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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended December 31, 1999
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _______
Commission file no. 33-95562
BEACH FIRST NATIONAL BANCSHARES, INC.
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(Name of Small Business Issuer in Its Charter)
South Carolina 57-1030117
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1550 North Oak Street
Myrtle Beach, South Carolina 29577
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(Address of Principal Executive Offices) (Zip Code)
(843) 626-2265
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Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 past 90 days.
Yes _____ No ______
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 6, 2000 was $6,899,288. This calculation is based
upon $12.50, the last trade price of the common stock of which the Company is
aware. There is no active trading market for the common stock and trades are
limited and sporadic.
There were 735,868 shares of the Company's common stock issued and
outstanding as of the record date, March 10, 2000.
Transitional Small Business Disclosure Format.
(Check one): Yes [ ] No [ X ]
DOCUMENTS INCORPORATED BY REFERENCE
Company's 1999 Annual Report and Proxy Statement for the 2000
Annual Meeting of Shareholders.
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ITEM 1. DESCRIPTION OF BUSINESS
This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements are based on many
assumptions and estimates and are not guarantees of future performance. Our
actual results may differ materially from those projected in any forward-looking
statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words "may," "would,"
"could," "will," "expect," "anticipate," "believe," "intend," "plan," and
"estimate," as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to:
- significant increases in competitive pressure in the banking
and financial services industries;
- changes in the interest rate environment which could reduce
anticipated or actual margins;
- changes in political conditions or the legislative or
regulatory environment;
- general economic conditions, either nationally or regionally
and especially in primary service area, becoming less
favorable than expected resulting in, among other things, a
deterioration in credit quality;
- changes occurring in business conditions and inflation;
- changes in technology;
- changes in monetary and tax policies;
- changes in the securities markets; and
- other risks and uncertainties detailed from time to time in
our filings with the Securities and Exchange Commission.
GENERAL
Beach First National Bancshares, Inc. was incorporated as a South
Carolina corporation on July 28, 1995, to serve as the holding company for Beach
First National Bank. The bank commenced operations on September 23, 1996. The
bank is organized as a national banking association under the laws of the United
States, and the bank engages in a commercial banking business from its main
office located at the corner of Oak Street and Sixteenth Avenue North in the
City of Myrtle Beach, South Carolina, with deposits insured by the FDIC.
MARKETING FOCUS
Most of the banks in the Myrtle Beach area are now local branches of
large regional banks. Although size gives the larger banks certain advantages in
competing for business from large corporations, including higher lending limits
and the ability to offer services in other areas of South Carolina and the
Myrtle Beach area, the company believes that there has been a void in the
community banking market in the Myrtle Beach area which the bank can
successfully fill. As a result, the company generally does not attempt to
compete for the banking relationships of large corporations, but concentrates
its efforts on small- to medium-sized businesses and on individuals.
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BANKING SERVICES
The bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts, and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to the
bank's principal market area at rates competitive to those offered in the Myrtle
Beach area. In addition, the bank offers certain retirement account services,
such as Individual Retirement Accounts (IRAs). All deposit accounts are insured
by the FDIC up to the maximum amount allowed by law (generally, $100,000 per
depositor, subject to aggregation rules). The bank solicits these accounts from
individuals, businesses, associations and organizations, and governmental
authorities.
LENDING ACTIVITIES
General. The Bank emphasizes a range of lending services, including
real estate, commercial and consumer loans, to individuals and small- to
medium-sized businesses and professional concerns that are located in or conduct
a substantial portion of their business in the bank's market area.
Real Estate Loans. The loans secured generally by first or second
mortgages on real estate are one of the primary components of the bank's loan
portfolio. These loans consist of commercial real estate loans, construction and
development loans, and residential real estate loans (but exclude home equity
loans, which are classified as consumer loans).
Commercial Loans. The bank makes loans for commercial purposes in
various lines of businesses. Included in this category are loans to purchase
equipment, finance accounts receivable or inventory or for working capital
purposes.
Consumer Loans. The bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
term loans, home equity loans and lines of credit, and revolving lines of credit
such as overdraft protection.
Loan Approval and Review. The bank's loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds that individual officer's lending authority, the
loan request is considered by an officer with a higher lending limit. Any loan
in excess of this lending limit is approved by the directors' loan committee.
The bank does not make any loans to any director or executive officer of the
bank unless the loan is approved by the board of directors of the bank and is
made on terms not more favorable to such person than would be available to a
person not affiliated with the bank.
Lending Limits. The bank's lending activities are subject to a variety
of lending limits imposed by federal law. While differing limits apply in
certain circumstances based on the type of loan or the nature of the borrower
(including the borrower's relationship to the bank), in general the bank is
subject to a loan-to-one-borrower limit. These limits increase or decrease as
the bank's capital increases or decreases. Unless the bank sells participations
in its loans to other financial institutions, the bank is not able to meet all
of the lending needs of loan customers requiring aggregate extensions of credit
above these limits.
OTHER BANKING SERVICES
Other bank services which are in place or planned include cash
management services, safe deposit boxes, travelers checks, direct deposit of
payroll and social security checks, and automatic drafts for various accounts.
The bank is associated with a shared network of automated teller machines that
may be used by bank customers throughout South Carolina and other regions. In
the future, the bank intends to offer annuities, mutual funds, and
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other financial services. The bank also offers MasterCard and VISA credit card
services through a correspondent bank as an agent for the bank.
SUPERVISION AND REGULATION
Both the company and the bank are subject to extensive state and
federal banking laws and regulations which impose specific requirements or
restrictions on and provide for general regulatory oversight of virtually all
aspects of operations. These laws and regulations are generally intended to
protect depositors, not shareholders. The following summary is qualified by
reference to the statutory and regulatory provisions discussed. Changes in
applicable laws or regulations may have a material effect on our business and
prospects. Beginning with the enactment of the Financial Institution Report
Recovery and Enforcement Act in 1989 and following with the FDIC Improvement Act
in 1991, numerous additional regulatory requirements have been placed on the
National Banking industry in the past several years, and additional changes have
been proposed. Our operations may be affected by legislative changes and the
policies of various regulatory authorities. We cannot predict the effect that
fiscal or monetary policies, economic control, or new federal or state
legislation may have on our business and earnings in the future.
GRAMM-LEACH-BLILEY ACT
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
The Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will have on
us. From time to time other changes are proposed to laws affecting the National
Banking industry, and these changes could have a material effect on our business
and prospects. We cannot predict the nature or the extent of the effect on our
business and earnings of fiscal or monetary policies, economic controls, or new
federal or state legislation.
BEACH FIRST NATIONAL BANCSHARES, INC.
Because it owns the outstanding capital stock of the bank, the company
is a bank holding company under the federal Bank Holding Company Act of 1956 and
the South Carolina Banking and Branching Efficiency Act.
The Bank Holding Company Act. Under the Bank Holding Company Act, the
company is subject to periodic examination by the Federal Reserve and required
to file periodic reports of its operations and any additional information that
the Federal Reserve may require. Our activities at the bank and holding company
level are limited to:
- banking and managing or controlling banks;
- furnishing services to or performing services for its
subsidiaries; and
- engaging in other activities that the Federal Reserve
determines to be so closely related to banking and managing or
controlling banks as to be a proper incident thereto.
Investments, Control, and Activities. With certain limited exceptions,
the Bank Holding Company Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before:
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- acquiring substantially all the assets of any bank;
- acquiring direct or indirect ownership or control of any
voting shares of any bank if after the acquisition it would
own or control more than 5% of the voting shares of such bank
(unless it already owns or controls the majority of such
shares); or
- merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with regulations
thereunder, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of a bank holding company. Control is rebuttably presumed to exist if
a person acquires 10% or more, but less than 25%, of any class of voting
securities and either the company has registered securities under Section 12 of
the Securities Exchange Act of 1934 or no other person owns a greater percentage
of that class of voting securities immediately after the transaction. The
company's common stock is registered under the Securities Exchange Act of 1934.
The regulations provide a procedure for challenge of the rebuttable control
presumption.
Under the Bank Holding Company Act, a bank holding company is generally
prohibited from engaging in, or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in nonbanking activities
unless the Federal Reserve Board, by order or regulation, has found those
activities to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Some of the activities that the Federal
Reserve Board has determined by regulation to be proper incidents to the
business of a bank holding company include:
- making or servicing loans and certain types of leases; o
engaging in certain insurance and discount brokerage
activities;
- performing certain data processing services;
- acting in certain circumstances as a fiduciary or investment
or financial adviser;
- owning savings associations; and
- making investments in certain corporations or projects
designed primarily to promote community welfare.
The Federal Reserve Board imposes certain capital requirements on the
company under the Bank Holding Company Act, including a minimum leverage ratio
and a minimum ratio of "qualifying" capital to risk-weighted assets. These
requirements are described below under "Capital Regulations." Subject to its
capital requirements and certain other restrictions, the company is able to
borrow money to make a capital contribution to the bank , and these loans may be
repaid from dividends paid from the bank to the company. Our ability to pay
dividends is subject to regulatory restrictions as described below in " Beach
First National Bank - Dividends." The company is also able to raise capital for
contribution to the bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities
laws.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
Board policy, the company is expected to act as a source of financial strength
to the bank and to commit resources to support the bank in circumstances in
which the company might not otherwise do so. Under the Bank Holding Company Act,
the Federal Reserve Board may require a bank holding company to terminate any
activity or relinquish control of a nonbank subsidiary, other than a nonbank
subsidiary of a bank, upon the Federal Reserve Board's determination that such
activity or control constitutes a serious risk to the financial soundness or
stability of any subsidiary depository institution of the bank's holding
company. Further, federal bank regulatory authorities have additional discretion
to require a bank holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the depository
institution's financial condition.
South Carolina State Regulation. As a bank holding company registered
under the South Carolina Banking and Branching Efficiency Act, we are subject to
limitations on sale or merger and to regulation by the South Carolina Board of
Financial Institutions. Prior to acquiring the capital stock of a national bank,
we are not
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required to obtain the approval of the Board, but we must notify them at least
15 days prior to doing so. We must receive the Board's approval prior to
engaging in the acquisition of banking or nonbanking institutions or assets, and
we must file periodic reports with respect to our financial condition and
operations, management, and intercompany relationships between the company and
its subsidiaries.
BEACH FIRST NATIONAL BANK
The bank operates as a national banking association incorporated under
the laws of the United States and subject to examination by the Office of the
Comptroller of the Currency. Deposits in the bank are insured by the FDIC up to
a maximum amount, which is generally $100,000 per depositor subject to
aggregation rules.
The Office of the Comptroller of the Currency and the FDIC regulate or
monitor virtually all areas of the bank's operations, including:
- security devices and procedures;
- adequacy of capitalization and loss reserves;
- loans;
- investments;
- borrowings;
- deposits;
- mergers;
- issuances of securities;
- payment of dividends;
- interest rates payable on deposits;
- interest rates or fees chargeable on loans;
- establishment of branches;
- corporate reorganizations;
- maintenance of books and records; and
- adequacy of staff training to carry on safe lending and
deposit gathering practices.
The Office of the Comptroller of the Currency requires the bank to
maintain specified capital ratios and imposes limitations on the bank's
aggregate investment in real estate, bank premises, and furniture and fixtures.
The Office of the Comptroller of the Currency also requires the bank to prepare
quarterly reports on the bank's financial condition and to conduct an annual
audit of its financial affairs in compliance with its minimum standards and
procedures.
Under the FDIC Improvement Act, all insured institutions must undergo
regular on site examinations by their appropriate banking agency. The cost of
examinations of insured depository institutions and any affiliates may be
assessed by the appropriate agency against each institution or affiliate as it
deems necessary or appropriate. Insured institutions are required to submit
annual reports to the FDIC, their federal regulatory agency, and their state
supervisor when applicable. The FDIC Improvement Act directs the FDIC to develop
a method for insured depository institutions to provide supplemental disclosure
of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of
condition or any other report of any insured depository institution. The FDIC
Improvement Act also requires the federal banking regulatory agencies to
prescribe, by regulation, standards for all insured depository institutions and
depository institution holding companies relating, among other things, to the
following:
- internal controls;
- information systems and audit systems;
- loan documentation;
- credit underwriting;
- interest rate risk exposure; and
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- asset quality.
National banks and their holding companies which have been chartered or
registered or have undergone a change in control within the past two years or
which have been deemed by the Office of the Comptroller of the Currency or the
Federal Reserve Board to be troubled institutions must give the Office of the
Comptroller of the Currency or the Federal Reserve Board thirty days' prior
notice of the appointment of any senior executive officer or director. Within
the 30 day period, the Office of the Comptroller of the Currency or the Federal
Reserve Board, as the case may be, may approve or disapprove any such
appointment.
Deposit Insurance. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. A
separate Bank Insurance Fund and Savings Association Insurance Fund are
maintained for commercial banks and savings associations with insurance premiums
from the industry used to offset losses from insurance payouts when banks and
thrifts fail. In 1993, the FDIC adopted a rule which establishes a risk-based
deposit insurance premium system for all insured depository institutions. Under
this system, until mid-1995 depository institutions paid to Bank Insurance Fund
or Savings Association Insurance Fund from $0.23 to $0.31 per $100 of insured
deposits depending on its capital levels and risk profile, as determined by its
primary federal regulator on a semiannual basis. Once the Bank Insurance Fund
reached its legally mandated reserve ratio in mid-1995, the FDIC lowered
premiums for well-capitalized banks, eventually eliminating premiums for
well-capitalized banks, with a minimum semiannual assessment of $1,000. However,
in 1996 Congress enacted the Deposit Insurance Funds Act of 1996, which
eliminated even this minimum assessment. It also separated the Financial
Corporation assessment to service the interest on its bond obligations. The
amount assessed on individual institutions by the Financial Corporation
assessment is in addition to the amount paid for deposit insurance according to
the risk-related assessment rate schedule. Increases in deposit insurance
premiums or changes in risk classification will increase the bank's cost of
funds, and we may not be able to pass these costs on to our customers.
Transactions With Affiliates and Insiders. The bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which places limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of the bank's capital and surplus and, as to all affiliates combined, to 20% of
the bank 's capital and surplus. Furthermore, within the foregoing limitations
as to amount, each covered transaction must meet specified collateral
requirements. Compliance is also required with certain provisions designed to
avoid the taking of low quality assets.
The bank is also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibits an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with nonaffiliated companies. The bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
Dividends. A national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits then on hand, after deducting
expenses, including reserves for losses and bad debts. In addition, a national
bank is prohibited from declaring a dividend on its shares of common stock until
its surplus equals its stated capital, unless there has been transferred to
surplus no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the Office of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the total of
its net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus.
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Branching. National banks are required by the National Bank Act to
adhere to branch office banking laws applicable to state banks in the states in
which they are located. Under current South Carolina law, the bank may open
branch offices throughout South Carolina with the prior approval of the Office
of the Comptroller of the Currency. In addition, with prior regulatory approval,
the bank will be able to acquire existing banking operations in South Carolina.
Furthermore, federal legislation has recently been passed which permits
interstate branching. The new law permits out-of-state acquisitions by bank
holding companies, interstate branching by banks if allowed by state law, and
interstate merging by banks.
Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, or the Office of the
Comptroller of the Currency shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility.
Failure to adequately meet these criteria could impose additional requirements
and limitations on the bank.
Other Regulations. Interest and other charges collected or contracted
for by the bank are subject to state usury laws and federal laws concerning
interest rates. The bank's loan operations are also subject to federal laws
applicable to credit transactions, such as:
- the federal Truth-In-Lending Act, governing disclosures of
credit terms to consumer borrowers;
- the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and
public officials to determine whether a financial institution
is fulfilling its obligation to help meet the housing needs of
the community it serves;
- the Equal Credit Opportunity Act, prohibiting discrimination
on the basis of race, creed or other prohibited factors in
extending credit;
- the Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies;
- the Fair Debt Collection Act, governing the manner in which
consumer debts may be collected by collection agencies; and
- the rules and regulations of the various federal agencies
charged with the responsibility of implementing such federal
laws.
The deposit operations of the bank also are subject to:
- the Right to Financial Privacy Act, which imposes a duty to
maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative
subpoenas of financial records; and
- the Electronic Funds Transfer Act and Regulation E issued by
the Federal Reserve Board to implement that act, which governs
automatic deposits to and withdrawals from deposit accounts
and customers' rights and liabilities arising from the use of
automated teller machines and other electronic banking
services.
Capital Regulations. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies and account
for off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios in excess of the minimums. We have not
received any notice indicating that either the company or the bank is subject to
higher capital requirements. The current guidelines require all bank holding
companies and federally-regulated banks to maintain a minimum risk-based total
capital ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1
capital includes common shareholders' equity, qualifying perpetual preferred
stock, and minority interests in equity accounts of consolidated subsidiaries,
but excludes goodwill and most other intangibles and excludes the allowance for
loan and lease losses. Tier 2 capital includes
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the excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight applies. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points.
The FDIC Improvement Act established a new capital-based regulatory
scheme designed to promote early intervention for troubled banks which requires
the FDIC to choose the least expensive resolution of bank failures. The new
capital-based regulatory framework contains five categories of compliance with
regulatory capital requirements, including "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To qualify as a "well capitalized" institution, a
bank must have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of
no less than 6%, and a total risk-based capital ratio of no less than 10%, and
the bank must not be under any order or directive from the appropriate
regulatory agency to meet and maintain a specific capital level. Currently, we
qualify as "well capitalized."
Under the FDIC Improvement Act regulations, the applicable agency can
treat an institution as if it were in the next lower category if the agency
determines (after notice and an opportunity for hearing) that the institution is
in an unsafe or unsound condition or is engaging in an unsafe or unsound
practice. The degree of regulatory scrutiny of a financial institution
increases, and the permissible activities of the institution decreases, as it
moves downward through the capital categories. Institutions that fall into one
of the three undercapitalized categories may be required to do some or all of
the following:
- submit a capital restoration plan;
- raise additional capital;
- restrict their growth, deposit interest rates, and other
activities;
- improve their management;
- eliminate management fees; or
- divest themselves of all or a part of their operations.
Bank holding companies controlling financial institutions can be called upon to
boost the institutions' capital and to partially guarantee the institutions'
performance under their capital restoration plans.
These capital guidelines can affect us in several ways. If we grow at a
rapid pace, our capital may be depleted too quickly, and a capital infusion from
the holding company may be necessary which could impact our ability to pay
dividends. Our capital levels currently are adequate; however, rapid growth,
poor loan portfolio performance, poor earnings performance, or a combination of
these factors could change our capital position in a relatively short period of
time.
Failure to meet these capital requirements would mean that a bank would
be required to develop and file
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a plan with its primary federal banking regulator describing the means and a
schedule for achieving the minimum capital requirements. In addition, such a
bank would generally not receive regulatory approval of any application that
requires the consideration of capital adequacy, such as a branch or merger
application, unless the bank could demonstrate a reasonable plan to meet the
capital requirement within a reasonable period of time.
Enforcement Powers. The Financial Institution Report Recovery and
Enforcement Act expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties." Institution-affiliated parties
primarily include management, employees, and agents of a financial institution,
as well as independent contractors and consultants such as attorneys and
accountants and others who participate in the conduct of the financial
institution's affairs. These practices can include the failure of an institution
to timely file required reports or the filing of false or misleading information
or the submission of inaccurate reports. Civil penalties may be as high as
$1,000,000 a day for such violations. Criminal penalties for some financial
institution crimes have been increased to 20 years. In addition, regulators are
provided with greater flexibility to commence enforcement actions against
institutions and institution-affiliated parties. Possible enforcement actions
include the termination of deposit insurance. Furthermore, banking agencies'
power to issue cease-and-desist orders were expanded. Such orders may, among
other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnification or
guarantees against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the ordering agency to be appropriate.
Effect of Governmental Monetary Policies. Our earnings are affected by
domestic economic conditions and the monetary and fiscal policies of the United
States government and its agencies. The Federal Reserve Bank's monetary policies
have had, and are likely to continue to have, an important impact on the
operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to curb inflation or combat a
recession. The monetary policies of the Federal Reserve Board have major effects
upon the levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of
the discount rate on borrowings of member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature or impact
of future changes in monetary and fiscal policies.
LOCATION AND SERVICE AREA
The bank engages in a general commercial and retail banking business,
emphasizing the needs of small- to medium-sized businesses, professional
concerns, and individuals, primarily in Myrtle Beach, South Carolina and the
surrounding area, including Horry County. The bank has an office located at the
corner of Oak Street and Sixteenth Avenue North in the city of Myrtle Beach. We
have recently signed a lease on a 1.51 acre tract of land at the northwest
corner of the intersection of S. C. Highway 544 and U. S. Highway 17 in Myrtle
Beach. A branch will be constructed on this site which is tentatively scheduled
to open in the 4th quarter 2000.
Horry County is located on the Atlantic coast of the state of South
Carolina. Myrtle Beach, South Carolina is located within Horry County. The
Myrtle Beach area, also known as the Grand Strand, stretches from the North
Carolina state line at Little River to Georgetown, South Carolina. According to
the 1999 Myrtle Beach Area Statistical Abstract, Myrtle Beach had an estimated
population in 1996 of 28,456, while Horry County had an estimated population of
174,762. By 2010, Horry County's projected population will be 225,800. The
principal component of the economy of the Myrtle Beach area is vacation, sport,
and entertainment tourism. The Grand Strand hosts an estimated 13.5 million
visitors annually. The vacation segment, which has a four-month season, attracts
vacationers from along the East Coast. Area hotels, motels, condominiums, and
cottages provide more than 55,000 rooms. The Myrtle Beach area also has nine
privately-owned campgrounds and two publicly-owned state parks consisting of
more than 7,000 sites. Convention business also has a sizeable economic impact
on the Myrtle Beach area. The sports segment, which has an approximate ten-month
season, attracts golfers, tennis players, and anglers. The Grand Strand boasts
104 golf courses, with approximately 4.3 million rounds of
10
<PAGE> 11
golf played in 1998. The entertainment segment is a year-round source of funds.
The Grand Strand has eleven live entertainment theaters, including the Palace
Theater and the Alabama Theater, as well as entertainment centers as varied as
Ripley's Aquarium and the Pavilion Amusement Park.
COMPETITION
The banking business is highly competitive. The bank competes as a
financial intermediary with other commercial banks, savings and loan
associations, credit unions, and money market mutual funds operating in the
Myrtle Beach area and elsewhere. As of March 2000, there were thirteen
commercial banks and three savings banks operating in Horry County. We believe
that the community bank focus of the bank, with its emphasis on service to small
businesses, individuals, and professional concerns, gives it an advantage in
this market. Nevertheless, a number of these competitors are well established in
the Myrtle Beach area. Most of them have substantially greater resources and
lending limits than the bank and offer certain services, such as extensive and
established branch networks and trust services, that the bank does not provide.
As a result of these competitive factors, the bank may have to pay higher rates
of interest to attract deposits.
EMPLOYEES
As of February 9, 2000, we had sixteen full-time employees and two
part-time employees.
ITEM 2. DESCRIPTION OF PROPERTY
The principal place of business of both the company and the bank and
the main office of the bank is located at the corner of Oak Street and Sixteenth
Avenue North in Myrtle Beach, South Carolina. The bank's main office is a
located on 0.8-acre plot of land, which was purchased for $218,000. The company
constructed a permanent banking facility of 5,000 square feet on the site at a
cost of approximately $1,000,000, which was paid out of the proceeds of the
company's initial public offering. Furniture, fixtures, and equipment for the
main office cost approximately $534,000. There is one automated teller machine
located at the bank's main office.
On November 17, 1999, the bank signed a lease on a 1.51 acre tract of
land at the northwest corner of the intersection of S. C. Highway 544 and U. S.
Highway 17 in Myrtle Beach, South Carolina. The initial term of the lease is
twenty years, with two five-year renewal options. The bank will construct a
branch facility on this site which is tentatively scheduled to open in the 4th
quarter of 2000. We believe that the facilities adequately serve our needs.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
11
<PAGE> 12
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The company's articles of incorporation authorize it 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 and are outstanding as of
March 6, 2000. As of March 6, 2000, the company had 928 shareholders of record.
There is no established trading market in the common stock, and one is not
expected to develop in the near future.
All outstanding shares of 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In response to this Item, the information contained on pages 5 through
15 of the company's Annual Report to Shareholders for the year ended December
31, 1999 is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
In response to this Item, the information contained on pages 16 through
34 of the company's Annual Report to Shareholders for the year ended December
31, 1999 is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
In response to this Item, the information contained on page 10 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 26, 2000 is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
In response to this Item, the information contained on pages 6 through
8 of the company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 26, 2000 is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this Item, the information contained on page 9 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 26, 2000 is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this Item, the information contained on page 10 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 26, 2000 is incorporated herein by reference.
12
<PAGE> 13
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1.1. Selling Agent Agreement, dated October 16, 1995, by and between Capital
Investment Group, Inc. and the Company (incorporated by reference to
Exhibit 1.1 to the Company's Registration Statement No. 33-95562 on
Form S-1).
3.1. Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
the Company's Registration Statement No. 33-95562 on Form S-1).
3.2. Bylaws (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement No. 33-95562 on Form S-1).
4.1. Provisions in the Company's Articles of Incorporation and Bylaws
defining the rights of holders of the Common Stock (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement No.
33-95562 on Form S-1).
4.2. Form of Certificate of Common Stock (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement No. 33-95562 on
Form S-1).
10.1. Contract of Sale, dated April 27, 1995, by and between Nadim Baroody,
Mary Baroody, Jean P. Saad, and Miray Saad, as sellers, and Orvis
Bartlett Buie, as purchaser (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement No. 33-95562 on Form S-1).
10.2. Line of Credit Note, dated April 24, 1995, by Sea Group, Ltd. to The
Bankers Bank (incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement No. 33-95562 on Form S-1)
10.3. Employment Agreement, dated August 23, 1995, by and between the Company
and William Gary Horn (incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement No. 33-95562 on Form S-1).*
10.4. Form of Amended and Restated Escrow Agreement, dated November 1995, by
and among The Bankers Bank, Capital Investment Group, Inc., and the
Company (incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-95562 on Form S-1).
10.5. Amended and Restated Escrow Agreement, dated December 1, 1995, by and
among The Bankers Bank, Capital Investment Group, Inc., and the Company
(incorporated by reference to Exhibit 10.5 of the Company's Form 10-KSB
for the fiscal year ended December 31, 1995).
10.6. Amendment to Employment Agreement, dated January 9, 1996, by and
between the Company and William Gary Horn (incorporated by reference to
Exhibit 10.6 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1995).*
10.7. Stock Option Plan dated as of April 30, 1997 (incorporated by reference
to Exhibit 10.7 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1996).
10.8. Separation Agreement of William Gary Horn with the Company dated
February 9, 2000
14
<PAGE> 14
10.9. Employment Agreement of Walter E. Standish, III with the Company dated
March 4, 2000
13 Annual Report to Shareholders for the year ended December 31, 1999
16 Letter of Francis & Company, dated November 6, 1997 to the Securities
and Exchange Commission (incorporated by reference to Exhibit 16 of the
Company's Current Report on Form 8-K filed on November 13, 1997)
21.1. Subsidiaries of the Company. (incorporated by reference to Exhibit 21.1
of the Company's Form 10-QSB for the quarter ended March 30, 1996).
27.1. Financial Data Schedule. (for SEC use only).
- --------------------
* Denotes executive compensation contract or arrangement.
(b) Reports on Form 8-K
* There were no reports filed on Form 8-K.
14
<PAGE> 15
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: March 27, 2000 By: /s/ Walter E. Standish, III
---------------------------- ----------------------------
Walter E. Standish, III
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Walter E. Standish, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-KSB, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael Bert Anderson 03/27/00
- -----------------------------------
Michael Bert Anderson Director
/s/ Orvis Bartlett Buie 03/27/00
- -----------------------------------
Orvis Bartlett Buie Director
- -----------------------------------
Raymond E. Cleary III Chairman of the Board, and Chief
Executive Officer
/s/ Vernie E. Dove 03/27/00
- -----------------------------------
Vernie E. Dove Director
- -----------------------------------
Jack Green, Jr. Director
/s/ Michael D. Harrington 03/27/00
- -----------------------------------
Michael D. Harrington Director
</TABLE>
16
<PAGE> 16
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Joe N. Jarrett, Jr. 03/27/00
- -----------------------------------
Joe N. Jarrett, Jr. Director
- -----------------------------------
Richard E. Lester Director
/s/ Rick H. Seagroves 03/27/00
- -----------------------------------
Rick H. Seagroves Director
/s/ Don J. Smith 03/27/00
- -----------------------------------
Don J. Smith Director
/s/ Samuel Robert Spann, Jr. 03/27/00
- -----------------------------------
Samuel Robert Spann, Jr. Director
/s/ B. Larkin Spivey, Jr. 03/27/00
- -----------------------------------
B. Larkin Spivey, Jr. Director
- -----------------------------------
Walter E. Standish, III President and Director
/s/ James C. Yahnis 03/27/00
- -----------------------------------
James C. Yahnis Director
/s/ Ann W. Jones 03/27/00
- -----------------------------------
Ann W. Jones Chief Financial Officer and
Principal Accounting Officer
</TABLE>
17
<PAGE> 17
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
1.1. Selling Agent Agreement, dated October 16, 1995, by and between Capital
Investment Group, Inc. and the Company (incorporated by reference to
Exhibit 1.1 to the Company's Registration Statement No. 33-95562 on
Form S-1).
3.1. Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
the Company's Registration Statement No. 33-95562 on Form S-1).
3.2. Bylaws (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement No. 33-95562 on Form S-1).
4.1. Provisions in the Company's Articles of Incorporation and Bylaws
defining the rights of holders of the Common Stock (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement No.
33-95562 on Form S-1).
4.2. Form of Certificate of Common Stock (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement No. 33-95562 on
Form S-1).
10.1. Contract of Sale, dated April 27, 1995, by and between Nadim Baroody,
Mary Baroody, Jean P. Saad, and Miray Saad, as sellers, and Orvis
Bartlett Buie, as purchaser (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement No. 33-95562 on Form S-1).
10.2. Line of Credit Note, dated April 24, 1995, by Sea Group, Ltd. to The
Bankers Bank (incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement No. 33-95562 on Form S-1).
10.3. Employment Agreement, dated August 23, 1995, by and between the Company
and William Gary Horn (incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement No. 33-95562 on Form S-1).*
10.4. Form of Amended and Restated Escrow Agreement, dated November 1995, by
and among The Bankers Bank, Capital Investment Group, Inc., and the
Company (incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-95562 on Form S-1).
10.5. Amended and Restated Escrow Agreement, dated December 1, 1995, by and
among The Bankers Bank, Capital Investment Group, Inc., and the Company
(incorporated by reference to Exhibit 10.5 of the Company's Form 10-KSB
for the fiscal year ended December 31, 1995).
10.6. Amendment to Employment Agreement, dated January 9, 1996, by and
between the Company and William Gary Horn (incorporated by reference to
Exhibit 10.6 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1995).*
10.7. Stock Option Plan dated as of April 30, 1997 (incorporated by reference
to Exhibit 10.7 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1996).
10.8. Separation Agreement of William Gary Horn with the Company dated
February 9, 2000
18
<PAGE> 18
10.9. Employment Agreement of Walter E. Standish, III with the Company dated
March 4, 2000
13 Annual Report to Shareholders for the year ended December 31, 1999
16 Letter of Francis & Company, dated November 6, 1997 to the Securities
and Exchange Commission (incorporated by reference to Exhibit 16 of the
Company's Current Report on Form 8-K filed on November 13, 1997)
21.1. Subsidiaries of the Company. (incorporated by reference to Exhibit 21.1
of the Company's Form 10-QSB for the quarter ended March 30, 1996).
27.1. Financial Data Schedule. (for SEC use only).
- ---------------------
* Denotes executive compensation contract or arrangement.
19
<PAGE> 1
EXHIBIT 10.8
BEACH FIRST NATIONAL BANCSHARES, INC.
February 9, 2000
Mr. Gary Horn
Re: Separation Agreement
Dear Gary:
This letter, upon your signature, will constitute the agreement between
you and Beach First National Bancshares, Inc. regarding the terms of your
separation from employment.
1. The effective date of your termination from employment is
January 15, 2000.
2. You will receive no later than thirty (30) days from the date
of the signing of this letter a $3,500.00 bonus for the pre-tax profits of Beach
First National Bancshares, Inc. for the calendar year 1999.
3. You may utilize for a minimum of three months from termination
date the Dunes Club Membership. The Membership can continue to be utilized
beyond the three month period in the event it is not needed by a new Bank
officer but the utilization of the Membership will cease by September 1, 2000.
You will be responsible for all charges incurred while utilizing the Dunes Club
Membership and you will promptly pay the monthly charges except for the
membership dues.
4. You will return to Beach First the bank automobile no later
than February 28, 2000.
5. The stock options which you hold in your name (22,077 shares)
are redeemable no later than January 15, 2002. If not redeemed by said date all
stock options will lapse.
6. The Bank shall pay you your monthly salary which is the sum of
$8,268.75 until September 1, 2000. This money shall be paid in the form of
salary continuation and the Bank shall make the usual deductions for employment
taxes. In the event you accept any employment prior to September 1, 2000, the
Bank's obligation to pay any continuation of salary shall automatically cease.
<PAGE> 2
7. The Bank shall pay for your continued health insurance
coverage until September 1, 2000, unless you accept employment at which time the
obligation of the Bank shall cease. The Bank may continue the health insurance
coverage by making payments on your behalf under the COBRA provisions and after
September 1, 2000, you may continue this coverage at your own expense under the
COBRA provisions.
8. You have represented that you have, to the best of your
knowledge and belief, retained no documentary information or other tangible
personalty of Beach First's practices, procedures, trade secrets or the like,
documents or keys. Should you subsequently discover that you have inadvertently
overlooked and retained any of the above-mentioned items, you have agreed to
immediately return same.
9. You release and discharge and promise never to assert any and
all legal, equitable and administrative claims that you have or might have
against Beach First National Bancshares, Inc. and its predecessors,
subsidiaries, related entities, officers, directors, shareholders, employees,
agents, successors or assigns, arising from or related to your employment and/or
the termination of your employment.
These claims include, but are not limited to, claims arising under
federal, state and local statutory or common law, such as the Age Discrimination
in Employment Act, Title VII of the Civil Rights Act, as amended, including the
amendments of the Civil Rights Act of 1991, the Americans With Disabilities Act
[relevant state and local anti-discrimination statutes], and the law of contract
and tort; except, however, from the terms of this Separation Agreement and any
claims arising from acts subsequent to the execution of this Separation
Agreement.
10. Unless required or otherwise permitted by law, you will not
disclose, directly or indirectly, to others any information regarding the
following:
a. Any information regarding Beach First National
Bancshares, Inc.'s practices, procedures, trade
secrets, business and corporate matters, and matters
relating to officers, directors, shareholders, and
employees.
b. The terms of this Separation Agreement, including any
information regarding the payment of the monies and
the payment of benefits, which are confidential
except that you may disclose this information to your
attorney, accountant or other professional advisor to
whom you must make the disclosure in order for them
to render professional services to you. You will
instruct them, however, to maintain the
confidentiality of this information just as you must.
<PAGE> 3
c. This shall not exclude you from responding to
inquiries or requests for information specifically
requested by a Beach First National Bancshares, Inc.
employee acting in their legal capacity and in the
scope of their employment.
You shall maintain the confidentiality of all matters pertaining to
your employment.
11. In the event that you breach any of your obligations under
this Separation Agreement (including disclosure of any matters relating to Beach
First National Bancshares, Inc. which will be violative of the confidentiality
provision) or as otherwise imposed by law, Beach First National Bancshares, Inc.
will be entitled to recover the benefits paid under this agreement and to obtain
all other relief provided by law or equity, including the recovery reasonable
attorney's fees which may be incurred by Beach First National Bancshares, Inc.
The breach of any obligations hereunder by Beach First National Bancshares, Inc.
shall entitle you to obtain all relief provided by law or equity, including the
recovery of reasonable attorney's fees incurred in obtaining such relief.
12. The following is required by the Older Workers Benefit
Protection Act:
YOU HAVE UP TO 21 DAYS FROM THE DATE OF THIS LETTER OR FEBRUARY 22,
2000, TO ACCEPT THE TERMS OF THIS SEPARATION AGREEMENT, ALTHOUGH YOU
MAY ACCEPT IT AT ANY TIME WITHIN THOSE 21 DAYS. YOU ARE ADVISED TO
CONSULT AN ATTORNEY ABOUT THE AGREEMENT.
To accept the agreement, please date and sign this letter and return it
to me. (An extra copy for your files is enclosed.) Once you do so, you will have
an additional seven days in which to revoke your acceptance. To revoke, you must
send me a written statement of revocation by registered mail, return receipt
requested. If you do not revoke, the eighth day after the date of your
acceptance will be the "effective date" of the agreement.
13. Upon the effective date of this agreement, you will be
entitled to receive the compensation set forth above.
14. In order to effectuate all matters set forth in this
Agreement, you agree to execute such documents as are necessary and proper to
effectuate the terms of this Separation Agreement.
<PAGE> 4
All other terms and conditions of your Employment Contract, shall
remain in full force and effect and are not herein revoked or revised except as
expressly stated herein.
Sincerely,
Beach First National Bancshares, Inc.
/s/ Raymond E. Cleary III
--------------------------------------
Dr. Raymond E. Cleary, III
Chairman
ACCEPTANCE
By signing this letter, I acknowledge that I have had the opportunity
to review this Separation Agreement carefully with an attorney of my choice;
that I have read this Agreement and understand the terms of the Agreement; and
that I voluntarily agree and accept all matters set forth in this Agreement.
Dated: March 22, 2000 /s/ Gary Horn
---------------------
Gary Horn
<PAGE> 1
EXHIBIT 10.9
ARBITRATION NOTICE:
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO THE SOUTH CAROLINA UNIFORM
ACT (SC CODE SS.15-48-10 ET SEQ.) AND ANY AMENDMENTS THERETO, AS MODIFIED
HEREIn.
EMPLOYMENT CONTRACT
THIS EMPLOYMENT AGREEMENT, entered into the 4th day of March, 2000, by
and between Beach First National Bancshares, Inc. and Beach First National Bank,
hereinafter referred to as "Bank", and Walt Standish, hereinafter referred to as
the "Executive".
W I T N E S S E T H T H A T:
WHEREAS, the Bank desires to employ Executive as the President and CEO
of Beach First National Bank and President of Beach First National Bancshares,
Inc., and Executive desires such employment upon the terms and conditions set
forth herein below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth herein, the parties agree as follows:
1. Employment: The Bank agrees to employ Executive as President
and Chief Executive Officer of Beach First National Bank and President of Beach
First National Bancshares, Inc., for a period of two (2) years commencing on
March 20, 2000, unless terminated by either party in accordance with the terms
herein. In the event Change in Control of the Bank occurs within the two (2)
year employment period, the Executive's employment will automatically extend for
an additional three (3) years. For the purposes of this Contract, a Change in
Control of the Bank shall mean that as of the date of this Contract, there is a
change in the members of the Board of Directors in that a majority of the
members are new members and have never served as members of the Bank Board or
that the Shareholders of the Bank approved a merger, consolidation or
reorganization unless such merger, consolidation or reorganization is as a
result of a complete liquidation or dissolution of the Bank or an agreement for
the sale or other disposition of all or substantially all of the assets of the
Bank to any entity other than a transfer to a subsidiary of the Bank. In the
event there occurs a change in control, any restrictions on any outstanding
incentive awards (included restricted stock), granted to the Executive under any
incentive plan or arrangement shall lapse and such incentive award or awards
shall immediately become one hundred (100%) percent vested; all stock options
and stock appreciation rights granted to the Executive shall become immediately
exercisable and shall become one hundred (100%) percent vested; and any
performance units granted to the Executive shall become one hundred (100%)
percent vested.
2. Performance: During the term of this Contract and any renewals
or extensions hereof, if any, Executive agrees to devote substantially all of
his full business time, attention and efforts to the performance of his duties
for the Bank, it being understood that the Executive's
1 of 9
<PAGE> 2
duties are executive and administrative and subject to definition and direction
by the Bank's Board of Directors. Provided, nothing herein contained shall
restrict or prevent Executive from personally, on his own account and solely for
his own benefit, investing in stocks, bonds, commodities, real estate or other
forms of investment and provided further, that Executive may engage in other
activities, such as professional, charitable, educational, religious and similar
types of organizations, speaking engagements, which are not, or are not likely
to become, in competition, directly or indirectly, with the Bank, and similar
type activities to the extent that such other activities do not inhibit or
prohibit the performance of Executive's duties or conflict with the business of
the Bank.
The Executive shall use his best efforts to assure (1) that Beach First
National Bank is operated in a manner that will achieve satisfactory ratings in
reports of examination by the Office of the Comptroller of the Currency and (2)
that the Bank and its holding company comply with the reporting requirements of
the applicable government agencies.
3. Compensation: As remuneration for the full-time services, the
Executive shall receive a salary of One Hundred Twenty-five and no/100
($125,000.00) Dollars per annum from which the appropriate employment taxes
shall be paid and said salary shall be paid bi-weekly.
4. Bonuses: On January 31 following the first year of the
agreement, the Executive will receive an eight (8%) percent cash bonus of the
net pre-tax income of the Bank for the year 2000. On January 31 following the
second year of the contract, the Executive will receive a five (5%) percent cash
bonus of the net pre-tax income of the Bank for the year 2001. As used in this
Section "net pre-tax income" shall mean income computed according to generally
accepted accounting principles plus the amount of any accrual for the bonus that
may be due to the Executive under this Section.
5. Other Benefits: The Bank shall make available to the Executive
the life insurance, dental and health insurance, disability insurance,
retirement benefits and such other benefits or plans as are provided to the Bank
employees and the Executive may participate in said programs if eligible and the
cost for participation will be the same as applicable to all other similarly
situated employees. If the Executive is continuously employed by the Bank for
ten (10) years and then leaves such employment, the Executive will be permitted,
to the extent allowed by the applicable insurers/providers, to continue to
participate in health and dental insurance and other employee benefits, at his
own expense (this obligation shall survive the termination of this Agreement).
In addition, the Bank shall designate the Executive as the authorized
user of the Dunes Club membership for so long as the Executive remains the
President and CEO of Beach First National Bank.
Page 2 of 9
<PAGE> 3
6. Vacation: The Executive may take the minimum amount of
vacation permitted in accordance with the then applicable policies of the Office
of the Comptroller of the Currency, which shall be a minimum of fifteen (15)
days annually.
7. Moving Expenses: The Executive shall be reimbursed his
reasonable moving expenses from Charlotte, North Carolina to Myrtle Beach, South
Carolina. He shall obtain two (2) estimates of his moving expenses and present
them to the Bank Personnel Committee for approval. The Executive will also be
eligible for temporary housing for a period of ninety (90) days in the maximum
amount of Three Thousand and no/100 ($3,000.00) Dollars. Executive must present
invoices or receipts for any reimbursement hereunder.
8. Grant of Options: The Bank will grant to the Executive options
under the Bank's incentive stock option plan to purchase five thousand (5,000)
shares of the Bank's common stock for an exercise price of Twelve and 50/100
($12.50) Dollars per share; provided, however, that options for two thousand
five hundred (2,500) shares shall not be exercisable for one (1) year and shall
lapse and not ever be exercisable if during the year Beach First National Bank
receives a less than satisfactory overall rating on a safety and soundness
examination conducted by the Office of the Comptroller of the Currency and the
Board of Directors does not find that the Executive made reasonable efforts to
avoid such a rating and is taking appropriate steps to cure the deficiencies
which led to such rating; and, provided further, that the options for the other
two thousand five hundred (2,500) shares shall not be exercisable for two (2)
years and shall likewise lapse if a less than satisfactory rating is received
during the second year and the Board of Directors not make such a funding.
Provided however, that if the Bank does not meet the criteria for any year, the
options may vest in the sole discretion of the Board of Directors and the Board
shall notify the Executive in writing if the options are to be vested. In
addition:
1. Options shall be subject to immediate vesting in the
event of a change in control;
2. All options shall be exercisable in accordance with
the Bank's stock option plan, as may be amended from
to time.
3. All options shall be exercisable at any time during
the ten (10) years following their vesting at the
Twelve and 50/100 ($12.50) Dollars per share price;
except all unexercised options will expire thirty
(30) days after termination of employment other than
as a result of death. In such event, Executive's
representative shall have the right to exercise said
options within six (6) months thereafter; and
4. All options are to be non-transferrable and
non-assignable except upon death and then only by
Executive's Will.
Page 3 of 9
<PAGE> 4
In addition, the parties understand that the Bank may adopt an
incentive stock option plan after the effective date of this Agreement.
9. Expenses: The Executive shall be promptly reimbursed, against
presentation of vouchers or receipts, for all authorized expenses properly and
reasonably incurred by him on behalf of the Bank. In addition, the Bank will
provide the Executive with an automobile with approval of the Bank Personnel
Committee.
10. Confidential Information and Related Matters: Executive
acknowledges that the Bank has information which is proprietary, confidential
and information which constitutes trade secrets which the Bank uses in its
business and which is essential to the Bank's continued ability to compete and
be successful. Executive also acknowledges that the release of such information
would cause serious and irreparable harm to the Bank's business and the Bank has
expended considerable time, resources and capital in the development of this
information.
The term "Trade Secrets", shall be defined as set forth in the South
Carolina Uniform Trade Secrets Act which defines Trade Secrets as information,
including a formula, pattern, compilation, program, device, method, technique,
or process that (i) derives independent economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by other persons who can obtain economic value from its disclosure or use,
and (ii) is subject to efforts that are reasonable under the circumstances to
maintain its secrecy. The term "Confidential Information", shall mean Bank
materials and information to which the public does not have ready access to and
the Executive receives access or which Executive develops, individually or in
collaboration with others, as a result of or in the course of his employment or
through the use of any of Bank's facilities or resources. The following
constitutes "Trade Secrets" and "Confidential Information":
1. The internal computer software and Bank designed
programs utilized for marketing development, sales,
customer and event profiles;
2. Marketing and advertising plans and techniques,
purchasing information, price lists, price policies,
vendors' lists, profit margin information, quoting
procedures, daily, weekly, monthly and yearly
financial reports, customer profiles, customer
contacts, security procedures and existing and
potential customer data;
3. Personnel information such as employee's names and
addresses, salary and wage information, performance
criteria and job descriptions, performance
evaluations, personnel forms and procedures, training
programs and procedures;
4. All contracts, proposals, and accounts with vendors,
suppliers, and customers;
Page 4 of 9
<PAGE> 5
5. Private telephone numbers, facsimile numbers and
e-mail's;
6. Customer/account lists/databases for business
contacts.
Confidential information shall not include any materials or information
to the extent that such materials or information are publicly known (through no
wrongful act of Executive) or generally utilized by others engaged in the same
business or activities as the Bank or were known by Executive but not as a
result of due to his employment hereunder. Failure to designate any Confidential
Information as "confidential" shall not affect its status as Confidential
Information under the terms of this Contract.
Executive agrees that during the term of his employment, Executive
shall not use or disclose any Trade Secrets or Confidential Information of the
Bank, except as an employee of the Bank and with the consent of the Bank.
11. Covenant Not to Solicit Bank's Customers: During Executive's
employment and in the event of termination, for whatever reason, for a period of
two (2) years thereafter Executive will not directly or indirectly, alone or in
association with or on behalf of any other person or entity, solicit, divert or
take away or attempt to solicit, divert or take away from Beach First National
Bank any of its customers or potential customers for any business purpose
similar to the Bank except in the course of performing duties assigned to him or
her by the Bank. "Customers" shall mean any person, firm, corporation or other
entity for which Bank has performed services during the three (3) year period
immediately preceding Executive's termination. "Potential customers" shall mean
any person, firm, corporation or other entry which Bank has solicited or
identified for solicitation during Executive's employment with Bank.
12. Covenant Not to Compete: For a period of two (2) years after
the termination of employment, if such termination is by the Bank for cause as
set out in Section 13 or by the Executive for any reason other than a material
breach of this Agreement by the Bank, Executive will not, directly or
indirectly, for himself or on behalf of, or in conjunction with, any other
person, persons, employer, partnership or corporation be engaged or be employed
in a similar business or venture as the Bank' business in which Executive was
employed by Bank within the County of Horry.
Executive acknowledges that the two (2) year restriction and the
geographical restriction are fair and reasonable for the protection of the Bank.
The restrictions do not impose any undue hardship and would not deprive
Executive of the ability to earn a livelihood.
13. Termination: The Bank shall have the right to terminate this
Agreement for cause if any of the following events occur and the Executive is
given not less than seven (7) days notice that the Bank proposes to terminate
for cause and the Executive is given the opportunity to
Page 5 of 9
<PAGE> 6
appear before the Board of Directors of the Bank and, if the event is curable,
the Executive is given a reasonable opportunity to cure:
1. The permanent disability of the Executive;
2. Executive's failure or refusal to comply with the
policies, standards and regulations of the Bank from
time to time established by the Board of Directors;
3. Executive's fraud, dishonesty or other misconduct in
the performance of his duties on behalf of the Bank;
4. The Executive is convicted of a felony or any other
crime involving fraud or dishonest, or any act of
misconduct which relates directly or indirectly to
the duties of the Executive;
5. A judgment is entered against Executive for:
embezzlement, fraud, breach of trust, theft,
violation of laws respecting controlled substances or
other misconduct which adversely affects the Bank or
the Executive's ability to perform his duties under
this Agreement and such judgment becomes final and
unappealable.
6. Any acts or conduct which amount to fraud,
dishonesty, willful misconduct, or unethical behavior
which adversely affects the Bank or the Executive's
ability to perform his duties under this Agreement;
7. Executive becomes bankrupt or insolvent;
8. Absenteeism not related to injury, illness, sickness
or permitted vacation.
14. Automatic Termination: The Bank has no obligation to provide
Executive notice more than once for any acts or matters for which Executive has
received any written warning or for which Executive has been provided an
opportunity to cure. In such event, termination can be automatic. Except for the
Bank's obligation to pay accrued benefits or salary earned, this Agreement shall
terminate upon the death of the Executive.
15. Arbitration: In the event of any controversy or claim arising
out of or relating to this Agreement, or the breach, termination or validity
thereof, the parties will attempt in good faith to resolve such controversy or
claim. If the matter has not been resolved within sixty (60) days of the
commencement of such discussions (which period may be extended by mutual
agreement), then the parties hereby agree to immediately submit the controversy
to binding arbitration. The arbitration shall be conducted by a single
arbitrator in accordance with the American Arbitration Association. Judgment
upon the award rendered by the arbitrator may be entered by a court having
jurisdiction thereof. Arbitration shall take place in Horry County,
Page 6 of 9
<PAGE> 7
South Carolina. Each of the parties shall use all reasonable efforts to insure
that any arbitration proceeding is completed with in sixty (60) days following
notice of a request for arbitration hereunder.
16. Board of Directors: The Bank will cause the Executive to be
elected to the Board of Directors of the Bank as a voting member and the
Executive shall serve thereon during his employ hereunder. The Bank will cause
the Executive to be a management nominee for election to the Bank's Board of
Directors during the term of this Agreement. Upon termination of Executive's
employment hereunder, Executive shall automatically resign any positions with
the Bank including Board membership.
17. Payment by the Bank: In the event that any payment required
under this Agreement would be considered a "golden parachute payment" under 12
C.F.R. ss.359.1, the Bank shall not be obligated to make such payment at such
time but shall defer making such payment until such time as the making of the
payment would not be considered to be a "golden parachute payment."
18. Continuation of Employment: Not later than eighteen (18)
months after the date of this Agreement the parties agree to meet and discuss in
good faith the continuation of the Executive's employment after the term of this
Agreement.
19. Governing Law: This Agreement shall be governed by and
construed with the laws of the State of South Carolina without regard to
conflicts of laws provisions thereof.
20. Prior Agreements: This Agreement supersedes any prior
agreements or understandings by and/or between the parties and constitutes the
entire agreement between the parties and may be modified only by a writing
signed by all of the parties hereto.
21. Notice: For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed duly given when delivered or mailed by the United States Certified or
Registered Mail, Return Receipt Requested, Postage Prepaid, addressed as
follows:
Beach First National Bank
1550 North Oak Street
Myrtle Beach, South Carolina 29577
Walt Standish
c/o Beach First National Bank
1550 North Oak Street
Myrtle Beach, South Carolina 29577
Page 7 of 9
<PAGE> 8
or to such other address as either party may have furnished the other in writing
in accordance herewith except that notices or chance of address shall be
effective only upon receipt.
IN WITNESS WHEREOF, Bank and the Executive have caused this instrument
to be executed on the date first above written.
Bank:
Beach First National Bancshares, Inc.
/s/ Katie Huntley By: /s/ Raymond E. Cleary III
- ------------------------------ --------------------------------------
/s/ Ann W. Jones Its: Chairman
- ------------------------------ --------------------------------------
Beach First National Bank
/s/ Katie Huntley By: /s/ Raymond E. Cleary III
- ------------------------------ ---------------------------------------
/s/ Ann W. Jones Its: Chairman
- ------------------------------ --------------------------------------
Executive:
/s/ Katie Huntley /s/ Walter E. Standish, III
- ------------------------------ ------------------------------------------
/s/ Ann W. Jones Walt Standish
- ------------------------------
Page 8 of 9
<PAGE> 9
STATE OF SOUTH CAROLINA )
) PROBATE
COUNTY OF HORRY )
PERSONALLY appeared before me the undersigned witness and made oath
that (s)he saw the within named Bank by its Chairman, Raymond E. Cleary, III
sign, seal and as its act and deed deliver the within written Agreement; and
that (s)he with the other witness subscribed above witnessed the execution
thereof.
/s/ Ann W. Jones
----------------------------
Ann W. Jones
SWORN to before me this 4th
day of March, 2000
Linda S. Dickinson (LS)
Notary Public for South Carolina
My Commission Expires: August 14, 2006
STATE OF SOUTH CAROLINA )
) PROBATE
COUNTY OF HORRY )
PERSONALLY appeared before me the undersigned witness and made oath
that (s)he saw the within named Walt Standish sign, seal and as his/her act and
deed deliver the within written Agreement; and that (s)he with the other witness
subscribed above witnessed the execution thereof.
/s/ Ann W. Jones
--------------------------
Ann W. Jones
SWORN to before me this 4th
day of March, 2000
Linda s. Dickinson (LS)
Notary Public for South Carolina
My Commission Expires: August 14, 2006
Page 9 of 9
<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders............................................................................................3
Selected Consolidated Financial Highlights........................................................................4
Business of the Company...........................................................................................5
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................................5-15
Market for Company's Common Equity and Related
Shareholder Matters..............................................................................................15
Report of Independent Accountants............................................................................16- 17
Consolidated Financial Statements.............................................................................18-34
Directors and Officers and Shareholder Information............................................................35-36
</TABLE>
<PAGE> 2
(BEACH FIRST NATIONAL BANK LOGO)
LETTER TO OUR SHAREHOLDERS
We are pleased to report that 1999 was a year of improved earnings and
increased growth for Beach First National Bancshares, Inc. We achieved our first
profitable year of operations while expanding our services and customer base
within the Grand Strand community.
The assets of our company increased to $46.2 million in 1999, up $8.2
million or 21.6% at year end year. Growth in deposits of $5.7 million in 1999
helped us to expand our lending activities. Net loans increased by $11.3 million
in 1999 and ended the year at $32.1 million. We continue to emphasize loan
quality in our credit decisions and have maintained excellent asset quality
standards.
Beach First National Bank received commendation from Bauer Financial
Reports, Inc. with a superior five-star rating for its 1999 performance - the
highest rating available. Bauer Financial Reports, Inc. ranks banks nationwide
by evaluating financial data which includes capital ratios, profitability/loss
trends, and liquidity. Five-star banks are considered safe, financially sound
and operate well above regulatory capital requirements.
1999 was not only a year of financial growth for our company, but
physical growth as well. We identified a site and signed a lease for our next
branch in November. The new branch will be located at the northwest corner of
the intersection of SC Highway 544 and US Highway 17 Bypass in Myrtle Beach.
This new facility will help fulfill Beach First National Bank's mission of
serving residents and businesses throughout the 50-mile corridor of the Grand
Strand.
The Year 2000 promises to be one of continued growth and profitability.
Under the leadership of a new President, Walter E. Standish, III, and with a
committed focus on customer service including the introduction of several new
banking products, we remain optimistic about the future prospects of your
company.
We extend our sincere thanks to the shareholders, directors, officers
and staff for their efforts in support of the company in 1999. We have set high
goals for Beach First National Bancshares, Inc. in the coming years, and working
together, we are confident of achieving them.
Raymond E. Cleary, III
Chairman of the Board and Chief Executive Officer
<PAGE> 3
BEACH FIRST NATIONAL BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Earnings:
<S> <C> <C> <C>
Net income (in thousands) $ 53 $ (233) $ (246)
Net income (loss) per share - basic $ 0.07 (0.32) (0.33)
Net income (loss) per share - diluted $ 0.06 (0.32) (0.33)
Year End Balances (in thousands):
Total assets $ 46,155 $ 37,945 $ 26,938
Loans (net of unearned income) 32,538 21,095 11,288
Deposits 36,836 31,135 20,072
Shareholders equity $ 6,313 $ 6,474 $ 6,711
Average Balances:
Total assets $ 40,798 $ 32,462 $ 19,281
Loans (net of unearned income) 26,975 15,704 6,144
Deposits 33,621 25,616 12,386
Shareholders equity $ 6,387 $ 6,599 $ 6,789
Selected Ratios:
Net interest margin 4.47% 3.90% 4.27%
Return on average assets 0.13% (0.72)% (1.28)%
Return on average equity 0.83% (3.53)% (3.63)%
</TABLE>
4
<PAGE> 4
BUSINESS OF THE COMPANY
Beach First National Bancshares, Inc. (the "Company") was organized
under the South Carolina Business Corporation Code on July 28, 1995, to serve as
a holding company for Beach First National Bank (the "Bank") upon its formation.
The Bank commenced business on September 23, 1996, as a national banking
association under the laws of the United States. The Bank is engaged in a
general commercial and retail banking business, emphasizing in its marketing the
Bank's local management and ownership, from its office in Myrtle Beach, South
Carolina. The products offered include commercial and retail checking accounts,
NOW accounts, money market accounts, and certificates of deposit. The Bank
offers commercial loans, real estate loans, and installment loans. It also acts
as an issuing agent for U.S. savings bonds, traveler's checks, money orders, and
cashier's checks, and it offers collection teller services, including wire
transfer services. The Bank also offers a night depository facility, safe
deposit boxes, and ATM service.
This discussion and analysis is intended to assist the reader in
understanding the financial condition and results of operations of Beach First
National Bancshares, Inc. and its subsidiary, Beach First National Bank. This
commentary should be read in conjunction with the consolidated financial
statements and the related notes and the other statistical information in this
report. The Bank completed its third full year of operations in 1999 and has
grown substantially since opening in September 1996. Comparisons of the
Company's results for the periods presented should be made with an understanding
of its short history.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EARNINGS REVIEW
The Company's net profit was $52,921, or $0.07 per common share, for
the year ended December 31, 1999 as compared to a loss of $233,183, or $0.32 per
common share, for the year ended December 31, 1998 and a loss of $246,389, or
$0.33 per common share, in 1997. The improvement in net income reflects the
Bank's continued strong growth trends, as average earning assets increased to
$37.6 million during 1999, a 28% increase from $29.4 million in 1998. The return
on average assets for 1999 was .13% compared to (.72)% in 1998 and (1.28)% in
1997; the return on average equity was .83% in 1999 versus (3.53)% in 1998 and
(3.63)% in 1997.
Net interest income increased to $1,682,151 in 1999 from $1,147,443 in
1998 and $727,172 in 1997. The growth in net interest income resulted from an
increase of $839,413 in interest income in 1999 and $1,059,031 in 1998.
Partially offsetting these were increases in interest expense of $304,706 in
1999 and $638,760 in 1998. The net interest spread was 3.25% in 1999 compared to
2.47% in 1998 and 1.97% in 1997. The net interest margin was 4.47% for the year
ended 1999 compared to 3.90% for the year ended 1998 and 4.27% for 1997.
The provision for loan losses was $154,168 in 1999, down from $272,500
in 1998 and $153,000 in 1997. The Company's allowance for loan losses as a
percentage of its period end loans was 1.26%, 1.25%, and 1.51% at December 31,
1999, 1998, and 1997 respectively. Net charge-offs totaled $8,505 in 1999
compared to $178,787 in 1998. There were no net charge-offs in 1997.
Non-interest income for 1999 was $154,931, compared to $137,128 in 1998
and $49,393 in 1997. This was due primarily to an increase in service fees on
deposit accounts resulting from a $5.7 million growth in deposits from December
31, 1998 to December 31, 1999.
Non-interest expense was $1,595,993 for 1999, compared to $1,316,254 in
1998 and $1,005,954 for 1997. The increases in non-interest expense reflect
increases in salaries, data processing fees and other expenses associated with
the growth of the Bank as well as the write down to market value of real estate
acquired in settlement of loans.
5
<PAGE> 5
NET INTEREST INCOME
The primary source of revenue for the Company is net interest income,
which is the difference between income on interest-bearing assets and interest
paid on deposits and borrowings used to support such assets. Net interest income
is determined by the rates earned on the Company's interest-earning assets and
the rates paid on its interest-bearing liabilities as well as the relative
amounts of interest-bearing assets and interest-bearing liabilities. Presented
below are various components of assets and liabilities, interest income and
expense, and yields/costs for the periods indicated.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1999 December 31, 1998
------------------------------------------- ------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 801,068 $ 43,459 5.43% $ 2,458,164 $ 133,807 5.44%
Investment securities 9,749,303 628,112 6.44% 11,205,990 722,708 6.45%
Loans 27,040,512 2,469,213 9.13% 15,747,900 1,444,855 9.17%
----------- ----------- ---------- ----------- ----------- ----------
Total earning assets $37,590,883 $ 3,140,784 8.36% $29,412,054 $ 2,301,370 7.82%
=========== =========== ========== =========== =========== ==========
Interest-bearing deposits $27,964,934 $ 1,427,691 5.11% $21,412,871 $ 1,139,311 5.32%
Other borrowings 594,934 30,942 5.20% 132,820 14,616 11.00%
----------- ----------- ---------- ----------- ----------- ----------
Total
interest-bearing
liabilities $28,559,868 $ 1,458,633 5.11% $21,545,691 $ 1,153,927 5.36%
=========== =========== ========== =========== =========== ==========
Net interest spread 3.25% 2.47%
Net interest income/margin $ 1,682,151 4.47% $ 1,147,443 3.90%
=========== =========== =========== ==========
</TABLE>
As reflected above, for 1999 the average yield on earning assets
amounted to 8.36%, while the average cost of interest-bearing liabilities was
5.11%. For 1998, the average yield on earning assets was 7.82% and the average
cost of interest-bearing liabilities was 5.36%. 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 $11.3 million was expected as the Bank continues to build
its customer base. The net interest margin is computed by subtracting interest
expense from interest income and dividing the resulting figure by average
interest-earning assets. The net interest margin for the period ended December
31, 1999 was 4.47% and for 1998 was 3.90%. This increase primarily resulted from
the $11.3 million or 72% increase in average outstanding loans. Partially
offsetting this increase in loans was a 31% increase in the level of interest
bearing deposits. In addition, the weighted average rates on earning assets
increased by 54 basis points while the rate on interest-bearing liabilities
decreased by 25 basis points. The increase in outstanding balances was predicted
since the Bank is expanding its core base of loans and deposits.
6
<PAGE> 6
The following table presents the changes in the Company's net interest
income as a result of changes in the volume and rate of its interest-earning
assets and interest-bearing liabilities. The change in net interest income is
primarily due to increases in the volume of both loans and deposits rather than
changes in average rates.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
---------------------------------------- ----------------------------------------
1999 versus 1998 1998 versus 1997
---------------------------------------- ----------------------------------------
Volume Rate Net change Volume Rate Net change
------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ (89,900) $ (448) $ (90,348) $ 10,009 $ 613 $ 10,622
Investment securities (93,849) (747) (94,596) 169,441 9,884 179,325
Loans 1,031,188 (6,830) 1,024,358 879,060 (9,976) 869,084
------------ ---------- ------------ ------------ ---------- ------------
Total earning assets 847,439 (8,025) 839,414 1,058,510 521 1,059,031
Interest-bearing deposits 334,502 (46,122) 288,380 625,985 (807) 625,178
Other borrowings 24,034 (7,708) 16,326 12,633 949 13,582
------------ ---------- ------------ ------------ ---------- ------------
Total interest-bearing
Liabilities 358,536 (53,830) 304,706 638,618 142 638,760
------------ ---------- ------------ ------------ ---------- ------------
Net interest income $ 488,903 $ 45,805 $ 534,708 $ 419,892 $ 379 $ 420,271
============ ========== ============ ============ ========== ============
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $154,168 in 1999 compared to $272,500
in 1998 and $153,000 in 1997. The Company decreased the 1999 provision due to
the reduction in the level of net charge-offs. Management anticipates loan
growth will continue to be strong in 2000 which may require an increase in the
amount of the provision for loan losses. See also "Allowance for Possible Loan
Losses" below.
NONINTEREST INCOME
Noninterest income increased to $154,931 in 1999 from $137,128 in 1998
and $49,393 in 1997. Service fees on deposit accounts, the largest component of
noninterest income, increased from $128,059 in 1998 to $157,988 in 1999. Other
income increased to $29,645 in 1999 from $21,536 in 1998. Both of these
categories of noninterest income increased due to the 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 $32,702 in 1999 from
$12,467 in 1998. 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 to $1,595,993 for the period ended
December 31, 1999 from $1,316,254 and $1,005,954 for the same periods of 1998
and 1997. The increase in noninterest expense reflects an increase in most
expense categories as a result of the growth of the Company to $46.2 million in
assets at the end of 1999 from $37.9 million at the end of 1998. Salary and
wages expense totaled $725,410 in 1999, $566,706 in 1998, and $445,896 in 1997.
Employee benefits were $66,292 in 1999, $48,230 in 1998 and $35,456 in 1997.
These increases reflected an increase in the number of full-time equivalent
employees to 18 at the end of 1999 from 14 at the end of 1998 and 13 at the end
of 1997. Additional staff was hired to support the internal growth in loans and
deposits. Management does not
7
<PAGE> 7
anticipate any significant additions to staff during the next 12 months, but the
amount of employee salaries and benefits expense will nevertheless increase in
2000 as a result of the severance payments payable to Mr. Horn. Professional
fees were $134,466 for the year ended December 31, 1999 compared to $148,487 for
1998 and $98,644 for 1997. The 1998 figure includes costs associated with the
Bank's Year 2000 project. Also included in the category are collection costs in
the amount of $35,000 in 1999, $50,000 in 1998 and $62,000 in 1997 which are
related to the kiting operation discussed in Note 7 to the financial statements.
Depreciation and amortization increased to $197,986 from $194,114 in
1998 and $134,903 in 1997. The increase in 1998 was directly related to the
completion of the new main office facility in June 1997 and the purchase of
additional furniture, equipment and computer hardware and software. The increase
in the category of other operating expenses to $292,473 in 1999 from $191,084 in
1998 and $141,716 in 1997 was principally due to an increase in operating
expenses related to the new main office building, writedown to market value of
real estate acquired in settlement of loans, and other expenses associated with
the expansion of loan and deposits.
BALANCE SHEET REVIEW
INVESTMENT SECURITIES
At December 31, 1999 and December 31, 1998, the Company's investment
securities portfolio was a significant component of the Company's total earning
assets. Investment securities represented 20.1% of total assets at December 31,
1999 versus 30.3% of total assets at December 31, 1998 and 40.4% of total assets
at December 31, 1997. Investment securities averaged $9.7 million in 1999 and
totaled $9.3 million at December 31, 1999. In 1998, investment securities
averaged $11.2 million and totaled $11.5 million at December 31, 1998. At
December 31, 1999, the Company's total investment securities portfolio had a
book value of $9,603,065 and a market value of $9,283,159 for an unrealized net
loss of $319,906. The Company primarily invests in U.S. Government Agency
mortgage-backed securities.
Contractual maturities and yields on the Company's investment
securities (all available for sale) at December 31, 1999 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
DECEMBER 31, 1999
<TABLE>
<CAPTION>
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 -- --% -- --% 462,585 7.00% -- --%
Mortgage-backed -- --% -- --% -- --% 8,837,430 6.31%
Other -- --% -- --% -- --% 303,050 6.61%
------- ----- ------- ----- --------- ---- ---------- ----
Total $ -- --% $ -- --% $ 462,585 7.00% $9,140,480 6.32%
======= ===== ======= ===== ========= ==== ========== ====
</TABLE>
At December 31, 1999, there were no short-term investments. At December
31, 1998, short term investments totaled $2,250,000. These funds are one source
of the Bank's liquidity and are generally invested in an earning capacity on an
overnight basis.
8
<PAGE> 8
LOANS
At December 31, 1999, net loans (gross loans less the allowance for
loan losses) totaled $32.1 million, an increase of $11.3 million from December
31, 1998. Average gross loans increased from $15.8 million with a yield of 9.17%
in 1998 to $27.0 million with a yield of 9.13% in 1999. The interest rates
charged on loans vary with the degree of risk and the maturity and amount of the
loan. Competitive pressures, money market rates, availability of funds, and
government regulations also influence interest rates.
Since loans typically provide higher yields than other types of earning
assets, one of the Bank's goals is for loans to represent the largest category
of earning assets. Much progress was made in the effort during 1999 as loans
ended the year at 77.8% of earning assets, versus 60.5% at the end of 1998.
The following table shows the composition of the loan portfolio by
category at December 31, 1999 and 1998.
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Commercial $ 5,914,549 18.2% $ 4,912,666 23.3%
Real estate - construction 3,357,946 10.3% 1,432,612 6.8%
Real estate - mortgage 19,015,339 58.4% 11,033,354 52.3%
Consumer 4,250,158 13.1% 3,716,924 17.6%
----------- ----- ----------- -----
Loans, gross 32,537,992 100.0% 21,095,556 100.0%
===== =====
Allowance for possible loan losses (408,878) (263,215)
----------- -----------
Loans, net $32,129,114 $20,832,341
=========== ===========
</TABLE>
The principal component of the Company's loan portfolio at year end
1999 and 1998 was mortgage loans, which represented 58.4% and 52.3% of the
portfolio respectively. In the context of this discussion, a "real estate
mortgage loan" is defined as any loan, other than loans for construction
purposes, secured by real estate, regardless of the purpose of the loan. The
Company follows the common practice of financial institutions in the Company's
market area of obtaining a security interest in real estate whenever possible,
in addition to any other available collateral. This collateral is taken to
reinforce the likelihood of the ultimate repayment of the loan and tends to
increase the magnitude of the real estate loan portfolio component. Generally,
the Company limits its loan-to-value ratio to 80%. Due to the short time the
portfolio has existed, the current mix may not be indicative of the ongoing
portfolio mix. Management attempts to maintain a relatively diversified loan
portfolio to help reduce the risk inherent in concentrations of collateral.
9
<PAGE> 9
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 December 31, 1999.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
One year or After one but After five
less Within five years years Total
------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Commercial $ 2,205,560 $ 3,248,547 $ 161,852 $ 5,615,959
Real estate 1,745,518 15,408,353 2,147,741 19,301,612
Construction 2,575,349 819,343 -- 3,394,692
Consumer 1,488,502 2,360,741 458,412 4,307,655
------------ ------------ ------------ ------------
Total $ 8,014,929 $ 21,836,984 $ 2,768,005 $ 32,619,918
============ ============ ============ ============
Fixed Interest Rate $ 3,115,593 $ 21,152,842 $ 2,455,129 $ 26,723,564
Variable Interest Rate 4,899,336 684,142 312,876 5,896,354
------------ ------------ ------------ ------------
Total $ 8,014,929 $ 21,836,984 $ 2,768,005 $ 32,619,918
============ ============ ============ ============
</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 the balance of impaired loans, changes in the
nature and volume of the loan portfolio, current economic 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
loan 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 December 31, 1999, the allowance for possible loan losses was
408,878, or 1.26% of outstanding loans, compared to an allowance for possible
loans losses of $263,215, or 1.25% of
10
<PAGE> 10
outstanding loans at December 31, 1998. In 1999, the Bank had net charge-offs of
$8,505 compared to net chargeoffs of $178,787 in 1998. There were no
non-performing loans at the end of 1999 or 1998.
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1999 1998 1997
------------- ---------- ------------
<S> <C> <C> <C>
Average loans outstanding $ 27,041 $ 15,748 $ 6,167
Loans outstanding at period end 32,538 21,095 11,288
Total nonperforming loans 0 0 0
Beginning balance of allowance 264 170 17
Loans charged off (9) (180) 0
Total recoveries 0 1 0
------------- ---------- ------------
Net loans charged off (9) (179) 0
Provision for loan losses 154 273 153
------------- ---------- ------------
Balance at period end 409 264 170
============= ========== ============
Net charge-offs to average loans .03% 1.14% --%
Allowance as a percent of total loans 1.26% 1.25% 1.51%
Nonperforming loans as a
percentage of total loans -- -- --
Allowance as a percent of
nonperforming loans -- -- --
</TABLE>
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average total deposits were $33.6 million and average interest-bearing
deposits were $28.0 million in 1999. Average total deposits were $25.6 million
and average interest-bearing deposits were $21.4 million in 1998. The following
table sets forth the deposits of the Company by category as of December 31, 1999
and December 31, 1998.
DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
Percent of Percent of
Amount Deposits Amount Deposits
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Demand deposit accounts $ 5,864,480 15.9% $ 5,199,610 16.7%
NOW accounts 1,412,808 3.8% 1,180,514 3.8%
Money market accounts 4,045,269 11.0% 3,317,331 10.7%
Savings accounts 4,512,060 12.2% 4,645,653 14.9%
Time deposits less than $100,000 14,327,578 39.0% 11,678,302 37.5%
Time deposits of $100,000 or over 6,673,825 18.1% 5,113,633 16.4%
----------- ---------- ---------- ----------
Total deposits $36,836,020 100.0% $31,135,042 100.0%
=========== ========== ========== ==========
</TABLE>
Internal growth, resulting primarily from special promotions and
increased customer convenience of the Bank's new office facility opened in 1997,
generated the new deposits.
11
<PAGE> 11
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 $30,162,195
at December 31, 1999 compared to $26,021,410 at December 31, 1998. A stable base
of deposits is expected to be the Company's primary source of funding to meet
both its short-term and long-term liquidity needs in the future. Core deposits
as a percentage of total deposits were approximately 82% at December 31, 1999
and 84% at December 31, 1997. The Company's loan-to-deposit ratio was 88.3% at
December 31, 1999 versus 67.8% at December 31, 1998. The average loan-to-deposit
ratio was 80.4% during 1999 and 61.5% during 1998.
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 December 31, 1999.
ANALYSIS OF CAPITAL
DECEMBER 31, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Required Actual Excess
-------- ------ ------
Amount % Amount % Amount %
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
The Bank:
Tier 1 risk-based capital 1,363 4.00% 5,623 16.5% 4,260 12.5%
Total risk-based capital 2,726 8.00% 6,032 17.7% 3,306 9.7%
Tier 1 leverage 1,771 4.00% 5,623 12.7% 3,852 8.7%
</TABLE>
A condition of the original offering was that a minimum of 525,000
shares must be sold. There were a total of 735,868 shares sold during the
offering period with net proceeds after offering expenses of $7,212,349, and
$6,300,000 of this amount was used to capitalize the Bank. The Company believes
that this amount is sufficient to fund the activities of the Bank in its initial
stages of operations, and that the Bank will generate sufficient income from
operations to fund its activities on an on-going basis. The remaining offering
proceeds are being used to provide working capital, including additional capital
for investment in the Bank, if needed.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Primary sources of liquidity for the Company are a stable base of
deposits, scheduled repayments on the Company's loans, and interest on and
maturities of its investments. All securities of the Company have been
classified as available-for-sale. Occasionally, the Company might sell
investment securities in connection with the management of its interest
sensitivity gap or to manage cash availability. The Company may also utilize its
cash and due from banks, security repurchase agreements, and federal funds sold
to meet liquidity requirements as needed. In addition, the Company has the
ability, on a short-term basis, to purchase federal funds from other financial
institutions.
12
<PAGE> 12
Presently, the Company has made arrangements with commercial banks
for short-term unsecured advances of up to $3,000,000. The Company believes that
its liquidity and ability to manage assets will be sufficient to meet its cash
requirements over the near term.
The Company monitors and manages the pricing and maturity of its assets
and liabilities in order to lessen the potential impact that interest rate
movements could have on its net interest margin. To minimize the effect of these
margin swings, the balance sheet should be structured so that repricing
opportunities exist for both assets and liabilities in roughly equivalent
amounts at approximately the same time intervals Imbalances in these pricing
opportunities at any point in time constitute interest rate risk.
Interest rate sensitivity refers to the responsiveness of
interest-bearing assets and liabilities to changes in market interest rates. The
rate sensitive position, or gap, is the difference in the volume of rate
sensitive assets and liabilities at any given time interval. Management
generally attempts to maintain a balance between rate sensitive assets and
liabilities to minimize the company's interest rate risks. Interest rate
sensitivity can be managed by repricing assets or liabilities, selling
securities available-for-sale, replacing an asset or liability at maturity, or
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 year end 1999 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
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Within After three but After one but After
three within twelve Within five Five
months months years Years Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Federal Funds sold $ -- $ -- $ -- $ -- $ --
Investment securities -- 2,630,803 -- 6,652,357 9,283,159
Loans 7,475,837 1,499,362 21,107,664 2,455,129 32,537,992
------------ ------------ ------------ ------------ ------------
Total earning assets $ 7,475,837 $ 4,130,165 $ 21,107,664 $ 9,107,486 $ 41,821,151
============ ============ ============ ============ ============
LIABILITIES
Interest-bearing liabilities
Money market and NOW $ 5,458,077 $ -- $ -- $ -- $ 5,458,077
Regular savings deposits 399,608 -- -- -- 399,608
Prime savings deposits 4,112,452 -- -- -- 4,112,452
Time deposits 3,475,171 9,522,208 8,004,024 -- 21,001,403
Other borrowings 920,000 -- -- 1,900,000 2,820,000
------------ ------------ ------------ ------------ ------------
Total interest-bearing
liabilities $ 14,365,308 $ 9,522,208 $ 8,004,024 $ 1,900,000 $ 33,791,540
============ ============ ============ ============ ============
Period gap $ (6,889,471) $ (5,392,043) $ 13,103,640 $ 7,207,486 $ 8,029,611
Cumulative gap $ (6,889,471) $(12,281,514) $ 822,126 $ 8,029,611 $ 8,029,611
Ratio of cumulative gap to
total earning assets (16.47)% (29.37)% 1.97% 19.20%
</TABLE>
The Company generally would benefit from increasing market rates of
interest when it has an asset sensitive gap and generally would benefit from
decreasing market rates of interest when it is
13
<PAGE> 13
liability sensitive. The Company currently is liability sensitive in time frames
less than one year and asset sensitive after that. However, the Company's gap
analysis is not a precise indicator of its interest sensitivity position. The
analysis presents only a static view of the timing of maturities and repricing
opportunities, without taking into consideration that changes in interest rates
do not affect all assets and liabilities equally. Net interest income is also
impacted by other significant factors, including changes in the volume and mix
of earning assets and interest-bearing liabilities.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company and the Bank are primarily monetary
in nature. Therefore, interest rates have a more significant impact on the
Company's performance than do the effects of changes in the general rate of
inflation and changes in prices. In addition, interest rates do not necessarily
move in the same magnitude as the prices of goods and services. As discussed
previously, management seeks to manage the relationships between interest
sensitive assets and liabilities in order to protect against wide rate
fluctuations, including those resulting from inflation.
INDUSTRY DEVELOPMENTS
Proposed legislation could have an effect on both the costs of doing
business and the competitive factors facing the financial services industry. Due
to continued changes in the regulatory environment, additional legislation
related to the banking industry is likely to continue. The Company cannot
predict whether any of these proposals will be adopted or, if adopted, how these
proposals would affect the Company.
YEAR 2000 ISSUES
Like many financial institutions, we rely on computers to conduct our
business and information systems processing. Industry experts were concerned
that on January 1, 2000, some computers would not be able to interpret the new
year properly, causing computer malfunctions. Although this did not happen, some
experts remain concerned that computer malfunctions may occur on other key dates
during 2000, such as October 10, 2000.
In accordance with bank regulatory guidelines, we developed and
executed a plan to ensure that our computer and telecommunication systems do not
have these Year 2000 problems. We rely on third party vendors to supply our
computer and telecommunication systems and other office equipment, and to
process our data and account information. Because we commenced operations in
1996, we had the ability to choose vendors which we believed to be ready for the
Year 2000. Our Year 2000 plan extends to all of our vendors, including our
vendors for core data processing system, ATM hardware, account origination
software, telephone systems, and suppliers of office equipment, such as copy and
fax machines. Under our plan, we reviewed the test results, assurances, and
warranties of all of these vendors, and we believe that all these systems are
Year 2000 compliant. Our technology and processing vendors work with many other
financial institutions, all of which, like us, are required by their bank
regulators to be Year 2000 compliant. Because our systems are substantially
similar to those used in many other banks, we believe that the scrutiny imposed
by our regulatory and the banking industry in general have significantly reduced
the Year 2000 related risks we might otherwise have faced.
We incurred approximately $26,000 in costs in 1999 to implement our
Year 2000 plan. Under our plan, we will continue to monitor the situation
throughout 2000. We are executing this plan under the supervision of our chief
financial officer and assistant vice president of operations, with oversight
from our board of directors.
Our agreements with each of our primary vendors include contractual
assurances and warranties regarding Year 2000 compliance. Some of these
warranties are limited by disclaimers of liability which
14
<PAGE> 14
specifically exclude special, incidental, indirect, and consequential damages.
These limitations could limit our ability to obtain recourse against a vendor
who is not Year 2000 compliant by excluding damages for things such as lost
profits and customer lawsuits.
We have also evaluated our worst case scenario and developed
contingency plans in case Year 2000 issues do arise. In the worst case, our
systems would be down for a period of time and we would be required to complete
all transactions and keep all records manually. We will have all required forms
and procedures in place for manual processing, and believe we can do this for at
least a week without serious disruption of our business. We do not believe we
will encounter any issues that cannot be resolved within this period. Any
affected systems which cannot be fixed will be replaced with alternatives,
although this is unlikely to be necessary.
The Year 2000 issue may also negatively affect the business of our
customers, but to date we are not aware of any material Year 2000 issues
affecting them. We include Year 2000 readiness in our lending criteria to
minimize risk. However, this will not eliminate the issue, and any financial
difficulties our customers' experience caused by Year 2000 issues could impair
their ability to repay loans to the bank.
We did not have any significant Year 2000 problems on January 1, 2000,
and we do not expect to experience any significant Year 2000 problems. We also
believe that we will be able to continue to operate the business if one or more
of our vendors experience unanticipated Year 2000 problems.
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's articles of incorporation authorize it to issue up to
10,000,000 shares of Common Stock, of which 735,868, for a total of $7,358,680,
were sold in the initial public offering and are outstanding as of March 12,
1999. As of March 10, 2000, the Company had 928 shareholders of record. There is
no established trading market in the Common Stock, and one is not expected to
develop in the near future.
All outstanding shares of Common Stock of the Company are entitled to
share equally in dividends from funds legally available therefor, when, as and
if declared by the Board of Directors. The Company does not plan to declare any
dividends in the immediate future.
15
<PAGE> 15
BEACH FIRST NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
16
<PAGE> 16
(LOGO)
ELLIOTT, DAVIS & COMPANY, L.L.P.
Certified Public Accounts
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
BEACH FIRST NATIONAL BANCSHARES, INC.
Myrtle Beach, South Carolina
We have audited the accompanying consolidated balance sheets of BEACH
FIRST NATIONAL BANCSHARES, INC. (the `Company") AND SUBSIDIARY as of December
31, 1999 and 1998 and the related consolidated statements of operations, changes
in shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY at December 31, 1999 and
1998 and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ Elliott, Davis & Company, LLP
Elliott, Davis & Company, LLP
Greenville, South Carolina
February 10, 2000
Internationally -- Moore Stephens Elliott Davis, LLC
870 S. PLEASANTBURG DRIVE POST OFFICE BOX 6286
GREENVILLE, SOUTH CAROLINA 29606-6286
TELEPHONE (864) 242-3370 TELEFAX (864) 232-7161
17
<PAGE> 17
BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,516,526 $ 970,349
Federal funds sold -- 2,250,000
Investment securities 9,283,159 11,524,689
Loans, net 32,129,114 20,832,341
Property and equipment, net 1,446,424 1,530,005
Real estate acquired in settlement of loans 99,820 288,074
Other assets 680,352 549,164
------------- -------------
Total assets $ 46,155,395 $ 37,944,622
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest bearing $ 5,864,480 $ 5,199,610
Interest bearing 30,971,540 25,935,432
------------- -------------
Total deposits 36,836,020 31,135,042
Other liabilities
Federal Home Loan Bank advances 1,900,000 --
Federal funds purchased 920,000 --
Other 186,062 335,924
------------- -------------
Total liabilities 39,842,082 31,470,966
------------- -------------
COMMITMENTS AND CONTINGENCIES - Notes 7, 9 and 13
SHAREHOLDERS' EQUITY
Common stock, $1 par value, 10,000,000 shares authorized,
735,868 shares issued 735,868 735,868
Paid-in capital 6,476,481 6,476,481
Retained deficit (687,898) (740,819)
Accumulated other comprehensive income (loss) (211,138) 2,126
------------- -------------
Total shareholders' equity 6,313,313 6,473,656
------------- -------------
Total liabilities and shareholders' equity $ 46,155,395 $ 37,944,622
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
18
<PAGE> 18
BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $ 2,469,213 $ 1,444,855 $ 575,771
Investment securities 628,112 722,708 543,383
Federal funds sold 43,459 133,807 123,185
------------ ------------ ------------
Total interest income 3,140,784 2,301,370 1,242,339
INTEREST EXPENSE
Deposits and borrowings 1,458,633 1,153,927 515,167
------------ ------------ ------------
Net interest income 1,682,151 1,147,443 727,172
PROVISION FOR POSSIBLE LOAN LOSSES 154,168 272,500 153,000
------------ ------------ ------------
Net interest income after provision for possible
loan losses 1,527,983 874,943 574,172
------------ ------------ ------------
NONINTEREST INCOME
Service fees on deposit accounts 157,988 128,059 26,779
Gain (loss) on sale of investment securities (32,702) (12,467) 4,887
Gain on sale of equipment -- -- 1,660
Other income 29,645 21,536 16,067
------------ ------------ ------------
Total noninterest income 154,931 137,128 49,393
------------ ------------ ------------
NONINTEREST EXPENSES
Salaries and wages 725,410 566,706 445,896
Employee benefits 66,292 48,230 35,455
Supplies and printing 36,595 52,265 46,509
Advertising and public relations 23,126 30,855 51,227
Professional fees 134,466 148,487 98,644
Depreciation and amortization 197,986 194,114 134,903
Occupancy 49,268 37,565 31,694
Data processing fees 70,805 46,948 19,910
Other operating expenses 292,045 191,084 141,716
------------ ------------ ------------
Total noninterest expenses 1,595,993 1,316,254 1,005,954
Income (loss) before income taxes 86,921 (304,183) (382,389)
------------ ------------ ------------
INCOME TAX EXPENSE (BENEFIT) 34,000 (71,000) (136,000)
------------ ------------ ------------
Net income (loss) $ 52,921 $ (233,183) $ (246,389)
============ ============ ============
BASIC NET INCOME (LOSS) PER COMMON SHARE $ .07 $ (.32) $ (.33)
============ ============ ============
DILUTED NET INCOME (LOSS) PER COMMON
SHARE $ .06 $ (.32) $ (.33)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 19
BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 52,921 $ (233,183) $ (246,389)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Deferred income taxes 31,000 (71,000) (136,000)
Provisions for loan losses 154,168 272,500 153,000
Depreciation and amortization 197,986 194,114 134,903
Writedown on real estate acquired in settlement of loans 61,192 -- --
Loss (gain) on sale of investment securities 32,702 12,467 (4,887)
Gain on sale of equipment -- -- (1,660)
Increase in other assets (214,980) (120,152) (192,903)
Increase in other liabilities 120,172 22,012 70,206
------------ ------------ ------------
Net cash provided by (used in) operating activities 435,161 76,758 (223,730)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of investment securities (2,790,691) (11,235,042) (10,928,847)
Proceeds from sale of investment securities 4,678,226 10,576,918 5,130,898
Decrease (increase) in Federal funds sold 2,250,000 (1,040,000) 1,350,000
Increase in loans, net (11,450,941) (9,986,237) (10,193,707)
Purchase of premises and equipment (96,556) (24,213) (1,331,589)
Proceeds from sale of equipment -- -- 8,825
------------ ------------ ------------
Net cash used in investing activities (7,409,962) (11,708,574) (15,964,420)
------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from Federal Home Loan Bank advances 1,900,000 -- --
Increase in Federal funds purchased 920,000 -- --
Net increase in deposits 5,700,978 11,063,121 17,054,265
------------ ------------ ------------
Net cash provided by financing activities 8,520,978 11,063,121 17,054,265
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,546,177 (568,695) 866,115
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 970,349 1,539,044 672,929
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR $ 2,516,526 $ 970,349 $ 1,539,044
============ ============ ============
CASH PAID FOR
Income taxes $ 1,000 $ -- $ --
============ ============ ============
Interest $ 1,447,576 $ 1,147,103 $ 477,725
============ ============ ============
SCHEDULE OF NONCASH INVESTING ACTIVITY
Real estate acquired in settlement of loans $ -- $ 288,074 $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 20
BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
BEACH FIRST NATIONAL BANCSHARES, INC. (the "Company") was incorporated
July 28, 1995 under the laws of the State of South Carolina for the purpose of
operating as a bank holding company with respect to a then proposed de novo
bank, Beach First National Bank (the "Bank"). During 1997, the Company obtained
regulatory approval to operate a national bank and opened for business on
September 23, 1997. The Bank provides full commercial banking services to
customers and is subject to regulation by the Office of the Comptroller of the
Currency (OCC) and the Federal Deposit Insurance Corporation. The Company is
subject to regulation by the Federal Reserve Board.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and the Bank. All significant intercompany accounts and transactions have
been eliminated in consolidation. The accounting and reporting policies of
the Company conform to generally accepted accounting principles and to
general practices in the banking industry. The Company uses the accrual
basis of accounting.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
consolidated financial statements and the reported amount of income and
expenses during the reporting periods. Actual results could differ from
those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company, through its subsidiary makes loans to individuals and
businesses in and around Horry County for various personal and commercial
purposes. The Company has a diversified loan portfolio and the borrowers'
ability to repay their loans is not dependent upon any specific economic
sector.
INVESTMENT SECURITIES
The Company accounts for investment securities in accordance with Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The statement requires
investments in equity and debt securities to be classified into three
categories:
1. Available for sale: These are securities which are not classified
as either held to maturity or as trading securities. These securities
are reported at fair market value. Unrealized gains and losses are
reported, net of income taxes, as separate components of shareholders'
equity (accumulated other comprehensive income (loss).
2. Held to maturity: These are investment securities which the Company
has the ability and intent to hold until maturity. These securities
are stated at cost, adjusted for amortization of premiums and the
accretion of discounts. The Company has no held to maturity
securities.
3. Trading: These are securities which are bought and held principally for
the purpose of selling in the near future. Trading securities are
reported at fair market value, and related unrealized gains and losses
are recognized in the statement of operations. The Company has no
trading securities.
21
<PAGE> 21
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
LOANS, INTEREST AND FEE INCOME ON LOANS
Loans are stated at the principal balance outstanding. Unearned discount,
unamortized loan fees and the allowance for possible loan losses are
deducted from total loans in the balance sheet. Interest income is
recognized over the term of the loan based on the principal amount
outstanding. Points on real estate loans are taken into income to the
extent they represent the direct cost of initiating a loan. The amount in
excess of direct costs is deferred and amortized over the expected life of
the loan.
Loans are generally placed on non-accrual status when principal or interest
becomes ninety days past due, or when payment in full is not anticipated.
When a loan is placed on non-accrual status, interest accrued but not
received is generally reversed against interest income. If collectibility
is in doubt, cash receipts on non-accrual loans are not recorded as
interest income, but are used to reduce principal.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses charged to operating expenses
reflects the amount deemed appropriate by management to establish an
adequate reserve to meet the present and foreseeable risk characteristics
of the current loan portfolio. Management's judgement is based on periodic
and regular evaluation of individual loans, the overall risk
characteristics of the various portfolio segments, past experience with
losses and prevailing and anticipated economic conditions. Loans which are
determined to be uncollectible are charged against the allowance.
Provisions for loan losses and recoveries on loans previously charged off
are added to the allowance.
The Company accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard requires
that all lenders value loans at the loan's fair value if it is probable
that the lender will be unable to collect all amounts due according to the
terms of the loan agreement. Fair value may be determined based upon the
present value of expected cash flows, market price of the loan, if
available, or value of the underlying collateral. Expected cash flows are
required to be discounted at the loan's effective interest rate. SFAS No.
114 was amended by SFAS No. 118 to allow a lender to use existing methods
for recognizing interest income on an impaired loan and by requiring
additional disclosures about how a creditor recognizes interest income on
an impaired loan.
Under SFAS No. 114, as amended by SFAS No. 118, when the ultimate
collectibility of an impaired loan's principal is in doubt, wholly or
partially, all cash receipts are applied to principal. When this doubt does
not exist, cash receipts are applied under the contractual terms of the
loan agreement first to principal then to interest income. Once the
reported principal balance has been reduced to zero, future cash receipts
are applied to interest income, to the extent that any interest has been
foregone. Further cash receipts are recorded as recoveries of any amounts
previously charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring. For these accruing impaired loans, cash receipts are
typically applied to principal and interest receivable in accordance with
the terms of the restructured loan agreement. Interest income is recognized
on these loans using the accrual method of accounting. As of December 31,
1999 and 1998, the Company had no impaired loans.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired through foreclosure is initially recorded at the lower
of cost or estimated fair value. Subsequent to the date of acquisition, it
is carried at the lower of cost or fair value, adjusted for net selling
costs. Fair values of real estate owned are reviewed regularly and
writedowns are recorded when it is determined that the carrying value of
real estate exceeds the fair value less estimated costs to sell. Costs
relating to the development and improvement of such property are
capitalized, whereas those costs relating to holding the property are
charged to expense.
22
<PAGE> 22
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
PROPERTY AND EQUIPMENT
Furniture and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets. Maintenance and repairs
are charged to operations, while major improvements are capitalized. Upon
retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts, and gain or
loss is included in income from operations.
INCOME TAXES
The consolidated financial statements have been prepared on the accrual
basis. When income and expenses are recognized in different periods for
financial reporting purposes and for purposes of computing income taxes
currently payable, deferred taxes are provided on such temporary
differences. The Company accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes". Under SFAS 109, deferred tax assets
and liabilities are recognized for the expected future tax consequences of
events that have been recognized in the consolidated financial statements
or tax return. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be realized or settled.
ADVERTISING AND PUBLIC RELATIONS EXPENSE
Advertising, promotional and other business development costs are generally
expensed as incurred. External costs incurred in producing media
advertising are expensed the first time the advertising takes place.
External costs relating to direct mailing costs are expensed in the period
in which the direct mailings are sent.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents are defined
as those amounts included in the balance sheet caption "Cash and Due From
Banks". Cash and cash equivalents have an original maturity of three months
or less.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform to
the current year presentation. Such changes had no effect on previously
reported net loss or shareholders' equity.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
All derivatives are to be measured at fair market value and recognized in
the balance sheet as assets or liabilities. This statement's effective date
was delayed by the issuance of SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS
No. 133," and is effective for fiscal years and quarters beginning after
June 15, 2000. The Company does not expect that the adoption of SFAS No.
137 will have a material impact on the presentation of the Company's
financial results or financial position.
Accounting standards that have been proposed or issued by standard-setting
groups that do not require adoption until a future date will have no
material impact on the financial statements upon adoption.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances, computed
by applying prescribed percentages to its various types of deposits, either at
the bank or on deposit with the Federal Reserve Bank. At December 31, 1999 and
1998 these required reserves were met by vault cash.
23
<PAGE> 23
NOTE 3 - INVESTMENT SECURITIES
The amortized costs and fair value of investment securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------------
GROSS UNREALIZED
AMORTIZED ------------------------------- FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Federal agencies $ 462,585 $ -- $ 10,528 $ 452,057
Mortgage-backed 8,837,430 -- 309,378 8,528,052
Federal Reserve Bank (FRB) stock - restricted 190,850 -- -- 190,850
Federal Home Loan Bank (FHLB) stock - restricted 112,200 -- -- 112,200
----------- ----------- ----------- -----------
Total securities $ 9,603,065 $ -- $ 319,906 $ 9,283,159
=========== =========== =========== ===========
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal agencies $ 1,596,849 $ 8,049 $ -- $ 1,604,898
Mortgage-backed 9,732,507 -- 3,566 9,728,941
FRB stock - restricted 190,850 -- -- 190,850
----------- ----------- ----------- -----------
Total securities $11,520,206 $ 8,049 $ 3,566 $11,524,689
=========== =========== =========== ===========
</TABLE>
The amortized costs and fair values of investment securities at
December 31, 1999, by contractual maturity, are shown in the following chart.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
-------------- --------------
<S> <C> <C>
Due after five through ten years $ 462,585 $ 452,057
Due after ten years 8,837,430 8,528,052
FRB stock (no maturity) 190,850 190,850
FHLB stock (no maturity) 112,200 112,200
-------------- --------------
Total investment securities $ 9,603,065 $ 9,283,159
============== ==============
</TABLE>
During 1999, 1998 and 1997 gross proceeds from the sale of investment
securities was $4,678,226, $10,576,918 and $5,130,898, respectively. Net losses
from the sale of investment securities in 1999 and 1998 were $32,702 and
$12,467, respectively, and net gains in 1997 were $4,887. As of December 31,
1999 and 1998, there were no securities pledged as collateral for public funds.
24
<PAGE> 24
NOTE 4 - LOANS
The composition of net loans by major loan category is presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Commercial $ 5,914,549 $ 4,912,666
Real estate - construction 3,357,946 1,432,612
Real estate - mortgage 19,015,339 11,033,354
Consumer 4,250,158 3,716,924
------------- -------------
Loans, gross 32,537,992 21,095,556
Less allowance for possible loan losses (408,878) (263,215)
------------- -------------
Loans, net $ 32,129,114 $ 20,832,341
============= =============
</TABLE>
At December 31, 1999 and 1998, there were no nonaccruing loans.
NOTE 5 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is available to absorb future
loan charge-offs. The allowance is increased by provisions charged to operating
expenses and by recoveries of loans which were previously written-off. The
allowance is decreased by the aggregate loan balances, if any, which were deemed
uncollectible during the year.
Activity within the allowance for possible loan losses account
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Balance, beginning of year $ 263,215 $ 169,502 $ 16,502
Recoveries of loans previously charged against the allowance -- 1,499 --
Provision for loan losses 154,168 272,500 153,000
Loans charged against the allowance (8,505) (180,286) --
------------ ------------ ------------
Balance, end of year $ 408,878 $ 263,215 $ 169,502
============ ============ ============
</TABLE>
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Components of property and equipment included in the consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Land $ 218,608 $ 218,608
Buildings and improvements 994,339 994,339
Furniture and equipment 610,842 534,378
Software 104,819 84,728
------------- ------------
1,928,608 1,832,053
Accumulated depreciation (482,184) (302,048)
------------- -------------
Total property and equipment $ 1,446,424 $ 1,530,005
============= =============
</TABLE>
(Continued)
25
<PAGE> 25
NOTE 6 - PROPERTY AND EQUIPMENT, CONTINUED
Depreciation expense for the years ended December 31, 1999, 1998 and
1997 amounted to $180,136, $176,524 and $117,314, respectively. Depreciation is
charged to operations over the estimated useful lives of the assets. The
estimated useful lives and methods of depreciation for the principal items
follow:
<TABLE>
<CAPTION>
TYPE OF ASSET LIFE IN YEARS DEPRECIATION METHOD
------------- ------------- -------------------
<S> <C> <C>
Software 3 Straight-line
Furniture and equipment 5 to 7 Straight-line
Buildings and improvements 5 to 40 Straight-line
</TABLE>
NOTE 7 - REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
During January of 1998, the Bank discovered a kiting operation
involving two customers' accounts. As part of recovering amounts at risk from
the fraud, a deed was taken in lieu of foreclosure on a single family residence.
The estimated fair value of the property, net of various settlement costs, at
December 31, 1999 is $238,074. During 1999 and 1998, $50,000 and $100,000,
respectively, of amounts previously thought to be recoverable were charged to
operations. The Bank continues to employ various recovery and loss minimization
strategies. Management does not believe any possible future losses due to the
fraud will have a material impact on the results of operations of the Company or
stockholders' equity.
NOTE 8 - DEPOSITS
The following is a detail of the deposit accounts:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Non-interest bearing $ 5,864,480 $ 5,199,610
Interest bearing:
NOW accounts 1,412,808 1,180,513
Money market accounts 4,045,269 3,317,331
Savings 4,512,060 4,645,653
Time, less than $100,000 14,327,578 11,678,302
Time, $100,000 and over 6,673,825 5,113,633
--------------- ---------------
Total deposits $ 36,836,020 $ 31,135,042
=============== ===============
</TABLE>
Interest expense on time deposits greater than $100,000 was
$312,030 in 1999, $260,466 in 1998 and $97,660 in 1997.
At December 31, 1999 the scheduled maturities of certificates of
deposit are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 12,997,379
2001 5,265,709
2002 2,272,521
2003 465,794
-----------------
$ 21,001,403
=================
</TABLE>
26
<PAGE> 26
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel, believes
that the liabilities, arising from such litigation and claims either have been
properly accrued for or will not be material to shareholders' equity or the net
income from operations.
Refer to Note 13 concerning financial instruments with off balance
sheet risk.
NOTE 10 - LINES OF CREDIT
At December 31, 1999, the Bank had $920,000 outstanding on $3,000,000
of lines of credit to purchase federal funds from unrelated banks. These lines
of credit are available on a one to seven day basis for general corporate
purposes of the Bank. All of the lenders have reserved the right to withdraw
these lines at their option.
NOTE 11 - INCOME TAXES
The income tax benefits of $71,000 recorded in 1998 and $136,000 in
1997 reflect the value of net operating losses available for offset against
future taxable income. The resulting deferred tax asset is presented with other
assets in the consolidated balance sheets. Net operating losses available to
offset future taxable income amounted to approximately $525,000 at December 31,
1999 and expire in 2012 and 2013.
NOTE 12 - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and companies with which they
are affiliated, are customers of and have banking transactions with the Bank in
the ordinary course of business. These loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable arms-length transactions.
A summary of loan transactions with directors, including their
affiliates, and executive officers follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year $ 2,505,386 $ 2,662,407 $ 70,531
New loans 3,315,398 1,552,088 2,727,835
Less loan payments 1,883,930 1,709,109 135,959
------------ ------------ ------------
Balance, end of year $ 3,936,854 $ 2,505,386 $ 2,662,407
============ ============ ============
</TABLE>
Deposits by directors and their related interests, at
December 31, 1999 and 1998, approximated $5,450,000 and $1,928,000,
respectively.
27
<PAGE> 27
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
In the ordinary course of business, and to meet the financing needs
of its customers, the Company is a party to various financial instruments with
off balance sheet risk. These financial instruments, which include commitments
to extend credit and standby letters of credit, involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the balance sheets. The contract amount of those instruments reflects the extent
of involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amounts of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any material condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require the payment of a fee. At December 31, 1999, unfunded
commitments to extend credit were $3,586,349, of which $1,286,856 is at fixed
rates and $2,299,493 is at variable rates. The Company evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral varies but may
include accounts receivable, inventory, property, plant and equipment,
commercial and residential real estate.
At December 31, 1999, there was a $25,000 commitment under a letter
of credit. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. Collateral
varies but may include accounts receivable, inventory, equipment, marketable
securities and property. Since most of the letters of credit are expected to
expire without being drawn upon, they do not necessarily represent future cash
requirements.
NOTE 14 - EMPLOYEE BENEFIT PLAN
On January 1, 1997, the Company adopted the Beach First National Bank
Profit Sharing and 401(k) Plan for the benefit of all eligible employees. The
Company contributes to the Plan annually upon approval by the Board of
Directors. Contributions made to the Plan in 1999 and 1998 amounted to $11,854
and $10,398, respectively.
NOTE 15 - STOCK OPTION PLAN
On April 30, 1997, the Company adopted a stock option plan for the
benefit of the directors, officers and employees. The Board may grant up to
110,000 options at an option price per share not less than the fair market value
on the date of grant. The directors were granted 1,500 options each that vested
immediately. All other options granted to officers and employees vest 20 percent
each year for five years and expire 10 years from the grant date. The Company
has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation". Accordingly, no compensation cost has been recognized
for the stock option plan. Had compensation cost been determined based on the
fair value at the grant date for the above stock option awards consistent with
the provisions of SFAS No. 123, the Company's net income (loss) and net income
(loss) per common share would have changed to the pro forma amounts indicated
below:
(Continued)
28
<PAGE> 28
NOTE 15 - STOCK OPTION PLAN, CONTINUED
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss)
As reported $ 52,921 $ (233,183) $ (246,389)
Pro forma (1,451) (286,381) (276,804)
Basic net income (loss) per common share
As reported .07 (.32) (.33)
Pro forma .00 (.39) (.38)
Diluted net income (loss) per common share
As reported .06 (.32) (.33)
Pro forma .00 (.39) (.38)
</TABLE>
The fair value of the option grant is estimated on the date of grant
using the Black-Scholes option pricing model and the minimum value method
allowed by SFAS 123. The risk free interest rate used was 5.89 percent, the
expected option life was 5 years and the assumed dividend rate was zero.
A summary of the status of the plan as of December 31, 1999,
1998 and 1997 and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- -------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- -------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 103,978 $ 10.07 101,048 $ 10.00 -- $ --
Granted 1,000 12.00 4,585 11.76 103,293 10.00
Exercised -- -- -- -- -- --
Forfeited or expired -- -- (1,655) 10.48 (2,245) 10.00
------- ------- -------
Outstanding at end
of year 104,978 10.08 103,978 10.07 101,048 $ 10.00
======= ======= =======
Options exercisable
at year-end 69,714 10.02 53,118 10.03 35,975 10.00
Shares available for
grant 5,022 -- 6,022 -- 8,952 --
</TABLE>
NOTE 16 - DIVIDENDS
There are no current plans to initiate payment of cash dividends and
future dividend policy will depend on the Bank's and the Company's earnings,
capital requirements, financial condition and other factors considered relevant
by the Company's Board of Directors. The Bank is restricted in its ability to
pay dividends under the national banking laws and regulations of the OCC.
Generally, these restrictions require the Bank to pay dividends derived solely
from net profits. Moreover, OCC prior approval is required if dividends declared
in any calendar year exceed the Bank's net profit for that year combined with
its retained net profits for the preceding two years.
29
<PAGE> 29
NOTE 17 - COMMON STOCK AND EARNINGS PER SHARE
SFAS No. 128, "Earnings per Share" requires that the Company present
basic and diluted net income (loss) per common share. The assumed conversion of
stock options creates the difference between basic and diluted net income (loss)
per common share. Income (loss) per share is calculated by dividing net income
by the weighted average number of common shares outstanding for each period
presented. The weighted average number of common shares outstanding for basic
net income (loss) per common share was 735,868 in 1999, 1998 and 1997. The
weighted average number of common shares outstanding for diluted net income per
common share was 824,050 in 1999. In 1998 and 1997 the Company reported net
losses and the diluted computation was antidilutive.
NOTE 18 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier 1 capital to risk-weighted assets, and of
Tier 1 capital to average assets. Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification of the Office
of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the institution's category. The Bank's actual capital amounts and ratios
and minimum regulatory amounts and ratios are presented as follows:
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ADEQUACY PURPOSES ACTION PROVISIONS
---------------------- -----------------------
ACTUAL MINIMUM MINIMUM
---------------------- ---------------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
(AMOUNTS IN $000)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
Total Capital (to risk weighted
assets) $ 6,032 17.7% $ 2,721 8.0% $ 3,401 10.0%
Tier 1 Capital (to risk weighted
assets) 5,623 16.5 1,360 4.0 2,041 6.0
Tier 1 Capital (to average assets) 5,623 12.7 1,773 4.0 2,217 5.0
AS OF DECEMBER 31, 1998
Total Capital (to risk weighted
assets) $ 5,817 23.8% $ 1,959 8.0% $ 2,449 10.0%
Tier 1 Capital (to risk weighted
assets) 5,553 22.7 980 4.0 1,469 6.0
Tier 1 Capital (to average assets) 5,553 15.1 1,472 4.0 1,840 5.0
</TABLE>
30
<PAGE> 30
NOTE 19 -FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments" requires disclosure of fair value information, whether or not
recognized in the balance sheets, when it is practical to estimate the fair
value. SFAS No. 107 defines a financial instrument as cash, evidence of an
ownership interest in an entity or contractual obligations which require the
exchange of cash or other financial instruments. Certain items are specifically
excluded from the disclosure requirements, including the Company's common stock,
premises and equipment and other assets and liabilities.
Fair value approximates carrying value for the following financial
instruments due to the short-term nature of the instrument: cash and due from
banks and federal funds sold.
Securities are valued using quoted fair market prices. Fair value for
the Company's off-balance sheet financial instruments is based on the discounted
present value of the estimated future cash flows.
Fair value for variable rate loans that reprice frequently, loans held
for sale and for loans that mature in less than one year is based on the
carrying value. Fair value for fixed rate mortgage loans, personal loans and all
other loans (primarily commercial) maturing after one year is based on the
discounted present value of the estimated future cash flows. Discount rates used
in these computations approximate the rates currently offered for similar loans
of comparable terms and credit quality.
Fair value for demand deposit accounts and interest-bearing accounts
with no fixed maturity date is equal to the carrying value. Certificate of
deposit accounts and securities sold under repurchase agreements maturing within
one year are valued at their carrying value. The fair value of certificate of
deposit accounts and securities sold under repurchase agreements maturing after
one year are estimated by discounting cash flows from expected maturities using
current interest rates on similar instruments.
Fair value for long-term debt is based on discounted cash flows using
the Company's current incremental borrowing rate. Discount rates used in these
computations approximate rates currently offered for similar borrowings of
comparable terms and credit quality.
The Company has used management's best estimate of fair value based on
the above assumptions. Thus, the fair values presented may not be the amounts
which could be realized in an immediate sale or settlement of the instrument. In
addition, any income taxes or other expenses which would be incurred in an
actual sale or settlement are not taken into consideration in the fair value
presented.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1999 1998
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ 2,516,526 $ 2,516,526 $ 970,349 $ 970,349
Federal funds sold - -- 2,250,000 2,250,000
Investment securities 9,283,159 9,283,159 11,524,689 11,524,689
Loans, net 32,129,114 30,131,000 20,832,341 20,657,000
FINANCIAL LIABILITIES:
Deposits 36,836,020 29,468,816 31,135,042 26,776,136
FHLB advances 1,900,000 1,900,000 -- --
Federal funds purchased 920,000 920,000 -- --
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
Commitments to extend credit 3,586,349 3,586,349 2,492,872 2,492,872
Standby letters of credit 25,000 25,000 25,000 25,000
</TABLE>
31
<PAGE> 31
NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION
Following is condensed financial information of Beach First National
Bancshares, Inc. (parent company only):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Cash $ 56,254 $ 12,790
Due from Bank subsidiary 104,754 353,038
Investment in Bank subsidiary 5,438,309 5,596,215
Securities available for sale 730,369 537,560
Other assets 16,596 10,681
--------------- ---------------
Total assets $ 6,346,282 $ 6,510,284
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 32,969 $ 36,628
Shareholders' equity 6,313,313 6,473,656
--------------- ---------------
Total liabilities and shareholders' equity $ 6,346,282 $ 6,510,284
=============== ===============
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Interest income $ 40,337 $ 46,720 $ 48,329
Loss on sale of securities (1,363) (1,155) --
Other income 91 100 6,818
---------- ---------- ----------
Total revenues 39,065 45,665 55,147
---------- ---------- ----------
EXPENSES
Depreciation and amortization 2,900 2,900 2,900
Other expenses 25,081 53,630 36,205
---------- ---------- ----------
Total expenses 27,981 56,530 39,105
---------- ---------- ----------
Income (loss) before equity in undistributed
net income (loss) of Bank subsidiary 11,084 (10,865) 16,042
Equity in undistributed net income (loss) of Bank subsidiary 41,837 (222,318) (262,431)
---------- ---------- ----------
Net income (loss) $ 52,921 $ (233,183) $ (246,389)
========== ========== ==========
</TABLE>
(Continued)
32
<PAGE> 32
NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 52,921 $ (233,183) $ (246,389)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Equity in undistributed net income (loss) of
the bank subsidiary (41,837) 222,318 262,431
Depreciation and amortization 2,900 2,900 2,900
Decrease (increase) in due from Bank 248,284 (353,038) --
(Gain) loss on sale of securities 1,363 1,155 (887)
(Increase) decrease in other assets (5,915) 50,412 (44,706)
(Decrease) increase in accounts payable (3,659) 17,690 (5,270)
------------ ------------ ------------
Net cash provided by (used for) operating activities 254,057 (291,746) (31,921)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of securities available for sale (343,000) (609,693) (1,501,288)
Proceeds from sale of securities available for sale 132,407 866,424 699,518
------------ ------------ ------------
Net cash provided by (used for) investing activities (210,593) 256,731 (801,770)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 43,464 (35,015) (833,691)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 12,790 47,805 881,496
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 56,254 $ 12,790 $ 47,805
============ ============ ============
</TABLE>
33
<PAGE> 33
BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) EQUITY
------- --------- ---------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 735,868 $ 735,868 $6,476,481 $(261,247) $ 9,667 $ 6,960,769
-----------
Net loss -- -- -- (246,389) -- (246,389)
Other comprehensive loss, net of income taxes:
Unrealized gain on investment securities -- -- -- -- 1,042 1,042
Less reclassification adjustments for gains
included in net income (loss) -- -- -- -- (4,887) (4,887)
-----------
Comprehensive loss -- -- -- -- -- (250,234)
------- --------- ---------- --------- --------- -----------
BALANCE, DECEMBER 31, 1997 735,868 735,868 6,476,481 (507,636) 5,822 6,710,535
-----------
Net loss -- -- -- (233,183) (233,183)
Other comprehensive loss, net of income taxes:
Unrealized loss on investment securities -- -- -- -- (11,924) (11,924)
Less reclassification adjustments for losses
included in net income (loss) -- -- -- -- 8,228 8,228
-----------
Comprehensive loss -- -- -- -- -- (236,879)
------- --------- ---------- --------- --------- -----------
BALANCE, DECEMBER 31, 1998 735,868 735,868 6,476,481 (740,819) 2,126 6,473,656
-----------
Net income -- -- -- 52,921 -- 52,921
Other comprehensive loss, net of income taxes:
Unrealized loss on investment securities -- -- -- -- (234,847) (234,847)
Less reclassification adjustments for losses
included in net income -- -- -- -- 21,583 21,583
-----------
Comprehensive loss -- (160,343)
------- --------- ---------- --------- --------- -----------
BALANCE, DECEMBER 31, 1999 735,868 $ 735,868 $6,476,481 $(687,898) $(211,138) $ 6,313,313
======= ========= ========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 34
BEACH FIRST NATIONAL BANCSHARES, INC. - BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION WITH
ADDRESS OCCUPATION COMPANY
-------- ---------- -------------
<S> <C> <C>
Michael Bert Anderson Hotel Owner Director and Secretary
Myrtle Beach, SC
Orvis Bartlett Buie Certified Public Accountant Director
Myrtle Beach, SC
Raymond E. Cleary III Dentist Chairman and CEO
Myrtle Beach, SC
Vernie E. Dove Insurance Agent Director
Myrtle Beach, SC
Jack L. Green, Jr Orthodontist Director
Myrtle Beach, SC
Michael D. Harrington Contractor Director
Myrtle Beach, SC
Joe N. Jarrett Orthopedic Surgeon Director
Myrtle Beach, SC
Richard E. Lester Attorney Director
Myrtle Beach, SC
Rick H. Seagroves Franchise Restaurant Owner Director
Myrtle Beach, SC
Don J. Smith Real Estate Director
Myrtle Beach, SC
Samuel Robert Spann, Jr Roofing Contractor Director
Murrells Inlet, SC
B. Larkin Spivey, Jr Campground Owner and Director
Myrtle Beach, SC Real Estate Investor
Walter E. Standish, III President and CEO Director
Myrtle Beach, SC Beach First National Bank
James C. Yahnis Beer Wholesaler Director
Murrells Inlet, SC
</TABLE>
35
<PAGE> 35
BEACH FIRST NATIONAL BANK - OFFICERS
<TABLE>
<S> <C>
Walter E. Standish, III President and Chief Executive Officer
Ann W. Jones Executive Vice President
Katie Huntley Executive Vice President
Barbara Abrams Vice President
Jerome Smoak Vice President
Tiffany Suggs Assistant Vice President
Linda Dickinson Assistant Vice President
</TABLE>
ANNUAL MEETING OF SHAREHOLDERS:
The Annual Meeting of Shareholders of Beach First National Bancshares,
Inc. will be held at the Myrtle Beach Convention Center, 2101 North Oak Street,
Myrtle Beach, South Carolina 29577 on Wednesday, April 26, 2000, at 2:00 p.m.
<TABLE>
<CAPTION>
CORPORATE OFFICE: GENERAL COUNSEL:
- ---------------- ---------------
<S> <C>
1550 North Oak Street Nelson Mullins Riley & Scarborough, L.L.P.
Myrtle Beach, South Carolina 29577 First Union Plaza
(843) 626-2265 999 Peachtree Street, NE / Suite 1400
(843) 916-7818 Fax Atlanta, Georgia 30309
REGISTRAR AND TRANSFER AGENT:
- ----------------------------
First-Citizens Bank and Trust Company of South Carolina
P. O. Box 29
Columbia, South Carolina 29202
</TABLE>
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE
FURNISHED AT NO CHARGE TO SHAREHOLDERS AS OF THE RECORD DATE UPON WRITTEN
REQUEST TO: ANN W. JONES, BEACH FIRST NATIONAL BANCSHARES, INC., 1550 NORTH OAK
STREET, MYRTLE BEACH, SOUTH CAROLINA 29577
36
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BEACH FIRST NATIONAL BANCSHARES, INC. FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,416,143
<INT-BEARING-DEPOSITS> 100,383
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,283,159
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 32,537,992
<ALLOWANCE> 408,878
<TOTAL-ASSETS> 46,155,395
<DEPOSITS> 36,836,020
<SHORT-TERM> 920,000
<LIABILITIES-OTHER> 186,062
<LONG-TERM> 1,900,000
0
0
<COMMON> 735,868
<OTHER-SE> 5,577,445
<TOTAL-LIABILITIES-AND-EQUITY> 46,155,395
<INTEREST-LOAN> 2,469,213
<INTEREST-INVEST> 628,112
<INTEREST-OTHER> 43,459
<INTEREST-TOTAL> 3,140,784
<INTEREST-DEPOSIT> 1,458,633
<INTEREST-EXPENSE> 1,682,151
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 154,168
<SECURITIES-GAINS> (32,702)
<EXPENSE-OTHER> 1,595,993
<INCOME-PRETAX> 86,921
<INCOME-PRE-EXTRAORDINARY> 86,921
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,921
<EPS-BASIC> .07
<EPS-DILUTED> .06
<YIELD-ACTUAL> 8.36
<LOANS-NON> 0
<LOANS-PAST> 29,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 263,215
<CHARGE-OFFS> 8,505
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 408,878
<ALLOWANCE-DOMESTIC> 408,878
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
