UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended: June 30, 2009
|
|
|
o
|
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period
from
to
Commission file number: 000-22503
BEACH FIRST NATIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
|
|
|
South Carolina
|
|
57-1030117
|
(State of Incorporation)
|
|
(I.R.S. Employer Identification No.)
|
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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Smaller reporting company
þ
|
|
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
þ
State the number of shares outstanding of each of the issuers classes of common equity, as of
the latest practicable date: On August 14, 2009, 4,845,018 shares of the issuers common stock, par
value $1.00 per share, were issued and outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
Beach First National Bancshares, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
9,416,829
|
|
|
$
|
4,830,112
|
|
|
$
|
10,473,167
|
|
Short-term investments
|
|
|
730,196
|
|
|
|
1,469,273
|
|
|
|
3,087,016
|
|
Federal funds sold
|
|
|
18,663,000
|
|
|
|
5,111,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
28,810,025
|
|
|
|
11,410,385
|
|
|
|
13,560,183
|
|
Investment securities
|
|
|
81,545,530
|
|
|
|
70,594,811
|
|
|
|
69,059,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans, net of unearned income
|
|
|
536,855,345
|
|
|
|
551,156,821
|
|
|
|
553,385,016
|
|
Allowance for loan losses (ALL)
|
|
|
(13,034,291
|
)
|
|
|
(8,642,651
|
)
|
|
|
(7,646,053
|
)
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans, net of ALL
|
|
|
523,821,054
|
|
|
|
542,514,170
|
|
|
|
545,738,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
21,966,286
|
|
|
|
7,210,088
|
|
|
|
6,528,090
|
|
Federal Reserve Bank stock
|
|
|
1,119,000
|
|
|
|
1,014,000
|
|
|
|
984,000
|
|
Federal Home Loan Bank stock
|
|
|
3,660,600
|
|
|
|
3,545,100
|
|
|
|
3,545,100
|
|
Premises and equipment, net
|
|
|
15,075,040
|
|
|
|
15,624,792
|
|
|
|
16,089,907
|
|
Cash value of life insurance
|
|
|
3,741,947
|
|
|
|
3,674,106
|
|
|
|
3,616,025
|
|
Investment in BFNB Trusts
|
|
|
310,000
|
|
|
|
310,000
|
|
|
|
310,000
|
|
OREO and repossessed assets
|
|
|
5,064,325
|
|
|
|
3,111,741
|
|
|
|
2,365,000
|
|
Other assets
|
|
|
12,498,417
|
|
|
|
9,806,424
|
|
|
|
7,720,769
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
697,612,224
|
|
|
$
|
668,815,617
|
|
|
$
|
669,518,030
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits
|
|
$
|
29,798,351
|
|
|
$
|
24,628,632
|
|
|
$
|
37,345,807
|
|
Interest bearing deposits
|
|
|
544,338,588
|
|
|
|
508,730,077
|
|
|
|
491,735,048
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
574,136,939
|
|
|
|
533,358,709
|
|
|
|
529,080,855
|
|
Advances from Federal Home Loan Bank
|
|
|
55,000,000
|
|
|
|
55,000,000
|
|
|
|
55,000,000
|
|
Federal funds purchased
|
|
|
|
|
|
|
|
|
|
|
7,383,200
|
|
Other borrowings and repurchase agreements
|
|
|
12,979,509
|
|
|
|
16,165,022
|
|
|
|
10,937,468
|
|
Junior subordinated debentures
|
|
|
10,310,000
|
|
|
|
10,310,000
|
|
|
|
10,310,000
|
|
Other liabilities
|
|
|
5,605,626
|
|
|
|
4,263,797
|
|
|
|
3,706,225
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
658,032,074
|
|
|
$
|
619,097,528
|
|
|
$
|
616,417,748
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $1 par value; 10,000,000 shares
authorized; 4,845,018 issued and outstanding at
June 30, 2009, December 31, 2008,
and at June 30, 2008
|
|
|
4,845,018
|
|
|
|
4,845,018
|
|
|
|
4,845,018
|
|
Paid-in capital
|
|
|
29,522,583
|
|
|
|
29,513,166
|
|
|
|
29,503,750
|
|
Retained earnings
|
|
|
5,056,241
|
|
|
|
14,875,309
|
|
|
|
19,803,645
|
|
Accumulated other comprehensive income (loss)
|
|
|
156,308
|
|
|
|
484,596
|
|
|
|
(1,052,131
|
)
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
39,580,150
|
|
|
|
49,718,089
|
|
|
|
53,100,282
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
697,612,224
|
|
|
$
|
668,815,617
|
|
|
$
|
669,518,030
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
15,268,352
|
|
|
$
|
19,463,997
|
|
|
$
|
7,489,393
|
|
|
$
|
9,304,543
|
|
Investment securities
|
|
|
1,613,731
|
|
|
|
1,906,342
|
|
|
|
799,375
|
|
|
|
907,898
|
|
Fed funds sold and short term investments
|
|
|
22,723
|
|
|
|
86,885
|
|
|
|
15,461
|
|
|
|
15,283
|
|
Other
|
|
|
5,907
|
|
|
|
9,445
|
|
|
|
2,705
|
|
|
|
4,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
16,910,713
|
|
|
|
21,466,669
|
|
|
|
8,306,934
|
|
|
|
10,231,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
8,512,734
|
|
|
|
9,631,937
|
|
|
|
4,145,632
|
|
|
|
4,543,330
|
|
Advances from the FHLB, federal funds purchased
and other borrowings
|
|
|
1,296,883
|
|
|
|
1,480,042
|
|
|
|
644,156
|
|
|
|
728,589
|
|
Junior subordinated debentures
|
|
|
196,464
|
|
|
|
311,726
|
|
|
|
89,972
|
|
|
|
137,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
10,006,081
|
|
|
|
11,423,705
|
|
|
|
4,879,760
|
|
|
|
5,409,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
6,904,632
|
|
|
|
10,042,964
|
|
|
|
3,427,174
|
|
|
|
4,822,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
14,900,000
|
|
|
|
1,314,000
|
|
|
|
6,400,000
|
|
|
|
568,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
(7,995,368
|
)
|
|
|
8,728,964
|
|
|
|
(2,972,826
|
)
|
|
|
4,254,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees on deposit accounts
|
|
|
107,307
|
|
|
|
209,477
|
|
|
|
52,862
|
|
|
|
55,433
|
|
Mortgage production related income
|
|
|
3,966,461
|
|
|
|
1,663,699
|
|
|
|
2,257,793
|
|
|
|
923,698
|
|
Merchant income
|
|
|
469,350
|
|
|
|
384,829
|
|
|
|
280,726
|
|
|
|
231,142
|
|
Income from cash value life insurance
|
|
|
68,905
|
|
|
|
72,583
|
|
|
|
34,356
|
|
|
|
39,056
|
|
Gain on sale of investment securities
|
|
|
306,094
|
|
|
|
|
|
|
|
255,147
|
|
|
|
|
|
Gain on sale of fixed assets
|
|
|
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
(Loss) on sale of OREO (and writedowns)
|
|
|
(905,161
|
)
|
|
|
(2,891
|
)
|
|
|
(701,961
|
)
|
|
|
(2,501
|
)
|
Other income
|
|
|
794,931
|
|
|
|
518,944
|
|
|
|
86,396
|
|
|
|
220,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
4,807,887
|
|
|
|
2,846,861
|
|
|
|
2,265,319
|
|
|
|
1,466,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
4,586,998
|
|
|
|
3,673,688
|
|
|
|
2,403,920
|
|
|
|
1,975,807
|
|
Employee benefits
|
|
|
871,780
|
|
|
|
799,853
|
|
|
|
456,789
|
|
|
|
398,645
|
|
Supplies and printing
|
|
|
55,761
|
|
|
|
104,916
|
|
|
|
29,553
|
|
|
|
52,649
|
|
Advertising and public relations
|
|
|
167,934
|
|
|
|
318,942
|
|
|
|
80,038
|
|
|
|
136,542
|
|
Professional fees
|
|
|
417,297
|
|
|
|
339,160
|
|
|
|
233,799
|
|
|
|
196,724
|
|
Depreciation and amortization
|
|
|
573,248
|
|
|
|
550,206
|
|
|
|
286,293
|
|
|
|
281,269
|
|
Occupancy
|
|
|
837,558
|
|
|
|
806,242
|
|
|
|
411,010
|
|
|
|
395,627
|
|
Data processing fees
|
|
|
409,051
|
|
|
|
636,525
|
|
|
|
206,502
|
|
|
|
450,225
|
|
Mortgage production related expenses
|
|
|
634,993
|
|
|
|
379,018
|
|
|
|
380,392
|
|
|
|
209,351
|
|
Merchant processing
|
|
|
381,186
|
|
|
|
406,182
|
|
|
|
223,917
|
|
|
|
248,505
|
|
Other operating expenses
|
|
|
2,987,028
|
|
|
|
1,661,621
|
|
|
|
2,055,650
|
|
|
|
852,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
11,922,834
|
|
|
|
9,676,353
|
|
|
|
6,767,863
|
|
|
|
5,197,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(15,110,315
|
)
|
|
|
1,899,472
|
|
|
|
(7,475,370
|
)
|
|
|
523,827
|
|
Income tax (benefit) expense
|
|
|
(5,291,247
|
)
|
|
|
679,252
|
|
|
|
(2,614,616
|
)
|
|
|
187,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(9,819,068
|
)
|
|
$
|
1,220,220
|
|
|
$
|
(4,860,754
|
)
|
|
$
|
336,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
(2.03
|
)
|
|
$
|
0.25
|
|
|
$
|
(1.00
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
(2.03
|
)
|
|
$
|
0.25
|
|
|
$
|
(1.00
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,845,018
|
|
|
|
4,845,018
|
|
|
|
4,845,018
|
|
|
|
4,845,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
4,845,018
|
|
|
|
4,914,943
|
|
|
|
4,845,018
|
|
|
|
4,903,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, December 31, 2007
|
|
|
4,845,018
|
|
|
$
|
4,845,018
|
|
|
$
|
29,494,912
|
|
|
$
|
18,583,425
|
|
|
$
|
(345,305
|
)
|
|
$
|
52,578,050
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,220,220
|
|
|
|
|
|
|
|
1,220,220
|
|
Other comprehensive income, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(702,936
|
)
|
|
|
(702,936
|
)
|
Unrealized gain (loss) on interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,890
|
)
|
|
|
(3,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
513,394
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,838
|
|
|
|
|
|
|
|
|
|
|
|
8,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008
|
|
|
4,845,018
|
|
|
$
|
4,845,018
|
|
|
$
|
29,503,750
|
|
|
$
|
19,803,645
|
|
|
$
|
(1,052,131
|
)
|
|
$
|
53,100,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
4,845,018
|
|
|
$
|
4,845,018
|
|
|
$
|
29,513,166
|
|
|
$
|
14,875,309
|
|
|
$
|
484,596
|
|
|
$
|
49,718,089
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,819,068
|
)
|
|
|
|
|
|
|
(9,819,068
|
)
|
Other comprehensive income, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(630,250
|
)
|
|
|
(630,250
|
)
|
Plus reclassification adjustments for
gain included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,022
|
|
|
|
202,022
|
|
Unrealized gain (loss) on interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,940
|
|
|
|
99,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,147,356
|
)
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
9,417
|
|
|
|
|
|
|
|
|
|
|
|
9,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
4,845,018
|
|
|
$
|
4,845,018
|
|
|
$
|
29,522,583
|
|
|
$
|
5,056,241
|
|
|
$
|
156,308
|
|
|
$
|
39,580,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months
|
|
|
For the year
|
|
|
|
ended
|
|
|
ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(9,819,068
|
)
|
|
$
|
1,220,220
|
|
|
$
|
(3,708,116
|
)
|
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
573,248
|
|
|
|
550,206
|
|
|
|
1,124,250
|
|
Write-down on real estate acquired in settlement of loans
|
|
|
430,000
|
|
|
|
|
|
|
|
420,000
|
|
Proceeds from sale of mortgages held for sale
|
|
|
162,650,504
|
|
|
|
65,395,286
|
|
|
|
116,079,020
|
|
Disbursements for mortgages held for sale
|
|
|
(177,406,702
|
)
|
|
|
(65,447,757
|
)
|
|
|
(116,813,489
|
)
|
Discount accretion and premium amortization
|
|
|
7,993
|
|
|
|
(194,662
|
)
|
|
|
(217,959
|
)
|
Deferred income taxes
|
|
|
(918,764
|
)
|
|
|
|
|
|
|
(918,764
|
)
|
Provisions for loan losses
|
|
|
14,900,000
|
|
|
|
1,314,000
|
|
|
|
10,491,000
|
|
Recourse reserve provision
|
|
|
|
|
|
|
10,000
|
|
|
|
230,000
|
|
Gain on sale of fixed assets
|
|
|
|
|
|
|
(220
|
)
|
|
|
(220
|
)
|
Gain on sale of investment securities
|
|
|
(306,094
|
)
|
|
|
|
|
|
|
(23,180
|
)
|
Loss on sale of other real estate owned
|
|
|
475,161
|
|
|
|
2,890
|
|
|
|
353,909
|
|
Stock based compensation expense
|
|
|
9,417
|
|
|
|
8,838
|
|
|
|
18,254
|
|
(Increase) decrease in other assets
|
|
|
(1,452,686
|
)
|
|
|
382,834
|
|
|
|
(1,841,491
|
)
|
Increase (decrease) in other liabilities
|
|
|
1,341,829
|
|
|
|
(1,889,047
|
)
|
|
|
(1,580,078
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(9,515,162
|
)
|
|
|
1,352,588
|
|
|
|
3,613,136
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from paydowns of investment securities
|
|
|
24,519,718
|
|
|
|
3,779,062
|
|
|
|
9,052,822
|
|
Proceeds from sale of investment securities
|
|
|
19,254,732
|
|
|
|
21,195,000
|
|
|
|
29,206,146
|
|
Purchase of investment securities
|
|
|
(55,075,899
|
)
|
|
|
(29,226,455
|
)
|
|
|
(41,376,937
|
)
|
Purchase of FHLB stock
|
|
|
(115,500
|
)
|
|
|
(149,800
|
)
|
|
|
(149,800
|
)
|
Purchase of Federal Reserve Stock
|
|
|
(105,000
|
)
|
|
|
|
|
|
|
(30,000
|
)
|
Increase in loans, net
|
|
|
(1,689,666
|
)
|
|
|
(54,691,710
|
)
|
|
|
(64,580,873
|
)
|
Increase in CSV of life insurance contracts
|
|
|
(67,841
|
)
|
|
|
(61,218
|
)
|
|
|
(119,299
|
)
|
Purchase of property and equipment
|
|
|
(23,496
|
)
|
|
|
(893,969
|
)
|
|
|
(1,035,517
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
220
|
|
|
|
32,838
|
|
Proceeds from sale of other real estate owned
|
|
|
2,625,037
|
|
|
|
1,782,757
|
|
|
|
4,201,953
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,677,915
|
)
|
|
|
(58,266,113
|
)
|
|
|
(64,798,667
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in Federal funds purchased
|
|
|
|
|
|
|
(3,998,900
|
)
|
|
|
(1,796,724
|
)
|
Net increase in deposits
|
|
|
40,778,230
|
|
|
|
69,074,679
|
|
|
|
69,160,364
|
|
Repayments of other borrowings
|
|
|
(3,185,513
|
)
|
|
|
(160,749
|
)
|
|
|
(326,402
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
37,592,717
|
|
|
|
64,915,030
|
|
|
|
67,037,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
17,399,640
|
|
|
|
8,001,505
|
|
|
|
5,851,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
$
|
11,410,385
|
|
|
$
|
5,558,678
|
|
|
$
|
5,558,678
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
28,810,025
|
|
|
$
|
13,560,183
|
|
|
$
|
11,410,385
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (refunds)
|
|
$
|
(2,516,701
|
)
|
|
$
|
1,246,215
|
|
|
$
|
1,631,780
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
10,136,080
|
|
|
$
|
11,872,371
|
|
|
$
|
22,469,561
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
1. Basis of Presentation
The accompanying consolidated condensed financial statements for Beach First National Bancshares,
Inc. (the 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
six month period ended June 30, 2009 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, 2008.
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 (the Bank) and BFNM Building, LLC (the LLC).
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 diluted
EPS for entities with complex capital structures. Basic earnings per share are computed by
dividing net income (loss) 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 six months ended
|
|
|
For the year ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(9,819,068
|
)
|
|
$
|
1,220,220
|
|
|
$
|
(3,708,116
|
)
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding basic
|
|
|
4,845,018
|
|
|
|
4,845,018
|
|
|
|
4,845,018
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(2.03
|
)
|
|
$
|
0.25
|
|
|
$
|
(0.77
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(9,819,068
|
)
|
|
$
|
1,220,220
|
|
|
$
|
(3,708,116
|
)
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding basic
|
|
|
4,845,018
|
|
|
|
4,845,018
|
|
|
|
4,845,018
|
|
Incremental shares from assumed conversion
of stock options
|
|
|
|
|
|
|
69,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding diluted
|
|
|
4,845,018
|
|
|
|
4,914,943
|
|
|
|
4,548,018
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(2.03
|
)
|
|
$
|
0.25
|
|
|
$
|
(0.77
|
)
|
|
|
|
|
|
|
|
|
|
|
6
Due to the net loss for the six months ended June 30, 2009 and twelve months ended December 31,
2008, no potentially dilutive shares were included in the loss per share calculations as including
such shares would have been antidilutive.
4. Investment Securities
The amortized costs and fair values of available for sale investment securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises
|
|
$
|
29,648,468
|
|
|
$
|
15,240
|
|
|
$
|
222,190
|
|
|
$
|
29,441,518
|
|
Mortgage backed securities
|
|
|
49,285,158
|
|
|
|
1,202,245
|
|
|
|
191,484
|
|
|
$
|
50,295,919
|
|
Tax exempt securities
|
|
|
1,340,747
|
|
|
|
|
|
|
|
21,654
|
|
|
$
|
1,319,093
|
|
Corporate
|
|
|
804,683
|
|
|
|
|
|
|
|
315,683
|
|
|
$
|
489,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
81,079,056
|
|
|
$
|
1,217,485
|
|
|
$
|
751,011
|
|
|
$
|
81,545,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises
|
|
$
|
12,456,243
|
|
|
$
|
179,193
|
|
|
$
|
|
|
|
$
|
12,635,436
|
|
Mortgage backed securities
|
|
|
54,874,211
|
|
|
|
1,303,430
|
|
|
|
14,861
|
|
|
$
|
56,162,780
|
|
Tax exempt securities
|
|
|
1,342,270
|
|
|
|
|
|
|
|
34,675
|
|
|
$
|
1,307,595
|
|
Corporate
|
|
|
806,783
|
|
|
|
|
|
|
|
317,783
|
|
|
$
|
489,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
69,479,507
|
|
|
$
|
1,482,623
|
|
|
$
|
367,319
|
|
|
$
|
70,594,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized costs and fair values of investment securities at June 30, 2009, by contractual
maturity, are shown in the following chart. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are presented as a separate line since pay
downs are expected before contractual maturity dates.
|
|
|
|
|
|
|
|
|
|
|
Amortized cost
|
|
|
Fair value
|
|
Due within one year
|
|
$
|
|
|
|
$
|
|
|
Due after one year through five years
|
|
|
10,000,000
|
|
|
|
9,984,390
|
|
Due after five through ten years
|
|
|
19,648,468
|
|
|
|
19,457,128
|
|
Due after ten years
|
|
|
2,145,430
|
|
|
|
1,808,093
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
31,793,898
|
|
|
|
31,249,611
|
|
Mortgage backed securities
|
|
|
49,285,158
|
|
|
|
50,295,919
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
81,079,056
|
|
|
$
|
81,545,530
|
|
|
|
|
|
|
|
|
7
The following table shows gross unrealized losses and fair value, aggregated by
investment category, and length of time that individual securities have been in a continuous
unrealized loss position, at June 30, 2009 and December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
31,560,286
|
|
|
$
|
413,674
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,560,286
|
|
|
$
|
413,674
|
|
Tax exempt securities
|
|
|
1,319,093
|
|
|
|
21,654
|
|
|
|
|
|
|
|
|
|
|
|
1,319,093
|
|
|
|
21,654
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
489,000
|
|
|
|
315,683
|
|
|
|
489,000
|
|
|
|
315,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,879,379
|
|
|
$
|
435,328
|
|
|
$
|
489,000
|
|
|
$
|
315,683
|
|
|
$
|
33,368,379
|
|
|
$
|
751,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
3,166,604
|
|
|
$
|
14,861
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,166,604
|
|
|
$
|
14,861
|
|
Tax exempt securities
|
|
|
1,307,595
|
|
|
|
34,675
|
|
|
|
|
|
|
|
|
|
|
|
1,307,595
|
|
|
|
34,675
|
|
Corporate
|
|
|
489,000
|
|
|
|
317,783
|
|
|
|
|
|
|
|
|
|
|
|
489,000
|
|
|
|
317,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,963,199
|
|
|
$
|
367,319
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,963,199
|
|
|
$
|
367,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities classified as available-for-sale are recorded at fair market value. As of June 30,
2009, there was one available-for-sale securities in a continuous loss position for twelve months
or more. The Company has the ability and intent to hold these securities until such time as the
value recovers or the securities mature. The Company believes, based on industry analyst reports
and credit ratings, that the deterioration in value is attributable to changes in market interest
rates and is not in the credit quality of the issuer and, therefore, these losses are not
considered other-than-temporary.
For the six months ended June 30, 2009 and 2008, proceeds from sales of securities available for
sale amounted to $19,254,732 and $21,195,000 respectively. Gross realized gains amounted to
$306,094 for the six months ended June 30, 2009. There were no gross realized gains for the same
period in 2008. The Company did not realize any losses for the six months ended June 30, 2009 and
2008.
5. 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.
8
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 June 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Price in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Available for sale investment securities
|
|
|
|
|
|
$
|
81,545,530
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
$
|
21,966,286
|
|
|
|
|
|
Interest rate swap agreement (liability)
|
|
|
|
|
|
|
(521,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
102,989,897
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets measured at fair value on a nonrecurring basis are as follows as of June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Price in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Other real estate owned
|
|
|
|
|
|
$
|
4,989,325
|
|
|
|
|
|
Repossessed assets
|
|
|
|
|
|
$
|
75,000
|
|
|
|
|
|
Impaired Loans
|
|
|
|
|
|
$
|
52,529,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
57,593,993
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Company has no assets or liabilities whose fair values are measured using level 3 inputs.
9
The estimated fair values of the Companys financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
amount
|
|
|
value
|
|
|
amount
|
|
|
value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
9,416,829
|
|
|
$
|
9,416,829
|
|
|
$
|
4,830,112
|
|
|
$
|
4,830,112
|
|
Federal funds sold and short term investments
|
|
|
19,393,196
|
|
|
|
19,393,196
|
|
|
|
6,580,273
|
|
|
|
6,580,273
|
|
Investment securities
|
|
|
81,545,530
|
|
|
|
81,545,530
|
|
|
|
70,594,811
|
|
|
|
70,594,811
|
|
Loans, net of ALL
|
|
|
523,821,054
|
|
|
|
524,618,000
|
|
|
|
542,514,170
|
|
|
|
544,810,170
|
|
Mortgage loans held for sale
|
|
|
21,966,286
|
|
|
|
21,966,286
|
|
|
|
7,210,088
|
|
|
|
7,210,088
|
|
Federal Reserve Bank stock
|
|
|
1,119,000
|
|
|
|
1,119,000
|
|
|
|
1,014,000
|
|
|
|
1,014,000
|
|
Federal Home Bank Loan Bank stock
|
|
|
3,660,600
|
|
|
|
3,660,600
|
|
|
|
3,545,100
|
|
|
|
3,545,100
|
|
Trust preferred securities
|
|
|
310,000
|
|
|
|
310,000
|
|
|
|
310,000
|
|
|
|
310,000
|
|
Cash value of life insurance
|
|
|
3,741,947
|
|
|
|
3,741,947
|
|
|
|
3,674,106
|
|
|
|
3,674,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
574,136,939
|
|
|
|
575,393,000
|
|
|
|
533,358,709
|
|
|
|
538,096,709
|
|
Advances from Federal Home Loan Bank
|
|
|
55,000,000
|
|
|
|
55,859,000
|
|
|
|
55,000,000
|
|
|
|
57,834,000
|
|
Federal funds purchased and other borrowings
|
|
|
12,979,509
|
|
|
|
12,979,509
|
|
|
|
16,165,022
|
|
|
|
16,165,022
|
|
Junior subordinated debt
|
|
|
10,310,000
|
|
|
|
10,310,000
|
|
|
|
10,310,000
|
|
|
|
10,310,000
|
|
6.
Business Segment Reporting
The Company has two reportable business segments, the Bank and the Mortgage operation. The Bank
segment provides a full line of banking products and also includes the Company, Trust and Trust II,
and BFNM, LLC. The products offered include traditional lending and deposit taking in the Myrtle
Beach (Grand Strand) and Hilton Head Island markets of South Carolina. Additionally, the Bank
segment provides services such as on-line banking, credit cards, merchant services, cash
management, remote deposit capture, and lockbox service.
The Mortgage operation originates and closes consumer mortgage loans to sell to third-party
investors. The Mortgage operation has production offices in South Carolina, North Carolina, and
Virginia.
The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. The Company does allocate income taxes, administrative fees, and
interest expense to the segments. Information about reportable segments, and reconciliation of
such information to the consolidated financial statements as of and for the six months ended June
30, 2009 and 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
Bank
|
|
|
Mortgage
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
6,663,409
|
|
|
$
|
241,223
|
|
|
$
|
6,904,632
|
|
Provision for loan losses
|
|
|
14,900,000
|
|
|
|
|
|
|
|
14,900,000
|
|
Other income
|
|
|
886,667
|
|
|
|
3,921,220
|
|
|
|
4,807,887
|
|
Noninterest expenses
|
|
|
8,226,451
|
|
|
|
3,696,383
|
|
|
|
11,922,834
|
|
Net income (loss)
|
|
|
(10,122,007
|
)
|
|
|
302,939
|
|
|
|
(9,819,068
|
)
|
End of period assets
|
|
|
668,367,216
|
|
|
|
29,245,008
|
|
|
|
697,612,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
Bank
|
|
|
Mortgage
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
9,860,838
|
|
|
$
|
182,126
|
|
|
$
|
10,042,964
|
|
Provision for loan losses
|
|
|
1,314,000
|
|
|
|
|
|
|
|
1,314,000
|
|
Other income
|
|
|
1,221,668
|
|
|
|
1,625,193
|
|
|
|
2,846,861
|
|
Noninterest expenses
|
|
|
7,589,231
|
|
|
|
2,087,122
|
|
|
|
9,676,353
|
|
Net income (loss)
|
|
|
1,400,805
|
|
|
|
(180,585
|
)
|
|
|
1,220,220
|
|
End of period assets
|
|
|
662,597,677
|
|
|
|
6,920,353
|
|
|
|
669,518,030
|
|
10
The Company does not have any single external customers from which it derives 10% or more of its
revenues. The Companys customer base is primarily from the Myrtle Beach (Grand Strand) and
Hilton Head Island, South Carolina markets.
7.
Subsequent Events
In preparing these financial statements, the Company has evaluated events and transactions
for potential recognition or disclosure through August 14, 2009, the date on which the
Companys financial statements were issued. The Company notes the following event:
The Bank has one investment security in a corporate bond with a book value of $804
thousand. The Bank has written the security to an estimated fair market value of $489
thousand as part of the valuation of its investment portfolio as of June 30, 2009. This
adjustment is part of the accumulated other comprehensive income in total shareholders
equity. During the preparation of these financial statements we were informed that the
debtor has elected to defer interest. The debtor is allowed to defer interest up to 20
consecutive quarters without being in default. During the deferral period the debtor
cannot pay dividends or repurchase stock, cannot pay any debt service or bond ranking equal
with or junior to our investment security, cannot dispose of any assets, or make capital
contributions to any subsidiaries. The Bank will continue to monitor this security for
possible other than temporary impairment.
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 statements which constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements relate to the financial condition, results of operations, plans,
objectives, future performance, and business of our Company. Forward-looking statements are based
on many assumptions and estimates and are not guarantees of future performance. Our actual results
may differ materially from those anticipated in any forward-looking statements, as they will depend
on many factors about which we are unsure, including many factors which are beyond our control. The
words may, would, could, should, will, expect, anticipate, predict, project,
potential, continue, assume, believe, intend, plan, forecast, goal, and estimate,
as well as similar expressions, are meant to identify such forward-looking statements. Potential
risks and uncertainties that could cause our actual results to differ materially from those
anticipated in our forward-looking statements include, without limitation, those described under
the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008
as filed with the Securities and Exchange Commission (the SEC) and the following:
|
|
|
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;
|
|
|
|
|
reduced earnings due to higher credit losses because our loans are concentrated by loan
type within the real estate segment, industry, borrower type, or location of the borrower
or collateral;
|
|
|
|
|
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;
|
|
|
|
|
the adequacy of the level of our allowance for loan loss;
|
|
|
|
|
the rate of delinquencies, non-accrual loans, and amounts of charge-offs;
|
|
|
|
|
the rates of loan growth and seasoning in our loan portfolio;
|
|
|
|
|
adverse changes in asset quality and resulting credit risk-related losses and expenses
including the risk of further impairment to the value of our collateral on loans for which
we have already taken specific reserves;
|
|
|
|
|
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;
|
|
|
|
|
changes occurring in business conditions and inflation;
|
|
|
|
|
changes in management;
|
|
|
|
|
changes in technology;
|
|
|
|
|
changes in deposit flows;
|
11
|
|
|
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 Office of the Comptroller of the
Currency (the OCC);
|
|
|
|
|
potential responses by the OCC relating to our noncompliance with the increased capital
ratios required by the OCC;
|
|
|
|
|
our reliance on secondary funding sources such as Federal Home Loan Bank advances,
Federal Reserve Bank discount window borrowings, sales of securities and loans, federal
funds lines of credit from correspondent banks and out-of-market time deposits including
brokered deposits, to meet our liquidity needs;
|
|
|
|
|
instability of the U.S. financial system;
|
|
|
|
|
the nationalization of the banking industry;
|
|
|
|
|
our efforts to raise capital or otherwise increase our regulatory capital ratios;
|
|
|
|
|
our ability to retain our existing customers, including our deposit relationships;
|
|
|
|
|
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.
|
We undertake no obligation to publicly update or otherwise revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
These risks are exacerbated by the recent developments in national and international financial
markets, and we are unable to predict what effect these uncertain market conditions will have on
our Company. During 2008 and 2009, the capital and credit markets have experienced extended
volatility and disruption. The U.S. government has responded to the ongoing financial crisis and
economic slowdown by enacting new legislation and expanding or establishing a number of programs
and initiatives. The U.S. Treasury, the Federal Deposit Insurance Corporation (the FDIC), and the
Federal Reserve Board each have developed programs and facilities, and other efforts, designed to
increase lending, and restore consumer confidence in the banking sector. There can be no assurance
that recent developments or these new programs 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,
2008, 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 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, the 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.
12
Overview
The following discussion describes our results of operations for the quarter ended June 30, 2009,
as compared to the quarter ended June 30, 2008, as well as results for the six months ended June
30, 2009 and 2008, along with our financial condition as of June 30, 2009. 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. 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.
Our outstanding real estate loans are located primarily in the Myrtle Beach and Hilton Head markets
of South Carolina. The current economic environment in our market area has resulted in a downturn
in the real estate market, which has placed greater pressure on our borrowers repayment
capabilities. We are experiencing higher levels of loan delinquencies, defaults and foreclosures.
Further, the downturn in the real estate market has adversely impacted the value of the underlying
collateral (real estate) for these loans. 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 Provision for Loan Losses section, we have included a
detailed discussion of this process.
In addition to earning interest on our loans and investments, we earn income through fees and other
expenses we charge to our customers. We describe the various components of this noninterest
income, as well as our noninterest expense, in the following discussion.
The following discussion and analysis also identifies significant factors that have affected our
financial position and operating results during the periods included in the accompanying financial
statements. We encourage you to read this discussion and analysis in conjunction with the
financial statements and the related notes and the other statistical information also included in
this report.
Results of Operations
Earnings Review
Our net loss was $9,819,068 or $2.03 diluted net loss per common share, for the six months ended
June 30, 2009, as compared to net income of $1,220,220 or $0.25 diluted net income per common
share, for the same period in 2008. Our net loss was $3,708,116 or $0.77 diluted net loss per
common share for the year ended December 31, 2008. The decrease in net income reflects the effect
of the challenging financial environment that is facing all banks. The net interest margin
declined to 2.08% at June 30, 2009, due in part to rate reductions since September 2007 in the
prime lending rate, an increase in non-accrual loans, and an increase in short term investments to
improve liquidity. We expect continued pressure on the net interest margin throughout 2009. The
return on average assets for the six month period ended June 30, 2009 was (2.83)% as compared to
0.38% for the same period in 2008 and was (0.56)% for the year ended December 31, 2008. The return
on average equity was (42.16)% for the six month period ended June 30, 2009 versus 4.59% for the
same period in 2008 and was (6.94)% for the year ended December 31, 2008.
Over the past three years, 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. 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, 2008, and thus far in 2009. The
Company continues to monitor its portfolio of real estate loans closely. During the second quarter
of 2009 an independent credit review group analyzed approximately 50% of the loans in our
portfolio. The credit groups review focused on the higher risk loans components including loans
that were past due in terms of interest, development and construction loans, and certain industry
segments. 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
six months of 2009, net interest income decreased 31.25% to $6,904,632 from $10,042,964 for the
same period of 2008. For the three months ended June 30, 2009, net interest income decreased 28.9%
to $3,427,174 from $4,822,590 during the same period in 2008.
Our level of net interest income is determined by the level of our earning assets and our net
interest margin. The increase in non-accrual loans during the second quarter negatively impacted
net interest income by $783,000. This amount reduced our net interest income during the second
quarter due to these loans being placed on non-accrual status.
13
The impact on net interest income from the continued growth of our loan portfolio and investments
was offset by the increase in non accrual loans and the increase in short term investments which
reduced our net interest margin. Average total loans increased from $537.6 million in the first
six months of 2008 to $573.6 million in the same period in 2009. Average total loans increased
$23.6 million to $573.6 million for the period ended June 30, 2009
from $550.0 million for the year ended December 31, 2008. In addition, average securities
increased to $81.9 million in the first six months of 2009 compared to $73.1 million for the first
six months of 2008, and increased $8.6 million from $73.3 million for the year ended December 31,
2008.
Net interest spread, the difference between the rate earned on interest-earning assets and the rate
paid on interest-bearing liabilities, was 1.85% in the first six months of 2009 compared to 2.84%
during the same period of 2008, and 2.66% for the year ended December 31, 2008. The net interest
margin was 2.08% for the six month period ended June 30, 2009 compared to 3.27% for the same period
of 2008, and 3.06% for the year ended December 31, 2008. 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. We are
liability-sensitive over a one year period and asset sensitive over a three month period. We have
continued to add interest rate floors on our loan portfolio such that $85.8 million of our loans
(15.7%) at June 30, 2009 will immediately reprice as interest rates change. Our deposit rates have
continued to decline. We anticipate that some of this pressure may be eased as we continue to
reprice our deposits to current market rates, reduce our non accrual loans, and replace our short
term investments earning 0.30% currently with higher earning assets. 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.
14
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances, Income and Expenses, and Rates
|
|
|
|
For the six months ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold, short term investments and trust preferred securities
|
|
$
|
15,073,760
|
|
|
$
|
22,723
|
|
|
|
0.30
|
%
|
|
$
|
6,264,381
|
|
|
$
|
86,885
|
|
|
|
2.79
|
%
|
Investment securities plus FHLB and FRB stock
|
|
|
81,918,344
|
|
|
|
1,619,638
|
|
|
|
3.99
|
%
|
|
|
73,139,319
|
|
|
|
1,915,787
|
|
|
|
5.27
|
%
|
Loans
|
|
|
573,559,350
|
|
|
|
15,268,353
|
|
|
|
5.37
|
%
|
|
|
537,617,439
|
|
|
|
19,463,997
|
|
|
|
7.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
$
|
670,551,454
|
|
|
$
|
16,910,714
|
|
|
|
5.09
|
%
|
|
$
|
617,021,139
|
|
|
$
|
21,466,669
|
|
|
|
7.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
6,218,862
|
|
|
|
|
|
|
|
|
|
|
|
6,358,829
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
23,735,921
|
|
|
|
|
|
|
|
|
|
|
|
21,055,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
700,506,237
|
|
|
|
|
|
|
|
|
|
|
$
|
644,435,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$
|
542,428,091
|
|
|
$
|
8,512,734
|
|
|
|
3.16
|
%
|
|
$
|
471,999,392
|
|
|
$
|
9,631,937
|
|
|
|
4.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
81,089,103
|
|
|
|
1,493,347
|
|
|
|
3.71
|
%
|
|
|
79,643,228
|
|
|
|
1,791,768
|
|
|
|
4.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
623,517,194
|
|
|
$
|
10,006,081
|
|
|
|
3.24
|
%
|
|
$
|
551,642,620
|
|
|
$
|
11,423,705
|
|
|
|
4.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
25,262,343
|
|
|
|
|
|
|
|
|
|
|
|
34,651,575
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
4,762,631
|
|
|
|
|
|
|
|
|
|
|
|
4,663,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
653,542,168
|
|
|
|
|
|
|
|
|
|
|
$
|
590,957,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity capital
|
|
|
46,964,069
|
|
|
|
|
|
|
|
|
|
|
|
53,477,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
700,506,237
|
|
|
|
|
|
|
|
|
|
|
$
|
644,435,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
1.85
|
%
|
|
|
|
|
|
|
|
|
|
|
2.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/margin
|
|
|
|
|
|
$
|
6,904,633
|
|
|
|
2.08
|
%
|
|
|
|
|
|
$
|
10,042,964
|
|
|
|
3.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the impact the varying levels of earning assets and
interest-bearing liabilities and their applicable rates have had on changes in net interest income
for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Changes in Net Interest Income
|
|
|
|
For the three months ended
|
|
|
|
June 30, 2009 versus 2008
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net change
|
|
Federal funds sold and short term
investments and trust preferred
securities
|
|
$
|
13,039
|
|
|
$
|
(77,201
|
)
|
|
$
|
(64,162
|
)
|
Investment securities
|
|
|
168,267
|
|
|
|
(464,416
|
)
|
|
|
(296,149
|
)
|
Loans
|
|
|
902,874
|
|
|
|
(5,098,518
|
)
|
|
|
(4,195,644
|
)
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
1,084,180
|
|
|
|
(5,640,135
|
)
|
|
|
(4,555,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
1,047,224
|
|
|
|
(2,166,427
|
)
|
|
|
(1,119,203
|
)
|
Other borrowings
|
|
|
58,497
|
|
|
|
(356,918
|
)
|
|
|
(298,421
|
)
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,105,721
|
|
|
|
(2,523,345
|
)
|
|
|
(1,417,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
$
|
(21,541
|
)
|
|
$
|
(3,116,790
|
)
|
|
$
|
(3,138,331
|
)
|
|
|
|
|
|
|
|
|
|
|
15
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 $14.9 million for the first six
months of 2009 as compared to $1.3 million for the same period of 2008 and $10.5 million for the
year ended December 31, 2008. 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. In the first quarter of 2009, management performed an in-depth analysis with each
relationship manager on their loan portfolio, taking into account current economic conditions.
During the second quarter of 2009, an independent credit review group analyzed approximately 50% of
the loans in our portfolio. The review focused on the higher risk loans components including loans
that were past due in terms of interest, development and construction loans, and certain industry
segments. 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 increased to $4,807,887 for the six months ended June 30, 2009, up 68.88% from
$2,846,861 for the same period in 2008. For the three months ended June 30, 2009, noninterest
income increased to $2,265,319 million as compared to $1,466,838 in 2008. This increase in
noninterest income is primarily attributable to the increase in income from our mortgage operation,
which rose from $1,663,699 for the six months ended June 30, 2008 to $3,966,461 for the six months
ended June 30, 2009. The increase in noninterest income from our mortgage operation is a
reflection of low mortgage interest rates and a decline in housing prices. The majority of the
mortgage activity has been refinancing of existing consumer debt.
The Company recognized gains on the sale of investment securities in the amount of $306,094 for the
six months ended June 30, 2009. There were no gains from the sale of investment securities during
the same period in 2008. The Company recognized gains to shorten the maturity of the portfolio and
to increase cash flow for future liquidity needs.
The Company continues to actively pursue sales of its Other Real Estate Owned (OREO). For the
period ended June 30, 2009, the Company took losses on the sale or write down of OREO values in the
amount of $905,161, an increase from a loss of $2,891 for the same period in 2008.
Noninterest Expense
Total noninterest expense increased 23.22% to $11,922,834 for the six month period ended June 30,
2009 from $9,676,353 for the same period in 2008, and increased 30.2% to $6,767,863 million for the
three months ended June 30, 2009 from $5,197,601 million for the same period in 2008. Salaries and
wages and employee benefits expense increased $913,310 to $4,586,998 during the six month period
ended June 30, 2009 compared to the same period in 2008. The increase in salaries and benefits
relates to an increase in mortgage production, originator commissions, and related payroll taxes.
We had 142, 157, and 158 full-time equivalent employees (FTE) at June 30, 2009, June 30, 2008,
and December 31, 2008 respectively. The mortgage operation FTE decreased from 57 FTE at June 30,
2008 to 56 FTE at June 30, 2009 and was 62 at December 31, 2008. Excluding our mortgage operation
staff, FTE decreased from 101 at June 30, 2008 to 86 FTE at June 30, 2009 and was 96 at December
31, 2008. Staffing decreases were due to a reduction of staff hours as a cost-cutting measure
taken by management.
For the six months ended June 30, 2009, advertising and public relations costs decreased $151,008
to $167,934 as compared to the same period in 2008. Professional fees increased $78,137 to
$417,297 for the six month period ended June 30, 2009 compared to the same period in 2008.
Professional fees continue to increase due to fees related to regulatory matters and the escalating
cost of accounting, auditing, and legal services. Advertising and public relations costs have
declined as a result of ongoing cost control measures taken by the Banks management.
Occupancy expenses increased $31,316 or 3.88% to $837,558 during the six months ended June 30,
2009, compared to the same period in 2008, and by $15,383 for the three months ended June 30, 2009
compared to the same period in 2008.
16
Data processing fees decreased during the six months ended June 30, 2009, to $409,051 from $636,525
during the same period in 2008. The majority of the decrease in expense relates to the one time
cost incurred in 2008 to convert to our
current operating systems. For the three months ended June 30, 2009, data processing costs totaled
$206,502 compared to $450,225 for June 30, 2008.
Other operating expenses increased 79.77% to $2,987,028 during the six months ended June 30, 2009,
compared to $1,661,621 during the same period in 2008. Other operating expenses increased 141.2%,
to $2,055,650, for the three months ended June 30, 2009 compared to the same period in 2008.
The increase in other operating expenses was primarily due to increases in FDIC fees and credit and
collection expenses. Specifically, FDIC fees increased $990,771, and credit and collections
expense increased $632,722, collectively totaling an increase of $1,623,493 for the six months
ended June 30, 2009. The FDIC increase is due to the FDICs special assessment of $319,089,
effective June 30, 2009, a significant increase in the Banks quarterly assessment due to the
Banks financial condition, and an adjustment to properly record the FDIC premium. The Company
expects the expense for the third quarter of 2009 to be approximately $280,000, assuming there are
no additional special FDIC assessments. The increase in credit and collection expenses is directly
related to the growth in our problem loans and the loans transferred to OREO. The total increase in
other operating expenses was $1,325,407 during the six months ended June 30, 2009, as compared to
the same period in 2008.
The following table presents a comparison of other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operating Expenses
|
|
|
|
For the six months ended
|
|
|
For the three months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Telephone
|
|
$
|
73,862
|
|
|
$
|
88,429
|
|
|
$
|
35,680
|
|
|
$
|
45,175
|
|
Postage and freight
|
|
|
71,942
|
|
|
|
61,027
|
|
|
|
41,239
|
|
|
|
30,893
|
|
Armored car
|
|
|
12,960
|
|
|
|
43,289
|
|
|
|
7,221
|
|
|
|
22,515
|
|
Credit and collection-bank
|
|
|
555,819
|
|
|
|
179,082
|
|
|
|
311,489
|
|
|
|
103,309
|
|
Dues and subscriptions
|
|
|
72,331
|
|
|
|
79,452
|
|
|
|
39,878
|
|
|
|
37,180
|
|
Employee travel, conferences, meals, and lodging
|
|
|
45,986
|
|
|
|
89,644
|
|
|
|
25,745
|
|
|
|
53,567
|
|
Business development and donations
|
|
|
119,130
|
|
|
|
186,861
|
|
|
|
40,106
|
|
|
|
107,463
|
|
FDIC insurance
|
|
|
1,141,016
|
|
|
|
150,245
|
|
|
|
1,014,948
|
|
|
|
80,954
|
|
Other insurance
|
|
|
24,521
|
|
|
|
25,420
|
|
|
|
12,578
|
|
|
|
12,850
|
|
Debit/ATM
|
|
|
64,118
|
|
|
|
55,276
|
|
|
|
32,353
|
|
|
|
27,235
|
|
Credit card processing fees
|
|
|
44,368
|
|
|
|
27,561
|
|
|
|
24,053
|
|
|
|
14,827
|
|
Software maintenance
|
|
|
125,831
|
|
|
|
134,802
|
|
|
|
58,130
|
|
|
|
43,794
|
|
Director BOLI
|
|
|
69,160
|
|
|
|
67,679
|
|
|
|
39,408
|
|
|
|
33,851
|
|
Mortgage recourse expense
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Foreclosure related expense
|
|
|
132,023
|
|
|
|
37,021
|
|
|
|
86,195
|
|
|
|
(966
|
)
|
Director advisory fees
|
|
|
85,151
|
|
|
|
144,674
|
|
|
|
42,701
|
|
|
|
78,924
|
|
Furniture and equipment
|
|
|
91,958
|
|
|
|
173,763
|
|
|
|
50,647
|
|
|
|
98,335
|
|
Other operating expenses
|
|
|
256,852
|
|
|
|
107,396
|
|
|
|
193,279
|
|
|
|
62,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,987,028
|
|
|
$
|
1,661,621
|
|
|
$
|
2,055,650
|
|
|
$
|
852,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Review
General
We had total assets of $697.6 million at June 30, 2009, an increase of 4.2% from $669.5 million at
June 30, 2008, and an increase of 4.31% from $668.8 million at December 31, 2008. Total assets at
June 30, 2009 consisted primarily of $558.8 million in loans including mortgage loans held for
sale, $81.5 million in investments, $19.4 million in Federal Funds sold and other short term
investments, and $9.4 million in cash and due from banks. Our liabilities at June 30, 2009 totaled
$658.0 million, consisting primarily of $574.1 million in deposits, $55.0 million in Federal Home
Loan Bank (FHLB) advances, and $10.3 million in junior subordinated debentures. Our total
deposits increased to $574.1 million at June 30, 2009, up 8.52% from $529.1 million at June 30,
2008, and up 7.65% from $533.4 million at December 31, 2008. Shareholders equity decreased $10.1
million to $39.6 million at June 30, 2009 from $49.7 million at December 31, 2008, and decreased
$13.5 million from $53.1 million at June 30, 2008.
17
Investment Securities
Total investment securities averaged $76.9 million during the first six months of 2009 and totaled
$81.5 million at June 30, 2009. Total investment securities averaged $68.7 million during the
first six months of 2008 and totaled $69.1 million at June 30, 2008. Total investment securities
averaged $68.5 million for the year ended December 31, 2008 and totaled $70.6 million at December
31, 2008. At June 30, 2009, our total investment securities portfolio had a book value of $81.0
million and a fair market value of $81.5 million, for an unrealized net gain of $466 thousand. The
increase in investment securities adds to the liquidity for the Company. We primarily invest in
short term U.S. Government Sponsored Enterprises and Federal Agency securities.
At June 30, 2009, federal funds sold and short-term investments totaled $19.4 million, compared to
$3.1 million at June 30, 2008 and $6.6 million at December 31, 2008. These funds are generally
invested on an overnight or short-term basis. This increase in short-term investments is due to
managements decision to increase liquidity to mitigate risks associated with 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 June 30, 2009, loans
represented 85.5% of average earning assets as compared to 87.1% at June 30 2008, and 87.5% at
December 31, 2008. At June 30, 2009, net portfolio loans (portfolio loans less the allowance for
loan losses and deferred loan fees) totaled $523.8 million, a decrease of $21.9 million, or 4.02%,
from June 30, 2008 and a decrease of $18.7 million, or 3.45% from December 31, 2008. The decline
is due to managements decision to reduce the balance sheet and our exposure to real estate.
Average gross loans increased to $573.6 million with a yield of 5.37% during the first six months
of 2009 from $537.6 million with a yield of 7.28% during the same period in 2008. Average gross
loans were $550.0 million with a yield of 6.84% for the year ended December 31, 2008. The decrease
in yield on loans during these periods is caused by the interest rate declines in 2008 and an
increase in non-accrual loans. 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 June 30, 2009, December 31, 2008, and June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of Loan Portfolio
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
Commercial
|
|
$
|
57,200,261
|
|
|
|
10.7
|
%
|
|
$
|
59,040,069
|
|
|
|
10.7
|
%
|
|
$
|
68,450,260
|
|
|
|
12.4
|
%
|
Real estate construction
|
|
|
23,835,789
|
|
|
|
4.4
|
%
|
|
|
33,741,466
|
|
|
|
6.1
|
%
|
|
|
51,220,297
|
|
|
|
9.2
|
%
|
Real estate mortgage
|
|
|
446,728,523
|
|
|
|
83.2
|
%
|
|
|
448,970,087
|
|
|
|
81.4
|
%
|
|
|
425,205,087
|
|
|
|
76.8
|
%
|
Consumer
|
|
|
9,281,458
|
|
|
|
1.7
|
%
|
|
|
9,700,120
|
|
|
|
1.8
|
%
|
|
|
8,896,536
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans, gross
|
|
|
537,046,031
|
|
|
|
100.0
|
%
|
|
|
551,451,742
|
|
|
|
100.0
|
%
|
|
|
553,772,180
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned loan fees and costs, net
|
|
|
(190,686
|
)
|
|
|
|
|
|
|
(294,921
|
)
|
|
|
|
|
|
|
(387,164
|
)
|
|
|
|
|
Allowance for possible loan losses
|
|
|
(13,034,291
|
)
|
|
|
|
|
|
|
(8,642,651
|
)
|
|
|
|
|
|
|
(7,646,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans, net
|
|
|
523,821,054
|
|
|
|
|
|
|
|
542,514,170
|
|
|
|
|
|
|
|
545,738,963
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
21,966,286
|
|
|
|
|
|
|
|
7,210,088
|
|
|
|
|
|
|
|
6,528,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
545,787,340
|
|
|
|
|
|
|
$
|
549,724,258
|
|
|
|
|
|
|
$
|
552,267,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans have dropped 53.5% year over year as of June 30, 2009, as
compared to June 30, 2008. This decline is due to managements decision to limit construction
lending. The principal component of our portfolio loans at June 30, 2009, December 31, 2008, and
June 30, 2008, was mortgage loans, which represented 83.2%, 81.4%, and 76.8%, 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 also
increases 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.
A significant portion of our loans are made within the markets we serve. Loans held for sale are
consumer real estate loans that are pending sale to investors.
18
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 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 Accounting by
Creditors for Impairment of a Loan 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 Bank then develops specific pools of homogenous impaired loans
under $150,000 and assigns a specific impairment percentage to each of the eight pools; this
impairment averaged 24% of the loan balance at June 30. 2009. 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 local real estate market, the increase in impaired
loans, 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 risk
adjustment factor 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 June 30, 2009, the allowance for loan losses was $13.0 million, or 2.33% of total outstanding
loans, compared to an allowance for loan losses of $7.6 million, or 1.37% of total outstanding
loans, at June 30, 2008, and $8.6 million, or 1.55% of total outstanding loans, at December 31,
2008. Excluding loans held for sale, the allowance for portfolio loans was 2.43% at June 30, 2009,
compared to an allowance for portfolio loan losses of 1.38% at June 30, 2008, and 1.57% at December
31, 2008. Management believes the allowance for portfolio loan loss ratio is more useful than the
allowance for loan loss ratio because held for sale loans are pending sale to investors.
During the first six months of 2009, we had net charge-offs totaling $10,508,360. During the same
period in 2008, we had net charge-offs totaling $603,563. In the first quarter of 2009 management
performed additional reviews with all loan relationship managers to ensure we consistently
evaluated each loan. During the second quarter of 2009, an independent credit review group analyzed
approximately 50% of the loans in our portfolio. The review focused on the higher risk loans
components including loans that were past due in terms of interest, development and construction
loans, and certain industry segments. We had non-performing loans totaling $44.1 million, $13.0
million and $18.2 million at June 30, 2009, June 30, 2008, and December 31, 2008, respectively.
The current 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, charge-offs, 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.
19
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 three months ended June 30, 2009, June
30, 2008, and the full year ended December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Average total loans outstanding
|
|
$
|
573,559,350
|
|
|
$
|
549,953,836
|
|
|
$
|
537,617,439
|
|
Total loans outstanding at period end
|
|
|
558,821,631
|
|
|
|
558,366,909
|
|
|
|
559,913,106
|
|
Total nonperforming loans
|
|
|
43,618,262
|
|
|
|
19,968,441
|
|
|
|
13,003,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance of allowance
|
|
|
8,642,651
|
|
|
|
6,935,616
|
|
|
|
6,935,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
(10,590,563
|
)
|
|
|
(8,858,354
|
)
|
|
|
(615,977
|
)
|
Total recoveries
|
|
|
82,203
|
|
|
|
74,389
|
|
|
|
12,414
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged off
|
|
|
(10,508,360
|
)
|
|
|
(8,783,965
|
)
|
|
|
(603,563
|
)
|
Provision for loan losses
|
|
|
14,900,000
|
|
|
|
10,491,000
|
|
|
|
1,314,000
|
|
|
|
|
|
|
|
|
|
|
|
Balance at period end
|
|
$
|
13,034,291
|
|
|
$
|
8,642,651
|
|
|
$
|
7,646,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average total loans (annualized)
|
|
|
3.69
|
%
|
|
|
1.60
|
%
|
|
|
0.23
|
%
|
Allowance as a percent of total loans
|
|
|
2.33
|
%
|
|
|
1.55
|
%
|
|
|
1.37
|
%
|
Allowance as a percent of portfolio loans
|
|
|
2.43
|
%
|
|
|
1.57
|
%
|
|
|
1.38
|
%
|
Allowance as a percentage of nonperforming loans
|
|
|
29.88
|
%
|
|
|
43.28
|
%
|
|
|
58.80
|
%
|
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 June 30, 2009. 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 June 30, 2009
|
|
Commercial
|
|
$
|
1,321,119
|
|
|
|
10.2
|
%
|
Real estate construction
|
|
|
3,655,608
|
|
|
|
4.3
|
%
|
Real estate mortgage
|
|
|
7,712,650
|
|
|
|
83.8
|
%
|
Consumer
|
|
|
150,023
|
|
|
|
1.7
|
%
|
Unallocated
|
|
|
194,891
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
13,034,291
|
|
|
|
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 June 30, 2009, there were loans totaling $478 thousand that were 90
days past due and still accruing interest as compared with $1.8 million as of December 31, 2008.
There were no loans past due 90 days or more still accruing interest at June 30, 2008.
20
The table below is an analysis of our impaired loans and allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
|
|
|
For the year ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Impaired loans with specific allowance
|
|
$
|
38,845,408
|
|
|
$
|
12,977,301
|
|
|
$
|
11,210,569
|
|
Impaired loans with no specific allowance
|
|
|
13,684,260
|
|
|
|
8,987,369
|
|
|
|
18,367,715
|
|
Total impaired loans (quarter end)
|
|
|
52,529,668
|
|
|
|
21,964,670
|
|
|
|
29,578,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related allowance (quarter end)
|
|
|
7,627,988
|
|
|
|
3,498,844
|
|
|
|
3,107,168
|
|
Interest income recongnized
|
|
|
95,231
|
|
|
|
126,302
|
|
|
|
1,584,491
|
|
Foregone interest
|
|
|
708,501
|
|
|
|
157,925
|
|
|
|
1,222,542
|
|
Average recorded investment on impaired
|
|
|
34,527,728
|
|
|
|
10,230,488
|
|
|
|
21,148,317
|
|
Nonaccrual loans were $43,618,262, $13,003,335, and $18,185,037 as of June 30, 2009, June 30, 2008,
and December 31, 2008, 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 78 borrowers that are on nonaccrual at June 30, 2009.
Ten of those borrowers amount to 55% of the total nonaccrual loans.
If the Bank takes a property 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 June 30, 2009, we had $4,989,325 in OREO, compared to $2,365,000 at June 30, 2008, and
$3,111,741 at December 31, 2008. At June 30, 2009, we had $75,000 in repossessed property compared
to none as of June 30, 2008 and $78,866 at December 31, 2008. As of June 30, 2009, there are
sixteen properties in OREO, five of which are under contract. The properties in OREO at June 30,
2009 include two commercial properties, one parcel of undeveloped land, five residential lots, and
eight residential properties. During the second quarter of 2009, the Bank wrote down OREO by
$430,000.
Deposits
Average total deposits were $567.7 million for the six months ended June 30, 2009, up 12.05% from
$506.7 million during the same period in 2008 and up 10.0% from $515.7 million at December 31,
2008. Average interest-bearing deposits were $481.9 million for six months ended June 30, 2009, up
2.1% from $472.0 million during the same period of 2008 and down 0.06% from $482.2 million at
December 31, 2008.
The following table sets forth deposits by category as of June 30, 2009, June 31, 2008, and
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Deposits
|
|
|
Amount
|
|
|
Deposits
|
|
|
Amount
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit accounts
|
|
$
|
29,798,351
|
|
|
|
5.2
|
%
|
|
$
|
24,628,632
|
|
|
|
4.6
|
%
|
|
$
|
37,345,807
|
|
|
|
7.1
|
%
|
Interest bearing checking accounts
|
|
|
20,173,833
|
|
|
|
3.5
|
%
|
|
|
15,916,904
|
|
|
|
3.0
|
%
|
|
|
24,150,241
|
|
|
|
4.6
|
%
|
Money market accounts
|
|
|
75,970,038
|
|
|
|
13.2
|
%
|
|
|
90,708,621
|
|
|
|
17.0
|
%
|
|
|
130,971,973
|
|
|
|
24.8
|
%
|
Savings accounts
|
|
|
3,564,583
|
|
|
|
0.6
|
%
|
|
|
3,491,913
|
|
|
|
0.7
|
%
|
|
|
3,265,704
|
|
|
|
0.6
|
%
|
Time deposits less than $100,000
|
|
|
178,861,237
|
|
|
|
31.2
|
%
|
|
|
150,533,893
|
|
|
|
28.2
|
%
|
|
|
122,855,238
|
|
|
|
23.2
|
%
|
Time deposits of $100,000 or more
|
|
|
172,960,334
|
|
|
|
30.1
|
%
|
|
|
151,329,497
|
|
|
|
28.4
|
%
|
|
|
134,937,892
|
|
|
|
25.5
|
%
|
Brokered CDs
|
|
|
64,106,000
|
|
|
|
11.2
|
%
|
|
|
74,785,000
|
|
|
|
14.0
|
%
|
|
|
75,284,000
|
|
|
|
14.2
|
%
|
CDARS deposits
|
|
|
28,702,563
|
|
|
|
5.0
|
%
|
|
|
21,964,249
|
|
|
|
4.1
|
%
|
|
|
270,000
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
574,136,939
|
|
|
|
100.0
|
%
|
|
$
|
533,358,709
|
|
|
|
100.00
|
%
|
|
$
|
529,080,855
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Deposit growth was attributable to a new deposit product that maximizes FDIC insurance (CDARS),
internal growth, and the generation of new deposits in our markets. Low cost demand deposit
accounts grew $5.1 million (21.0% increase) since December 31, 2008, but declined $7.5 million
(20.2% decrease) from June 30, 2008. This six-month growth is due to an increased emphasis on
obtaining our customers primary banking relationship.
The bank regulatory definition of core deposits, which excludes certificates of deposit of $100,000
or more, brokered CDs, and CDARS, were $308.4 million at June 30, 2009, compared to $318.6 million
at June 30, 2008, and $285.3 million at December 31, 2008. Our brokered deposits were $64.1
million as of June 30, 2009, $75.3 million as of June 30, 2008, and $74.8 million as of December
31, 2008. In July 2009, the Company had an additional $15 million in brokered deposits mature. As
previously disclosed, since September 30, 2008, the Bank has been limited on the amount of brokered
deposits it can hold without being granted a waiver by the OCC. The OCC has granted us several
waivers, but there is no assurance that the OCC will continue to grant us waivers. Even if we do
not receive additional waivers, we believe we will be able to replace these deposits as they mature
with local deposits or other funding sources, but there can be no assurances in this respect.
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 53.71% at June
30, 2009, 60.22% at June 30, 2008, and 53.49% at December 31, 2008. Of the time deposits of
$100,000 or more, at June 30, 2009, there were $84.2 million in deposits between $100,000 and
$150,000 with an average balance of $107,891. The Company believes these account balances to be
core deposits for internal reporting purposes.
Our loan-to-deposit ratio was 97.3% at June 30, 2009 versus 105.8% at June 30, 2008 and 104.7% at
December 31, 2008. The average loan-to-deposit ratio was 101.03% during the first six months of
2009, 106.11% during the same period of 2008, and 106.7% for the full year ended December 31, 2008.
The Emergency Economic Stabilization Act (EESA), which became effective on October 3, 2008,
temporarily increased 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, 2013. At June 30, 2009, the Bank had time deposits of $250,000 or more in the amount of $39.7
million that would not be covered under the FDIC insurance limits. Of these deposits, $25.4
million, or 64%, are to local public entities that have securities pledged as collateral by the
Bank.
In addition, our Bank elected to participate 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, or interest bearing
transactions accounts as long as the interest paid is less than 0.50%, held by FDIC-insured
banks until December 31, 2009.
|
The Bank has not issued any senior unsecured debt under the first program but we have been active
in the guarantee of funds in noninterest bearing or low interest bearing transaction accounts.
The FDIC has a proposal under review to allow each financial institution to elect to extend the
transaction deposit account portion of EESA until June 30, 2010.
The Company will see an increase in FDIC premiums 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 during the second quarter of 2009, for the same period
in 2008, and for the year ended December 31, 2008. The following table reflects the current
borrowing terms.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Maturity
|
|
|
Option
|
|
FHLB Description
|
|
Balance
|
|
|
Rate
|
|
|
Date
|
|
|
Date
|
|
Fixed rate advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
10,000,000
|
|
|
|
5.36
|
%
|
|
|
06/04/10
|
|
|
|
|
|
Fixed rate hybrid
|
|
|
5,000,000
|
|
|
|
4.76
|
%
|
|
|
10/21/10
|
|
|
|
|
|
Convertible
|
|
|
7,500,000
|
|
|
|
4.51
|
%
|
|
|
11/23/10
|
|
|
|
|
|
Convertible
|
|
|
5,000,000
|
|
|
|
3.68
|
%
|
|
|
07/13/15
|
|
|
|
07/13/09
|
|
Convertible
|
|
|
5,000,000
|
|
|
|
4.06
|
%
|
|
|
09/29/15
|
|
|
|
09/29/09
|
|
Convertible
|
|
|
5,000,000
|
|
|
|
4.16
|
%
|
|
|
03/13/17
|
|
|
|
09/14/09
|
|
Convertible
|
|
|
7,500,000
|
|
|
|
4.39
|
%
|
|
|
04/13/17
|
|
|
|
07/13/09
|
|
Variable rate
advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime based advance
|
|
|
10,000,000
|
|
|
|
0.41
|
%
|
|
|
9/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
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, which were 3.80% and 2.53%, respectively at June 30, 2009. The
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 June 30, 2009, our total shareholders equity was $39.6 million ($45.5 million at the bank
level). At June 30, 2009, our Tier 1 capital ratio was 9.01% (8.29% at the bank level), our total
risk-based capital ratio was 10.28% (9.55% at the bank level), and our Tier 1 leverage ratio was
6.62% (6.08% at the bank level).
The OCC has established Individual Minimum Capital Ratio levels of Tier 1 leverage ratio (8.50%),
Tier 1 risk-based capital ratio (10.50%) and total risk-based capital ratio (12.00%) for the Bank,
which are higher than the minimum and well capitalized ratios applicable to all banks. The Banks
capital levels are less than those required under its Individual Minimum Capital Ratios. The Bank
has worked with various advisors and consultants on planned capital raises, asset sales, and
implementing other measures to increase capital including strategies to increase liquidity, limit
asset growth, reduce dependence on brokered deposits, and restructure other funding sources. We
have had ongoing discussions with the OCC regarding these ratios. The OCC may deem noncompliance to
be an unsafe and unsound banking practice which would make the Bank subject to such administrative
actions or sanctions as the OCC considers necessary. It is uncertain what actions, if any, the
OCC will take with respect to noncompliance with these ratios, what actions the OCC might require
the Bank to take to remedy this situation, and whether such actions will be successful.
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.
23
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. We are evaluating and exploring
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 $15.0 million. We maintain a secured line of
credit in the amount of $10.0 million with our primary correspondent and have an $11.0 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, certain allowable commercial loans, and investment
securities pledged, resulting in an availability of up to $70.5 million at June 30, 2009. 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 June 30,
2009, 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 current
liquidity needs. However, there can be no assurances that these sources will be sufficient to meet
future liquidity demands.
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 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 as of June 30, 2009. 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.
24
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 June 30, 2009, the Bank had issued unused commitments to extend credit of $36.6 million through
various types of lending arrangements as compared to $47.5 million at June 30, 2008 and $40.7
million as of December 31, 2008. The Bank has actively worked to reduce the amount of unused
commitments over the last year. 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 $4.7 million at June 30, 2009, $10.9 million at June 30, 2008 and $4.6
million at December 31, 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.
Recently Issued Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 168, The
FASB Accounting Standards Codification
TM
and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement
No. 162, (SFAS 168). SFAS 168 establishes the
FASB Accounting Standards Codification
TM
(Codification) as the source of authoritative generally accepted accounting principles
(GAAP) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes
the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into
approximately 90 accounting Topics, and displays all Topics using a consistent structure. Contents
in each Topic are further organized first by Subtopic, then Section and finally Paragraph. The
Paragraph level is the only level that contains substantive content. Citing particular content in
the Codification involves specifying the unique numeric path to the content through the Topic,
Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with FASB ASC,
where ASC stands for
Accounting Standards Codification
. SFAS 168, (FASB ASC 105-10-05, 10, 15, 65,
70) is effective for interim and annual periods ending after September 15, 2009 and will not have
an impact on the Companys financial position but will change the referencing system for accounting
standards. The following pronouncements provide citations to the applicable Codification by Topic,
Subtopic and Section in addition to the original standard type and number.
In December 2008 the FASB issued FASB Staff Position (FSP) SFAS 132(R)-1 (FASB ASC 715-20-65),
Employers Disclosures about Postretirement Benefit Plan Assets, (FSP SFAS 132(R)-1). This FSP
provides guidance on an employers disclosures about plan assets of a defined benefit pension or
other postretirement plan. The objective of the FSP is to provide the users of financial
statements with an understanding of: (a) how investment allocation decisions are made, including
the factors that are pertinent to an understanding of investment policies and strategies; (b) the
major
categories of plan assets; (c) the inputs and valuation techniques used to measure the fair value
of plan assets; (d) the effect of fair value measurements using significant unobservable inputs
(Level 3) on changes in plan assets for the period; and (e) significant concentrations of risk
within plan assets. The FSP also requires a nonpublic entity, as defined in Statement of Financial
Accounting Standard (SFAS) 132, to disclose net periodic benefit cost for each period for which a
statement of income is presented. FSP SFAS 132(R)-1 is effective for fiscal years ending after
December 15, 2009. The Staff Position will require the Company to provide additional disclosures
related to its benefit plans, specifically the Beach First National Bank 401(K) and Profit Sharing
Plan.
25
FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20, (FASB ASC
325-40-65) (FSP EITF 99-20-1) was issued in January 2009. Prior to the FSP, other-than-temporary
impairment was determined by using either Emerging Issues Task Force (EITF) Issue No. 99-20,
Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests that Continue to be Held by a Transferor in Securitized Financial Assets, (EITF 99-20)
or SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, (SFAS 115)
depending on the type of security. EITF 99-20 required the use of market participant assumptions
regarding future cash flows regarding the probability of collecting all cash flows previously
projected. SFAS 115 determined impairment to be other than temporary if it was probable that the
holder would be unable to collect all amounts due according to the contractual terms. To achieve a
more consistent determination of other-than-temporary impairment, the FSP amends EITF 99-20 to
determine any other-than-temporary impairment based on the guidance in SFAS 115, allowing
management to use more judgment in determining any other-than-temporary impairment. The FSP was
effective for reporting periods ending after December 15, 2008. Management has reviewed the
Companys security portfolio and evaluated the portfolio for any other-than-temporary impairments.
On April 9, 2009, the FASB issued three staff positions related to fair value which are discussed
below.
FSP SFAS 115-2 and SFAS 124-2 (FASB ASC 320-10-65), Recognition and Presentation of
Other-Than-Temporary Impairments, (FSP SFAS 115-2 and SFAS 124-2) categorizes losses on debt
securities available-for-sale or held-to-maturity determined by management to be
other-than-temporarily impaired into losses due to credit issues and losses related to all other
factors. Other-than-temporary impairment (OTTI) exists when it is more likely than not that the
security will mature or be sold before its amortized cost basis can be recovered. An OTTI related
to credit losses should be recognized through earnings. An OTTI related to other factors should be
recognized in other comprehensive income. The FSP does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity securities. Annual
disclosures required in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 are also required for interim
periods (including the aging of securities with unrealized losses).
FSP SFAS 157-4 (FASB ASC 820-10-65), Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not
Orderly recognizes that quoted prices may not be determinative of fair value when the volume and
level of trading activity has significantly decreased. The evaluation of certain factors may
necessitate that fair value be determined using a different valuation technique. Fair value should
be the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction, not a forced liquidation or distressed sale. If a transaction is considered to not be
orderly, little, if any, weight should be placed on the transaction price. If there is not
sufficient information to conclude as to whether or not the transaction is orderly, the transaction
price should be considered when estimating fair value. An entitys intention to hold an asset or
liability is not relevant in determining fair value. Quoted prices provided by pricing services
may still be used when estimating fair value in accordance with SFAS 157; however, the entity
should evaluate whether the quoted prices are based on current information and orderly
transactions. Inputs and valuation techniques are required to be disclosed in addition to any
changes in valuation techniques.
FSP SFAS 107-1 and APB 28-1 (FASB ASC 825-10-65), Interim Disclosures about Fair Value of
Financial Instruments requires disclosures about the fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual financial statements
and also requires those disclosures in summarized financial information at interim reporting
periods A publicly traded company includes any company whose securities trade in a public market
on either a stock exchange or in the over-the-counter market, or any company that is a conduit bond
obligor. Additionally, when a company makes a filing with a regulatory agency in preparation for
sale of its securities in a public market it is considered a publicly traded company for this
purpose.
The three staff positions are effective for periods ending after June 15, 2009, with early adoption
of all three permitted for periods ending after March 15, 2009. The Company adopted the staff
positions for its second quarter 10-Q. The staff positions had no material impact on the financial
statements. Additional disclosures have been provided where applicable.
26
Also on April 1, 2009, the FASB issued FSP SFAS 141(R)-1 (FASB ASC 805-20-25, 30, 35, 50),
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies. The FSP requires that
assets acquired and liabilities assumed in a business combination that arise from a contingency be
recognized at fair value. If fair value cannot be determined during the measurement period as
determined in SFAS 141 (R), the asset or liability can still be recognized if it can be determined
that it is probable that the asset existed or the liability had been incurred as of the measurement
date and if the amount of the asset or liability can be reasonably estimated. If it is not
determined to be probable that the asset/liability existed/was incurred or no reasonable amount can
be determined, no asset or liability is recognized. The entity should determine a rational basis
for subsequently measuring the acquired assets and assumed liabilities. Contingent consideration
agreements should be recognized initially at fair value and subsequently reevaluated in accordance
with guidance found in paragraph 65 of SFAS 141 (R). The FSP is effective for business
combinations with an acquisition date on or after the beginning of the Companys first annual
reporting period beginning on or after December 15, 2008. The Company will assess the impact of
the FSP if and when a future acquisition occurs.
The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 111
(FASB ASC 320-10-S99-1) on April 9, 2009 to amend Topic 5.M., Other Than Temporary Impairment of
Certain Investments in Debt and Equity Securities and to supplement FSP SFAS 115-2 and SFAS 124-2.
SAB 111 maintains the staffs previous views related to equity securities; however debt securities
are excluded from its scope. The SAB provides that other-than-temporary impairment is not
necessarily the same as permanent impairment and unless evidence exists to support a value equal
to or greater than the carrying value of the equity security investment, a write-down to fair value
should be recorded and accounted for as a realized loss. The SAB was effective upon issuance and
had no impact on the Companys financial position.
SFAS 165 (FASB ASC 855-10-05, 15, 25, 45, 50, 55), Subsequent Events, (SFAS 165) was issued in
May 2009 and provides guidance on when a subsequent event should be recognized in the financial
statements. Subsequent events that provide additional evidence about conditions that existed at
the date of the balance sheet should be recognized at the balance sheet date. Subsequent events
that provide evidence about conditions that arose after the balance sheet date but before financial
statements are issued, or are available to be issued, are not required to be recognized. The date
through which subsequent events have been evaluated must be disclosed as well as whether it is the
date the financial statements were issued or the date the financial statements were available to be
issued. For nonrecognized subsequent events which should be disclosed to keep the financial
statements from being misleading, the nature of the event and an estimate of its financial effect,
or a statement that such an estimate cannot be made, should be disclosed. The standard is
effective for interim or annual periods ending after June 15, 2009. See Note 7 for Managements
evaluation of subsequent events.
The FASB issued SFAS 166 (not yet reflected in FASB ASC), Accounting for Transfers of Financial
Assets an amendment of FASB Statement No. 140, (SFAS 166) in June 2009. SFAS 166 limits the
circumstances in which a financial asset should be derecognized when the transferor has not
transferred the entire financial asset by taking into consideration the transferors continuing
involvement. The standard requires that a transferor recognize and initially measure at fair value
all assets obtained (including a transferors beneficial interest) and liabilities incurred as a
result of a transfer of financial assets accounted for as a sale. The concept of a qualifying
special-purpose entity is removed from SFAS 140 along with the exception from applying FIN 46(R).
The standard is effective for the first annual reporting period that begins after November 15,
2009, for interim periods within the first annual reporting period, and for interim and annual
reporting periods thereafter. Earlier application is prohibited. The Company does not expect the
standard to have any impact on the Companys financial position.
SFAS 167 (not yet reflected in FASB ASC), Amendments to FASB Interpretation No. 46(R), (SFAS
167) was also issued in June 2009. The standard amends FIN 46(R) to require a company to analyze
whether its interest in a variable interest entity (VIE) gives it a controlling financial
interest. A company must assess whether it has an implicit financial responsibility to ensure that
the VIE operates as designed when determining whether it has the power to direct the activities of
the VIE that significantly impact its economic performance. Ongoing reassessments of whether a
company is the primary beneficiary is also required by the standard. SFAS 167 amends the criteria
to qualify as a primary beneficiary as well as how to determine the existence of a VIE. The
standard also eliminates certain exceptions that were available under FIN 46(R). SFAS 167 is
effective as of the beginning of each reporting entitys first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. Earlier application is prohibited. Comparative
disclosures will be required for periods after the effective date. The Company does not expect the
standard to have any impact on the Companys financial position.
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.
27
|
|
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 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 12 months. At June 30, 2009, on a
cumulative basis through 12 months, rate-sensitive liabilities exceeded rate-sensitive assets by
$135.3 million. This liability-sensitive position is largely attributable to short-term
certificates of deposit, money market accounts and interest bearing checking accounts, which
totaled $516.8 million at June 30, 2009.
|
|
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 June 30, 2009. There have been no significant changes in our internal controls over
financial reporting during the fiscal quarter ended June 30, 2009 that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial reporting.
The design of any system of controls and procedures is based in part upon certain assumptions about
the likelihood of future events. There can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of how remote.
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal Proceedings
|
There are no material legal proceedings to which the company or any of our subsidiaries is a party
or of which any of our property is the subject.
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, 2008.
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Not applicable.
|
|
Item 3.
|
Defaults Upon Senior Securities
|
Not applicable.
28
|
|
Item 4.
|
Submission of Matters to a Vote of Security Holders
|
On May 4, 2009, Beach First National Bancshares, Inc. held its 2009 Annual Meeting of Shareholders.
The only matter submitted to shareholders at the meeting was the election of the Class I
directors. The following describes the matter voted upon at the annual meeting and sets forth the
number of votes cast for and those withheld (there were no broker non-votes or abstentions). The
results of the 2009 Annual Meeting of Shareholders were as follows:
Proposal #1 Election of Class I Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voting Shares in Favor
|
|
|
Withheld
|
|
Class I Directors:
|
|
#
|
|
|
%
|
|
|
Authority
|
|
M. Bert Anderson
|
|
|
3,989,023
|
|
|
|
82.3
|
|
|
|
128,956
|
|
O. Bart Buie
|
|
|
4,075,563
|
|
|
|
84.1
|
|
|
|
42,416
|
|
Michael Harrington
|
|
|
4,076,838
|
|
|
|
84.1
|
|
|
|
41,141
|
|
Rick Seagroves
|
|
|
4,065,288
|
|
|
|
83.9
|
|
|
|
52,691
|
|
Walt Standish
|
|
|
4,055,000
|
|
|
|
83.7
|
|
|
|
62,979
|
|
|
|
|
Item 5.
|
|
Other Information
|
Not applicable.
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
|
|
|
|
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.
|
29
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: August 14, 2009
|
By:
|
/s/ Walter E. Standish, III
|
|
|
|
Walter E. Standish, III
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Date: August 14, 2009
|
By:
|
/s/ Gary S. Austin
|
|
|
|
Gary S. Austin
|
|
|
|
Chief Financial and Principal Accounting Officer
|
|
30
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
|
|
|
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
|
31
Beach First National Bancshares (MM) (NASDAQ:BFNB)
Historical Stock Chart
From May 2024 to Jun 2024
Beach First National Bancshares (MM) (NASDAQ:BFNB)
Historical Stock Chart
From Jun 2023 to Jun 2024