UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: September 30, 2009
 o
    
    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.
  South Carolina
    
    57-1030117(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 3751 Robert M. Grissom Parkway, Suite 100, Myrtle Beach, South Carolina 29577
 (843) 626-2265
 Not Applicable
 þ o
 Yes
o No o
 Rule 12b-2
 Large accelerated filer o
    
    Accelerated filer o
    
    Smaller reporting company þ
    
    Non-accelerated filer o
 o þ




---



##### 



PART I
 FINANCIAL INFORMATION
 Item 1.
    
    Financial Statements
 Beach First National Bancshares, Inc. and SubsidiariesConsolidated Condensed Balance Sheets
 September 30,
    
    
    December 31,
    
    
    September 30,2009
    
    
    2008
    
    
    2008(unaudited)
    
    
    (audited)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    10,391,051
    
    
    $
    4,830,112
    
    
    $
    6,716,033Short-term investments
    
    
    11,115,155
    
    
    
    1,469,273
    
    
    
    1,594,955Federal funds sold
    
    
    5,611,000
    
    
    
    5,111,000
    
    
    
    8,219,000Total cash and cash equivalents
    
    
    27,117,206
    
    
    
    11,410,385
    
    
    
    16,529,988Investment securities
    
    
    76,834,314
    
    
    
    70,594,811
    
    
    
    70,501,563Portfolio loans, net of unearned income
    
    
    519,394,361
    
    
    
    551,156,821
    
    
    
    553,485,128Allowance for loan losses (ALL)
    
    
    (14,984,114
    )
    
    
    (8,642,651
    )
    
    
    (7,663,434
    )Portfolio loans, net of ALL
    
    
    504,410,247
    
    
    
    542,514,170
    
    
    
    545,821,694Mortgage loans held for sale
    
    
    7,317,872
    
    
    
    7,210,088
    
    
    
    5,328,679Federal Reserve Bank stock
    
    
    1,119,000
    
    
    
    1,014,000
    
    
    
    1,014,000Federal Home Loan Bank stock
    
    
    3,660,600
    
    
    
    3,545,100
    
    
    
    3,545,100Premises and equipment, net
    
    
    14,818,906
    
    
    
    15,624,792
    
    
    
    15,908,455Cash value of life insurance
    
    
    3,776,303
    
    
    
    3,674,106
    
    
    
    3,641,485Investment in BFNB Trusts
    
    
    310,000
    
    
    
    310,000
    
    
    
    310,000Other Real Estate Owned and repossessed assets
    
    
    9,652,972
    
    
    
    3,111,741
    
    
    
    2,381,215Other assets
    
    
    7,264,836
    
    
    
    9,806,424
    
    
    
    7,916,168Total assets
    
    $
    656,282,256
    
    
    $
    668,815,617
    
    
    $
    672,898,347Liabilities and shareholders equityLiabilitiesDepositsNoninterest bearing deposits
    
    $
    27,070,150
    
    
    $
    24,628,632
    
    
    $
    33,358,001Interest bearing deposits
    
    
    522,875,848
    
    
    
    508,730,077
    
    
    
    503,350,295Total deposits
    
    
    549,945,998
    
    
    
    533,358,709
    
    
    
    536,708,296Advances from Federal Home Loan Bank
    
    
    55,000,000
    
    
    
    55,000,000
    
    
    
    55,000,000Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    Other borrowings and repurchase agreements
    
    
    9,590,868
    
    
    
    16,165,022
    
    
    
    11,537,176Junior subordinated debentures
    
    
    10,310,000
    
    
    
    10,310,000
    
    
    
    10,310,000Other liabilities
    
    
    5,580,158
    
    
    
    4,263,797
    
    
    
    5,341,014Total liabilities
    
    $
    630,427,024
    
    
    $
    619,097,528
    
    
    $
    618,896,486Shareholders equityCommon stock, $1 par value; 10,000,000 shares
authorized; 4,845,018 issued and outstanding at
September 30, 2009, December 31, 2008,
and at September 30, 2008
    
    
    4,845,018
    
    
    
    4,845,018
    
    
    
    4,845,018Paid-in capital
    
    
    29,527,291
    
    
    
    29,513,166
    
    
    
    29,508,457Retained earnings (deficit)
    
    
    (9,141,581
    )
    
    
    14,875,309
    
    
    
    20,005,060Accumulated other comprehensive income (loss)
    
    
    624,504
    
    
    
    484,596
    
    
    
    (356,674
    )Total shareholders equity
    
    
    25,855,232
    
    
    
    49,718,089
    
    
    
    54,001,861Total liabilities and shareholders equity
    
    $
    656,282,256
    
    
    $
    668,815,617
    
    
    $
    672,898,347
   2




---



##### 



Beach First National Bancshares, Inc, and Subsidiaries
Consolidated Condensed Statements of Income
 Nine Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Interest incomeInterest and fees on loans
    
    $
    22,403,427
    
    
    $
    28,972,905
    
    
    $
    7,135,075
    
    
    $
    9,508,908Investment securities
    
    
    2,351,807
    
    
    
    2,757,353
    
    
    
    738,076
    
    
    
    851,011Fed funds sold and short term investments
    
    
    33,845
    
    
    
    111,185
    
    
    
    11,122
    
    
    
    24,300Other
    
    
    8,212
    
    
    
    13,486
    
    
    
    2,305
    
    
    
    4,041Total interest income
    
    
    24,797,291
    
    
    
    31,854,929
    
    
    
    7,886,578
    
    
    
    10,388,260Interest expenseDeposits
    
    
    11,945,734
    
    
    
    14,154,313
    
    
    
    3,433,000
    
    
    
    4,522,376Advances from the FHLB, federal funds purchased
and other borrowings
    
    
    1,937,910
    
    
    
    2,215,458
    
    
    
    641,027
    
    
    
    735,416Junior subordinated debentures
    
    
    273,106
    
    
    
    446,256
    
    
    
    76,642
    
    
    
    134,530Total interest expense
    
    
    14,156,750
    
    
    
    16,816,027
    
    
    
    4,150,669
    
    
    
    5,392,322Net interest income
    
    
    10,640,541
    
    
    
    15,038,902
    
    
    
    3,735,909
    
    
    
    4,995,938Provision for loan losses
    
    
    23,700,000
    
    
    
    2,291,000
    
    
    
    8,800,000
    
    
    
    977,000Net interest income (loss) after provision for loan losses
    
    
    (13,059,459
    )
    
    
    12,747,902
    
    
    
    (5,064,091
    )
    
    
    4,018,938Noninterest incomeService fees on deposit accounts
    
    
    158,692
    
    
    
    261,606
    
    
    
    51,385
    
    
    
    52,129Mortgage production related income
    
    
    5,221,676
    
    
    
    2,707,666
    
    
    
    1,255,215
    
    
    
    1,043,967Merchant income
    
    
    852,606
    
    
    
    737,825
    
    
    
    383,256
    
    
    
    352,996Income from cash value life insurance
    
    
    103,261
    
    
    
    102,537
    
    
    
    34,356
    
    
    
    29,954Gain (loss) on sale of investment securities
    
    
    158,830
    
    
    
    21,034
    
    
    
    (147,264
    )
    
    
    21,034Gain on sale of fixed assets
    
    
    
    
    
    
    220
    
    
    
    
    
    
    
    (Loss) on sale of OREO (and writedowns)
    
    
    (930,773
    )
    
    
    (409,439
    )
    
    
    (25,612
    )
    
    
    (406,548
    )Other income
    
    
    1,272,935
    
    
    
    810,685
    
    
    
    478,004
    
    
    
    291,741Total noninterest income
    
    
    6,837,227
    
    
    
    4,232,134
    
    
    
    2,029,340
    
    
    
    1,385,273Noninterest expenseSalaries and wages
    
    
    6,591,768
    
    
    
    5,665,648
    
    
    
    2,004,770
    
    
    
    1,991,960Employee benefits
    
    
    1,268,609
    
    
    
    1,245,430
    
    
    
    396,829
    
    
    
    445,577Supplies and printing
    
    
    85,101
    
    
    
    152,897
    
    
    
    29,340
    
    
    
    47,981Advertising and public relations
    
    
    189,126
    
    
    
    426,432
    
    
    
    21,192
    
    
    
    107,490Professional fees
    
    
    633,746
    
    
    
    525,943
    
    
    
    216,449
    
    
    
    186,783Depreciation and amortization
    
    
    850,787
    
    
    
    842,634
    
    
    
    277,539
    
    
    
    292,428Occupancy
    
    
    1,227,590
    
    
    
    1,190,710
    
    
    
    390,032
    
    
    
    384,468Data processing fees
    
    
    609,928
    
    
    
    844,434
    
    
    
    200,877
    
    
    
    207,909Mortgage production related expenses
    
    
    895,670
    
    
    
    596,794
    
    
    
    260,677
    
    
    
    217,776Merchant processing
    
    
    689,429
    
    
    
    685,406
    
    
    
    308,243
    
    
    
    279,224Other operating expenses
    
    
    4,620,853
    
    
    
    2,590,699
    
    
    
    1,633,825
    
    
    
    929,078Total noninterest expenses
    
    
    17,662,607
    
    
    
    14,767,027
    
    
    
    5,739,773
    
    
    
    5,090,674Income (loss) before income taxes
    
    
    (23,884,839
    )
    
    
    2,213,009
    
    
    
    (8,774,524
    )
    
    
    313,537Income tax (benefit) expense
    
    
    132,050
    
    
    
    791,374
    
    
    
    5,423,297
    
    
    
    112,122Net income (loss)
    
    $
    (24,016,889
    )
    
    $
    1,421,635
    
    
    $
    (14,197,821
    )
    
    $
    201,415Basic net income (loss) per common share
    
    $
    (4.96
    )
    
    $
    0.29
    
    
    $
    (2.93
    )
    
    $
    0.04Diluted net income (loss) per common share
    
    $
    (4.96
    )
    
    $
    0.29
    
    
    $
    (2.93
    )
    
    $
    0.04Weighted average common shares outstandingBasic
    
    
    4,845,018
    
    
    
    4,845,018
    
    
    
    4,845,018
    
    
    
    4,845,018Diluted
    
    
    4,845,018
    
    
    
    4,904,259
    
    
    
    4,845,018
    
    
    
    4,877,147
   3




---



##### 



Beach First National Bancshares, Inc. and Subsidiaries
Consolidated Condensed Statements of Changes in Shareholders Equity and Comprehensive Income
 AccumulatedOther
    
    
    TotalCommon stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance, December 31, 2007
    
    
    4,845,018
    
    
    $
    4,845,018
    
    
    $
    29,494,912
    
    
    $
    18,583,425
    
    
    $
    (345,305
    )
    
    $
    52,578,050Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,421,635
    
    
    
    
    
    
    
    1,421,635Other comprehensive income, net of taxes:Unrealized gain (loss) on investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,731
    
    
    
    19,731Unrealized gain (loss) on interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,100
    )
    
    
    (31,100
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,410,266Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    13,545
    
    
    
    
    
    
    
    
    
    
    
    13,545Balance, September 30, 2008
    
    
    4,845,018
    
    
    $
    4,845,018
    
    
    $
    29,508,457
    
    
    $
    20,005,060
    
    
    $
    (356,674
    )
    
    $
    54,001,861
 AccumulatedRetained
    
    
    Other
    
    
    TotalCommon stock
    
    
    Paid-in
    
    
    Earnings
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    (Deficit)
    
    
    Income
    
    
    EquityBalance, December 31, 2008
    
    
    
    
    
    $
    4,845,018
    
    
    $
    29,513,166
    
    
    $
    14,875,309
    
    
    $
    484,596
    
    
    $
    49,718,089Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,016,889
    )
    
    
    
    
    
    
    (24,016,889
    )Other comprehensive income, net of taxes:Unrealized gain (loss) on investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (138,562
    )
    
    
    (138,562
    )Plus reclassification adjustments for
gain included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202,022
    
    
    
    202,022Unrealized gain (loss) on interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,448
    
    
    
    76,448Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,876,981
    )Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    14,124
    
    
    
    
    
    
    
    
    
    
    
    14,124Balance, September 30, 2009
    
    
    4,845,018
    
    
    $
    4,845,018
    
    
    $
    29,527,290
    
    
    $
    (9,141,580
    )
    
    $
    624,504
    
    
    $
    25,855,232
   4




---



##### 



Beach First National Bancshares, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
 For the nine months ended
    
    
    For the year endedSeptember 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2008(Unaudited)
    
    
    (Unaudited)
    
    
    (Audited)Operating activitiesNet (loss) income
    
    $
    (24,016,889
    )
    
    $
    1,421,635
    
    
    $
    (3,708,116
    )Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    850,788
    
    
    
    842,634
    
    
    
    1,124,250Write-down on real estate acquired in settlement of loans
    
    
    430,000
    
    
    
    370,000
    
    
    
    420,000Proceeds from sale of mortgages held for sale
    
    
    224,361,539
    
    
    
    95,481,358
    
    
    
    116,079,020Disbursements for mortgages held for sale
    
    
    (224,469,323
    )
    
    
    (94,334,417
    )
    
    
    (116,813,489
    )Discount accretion and premium amortization
    
    
    6,712
    
    
    
    (210,306
    )
    
    
    (217,959
    )Deferred income taxes
    
    
    (918,764
    )
    
    
    
    
    
    
    (918,764
    )Provisions for loan losses
    
    
    23,700,000
    
    
    
    2,291,000
    
    
    
    10,491,000Mortgage recourse reserve provision
    
    
    20,000
    
    
    
    10,000
    
    
    
    230,000Gain on sale of fixed assets
    
    
    
    
    
    
    (220
    )
    
    
    (220
    )Gain on sale of investment securities
    
    
    (158,830
    )
    
    
    (21,034
    )
    
    
    (23,180
    )Loss on sale of other real estate owned
    
    
    500,773
    
    
    
    39,439
    
    
    
    353,909Stock based compensation expense
    
    
    14,124
    
    
    
    13,545
    
    
    
    18,254Other than temporary impairment of investment securities
    
    
    400,000
    
    
    
    
    
    
    
    (Increase) decrease in other assets
    
    
    3,504,111
    
    
    
    (183,454
    )
    
    
    (1,841,491
    )Increase (decrease) in other liabilities
    
    
    1,296,361
    
    
    
    (282,861
    )
    
    
    (1,580,078
    )Net cash provided by operating activities
    
    
    5,520,602
    
    
    
    5,437,319
    
    
    
    3,613,136Investing activitiesProceeds from paydowns of investment securities
    
    
    8,826,944
    
    
    
    5,817,012
    
    
    
    9,052,822Proceeds from sale of investment securities
    
    
    54,349,907
    
    
    
    25,204,000
    
    
    
    29,206,146Purchase of investment securities
    
    
    (69,568,087
    )
    
    
    (35,583,346
    )
    
    
    (41,376,937
    )Purchase of FHLB stock
    
    
    (115,500
    )
    
    
    (149,800
    )
    
    
    (149,800
    )Purchase of Federal Reserve Stock
    
    
    (105,000
    )
    
    
    (30,000
    )
    
    
    (30,000
    )Increase in loans, net
    
    
    2,806,496
    
    
    
    (56,472,657
    )
    
    
    (64,580,873
    )Increase in CSV of life insurance contracts
    
    
    (102,197
    )
    
    
    (86,678
    )
    
    
    (119,299
    )Purchase of property and equipment
    
    
    (44,902
    )
    
    
    (1,004,947
    )
    
    
    (1,035,517
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    220
    
    
    
    32,838Proceeds from sale of other real estate owned
    
    
    4,125,423
    
    
    
    2,081,208
    
    
    
    4,201,953Net cash (used in) provided by investing activities
    
    
    173,084
    
    
    
    (60,224,988
    )
    
    
    (64,798,667
    )Financing activitiesIncrease (decrease) in Federal funds purchased
    
    
    
    
    
    
    (6,508,005
    )
    
    
    (1,796,724
    )Net increase in deposits
    
    
    16,587,289
    
    
    
    72,509,951
    
    
    
    69,160,364Repayments of other borrowings
    
    
    (6,574,154
    )
    
    
    (242,967
    )
    
    
    (326,402
    )Net cash provided by financing activities
    
    
    10,013,135
    
    
    
    65,758,979
    
    
    
    67,037,238Net increase in cash and cash equivalents
    
    
    15,706,821
    
    
    
    10,971,310
    
    
    
    5,851,707Cash and cash equivalents beginning of period
    
    $
    11,410,385
    
    
    $
    5,558,678
    
    
    $
    5,558,678Cash and cash equivalents end of period
    
    $
    27,117,206
    
    
    $
    16,529,988
    
    
    $
    11,410,385Cash paid (received) forIncome taxes (refunds)
    
    $
    (2,517,575
    )
    
    $
    1,631,780
    
    
    $
    1,631,780Interest
    
    $
    14,475,739
    
    
    $
    17,093,065
    
    
    $
    22,469,561
   5




---



##### 



Earnings Review
  Regulatory Matters
 Formal Agreement and Individual Minimum Capital Ratio
       Asset quality
  Net interest margin
   6




---



##### 



Noninterest income
  Noninterest expense
  Capital
  Consent Order Effective November 4, 2009
     1. Basis of Presentation
     7




---



##### 



2. Principles of Consolidation
  3. Earnings per Share
   RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND DILUTED EPS COMPUTATIONS:
 For the nine months ended
    
    
    For the year endedSeptember 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2008Basic net income (loss) per share:Net income (loss)
    
    $
    (24,016,889
    )
    
    $
    1,421,635
    
    
    $
    (3,708,116
    )Average common shares outstanding  basic
    
    
    4,845,018
    
    
    
    4,845,018
    
    
    
    4,845,018Basic net income (loss) per share
    
    $
    (4.96
    )
    
    $
    0.29
    
    
    $
    (0.77
    )Diluted earnings per share:Net income (loss)
    
    $
    (24,016,889
    )
    
    $
    1,421,635
    
    
    $
    (3,708,116
    )Average common shares outstanding  basic
    
    
    4,845,018
    
    
    
    4,845,018
    
    
    
    4,845,018Incremental shares from assumed conversion
of stock options
    
    
    
    
    
    
    59,241
    
    
    
    Average common shares outstanding  diluted
    
    
    4,845,018
    
    
    
    4,904,259
    
    
    
    4,548,018Diluted net income (loss) per share
    
    $
    (4.96
    )
    
    $
    0.29
    
    
    $
    (0.77
    )
  4. Income Taxes
   8




---



##### 



September 30, 2009
    
    
    September 30, 2008Amount
    
    
    %
    
    
    Amount
    
    
    %Tax expense at statutory rate
    
    $
    (8,120,837
    )
    
    
    34
    %
    
    $
    752,423
    
    
    
    34
    %Valuation allowance for deferred tax asset
    
    
    8,252,887
    
    
    
    -35
    %
    
    
    0
    
    
    
    State bank tax (net of federal benefit)
    
    
    
    
    
    
    
    
    
    
    44,260
    
    
    
    2
    %Other
    
    
    
    
    
    
    
    
    
    
    (5,309
    )
    
    
    Tax provision
    
    $
    132,050
    
    
    
    -1
    %
    
    $
    791,374
    
    
    
    36
    %
  Deferred tax asset (liability)September 30,
    
    
    December 31,2009
    
    
    2008Allowance for loan losses
    
    $
    5,047,630
    
    
    $
    2,860,933Unused net operating loss benefit
    
    $
    5,268,888
    
    
    
    Unrealized gain on investment securities
    
    
    (321,714
    )
    
    
    (249,640
    )Depreciation
    
    
    (353,882
    )
    
    
    (302,882
    )Loan origination fees
    
    
    91,367
    
    
    
    99,867Non accrual loan income
    
    
    647,325
    
    
    
    426,325Deferred compensation
    
    
    469,103
    
    
    
    373,542Permanent impairment on investment security
    
    
    136,000
    
    
    
    Other
    
    
    327,663
    
    
    
    134,975Net deferred tax asset
    
    
    11,312,380
    
    
    
    3,343,120Valuation Allowance
    
    
    8,252,888
    
    
    
    Net deferred tax asset
    
    $
    3,059,492
    
    
    $
    3,343,120
    9




---



##### 



5. Investment Securities
  September 30, 2009Amortized
    
    
    Gross Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueGovernment sponsored enterprises
    
    $
    34,150,000
    
    
    $
    60,660
    
    
    $
    85,904
    
    
    $
    34,124,756Mortgage backed securities
    
    
    39,983,638
    
    
    
    1,250,556
    
    
    
    47,863
    
    
    $
    41,186,331Tax exempt securities
    
    
    1,085,632
    
    
    
    37,595
    
    
    
    
    
    
    $
    1,123,227Corporate
    
    
    403,590
    
    
    
    
    
    
    
    3,590
    
    
    $
    400,000Total securities
    
    $
    75,622,860
    
    
    $
    1,348,811
    
    
    $
    137,357
    
    
    $
    76,834,314
 December 31, 2008Amortized
    
    
    Gross Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueGovernment sponsored enterprises
    
    $
    12,456,243
    
    
    $
    179,193
    
    
    $
    
    
    
    $
    12,635,436Mortgage backed securities
    
    
    54,874,211
    
    
    
    1,303,430
    
    
    
    14,861
    
    
    $
    56,162,780Tax exempt securities
    
    
    1,342,270
    
    
    
    
    
    
    
    34,675
    
    
    $
    1,307,595Corporate
    
    
    806,783
    
    
    
    
    
    
    
    317,783
    
    
    $
    489,000Total securities
    
    $
    69,479,507
    
    
    $
    1,482,623
    
    
    $
    367,319
    
    
    $
    70,594,811
  Amortized cost
    
    
    Fair valueDue within one year
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    6,000,000
    
    
    
    6,001,580Due after five through ten years
    
    
    28,150,000
    
    
    
    28,123,176Due after ten years
    
    
    1,489,222
    
    
    
    1,523,227Sub-total
    
    
    35,639,222
    
    
    
    35,647,983Mortgage backed securities
    
    
    39,983,638
    
    
    
    41,186,331Total securities
    
    $
    75,622,860
    
    
    $
    76,834,314
  10




---



##### 



September 30, 2009Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesMortgage backed securities
    
    $
    26,066,138
    
    
    $
    133,767
    
    
    $
    
    
    
    $
    
    
    
    $
    26,066,138
    
    
    $
    133,767Tax exempt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    3,590
    
    
    
    400,000
    
    
    
    3,590Total
    
    $
    26,066,138
    
    
    $
    133,767
    
    
    $
    400,000
    
    
    $
    3,590
    
    
    $
    26,466,138
    
    
    $
    137,357
 December 31, 2008Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesMortgage backed securities
    
    $
    3,166,604
    
    
    $
    14,861
    
    
    $
    
    
    
    $
    
    
    
    $
    3,166,604
    
    
    $
    14,861Tax exempt securities
    
    
    1,307,595
    
    
    
    34,675
    
    
    
    
    
    
    
    
    
    
    
    1,307,595
    
    
    
    34,675Corporate
    
    
    489,000
    
    
    
    317,783
    
    
    
    
    
    
    
    
    
    
    
    489,000
    
    
    
    317,783Total
    
    $
    4,963,199
    
    
    $
    367,319
    
    
    $
    
    
    
    $
    
    
    
    $
    4,963,199
    
    
    $
    367,319
   6. Fair Value Measurements
   Level 1:
  11




---



##### 



Level 2:
 Level 3:
  Quoted Market
    
    
    Significant Other
    
    
    SignificantPrice in Active
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Available for sale investment securities
    
    
    
    
    
    $
    76,434,314
    
    
    $
    400,000Mortgage loans held for sale
    
    
    
    
    
    $
    7,317,872
    
    
    
    Interest rate swap agreement (liability)
    
    
    
    
    
    
    (602,808
    )
    
    
    Total
    
    $
    
    
    
    $
    83,149,378
    
    
    $
    
   Quoted Market
    
    
    Significant Other
    
    
    SignificantPrice in Active
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Other real estate owned
    
    
    
    
    
    
    
    
    
    $
    9,577,688Repossessed assets
    
    
    
    
    
    
    
    
    
    
    75,304Impaired Loans
    
    
    
    
    
    
    
    
    
    
    54,500,565Total
    
    $
    
    
    
    $
    
    
    
    $
    64,153,557
    12




---



##### 



September 30, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    valueFinancial Assets:Cash and due from banks
    
    $
    10,391,051
    
    
    $
    10,391,051
    
    
    $
    4,830,112
    
    
    $
    4,830,112Federal funds sold and short term investments
    
    
    16,726,155
    
    
    
    16,726,155
    
    
    
    6,580,273
    
    
    
    6,580,273Investment securities
    
    
    76,834,314
    
    
    
    76,834,314
    
    
    
    70,594,811
    
    
    
    70,594,811Loans, net of ALL
    
    
    504,410,247
    
    
    
    503,858,000
    
    
    
    542,514,170
    
    
    
    544,810,170Mortgage loans held for sale
    
    
    7,317,872
    
    
    
    7,317,872
    
    
    
    7,210,088
    
    
    
    7,210,088Federal Reserve Bank stock
    
    
    1,119,000
    
    
    
    1,119,000
    
    
    
    1,014,000
    
    
    
    1,014,000Federal Home Bank Loan Bank stock
    
    
    3,660,600
    
    
    
    3,660,600
    
    
    
    3,545,100
    
    
    
    3,545,100Trust preferred securities
    
    
    310,000
    
    
    
    310,000
    
    
    
    310,000
    
    
    
    310,000Cash value of life insurance
    
    
    3,776,303
    
    
    
    3,776,303
    
    
    
    3,674,106
    
    
    
    3,674,106Financial Liabilities:Deposits
    
    
    549,945,998
    
    
    
    549,559,000
    
    
    
    533,358,709
    
    
    
    538,096,709Advances from Federal Home Loan Bank
    
    
    55,000,000
    
    
    
    57,090,000
    
    
    
    55,000,000
    
    
    
    57,834,000Federal funds purchased and other borrowings
    
    
    9,590,868
    
    
    
    9,590,868
    
    
    
    16,165,022
    
    
    
    16,165,022Junior subordinated debt
    
    
    10,310,000
    
    
    
    10,310,000
    
    
    
    10,310,000
    
    
    
    10,310,000
 7. Business Segment Reporting
    13




---



##### 



Bank
    
    
    Mortgage
    
    
    ConsolidatedSeptember 30, 2009Net interest income
    
    $
    10,337,717
    
    
    $
    302,824
    
    
    $
    10,640,541Provision for loan losses
    
    
    23,700,000
    
    
    
    
    
    
    
    23,700,000Other income
    
    
    1,517,873
    
    
    
    5,319,354
    
    
    
    6,837,227Noninterest expenses
    
    
    12,550,406
    
    
    
    5,112,201
    
    
    
    17,662,607Net income (loss)
    
    
    (24,526,866
    )
    
    
    509,977
    
    
    
    (24,016,889
    )End of period assets
    
    
    648,742,082
    
    
    
    7,540,174
    
    
    
    656,282,256
 Bank
    
    
    Mortgage
    
    
    ConsolidatedSeptember 30, 2008Net interest income
    
    $
    14,703,629
    
    
    $
    335,273
    
    
    $
    15,038,902Provision for loan losses
    
    
    2,290,050
    
    
    
    950
    
    
    
    2,291,000Other income
    
    
    1,567,265
    
    
    
    2,664,869
    
    
    
    4,232,134Noninterest expenses
    
    
    11,409,431
    
    
    
    3,357,596
    
    
    
    14,767,027Net income (loss)
    
    
    1,653,980
    
    
    
    (232,345
    )
    
    
    1,421,635End of period assets
    
    
    666,898,945
    
    
    
    5,999,402
    
    
    
    672,898,347
  8. Subsequent Events
  Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
   
    
    our efforts to raise capital or otherwise increase our regulatory capital ratios;
 
    
    the effects of our efforts to raise capital on our balance sheet and liquidity;
 
    
    the OCC, the Federal Reserve Bank (FRB), or the Federal Deposit Insurance Corporation
(FDIC) taking additional significant regulatory action due to cumulative losses and our
capital position;
 
    
    the ability to comply with the terms of the Consent Order between the Bank and the OCC
within the timeframes specified;
  14




---



##### 




    
    the ability to continue as a going concern;
 
    
    the adequacy of the level of our allowance for loan loss;
 
    
    our reliance on local funding, federal funds lines of credit from correspondent banks,
and other allowable funding sources, to meet our liquidity needs;
 
    
    limitation on our ability to use secondary funding sources such as Federal Home Loan
Bank advances, and brokered deposits, to meet our funding needs;
 
    
    our ability to retain our existing customers, including our deposit relationships;
 
    
    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;
 
    
    reduced earnings due to higher credit losses because our loans are concentrated by loan
type within the real estate segment, industry, borrower type, or location of the borrower
or collateral;
 
    
    changes in political conditions or the legislative or regulatory environment;
 
    
    general economic conditions, either nationally or regionally and especially in our
primary service area, continuing to be weak, resulting in, among other things, a
deterioration in credit quality;
 
    
    the rate of delinquencies, non-accrual loans, and amounts of charge-offs;
 
    
    the rates of loan growth and seasoning in our loan portfolio;
 
    
    adverse changes in asset quality and resulting credit risk-related losses and expenses
including the risk of further impairment to the value of our collateral on loans for which
we have already taken specific reserves;
 
    
    higher than anticipated levels of defaults on loans;
 
    
    the amount of our real estate-based loans and the weakness in the commercial real estate
market;
 
    
    changes occurring in business conditions and inflation;
 
    
    changes in management;
 
    
    changes in technology;
 
    
    changes in deposit flows;
 
    
    instability of the U.S. financial system;
 
    
    the nationalization of the banking industry;
 
    
    changes in monetary and tax policies;
 
    
    loss of consumer confidence and economic disruptions resulting from terrorist
activities;
 
    
    changes in the securities markets;
 
    
    other risks and uncertainties detailed from time to time in our filings with the SEC;
and
 
    
    natural disasters, such as a hurricane or flooding in our primary service area.
   Critical Accounting Policies
    15




---



##### 



Overview
       16




---



##### 



Results of Operations
 Earnings Review
     Net Interest Income
     17




---



##### 



Average Balances, Income and Expenses, and RatesFor the nine months ended September 30,2009
    
    
    2008Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateFederal funds sold, short term
investments and trust preferred
securities
    
    $
    15,847,135
    
    
    $
    33,845
    
    
    
    0.29
    %
    
    $
    5,671,960
    
    
    $
    111,185
    
    
    
    2.62
    %Investment securities plus FHLB
and FRB stock
    
    
    82,146,482
    
    
    
    2,360,019
    
    
    
    3.84
    %
    
    
    73,195,278
    
    
    
    2,770,839
    
    
    
    5.06
    %Loans
    
    
    563,946,939
    
    
    
    22,403,427
    
    
    
    5.31
    %
    
    
    546,539,465
    
    
    
    28,972,905
    
    
    
    7.08
    %Total earning assets
    
    $
    661,940,556
    
    
    $
    24,797,291
    
    
    
    5.01
    %
    
    $
    625,406,703
    
    
    $
    31,854,929
    
    
    
    6.80
    %Cash and due from banks
    
    
    6,877,662
    
    
    
    
    
    
    
    
    
    
    
    6,298,178Other assets
    
    
    24,746,762
    
    
    
    
    
    
    
    
    
    
    
    22,051,983Total assets
    
    $
    693,564,980
    
    
    
    
    
    
    
    
    
    
    $
    653,756,864Total interest-bearing deposits
    
    $
    537,108,819
    
    
    $
    11,945,734
    
    
    
    2.97
    %
    
    $
    479,531,765
    
    
    $
    14,154,314
    
    
    
    3.94
    %Other borrowings
    
    
    79,531,096
    
    
    
    2,211,016
    
    
    
    3.72
    %
    
    
    80,672,564
    
    
    
    2,661,713
    
    
    
    4.41
    %Total interest-bearing liabilities
    
    $
    616,639,915
    
    
    $
    14,156,750
    
    
    
    3.07
    %
    
    $
    560,204,329
    
    
    $
    16,816,027
    
    
    
    4.01
    %Demand deposits
    
    
    27,103,480
    
    
    
    
    
    
    
    
    
    
    
    34,889,247Other liabilities
    
    
    5,519,244
    
    
    
    
    
    
    
    
    
    
    
    5,287,129Total liabilities
    
    $
    649,262,639
    
    
    
    
    
    
    
    
    
    
    $
    600,380,705Equity capital
    
    
    44,302,341
    
    
    
    
    
    
    
    
    
    
    
    53,376,159Total liabilities and equity
    
    $
    693,564,980
    
    
    
    
    
    
    
    
    
    
    $
    653,756,864Net interest spread
    
    
    
    
    
    
    
    
    
    
    1.94
    %
    
    
    
    
    
    
    
    
    
    
    2.79
    %Net interest income/margin
    
    
    
    
    
    $
    10,640,541
    
    
    
    2.15
    %
    
    
    
    
    
    $
    15,038,902
    
    
    
    3.21
    %
  18




---



##### 



Analysis of Changes in Net Interest IncomeFor the nine months ended September 30,2009 versus 2008Volume
    
    
    Rate
    
    
    Net changeFederal funds sold and short term
investments and trust preferred
securities
    
    $
    21,629
    
    
    $
    (98,969
    )
    
    $
    (77,340
    )Investment securities
    
    
    254,613
    
    
    
    (665,433
    )
    
    
    (410,820
    )Loans
    
    
    664,878
    
    
    
    (7,234,356
    )
    
    
    (6,569,478
    )Total earning assets
    
    
    941,120
    
    
    
    (7,998,758
    )
    
    
    (7,057,638
    )Interest-bearing deposits
    
    
    1,267,540
    
    
    
    (3,476,119
    )
    
    
    (2,208,579
    )Other borrowings
    
    
    (34,183
    )
    
    
    (416,515
    )
    
    
    (450,698
    )Total interest-bearing liabilities
    
    
    1,233,357
    
    
    
    (3,892,634
    )
    
    
    (2,659,277
    )Net interest income (loss)
    
    $
    (292,237
    )
    
    $
    (4,106,124
    )
    
    $
    (4,398,361
    )
 Provision for Loan Losses
   Noninterest Income
    Noninterest Expense
   19




---



##### 



For the nine months endedSeptember 30,2009
    
    
    2008Noninterest expenses
    
    $
    17,662,607
    
    
    $
    14,767,027Mortgage production related expenses
    
    
    895,670
    
    
    
    596,794Mortgage origination commissions based on volume
    
    
    2,228,010
    
    
    
    1,250,825FDIC premiums
    
    
    1,645,010
    
    
    
    245,356Regulatory and exam fees
    
    
    181,063
    
    
    
    110,960Credit and collection expenses
    
    
    926,864
    
    
    
    334,184Foreclosure related expenses
    
    
    307,773
    
    
    
    22,877Adjusted noninterest expense
    
    $
    11,478,217
    
    
    $
    12,206,031
         20




---



##### 



Other Operating ExpensesFor the nine months ended
    
    
    For the three months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Telephone
    
    $
    108,714
    
    
    $
    128,058
    
    
    $
    34,852
    
    
    $
    39,629Postage and freight
    
    
    98,922
    
    
    
    92,543
    
    
    
    26,980
    
    
    
    31,516Armored car
    
    
    22,399
    
    
    
    52,692
    
    
    
    9,439
    
    
    
    9,403Credit and collection-bank
    
    
    926,864
    
    
    
    334,184
    
    
    
    371,045
    
    
    
    155,112Dues and subscriptions
    
    
    106,964
    
    
    
    122,589
    
    
    
    34,633
    
    
    
    43,137Employee travel, conferences, meals, and lodging
    
    
    63,461
    
    
    
    141,247
    
    
    
    17,475
    
    
    
    51,603Business development and donations
    
    
    166,286
    
    
    
    277,100
    
    
    
    47,156
    
    
    
    90,239FDIC insurance
    
    
    1,645,010
    
    
    
    245,356
    
    
    
    503,994
    
    
    
    95,111Other insurance
    
    
    36,324
    
    
    
    40,596
    
    
    
    11,803
    
    
    
    15,176Debit/ATM
    
    
    95,265
    
    
    
    89,769
    
    
    
    31,147
    
    
    
    34,493Credit card processing fees
    
    
    62,717
    
    
    
    43,802
    
    
    
    18,349
    
    
    
    16,241Software maintenance
    
    
    206,321
    
    
    
    208,683
    
    
    
    80,490
    
    
    
    73,881Director BOLI
    
    
    151,690
    
    
    
    100,219
    
    
    
    82,530
    
    
    
    32,540Mortgage recourse expense
    
    
    20,000
    
    
    
    20,000
    
    
    
    20,000
    
    
    
    10,000Foreclosure related expense
    
    
    307,773
    
    
    
    22,877
    
    
    
    175,750
    
    
    
    (14,144
    )Director advisory fees
    
    
    128,675
    
    
    
    220,676
    
    
    
    43,524
    
    
    
    76,002Furniture and equipment
    
    
    151,112
    
    
    
    240,936
    
    
    
    59,154
    
    
    
    67,173Other operating expenses
    
    
    322,356
    
    
    
    209,372
    
    
    
    65,504
    
    
    
    101,966Total
    
    $
    4,620,853
    
    
    $
    2,590,699
    
    
    $
    1,633,825
    
    
    $
    929,078
  Balance Sheet Review
 General
  Investment Securities
   21




---



##### 



Loans
   Composition of Loan PortfolioSeptember 30, 2009
    
    
    December 31, 2008
    
    
    September 30, 2008Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of TotalCommercial
    
    $
    55,265,225
    
    
    
    10.6
    %
    
    $
    59,040,069
    
    
    
    10.7
    %
    
    $
    57,369,241
    
    
    
    10.4
    %Real estate  construction
    
    
    14,399,438
    
    
    
    2.8
    %
    
    
    33,741,466
    
    
    
    6.1
    %
    
    
    48,597,643
    
    
    
    8.8
    %Real estate  mortgage
    
    
    441,679,764
    
    
    
    85.1
    %
    
    
    448,970,087
    
    
    
    81.4
    %
    
    
    438,913,742
    
    
    
    79.2
    %Consumer
    
    
    8,215,952
    
    
    
    1.5
    %
    
    
    9,700,120
    
    
    
    1.8
    %
    
    
    8,956,047
    
    
    
    1.6
    %Portfolio loans, gross
    
    
    519,560,379
    
    
    
    100.0
    %
    
    
    551,451,742
    
    
    
    100.0
    %
    
    
    553,836,673
    
    
    
    100.0
    %Unearned loan fees and costs, net
    
    
    (166,018
    )
    
    
    
    
    
    
    (294,921
    )
    
    
    
    
    
    
    (351,545
    )Allowance for possible loan losses
    
    
    (14,984,114
    )
    
    
    
    
    
    
    (8,642,651
    )
    
    
    
    
    
    
    (7,663,434
    )Portfolio loans, net
    
    
    504,410,247
    
    
    
    
    
    
    
    542,514,170
    
    
    
    
    
    
    
    545,821,694Mortgage loans held for sale
    
    
    7,317,872
    
    
    
    
    
    
    
    7,210,088
    
    
    
    
    
    
    
    5,328,679Loans, net
    
    $
    511,728,119
    
    
    
    
    
    
    $
    549,724,258
    
    
    
    
    
    
    $
    551,150,373
  Allowance for Loan Losses
   22




---



##### 



General Allocations
  Composition of Loan Portfolio ($ in thousands)September 30, 2009
    
    
    December 31, 2008
    
    
    September 30, 2008Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of TotalConstruction and land
    
    $
    132,453
    
    
    
    25.5
    %
    
    $
    145,143
    
    
    
    26.3
    %
    
    $
    161,076
    
    
    
    29.1
    %1-4 family and multi-family
    
    
    165,132
    
    
    
    31.8
    %
    
    
    177,842
    
    
    
    32.2
    %
    
    
    172,612
    
    
    
    31.2
    %Commercial real estate
    
    
    163,215
    
    
    
    31.4
    %
    
    
    165,861
    
    
    
    30.1
    %
    
    
    159,213
    
    
    
    28.7
    %Commercial
    
    
    50,826
    
    
    
    9.8
    %
    
    
    53,340
    
    
    
    9.7
    %
    
    
    52,362
    
    
    
    9.5
    %Other
    
    
    7,934
    
    
    
    1.5
    %
    
    
    9,266
    
    
    
    1.7
    %
    
    
    8,574
    
    
    
    1.5
    %Portfolio loans, gross
    
    
    519,560
    
    
    
    100.0
    %
    
    
    551,452
    
    
    
    100.0
    %
    
    
    553,837
    
    
    
    100.0
    %Unearned loan fees and costs, net
    
    
    (166
    )
    
    
    
    
    
    
    (295
    )
    
    
    
    
    
    
    (352
    )Allowance for possible loan losses
    
    
    (14,984
    )
    
    
    
    
    
    
    (8,643
    )
    
    
    
    
    
    
    (7,663
    )Portfolio loans, net
    
    
    504,410
    
    
    
    
    
    
    
    542,514
    
    
    
    
    
    
    
    545,822Mortgage loans held for sale
    
    
    7,318
    
    
    
    
    
    
    
    7,210
    
    
    
    
    
    
    
    5,328Loans, net
    
    $
    511,728
    
    
    
    
    
    
    $
    549,724
    
    
    
    
    
    
    $
    551,150
  Net charge-offs by quarter($ in thousands)3rd Quarter
    
    
    2nd Quarter
    
    
    1st Quarter
    
    
    4th Quarter
    
    
    3rd Quarter2009
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008Amount
    
    
    Amount
    
    
    Amount
    
    
    Amount
    
    
    AmountConstruction and land
    
    $
    3,085
    
    
    $
    1,064
    
    
    $
    2,073
    
    
    $
    2,407
    
    
    $
    1-4 family and multi-family
    
    
    2,856
    
    
    
    1,510
    
    
    
    3,917
    
    
    
    2,891
    
    
    
    498Commercial real estate
    
    
    318
    
    
    
    368
    
    
    
    394
    
    
    
    993
    
    
    
    202Commercial
    
    
    340
    
    
    
    42
    
    
    
    1,003
    
    
    
    875
    
    
    
    228Other
    
    
    252
    
    
    
    91
    
    
    
    46
    
    
    
    55
    
    
    
    31Net charge-offs by quarter
    
    $
    6,851
    
    
    $
    3,075
    
    
    $
    7,433
    
    
    $
    7,221
    
    
    $
    959
      23




---



##### 



Specific Allocations
     Composition of nonaccrual loans($ in thousands)September 30,
    
    
    December 31,
    
    
    September 30,2009
    
    
    2008
    
    
    2008Construction and land
    
    $
    24,080
    
    
    $
    8,805
    
    
    $
    7,2831-4 family and multi- family
    
    
    15,248
    
    
    
    6,858
    
    
    
    7,828Commercial real estate
    
    
    10,075
    
    
    
    1,676
    
    
    
    2,490Commercial
    
    
    1,522
    
    
    
    819
    
    
    
    275Other
    
    
    53
    
    
    
    27
    
    
    
    11Non accrual loans
    
    $
    50,978
    
    
    $
    18,185
    
    
    $
    17,887
  24




---



##### 



25




---



##### 



Allowance for Loan LossesNine months
    
    
    Year
    
    
    Nine monthsended
    
    
    ended
    
    
    endedSeptember 30,
    
    
    December 31,
    
    
    September 30,2009
    
    
    2008
    
    
    2008Average total loans outstanding
    
    $
    563,946,939
    
    
    $
    549,953,836
    
    
    $
    546,539,465Total loans outstanding at period end
    
    
    526,712,233
    
    
    
    558,366,909
    
    
    
    558,813,807Total nonperforming loans
    
    
    57,332,069
    
    
    
    19,968,441
    
    
    
    17,887,473Beginning balance of allowance
    
    
    8,642,651
    
    
    
    6,935,616
    
    
    
    6,935,616Loans charged off
    
    
    (17,472,514
    )
    
    
    (8,858,354
    )
    
    
    (1,582,032
    )Total recoveries
    
    
    113,977
    
    
    
    74,389
    
    
    
    18,850Net loans charged off
    
    
    (17,358,537
    )
    
    
    (8,783,965
    )
    
    
    (1,563,182
    )Provision for loan losses
    
    
    23,700,000
    
    
    
    10,491,000
    
    
    
    2,291,000Balance at period end
    
    $
    14,984,114
    
    
    $
    8,642,651
    
    
    $
    7,663,434Net charge-offs to average total loans (annualized)
    
    
    4.12
    %
    
    
    1.60
    %
    
    
    0.38
    %Allowance as a percent of total loans
    
    
    2.84
    %
    
    
    1.55
    %
    
    
    1.37
    %Allowance as a percent of portfolio loans
    
    
    2.88
    %
    
    
    1.57
    %
    
    
    1.38
    %Allowance as a percentage of nonperforming loans
    
    
    26.14
    %
    
    
    43.28
    %
    
    
    42.84
    %
   Allocation of the Allowance for Loan LossesAs of September 30, 2009Commercial
    
    $
    1,605,524
    
    
    
    10.5
    %Real estate  construction
    
    
    2,319,126
    
    
    
    2.7
    %Real estate  mortgage
    
    
    10,582,867
    
    
    
    85.2
    %Consumer
    
    
    187,070
    
    
    
    1.6
    %Unallocated
    
    
    289,527
    
    
    
    Total allowance for loan losses
    
    $
    14,984,114
    
    
    
    100.0
    %
 Nonperforming Assets/Other Real Estate Owned and Repossessed Assets
   26




---



##### 



For the nine months ended
    
    
    For the year endedSeptember 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2008Impaired loans with specific allowance
    
    $
    28,742,932
    
    
    $
    12,073,909
    
    
    $
    11,210,569Impaired loans with no specific allowance
    
    
    25,757,633
    
    
    
    5,813,566
    
    
    
    18,367,715Total impaired loans (quarter end)
    
    
    54,500,565
    
    
    
    17,887,475
    
    
    
    29,578,284Related allowance (quarter end)
    
    
    7,137,331
    
    
    
    3,273,459
    
    
    
    3,107,168Interest income recognized
    
    
    33,563
    
    
    
    45,125
    
    
    
    1,584,491Foregone interest
    
    
    802,473
    
    
    
    283,552
    
    
    
    1,222,542Average recorded investment on impaired
    
    
    36,771,994
    
    
    
    11,281,545
    
    
    
    21,148,317
    Deposits
   DepositsSeptember 30, 2009
    
    
    December 31, 2008
    
    
    September 30, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofAmount
    
    
    Deposits
    
    
    Amount
    
    
    Deposits
    
    
    Amount
    
    
    DepositsDemand deposit accounts
    
    $
    27,070,150
    
    
    
    4.9
    %
    
    $
    24,628,632
    
    
    
    4.6
    %
    
    $
    33,358,001
    
    
    
    6.2
    %Interest bearing checking accounts
    
    
    41,567,853
    
    
    
    7.6
    %
    
    
    15,916,904
    
    
    
    3.0
    %
    
    
    21,826,376
    
    
    
    4.1
    %Money market accounts
    
    
    75,787,209
    
    
    
    13.8
    %
    
    
    90,708,621
    
    
    
    17.0
    %
    
    
    128,220,053
    
    
    
    23.9
    %Savings accounts
    
    
    3,373,796
    
    
    
    0.6
    %
    
    
    3,491,913
    
    
    
    0.7
    %
    
    
    3,329,978
    
    
    
    0.6
    %Time deposits less than $100,000
    
    
    172,264,723
    
    
    
    31.3
    %
    
    
    150,533,893
    
    
    
    28.2
    %
    
    
    127,250,013
    
    
    
    23.7
    %Time deposits of $100,000 or more
    
    
    168,273,169
    
    
    
    30.6
    %
    
    
    151,329,497
    
    
    
    28.4
    %
    
    
    131,046,032
    
    
    
    24.4
    %Brokered CDs
    
    
    42,186,000
    
    
    
    7.7
    %
    
    
    74,785,000
    
    
    
    14.0
    %
    
    
    75,084,000
    
    
    
    14.0
    %CDARS deposits
    
    
    19,423,098
    
    
    
    3.5
    %
    
    
    21,964,249
    
    
    
    4.1
    %
    
    
    16,593,843
    
    
    
    3.1
    %Total deposits
    
    $
    549,945,998
    
    
    
    100.0
    %
    
    $
    533,358,709
    
    
    
    100.00
    %
    
    $
    536,708,296
    
    
    
    100.00
    %
   27




---



##### 




    
    All newly issued senior unsecured debt (up to $1.5 trillion) issued on or before June
30, 2009, including promissory notes, commercial paper, inter-bank funding, and any
unsecured portion of secured debt. For eligible debt issued on or before June 30, 2009,
coverage would only be provided for three years beyond that date, even if the liability has
not matured; and
 
    
    Funds in non-interest-bearing transaction deposit accounts, or interest bearing
transactions accounts as long as the interest paid is less than 0.50%, held by FDIC-insured
banks until June 30, 2010.
  Advances from Federal Home Loan Bank
  Current
    
    
    Maturity
    
    
    OptionFHLB Description
    
    Balance
    
    
    Rate
    
    
    Date
    
    
    DateFixed rate advances:Fixed rate
    
    $
    10,000,000
    
    
    
    5.36
    %
    
    
    06/04/10
    
    
    
    Fixed rate hybrid
    
    
    5,000,000
    
    
    
    4.76
    %
    
    
    10/21/10
    
    
    
    Convertible
    
    
    7,500,000
    
    
    
    4.51
    %
    
    
    11/23/10
    
    
    
    Convertible
    
    
    5,000,000
    
    
    
    3.68
    %
    
    
    07/13/15
    
    
    
    10/13/09Convertible
    
    
    5,000,000
    
    
    
    4.06
    %
    
    
    09/29/15
    
    
    
    Convertible
    
    
    5,000,000
    
    
    
    4.16
    %
    
    
    03/13/17
    
    
    
    12/14/09Convertible
    
    
    7,500,000
    
    
    
    4.39
    %
    
    
    04/13/17
    
    
    
    10/13/09Variable rate advances:Prime based advance
    
    
    10,000,000
    
    
    
    0.41
    %
    
    
    9/19/2011
    
    
    
    $
    55,000,000
  28




---



##### 



Junior Subordinated Debentures
  Capital Resources
       29




---



##### 



Liquidity Management
    Interest Rate Sensitivity
     30




---



##### 



Off Balance Sheet Risk
     Impact of Inflation
   Recently Issued Accounting Standards
    31




---



##### 



32




---



##### 



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
   Item 4.
    
    Controls and Procedures
   PART II
 OTHER INFORMATION
 Item 1.
    
    Legal Proceedings
  Item 1A.
    
    Risk Factors
  Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
   33




---



##### 



Item 3.
    
    Defaults Upon Senior Securities
  Item 4.
    
    Submission of Matters to a Vote of Security Holders
  Item 5.
    
    Other Information
  Item 6.
    
    Exhibits
 Exhibit
    
    Description31.1
    
    
    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.
  34




---



##### 



BEACH FIRST NATIONAL BANCSHARES, INC.Date:  November 13, 2009
    By:
    /s/ Walter E. Standish, IIIWalter E. Standish, IIIPresident and Chief Executive OfficerDate: November 13, 2009
    By:
    /s/ Gary S. AustinGary S. AustinChief Financial and Principal Accounting Officer  35




---



##### 



ExhibitNumber
    
    Description31.1
    
    
    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.
  36