Waccamaw Bankshares (WBNK) 10-Q 2007 Q1 Quarterly report

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED

MARCH 31, 2007

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-32985

WACCAMAW BANKSHARES, INC.

(Name of Small Business Issuer in its Charter)

NORTH CAROLINA	52-2329563
(State or other Jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

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

(address of Principal Executive Office)

(910) 641-0044

(Issuer’s telephone number, including area code)

Not Applicable

(former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports,) and (2) has been subject to such to filing requirements for the past 90 days.

YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (See definition 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 x

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

YES  o NO x

As of May 11, 2007 there were 4,849,263 shares of the issuer’s common stock, no par value, outstanding.

WACCAMAW BANKSHARES, INC.

INDEX

		Page Number
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets March 31, 2007, (Unaudited) and December 31, 2006	1
	Consolidated Statements of Income, Three Months Ended March 31, 2007 and March 31, 2006 (Unaudited)	2
	Consolidated Statements of Cash Flows, Three Months Ended March 31, 2007 and March 31, 2006 (Unaudited)	3
	Notes to Consolidated Financial Statements	4-5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6-9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4.	Controls and Procedures	10
Part II.	OTHER INFORMATION	11
Item 1.	Legal Proceedings	11
Item 1A.	Risk Factors	11
Item 6.	Exhibits	11
SIGNATURES		12

Waccamaw Bankshares, Inc.

Consolidated Balance Sheets

March 31, 2007 and December 31, 2006

	March 31,		December 31,
	2007		2006
	(Unaudited)
Assets
Cash and due from banks	$	8,431,597	$	9,183,383
Interest-bearing deposits with banks		1,162,963		790,360
Federal funds sold		15,444,000		2,598,000
Investment securities, available for sale		54,452,686		50,529,163
Restricted equity securities		2,531,106		2,457,206
Loans, net of allowance for loan losses of $5,259,468 in 2007, and $4,885,992 in 2006		323,366,533		312,253,190
Other real estate owned		16,411		18,845
Property and equipment, net		6,965,780		6,671,773
Goodwill		2,727,152		2,665,602
Intangible assets, net		866,260		930,555
Accrued income		2,478,442		2,627,020
Bank owned life insurance		9,471,909		5,419,130
Other assets		3,141,957		3,437,066
Total assets	$	431,056,796	$	399,581,293
Liabilities and Stockholders’ Equity
Liabilities
Demand deposits	$	35,280,230	$	49,163,297
Interest-bearing deposits		322,202,117		278,188,470
Total deposits		357,482,347		327,351,767
Securities sold under agreements to repurchase		4,208,000		5,410,000
Long-term debt		23,500,000		23,500,000
Guaranteed preferred beneficial interest in the Company’s junior subordinated debentures		8,248,000		8,248,000
Accrued interest payable		1,620,471		1,412,300
Other liabilities		3,251,032		1,956,596
Total liabilities		398,309,850		367,878,663
Commitments and contingencies		-		-
Stockholders’ equity
Preferred stock, Series A, non-cumulative, non-voting, No par value; 1,000,000 shares authorized 59,192 issued and outstanding at March 31, 2007 and December 31, 2006		993,112		993,112
Common stock, no par value; 25,000,000 shares authorized; 4,849,263 and 4,837,666 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		17,451,163		17,338,231
Retained earnings		14,211,369		13,216,891
Accumulated other comprehensive income		91,302		154,396
Total stockholders’ equity		32,746,946		31,702,630
Total liabilities and stockholders’ equity	$	431,056,796	$	399,581,293

1

Waccamaw Bankshares, Inc.

Consolidated Statements of Income

Three-months ended March 31, 2007 and Three-months ended March 31, 2006 (Unaudited)

	Three-Months Ended
	March 31,
	2007		2006
Interest income
Loans and fees on loans	$	6,551,067	$	4,922,327
Federal funds sold		131,899		127,107
Investment securities, taxable		654,781		404,709
Investment securities, nontaxable		103,965		60,183
Total interest income		7,441,712		5,514,326
Interest expense
Deposits		3,092,542		2,043,198
Federal funds purchased and securities sold under agreements to repurchase		71,360		23,340
Other borrowed funds		509,325		345,721
Total interest expense		3,673,227		2,412,259
Net interest income		3,768,485		3,102,067
Provision for loan losses		375,000		105,000
Net interest income after provision
for loan losses		3,393,485		2,997,067
Noninterest income
Service charges on deposit accounts		282,440		270,092
Mortgage origination income		157,334		65,369
Other operating income		299,618		260,364
Earnings on bank owned life insurance		60,685		52,053
Net realized gains (losses) on sale of or maturity of investment securities		206,941		-
Total noninterest income		1,007,018		647,878
Noninterest expense
Salaries and employee benefits		1,615,645		1,223,619
Occupancy and equipment		327,942		237,843
Data processing		245,184		163,347
Amortization expense of intangible assets		70,678		63,178
Other expense		551,787		434,694
Total noninterest expense		2,811,236		2,122,681
Income (loss) before income taxes		1,589,267		1,522,264
Income Tax Expense		594,789		676,653
Net income	$	994,478	$	845,611
Basic earnings income per share	$	.21	$	.18
Diluted earnings income per share	$	.20	$	.18
Weighted average shares outstanding		4,845,378		4,576,226
Diluted average shares outstanding		5,001,205		4,764,543

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Waccamaw Bankshares, Inc.

Consolidated Statements of Cash Flows

Three-months ended March 31, 2007 and Three-months ended March 31, 2006 (Unaudited)

	Three-Months Ended
	March 31,
	2007			2006
Cash flows from operating activities
Net income	$	994,478		$	845,611
Adjustments to reconcile net income to
net cash used by operations:
Depreciation and amortization		183,900			135,207
Stock-based compensation		22,784			12,337
Provision for loan losses		375,000			105,000
Accretion of discount on securities, net of amortization of premiums		(6,805	)		16,026
(Gain) loss on sale of investment securities		(206,941	)		-
Changes in assets and liabilities:
Accrued income		148,578			(174,427	)
Other assets		(3,784,282	)		(13,428	)
Accrued interest payable		208,171			(73,329	)
Other liabilities		1,294,436			543,396
Net cash provided (used) by operating activities		(770,681	)		1,396,393
Cash flows from investing activities
Net (increase) decrease in federal funds sold		(12,846,000	)		2,973,000
Purchases of investment securities		(7,151,238	)		(6,554,306	)
Maturities of investment securities		989,334			1,260,021
Net increase in loans		(11,488,343	)		(9,640,990	)
Sales of investment securities		2,282,629			-
Purchases of property and equipment		(413,612	)		(1,306,928	)
Net cash used in investing activities		(28,627,230	)		(13,269,203	)
Cash flows from financing activities
Net increase in noninterest-bearing deposits		(13,883,067	)		4,063,634
Net increase in interest-bearing deposits		44,013,647			8,430,482
Net increase in securities sold under agreements to repurchase		(1,202,000	)		(142,000	)
Proceeds from exercise of stock options		39,026			131,450
Excess tax benefits from stock-based compensation		51,122			82,038
Net cash provided by financing activities		29,018,728			12,565,604
Increase (decrease) in cash and cash equivalents		(379,183	)		692,794
Cash and cash equivalents, beginning		9,973,743			7,662,133
Cash and cash equivalents, ending	$	9,594,560		$	8,354,927
Supplemental disclosure of cash flow information
Interest paid	$	3,465,056		$	2,485,588
Taxes paid	$	-		$	35,364
Supplemental disclosure of noncash activities
Other real estate acquired in settlement of loans	$	-		$	55,792

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WACCAMAW BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited financial statements were prepared in accordance with instructions for Form 10-Q and therefore, do not include all disclosures required by generally accepted accounting principles for a complete presentation of financial statements. In the opinion of the management, the financial statements contain all adjustments necessary to present fairly the financial condition of Waccamaw Bankshares, Inc. (the “Company”) and its subsidiary, Waccamaw Bank (the “Bank”) as of March 31, 2007 and December 31, 2006, and its cash flows for the three months ended March 31, 2007 and 2006. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results expected for the full year. These consolidated financial statements should be read in conjunction with the Company’s 10-K for the year ended December 31, 2006.

Waccamaw Bankshares, Inc. is located in Whiteville, North Carolina. The accounting and reporting policies of the Company and Bank follow generally accepted accounting principles and general practices within the financial services industry.

PRESENTATION OF CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents includes cash and amounts due from depository institutions (including cash items in process of collection) and interest-bearing deposits with banks which are considered to be cash equivalents. Federal funds sold are shown separately. Cash flows from demand deposits, NOW accounts and savings accounts are reported net since their original maturities are less than three months. Loans and time deposits are reported net per Financial Accounting Standards Board (“FASB”) Statement No. 104. Federal funds purchased are shown separately.

Investment Securities

Investments classified as available for sale can be held for indefinite periods of time and include those securities that management may employ as part of asset/liability strategy or that may be sold in response to changes in interest rates, prepayments, regulatory capital requirements or similar factors. These securities are carried at fair value and are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Investment securities classified as held to maturity are those debt securities that the Bank has the ability and intent to hold to maturity. Accordingly, these securities are carried at cost adjusted for amortization of premiums and accretion of discount, computed by the interest-method over their contractual lives. At March 31, 2007 and December 31, 2006, the Bank had no investments classified as held to maturity.

Loans

Loans are stated at the amount of unpaid principal, reduced by unearned fees and an allowance for loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. The allowance is increased by provisions charged to operating expense and reduced by net charge-offs. The Bank makes continuous credit reviews of the loan portfolio and considers economic conditions, historical loan loss experience, review of specific problem loans and other factors in determining the adequacy of the allowance balance.

Interest on all loans is accrued daily on the outstanding balance. Accrual of interest is discontinued on a loan when management believes, after considering collection efforts and other factors that the borrower’s financial condition is such that collection of interest is doubtful.

Reclassification

Certain reclassifications have been made to the prior years' financial statements to place them on a comparable basis with the current year. Net income and stockholders' equity previously reported were not affected by these reclassifications.

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NOTE 2. EARNINGS PER SHARE

Earnings per share for the three months ended March 31, 2007 and 2006 were calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share for the three months ended March 31, 2007 and 2006 were calculated by dividing net income by the weighted average number of dilutive shares outstanding.

The following table details the computation of basic and diluted earnings per share:

	March 31, 2007		March 31, 2006
Net income (income available to common shareholders)	$	994,478	$	845,611
Weighted average common shares outstanding		4,845,378		4,576,226
Effect of dilutive securities, options		96,635		188,317
Effect of dilutive securities, preferred stock		59,192		-
Weighted average common shares outstanding, diluted		5,001,205		4,764,543
Basic earnings per share	$	.21	$	.18
Diluted earnings per share	$	.20	$	.18

At March 31, 2007, the Bank had 269,899 warrants outstanding. These warrants were not included in the diluted earnings per share calculation as the effect would have been anti-dilutive. No warrants were outstanding at March 31, 2006.

NOTE 3. BALANCE SHEETS

The balance sheet at December 31, 2006 has been taken from the audited financial statements at that date.

The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing need of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments. A summary of the Bank’s commitments at March 31, 2007 and December 31, 2006 is as follows:

	March 31,		December 31,
	2007		2006
Commitment to extend credit	$	66,332,000	$	68,610,000
Standby letters of credit		1,489,000		1,825,000

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

This discussion, analysis and related financial information is presented to explain the significant factors which affected the financial condition and results of operations for the three months ending March 31, 2007 and 2006 of Waccamaw Bankshares, Inc. This discussion should be read in conjunction with the financial statements and related notes included in this report.

Waccamaw Bank is a North Carolina state chartered bank, and is located in Whiteville, North Carolina. The Bank began operations on September 2, 1997. Waccamaw Bankshares, Inc. acquired all outstanding shares of Waccamaw Bank on July 1, 2001.

Highlights

Net income for the quarter ended March 31, 2007 was $994,478 or $.21 per weighted average basic share outstanding compared to a $845,611 net profit or $.18 per weighted average basic share outstanding for the quarter ended March 31, 2006.

On March 31, 2007, Waccamaw Bankshares, Inc. assets totaled $431,056,796 compared to $399,581,293 on December 31, 2006. Net loans were $323,366,533 compared to $312,253,190 on December 31, 2006. Total deposits on March 31, 2007 were $357,482,347 compared to $327,351,767 at the end of 2006. Stockholders’ equity after adjustments for unrealized losses on securities available for sale as required by SFAS No. 115 increased by $1,044,316 resulting in a March 31, 2007 book value of $6.55 per common share, up from $6.35 on December 31, 2006.

Financial Condition, Liquidity and Capital Resources

Investments

The Bank maintains a portfolio of securities as part of its asset/liability and liquidity management programs which emphasize effective yields and maturities to match its needs. The composition of the investment portfolio is examined periodically and appropriate realignments are initiated to meet liquidity and interest rate sensitivity needs for the Bank.

Held to maturity securities are bonds, notes and debentures for which the Bank has the positive intent and ability to hold to maturity and which are reported at cost, adjusted by premiums and discounts that are recognized in interest income using the interest method over the period to maturity or to call dates. The Bank had no “Held to Maturity” securities at March 31, 2007 or December 31, 2006.

Available for sale securities are reported at fair value and consist of bonds, notes, debentures and certain equity securities not classified as trading securities or as held to maturity securities.

Unrealized holding gains and losses, net of tax, on available for sale securities are reported as a net amount in a separate component of stockholders’ equity. Realized gains and losses on the sale of available for sale securities are determined using the specific-identification method. Premiums and discounts are recognized in interest income using the interest method over the period to maturity or to call dates.

Declines in the fair value of individual held to maturity and available for sale securities below cost that are other than temporary are reflected as write-downs of the individual securities to fair value. Related write-downs are included in earnings as realized losses.

Investments in available for sale securities of $54,452,686 consisted of corporate securities, municipal securities and mortgage-backed securities (MBS) at March 31, 2007.

6

Federal Funds Sold

Federal funds sold consist of short-term loans to other financial institutions. These loans are made to various financial institutions and were $15,444,000 and $2,598,000 on March 31, 2007 and December 31, 2006, respectively. The increase of $12,846,000 was due to deposits increasing at a greater rate than loans during the first quarter of 2007. No single loan exceeds Waccamaw Bank’s legal lending limit.

Loans

Net loans outstanding on March 31, 2007, were $323,366,533 compared to $312,253,190 on December 31, 2006. The Bank maintains a loan portfolio dominated by real estate and commercial loans diversified among various industries. The $11,113,343 increase in loans was due to stronger real estate and commercial demand due to local economies improving in Waccamaw Bank’s market areas. This resulted in increased construction and development during the first three months of 2007.

Deposits

Deposits on March 31, 2007, were $357,482,347 compared to $327,351,767 on December 31, 2006. Interest-bearing accounts represented 90.13% of total deposits at March 31, 2007 and 84.98% of total deposits at December 31, 2006. The significant increase in deposits, necessary to satisfy strong loan demand, was the result of an aggressive marketing and advertising program offering higher deposit rates at the Bank. The decrease in demand deposits was due to a short term loan collateralized by a $13 million deposit at year end 2006, as the loan was paid off in the first quarter of 2007 and part of the deposit was converted to an interest bearing deposit in the first quarter of 2007.

Bank Owned Life Insurance

During the first quarter of 2007, the bank purchased additional Bank Owned Life Insurance policies in the amount of $4,000,000 on both directors and key employees.

Liabilities

Securities sold under agreements to repurchase on March 31, 2007, were $4,208,000 compared to $5,410,000 on December 31, 2006. Long-term debt on March 31, 2007 and December 31, 2006 was $23,500,000 as all long-term debt is funded by the Federal Home Loan Bank of Atlanta.

Stockholders’ Equity

Waccamaw Bankshares, Inc. maintains a strong capital position which exceeds all capital adequacy requirements of Federal regulatory authorities. Total stockholders’ equity at March 31, 2007 was $32,746,946 compared to $31,702,630 at December 31, 2006. This $1,044,316 increase was partly due to operating profits of $994,478 during the first quarter of 2007. The Bank exceeds all capital requirements under the leverage guidelines.

Asset Quality

The provision for possible loan losses charged to operations was $375,000 in the first quarter 2007 and $105,000 in the first quarter of 2006. The allowance for loan losses on March 31, 2007, was $5,259,468 or 1.60% of period end loans compared to 1.54% for December 31, 2006. The increase of $270,000 in loan loss provision was due to the increased loan volume. The bank believes that it increased the loan loss provision adequately to reserve for the increased volume in loans.

The level of reserve is established based upon management’s evaluation of portfolio composition, current and projected national and local economic conditions and results of independent reviews of the loan portfolio by internal and external examination. Management recognizes the inherent risk associated with commercial and consumer lending, including whether or not a borrower’s actual results of operations will correspond to those projected by the borrower when the loan was funded, economic factors such as the number of housing starts and fluctuations in interest rates, etc., depression of collateral values, and completion of projects within the original cost and time estimates. As a result, management continues to actively monitor the Bank’s asset quality and lending policies. Management believes that its loan portfolio is diversified so that a downturn in a particular market or industry will not have a significant impact on the loan portfolio or the Bank’s financial condition.

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

At March 31, 2007 the Bank had $1,710,821 loans in nonaccrual status as compared to $1,611,323 at March 31, 2006. Repossessed assets at March 31, 2007 were $13,396. There were no repossessed assets at March 31, 2006.

Subsequent to March 31, 2007, a non performing loan paid off decreasing loans in the nonaccrual status by $971,000 and providing income in the form of a recovery before taxes of approximately $390,000 in the second quarter of 2007.

Comparison of Results of Operations for the Three Months Ended March 31, 2007 and 2006

The Company reported net income of $994,478 or $.21 per basic share and $.20 for diluted share for the three months ended March 31, 2007, as compared with net income of $845,611 or $.18 per basic share and $.18 per diluted share for the three months ended March 31, 2006 an increase of $148,867 or 17.6% in net income. The Company had significant increases in net interest income in the first quarter of 2007 as compared to the first quarter of 2006, as these increases were due to strong growth in interest earning assets and increases in net interest margin. The Company realized gains of $206,941 through the sale of two investments in the first quarter of 2007. The Company has incurred additional noninterest expenses both as a result of growth from period to period, and also as a result of additional hiring and other costs incurred as a result of the branch expansion during 2006 and 2007.

Net Interest Income

Like most financial institutions, the primary component of earnings for the Company is net interest income. Net interest income is the difference between the interest earned on loans, the investment portfolio and interest earning deposits and the cost of funds, consisting primarily of the interest paid on deposits and borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as by levels of noninterest-bearing liabilities and stockholders’ equity.

For the three months ended March 31, 2007, the net interest income of the Bank was $3,768,485 compared to $3,102,067 for the three months ended March 31, 2006. The increase in net interest income can primarily be attributed to strong growth in loans.

Provision for Loan Losses

The Company expensed $375,000 to the provision for loan losses in the first quarter of 2007, as compared to the $105,000 provision for loan losses in the first quarter of 2006. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by Management. Management considers the current level of the loan loss allowance to be satisfactory based on loan volume, the current level of delinquencies, other non performing-assets, prevailing economic conditions and other factors that may affect a borrower’s ability to repay. The increase in the provision for loan losses was due to the increase in real estate and commercial loan demand in the first quarter of 2007 versus the first quarter of 2006.

Noninterest Income

Noninterest income totaled $1,007,018 for the three months ended March 31, 2007 as compared with $647,878 for the three months ended March 31, 2006. The principal reason for the increase of $359,140 in total noninterest income for the current quarter was the Company realized gains of $206,941 through the sale of two investments in the first quarter of 2007. Increases of $91,965 in net servicing fees from mortgage origination income, increases of $12,348 in services charges on deposit accounts, increases in other operating income of $39,254 and increases in earnings on bank owned life insurance of $8,632 made up the additional difference in the three months ended March 31, 2007 compared to the three months ended March 31, 2006.

8

Noninterest Expenses

Noninterest expenses totaled approximately $2.8 million for the three months ended March 31, 2007, an increase of approximately $689,000 or 32.4% over the $2.1 million reported for the three months ended March 31, 2006. Substantially all of this increase resulted from the Bank’s growth and development, and reflects the additional expenses in the current quarter associated with new hires and the opening of two new branches. For the three months ended March 31, 2007, personnel costs increased by approximately $392,000, or 32.0% to approximately $1.6 million as compared to $1.2 million for the three months ended March 31, 2006.

Provision for Income Taxes

The Company provided $594,789 for income taxes during the three months ended March 31, 2007, compared to a provision for income taxes of $676,653 for the three months ended March 31, 2006. 

Interest Sensitivity and Liquidity

One of the principal duties of the Bank’s Asset/Liability Management Committee (“ALCO”) is management of interest rate risk. The Bank utilizes quarterly asset/liability reports prepared by a regional correspondent bank to project the impact on net interest income that might occur with hypothetical interest rate changes. The committee monitors and manages asset and liability strategies and pricing.

Another function of the ALCO is maintaining adequate liquidity and planning for future liquidity needs. Having adequate liquidity means the ability to meet current needs, including deposit withdrawals and commitments, in an orderly manner without sacrificing earnings. The Bank funds its investing activities, including making loans and purchasing investments, by attracting deposits and utilizing short-term borrowings when necessary.

At March 31, 2007, the liquidity position of the Bank was strong, with short-term liquid assets of approximately $46,434,000 or 10.77% of total assets.

Forward - Looking Information

Statements contained in this report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary as a result of market and other factors. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the U.S. Securities and Exchange Commission from time to time. Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “might,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principals, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products and services.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

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The Company’s ALCO meets on a monthly basis in order to assess interest rate risk, liquidity, capital and overall balance sheet management through rate shock analysis measuring various interest rate scenarios over the future 12 months. Through ALCO, the Company is able to determine fluctuations to net interest income from changes in the Prime Rate of up to 300 basis points up or down during a 12-month period. ALCO also reviews policies and procedures related to funds management and interest rate risk based on local, national and global economic conditions along with funding strategies and balance sheet management to minimize the potential impact of earnings and liquidity from interest rate movements.

Additional information regarding interest rate risk is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The Company has not had any material changes in the overall interest rate risk since December 31, 2006.

Item 4. Controls and Procedures

Based on their evaluation, as of the end of the period covered by the report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure. There have not been any changes in the Company’s internal control over financial reporting that occurred during the company’s last quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings

The Company is not party to, nor is any of its property the subject of, any material pending legal proceeding incidental to the business of the Company or the Bank.

Item 1A. Risk Factors

No material changes in the Registrant’s risk factors occurred during the quarter.

Item 6. Exhibits

31.1 Section 302 Certification - CEO

31.2 Section 302 Certification - CFO

32 Section 906 Certification

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SIGNATURES

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

	Waccamaw Bankshares, Inc.
Date:May 11, 2007	By:	/s/ David A. Godwin
		David A. Godwin
		Chief Financial Officer (Principal Financial Officer)

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