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: June 30, 2001
-------------
___ 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 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 August 13, 2001, 1,318,368 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
June 30, December 31,
2001 2000 2000
---- ----- ----
(unaudited) (unaudited) (audited)
ASSETS
Cash and due from banks $ 3,352,067 $ 1,907,434 $ 1,359,158
Federal funds sold and short term investments 2,709,371 2,420,111 6,919,000
Investment securities available for sale 6,935,113 8,734,992 8,186,033
Loans, net 57,087,439 39,503,435 45,052,910
Premises and equipment, net 2,426,436 1,434,503 1,546,447
Real estate acquired in settlement of loans - - -
Other assets 674,813 957,357 706,468
--------------- --------------- ------------
Total assets $ 73,185,239 $ 54,957,832 $ 63,770,016
=============== =============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits
Noninterest bearing deposits $ 11,091,844 $ 7,439,197 $ 5,525,253
Interest bearing deposits 54,707,388 40,698,952 51,201,258
--------------- --------------- ------------
Total deposits 65,799,232 48,138,149 56,726,511
Other borrowings - - -
Other liabilities 427,900 449,113 314,835
--------------- --------------- ------------
Total liabilities 66,227,132 48,587,262 57,041,346
--------------- --------------- ------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares
authorized; 737,368 shares issued and outstanding 737,368 735,868 737,368
at June 30, 2001 and December 31, 2000, and
735,868 shares issued and outstanding at
March 31, 2000
Paid-in capital 6,489,981 6,476,481 6,489,981
Retained deficit (291,832) (608,910) (457,176)
Accumulated other comprehensive income (loss) 22,589 (232,869) (41,503)
--------------- --------------- ------------
Total shareholders' equity 6,958,106 6,370,570 6,728,670
--------------- --------------- ------------
Total liabilities and shareholders' equity $ 73,185,239 $ 54,957,832 $ 63,770,016
=============== =============== ============
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 Operations
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $ 2,361,898 $ 1,706,816 $ 1,231,491 $ 901,296
Investment securities 253,099 304,691 116,379 150,620
Fed funds sold & short term investments 107,544 33,497 23,591 30,371
----------- ----------- ----------- ----------
Total interest income 2,722,541 2,045,004 1,371,462 1,082,287
INTEREST EXPENSE
Deposits 1,416,508 965,759 683,769 538,450
Other borrowings 10,297 53,406 8,707 16,686
----------- ----------- ----------- ----------
Total interest expense 1,426,805 1,019,165 692,476 555,136
Net interest income 1,295,736 1,025,839 678,986 527,151
PROVISION FOR POSSIBLE LOAN
LOSSES 184,500 111,732 114,500 73,000
----------- ----------- ----------- ----------
Net interest income after provision
for possible loan losses 1,111,236 914,107 564,486 454,151
----------- ----------- ----------- ----------
NONINTEREST INCOME
Service fees on deposit accounts 150,217 118,344 78,816 62,987
Loss on sale of investment securities (7,749) (6,104) (4,725) (3,597)
Other income 27,135 18,745 13,356 9,646
----------- ----------- ----------- ----------
Total noninterest income 169,603 130,985 87,447 69,036
----------- ----------- ----------- ----------
NONINTEREST EXPENSES
Salaries and wages 540,532 455,238 299,910 251,727
Employee benefits 53,858 41,120 30,868 21,707
Supplies and printing 27,917 22,674 16,173 10,765
Advertising and public relations 35,684 33,162 19,322 15,955
Legal and Professional fees 25,067 64,930 12,128 29,743
Depreciation and amortization 84,524 92,294 48,360 47,849
Occupancy 35,838 23,865 21,496 12,145
Data processing fees 72,698 45,685 41,415 23,162
Other operating expenses 146,118 140,498 77,985 61,521
----------- ----------- ----------- ----------
Total noninterest expenses 1,022,236 919,466 567,658 474,574
----------- ----------- ----------- ----------
Income before income taxes 258,603 125,626 84,275 48,613
INCOME TAX (93,259) (46,638) (28,714) (17,979)
----------- ----------- ----------- ----------
EXPENSE
Net income $ 165,344 $ 78,988 $ 55,561 $ 30,634
=========== =========== =========== ==========
BASIC NET INCOME PER COMMON
SHARE $ .22 $ .11 $ .08 $ .04
=========== =========== =========== ==========
DILUTED NET INCOME PER COMMON
SHARE $ .20 $ .10 $ .07 $ .04
=========== =========== =========== ==========
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 loss Equity
------ ------ ------- ------- ---- ------
BALANCE, DECEMBER 31, 1999 735,868 $ 735,868 $ 6,476,481 $ (687,898) $(211,138) $ 6,313,313
Net income - - - 78,988 - 78,988
Other comprehensive loss, net of income taxes:
Unrealized loss on investment securities - - - -
(25,577) (25,577)
Less reclassification adjustments for losses
included in net income - - - - 3,846 3,846
----------
Comprehensive loss - - - - - (57,257)
-------- --------- ----------- ---------- --------- ----------
BALANCE, JUNE 30, 2000 735,868 $ 735,868 $ 6,476,481 $ (608,910) $(232,869) $ 6,370,570
======== ========= =========== ========== ========= ==========
Accumulated
Other Total
Common stock Paid-in Retained Comprehensive Shareholders'
Shares Amount Capital Deficit Loss Equity
------ ------ ------- ------- ------------ -----------
BALANCE, DECEMBER 31, 2000 737,368 $ 737,368 $ 6,489,981 $ (457,176) $ (41,503) $ 6,728,670
Net income - - - - 165,344
165,344
Other comprehensive income, net of income taxes:
Unrealized gain on investment securities - - - - 69,206 69,206
Less reclassification adjustments for losses
included in net income - - - -
(5,114) (5,114)
----------
Comprehensive income - - - - - 229,436
-------- --------- ----------- ---------- --------- ----------
BALANCE, JUNE 30, 2001 737,368 $ 737,368 $ 6,489,981 $ (291,832) $ 22,589 $ 6,958,106
======== ========= =========== ========== ========= ==========
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)
Six Months Ended
June 30,
2001 2000
---- ----
OPERATING ACTIVITIES
Net income $ 165,344 $ 78,988
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred income taxes - 42,198
Provisions for loan losses 133,448 77,152
Depreciation and amortization 84,524 92,294
Writedown on real estate acquired in settlement of loans - 15,000
Loss on sale of investment securities 7,749 6,104
Increase (decrease) in other assets 31,655 (316,324)
Increase (decrease) in other liabilities 113,065 263,049
------------- ------------
Net cash provided by operating activities 535,785 258,461
------------- ------------
INVESTING ACTIVITIES
Purchase of investment securities - (209,313)
Proceeds from sale or call of investment securities 1,305,814 717,973
Decrease (increase) in Federal funds sold & short term investments 4,209,629 (2,420,111)
Increase in loans, net (12,167,977) (7,451,473)
Purchase of premises and equipment (879,988) (71,578)
Proceeds from sale of ORE - 84,820
------------- ------------
Net cash used in investing activities (7,615,597) (9,349,682)
------------- ------------
FINANCING ACTIVITIES
Decrease in Federal funds purchased - (2,820,000)
Net increase in deposits 9,072,721 11,302,129
------------- ------------
Net cash provided by financing activities 9,072,721 8,482,129
------------- ------------
Net increase (decrease) in cash and cash equivalents 1,992,909 (609,092)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,359,158 2,516,526
============= ============
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 3,352,067 $ 1,907,434
============= ============
CASH PAID FOR
Income taxes $ 24,299 $ 3,770
------------- ------------
Interest $ 1,419,481 $ 978,929
------------- ------------
The accompanying notes are an integral part of these consolidated financial
statements.
Beach First National Bancshares, Inc.
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements for Beach
First National Bancshares, Inc. ("Company") were prepared in accordance
with instructions for Form 10-QSB 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, 2001 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 Company's audited consolidated financial
statements and related notes for the year ended December 31, 2000.
2. Principles of Consolidation
The accompanying unaudited consolidated financial statements include
the accounts of the Company and its subsidiary, Beach First National
Bank. All significant intercompany items and transactions have been
eliminated in consolidation.
3. Earnings Per Share
The Company calculates earnings per share in accordance with SFAS No.
128, "Earnings Per Share." SFAS No. 128 specifies the computation,
presentation and disclosure requirements for earnings per share (EPS)
for entities with publicly held common stock or potential common stock
such as options, warrants, convertible securities or contingent stock
agreements if those securities trade in a public market.
This standard specifies computation and presentation requirements for
both basic EPS and, for entities with complex capital structures,
diluted EPS. Basic earnings per share are computed by dividing net
income by the weighted average common shares outstanding. Diluted
earnings per share is similar to the computation of basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. The dilutive effect
of options outstanding under the Company's 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
June 30, 2001
Income Shares Per Share
(Numerator) (Denominator Amount
----------- ------------- ----------
Basic EPS $ 165,344 737,368 $ 0.22
Effect of Diluted Securities:
Stock options -- 70,833 (.02)
---------- --------- ------
Diluted EPS $ 165,344 808,201 $ 0.20
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. Our actual results may differ materially from the results
discussed in the forward-looking statements, and our operating performance each
quarter is subject to various risks and uncertainties that are discussed in
detail in our filings with the Securities and Exchange Commission, including the
"Risk Factors" section in our Statement on Form S-2 (Registration Number
333-57120) as filed with the Securities and Exchange Commission.
Results of Operations
EARNINGS REVIEW
Our net income was $ 165,344, or $.22 per common share, for the six months ended
June 30, 2001 as compared to a net income of $78,988, or $.11 per common share,
for the six months ended June 30, 2000. The Company's net income was $55,561, or
$.08 per common share, for the three months ended June 30, 2001 as compared to
net income of $30,634, or $.04 per common share, for the same period of 2000.
The improvement in net income reflects the Bank's continued growth, as average
earning assets increased to $62.7 million during the first six months of 2001
from $46.7 million during the same period of 2000. This continued growth can
also be seen as the Bank expands its market presence with the opening of a new
branch in Surfside Beach, South Carolina on June 4, 2001. The return on average
assets for the six month period ended June 30 was .50% in 2001 compared to .31%
in 2000; the return on average equity was 4.83% in 2001 versus 2.50% in 2000.
During the first half of 2001, net interest income increased to $1,295,736, from
$1,025,839 in the same period of 2000. The growth in net interest income
resulted from an increase of $677,538 in interest income, partially offset by an
increase in interest expense of $407,641. For the three months ended June 30,
2001, net interest income increased to $678,986 from $527,151 during the
comparable period of 2000. The net interest spread was 3.15% in the first six
months of 2001 compared to 3.27% during the same period of 2000. The net
interest margin was 4.17% for the six month period ended June 30, 2001 compared
to 4.41% for the same period of 2000.
The provision for loan losses was $184,500 for the six month period and $114,500
for the three month period ended June 30, 2001, compared to $111,732 and $73,000
for the six month and three month periods ended June 30, 2000. Our allowance for
loan losses as a percentage of period end loans was 1.22% at each of June 30,
2001 and 2000. Net charge-offs totaled $51,052 for the first half of 2001. In
the same period of 2000, there were $34,580 in net charge offs. We had three
non-performing loans in the amount of $271,046 at June 30, 2001, of which two
loans totaling $83,903 were guaranteed by the Small Business Administration
(SBA) program. Payoffs for both of these loans were received from the SBA in
July 2001. Additionally, the third loan in the amount of $187,143 is in the
process of foreclosure sale. Non-performing loans were $39,056 at June 30, 2000.
Noninterest income for the six month period ended June 30, 2001 was $169,603,
compared to $130,985 in the same period of 2000. This was due primarily to an
increase of $31,873 in service fees on deposits accounts as a result of $17.7
million growth in deposits from June 30, 2000 to June 30, 2001. For the three
month periods ended June 30, 2001 and 2000, noninterest income was $87,447 and
$69,036, respectively.
Noninterest expense was $1,022,236 for the six month period ended June 30, 2001,
which was an increase of $102,770 over the same period of 2000. For the three
months ended June 30, noninterest expense was $567,658 in 2001 and $474,574 in
2000. These increases in noninterest expense reflect increases primarily in
salaries and employee benefits, and data processing fees due to our continued
growth, including the opening of our first branch in June 2001.
Net Interest Income
Our primary source of revenue 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 our 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 six months ended For the six months ended
June 30, 2001 June 30, 2000
------------- -------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
Federal funds sold & short
term investments $ 3,740,486 $ 107,544 5.80% $ 1,048,089 $ 33,497 6.41%
Investment securities 7,552,118 253,099 6.76% 9,071,724 304,691 6.74%
Loans 51,364,735 2,361,898 9.27% 36,554,683 1,706,816 9.36%
--------------- ------------ ----------- ------------- ------------- -----------
Total earning assets $ 62,657,339 $ 2,722,541 8.76% $ 46,674,496 $ 2,045,004 8.79%
============== ============ =========== ============= ============= ===========
Interest-bearing deposits $ 50,804,184 $ 1,416,508 5.62% $ 35,207,192 $ 965,759 5.50%
Other borrowings 439,464 10,297 4.72% 1,796,099 53,406 6.00%
-------------- ------------ ----------- ------------- ------------ ---------
Total interest-bearing
Liabilities $ 51,243,648 $ 1,426,805 5.61% $ 37,003,291 $ 1,019,165 5.52%
============== ============ =========== ============= ============= ==========
Net interest spread 3.15% 3.27%
Net interest income/margin $ 1,295,736 4.17% $ 1,025,839 4.41%
============ =========== ============= ==========
As reflected above, for the first half of 2001 the average yield on earning
assets amounted to 8.76%, while the average cost of interest-bearing liabilities
was 5.61%. For the same period of 2000, the average yield on earning assets was
8.79% and the average cost of interest-bearing liabilities was 5.52%. The
decrease in the yield on earning assets is attributable to lower rates earned on
federal funds sold and outstanding loans, which represent a significant portion
of earning assets.
The net interest margin, computed by subtracting interest expense from interest
income and dividing the resulting figure by average interest-earning assets, was
4.17% and for the six-month period ended June 30, 2001, and 4.41% for the same
period of 2000. This decrease was the result of growth in average
interest-bearing deposits of $15.6 million as we continue to expand our core
base of loans and deposits. The rate paid on these deposits continued to be at
higher interest rates than the competition. The overall change in net interest
margin of 24 basis points is reflective of the decreasing rate environment
primarily during the first six months of 2001. As the competitive pressures
created a decrease in the rate on earning assets, the rate paid by the bank on
deposit accounts did not decrease at the same rate or amount.
The following table presents the changes in our 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
------------------------------------------------------------
Six months ended June 30, 2001 versus 2000
------------------------------------------------------------
Volume Rate Net change
Federal funds sold & short term investments $ 77,409 $ (3,363) $ 74,047
Investment securities (50,927) (665) (51,592)
Loans 681,008 (25,925) 655,082
--------- --------- ----------
Total earning assets 707,490 (29,953) 677,537
Interest-bearing deposits 434,870 15,879 450,749
Other borrowings (31,787) (11,322) (43,109)
--------- --------- ----------
Total interest-bearing liabilities 403,083 4,557 407,640
--------- --------- ----------
Net interest income $ 304,407 $ (34,510) $ 269,897
========== ========== ==========
Provision for Loan Losses
To keep pace with the growth in the loan portfolio, the provision for loan
losses was $184,500 for the first six months of 2001 compared to $111,732 for
the same period of 2000. For the three month periods ending June 30, 2001 and
2000, these figures were $114,500 and $73,000, respectively. The increases were
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. We anticipate loan growth will continue to be strong in 2001 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 increased to $169,603 in the first six months of 2001 from
$130,985 in the same period of 2000. For the three months ended June 30, 2001,
noninterest income was $87,447 in 2001 and $69,036 in 2000. Service fees on
deposit accounts, the largest component of noninterest income, increased from
$118,344 for the first six months of 2000 to $150,217 during the same period of
2001. This category 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 increased to $(7,749) from
$(6,104) for the six month period ended June 30, 2001 and 2000, 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 $919,466 for the six months ended June
30, 2000 to $1,022,236 for the same period of 2001, and from $474,574 for the
three months ended June 30, 2000 to $567,658 in the same period of 2001.
The increase in noninterest expense reflects an increase in most expense
categories as a result of the growth of our assets to $73.2 million at June 30,
2001 from $55.0 million at June 30, 2000. Salary and wages increased by $85,294
during the six months ended June 30, 2001 and $48,183 during the three months
ended June 30, 2001 compared to the same periods in 2000. Additionally, employee
benefits increased by $12,738 and $9,161 during these periods. The increases in
salaries and wages in 2001 is a result of hiring more employees to support the
growth of our assets, including the opening of a new branch in the later part of
the second quarter to help expand our presence in the southern part of our
market.
Occupancy expense increased by $11,973, and printing and supplies increased by
$5,242, as a result of the new branch. Depreciation and amortization expense
decreased by $7,770 from the first half of 2000 to the same period of 2001.
However going forward, we will see a steady increase in these expenses as the
depreciation expense for furniture, fixtures and equipment purchased for the new
branch, as well as purchased to update the computer network, is recorded. The
decline in depreciation and amortization for the six months ending June 30, 2001
was due to the fact that equipment purchased when the bank opened in 1996 has
now been fully depreciated.
For the six month period ended June 30, 2001, data processing expense increased
to $72,698 from $45,685 during the same period of 2000. During the three month
period ended June 30, data processing expense increased to $41,415 in 2001 from
$23,162 in 2000. 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 $146,118 for the first six months of
2001 compared to $140,498 for the same period of 2000, and increased to $77,985
during the three month period ended June 30, 2001 from $61,521 in the same
period of 2000. This increase was due to the growth of operating expenses
associated with the expansion of loans and deposits.
The increases in the noninterest expenses noted above were partially offset by a
decrease in legal and professional fees of $39,864 from the first half of 2000
to the same period of 2001. This decrease is due to a final settlement of
pending legal action related to check kiting.
BALANCE SHEET REVIEW
Investment Securities
Total securities averaged $7.6 million in the first six months of 2001 and
totaled $6.9 million at June 30, 2001. In the same period of 2000, total
securities averaged $9.1 million and totaled $8.7 million at June 30, 2000. At
June 30, 2001, the Company's total investment securities portfolio had a book
value of $6.9 million and a market value of $6.9 million for an unrealized net
gain of $35,063. We primarily invest in U.S. Government Agency Mortgage- backed
securities.
At June 30, 2001, short-term investments totaled $2,709,370 compared to
$2,420,111 as of June 30, 2000. These funds are one source of our liquidity and
are generally invested in an earning capacity on an overnight or short-term
basis.
Contractual maturities and yields on our investment securities (all available
for sale) at June 30, 2001 are as follows. 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
June 30, 2001
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
---- ---- ---- ---- 199,411 8.00% ---- ----
Mortgage-backed ---- ---- ---- ---- ---- 6,391,839 6.28%
----
Other ---- ---- ---- ---- ---- ---- 308,800 6.58%
-------- ------ -------- ------- -------- ------- ------- -----
Total $ ---- 0.00% $ ---- ----% 199,411 8.00% $6,700,639 6.29%
Loans
At June 30, 2001, net loans (gross loans less the allowance for loan losses)
totaled $57.1 million, an increase of $17.6 million from June 30, 2000. Average
gross loans increased from $36.6 million with a yield of 9.36% in the first six
months of 2000 compared to $51.4 million with a yield of 9.27% in 2001. 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 our goals is for loans to represent the largest category of earning
assets. Much progress was made in the effort as loans at June 30, 2001 were 82%
of earning assets, versus 78.4% at June 30, 2000.
The following table shows the composition of the loan portfolio by
category at June 30, 2001 and 2000.
Composition of Loan Portfolio
June 30, 2001 June 30, 2000
Percent Percent
Amount of Total Amount of Total
------ -------- ------- ---------
Commercial $12,368,546 21.4% $ 7,009,860 17.5%
Real estate - construction 3,910,412 6.8% 4,159,907 10.4%
Real estate - mortgage 34,585,350 59.7% 24,079,395 60.1%
Consumer 7,026,780 12.1% 4,807,928 12.0%
--------------- ----- ------------- -----
Loans, gross 57,891,088 100.0% 40,057,080 100.0%
===== =====
Unearned income (100,956) (67,615)
Allowance for possible loan losses (702,693) (486,030)
--------------- -------------
Loans, net $ 57,087,439 $ 39,503,435
=============== =============
The principal component of our loan portfolio at June 30, 2001 and 2000 was
mortgage loans, which represented 59.7% and 60.1% 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. We follow the common
practice of financial institutions in our market area of obtaining a security
interest in real estate whenever possible, in addition to any other available
collateral. The collateral is taken to reinforce the likelihood of the ultimate
repayment of the loan and tends to increase the magnitude of the real estate
loan portfolio component. Generally, we limit the loan-to-value ratio to 80%. We
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 June 30, 2001.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
June 30, 2001
After one but After
One year Within five Five
or less Years Years Total
-------- ------------- --------- -------
Commercial $ 5,590,398 $ 6,638,227 $ 139,921 $ 12,368,546
Real estate 6,630,926 24,284,943 3,669,481 34,585,350
Construction 2,340,527 1,569,885 - 3,910,412
Consumer 2,663,218 3,998,646 364,916 7,026,780
-------------- ------------- ----------- ------------
Total gross loans $ 17,225,069 $ 36,491,701 $ 4,174,318 $ 57,891,088
============== ============= =========== ============
Fixed Interest Rate 7,911,010 35,090,453 3,243,516 46,244,979
Variable Interest Rate 9,314,059 1,401,248 930,802 11,646,109
-------------- ------------- ----------- ------------
Total gross loans $ 17,225,069 $ 36,491,701 $ 4,174,318 $ 57,891,088
============== ============= =========== ============
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. Our 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 June 30, 2001, the allowance for possible loan losses was $702,693, or 1.22%
of outstanding loans, compared to an allowance for possible loan losses of
$486,030 or 1.22% of outstanding loans, at June 30, 2000. We increased the
allowance for possible loan losses by $216,663 over the June 30, 2000 allowance
in order to keep pace with the approximately $17.8 million growth of our loan
portfolio during the period. The increase reflects our belief that the size of
our loan portfolio is a component of overall risk.
In the first six months of 2001, we had net charge-offs of $51,052. In the same
period of 2000, there were $34,580 in net charge offs. We had three
non-performing loans in the amount of $271,046 at June 30, 2001, of which two
loans totaling $83,903 were guaranteed by the Small Business Administration
(SBA) program. Payoffs for both of these loans were received from the SBA in
July 2001. Additionally, the third loan in the amount of $187,143 is in the
process of foreclosure sale. Non-performing loans were $39,056 at June 30, 2000.
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 six
months ended June 30, 2001 and 2000.
Allowance for Loan Losses
Six months ending June 30,
2001 2000
---- ----
Average loans outstanding $ 51,364,735 $ 36,554,683
Loans outstanding at period end 57,790,132 39,989,465
Total nonperforming loans 271,046 39,056
Beginning balance of allowance $ 569,245 $ 408,878
Loans charged off (51,702) (34,580)
Total recoveries 650 0
--------------- ---------------
Net loans charged off (51,052) (34,580)
Provision for loan losses 184,500 111,732
--------------- ---------------
Balance at period end $ 702,693 $ 486,030
=============== ===============
Net charge-offs to average loans .10% .09%
Allowance as a percent of total loans 1.22% 1.22%
Nonperforming loans as a
percentage of total loans .47% .10%
Nonperforming loans as a
percentage of allowance 38.57% 8.04%
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 total loans for
the periods indicated. 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 31, 2001
------------------------
Residential
Real estate........ $ 419,508 59.7%
Construction....... 47,783 6.8%
Commercial.............. 150,376 21.4%
Consumer................ 85,026 12.1%
----------- -----
Total allowance for
Loan losses........ $ 702,693 100.0%
Deposits and Other Interest-Bearing Liabilities
Average total deposits were $58.4 million and average interest-bearing deposits
were $50.8 million in the first half of 2001. Average total deposits were $41.5
million and average interest-bearing deposits were $35.2 million in the same
period of 2000. The following table sets forth our deposits by category as of
June 30, 2001 and June 30, 2000.
Deposits
June 30, 2001 June 30, 2000
Percent of Percent of
Amount Deposits Amount Deposits
------ ---------- ------ ---------
Demand deposit accounts $ 11,091,844 16.9% $ 7,439,197 15.5%
NOW accounts 2,463,498 3.7% 1,260,919 2.6%
Money market accounts 9,270,253 14.1% 6,107,185 12.7%
Savings accounts 3,240,602 4.9% 3,665,125 7.6%
Time deposits less than $100,000 26,234,450 39.9% 18,243,924 37.9%
Time deposits of $100,000 or over 13,498,585 20.5% 11,421,799 23.7%
------------- ----- ------------ -----
Total deposits $ 65,799,232 100.0% $ 48,138,149 100.0%
============= ===== ============ =====
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 $52.3 million at June 30,
2001 compared to $36.7 million at June 30, 2000. 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
80% at June 30, 2001 and 76% at June 30, 2000. The Company's loan-to-deposit
ratio was 87.8% at June 30, 2001 versus 83.1% at June 30, 2000. The average
loan-to-deposit ratio was 88.0% during the first six months of 2001 and 88.2%
during the same period of 2000.
CAPITAL
Under the capital guidelines of the Office of the Comptroller of the Currency,
we are 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, we 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%.
At June 30, 2001, our total shareholders' equity was $7.0 million. We were
considered to be "well capitalized" at the bank level for regulatory purposes at
June 30, 2001, as our Tier 1 capital ratio was 11.9%, our total risk-based
capital ratio was 13.1%, and our Tier 1 leverage ratio was 10.6%. The following
chart reflects the risk-based regulatory capital ratios of the Bank at June 30,
2001.
Analysis of Capital
June 30, 2001
(Amounts in thousands)
Required Actual Excess
-------- ------ ------
Amount % Amount % Amount %
------ - ------ - ------ -
The Bank:
Tier 1 risk-based capital 2,344 4.0% 6,958 11.9% 4,624 7.9%
Total risk-based capital 4,669 8.0% 7,660 13.1% 2,992 5.1%
Tier 1 leverage 2,639 4.0% 6,958 10.6% 4,319 6.6%
We believe that we have sufficient capital to fund our activities on an
on-going basis.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Our primary sources of liquidity are core deposits, scheduled repayments on our
loans and interest on and maturities of our investments. 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 made arrangements with commercial banks for short-term
unsecured advances of up to $3,000,000.
Additionally, we are eligible to receive advances from the Federal Home Loan
Bank of Atlanta, subject to its approval, and have received and repaid such
advances on two occasions in the past two fiscal years. In July 2001, we were
approved to participate in the Federal Home Loan Bank Blanket Lien Program where
the Bank can borrow up to 75% of its outstanding loan balances on 1 to 4 family
residences. We believe that our liquidity and ability to manage assets will be
sufficient to meet our cash requirements over the near term.
We monitor and manage the pricing and maturity of our assets and liabilities in
order to lessen the potential impact that interest rate movements could have on
our 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. An imbalance in these pricing opportunities at any point in
time constitutes 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. We generally attempt 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 June 30, 2001 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
June 30, 2001
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
& short-term investments $ 2,709,371 $ -- $ -- $ -- $ 2,709,371
Investment securities 1,028,648 -- 600,734 5,305,731 6,935,113
Loans (Net of Unearned) 14,371,285 5,151,732 35,029,254 3,237,861 57,790,132
------------ ----------- ------------ ----------- ------------
Total earning assets $ 18,109,304 $ 5,151,732 $ 35,629,988 $ 8,543,592 $ 67,434,616
============ =========== ============ =========== ============
Liabilities
Interest-bearing liabilities
Money market and NOW $ 11,733,751 $ -- $ -- $ -- $ 11,733,751
Savings deposits 3,240,602 -- -- -- 3,240,602
Time deposits 9,591,102 18,202,166 11,428,627 511,140 39,733,035
------------- ---------- ----------- ---------- ------------
Total interest-bearing
liabilities $ 24,565,455 $18,202,166 $ 11,428,627 $ 511,140 $ 54,707,388
============ =========== ============ =========== ============
Period gap $ (6,456,151) $ (13,050,434) $ 24,201,361 $ 8,032,452 $ 12,727,228
Cumulative gap $ (6,456,151) $ (19,506,585) $ 4,694,776 $ 12,727,228 $ 12,727,228
Ratio of cumulative gap to
Total earning assets (9.57)% (28.93)% 6.96% 18.87%
We generally would benefit from increasing market rates of interest when we have
an asset sensitive gap and generally would benefit from decreasing market rates
of interest when we are liability sensitive. We are currently liability
sensitive in time frames less than one year and asset sensitive after that.
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. 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 ours are primarily monetary in nature. Therefore, interest
rates have a more significant impact on our 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, 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.
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our Company's articles of incorporation authorize us to issue up to 10,000,000
shares of common stock, of which 735,868 shares, for a total of $7,358,680, were
sold in the initial public offering. As of August 13, 2001, there were 1,318,368
shares of common stock outstanding., including 581,000 shares that we sold in
connection with an offering that became effective on July 18, 2001. Please see
Item 5 of Part II of this Form 10-QSB for more information.
All of our outstanding shares of Common Stock are entitled to share equally in
dividends from funds legally available therefore, when, as and if declared by
the Board of Directors. We do 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.
The Company's Bylaws provides that the Board of Directors shall be
divided into three classes with each class to be as nearly equal in number as
possible. The Bylaws also provide that the three classes of directors are to
have staggered terms, so that the terms of only approximately one-third of the
Board members will expire at each annual meeting of shareholders. The current
Class I directors are Raymond E. Cleary, III, Joe N. Jarrett, Jr., Richard E.
Lester and Don J. Smith. The current Class II directors are Michael Bert
Anderson, Orvis Bartlett Buie, Michael D. Harrington, Rick H. Seagroves, and
Walter E. Standish, III. The current Class III directors are Samuel Robert
Spann, Jr., B. Larkin Spivey, and James C. Yahnis. The Class III directors were
up for reelection at this year's annual meeting held April 18, 2001. Each of the
existing Class III directors were reelected at the annual meeting. For Mr.
Spann, 480,110 votes were cast in favor of his reelection as director, 4,900
votes were withheld and no votes abstained. For Mr. Spivey, 480,110 votes were
cast in favor of his reelection as director, 4,900 votes were withheld and no
votes abstained. For Mr. Yahnis, 480,110 votes were cast in favor of his
reelection as director, 300 votes were against his reelection as director, 4,900
votes were withheld and no votes abstained. The terms of the Class I directors
will expire at the 2002 Annual Shareholders Meeting, and the terms of the Class
II directors will expire at the 2003 Annual Shareholders Meeting.
Item 5. Other Information.
On July 24, 2001, we issued 520,000 shares of common stock in
connection with our offering that we registered on Form S-2 and that became
effective on July 18, 2001. We received $5.56 million in gross proceeds in
connection with the issuance. On August 13, 2001, we issued 60,000 shares of
common stock in exchange for gross proceeds of $652,000 as part of this same
offering. We do not expect to issue any additional shares or receive any
additional proceeds in connection with this offering.
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 June 30,
2001.
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: August 13, 2001 By: /s/ Walter E. Standish, III
----------------------- ------------------------------------------
Walter E. Standish, III
President/Chief Executive Officer
/s/ Stephanie L. Vickers
-----------------------------------------
Stephanie L. Vickers
Chief Financial and Principal
Accounting Officer