts, and $147,000 in income from bank owned life insurance, partiallyoffset by a $94,000 increase in real estate owned expenses.

 

Loan fee income was$297,000 and $126,000 for the nine months ended September 30, 2009 and 2008,respectively, consisting primarily of late charge fees, fees from issuance of linesand letters of credit, and mortgage origination fees we receive on residentialloans funded and closed by a third party.  The $171,000 increase for the ninemonths ended September 30, 2009 compared to the same period in 2008 relatedprimarily to an increase of $178,000 in mortgage origination fees, partiallyoffset by decreases of $2,000 in late charge fees and $5,000 in fees fromissuance of lines and letters of credit.  Mortgage origination fees were $185,000and $7,000 for the nine months ended September 30, 2009 and 2008,respectively.  Late charge fees were $77,000 and $79,000 for the nine monthsended September 30, 2009 and 2008, respectively, while income related to issuanceof lines and letters of credit was $35,000 and $40,000 for the same periods in2009 and 2008, respectively.  

 

22

 

 

Service fees ondeposit accounts consist primarily of service charges on our checking, moneymarket, and savings accounts and the fee income received from clientnon-sufficient funds (“NSF”) transactions.   Deposit fees were $551,000 and $468,000for the nine months ended September 30, 2009 and 2008, respectively.  The $83,000increase is primarily related to increases of $56,000 in deposit related feessuch as service charges, $17,000 in overdraft and returned item fees, and $10,000in NSF fees. Service charge fees were $183,000 and $127,000 for the nine monthsended September 30, 2009 and 2008, respectively, while other fees such asoverdraft and returned item fees were $39,000 and $22,000, respectively.  NSFincome increased $10,000 to $329,000 for the nine months ended September 30,2009 from $319,000 for the same period in 2008, representing 59.7% of totalservice fees on deposits in the 2009 period compared to 68.2% of total servicefees on deposits in the 2008 period.  

 

We purchased anadditional $4.0 million of bank owned life insurance during the second half of2008.  Income derived from life insurance was $459,000 and $312,000 for the ninemonths ended September 30, 2009 and 2008, respectively.  

 

Real estateowned activity includes income and expenses from property held for sale andother real estate we own, including real estate acquired in settlement ofloans.  For the nine months ended September 30, 2009 and 2008, our incomereceived on the properties exceeded expenses related to owning the real estateby $40,000 and $52,000, respectively.  However, we also recorded a write-downon real estate owned of $192,000 and $110,000 during the respective 2009 and2008 periods.  This net activity on real estate owned resulted in a loss of $152,000and $58,000 for the three months ending September 30, 2009 and 2008,respectively.

 

Other incomeconsists primarily of fees received on debit card transactions, sale ofcustomer checks, and wire transfers.  Other income was $277,000 and $245,000for the nine months ended September 30, 2009 and 2008, respectively.  The $32,000increase relates primarily to a $27,000 increase in debit card transaction feesand a $7,000 increase in other client service related fees.  Debit cardtransaction fees were $197,000 and $170,000 for the nine months ended September30, 2009 and 2008, respectively and represented 71.1% and 69.4% of total otherincome for the first nine months of 2009 and 2008, respectively.  Thecorresponding transaction costs associated with debit card transactions areincluded in noninterest data processing and related costs.  The debit cardtransaction costs were $75,000 and $69,000 for the nine months ended September 30,2009 and 2008, respectively.  The net impact of the fees received and therelated cost of the debit card transactions on earnings for the nine monthsended September 30, 2009 and 2008 was $122,000 and $101,000, respectively.  

 

*Noninterestexpenses*

 

*               *The following table sets forthinformation related to our noninterest expenses (dollars in thousands). 

            	

 

**Three months  ended**

** **

**Nine months  ended**

 

 

**September 30,**

** **

**September 30,**

 

 

**2009**

** **

**2008**

** **

**2009**

** **

**2008**

 

 

 

 

 

 

 

 

 

Compensation  and benefits

$

1,980

$

1,625

$

5,867 

$

5,149 

Professional  fees

 

186

 

127

 

478 

 

368 

Marketing

 

176

 

154

 

495 

 

450 

Insurance       

 

352

 

141

 

1,143 

 

413 

Occupancy

 

550

 

437

 

1,407 

 

1,134 

Data  processing and related costs

 

358

 

347

 

1,077 

 

1,012 

Telephone      

 

76

 

50

 

186 

 

126 

Other   

 

187

 

159

 

605 

 

560 

   Total noninterest expenses

$

3,865

$

3,040

$

11,258 

$

9,212 

 

*Three months ended September 30, 2009and 2008*

 

We incurrednoninterest expenses of $3.9 million for the three months ended September 30,2009 compared to $3.0 million for the three months ended September 30, 2008, anincrease of $825,000 or 27.1%.

 

Our efficiencyratio was 69.1% for the three months ended September 30, 2009 compared to 57.8%for the three months ended September 30, 2008.  The efficiency ratio iscomputed as noninterest expense as a percentage of noninterest income and netinterest income, excluding real estate owned activity and the impairmentcharge.  The primary reason for the elevated efficiency ratio in the 2009period is due to the increased FDIC insurance premiums and expenses related toour new regional headquarters building opened in August 2009.  The significantincrease in insurance expense is primarily related to a general increase in theassessment rate used to calculate FDIC insurance premiums as well as thespecial assessment of approximately $300,000 charged by the FDIC.

 

For the three monthsended September 30, 2009, compensation and benefits, occupancy, and dataprocessing and related costs represented 74.7% of the total noninterest expensecompared to 79.2% for the same period in 2008.  

 

23

 

 

*Nine months ended September 30, 2009 and2008*

 

We incurrednoninterest expenses of $11.3 million for the nine months ended September 30,2009 compared to $9.2 million for the nine months ended September 30, 2008, anincrease of $2.1 million, or 22.2%

 

Our efficiencyratio was 70.8% for the nine months ended September 30, 2009 compared to 60.8%for the same period in 2008. The efficiency ratio is computed as noninterestexpense as a percentage of noninterest income and net interest income, excludingreal estate owned activity and the impairment charge. Increased FDIC insurancepremiums and expenses related to the additional two retail offices opened inJuly 2008 and our new regional headquarters building contributed to the elevatedefficiency ratio for the 2009 period.  

 

For the ninemonths ended September 30, 2009, compensation and benefits, occupancy, and dataprocessing and related costs represented 74.2% of the total noninterest expensecompared to 79.2% for the same period in 2008. 

 

The followingtable sets forth information related to our compensation and benefits (dollarsin thousands).  

 

 

 

**Three months  ended**

** **

**Nine months  ended**

 

 

**September 30,**

** **

**September 30,**

 

 

**2009**

** **

**2008**

** **

**2009**

 

**2008**

 

 

 

Base  compensation

$

1,536 

$

1,293 

$

4,284 

 

3,695 

Incentive  compensation

 

121 

 

73 

 

563 

 

638 

   Total compensation

 

1,657 

 

1,366 

 

4,847 

 

4,333 

Benefits         	

 

360 

 

299 

 

1,126 

 

940 

Capitalized  loan origination costs

 

(37)

 

(40)

 

(106)

 

(124)

   Total compensation and benefits

$

1,980 

$

1,625 

$

5,867 

 

5,149 

 

*Three months ended September 30, 2009and 2008*

 

Total compensationand benefits expense was $2.0 million and $1.6 million for the three monthsended September 30, 2009 and 2008, respectively.   Compensation and benefitsrepresented 51.2% and 53.5% of our total noninterest expense for the threemonths ended September 30, 2009 and 2008, respectively.  The $355,000 increasein compensation and benefits in the third quarter of 2009 compared to the sameperiod in 2008 resulted from increases of $243,000 in base compensation,$48,000 in incentive compensation, and $61,000 in benefits expense.  Inaddition, loan origination compensation expense, which is required to becapitalized and amortized over the life of the loan as a reduction of loaninterest income, decreased by $3,000.  

 

The $243,000increase in base compensation expense related to the cost of 12 additionalemployees as well as the employees hired in mid-June 2008 to staff our two newoffice locations.  We hired 6 additional employees during the third quarter of2009 in relation to the opening of our new regional headquarters in Columbia,South Carolina.  In addition, we have added positions in mortgage origination,credit, client services and accounting and human resources.  Incentivecompensation represented 6.1% and 4.5% of total compensation and benefits forthe three months ended September 30, 2009 and 2008, respectively.  Theincentive compensation expense recorded for the third quarters of 2009 and 2008represented an accrual of the estimated incentive compensation earned duringthe third quarter of the respective year.  Benefits expense increased $61,000in the third quarter of 2009 compared to the same period in 2008.  Benefitsexpense represented 21.7% and 21.9% of the total compensation for the threemonths ended September 30, 2009 and 2008, respectively.

 

*Nine months ended September 30, 2009 and2008*

 

Total compensationand benefits expense was $5.9 million and $5.2 million for the nine monthsended September 30, 2009 and 2008, respectively.   Compensation and benefitsrepresented 52.1% and 55.9% of our total noninterest expense for the ninemonths ended September 30, 2009 and 2008, respectively.  The $718,000 increasein compensation and benefits in the first nine months of 2009 compared to thesame period in 2008 resulted from increases of $589,000 in base compensationand $186,000 in benefits expense, partially offset by a reduction of $75,000 inincentive compensation.  In addition, loan origination compensation expense,which is required to be capitalized and amortized over the life of the loan asa reduction of loan interest income, decreased by $18,000.  

 

24

 

 

The $589,000increase in base compensation expense related to the cost of 12 additionalemployees as well as the employees hired in mid-June 2008 to staff our two newoffice locations.  We hired 6 additional employees during the third quarter of2009 in relation to the opening of our new regional headquarters in Columbia,South Carolina.  In addition, we have added positions in mortgage origination, credit,client services and accounting and human resources.   Incentive compensationrepresented 9.6% and 12.4 % of total compensation and benefits for the ninemonths ended September 30, 2009 and 2008, respectively.  The incentivecompensation expense recorded for the first nine months of 2009 and 2008represented an accrual of the estimated incentive compensation earned duringthe first nine months of the respective year.  Benefits expense increased $186,000in the first nine months of 2009 compared to the same period in 2008.  Benefitsexpense represented 23.2% and 21.7% of the total compensation for the ninemonths ended September 30, 2009 and 2008, respectively.

 

The following tables set forthinformation related to our data processing and related costs (dollars inthousands).  

 

 

**Three months  ended**

** **

**Nine months  ended**

 

 

**September 30,**

** **

**September 30,**

 

 

**2009**

** **

**2008**

** **

**2009**

** **

**2008**

 

 

 

 

 

 

 

 

 

Data  processing costs

$

259 

$

266 

$

810 

$

776 

Debit  card transaction expense

 

27 

 

25 

 

75 

 

69 

Courier  expense

 

28 

 

26 

 

82 

 

73 

Other  expenses

 

44 

 

30 

 

110 

 

94 

Total  data processing and related costs 

$

358 

$

347 

$

1,077 

$

1,012 

 

*Three and nine months ended September 30,2009 and 2008*

 

Total dataprocessing and related costs were $358,000 and $347,000, an increase of $11,000for the three months ended September 30, 2009 and 2008, respectively.   Duringthe first nine months of 2009 and the same period of 2008, our data processingand related costs were $1.1 million and $1.0 million, respectively, an increaseof $65,000, or 6.4%.   

 

We havecontracted with an outside computer service company to provide our core dataprocessing services.  Data processing costs decreased $7,000, or 2.6%, from $266,000to $259,000 for the three months ended September 30, 2009 compared to the sameperiod in 2008.  While a significant portion of the fee charged by the thirdparty processor is directly related to the number of loan and deposit accountsand the related number of transactions, the $7,000 decrease is primarilyrelated to services provided by a third party during the 2008 period forcertain IT technical support and assistance.  During the nine months ended September30, 2009 and 2008, data processing costs for our core processing system were $810,000and $776,000, respectively, an increase of $34,000, or 4.4%.

 

We receiveincome from debit card transactions performed by our clients.  Since weoutsource this service, we are charged related transaction expenses from ourmerchant service provider.   Debit card transaction expense was $27,000 and $25,000for the three months ended September 30, 2009 and 2008, respectively, and $75,000and $69,000 for the nine months ended September 30, 2009 and 2008,respectively.

 

Occupancyexpense represented 14.2% and 14.4% of total noninterest expense for the threemonths ended September 30, 2009 and 2008, respectively.  Occupancy expense increasedby $113,000 for the three months ended September 30, 2009 and 2008 from $437,000to $550,000, respectively.  The increase is primarily due to the costs ofdepreciation and maintenance associated with our new regional headquartersbuilding in Columbia, South Carolina which opened in August 2009.  For the ninemonths ended September 30, 2009, occupancy expense increased $273,000 to $1.4million from $1.1 million for the same period ended September 30, 2008.  Theincrease is primarily due to the increased costs of depreciation andmaintenance associated with the two retail offices which opened in July 2008and our new regional headquarters building which opened in August 2009.  Occupancyexpense represented 12.5% and 12.3% of total noninterest expense for the first ninemonths of 2009 and 2008, respectively.

 

The remaining $346,000increase in noninterest expense for the three month period ended September 30,2009 compared to the same period in 2008 resulted primarily from increases of $211,000in insurance expense, $59,000 in professional fees, $22,000 in marketingexpenses, $26,000 in telephone expense, and $28,000 in other noninterestexpenses.  The significant increase in insurance expense for the three monthperiod is related to a general increase in the assessment rate used tocalculate FDIC insurance premiums.  The increase in professional fees relatesprimarily to increased legal, accounting, and directors fees, while theincreases in marketing and telephone expenses are due to increased communitysupport and basic communication costs.  In addition, the $28,000 increase inother expense is primarily due to a $16,000 increase in collection expenses.

 

25

 

 

For the ninemonth period ended September 30, 2009, remaining noninterest expenses increased$990,000 from the same period in 2008.  Of this amount, $730,000 was related toinsurance expense, $110,000 to professional fees, $45,000 to marketingexpenses, $60,000 to telephone expenses, and $45,000 to other expenses.  The significantincrease in insurance expense is primarily related to a general increase in theassessment rate used to calculate FDIC insurance premiums as well as thespecial assessment of approximately $300,000 charged by the FDIC.  The increasein professional fees relates primarily to increased legal, accounting, anddirectors fees, while the increases in marketing and telephone expenses are dueto increased community support and basic communication costs.  In addition, the$45,000 increase in other expense is primarily due to a $110,000 increase incollection expenses, partially offset by decreases of $31,000 in officesupplies, $29,000 in deposit account losses, and $21,000 in travel and businessmeal expenses.

 

Income taxexpense was $109,000 for the three months ended September 30, 2009 compared to atax benefit of $148,000 during the same period in 2008.   For the nine monthsended September 30, 2009, income tax expense was $461,000 compared to $630,000for the same period in 2008.  Our effective tax rate was 20.5% and (54.0%),respectively, for the three month periods ended September 30, 2009 and 2008,respectively, and 26.7% and 29.8% for the nine month periods ended September30, 2009 and 2008, respectively.  The lower net income before taxes during thefirst nine months of 2009 increased the impact that our tax-exempt income hadin lowering our effective tax rate from the same periods in the prior year.

 

 

**BalanceSheet Review**

**General**

 

**               **At September 30,2009, we had total assets of $732.7 million, consisting principally of $569.7million in loans, $99.7 million in investments, $22.0 million in federal fundssold, $6.9 million in cash and due from banks and $13.8 million in bank ownedlife insurance.  Our liabilities at September 30, 2009 totaled $672.4 million,which consisted principally of $494.8 million in deposits, $5.0 million inshort-term repurchase agreements, $154.4 million in notes payable and otherborrowings, and $13.4 million in junior subordinated debentures.  At September30, 2009, our shareholders’ equity was $60.2 million.

 

At December 31,2008, we had total assets of $693.0 million, consisting principally of $566.6million in loans, $85.4 million in investments, $8.8 million in federal fundssold, $4.4 million in cash and due from banks and $13.4 million in bank ownedlife insurance.  Our liabilities at December 31, 2008 totaled $653.2 million,consisting principally of $469.5 million in deposits, $164.7 million in notespayable and other borrowings, and $13.4 million of junior subordinateddebentures.  At December 31, 2008, our shareholders’ equity was $39.8 million.

 

*FederalFunds Sold*

 

AtSeptember 30, 2009, our federal funds sold were $22.0 million, or 3.0% of totalassets.  At December 31, 2008, our $8.8 million in short-term investments infederal funds sold on an overnight basis comprised 1.3% of total assets. 

 

*Investments*

* *

At September 30,2009, the $99.7 million in our investment securities portfolio representedapproximately 13.6% of our total assets.  We held Government sponsoredenterprise securities, municipal securities, and mortgage-backed securitieswith a fair value of $90.9 million and an amortized cost of $89.1 million foran unrealized gain of $1.8 million.  

 

Contractualmaturities and yields on our investments that are available for sale and areheld to maturity at September 30, 2009 are shown in the following table(dollars in thousands).  Expected maturities may differ from contractualmaturities because issuers may have the right to call or prepay obligationswith or without call or prepayment penalties.  We had no securities withmaturities less than one year at September 30, 2009.

 

** **

** **

**One to Five  Years**

** **

**Five to Ten  Years**

** **

**Over Ten Years**

** **

**Total**

** **

** **

**Amount**

**Yield**

** **

**Amount**

**Yield**

** **

**Amount**

**Yield**

** **

**Amount**

**Yield**

**Available  for Sale**

 

 

 

 

 

 

 

 

 

 

 

 

Government  sponsored enterprises

$

- 

- 

$

- 

- 

$

7,497 

5.06 %

$

7,497 

5.06 %

State  and political subdivisions

 

-

-

 

3,112 

3.79 %

 

906 

3.82 %

 

4,018 

3.80 %

Mortgage-backed  securities

 

293

4.72 %

 

4,123 

4.53 %

 

64,844 

4.91 % 

 

69,260 

4.90 %

    Total

$

293

4.72 %

$

7,235 

4.21 %

$

73,247 

4.81 %

$

80,775 

4.76 %

 

 

 

 

 

 

 

 

 

 

 

 

 

**Held  to Maturity**

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed  securities

$

173

3.92 %

 

1,948 

4.30 %

$

7,674 

4.64 %

$

9,795 

4.56%

            

26

 

 

Otherinvestments at September 30, 2009, consisted of Federal Reserve Bank stock witha cost of $1.5 million, investments in Greenville First Statutory Trust I andII of $186,000 and $217,000, respectively, and Federal Home Loan Bank stockwith a cost of $7.1 million.  At September 30, 2009, our investments includedsecurities issued by Federal Home Loan Mortgage Corporation, Federal NationalMortgage Association, and Government National Mortgage Association withcarrying values of $27.1 million, $40.4 million, and $6.5 million, respectively.

 

The amortizedcosts and the fair value of our investments at September 30, 2009 and December31, 2008 are shown in the following table (dollars in thousands).

 

 

 

**September 30,  2009**

** **

**December 31,  2008**

 

 

**Amortized**

** **

**Fair**

** **

**Amortized**

** **

**Fair**

 

 

**Cost**

** **

**Value**

** **

**Cost**

** **

**Value**

**Available  for Sale**

 

 

Government  sponsored enterprises

$

7,483 

$

7,497 

$

18,482 

$

18,708 

State  and political subdivisions

 

3,789 

 

4,018 

 

3,790 

 

3,772 

Mortgage-backed  securities

 

68,003 

 

69,260 

 

43,700 

 

41,886 

FNMA  Preferred stock

 

- 

 

- 

 

84 

 

66 

  Total

$

79,275 

$

80,775 

$

66,056 

$

64,432 

 

 

 

 

 

 

 

 

 

**Held  to Maturity**

 

 

 

 

 

 

 

 

Mortgage-backed  securities

$

9,795 

$

10,132 

$

12,519 

$

12,618 

 

At September 30,2009, the Company had an unrealized loss on one of its individual investmentsin mortgage-backed securities.  The Company believes, based on industry analystreports and credit ratings that the deterioration in the value of thisinvestment is attributed to market turmoil and liquidity and not the creditquality of the issuer.  The Company has the ability and intent to hold thissecurity until such time as the value recovers or the security matures.  Inaddition, the Company held one collateralized mortgage obligation (“CMO”) thatwas in an unrealized loss position at September 30, 2009.  The Company has theability and intent to hold all securities within the portfolio until thematurity or until the value recovers; therefore, we do not consider theseinvestments to be other-than-temporarily impaired at September 30, 2009.

 

Effective April1, 2009, the Company adopted FASB ASC 820, “Fair Value Measurement andDisclosures,” which allows fair value to be based on internal calculations orexternal fair value models that use market participant data, independentlysourced market observable data or unobserved inputs that are corroborated bymarket data if listed prices or active market quotes are not readilyavailable.  Our private label CMOs, which are non-agency securities, werepriced based on an internally developed cash flow model due to marketilliquidity.  To determine our pricing valuation, the Company obtained fairvalues for its private label Collateralized Mortgage Obligations (“CMO”)investments from third party pricing vendors.  In addition, we evaluated recenttransaction volumes, price quotations and related price variability, brokerinformation available to us, and market liquidity to the extent possible.  Wenoted that this market has had little, if any, new issuance since the creditcrisis began.  The company determined that most sales are forced and do notreflect the true economic value of these securities.

 

The two majorcomponents in the bank’s internal model are the prepayment speeds of thesecurities and the dollar amount of loan defaults compared to the excesscollateral amounts in each pool.  The prepayment speeds utilized in the modelare based on the prior prepayment rates for the specific securities and theanticipated future prepayment speeds for like securities.  The default ratesare based on both the historical loss rates for each security and an analysisof the current loan delinquency amounts in each portfolio.  Anticipated lossamounts are determined based on the various levels of delinquency, with higherpercentages being assigned to loans over 90 days or loans in foreclosure.  Theanticipated loss amounts are then compared to the dollar amount of the excesscollateral included in each pool.  Based on the bank’s calculations andassumptions, management anticipates receiving all of the outstanding principaland the related interest for each security.  The valuation change has beenrecorded as a change in the unrealized gain/loss recognized in othercomprehensive income.

 

At December 31,2008, the $85.4 million in our investment securities portfolio representedapproximately 12.3% of our total assets.  We held Government sponsoredenterprise securities, municipal securities, and mortgage-backed securitieswith a fair value of $77.1 million and an amortized cost of $78.6 million foran unrealized loss of $1.5 million.  

 

27

 

 

Contractualmaturities and yields on our investments at December 31, 2008 are shown in thefollowing table (dollars in thousands).  Expected maturities may differ fromcontractual maturities because issuers may have the right to call or prepayobligations with or without call or prepayment penalties.  At December 31,2008, we had no securities with a maturity of less than one year.

 

** **

** **

**One to Five  Years**

** **

**Five to Ten  Years**

** **

**Over Ten Years**

** **

**Total**

** **

** **

**Amount**

** **

**Yield**

** **

**Amount**

** **

**Yield**

** **

**Amount**

** **

**Yield**

** **

**Amount**

** **

**Yield**

**Available  for Sale**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government  sponsored enterprises

$

- 

 

- %

$

11,238 

 

5.19 %

$

7,470 

 

5.06% 

$

18,708 

 

5.14 %

State  and political subdivisions

 

- 

 

- %

 

645 

 

3.81% 

 

3,127 

 

3.79 %

 

3,772 

 

3.80 %

Mortgage-backed  securities

 

414 

 

4.69 %

 

4,838 

 

4.51 %

 

36,634 

 

5.74 %

 

41,886 

 

5.59 %

FNMA Preferred  Stock

 

- 

 

- %

 

- 

 

- %

 

66 

 

- %

 

66 

 

- %

   Total

$

414 

 

4.69 %

$

16,721 

 

4.94 %

$

47,297 

 

5.48 %

$

64,432 

 

5.50 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Held  to Maturity**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed  securities

$

238 

 

3.95% 

$

2,333 

 

4.45 %

$

9,948 

 

4.70 %

$

12,519 

 

4.64 %

 

Otherinvestments at December 31, 2008 consisted of Federal Reserve Bank stock with acost of $1.3 million, investments in Greenville First Statutory Trust I and IIof $186,000 and $217,000, respectively, and Federal Home Loan Bank stock with acost of $6.7 million.  

            

*Loans*

 

*               *Since loanstypically provide higher interest yields than other types of interest earningassets, a substantial percentage of our earning assets are invested in our loanportfolio.  For the nine months ended September 30, 2009 and 2008, averageloans were $567.9 million and $542.7 million, respectively.  Before theallowance for loan losses, total loans outstanding at September 30, 2009 were $569.7million.  Average loans for the year ended December 31, 2008 were $547.7million.  Before the allowance for loan losses, total loans outstanding atDecember 31, 2008 were $566.6 million.

 

The principal componentof our loan portfolio is loans secured by real estate mortgages.    Most of ourreal estate loans are secured by residential or commercial property.  We do notgenerally originate traditional long term residential mortgages, but we doissue traditional second mortgage residential real estate loans and home equitylines of credit.  We obtain a security interest in real estate wheneverpossible, in addition to any other available collateral.  This collateral istaken to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans we make to 80%.  Due tothe short time our portfolio has existed, the current mix may not be indicativeof the ongoing portfolio mix.  We attempt to maintain a relatively diversifiedloan portfolio to help reduce the risk inherent in concentration in certaintypes of collateral.

 

28

 

 

                The following table summarizes thecomposition of our loan portfolio at September 30, 2009 and December 31, 2008(dollars in thousands).  The $28.9 million decrease in construction loansis primarily due to projects being completed and the loan restructured into apermanent loan either with our bank or another financial institution.

 

 

** **

** **

**September 30,  2009**

** **

**December 31,  2008**

** **

** **

**Amount**

** **

**%  of Total**

** **

**Amount**

** **

**%  of Total**

Real  estate:

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

Owner  occupied

$

129,014 

 

22.6 %

$

113,370 

 

20.0 %

 

 

Non-owner  occupied

 

160,995 

 

28.3 %

 

151,274 

 

26.7 %

 

 

Construction

 

24,133 

 

4.2 %

 

52,981 

 

9.4 %

 

Total  commercial real estate

 

314,142 

 

55.1 %

 

317,625 

 

56.1 %

 

Consumer:

 

 

 

 

 

 

 

 

 

 

Residential

 

55,788 

 

9.8 %

 

60,336 

 

10.7 %

 

 

Home  equity

 

73,112 

 

12.8 %

 

62,987 

 

11.1 %

 

 

Construction

 

5,685 

 

1.0 %

 

8,905 

 

1.5 %

 

Total  consumer real estate

 

134,585 

 

23.6 %

 

132,228 

 

23.3 %

Total  real estate

 

448,727 

 

78.7 %

 

449,853 

 

79.4 %

 

 

 

 

 

 

 

 

 

Commercial  business

 

111,420 

 

19.6 %

 

106,479 

 

18.8 %

Consumer-other

 

10,305 

 

1.8 %

 

11,194 

 

2.0 %

Deferred  origination fees, net

 

(765)

 

(0.1)%

 

(919)

 

(0.2)%

 

 

Total  gross loans, net of deferred fees     

 

569,687 

 

100.0 %

 

566,607 

 

100.0 %

Less—allowance  for loan losses

 

(7,916)

 

 

 

(7,005)

 

 

 

 

Total  loans, net

$

561,771 

 

 

$

559,602 

 

 

 

 

*Maturitiesand Sensitivity of Loans to Changes in Interest Rates*

 

*               *The informationin the following tables is based on the contractual maturities of individualloans, including loans which may be subject to renewal at their contractualmaturity.  Renewal of such loans is subject to review and credit approval, aswell as modification of terms upon maturity.  Actual repayments of loans maydiffer from the maturities reflected below because borrowers have the right toprepay obligations with or without prepayment penalties.

 

The followingtable summarizes the loan maturity distribution by type and related interestrate characteristics at September 30, 2009 (dollars in thousands).

 

** **

** **

** **

** **

** **

** **

**After one**

** **

** **

** **

** **

** **

** **

** **

** **

**One year**

** **

**but within**

** **

**After five**

** **

** **

** **

** **

** **

** **

**or less**

** **

**five years**

** **

**years**

** **

**Total**

 

 

 

 

 

 

 

 

 

Real  estate – mortgage

$

78,715 

$

257,022 

$

83,172 

$

418,909 

Real  estate – construction

 

14,101 

 

14,139 

 

1,578 

 

29,818 

   Total real estate

 

92,816 

 

271,161 

 

84,750 

 

448,727 

 

 

 

 

 

 

 

 

 

Commercial  business

 

61,251 

 

47,871 

 

2,298 

 

111,420 

Consumer-other

 

6,325 

 

3,430 

 

550 

 

10,305 

Deferred  origination fees, net

 

(208)

 

(437)

 

(120)

 

(765)

   Total gross loans, net of deferred fees 

$

160,184 

$

322,025 

$

87,478 

$

569,687 

 

 

 

 

 

 

 

Loans  maturing after one year with:

 

 

 

 

 

 

Fixed  interest rates

 

 

 

 

$

206,840 

Floating  interest rates

 

 

 

 

$

202,663 

 

The followingtable summarizes the loan maturity distribution by type and related interestrate characteristics at December 31, 2008 (dollars in thousands). 

 

 

 

** **

** **

**After one**

** **

** **

** **

** **

 

 

**One year**

** **

**but within**

** **

**After five**

** **

** **

 

 

**or less**

** **

**five years**

** **

**years**

** **

**Total**

 

 

 

 

 

 

 

 

 

Real  estate- mortgage

$

68,356 

 

253,325 

 

66,286 

 

387,967 

Real  estate- construction

 

30,555 

 

13,390 

 

17,941 

 

61,886 

      Total real estate

 

98,911 

 

266,715 

 

84,227 

 

449,853 

 

 

 

 

 

 

 

 

 

Commercial  business

 

56,291 

 

46,275 

 

3,913 

 

106,479 

Consumer-  other

 

4,260 

 

6,318 

 

616 

 

11,194 

Deferred  origination fees, net

 

(290)

 

(455)

 

(174)

 

(919)

      Total gross loan, net of  deferred fees

$

159,172 

 

318,853 

 

88,582 

 

566,607 

 

 

 

 

 

 

 

 

 

Loans  maturing – after one year with 

 

 

 

 

 

 

 

 

      Fixed interest rates

 

 

 

 

 

 

$

232,645 

      Floating interest rates       

 

 

 

 

 

 

$

174,790 

 

29

 

 
*Provisionand Allowance for Loan Losses*

 

We haveestablished an allowance for loan losses through a provision for loan lossescharged to expense on our statement of income.  The allowance for loan lossesrepresents an amount which we believe will be adequate to absorb probablelosses on existing loans that may become uncollectible.  Our judgment as to theadequacy of the allowance for loan losses is based on a number of assumptionsabout future events, which we believe to be reasonable, but which may or maynot prove to be accurate.  Our determination of the allowance for loan lossesis based on evaluations of the collectibility of loans, including considerationof factors such as the balance of impaired loans, the quality, mix, and size ofour overall loan portfolio, economic conditions that may affect the borrower’s abilityto repay, the amount and quality of collateral securing the loans, ourhistorical loan loss experience, and a review of specific problem loans.  Wealso consider subjective issues such as changes in the lending policies andprocedures, changes in the local/national economy, changes in volume or type ofcredits, changes in volume/severity of problem loans, quality of loan reviewand board of director oversight, concentrations of credit, and peer groupcomparisons.  Due to our limited operating history, the provision for loanlosses has been made primarily as a result of our assessment of general loanloss risk compared to banks of similar size and maturity.  Due to the growth ofour bank over the past several years and our short operating history, a largeportion of the loans in our loan portfolio and of our lending relationships areof relatively recent origin.  In general, loans do not begin to show signs ofcredit deterioration or default until they have been outstanding for someperiod of time, a process known as seasoning.  As a result, a portfolio ofolder loans will usually behave more predictably than a newer portfolio. Because our loan portfolio is relatively new, the current level ofdelinquencies and defaults may not be representative of the level that willprevail when the portfolio becomes more seasoned, which may be higher thancurrent levels.  If delinquencies and defaults increase, we may be required toincrease our provision for loan losses, which would adversely affect ourresults of operations and financial condition.  Periodically, we adjust theamount of the allowance based on changing circumstances.  We charge recognizedlosses to the allowance and add subsequent recoveries back to the allowance forloan losses.  There can be no assurance that charge-offs of loans in futureperiods will not exceed the allowance for loan losses as estimated at any pointin time or that provisions for loan losses will not be significant to aparticular accounting period.  

 

The followingtable summarizes the activity related to our allowance for loan losses for the ninemonths ended September 30, 2009 and 2008 (dollars in thousands):

 

 

 

**September 30,**

 

 

**2009**

** **

**2008**

 

 

 

 

Balance,  beginning of period

$

7,005 

$

5,751 

Loans  charged-off

 

(1,995)

 

(1,219)

Recoveries  of loans previously charged-off

 

96 

 

10 

Net  loans (charged-off) recovery

$

(1,899)

$

(1,209)

Provision  for loan losses

 

2,810 

 

1,950 

Balance,  end of period

$

7,916 

$

6,492 

 

 

 

 

 

Allowance  for loan losses to gross loans

 

1.39%    

 

1.16%    

Net  charge-offs to average loans

 

0.45%

 

0.30%

 

We do notallocate the allowance for loan losses to specific categories of loans. Instead, we evaluate the adequacy of the allowance for loan losses on anoverall portfolio basis utilizing our credit grading system which we apply toeach loan.  We have retained an independent consultant to review the loan fileson a test basis to confirm the grading of our loans.

 

The allowancefor loan losses was $7.9 million and $7.0 million at September 30, 2009 andDecember 31, 2008, respectively, or 1.39% and 1.24% of outstanding loans,respectively.  During the year ended December 31, 2008, we had net charged-offloans of $1.9 million.  During the nine months ended September 30, 2009 and2008 we had net charge-offs of $1.9 million and $1.2 million, respectively. 

* *

30

 

 

*NonperformingAssets*

 

*               *The followingtable shows the nonperforming assets and the related percentage of nonperformingassets to total assets and gross loans as of September 30, 2009 and December31, 2008 (dollars in thousands).  Generally, a loan is placed on nonaccrualstatus when it becomes 90 days past due as to principal or interest, or when webelieve, after considering economic and business conditions and collectionefforts, that the borrower’s financial condition is such that collection of theloan is doubtful.  A payment of interest on a loan that is classified asnonaccrual is recognized as a reduction in principal when received.

 

 

 

**September 30,**

** **

**December 31,**

 

 

**2009**

** **

**2008**

Loans  on nonaccrual:

 

 

 

 

 

Mortgage

$

7,863 

 

6,818 

 

Commercial

 

1,955 

 

868 

 

Consumer

 

58 

 

13 

Total  nonaccrual loans

 

9,876 

 

7,699 

Total  of nonperforming loans

 

9,876 

 

7,699 

Other  nonperforming assets

 

4,093 

 

2,116 

Total  nonperforming assets

$

13,969 

 

9,815 

Loans  over 90 days past due (1)

$

4,830 

 

7,008 

 

 

 

 

 

Nonperforming  assets as a percentage of: 

 

 

 

 

 

Total  assets

 

1.91 %

 

1.42 %

 

Gross  loans

 

2.45 %

 

1.73 %

                                                                                                                                                                  

                                                                    (1) Loans over 90 days are included innonaccrual loans

 

At September 30,2009 nonperforming assets were $14.0 million, or 1.91% of total assets and 2.45%of gross loans.  Comparatively, nonperforming assets were $9.8 million, or1.42% of total assets and 1.73% of gross loans at December 31, 2008. Nonaccrual loans increased $2.2 million to $9.9 million at September 30, 2009from $7.7 million at December 31, 2008.  This increase is primarily related to 2residential real estate properties and several commercial business loans.  Theamount of foregone interest income on the nonaccrual loans in the first ninemonths of 2009 was approximately $467,000.   The amount of interest incomerecorded in the first nine months of 2009 for loans that were on nonaccrual at September30, 2009 was approximately $87,000.

 

Othernonperforming assets include real estate acquired in settlement of loans. These assets increased $2.0 million to $4.1 million at September 30, 2009 from$2.1 million at December 31, 2008.  The balance at September 30, 2009 includes sixcommercial properties totaling $3.5 million and four pieces of residential realestate for $562,000.  We believe that these properties are appropriately valuedat the lower of cost or market as of September 30, 2009.

 

At September 30,2009 and 2008, impaired loans amounted to approximately $9.9 million and $3.4million.  Specific reserves allocated to these impaired loans totaled $1.2million and $400,000 at September 30, 2009 and 2008, respectively.  AtSeptember 30, 2009, there were approximately $3.4 million of impaired loanswith specific reserves and approximately $6.5 million in impaired loans forwhich no specific reserve had been recognized.  The average recorded investmentin impaired loans for the quarters ended September 30, 2009 and 2008 was $9.3million and $2.9 million , respectively.

 

*Depositsand Other Interest-Bearing Liabilities*

 

*               *Our primarysource of funds for loans and investments is our deposits, advances from theFHLB, and short-term repurchase agreements.  National and local market trendsover the past several years suggest that consumers have moved an increasingpercentage of discretionary savings funds into investments such as annuities,stocks, and fixed income mutual funds.  Accordingly, it has become moredifficult to attract deposits.  We have chosen to obtain a portion of ourcertificates of deposits from areas outside of our market.  The depositsobtained outside of our market area generally have comparable rates compared torates being offered for certificates of deposits in our local market.  We alsoutilize out-of-market deposits in certain instances to obtain longer-termdeposits than are readily available in our local market.  The amount ofout-of-market deposits was $184.9 million at September 30, 2009 and $200.9million at December 31, 2008.  

 

31

 

 

We generallyobtain out-of-market deposits through brokers with whom we maintain ongoingrelationships.  We have adopted guidelines regarding our use of brokered CDsthat limit our brokered CDs to 50% of total deposits and dictate that ourcurrent interest rate risk profile determines the terms.  In addition, we donot obtain time deposits through the Internet.  These guidelines allow us totake advantage of the attractive terms that wholesale funding can offer while mitigatingthe inherent related risk.

 

We anticipatebeing able to either renew or replace these out-of-market deposits when theymature, although we may not be able to replace them with deposits with the sameterms or rates.  Our loan-to-deposit ratio was 115% and 121% at September 30,2009 and December 31, 2008, respectively.  

 

The followingtable shows the average balance amounts and the average rates paid on depositsheld by us for the nine months ended September 30, 2009 and 2008 (dollars inthousands).  

 

 

 

 

**2009**

** **

**2008**

 

 

 

**Amount**

** **

**Rate**

** **

**Amount**

** **

**Rate**

 

 

 

 

 

 

 

 

 

Noninterest  bearing demand deposits

$

35,663 

 

- %

$

32,369 

 

- %

Interest  bearing demand deposits

 

43,015 

 

0.69 %

 

39,135 

 

1.08 %

Money  market accounts

 

83,501 

 

1.16 %

 

88,284 

 

2.01 %

Savings  accounts

 

2,138 

 

0.17 %

 

1,841 

 

0.35 %

Time  deposits less than $100,000

 

45,386 

 

3.11 %

 

47,770 

 

4.05 %

Time  deposits greater than $100,000

 

272,130 

 

2.77 %

 

252,603 

 

4.44 %

    Total deposits

$

481,833 

 

2.12 %

$

462,002 

 

3.32 %

 

The increase intime deposits of $100,000 or more for the nine months ended September 30, 2009compared to the 2008 period resulted primarily from a $20.9 million increase inaverage wholesale deposits during the 2009 period.  

 

Core deposits,which exclude out-of-market deposits and time deposits of $100,000 or more,provide a relatively stable funding source for our loan portfolio and otherearning assets.  Our core deposits were $227.1 million and $205.9 million at September30, 2009 and December 31, 2008, respectively.  

 

All of our timedeposits are certificates of deposits.  The maturity distribution of our timedeposits of $100,000 or more at September 30, 2009 was as follows (dollars inthousands): 

 

Three  months or less

$

58,927 

Over  three through six months

 

49,988 

Over  six  through twelve months

 

57,640 

Over  twelve months

 

99,766 

    Total

$

266,321 

 

 

**CapitalResources**

 

**               **Totalshareholders’ equity at September 30, 2009 was $60.2 million.  At December 31,2008, total shareholders’ equity was $39.8 million.  The $20.5 million increaseduring the first nine months of 2009 resulted primarily from the $17.3 millionissuance of preferred stock as well as $2.1 million from an unrealized gain onsecurities available for sale.

 

On February 27,2009, as part of the CPP, the Company entered into the CPP Purchase Agreementwith the Treasury Department, pursuant to which we sold 17,299 shares of ourSeries T Preferred Stock and the CPP Warrant to purchase 330,554 shares of ourcommon stock for an aggregate purchase price of $17.3 million in cash.  TheSeries T Preferred Stock is entitled to cumulative dividends at a rate of 5%per annum for the first five years, and 9% per annum thereafter.  The CPPWarrant has a 10-year term and is immediately exercisable upon its issuance,with an exercise price, subject to anti-dilution adjustments equal to $7.85 pershare of the common stock.

 

32

 

 

The followingtable shows the return on average assets (net income divided by average totalassets), return on average equity (net income divided by average equity), andequity to assets ratio (average equity divided by average total assets)annualized for the nine months ended September 30, 2009 and the year endedDecember 31, 2008.  Since our inception, we have not paid cash dividends.

                                     

 

**September 30,  2009**

** **

**December 31,  2008**

Return  on average assets

0.24 %

 

0.27 %

 

 

 

 

Return  on average equity

3.07 %

 

4.70 %

Return  on average common equity

1.38 %

 

4.70 %

 

 

 

 

Equity  to total assets ratio

7.67 %

 

5.73 %

Common  equity to total assets ratio

6.16 %

 

5.73 %

            

Our return onaverage assets was 0.24% for the nine months ended September 30, 2009, a slightdecrease from 0.27% for the year ended December 31, 2008.  In addition, ourreturn on average equity decreased to 3.07% from 4.70% for the nine monthsended September 30, 2009 and the year ended December 31, 2008, respectively. The increase in the equity to total assets ratio from December 31, 2008 isprimarily related to the $17.3 million received in conjunction with theissuance of preferred stock.  In addition, our return on average common equitywas 1.38% and our common equity to total assets ratio was 6.16% for the ninemonths ended September 30, 2009. 

 

Under thecapital adequacy guidelines, regulatory capital is classified into two tiers. These guidelines require an institution to maintain a certain level of Tier 1and Tier 2 capital to risk-weighted assets.  Tier 1 capital consists of commonshareholders’ equity, excluding the unrealized gain or loss on securitiesavailable for sale, minus certain intangible assets.  In determining the amountof risk-weighted assets, all assets, including certain off-balance sheetassets, are multiplied by a risk-weight factor of 0% to 100% based on the risksbelieved to be inherent in the type of asset.  Tier 2 capital consists of Tier1 capital plus the general reserve for loan losses, subject to certainlimitations.  We are also required to maintain capital at a minimum level basedon total average assets, which is known as the Tier 1 leverage ratio.

 

Atboth the holding company and bank level, we are subject to various regulatorycapital requirements administered by the federal banking agencies.  To beconsidered “well-capitalized,” we must maintain total risk-based capital of atleast 10%, Tier 1 capital of at least 6%, and a leverage ratio of at least 5%. To be considered “adequately capitalized” under these capital guidelines, wemust maintain a minimum total risk-based capital of 8%, with at least 4% beingTier 1 capital.  In addition, we must maintain a minimum Tier 1 leverage ratioof at least 4%.    

 

In October,2008, President Bush signed in law the EESA in response to the financial crisesaffecting the banking system.  The Treasury Department and banking regulatorsare implementing a number of programs under this legislation to address capitaland liquidity issues in the banking system.  Under the Treasury Department’sCPP, we received $17.3 million through issuance of Series T Preferred Stock andthe CPP Warrant for common stock to the Treasury Department.  The Series TPreferred Stock issuance and the related CPP Warrant both qualify for Tier 1capital and added approximately 300 basis points to that measure.  The fairvalue allocation of the $17.3 million between the shares of Series T PreferredStock and the CPP Warrant resulted in $15.9 million allocated to the shares ofSeries T Preferred Stock and $1.4 million allocated to the CPP Warrant.  Seediscussion of shareholders’ equity above for additional details.

 

The followingtable sets forth the holding company’s and the bank’s various capital ratios atSeptember 30, 2009 and at December 31, 2008.  For all periods, the bank wasconsidered “well capitalized” and the holding company met or exceeded itsapplicable regulatory capital requirements.

 

 

**September 30,  2009**

** **

**December 31,  2008**

 

**Holding**

** **

** **

** **

**Holding**

** **

** **

 

**Company**

** **

**Bank**

** **

**Company**

** **

**Bank**

 

 

 

 

 

 

 

 

Total  risk-based capital

13.4 %

 

12.9 %

 

10.4 %

 

12.8 %

Tier  1 risk-based capital

12.1 %

 

11.7 %

 

  9.2 %

 

11.6 %

Leverage  capital

9.9 %

 

  9.6 %

 

  7.7 %

 

  9.8 %

 

33

 

 

**Effectof Inflation and Changing Prices**

 

**               **The effect ofrelative purchasing power over time due to inflation has not been taken intoaccount in our consolidated financial statements.  Rather, our financialstatements have been prepared on an historical cost basis in accordance withgenerally accepted accounting principles.

 

Unlike mostindustrial companies, our assets and liabilities are primarily monetary innature.  Therefore, the effect of changes in interest rates will have a moresignificant impact on our performance than will the effect of changing pricesand inflation in general.  In addition, interest rates may generally increaseas the rate of inflation increases, although not necessarily in the samemagnitude.  As discussed previously, we seek to manage the relationshipsbetween interest sensitive assets and liabilities in order to protect againstwide rate fluctuations, including those resulting from inflation.

 

**Off-BalanceSheet Risk**

 

**               **Commitments toextend credit are agreements to lend money to a client as long as the clienthas not violated any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clausesand may require the payment of a fee.  At September 30, 2009, unfundedcommitments to extend credit were $83.4 million, of which $10.0 million was atfixed rates and $73.4 million was at variable rates.  At December 31, 2008,unfunded commitments to extend credit were $89.0 million, of whichapproximately $13.8 million was at fixed rates and $75.1 million was atvariable rates.  A significant portion of the unfunded commitments related toconsumer equity lines of credit.  Based on historical experience, we anticipatethat a significant portion of these lines of credit will not be funded.  Weevaluate each client’s credit worthiness on a case-by-case basis.  The amountof collateral obtained, if deemed necessary by us upon extension of credit, isbased on our credit evaluation of the borrower.  The type of collateral variesbut may include accounts receivable, inventory, property, plant and equipment,and commercial and residential real estate.

 

At September 30,2009 there was a $5.2 million commitment under letters of credit.  At December31, 2008 there was a $4.8 million commitment under letters of credit. Thecredit risk and collateral involved in issuing letters of credit is essentiallythe same as that involved in extending loan facilities to customers.  Sincemost of the letters of credit are expected to expire without being drawn upon,they do not necessarily represent future cash requirements.

 

Except asdisclosed in this document, we are not involved in off-balance sheetcontractual relationships, unconsolidated related entities that haveoff-balance sheet arrangements or transactions that could result in liquidityneeds or other commitments that significantly impact earnings.

 

**MarketRisk and Interest Rate Sensitivity**

 

**             **  Market risk isthe risk of loss from adverse changes in market prices and rates, which principallyarises from interest rate risk inherent in our lending, investing, depositgathering, and borrowing activities.  Other types of market risks, such asforeign currency exchange rate risk and commodity price risk, do not generallyarise in the normal course of our business.  

 

Weactively monitor and manage our interest rate risk exposure in order to controlthe mix and and maturities of our assets and liabilities utilizing a process wecall asset/liability management.  The essential purposes of asset/liabilitymanagement are to ensure adequate liquidity and to maintain an appropriatebalance between interest sensitive assets and liabilities in order to minimizepotentially adverse impacts on earnings from changes in market interest rates. Our asset/liability management committee (“ALCO”) monitors and considersmethods of managing exposure to interest rate risk.  We have both an internalALCO consisting of senior management that meets at various times during eachmonth and a board ALCO that meets monthly.  The ALCOs are responsible formaintaining the level of interest rate sensitivity of our interest sensitiveassets and liabilities within board-approved limits.

 

Our interestrate risk exposure is managed principally by measuring our interest sensitivity“gap,” which is the positive or negative dollar difference between assets andliabilities that are subject to interest rate repricing within a given periodof time.  Interest rate sensitivity can be managed by repricing assets orliabilities, selling securities available for sale, replacing an asset orliability at maturity, or adjusting the interest rate during the life of anasset or liability.  Managing the amount of assets and liabilities repricing inthis same time interval helps to hedge the risk and minimize the impact on netinterest income of rising or falling interest rates.  We generally wouldbenefit from increasing market rates of interest when we have anasset-sensitive gap position and generally would benefit from decreasing marketrates of interest when we are liability-sensitive.

 

34

 

 

The followingtable sets forth information regarding our rate sensitivity as of September 30,2009 for each of the time intervals indicated (dollars in thousands). 

 

 

 

 

 

 

** **

**After three**

** **

**After one**

** **

 

** **

** **

 

 

 

 

**Within**

** **

**but within**

** **

**but within**

** **

**After**

** **

** **

 

 

 

 

**three months**

** **

**twelve months**

** **

**five years**

** **

**five years**

** **

**Total**

Interest-earning  assets:

 

 

 

 

 

 

 

 

 

 

Federal  funds sold

$

21,963 

$

- 

$

- 

$

- 

$

21,963 

Investment  securities

 

4,950 

 

13,167 

 

39,457 

 

32,996 

 

90,570 

Loans

 

297,810 

 

38,700 

 

169,040 

 

51,889 

 

557,439 

Total  earning assets

$

324,723 

$

51,867 

$

208,497 

$

84,885 

$

669,972 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing  liabilities:

 

 

 

 

 

 

 

 

 

 

Money  market and NOW

$

129,168 

$

- 

$

- 

$

- 

$

129,168 

Regular  savings

 

2,143 

 

- 

 

- 

 

- 

 

2,143 

Time  deposits

 

74,865 

 

139,885 

 

112,049 

 

- 

 

326,799 

Short-term  repurchase agreements

 

5,000 

 

- 

 

- 

 

- 

 

5,000 

Note  payable and other borrowings

 

79,850 

 

26,975 

 

32,600 

 

15,000 

 

154,425 

Junior  subordinated debentures

 

13,403 

 

- 

 

- 

 

- 

 

13,403 

Total  interest-bearing liabilities

$

304,429 

$

166,860 

$

144,649 

$

15,000 

$

630,938 

 

 

 

 

 

 

 

 

 

 

 

Period  gap

$

20,294 

$

(114,993)

$

63,848 

$

69,885 

 

 

Cumulative  gap

 

20,294 

 

(94,699)

 

(30,851)

 

39,034 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio  of cumulative gap to total earning assets

 

3.0%

 

(14.1%)

 

(4.6 %)

 

5.8 %

 

 

 

The followingtable sets forth information regarding our rate sensitivity, as of December 31,2008, at each of the time intervals (dollars in thousands).  

 

 

 
   
** **

**After three**

** **

**After one**

** **

 

** **

** **

 

 

**Within**

** **

**but within**

** **

**but within**

** **

**After**

** **

** **

 

 

**three months**

** **

**twelve months**

** **

**five years**

** **

**five years**

** **

**Total**

Interest-earning  assets:

 

 

 

 

 

 

 

 

 

 

Federal  funds sold     

$

8,800 

 

- 

 

- 

 

- 

 

8,800 

Investment  securities            	

 

4,673 

 

22,187 

 

26,209 

 

23,882 

 

76,951 

Loans 

 

262,203 

 

41,558 

 

191,387 

 

64,269 

 

559,417 

Total  earning assets  

$

275,676 

 

63,745 

 

217,596 

 

88,151 

 

645,168 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing  liabilities:

 

 

 

 

 

 

 

 

 

 

Money  market and NOW     

$

122,608 

 

- 

 

- 

 

- 

 

122,608 

Regular  savings          

 

1,918 

 

- 

 

- 

 

- 

 

1,918 

Time  deposits            	

 

101,083 

 

135,611 

 

73,549 

 

- 

 

310,243 

Note  payable and other borrowings            	

 

94,575 

 

14,500 

 

45,600 

 

10,000 

 

164,675 

Junior  subordinated debentures       

 

13,403 

 

- 

 

- 

 

- 

 

13,403 

Total  interest-bearing liabilities        

$

333,587 

 

150,111 

 

119,149 

 

10,000 

 

612,847 

 

 

 

 

 

 

 

 

 

 

 

Period  gap      

$

(57,911) 

 

(86,366)

 

98,447 

 

78,151 

 

 

Cumulative  Gap        

 

(57,911) 

 

(144,277)

 

(45,830)

 

32,321 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio  of cumulative gap to total earning assets

 

(9.0%)

 

(22.4%)

 

(7.1%)

 

5.0%

 

 

 

35

 

 

We wereliability sensitive at both December 31, 2008 September 30, 2009.  Ourvariable rate loans and a majority of our deposits reprice over a 12-monthperiod.  Approximately 50% and 43% of our loans were variable rate loans at September30, 2009 and December 31, 2008, respectively.  The ratio of cumulative gap tototal earning assets after 12 months is (14.1%) because $94.7 million moreliabilities will reprice in a 12 month period than assets.  However, our gapanalysis is not a precise indicator of our interest sensitivity position.  Theanalysis presents only a static view of the timing of maturities and repricingopportunities, without taking into consideration that changes in interest ratesdo not affect all assets and liabilities equally.  For example, rates paid on asubstantial portion of core deposits may change contractually within arelatively short time frame, but those rates are viewed by us as significantlyless interest-sensitive than market-based rates such as those paid on noncoredeposits.  Net interest income may be affected by other significant factors ina given interest rate environment, including changes in the volume and mix ofinterest-earning assets and interest-bearing liabilities.

 

At September 30,2009, 74.7% of our interest-bearing liabilities were either variable rate orhad a maturity of less than one year.   Of the $304.4 million ofinterest-bearing liabilities set to reprice within three months, 43.1% aretransaction, money market or savings accounts which are already at or neartheir lowest rates and provide little opportunity for benefit should marketrates continue to decline or stay constant.  However, certificates of depositthat are currently maturing or renewing are repricing at lower rates.  Weexpect to benefit as these deposits reprice, even if market rates increaseslightly.  At September 30, 2009, we had $94.7 million more liabilities thanassets that reprice within the next twelve months.  Included in our otherborrowings are a number of FHLB advances and structured repurchase agreementswith callable features as of September 30, 2009.  We believe that theoptionality on many of these borrowings will not be exercised until interestrates increase significantly.  In addition, we believe that the interest ratesthat we pay on the majority of our interest-bearing transaction accounts, wouldonly be impacted by a portion of any change in market rates.  This keyassumption is utilized in our overall evaluation of our level of interestsensitivity.

 

 

**LiquidityRisk**

 

Liquidityrepresents the ability of a company to convert assets into cash or cashequivalents without significant loss, and the ability to raise additional fundsby increasing liabilities.  Liquidity management involves monitoring oursources and uses of funds in order to meet our day-to-day cash flowrequirements while maximizing profits.  Liquidity management is made morecomplicated because different balance sheet components are subject to varyingdegrees of management control.  For example, the timing of maturities of ourinvestment portfolio is fairly predictable and subject to a high degree ofcontrol at the time investment decisions are made.  However, net depositinflows and outflows are far less predictable and are not subject to the samedegree of control.

         

At September 30,2009 and December 31, 2008, our liquid assets, consisting of cash and due frombanks and federal funds sold, amounted to $28.9 million and $13.2 million, or 3.9%and 1.9% of total assets, respectively.  Our investment securities at September30, 2009 and December 31, 2008 amounted to $99.7 million and $85.4 million, or 13.6%and 12.3% of total assets, respectively.  Investment securities traditionallyprovide a secondary source of liquidity since they can be converted into cashin a timely manner.  However, a substantial portion of these securities arepledged against outstanding debt.  Therefore, the related debt would need to berepaid prior to the securities being sold in order for these securities to beconverted to cash.  

 

Our ability tomaintain and expand our deposit base and borrowing capabilities serves as ourprimary source of liquidity.  We plan to meet our future cash needs through theliquidation of temporary investments, the generation of deposits, and fromadditional borrowings.  In addition, we will receive cash upon the maturity andsale of loans and the maturity of investment securities.  We maintain three federalfunds purchased lines of credit with correspondent banks totaling $38.0 millionfor which there were no borrowings against the lines at September 30, 2009. 

 

We are also amember of the Federal Home Loan Bank of Atlanta (FHLB), from which applicationsfor borrowings can be made.  The FHLB requires that securities, qualifyingmortgage loans, and stock of the FHLB owned by the bank be pledged to secureany advances from the FHLB.  The unused borrowing capacity currently availablefrom the FHLB at September 30, 2009 was $6.3 million, based on the bank’s $7.1million investment in FHLB stock, as well as qualifying mortgages available tosecure any future borrowings. However, we are able to pledge additionalsecurities to the FHLB in order to increase our available borrowing capacity. 

 

We signed aten-year, five-month lease on our main office building in 2005.  The leaseprovides for annual lease rate escalations based on cost of livingadjustments.  

 

We believe thatour existing stable base of core deposits, borrowings from the FHLB, andshort-term repurchase agreements will enable us to successfully meet ourlong-term liquidity needs.

 

As a result ofthe Treasury’s Capital Purchase Program, we received $17.3 million of capitalon February 27, 2009 in exchange for 17,299 shares of preferred stock.  Thisadditional capital should allow us to remain well-capitalized and provideadditional liquidity on our balance sheet.

 

36

 

 

**Accounting,Reporting, and Regulatory Matters**

*RecentlyIssued Accounting Standards*

 

*               *Thefollowing is a summary of recent authoritative pronouncements that affectaccounting, reporting, and disclosure of financial information by us:

 

In June 2009,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 168, “The *FASB Accounting StandardsCodification*TM and the Hierarchy of Generally AcceptedAccounting Principles – a replacement of FASB Statement No. 162,” (“SFAS168”).  SFAS 168 establishes the *FASB Accounting Standards Codification*TM(“Codification”) as the source of authoritative generally accepted accountingprinciples (“GAAP”) for nongovernmental entities.  The Codification does notchange GAAP. Instead, it takes the thousands of individual pronouncements thatcurrently comprise GAAP and reorganizes them into approximately 90 accountingTopics, and displays all Topics using a consistent structure.  Contents in eachTopic are further organized first by Subtopic, then Section and finallyParagraph. The Paragraph level is the only level that contains substantivecontent. Citing particular content in the Codification involves specifying theunique numeric path to the content through the Topic, Subtopic, Section andParagraph structure. FASB suggests that all citations begin with “FASB ASC,”where ASC stands for *Accounting Standards Codification*.  Changes to theASC subsequent to June 30, 2009 are referred to as Accounting Standards Updates(“ASU”).

 

In conjunction with the issuance of SFAS168, the FASB also issued its first Accounting Standards Update No. 2009-1,“Topic 105 –Generally Accepted Accounting Principles” (“ASU 2009-1”) whichincludes SFAS 168 in its entirety as a transition to the ASC.    ASU 2009-1 iseffective for interim and annual periods ending after September 15, 2009 andwill not have an impact on the Company’s financial position or results ofoperations but will change the referencing system for accounting standards. Certain of the following pronouncements were issued prior to the issuance ofthe ASC and adoption of the ASUs. For such pronouncements, citations to theapplicable Codification by Topic, Subtopic and Section are provided whereapplicable in addition to the original standard type and number.  

 

The FASB issued ASU 2009–05, “Fair ValueMeasurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value”in August, 2009 to provide guidance when estimating the fair value of aliability.  When a quoted price in an active market for the identical liabilityis not available, fair value should be measured using (a) the quoted price ofan identical liability when traded as an asset; (b) quoted prices for similarliabilities or similar liabilities when traded as assets; or (c) anothervaluation technique consistent with the principles of Topic 820 such as anincome approach or a market approach.  If a restriction exists that preventsthe transfer of the liability, a separate adjustment related to the restrictionis not required when estimating fair value.  The ASU was effective October 1,2009 for the Company and will have no impact on financial position oroperations.

 

ASU 2009-12, “Fair Value Measurementsand Disclosures (Topic 820) - Investments in Certain Entities That CalculateNet Asset Value per Share (or Its Equivalent),” issued in September, 2009,allows a company to measure the fair value of an investment that has no readilydeterminable fair market value on the basis of the investee’s net asset valueper share as provided by the investee. This allowance assumes that the investeehas calculated net asset value in accordance with the GAAP measurementprinciples of Topic 946 as of the reporting entity’s measurement date.  Examples of such investments include investments in hedge funds, private equityfunds, real estate funds and venture capital funds. The update also providesguidance on how the investment should be classified within the fair valuehierarchy based on the value for which the investment can be redeemed.  Theamendment is effective for interim and annual periods ending after December 15,2009 with early adoption permitted.  The Company does not have investments insuch entities and, therefore, there will be no impact to our financialstatements.

 

Issued October, 2009, ASU 2009-15,“Accounting for Own-Share Lending Arrangements in Contemplation of ConvertibleDebt Issuance or Other Financing” amends ASC Topic 470 and provides guidancefor accounting and reporting for own-share lending arrangements issued incontemplation of a convertible debt issuance.  At the date of issuance, ashare-lending arrangement entered into on an entity’s own shares should bemeasured at fair value in accordance with Topic 820 and recognized as anissuance cost, with an offset to additional paid-in capital.  Loaned shares areexcluded from basic and diluted earnings per share unless default of theshare-lending arrangement occurs.  The amendments also require severaldisclosures including a description and the terms of the arrangement and thereason for entering into the arrangement.  The effective dates of the amendmentsare dependent upon the date the share-lending arrangement was entered into andinclude retrospective application for arrangements outstanding as of thebeginning of fiscal years beginning on or after December 15, 2009.   TheCompany has no plans to issue convertible debt and, therefore, does not expectthe update to have an impact on its financial statements.

 

37

 

 

Other accountingstandards that have been issued or proposed by the FASB or otherstandards-setting bodies that do not require adoption until a future date arenot expected to have a material impact on the consolidated financial statementsupon adoption.

 

                       

**Item3. Quantitative and Qualitative Disclosures about Market Risk.**

Not applicable

 

 

**Item4.  Controls and Procedures.**

 

As of the end ofthe period covered by this report, we carried out an evaluation, under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of ourdisclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer and Chief FinancialOfficer have concluded that our current disclosure controls and procedures areeffective as of September 30, 2009.  There have been no significant changesin our internal controls over financial reporting during the fiscal quarterended September 30, 2009 that have materially affected, or are reasonablylikely to materially affect, our internal controls over financial reporting.

 

The design ofany system of controls and procedures is based in part upon certain assumptionsabout the likelihood of future events.  There can be no assurance that anydesign will succeed in achieving its stated goals under all potential futureconditions, regardless of how remote.

 

** **

**PARTII.  OTHER INFORMATION**

** **

**Item1.            Legal Proceedings.**

There are no material pending legalproceedings to which the company is a party or of which any of its property isthe subject.

 

**Item2.            Unregistered Sales of Equity Securities and Use of Proceeds.**

Notapplicable

 

**Item3.            Defaults Upon Senior Securities.**

Notapplicable

 

**Item4.            Submission of Matters to a Vote of Security Holders.**

Notapplicable

 

**Item5.            Other Information.**

Notapplicable

 

**Item6.            Exhibits.**

31.1                  Rule13a-14(a) Certification of the Principal Executive Officer.

 

31.2                  Rule13a-14(a) Certification of the Principal Financial Officer.  

 

32                     Section1350 Certifications.  

 

38

 

 

 

 

 

**SIGNATURES**

 

             Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 

 

 

**SOUTHERN  FIRST BANCSHARES, INC.**

 

 

Registrant

 

 

 

 

 

 

Date:  November 4, 2009

 

/s/R.  Arthur Seaver, Jr.         	

 

 

R.  Arthur Seaver, Jr.

 

 

Chief  Executive Officer

 

 

 

 

 

 

Date:  November 4, 2009

 

/s/James  M. Austin, III                     	

 

 

James  M. Austin, III

 

 

Chief  Financial Officer

 

39

 

 

**INDEXTO EXHIBITS**

**ExhibitNumber                       Description**

31.1     Rule13a-14(a) Certification of the Principal Executive Officer.

 

31.2     Rule13a-14(a) Certification of the Principal Financial Officer.  

 

32        Section1350 Certifications. 

 

40 |