##### Table of Contents



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: March 31, 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




---



TABLE OF CONTENTS  PART IItem 1. Financial StatementsConsolidated Condensed Balance SheetsConsolidated Condensed Statements of IncomeConsolidated Condensed Statements of Changes in Shareholders Equity and Comprehensive IncomeConsolidated Condensed Statements of Cash FlowsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESINDEX TO EXHIBITSExhibit 31.1 Rule 13a-14(a) Certification of the Principal Executive Officer.Exhibit 31.2 Rule 13a-14(a) Certification of the Principal Financial Officer.Exhibit 32 Section 1350 Certifications.    Table of Contents  
 
 PART I FINANCIAL INFORMATION
 
 
 Item 1. Financial Statements
 Beach First National Bancshares, Inc. and Subsidiaries
 
 
 Consolidated Condensed Balance Sheets
 March 31,
    
    
    December 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2008(unaudited)
    
    
    (audited)
    
    
    (unaudited)AssetsCash and due from banks
    
    $
    7,256,323
    
    
    $
    4,830,112
    
    
    $
    5,544,916Short-term investments
    
    
    1,064,980
    
    
    
    1,469,273
    
    
    
    2,091,864Federal funds sold
    
    
    34,734,000
    
    
    
    5,111,000
    
    
    
    Total cash and cash equivalents
    
    
    43,055,303
    
    
    
    11,410,385
    
    
    
    7,636,780Investment securities
    
    
    79,164,351
    
    
    
    70,594,811
    
    
    
    66,305,216Portfolio loans
    
    
    547,301,998
    
    
    
    551,156,821
    
    
    
    531,546,872Allowance for loan losses (ALL)
    
    
    (9,709,438
    )
    
    
    (8,642,651
    )
    
    
    (7,519,960
    )Portfolio loans, net of ALL
    
    
    537,592,560
    
    
    
    542,514,170
    
    
    
    524,026,912Mortgage loans held for sale
    
    
    28,691,672
    
    
    
    7,210,088
    
    
    
    7,356,399Federal Reserve Bank stock
    
    
    1,014,000
    
    
    
    1,014,000
    
    
    
    984,000Federal Home Loan Bank stock
    
    
    3,660,600
    
    
    
    3,545,100
    
    
    
    3,545,100Premises and equipment, net
    
    
    15,347,804
    
    
    
    15,624,792
    
    
    
    16,188,434Cash value of life insurance
    
    
    3,707,591
    
    
    
    3,674,106
    
    
    
    3,582,672Investment in BFNB Trusts
    
    
    310,000
    
    
    
    310,000
    
    
    
    310,000OREO and repossessed assets
    
    
    4,118,000
    
    
    
    3,111,741
    
    
    
    1,545,647Other assets
    
    
    11,873,946
    
    
    
    9,806,424
    
    
    
    7,326,077Total assets
    
    $
    728,535,827
    
    
    $
    668,815,617
    
    
    $
    638,807,237Liabilities and shareholders equityLiabilitiesDepositsNoninterest bearing deposits
    
    $
    24,630,897
    
    
    $
    24,628,632
    
    
    $
    35,925,681Interest bearing deposits
    
    
    573,551,361
    
    
    
    508,730,077
    
    
    
    456,751,651Total deposits
    
    
    598,182,258
    
    
    
    533,358,709
    
    
    
    492,677,332Advances from Federal Home Loan Bank
    
    
    55,000,000
    
    
    
    55,000,000
    
    
    
    55,000,000Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    14,327,199Other borrowings and repurchase agreements
    
    
    15,495,466
    
    
    
    16,165,022
    
    
    
    8,081,951Junior subordinated debentures
    
    
    10,310,000
    
    
    
    10,310,000
    
    
    
    10,310,000Other liabilities
    
    
    4,634,545
    
    
    
    4,263,797
    
    
    
    4,595,991Total liabilities
    
    $
    683,622,269
    
    
    $
    619,097,528
    
    
    $
    584,992,473Shareholders equityCommon stock, $1 par value; 10,000,000 shares
authorized; 4,845,018 issued and outstanding at
March 31, 2009, December 31, 2008,
and at March 31, 2008
    
    
    4,845,018
    
    
    
    4,845,018
    
    
    
    4,845,018Paid-in capital
    
    
    29,517,874
    
    
    
    29,513,166
    
    
    
    29,499,042Retained earnings
    
    
    9,916,995
    
    
    
    14,875,309
    
    
    
    19,467,138Accumulated other comprehensive income
    
    
    633,671
    
    
    
    484,596
    
    
    
    3,566Total shareholders equity
    
    
    44,913,558
    
    
    
    49,718,089
    
    
    
    53,814,764Total liabilities and shareholders equity
    
    $
    728,535,827
    
    
    $
    668,815,617
    
    
    $
    638,807,237
   2




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##### Table of Contents



Beach First National Bancshares, Inc, and Subsidiaries
 
 
 Consolidated Condensed Statements of Income
 Three Months
    
    
    For the YearEnded
    
    
    EndedMarch 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2008(Unaudited)
    
    
    (Unaudited)
    
    
    (Audited)Interest incomeInterest and fees on loans
    
    $
    7,778,959
    
    
    $
    10,159,454
    
    
    $
    37,640,681Investment securities
    
    
    814,356
    
    
    
    998,444
    
    
    
    3,585,613Fed funds sold and short term investments
    
    
    7,262
    
    
    
    71,602
    
    
    
    117,346Other
    
    
    3,202
    
    
    
    5,312
    
    
    
    18,355Total interest income
    
    
    8,603,779
    
    
    
    11,234,812
    
    
    
    41,361,995Interest expenseDeposits
    
    
    4,367,102
    
    
    
    5,088,607
    
    
    
    18,650,819Advances from the FHLB, federal funds purchased
and other borrowings
    
    
    652,727
    
    
    
    751,453
    
    
    
    2,920,770Junior subordinated debentures
    
    
    106,492
    
    
    
    174,378
    
    
    
    588,316Total interest expense
    
    
    5,126,321
    
    
    
    6,014,438
    
    
    
    22,159,905Net interest income
    
    
    3,477,458
    
    
    
    5,220,374
    
    
    
    19,202,090Provision for loan losses
    
    
    8,500,000
    
    
    
    746,000
    
    
    
    10,491,000Net interest income after provision for possible loan losses
    
    
    (5,022,542
    )
    
    
    4,474,374
    
    
    
    8,711,090Noninterest incomeService fees on deposit accounts
    
    
    54,445
    
    
    
    154,044
    
    
    
    315,141Mortgage production related income
    
    
    1,708,668
    
    
    
    740,001
    
    
    
    3,447,728Merchant income
    
    
    188,624
    
    
    
    153,687
    
    
    
    892,113Income from cash value life insurance
    
    
    50,947
    
    
    
    33,527
    
    
    
    23,180Gain on sale of investment securities
    
    
    34,549
    
    
    
    
    
    
    
    140,997Gain on sale of fixed assets
    
    
    
    
    
    
    220
    
    
    
    220(Loss) on sale of OREO (and writedowns)
    
    
    (203,200
    )
    
    
    (390
    )
    
    
    (773,909
    )Other income
    
    
    708,535
    
    
    
    298,934
    
    
    
    1,185,603Total noninterest income
    
    
    2,542,568
    
    
    
    1,380,023
    
    
    
    5,231,073Noninterest expenseSalaries and wages
    
    
    2,183,078
    
    
    
    1,697,881
    
    
    
    7,333,941Employee benefits
    
    
    414,991
    
    
    
    401,208
    
    
    
    1,744,719Supplies and printing
    
    
    26,208
    
    
    
    52,267
    
    
    
    204,474Advertising and public relations
    
    
    87,896
    
    
    
    182,400
    
    
    
    521,099Professional fees
    
    
    183,498
    
    
    
    142,436
    
    
    
    742,836Depreciation and amortization
    
    
    286,955
    
    
    
    268,937
    
    
    
    1,124,250Occupancy
    
    
    426,548
    
    
    
    410,615
    
    
    
    1,652,406Data processing fees
    
    
    202,549
    
    
    
    186,300
    
    
    
    1,045,600Mortgage production related expenses
    
    
    254,601
    
    
    
    169,667
    
    
    
    711,747Merchant Processing
    
    
    157,269
    
    
    
    157,677
    
    
    
    798,061Other operating expenses
    
    
    931,378
    
    
    
    809,364
    
    
    
    3,801,571Total noninterest expenses
    
    
    5,154,971
    
    
    
    4,478,752
    
    
    
    19,680,704Income before income taxes
    
    
    (7,634,945
    )
    
    
    1,375,645
    
    
    
    (5,738,541
    )Income tax (benefit) expense
    
    
    (2,676,631
    )
    
    
    491,932
    
    
    
    (2,030,425
    )Net income
    
    $
    (4,958,314
    )
    
    $
    883,713
    
    
    $
    (3,708,116
    )Basic net income per common share
    
    $
    (1.02
    )
    
    $
    0.18
    
    
    $
    (0.77
    )Diluted net income per common share
    
    $
    (1.02
    )
    
    $
    0.18
    
    
    $
    (0.77
    )Weighted average common shares outstandingBasic
    
    
    4,845,018
    
    
    
    4,809,546
    
    
    
    4,845,018Diluted
    
    
    4,845,018
    
    
    
    4,925,485
    
    
    
    4,548,018
   3




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##### Table of Contents



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    883,713
    
    
    
    
    
    
    
    883,713Other comprehensive income, net of taxes:Unrealized gain (loss) on investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475,924
    
    
    
    475,924Unrealized gain (loss) on interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (127,053
    )
    
    
    (127,053
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,232,584Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    4,130
    
    
    
    
    
    
    
    
    
    
    
    4,130Balance, March 31, 2008
    
    
    4,845,018
    
    
    $
    4,845,018
    
    
    $
    29,499,042
    
    
    $
    19,467,138
    
    
    $
    3,566
    
    
    $
    53,814,764
 AccumulatedOther
    
    
    TotalCommon stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    EquityBalance, December 31, 2008
    
    
    4,845,018
    
    
    $
    4,845,018
    
    
    $
    29,513,166
    
    
    $
    14,875,309
    
    
    $
    484,596
    
    
    $
    49,718,089Net (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,958,314
    )
    
    
    
    
    
    
    (4,958,314
    )Other comprehensive income, net of taxes:Unrealized gain (loss) on investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,012
    
    
    
    130,012Plus reclassification adjustments for
gain included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gain (loss) on interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,063
    
    
    
    19,063Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,809,239
    )Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    4,708
    
    
    
    
    
    
    
    
    
    
    
    4,708Balance, March 31, 2009
    
    
    4,845,018
    
    
    $
    4,845,018
    
    
    $
    29,517,874
    
    
    $
    9,916,995
    
    
    $
    633,671
    
    
    $
    44,913,558
   4




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##### Table of Contents



Beach First National Bancshares, Inc. and Subsidiaries
 
 
 Consolidated Condensed Statements of Cash Flows
 For the three months
    
    
    For the yearended
    
    
    endedMarch 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2008(Unaudited)
    
    (Unaudited)
    
    (Audited)Operating activitiesNet (loss) income
    
    $
    (4,958,314
    )
    
    $
    883,713
    
    
    $
    (3,708,116
    )Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    286,955
    
    
    
    268,937
    
    
    
    1,124,250Write-down on real estate acquired in settlement of loans
    
    
    
    
    
    
    
    
    
    
    420,000Proceeds from sale of mortgages held for sale
    
    
    56,200,758
    
    
    
    29,925,653
    
    
    
    116,079,020Disbursements for mortgages held for sale
    
    
    (77,682,342
    )
    
    
    (30,806,433
    )
    
    
    (116,813,489
    )Discount accretion and premium amortization
    
    
    (1,391
    )
    
    
    (134,540
    )
    
    
    (217,959
    )Deferred income taxes
    
    
    (918,764
    )
    
    
    
    
    
    
    (918,764
    )Provisions for loan losses
    
    
    8,500,000
    
    
    
    746,000
    
    
    
    10,491,000Recourse reserve provision
    
    
    
    
    
    
    10,000
    
    
    
    230,000(Gain) on sale of fixed assets
    
    
    
    
    
    
    (220
    )
    
    
    (220
    )(Gain) on sale of investment securities
    
    
    (50,947
    )
    
    
    
    
    
    
    (23,180
    )Loss on sale of other real estate owned
    
    
    203,200
    
    
    
    390
    
    
    
    353,909Stock based compensation expense
    
    
    4,708
    
    
    
    4,130
    
    
    
    18,254(Increase) decrease in other assets
    
    
    (1,196,670
    )
    
    
    75,675
    
    
    
    (1,841,491
    )Increase (decrease) in other liabilities
    
    
    370,748
    
    
    
    (1,027,884
    )
    
    
    (1,580,078
    )Net cash provided by (used in) operating activities
    
    
    (19,242,059
    )
    
    
    (54,579
    )
    
    
    3,613,136Investing activitiesProceeds from paydowns of investment securities
    
    
    9,024,481
    
    
    
    1,452,611
    
    
    
    9,052,822Proceeds from sale of investment securities
    
    
    2,550,947
    
    
    
    14,970,000
    
    
    
    29,206,146Purchase of investment securities
    
    
    (19,895,643
    )
    
    
    (16,194,197
    )
    
    
    (41,376,937
    )Purchase of FHLB stock
    
    
    (115,500
    )
    
    
    (149,800
    )
    
    
    (149,800
    )Purchase of Federal Reserve Stock
    
    
    
    
    
    
    
    
    
    
    (30,000
    )Increase in loans, net
    
    
    (6,076,390
    )
    
    
    (29,821,659
    )
    
    
    (64,580,873
    )Increase in CSV of life insurance contracts
    
    
    (33,485
    )
    
    
    (27,865
    )
    
    
    (119,299
    )Purchase of property and equipment
    
    
    (9,967
    )
    
    
    (711,228
    )
    
    
    (1,035,517
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    220
    
    
    
    32,838Proceeds from sale of other real estate owned
    
    
    1,288,541
    
    
    
    14,610
    
    
    
    4,201,953Net cash used in investing activities
    
    
    (13,267,016
    )
    
    
    (30,467,308
    )
    
    
    (64,798,667
    )Financing activitiesIncrease (decrease) in Federal funds purchased
    
    
    
    
    
    
    2,945,100
    
    
    
    (1,796,724
    )Net increase in deposits
    
    
    64,823,549
    
    
    
    29,734,649
    
    
    
    69,160,364Repayments of other borrowings
    
    
    (669,556
    )
    
    
    (79,760
    )
    
    
    (326,402
    )Net cash provided by financing activities
    
    
    64,153,993
    
    
    
    32,599,989
    
    
    
    67,037,238Net increase in cash and cash equivalents
    
    
    31,644,918
    
    
    
    2,078,102
    
    
    
    5,851,707Cash and cash equivalents beginning of period
    
    $
    11,410,385
    
    
    $
    5,558,678
    
    
    $
    5,558,678Cash and cash equivalents end of period
    
    $
    43,055,303
    
    
    $
    7,636,780
    
    
    $
    11,410,385Cash paid forIncome taxes (refunds)
    
    $
    (1,205,605
    )
    
    $
    21,415
    
    
    $
    1,631,780Interest
    
    $
    5,062,667
    
    
    $
    5,961,643
    
    
    $
    22,469,561
   5




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##### Table of Contents



1. Basis of Presentation
   2. Principles of Consolidation
  3. Earnings per Share
   RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND DILUTED EPS COMPUTATIONS:
 For the three months ended
    
    
    For the year endedMarch 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2008Basic net income (loss) per share:Net income (loss)
    
    $
    (4,958,314
    )
    
    $
    883,713
    
    
    $
    (3,708,116
    )Average common shares outstanding  basic
    
    
    4,845,018
    
    
    
    4,845,018
    
    
    
    4,845,018Basic net income (loss) per share
    
    $
    (1.02
    )
    
    $
    0.18
    
    
    $
    (0.77
    )Diluted earnings per share:Net income (loss)
    
    $
    (4,958,314
    )
    
    $
    883,713
    
    
    $
    (3,708,116
    )Average common shares outstanding  basic
    
    
    4,845,018
    
    
    
    4,845,018
    
    
    
    4,845,018Incremental shares from assumed conversion
of stock options
    
    
    
    
    
    
    80,467
    
    
    
    Average common shares outstanding  diluted
    
    
    4,845,018
    
    
    
    4,925,485
    
    
    
    4,548,018Diluted net income (loss) per share
    
    $
    (1.02
    )
    
    $
    0.18
    
    
    $
    (0.77
    )
   6




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##### Table of Contents



4. Fair Value Measurements
   Level 1:
 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
    
    
    
    
    
    $
    79,164,351
    
    
    
    Mortgage loans held for sale
    
    
    
    
    
    $
    28,691,672
    
    
    
    Interest rate swap agreement (liability)
    
    
    
    
    
    
    (800,421
    )
    
    
    Total
    
    $
    
    
    
    $
    107,055,602
    
    
    $
    
  Quoted Market
    
    
    Significant Other
    
    
    SignificantPrice in Active
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Other real estate owned
    
    
    
    
    
    $
    3,983,000
    
    
    
    Repossessed assets
    
    
    
    
    
    $
    135,000
    
    
    
    Impaired Loans
    
    
    
    
    
    $
    34,501,651
    
    
    
    Total
    
    $
    
    
    
    $
    38,619,651
    
    
    $
    
   7




---



##### Table of Contents



5. Business Segment Reporting
    Bank
    
    
    Mortgage
    
    
    ConsolidatedMarch 31, 2009Net interest income
    
    $
    3,372,349
    
    
    $
    105,109
    
    
    $
    3,477,458Provision for loan losses
    
    
    8,500,000
    
    
    
    
    
    
    
    8,500,000Other income
    
    
    690,431
    
    
    
    1,852,137
    
    
    
    2,542,568Non interest expenses
    
    
    3,557,732
    
    
    
    1,597,239
    
    
    
    5,154,971Net income (loss)
    
    
    (5,190,663
    )
    
    
    232,349
    
    
    
    (4,958,314
    )End of period assets
    
    
    699,290,819
    
    
    
    29,245,008
    
    
    
    728,535,827
 Bank
    
    
    Mortgage
    
    
    ConsolidatedMarch 31, 2008Net interest income
    
    $
    5,127,136
    
    
    $
    93,238
    
    
    $
    5,220,374Provision for loan losses
    
    
    746,000
    
    
    
    
    
    
    
    746,000Other income
    
    
    615,363
    
    
    
    764,660
    
    
    
    1,380,023Non interest expenses
    
    
    3,498,910
    
    
    
    979,842
    
    
    
    4,478,752Net income (loss)
    
    
    962,415
    
    
    
    (78,702
    )
    
    
    883,713End of period assets
    
    
    631,131,401
    
    
    
    7,675,836
    
    
    
    638,807,237
  
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
   
    
    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, continuing to be weak resulting in, among other things, a
deterioration in credit quality;
 
    
    the level of allowance for loan loss;
  8




---



##### Table of Contents




    
    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;
 
    
    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;
 
    
    slower growth, a decrease in reliance upon brokered deposits, increased capital
requirements, and other changes in our business that may be required or necessary in order
for us to comply with the agreement we have with the Office of the Comptroller of the
Currency (the OCC);
 
    
    potential responses by the OCC relating to our noncompliance with the increased capital
ratios required by the OCC;
 
    
    our reliance on secondary funding sources such as Federal Home Loan Bank advances,
Federal Reserve Bank discount window borrowings, sales of securities and loans, federal
funds lines of credit from correspondent banks and out-of-market time deposits including
brokered deposits, to meet our liquidity needs;
 
    
    instability of the U.S. financial system;
 
    
    the nationalization of the banking industry;
 
    
    changes in the financial markets relating to the ability of financial institutions to
obtain capital which have resulted in many financial institutions having limited options in
terms of raising capital at reasonable rates in these current uncertain economic times;
 
    
    misperceptions by depositors about the safety of their deposits;
 
    
    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
    9




---



##### Table of Contents



Overview
     Results of Operations
 Earnings Review
    10




---



##### Table of Contents



Net Interest Income
      11




---



##### Table of Contents



Average Balances, Income and Expenses, and RatesFor the three months ended March 31,2009
    
    
    2008Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateFederal funds sold, short term
investments and trust preferred
securities
    
    $
    9,680,139
    
    
    $
    7,262
    
    
    
    0.30
    %
    
    $
    9,129,816
    
    
    $
    71,602
    
    
    
    3.15
    %Investment securities plus FHLB
and FRB stock
    
    
    78,309,945
    
    
    
    817,558
    
    
    
    4.23
    %
    
    
    73,317,591
    
    
    
    1,003,756
    
    
    
    5.51
    %Loans
    
    
    574,749,536
    
    
    
    7,778,959
    
    
    
    5.49
    %
    
    
    526,467,333
    
    
    
    10,159,454
    
    
    
    7.76
    %Total earning assets
    
    $
    662,739,620
    
    
    $
    8,603,779
    
    
    
    5.27
    %
    
    $
    608,914,740
    
    
    $
    11,234,812
    
    
    
    7.42
    %Cash and due from banks
    
    
    5,948,622
    
    
    
    
    
    
    
    
    
    
    
    5,623,286Other assets
    
    
    22,482,268
    
    
    
    
    
    
    
    
    
    
    
    20,090,066Total assets
    
    $
    691,170,510
    
    
    
    
    
    
    
    
    
    
    $
    634,628,092Total interest-bearing deposits
    
    $
    530,551,699
    
    
    $
    4,367,102
    
    
    
    3.34
    %
    
    $
    464,320,827
    
    
    $
    5,097,125
    
    
    
    4.42
    %Other borrowings
    
    
    83,038,382
    
    
    
    759,219
    
    
    
    3.71
    %
    
    
    77,792,062
    
    
    
    917,313
    
    
    
    4.74
    %Total interest-bearing liabilities
    
    $
    613,590,081
    
    
    $
    5,126,321
    
    
    
    3.39
    %
    
    $
    542,112,889
    
    
    $
    6,014,438
    
    
    
    4.46
    %Demand deposits
    
    
    23,794,031
    
    
    
    
    
    
    
    
    
    
    
    34,182,069Other liabilities
    
    
    4,488,537
    
    
    
    
    
    
    
    
    
    
    
    5,131,880Total liabilities
    
    $
    641,872,649
    
    
    
    
    
    
    
    
    
    
    $
    581,426,838Equity capital
    
    
    49,297,861
    
    
    
    
    
    
    
    
    
    
    
    53,201,254Total liabilities and equity
    
    $
    691,170,510
    
    
    
    
    
    
    
    
    
    
    $
    634,628,092Net interest spread
    
    
    
    
    
    
    
    
    
    
    1.88
    %
    
    
    
    
    
    
    
    
    
    
    2.96
    %Net interest income/margin
    
    
    
    
    
    $
    3,477,458
    
    
    
    2.13
    %
    
    
    
    
    
    $
    5,220,374
    
    
    
    3.45
    %
  Analysis of Changes in Net Interest IncomeFor the three months ended March 31,2009 versus 2008Volume
    
    
    Rate
    
    
    Net changeFederal funds sold and short term
investments and trust preferred
securities
    
    $
    (180
    )
    
    $
    (64,160
    )
    
    $
    (64,340
    )Investment securities
    
    
    43,810
    
    
    
    (230,008
    )
    
    
    (186,198
    )Loans
    
    
    552,572
    
    
    
    (2,933,067
    )
    
    
    (2,380,495
    )Total earning assets
    
    
    596,202
    
    
    
    (3,227,235
    )
    
    
    (2,631,033
    )Interest-bearing deposits
    
    
    493,354
    
    
    
    (1,223,377
    )
    
    
    (730,023
    )Other borrowings
    
    
    40,372
    
    
    
    (198,466
    )
    
    
    (158,094
    )Total interest-bearing liabilities
    
    
    533,726
    
    
    
    (1,421,843
    )
    
    
    (888,117
    )Net interest income
    
    $
    62,476
    
    
    $
    (1,805,392
    )
    
    $
    (1,742,916
    )
  12




---



##### Table of Contents



Provision for Loan Losses
  Noninterest Income
  Noninterest Expense
         13




---



##### Table of Contents



Other Operating ExpensesFor the three months ended
    
    
    For the year endedMarch 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2008Telephone
    
    $
    38,182
    
    
    $
    43,254
    
    
    $
    167,264Postage and freight
    
    
    30,703
    
    
    
    30,134
    
    
    
    139,471Armored car
    
    
    5,739
    
    
    
    20,774
    
    
    
    59,440Credit and collection-bank
    
    
    244,330
    
    
    
    75,763
    
    
    
    499,769Dues and subscriptions
    
    
    32,453
    
    
    
    42,272
    
    
    
    162,814Employee travel, conferences, meals, and lodging
    
    
    20,241
    
    
    
    36,077
    
    
    
    133,474Business development and donations
    
    
    79,024
    
    
    
    79,398
    
    
    
    379,362FDIC insurance
    
    
    126,068
    
    
    
    69,291
    
    
    
    354,669Other insurance
    
    
    11,943
    
    
    
    12,570
    
    
    
    60,632Debit/ATM
    
    
    31,765
    
    
    
    28,041
    
    
    
    123,163Credit card processing fees
    
    
    20,315
    
    
    
    12,734
    
    
    
    67,233Software maintenance
    
    
    67,701
    
    
    
    91,008
    
    
    
    285,824Director BOLI
    
    
    29,752
    
    
    
    33,828
    
    
    
    132,101Mortgage recourse expense
    
    
    
    
    
    
    
    
    
    
    230,000Foreclosure related expense
    
    
    45,828
    
    
    
    966
    
    
    
    123,008Director advisory fees
    
    
    42,450
    
    
    
    65,750
    
    
    
    293,749Furniture and equipment
    
    
    41,311
    
    
    
    75,428
    
    
    
    291,601Other operating expenses
    
    
    63,573
    
    
    
    92,076
    
    
    
    297,997Total
    
    $
    931,378
    
    
    $
    809,364
    
    
    $
    3,801,571
 Balance Sheet Review
 General
  Investment Securities
    14




---



##### Table of Contents



Loans
   Composition of Loan PortfolioMarch 31, 2009
    
    
    December 31, 2008
    
    
    March 31, 2008Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of TotalCommercial
    
    $
    58,890,762
    
    
    
    10.8
    %
    
    $
    59,040,069
    
    
    
    10.7
    %
    
    $
    65,592,413
    
    
    
    12.3
    %Real estate  construction
    
    
    35,403,080
    
    
    
    6.5
    %
    
    
    33,741,466
    
    
    
    6.1
    %
    
    
    67,984,079
    
    
    
    12.8
    %Real estate  mortgage
    
    
    443,832,134
    
    
    
    81.1
    %
    
    
    448,970,087
    
    
    
    81.4
    %
    
    
    389,637,192
    
    
    
    73.2
    %Consumer
    
    
    9,411,131
    
    
    
    1.7
    %
    
    
    9,700,120
    
    
    
    1.8
    %
    
    
    8,776,754
    
    
    
    1.7
    %Portfolio loans, gross
    
    
    547,537,107
    
    
    
    100.0
    %
    
    
    551,451,742
    
    
    
    100.0
    %
    
    
    531,990,438
    
    
    
    100.0
    %Unearned loan fees and costs,
net
    
    
    (235,109
    )
    
    
    
    
    
    
    (294,921
    )
    
    
    
    
    
    
    (443,566
    )Allowance for possible loan
losses
    
    
    (9,709,438
    )
    
    
    
    
    
    
    (8,642,651
    )
    
    
    
    
    
    
    (7,519,960
    )Portfolio loans, net
    
    
    537,592,560
    
    
    
    
    
    
    
    542,514,170
    
    
    
    
    
    
    
    524,026,912Mortgage loans held for sale
    
    
    28,691,672
    
    
    
    
    
    
    
    7,210,088
    
    
    
    
    
    
    
    7,356,399Loans, net
    
    $
    566,284,232
    
    
    
    
    
    
    $
    549,724,258
    
    
    
    
    
    
    $
    531,383,311
  Allowance for Loan Losses
   15




---



##### Table of Contents



Allowance for Loan LossesThree months
    
    
    Year ended
    
    
    Three monthsended March 31,
    
    
    December 31,
    
    
    ended March 31,2009
    
    
    2008
    
    
    2008Average total loans outstanding
    
    $
    574,749,536
    
    
    $
    549,953,836
    
    
    $
    526,467,333Total loans outstanding at period end
    
    
    575,993,670
    
    
    
    558,366,909
    
    
    
    538,903,271Total nonperforming loans
    
    
    34,501,651
    
    
    
    19,968,441
    
    
    
    5,119,312Beginning balance of allowance
    
    
    8,642,651
    
    
    
    6,935,616
    
    
    
    6,935,616Loans charged off
    
    
    (7,446,593
    )
    
    
    (8,858,354
    )
    
    
    (167,432
    )Total recoveries
    
    
    13,380
    
    
    
    74,389
    
    
    
    5,776Net loans charged off
    
    
    (7,433,213
    )
    
    
    (8,783,965
    )
    
    
    (161,656
    )Provision for loan losses
    
    
    8,500,000
    
    
    
    10,491,000
    
    
    
    746,000Balance at period end
    
    $
    9,709,438
    
    
    $
    8,642,651
    
    
    $
    7,519,960Net charge-offs to average total loans (annualized)
    
    
    5.25
    %
    
    
    1.60
    %
    
    
    0.12
    %Allowance as a percent of total loans
    
    
    1.69
    %
    
    
    1.55
    %
    
    
    1.40
    %Allowance as a percentage of nonperforming loans
    
    
    28.14
    %
    
    
    43.28
    %
    
    
    146.89
    %
  16




---



##### Table of Contents



Allocation of the Allowance for Loan LossesAs of March 31, 2009Commercial
    
    $
    1,536,563
    
    
    
    10.2
    %Real estate  construction
    
    
    1,579,678
    
    
    
    6.1
    %Real estate  mortgage
    
    
    6,391,836
    
    
    
    82.0
    %Consumer
    
    
    153,771
    
    
    
    1.6
    %Unallocated
    
    
    47,590
    
    
    
    Total allowance for loan losses
    
    $
    9,709,438
    
    
    
    100.0
    %
 Nonperforming Assets/Other Real Estate Owned and Repossessed Assets
   For the three months ended
    
    
    For the year endedMarch 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2008Impaired loans with specific allowance
    
    $
    26,436,276
    
    
    $
    14,548,247
    
    
    $
    11,210,569Impaired loans with no specific allowance
    
    
    8,065,375
    
    
    
    2,627,982
    
    
    
    18,367,715Total impaired loans (quarter end)
    
    
    34,501,651
    
    
    
    27,257,988
    
    
    
    29,578,284Related allowance (quarter end)
    
    
    4,177,934
    
    
    
    7,466,308
    
    
    
    3,107,168Interest income recongnized
    
    
    401,365
    
    
    
    170,804
    
    
    
    1,584,491Foregone interest
    
    
    618,505
    
    
    
    147,745
    
    
    
    1,222,542Average recorded investment on impaired
    
    
    25,136,668
    
    
    
    5,976,327
    
    
    
    21,148,317
     17




---



##### Table of Contents



Deposits
   DepositsMarch 31, 2009
    
    
    December 31, 2008
    
    
    March 31, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofAmount
    
    
    Deposits
    
    
    Amount
    
    
    Deposits
    
    
    Amount
    
    
    DepositsDemand deposit accounts
    
    $
    24,630,897
    
    
    
    4.1
    %
    
    $
    24,628,632
    
    
    
    4.6
    %
    
    $
    35,925,681
    
    
    
    7.3
    %Interest bearing
checking accounts
    
    
    17,898,827
    
    
    
    3.0
    %
    
    
    15,916,904
    
    
    
    3.0
    %
    
    
    19,572,591
    
    
    
    4.0
    %Money market accounts
    
    
    80,361,280
    
    
    
    13.4
    %
    
    
    90,708,621
    
    
    
    17.0
    %
    
    
    93,574,372
    
    
    
    19.0
    %Savings accounts
    
    
    3,852,040
    
    
    
    0.6
    %
    
    
    3,491,913
    
    
    
    0.7
    %
    
    
    2,920,515
    
    
    
    0.6
    %Time deposits less
than $100,000
    
    
    187,771,516
    
    
    
    31.4
    %
    
    
    150,533,893
    
    
    
    28.2
    %
    
    
    124,651,027
    
    
    
    25.3
    %Time deposits of
$100,000 or more
    
    
    179,597,738
    
    
    
    30.0
    %
    
    
    151,329,497
    
    
    
    28.4
    %
    
    
    147,759,146
    
    
    
    30.0
    %Brokered CDs
    
    
    74,116,000
    
    
    
    12.4
    %
    
    
    74,785,000
    
    
    
    14.0
    %
    
    
    68,274,000
    
    
    
    13.9
    %CDARS deposits
    
    
    29,953,960
    
    
    
    5.0
    %
    
    
    21,964,249
    
    
    
    4.1
    %
    
    
    
    
    
    
    0.0
    %Total deposits
    
    $
    598,182,258
    
    
    
    100.0
    %
    
    $
    533,358,709
    
    
    
    100.00
    %
    
    $
    492,677,332
    
    
    
    100.00
    %
       18




---



##### Table of Contents




    
    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 (up to $500 billion) held by
FDIC-insured banks until December 31, 2009.
   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
    
    
    
    07/13/09Convertible
    
    
    5,000,000
    
    
    
    4.06
    %
    
    
    09/29/15
    
    
    
    09/29/09Convertible
    
    
    5,000,000
    
    
    
    4.16
    %
    
    
    03/13/17
    
    
    
    06/13/09Convertible
    
    
    7,500,000
    
    
    
    4.39
    %
    
    
    04/13/17
    
    
    
    04/13/09Variable rate advances:Prime based advance
    
    
    10,000,000
    
    
    
    0.41
    %
    
    
    9/19/2011
    
    
    
    $
    55,000,000
 Junior Subordinated Debentures
  Capital Resources
   19




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##### Table of Contents



Liquidity Management
   Interest Rate Sensitivity
    20




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##### Table of Contents



Off Balance Sheet Risk
     Impact of Inflation
   Recently Issued Accounting Standards
   21




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##### Table of Contents



22




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 
 Item 4. Controls and Procedures
    23




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##### Table of Contents



PART II OTHER INFORMATION
 
 
 Item 1. Legal Proceedings
  
 
 Item 1A. Risk Factors
  
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 
 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.
  24




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##### Table of Contents



BEACH FIRST NATIONAL BANCSHARES, INC.Date: May 14, 2009
    By:

/s/
Walter E. Standish, IIIWalter E. Standish, IIIPresident and Chief Executive OfficerDate: May 14, 2009
    By:

/s/
Gary S. AustinGary S. AustinChief Financial and Principal Accounting Officer  25




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##### Table of Contents



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.
  26