UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
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QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended: September 30, 2008
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o
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TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number: 000-22503
BEACH FIRST NATIONAL BANCSHARES,
INC.
(Exact name of
registrant as specified in its charter)
South Carolina
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57-1030117
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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3751 Robert M. Grissom Parkway, Suite 100, Myrtle Beach, South
Carolina 29577
(Address of
principal executive offices)
(843)
626-2265
(Registrants
telephone number)
Not Applicable
(Former name,
former address and former fiscal year, if changed since last report)
Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13
or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such 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
x
Smaller reporting company
x
Non-accelerated filer
o
Indicate by check mark
whether the registrant is shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
x
State the number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date: On November 3, 2008, 4,845,018 shares of
the issuers common stock, par value $1.00 per share, were issued and
outstanding.
PART I
FINANCIAL
INFORMATION
Item
1. Financial Statements
.
Beach First National Bancshares, Inc. and Subsidiaries
Consolidated
Condensed Balance Sheets
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September 30,
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December 31,
|
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September 30,
|
|
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2008
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2007
|
|
2007
|
|
|
|
(unaudited)
|
|
(audited)
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
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|
Cash and due from banks
|
|
$
|
6,716,033
|
|
$
|
4,992,634
|
|
$
|
4,691,640
|
|
Federal funds sold and short-term
investments
|
|
9,813,955
|
|
566,044
|
|
735,387
|
|
Total cash and cash equivalents
|
|
16,529,988
|
|
5,558,678
|
|
5,427,027
|
|
Investment securities
|
|
70,501,563
|
|
65,677,993
|
|
69,093,920
|
|
|
|
|
|
|
|
|
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Portfolio loans
|
|
553,485,128
|
|
503,432,516
|
|
465,394,875
|
|
Allowance for loan losses (ALL)
|
|
(7,663,434
|
)
|
(6,935,616
|
)
|
(6,397,012
|
)
|
Portfolio loans, net of ALL
|
|
545,821,694
|
|
496,496,900
|
|
458,997,863
|
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|
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Mortgage loans held for sale
|
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5,328,679
|
|
6,475,619
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6,392,792
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Federal Reserve Bank stock
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1,014,000
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984,000
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984,000
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Federal Home Loan Bank stock
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3,545,100
|
|
3,395,300
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3,395,300
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Premises and equipment, net
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15,908,455
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|
15,746,143
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15,458,744
|
|
Cash value of life insurance
|
|
3,641,485
|
|
3,554,807
|
|
3,522,501
|
|
Investment in BFNB Trusts
|
|
310,000
|
|
310,000
|
|
310,000
|
|
Other assets
|
|
10,297,383
|
|
7,788,978
|
|
7,803,341
|
|
Total assets
|
|
$
|
672,898,347
|
|
$
|
605,988,418
|
|
$
|
571,385,488
|
|
|
|
|
|
|
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|
Liabilities
and shareholders equity
|
|
|
|
|
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Liabilities
|
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|
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|
Deposits
|
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|
|
|
|
|
|
Noninterest bearing deposits
|
|
$
|
33,358,001
|
|
$
|
33,138,936
|
|
$
|
40,317,614
|
|
Interest bearing deposits
|
|
503,350,295
|
|
431,059,409
|
|
399,947,404
|
|
Total deposits
|
|
536,708,296
|
|
464,198,345
|
|
440,265,018
|
|
Advances from Federal Home Loan Bank
|
|
55,000,000
|
|
55,000,000
|
|
37,500,000
|
|
Federal funds purchased and other
borrowings
|
|
11,537,176
|
|
18,288,148
|
|
26,781,626
|
|
Junior subordinated debentures
|
|
10,310,000
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|
10,310,000
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10,310,000
|
|
Other liabilities
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|
5,341,014
|
|
5,613,875
|
|
5,202,383
|
|
Total liabilities
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|
$
|
618,896,486
|
|
$
|
553,410,368
|
|
$
|
520,059,027
|
|
|
|
|
|
|
|
|
|
Shareholders
equity
|
|
|
|
|
|
|
|
Common stock, $1 par value; 10,000,000
shares authorized; 4,845,018 issued and outstanding at September 30,
2008, 4,845,018 at December 31, 2007, and 4,842,766 at September 30,
2007
|
|
4,845,018
|
|
4,845,018
|
|
4,842,766
|
|
Paid-in capital
|
|
29,508,457
|
|
29,494,912
|
|
29,110,906
|
|
Retained earnings
|
|
20,005,060
|
|
18,583,425
|
|
17,839,719
|
|
Accumulated other comprehensive loss
|
|
(356,674
|
)
|
(345,305
|
)
|
(466,930
|
)
|
Total shareholders equity
|
|
54,001,861
|
|
52,578,050
|
|
51,326,461
|
|
Total liabilities and shareholders equity
|
|
$
|
672,898,347
|
|
$
|
605,988,418
|
|
$
|
571,385,488
|
|
The accompanying notes are an integral part of these
consolidated condensed financial statements.
2
Beach First National Bancshares, Inc, and Subsidiaries
Consolidated Condensed Statements of Income
(Unaudited)
|
|
Nine Months Ended
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
28,972,905
|
|
$
|
30,594,681
|
|
$
|
9,508,908
|
|
$
|
10,570,132
|
|
Investment securities
|
|
2,757,353
|
|
2,783,588
|
|
851,011
|
|
934,016
|
|
Fed funds sold and short term investments
|
|
111,185
|
|
289,167
|
|
24,300
|
|
144,597
|
|
Other
|
|
13,486
|
|
17,905
|
|
4,041
|
|
6,045
|
|
Total interest income
|
|
31,854,929
|
|
33,685,341
|
|
10,388,260
|
|
11,654,790
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
14,154,313
|
|
13,980,166
|
|
4,522,376
|
|
4,780,404
|
|
Advances from the FHLB, federal funds
purchased and other borrowings
|
|
2,215,458
|
|
2,033,175
|
|
735,416
|
|
844,873
|
|
Junior subordinated debentures
|
|
446,256
|
|
599,407
|
|
134,530
|
|
202,424
|
|
Total interest expense
|
|
16,816,027
|
|
16,612,748
|
|
5,392,322
|
|
5,827,701
|
|
Net interest income
|
|
15,038,902
|
|
17,072,593
|
|
4,995,938
|
|
5,827,089
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
2,291,000
|
|
950,800
|
|
977,000
|
|
278,800
|
|
Net interest income after provision for
possible loan losses
|
|
12,747,902
|
|
16,121,793
|
|
4,018,938
|
|
5,548,289
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
income
|
|
|
|
|
|
|
|
|
|
Service fees on deposit accounts
|
|
261,606
|
|
426,979
|
|
52,129
|
|
148,956
|
|
Mortgage production related income
|
|
2,707,666
|
|
4,207,879
|
|
1,043,967
|
|
920,076
|
|
Merchant income
|
|
737,825
|
|
517,111
|
|
352,996
|
|
257,885
|
|
Income from cash value life insurance
|
|
102,537
|
|
114,150
|
|
29,954
|
|
39,734
|
|
Gain on sale of investment securities
|
|
21,034
|
|
|
|
21,034
|
|
|
|
Gain on sale of fixed assets
|
|
220
|
|
5,499
|
|
|
|
719
|
|
Other income
|
|
771,246
|
|
1,019,837
|
|
255,193
|
|
436,823
|
|
Total noninterest income
|
|
4,602,134
|
|
6,291,455
|
|
1,755,273
|
|
1,804,193
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expense
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
5,665,648
|
|
5,984,093
|
|
1,991,960
|
|
1,636,798
|
|
Employee benefits
|
|
1,245,430
|
|
1,230,203
|
|
445,577
|
|
422,781
|
|
Supplies and printing
|
|
152,897
|
|
150,074
|
|
47,981
|
|
56,988
|
|
Advertising and public relations
|
|
426,432
|
|
495,967
|
|
107,490
|
|
178,915
|
|
Professional fees
|
|
525,943
|
|
455,203
|
|
186,783
|
|
182,379
|
|
Depreciation and amortization
|
|
842,634
|
|
792,982
|
|
292,428
|
|
270,021
|
|
Occupancy
|
|
1,190,710
|
|
1,331,457
|
|
384,468
|
|
465,912
|
|
Data processing fees
|
|
844,434
|
|
528,118
|
|
207,909
|
|
175,056
|
|
Mortgage production related expenses
|
|
596,794
|
|
1,016,369
|
|
217,776
|
|
199,991
|
|
Merchant Processing
|
|
685,406
|
|
489,920
|
|
279,224
|
|
209,894
|
|
Other operating expenses
|
|
2,960,699
|
|
1,965,481
|
|
1,299,078
|
|
722,341
|
|
Total noninterest expenses
|
|
15,137,027
|
|
14,439,867
|
|
5,460,674
|
|
4,521,076
|
|
Income before income taxes
|
|
2,213,009
|
|
7,973,381
|
|
313,537
|
|
2,831,406
|
|
Income
tax expense
|
|
791,374
|
|
2,840,459
|
|
112,122
|
|
1,009,300
|
|
Net income
|
|
$
|
1,421,635
|
|
$
|
5,132,922
|
|
$
|
201,415
|
|
$
|
1,822,106
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per common share
|
|
$
|
0.29
|
|
$
|
1.07
|
|
$
|
0.04
|
|
$
|
0.38
|
|
Diluted
net income per common share
|
|
$
|
0.29
|
|
$
|
1.04
|
|
$
|
0.04
|
|
$
|
0.37
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
4,845,018
|
|
4,809,546
|
|
4,845,018
|
|
4,840,145
|
|
Diluted
|
|
4,904,259
|
|
4,942,553
|
|
4,877,147
|
|
4,939,253
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
3
Beach
First National Bancshares, Inc. and Subsidiaries
Consolidated
Condensed Statements of Changes in Shareholders Equity and Comprehensive
Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
Common stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Shareholders
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Income
(Loss)
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2007
|
|
4,768,413
|
|
$
|
4,768,413
|
|
$
|
28,657,576
|
|
$
|
12,706,797
|
|
$
|
(673,205
|
)
|
$
|
45,459,581
|
|
Net income
|
|
|
|
|
|
|
|
5,132,922
|
|
|
|
5,132,922
|
|
Other comprehensive income, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investment securities
|
|
|
|
|
|
|
|
|
|
35,655
|
|
35,655
|
|
Unrealized gain on interest rate swap
|
|
|
|
|
|
|
|
|
|
170,620
|
|
170,620
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
5,339,197
|
|
Stock based compensation expense
|
|
|
|
|
|
6,955
|
|
|
|
|
|
6,955
|
|
Exercise of stock options
|
|
74,353
|
|
74,353
|
|
446,375
|
|
|
|
|
|
520,728
|
|
Balance, September 30, 2007
|
|
4,842,766
|
|
$
|
4,842,766
|
|
$
|
29,110,906
|
|
$
|
17,839,719
|
|
$
|
(466,930
|
)
|
$
|
51,326,461
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
Common stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Shareholders
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Income (Loss)
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008
|
|
4,845,018
|
|
$
|
4,845,018
|
|
$
|
29,494,912
|
|
$
|
18,583,425
|
|
$
|
(345,305
|
)
|
$
|
52,578,050
|
|
Net income
|
|
|
|
|
|
|
|
1,421,635
|
|
|
|
1,421,635
|
|
Other comprehensive income, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investment securities
|
|
|
|
|
|
|
|
|
|
19,731
|
|
19,731
|
|
Unrealized loss on interest rate swap
|
|
|
|
|
|
|
|
|
|
(31,100
|
)
|
(31,100
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
1,410,266
|
|
Stock based compensation expense
|
|
|
|
|
|
13,545
|
|
|
|
|
|
13,545
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008
|
|
4,845,018
|
|
$
|
4,845,018
|
|
$
|
29,508,457
|
|
$
|
20,005,060
|
|
$
|
(356,674
|
)
|
$
|
54,001,861
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
4
Beach First National Bancshares, Inc.
and Subsidiaries
Consolidated Condensed Statements
of Cash Flows
|
|
Nine Months Ended
|
|
For the Year
Ended
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,421,635
|
|
$
|
5,132,922
|
|
$
|
5,876,630
|
|
Adjustments to reconcile net income to net
|
|
|
|
|
|
|
|
cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
842,634
|
|
792,982
|
|
1,060,255
|
|
Write-down on real estate acquired in
settlement of loans
|
|
370,000
|
|
|
|
|
|
Proceeds from sale of mortgages held for
sale
|
|
95,481,358
|
|
206,707,644
|
|
231,970,200
|
|
Disbursements for mortgages held for sale
|
|
(94,334,417
|
)
|
(200,956,390
|
)
|
(225,967,597
|
)
|
Discount accretion and premium amortization
|
|
(210,306
|
)
|
(103,077
|
)
|
(153,431
|
)
|
Deferred income taxes
|
|
|
|
(250,144
|
)
|
(673,024
|
)
|
Provisions for loan losses
|
|
2,291,000
|
|
950,800
|
|
2,045,600
|
|
Recourse reserve provision
|
|
10,000
|
|
|
|
205,000
|
|
Loss (gain) on sale of fixed assets
|
|
(220
|
)
|
(5,499
|
)
|
(6,324
|
)
|
(Gain) on sale of investment securities
|
|
(21,034
|
)
|
|
|
(7,904
|
)
|
(Gain) on sale of other real estate owned
|
|
39,439
|
|
|
|
(99,267
|
)
|
Stock based compensation expense
|
|
13,545
|
|
6,955
|
|
7,643
|
|
(Increase) decrease in other assets
|
|
(183,454
|
)
|
(1,901,321
|
)
|
(1,713,779
|
)
|
Increase (decrease) in other liabilities
|
|
(282,861
|
)
|
1,939,824
|
|
1,994,064
|
|
Net cash provided by (used in) operating
activities
|
|
5,437,319
|
|
12,314,696
|
|
14,538,066
|
|
Investing
activities
|
|
|
|
|
|
|
|
Proceeds from paydowns of investment
securities
|
|
5,817,012
|
|
3,864,926
|
|
4,988,852
|
|
Proceeds from sale of investment securities
|
|
25,204,000
|
|
1,000,000
|
|
8,623,625
|
|
Purchase of investment securities
|
|
(35,583,346
|
)
|
(5,327,218
|
)
|
(10,077,003
|
)
|
Purchase of FHLB stock
|
|
(149,800
|
)
|
(919,700
|
)
|
(919,700
|
)
|
Purchase of Federal Reserve Stock
|
|
(30,000
|
)
|
|
|
|
|
Increase in loans, net
|
|
(56,472,657
|
)
|
(66,715,900
|
)
|
(107,223,880
|
)
|
Purchase of life insurance contracts
|
|
(86,678
|
)
|
(97,915
|
)
|
(130,221
|
)
|
Purchase of property and equipment
|
|
(1,004,947
|
)
|
(1,907,827
|
)
|
(2,462,068
|
)
|
Proceeds from sale of property and
equipment
|
|
220
|
|
5,930
|
|
6,324
|
|
Proceeds from sale of other real estate
owned
|
|
2,081,208
|
|
|
|
1,679,229
|
|
Net cash used in investing activities
|
|
(60,224,988
|
)
|
(70,097,704
|
)
|
(105,514,842
|
)
|
Financing
activities
|
|
|
|
|
|
|
|
Repayment of advances from Federal Home
Loan Bank
|
|
|
|
|
|
(5,000,000
|
)
|
Advances from Federal Home Loan Bank
|
|
|
|
17,500,000
|
|
22,500,000
|
|
Increase (decrease) in Federal funds
purchased
|
|
(6,508,005
|
)
|
2,297,000
|
|
11,382,100
|
|
Net increase in deposits
|
|
72,509,951
|
|
23,907,889
|
|
47,841,216
|
|
Proceeds from exercise of stock options
|
|
|
|
520,728
|
|
520,733
|
|
Tax benefit of stock options
|
|
|
|
|
|
385,565
|
|
Repayments of other borrowings
|
|
(242,967
|
)
|
(225,194
|
)
|
(303,772
|
)
|
Net cash provided by financing activities
|
|
65,758,979
|
|
44,000,423
|
|
77,325,842
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
10,971,310
|
|
(13,782,585
|
)
|
(13,650,934
|
)
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents beginning of period
|
|
$
|
5,558,678
|
|
$
|
19,209,612
|
|
$
|
19,209,612
|
|
Cash and
cash equivalents end of period
|
|
$
|
16,529,988
|
|
$
|
5,427,027
|
|
$
|
5,558,678
|
|
Cash
paid for
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
1,631,780
|
|
$
|
3,195,252
|
|
$
|
3,851,653
|
|
Interest
|
|
$
|
17,093,065
|
|
$
|
16,577,634
|
|
$
|
22,042,809
|
|
The accompanying notes are an integral part
of these consolidated condensed financial statements.
5
Beach First National Bancshares, Inc.
Notes to Consolidated Condensed Financial
Statements (Unaudited)
1.
Basis of
Presentation
The
accompanying consolidated condensed financial statements for Beach First
National Bancshares, Inc. (Company) were prepared in accordance with
instructions for Form 10-Q and, therefore, do not include all disclosures
necessary for a complete presentation of financial condition, results of
operations, and cash flows in conformity with generally accepted accounting
principles. All adjustments, consisting
only of normal recurring accruals, which are, in the opinion of management,
necessary for fair presentation of the interim consolidated financial
statements have been included. The
results of operations for the nine month period ended September 30, 2008
are not necessarily indicative of the results that may be expected for the
entire year. These consolidated
financial statements do not include all disclosures required by generally
accepted accounting principles and should be read in conjunction with the Companys
audited consolidated financial statements and related notes for the year ended December 31,
2007.
Certain previously reported amounts have been reclassified to conform
to the current years presentations.
Such changes had no effect on previously reported net income or
shareholders equity.
2.
Principles
of Consolidation
The accompanying consolidated condensed
financial statements include the accounts of the Company and its subsidiaries,
Beach First National Bank and BFNM Building, LLC (LLC) (See No. 4 Investment in LLC below). The Company also owns two grantor trusts,
Beach First National Trust and Beach First National Trust II. All significant inter-company items and
transactions have been eliminated in consolidation. In accordance with current accounting
guidance, the financial statements of the trusts have not been included in the
Companys financial statements.
3.
Earnings Per
Share
The Company
calculates earnings per share in accordance with Statement of Financial
Accounting Standard No. 128, Earnings per Share (SFAS 128). SFAS 128 specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS) for
entities with publicly held common stock or potential common stock such as
options, warrants, convertible securities, or contingent stock agreements if
those securities trade in a public market.
This standard specifies computation and
presentation requirements for both basic EPS and, for entities with complex
capital structures, diluted EPS. Basic
earnings per share are computed by dividing net income by the weighted average
common shares outstanding. Diluted
earnings per share is similar to the computation of basic earnings per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common
shares had been issued. The dilutive
effect of options outstanding under the Companys stock option plan is
reflected in diluted earnings per share by application of the treasury stock
method.
RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND
DILUTED EPS COMPUTATIONS:
|
|
For the Nine Months Ended
|
|
For the Year Ended
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
1,421,635
|
|
$
|
5,132,922
|
|
$
|
5,876,630
|
|
Average common shares outstanding basic
|
|
4,845,018
|
|
4,809,546
|
|
4,817,911
|
|
Basic earnings per share
|
|
$
|
0.29
|
|
$
|
1.07
|
|
$
|
1.22
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
1,421,635
|
|
$
|
5,132,922
|
|
$
|
5,876,630
|
|
Average common shares outstanding basic
|
|
4,845,018
|
|
4,809,546
|
|
4,817,911
|
|
Incremental shares from assumed conversion of
stock options
|
|
59,241
|
|
133,007
|
|
159,156
|
|
Average common shares outstanding diluted
|
|
4,904,259
|
|
4,942,553
|
|
4,977,067
|
|
Diluted earnings per share
|
|
$
|
0.29
|
|
$
|
1.04
|
|
$
|
1.18
|
|
6
4.
Investment
in LLC
The LLC is a partnership with our legal
counsel, Nelson Mullins Riley & Scarborough LLP (NMRS), for purposes
of acquiring a parcel of land and constructing an office building on the
property. The Company owns two-thirds of
the LLC and NMRS owns the remaining one-third.
The building is a three-story, 46,066 square foot office building
located on 3.5 acres at the southwest corner of Robert M. Grissom Parkway and
38th Avenue North in Myrtle Beach, South Carolina. The Company leases two-thirds of the building
(approximately 30,000 square feet) from the LLC. Because the Company occupies approximately
12,500 square feet of space, it intends to lease the other 17,500 square feet
of its portion to outside tenants. NMRS
also leases one-third of the building from the LLC. As of September 30, 2008, 4,700 square
feet is available for lease.
Upon
completion of construction, the construction financing note from the
third-party lender was converted to a term loan payable by the LLC to the
third-party bank and is secured by the building. The loan requires 107
installments of principal and interest based on a fifteen year amortization,
with all remaining principal and interest due on June 15, 2015. The
interest rate is variable based on one-month LIBOR plus 1.40%. The outstanding
balance on the loan at September 30, 2008 is $6,663,081 and is shown as
other borrowings in the accompanying balance sheet.
5.
Derivative Financial Instruments Interest Rate
SWAP
The Company has two types of derivative instruments. One is an interest
rate swap on the LLC building loan, which is discussed below, and the other is
created as part of residential mortgage lending activities when the Company
enters into a rate-locked loan commitment with a prospective borrower and, at
the same time, arranges to sell the loan to an investor. The Company has determined
that this latter derivative activity is not material.
In June 2005, the LLC obtained a $7,235,000 loan from a bank for
the construction of the building that serves as the Companys corporate office.
The interest on this loan floats based on LIBOR plus 1.40%. At the same time,
the LLC entered into an interest rate swap agreement in the same notional
amount as a risk management tool to lock the interest cash outflows on the
floating-rate debt. Under the terms of the swap (which expires upon maturity of
the building loan in June 15, 2015), the Company pays monthly a fixed
interest rate of 4.62% and receives interest payments equal to LIBOR. As there
are no differences between the critical terms of the interest rate swap and the
hedged debt obligation, the Company assumes no ineffectiveness in the hedging
relationship.
The estimated fair value of this agreement at September 30, 2008
was a liability of approximately $190,904, which is included in the Companys
balance sheet. Changes in the fair value are recorded as a separate component
in other comprehensive income. The
fixed rate of 4.62% paid under the swap agreement, when added to the loans
margin above LIBOR of 1.40%, converts the building loans interest (and cash
flows) from a variable rate to a fixed rate of 6.02%, resulting in interest
expense of $311,982 and $243,002 for the nine months ended September 30,
2008 and 2007, respectively.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedged transactions. This process includes
linking all derivatives that are designated as fair value or cash flow hedges
to specific assets and liabilities on the balance sheet or to specific firm
commitments or forecasted transactions. The Company also formally assesses,
both at the hedges inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items. When it is determined
that a derivative is not highly effective as a hedge or that it has ceased to
be a highly effective hedge, the Company discontinues hedge accounting
prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when (1) it
is determined that the derivative is no longer effective in offsetting changes
in cash flows of a hedged item (including forecasted transactions); (2) the
derivative expires or is sold, terminated, or exercised; (3) the
derivative is no longer designated as a hedge instrument because is it unlikely
that a forecasted transaction will occur; or (4) management determines
that designation of the derivative as a hedge instrument is no longer
appropriate.
When hedge accounting is discontinued because it is probable that a
forecasted transaction will not occur, the derivative will continue to be
carried on the balance sheet at its fair value, and gains and losses that were
accumulated in other comprehensive income will be recognized immediately in
earnings. In all other situations in which hedge accounting
7
is discontinued, the derivative will be carried at its fair value on
the balance sheet, with subsequent changes in its fair value recognized in
current earnings.
8
6.
Fair Value Measurements
Effective January 1, 2008, the Company adopted SFAS No. 157,
Fair Value Measurements (SFAS 157) which provides a framework for measuring
and disclosing fair value under generally accepted accounting principles. SFAS
157 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).
SFAS 157 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. SFAS 157 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. Treasury Securities.
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. 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.
Assets and liabilities measured at fair value on a recurring basis are
as follows as of September 30, 2008:
|
|
Quoted Market
Price in Active
Markets
|
|
Significant Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Available-for-sale investment securities
|
|
|
|
$
|
70,501,563
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
$
|
5,328,679
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement (liability)
|
|
|
|
(190,904
|
)
|
|
|
Total
|
|
$
|
|
|
$
|
75,639,338
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 at the fair values of the underlying
real estate collateral. Such fair values are obtained using independent
appraisals on a nonrecurring basis, which the Company considers to be level 2
inputs. The aggregate carrying amount of impaired loans at September 30,
2008 was $17,887,473. The Company has no
assets or liabilities whose fair values are measured using level 3 inputs. The company has no assets or liabilities
whose fair values we measured using level 3 inputs.
FASB Staff Position No. FAS 157-2 delays the implementation of
SFAS 157 until the first quarter of 2009 with respect to goodwill, other
intangible assets, real estate and other assets acquired through foreclosure
and other non-financial assets measured at fair value on a nonrecurring basis.
9
Item 2.
Managements Discussion and Analysis of Financial Condition and Results
of Operations
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,
Beach First National 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 forward-looking statements relating to, without limitation,
future economic performance, plans and objectives of management for future
operations, and projections of revenues and other financial items that are
based on the beliefs of management, as well as assumptions made by and
information currently available to management.
The words may, will, anticipate, should, would, believe,
contemplate, expect, estimate, continue, and intend, as well as other
similar words and expressions of the future, are intended to identify
forward-looking statements. Our actual
results may differ materially from the results discussed in the forward-looking
statements, and our operating performance each quarter is subject to various
risks and uncertainties that are discussed in detail in our filings with the
Securities and Exchange Commission (the SEC), including, without limitation:
·
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, continuing to be weak resulting in, among other things, a
deterioration in credit quality;
·
changes
occurring in business conditions and inflation;
·
changes in
management;
·
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;
·
slower growth, a
decrease in reliance upon brokered deposits, increased capital requirements, and
other changes in our business that may be required or necessary in order for us
to comply with the agreement we have with the OCC;
·
higher than
anticipated levels of defaults on loans;
·
the amount of
our real estate-based loans and the weakness in the commercial real estate
market:
·
misperceptions
by depositors about the safety of their deposits;
·
changes in
monetary and tax policies;
·
loss of consumer
confidence and economic disruptions resulting from terrorist activities;
·
changes in the
securities markets;
·
other risks and
uncertainties detailed from time to time in our filings with the SEC; and
·
natural
disasters, such as a hurricane or flooding in our primary service area.
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 our company. During 2008, the capital and credit markets
have experienced extended volatility and disruption. In the last 90 days, the
volatility and disruption have reached unprecedented levels. There can be no assurance that these
unprecedented recent developments will not materially and adversely affect our
business, financial condition and results of operations.
Critical Accounting Policies
We have adopted various accounting policies that govern the application
of accounting principles generally accepted in the United States and with
general practices within the banking industry in the preparation of our
consolidated financial statements. Our
significant accounting policies are described in the footnotes to our audited
consolidated financial statements as of December 31, 2007 as filed on our
Form 10-K.
Certain accounting policies involve significant judgments and
assumptions by management which has a material impact on the carrying value of
certain assets and liabilities. We
consider such accounting policies to be critical accounting policies. The judgments and assumptions we use are
based on historical experience and other factors, which are believed to be
reasonable under the circumstances.
Because of the nature of the judgments and assumptions we
10
make, actual results could differ from these judgments and
estimates. These differences 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 the critical accounting
policy that requires the most significant judgment and estimates used in
preparation of our consolidated financial statements. Some of the more critical judgments
supporting the amount of our allowance for loan losses include judgments about
the credit worthiness of borrowers, the estimated value of the underlying
collateral, the assumptions about cash flow, determination of loss factors for
estimating credit losses, the impact of current events, and conditions, and
other factors impacting the level of probable inherent losses. Under different conditions or using different
assumptions, the actual amount of credit losses incurred by us may be different
from managements estimates provided in our consolidated financial
statements. Refer to the subsection entitled
Allowance for Loan Losses below for a more complete discussion of our
processes and methodology for determining our allowance for loan losses.
Overview
The following discussion describes our results of operations for the
quarter ended September 30, 2008 as compared to the quarter ended
September 30, 2007, as well as results for the nine months ended
September 30, 2008 and 2007, along with our financial condition as of
September 30, 2008 as compared to December 31, 2007. Like most community banks, we derive most of
our income from interest we receive on our portfolio 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.
In response to financial conditions affecting the banking system and
financial markets and the potential threats to the solvency of investment banks
and other financial institutions, the United States government has taken
unprecedented actions. On
October 3, 2008, President Bush signed into law the Emergency Economic
Stabilization Act of 2008 (the EESA).
Pursuant to the EESA, the U.S. Treasury will have the authority to,
among other things, purchase mortgages, mortgage-backed securities, and other
financial instruments from financial institutions for the purpose of
stabilizing and providing liquidity to the U.S. financial markets. On
October 14, 2008, the U.S. Department of Treasury announced the Capital
Purchase Program under the EESA, pursuant to which the Treasury intends to make
senior preferred stock investments in participating financial
institutions. We are evaluating whether
to participate in the Capital Purchase Program.
Governmental intervention and new regulations under these programs could
materially affect our business, financial condition, and results of operations.
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.
Results of
Operations
Earnings Review
Our net income was $1,421,635 or $0.29 diluted net income per common
share, for the nine months ended September 30, 2008 as compared to
$5,132,922, or $1.04 diluted net income per common share, for the same period
in 2007. Our net income was $201,415 or
$0.04 per diluted common share, for the three months ended September 30,
2008 as compared to net income of $1,822,106 or $0.37 per diluted common share
for the same period in 2007. The
decrease in net income reflects the effect of the challenging financial
environment that is facing all banks.
The net interest margin declined to 3.21% at September 30, 2008,
due in part to rate reductions since September 2007 of 3.25%
11
in the prime lending rate. We expect continued pressure on the net
interest margin throughout 2008. The
return on average assets for the nine month period ended September 30,
2008 was 0.29% as compared to 1.24% for the same period in 2007. The return on average equity was 3.56% for
the nine month period ended September 30, 2008 versus 14.34% for the same
period in 2007.
Over the past 27 months, real estate values have fallen and the rate of
default on mortgage loans has risen.
There has been a resulting disruption in secondary markets for
mortgages, especially in non-conforming loan products. The Federal Reserve Bank has reduced
short-term rates to stimulate the economy.
As a result of pressures coming from oil, food and certain other
sectors, the long end of the yield curve has not dropped as fast as the short
end, resulting in a steepening of the yield curve. The Company has been affected by these events
in areas such as mortgage banking; land acquisition, development and
construction lending; and consumer lending.
The Company has seen an increase in delinquencies and non-performing
loans during 2007 and in 2008, and it continues to monitor its portfolio of
real estate loans closely. The reduction
in short-term rates has adversely impacted the Companys net interest
margin. In the current economic, market
and credit environment, there can be no assurance that the Companys portfolio
will continue to perform at current levels.
Net Interest Income
Our primary source of revenue is net interest income, which represents
the difference between the income on interest-earning assets and expense on
interest-bearing liabilities. During the
first nine months of 2008, net interest income decreased 11.91% to $15,038,902
from $17,072,593 for the same period of 2007. For the three months ended
September 30, 2008, net interest income decreased 14.26% to $4,995,938
from $5,827,089 during the comparable period of 2007. The decline in net interest income for the
first nine months of 2008 resulted from a decrease of $1,830,412 in interest
income and an increase in interest expense of $203,279. Our level of net interest income is
determined by the level of our earning assets and our net interest margin. The impact on net interest income from the
continued growth of our loan portfolio was offset by the decrease in the prime
lending rate which reduced our net interest margin. Average total loans increased from $448.4
million in the first nine months of 2007 to $546.5 million in the same period
in 2008. Average total loans increased
$87.8 million from $458.7 million for the year ended December 31, 2007 as
compared to $546.5 million for the nine months ended September 30,
2008. In addition, average securities
decreased to $73.2 million in the first nine months of 2008 compared to $73.8
million for the first nine months of 2007, and decreased $0.2 million from
$73.4 million for the year ended December 31, 2007. Net interest spread, the difference between
the rate we earn on interest-earning assets and the rate we pay on interest-bearing
liabilities, was 3.74% in the first nine months of 2007 compared to 2.79%
during the same period of 2008, and 3.63% for the year ended December 31,
2007. The net interest margin was 3.21%
for the nine month period ended September 30, 2008 compared to 4.31% for
the same period of 2007, and 4.20% for the year ended December 31,
2007. The decline in the net interest
spread and the net interest margin can be attributed to the challenging
financial environment facing banks including the reduction in the prime lending
rate and an increase in nonaccrual loans.
Because we are asset-sensitive over a one year period, the rate cuts
immediately impact approximately 60% of our portfolio loans. Since our deposit
rates have not declined as quickly, this has put pressure on our net interest
margin. We anticipate that some of this
pressure may be eased as we are able to reprice our deposits to current market
rates. However, there is risk we may
not be able to replace these deposits with lower rate deposits, or replace
these deposits at all, especially given our intent to reduce our reliance on
brokered deposits in the near future.
The following table sets forth, for the periods indicated, information
related to our average balance sheet and average yields on assets and average
rates paid on liabilities. The yield or
rates were derived by dividing annualized income or expense by the average
balance of the corresponding assets or liabilities. The average balances are calculated from the
daily balances from the periods indicated.
12
|
|
Average
Balances, Income and Expenses, and Rates
|
|
|
|
For
the nine months ended September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
|
|
Balance
|
|
Expense
|
|
Rate
|
|
Balance
|
|
Expense
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold, short term investments
and trust preferred securities
|
|
$
|
5,671,960
|
|
$
|
111,185
|
|
2.62
|
%
|
$
|
7,431,080
|
|
$
|
301,157
|
|
5.42
|
%
|
Investment securities plus FHLB and FRB
Stock
|
|
73,195,278
|
|
2,770,839
|
|
5.06
|
%
|
73,491,043
|
|
2,783,588
|
|
5.06
|
%
|
Loans
|
|
546,539,465
|
|
28,972,905
|
|
7.08
|
%
|
448,406,531
|
|
30,594,681
|
|
9.12
|
%
|
Total earning assets
|
|
$
|
625,406,703
|
|
$
|
31,854,929
|
|
6.80
|
%
|
$
|
529,328,654
|
|
$
|
33,679,426
|
|
8.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & Due from Banks
|
|
6,298,178
|
|
|
|
|
|
6,503,070
|
|
|
|
|
|
Other Assets
|
|
22,051,983
|
|
|
|
|
|
19,850,535
|
|
|
|
|
|
Total Assets
|
|
$
|
653,756,864
|
|
|
|
|
|
$
|
555,682,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$
|
479,531,765
|
|
$
|
14,154,314
|
|
3.94
|
%
|
$
|
399,903,909
|
|
$
|
13,980,166
|
|
4.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
80,672,564
|
|
2,661,713
|
|
4.41
|
%
|
66,053,022
|
|
2,672,793
|
|
5.41
|
%
|
Total interest-bearing liabilities
|
|
$
|
560,204,329
|
|
$
|
16,816,027
|
|
4.01
|
%
|
$
|
465,956,931
|
|
$
|
16,652,959
|
|
4.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits
|
|
34,889,247
|
|
|
|
|
|
36,126,247
|
|
|
|
|
|
Other Liabilities
|
|
5,287,129
|
|
|
|
|
|
5,732,232
|
|
|
|
|
|
Total Liabilities
|
|
$
|
600,380,705
|
|
|
|
|
|
$
|
507,815,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Capital
|
|
53,376,159
|
|
|
|
|
|
47,866,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
653,756,864
|
|
|
|
|
|
$
|
555,682,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
2.79
|
%
|
|
|
|
|
3.74
|
%
|
Net interest income/margin
|
|
|
|
$
|
15,038,902
|
|
3.21
|
%
|
|
|
$
|
17,026,467
|
|
4.30
|
%
|
The following table sets forth the impact of the varying levels of
earning assets and interest-bearing liabilities and the applicable rates have
had on changes in net interest income for the periods presented.
|
|
Analysis
of Changes in Net Interest Income
|
|
|
|
For the
nine months ended September 30,
|
|
|
|
2008 versus 2007
|
|
|
|
Volume
|
|
Rate
|
|
Net change
|
|
Federal funds sold and short term
investments and trust preferred securities
|
|
$
|
(34,164
|
)
|
$
|
(201,934
|
)
|
$
|
(236,098
|
)
|
Investment securities
|
|
(8,633
|
)
|
(4,118
|
)
|
(12,751
|
)
|
Loans
|
|
5,230,349
|
|
(6,852,127
|
)
|
(1,621,778
|
)
|
Total earning assets
|
|
5,187,552
|
|
(7,058,179
|
)
|
(1,870,627
|
)
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
2,363,243
|
|
(2,189,096
|
)
|
174,147
|
|
Other borrowings
|
|
378,517
|
|
(389,597
|
)
|
(11,080
|
)
|
Total interest-bearing liabilities
|
|
2,741,760
|
|
(2,578,693
|
)
|
163,067
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
2,445,792
|
|
$
|
(4,479,486
|
)
|
$
|
(2,033,694
|
)
|
13
Provision for Loan Losses
We have
established an allowance for loan losses through a provision for loan losses
charged as an expense on our statement of income. We review our loan portfolio periodically to
evaluate our outstanding loans and to measure both the performance of the
portfolio and the adequacy of the allowance for loan losses. The provision for loan losses was $2,291,000
for the first nine months of 2008 as compared to $950,800 for the same period
of 2007. The provision for loan losses
was $977,000 for the three months ended September 30, 2008 and $278,800
for the same period in 2007. The
increase in the provision was the result of managements assessment of the
adequacy of the reserve for possible loan losses given the size, mix, and
quality of the current loan portfolio, the increases in nonperforming loans,
and the current economic environment. Please
see the discussion below under Allowance for Loan Losses for a description of
the factors we consider in determining the amount of the provision we expense
each period to maintain this allowance.
Noninterest Income
Noninterest income decreased
to $4,602,134 for the nine months ended September 30, 2008, down 26.9%
from $6,291,455 for the same period in 2007.
This decrease in noninterest income is primarily attributable to the
decrease in income from our mortgage operation, which fell from $4,207,879 for
the first nine months of 2007 to $2,707,666 for the first nine months of
2008. For the three months ended
September 30, 2008, noninterest income decreased to $1,755,273 as compared
to $1,804,193 in 2007. The reduction in
noninterest income from our mortgage operation is a reflection of the downturn
in the economy in general and the real estate and mortgage markets in
particular.
Noninterest Expense
Total noninterest expense increased 4.83% to $15,137,027 for the nine
month period ended September 30, 2008 from $14,439,867 for the same period
in 2007, and increased 20.8% to $5,460,674 for the three months ended
September 30, 2008 from $4,521,076 in the same period of 2007. Salaries and wages and employee benefits
expense decreased $303,218 to $6,911,078 during the nine month period ended
September 30, 2008 compared to the same period in 2007. The reduction in salaries and benefits
relates to the decline in mortgage production related income as well as reduced
staffing in the mortgage operation.
We had 156 and 163 full-time equivalent employees (FTE) at
September 30, 2008 and 2007, respectively.
The mortgage operation FTE declined from 75 FTE to 58 FTE during this
period. Excluding our mortgage operation staff, FTE increased from 88 at
September 30, 2007 to 98 FTE at September 30, 2008. Staffing increases were primarily due to
overall growth and the addition of our 73
rd
Avenue branch that
opened in the first quarter of 2008.
For the nine months ended September 30, 2008, advertising and
public relations costs decreased $69,535 to $426,432 as compared to the same
period in 2007, and decreased $71,425 to $107,490 for the three months ended
September 30, 2008 compared to the same period in 2007. Professional fees increased $70,740 to
$525,943 for the nine month period ended September 30, 2008 compared to
the same period in 2007. These fees
continue to increase due to our growth, the regulatory fees associated with
such growth, and the escalating cost of accounting, auditing, and legal
services for a public company.
Occupancy expenses decreased $140,747 to $1,190,710 during the nine
months ended September 30, 2008 compared to the same period in 2007, and
by $81,444 for the three months ended September 30, 2008 compared to the
same period in 2007.
Data processing fees increased during the nine months ended
September 30, 2008 to $844,434 from $528,118 during the same period in
2007. For the three months ended
September 30, 2008, data processing costs totaled $207,909 compared to
$175,056 for September 30, 2007.
Data processing costs are primarily related to the volume of loan and
deposit accounts and transaction activity.
During April 2008, we converted to a new core operating system. The
one time conversion cost of $225,760 was expensed in the second quarter of
2008.
Other operating expenses increased 50.63% to $2,960,699 during the nine
months ended September 30, 2008 compared to $1,965,481 during the same
period in 2007. Other operating expenses
increased 79.8%, to $1,299,078 for the three months ended September 30,
2008 compared to the same period in 2007.
These increases are primarily the result of increased operating expenses
related to the growth of the Company, including our new branch, along with
other expenses associated with the expansion of loans and deposits.
The increase in other operating expenses was primarily due to increases
in FDIC fees, director and advisory fees, credit and collection expenses, other
real estate owned write downs, and software maintenance. Specifically,
14
FDIC fees increased $151,101, director and board advisory fees
increased $149,176, credit and collections expense increased $224,094 and other
real estate owned write downs increased $370,000 collectively totaling an
increase of $894,371. The total increase
in other operating expenses was $995,218 during the nine months ended
September 30, 2008 as compared to the same period in 2007.
The following table presents a comparison of other operating expenses:
|
|
Other Operating Expenses
|
|
|
|
For the nine months ended
|
|
For the three months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Telephone
|
|
$
|
128,058
|
|
$
|
97,076
|
|
$
|
39,629
|
|
$
|
33,431
|
|
Postage and freight
|
|
92,543
|
|
73,728
|
|
31,516
|
|
26,410
|
|
Armored Car
|
|
52,692
|
|
67,305
|
|
9,403
|
|
24,755
|
|
Credit and collection-bank
|
|
334,184
|
|
110,090
|
|
155,112
|
|
23,129
|
|
Dues and subscriptions
|
|
122,589
|
|
103,173
|
|
43,137
|
|
36,929
|
|
Employee travel, conferences, meals, and
lodging
|
|
141,247
|
|
217,622
|
|
51,603
|
|
88,218
|
|
Business development and donations
|
|
277,100
|
|
226,511
|
|
90,239
|
|
38,558
|
|
FDIC insurance
|
|
245,356
|
|
94,255
|
|
95,111
|
|
69,877
|
|
Other insurance
|
|
40,596
|
|
57,801
|
|
15,176
|
|
12,570
|
|
Debit/ATM
|
|
89,769
|
|
70,623
|
|
34,493
|
|
24,599
|
|
Credit card processing fees
|
|
43,802
|
|
33,720
|
|
16,241
|
|
12,968
|
|
Federal Reserve charges
|
|
30,967
|
|
32,531
|
|
10,420
|
|
11,850
|
|
Software maintenance
|
|
208,683
|
|
92,244
|
|
73,881
|
|
35,263
|
|
Director and advisory board fees
|
|
220,676
|
|
71,500
|
|
76,002
|
|
70,800
|
|
NASDAQ
|
|
21,818
|
|
37,758
|
|
8,182
|
|
8,182
|
|
Furniture and equipment
|
|
240,936
|
|
226,972
|
|
98,335
|
|
64,973
|
|
Other real estate owned write downs
|
|
370,000
|
|
0
|
|
370,000
|
|
0
|
|
Other operating expenses
|
|
299,683
|
|
352,572
|
|
80,598
|
|
139,829
|
|
Total
|
|
$
|
2,960,699
|
|
$
|
1,965,481
|
|
$
|
1,299,078
|
|
$
|
722,341
|
|
Balance Sheet Review
General
We had total assets of $672.9 million at September 30, 2008, an
increase of 17.8% from $571.4 million at September 30, 2007, and an
increase of 11.0% from $606.0 million at December 31, 2007. Total assets at September 30, 2008
consisted primarily of $558.8 million in loans including mortgage loans held
for sale, $70.5 million in investments, Fed Funds sold and other short term
investments of $9.8 million, and $6.7 million in cash and due from banks. Our liabilities at September 30, 2008
totaled $618.9 million, consisting primarily of $536.7 million in deposits,
$55.0 million in Federal Home Loan Bank (FHLB) advances, and $10.3 million of
junior subordinated debentures. Our
total deposits increased to $536.7 million at September 30, 2008, up 21.9%
from $440.3 million at September 30, 2007, and up 15.6% from $464.2
million at December 31, 2007.
Shareholders equity increased $1.4 million to $54.0 million at
September 30, 2008 from $52.6 million at December 31, 2007, and
increased $2.7 million from $51.3 million at September 30, 2007.
Investment
Securities
Total investment securities
averaged $68.4 million during the first nine months of 2008 and totaled $70.5
million at September 30, 2008.
Total investment securities averaged $69.5 million during the first nine
months of 2007 and totaled $69.1 million at September 30, 2007. Total investment securities averaged $69.0
million for the year ended December 31, 2007 and totaled $65.7 million at
December 31, 2007. At
September 30, 2008, our total investment securities portfolio had a book
value of $70.9 million and a fair market value of $70.5 million, for an
unrealized net loss of $0.4 million. We
primarily invest in short term U.S. Government Sponsored Enterprises and
Federal Agency securities.
15
At September 30, 2008, federal funds sold and short-term
investments totaled $9.8 million, compared to $735,387 at September 30,
2007 and $566,404 at December 31, 2007.
These funds are one source of our banks liquidity and are generally
invested in an earning capacity on an overnight or short-term basis. This
increase in short-term investments is due to a larger growth in deposits than
in the portfolio loans and investments during the first nine months of 2008 and
also reflects our decision to increase liquidity in the third quarter of 2008
because of the uncertainty in the financial market.
Loans
Since loans typically provide higher yields than other types of earning
assets, a substantial percentage of our earning assets are invested in our loan
portfolio. As of September 30,
2008, loans represented 87.4% of average earning assets as compared to 84.7% at
September 30, 2007, and 85.2% at December 31, 2007. At September 30, 2008, net portfolio
loans (portfolio loans less the allowance for loan losses and deferred loan
fees) totaled $545.8 million, an increase of $86.8 million, or 18.9%, from September 30,
2007 and an increase of $49.3 million, or 9.9% from December 31,
2007. Average gross loans increased to
$546.5 million with a yield of 7.08% during the first nine months of 2008 from
$448.4 million with a yield of 9.12% during the same period in 2007. Average gross loans were $458.7 million with
a yield of 8.95% for the year ended December 31, 2007. The decrease in yield on loans during these
periods is caused by the interest rate declines in 2007 and 2008. The interest rates charged on loans vary with
the degree of risk, the maturity, the guarantees, and the collateral on each
loan. Competitive pressures, money
market rates, availability of funds, and government regulations also influence
interest rates.
The following
table shows the composition of the loan portfolio and mortgage loans held for
sale by category at September 30, 2008, December 31, 2007, and
September 30, 2007.
|
|
Composition of Loan Portfolio
|
|
|
|
September 30, 2008
|
|
December 31, 2007
|
|
September 30, 2007
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
Amount
|
|
of Total
|
|
Amount
|
|
of Total
|
|
Amount
|
|
of Total
|
|
Commercial
|
|
$
|
57,369,241
|
|
10.4
|
%
|
$
|
60,376,105
|
|
12.0
|
%
|
$
|
52,213,925
|
|
11.2
|
%
|
Real estate construction
|
|
48,597,643
|
|
8.8
|
%
|
63,988,173
|
|
12.7
|
%
|
51,724,912
|
|
11.1
|
%
|
Real estate mortgage
|
|
438,913,742
|
|
79.2
|
%
|
370,989,308
|
|
73.6
|
%
|
353,061,859
|
|
75.8
|
%
|
Consumer
|
|
8,956,047
|
|
1.6
|
%
|
8,504,685
|
|
1.7
|
%
|
8,768,942
|
|
1.9
|
%
|
Portfolio loans, gross
|
|
553,836,673
|
|
100.0
|
%
|
503,858,271
|
|
100.0
|
%
|
465,769,638
|
|
100.0
|
%
|
Unearned loan fees and costs, net
|
|
(351,545
|
)
|
|
|
(425,755
|
)
|
|
|
(374,763
|
)
|
|
|
Allowance for possible loan losses
|
|
(7,663,434
|
)
|
|
|
(6,935,616
|
)
|
|
|
(6,397,012
|
)
|
|
|
Portfolio loans, net
|
|
545,821,694
|
|
|
|
496,496,900
|
|
|
|
458,997,863
|
|
|
|
Mortgage loans held for sale
|
|
5,328,679
|
|
|
|
6,475,619
|
|
|
|
6,392,792
|
|
|
|
Loans, net
|
|
$
|
551,150,373
|
|
|
|
$
|
502,972,519
|
|
|
|
$
|
465,390,655
|
|
|
|
The principal component of our portfolio loans at September 30,
2008, December 31, 2007, and September 30, 2007, was mortgage loans,
which represented 79.2%, 73.6%, and 75.8%, respectively. In the context of this discussion, a real
estate mortgage loan is defined as any loan, other than loans for construction
purposes, secured by real estate, regardless of the purpose of the loan. We follow the common practice of financial
institutions in our market area of obtaining a security interest in real estate
whenever possible, in addition to any other available collateral. The collateral is taken to reinforce the
likelihood of the ultimate repayment of the loan and tends to increase the
magnitude of the real estate loan portfolio component. Generally, we limit the loan-to-value ratio
to 80%. We attempt to maintain a
relatively diversified loan portfolio to help reduce the risk inherent in
concentrations of collateral. Loans held
for sale are consumer real estate loans that are pending sale to investors.
Allowance
for Loan Losses
We have
established an allowance for loan losses through a provision for loan losses
charged to expense on our statement of income.
The allowance for loan losses represents an amount which we believe will
be adequate to absorb probable losses on existing loans that may become
uncollectible. Our judgment as to the
adequacy of the allowance for loan losses is based on a number of assumptions
about future events, which we believe to be reasonable, but which may
16
or may not prove to be
accurate. The evaluation of the
allowance is segregated into general allocations and specific allocations. For general allocations, the portfolio is
segregated into risk-similar segments for which historical loss ratios are
calculated and adjusted for identified trends or changes in current portfolio
characteristics. Historical loss ratios
are calculated by product type for consumer loans (installment and revolving),
mortgage loans, and commercial loans and may be adjusted for other risk
factors. To allow for modeling error, a range of probable loss ratios is then
derived for each segment. The resulting
percentages are then applied to the dollar amounts of the loans in each segment
to arrive at each segments range of probable loss levels. Certain nonperforming loans are individually
assessed for impairment under SFAS No. 114 and assigned specific
allocations. Other identified high-risk
loans or credit relationships based on internal risk ratings are also
individually assessed and assigned specific allocations. The provision for loan losses generally, and
the loans impaired under the criteria defined in FAS 114 specifically, reflect
the impact of the continued deterioration in the real estate market,
specifically in our markets, and the economy in general.
The general allocation also includes a component for probable losses
inherent in the portfolio, based on managements analysis that is not fully
captured elsewhere in the allowance.
This component serves to address the inherent estimation and imprecision
risk in the methodology as well as address managements evaluation of various
factors or conditions not otherwise directly measured in the evaluation of the
general and specific allocations. Such
factors include the current general economic and business conditions;
geographic, collateral, or other concentrations of credit; system, procedural,
policy, or underwriting changes; experience of the lending staff; entry into
new markets or new product offerings; and results from internal and external
portfolio examinations.
Periodically, we adjust the amount of the allowance based on changing
circumstances. We charge recognized
losses to the allowance and add subsequent recoveries back to the allowance for
loan losses. There can be no assurance
that charge-offs of loans in future periods will not exceed the allowance for
loan losses as estimated at any point in time or that provisions for loan
losses will not be significant to a particular accounting period.
The allocation of the allowance to the respective loan segments is an
approximation and not necessarily indicative of future losses or future
allocations. The entire allowance is
available to absorb losses occurring in the overall loan portfolio. In addition, the allowance is subject to
examination and adequacy testing by regulatory agencies, which may consider
such factors as the methodology used to determine adequacy and the size of the
allowance relative to that of peer institutions, and other adequacy tests. Such regulatory agencies could require us to
adjust the allowance based on information available to them at the time of
their examination.
At September 30, 2008, the allowance for loan losses was $7.7
million, or 1.37% of total outstanding loans, compared to an allowance for loan
losses of $6.4 million, or 1.36% of total outstanding loans, at
September 30, 2007, and $6.9 million, or 1.36% of total outstanding loans,
at December 31, 2007. During the
first nine months of 2008, we had net charge-offs totaling $1,563,182. During
the same period in 2007, we had net charge-offs totaling $391,840. We had non-performing loans totaling $17.9
million, $549,714 and $2.9 million at September 30, 2008, September 30,
2007, and December 31, 2007, respectively.
This difficult economic environment has caused several of our customers
to reach a point where payment sources have been exhausted. While there can be no assurances, we do not
expect significant losses relating to these nonperforming loans because we
believe that the collateral supporting these loans is sufficient to cover the
outstanding loan balance.
Nevertheless, the downturn in the real estate
market has resulted in an increase in loan delinquencies, defaults and
foreclosures, and we believe these trends are likely to 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 alternate 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.
The following table sets forth certain information with respect to our
allowance for loan losses and the composition of charge-offs and recoveries for
the nine months ended September 30, 2008, September 30, 2007, and the
full year ended December 31, 2007.
17
|
|
Allowance for Loan Losses
|
|
|
|
Nine months
ended
September 30,
|
|
Year ended
December 31,
|
|
Nine months
ended
September 30,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Average total loans outstanding
|
|
$
|
546,539,465
|
|
$
|
458,703,105
|
|
$
|
448,406,531
|
|
Total loans outstanding at period end
|
|
558,813,807
|
|
509,908,135
|
|
471,787,667
|
|
Total nonperforming loans
|
|
17,887,473
|
|
2,902,888
|
|
549,714
|
|
|
|
|
|
|
|
|
|
Beginning balance of allowance
|
|
6,935,616
|
|
5,888,052
|
|
5,888,052
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
(1,582,032
|
)
|
(984,430
|
)
|
(410,175
|
)
|
Total recoveries
|
|
18,850
|
|
36,394
|
|
18,334
|
|
Net loans charged off
|
|
(1,563,182
|
)
|
(948,036
|
)
|
(391,841
|
)
|
Transfer to mortgage recourse
|
|
|
|
(50,000
|
)
|
(50,000
|
)
|
Provision for loan losses
|
|
2,291,000
|
|
2,045,600
|
|
900,800
|
|
Balance at period end
|
|
$
|
7,663,434
|
|
$
|
6,935,616
|
|
$
|
6,347,011
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average total loans
(annualized)
|
|
0.38
|
%
|
0.21
|
%
|
0.12
|
%
|
Allowance as a percent of total loans
|
|
1.37
|
%
|
1.36
|
%
|
1.36
|
%
|
Allowance as a percentage of nonperforming
loans
|
|
42.84
|
%
|
238.90
|
%
|
1163.70
|
%
|
The following
table sets forth the breakdown of the allowance for loan losses by loan
category and the percentage of loans in each category to gross loans as of
September 30, 2008. We believe that
the allowance can be allocated by category only on an approximate basis. The allocation of the allowance to each
category is not necessarily indicative of further losses and does not restrict
the use of the allowance to absorb losses in any category.
Allocation of the Allowance for Loan Losses
|
|
As of September 30, 2008
|
|
Commercial
|
|
$
|
57,369,241
|
|
10.3
|
%
|
Real estate construction
|
|
48,597,643
|
|
8.7
|
%
|
Real estate mortgage
|
|
444,242,421
|
|
79.4
|
%
|
Consumer
|
|
8,956,047
|
|
1.6
|
%
|
Unallocated
|
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
559,165,352
|
|
100.0
|
%
|
Nonperforming Assets/Other Real Estate Owned and Repossessed Assets
We discontinue
accrual of interest on a loan when we conclude it is doubtful that we will be
able to collect interest from the borrower.
We reach this conclusion by taking into account factors such as the
borrowers financial condition, economic and business conditions, and the
results of our previous collection efforts.
Generally, we will place a delinquent loan in nonaccrual status when the
loan becomes 90 days or more past due.
When we place a loan in nonaccrual status, we reverse all interest which
has been accrued on the loan but remains unpaid and we deduct this interest
from earnings as a reduction of reported interest income. We do not accrue any additional interest on
the loan balance until we conclude the collection of both principal and
interest is reasonably certain. At
September 30, 2008, there were no loans accruing interest which were 90
days or more past due and we had no restructured loans.
Impaired loans
totaled $21,501,308, $1,881,551 and $6,435,683 at September 30, 2008,
September 30, 2007, and December 31, 2007 respectively, which had the
effect of reducing net income $1,316,565, $88,501, and $259,958 for the nine
months ended September 30, 2008, September 30, 2007 and the year
ended 2007. Included in the allowance
for loan losses related to impaired loans at September 30, 2008,
September 30, 2007, and December 31, 2007 was $3,273,459, $778,701, and $1,378,306 respectively. Impaired loans with a specific allocation of
the allowance for loan losses totaled $12,073,909, $1,881,551 and $5,526,724 at
September 30, 2008, September 30, 2007, and December 31, 2007
respectively. The average recorded
investment in total impaired loans for the nine months ended September 30,
2008, September 30, 2007 and the year ended December 31, 2007 was $15,362,667,
$1,961,531, and
18
$3,080,069, respectively. Interest income recognized on impaired loans
for the nine months ended September 30, 2008, September 30, 2007 and
the year ended December 31, 2007 was $668,045, $243,420, and $324,556,
respectively.
Nonaccrual
loans were $17,887,473, $549,714, and $2,902,888 as of September 30, 2008,
September 30, 2007, and December 31, 2007, respectively. As the economy continues to weaken, some of
our borrowers find that they do not have sufficient cash flow to make payments
on time, and we place their loans on nonaccrual status. There are currently 32 borrowers that are on
nonaccrual at September 30, 2008.
Six of those borrowers amount to 62% of the total nonaccrual loans.
If the bank
takes properties from a loan work-out, it places it in the other real estate
owned asset account (OREO), if it is real estate, or in a repossessed asset
account, if it is not real estate. The
properties that are received are recorded at the lower of cost or the current
value of the collateral. Any write-down
in value, before being placed into OREO or repossessed asset account, is
included as a charge-off in the allowance for loan loss. Any subsequent gain or loss, including expenses
related to the sale, is recorded through the income statement.
At
September 30, 2008 we had $2,265,215 in OREO, compared to $328,775 at
September 30, 2007, and $15,000 at December 31, 2007. At September 30, 2008 we had $116,000 in
repossessed property compared to $0 at September 30, 2007 and
December 31, 2007. As of September 30, 2008, there are six properties
in OREO, one of which is under contract.
The properties in OREO at September 30, 2008 include two parcels of
undeveloped land, two developed residential lots, one office building, and one
restaurant. During the third quarter of 2008, we wrote down the value of OREO
by $370,000, based on a decline in value of the underlying properties.
Deposits
Average total
deposits were $514.4 million for the nine months ended September 30, 2008,
up 17.9% from $436.0 million during the same period in 2007 and up 16.9% from
$440.2 million at December 31, 2007.
Average interest-bearing deposits were $479.5 million for nine months
ended September 30, 2008, up 19.9% from $399.9 million during the same
period of 2007 and up 18.7% from $404.1 million at December 31, 2007.
The following
table sets forth our deposits by category as of September 30, 2008,
September 30, 2007, and December 31, 2007.
|
|
Deposits
|
|
|
|
September 30, 2008
|
|
December 31, 2007
|
|
September 30, 2007
|
|
|
|
Amount
|
|
Percent
of
Deposits
|
|
Amount
|
|
Percent
of
Deposits
|
|
Amount
|
|
Percent of
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit accounts
|
|
$
|
33,358,001
|
|
6.2
|
%
|
$
|
33,138,936
|
|
7.1
|
%
|
$
|
40,317,614
|
|
9.2
|
%
|
Interest bearing checking accounts
|
|
21,826,376
|
|
4.1
|
%
|
20,377,754
|
|
4.4
|
%
|
23,650,334
|
|
5.4
|
%
|
Money market accounts
|
|
128,220,053
|
|
23.9
|
%
|
103,821,154
|
|
22.4
|
%
|
107,480,890
|
|
24.4
|
%
|
Savings accounts
|
|
3,329,978
|
|
0.6
|
%
|
2,988,881
|
|
0.6
|
%
|
3,265,956
|
|
0.7
|
%
|
Time deposits less than $100,000
|
|
218,927,856
|
|
40.8
|
%
|
161,038,254
|
|
34.7
|
%
|
150,064,341
|
|
34.1
|
%
|
Time deposits of $100,000 or more
|
|
131,046,032
|
|
24.4
|
%
|
142,833,366
|
|
30.8
|
%
|
115,485,883
|
|
26.2
|
%
|
Total deposits
|
|
$
|
536,708,296
|
|
100.0
|
%
|
$
|
464,198,345
|
|
100.00
|
%
|
$
|
440,265,018
|
|
100.00
|
%
|
Deposit growth
was attributable to a new deposit product that maximizes FDIC insurance
(CDARS), brokered funds, internal growth, and the generation of new deposits
due primarily to special promotions and increased advertising.
Core deposits,
which exclude certificates of deposit of $100,000 or more, provide a relatively
stable funding source for our loan portfolio and other earning assets. Our core deposits were $405.7 million at
September 30, 2008, compared to $324.8 million at September 30, 2007,
and $321.4 million at December 31, 2007.
Our brokered deposits were $91.7 million as of September 30, 2008,
$37.1 million as of September 30, 2007, and $46.1 million as of
December 31, 2007. Our level of brokered deposits increased due to the
implementation of the CDARS program and to improve our net interest
margin. We expect a stable base of
deposits to be our primary source of funding to meet both our short-term and
long-term liquidity needs. Core deposits
as a percentage of total deposits were 75.6% at September 30, 2008, 73.8%
at September 30, 2007, and 69.2% at December 31, 2007. Our
loan-to-deposit ratio was 104.1% at
19
September 30, 2008 versus 107.2% at
September 30, 2007 and 109.8% at December 31, 2007. The average loan-to-deposit ratio was 106.2%
during the first nine months of 2008, 102.8% during the same period of 2007,
and 104.2% at December 31, 2007.
Another aspect
of EESA (in addition to the other components described above) which became
effective on October 3, 2008 is a temporary increase of the basic limit on
federal deposit insurance coverage from $100,000 to $250,000 per
depositor. The basic deposit insurance
limit will return to $100,000 after December 31, 2009. At September 30, 2008 the Bank had time
deposits of $100,000 or more of $131.1 million.
Approximately $82.9 million or 63% of these deposits would be covered
under the new FDIC insurance coverage.
An additional $32 million, or 24% of these deposits, are to local public
entities that are required to have securities as collateral.
In addition,
our subsidiary Beach First National Bank anticipates participating in the
FDICs Temporary Liquidity Guarantee Program which was announced
October 14, 2008 as part of EESA.
This guarantee applies to the following transactions:
·
All
newly issued senior unsecured debt (up to $1.5 trillion) issued on or before
June 30, 2009, including promissory notes, commercial paper, inter-bank
funding, and any unsecured portion of secured debt. For eligible debt issued on
or before June 30, 2009, coverage would only be provided for three years
beyond that date, even if the liability has not matured; and
·
Funds
in non-interest-bearing transaction deposit accounts (up to $500 billion) held
by FDIC-insured banks until December 31, 2009.
All FDIC
institutions are covered until December 5, 2008 at no cost. After this initial period expires, the
institution must opt out if it no longer wishes to participate in the program;
otherwise, it will be assessed for future participation. There will be a
75-basis point fee to protect new debt issues and an additional 10-basis point
fee to fully cover non-interest bearing deposit transaction accounts.
The company
will see an increase in FDIC premiums in future periods based on the increase
in insured deposits and proposed changes to FDIC premiums.
Advances from Federal Home Loan Bank
In addition to deposits, we obtained funds
from the FHLB to help fund our loan growth.
Average borrowings from the FHLB were $55.0 million and $46.6 million
during the third quarter of 2008 and 2007 respectively and $48.7 million for
the year ended December 31, 2007.
The following table reflects the current borrowing terms.
FHLB Description
|
|
Balance
|
|
Current
Rate
|
|
Maturity
Date
|
|
Option
Date
|
|
Fixed
rate advances:
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
10,000,000
|
|
5.36
|
%
|
06/04/2010
|
|
|
|
Fixed Rate Hybrid
|
|
5,000,000
|
|
4.76
|
%
|
10/21/2010
|
|
|
|
Convertible
|
|
7,500,000
|
|
4.51
|
%
|
11/23/2010
|
|
11/24/08
|
|
Convertible
|
|
5,000,000
|
|
3.68
|
%
|
07/13/2015
|
|
10/14/08
|
|
Convertible
|
|
5,000,000
|
|
4.06
|
%
|
09/29/2015
|
|
9/29/09
|
|
Convertible
|
|
5,000,000
|
|
4.16
|
%
|
03/13/2017
|
|
3/13/09
|
|
Convertible
|
|
7,500,000
|
|
4.39
|
%
|
04/13/2017
|
|
4/13/09
|
|
Variable
rate advances:
|
|
|
|
|
|
|
|
|
|
Prime Based Advance
|
|
10,000,000
|
|
2.16
|
%
|
09/19/2011
|
|
|
|
|
|
$
|
55,000,000
|
|
|
|
|
|
|
|
Junior Subordinated Debentures
The average
and period end balances of the floating rate trust preferred securities through
BFNB Trust and BFNB Trust II (the Trusts) totaled $10.3 million for all
periods reported. These trust preferred
securities are reported on our consolidated balance sheet as junior
subordinated debentures. The trust preferred securities accrue and pay
distributions annually at a rate per annum equal to the six month LIBOR plus
270 on $5.15 million and LIBOR plus 190 basis points on the remaining $5.15
million, respectively, which was 5.50% and 4.72% at September 30,
2008. The
20
distribution rate payable on these securities
is cumulative and payable quarterly in arrears.
The Company has the right, subject to events of default, to defer
payments of interest on the trust preferred securities for a period not to
exceed 20 consecutive quarterly periods, provided that no extension period may
extend beyond the maturity dates of May 27, 2034 and March 30, 2035,
respectively. The Company has no current
intention to exercise its right to defer payments of interest on the trust
preferred securities. The Company has
the right to redeem the trust preferred securities, in whole or in part, on or
after May 27, 2009 and March 30, 2010, respectively. The trust preferred securities can be
redeemed prior to such dates upon occurrence of specified conditions and the
payment of a redemption premium.
Capital Resources
At both the
holding company and bank level, we are subject to various regulatory capital
requirements administered by the federal banking agencies. To be considered well-capitalized,
generally a bank must maintain total risk-based capital of at least 10%, Tier 1
capital of at least 6%, and a leverage ratio of at least 5%.
At
September 30, 2008, our total shareholders equity was $54.0 million
($56.9 million at the bank level). At
September 30, 2008, our Tier 1 capital ratio was 12.16% (10.98% at the
bank level), our total risk-based capital ratio was 13.41% (12.23% at the bank
level), and our Tier 1 leverage ratio was 9.63% (8.67% at the bank level). At September 30, 2008 the bank was
considered well capitalized, per the OCC, and the holding company met or
exceeded its applicable regulatory capital requirements.
Liquidity Management
Liquidity
represents the ability of a company to convert assets into cash or cash
equivalents without significant loss, and the ability to raise additional funds
by increasing liabilities. Liquidity
management involves monitoring our sources and uses of funds in order to meet
our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated
because different balance sheet components are subject to varying degrees of
management control. For example, the
timing of maturities of our investment portfolio is fairly predictable and
subject to a high degree of control at the time investment decisions are
made. However, net deposit inflows and
outflows are far less predictable and are not subject to the same degree of
control. As noted above, because of the
current uncertain economic conditions, we have increased our level of
liquidity.
Our primary
sources of liquidity are deposits, scheduled repayments on our loans, and
interest on and maturities of our investments.
We plan to meet our future cash needs through the liquidation of
temporary investments and the generation of deposits. In addition, we are evaluating whether to
participate in the Treasurys capital purchase plan and exploring other
alternatives for raising additional capital.
All of our securities have been classified as available for sale. Occasionally, we might sell investment
securities in connection with the management of our interest sensitivity gap or
to manage cash availability. We may also
utilize our cash and due from banks, security repurchase agreements, and
federal funds sold to meet liquidity requirements as needed. In addition, we have the ability, on a
short-term basis, to purchase federal funds from other financial
institutions. Presently, we have
arrangements with commercial banks for short-term unsecured advances of up to
$31.8 million. We maintain a secured
line of credit in the amount of $10.0 million with our primary
correspondent. A $4.5 million unsecured
arrangement will expire on November 3, 2008 and we have added a $20
million secured line with the Federal Reserve Bank of Richmond. We also have a line of credit with the FHLB
to borrow based on our 1 to 4 family loans and investment securities pledged,
resulting in an availability of up to $65.0 million at September 30,
2008. The FHLB has approved borrowings
up to 15% of the banks total assets less advances outstanding. The borrowings are available by pledging
additional collateral and purchasing FHLB stock. At September 30, 2008, we had borrowed
$55.0 million on this line of credit. We
believe that our existing stable base of core deposits, our bond portfolio,
borrowings from the FHLB, short-term federal funds lines, and the potential new
capital we may raise will enable us to successfully meet our liquidity.
Interest Rate Sensitivity
A significant portion of our assets and liabilities are monetary in
nature, and consequently they are very sensitive to changes in interest
rates. This interest rate risk is our
primary market risk exposure, and it can have a significant effect on our net
interest income and cash flows. We
review our exposure to market risk on a regular basis, and we manage the
pricing and maturity of our assets and liabilities to diminish the potential
adverse impact that changes in interest rates could have on our net interest
income.
We actively
monitor and manage our interest rate risk exposure principally by measuring our
interest sensitivity gap, which is the positive or negative dollar difference
between assets and liabilities that are subject to interest rate
21
repricing within a given period of time. A gap is considered positive when the amount
of interest-rate sensitive assets exceeds the amount of interest-rate sensitive
liabilities, and it is considered negative when the amount of interest-rate
sensitive liabilities exceeds the amount of interest-rate sensitive
assets. We generally would benefit from
increasing market interest rates when we have an asset-sensitive, or a
positive, interest rate gap and we would generally benefit from decreasing
market interest rates when we have liability-sensitive, or a negative, interest
rate gap. When measured on a gap
basis, we are liability-sensitive over the cumulative one-year time frame and
asset-sensitive after one year as of September 30, 2008. However, our gap analysis is not a precise
indicator of our interest sensitivity position.
The analysis presents only a static view of the timing of maturities and
repricing opportunities, without taking into consideration that changes in
interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial
portion of core deposits may change contractually within a relatively short
time frame, but we believe those rates are significantly less interest-sensitive
than market-based rates such as those paid on noncore deposits.
Net interest
income is also affected by other significant factors, including changes in the
volume and mix of interest-earning assets and interest-bearing
liabilities. We perform asset/liability
modeling to assess the impact of varying interest rates and the impact that
balance sheet mix assumptions will have on net interest income. We attempt to manage interest rate
sensitivity by repricing assets or liabilities, selling securities available-for-sale,
replacing an asset or liability at maturity, or adjusting the interest rate
during the life of an asset or liability.
Managing the amount of assets and liabilities that reprice in the same
time interval helps us to hedge risks and minimize the impact on net interest
income of rising or falling interest rates.
We evaluate interest sensitivity risk and then formulate guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to decrease interest rate sensitivity
risk.
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. We evaluate
each customers 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.
We manage the credit risk on these commitments by subjecting them to
normal underwriting and risk management processes.
At September 30, 2008, the bank had issued unused commitments to
extend credit of $43.6 million through various types of lending
arrangements. Past experience indicates
that many of these commitments to extend credit will expire unused. We believe that we have adequate sources of
liquidity to fund commitments that are drawn upon by the borrowers.
In addition to commitments to extend credit, we also issue standby
letters of credit which are assurances to a third party that if our customer fails
to meet its contractual obligation to the third party the bank will honor those
commitments up to the letter of credit issued.
Standby letters of credit totaled $8.8 million at September 30,
2008. Past experience indicates that
many of these standby letters of credit will expire unused. However, through our various sources of
liquidity, we believe that we will have the necessary resources to meet these
obligations should the need arise.
Except as
disclosed in this report, we are not involved in off-balance sheet contractual
relationships, unconsolidated related entities that have off-balance sheet
arrangements or transactions that could result in liquidity needs or other
commitments or significantly impact earnings.
Impact of Inflation
The
effect of relative purchasing power over time due to inflation has not been
taken into account in our consolidated financial statements. Rather, our financial statements have been
generally prepared on an historical cost basis in accordance with generally
accepted accounting principles.
Unlike most industrial companies, our assets and liabilities are
primarily monetary in nature. Therefore,
the effect of changes in interest rates will have a more significant impact on
our performance than will the effect of changing prices and inflation in
general. In addition, interest rates may
generally increase as the rate of inflation increases, although not necessarily
in the same magnitude. As discussed
previously, we seek to manage the relationships between interest sensitive
assets and liabilities in order to protect against wide rate fluctuations,
including those resulting from inflation.
22
Recently Issued Accounting
Standards
The following is a
summary of recent authoritative pronouncements that could impact the
accounting, reporting, and/or disclosure of financial information by us.
In December 2007,
the FASB issued SFAS No. 141(R), Business Combinations, (SFAS 141(R))
which replaces SFAS 141. SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures
goodwill acquired in the business combination or a gain from a bargain
purchase; and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. FAS 141(R) is effective for acquisitions by the
Company taking place on or after January 1, 2009. Early adoption is
prohibited. Accordingly, a calendar year-end company is required to record and
disclose business combinations following existing accounting guidance until January 1,
2009. The Company will assess the impact of SFAS 141(R) if and when a
future acquisition occurs.
In December 2007,
the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160
establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. Before
this statement, limited guidance existed for reporting noncontrolling interests
(minority interest). As a result, diversity in practice exists. In some cases
minority interest is reported as a liability and in others it is reported in
the mezzanine section between liabilities and equity. Specifically, SFAS 160
requires the recognition of a noncontrolling interest (minority interest) as
equity in the consolidated financials statements and separate from the parents
equity. The amount of net income attributable to the noncontrolling interest
will be included in consolidated net income on the face of the income
statement. SFAS 160 clarifies that changes in a parents ownership interest in
a subsidiary that do not result in deconsolidation are equity transactions if
the parent retains its controlling financial interest. In addition, this
statement requires that a parent recognize gain or loss in net income when a
subsidiary is deconsolidated. Such gain or loss will be measured using the fair
value of the noncontrolling equity investment on the deconsolidation date. SFAS
160 also includes expanded disclosure requirements regarding the interests of
the parent and its noncontrolling interests. SFAS 160 is effective for the
Company on January 1, 2009.
Earlier adoption is prohibited. At this time, the Company believes that
upon adoption, SFAS 160 will not materially impact on its financial position,
results of operations or cash flows.
In March 2008, the
FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). SFAS
161 requires enhanced disclosures about an entitys derivative and hedging
activities and thereby improving the transparency of financial reporting. It is intended to enhance the current
disclosure framework in SFAS 133 by requiring that objectives for using
derivative instruments be disclosed in terms of underlying risk and accounting
designation. This disclosure better conveys the purpose of derivative use in
terms of the risks that the entity is intending to manage. SFAS 161 is
effective for the Company on January 1, 2009. This pronouncement does not
impact accounting measurements but will result in additional disclosures if the
Company is involved in material derivative and hedging activities at that time.
In February 2008, the FASB issued FASB Staff
Position No. 140-3, Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions (FSP 140-3). This FSP provides
guidance on accounting for a transfer of a financial asset and the transferors
repurchase financing of the asset. This FSP presumes that an initial
transfer of a financial asset and a repurchase financing are considered part of
the same arrangement (linked transaction) under SFAS No. 140. However, if
certain criteria are met, the initial transfer and repurchase financing are not
evaluated as a linked transaction and are evaluated separately under Statement
140. FSP 140-3 will be effective for financial statements issued for
fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years and earlier application is not permitted. Accordingly, this
FSP is effective for the Company on January 1, 2009. The Company is
currently evaluating the impact, if any, the adoption of FSP 140-3 will have on
its financial position, results of operations and cash flows.
In
April 2008, the FASB issued FASB Staff Position No. 142-3,
Determination of the Useful Life of Intangible Assets (FSP 142-3). This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141(R), Business Combinations,
and
other U.S. generally accepted accounting principles. This FSP is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years and early adoption is prohibited. Accordingly, this FSP is effective for the
Company on January 1, 2009. The
Company does not believe the adoption of FSP 142-3 will have a material impact
on its financial position, results of operations, or cash flows.
23
In May, 2008, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 162, The Hierarchy of Generally Accepted
Accounting Principles, (SFAS No. 162).
SFAS No. 162 identifies the sources of accounting principles and
the framework for selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles (GAAP) in the United States (the GAAP
hierarchy). SFAS No. 162 will be
effective November 15, 2008. The
FASB has stated that it does not expect SFAS No. 162 will result in a
change in current practice. The application of SFAS No. 162 will have no
effect on the Companys financial position, results of operations or cash
flows.
FSP SFAS 133-1 and FIN
45-4, Disclosures about Credit Derivatives and Certain Guarantees: An
Amendment of FASB Statement No. 133 and FASB Interpretation No. 45;
and Clarification of the Effective Date of FASB Statement No. 161, (FSP
SFAS 133-1 and FIN 45-4) was issued September 2008, effective for reporting
periods (annual or interim) ending after November 15, 2008. FSP SFAS 133-1 and FIN 45-4 amends SFAS 133
to require the seller of credit
derivatives to disclose the nature of the credit derivative, the maximum
potential amount of future payments, fair value of the derivative, and the
nature of any recourse provisions.
Disclosures must be made for entire hybrid instruments that have
embedded credit derivatives.
The
staff position also amends FIN 45 to require disclosure of the current status
of the payment/performance risk of the credit derivative guarantee. If an entity utilizes internal groupings as a
basis for the risk, how the groupings are determined must be disclosed as well
as how the risk is managed. The staff
position encourages that the amendments be applied in periods earlier than the
effective date to facilitate comparisons at initial adoption. After initial adoption, comparative
disclosures are required only for subsequent periods.
FSP
SFAS 133-1 and FIN 45-4 clarifies the effective date of SFAS 161 such that
required disclosures should be provided for any reporting period (annual or
quarterly interim) beginning after November 15, 2008.
The adoption of this Staff Position will have no
material effect on the Companys financial position, results of operations or
cash flows.
The SECs Office of the
Chief Accountant and the staff of the FASB issued press release 2008-234 on September 30,
2008 (Press Release) to provide clarifications on fair value accounting. The press release includes guidance on the
use of managements internal assumptions and the use of market quotes. It also reiterates the factors in SEC Staff
Accounting Bulletin (SAB) Topic 5M which should be considered when
determining other-than-temporary impairment: the length of time and extent to
which the market value has been less than cost; financial condition and
near-term prospects of the issuer; and the intent and ability of the holder to
retain its investment for a period of time sufficient to allow for any anticipated
recovery in market value.
On October 10, 2008,
the FASB issued FSP SFAS 157-3, Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active (FSP SFAS 157-3). This
FSP clarifies the application of SFAS No. 157, Fair Value Measurements
(see Note 6) in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial
asset when the market for that asset is not active. The FSP is effective upon issuance, including
prior periods for which financial statements have not been issued. For the
Company, this FSP is effective for the quarter ended September 30, 2008.
The Company considered
the guidance in the Press Release and in FSP SFAS 157-3 when conducting its review
for other-than-temporary impairment as of September 30, 2008 and
determined that it did not result in a change to its impairment estimation
techniques.
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 Companys financial
position, results of operations or cash flows.
Other Developments
As previously disclosed
in our SEC filings, Beach First National Bank, the bank subsidiary of the
Company, entered into an agreement with the OCC on September 30,
2008. We believe we have made progress
in complying with all components and will be able to meet the timelines and
requirements of the agreement.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
.
Market risk is the risk of loss from
adverse changes in market prices and rates.
Our market risk arises principally from interest rate risk inherent in
our lending, deposit, and borrowing activities.
Management actively monitors and manages its interest rate risk
exposure. In addition to other risks
that we manage in the normal course of business, such as credit quality and
liquidity, management considers interest rate risk to be a significant market
risk that
24
could
potentially have a material effect on our financial condition and results of
operations. The information contained in
Item 2 in the section captioned Interest Rate Sensitivity is incorporated
herein by reference. Other types of
market risks, such as foreign currency risk and commodity price risk, do not
arise in the normal course of our business activities.
The primary objective of asset and
liability management is to manage interest rate risk and achieve reasonable stability
in net interest income throughout interest rate cycles. This is achieved by maintaining the proper
balance of rate-sensitive earning assets and rate-sensitive interest-bearing
liabilities. The relationship of
rate-sensitive earning assets to rate-sensitive interest-bearing liabilities is
the principal factor in projecting the effect that fluctuating interest rates
will have on future net interest income.
Rate-sensitive assets and liabilities are those that can be repriced to
current market rates within a relatively short time period. Management monitors
the rate sensitivity of earning assets and interest-bearing liabilities over
the entire life of these instruments, but places particular emphasis on the
next twelve months. At September 30,
2008, on a cumulative basis through 12 months, rate-sensitive liabilities
exceeded rate-sensitive assets by $48.5 million. This liability-sensitive position is largely
attributable to short-term certificates of deposit, money market accounts and
interest bearing checking accounts, which totaled $460.3 million at September 30,
2008.
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,
2008. There have been no significant
changes in our internal controls over financial reporting during the fiscal
quarter ended September 30, 2008 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 the company or any of our subsidiaries is a party or of which any of
our property is the subject.
Item 1A.
Risk Factors.
Other than as described elsewhere in this
Form 10-Q, there
were
no material changes from the risk factors
presented in our annual
report on Form 10-K for the year ended December 31, 2007.
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds.
Not applicable.
Item
3. Defaults Upon Senior Securities.
Not applicable.
Item
4. Submission of Matters to a Vote of Security Holders
Not
applicable
Item
5. Other Information.
Not
applicable
25
Item
6. Exhibits.
Exhibit
|
|
Description
|
|
|
|
10.1
|
|
Agreement by and
between Beach First National Bank and The Office of the Comptroller of the
Currency
dated September 30, 2008 (incorporated by reference to
Exhibit 99.1 of the Companys Form 8-K filed October 6, 2008).
|
|
|
|
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
|
26
SIGNATURES
In accordance with
the requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
BEACH FIRST
NATIONAL BANCSHARES, INC.
|
|
|
|
|
|
|
Date:
|
November 7, 2008
|
|
By:
|
/s/
Walter E. Standish, III
|
|
|
Walter
E. Standish, III
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
Date:
|
November 7, 2008
|
|
By:
|
/s/
Gary S. Austin
|
|
|
Gary
S. Austin
|
|
|
Chief
Financial and Principal Accounting Officer
|
27
INDEX TO EXHIBITS
Exhibit
Number
|
|
Description
|
|
|
|
10.1
|
|
Agreement by and
between Beach First National Bank and The Office of the Comptroller of the
Currency
dated September 30, 2008 (incorporated by reference to Exhibit 99.1
of the Companys Form 8-K filed October 6, 2008).
|
|
|
|
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
|
28
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