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 June 30, 2002
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 BANKSHARES, 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 [ ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
563,370 shares of common stock, $1.00 par value, on August 8, 2002
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
<Page>
REGIONAL BANKSHARES, INC.
Index
PART I. FINANCIAL INFORMATION
<Table>
<Caption>
Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- June 30, 2002 and December 31, 2001.....................................3
Condensed Consolidated Statements of Income -- Six months ended June 30, 2002 and 2001
and Three months ended June 30, 2002 and 2001..................................................................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income --
Six months ended June 30, 2002 and 2001........................................................................5
Condensed Consolidated Statements of Cash Flows -- Six months ended June 30, 2002 and 2001.......................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 4. Submission of Matters to a Vote of Security Holders..............................................................15
Item 6. Exhibits and Reports on Form 8-K.................................................................................15
(a) Exhibits....................................................................................................15
(b) Reports on Form 8-K.........................................................................................15
Signatures...............................................................................................................16
</Table>
2
<Page>
PART I - Financial Information
Item 1. Financial Statements
REGIONAL BANKSHARES, INC.
Condensed Consolidated Balance Sheets
<Table>
<Caption>
June 30, December 31,
2002 2001
---- ----
Assets: (Unaudited)
Cash and cash equivalents:
Cash and due from banks .............................................................. $ 1,979,316 $ 1,350,004
Federal funds sold ................................................................... 2,974,895 2,845,956
------------ ------------
Total cash and cash equivalents .................................................... 4,954,211 4,195,960
------------ ------------
Securities available-for-sale .......................................................... 1,011,250 353,672
Nonmarketable equity securities ........................................................ 137,553 137,553
------------ ------------
Total investment securities ........................................................ 1,148,803 491,225
------------ ------------
Loans receivable ......................................................................... 29,994,070 26,873,907
Less allowance for loan losses ........................................................... (312,981) (268,446)
------------ ------------
Loans, net ......................................................................... 29,681,089 26,605,461
Accrued interest receivable .............................................................. 140,770 120,123
Premises and equipment, net .............................................................. 2,102,509 2,124,281
Other assets ............................................................................. 655,027 681,134
------------ ------------
Total assets ....................................................................... $ 38,682,409 $ 34,218,184
============ ============
Liabilities:
Deposits:
Noninterest-bearing .................................................................. $ 3,622,627 $ 3,411,614
Interest-bearing ..................................................................... 3,947,871 5,269,616
Savings .............................................................................. 7,438,312 5,250,268
Time deposits $100,000 and over ...................................................... 6,618,053 5,253,053
Other time deposits .................................................................. 12,304,591 8,557,586
------------ ------------
Total deposits ..................................................................... 33,931,454 27,742,137
------------ ------------
Advances from the Federal Home Loan Bank ................................................. - 1,750,000
Accrued interest payable ................................................................. 231,288 253,696
Other liabilities ........................................................................ 44,397 20,112
------------ ------------
Total liabilities .................................................................. 34,207,139 29,765,945
------------ ------------
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,
563,670 shares issued and outstanding .................................................. 594,270 594,270
Capital surplus ........................................................................ 4,973,271 4,973,271
Retained earnings (deficit) ............................................................ (1,099,696) (1,118,042)
Accumulated other comprehensive income ................................................. 7,425 2,740
------------ ------------
Total shareholders' equity ......................................................... 4,475,270 4,452,239
------------ ------------
Total liabilities and shareholders' equity ......................................... $ 38,682,409 $ 34,218,184
============ ============
</Table>
See notes to condensed consolidated financial statements.
3
<Page>
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
<Table>
<Caption>
Six Months Ended Three Months Ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
Interest income:
Loans, including fees ...................................... $1,074,092 $ 822,097 $ 553,440 $ 413,847
Investment securities
Taxable .................................................. 9,962 11,150 6,149 5,575
Nonmarketable equity securities .......................... 2,732 3,652 1,541 726
Federal funds sold ....................................... 33,165 108,841 18,965 40,718
---------- ---------- ---------- ----------
Total .................................................. 1,119,951 945,740 580,095 460,866
---------- ---------- ---------- ----------
Interest expense:
Time deposits $100,000 and over ............................ 115,585 121,807 58,072 59,764
Other deposits ............................................. 262,068 303,186 138,085 160,220
Other interest expense ..................................... 12,988 1,960 4,351 -
---------- ---------- ---------- ----------
Total .................................................. 390,641 426,953 200,508 219,984
---------- ---------- ---------- ----------
Net interest income .......................................... 729,310 518,787 379,587 240,882
Provision for loan losses .................................... 60,000 47,769 30,000 26,937
---------- ---------- ---------- ----------
Net interest income after provision for loan
losses ..................................................... 669,310 471,018 349,587 213,945
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts ........................ 76,274 52,565 40,048 31,619
Residential mortgage origination fees ...................... 31,705 26,275 19,127 16,191
Brokerage fee commissions .................................. 49,152 - 14,625 -
Credit life insurance commissions .......................... 4,302 6,099 3,089 4,392
Other income ............................................... 21,300 13,949 6,404 5,112
---------- ---------- ---------- ----------
Total .................................................. 182,733 98,888 83,293 57,314
---------- ---------- ---------- ----------
Other expense:
Salaries and employee benefits ............................. 432,830 360,730 212,222 184,132
Net occupancy expense ...................................... 50,631 33,957 26,821 21,529
Furniture and fixture expense .............................. 58,416 51,485 30,538 26,696
Other operating expenses ................................... 281,011 295,408 147,549 161,982
---------- ---------- ---------- ----------
Total .................................................. 822,888 741,580 417,130 394,339
---------- ---------- ---------- ----------
Income (loss) before income taxes ............................ 29,155 (171,674) 15,750 (123,080)
Income tax expense (benefit) ................................. 10,809 (62,394) 5,831 (45,547)
---------- ---------- ---------- ----------
Net income (loss) ............................................ $ 18,346 $ (109,280) $ 9,919 $ (77,533)
========== ========== ========== ==========
Earnings (loss) per share
Averages shares outstanding .................................. 563,670 560,270 563,670 560,270
Net income (loss) ............................................ $ 0.03 $ (0.20) $ 0.02 $ (0.14)
</Table>
See notes to condensed consolidated financial statements.
4
<Page>
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statement of Shareholders' Equity
and Comprehensive Income
for the six months ended June 30, 2002 and 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 ................ (109,280) (109,280)
Other
comprehensive
income,
net of tax $2,947 ............. 5,721 5,721
-----------
Comprehensive
income ........................ - - - - - (103,559)
------- ----------- ----------- ----------- ----------- -----------
Balance,
June 30, 2001 ................. 560,270 $ 560,270 $ 4,973,271 $(1,072,492) $ 6,112 $ 4,467,161
======= =========== =========== =========== =========== ===========
Balance,
December 31, 2001 ............. 563,670 $ 594,270 $ 4,973,271 $(1,118,042) $ 2,740 $ 4,452,239
Net income
for the period ................ 18,346 18,346
Other comprehensive
income,
net of tax $2,413 ............. 4,685 4,685
-----------
Comprehensive
income ........................ - - - - - 23,031
------- ----------- ----------- ----------- ----------- -----------
Balance,
June 30, 2002 ................. 563,670 $ 594,270 $ 4,973,271 $(1,099,696) $ 7,425 $ 4,475,270
======= =========== =========== =========== =========== ===========
</Table>
See notes to condensed consolidated financial statements.
5
<Page>
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<Table>
<Caption>
Six Months Ended
June 30,
--------
2002 2001
---- ----
Cash flows from operating activities:
Net income (loss) .................................................................. $ 18,346 $ (109,280)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization .................................................... 63,856 47,195
Provision for possible loan losses ............................................... 60,000 47,769
Accretion and premium amortization ............................................... (480) (1,617)
Deferred income tax provision (benefit) .......................................... 10,808 (52,764)
Increase in interest receivable .................................................. (20,647) (33,019)
Increase (decrease) in interest payable .......................................... (22,408) 56,365
Decrease (increase) in other assets .............................................. 12,886 (21,247)
Increase in other liabilities .................................................... 24,285 61,986
----------- -----------
Net cash provided (used) by operating activities ............................... 146,646 (4,612)
----------- -----------
Cash flows from investing activities:
Purchases of securities available-for-sale ......................................... (1,000,000) -
Sale of nonmarketable equity securities ............................................ - 168,150
Maturities of securities available-for-sale ........................................ 350,000 -
Purchase of nonmarketable equity securities ........................................ - (23,900)
Net increase in loans made to customers ............................................ (3,135,628) (5,435,719)
Purchases of premises and equipment ................................................ (42,084) (1,126,337)
----------- -----------
Net cash used by investing activities ............................................ (3,827,712) (6,417,806)
----------- -----------
Cash flows from financing activities:
Net increase in demand deposits, interest-bearing transaction
accounts and savings accounts ..................................................... 1,077,312 1,434,588
Net increase in certificates of deposit and other time deposits .................... 5,112,005 1,322,282
Repayments of Federal Home Loan Bank advances ...................................... (1,750,000) -
----------- -----------
Net cash provided by financing activities ........................................ 4,439,317 2,756,870
----------- -----------
Net increase (decrease) in cash and cash equivalents ................................. 758,251 (3,665,548)
Cash and cash equivalents, beginning ................................................. 4,195,960 6,018,628
----------- -----------
Cash and cash equivalents, ending .................................................... $ 4,954,211 $ 2,353,080
=========== ===========
Cash paid during the period for:
Income taxes ........................................................................ $ - $ -
Interest ............................................................................ $ 413,049 $ 370,588
</Table>
See notes to condensed consolidated financial statements.
6
<Page>
REGIONAL BANKSHARES, 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 to shareholders. The financial
statements, as of June 30, 2002 and for the interim periods ended June 30, 2002
and 2001, 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, 2001 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 Bankshares, Inc.'s Annual Report on Form 10-KSB for the year ended
December 31, 2001.
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 six month periods ended June 30, 2002
and 2001:
<Table>
<Caption>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Six-Months Ended June 30, 2002:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................... $ 7,098 $(2,413) $ 4,685
Plus: reclassification adjustment for gains (losses)
realized in net income ........................................................ - - -
------- ------- -------
Net unrealized gains (losses) on securities .................................. 7,098 (2,413) 4,685
------- ------- -------
Other comprehensive income ....................................................... $ 7,098 $(2,413) $ 4,685
======= ======= =======
</Table>
<Table>
<Caption>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Six-Months Ended June 30, 2001:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................... $ 8,668 $(2,947) $ 5,721
Plus: reclassification adjustment for gains (losses)
realized in net income ........................................................ - - -
------- ------- -------
Net unrealized gains (losses) on securities .................................. 8,668 (2,947) 5,721
------- ------- -------
Other comprehensive income ....................................................... $ 8,668 $(2,947) $ 5,721
======= ======= =======
</Table>
7
<Page>
REGIONAL BANKSHARES, 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 June 30, 2002:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................... $ 8,642 $(2,938) $ 5,704
Plus: reclassification adjustment for gains (losses)
realized in net income ........................................................ - - -
------- ------- -------
Net unrealized gains (losses) on securities .................................. 8,642 (2,938) 5,704
------- ------- -------
Other comprehensive income ....................................................... $ 8,642 $(2,938) $ 5,704
======= ======= =======
</Table>
<Table>
<Caption>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Three-Months Ended June 30, 2001:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................... $ 918 $(312) $ 606
Plus: reclassification adjustment for gains (losses)
realized in net income ........................................................ - - -
----- ----- -----
Net unrealized gains (losses) on securities .................................. 918 (312) 606
----- ----- -----
Other comprehensive income ....................................................... $ 918 $(312) $ 606
===== ===== =====
</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 BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following is a discussion of our financial condition as of June 30, 2002
compared to December 31, 2001, and the results of operations for the three and
six months ended June 30, 2002, compared to the three and six months ended June
30, 2001. These comments should be read in conjunction with our condensed
financial statements and accompanying notes appearing in this report and in
conjunction with the financial statements and related notes and disclosures in
our Annual Report on Form 10-KSB for the year ended December 31, 2001. 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 six months ended June 30, 2002, net interest income increased $210,523,
or 40.58%, to $729,310 as compared to $518,787 for the same period in 2001.
Interest income from loans, including fees, increased $251,995, or 30.65%, from
the six months ended June 30, 2001 to the comparable period in 2002, as we
continued to experience growth in our loan portfolio. Interest expense for the
six months ended June 30, 2002 was $390,641 as compared to $426,953 for the same
period in 2001. Although interest bearing accounts such as savings accounts and
certificates of deposit increased for the six months ended June 30, 2002, rates
being paid on these accounts were lower due to a declining interest rate
environment when compared to the same period ended June 30, 2001, resulting in a
decrease in interest expense. The net interest margin realized on earning assets
decreased from 4.72% for the six months ended June 30, 2001 to 4.41% for the
same period in 2002. The interest rate spread increased by 26 basis points from
3.80% at June 30, 2001 to 4.08% at June 30, 2002.
For the quarter ended June 30, 2002, net interest income totaled $379,587, an
increase of $138,705, or 57.58%, when compared to the same quarter ended June
30, 2001. Interest income totaling $553,440 was generated from loans, including
fees, during the quarter ended June 30, 2002, as compared to $413,847 during the
comparable period in 2001. Interest expense on deposit accounts was $200,508 for
the quarter ended June 30, 2002, as compared to $219,984 for the same period in
2001. The net interest margin realized on earning assets was 4.36% for the
quarter ended June 30, 2002, as compared to 4.27% during the same period in
2001. The interest rate spread was 4.03% for the quarter ended June 30, 2002, as
compared to 3.43% for the quarter ended June 30, 2001.
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 to reflect the losses inherent in the loan
portfolio. For the six months ended June 30, 2002, the provision charged to
expense was $60,000, as compared to $47,769 in the same period a year earlier.
Management continues to fund the allowance for loan losses at a level believed
to be adequate to match the growth in the loan portfolio. For the quarter ended
June 30, 2002, the provision charged to expense was $30,000, as compared to
$26,937 for the same period in 2001. The allowance represents 1.04% and 1.00% of
gross loans at June 30, 2002 and 2001, 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 believe 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 our net
income and, possibly, our capital.
9
<Page>
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Noninterest Income
Noninterest income during the six months ended June 30, 2002 was $182,733, an
increase of $83,845 from $98,888 during the comparable period in 2001. The
increase is primarily a result of commissions generated through our brokerage
services which totaled $49,152 for the six months ended June 30, 2002. We began
the investment and brokerage services department through Raymond James Financial
Services, Inc. during the fourth quarter of 2001. In addition, service charges
on deposit accounts increased from $52,565 during the six months ended June 30,
2001 to $76,274 for the six months ended June 30, 2002.
For the quarter ended June 30, 2002, noninterest income was $83,293, an increase
of $25,979, or 45.33% from the same period ended June 30, 2001. The largest
component of noninterest income was service charges on deposit accounts, which
totaled $40,048 for the quarter ended June 30, 2002, as compared to $31,619 for
the quarter ended June 30, 2001. Income from brokerage fee commissions totaled
$14,625 for the quarter ended June 30, 2002.
Noninterest Expense
Total noninterest expense for the six months ended June 30, 2002 was $822,888,
which was 10.96% higher than the $741,580 amount for the six months ended June
30, 2001. The largest category, salaries and employee benefits, increased from
$360,730 for the six months ended June 30, 2001 to $432,830 for the six months
ended June 30, 2002. The increase is attributable to normal pay increases and
the hiring of additional staff to meet the needs associated with the growth of
the Bank, including the brokerage services personnel.
For the quarter ended June 30, 2002, noninterest expense increased $22,791, or
5.78% as compared to the same period ended June 30, 2001. The largest category,
salaries and employee benefits, increased from $184,132 for the quarter ended
June 30, 2001 to $212,222 for the quarter ended June 30, 2002. This increase is
attributable to normal pay increases and the hiring of additional staff to meet
the needs associated with the growth of the bank.
Income Taxes
The income tax expense for the six months ended June 30, 2002 was $10,809 as
compared to an income tax benefit of $62,394 for the same period in 2001. The
effective tax rate was 37.07% for the six months ended June 30, 2002, as
compared to an effective tax rate of 36.34% for the six months ended June 30,
2001. The effective tax rate was 37.02% and 37.01% for the quarters ended June
30, 2002 and 2001, respectively.
Net Income (Loss)
The combination of the above factors resulted in net income for the six months
ended June 30, 2002 of $18,346 as compared to a net loss of $109,280 for the
same period in 2001. The net income before taxes of $29,155 was partially offset
by the income tax expense of $10,809 during the six months ended June 30, 2002.
The net loss before taxes for the same period in 2001 was $171,674, which was
partially offset by the income tax benefit of $62,394. For the quarter ended
June 30, 2002, net income was $9,919, as compared to a net loss of $77,533 for
the same period in 2001.
10
<Page>
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Assets and Liabilities
During the first six months of 2002, total assets increased $4,464,225, or
13.05%, when compared to December 31, 2001. The primary source of growth in
assets was in loans, which increased $3,120,163, or 11.61%, during the first six
months of 2002. Total deposits also increased $6,189,317, or 22.31%, from
$27,742,137 at December 31, 2001 to $33,931,454 at June 30, 2002. Within the
deposit area, other time deposits increased $3,747,005, or 43.79%, during the
first six months of 2002. Savings deposits increased $2,188,044 during the first
six months of 2002. Advances from the Federal Home Loan Bank in the amount of
$1,750,000 were repaid during the second quarter of 2002.
Investment Securities
Investment securities increased from $491,225 at December 31, 2001 to $1,148,803
at June 30, 2002. All of the Bank's marketable investment securities were
designated as available-for-sale at June 30, 2002.
Loans
We continued our trend of growth during the first six months of 2002. Net loans
increased $3,075,628, or 11.56%, during the period. As shown below, the main
component of growth in the loan portfolio was real estate - construction loans
which increased 99.38%, or $2,217,083, from December 31, 2001 to June 30, 2002.
Balances within the major loans receivable categories as of June 30, 2002 and
December 31, 2001 are as follows:
June 30, December 31,
2002 2001
---- ----
Real estate - construction ............... $ 4,447,920 $ 2,230,837
Real estate - mortgage ................... 16,746,680 16,010,012
Commercial and industrial ................ 3,295,489 3,634,353
Consumer and other ....................... 5,503,981 4,998,705
----------- -----------
$29,994,070 $26,873,907
=========== ===========
11
<Page>
REGIONAL BANKSHARES, 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:
June 30 December 31
2002 2001
---- ----
Loans: Nonaccrual loans .......................... $47,951 $ 9,314
Accruing loans more than 90 days past due ........ $ - $ -
Loans identified by the
internal review mechanism:
Criticized .................................... $ 610 $13,817
Classified .................................... $50,303 $ 8,695
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:
Six Months Ended June 30,
-------------------------
2002 2001
---- ----
Balance, January 1, ........................ $ 268,446 $ 159,000
Provision for loan losses for the period ... 60,000 47,769
Net loans (charged-off)
recovered for the period ................. (15,465) (769)
------------ ------------
Balance, end of period ..................... $ 312,981 $ 206,000
============ ============
Gross loans outstanding, end of period ..... $ 29,994,070 $ 20,592,311
Allowance for loan losses
to loans outstanding ..................... 1.04% 1.00%
Deposits
During the first six months of 2002, total deposits increased by $6,189,317, or
22.31% from December 31, 2001. The largest increase was in other time deposits,
which increased $3,747,005, or 43.79% from December 31, 2001. The increase was
attributable to the opening of new accounts during the period. Expressed in
percentages, noninterest bearing deposits increased 6.19% and interest bearing
deposits increased 24.57%.
12
<Page>
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Deposits - continued
Balances within the major deposit categories as of June 30, 2002 and December
31, 2001 are as follows:
June 30, December 31,
2002 2001
---- ----
Noninterest-bearing demand deposits .......... $ 3,622,627 $ 3,411,614
Interest-bearing demand deposits ............. 3,947,871 5,269,616
Savings deposits ............................. 7,438,312 5,250,268
Time deposits $100,000 and over .............. 6,618,053 5,253,053
Other time deposits .......................... 12,304,591 8,557,586
----------- -----------
$33,931,454 $27,742,137
=========== ===========
Liquidity
We meet our liquidity needs through scheduled maturities of loans and
investments and through pricing policies to attract interest-bearing deposit
accounts. The level of liquidity is measured by the loan-to-total borrowed funds
(which includes deposits) ratio, which was at 88.40% at June 30, 2002 and 91.12%
at December 31, 2001.
Securities available-for-sale, which totaled $1,011,250 at June 30, 2002, 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 June 30, 2002, unused lines of credit totaled $2,650,000. We also have
a line of credit to borrow funds from the Federal Home Loan Bank up to 10% of
the Bank's total assets, which gave us the ability to borrow up to $3,868,000 of
June 30, 2002. As of June 30, 2002, we had no borrowings on this line.
Critical Accounting Policies
We have adopted various accounting policies which govern the application of
accounting principles generally accepted in the United States in the preparation
of our financial statements. Our significant accounting policies are described
in the notes to the consolidated financial statements at December 31, 2001 as
filed on our annual report on Form 10-KSB. Certain accounting policies involve
significant judgments and assumptions by us which have a material impact on the
carrying value of certain assets and liabilities. We consider these accounting
policies to be critical accounting policies. The judgments and assumptions we
use are based on historical experience and other factors, which we believe to be
reasonable under the circumstances. Because of the nature of the judgments and
assumptions we make, actual results could differ from these judgments and
estimates which could have a material impact on our carrying values of assets
and liabilities and our results of operations.
We believe the allowance for loan losses is a critical accounting policy that
requires the most significant judgments and estimates used in preparation of our
consolidated financial statements. Refer to the portion of this discussion that
addresses our allowance for loan losses for a description of our processes and
methodology for determining our allowance for loan losses.
Capital Resources
Total shareholders' equity increased from $4,452,239 at December 31, 2001 to
$4,475,270 at June 30, 2002. The increase is due to net income for the period of
$18,346 and a positive change in the fair value of securities available-for-sale
of $4,685.
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.
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REGIONAL BANKSHARES, 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 points above
the minimum. Both the Company and the Bank exceeded their minimum regulatory
capital ratios as of June 30, 2002 as well as the ratios to be considered "well
capitalized."
The following table summarizes the Company's risk-based capital at June 30,
2002:
Shareholders' equity ....................................... $ 4,467,845
Less: intangibles ......................................... -
-----------
Tier 1 capital ............................................ 4,467,845
Plus: allowance for loan losses (1) ....................... 312,981
-----------
Total capital ............................................. $ 4,780,826
===========
Risk-weighted assets ...................................... $31,188,000
===========
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets) ................ 14.33%
Total capital (to risk-weighted assets) ................. 15.32%
Tier 1 capital (to total average assets) ................ 11.95%
(1) limited to 1.25% of risk-weighted assets
Off-Balance Sheet Risk
Through the operations of our Bank, we have made contractual commitments to
extend credit in the ordinary course of our business activities. These
commitments are legally binding agreements to lend money to our customers at
predetermined interest rates for a specified period of time. At June 30, 2002,
we had issued commitments to extend credit of $2,949,982 and standby letters of
credit of $100,000 through various types of commercial lending arrangements. We
evaluate each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by us upon extension of credit, is
based on our credit evaluation of the borrower. Collateral varies but may
include accounts receivable, inventory, property, plant and equipment,
commercial and residential real estate.
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REGIONAL BANKSHARES, INC.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On May 9, 2002, we held our Annual Meeting of Shareholders for the purpose of
electing four directors to each serve a three-year term.
Of the 563,670 outstanding shares of the Company's common stock, the four
nominees for directors each received the number of affirmative votes of
shareholders required for such nominee's election in accordance with the Bylaws
of the Company as follows:
Votes For Votes Against Votes Withheld
--------- ------------- --------------
Franklin Hines 315,555 0 0
J. Richard Jones 315,555 0 0
W. H. Morgan, III 315,555 0 0
Gosnold G. Segars 315,555 0 0
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 June 30, 2002.
15
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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: August 12, 2002 By:s/Curtis A. Tyner
---------------------------------------
Curtis A. Tyner
President, Chief Executive Officer and
Chief Financial Officer
16