U.S. 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 September 30, 2001
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________to_________
Commission File No. 000-32493
REGIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-1108717
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
206 South Fifth Street
Hartsville, SC 29551
(Address of principal executive
offices, including zip code)
(843) 383-4333
(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.
560,270 shares of common stock, $1.00 par value, on October 31, 2001
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<Page>
REGIONAL BANCSHARES, INC.
Index
<Table>
<Caption>
PART I. FINANCIAL INFORMATION Page No.
- -----------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- September 30, 2001 and December 31, 2000................................3
Condensed Consolidated Statements of Income -- Nine months ended
September 30, 2001 and 2000
and Three months ended September 30, 2001 and 2000.............................................................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income --
Nine months ended September 30, 2001...........................................................................5
Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 2001 and 2000.................6
Notes to Condensed Consolidated Financial Statements...........................................................7-8
Item 2. Management's Discussion and Analysis or Plan of Operation......................................................9-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................................................15
(a) Exhibits....................................................................................................15
(b) Reports on Form 8-K.........................................................................................15
</Table>
2
<Page>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
REGIONAL BANCSHARES, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
<Table>
<Caption>
September 30, December 31,
2001 2000
---- ----
Assets:
Cash and cash equivalents:
Cash and due from banks .................................................... $ 1,761,515 $ 1,408,628
Federal funds sold ......................................................... 2,410,100 4,610,000
------------ ------------
Total cash and cash equivalents .......................................... 4,171,615 6,018,628
------------ ------------
Securities available-for-sale ................................................. 354,922 346,709
Nonmarketable equity securities ............................................... 100,053 238,603
------------ ------------
Total investment securities .............................................. 454,975 585,312
------------ ------------
Loans receivable .............................................................. 24,465,507 15,157,361
Less allowance for loan losses ............................................ (249,280) (159,000)
------------ ------------
Loans, net .............................................................. 24,216,227 14,998,361
Accrued interest receivable ................................................... 142,800 89,540
Premises and equipment, net ................................................... 2,159,830 1,051,941
Other assets .................................................................. 668,591 560,275
------------ ------------
Total assets ............................................................. $ 31,814,038 $ 23,304,057
============ ============
Liabilities
Deposits:
Noninterest-bearing ........................................................ $ 2,944,209 $ 2,304,641
Interest-bearing ........................................................... 3,142,220 2,726,322
Savings .................................................................... 6,263,385 3,411,490
Time deposits $100,000 and over ............................................ 4,500,816 3,902,384
Other time deposits ........................................................ 8,406,762 6,119,382
------------ ------------
Total deposits ........................................................... 25,257,392 18,464,219
Advances from the Federal Home Loan Bank ...................................... 1,750,000 -
Accrued interest payable ...................................................... 303,574 245,113
Other liabilities ............................................................. 81,745 24,005
------------ ------------
Total liabilities ........................................................ 27,392,711 18,733,337
------------ ------------
Shareholders' Equity
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, none issued ..................................................... - -
Common stock, $1.00 par value; 10,000,000 shares
authorized, 560,270 shares issued and outstanding .......................... 560,270 560,270
Capital surplus ............................................................... 4,973,271 4,973,271
Retained earnings (deficit) ................................................... (1,116,251) (963,212)
Accumulated other comprehensive income ........................................ 4,037 391
------------ ------------
Total shareholders' equity ............................................... 4,421,327 4,570,720
------------ ------------
Total liabilities and shareholders' equity .............................. $ 31,814,038 $ 23,304,057
============ ============
</Table>
See notes to condensed consolidated financial statements.
3
<Page>
REGIONAL BANCSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
<Table>
<Caption>
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Interest income
Loans, including fees .............................. $ 1,310,865 $ 655,903 488,768 $ 282,800
Investment Securities:
Taxable ............................................ 16,724 18,255 5,574 2,339
Nonmarketable equity securities .................... 4,568 5,045 916 5,045
Federal funds sold ................................. 120,858 186,019 12,017 60,853
----------- ----------- ----------- -----------
Total .............................................. 1,453,015 865,222 507,275 351,037
----------- ----------- ----------- -----------
Interest expense
Time deposits $100,000 and over .................... 176,298 75,407 54,491 39,842
Other deposits ..................................... 462,929 267,440 159,743 115,334
Other interest expense ............................. 4,597 - 2,637 -
----------- ----------- ----------- -----------
Total .............................................. 643,824 342,847 216,871 155,176
----------- ----------- ----------- -----------
Net interest income ................................ 809,191 522,375 290,404 195,861
Provision for loan losses .......................... 104,841 89,809 57,072 39,975
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses.......................... 704,350 432,566 233,332 155,886
----------- ----------- ----------- -----------
Other income
Service charges on deposit accounts ................ 87,463 33,076 34,898 13,323
Residential mortgage origination fees .............. 49,125 20,332 22,850 9,513
Credit life insurance commissions .................. 8,159 9,566 2,060 1,284
Other income ....................................... 22,076 15,521 8,127 5,555
----------- ----------- ----------- -----------
Total .......................................... 166,823 78,495 67,935 29,675
----------- ----------- ----------- -----------
Other expense
Salaries and benefits .............................. 550,080 507,018 189,350 165,163
Net occupancy expense .............................. 52,939 46,145 18,982 14,641
Furniture and fixture expense ...................... 77,640 73,577 26,155 26,538
Other operating expense ............................ 431,648 369,305 136,240 133,151
----------- ----------- ----------- -----------
Total .......................................... 1,112,307 996,045 370,727 339,493
----------- ----------- ----------- -----------
Income (loss) before income taxes .................. (241,134) (484,984) (69,460) (153,932)
Income tax expense (benefit) ....................... (88,095) (179,725) (25,701) (56,974)
----------- ----------- ----------- -----------
Net income (loss) .................................. $ (153,039) $ (305,259) $ (43,759) $ (96,958)
=========== =========== =========== ===========
Earnings (loss) per share
Average shares outstanding ...................... 560,270 560,270 560,270 560,270
Net income (loss) ............................... $ (0.27) $ (0.54) $ (0.08) $ (0.17)
</Table>
See notes to condensed consolidated financial statements.
4
<Page>
REGIONAL BANCSHARES, INC.
Condensed Consolidated Statement of Shareholders'
Equity and Comprehensive Income
for the nine months ended September 30, 2001
(Unaudited)
<Table>
<Caption>
Accumulated
Common Stock Retained Other
------------ Capital Earnings Comprehensive
Shares Amount Surplus (Deficit) Income Total
------ ------ ------- --------- ------ -----
Balance,
December 31, 2000............ 560,270 $ 560,270 $ 4,973,271 $ (963,212) $ 391 $ 4,570,720
Net income (loss)
for the period .............. (153,039) (153,039)
Other comprehensive
income, net of tax
(expense) benefit
of ($1,878) ................. 3,646 3,646
-----------
Comprehensive
income (loss)................ (149,393)
------- --------- ----------- ----------- ------- -----------
Balance,
September 30, 2001........... 560,270 $ 560,270 $ 4,973,271 $(1,116,251) $ 4,037 $ 4,421,327
======= ========= =========== =========== ======= ===========
</Table>
See notes to condensed consolidated financial statements.
5
<Page>
REGIONAL BANCSHARES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<Table>
<Caption>
Nine Months Ended September 30,
-------------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income (loss) .................................................................... $ (153,039) $ (208,301)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization .................................................... 78,898 43,230
Provision for possible loan losses ............................................... 104,841 49,834
Accretion and premium amortization ............................................... (2,689) (1,486)
Deferred income tax provision (benefit) .......................................... (78,134) (122,751)
Writedown on disposal of premises and equipment .................................. 10,538 -
Increase in interest receivable .................................................. (53,260) (27,182)
Increase in interest payable ..................................................... 58,461 82,960
Decrease (increase) in other assets .............................................. (32,060) 12,232
Increase (decrease) in other liabilities ......................................... 57,740 (10,834)
------------ ------------
Net cash used by operating activities ......................................... (8,704) (182,298)
------------ ------------
Cash flows from investing activities:
Sale of nonmarketable equity securities ............................................ 138,550 -
Net increase in loans made to customers ............................................ (9,322,707) (4,567,982)
Purchases of premises and equipment ................................................ (1,197,325) (53,898)
------------ ------------
Net cash used by investing activities ............................................ (10,381,482) (4,621,880)
------------ ------------
Cash flows from financing activities:
Net increase in demand deposits, interest bearing .................................. 3,907,361 1,580,425
transaction accounts and savings accounts
Net increase in certificates of deposit and other time deposits .................... 2,885,812 3,090,675
Advances from the Federal Home Loan Bank ........................................... 1,750,000 -
------------ ------------
Net cash provided by financing activities ........................................ 8,543,173 4,671,100
------------ ------------
Net increase (decrease) in cash and cash equivalents ................................ (1,847,013) (133,078)
Cash and cash equivalents, beginning ................................................. 6,018,628 4,364,020
------------ ------------
Cash and cash equivalents, ending .................................................... $ 4,171,615 $ 4,230,942
============ ============
Income taxes ..................................................................... $ - $ -
Interest ......................................................................... $ 585,363 $ 104,711
</Table>
See notes to condensed consolidated financial statements.
6
<Page>
REGIONAL BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying 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 on Form 10-KSB. The financial
statements, as of September 30, 2001 and for the interim periods ended September
30, 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
Regional Bancshares, Inc.'s Annual Report on Form 10-KSB.
Note 2 - Comprehensive Income
Comprehensive income includes net income and other comprehensive income, which
is defined as nonowner 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 and nine month periods ended September 30,
2001 and 2000:
<Table>
<Caption>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Nine-Months Ended September 30, 2001:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................. $ 5,524 $(1,878) $ 3,646
Plus: reclassification adjustment for gains (losses)
realized in net income ...................................................... - - -
------- ------- -------
Net unrealized gains (losses) on securities ................................ 5,524 (1,878) 3,646
------- ------- -------
Other comprehensive income ..................................................... $ 5,524 $(1,878) $ 3,646
======= ======= =======
<Caption>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Nine-Months Ended September 30, 2000:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................... $(447) $ 152 $(295)
Plus: reclassification adjustment for gains (losses)
realized in net income ........................................................ - - -
----- ----- -----
Net unrealized gains (losses) on securities .................................. (447) 152 (295)
----- ----- -----
Other comprehensive income ....................................................... $(447) $ 152 $(295)
===== ===== =====
</Table>
7
<Page>
REGIONAL BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Comprehensive Income (continued)
- -----------------------------
<Table>
<Caption>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Three-Months Ended September 30, 2001:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................. $ 3,144 $(1,069) $ 2,075
Plus: reclassification adjustment for gains (losses)
realized in net income ...................................................... - - -
------- ------- -------
Net unrealized gains (losses) on securities ................................ 3,144 (1,069) 2,075
------- ------- -------
Other comprehensive income ..................................................... $ 3,144 $(1,069) $ 2,075
======= ======= =======
<Caption>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Three-Months Ended September 30, 2000:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................. $ 6,738 $(2,291) $ 4,447
Plus: reclassification adjustment for gains (losses)
realized in net income ...................................................... - - -
------- ------- -------
Net unrealized gains (losses) on securities ................................ 6,738 (2,291) 4,447
------- ------- -------
Other comprehensive income ..................................................... $ 6,738 $(2,291) $ 4,447
======= ======= =======
</Table>
Accumulated other comprehensive income consists solely of the unrealized gain
(loss) on securities available-for-sale, net of the deferred tax effects.
8
<Page>
REGIONAL BANCSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following is a discussion of the Company's financial condition as of
September 30, 2001 compared to December 31, 2000, and the results of operations
for the three and nine months ended September 30, 2001 compared to the three and
nine months ended September 30, 2000. These comments should be read in
conjunction with the Company's 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 the Company's
management, as well as assumptions made by and information currently available
to the Company's management. The words "expect," "estimate," "anticipate" and
"believe," as well as similar expressions, are intended to identify
forward-looking statements. The Company's actual results may differ materially
from the results discussed in the forward-looking statements, and the Company's
operating performance each quarter is subject to various risks and uncertainties
that are discussed in detail in the Company's filings with the Securities and
Exchange Commission.
Results of Operations
Net Interest Income
For the nine months ended September 30, 2001, net interest income increased
$286,816, or 54.91%, to $809,191 as compared to $522,375 for the same period in
2000. Interest income from loans, including fees, increased $654,962 or 99.86%,
from the nine months ended September 30, 2000 to the comparable period in 2001,
as we continued to experience growth in our loan portfolio. Interest expense for
the nine months ended September 30, 2001 was $643,824 as compared to $342,847
for the same period in 2000. The increase in interest-bearing deposits between
the two periods resulted in increased interest expense. The net interest margin
realized on earning assets decreased from 5.16% for the nine months ended
September 30, 2000 to 4.71% for the same period in 2001. The interest rate
spread increased by 54 basis points from 3.37% at September 30, 2000 to 3.91% at
September 30, 2001.
For the quarter ended September 30, 2001, net interest income totaled $290,404,
an increase of $94,543, or 48.27%, when compared to the same quarter ended
September 30, 2000. Interest income totaling $488,768 was generated from loans,
including fees, during the quarter ended September 30, 2001, as compared to
$282,800 during the comparable period in 2000. Interest expense on deposit
accounts was $216,871 for the quarter ended September 30, 2001, as compared to
$155,176 for the same period in 2000. The net interest margin realized on
earning assets was 4.70% for the quarter ended September 30, 2001, as compared
to 4.75% during the same period in 2000. The interest rate spread was 4.07% for
the quarter ended September 30, 2001, as compared to 3.06% for the quarter ended
September 30, 2000.
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 nine months ended September 30, 2001, the
provision charged to expense was $104,841 as compared to $89,809 for the nine
months ended September 30, 2000. This is a result of management's efforts to
increase the allowance for loan losses to match the growth in the loan
portfolio. For the quarter ended September 30, 2001, the provision charged to
expense was $57,072 as compared to $39,975 for the same period in 2000. 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. The Bank maintains 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. Management's judgment about the adequacy of the
allowance is based upon a number of assumptions about future events, which it
believes to be reasonable, but which may not prove to be accurate. Thus, there
is a risk that charge-offs 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 the Bank's net income and, possibly, its capital.
9
<Page>
REGIONAL BANCSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Noninterest Income
Noninterest income increased $88,328, or 112.53% to $166,823 for the nine months
ended September 30, 2001 as compared to the same period ended September 30,
2000. The primary source of this income was the increase in service charges on
deposit accounts of $54,387, or 164.43%, to $87,463 for the nine months ended
September 30, 2001, when compared to the same period in 2000. This increase is
attributable to an increase in deposit accounts over the two periods. In
addition, income from residential mortgage origination fees increased $28,793 to
$49,125 for the nine months ended September 30, 2001 as compared to the same
period in 2000.
For the quarter ended September 30, 2001, noninterest income was $67,935, an
increase of $38,260, or 128.93% over the quarter ended September 30, 2000. The
largest component of noninterest income was service charges on deposit accounts,
which totaled $34,898 for the quarter ended September 30, 2001, as compared to
$13,323 for the quarter ended September 30, 2000. Income from residential
mortgage origination fees totaled $22,850 for the quarter ended September 30,
2001, as compared to $9,513 for the same period in 2000.
Noninterest Expense
For the nine months ended September 30, 2001, noninterest expense was
$1,112,307, an increase of $116,262, or 11.67% when compared to the same period
in 2000. The largest increase was in other operating expense, which increased
from $369,305 for the nine months ended September 30, 2000 to $431,648 for the
nine months ended September 30, 2001. The increase is attributable to the costs
associated with forming the holding company during the first quarter of the year
and to certain costs associated with moving into the new building on May 7,
2001. Salaries and employee benefits also increased from $507,018 for the nine
months ended September 30, 2000 to $550,080 for the nine months ended September
30, 2001. This increase is primarily attributable to annual pay raises.
For the quarter ended September 30, 2001, noninterest expense increased $31,234,
or 9.20% as compared to the quarter ended September 30, 2000. The largest
category of noninterest expense, salaries and employee benefits, increased
$24,187 from the quarter ended September 30, 2000 to $189,350 for the quarter
ended September 30, 2001. As discussed earlier, this increase is primarily
attributable to annual pay raises.
Income Taxes
The income tax benefit for the nine months ended September 30, 2001 was $88,095
as compared to $179,725 for the same period in 2000. The loss before income
taxes decreased from $484,984 for the nine months ended September 30, 2000 to
$241,134 for the same period in 2001. The effective tax rate was 37% for the
nine months ended September 30, 2001 and 2000. The effective tax rate was also
37% for the quarters ended September 30, 2001 and 2000.
Net Income (Loss)
The combination of the above factors resulted in a net loss for the nine months
ended September 30, 2001 of $153,039 as compared to $305,259 for the same period
in 2000. The net loss before taxes of $241,134 was partially offset by the
income tax benefit of $88,095 during the nine months ended September 30, 2001.
The net loss before taxes for the same period in 2000 was $484,984, which was
partially offset by the income tax benefit of $179,725. For the quarter ended
September 30, 2001, the net loss was $43,759, as compared to $96,958 for the
same period in 2000.
10
<Page>
REGIONAL BANCSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Assets and Liabilities
During the first nine months of 2001, total assets increased $8,509,981, or
36.52%, when compared to December 31, 2000. The primary source of growth in
assets was in loans, which increased $9,308,146, or 61.41%, during the first
nine months of 2001. Premises and equipment, net of accumulated depreciation,
increased $1,107,889, or 105.32%, from December 31, 2000 to $2,159,830 at
September 30, 2001. This increase was attributable to the construction of the
new corporate headquarters. These increases were partially offset by a decrease
in federal funds sold from $4,610,000 at December 31, 2000 to $2,410,100 at
September 30, 2001. Federal funds were shifted to loans as the demand for loans
increased during the period. Total deposits also increased $6,793,173, or
36.79%, from $18,464,219 at December 31, 2000 to $25,257,392 at September 30,
2001. Within the deposit area, savings accounts increased $2,851,895, or 83.60%
from December 31, 2000 to $6,263,385 at September 30, 2001. This increase was
primarily attributable to one customer that placed additional funds in money
market accounts. In order to assist with funding loan growth, the Bank also
obtained advances from the Federal Home Loan Bank which totaled $1,750,000 at
September 30, 2001.
Investment Securities
Investment securities decreased from $585,312 at December 31, 2000 to $454,975
at September 30, 2001. Because of the withdrawal of the Bank's membership in the
Federal Reserve Bank of Richmond and the corresponding redemption of its stock
in the Federal Reserve Bank of Richmond upon the Bank's conversion to a state
charter, nonmarketable equity securities decreased from $238,603 at December 31,
2000 to $100,053 at September 30, 2001. All of the Bank's marketable investment
securities were designated as available-for-sale at September 30, 2001.
Loans
The Bank continued its trend of growth during the first nine months of 2001,
especially in the loan area. Net loans increased $9,217,866, or 61.46%, during
the period. As shown below, the main component of growth in the loan portfolio
was real estate - mortgage loans which increased 110.26%, or $7,010,194, from
December 31, 2000 to September 30, 2001. Balances within the major loans
receivable categories as of September 30, 2001 and December 31, 2000 are as
follows:
September 30, December 31,
2001 2000
---- ----
Real estate - construction ............... $ 1,825,813 $ 1,439,247
Real estate - mortgage ................... 13,368,005 6,357,811
Commercial and industrial ................ 4,440,877 3,329,040
Consumer and other ....................... 4,830,812 4,031,263
----------- -----------
$24,465,507 $15,157,361
=========== ===========
11
<Page>
REGIONAL BANCSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
September 30, December 31,
2001 2000
---- ----
Loans: Nonaccrual loans ........................ $10,789 $10,789
Accruing loans more than 90 days past due ...... $ - $ -
Loans identified by the
internal review mechanism:
Criticized .................................. $37,869 $39,597
Classified .................................. $10,789 $12,766
Criticized loans have potential weaknesses that deserve close attention and
could, if uncorrected, result in deterioration of the prospects for repayment or
the Bank's credit position at a future date. Classified loans are inadequately
protected by the sound worth and paying capacity of the borrower or any
collateral and there is a distinct possibility or probability that the Bank will
sustain a loss if the deficiencies are not corrected.
Allowance for Loan Losses
Activity in the Allowance for Loan Losses is as follows:
<Table>
<Caption>
September 30, December 31,
2001 2000
---- ----
Balance, January 1, .......................................................... $ 159,000 $ 54,629
Provision for loan losses for the period ..................................... 104,841 89,809
Net loans (charged-off) recovered for the period ............................. (14,561) (15,638)
------------ ------------
Balance, end of period ....................................................... $ 249,280 $ 128,800
============ ============
Gross loans outstanding, end of period ....................................... $ 24,465,507 $ 12,877,426
Allowance for loan losses to loans outstanding ............................... 1.02% 1.00%
</Table>
Premises and Equipment
Premises and equipment, net of accumulated depreciation, increased from
$1,051,941 at December 31, 2000 to $2,159,830 at September 30, 2001. The
increase of $1,107,889 was attributable to the construction of our new corporate
headquarters at 206 South Fifth Street. We moved into the new building on May 7,
2001.
12
<Page>
REGIONAL BANCSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Deposits
Total deposits increased $6,793,173, or 36.79%, from December 31, 2000 to
$25,257,392 at September 30, 2001. The largest change was an increase in savings
deposits, which increased $2,851,895 to $6,263,385 at September 30, 2001. This
increase was primarily attributable to one customer that placed additional funds
in money market accounts earlier during the year. Expressed in percentages,
interest-bearing deposits increased 38.08% and noninterest bearing deposits
increased 27.75%.
Balances within the major deposit categories as of September 30, 2001 and
December 31, 2000 are as follows:
September 30, December 31,
2001 2000
---- ----
Noninterest-bearing demand deposits .......... $ 2,944,209 $ 2,304,641
Interest-bearing demand deposits ............. 3,142,220 2,726,322
Savings deposits ............................. 6,263,385 3,411,490
Time deposits $100,000 and over .............. 4,500,816 3,902,384
Other time deposits .......................... 8,406,762 6,119,382
----------- -----------
$25,257,392 $18,464,219
=========== ===========
Advances from Federal Home Loan Bank
Advances from Federal Home Loan Bank consisted of two advances obtained to fund
loan growth and totaled $1,750,000 at September 30, 2001. One advance totaling
$1,000,000 has an interest rate of 3.30% and matures October 1, 2001. A $750,000
advance has an interest rate of 3.30% and matures October 1, 2001. Both mature
on a daily basis. Advances from the Federal Home Loan Bank are secured by one to
four family residential mortgage loans and by the Bank's stock in the Federal
Home Loan Bank.
Liquidity
Liquidity needs are met by the Bank through scheduled maturities of loans and
investments on the asset side and through pricing policies on the liability side
for interest-bearing deposit accounts. The level of liquidity is measured by the
loan-to-total borrowed funds ratio, which was at 90.59% at September 30, 2001
and 82.09% at December 31, 2000.
Securities available-for-sale, which totaled $354,922 at September 30, 2001,
serve as a ready source of liquidity. The Bank also has lines of credit
available with correspondent banks to purchase federal funds for periods from
one to seven days. At September 30, 2001, unused lines of credit totaled
$2,650,000.
Capital Resources
Total shareholders' equity decreased from $4,570,720 at December 31, 2000 to
$4,421,327 at September 30, 2001. The decrease is due to the net loss for the
period of $153,039. The decrease was offset partially by a positive change of
$3,646 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 institution's 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.
13
<Page>
REGIONAL BANCSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Capital Resources - continued
Banks and bank holding companies are also required to maintain 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%; however 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 June 30, 2001 as well as the ratios to be considered "well
capitalized."
The following table summarizes the Company's risk-based capital at September 30,
2001:
<Table>
<Caption>
Shareholders' equity .............................................................................. $ 4,417,290
Less: intangibles ................................................................................ -
-----------
Tier 1 capital ................................................................................... 4,417,290
-----------
Plus: allowance for loan losses (1) .............................................................. 249,280
-----------
Total capital .................................................................................... $ 4,666,570
===========
Risk-weighted assets ............................................................................. $26,618,444
===========
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets) ....................................................... 16.59%
Total capital (to risk-weighted assets) ........................................................ 17.53%
Tier 1 capital (to total average assets) ....................................................... 15.54%
</Table>
(1) limited to 1.25% of risk-weighted assets
14
<Page>
REGIONAL BANCSHARES, INC.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter
ended September 30, 2001.
15
<Page>
REGIONAL BANCSHARES, INC.
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: November 2, 2001 By: /s/ CURTIS A. TYNER
--------------------------------------
Curtis A. Tyner
President, Chief Executive Officer and
Chief Financial Officer
16