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, 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 [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
563,670 shares of common stock, $1.00 par value, on October 31, 2002
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
REGIONAL BANKSHARES, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- September 30, 2002 and December 31, 2001................................3
Condensed Consolidated Statements of Income -- Nine months ended
September 30, 2002 and 2001 and Three months ended September 30, 2002 and 2001.................................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income --
Nine months ended September 30, 2002 and 2001..................................................................5
Condensed Consolidated Statements of Cash Flows -- Nine months ended September 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
Item 3. Controls and Procedures..........................................................................................15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................................................16
(a) Exhibits....................................................................................................16
(b) Reports on Form 8-K.........................................................................................16
Signature................................................................................................................17
Certifications...........................................................................................................18
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
REGIONAL BANKSHARES, INC.
Condensed Consolidated Balance Sheets
September 30, December 31,
2002 2001
---- ----
Assets: (Unaudited)
Cash and cash equivalents:
Cash and due from banks ................................................................ $ 1,274,607 $ 1,350,004
Federal funds sold ..................................................................... 2,678,031 2,845,956
------------ ------------
Total cash and cash equivalents ...................................................... 3,952,638 4,195,960
------------ ------------
Securities available-for-sale ............................................................ 2,016,875 353,672
Nonmarketable equity securities .......................................................... 137,553 137,553
------------ ------------
Total investment securities .......................................................... 2,154,428 491,225
------------ ------------
Loans receivable ......................................................................... 33,232,524 26,873,907
Less allowance for loan losses ........................................................... (346,729) (268,446)
------------ ------------
Loans, net ........................................................................... 32,885,795 26,605,461
Accrued interest receivable .............................................................. 156,701 120,123
Premises and equipment, net .............................................................. 2,074,327 2,124,281
Other assets ............................................................................. 656,876 681,134
------------ ------------
Total assets ......................................................................... $ 41,880,765 $ 34,218,184
============ ============
Liabilities:
Deposits:
Noninterest-bearing .................................................................... $ 4,156,492 $ 3,411,614
Interest-bearing ....................................................................... 4,000,461 5,269,616
Savings ................................................................................ 7,964,618 5,250,268
Time deposits $100,000 and over ........................................................ 6,507,651 5,253,053
Other time deposits .................................................................... 14,457,563 8,557,586
------------ ------------
Total deposits ....................................................................... 37,086,785 27,742,137
Advances from the Federal Home Loan Bank ................................................. - 1,750,000
Accrued interest payable ................................................................. 203,199 253,696
Other liabilities ........................................................................ 60,170 20,112
------------ ------------
Total liabilities .................................................................... 37,350,154 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) ............................................................ (1,047,561) (1,118,042)
Accumulated other comprehensive income ................................................. 10,631 2,740
------------ ------------
Total shareholders' equity ........................................................... 4,530,611 4,452,239
------------ ------------
Total liabilities and shareholders' equity ........................................... $ 41,880,765 $ 34,218,184
============ ============
See notes to condensed consolidated financial statements.
3
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Interest income:
Loans, including fees .............................. $ 1,711,565 $ 1,310,865 $ 637,473 $ 488,768
Investment securities, taxable ..................... 23,236 16,724 13,274 5,574
Nonmarketable equity securities .................... 4,571 4,568 1,839 916
Federal funds sold ................................. 46,227 120,858 13,062 12,017
----------- ----------- ----------- -----------
Total ............................................ 1,785,599 1,453,015 665,648 507,275
----------- ----------- ----------- -----------
Interest expense:
Time deposits $100,000 and over .................... 170,469 176,298 54,884 54,491
Other deposits ..................................... 406,777 462,929 144,709 159,743
Other interest expense ............................. 12,991 4,597 3 2,637
----------- ----------- ----------- -----------
Total ............................................ 590,237 643,824 199,596 216,871
----------- ----------- ----------- -----------
Net interest income .................................. 1,195,362 809,191 466,052 290,404
Provision for loan losses ............................ 100,000 104,841 40,000 57,072
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses ........................................ 1,095,362 704,350 426,052 233,332
----------- ----------- ----------- -----------
Other operating income:
Service charges on deposit accounts ................ 122,425 87,463 46,151 34,898
Residential mortgage origination fees .............. 39,772 49,125 8,067 22,850
Brokerage fee commissions .......................... 49,152 - - -
Credit life insurance commissions .................. 5,486 8,159 1,184 2,060
Other charges, commissions and fees ................ 35,458 22,076 14,158 8,127
----------- ----------- ----------- -----------
Total ............................................ 252,293 166,823 69,560 67,935
----------- ----------- ----------- -----------
Other operating expenses:
Salaries and employee benefits ..................... 644,539 550,080 211,709 189,350
Occupancy expense .................................. 82,148 52,939 31,517 18,982
Furniture and equipment expense .................... 86,042 77,640 31,329 26,155
Other operating expenses ........................... 423,017 431,648 138,303 136,240
----------- ----------- ----------- -----------
Total ............................................ 1,235,746 1,112,307 412,858 370,727
----------- ----------- ----------- -----------
Income (loss) before income taxes .................... 111,909 (241,134) 82,754 (69,460)
Income tax expense (benefit) ......................... 41,428 (88,095) 30,619 (25,701)
----------- ----------- ----------- -----------
Net income (loss) .................................... $ 70,481 $ (153,039) $ 52,135 $ (43,759)
=========== =========== =========== ===========
Earnings (loss) per share
Average shares outstanding ........................... 563,670 560,270 563,670 560,270
Net income (loss) .................................... $ 0.13 $ (0.27) $ 0.09 $ (0.08)
See notes to condensed consolidated financial statements.
4
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of
Shareholders' Equity and Comprehensive Income
for the nine months ended September 30, 2002 and 2001
(Unaudited)
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
expense 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
=========== =========== =========== =========== =========== ===========
Balance,
December 31, 2001 .................... 563,670 $ 594,270 $ 4,973,271 $(1,118,042) $ 2,740 $ 4,452,239
Net income for
the period ........................... 70,481 70,481
Other comprehensive
income, net of
expense of $ (6,244) ................. 7,891 7,891
-----------
Comprehensive income .................. 78,372
----------- ----------- ----------- ----------- ----------- -----------
Balance,
September 30, 2002 ................... 563,670 $ 594,270 $ 4,973,271 $(1,047,561) $ 10,631 $ 4,530,611
=========== =========== =========== =========== =========== ===========
See notes to condensed consolidated financial statements.
5
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2002 2001
---- ----
Cash flows from operating activities:
Net income (loss) .................................................................. $ 70,481 $ (153,039)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization .................................................... 92,519 78,898
Provision for possible loan losses ............................................... 100,000 104,841
Accretion and premium amortization ............................................... (677) (2,689)
Deferred income tax provision (benefit) .......................................... 41,428 (78,134)
Write down on disposal of premises and equipment ................................. - 10,538
Increase in interest receivable .................................................. (36,578) (53,260)
Increase (decrease) in interest payable .......................................... (50,497) 58,461
Decrease in other assets ......................................................... (21,805) (32,060)
Increase in other liabilities .................................................... 40,058 57,740
------------ ------------
Net cash provided (used) by operating activities ............................... 234,929 (8,704)
------------ ------------
Cash flows from investing activities:
Purchases of securities available-for-sale ......................................... (2,000,000) -
Sale of nonmarketable equity securities ............................................ - 138,550
Maturities of securities available-for-sale ........................................ 350,000 -
Net increase in loans made to customers ............................................ (6,380,334) (9,322,707)
Purchases of premises and equipment ................................................ (42,565) (1,197,325)
------------ ------------
Net cash used by investing activities ............................................ (8,072,899) (10,381,482)
------------ ------------
Cash flows from financing activities:
Net increase in demand deposits, interest-bearing transaction
accounts and savings accounts ..................................................... 2,190,073 3,907,361
Net increase in certificates of deposit and other time deposits .................... 7,154,575 2,885,812
Advances from Federal Home Loan Bank ............................................... - 1,750,000
Repayments of Federal Home Loan Bank advances ...................................... (1,750,000) -
------------ ------------
Net cash provided by financing activities ........................................ 7,594,648 8,543,173
------------ ------------
Net increase (decrease) in cash and cash equivalents ................................. (243,322) (1,847,013)
Cash and cash equivalents, beginning ................................................. 4,195,960 6,018,628
------------ ------------
Cash and cash equivalents, ending .................................................... $ 3,952,638 $ 4,171,615
============ ============
Cash paid during the period for:
Income taxes ........................................................................ $ - $ -
Interest ............................................................................ $ 640,734 $ 585,363
See notes to condensed consolidated financial statements.
6
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 on Form 10-KSB. The financial
statements, as of September 30, 2002 and for the interim periods ended September
30, 2002 and 2001, are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments) 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 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,
2002 and 2001:
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Nine-Months Ended September 30, 2002:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................. $12,526 $(4,635) $ 7,891
Plus: reclassification adjustment for gains (losses)
realized in net income ...................................................... - - -
------- ------- -------
Net unrealized gains (losses) on securities ................................ 12,526 (4,635) 7,891
------- ------- -------
Other comprehensive income ..................................................... $12,526 $(4,635) $ 7,891
======= ======= =======
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
======= ======= =======
7
REGIONAL BANKSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Comprehensive Income (continued)
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Three-Months Ended September 30, 2002:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................. $ 5,428 $(2,222) $ 3,206
Plus: reclassification adjustment for gains (losses)
realized in net income ...................................................... - - -
------- ------- -------
Net unrealized gains (losses) on securities ................................ 5,428 (2,222) 3,206
------- ------- -------
Other comprehensive income ..................................................... $ 5,428 $(2,222) $ 3,206
======= ======= =======
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
======= ======= =======
Accumulated other comprehensive income consists solely of the unrealized gain
(loss) on securities available-for-sale, net of the deferred tax effects.
8
REGIONAL BANKSHARES, 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, 2002 compared to December 31, 2001, and the results of operations
for the three and nine months ended September 30, 2002 compared to the three and
nine months ended September 30, 2001. 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, 2002, net interest income increased
$386,171, or 47.72%, to $1,195,362 as compared to $809,191 for the same period
in 2001. Interest income from loans, including fees, increased $400,700 or
30.57%, from the nine months ended September 30, 2001 to the comparable period
in 2002, as we continued to experience growth in our loan portfolio. Interest
expense for the nine months ended September 30, 2002 was $590,237 as compared to
$643,824 for the same period in 2001. Although interest bearing accounts such as
savings accounts and certificates of deposit increased during the nine months
ended September 30, 2002, rates being paid on these accounts were lower due to a
declining interest rate environment when compared to the same period in 2001,
resulting in a decrease in interest expense. The net interest margin realized on
earning assets decreased from 4.71% for the nine months ended September 30, 2001
to 4.20% for the same period in 2002. The interest rate spread decreased by 3
basis points from 3.91% at September 30, 2001 to 3.88% at September 30, 2002.
For the quarter ended September 30, 2002, net interest income totaled $466,052,
an increase of $175,648, or 60.48%, when compared to the same quarter ended
September 30, 2001. Interest income totaling $637,473 was generated from loans,
including fees, during the quarter ended September 30, 2002, as compared to
$488,768 during the comparable period in 2001. Interest expense on deposit
accounts was $199,596 for the quarter ended September 30, 2002, as compared to
$216,871 for the same period in 2001. The net interest margin realized on
earning assets was 4.90% for the quarter ended September 30, 2002, as compared
to 4.70% during the same period in 2001. The interest rate spread was 4.58% for
the quarter ended September 30, 2002, as compared to 4.07% for the quarter ended
September 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. For the nine months ended September 30, 2002, the
provision charged to expense was $100,000 as compared to $104,841 for the nine
months ended September 30, 2001. For the quarter ended September 30, 2002, the
provision charged to expense was $40,000 as compared to $57,072 for the same
period in 2001. 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
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Noninterest Income
Noninterest income increased $85,470, or 51.23% to $252,293 for the nine months
ended September 30, 2002 as compared to the same period ended September 30,
2001. The primary source of this income was the increase in service charges on
deposit accounts of $34,962, or 39.97%, to $122,425 for the nine months ended
September 30, 2002, when compared to the same period in 2001. This increase is
attributable to an increase in deposit accounts over the two periods. In
addition, commissions generated through our brokerage services totaled $49,152
for the nine months ended September 30, 2002. We began the investment and
brokerage services department in the fourth quarter of 2001. Income from
residential mortgage origination fees decreased $9,353 to $39,772 for the nine
months ended September 30, 2002 as compared to the same period in 2001 as the
number of home refinancings decreased.
For the quarter ended September 30, 2002, noninterest income was $69,560, an
increase of $1,625, or 2.39% over the quarter ended September 30, 2001. The
largest component of noninterest income was service charges on deposit accounts,
which totaled $46,151 for the quarter ended September 30, 2002, as compared to
$34,898 for the quarter ended September 30, 2001. This increase was due to an
overall increase in deposit accounts over the two periods. No net commissions
were received in the third quarter for brokerage services because of an
unresolved dispute with the service provider. Such commissions are expected to
resume at sometime in the future although the time and amount of any such
commissions is uncertain. Other charges, commissions and fees increased $6,031
or 74.21% to $14,158 for the quarter ended September 30, 2002 as compared to the
same period in 2001.
Noninterest Expense
For the nine months ended September 30, 2002, noninterest expense was
$1,235,746, an increase of $123,439, or 11.10% when compared to the same period
in 2001. The largest increase was in salaries and employee benefits, which
increased from $550,080 for the nine months ended September 30, 2001 to $644,539
for the nine months ended September 30, 2002. The increase is attributable to
annual pay raises and the addition of new employees, including brokerage
services personnel. Occupancy expense also increased from $52,939 for the nine
months ended September 30, 2001 to $82,148 for the nine months ended September
30, 2002. This increase is primarily due to expenses associated with our new
building that we moved into May 2001.
For the quarter ended September 30, 2002, noninterest expense increased $42,131,
or 11.36% as compared to the quarter ended September 30, 2001. The largest
category of noninterest expense, salaries and employee benefits, increased
$22,359 from the quarter ended September 30, 2001 to $211,709 for the quarter
ended September 30, 2002. As discussed earlier, this increase is primarily
attributable to annual pay raises and new employees.
Income Taxes
The income tax expense for the nine months ended September 30, 2002 was $41,428
as compared to a benefit of $88,095 for the same period in 2001. The effective
tax rate was 37.02% and 36.53% for the nine months ended September 30, 2002 and
2001, respectively. Income tax expense was $30,619 for the quarter ended
September 30, 2002 as compared to a benefit of $25,701 for the same quarter in
2001. The effective tax rate was 37% for the quarters ended September 30, 2002
and 2001.
Net Income (Loss)
The combination of the above factors resulted in a net income for the nine
months ended September 30, 2002 of $70,481 as compared to a net loss of $153,039
for the same period in 2001. The net income before taxes of $111,909 was before
income tax expense of $41,428 during the nine months ended September 30, 2002.
The net loss before taxes for the same period in 2001 was $241,134, which was
partially offset by the income tax benefit of $88,095. For the quarter ended
September 30, 2002, net income was $52,136, as compared to a net loss of $43,759
for the same period in 2001.
10
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Assets and Liabilities
During the first nine months of 2002, total assets increased $7,662,581, or
22.39%, when compared to December 31, 2001. The primary source of growth in
assets was in loans, which increased $6,358,617, or 23.66%, during the first
nine months of 2002. Investment securities increased $1,663,203 or 338.58% to
$2,154,428 at September 30, 2002. Total deposits also increased $9,344,648, or
33.68%, from $27,742,137 at December 31, 2001 to $37,086,785 at September 30,
2002. Within the deposit area, other time deposits increased $5,899,977 or
68.94% to $14,457,563 at September 30, 2002. Also, savings accounts increased
$2,714,350, or 51.70% from December 31, 2001 to $7,964,618 at September 30,
2002.
Investment Securities
Investment securities increased from $491,225 at December 31, 2001 to $2,154,428
at September 30, 2002. The increase in securities was part of an effort to
improve our asset-liability position. All of the Bank's marketable investment
securities were designated as available-for-sale at September 30, 2002.
Loans
We continued our trend of growth during the first nine months of 2002,
especially in the loan area. Net loans increased $6,280,334, or 23.61%, during
the period. As shown below, the main component of growth in the loan portfolio
was real estate-construction loans which increased 176.73%, or $3,942,488, from
December 31, 2001 to September 30, 2002. Balances within the major loans
receivable categories as of September 30, 2002 and December 31, 2001 are as
follows:
September 30, December 31,
2002 2001
---- ----
Real estate - construction ............... $ 6,173,325 $ 2,230,837
Real estate - mortgage ................... 18,052,368 16,010,012
Commercial and industrial ................ 3,597,321 3,634,353
Consumer and other ....................... 5,409,510 4,998,705
----------- -----------
$33,232,524 $26,873,907
=========== ===========
11
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:
September 30, December 31,
2002 2001
---- ----
Loans: Nonaccrual loans .............................................................. $17,717 $ 9,314
Accruing loans more than 90 days past due ............................................ $ - $ -
Loans identified by the internal review mechanism:
Criticized ........................................................................ $ 697 $13,817
Classified ........................................................................ $19,219 $ 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:
September 30,
-------------
2002 2001
---- ----
Balance, January 1, .......................................................... $ 268,446 $ 159,000
Provision for loan losses for the period ..................................... 100,000 104,841
Net loans (charged-off) recovered for the period ............................. (21,717) (14,561)
------------ ------------
Balance, end of period ....................................................... $ 346,729 $ 249,280
============ ============
Gross loans outstanding, end of period ....................................... $ 33,232,524 $ 24,465,507
Allowance for loan losses to loans outstanding ............................... 1.04% 1.02%
12
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Deposits
Total deposits increased $9,344,648, or 33.68%, from December 31, 2001 to
$37,086,785 at September 30, 2002. The largest change was an increase in other
time deposits, which increased $5,899,977 to $14,457,563 at September 30, 2002.
Expressed in percentages, interest-bearing deposits increased 35.38% and
noninterest bearing deposits increased 21.83%. The increases are attributable to
the normal growth of the Bank and market rates were paid on these deposits.
Balances within the major deposit categories as of September 30, 2002 and
December 31, 2001 are as follows:
September 30, December 31,
2002 2001
---- ----
Noninterest-bearing demand deposits .......... $ 4,156,492 $ 3,411,614
Interest-bearing demand deposits ............. 4,000,461 5,269,616
Savings deposits ............................. 7,964,618 5,250,268
Time deposits $100,000 and over .............. 6,507,651 5,253,053
Other time deposits .......................... 14,457,563 8,557,586
----------- -----------
$37,086,785 $27,742,137
=========== ===========
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 in 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.
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 89.61% at September 30, 2002
and 91.12% at December 31, 2001.
Securities available-for-sale, which totaled $2,016,875 at September 30, 2002,
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, 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 $4,188,077 at September 30, 2002. As of September 30, 2002, we had
no borrowings on this line.
13
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation -- continued
Capital Resources
Total shareholders' equity increased from $4,452,239 at December 31, 2001 to
$4,530,611 at September 30, 2002. The increase is due primarily to the net
income for the period of $70,481. There was also a positive change in fair value
of securities which totaled $7,891.
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.
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 September 30, 2002 as well as the ratios to be considered
"well capitalized."
The following table summarizes the Company's risk-based capital at September 30,
2002:
Shareholders' equity ....................................... $ 4,530,611
Less: intangibles ......................................... -
-----------
Tier 1 capital ............................................ 4,530,611
-----------
Plus: allowance for loan losses (1) ....................... 346,729
-----------
Total capital ............................................. $ 4,877,340
===========
Risk-weighted assets ...................................... $34,465,910
===========
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets) ................ 13.15%
Total capital (to risk-weighted assets) ................. 14.15%
Tier 1 capital (to total average assets) ................ 11.84%
(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 September 30,
2002, we had issued commitments to extend credit of $3,575,552 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.
14
REGIONAL BANKSHARES, INC.
Item 3. Controls and Procedures.
(a) Based on his evaluation of the issuer's disclosure controls and procedures
(as defined in 17 C.F.R. Sections 240.13a-14(c) and 240.15d-14(c)) as of a date
within 90 days prior to the filing of this quarterly report, the issuer's chief
executive officer and chief financial officer concluded that the effectiveness
of such controls and procedures was adequate.
(b) There were no significant changes in the issuer's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
15
REGIONAL BANKSHARES, 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, 2002.
16
REGIONAL BANKSHARES, 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 12, 2002 By:/s/ CURTIS A. TYNER
-----------------------------------------
Curtis A. Tyner
President, Chief Executive Officer
and Chief Financial Officer
17
CERTIFICATIONS
I, Curtis A. Tyner, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Regional
Bankshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002 s/Curtis A. Tyner
----------------------------------------
Curtis A. Tyner,
President, Chief Executive Officer
and Chief Financial Officer
* Pursuant to the instructions to the Certifications, this certification is in
the exact form specified by Form 10-QSB. For purposes of items 4, 5 and 6,
however, please note that there are no "other certifying officers" because Mr.
Tyner is both Chief Financial Officer and Chief Executive Officer of registrant.
18