SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE) FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
-- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2001
OR
-- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from _________to_________
Commission File Number 000-26905
RHBT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 58-2482426
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
315 East Main Street
Rock Hill, SC 29731
(Address of principal executive
offices, including zip code)
(803) 324-2500
(Registrant's telephone number, including area code)
------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-- --
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
1,720,928 shares of common stock, $.01 par value, issued and outstanding as of
May 11, 2001
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
RHBT FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Index
PART I. FINANCIAL INFORMATION Page No.
- -----------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000.............................3
Condensed Consolidated Statements of Income - Three months ended March 31, 2001 and 2000.................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
Three months ended March 31, 2001......................................................................5
Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2001 and 2000.............6
Notes to Condensed Consolidated Financial Statements...................................................7-9
Item 2. Management's Discussion and Analysis or Plan of Operation.............................................10-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................................16
Item 6. Exhibits and Reports on Form 8-K.........................................................................16
(a) Exhibits............................................................................................16
(b) Reports on Form 8-K.................................................................................16
RHBT FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
March 31, December 31,
2001 2000
--------- -----------
(Unaudited)
Assets:
Cash and cash equivalents:
Cash and due from banks $ 4,525,614 $ 4,468,217
Federal funds sold and securities purchased 37,822,000 31,653,900
under agreements to resell
42,347,614 36,122,117
Investment securities:
Securities available-for-sale 3,750,000 5,470,765
Nonmarketable equity securities 1,601,794 951,794
---------------- -------------
5,351,794 6,422,559
Loans receivable 165,788,056 154,788,284
Less allowance for loan losses (1,672,896) (1,601,539)
---------------- -------------
Loans, net 164,115,160 153,186,745
Accrued interest receivable 1,288,720 1,308,225
Premises and equipment, net 1,626,419 1,567,900
Other real estate owned 237,903 235,061
Other assets 506,615 698,422
---------------- -------------
Total assets $ 215,474,225 $ 199,541,029
================ =============
Liabilities:
Deposits:
Noninterest-bearing $ 8,786,191 $ 10,101,875
Interest-bearing 9,878,883 7,174,211
Savings 22,570,980 20,031,564
Time deposits $100,000 and over 71,916,785 62,988,317
Other time deposits 49,963,128 60,151,002
---------------- -------------
163,115,967 160,446,969
Securities sold under agreement to repurchase 6,742,000 7,113,900
Advances from the Federal Home Loan Bank 25,000,000 12,000,000
Accrued interest payable 837,947 763,783
Other liabilities 415,757 240,542
---------------- -------------
Total liabilities 196,111,671 180,565,194
---------------- -------------
Shareholders' Equity
Common stock, $ .01 par value; 10,000,000 shares authorized, 17,208 17,208
1,720,928 shares issued and outstanding
Capital surplus 15,383,930 15,383,930
Retained earnings 3,953,293 3,581,500
Accumulated other comprehensive income (loss) 8,123 (6,803)
---------------- -------------
Total shareholders' equity 19,362,554 18,975,835
---------------- -------------
Total liabilities and shareholders' equity $ 215,474,225 $ 199,541,029
================ =============
See notes to condensed consolidated financial statements.
3
RHBT FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
-------------------
2001 2000
---- ----
Interest income:
Loans, including fees $ 3,858,479 $ 3,032,578
Investment securities, taxable 65,974 111,044
Nonmarketable equity securities 24,466 19,990
Federal funds sold and securities purchased under agreements to resell 440,495 310,124
-------------- ------------
Total 4,389,414 3,473,736
-------------- ------------
Interest expense:
Deposit accounts 2,266,921 1,630,111
Securities sold under agreements to repurchase 79,143 87,370
Advances from the Federal Home Loan Bank 266,542 95,321
-------------- -------------
Total 2,612,606 1,812,802
-------------- -------------
Net interest income 1,776,808 1,660,934
Provision for loan losses 90,000 164,000
--------------- -------------
Net interest income after provision for loan losses 1,686,808 1,496,934
--------------- -------------
Other income
Service charges on deposit accounts 97,812 75,859
Other charges, commissions and fees 29,250 27,434
Residential mortgage organization fees 67,901 36,048
Income from fiduciary activities 47,872 79,446
--------------- -------------
Total 242,835 218,787
--------------- -------------
Other expense
Salaries and employee benefits 482,041 363,435
Occupancy expense 154,860 153,149
Advertising and marketing expense 28,737 17,026
Other operating expenses 701,212 384,951
-------------- -------------
Total 1,366,850 918,561
-------------- -------------
Income before income taxes 562,793 797,160
Income tax expense 191,000 295,198
-------------- -------------
Net income $ 371,793 $ 501,962
============== ==============
Basic net income per share $ 0.22 $ 0.29
Diluted net income per share $ 0.21 $ 0.29
See notes to condensed consolidated financial statements.
4
RHBT FINANCIAL CORPORATION
Condensed Consolidated Statement of Shareholders' Equity and Comprehensive
Income for the three months ended March 31, 2001
(Unaudited)
Accumulated
Other
Common Stock Capital Retained Comprehensive
Shares Amount Surplus Earnings Income Total
------- ------- -------- ---------- ---------------- ------
Balance,
December 31, 2000 1,720,928 $ 17,208 $ 15,383,930 $3,581,500 $ (6,803) $18,975,835
Net income
for the period 371,793 371,793
Other comprehensive
income, net of
tax $8,179 14,926 14,926
Comprehensive income 386,719
---------- --------- ------------- ----------- -------- ------------
Balance,
March 31, 2001 1,720,928 $ 17,208 $ 15,383,930 $3,953,293 $ 8,123 $ 19,362,554
========== ========= ============= =========== ======== ============
See notes to condensed consolidated financial statements.
5
RHBT FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 371,793 $ 501,962
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 70,479 61,081
Provision for loan losses 90,000 164,000
Accretion and premium amortization (6,130) (201)
Amortization of net loan fees and costs 15,309 13,013
Amortization of organizational costs 4,758 4,758
(Increase) decrease in interest receivable 19,505 (160,178)
Increase in interest payable 74,164 163,120
Decrease in other assets 183,054 108,098
Increase in other liabilities 171,031 191,820
--------------- --------------
Net cash provided by operating activities 993,963 1,047,473
--------------- --------------
Cash flows from investing activities:
Purchases of securities available-for-sale (2,000,000) (989,655)
Maturities of securities available-for-sale 3,750,000 2,150,000
Net increase in loans made to customers (11,036,566) (14,317,779)
Purchases of premises and equipment (128,998) (66,489)
(Purchase) sale of Federal Home Loan Bank Stock (650,000) 150,000
-------------- --------------
Net cash used by investing activities (10,065,564) (13,073,923)
-------------- --------------
Cash flows from financing activities:
Net increase in demand deposits, interest-bearing transaction 3,928,404 3,730,553
accounts and savings accounts
Net increase in certificates of deposit and other time deposits (1,259,406) 22,294,835
Net increase (decrease) in securities sold under agreements (371,900) (6,540,000)
to repurchase
Advances (repayments) of advances from the Federal Home Loan Bank 13,000,000 (3,000,000)
-------------- --------------
Net cash provided by financing activities 15,297,098 16,485,388
-------------- --------------
Net increase in cash and cash equivalents 6,225,497 4,458,938
Cash and cash equivalents, beginning 36,122,117 20,105,173
-------------- --------------
Cash and cash equivalents, ending $ 42,347,614 $ 24,564,111
============== ==============
Cash paid during the period for:
Income taxes $ 323,988 $ 143,126
Interest $ 2,538,442 $ 1,649,682
See notes to condensed consolidated financial statements.
6
RHBT FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with the requirements for interim financial statements and,
accordingly, they are condensed and omit disclosures, which would substantially
duplicate those contained in the most recent annual report to shareholders. The
financial statements as of March 31, 2001 and for the interim periods ended
March 31, 2001 and 2000 are unaudited and, in the opinion of management, include
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation. The financial information as of December 31, 2000 has
been derived from the audited financial statements as of that date. For further
information, refer to the financial statements and the notes included in RHBT
Financial Corporation's 2000 Annual Report.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Bank has been named as a defendant in a lawsuit captioned Samuel R. Anthony,
SR Anthony and Associates, Inc., Blue Wall Limited, Red Wall Limited, Lo Castro
Associates, and Nana, Ltd. f/k/a Maricopa, Ltd. v. Rock Hill Bank & Trust and
Robert M. Yoffie. Mr. Yoffie is a former Bank trust officer. The referenced
lawsuit, filed on or about February 14, 2001, asserts that plaintiffs are
entitled to recover some $9.5 million deposited in an agency account in the
Bank's trust department plus related damages. The plaintiffs generally assert
that they entered into an investment program with persons unrelated to the Bank
and that funds to be used in the investment program were deposited in the Bank
subject to certain agreements with and powers of attorney held by third parties.
Although much of the complaint relates to persons or entities other than the
Bank, the complaint seeks damages from the Bank through various legal theories
including breach of contract, breach of fiduciary duty, fraud and negligent
misrepresentation. On April 2, 2001, the Bank filed an answer to the complaint
in which it denied any and all liability, and in which it asserted counterclaims
against the plaintiffs and the principals of the plaintiff entities. The Bank
also asserted a cross-claim against Mr. Yoffie, stating that to the extent, if
any, the plaintiffs are permitted to recover from the Bank, the Bank is entitled
to be indemnified by Mr. Yoffie. Finally, the Bank brought into the lawsuit as
third-party defendants the individuals and entities who conducted the investment
programs at issue. In addition to defending the lawsuit vigorously, the Bank has
made demand on its two insurance carriers who, through various forms of
insurance coverage, the Bank believes may provide meaningful indemnification to
the Bank for any loss it may incur from these claims. The insurers have not yet
responded to the demands for coverage and may deny the claims. This matter
remains in its early stages, with the parties now beginning the discovery
process. The Bank and its legal counsel are not in a position at this time to
express any opinion on the possible outcome of the matter. However, management
is of the opinion that it will not have a material impact on the Company's
financial position. Accordingly, no provision for any liability that may result
has been made in the financial statements. Nevertheless, due to uncertainties
with the lawsuit, it is at least reasonably possible that management's view of
the outcome will change.
In addition, on March 1, 2001, the Bank was sued by Premier Productions, a
former account holder, in the case of Premier Productions vs. Rock Hill Bank &
Trust. The account held by Premier was an agency account whose purpose was to
provide $1,000,000 in funding for Premier's participation in high yield
investments pursuant to a placement agreement between Premier and a third party
known as Dipresa Management. According to the complaint, Dipresa promised to pay
Premier $50,000 in the event certain investment returns were not realized. While
Premier concedes that it received full return of its investment, it contends
that promised "profits" on its investment were not realized, and therefore that
it is entitled to recover the $50,000 allegedly guaranteed by Dipresa, plus
related damages. Premier is pursuing legal theories that the investment offering
violated the state securities act, and gave rise to claims for actual and
constructive fraud, breach of fiduciary duty, breach of contract, unfair trade
practices, negligence and promissory estoppel. The Bank was not a party to the
placement agreement or any other documents soliciting any investment by Premier.
The Bank believes that the allegations are contrary to the agency agreement with
the Bank executed by Premier. Based on the foregoing, the Bank timely filed a
motion to dismiss Premier's complaint. If the motion is granted, this case will
be concluded subject only to appeal. If the motion is not granted, the Bank will
continue to vigorously defend the action. In the opinion of the Bank, although
the outcome of any legal proceedings cannot be predicted with certainty, the
ultimate liability of the Bank in connection with this case will not have a
material adverse effect on the Company's financial position or results of
operations.
7
RHBT FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive income, which
is defined as non-owner related transactions in equity. The following table sets
forth the amounts of other comprehensive income included in equity along with
the related tax effect for the three month periods ended March 31, 2001 and
2000.
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
---------------------------------------------------
For the Three Months Ended March 31, 2001:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period 23,105 (8,179) 14,926
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
--------- --------- --------
Net unrealized gains (losses) on securities 23,105 (8,179) 14,926
--------- --------- --------
Other comprehensive income 23,105 (8,179) 14,926
========= ========= ========
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
--------------------------------------------------
For the Three Months Ended March 31, 2000:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period (16,957) 6,274 (10,683)
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
--------- --------- --------
Net unrealized gains (losses) on securities (16,957) 6,274 (10,683)
--------- --------- --------
Other comprehensive income (16,957) 6,274 (10,683)
========= ========= ========
Accumulated other comprehensive income consists solely of the unrealized gain on
securities available for sale, net of the deferred tax effects.
8
RHBT FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4 - EARNINGS PER SHARE
Net income per share - basic is computed by dividing net income by the weighted
average number of common shares outstanding. Net income per share - diluted is
computed by dividing net income by the weighted average number of common shares
outstanding and dilutive common share equivalents using the treasury stock
method. Dilutive common share equivalents include common shares issuable upon
exercise of outstanding stock options.
Three Months Ended
March 31,
--------------------------------
2001 2000
--------------- ---------------
Net income per share - basic computation:
Net income available to common shareholders 371,793 501,962
=========== ===========
Average common shares outstanding - basic 1,720,928 1,720,928
=========== ===========
Net income per share - basic 0.22 0.29
=========== ===========
Net income per share - diluted computation:
Net income available to common shareholders 371,793 501,962
=========== ===========
Average common shares outstanding - basic 1,720,928 1,720,928
=========== ==========
Incremental shares from assumed conversions:
Stock options 20,778 12,016
----------- -----------
Average common shares outstanding - diluted
1,741,706 1,732,944
Net income per share - diluted ----------- -----------
0.21 0.29
=========== ===========
9
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
The following is a discussion of our financial condition as of March 31, 2001
compared to December 31, 2000, and the results of operations for the three
months ended March 31, 2001 compared to the three months ended March 31, 2000.
These comments should be read in conjunction with our condensed financial
statements and accompanying footnotes appearing in this report. This report
contains "forward-looking statements" relating to, without limitation, future
economic performance, plans and objectives of management for future operations,
and projections of revenues and other financial items that are based on the
beliefs of our management, as well as assumptions made by and information
currently available to our management. The words "expect," "estimate,"
"anticipate," and "believe," as well as similar expressions, are intended to
identify forward-looking statements. Our actual results may differ materially
from the results discussed in the forward-looking statements, and our operating
performance each quarter is subject to various risks and uncertainties that are
discussed in detail in our filings with the Securities and Exchange Commission.
Results of Operations
Net Interest Income
For the three months ended March 31, 2001, net interest income increased
$115,874, or 6.98%, to $1,776,808 as compared to $1,660,934 for the same period
in 2000. Interest income from loans, including fees, increased $825,901, or
27.23%, from the three months ended March 31, 2000 to the comparable period in
2001 as we continue to experience strong loan growth in both our commercial and
retail area. Income from federal funds sold and securities purchased under
agreements to resell contributed to the increase in net interest income with an
increase of $130,371 for the three months ended March 31, 2000. Interest expense
at March 31, 2001 was $2,612,606, compared to $1,812,802 for the same period in
2000. The increase in interest-bearing deposits between the two periods of
$28,451,980 resulted in increased interest expense. The net interest margin
realized on earning assets decreased from 4.23% for the three months ended March
31, 2000 to 3.59% for the same period in 2001. The interest rate spread
decreased by 59 basis points from 3.49% at March 31, 2000 to 2.90% at March 31,
2001. This is primarily attributable to the increase in interest expense paid on
time deposits.
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that
management believes is necessary to maintain the allowance for possible loan
losses at an adequate level. For the three months ended March 31, 2001, the
provision charged to expense was $90,000 as compared to $164,000 for the same
period in 2000. During the first quarter of 2000, we decided to transfer three
large loans from the active loan portfolio to nonaccrual status. We increased
the allowance during this period in anticipation of the possible losses
associated with these loans. The allowance represents 1.01% and 1.04% of gross
loans at March 31, 2001 and 2000, respectively. There are risks inherent in
making all loans, including risks with respect to the period of time over which
loans may be repaid, risks resulting from changes in economic and industry
conditions, risks inherent in dealing with individual borrowers, and, in the
case of a collateralized loan, risks resulting from uncertainties about the
future value of the collateral. We maintain an allowance for loan losses based
on, among other things, historical experience, an evaluation of economic
conditions, and regular reviews of delinquencies and loan portfolio quality. Our
judgment about the adequacy of the allowance is based upon a number of
assumptions about future events, which we believes to be reasonable, but which
may not prove to be accurate. Thus, there is a risk that chargeoffs in future
periods could exceed the allowance for loan losses or that substantial
additional increases in the allowance for loan losses could be required.
Additions to the allowance for loan losses would result in a decrease of our net
income and, possibly, our capital.
10
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
Noninterest Income
Noninterest income during the three months ended March 31, 2001 was $242,835, an
increase of $24,048 from $218,787 during the comparable period in 2000. The
increase is primarily a result of an increase in income from residential
mortgage origination fees from $36,048 for the three months ended March 31, 2000
to $67,901 for the three months ended March 31, 2001. In addition, service
charges on deposit accounts resulted in income of $97,812 during the three
months ended March 31, 2001, compared to $75,859 during the comparable period in
2000. This was due to an overall increase in deposit accounts over the two
periods. Income from fiduciary activities decreased $31,574, or 39.74% to
$47,872 for the three months ended March 31, 2001 compared to $79,446 for the
same period in 2000.
Noninterest Expense
Total noninterest expense for the three months ended March 31, 2001 was
$1,366,850, or 48.80%, higher than the $918,561 amount for the three months
ended March 31, 2000. The largest increase was in other operating expenses,
which increased from $384,951 at March 31, 2000 to $701,212 for the three months
ended March 31, 2001. The increase is primarily attributable to an increase in
legal fees. Legal fees, before any tax benefit, totaled $250,000 at March 31,
2001 as compared to $7,193 for the three months ended March 31, 2000. Of this
total, $227,074 related to costs associated with defending the lawsuit brought
against the Bank's trust department in February 2001. In addition, we incurred
commission expense for brokered certificates of deposit of $30,276. This expense
represents the commission paid to brokers for certificates of deposits. Total
brokered certificates of deposits totaled $36,694,638 at March 31, 2001. We
expect to continue to incur this expense in order to meet our funding needs.
Advertising and marketing expense increased $11,711 or 68.78% to $28,737 at
March 31, 2001 as compared to $17,026 for the three months ended March 31, 2000.
The increase reflects our efforts to promote our business in the vibrant markets
of Rock Hill, Fort Mill/Tega Cay, and the greater York County surrounding areas.
Salaries and employee benefits also increased $118,606, or 32.63%, to $482,041
for the three months ended March 31, 2001. This increase is attributable to
normal pay increases and the hiring of additional staff to meet needs associated
with our growth.
Income Taxes
The income tax provision for the three months ended March 31, 2001 was $191,000
as compared to $295,198 for the same period in 2000. The decrease in the income
tax provision is a result of the decreased income before taxes, largely due to
the expenses associated with the lawsuit. The effective tax rate was 34% and 37%
at March 31, 2001 and March 31, 2000, respectively.
Net Income
The combination of the above factors resulted in net income for the three months
ended March 31, 2001 of $371,793 as compared to $501,962 for the same period in
2000. This represents a decrease of $130,169 over the same period in 2000. The
decrease reflects the costs of defending the lawsuit. Net income for the three
months ended March 31, 2001, excluding legal fees, was $521,662 or 3.9% higher
than net income for the three months ended March 31, 2000. Average-earning
assets increased $41,714,000 from $158,969,000 for the three months ended March
31, 2000 to $200,683,000 for the three months ended March 31, 2001.
11
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
Assets and Liabilities
During the first three months of 2001, total assets increased $15,933,196, or
7.98%, when compared to December 31, 2000. The primary source of growth in
assets was loans, which increased $10,999,772 during the first three months of
2001. Federal funds sold and repurchase agreements increased $6,168,100 from
December 31, 2000 to $37,822,000 at March 31, 2001. Total deposits also
increased $2,668,998, or 1.66%, from the December 31, 2000 amount of
$160,446,969. Within the deposit area, certificates of deposit greater than
$100,000 and over increased $8,928,468, or 14.17%, during the first three months
of 2001. In order to fund loan growth, advances from the Federal Home Loan Bank
were increased $13,000,000 to $25,000,000 at March 31, 2001. Advances from the
Federal Home Loan Bank will continue to be used as a secondary funding source.
Securities sold under agreements to repurchase decreased $371,900 to $6,742,000
at March 31, 2001.
Investment Securities
Investment securities decreased from $5,470,765 at December 31, 2000 to
$3,750,000 at March 31, 2001. The decrease can be attributed to the calling of
four securities during the first three months of the year. The funds from the
securities were invested in higher yielding loans. All of our marketable
investment securities were designated as available-for-sale at March 31, 2001.
Nonmarketable Equity Securities
Nonmarketable equity securities include the cost of our investments in the stock
of the Federal Home Loan Bank of $1,250,000 and $600,000 at March 31, 2001 and
December 31, 2000, respectively, and the stock of Community Financial Services,
Inc., of $351,794 at March 31, 2001 and December 31, 2000. The increase in the
investment in Federal Home Loan Bank stock is required as a result of the
increase in borrowings from the Federal Home Loan Bank.
Loans
We continued to experience strong loan growth during the first three months of
2001. Net loans increased $10,928,415, or 7.13%, from December 31, 2000 to March
31, 2001. As shown below, the main component of growth in the loan portfolio was
commercial and industrial loans, which increased 9.99%, or $9,167,941, from
December 31, 2000. Commercial and industrial loans include discounted accounts
receivable loans that totaled $6,566,402 at March 31, 2001. Accounts receivable
loans decreased $759,841, or 10.37%, when compared to December 31, 2000. In
addition, real estate - construction loans increased $637,821, or 11.01%, during
the first three months of 2001. Balances within the major loans receivable
categories as of March 31, 2001 and December 31, 2000 are as follows:
March 31, December 31,
2001 2000
--------------- --------------
Real estate - construction $ 6,430,585 $ 5,792,764
Real estate - mortgage 54,466,096 52,809,952
Commercial and industrial 100,939,445 91,771,504
Consumer and other 3,951,930 4,414,064
-------------- ------------
$ 165,788,056 $ 154,788,284
============== ============
12
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
March 31,
----------------------------------
2001 2000
--------------- ------------------
Loans: Nonaccrual loans $ 2,319,211 $ 1,869,352
Accruing loans more than 90 days past due $ 1,000 $ 658
Loans identified by the internal review mechanism:
Criticized $ 1,002,763 $ 1,912,000
Classified $ 1,889,268 $ -
Risk Elements in the Loan Portfolio
Activity in the Allowance for Loan Losses is as follows:
March 31,
------------------------------------
2001 2000
----------------- ------------------
Balance, January 1, 1,601,539 1,226,442
Provision for loan losses for the period 90,000 164,000
Net loans (charged-off) recovered for the period (18,643) (1,496)
------------ ------------
Balance, end of period 1,672,896 1,388,946
============ ============
Gross loans outstanding, end of period $ 165,788,056 $ 133,012,437
Allowance for loan losses to loans outstanding 1.01% 1.04%
Deposits
At March 31, 2001, total deposits increased by $2,668,998, or 1.66%, from
December 31, 2000. The largest increase was in certificates of deposit greater
than $100M, which increased $8,928,468, or 14.17%, from December 31, 2000 to
March 31, 2001. At March 31, 2001, certificates of deposit included brokered
deposits totaling $36,694,638. Brokered deposits decreased $3,317,101, or 8.29%,
from December 31, 2000. Even though total brokered deposits decreased, we
determined that the cost of funds using brokered deposits is reasonable in
comparison to the cost of obtaining traditional deposits and therefore will
continue to use these deposits in 2001 to meet funding needs. Expressed in
percentages, noninterest-bearing deposits decreased 13.02% and interest-bearing
deposits increased 2.65%.
13
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
Deposits- (continued)
Balances within the major deposit categories as of March 31, 2001 and December
31, 2000 are as follows:
March 31, December 31,
2001 2000
--------------- ---------------
Noninterest-bearing demand deposits $ 8,786,191 $ 10,101,875
Interest-bearing demand deposits 9,878,883 7,174,211
Savings deposits 22,570,980 20,031,564
Time deposits $100,000 and over 71,916,785 62,988,317
Other time deposits 49,963,128 60,151,002
------------ ------------
$163,115,967 $160,446,969
============ ============
Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank totaled $25,000,000 and consisted of
the following at March 31, 2001.
Maturity Date Call Date Grant Date Current Rate Balance
------------- --------- ---------- ------------ -------
10/11/05 10/11/02 10/11/00 6.26% $ 5,000,000
01/10/11 01/10/06 01/10/01 5.05 7,000,000
01/12/11 01/13/03 01/12/01 4.63 5,000,000
02/01/11 02/01/03 02/01/01 4.78 2,000,000
02/09/11 02/09/04 02/09/01 5.02 3,000,000
03/21/11 03/19/04 03/19/01 4.67 3,000,000
------------
Total advances $ 25,000,000
============
Advances from the Federal Home Loan Bank are all fixed rate advances with
principal due at maturity and interest payable quarterly. All advances are
subject to early termination with two days notice.
As collateral, we have pledged our portfolio of first mortgage loans on
one-to-four family residential properties aggregating $23,553,701 at March 31,
2001 and our investment in Federal Home Loan Bank stock of $1,250,000, which is
included in nonmarketable equity securities.
Liquidity
We meet our liquidity needs through scheduled maturities of loans and
investments on the asset side and through pricing policies on the liability side
for interest-bearing deposit accounts and borrowings from the Federal Home Loan
Bank. The level of liquidity is measured by the loan-to-total borrowed funds
ratio, which was at 85.08% at March 31, 2001 and 86.20% at December 31, 2000.
Securities available-for-sale, which totaled $3,750,000 at March 31, 2001, serve
as a ready source of liquidity. We also have lines of credit available with
correspondent banks to purchase federal funds for periods from one to seven
days. At March 31, 2001, unused lines of credit totaled $9,931,154.
14
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
Capital Resources
Total shareholders' equity increased from $18,975,835 at December 31, 2000 to
$19,362,554 at March 31, 2001. The increase is due to net income for the period
of $371,793 and a positive change of $14,926 in the fair value of securities
available-for-sale.
The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk-weights ranging from 0% to 100%. Under the risk-based standard, capital is
classified into two tiers. Tier 1 capital consists of common shareholders'
equity, excluding the unrealized gain (loss) on available-for-sale securities,
minus certain intangible assets. Tier 2 capital consists of the general reserve
for loan losses subject to certain limitations. An institutions' qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for
Tier 1 and 8% for total risk-based capital.
Banks and bank holding companies are also required to maintain a capital at a
minimum level based on total assets, which is known as the leverage ratio. The
minimum requirement for the leverage ratio is 3%, but all but the highest rated
institutions are required to maintain ratios 100 to 200 basis point above the
minimum. Both the Company and the Bank exceeded their minimum regulatory capital
ratios as of March 31, 2001.
The following table summarizes our risk-based capital at March 31, 2001:
Shareholders' equity $ 19,354,431
Less: intangibles 3,172
Tier 1 capital 19,351,259
Plus: allowance for loan losses (1) 1,672,896
Total capital $ 21,024,155
==============
Risk-weighted assets $ 164,695,791
==============
Risk based capital ratios
Tier 1 capital (to risk-weighted assets) 11.75%
Total capital (to risk-weighted assets) 12.77%
Tier 1 capital (to total average assets) 9.36%
(1) limited to 1.25% of risk-weighted assets
Regulatory Matters
From time to time, various bills are introduced in the United States Congress
with respect to the regulation of financial institutions. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. We cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect us.
15
RHBT FINANCIAL CORPORATION
Part II - Other Information
Item 1. Legal Proceedings
- -------------------------
The Bank has been named as a defendant in a lawsuit captioned Samuel R. Anthony,
SR Anthony and Associates, Inc., Blue Wall Limited, Red Wall Limited, Lo Castro
Associates, and Nana, Ltd. f/k/a Maricopa, Ltd. v. Rock Hill Bank & Trust and
Robert M. Yoffie. Mr. Yoffie is a former Bank trust officer. The referenced
lawsuit, filed on or about February 14, 2001, asserts that plaintiffs are
entitled to recover some $9.5 million deposited in an agency account in the
Bank's trust department plus related damages. The plaintiffs generally assert
that they entered into an investment program with persons unrelated to the Bank
and that funds to be used in the investment program were deposited in the Bank
subject to certain agreements with and powers of attorney held by third parties.
Although much of the complaint relates to persons or entities other than the
Bank, the complaint seeks damages from the Bank through various legal theories
including breach of contract, breach of fiduciary duty, fraud and negligent
misrepresentation. On April 2, 2001, the Bank filed an answer to the complaint
in which it denied any and all liability, and in which it asserted counterclaims
against the plaintiffs and the principals of the plaintiff entities. The Bank
also asserted a cross-claim against Mr. Yoffie, stating that to the extent, if
any, the plaintiffs are permitted to recover from the Bank, the Bank is entitled
to be indemnified by Mr. Yoffie. Finally, the Bank brought into the lawsuit as
third-party defendants the individuals and entities who conducted the investment
programs at issue. In addition to defending the lawsuit vigorously, the Bank has
made demand on its two insurance carriers who, through various forms of
insurance coverage, the Bank believes may provide meaningful indemnification to
the Bank for any loss it may incur from these claims. The insurers have not yet
responded to the demands for coverage and may deny the claims. This matter
remains in its early stages, with the parties now beginning the discovery
process. The Bank and its legal counsel are not in a position at this time to
express any opinion on the possible outcome of the matter. However, management
is of the opinion that it will not have a material impact on the Company's
financial position. Accordingly, no provision for any liability that may result
has been made in the financial statements. Nevertheless, due to uncertainties
with the lawsuit, it is at least reasonably possible that management's view of
the outcome will change.
In addition, on March 1, 2001, the Bank was sued by Premier Productions, a
former account holder, in the case of Premier Productions vs. Rock Hill Bank &
Trust. The account held by Premier was an agency account whose purpose was to
provide $1,000,000 in funding for Premier's participation in high yield
investments pursuant to a placement agreement between Premier and a third party
known as Dipresa Management. According to the complaint, Dipresa promised to pay
Premier $50,000 in the event certain investment returns were not realized. While
Premier concedes that it received full return of its investment, it contends
that promised "profits" on its investment were not realized, and therefore that
it is entitled to recover the $50,000 allegedly guaranteed by Dipresa, plus
related damages. Premier is pursuing legal theories that the investment offering
violated the state securities act, and gave rise to claims for actual and
constructive fraud, breach of fiduciary duty, breach of contract, unfair trade
practices, negligence and promissory estoppel. The Bank was not a party to the
placement agreement or any other documents soliciting any investment by Premier.
The Bank believes that the allegations are contrary to the agency agreement with
the Bank executed by Premier. Based on the foregoing, the Bank timely filed a
motion to dismiss Premier's complaint. If the motion is granted, this case will
be concluded subject only to appeal. If the motion is not granted, the Bank will
continue to vigorously defend the action. In the opinion of the Bank, although
the outcome of any legal proceedings cannot be predicted with certainty, the
ultimate liability of the Bank in connection with this case will not have a
material adverse effect on the Company's financial position or results of
operations.
Item 6. Exhibits And Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
The following documents are filed as part of this report: Not
applicable.
Reports on Form 8-K
(b) Reports on Form 8-K - The following reports were filed
on Form 8-K during the quarter ended March 31, 2001.
99.1 Press release dated February 16, 2001 to announce that Rock Hill
Bank & Trust, a wholly owned subsidiary of RHBT Financial Corporation
was named as a defendant in a lawsuit filed on February 15, 2001
(incorporated by reference to Exhibit 99.1 of the Company's Form 8-K
filed with the SEC on February 16, 2001).
99.2 Press release dated March 14, 2001 to announce that RHBT
Financial Corporation has agreed to suspend merger plans with Ridgeway
Bancshares, Inc. (incorporated by reference to Exhibit 99.1 of the
Company's Form 8-K filed with the SEC on March 15, 2001).
16
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: /s/ J.A. FERGUSON, JR.
------------------------------------------
J.A. Ferguson, Jr.
President & Chief Executive Officer
Date: May 11, 2001 By: /s/ PATRICIA M. STONE
------------------------------------------
Patricia M. Stone
Chief Financial Officer
17