Beach First National Bancshares 10-Q 2006
|QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the quarterly period ended: March 31, 2006
|TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the transition period from ___________ to _____________|
Commission file number: 000-22503
BEACH FIRST NATIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
|(State of Incorporation)||(I.R.S. Employer Identification No.)|
1550 Oak Street, Myrtle Beach, South Carolina 29577
(Address of principal executive offices)
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was requited to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, or a
non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the
Large accelerated filer Accelerated filer Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes No
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: On April 30, 2006, 3,174,508 shares of the issuer's common stock, par value $1.00 per share, were issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No
Beach First National Bancshares, Inc. and Subsidiaries
Myrtle Beach, South Carolina
Consolidated Condensed Balance Sheets
|March 31,||December 31,|
|Cash and due from banks||$||4,599,760||$||4,537,722||$||4,284,868|
|Federal funds sold and short-term investments||6,133,853||16,707,372||25,521,071|
|Investment securities available for sale||52,099,895||34,748,012||43,975,876|
|Federal Reserve Bank stock||534,000||309,000||534,000|
|Federal Home Loan Bank stock||2,318,100||1,336,400||2,011,400|
|Premises and equipment, net||8,373,573||5,267,876||6,672,507|
|Cash value of life insurance||3,331,263||3,209,759||3,301,417|
|LIABILITIES AND SHAREHOLDERS EQUITY|
|Noninterest bearing deposits||$||28,884,753||$||28,111,244||$||31,152,603|
|Interest bearing deposits||308,985,257||212,551,306||279,741,607|
|Advances from Federal Home Loan Bank||32,500,000||19,000,000||34,000,000|
|Junior subordinated debentures||10,310,000||10,310,000||10,310,000|
|Common stock, $1 par value; 10,000,000 shares|
|authorized; 3,174,458 issued and outstanding at|
|March 31, 2006 and 2,016,158 at March 31, 2005|
|and 3,169,958 at December 31, 2005||3,174,458||2,016,158||3,169,958|
|Accumulated other comprehensive income (loss)||(1,035,216||)||(654,963||)||(715,970||)|
|Total shareholders equity||40,080,209||16,348,262||39,125,413|
|Total liabilities and shareholders equity||$||426,708,705||$||287,575,142||$||397,389,234|
The accompanying notes are an integral part of these consolidated condensed financial statements.
|Three Months Ended||For the Year Ended|
|March 31,||December 31,|
|Interest and fees on loans||$||6,823,870||$||3,635,643||$||18,938,675|
|Federal funds sold||145,054||28,154||127,961|
|Total interest income||7,556,324||4,057,519||20,920,631|
|Advances from the FHLB and federal funds purchased||341,889||124,865||747,209|
|Junior subordinated debentures||177,247||66,967||528,812|
|Total interest expense||3,216,025||1,272,089||7,188,912|
|Net interest income||4,340,299||2,785,430||13,731,719|
|PROVISION FOR POSSIBLE LOAN|
|Net interest income after provision|
|for possible loan losses||3,818,099||2,285,430||11,547,719|
|Service fees on deposit accounts||127,965||140,461||549,689|
|Gain on sale of loan||22,259||14,610||14,610|
|Loss on sale of investment securities||-||(529||)||(3,935||)|
|Income from cash value life insurance||34,850||25,338||89,809|
|Mortgage loan referral fees||66,385||39,821||249,757|
|Total noninterest income||311,520||263,180||1,117,877|
|Salaries and wages||1,023,484||794,166||3,371,922|
|Supplies and printing||28,439||26,316||101,889|
|Advertising and public relations||83,515||72,971||295,509|
|Depreciation and amortization||130,402||126,484||539,406|
|Data processing fees||116,969||109,688||455,646|
|Other operating expenses||353,671||229,985||1,053,867|
|Total noninterest expenses||2,237,793||1,787,638||7,545,178|
|Income before income taxes||1,891,826||760,972||5,120,418|
|INCOME TAX EXPENSE||680,019||279,120||1,760,775|
|BASIC NET INCOME PER COMMON SHARE||$||.38||$||.24||$||1.27|
|DILUTED NET INCOME PER COMMON SHARE||$||.37||.23||$||1.23|
|Weighted average common shares outstanding - basic||3,172,108||2,014,391||2,650,576|
|Weighted average common shares outstanding - diluted||3,243,080||2,105,422||2,740,899|
The accompanying notes are an integral part of these consolidated condensed financial statements.
|BALANCE, DECEMBER 31, 2004||2,013,508||$||2,013,508||$||11,335,982||$||3,153,939||$||(170,467||)||$||16,332,962|
|Other comprehensive income, net of taxes:|
|Unrealized gain on investment securities||-||-||-||-||(484,829||)||(484,829||)|
|Plus Reclassification adjustments for gains|
|included in net income||333||333|
|Exercise of stock options||2,650||2,650||15,294||-||--||17,944|
|BALANCE, MARCH 31, 2005||2,016,158||$||2,016,158||$||11,351,276||$||3,635,791||$||(654,963||)||$||16,348,262|
|BALANCE, DECEMBER 31, 2005||3,169,958||$||3,169,958||$||30,157,843||$||6,513,582||$||(715,970||)||$||39,125,413|
|Other comprehensive income, net of taxes:|
|Unrealized loss on investment securities||-||-||-||-||(319,246||)||(319,246||)|
|Plus Reclassification adjustments for gains|
|included in net income||-||-||-||-||-||-|
|Exercise of stock options||4,500||4,500||57,735||-||-||62,235|
|BALANCE, MARCH 31, 2006||3,174,458||$||3,174,458||$||30,215,578||$||7,725,389||$||(1,035,216||)||$||40,080,209|
The accompanying notes are an integral part of these consolidated condensed financial statements.
|Three Months Ended||For the Year Ended|
|March 31,||December 31,|
|Adjustments to reconcile net income to net cash provided by|
|(used in) operating activities:|
|Deferred income taxes||(747,735||)||-||23,781|
|Provisions for loan losses||522,200||500,000||2,184,000|
|Depreciation and amortization||130,402||125,558||539,406|
|Accretion of deferred loan fees||317,004||(395,850||)||(1,302,357||)|
|Loss on sale of investment securities||-||-||3,935|
|Discount accretion and premium amortization||16,180||7,336||(45,404||)|
|Increase in other assets||(436,277||)||(368,261||)||(917,049||)|
|Increase in other liabilities||1,092,939||319,904||621,177|
|Investment in Beach First National Trust||-||-||(310,000||)|
|Net cash provided by operating activities||2,106,520||670,539||4,157,132|
|Purchase of investment securities||(8,623,906||)||-||(14,707,381||)|
|Purchase of FHLB stock||(306,700||)||(266,200||)||(941,200||)|
|Purchase of Federal Reserve stock||-||-||(225,000||)|
|Proceeds from sale of investment securities||-||708,697||6,148,824|
|Decrease (increase) in Federal funds sold||19,387,218||(16,244,303||)||(25,058,002||)|
|Increase in loans, net||(37,720,897||)||(29,631,293||)||(119,246,152||)|
|Purchase of premises and equipment||(1,831,468||)||(711,621||)||(2,540,328||)|
|Purchase of life insurance contracts||(29,846||)||21,191||10,227|
|Net cash used in investing activities||(29,125,599||)||(46,123,529||)||(156,559,012||)|
|Advances from Federal Home Loan Bank||(1,500,000||)||2,500,000||17,500,000|
|Net increase in deposits||26,975,800||37,493,592||107,725,252|
|Advances from junior subordinated debentures||-||5,155,000||5,155,000|
|Exercise of stock options||62,235||17,944||44,313|
|Proceeds from other borrowings||1,795,936||-||1,504,009|
|Proceeds from stock issuance, net||-||-||19,933,988|
|Net cash provided by financing activities||27,333,971||45,166,536||151,862,572|
|Net increase (decrease) in cash and cash equivalents||314,892||(286,454||)||(539,308||)|
|CASH AND DUE FROM BANKS, BEGINNING OF PERIOD||$||4,284,868||$||4,824,176||$||4,824,176|
|CASH AND DUE FROM BANKS, END OF PERIOD||$||4,599,760||$||4,537,722||$||4,284,868|
|CASH PAID FOR|
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying unaudited consolidated condensed financial statements for Beach First National Bancshares, Inc. (Company) were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. All adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for fair presentation of the interim consolidated financial statements have been included. The results of operations for the three month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the entire year. These consolidated financial statements do not include all disclosures required by generally accepted accounting principles and should be read in conjunction with the Companys audited consolidated financial statements and related notes for the year ended December 31, 2005.
The accompanying unaudited consolidated condensed financial statements include the accounts of the Company and its subsidiaries, Beach First National Bank and BFNM, LLC (See 5. Investment in BFMN, LLC below). The Company also owns two grantor trusts, Beach First National Trust I and Beach First National Trust II. All significant inter-company items and transactions have been eliminated in consolidation. In accordance with current accounting guidance, the financial statements of the trusts have not been included in the Companys financial statements.
The Company calculates earnings per share in accordance with SFAS No. 128, Earnings Per Share. SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share (EPS) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market.
This standard specifies computation and presentation requirements for both basic EPS and, for entities with complex capital structures, diluted EPS. Basic earnings per share are computed by dividing net income by the weighted average common shares outstanding. Diluted earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The dilutive effect of options outstanding under the Companys stock option plan is reflected in diluted earnings per share by application of the treasury stock method.
In 2005, the board of directors authorized the issuance of 1,150,000 shares of common stock which were sold in a public offering.
In 2005, the board of directors approved the listing on the NASDAQ National Market System. The stock began trading on NASDAQ on June 9, 2005, under the symbol of BFNB.
|Effect of Diluted Securities:|
|Effect of Diluted Securities:|
On January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123(R), Accounting for Stock Based Compensation, to account for compensation costs under its stock option plans. The Company previously utilized the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees(as amended) (APB 25). Under the intrinsic value method prescribed by APB 25, no compensation costs were recognized for the Companys stock options because the option exercise price in its plans equals the market price on the date of the grant. Prior to January 1, 2006, the Company only disclosed the pro forma effects on net income and earnings per share as if the fair value recognition provisions of SFAS 123(R) had been utilized.
In December 2005, the Company elected to fully vest all outstanding options effective immediately. No options were issued during the quarter ended March 31, 2006.
|Three Months ended March 31,|
|Net income, as reported||$||1,211,807||$||481,852|
|Deduct: Total stock-based employee compensation|
|expense determined under fair value based|
|method for all awards, net of related tax effects|
|Pro forma net income||$||1,211,807||$||456,146|
|Earnings per share:||$||$|
|Basic - as reported||$||0.38||$||0.24|
|Basic - pro forma||$||0.38||$||0.23|
|Diluted - as reported||$||0.37||$||0.23|
|Diluted - pro forma||$||0.37||$||0.22|
The Company formed a subsidiary, BFNM Building, LLC in partnership with our legal counsel, Nelson Mullins Riley & Scarborough LLP, for purposes of acquiring a parcel of land and constructing an office building on the property. The Company owns two-thirds of BFNM Building, LLC and Nelson Mullins Riley & Scarborough owns the remaining one-third. The building will be a three-story, 46,066 square foot office building located on 3.5 acres at the southwest corner of Robert Grissom Parkway and 38th Avenue North in Myrtle Beach, South Carolina. Once completed, the Company will move its main office to this location and Nelson Mullins Riley & Scarborough will relocate its Myrtle Beach legal office to the building. BFNM Building, LLC purchased the land for approximately $1.8 million and it is financing the construction project through a third-party lender with each of the owners being responsible for their respective interests in the project. The Company estimates that the total land and construction project will cost approximately $7.0 million, exclusive of tenant improvements. The Company intends to lease two-thirds of the building (approximately 30,000 square feet) from the entity that owns the building. Because the Company will initially only occupy approximately 11,000 square feet of space, it intends to lease the other 19,000 square feet of its portion to outside tenants. Nelson Mullins Riley & Scarborough will lease the remaining one-third of the building from the entity that owns it.
On September 1, 2005, BFNM Building, LLC entered into an A1A Document A114-2001 Standard Form of ® Agreement between Owner and Contractor with Harrington Construction Co. and Graham Group Architects to construct the building on the property for $5,237,478. Michael Harrington, a member of the Companys board of directors, is the owner and president of Harrington Construction Co. The Company expects that the building will be completed by September 2006. Harrington Construction Co. was awarded the contract after a competitive bidding process. Harrington Construction Co.s total fee for the project is $233,116. As of March 31, 2006, $3.3 million in advances have been drawn on the BFNM, LLC construction loan.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following is our discussion and analysis of certain significant factors that have affected our financial position and operating results and those of our subsidiary, Beach First National Bank, during the periods included in the accompanying financial statements. This commentary should be read in conjunction with the financial statements and the related notes and the other statistical information included in this report.
This report contains forward-looking statements relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of management, as well as assumptions made by and information currently available to management. The words may, will, anticipate, should, would, believe, contemplate, expect, estimate, continue, may, and intend, as well as other similar words and expressions of the future, are intended to identify forward-looking statements. Our actual results may differ materially from the results discussed in the forward-looking statements, and our operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in our filings with the Securities and Exchange Commission, including, without limitation:
|||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 our 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;|
|||the level of allowance for loan loss;|
|||the rate of delinquencies and amounts of charge-offs;|
|||the rates of loan growth;|
|||adverse changes in asset quality and resulting credit risk-related losses and expenses;|
|||changes in monetary and tax policies;|
|||loss of consumer confidence and economic disruptions resulting from terrorist activities;|
|||changes in the securities markets; and|
|||other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.|
We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and with general practices within the banking industry in the preparation of our consolidated financial statements. Our significant accounting policies are described in the footnotes to our audited consolidated financial statements as of December 31, 2005 as filed on our Form 10-KSB.
Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities. We consider such accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates. These differences could have a material impact on our carrying values of assets and liabilities and our results of operations.
We believe the allowance for loan losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements. Some of the more critical judgments supporting the amount of our allowance for loan losses include judgments about the credit worthiness of borrowers, the estimated value of the underlying collateral, the assumptions about cash flow, determination of loss factors for estimating credit losses, the impact of current events, and conditions, and other factors impacting the level of probable inherent losses. Under different conditions or using different assumptions, the actual amount of credit losses incurred by us may be different from managements estimates provided in our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses.
The following discussion describes our results of operations for the quarter ended March 31, 2006 as compared to the quarter ended March 31, 2005. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.
Of course, there are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section, we have included a detailed discussion of this process.
In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this noninterest income, as well as our noninterest expense, in the following discussion.
The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.
Our net income was $1,211,807, or $0.37 diluted net income per common share, for the three months ended March 31, 2006 as compared to $481,852, or $0.23 diluted net income per common share, for the same period in 2005.
The increase in net income reflects our continued growth, with average earning assets increasing to $398.5 million during the first three months of 2006 from $249.0 million during the same period of 2005. The return on average assets for the three month period ended March 31, 2006 was 1.17% as compared to 0.73% for the same period in 2005. The return on average equity was 12.02% for the three month period ended March 31, 2006 versus 11.5% for the same period in 2005.
Net Interest Income
Our primary source of revenue is net interest income, which represents the difference between the income on interest-earning assets and expense on interest-bearing liabilities. During the first three months of 2006, net interest income increased 55.8% to $4,340,299 from $2,785,430 for the same period of 2005. The growth in net interest income resulted from an increase of $3,498,805 in interest income, partially offset by an increase in interest expense of $1,943,936. Our level of net interest income is determined by the level of our earning assets and the management of our net interest margin. The continued growth of our loan portfolio and the increases in the prime rate are the primary drivers of the increase in net interest income. Average total loans increased from $260.9 million in the first three months of 2005 to $333.8 million in the same period in 2006. The prime rate has increased 225 basis points since February 2005. In addition, average securities increased to $51.0 million in the first three months of 2006 compared to $37.3 million for the first three months of 2005. Net interest spread, the difference between the rate we earn on interest-earning assets and the rate we pay on interest-bearing liabilities, was 3.88% in the first three months of 2006 compared to 4.21% during the same period of 2005. The net interest margin was 4.42% for the three month period ended March 31, 2006 compared to 4.54% for the same period of 2005. The decline in the net interest spread and the net interest margin are due to the rising interest rate environment and the increased competition in our markets for deposits.
Provision for Loan Losses
We have established an allowance for loan losses through a provision for loan losses charged as an expense on our statement of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses. The provision for loan losses was $522,200 for the first three months of 2006 and $500,000 for the same period of 2005. The increase in the provision was the result of increased loan growth and managements assessment of the adequacy of the reserve for possible loan losses given the size, mix, and quality of the current loan portfolio. Please see the discussion below under Allowance for Possible Loan Losses for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.
Noninterest income increased to $311,520 for the three months ended 2006, up 18.4% from $263,180 for the same period in 2005. Service fees on deposit accounts, the largest component of noninterest income, decreased 8.9% to $127,965 for the three months ended 2006 from $140,461 for the same period in 2005. Service fees on deposit accounts decreased due to increases in the analysis rate charged on commercial demand accounts and increased usage of electronic services by personal checking customers. Income from cash value life insurance was $34,850 for the first three months of 2006 compared to $25,338 for the same period in 2005. Mortgage loan referral fees increased to $66,385 during the three months ended March 31, 2006 compared to $39,821 for the same period in 2005. This increase is primarily due to the increased mortgage activity in all of our markets. Other income increased 38.1% to $60,061 for the three months ended March 31, 2006 from $43,479 for the same period in 2005. Other income is primarily made up of debit card and ATM fee income in addition to charges on check sales.
Total noninterest expense increased 25.2% to $2,237,793 for the three month period ended March 31, 2006 from $1,787,638 for the same period in 2005. As an annualized percentage of average total assets, our total noninterest expenses decreased from 2.7% in 2005 to 2.0% in 2006. While our total assets have grown at a 64.1% growth rate over year-end 2005 compared to year-end 2004 and 48.4 %for the first three months of 2006 compared to the same period in 2005, we have been able to manage our expenses while accommodating our growth. Salary and wages and employee benefits expense increased $292,119 to $1,257,791 during the three month period ended March 31, 2006 compared to the same period in 2005. These increases are the result of personnel additions, normal compensation adjustments, higher costs associated with group insurance coverage, and certain incentive awards.
For the three months ended March 31, 2006, advertising and public relations costs increased $10,544 to $83,515. This increase was due primarily to special promotions, such as newspaper advertisements, to attract deposits in all markets. Professional fees increased $4,815 to $77,522 for the three month period ended March 31, 2006 compared to the same period in 2005. These fees continue to increase due to our growth, the regulatory fees associated with such growth, and the cost of accounting, auditing, and legal services for a public company.
Occupancy expenses increased $5,669 to $189,484 during the three months ended March 31, 2006 compared to the same period in 2005. As we continue to expand, we expect that occupancy costs will continue to increase.
Data processing fees increased during the three months ended March 31, 2006 to $116,969 from $109,688 during the same period in 2005. Data processing costs are primarily related to the volume of loan and deposit accounts and associated transaction activity. We believe our data processing costs are consistent with our expansion.
Other operating expenses increased 53.8% to $353,671 during the three months ended March 31, 2006 compared to $229,985 during the same period in 2005. These increases are primarily the result of increased operating expenses related to the growth of the company, along with other expenses associated with the expansion of loans and deposits. Specifically, credit and collection expenses increased $10,110, furniture and equipment increased $10,986, dues and subscriptions increased $9,402, travel expenses increased $13,989, director deferred compensation plan expenses increased $35,528, merchant expenses increased $7,127, NASDAQ expenses were $6,125, debit/ATM expenses increased $4,862, collectively totaling $98,129, or 79% of the total increase of $123,686.
We had total assets of $426.7 million at March 31, 2006, an increase of 48.4% from $287.6 million at March 31, 2005. Total assets consisted primarily of $344.3 million in net loans, $55.0 million in investments, $6.1 million in federal funds sold and short-term investments, and $4.6 million in cash and due from banks. Our liabilities at March 31, 2006 totaled $386.6 million, consisting primarily of $337.9 million in deposits, $32.5 million in FHLB advances, and $10.3 million of junior subordinated debentures. Our total deposits increased to $337.9 million at March 31, 2006, up 40.4% from $240.7 million at March 31, 2005. Shareholders equity increased $23.7 million, primarily as a result of a secondary offering in the later part of the second quarter of 2005.
Total investment securities averaged $51.0 million during the first three months of 2006 and totaled $55.0 million at March 31, 2006. Total investment securities averaged $37.3 million during the first three months of 2005 and totaled $36.4 million at March 31, 2005. At March 31, 2006, our total investment securities portfolio had a book value of $56.5 million and a fair market value of $55.0 million for an unrealized net loss of $1.5 million. We primarily invest in U.S. Government Agency and U.S. Agency mortgage backed securities.
At March 31, 2006, short-term investments totaled $6.1 million, compared to $16.7 million at March 31, 2005. These funds are one source of our banks liquidity and are generally invested in an earning capacity on an overnight or short-term basis. This decline in short-term investments is primarily due to higher loan demand during this quarter and the competitive market for deposits.
Since loans typically provide higher yields than other types of earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. As of March 31, 2006, loans represented 83.8% of average earning assets as compared to 83.1% at March 31, 2005. At March 31, 2006, net loans (gross loans less the allowance for loan losses and deferred loan fees) totaled $344.3 million, an increase of $125.7 million, or 57.5%, from March 31, 2005. Average gross loans increased from $333.8 million with a yield of 8.29% during the first three months of 2006 to $206.9 million with a yield of 7.13% during the same period in 2005. The increase in yield on loans during these periods is due to the increasing interest rate environment in 2005 and 2006. 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.
The following table summarizes the composition of our loan portfolio at March 31, 2006 and 2005.
|At March 31,|
|Amount||of Total||Amount||of Total|
|Real estate - construction||35,068,148||10.03||18,467,951||8.32|
|Real estate - mortgage||262,940,150||75.23||161,818,367||72.92|
|Deferred loan fees||(317,004||)||(400,020||)|
|Allowance for loan losses||(4,882,948||)||(2,918,992||)|
The principal component of our loan portfolio at March 31, 2006 and 2005 was mortgage loans, which represented 75.23% and 72.92%, respectively. In the context of this discussion, a real estate mortgage loan is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. We follow the common practice of financial institutions in our market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. The collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. Generally, we limit the loan-to-value ratio to 80%. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentrations of collateral.
Allowance for Possible Loan Losses
We have established an allowance for loan losses through a provision for loan losses charged to expense on our statement of income. The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. The evaluation of the allowance is segregated into general allocations and specific allocations. For general allocations, the portfolio is segregated into risk-similar segments for which historical loss ratios are calculated and adjusted for identified trends or changes in current portfolio characteristics. Historical loss ratios are calculated by product type for consumer loans (installment and revolving), mortgage loans, and commercial loans and may be adjusted for other risk factors. To allow for modeling error, a range of probable loss ratios is then derived for each segment. The resulting percentages are then applied to the dollar amounts of the loans in each segment to arrive at each segments range of probable loss levels. Certain nonperforming loans are individually assessed for impairment
under SFAS No. 114 and assigned specific allocations. Other identified high-risk loans or credit relationships based on internal risk ratings are also individually assessed and assigned specific allocations.
The general allocation also includes a component for probable losses inherent in the portfolio, based on managements analysis that is not fully captured elsewhere in the allowance. This component serves to address the inherent estimation and imprecision risk in the methodology as well as address managements evaluation of various factors or conditions not otherwise directly measured in the evaluation of the general and specific allocations. Such factors include the current general economic and business conditions; geographic, collateral, or other concentrations of credit; system, procedural, policy, or underwriting changes; experience of the lending staff; entry into new markets or new product offerings; and results from internal and external portfolio examinations.
Periodically, we adjust the amount of the allowance based on changing circumstances. We charge recognized losses to the allowance and add subsequent recoveries back to the allowance for loan losses. There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period.
The allocation of the allowance to the respective loan segments is an approximation and not necessarily indicative of future losses or future allocations. The entire allowance is available to absorb losses occurring in the overall loan portfolio. In addition, the allowance is subject to examination and adequacy testing by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions, and other adequacy tests. Such regulatory agencies could require us to adjust the allowance based on information available to them at the time of their examination.
At March 31, 2006, the allowance for loan losses was $4.9 million, or 1.40% of total outstanding loans, compared to an allowance for loan losses of $2.9 million, or 1.32% of total outstanding loans, at March 31, 2005. During the first three months of 2006, we had one charge-off totaling $5,496. During the same period in 2005, we had three charge-offs totaling $7,900. We had non-performing loans totaling $1.9 million and $299,172 at March 31, 2006 and March 31, 2005, respectively. While there can be no assurances, we do not expect significant losses relating to these nonperforming loans because we believe that the collateral supporting these loans is largely sufficient to cover the outstanding loan balance. The following table sets forth certain information with respect to our allowance for loan losses and the composition of charge-offs and recoveries for the three months ended March 31, 2006 and 2005.
|Three Months Ended March 31,|
|Average loans outstanding||$||333,815,888||$||206,875,888|
|Total loans outstanding at period end||349,189,076||221,506,061|
|Total nonperforming loans||1,899,166||299,172|
|Beginning balance of allowance||$||4,364,287||$||2,421,839|
|Total loans charged off||5,496||7,900|
|Net loans charged off||3,539||2,847|
|Provision for loan losses||522,200||500,000|
|Balance at period end||$||4,882,948||$||2,918,992|
|Net charge-offs to average total loans||0.00||%||0.00||%|
|Allowance as a percentage of total loans||1.40||%||1.32||%|
|Allowance for loan losses to nonperforming loans||257.11||%||976.25||%|
|Nonperforming loans as a percentage of total loans||0.54||%||0.14||%|
The following table sets forth the breakdown of the allowance for loan losses by loan category and the percentage of loans in each category to gross loans as of March 31, 2006. We believe that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance to each category is not necessarily indicative of further losses and does not restrict the use of the allowance to absorb losses in any category.
|As of March 31, 2006|
|Real estate - construction||360,527||10.03|
|Real estate - mortgage||2,204,293||75.23|
|Total allowance for|
We discontinue accrual of interest on a loan when we conclude it is doubtful that we will be able to collect interest from the borrower. We reach this conclusion by taking into account factors such as the borrowers financial condition, economic and business conditions, and the results of our previous collection efforts. Generally, we will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. When we place a loan in nonaccrual status, we reverse all interest which has been accrued on the loan but remains unpaid and we deduct this interest from earnings as a reduction of reported interest income. We do not accrue any additional interest on the loan balance until we conclude the collection of both principal and interest is reasonably certain. At March 31, 2006, there were no loans accruing interest which were 90 days or more past due and we had no restructured loans.
Average total deposits were $326.5 million for the three months ended March 31, 2006, up 50.0% from $218.3 million during the same period in 2005. Average interest-bearing deposits were $296.5 million for three months ended March 31, 2006, up 57.8% from $187.9 million during the same period of 2005.
The following table sets forth our deposits by category as of March 31, 2006 and March 31, 2005.
|As of March 31,|
|Percent of||Percent of|
|Noninterest bearing demand||$||28,884,753||8.5||%||$||28,111,244||11.7||%|
|Interest bearing demand||23,135,091||6.9||%||20,100,948||8.3||%|
|Time deposits less than $100,000||115,576,388||34.2||%||54,321,024||22.6||%|
|Time deposits of $100,000 or over||97,672,168||28.9||%||52,572,565||21.8||%|
Deposit growth was attributable to internal growth and the generation of new deposit accounts due primarily to special promotions and increased advertising. Demand deposit accounts increased as a result of an expanded focus on demand deposit accounts in addition to the opening of new branch offices in 2005. Interest bearing checking accounts increased primarily due to a change mandated by the South Carolina Bar Association requiring that all lawyer trust accounts be interest bearing. This created a shift from demand deposit accounts to interest bearing checking accounts.
Core deposits, which exclude certificates of deposit of $100,000 or more, provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $240.2 million at March 31, 2006, an increase of 27.7% compared to $188.1 million at March 31, 2005. We expect a stable base of deposits to be our primary source of funding to meet both our short-term and long-term liquidity needs. Core deposits as a percentage of total deposits were 71.1% at March 31, 2006 and 78.2% at March 31, 2005. Our loan-to-deposit ratio was 103.4% at
March 31, 2006 versus 92.0% at March 31, 2005. The average loan-to-deposit ratio was 100.0% during the first three months of 2006 and 94.7% during the same period of 2005.
In addition to deposits, we obtained funds from the FHLB to help fund our loan growth. Average borrowings from the FHLB were $35.6 million during the first quarter of 2006 and totaled $32.5 million at March 31, 2006. The following table reflects the current borrowing terms.
|FHLB Description||Balance||Current Rate||Maturity Date|
|Fixed Rate Credit||$||5,000,000||4.76%||10/21/2010|
On May 27, 2004 we raised $5.0 million and on March 30, 2005 we raised an additional $5.0 million through the issuance and sale of floating rate trust preferred securities through BFNB Trust I and BFNB Trust II (the Trusts). These trust preferred securities are reported on our consolidated balance sheet as junior subordinated debentures. The Trusts loaned these proceeds to our holding company to use for general corporate purposes. Trust preferred securities currently qualify as Tier 1 capital under Federal Reserve Board guidelines.
Debt issuance costs, net of accumulated amortization, from the junior subordinated debentures totaled $44,534 at March 31, 2006 and $69,000 at March 31, 2005. These costs are included in other assets on our consolidated balance sheet. Amortization of debt issuance costs from trust preferred debt totaled $836 for the three month period ended March 31, 2006 and $625 for the three month period ended March 31, 2005. These costs are reported in other noninterest expense on the consolidated statement of income.
The trust preferred securities accrue and pay distributions annually at a rate per annum equal to the three month LIBOR plus 270 and 190 basis points, respectively, which was 7.314% and 6.810% at March 31, 2006. The distribution rate payable on these securities is cumulative and payable quarterly in arrears. We have the right, subject to events of default, to defer payments of interest on the trust preferred securities for a period not to exceed 20 consecutive quarterly periods, provided that no extension period may extend beyond the maturity dates of May 27, 2034 and March 30, 2035, respectively. We have no current intention to exercise our right to defer payments of interest on the trust preferred securities. We have the right to redeem the trust preferred securities, in whole or in part, on or after May 27, 2009 and March 30, 2010, respectively. We may also redeem the trust preferred securities prior to such dates upon occurrence of specified conditions and the payment of a redemption premium.
The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. Under the capital adequacy guidelines, regulatory capital is classified into two tiers. These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of common shareholders equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for loan losses, subject to certain limitations. We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio. At both the holding company and bank level, we are subject to various regulatory capital requirements administered by the federal banking agencies. To be considered well-
capitalized, we must maintain total risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a leverage ratio of at least 5%.
The Federal Reserve guidelines contain an exemption from the capital requirements for small bank holding companies. On March 31, 2006, the Federal Reserve changed the definition of a small bank holding company to bank holding companies with less than $500 million in total assets (an increase from $150 million under the prior rule). However, bank holding companies will not qualify under the new definition if they (i) are engaged in significant nonbanking activities either directly or indirectly through a subsidiary, (ii) conduct significant off-balance sheet activities, including securitizations or managing or administering assets for third parties, or (iii) have a material amount of debt or equity securities (including trust preferred securities) outstanding that are registered with the SEC. Although we have less than $500 million in assets, it is unclear at this point whether we otherwise meet the requirements for qualifying as a small bank holding company. According to the Federal Reserve Board, the revision of the criterion to exclude any bank holding company that has outstanding a material amount of SEC-registered debt or equity securities reflects the fact that SEC registrants typically exhibit a degree of complexity of operations and access to multiple funding sources that warrants excluding them from the new policy statement and subjecting them to the capital guidelines. In the adopting release for the new rule, the Federal Reserve Board stated that what constitutes a material amount of SEC-registered debt or equity for a particular bank holding company depends on the size, activities and condition of the relevant bank holding company. In lieu of using fixed measurable parameters of materiality across all institutions, the rule provides the Federal Reserve with supervisory flexibility in determining, on a case-by-case basis, the significance or materiality of activities or securities outstanding such that a bank holding company should be excluded from the policy statement and subject to the capital guidelines. Prior to adoption of this new rule, our holding company was subject to these capital guidelines, as it had more than $150 million in assets. Until the Federal Reserve provides further guidance on the new rules, it will be unclear whether our holding company will be subject to the exemption from the capital requirements for small bank holding companies. Regardless, our bank falls under these minimum capital requirements as set per bank regulatory agencies.
On June 14, 2005, we closed the sale of 1,150,000 shares of our common stock at $18.75 per share in a firm commitment underwritten offering solely managed by Sandler ONeill & Partners, L.P. We received net proceeds from the offering of approximately $20 million after deducting underwriting discounts and expenses. We plan to use the net proceeds for general corporate purposes, which include, among other things, providing additional capital to our bank to support our asset growth.
At March 31, 2006, our total shareholders equity was $40.1 million ($40.1 million at the bank level). At March 31, 2006, our Tier 1 capital ratio was 14.5% (11.9% at the bank level), our total risk-based capital ratio was 15.9% (13.1% at the bank level), and our Tier 1 leverage ratio was 12.4% (10.0% at the bank level). The bank was considered well capitalized and the holding company met or exceeded its applicable regulatory capital requirements.
Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.
Our primary sources of liquidity are deposits, scheduled repayments on our loans, and interest on and maturities of our investments. We plan to meet our future cash needs through the liquidation of temporary investments and the generation of deposits. All of our securities have been classified as available for sale. Occasionally, we might sell investment securities in connection with the management of our interest sensitivity gap or to manage cash availability. We may also utilize our cash and due from banks, security repurchase agreements, and federal funds sold to meet liquidity requirements as needed. In addition, we have the ability, on a short-term basis, to purchase federal funds from other financial institutions. Presently, we have made arrangements with commercial banks for short-term unsecured advances of up to $16.4 million. We also have a line of credit with the FHLB to borrow up to 80% of our 1 to 4 family loans, resulting in an availability of funds of $16.7 million at March 31, 2006. The FHLB has approved borrowings up
to 15% of the banks total assets less advances outstanding. The borrowings are available by pledging additional collateral and purchasing FHLB stock. At March 31, 2006, we had borrowed $32.5 million on this line. We believe that our existing stable base of core deposits, our bond portfolio, borrowings from the FHLB, and short-term federal funds lines will enable us to successfully meet our liquidity needs for the next 12 months.
A significant portion of our assets and liabilities are monetary in nature, and consequently they are very sensitive to changes in interest rates. This interest rate risk is our primary market risk exposure, and it can have a significant effect on our net interest income and cash flows. We review our exposure to market risk on a regular basis, and we manage the pricing and maturity of our assets and liabilities to diminish the potential adverse impact that changes in interest rates could have on our net interest income.
We actively monitor and manage our interest rate risk exposure principally by measuring our interest sensitivity gap, which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities, and it is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets. We generally would benefit from increasing market interest rates when we have an asset-sensitive, or a positive, interest rate gap and we would generally benefit from decreasing market interest rates when we have liability-sensitive, or a negative, interest rate gap. When measured on a gap basis, we are liability-sensitive over the cumulative one-year time frame and asset-sensitive after one year as of March 31, 2006. However, our gap analysis is not a precise indicator of our interest sensitivity position. The analysis presents only a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but we believe those rates are significantly less interest-sensitive than market-based rates such as those paid on noncore deposits.
Net interest income is also affected by other significant factors, including changes in the volume and mix of interest-earning assets and interest-bearing liabilities. We perform asset/liability modeling to assess the impact of varying interest rates and the impact that balance sheet mix assumptions will have on net interest income. We attempt to manage interest rate sensitivity by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities that reprice in the same time interval helps us to hedge risks and minimize the impact on net interest income of rising or falling interest rates. We evaluate interest sensitivity risk and then formulate guidelines regarding asset generation and repricing, funding sources and pricing, and off-balance sheet commitments in order to decrease interest rate sensitivity risk.
Through the operations of our bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. We evaluate each customers credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes.
At March 31, 2006, the bank had issued commitments to extend credit of $40.6 million through various types of lending arrangements, of which $38.5 million was at variable rates. The commitments expire over the next 18 months. Past experience indicates that many of these commitments to extend credit will expire unused. We believe that we have adequate sources of liquidity to fund commitments that are drawn upon by the borrowers.
In addition to commitments to extend credit, we also issue standby letters of credit which are assurances to a third party that they will not suffer a loss if our customer fails to meet its contractual obligation to the third party. Standby letters of credit totaled $5.3 million at March 31, 2006. Past experience indicates that many of these standby
letters of credit will expire unused. However, through our various sources of liquidity, we believe that we will have the necessary resources to meet these obligations should the need arise.
The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements. Rather, our financial statements have been prepared on an historical cost basis in accordance with generally accepted accounting principles.
Unlike most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude. As discussed previously, we seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation.
The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and / or disclosure of financial information by us.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140. This Statement amends FASB No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract; requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; permits an entity to choose its subsequent measurement methods for each class of separately recognized servicing assets and servicing liabilities; at its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entitys exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value; and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. An entity should adopt SFAS No. 156 as of the beginning of its first fiscal year that begins after September 15, 2006. The Company does note believe the adoption of SFAS No. 156 will have a material impact on its financial position, results of operations and cash flows.
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. This Statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. The Company does not believe that the adoption of SFAS No. 155 will have a material impact on its financial position, results of operations and cash flows.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises principally from interest rate risk inherent in our lending, deposit, and borrowing activities. Management actively monitors and manages its interest rate risk exposure. In addition to other risks that we manage in the normal course of
business, such as credit quality and liquidity, management considers interest rate risk to be a significant market risk that could potentially have a material effect on our financial condition and results of operations. The information contained in Item 2 in the section captioned Interest Rate Sensitivity is incorporated herein by reference. Other types of market risks, such as foreign currency risk and commodity price risk, do not arise in the normal course of our business activities.
The primary objective of asset and liability management is to manage interest rate risk and achieve reasonable stability in net interest income throughout interest rate cycles. This is achieved by maintaining the proper balance of rate-sensitive earning assets and rate-sensitive interest-bearing liabilities. The relationship of rate-sensitive earning assets to rate-sensitive interest-bearing liabilities is the principal factor in projecting the effect that fluctuating interest rates will have on future net interest income. Rate-sensitive assets and liabilities are those that can be repriced to current market rates within a relatively short time period. Management monitors the rate sensitivity of earning assets and interest-bearing liabilities over the entire life of these instruments, but places particular emphasis on the next twelve months. At March 31, 2006, on a cumulative basis through 12 months, rate-sensitive liabilities exceeded rate-sensitive assets by $4.84 million. This liability-sensitive position is largely attributable to short-term certificates of deposit, money market accounts and NOW accounts, which totaled $273.6 million at March 31, 2006.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective as of March 31, 2006. There have been no significant changes in our internal controls over financial reporting during the fiscal quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
There are no material legal proceedings to which the company or any of its subsidiaries is a party or of which any of their property is the subject.
There were no material changes from the risk factors presented in our annual report on Form 10-KSB for the year ended December 31, 2005.
31.1 Rule 13a-14(a) Certification of the Principal Executive Officer
31.2 Rule 13a-14(a) Certification of the Principal Financial Officer
32 Section 1350 Certifications
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|BEACH FIRST NATIONAL BANCSHARES, INC.|
|Date: May 11, 2006||
By: /s/ Walter E. Standish, III
Walter E. Standish, III
President and Chief Executive Officer
|Date: May 11, 2006||By: /s/ Richard N. Burch
Richard N. Burch
Chief Financial and Principal Accounting Officer
INDEX TO EXHIBITS
31.1 Rule 13a-14(a) Certification of the Principal Executive Officer
31.2 Rule 13a-14(a) Certification of the Principal Financial Officer
32 Section 1350 Certifications