U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -- EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
--------------
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number: 33-95562
BEACH FIRST NATIONAL BANCSHARES, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
South Carolina 58-1030117
------------------------ ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
1550 N. Oak Street, Myrtle Beach, South Carolina 29577
(Address of principal executive offices)
(843) 626-2265
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: On April 30, 735,868 shares
of the issuer's common stock, par value $1.00 per share, were issued and
outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Beach First National Bancshares, Inc. and Subsidiary
Myrtle Beach, South Carolina
Consolidated Balance Sheets
March 31, December 31,
2000 1999 1999
---- ---- ----
(unaudited) (unaudited) (audited)
----------- ----------- ----------
ASSETS
Cash and due from banks $ 893,457 $ 1,674,951 $ 2,516,526
Federal funds sold 210,000 780,000 -
Investment securities available for sale 9,140,545 9,549,438 9,283,159
Loans, net 36,630,167 23,033,007 32,129,114
Premises and equipment, net 1,436,725 1,500,910 1,446,424
Real estate acquired in settlement of loans 84,820 265,961 99,820
Other assets 729,241 582,797 680,352
------------ ----------- ------------
Total assets $ 49,124,955 $37,387,064 $ 46,155,395
============ =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits
Noninterest bearing deposits $ 6,411,151 $ 5,019,869 $ 5,864,480
Interest bearing deposits 33,070,791 25,782,287 30,971,540
------------ ----------- ------------
Total deposits 39,481,942 30,802,156 36,836,020
Other borrowings 3,100,000 - 2,820,000
Other liabilities 239,002 171,002 186,062
------------- ----------- ------------
Total liabilities 42,820,944 30,973,158 39,842,082
------------- ----------- ------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares
authorized; 735,868 shares issued and outstanding 735,868 735,868 735,868
Paid-in capital 6,476,481 6,476,481 6,476,481
Retained deficit (639,544) (752,335) (687,898)
Accumulated other comprehensive income (loss) (268,794) (46,108) (211,138)
------------- ----------- -----------
Total shareholders' equity 6,304,011 6,413,906 6,313,313
------------- ----------- -----------
Total liabilities and shareholders' equity $49,124,955 $37,387,064 $46,155,395
============= =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
Beach First National Bancshares, Inc, and Subsidiary
Myrtle Beach, South Carolina
Consolidated Statement of Operations
(unaudited)
Three Months Ended
March 31
---------------------------
2000 1999
---- ----
INTEREST INCOME
Interest and fees on loans $ 805,520 $ 501,259
Investment securities 154,071 170,659
Federal funds sold 3,126 8,630
--------- ----------
Total interest income 962,717 680,548
INTEREST EXPENSE
Deposits 427,309 326,591
Other borrowings 36,720 2,332
--------- ----------
Total interest expense 464,029 328,923
Net interest income 498,688 351,625
PROVISION FOR POSSIBLE LOAN
LOSSES 38,732 31,168
--------- ----------
Net interest income after provision for possible
loan losses 459,956 320,457
--------- ----------
NONINTEREST INCOME
Service fees on deposit accounts 55,357 27,762
Loss on sale of investment securities (2,508) (12,857)
Other income 9,100 8,154
--------- ----------
Total noninterest income 61,949 23,059
NONINTEREST EXPENSES
Salaries and wages 203,511 160,490
Employee benefits - 15,513
Supplies and printing 11,909 9,219
Advertising and public relations - 11,200
Professional fees 35,187 -
Depreciation and amortization 44,445 50,229
Occupancy - 9,953
Data processing fees 22,523 19,394
Other operating expenses 78,977 52,106
-------- ---------
Total noninterest expenses 444,892 358,080
-------- ---------
Income (loss) before income taxes - -
INCOME TAX EXPENSE (BENEFIT) 28,659 (3,049)
--------- ---------
Net income (loss) $ 48,354 $ (11,515)
========= =========
BASIC NET INCOME (LOSS) PER COMMON SHARE $ .07 $ (.02)
========= =========
DILUTED NET INCOME (LOSS) PER COMMON SHARE
$ .06 $ (.02)
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Beach First National Bancshares, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Accumulated
other Total
Common stock Paid-in Retained Comprehensive shareholders'
Shares Amount Capital Deficit income Equity
------ ------ ------- ------- -------------- -------------
BALANCE, DECEMBER 31, 1998 735,868 $ 735,868 $ 6,476,481 $ (740,819) $ 2,126 $ 6,473,656
Net loss - - - (11,515) - (11,515)
Other comprehensive loss, net of income taxes:
Unrealized gain on investment securities - - - - (61,091) (61,091)
Less reclassification adjustments for losses
included in net loss - - - -
12,857 12,857
-----------
Comprehensive loss - - - - - (59,749)
------- --------- ------------ ---------- ---------- -----------
BALANCE, MARCH 31, 1999 735,868 $ 735,868 $ 6,476,481 $ (752,335) $ (46,108) $ 6,413,906
======= ========= ============ ========== ========== ===========
Accumulated
other Total
Common stock Paid-in Retained Comprehensive Shareholders'
Shares Amount Capital Deficit Loss Equity
----- ------ ------- ------- ---------- ----------
BALANCE, DECEMBER 31, 1999 735,868 $ 735,868 $ 6,476,481 $ (687,898)$ (211,138) $ 6,313,313
Net income - - - 48,354 - 48,354
Other comprehensive loss, net of income taxes:
Unrealized loss on investment securities - - - - (60,164) (60,164)
Less reclassification adjustments for losses
included in net income - - - - 2,508 2,508
Comprehensive loss - - - - - (9,302)
------- --------- ----------- ------------ ---------- -----------
BALANCE, MARCH 31, 2000 735,868 $ 735,868 $ 6,476,481 $ (639,544)$ (268,794) $ 6,304,011
======= ========= =========== ============ ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
Beach First National Bancshares, Inc. and Subsidiary
Myrtle Beach, South Carolina
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
---- ----
OPERATING ACTIVITIES
Net loss $ 48,354 $ (11,515)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Deferred income taxes 28,659 (3,049)
Provisions for loan losses 31,168 31,168
Depreciation and amortization 44,445 50,229
Writedown on real estate acquired in settlement of loans 15,000 -
Loss on sale of investment securities 2,508 12,857
(Increase) decrease in other assets (50,901) (6,056)
Increase in other liabilities 52,940 (6,010)
---------- ----------
Net cash provided by operating activities 172,173 67,624
---------- ----------
INVESTING ACTIVITIES
Purchase of investment securities (209,313) -
Proceeds from sale of investment securities 260,719 1,885,234
Decrease (increase) in Federal funds sold (210,000) 1,470,000
Increase in loans, net (4,532,221) (2,231,834)
Purchase of premises and equipment (30,349) (16,737)
Proceeds from sale of ORE - -
- 22,113
---------- -----------
Net cash used in investing activities (4,721,164) 1,128,776
---------- -----------
FINANCING ACTIVITIES
Increase (decrease) in Federal funds purchased 280,000 (158,912)
Net increase (decrease) in deposits 2,645,922 (332,886)
---------- -----------
Net cash provided by financing activities 2,925,922 (491,798)
---------- -----------
Net increase (decrease) in cash and cash equivalents (1,623,069) 704,602
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD $ 2,516,526 $ 970,349
============ ===========
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 893,457 $ 1,674,951
============ ===========
CASH PAID FOR
Income taxes $ 3,290 $ -
------------ -----------
Interest $ 448,828 $ 321,147
------------ -----------
The accompanying notes are an integral part of these consolidated financial
statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements, and the
Company's operating performance each quarter is subject to various risks and
uncertainties that are discussed in detail in the Company's filings with the
Securities and Exchange Commission, including the "Risk Factors" section in the
Company's Registration Statement on Form S-1 (Registration Number 33-95562) as
filed with and declared effective by the Securities and Exchange Commission. The
Bank completed its third full year of operations in 1999 and has grown
substantially since opening in September 1996. Comparisons of the Bank's results
for the periods presented should be made with an understanding of the Bank's
short history.
Results of Operations
EARNINGS REVIEW
The Company's net profit was $48,354, or $0.07 per common share, for
the three months ended March 31, 2000 as compared to a loss of $11,515, or $0.02
per common share, for the three months ended March 31, 1999. The improvement in
net income reflects the Bank's continued growth, as average earning assets
increased to $44.0 million during the first three months of 2000 from $33.7
million during the same period of 1999. The return on average assets for the
three month period ended March 31 was .41% in 2000 compared to (.13)% in 1999;
the return on average equity was 3.07% in 2000 versus (.72)% in 1999.
During the first three months of 2000, net interest income increased to
$498,688 from $351,625 in the same period of 1999. The growth in net interest
income resulted from an increase of $282,169 in interest income, partially
offset by an increase in interest expense of $135,106. The net interest spread
was 3.46% in the first three months of 2000 compared to 3.01% during the same
period of 1999. The net interest margin was 4.54% for the three month period
ended March 31, 2000 compared to 4.23% for the same period of 1999.
The provision for loan losses was $38,732 for the three month period
ended March 31, 2000, compared to $31,168 for the three month period ended March
31, 1999. The Company's allowance for loan losses as a percentage of its period
end loans was 1.19% and 1.24% at March 31, 2000 and 1999, respectively. Net
charge-offs totaled $5,228 for the first three months of 2000. In the same
period of 1999, there were $6,115 in net charge offs. The Company had no
non-performing loans at March 31, 2000 and 1999.
Noninterest income for the three month period ended March 31, 2000 was
$61,949, compared to $23,059 in the same period of 1999. This was due primarily
to and increase in service fees on deposits accounts resulting from an $8.7
million growth in deposits from March 31, 1999 to March 31, 2000.
Noninterest expense was $444,892 for the three month period ended March
31, 2000, which was an increase of $86,812 over the same period of 1999. These
increases in noninterest expense reflect increases in salaries, advertising and
pubic relations, data processing fees and other expenses related to the growth
of the Bank as well the writedown to market value of real estate acquired in
settlement of loans.
Net Interest Income
The primary source of revenue for the Company is net interest income,
which is the difference between income on interest-bearing assets and interest
paid on deposits and borrowings used to support such assets. Net interest income
is determined by the rates earned on the Company's interest-earning assets and
the rates paid on its interest-bearing liabilities as well as the relative
amounts of interest-bearing assets and interest-bearing liabilities. Presented
below are various components of assets and liabilities, interest income and
expense and yields/costs for the periods indicated.
Average Balances, Income and Expenses, and Rates
For the three months ended For the three months ended
March 31, 2000 March 31, 1999
-------------- --------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
Federal funds sold $ 198,910 $ 3,126 6.30% $ 718,889 $ 8,630 4.87%
Investment securities 9,231,213 154,071 6.69% 10,843,526 170,659 6.38%
Net loans 34,582,000 805,520 9.34% 22,164,763 501,259 9.17%
-------------- ------------ ---------- -------------- ------------ ----------
Total earning assets $ 44,012,123 $ 962,717 8.77% $ 33,727,178 $ 680,548 8.18%
============== ============ ========== ============== ============ ==========
Interest-bearing deposits $ 32,231,860 $ 427,309 5.32% $ 25,621,526 $ 326,591 5.17%
Other borrowings 2,793,736 36,720 5.27% 168,343 2,332 5.62%
-------------- ------------ ---------- -------------- ------------ ----------
Total interest-bearing
Liabilities $ 35,025,596 $ 464,029 5.31% $ 25,789,869 $ 328,923 5.17%
============== ============ ========== ============== ============ ==========
Net interest spread 3.46% 3.01%
Net interest income/margin $ 498,688 4.54% $ 351,625 4.23%
============ ========== ============ ==========
As reflected above, for the first three months of 2000 the average
yield on earning assets amounted to 8.77%, while the average cost of
interest-bearing liabilities was 5.31%. For the same period of 1999, the average
yield on earning assets was 8.18% and the average cost of interest-bearing
liabilities was 5.17%. The increase in the yield on earning assets is
attributable to a significant increase in outstanding loans which earn higher
rates than other components of earning assets. This increase in average loans of
$12.4 million reflects the Bank's success in continuing to build its customer
base. The net interest margin is computed by subtracting interest expense from
interest income and dividing the resulting figure by average interest-earning
assets. The net interest margin for the three month period ended March 31, 2000
was 4.54% and for same period of 1999 was 4.23%. This increase was the result of
growth in average earning assets of $10.3 million, partially offset by a $9.2
million increase in interest-bearing liabilities. In addition, the weighted
average rates on earning assets increased by 59 basis points while the rate on
deposits increased by only 14 basis points. The increase in outstanding balances
is consistent with the Bank's expansion of its core base of loans and deposits.
The following table presents the changes in the Company's net interest
income as a result of changes in the volume and rate of its interest-earning
assets and interest-bearing liabilities. The change in net interest income is
primarily due to increases in the volume of both loans and deposits rather than
changes in average rates.
Analysis of Changes in Net Interest Income
---------------------------------------------
Three months ended March 31, 2000 versus 1999
---------------------------------------------
Volume Rate Net change
Federal funds sold $ (8,076) $ 2,572 $ (5,504)
Investment securities (25,014) 8,426 (16,588)
Loans 294,805 9,456 304,261
---------- ---------- -----------
Total earning assets 261,715 20,454 282,169
Interest-bearing deposits 91,264 9,454 100,718
Other borrowings 34,534 (146) 34,388
---------- ---------- -----------
Total interest-bearing liabilities 125,798 9,308 135,106
---------- ---------- -----------
Net interest income $ 135,917 $ 11,146 $ 147,063
========== =========== ===========
Provision for Loan Losses
The provision for loan losses was $38,732 for the first three months of
2000 and $31,168 for the same period of 1998. The increase was the result of
management's assessment of the adequacy of the reserve for possible loan losses
given the size, mix and quality of the current loan portfolio. Management
anticipates loan growth will continue to be strong in 2000 and that it will
continue to increase the amount of the provision for loan losses as the
portfolio grows. See also "Allowance for Possible Loan Losses" below.
Noninterest Income
Noninterest income was $61,949 in the first three months of 2000
compared to $23,059 in the same period of 1998. Service fees on deposit
accounts, the largest component of noninterest income, increased from $27,762 in
1999 to $55,357 in 2000. Other income increased to $9,100 in 2000 from $8,154 in
the same period of 1999. Both of these categories of noninterest income
increased due to growth in the number of deposit accounts as well as increased
fee-related activities of customers. The net loss on the sale of investment
securities decreased to $2,508 from $12,857 for the three month period ended
March 31, 2000 and 1999 respectively. These losses primarily relate to paydowns
on mortgage backed securities and result from movements in market interest rates
since the securities were acquired.
Noninterest Expense
Total noninterest expense increased from $358,080 for the three months
ended March 31, 1999 to $444,892 for the same period of 2000. The increase in
noninterest expense reflects an increase in most expense categories as a result
of the growth of the assets of the Bank to $49.1 million at March 31, 2000 from
$37.4 million at March 31, 1999. Salary and wages increased by $43,021 during
the three months ended March 31, 2000 compared to the same period in 1999, and
employee benefits increased by $3,900. These increases are primarily the result
of increased incentive-based compensation programs implemented in 2000 for all
employees. We expect salaries and benefits expense to continue to increase in
2000 as a result of the severance payments payable to Mr. Horn, the Bank's
former President whose resignation was effective in February 2000.
Advertising and public relations expense increased by $6,007 for the
first quarter of 2000 compared to the same period of 1999. This growth is the
result of increased media and promotional expenses. Depreciation and
amortization expense decreased by $5,784 from the first quarter of 1999 to the
same period of 2000. This decline was due to the fact that equipment purchased
when the bank opened in 1996 has now been fully depreciated.
For the three month period ended March 31, 2000, data processing
expense increased to $22,523 from $19,394 during the same period of 1999. Data
processing fees are directly related to increases in the volume of loan and
deposit accounts and associated transaction activity. The category of other
expenses increased to $78,977 for the first three months of 2000 compared to
$52,106 for the same period of 1999. This increase was due to the growth of
operating expenses associated with the expansion of loans and deposits and the
writedown to market value of real estate acquired in settlement of loans.
BALANCE SHEET REVIEW
Investment Securities
Total securities averaged $9.2 million in the first three months of
2000 and totaled $9.1 million at March 31, 2000. In the same period of 1999,
total securities averaged $10.8 million and totaled $9.5 million at March 31,
1999. At March 31, 2000, the Company's total investment securities portfolio had
a book value of $9.5 million and a market value of $9.1 for an unrealized net
loss of $409,243. The Company primarily invests in U.S. Government Agency
Mortgage backed securities.
Contractual maturities and yields on the Company's investment
securities (all available for sale) at March 31, 2000. Expected maturities may
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Investment Securities Maturity Distribution and Yields
March 31, 2000
After one but After five but
Within one year Within five years Within ten years After ten years
--------------- ----------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
U.S. Treasury $ ---- ----% $ ---- ----% $ ---- ----% $ ---- ----%
U.S. Govt Agencies ---- ---- ---- ---- 662,146 7.30 ---- ----
Mortgage-backed ---- ---- ---- ---- ---- 8,574,592 6.29
Other ---- ---- ---- ---- ---- ---- 313,050 6.68
-------- -------- -------- -------- -------- --------- ----------- ----
Total $ ---- 0.00% $ ---- % $662,146 7.30% $8,887,642 6.30%
======== ======== ======== ======== ======== ========= =========== ====
At March 31, 2000, short-term investments totaled $210,000 compared to
$780,000 as of March 31, 1999. These funds are one source of the Bank's
liquidity and are generally invested in an earning capacity on an overnight
basis.
Loans
At March 31, 2000, net loans (gross loans less the allowance for loan
losses) totaled $36.6 million, an increase of $13.6 million from March 31, 1999.
Average gross loans increased from $22.2 million with a yield of 9.17% in the
first three months of 1999 to $34.6 million with a yield of 9.34% in 2000. The
interest rates charged on loans vary with the degree of risk and the maturity
and amount of the loan. Competitive pressures, money market rates, availability
of funds and government regulations also influence interest rates.
Since loans typically provide higher yields than other types of earning
assets, one of the Bank's goals is for loans to represent the largest category
of earning assets. Much progress was made in the effort as loans at March 31,
2000 were 79.9% of earning assets, versus 69.4% at March 31, 1999.
The following table shows the composition of the loan portfolio by
category at March 31, 2000 and 1999.
Composition of Loan Portfolio
-------------------------------------
March 31, 2000 March 31, 1999
Percent Percent
Amount of Total Amount Of Total
------ -------- ------ --------
Commercial $ 6,027,043 16.2% $ 4,252,487 18.2%
Real estate - construction 3,701,826 9.9 2,210,269 9.5
Real estate - mortgage 22,974,314 61.9 13,606,667 58.2
Consumer 4,439,989 12.0 3,308,694 14.1
---------- -------- ----------- --------
Loans, gross 37,143,172 100.0% 23,378,117 100.0%
========== ===========
Unearned income (70,623) (56,842)
Allowance for possible loan losses (442,382) (288,268)
---------- ------------
Loans, net $ 36,630,167 $ 23,033,007
=========== ============
The principal component of the Company's loan portfolio at March 31,
2000 and 1999 was mortgage loans, which represented 61.9% and 58.2% of the
portfolio, 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. The
Company follows the common practice of financial institutions in the Company's
market area of obtaining a security interest in real estate whenever possible,
in addition to any other available collateral. The collateral is taken to
reinforce the likelihood of the ultimate repayment of the loan and tends to
increase the magnitude of the real estate loan portfolio component. Generally,
the Company limits it loan-to-value ratio to 80%. Due to the short time the
portfolio has existed, the current mix may not be indicative of the ongoing
portfolio mix. Management will attempt to maintain a relatively diversified loan
portfolio to help reduce the risk inherent in concentrations of collateral.
The following table sets forth the maturity distribution, classified
according to sensitivity to changes in interest rates, for selected components
of the Company's loan portfolio as of March 31, 2000.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
March 31, 2000
After one but After
One year Within five Five
or less Years Years Total
-------- ------------- ----- -----
Commercial $ 2,437,581 $ 3,420,652 $ 168,810 $ 6,027,043
Real estate 2,716,888 17,562,670 2,694,757 22,974,315
Construction 2,377,896 863,930 460,000 3,701,826
Consumer 1,459,862 2,479,961 500,165 4,439,988
------------ --------------- ------------ ---------------
Total gross loans $ 8,992,227 $ 24,327,213 $ 3,823,732 $ 37,143,172
============ =============== ============ ===============
Fixed Interest Rate $ 3,255,818 $ 23,469,546 $ 3,452,011 $ 30,177,375
Variable Interest Rate 5,736,409 857,667 371,721 6,965,797
------------ --------------- ------------ ---------------
Total gross loans $ 8,992,227 $ 24,327,213 $ 3,823,732 $ 37,143,172
============ =============== ============ ===============
The information presented in the above table is based on the
contractual maturities of the individual loans, including loans which may be
subject to renewal at their contractual maturity. Renewal of such loans is
subject to review and credit approval, as well as modification of terms upon
their maturity. Actual repayments of loans may differ from maturities reflected
above because borrowers may have the right to prepay obligations with or without
prepayment penalties.
Allowance for Possible Loan Losses
We have established an allowance for loan losses through a provision
for loan losses charged to expense. The allowance represents an amount which we
believe will be adequate to absorb probable losses on existing loans that may
become uncollectible. Out judgment in determining the adequacy of the allowance
is based on evaluations of the collectibility of loans and takes into
consideration such factors as conditions that may affect the borrower's ability
to pay, overall portfolio quality, and a review of specific problem loans. We
adjust the amount of the allowance periodically based on changing circumstances.
Recognized losses are charged to the allowance for losses, while subsequent
recoveries are added to the allowance. A loan is impaired when it is probable
that we will be unable to collect all principal and interest payments due in
accordance with the terms of the loan agreement. Individually identified
impaired loans are measured based on the present value of payments expected to
be received, using the contractual loan rate as the discount rate.
Alternatively, measurement may be based on observable market prices, or, for
loans that are solely dependent on the collateral for repayment, measurement may
be based on the fair value of the collateral. If the recorded investment in the
impaired loan exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. Changes to the
valuation allowance are recorded as a component of the provision for loan
losses.
In addition, regulatory agencies periodically review our allowance for
loan losses as part of their examination process, and they may require us to
record additions to the allowance based on their judgment about information
available to them at the time of their examinations.
At March 31, 2000, the allowance for possible loan losses was $442,382,
or 1.19% of outstanding loans, compared to an allowance for possible loan losses
of $288,268, or 1.24% of outstanding loans, at March 31, 1999. In the first
three months of 2000, the Bank had net charge-offs of $5,228. In the same period
of 1999, there were $6,115 in net charge offs. The Company had no non-performing
loans at March 31, 2000 and 1999.
Allowance for Loan Losses
Three months ending March 31,
2000 1999
---- ----
Average loans outstanding $34,582,000 $22,164,763
Loans outstanding at period end 37,072,549 23,321,275
Total nonperforming loans - -
Beginning balance of allowance $ 408,878 $ 263,215
Loans charged off (5,228) (6,115)
Total recoveries 0 0
----------- -----------
Net loans charged off (5,228) (6,115)
Provision for loan losses 38,732 31,168
----------- -----------
Balance at period end $ 442,382 $ 288,268
=========== ===========
Net charge-offs to average loans 0.02% 0.03%
Allowance as a percent of total loans 1.19% 1.24%
Nonperforming loans as a
Percentage of total loans N/A N/A
Nonperforming loans as a
Percentage of allowance N/A N/A
Deposits and Other Interest-Bearing Liabilities
Average total deposits were $37.6 million and average interest-bearing
deposits were $32.2 million in the first quarter of 2000. Average total deposits
were $30.0 million and average interest-bearing deposits were $25.6 million in
the same period of 1999. The following table sets forth the deposits of the
Company by category as of March 31, 2000 and March 31, 1999.
Deposits
March 31, 2000 March 31, 1999
------------------------- -----------------------
Percent Percent
of of
Amount Deposits Amount Deposits
------ -------- ------ --------
Demand deposit accounts $ 6,411,151 16.2% $ 5,019,869 16.3%
NOW accounts 1,249,998 3.2% 847,481 2.8%
Money market accounts 3,827,407 9.7% 3,518,609 11.4%
Savings accounts 4,380,266 11.1% 4,222,366 13.7%
Time deposits less than $100,000 16,692,579 42.3% 12,275,130 39.8%
Time deposits of $100,000 or over 6,920,541 17.5% 4,918,701 16.0%
-------------- ----------- -------------- ----------
Total deposits $ 39,481,942 100.0% $ 30,802,156 100.00%
============== =========== ============= ==========
Internal growth, resulting primarily from special promotions and
increased advertising generated the new deposits.
Core deposits, which exclude certificates of deposit of $100,000 or
more, provide a relatively stable funding source for the Company's loan
portfolio and other earning assets. The Company's core deposits were $32.6
million at March 31, 2000 compared to $25.9 million at March 31, 1999. A stable
base of deposits is expected to be the Company's primary source of funding to
meet both its short-term and long-term liquidity needs in the future. Core
deposits as a percentage of total deposits were approximately 82% at March 31,
2000 and 84% at March 31, 1999. The Company's loan-to-deposit ratio was 93.9% at
March 31, 2000 versus 75.7% at March 31, 1999. The average loan-to-deposit ratio
was 91.9% during the first three months of 2000 and 73.9% during the same period
of 1999.
CAPITAL
Under the capital guidelines of the Office of the Comptroller of the
Currency, the Bank is required to maintain a minimum total risk-based capital
ratio of 8%, with at least 4% being Tier 1 capital. To be considered
"well-capitalized", banks must meet regulatory standards of 10% for total
risk-based capital and 6% for Tier 1 capital. Tier 1 capital consists of common
shareholders' equity, qualifying perpetual preferred stock, and minority
interest in equity accounts of consolidated subsidiaries, less goodwill. In
addition, the Bank must maintain a minimum Tier 1 leverage ratio (Tier 1 capital
to total average assets) of at least 4%. The "well-capitalized" standard for the
Tier 1 leverage ratio is 5%. The following chart reflects the risk-based
regulatory capital ratios of the Bank at March 31, 2000.
Analysis of Capital
March 31, 2000
(Amounts in thousands)
Required Actual Excess
-------- ------ ------
Amount % Amount % Amount %
------ - ------ - ------ -
The Bank:
Tier 1 risk-based capital 1,496 4.0% 5,658 15.1% 4,162 11.1%
Total risk-based capital 2,994 8.0% 6,100 16.3% 3,106 8.3%
Tier 1 leverage 1,850 4.0% 5,658 12.2% 3,808 8.2%
The Company believes that it has sufficient capital to fund its
activities on an on-going basis.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Primary sources of liquidity for the Company are core deposits,
scheduled repayments on the Company's loans and interest on and maturities of
its investments. All securities of the Company have been classified as available
for sale. Occasionally, the Company might sell investment securities in
connection with the management of its interest sensitivity gap or to manage cash
availability. The Company may also utilize its cash and due from banks, security
repurchase agreements and federal funds sold to meet liquidity requirements as
needed. In addition, the Company has the ability, on a short-term basis, to
purchase federal funds from other financial institutions. Presently, the Company
has made arrangements with commercial banks for short-term unsecured advances of
up to $3,000,000. The Company believes that its liquidity and ability to manage
assets will be sufficient to meet its cash requirements over the near term.
The Company monitors and manages the pricing and maturity of its assets
and liabilities in
order to lessen the potential impact that interest rate movements could have on
its net interest margin. To minimize the effect of these margin swings, the
balance sheet should be structured so that repricing opportunities exist for
both assets and liabilities in roughly equivalent amounts at approximately the
same time intervals Imbalances in these pricing opportunities at any point in
time constitute interest rate risk.
Interest rate sensitivity refers to the responsiveness of
interest-bearing assets and liabilities to changes in market interest rates. The
rate sensitive position, or gap, is the difference in the volume of rate
sensitive assets and liabilities at any given time interval. Management
generally attempts to maintain a balance between rate sensitive assets and
liabilities to minimize the company's interest rate risks. Interest rate
sensitivity can be managed by repricing assets or liabilities, selling
securities available-for-sale, replacing an asset or liability at maturity or by
adjusting the interest rate during the life of an asset or liability. Managing
the amount of assets and liabilities repricing in the same time interval helps
to hedge the risk and minimize the impact on net interest income of rising or
falling interest rates.
The interest rate sensitivity position at March 31, 2000 is presented
below. Since all rates and yields do not adjust at the same velocity, the gap is
only a general indicator of rate sensitivity.
Interest Sensitivity Analysis
March 31, 2000
After three
but After one but
Within three Within twelve within five After five
month months Years years Total
----- ------ ------------ ---------- -----
Assets
Earning assets:
Federal funds sold $ -- $ -- $ -- $ -- $ --
Investment securities -- 2,484,632 -- 6,655,913 9,140,545
Loans 8,688,199 1,401,804 23,530,535 3,452,011 37,072,549
------------- -------------- ------------- -------------- ------------
Total earning assets $ 8,688,199 $ 3,886,436 $ 23,530,535 $ 10,107,924 $ 46,213,094
============= ============== ============= ============== ============
Liabilities
Interest-bearing liabilities
Money market and NOW $ 5,077,405 $ -- $ -- $ -- $ 5,077,405
Savings deposits 4,380,266 -- -- -- 4,380,266
Time deposits 3,069,652 11,921,961 8,621,507 -- 23,613,120
Other borrowings 1,200,000 -- -- 1,900,000 3,100,000
-------------- -------------- -------------- --------------- ------------
Total interest-bearing
liabilities $ 13,727,323 $ 11,921,961 $ 8,621,507 $ 1,900,000 $ 36,170,791
============= ============== ============== ============== ============
Period gap $ (5,039,124) $ (8,035,525) $ 14,909,028 $ 8,207,924 $ 10,042,303
Cumulative gap $ (5,039,124) $ (13,074,649) $ 1,834,379 $ 10,042,303 $ 10,042,303
Ratio of cumulative gap to
total earning assets (10.9)% (28.3)% 4.0% 21.7%
The Company generally would benefit from increasing market rates of
interest when it has an asset sensitive gap and generally would benefit from
decreasing market rates of interest when it is liability sensitive. The Company
currently is liability sensitive in time frames less than one year and asset
sensitive after that. However, the Company's gap analysis is not a precise
indicator of its 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. Net interest income is also impacted by other
significant factors, including changes in the volume and mix of earning assets
and interest-bearing liabilities.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company and the Bank are primarily monetary
in nature. Therefore, interest rates have a more significant impact on the
Company's performance than do the effects of changes in the general rate of
inflation and changes in prices. In addition, interest rates do not necessarily
move in the same magnitude as the prices of goods and services. As discussed
previously, management seeks to manage the relationships between interest
sensitive assets and liabilities in order to protect against wide rate
fluctuations, including those resulting from inflation.
YEAR 2000 ISSUES
Like many financial institutions, we rely upon computers for conducting
our business and for information systems processing. Industry experts were
concerned that on January 1, 2000, some computers would not be able to interpret
the new year properly, causing computer malfunctions. While we have not
experienced any material computer malfunctions to date, there remains a risk
that our computers will be unable to read or interpret data on Year
2000-sensitive dates, including October 10, 2000. Our regulators have issued
guidelines to require compliance with Year 2000 issues. In accordance with these
guidelines, we have developed and executed a plan to ensure that our computer
and telecommunication systems do not have these Year 2000 problems. We generally
rely on software and hardware developed by independent third parties for our
information systems. We believe that our internal systems and software,
including our network connections, are programmed to comply with Year 2000
requirements, although there is a risk they may not be. We incurred
approximately $26,000 in expenses in 1999 to implement our Year 2000 plan. Under
our plan, we are continuing to monitor the situation throughout 2000. Based on
information currently available, we believe that we will not incur significant
additional expenses in connection with the Year 2000 issue.
The Year 2000 issue may also negatively affect the business of our
customers, but to date we are not aware of any material Year 2000 issues
affecting them. We include Year 2000 readiness in our lending criteria to
minimize risk. However, this will not eliminate the issue, and any financial
difficulties that our customers experience caused by Year 2000 issues could
impair their ability to repay loans to us.
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
The Company's articles of incorporation authorize it to issue up to
10,000,000 shares of Common Stock, of which 735,868, for a total of $7,358,680,
were sold in the initial public offering and are outstanding. As of March 27,
2000, the Company had 928 shareholders of record. There is no established
trading market in the Common Stock, and one is not expected to develop in the
near future.
All outstanding shares of Common Stock of the Company are entitled to
share equally in dividends from funds legally available therefor, when, as and
if declared by the Board of Directors. The Company does not plan to declare any
dividends in the immediate future.
PART II
- -------
OTHER INFORMATION
- -----------------
Item 1. Legal Proceedings.
There are no material legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - See Exhibit Index attached hereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period ended March 31,
2000.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (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: May 8, 2000 By: /s/ Walter E. Standish, III
------------ --------------------------------
Walter E. Standish, III
President
/s/ Ann W. Jones
--------------------------------
Ann W. Jones
Chief Financial and
Principal Accounting Officer
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
1.1. Selling Agent Agreement, dated October 16, 1995, by and
between Capital Investment Group, Inc. and the Company
(incorporated by reference to Exhibit 1.1 to the Company's
Registration Statement No. 33-95562 on Form S-1).
3.1. Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement No.
33-95562 on Form S-1).
3.2. Bylaws (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement No. 33-95562 on Form S-1).
4.1. Provisions in the Company's Articles of Incorporation and
Bylaws defining the rights of holders of the Common Stock
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement No. 33-95562 on Form S-1).
4.2. Form of Certificate of Common Stock (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement No.
33-95562 on Form S-1).
10.1. Contract of Sale, dated April 27, 1995, by and between Nadim
Baroody, Mary Baroody, Jean P. Saad, and Miray Saad, as
sellers, and Orvis Bartlett Buie, as purchaser (incorporated
by reference to Exhibit 10.1 to the Company's Registration
Statement No. 33-95562 on Form S-1).
10.2. Line of Credit Note, dated April 24, 1995, by Sea Group, Ltd.
to The Bankers Bank (incorporated by reference to Exhibit 10.2
to the Company's Registration Statement No. 33-95562 on Form
S-1).
10.3. Employment Agreement, dated August 23, 1995, by and between
the Company and William Gary Horn (incorporated by reference
to Exhibit 10.3 to the Company's Registration Statement No.
33-95562 on Form S-1).*
10.4. Form of Amended and Restated Escrow Agreement, dated November
of 1995, by and among The Bankers Bank, Capital Investment
Group, Inc., and the Company (incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement No.
33-95562 on Form S-1).
10.5. Amended and Restated Escrow Agreement, dated December 1,
1995, by and among The Bankers Bank, Capital Investment
Group, Inc., and the Company (incorporated by reference to
Exhibit 10.5 of the Company's Form 10-KSB for the fiscal
year ended December 31, 1995).
10.6. Amendment to Employment Agreement, dated January 9, 1996, by
and between the Company and William Gary Horn (incorporated by
reference to Exhibit 10.6 of the Company's Form 10-KSB for the
fiscal year ended December 31, 1995).*
10.7 Stock Option Plan dated as of April 30, 1997 (incorporated
by reference to Exhibit 10.7 of the Company's Form 10-KSB for
the fiscal year ended December 31, 1996).
10.8 Separation Agreement of William Gary Horn with the Company
dated February 9, 2000 (incorporated by reference to Exhibit
10.8 of the Company's Form 10-KSB for the fiscal year end
December 31, 1999).
10.9 Employment Agreement of Walter E. Standish, III with the
Company dated March 4, 2000 (incorporated by reference to
Exhibit 10.9 of the Company's Form 10-KSB for the fiscal year
end December 31, 1999).
13 Annual Report to Shareholders for the year ended December 31,
1997 (incorporated by reference to Exhibit 13 of the Company's
Form 10-K for the year ended December 31, 1997)
16 Letter of Francis & Company, dated November 6, 1997 to the
Securities and Exchange Commission (incorporated by reference
to Exhibit 16 of the Company's Current Report on Form 8-K
filed on November 13, 1997)
21.1. Subsidiaries of the Company. (incorporated by reference to
Exhibit 21.1 of the Company's Form 10-QSB for the quarter
ended March 30, 1996).
27.1. Financial Data Schedule for the period ended March 31, 2000.
(for SEC use only).
- ----------
* Denotes executive compensation contract or arrangement.