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: September 30, 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 October 2, 2000, 735,868 shares of the issuer's common stock, par value
$1.00 per share, were issued and outstanding.
<PAGE>
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
MYRTLE BEACH, SOUTH CAROLINA
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999 1999
---- ----- ----
(unaudited) (unaudited) (audited)
---------- ---------- ---------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,560,665 $ 2,788,325 $ 2,516,526
Federal funds sold and short term investments 9,291,503 850,000 -
Investment securities available for sale 8,440,763 9,627,456 9,283,159
Loans, net 40,473,581 30,352,189 32,129,114
Premises and equipment, net 1,414,720 1,407,341 1,446,424
Real estate acquired in settlement of loans - 163,153 99,820
Other assets 694,565 748,243 680,352
--------------- -------------- ------------
Total assets $ 61,875,797 $ 45,936,707 $ 46,155,395
=============== ============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits
Noninterest bearing deposits $ 7,502,870 $ 7,910,392 $ 5,864,480
Interest bearing deposits 47,500,753 29,590,315 30,971,540
--------------- -------------- ------------
Total deposits 55,003,623 37,500,707 36,836,020
Other borrowings - 1,900,000 2,820,000
Other liabilities 351,221 217,213 186,062
--------------- -------------- ------------
Total liabilities 55,354,844 39,617,920 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
Accumulated retained deficit (515,991) (701,259) (687,898)
Accumulated other comprehensive income (loss) (175,405) (192,303) (211,138)
--------------- -------------- ------------
Total shareholders' equity 6,520,953 6,318,787 6,313,313
--------------- -------------- ------------
Total liabilities and shareholders' equity $ 61,875,797 $ 45,936,707 $ 46,155,395
=============== ============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
MYRTLE BEACH, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,679,675 $ 1,730,038 $ 972,861 $ 653,022
Investment securities 448,487 468,938 143,796 156,842
Federal funds sold and short term investments 175,042 36,692 141,545 18,005
------------ ----------- ------------- -------------
Total interest income 3,303,204 2,235,668 1,258,202 827,869
INTEREST EXPENSE
Deposits 1,651,373 1,028,616 685,615 367,507
Other borrowings 53,406 4,478 - 4,478
------------ ----------- ------------- -------------
Total interest expense 1,704,779 1,033,094 685,615 371,985
Net interest income 1,598,425 1,202,574 572,587 455,884
PROVISION FOR POSSIBLE LOAN
LOSSES 163,107 119,168 51,375 49,500
------------ ----------- ------------- -------------
Net interest income after provision
for possible loan losses 1,435,318 1,083,406 521,212 406,384
------------ ----------- ------------- -------------
NONINTEREST INCOME
Service fees on deposit accounts 184,775 108,294 66,430 42,851
Loss on sale of investment securities (6,825) (29,573) (721) (6,403)
Other income 30,692 23,491 11,947 6,934
------------ ----------- ------------- -------------
Total noninterest income 208,642 102,212 77,656 43,382
------------ ----------- ------------- -------------
NONINTEREST EXPENSES
Salaries and wages 680,696 516,477 225,458 188,054
Employee benefits 65,559 49,216 24,439 17,075
Supplies and printing 35,886 26,837 13,212 8,936
Advertising and public relations 48,507 36,888 15,345 14,019
Professional fees 99,791 105,865 34,860 47,499
Depreciation and amortization 127,472 154,620 35,178 52,609
Occupancy 37,243 33,841 13,378 13,056
Data processing fees 70,742 53,247 25,057 18,079
Other operating expenses 204,952 161,894 64,455 57,708
------------ ----------- ------------- -------------
Total noninterest expenses 1,370,848 1,138,885 451,382 417,035
------------ ----------- ------------- -------------
Income before income taxes 273,112 46,733 147,486 32,731
INCOME TAX EXPENSE 101,205 7,173 54,567 5,358
Net income $ 171,907 $ 39,560 $ 92,919 $ 27,373
============ =========== ========== ============
BASIC NET INCOME PER COMMON SHARE $ .23 $ .05 $ .13 $ .04
============ =========== ========== ============
DILUTED NET INCOME PER COMMON SHARE $ .21 $ .05 $ .11 $ .03
============ =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
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
------ ------ ------- ------- ---- ------
<S> > <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 735,868 $ 735,868 $ 6,476,481 $ (740,819) $ 2,126 $ 6,473,656
Net income - - - 39,560 - 39,560
Other comprehensive loss, net of income taxes:
Unrealized loss on investment securities - - - - (218,087) (218,087)
Less reclassification adjustments for losses
included in net loss - - - - 23,658 23,658
-----------
Comprehensive loss - - - - - (154,869)
--------- ---------- ---------- ---------- --------- -----------
BALANCE, SEPTEMBER 30, 1999 735,868 $ 735,868 $6,476,481 $ (701,259) $ (192,303) $ 6,318,787
========= ========== ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Common stock Paid-in Retained Comprehensive Shareholders'
Shares Amount Capital Deficit Loss Equity
------ ------ ------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 735,868 $ 735,868 $ 6,476,481 $ (687,898) $(211,138) $6,313,313
Net income - - - 171,907 - 171,907
Other comprehensive loss, net of income taxes:
Unrealized loss on investment securities - - - - 31,433 31,433
Less reclassification adjustments for losses
included in net income - - - - 4,300 4,300
----------
Comprehensive loss - - - - - 207,640
--------- -------- ----------- ---------- --------- ----------
BALANCE, SEPTEMBER 30, 2000 735,868 $ 735,868 $ 6,476,481 $ (515,991) $(175,405) $6,520,953
========= ======== =========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
MYRTLE BEACH, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 171,907 $ 39,560
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred income taxes 97,552 7,173
Provisions for loan losses 124,234 119,168
Depreciation and amortization 127,472 154,620
Writedown on real estate acquired in settlement of loans 15,000 -
Loss on sale of investment securities 6,825 29,573
Increase (decrease) in other assets (144,044) (64,996)
Increase (decrease) in other liabilities 165,159 40,201
------------- ------------
Net cash provided by operating activities 564,105 325,299
------------- ------------
INVESTING ACTIVITIES
Purchase of investment securities (209,313) (2,790,691)
Proceeds from sale or call of investment securities 1,099,704 4,348,270
Decrease (increase) in Federal funds sold & short term investments (9,291,503) 1,400,000
Increase in loans, net (8,468,701) (9,639,016)
Purchase of premises and equipment (82,576) (57,560)
Proceeds from sale of ORE 84,820 124,921
------------- -------------
Net cash used in investing activities (16,867,569) (6,614,076)
------------- -------------
FINANCING ACTIVITIES
(Decrease) increase in Federal funds purchased & borrowings (2,820,000) 1,741,088
Net increase in deposits 18,167,603 6,365,665
------------- -------------
Net cash provided by financing activities 15,347,603 8,106,753
------------- -------------
Net increase (decrease) in cash and cash equivalents (955,861) 1,817,976
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD $ 2,516,526 $ 970,349
------------- -------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 1,560,665 $ 2,788,325
============= =============
CASH PAID FOR
Income taxes $ 4,250 $ 1,000
------------- -------------
Interest $ 1,656,243 $ 1,022,965
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
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. "Forward-looking statements" relate to items
including, without limitation, future economic performance, plans and objectives
of management for future operations, and projections of revenues and other
financial items that are based on the beliefs of management, as well as
assumptions made by and information currently available to management. The words
"expect," "anticipate," and "believe," as well as similar expressions, are
intended to identify forward-looking statements. The company's 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
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 our bank's results for the
periods presented should be made with an understanding of our bank's short
history. Certain reclassifications have been made to prior year amounts to
conform to the presentation in the current year. These reclassifications did not
have an effect on net income or shareholders' equity.
RESULTS OF OPERATIONS
EARNINGS REVIEW
Our net income was $171,907, or $.23 per basic common share, for the
nine months ended September 30, 2000 as compared to a net income of $39,560, or
$.05 per basic common share, for the nine months ended September 30, 1999. For
the three months ended September 30, 2000, our net income was $92,919, or $.13
per basic common share, compared to net income of $27,373, or $.04 per basic
common share, for the same period of 1999. The improvement in net income
reflects our bank's continued growth, with average earning assets increasing to
$50.3 million during the first nine months of 2000 from $36.2 million during the
same period of 1999. The return on average assets for the nine month period
ended September 30 was .42% in 2000 compared to .13% in 1999; the return on
average equity was 3.59% for the nine months ended September 30, 2000 versus
.83% for the same period in 1999.
During the first nine months of 2000, net interest income increased to
$1,598,425 from $1,202,574 in the same period of 1999. The growth in net
interest income resulted from an increase of $1,067,536 in interest income,
partially offset by an increase in interest expense of $671,685. For the three
months ended September 30, 2000, net interest income increased to $572,587 from
$455,884 during the same period of 1999. The net interest spread was 3.05% in
the first nine months of 2000 compared to 3.19% during the same period of 1999.
The net interest margin was 4.23% for the nine month period ended September 30,
2000 compared to 4.44% for the same period of 1999.
The provision for loan losses was $163,107 for the nine month period
and $51,375 for the three month period ended September 30, 2000, compared to
$119,168 and $49,500 for the nine month and three month periods ended September
30, 1999. Our allowance for loan losses as a percentage of our period end loans
was 1.30% and 1.22% at September 30, 2000 and 1999, respectively. Net
charge-offs totaled $38,873 for the first nine months of 2000. In the same
period of 1999, there were $6,115 in net charge offs. We had $39,056 in
non-performing loans at September 30, 2000 and none at September 30, 1999.
Noninterest income for the nine month period ended September 30, 2000
was $208,642, compared to $102,212 in the same period of 1999. This increase
primarily resulted from the $17.5 million increase in deposits from September
30, 1999 to September 30, 2000. For the three month periods ended September 30,
2000 and 1999, noninterest income was $77,656 and $43,382, respectively.
Noninterest expense was $1,370,848 for the nine month period ended
September 30, 2000, which was an increase of $231,963 over the same period of
1999. For the three months ended September 30, noninterest expense was $451,382
in 2000 and $417,035 in 1999. These increases in noninterest expense primarily
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 us 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
<PAGE>
determined by the rates earned on our interest-earning assets and the rates paid
on our 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.
<TABLE>
<CAPTION>
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
For the nine months ended For the nine months ended
September 30, 2000 September 30, 1999
------------------- ------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold & short
term investments $ 3,492,419 $ 175,042 6.68% $ 947,399 $ 36,692 5.18%
Investment securities 8,894,087 448,487 6.72% 9,851,546 468,938 6.36%
Loans 37,940,301 2,679,675 9.41% 25,373,742 1,730,038 9.12%
--------------- ------------ ----------- -------------- ------------ -----------
Total earning assets $ 50,326,807 $ 3,303,204 8.74% $ 36,172,687 $ 2,235,668 8.26%
============== ============ =========== ============== ============ ===========
Interest-bearing deposits $ 38,685,561 $ 1,651,373 5.69% $ 27,102,130 1,028,616 5.07%
Other borrowings 1,193,029 53,406 5.96% 110,809 4,478 5.40%
-------------- ------------ ----------- -------------- ------------ -----------
Total interest-bearing
liabilities $ 39,878,590 $ 1,704,779 5.69% $ 27,212,939 $ 1,033,094 5.08%
============== ============ ========== ============== ============ ===========
Net interest spread 3.05% 3.19%
Net interest income/margin $ 1,598,425 4.23% $ 1,202,574 4.44%
============ ========== ============ ===========
</TABLE>
As reflected above, for the first nine months of 2000 the average yield
on earning assets amounted to 8.74%, while the average cost of interest-bearing
liabilities was 5.69%. For the same period of 1999, the average yield on earning
assets was 8.26% and the average cost of interest-bearing liabilities was 5.08%.
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 $12.6 million reflects our
bank's success in continuing to build our 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 nine month period ended September 30, 2000 was 4.23% and for the same
period of 1999 was 4.44%. This decline in the net interest margin was the result
of an increase of 62 basis points in the weighted average rate on deposits,
partially offset by an increase in the weighted average rate on earning assets
of 48 basis points. The bank paid slightly higher than market rates on deposits
in the third quarter of 2000 during a successful marketing campaign to increase
deposits and to cross-sell bank products. As a result of this program, total
deposits grew by $17.5 million over the same period of 1999. Loan demand is
typically stronger during the fall and winter months in our market. We expect to
use the deposits generated in the third quarter, which are currently invested in
short term instruments, to fund loan requests at higher rates.
The following table presents the changes in our net interest income as
a result of changes in the volume and rate of our 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.
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
Nine months ended September 30, 2000 versus 1999
--------------------------------------------------------------------
Volume Rate Net change
<S> <C> <C> <C>
Federal funds sold & short term investments $ 127,558 $ 10,792 $ 138,350
Investment securities (48,280) 27,829 (20,451)
Loans 887,560 62,078 949,638
-------- -------- ---------
Total earning assets 966,838 100,699 1,067,537
Interest-bearing deposits 494,463 128,295 622,758
Other borrowings 48,446 482 48,928
-------- -------- ---------
Total interest-bearing liabilities 542,909 128,777 671,686
-------- -------- ---------
Net interest income $ 423,929 $ (28,078) $ 395,851
========== ========== ==========
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $163,107 for the first nine months of
2000 and $119,168 for the same period of 1999. For the three month periods
ending September 30, 2000 and 1999, this provision was $51,375 and $49,500,
respectively. The increases were the result of our management's assessment of
the adequacy of the reserve for possible loan losses given the size, mix and
quality of the current loan portfolio. Our 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 increased to $208,642 in the first nine months of
2000 from $102,212 in the same period of 1999. For the three months ended
September 30, 2000, noninterest income was $77,656 in 2000 and $43,382 in 1999.
Service fees on deposit accounts, the largest component of noninterest income,
increased from $108,294 for the first nine months of 1999 to $184,775 during the
same period of 2000. This category of noninterest income increased due to growth
in the number of deposit accounts as well as increased fee-related activities of
our customers. The net loss on the sale of investment securities decreased to
$6,825 from $29,573 for the nine month period ended September 30, 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 $1,138,885 for the nine months
ended September 30, 1999 to $1,370,848 in the same period of 2000, and from
$417,035 for the three months ended September 30, 1999 to $451,382 in 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 our company to
$61.9 million at September 30, 2000 from $45.9 million at September 30, 1999.
Salaries and wages expense increased by $164,218 during the nine months ended
September 30, 2000 and $37,404 during the three months ended September 30, 2000
compared to the same periods in 1999. Employee benefits increased by $16,343 and
$7,364 during these periods. These increases are primarily the result of
increased incentive-based compensation programs implemented in 2000 for all
employees as well as severance payments payable to Gary Horn, our bank's former
President whose resignation was effective in February 2000.
Advertising and public relations expense increased by $11,619 for the
first nine months of 2000 compared to the same period of 1999 and increased
$1,326 in the third 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 $27,148 from the first nine months of 1999
to the same period of 2000, and declined by $17,431 in the third quarter of 2000
compared to 1999. This decline was due to the fact that equipment and software
purchased when the bank opened in 1996 has now been fully depreciated.
<PAGE>
For the nine month period ended September 30, 2000, data processing
expense increased to $70,742 from $53,247 during the same period of 1999. During
the three month period ended September 30, data processing expense increased to
$25,057 in 2000 from $18,079 in 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 $204,952 for
the first nine months of 2000 compared to $161,894 for the same period of 1999,
and increased to $64,455 during the three month period ended September 30, 2000
from $57,708 in 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 $ 8.9 million in the first nine months of
2000 and totaled $8.4 million at September 30, 2000. In the same period of 1999,
total securities averaged $9.9 million and totaled $9.6 million at September 30,
1999. At September 30, 2000, our total investment securities portfolio had a
book value of $8,707,757 and a market value of $8,440,763 for an unrealized net
loss of $266,994. We primarily invest in U.S. Government Agency Mortgage- backed
securities.
Contractual maturities and yields on our investment securities (all
available for sale) at September 30, 2000 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.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
SEPTEMBER 30, 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
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ ---- ----% $ ---- ----% $ ---- ----% $ ---- ----%
U.S. Govt Agencies ---- ---- ---- ---- 662,650 7.30% ---- ----
Mortgage-backed ---- ---- ---- ---- ---- ---- 7,732,057 6.51%
Other ---- ---- ---- ---- ---- ---- 313,050 6.68%
-------- ------- ------ ------- ------ ------- ----------- ----
Total $ ----- 0.00% $ ---- 0.00% $662,650 7.30% $ 8,045,107 6.51%
======== ======= ====== ======= ======= ======= =========== ====
</TABLE>
At September 30, 2000, short-term investments totaled $9,291,503
compared to $850,000 as of September 30, 1999. These funds are one source of our
bank's liquidity and are generally invested in an earning capacity on an
overnight or short-term basis.
LOANS
At September 30, 2000, net loans (gross loans less the allowance for
loan losses) totaled $40.5 million, an increase of $10.1 million from September
30, 1999. Average gross loans increased from $25.4 million with a yield of 9.12%
in the first nine months of 1999 to $37.9 million with a yield of 9.41% 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.
<PAGE>
Since loans typically provide higher yields than other types of earning
assets, one of our bank's goals is for loans to represent the largest category
of earning assets. As was expected, the success of our third quarter marketing
campaign resulted in deposit growth that outpaced the seasonal demand for loans
in our market. Since our loan demand normally increases during the fall and
winter months, we expect to use these funds, which are currently invested in
short term instruments, to fund loan requests at higher rates.
The following table shows the composition of the loan portfolio by category
at September 30, 2000 and 1999.
<TABLE>
<CAPTION>
COMPOSITION OF LOAN PORTFOLIO
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
<S> <C> <C> <C> <C>
Commercial $7,538,440 18.3% $5,105,440 16.6%
Real estate - construction 3,569,270 8.7% 3,202,184 10.4%
Real estate - mortgage 25,068,324 61.1% 18,136,221 58.9%
Consumer 4,909,315 11.9% 4,358,528 14.1%
---------- ----- ---------- -----
Loans, gross 41,085,349 100.0% 30,802,373 100.0%
===== =====
Unearned income (78,656) (73, 915)
Allowance for possible loan losses (533,112) (376,268)
----------- -----------
Loans, net $40,473,581 $30,352,189
=========== ===========
</TABLE>
The principal component of our loan portfolio at September 30, 2000 and
1999 was mortgage loans, which represented 61.1% and 58.9% 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%.
Due to the short time the portfolio has existed, the current mix may not be
indicative of the ongoing portfolio mix. Our management will attempt to maintain
a relatively diversified loan portfolio to help reduce the risk inherent in
concentrations of collateral.
<PAGE>
The following table sets forth the maturity distribution, classified
according to sensitivity to changes in interest rates, for selected components
of our loan portfolio as of September 30, 2000.
<TABLE>
<CAPTION>
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
SEPTEMBER 30, 2000
After one but After
One year Within five Five
Or less Years Years Total
-------- -------------- ------ -----
<S> <C> <C> <C> <C>
Commercial $ 3,656,734 $ 3,765,735 $ 115,971 $ 7,538,440
Real estate 3,078,201 19,761,891 2,228,232 25,068,324
Construction 1,914,244 1,606,177 48,849 3,569,270
Consumer 1,686,523 2,802,125 420,667 4,909,315
------------ ------------- ------------ -------------
Total gross loans $ 10,335,702 $ 27,935,928 $ 2,813,719 $ 41,085,349
============ ============= ============ =============
Fixed Interest Rate 3,001,056 27,368,882 2,533,617 32,903,555
Variable Interest Rate 7,334,646 567,046 280,102 8,181,794
------------ ------------- ------------ -------------
Total gross loans $ 10,335,702 $ 27,935,928 $ 2,813,719 $ 41,085,349
============ ============= ============ =============
</TABLE>
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. Because of the inherent uncertainty of assumptions made during the
evaluation process, there can be no assurance that loan losses in future periods
will not exceed the allowance for loan losses or that additional allocations
will not be required.
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 September 30, 2000, the allowance for possible loan losses was
$533,112, or 1.30% of outstanding loans, compared to an allowance for possible
loan losses of $376,268 or 1.22% of outstanding loans, at September 30, 1999.
<PAGE>
In the first nine months of 2000, the bank had net charge-offs of $38,873. In
the same period of 1999, there were $6,115 in net charge offs. We had
non-performing loans of $39,056 at September 30, 2000 and no non-performing
loans as September 30, 1999.
ALLOWANCE FOR LOAN LOSSES
NINE MONTHS ENDING SEPTEMBER 30,
2000 1999
---- ----
Average loans outstanding $ 37,940,301 $ 25,373,742
Loans outstanding at period end 41,085,349 30,802,373
Total nonperforming loans 39,056 --
Beginning balance of allowance $ 408,878 $ 263,215
Loans charged off (38,873) (6,115)
Total recoveries 0 0
--------------- ---------------
Net loans charged off (38,873) (6,115)
Provision for loan losses 163,107 119,168
--------------- ---------------
Balance at period end $ 533,112 $ 376,268
=============== ===============
Net charge-offs to average loans .10% .02%
Allowance as a percent of total loans 1.30% 1.22%
Nonperforming loans as a
percentage of total loans
.09% N/A
Nonperforming loans as a
percentage of allowance 7.33% N/A
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average total deposits were $45.7 million and average interest-bearing
deposits were $38.7 million in the first nine months of 2000. Average total
deposits were $32.7 million and average interest-bearing deposits were $27.1
million in the same period of 1999. The following table sets forth our deposits
by category as of September 30, 2000 and September 30, 1999.
<TABLE>
<CAPTION>
DEPOSITS
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
Percent of Percent of
Amount Deposits Amount Deposits
----- -------- ------ --------
<S> <C> <C> <C> <C>
Demand deposit accounts $ 7,502,870 13.6% $ 7,910,392 21.1%
NOW accounts 1,738,915 3.2% 1,132,771 3.0%
Money market accounts 7,376,434 13.4% 4,106,568 11.0%
Savings accounts 3,517,560 6.4% 4,953,730 13.2%
Time deposits less than $100,000 22,154,574 40.3% 13,630,238 36.3%
Time deposits of $100,000 or over 12,713,270 23.1% 5,767,008 15.4%
----------- ----- ------------- -------
Total deposits $55,003,623 100.0% $ 37,500,707 100.00%
=========== ===== ============= =======
</TABLE>
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 our loan portfolio and
other earning assets. Our core deposits were $42.3 million at September 30, 2000
<PAGE>
compared to $31.7 million at September 30, 1999. We expect a stable base of
deposits to be our primary source of funding to meet both our short-term and
long-term liquidity needs. Core deposits as a percentage of total deposits were
approximately 77% at September 30, 2000 and 85% at September 30, 1999. Our
loan-to-deposit ratio was 74.6% at September 30, 2000 versus 82.1% at September
30, 1999. The average loan-to-deposit ratio was 83.0% during the first nine
months of 2000 and 77.7% 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 September 30, 2000.
ANALYSIS OF CAPITAL
SEPTEMBER 30, 2000
(Amounts in thousands)
Required % Actual % Excess %
Amount Amount Amount
-------- -- ------- -- ------ --
The Bank:
Tier 1 risk-based capital 1,714 4.0% 5,786 13.5% 4,072 9.5%
Total risk-based capital 3,439 8.0% 6,319 14.7% 2,880 6.7%
Tier 1 leverage 2,410 4.0% 5,786 9.6% 3,376 5.6%
We believe that we have sufficient capital to fund our current
activities on an on-going basis.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Primary sources of liquidity for our core are 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. We believe that our liquidity and
ability to manage assets will be sufficient to meet our cash requirements over
the near term.
The Bank is in the process of constructing a new branch facility in the
Surfside Beach area of the Grand Strand. Harrington Constuction Company will
build the branch, which is expected to open in the second quarter of 2001.
Funding for the branch, estimated to cost $1.2 million, including furniture,
fixtures and equipment, will come from current deposits.
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. 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. Our 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
<PAGE>
during the life of an asset or liability. Balancing 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 September 30, 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.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS
SEPTEMBER 30, 2000
After three
but After one but
Within three Within twelve within five After five
month months Years years Total
----- ------ ----- ----- ----
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Federal funds sold
& short term investments 5,608,503 $ 3,683,000 $ -- $ -- $ 9,291,503
Investment securities -- 2,109,783 -- 6,330,980 8,440,763
Loans 9,641,377 1,541,472 27,368,883 2,533,617 41,085,349
------------ ----------- ------------ ----------- ------------
Total earning assets $ 15,249,880 $ 7,334,255 $ 27,368,883 $ 8,864,597 $ 58,817,615
============ =========== ============ =========== ============
LIABILITIES
Interest-bearing liabilities
Money market and NOW $ 9,115,349 $ -- $ -- $ -- $ 9,115,349
Savings deposits 3,517,560 -- -- -- 3,517,560
Time deposits 4,664,150 20,699,027 9,504,667 -- 34,867,844
------------ ----------- ------------ ----------- ------------
Total interest-bearing
liabilities $ 17,297,059 $ 20,699,027 $ 9,504,667 $ $ 47,500,753
============ ============ =========== ================== ============
Period gap $ (2,047,179) $(13,364,772) $ 17,864,216 $ 8,864,597 $ 11,316,862
Cumulative gap $ (2,047,179) $(15,411,951) $ 2,452,265 $ 11,316,862 $ 11,316,862
Ratio of cumulative gap to
Total earning assets (3.48) (26.2) 4.17% 19.24%
</TABLE>
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 currently are
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 our company and bank 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,
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.
<PAGE>
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
Our articles of incorporation authorize us to issue up to 10,000,000
shares of common stock, of which 735,868 shares, sold at $10 per share for a
total gross proceeds of $7,358,680, were sold in the initial public offering and
are outstanding. As of October 2, 2000, we had 915 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 our common stock are entitled to share
equally in dividends from funds legally available therefor, when, as and if
declared by our board of directors. We do not plan to declare any dividends in
the immediate future.
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material legal proceedings to which we or any of our
subsidiaries is a party or of which any of our property is the subject.
ITEM 2. 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 September 30,
2000.
<PAGE>
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: November 13, 2000
By: /s/ Walter E. Standish, III
------------------------------------
Walter E. Standish, III
President
By: /s/ Ann W. Jones
------------------------------------
Ann W. Jones
Chief Financial and Principal
Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27.1. Financial Data Schedule for the period ended
September 30, 2000. (for SEC use only).
