Attached files

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EX-32 - EX-32 - HCSB FINANCIAL CORP	a09-31097_1ex32.htm
EX-31.1 - EX-31.1 - HCSB FINANCIAL CORP	a09-31097_1ex31d1.htm
EX-31.2 - EX-31.2 - HCSB FINANCIAL CORP	a09-31097_1ex31d2.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER 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 000-26995

HCSB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

South Carolina		57-1079444
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

5201 Broad Street

Loris, South Carolina 29569

(Address of principal executive
offices, including zip code)

(843) 756-6333

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such 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 be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated o		Smaller reporting company x
(do not check if smaller reporting company)

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: 3,787,170 shares of common stock, $.01 par value, were issued and outstanding as of November 13, 2009.

Table of Contents

HCSB FINANCIAL CORPORATION

Index

	Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets - September 30, 2009 and December 31, 2008	3

Condensed Consolidated Statements of Income - Nine months ended September 30, 2009 and 2008 and Three months ended September 30, 2009 and 2008	4

Condensed Consolidated Statements of Shareholders’ Equity and Comprehensive Income - Nine months ended September 30, 2009 and 2008	5

Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2009 and 2008	6

Notes to Condensed Consolidated Financial Statements	7-19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20-30

Item 3. Quantitative and Qualitative Disclosures about Market Risk	30

Item 4. Controls and Procedures	30

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	30

Item 4. Submission of Matters to a Vote of Security Holders	31

Item 5. Other Information	31

Item 6. Exhibits	31

(a) Exhibits	31

Table of Contents

HCSB FINANCIAL CORPORATION

Condensed Consolidated Balance Sheets

	September 30,			December 31,
(Dollars in thousands)	2009			2008
	(Unaudited)			(Audited)
Assets:
Cash and cash equivalents:
Cash and due from banks	$	22,153		$	10,423
Federal funds sold	28,384			—
Total cash and cash equivalents	50,537			10,423

Investment securities:
Securities available-for-sale	196,834			166,992
Nonmarketable equity securities	6,580			5,261
Total investment securities	203,414			172,253

Loans held for sale	1,056			70

Loans receivable	482,772			429,038
Less allowance for loan losses	(5,901		)	(4,416		)
Loans, net	476,871			424,622

Premises, furniture, and equipment, net	23,194			19,056
Accrued interest receivable	3,795			3,625
Cash value of life insurance	9,287			8,465
Other assets	8,941			5,833
Total assets	$	777,095		$	644,347

Liabilities:
Deposits:
Noninterest-bearing transaction accounts	$	33,102		$	31,285
Interest-bearing transaction accounts	39,932			45,228
Money market savings accounts	136,895			94,008
Other savings accounts	6,819			5,661
Time deposits $100,000 and over	105,668			81,082
Other time deposits	269,823			227,487
Total deposits	592,239			484,751

Fed Funds Purchased	—			7,653
Repurchase Agreements	10,342			9,172
Advances from the Federal Home Loan Bank	115,800			92,000
Notes Payable	—			4,500
Junior subordinated debentures	6,186			6,186
Accrued interest payable	1,441			2,105
Other liabilities	2,966			3,530
Total liabilities	728,974			609,897

Shareholders’ Equity:
Preferred stock, $1,000 par value. Authorized 5,000,000 shares; issued and outstanding 12,895 and 0 shares at September 30, 2009 and December 31, 2008, respectively	11,917			—
Common stock, $0.01 par value, 10,000,000 shares authorized; 3,787,170 and 3,788,293 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively	38			38
Capital surplus	30,819			30,728
Common stock warrants	1,012			—
Nonvested restricted stock	(645		)	(645		)
Retained earnings	2,890			3,231
Accumulated other comprehensive income (loss)	2,090			1,098
Total shareholders’ equity	48,121			34,450

Total liabilities and shareholders’ equity	$	777,095		$	644,347

Table of Contents

HCSB FINANCIAL CORPORATION

Condensed Consolidated Statements of Income

(Unaudited)

	Nine Months Ended Sept 30,					Three Months Ended Sept 30,
(Dollars in thousands)	2009			2008		2009		2008
Interest income
Loans, including fees	$	19,088		$	19,525	$	6,554	$	6,384
Investment securities:
Taxable	6,019			2,924		1,897		1,438
Tax-exempt	184			222		60		72
Nonmarketable equity securities	26			174		22		32
Other interest income	17			102		4		7
Total	25,334			22,947		8,537		7,933

Interest expense
Certificates of deposit $100,000 & over	2,267			2,039		759		569
Other deposits	6,701			5,948		2,145		2,158
Advances from the Federal Home Loan Bank	2,503			1,694		934		576
Other interest expense	382			594		108		257
Total	11,853			10,275		3,946		3,560

Net interest income	13,481			12,672		4,591		4,373
Provision for loan losses	5,782			1,004		1,510		385

Net interest income after provision for loan losses	7,699			11,668		3,081		3,988

Other income
Service charges on deposit accounts	1,201			1,283		414		467
Credit life insurance commission	38			40		10		13
Gain on sale of mortgage loans	451			465		130		121
Other fees and commissions	249			221		77		69
Brokerage commission	187			131		51		11
Gain/(Loss) on sale of securities	3,047			89		891		(1		)
Income from cash value life insurance	261			213		89		100
Other operating income	93			99		39		32
Total	5,527			2,541		1,701		812

Other expense
Salaries and employee benefits	7,260			6,629		2,456		2,138
Occupancy expense	844			788		275		271
Advertising and marketing expense	429			334		121		86
Furniture and equipment expense	971			920		356		313
Loss on other than temporary impairment	122			—		—		—
Loss on sale of assets	177			—		107		—
Provision for losses on OREO	336			—		111		—
FDIC insurance premiums	765			286		195		135
Other operating expenses	2,318			2,020		772		647
Total	13,222			10,977		4,393		3,590

Income before income taxes	4			3,232		389		1,210
Income tax expense	(41		)	1,109		99		416
Net income benefit	$	45		$	2,123	$	290	$	794

Accretion of preferred stock to redemption value	102			—		45		—
Preferred dividends accrued	163			—		82		—
Net income (loss) available to common shareholders	(220		)	—		163		—

Basic net income (loss) per share	$	(0.06	)	$	0.58	$	0.04	$	0.22

Diluted net income (loss) per share	$	(0.06	)	$	0.57	$	0.04	$	0.21

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HCSB FINANCIAL CORPORATION

Condensed Consolidated Statement of Shareholders’ Equity and Comprehensive Income

For the Nine Months ended September 30, 2009 and 2008

(Unaudited)

	Common Stock				Common Stock		Preferred Stock			Nonvested Restricted			Capital			Retained Earnings			Accumulated other comprehensive
(Dollars in thousands except share data)	Shares		Amount		Warrants		Shares	Amount		Stock			Surplus			(deficit)			income			Total
Balance, December 31, 2007	3,677,974		37		$	—	—	$	—	(645		)	28,689			2,908			(6		)	30,983
Net income for the period																2,123						2,123
Other comprehensive income, net of tax																			(150		)	(150		)
Comprehensive income																						1,973
Payment of fractional shares	(19	)														(29		)				(29		)
Stock compensation expense													111									111
Balance, September 30, 2008	3,677,955		$	37	$	—	—	$	—	$	(645	)	$	28,800		$	5,002		$	(156	)	$	33,038

Balance, December 31, 2008	3,788,293		$	38	—		—	—		$	(645	)	$	30,728		$	3,231		$	1,098		$	34,450
Net income for the period																45						45
Other comprehensive income, net of tax																			992			992
Comprehensive income																						1,037
Issuance of preferred stock							12,895	11,815														11,815
Issuance of common stock warrants					1,012																	1,012
Accretion of preferred stock to redemption value								102								(102		)				—
Adjustment due to 3% stock dividend	(1,123	)											(19		)	19						—
Stock compensation expense													110									110
Payment of dividend on preferred stock																(284		)				(284		)
Payment of fractional shares																(19		)				(19		)
Balance, September 30, 2009	3,787,170		$	38	$	1,012	12,895	$	11,917	$	(645	)	$	30,819		$	2,890		$	2,090		$	48,121

Table of Contents

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
(Dollars in thousands)	2009			2008
Cash flows from operating activities:
Net income	$	45		$	2,123
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	689			642
Provision for loan losses	5,782			1,004
Amortization less accretion on investments	542			74
Accretion of discount on preferred stock	(101		)	—
Amortization of deferred loan costs	7			8
(Increase) decrease in loans held for sale	(986		)	1,385
Gain on sale of securities available-for-sale	(3,047		)	(89		)
Loss on sale of other real estate	505			—
(Increase) in interest receivable	(170		)	(402		)
Increase (decrease) in interest payable	(664		)	703
Increase in other assets	(361		)	(281		)
Stock compensation expense	110			111
Dividends paid on preferred stock	(285		)	—
Other than temporary impairment of investment security	122			0
Increase (decrease) in other liabilities	(1,146		)	630

Net cash provided by operating activities	1,042			5,908

Cash flows from investing activities:
Net increase in loans to customers	(63,698		)	(51,831		)
Purchases of securities available-for-sale	(162,945		)	(102,435		)
Maturities of securities available-for-sale	64,207			10,267
Proceeds from sales of securities available-for-sale	72,975			—
Purchase of nonmarketable equity securities	(1,441		)	(1,797		)
Purchases of premises and equipment	(4,827		)	(2,718		)
Proceeds from disposals of premises and equipment	—			—
Proceeds from sale of other real estate	2,408			12
Purchase of life insurance contracts	(822		)	(7,422		)

Net cash used by investing activities	(94,143		)	(155,924		)

Cash flows from financing activities:
Net increase in deposits	107,488			102,681
Increase (decrease) in federal funds purchased	(7,653		)	3,443
Increase in FHLB borrowings	23,800			36,650
Net increase in preferred stock	12,929
Increase in repurchase agreements	1,170			4,145
Decrease in notes payable	(4,500		)	3,000
Cash paid in lieu of fractional shares	(19		)	(28		)
Net cash provided by financing activities	133,215			149,891

Net increase (decrease) in cash and cash equivalents	40,114			(125		)

Cash and cash equivalents, beginning of period	10,423			11,613

Cash and cash equivalents, end of period	$	50,537		$	10,488

Cash paid during the period for:
Income taxes	$	803		$	882

Interest	$	12,516		$	9,417

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HCSB FINANCIAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with the requirements for interim financial statements and, accordingly, they are condensed and omit disclosures, which would substantially duplicate those contained in the most recent annual report to shareholders. The financial statements as of September 30, 2009 and for the interim periods ended September 30, 2009 and 2008 are unaudited and, in our opinion, include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. Operating results for the nine-month period ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. The financial information as of December 31, 2008 has been derived from the audited financial statements as of that date. For further information, refer to the financial statements and the notes included in HCSB Financial Corporation’s 2008 Annual Report on Form 10-K.

In January 2009, the Board of Directors declared a stock dividend payable on February 20, 2009, to shareholders of record on February 6, 2009. As a result of the 3.0% dividend, 110,338 shares were issued. The Company recorded this dividend in shareholders’ equity for the year ended December 31, 2008. In January 2008, the Board of Directors declared a 3.0% stock dividend payable on February 15, 2008, to shareholders of record on February 5, 2008. As a result of the dividend, 106,114 shares were issued. All share and per share amounts have been adjusted to reflect these dividends.

On March 6, 2009, as part of the Troubled Asset Relief Program (the “TARP”) Capital Purchase Program (the “CPP”) established by the U.S. Treasury under the Emergency Economic Stabilization Act of 2009 (“EESA”), the Company issued and sold to the U.S. Treasury (i) 12,895 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series T, having a liquidation preference of $1,000 per share (the “Series T Preferred Stock”), and (ii) a ten-year warrant to purchase up to 91,714 shares of its common stock at an initial exercise price of $21.09 per share (the “CPP Warrant”), for an aggregate purchase price of $12,895,000 in cash. Refer to the accompanying Management’s Discussion and Analysis of Financial Condition and results of Operations for additional information.

Note 2 - Recently Issued Accounting Pronouncements

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and / or disclosure of financial information by the Company.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162,” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification TM (“Codification”) as the source of authoritative generally accepted accounting principles (“GAAP”) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately 90 accounting Topics, and displays all Topics using a consistent structure. Contents in each Topic are further organized first by Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where ASC stands for Accounting Standards Codification. Changes to the ASC subsequent to June 30, 2009 are referred to as Accounting Standards Updates (“ASU”).

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

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HCSB FINANCIAL CORPORATION

Note 2 - Recently Issued Accounting Pronouncements – continued

In December 2008 the FASB issued FASB Staff Position (“FSP”) SFAS 132(R)-1 (FASB ASC 715-20-65), “Employers’ Disclosures about Postretirement Benefit Plan Assets,” (“FSP SFAS 132(R)-1”). This FSP provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The objective of the FSP is to provide the users of financial statements with an understanding of: (a) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (b) the major categories of plan assets; (c) the inputs and valuation techniques used to measure the fair value of plan assets; (d) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (e) significant concentrations of risk within plan assets. The FSP also requires a nonpublic entity, as defined in Statement of Financial Accounting Standard (“SFAS”) 132, to disclose net periodic benefit cost for each period for which a statement of income is presented. FSP SFAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The Staff Position will require the Company to provide additional disclosures related to its benefit plan.

The FASB issued SFAS 166 (not yet reflected in FASB ASC), “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140,” (“SFAS 166”) in June 2009. SFAS 166 limits the circumstances in which a financial asset should be derecognized when the transferor has not transferred the entire financial asset by taking into consideration the transferor’s continuing involvement. The standard requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. The concept of a qualifying special-purpose entity is removed from SFAS 140 along with the exception from applying FIN 46(R). The standard is effective for the first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company does not expect the standard to have any impact on the Company’s financial statements.

SFAS 167 (not yet reflected in FASB ASC), “Amendments to FASB Interpretation No. 46(R),” (“SFAS 167”) was also issued in June 2009. The standard amends FIN 46(R) to require a company to analyze whether its interest in a variable interest entity (“VIE”) gives it a controlling financial interest. A company must assess whether it has an implicit financial responsibility to ensure that the VIE operates as designed when determining whether it has the power to direct the activities of the VIE that significantly impact its economic performance. Ongoing reassessments of whether a company is the primary beneficiary is also required by the standard. SFAS 167 amends the criteria to qualify as a primary beneficiary as well as how to determine the existence of a VIE. The standard also eliminates certain exceptions that were available under FIN 46(R). SFAS 167 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. Comparative disclosures will be required for periods after the effective date. The Company does not expect the standard to have any impact on the Company’s financial position.

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

ASU 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” issued in September, 2009, allows a company to measure the fair value of an investment that has no readily determinable fair market value on the basis of the investee’s net asset value per share as provided by the investee. This allowance assumes that the investee has calculated net asset value in accordance with the GAAP measurement principles of Topic 946 as of the reporting entity’s measurement date. Examples of such investments include investments in hedge funds, private equity funds, real estate funds and venture capital funds. The update also provides guidance on how the investment should be classified within the fair

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HCSB FINANCIAL CORPORATION

Note 2 - Recently Issued Accounting Pronouncements – continued

value hierarchy based on the value for which the investment can be redeemed. The amendment is effective for interim and annual periods ending after December 15, 2009 with early adoption permitted. The Company does not have investments in such entities and, therefore, there will be no impact to our financial statements.

ASU 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force” was issued in October, 2009 and provides guidance on accounting for products or services (deliverables) separately rather than as a combined unit utilizing a selling price hierarchy to determine the selling price of a deliverable. The selling price is based on vendor-specific evidence, third-party evidence or estimated selling price. The amendments in the Update are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 with early adoption permitted. The Company does not expect the update to have an impact on its financial statements.

Issued October, 2009, ASU 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing” amends ASC Topic 470 and provides guidance for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with Topic 820 and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. The Company has no plans to issue convertible debt and, therefore, does not expect the update to have an impact on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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HCSB FINANCIAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 3 – EARNINGS PER SHARE

A reconciliation of the numerators and denominators used to calculate basic and diluted earnings per share for the nine and three months ended September 30, 2009 and 2008 are as follows:

	Nine Months Ended September 30, 2009
	Income			Shares	Per Share
	(Numerator)			(Denominator)	Amount
Basic earnings per share
Income (loss) available to common shareholders	$	(220	)	3,787,380	$	(0.06	)

Effect of dilutive securities
Stock options	—			—
Diluted earnings per share
Income (loss) available to common shareholders plus assumed conversions	$	(220	)	3,787,380	$	(0.06	)

	Nine Months Ended September 30, 2008
	Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount
Basic earnings per share
Income available to common shareholders	$	2,123	3,677,958	$	0.58

Effect of dilutive securities
Stock options	—		33,395
Diluted earnings per share
Income available to common shareholders plus assumed conversions	$	2,123	3,711,353	$	0.57

	Three Months Ended September 30, 2009
	Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount
Basic earnings per share
Income available to common shareholders	$	163	3,787,380	$	0.04

Effect of dilutive securities
Stock options	—		33,954
Diluted earnings per share
Income available to common shareholders plus assumed conversions	$	163	3,821,334	$	0.04

	Three Months Ended September 30, 2008
	Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount
Basic earnings per share
Income available to common shareholders	$	794	3,677,958	$	0.22

Effect of dilutive securities
Stock options	—		57,944
Diluted earnings per share
Income available to common shareholders plus assumed conversions	$	794	3,735,902	$	0.21

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HCSB FINANCIAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 4 - COMPREHENSIVE INCOME

The following table sets forth the amounts of other comprehensive income included in equity along with the related tax effect for the nine months ended September 30, 2009 and 2008 and for the three months ended September 30, 2009 and 2008:

	Nine Months Ended September 30, 2009
	Pre-Tax			(Expense)			Net-of-tax
(Dollars in thousands)	Amount			Benefit			Amount
Unrealized gains (losses) on securities:

Unrealized holding gains (losses) arising during the period	$	(1,472	)	$	544		$	(928	)

Plus: reclassification adjustment for gains (losses) realized in net income	3,047			(1,127		)	1,920

Net unrealized gains (losses) on securities	1,575			(583		)	992

Other comprehensive income (loss)	$	1,575		$	(583	)	$	992

	Nine Months Ended September 30, 2008
	Pre-Tax			(Expense)			Net-of-tax
(Dollars in thousands)	Amount			Benefit			Amount
Unrealized gains (losses) on securities:

Unrealized holding gains (losses) arising during the period	$	(327	)	$	121		$	(206	)

Plus: reclassification adjustment for gains (losses) realized in net income	89			(33		)	56

Net unrealized gains (losses) on securities	(238		)	88			(150		)

Other comprehensive income (loss)	$	(238	)	$	88		$	(150	)

	Three Months Ended September 30, 2009
	Pre-Tax		(Expense)			Net-of-tax
(Dollars in thousands)	Amount		Benefit			Amount
Unrealized gains (losses) on securities:

Unrealized holding gains (losses) arising during the period	$	636	$	(235	)	$	401

Plus: reclassification adjustment for gains (losses) realized in net income	891		(330		)	561

Net unrealized gains (losses) on securities	1,527		(565		)	962

Other comprehensive income (loss)	$	1,527	$	(565	)	$	962

	Three Months Ended September 30, 2008
	Pre-Tax		(Expense)			Net-of-tax
(Dollars in thousands)	Amount		Benefit			Amount
Unrealized gains (losses) on securities:

Unrealized holding gains (losses) arising during the period	$	1,108	$	(410	)	$	698

Plus: reclassification adjustment for gains (losses) realized in net income	—		—			—

Net unrealized gains (losses) on securities	1,108		(410		)	698

Other comprehensive income (loss)	$	1,108	$	(410	)	$	698

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NOTE 5 - INVESTMENT SECURITIES

Investment securities available-for-sale increased from $166,992,000 at December 31, 2008 to $196,834,000 at September 30, 2009. This represents an increase of $29,842,000, or 17.87%, from December 31, 2008 to September 30, 2009. Securities available-for-sale increased to improve the liquidity position of the Bank and to pledge against our repurchase agreements and public funds.

Securities available-for-sale consisted of the following:

	Amortized		Gross Unrealized				Estimated
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
September 30, 2009
Government-sponsored enterprises	$	30,859	$	257	$	72	$	31,044
Mortgage-backed securities	156,538		3,097		262		159,373
Obligations of state and local governments	6,120		301		4		6,417

Total	$	193,517	$	3,655	$	338	$	196,834

September 30, 2008
Government-sponsored enterprises	$	19,450	$	95	$	134	$	19,411
Mortgage-backed securities	114,992		623		841		114,774
Obligations of state and local governments	7,359		62		52		7,369

Total	$	141,801	$	780	$	1,027	$	141,554

The following is a summary of maturities of securities available-for-sale as of September 30, 2009. The amortized cost and estimated fair values are based on the contractual maturity dates. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

	Securities
	Available-For-Sale
	Amortized		Estimated
(Dollars in thousands)	Cost		Fair Value

Due in less than one year	$	879	$	883
Due after one year but within five years	4,045		4,192
Due after five years but within ten years	30,366		30,872
Due after ten years	158,227		160,887

Total	$	193,517	$	196,834

The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position, at:

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NOTE 5 - INVESTMENT SECURITIES (continued)

	September 30, 2009
	Less than				Twelve months
	twelve months				or more				Total
			Unrealized				Unrealized				Unrealized
(Dollars in thousands)	Fair value		losses		Fair value		losses		Fair value		losses

Government-sponsored enterprises	$	7,906	$	72	$	—	$	—	$	7,906	$	72
Mortgage-backed securities	24,737		184		1,752		78		26,489		262
Obligations of state and local governments	271		4		—		—		271		4

Total	$	32,914	$	260	$	1,752	$	78	$	34,666	$	338

	September 30, 2008
	Less than				Twelve months
	twelve months				or more				Total
			Unrealized				Unrealized				Unrealized
(Dollars in thousands)	Fair value		losses		Fair value		losses		Fair value		losses

Government-sponsored enterprises	$	10,935	$	134	$	—	$	—	$	10,935	$	134
Mortgage-backed securities	53,429		798		2,169		43		55,598		841
Obligations of state and local governments	374		7		1,455		45		1,829		52

Total	$	64,738	$	939	$	3,624	$	88	$	68,362	$	1,027

At September 30, 2009, the Bank had three individual securities, or 0.89% of the security portfolio, that have been in an unrealized loss position for more than twelve months. The Bank does not intend to sell these securities and it is more likely than not that the Bank will not be required to sell these securities before recovery of their amortized cost. The Bank believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary.

At September 30, 2009 and 2008, investment securities with a book value of $134,182,000 and $98,384,000, respectively, and a market value of $136,847,000 and $98,170,000, respectively, were pledged to secure deposits.

Gross realized gains on sales of available-for-sale securities as of September 30, 2009 were $3,047,000 and with no realized losses.

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss, current economic conditions, risk characteristics of various financial instruments, and other factors.

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Cash and Due from Banks - The carrying amount is a reasonable estimate of fair value.

Federal Funds Sold and Purchased - Federal funds sold and purchased are for a term of one day and the carrying amount approximates the fair value.

Time Deposits with Other Banks - Time deposits with other banks have a term less than 90 days and the carrying amount approximates the fair value.

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NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Investment Securities Available-for-Sale - For securities available-for-sale, fair value equals the carrying amount, which is the quoted market price. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Nonmarketable Equity Securities - The carrying amount is a reasonable estimate of fair value since no ready market exists for these securities.

Loans Held-for-Sale - Fair values of mortgage loans held for sale are based on commitments on hand from investors or market prices.

Loans Receivable - For certain categories of loans, such as variable rate loans which are repriced frequently and have no significant change in credit risk and credit card receivables, fair values are based on the carrying amounts. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to the borrowers with similar credit ratings and for the same remaining maturities.

Deposits - The fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting date. The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities.

Advances from the Federal Home Loan Bank - For the portion of borrowings immediately callable, fair value is based on the carrying amount. The fair value of the portion maturing at a later date is estimated using a discounted cash flow calculation that applies the interest rate of the immediately callable portion to the portion maturing at the future date.

Junior Subordinated Debentures - The carrying value of junior subordinated debentures is a reasonable estimate of fair value since the debentures were issued at a floating rate.

Note Payable-The fair value of the note payable approximates its carrying value because it reprices periodically.

Accrued Interest Receivable and Payable - The carrying value of these instruments is a reasonable estimate of fair value.

Commitments to Extend Credit and Standby Letters of Credit - The contractual amount is a reasonable estimate of fair value for the instruments because commitments to extend credit and standby letters of credit are issued on a short-term or floating rate basis and include no unusual credit risks.

Interest Rate Swaps - Fair values are based on the present value of future cash flows based on the interest rate spread between the fixed rate and the floating rate.

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NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

The carrying values and estimated fair values of the Company’s financial instruments were as follows:

	September 30,
	2009				2008
(Dollars in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount			Estimated Fair Value
Financial Assets:
Cash and due from banks	$	22,153	$	22,153	$	11,488		$	10,488
Federal funds sold	28,384		28,384		—			—
Investment securities available-for-sale	196,834		196,834		141,554			141,554
Nonmarketable equity securities	6,580		6,580		5,124			5,124
Loans and loans held-for-sale	483,828		482,036		402,432			400,299
Accrued interest receivable	3,795		3,795		3,875			3,875
Other assets - interest rate swaps	—		—		(159		)	(159		)

Financial Liabilities:
Demand deposit, interest-bearing transaction, and savings accounts	$	216,748	$	216,748	$	165,022		$	165,022
Certificates of deposit	375,491		376,695		278,390			277,509
Repurchase agreements	10,342		10,342		9,145			9,145
Advances from the Federal Home Loan Bank	115,800		116,518		88,950			90,977
Notes Payable	—		—		—			—
Junior subordinated debentures	6,186		6,186		6,186			6,186
Accrued interest payable	1,441		1,441		1,685			1,685
Other liabilities - interest rate swaps	—		—		(159		)	(159		)

Notional

Estimated

Notional

Estimated

Amount

Fair Value

Amount

Fair Value

Off-Balance Sheet Financial Instruments:

Commitments to extend credit

56,344

N/A

63,534

N/A

Standby letters of credit

1,087

N/A

1,784

N/A

Effective January 1, 2008, the Company adopted FASB ASC Topic 820, which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. The standard requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans).

The standard also defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasuries and money market funds.

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Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities, and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts and impaired loans.

Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts.

The following is a description of the valuation methodologies used for assets and liabilities recorded at fair value.

Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or market value. The fair value of mortgage loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, our bank classifies loans subjected to nonrecurring fair value adjustments as Level 2.

(Dollars in thousands)	Quoted market price in active markets (Level 1)		Significant other oberservable inputs (Level 2)		Significant unobservable inputs (Level 3)

Available-for-sale investment securities	$	6,597	$	190,237	—

Mortgage loans held for sale	—		$	1,056	—

Total	$	6,597	$	191,293	—

The Company has no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

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HCSB FINANCIAL CORPORATION

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

The Company is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. Loans, which are deemed to be impaired, are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be level 2 inputs. The aggregate carrying amount of impaired loans at September 30, 2009 was $21,562,000.

NOTE 7 — SUBSEQUENT EVENTS

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Nonrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through November 12, 2009, the date the financial statements were issued and no subsequent events occurred requiring accrual or disclosure.

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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

The following is our discussion and analysis of certain significant factors that have affected our financial position and operating results and those of our subsidiary, Horry County State Bank (the “Bank”), during the periods included in the accompanying financial statements. This commentary should be read in conjunction with the financial statements and the related notes and the other statistical information included in this report.

This report contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to the financial condition, results of operations, plans, objectives, future performance, and business of our Company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitation, those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission (the “SEC”) and the following:

· reduced earnings due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including declining real estate values, increasing interest rates, increasing unemployment, changes in payment behavior, or other factors;

· reduced earnings due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral;

· the amount of our real estate-based loan portfolio collateralized by real estate, and the weakness in the commercial real estate market;

· significant increases in competitive pressure in the banking and financial services industries;

· changes in the interest rate environment which could reduce anticipated or actual margins;

· changes in political conditions or the legislative or regulatory environment;

· general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality;

· changes occurring in business conditions and inflation;

· changes in technology;

· changes in deposit flows;

· the level of allowance for loan loss;

· the rate of delinquencies and amounts of charge-offs;

· the rates of loan growth;

· adverse changes in asset quality and resulting credit risk-related losses and expenses;

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· changes in monetary and tax policies;

· loss of consumer confidence and economic disruptions resulting from terrorist activities;

· changes in the securities markets; and

· other risks and uncertainties detailed from time to time in our filings with the SEC.

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

These risks are exacerbated by the recent developments in national and international financial markets, and we are unable to predict what effect these uncertain market conditions will have on us. During 2008 and 2009, the capital and credit markets have experienced extended volatility and disruption. There can be no assurance that these unprecedented recent developments will not continue to materially and adversely affect our business, financial condition and results of operations, as well as our ability to raise capital or other funding for liquidity and business purposes.

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HCSB FINANCIAL CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion describes our results of operations for the quarter and nine months ended September 30, 2009 as compared to the quarter and nine months ended September 30, 2008 and also analyzes our financial condition as of September 30, 2009 as compared to December 31, 2008. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

Of course, there are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section we have included a detailed discussion of this process.

In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this noninterest income, as well as our noninterest expense, in the following discussion.

The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.

Real estate markets, especially those along the coast, have weakened and property values have been impacted negatively by the current economic operating environment. Our primary service area, Horry County, is not immune to these pressures. If prevailing economic conditions locally and nationally continue to decline, our business may be affected adversely. A sustained economic downturn would likely contribute to reduced deposits, the deterioration of the quality of the loan portfolio and increased nonperforming loans which could result in a net loss of earnings, an increase in the provision for loan losses and an increase in loan charge offs, all of which could have a material adverse effect on our financial condition and results of operations.

Recent Legislative and Regulatory Initiatives to Address Financial and Economic Crises

Markets in the United States and elsewhere have experienced extreme volatility and disruption for more than 12 months. These circumstances have exerted significant downward pressure on prices of equity securities and virtually all other asset classes, and have resulted in substantially increased market volatility, severely constrained credit and capital markets, particularly for financial institutions, and an overall loss of investor confidence. Loan portfolio performances have deteriorated at many institutions resulting from, among other factors, a weak economy and a decline in the value of the collateral supporting their loans. Dramatic slowdowns in the housing industry, due in part to falling home prices and increasing foreclosures and unemployment, have created strains on financial institutions. Many borrowers are now unable to repay their loans, and the collateral securing these loans has, in some cases, declined below the loan balance. In response to the challenges facing the financial services sector, several regulatory and governmental actions have recently been announced including:

· EESA, approved by Congress and signed by President Bush on October 3, 2008, which, among other provisions, allowed the U.S. Treasury to purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. EESA also raised the basic limit of FDIC from $100,000 to $250,000 through December 31, 2013;

· On October 7, 2008, the FDIC approved a plan to increase the rates banks pay for deposit insurance;

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· On October 14, 2008, the U.S. Treasury announced the creation of the CPP, which encourages and allows financial institutions to build capital through the sale of senior preferred shares to the U.S. Treasury on terms that are non-negotiable;

· On October 14, 2008, the FDIC announced the creation of the Temporary Liquidity Guarantee Program (the “TLGP”), which seeks to strengthen confidence and encourage liquidity in the banking system. The TLGP has two primary components that are available on a voluntary basis to financial institutions:

· The Transaction Account Guarantee Program (“TAGP”), which provides unlimited deposit insurance coverage through June 30, 2010 for noninterest-bearing transaction accounts (typically business checking accounts) and certain funds swept into noninterest-bearing savings accounts. Institutions participating in the TLGP pay a 10 basis points fee (annualized) on the balance of each covered account in excess of $250,000, while the extra deposit insurance is in place;

· The Debt Guarantee Program (“DGP”), under which the FDIC guarantees certain senior unsecured debt of FDIC-insured institutions and their holding companies. The unsecured debt must be issued on or after October 14, 2008 and not later than June 30, 2009, and the guarantee is effective through the earlier of the maturity date or June 30, 2012. The DGP coverage limit is generally 125% of the eligible entity’s eligible debt outstanding on September 30, 2008 and scheduled 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 the debt maturity, the nonrefundable DGP fee ranges from 50 to 100 basis points (annualized) for covered debt outstanding until the earlier of maturity or June 30, 2012. The TAGP and DGP are in effect for all eligible entities, unless the entity opted out on or before December 5, 2008.

· On February 17, 2009 President Obama signed into law The American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, including our Company, that are in addition to those previously announced by the U.S. Treasury. These new limits are in place until the institution has repaid the U.S. Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the recipient institution’s appropriate regulatory agency.

· On March 23, 2009, the U.S. Treasury, in conjunction with the FDIC and the Federal Reserve, announced the Public-Private Partnership Investment Program for Legacy Assets which consists of two separate plans, addressing two distinct asset groups:

· The Legacy Loan Program, in which the primary purpose will be to facilitate the sale of troubled mortgage loans by eligible institutions, which include FDIC-insured federal or state banks and savings associations. 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. Additionally, the Loan Program’s requirements and structure will be subject to notice and comment rulemaking, which may take some time to complete.

· The Securities Program, which will be administered by the U.S. Treasury, involves the creation of public-private investment funds to target investments in eligible residential mortgage-backed securities and commercial mortgage-backed securities issued before 2009 that originally were rated AAA or the equivalent by two or more nationally recognized statistical rating organizations, without regard to rating enhancements (collectively, “Legacy Securities”). Legacy Securities must

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· be directly secured by actual mortgage loans, leases or other assets, and may be purchased only from financial institutions that meet TARP eligibility requirements.

It is likely that further regulatory actions may arise as the Federal government continues to attempt to address the economic situation.

The Bank is participating in the TAGP but will not participate in the DGP.

On March 6, 2009, the Company issued and sold to the U.S. Treasury (i) 12,895 shares of its Series T Preferred Stock and (ii) the CPP Warrant to purchase up to 91,714 shares of its common stock at an initial exercise price of $21.09 per share, for an aggregate purchase price of $12,895,000 in cash.

CHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net Interest Income

For the nine months ended September 30, 2009, net interest income was $13,481,000, an increase of $809,000, or 6.38%, over the same period in 2008. Interest income from loans, including fees, was $19,088,000, a decrease of $437,000, or 2.24%, from the nine months ended September 30, 2008. This decrease was attributable to the decline in interest rates, particularly the prime rate, over the course of 2008 and 2009 and the increase in the Bank’s non-performing assets. Interest income on taxable securities totaled $6,019,000 for the nine months ended September 30, 2009, an increase of $3,095,000 over the same period in 2008. This increase resulted from an increase of $29,842,000 in our securities available-for-sale, which we increased to improve the liquidity position of the Bank. Interest expense for the nine months ended September 30, 2009 increased $1,578,000, or 15.36%, to $11,853,000 as compared to $10,275,000 for the same period in 2008. Interest on deposits increased $981,000, or 12.28%, to $8,968,000 for the period ended September 30, 2009 as compared to $7,987,000 for the comparable period in 2008. The net interest margin realized on earning assets declined to 2.70% for the nine months ended September 30, 2009 as compared to 3.63% for the nine months ended September 30, 2008. The interest rate spread was 2.56% for the nine months ended September 30, 2009 compared to 3.38% for the nine months ended September 30, 2008. The decline in our interest rate spread is attributable to the overall level of interest rates during 2009.

Net interest income increased from $4,373,000 for the quarter ended September 30, 2008 to $4,591,000 for the quarter ended September 30, 2009. This represents an increase of $218,000, or 4.99%. Interest income from loans, including fees, increased $170,000 to $6,554,000 for the quarter ended September 30, 2009 from $6,384,000 for the quarter ended September 30, 2008. This increase is attributable to an increase in gross loans of $53,734,000, or 12.52%, from $429,038,000 at September 30, 2008 to $482,772,000 at the comparable period in 2009. Interest expense increased $386,000, or 10.84%, to $3,946,000 for the three months ended September 30, 2009, compared to $3,560,000 for the three months ended September 30, 2008. This increase is attributable to an increase in total deposits of $107,488,000, or 22.17%, from $484,751,000 at September 30, 2008 to $592,239,000 for the comparable period in 2009.

Provision and Allowance for Loan Losses

The allowance is subject to examination and adequacy testing by regulatory agencies. In addition, such regulatory agencies could require allowance adjustments based on information available to them at the time of their examination.

The allowance for loan losses was 1.22% and 1.02% of total loans at September 30, 2009 and 2008 respectively. The allowance for loan losses at September 30, 2009 is reflective of the results of our allowance model methodology. We monitor and evaluate the adequacy of the allowance and loss exposure in the loan portfolio by considering the borrowers’ financial conditions and other factors in the unallocated component of the allowance.

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Accordingly, we believe the allowance is adequate, based on our assessment of probable losses, and available facts and circumstances then prevailing.

The provision for loan losses is the charge to operating expenses that management believes is necessary to maintain an adequate level of allowance for loan losses. For the nine months ended September 30, 2009, the provision charged to expense was $5,782,000 compared to $1,004,000 for the nine months ended September 30, 2008. For the quarter ended September 30, 2009, the provision charged to expense was $1,510,000 compared to $385,000 during the same quarter in 2008. There are risks inherent in making all loans, including risks with respect to the period of time over which loans may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, and, in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.

The Company maintains an allowance for loan losses with the intention of estimating the probable losses in the loan portfolio. The provision for loan losses is based on management’s periodic evaluation of the composition of the loan portfolio, review of all past due and nonperforming loans, review of historical loan charge-offs and recoveries, evaluation of prevailing economic conditions, and other relevant factors. In evaluating the loan portfolio, management identifies loans believed to be impaired. Impaired loans are those not likely to be repaid as to principal and interest in accordance with the terms of the loan agreement. Impaired loans are reviewed individually by management and the net present value of the collateral is estimated. Reserves are maintained for each loan in which the principal balance of the loan exceeds the net present value of the collateral. In addition to the specific allowance for individually reviewed loans, a general allowance for potential loan losses is established based on management’s review of pools of loans with similar risk characteristics by application of a historical loss factor for each loan pool. The final component of the allowance for loan losses incorporates management’s evaluation of current economic conditions and other risk factors which may impact the inherent losses in the loan portfolio. These evaluations are highly subjective and require that a great degree of judgmental assumptions be made by management. This component of the allowance for loan losses includes additional estimated reserves for trends in loan delinquencies, impaired loans, charge-offs and recoveries, and economic trends and conditions.

The downturn in the real estate market has resulted in an increase in loan delinquencies, defaults and foreclosures, and we believe these conditions will continue. In some cases, this downturn has resulted in a significant impairment to the value of our collateral and our ability to sell the collateral upon foreclosure, and there is a risk that this trend will continue. The real estate collateral in each case provides an alternative source of repayment in the event of default by the borrower, and may deteriorate in value during the time the credit is extended. If real estate values continue to decline, it is also more likely that we would be required to increase our allowance for loan losses.

Thus, there is a risk that charge-offs in future periods could exceed the allowance for loan losses or that substantial additional increases in the allowance for loan losses could be required. Additions to the allowance for loan losses would result in a decrease of our net income and possibly, our capital.

Noninterest Income

We earned $5,527,000 in noninterest income during the nine months ended September 30, 2009, an increase of $2,986,000, or 117.51%, from the comparable period in 2008. The increase is primarily a result of gains on sale of securities of $3,047,000 for the nine months ended September 30, 2009 as compared to $89,000 for the same period in 2008, an increase of $2,958,000. Management sold $72,975,000 of securities with relatively high coupon rates that were experiencing rapid prepayments of principal. The increase in noninterest income is also a result of an increase of $48,000, or 22.54%, in income from cash value life insurance from $213,000 for the nine months ended September 30, 2008 to $261,000 for the nine months ended September 30, 2009. Cash value life insurance increased $920,000 from $8,368,000 at September 30, 2008 to $9,287,000 at September 30, 2009 due to the Bank implementing a Salary Continuation Plan for members of management during the first quarter of 2008. Other fees and commissions increased $28,000, or 12.67%, to $249,000 for the nine months ended September 30, 2009.

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For the quarter ended September 30, 2009, noninterest income increased $889,000, or 109.48%, over the same period in 2008. This increase is primarily a result of gains on sale of securities of $891,000 for the three months ended September 30, 2009 as compared to a loss of $1,000 for the three months ended September 30, 2008. The increase in noninterest income is also a result of an increase of brokerage commissions of $40,000, or 363.64%. Fee income generated from residential loans sold in the secondary market also increased $9,000, or 7.44%, from $121,000 for the three months ended September 30, 2008 to $130,000 for the three months ended September 30, 2009. The increase was the result of additional personnel hired in this area and the attractive rates offered on mortgage loans in the marketplace.

Noninterest Expense

Total noninterest expense for the nine months ended September 30, 2009 was $13,222,000, an increase of $2,245,000, or 20.45%, from the comparable period in 2008, primarily attributable to the increase in salaries and employee benefits, FDIC premiums and provision for losses on other real estate owned. Salaries and employee benefits increased $631,000, or 9.52%, to $7,260,000 for the nine months ended September 30, 2009, compared to $6,629,000 for the comparable period in 2008. The increase in salaries and employee benefits is a result of additional personnel needed as the Bank expanded its operations area and also to obtain additional staffing in our mortgage lending and brokerage services areas. Employee benefits increased by $41,000, or 6.21%, due to an increase in cost of insurance premiums for employees as well as the increase in the number of employees. In addition, FDIC insurance premiums increased $479,000, or 167.48%, from $286,000 for the nine months ended September 30, 2008 to $765,000 for the nine months ended September 30, 2009, due to the FDIC increasing its insurance premiums and special assessments charged to financial institutions. Included in the increase in FDIC premiums was a one-time special assessment of approximately $330,000. The FDIC continues to evaluate the insurance fund level and may impose further special assessments in future quarters. The FDIC currently has submitted a proposal that would require us to prepay the deposit insurance premiums for a period of three years at our current assessment rate. In the event this proposal is finalized we would recognize the expense over the three year prepayment period. Other operating expenses increased $298,000, or 14.75%, from $2,020,000 for the nine months ended September 30, 2008 to $2,318,000 for the nine months ended September 30, 2009 due to the growth of the Bank. Finally, advertising and marketing expense increased $95,000, or 28.44%, from $334,000 for the nine months ended September 30, 2008 to $429,000 for the nine months ended September 30, 2009. The Bank also experienced a loss on its investment in Silverton Bank stock of $122,000 during the nine months ended September 30, 2009.

For the quarter ended September 30, 2009, we incurred $4,393,000 in noninterest expense, an increase of $803,000, or 22.37%, over the same period in 2008. Salaries and employee benefits increased $318,000, or 14.87%, to $2,456,000, largely due to additional personnel needed in our mortgage lending and brokerage commission areas. Other operating expenses increased $125,000, or 19.32%, to $772,000 for the three months ended September 30, 2009 due to the growth of the Bank. FDIC insurance premium increased $60,000, or 44.44%, due to the FDIC increasing its insurance coverage and special assessments charged to financial institutions. Finally, there were $111,000 in provision for losses on other real estate owned for the nine months ended September 30, 2009.

Income Taxes

The income tax provision for the nine months ended September 30, 2009 was $(41,000), as compared to $1,109,000 for the same period in 2008. The effective tax rates were —1,025.00%, due to the consolidation of an income tax benefit held at the holding company, and 34.31% for the nine months ended September 30, 2009 and 2008, respectively. The effective tax rates were 25.45% and 34.38% for the quarters ended September 30, 2009 and 2008, respectively.

Earnings Performance

As of September 30, 2009, the Bank continued to experience improvements in net interest income of $809,000, or 6.38%, over the comparable period in 2008. The improvement in net interest income was a result of interest income on our taxable securities portfolio, which increased $3,095,000, or 105.85%, compared to the nine months ended

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September 30, 2008. However, due to declining economic conditions and a low interest rate environment, the Bank had a decline in net earnings of $2,078,000 to $45,000 for the period ended September 30, 2009 from $2,123,000 for the period ended September 30, 2008. The Bank has increased its provision for loan losses $4,778,000, or 475.90%, from the comparable period in 2008, to $5,782,000 due to a weakening of economic conditions that has resulted in the borrowers’ inability to repay loans as well as growth in our loan portfolio. Despite declining interest rate margins, the Bank has experienced improvement in its noninterest income from our residential mortgage and brokerage commission’s areas due to the increase in personnel in these areas as well as gains realized in our securities portfolio. We believe earnings should strengthen as economic conditions improve, which should help strengthen the quality of our loan portfolio, and with the increase in fee income generated from our residential mortgage and brokerage commission areas. The Bank also experienced an increase in noninterest expenses of $2,245,000, or 20.45%, due to the increases in salaries and employee benefits due to the additional staffing and the increases in FDIC insurance premiums. The above resulted in a loss per share of $0.06 for the nine months ended September 30, 2009 compared to earnings per share of $0.58 for the nine months ended September 30, 2008. During the quarter ended September 30, 2009, earnings per share were $0.04, compared to earnings of $0.22 per share for comparable period in 2008.

Assets and Liabilities

During the first nine months of 2009, total assets increased $132,748,000, or 20.60%, compared to December 31, 2008. The primary reason for the increase in assets was due to an increase in net loans of $52,249,000 during the first nine months of 2009. Securities available-for-sale increased $29,842,000, or 17.87%, from December 31, 2008 to September 30, 2009. Federal funds sold increased $28,384,000 as a result of the growth in our funding. Total deposits increased $107,488,000, or 22.17%, to $592,239,000 from the December 31, 2008 amount of $484,751,000. Within the deposit area, interest-bearing deposits increased $105,671,000, or 23.30%, and noninterest-bearing deposits increased $1,817,000, or 5.81%, during the first nine months of 2009. Money market savings accounts increased $42,887,000, or 45.62%, to $136,895,000 at September 30, 2009 due to the attractive rates offered by the Bank compared to competitors in the marketplace. The increase in deposits has helped us to partially fund the growth in our loan and securities portfolio. Our additional presence in the North Myrtle Beach and Myrtle Beach markets has been a significant factor in our overall growth. Also to help increase our net interest margin, the Bank increased our brokered deposits, which is a lower cost source of funding. This funding was utilized to buy securities, which helped with our liquidity and capital position.

Loans

Net loans increased $52,249,000, or 12.30%, to $476,871,000 during the nine-month period ended September 30, 2009. Loan demand in general continued to increase in our market areas in the first nine months of 2009. As expected during this time of year, agricultural loans increased $6,932,000, or 91.05%, from December 31, 2008. Balances within the major loans receivable categories as of September 30, 2009 and December 31, 2008 are as follows:

	September 30,		December 31,
(Dollars in thousands)	2009		2008

Real estate - construction and land development	$	58,800	60,643
Real estate - other	316,991		253,450
Agricultural	14,545		7,613
Commercial and industrial	72,847		84,568
Consumer	18,807		19,655
Other, net	782		3,109

	$	482,772	$	429,038

During the nine months ended September 30, 2009, nonaccrual loans increased from $9,040,000 at December 31, 2008 to $21,562,000.

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Risk Elements in the Loan Portfolio

The following is a summary of risk elements in the loan portfolio:

	September 30,		December 31,
(Dollars in thousands)	2009		2008

Loans: Nonaccrual loans	$	21,562	9,040

Loans identified by the internal review mechanism:

Criticized	16,122		9,110
Classified	24,963		9,285

For discussion on the increases in our criticized and classified loans, refer to management’s discussion on the methodology regarding the calculation of the Provision for Loan Losses under Item 2.

Activity in the Allowance for Loan Losses is as follows:

	Nine Months Ended September 30,
(Dollars in thousands)	2009			2008

Balance, January 1	$	4,416		$	3,535
Provision for loan losses for the period	5,782			1,004
Net loans charged off for the period	(4,297		)	(513		)

Balance, end of period	$	5,901		$	4,026
Gross loans outstanding, end of period	$	482,772		$	401,809
Allowance for Loan Losses to loans outstanding	1.22		%	1.00		%

Deposits

At September 30, 2009, total deposits had increased by $107,488,000, or 22.17%, from December 31, 2008. Noninterest bearing deposits increased $1,817,000 to $33,102,000 and interest-bearing deposits increased $105,671,000 to $559,137,000. Expressed in percentages, noninterest-bearing deposits increased 5.81% and interest-bearing deposits increased 23.30%.

Balances within the major deposit categories as of September 30, 2009 and December 31, 2008 are as follows:

	September 30,		December 31,
(Dollars in thousands)	2009		2008

Noninterest-bearing demand deposits	$	33,102	$	31,285
Interest-bearing demand deposits	39,932		45,228
Savings and money market deposits	143,714		99,669
Certificates of deposits	375,491		308,569
	$	592,239	$	484,751

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Advances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank consisted of the following at September 30, 2009:

(Dollars in thousands)

Date of Advance	Rate		Quarterly Payment		Maturity Date	Balance
February 25, 2000	5.92	%	$	76	March 1, 2010	$	5,000
May 18, 2000	6.49	%	75		May 24, 2010	4,600
March 19, 2001	0.29	%	8		March 22, 2011	5,000
January 17, 2002	0.51	%	14		January 17, 2012	5,000
July 23, 2002	3.81	%	48		July 23,2012	5,000
December 8, 2004	3.24	%	41		December 8, 2014	5,000
September 4, 2007	4.42	%	56		September 4, 2012	5,000
September 7, 2007	4.05	%	10		September 7, 2012	1,000
October 15, 2007	4.59	%	58		October 15, 2010	5,000
January 25, 2008	2.73	%	14		January 26, 2015	2,000
March 19, 2008	2.66	%	28		March 19, 2015	4,000
August 20, 2008	3.44	%	44		August 20, 2018	5,000
September 4, 2008	3.60	%	18		September 4,2018	2,000
September 4,2008	3.32	%	42		September 4,2018	5,000
September 8, 2008	3.25	%	42		September 10, 2018	5,000
September 8, 2008	3.45	%	44		September 10, 2018	5,000
September 18, 2008	2.95	%	38		September 18, 2018	5,000
October 10, 2008	2.63	%	33		October 10, 2018	5,000
December 18, 2008	2.63	%	33		October 18, 2013	5,000
January 22,2009	2.95	%	2		January 22, 2014	200
January 29, 2009	2.87	%	14		January 29, 2013	2,000
February 17,2009	1.94	%	2		March 16, 2011	500
February 20, 2009	2.93	%	15		February 20, 2013	2,000
March 2, 2009	2.90	%	22		March 4, 2013	3,000
March 5, 2009	2.56	%	7		April 13, 2012	1,000
March 17, 2009	2.56	%	3		March 19, 2012	500
March 20, 2009	3.05	%	15		March 20, 2014	2,000
April 8, 2009	2.86	%	15		April 8, 2013	2,000
April 14, 2009	2.65	%	13		April 15, 2013	2,000
April 20, 2009	2.95	%	22		April 21, 2014	3,000
April 21, 2009	2.55	%	13		April 22, 2013	2,000
April 27, 2009	2.95	%	15		April 28, 2014	2,000
May 1, 2009	2.60	%	13		May 1, 2013	2,000
May 8, 2009	3.00	%	23		May 8, 2014	3,000
August 20, 2009	3.86	%	—		August 20, 2019	5,000

			$	916		$	115,800

As of September 30, 2009, the Bank’s portfolio of FHLB advances consisted of $10,000,000 of adjustable rate credits, $46,800,000 of fixed rate credit, and $59,000,000 of convertible advances. Interest on fixed rate advances is generally payable monthly and interest on all other advances is payable quarterly. Convertible advances are callable

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by the Federal Home Loan Bank on their respective call dates. The Bank has the option to either repay any advance that has been called or to refinance the advance as an adjustable rate credit.

At September 30, 2009 the Bank had pledged as collateral for FHLB advances approximately $21,718,000 of 1-4 family first mortgage loans, $4,193,000 of commercial real estate loans, $6,407,000 in home equity lines of credit and $97,337,000 of agency and private issue mortgage securities. The Bank had an investment in Federal Home Loan Bank stock of $6,370,000.

During the second quarter, management unwound the interest rate swap agreements associated with the FHLB advances. The notional amount of advances involved in the unwinding of the swaps was $14,600,000, which resulted in a realized gain of $82,000.

Liquidity

We meet liquidity needs through scheduled maturities of loans and investments on the asset side and through pricing policies for interest-bearing deposit accounts on the liability side. The level of liquidity is measured by the loans-to-total borrowed funds ratio, which was 66.63% at September 30, 2009 and 71.91% at December 31, 2008.

Unpledged securities available-for-sale, which totaled $59,988,000 at September 30, 2009, serve as a ready source of liquidity. We also have lines of credit available with correspondent banks to purchase federal funds for periods from one to seven days. At September 30, 2009, unused lines of credit totaled $21,000,000. In addition, we have the ability to borrow additional funds from the Federal Home Loan Bank. As of September 30, 2009, our unused line of credit with Federal Home Loan Bank was $163,000.

Capital Resources

Total shareholders’ equity increased from $34,450,000 at December 31, 2008 to $48,121,000 at September 30, 2009. The increase of $13,671,000 is primarily attributable to our participation in the U.S. Treasury’s CPP. We issued 12,895 shares of our Series T Preferred Stock to the U.S. Treasury, which added $12,828,000 in capital to the Bank. In addition, the unrealized gain related to the change in fair market value on available-for-sale securities of $992,000 had an overall positive effect on shareholders’ equity.

Bank holding companies and their banking subsidiaries are required by banking regulators to meet certain minimum levels of capital adequacy, which are expressed in the form of certain ratios. Capital is separated into Tier 1 capital (essentially common shareholders’ equity less intangible assets) and Tier 2 capital (essentially the allowance for loan losses limited to 1.25% of risk-weighted assets). The first two ratios, which are based on the degree of credit risk in a company’s assets, provide the weighting of assets based on assigned risk factors and include off-balance sheet items such as loan commitments and standby letters of credit. The ratio of Tier 1 capital to risk-weighted assets must be at least 4.0% and the ratio of Tier 2 capital to risk-weighted assets must be at least 8.0%. The capital leverage ratio supplements the risk-based capital guidelines. Banks and bank holding companies are required to maintain a minimum ratio of Tier 1 capital to adjusted quarterly average total assets of 3.0%.

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The following table summarizes our risk-based capital at September 30, 2009:

(Dollars in thousands)	Company			Bank

Shareholders’ equity	$	48,121		52,341
Plus: qualifying trust preferred securities	6,000			—

Less: unrealized gains on available-for-sale securities	(2,090		)	(2,090		)

Tier 1 capital	52,031			50,251

Plus: allowance for loan losses (1)	5,901			5,901

Total capital	$	57,932		$	56,152

Net risk-weighted assets	$	531,651		$	530,572
Risk based capital ratios:
Tier 1 capital (to net risk-weighted assets)	9.79		%	9.47		%
Total capital (to net risk-weighted assets)	10.90		%	10.58		%
Tier 1 capital (to total average assets)	7.31		%	6.72		%

(1) Limited to 1.25% of gross risk-weighted assets

Off-Balance Sheet Risk

Through the operations of our Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At September 30, 2009, we had issued commitments to extend credit of $56,344,000 and standby letters of credit of $1,087,000 through various types of commercial lending arrangements. At December 30, 2008, we had issued commitments to extend credit of $61,918,000 and standby letters of credit of $1,478,000 through various types of commercial lending arrangements. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

The following table sets forth the length of time until maturity for unused commitments to extend credit and standby letters of credit at September 30, 2009:

			After One		After Three
	Within		Through		Through				Greater
	One		Three		Twelve		Within		Than
(Dollars in thousands)	Month		Months		Months		One Year		One Year		Total
Unused commitments to extend credit	$	2,240	$	5,334	$	22,856	$	30,430	$	25,914	$	56,344
Standby letters of credit	5		9		817		831		256		1,087
Total	$	2,245	$	5,343	$	23,673	$	31,261	$	26,170	$	57,431

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Critical Accounting Policies

We have adopted various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to the consolidated financial statements at December 31, 2008 as filed on our Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses.

Regulatory Matters

From time to time, various bills are introduced in the United States Congress with respect to the regulation of financial institutions. Certain of these proposals, if adopted, could significantly change the regulation of banks and the financial services industry. We cannot predict whether any of these proposals will be adopted or, if adopted, how these proposals would affect us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

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

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no material legal proceedings to which we or any of our subsidiaries is a party or of which any of our property is the subject.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

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Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None.

ITEM 6. EXHIBITS

31.1 Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2 Rule 13a-14(a) Certification of the Principal Financial Officer.

32 Section 1350 Certifications.

SIGNATURE

In accordance with the requirements off the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 13, 2009	By:	/s/ JAMES R. CLARKSON
		James R. Clarkson
		President and Chief Executive Officer


Date: November 13, 2009	By:	/s/ EDWARD L. LOEHR, JR.
		Edward L. Loehr, Jr.
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number		Description

31.1		Rule 13a-14(a) Certification of Principal Executive Officer.

31.2		Rule 13a-14(a) Certification of the Principal Financial Officer.

32		Section 1350 Certifications.

Attached files

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

HCSB FINANCIAL CORPORATION

HCSB FINANCIAL CORPORATION

Condensed Consolidated Balance Sheets

HCSB FINANCIAL CORPORATION

Table of Contents

SIGNATURE

Stock widget

Investing forum

HCSB FINANCIAL CORP Reports

HCSB FINANCIAL CORP - FORM 10-Q - November 16, 2009

Attached files

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

HCSB FINANCIAL CORPORATION

HCSB FINANCIAL CORPORATION

Condensed Consolidated Balance Sheets

HCSB FINANCIAL CORPORATION

Table of Contents

SIGNATURE

Stock widget

Investing forum

HCSB FINANCIAL CORP Reports