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 March 31, 2003
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 small business issuer 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, South Carolina 29551
(Address of principal executive
offices, including zip code)
(843) 383-4333
(Issuer's telephone number, including area code)
------------------------------------------------
Indicate by check mark whether the issuer (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 issuer 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 April 30, 2003
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 - March 31, 2003 and December 31, 2002.............................3
Condensed Consolidated Statements of Income - Three months ended March 31, 2003 and 2002.................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
Three months ended March 31, 2003 and 2002.............................................................5
Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2003 and 2002.............6
Notes to Condensed Consolidated Financial Statements...................................................7-8
Item 2. Management's Discussion and Analysis or Plan of Operation..............................................9-15
Item 3. Controls and Procedures...............................................................................16-17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................................................................18
(a) Exhibits............................................................................................18
(b) Reports on Form 8-K.................................................................................18
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
REGIONAL BANKSHARES, INC.
Condensed Consolidated Balance Sheets
March 31, December 31,
2003 2002
---- ----
Assets: (Unaudited)
-----------
Cash and cash equivalents:
Cash and due from banks ................................................................ $ 2,089,591 $ 808,282
Federal funds sold ..................................................................... 4,270,241 3,050,991
------------ ------------
Total cash and cash equivalents ...................................................... 6,359,832 3,859,273
------------ ------------
Securities available-for-sale ............................................................ 1,506,930 2,513,281
Nonmarketable equity securities .......................................................... 164,853 137,553
------------ ------------
Total investment securities .......................................................... 1,671,783 2,650,834
------------ ------------
Loans receivable ......................................................................... 38,157,733 35,232,689
Less allowance for loan losses ........................................................... (395,466) (368,656)
------------ ------------
Loans, net ........................................................................... 37,762,267 34,864,033
------------ ------------
Accrued interest receivable .............................................................. 163,955 153,315
Premises and equipment, net .............................................................. 2,018,946 2,039,599
Other assets ............................................................................. 642,529 658,242
------------ ------------
Total assets ......................................................................... $ 48,619,312 $ 44,225,296
============ ============
Liabilities:
Deposits:
Noninterest-bearing .................................................................... $ 5,636,431 $ 4,787,870
Interest-bearing ....................................................................... 5,373,265 4,566,531
Savings ................................................................................ 8,958,709 8,077,824
Time deposits $100,000 and over ........................................................ 7,500,960 6,898,433
Other time deposits .................................................................... 16,308,983 15,048,066
------------ ------------
Total deposits ....................................................................... 43,778,348 39,378,724
------------ ------------
Accrued interest payable ................................................................. 159,464 209,496
Other liabilities ........................................................................ 62,217 53,242
------------ ------------
Total liabilities .................................................................... 44,000,029 39,641,462
------------ ------------
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 .............................................. 563,670 563,670
Capital surplus ........................................................................ 5,003,871 5,003,871
Retained earnings ...................................................................... (952,624) (992,074)
Accumulated other comprehensive income ................................................. 4,366 8,367
------------ ------------
Total shareholders' equity ........................................................... 4,619,283 4,583,834
------------ ------------
Total liabilities and shareholders' equity ........................................... $ 48,619,312 $ 44,225,296
============ ============
See notes to condensed consolidated financial statements.
3
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
---------
2003 2002
---- ----
Interest income:
Loans, including fees .............................................................. $606,678 $519,004
Investment Securities:
Taxable .......................................................................... 19,622 3,813
Nonmarketable equity securities .................................................. 1,840 1,191
Federal funds sold ............................................................... 6,134 14,200
-------- --------
Total ............................................................................ 634,274 535,870
-------- --------
Interest expense:
Time deposits $100,000 and over .................................................... 46,926 57,513
Other deposits ..................................................................... 126,485 123,983
Other interest expense ............................................................. 924 8,637
-------- --------
Total ............................................................................ 174,335 190,133
-------- --------
Net interest income .................................................................. 459,939 345,737
Provision for loan losses ............................................................ 27,000 30,000
-------- --------
Net interest income after provision for loan losses .................................. 432,939 315,737
-------- --------
Noninterest income:
Service charges on deposit accounts ................................................ 49,961 36,440
Residential mortgage origination fees .............................................. 17,181 12,578
Brokerage fee commissions .......................................................... 18,991 34,527
Credit life insurance commissions .................................................. 723 1,213
Other income ....................................................................... 20,972 18,667
-------- --------
Total ............................................................................ 107,828 103,425
-------- --------
Noninterest expense:
Salaries and employee benefits ..................................................... 261,652 220,608
Net occupancy expense .............................................................. 28,148 23,810
Furniture and fixture expense ...................................................... 28,456 26,759
Other operating expenses ........................................................... 159,892 134,581
-------- --------
Total ............................................................................ 478,148 405,758
-------- --------
Income before income taxes ........................................................... 62,619 13,405
Income tax expense ................................................................... 23,169 4,978
-------- --------
Net income ........................................................................... $ 39,450 $ 8,427
======== ========
Earnings per share
Average shares outstanding ........................................................... 563,670 563,670
Net income ........................................................................... $ 0.07 $ 0.01
See notes to condensed consolidated financial statements.
4
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Shareholders'
Equity and Comprehensive Income
for the three months ended March 31, 2003 and 2002
(Unaudited)
Accumulated
Common Stock Retained Other
------------ Capital Earnings Comprehensive
Shares Amount Surplus (Deficit) Income Total
------ ------ ------- --------- ------ -----
Balance,
December 31, 2001 .............. 563,670 $ 563,670 $ 5,003,871 $(1,118,042) $ 2,740 $4,452,239
Net income
for the period ................. 8,427 8,427
Other
comprehensive
income, net of
benefit of $525 ................ (1,019) (1,019)
-----------
Comprehensive
Income ......................... 7,408
----------- ----------- ----------- ----------- ----------- -----------
Balance,
March 31, 2002 ................. 563,670 $ 563,670 $ 5,003,871 $(1,109,615) $ 1,721 $4,459,647
=========== =========== =========== =========== =========== ===========
Balance,
December 31, 2002 .............. 563,670 $ 563,670 $ 5,003,871 $ (992,074) $ 8,367 $4,583,834
Net income for
the period ..................... 39,450 39,450
Other
comprehensive
income, net of
benefit of $2,350 .............. (4,001) (4,001)
-----------
Comprehensive
Income ......................... 35,449
----------- ----------- ----------- ----------- ----------- -----------
Balance,
March 31, 2003 ................. 563,670 $ 563,670 $ 5,003,871 $ (952,624) $ 4,366 $4,619,283
=========== =========== =========== =========== =========== ===========
See notes to condensed consolidated financial statements.
5
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
---------
2003 2002
---- ----
Cash flows from operating activities:
Net income ......................................................................... $ 39,450 $ 8,427
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .................................................... 32,209 33,376
Provision for loan losses ........................................................ 27,000 30,000
Accretion and premium amortization ............................................... - (423)
Deferred income tax provision .................................................... 16,681 4,977
Increase in interest receivable .................................................. (10,640) (13,429)
Decrease in interest payable ..................................................... (50,032) (59,493)
Decrease in other assets ......................................................... 1,382 10,271
Increase in other liabilities .................................................... 8,975 17,787
----------- -----------
Net cash provided by operating activities ...................................... 65,025 31,493
----------- -----------
Cash flows from investing activities:
Purchase of nonmarketable equity securities ........................................ (27,300) -
Calls and maturities of securities available-for-sale .............................. 1,000,000 200,000
Net increase in loans made to customers ............................................ (2,925,234) (2,384,323)
Purchases of premises and equipment ................................................ (11,556) (29,831)
----------- -----------
Net cash used by investing activities ............................................ (1,964,090) (2,214,154)
----------- -----------
Cash flows from financing activities:
Net increase in demand deposits, interest-bearing transaction
accounts and savings accounts ..................................................... 2,536,180 1,155,912
Net increase in certificates of deposit and other time deposits .................... 1,863,444 4,113,103
Advances from Federal Home Loan Bank ............................................... 1,000,000 -
Repayment of advances from Federal Home Loan Bank .................................. (1,000,000) -
----------- -----------
Net cash provided by financing activities ........................................ 4,399,624 5,269,015
----------- -----------
Net increase in cash and cash equivalents ............................................ 2,500,559 3,086,354
Cash and cash equivalents, beginning ................................................. 3,859,273 4,195,960
----------- -----------
Cash and cash equivalents, ending .................................................... $ 6,359,832 $ 7,282,314
=========== ===========
Cash paid during the period for:
Income taxes ........................................................................ $ 5,671 $ -
Interest ............................................................................ $ 228,849 $ 249,626
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 March 31, 2003 and for the interim periods ended March 31,
2003 and 2002, 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, 2002 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, 2002.
NOTE 2 - STOCK-BASED COMPENSATION - Our stock-based employee compensation plan
and stock warrants are accounted for under the recognition and measurement
principles of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No compensation cost is
reflected in net income, as all warrants and options granted under these plans
had an exercise price equal to the market value of the underlying common stock
on the date of grant. The following table illustrates the effect on net income
(loss) and earnings (loss) per share if the fair value recognition provisions of
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, had been
applied to the Option Plans.
Three months ended March 31,
----------------------------
2003 2002
---- ----
Net income, as reported ........................ $ 39,450 $ 8,427
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects ... (6,131) (28,728)
------------ ----------
Pro forma net income (loss) .................... $ 33,319 $ (20,301)
============ ==========
Earnings (loss) per share:
Basic - as reported .......................... $ 0.07 $ 0.01
============ ==========
Basic - pro forma ............................ $ 0.06 $ (0.04)
============ ==========
Diluted - as reported ........................ $ 0.07 $ 0.01
============ ==========
Diluted - pro forma .......................... $ 0.06 $ (0.03)
============ ==========
7
REGIONAL BANKSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators used to calculate basic and
diluted earnings per share for the three month periods ended March 31, 2003 and
2002 are as follows:
(Dollars in thousands, except per share) Three Months Ended March 31, 2003
---------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share
Income available to common shareholders ............................ $39,450 563,670 $0.07
=====
Effect of dilutive securities
Stock options ...................................................... - 17,772
------- ------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ........................................... $39,450 581,442 $0.08
======= ======= =====
(Dollars in thousands, except per share) Three Months Ended March 31, 2002
---------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share
Income available to common shareholders ............................ $ 8,427 563,670 $0.01
=====
Effect of dilutive securities
Stock options ...................................................... - 17,722
------- ------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ........................................... $ 8,427 581,392 $0.01
======= ======= =====
8
REGIONAL BANKSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4 - 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 month periods ended March 31, 2003 and
2002:
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Three Months Ended March 31, 2003:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period ................... $(6,351) $ 2,350 $(4,001)
Plus: reclassification adjustment for (gains) losses
realized in net income ..................................................... - - -
------- ------- -------
Net unrealized (gains) losses on securities ...................................... $(6,351) $ 2,350 $(4,001)
------- ------- -------
Other comprehensive income ....................................................... $(6,351) $ 2,350 $(4,001)
======= ======= =======
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
For the Three Months Ended March 31, 2002:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period ................... $(1,544) $ 525 $(1,019)
Plus: reclassification adjustment for (gains) losses
realized in net income ..................................................... - - -
------- ------- -------
Net unrealized (gains) losses on securities ...................................... (1,544) 525 (1,019)
------- ------- -------
Other comprehensive income ....................................................... $(1,544) $ 525 $(1,019)
======= ======= =======
Accumulated other comprehensive income consists solely of the unrealized gain
(loss) on securities available-for-sale, net of the deferred tax effects.
9
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 March 31, 2003
compared to December 31, 2002, and the results of operations for the three
months ended March 31, 2003 compared to the three months ended March 31, 2002.
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, 2002. This report contains
"forward-looking statements" relating to, without limitation, future economic
performance, plans and objectives of management for future operations, and
projections of revenues and other financial items that are based on the beliefs
of our management, as well as assumptions made by and information currently
available to our management. The words "expect," "estimate," "anticipate," and
"believe," as well as similar expressions, are intended to identify
forward-looking statements. Our actual results may differ materially from the
results discussed in the forward-looking statements, and our operating
performance each quarter is subject to various risks and uncertainties that are
discussed in detail in our filings with the Securities and Exchange Commission.
Results of Operations
Net Interest Income
For the three months ended March 31, 2003, net interest income increased
$114,202, or 33.03%, to $459,939 as compared to $345,737 for the same period in
2002. Interest income from loans, including fees increased $87,674, or 16.89%,
from the three months ended March 31, 2002 to the comparable period in 2003 as
we continue to experience growth in our loan portfolio. Interest expense for the
three months ended March 31, 2003 was $174,335 as compared to $190,133 for the
same period in 2002. Although interest bearing accounts increased for the period
ended March 31, 2003, rates being paid on these accounts were lower due to a
declining interest rate environment when compared to the same period ended March
31, 2002, resulting in a decrease in interest expense. The net interest margin
realized on earning assets increased from 4.39% for the three months ended March
31, 2002 to 4.52% for the same period in 2003. The interest rate spread
decreased by 38 basis points from 4.13% at March 31, 2002 to 4.51% at March 31,
2003.
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 loan losses at an
adequate level to reflect the losses inherent in the loan portfolio. For the
three months ended March 31, 2003, the provision charged to expense was $27,000,
as compared to $30,000 for the same period in 2002. The allowance for loan
losses represents 1.04% of gross loans at March 31, 2003 and 1.01% at March 31,
2002. 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 estimates and assumptions about present conditions and
future events, which we believe to be reasonable, but which may not prove to be
accurate. Thus, there is a risk that chargeoffs in future periods could exceed
the allowance for loan losses or that substantial additional increases in the
allowance for loan losses could be required. Additions to the allowance for loan
losses would result in a decrease of our net income and, possibly, our capital.
10
REGIONAL BANKSHARES, INC.
Noninterest Income
Noninterest income during the three months ended March 31, 2003 was $107,828, an
increase of $4,403 from $103,425 during the comparable period in 2002. The
largest component of noninterest income was service charges on deposit accounts,
which totaled $49,961 for the three months ended March 31, 2003, as compared to
$36,440 for the three months ended March 31, 2002. Income from residential
mortgage origination fees increased $4,603, to $17,181, or 36.60% from the three
months ended March 31, 2002.
Noninterest Expense
Total noninterest expense for the three months ended March 31, 2003 was
$478,148, which was 17.84% higher than the $405,758 amount for the three months
ended March 31, 2002. The largest category, salaries and employee benefits,
increased from $220,608 for the three months ended March 31, 2002 to $261,652
for the three months ended March 31, 2003. 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. Net occupancy expense increased $4,338,
or 18.22% to $28,148 for the three months ended March 31, 2003 when compared to
the same period in 2002.
Income Taxes
Income tax expense for the three months ended March 31, 2003 was $23,169 as
compared to an income tax expense of $4,978 for the same period in 2002. The
effective tax rate was 37% for the three months ended March 31, 2003 and 2002.
Net Income
The combination of the above factors resulted in net income for the three months
ended March 31, 2003 of $39,450 as compared to net income of $8,427 for the same
period in 2002. Net income before taxes of $62,619 was partially offset by the
income tax expense of $23,169. Net income before taxes for the same period in
2002 was $13,405, which was partially offset by the income tax expense of
$4,978.
Financial Condition
Assets and Liabilities
During the first three months of 2003, total assets increased $4,394,016, or
9.94%, when compared to December 31, 2002. Total loans increased $2,925,044, or
8.30% during the first three months of 2003. Total deposits also increased
$4,399,624, or 11.17%, from the December 31, 2002 amount of $39,378,724. Federal
funds sold increased $1,219,250 from December 31, 2002 to $4,270,241 at March
31, 2003 as funds generated from deposit growth were placed in overnight federal
funds until needed to fund loans. Within the deposit area, other time deposits
increased $1,260,917, or 8.38%, during the first three months of 2003. Savings
deposits increased $880,885, or 10.90%, during the first three months of 2003.
Investment Securities
Investment securities decreased from $2,650,834 at December 31, 2002 to
$1,671,783 at March 31, 2003. The decrease was primarily due to the call of two
of the Bank's securities. All of the Bank's marketable investment securities
were designated as available-for-sale at March 31, 2003.
11
REGIONAL BANKSHARES, INC.
Loans
We continued our trend of loan growth during the first three months of 2003. Net
loans increased $2,898,234, or 8.31%, during the period. As shown below, the
main component of growth in the loan portfolio was real estate - mortgage loans
which increased 16.44%, or $3,502,296, from December 31, 2002 to March 31, 2003.
Balances within the major loans receivable categories as of March 31, 2003 and
December 31, 2002 are as follows:
March 31, December 31,
2003 2002
---- ----
Real estate - construction ............... $ 3,337,417 $ 4,320,960
Real estate - mortgage ................... 24,804,311 21,302,015
Commercial and industrial ................ 4,448,879 3,474,108
Consumer and other ....................... 5,567,126 6,135,606
----------- -----------
$38,157,733 $35,232,689
=========== ===========
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
March 31, December 31,
2003 2002
---- ----
Loans: Nonaccrual loans .............................. $20,468 $24,118
Accruing loans more than 90 days past due ............ $ 5,055 $ -
Loans identified by the internal review mechanism:
Criticized ........................................ $22,542 $17,549
Classified ........................................ $ 8,264 $ 8,264
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 we will
sustain a loss if the deficiencies are not corrected.
Allowance for Loan Losses
Activity in the Allowance for Loan Losses is as follows:
Three months ended
March 31,
---------
2003 2002
---- ----
Balance, January 1, .............................................................. $ 368,656 $ 268,446
Provision for loan losses for the period ......................................... 27,000 30,000
Net loans (charged-off) recovered for the period ................................. (190) (4,290)
------------ ------------
Balance, end of period ........................................................... $ 395,466 $ 294,156
============ ============
Gross loans outstanding, end of period ........................................... $ 38,157,733 $ 29,253,940
Allowance for loan losses to loans outstanding, end of period .................... 1.04% 1.01%
12
REGIONAL BANKSHARES, INC.
Deposits
At March 31, 2003, total deposits had increased by $4,399,624, or 11.17%, from
December 31, 2002. The largest increase was in other time deposits, which
increased $1,260,917, or 8.38%, from December 31, 2002 to March 31, 2003.
Expressed in percentages, noninterest-bearing deposits increased 17.72% and
interest-bearing deposits increased 17.67%. These increases resulted from
increases in all categories of interest-bearing liabilities, a result of our
continued growth.
Balances within the major deposit categories as of March 31, 2003 and December
31, 2002 are as follows:
March 31, December 31,
2003 2002
---- ----
Noninterest-bearing demand deposits .......... $ 5,636,431 $ 4,787,870
Interest-bearing demand deposits ............. 5,373,265 4,566,531
Savings deposits ............................. 8,958,709 8,077,824
Time deposits $100,000 and over .............. 7,500,960 6,898,433
Other time deposits .......................... 16,308,983 15,048,066
----------- -----------
$43,778,348 $39,378,724
=========== ===========
Liquidity
We meet our liquidity needs through scheduled maturities of loans and
investments and through pricing policies to attract interest-bearing deposits.
The level of liquidity is measured by the loan-to-total borrowed funds (which
includes deposits) ratio, which was at 87.16% at March 31, 2003 and 89.47% at
December 31, 2002.
Securities available-for-sale, which totaled $1,506,930 at March 31, 2003, serve
as a ready source of liquidity. We also have lines of credit available with
correspondent banks to purchase federal funds for periods from one to seven
days. At March 31, 2003, 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 $4,862,000 as
of March 31, 2003. As of March 31, 2003 we had no borrowings on this line.
Off-Balance Sheet Risk
Through its operations, the Bank has made contractual commitments to extend
credit in the ordinary course of its business activities. These commitments are
legally binding agreements to lend money to the Bank's customers at
predetermined interest rates for a specified period of time. At March 31, 2003,
the Bank had issued commitments to extend credit of $4,573,553 and no standby
letters of credit. Approximately $955,337 of these commitments to extend credit
had variable rates.
13
REGIONAL BANKSHARES, INC.
Off-Balance Sheet Risk (continued)
The following table sets forth the length of time until maturity for unused
commitments to extend credit and standby letters of credit at March 31, 2003.
After One After Three
Through Through Greater
Within One Three Twelve Within One Than
Month Months Months Year One Year Total
----- ------ ------ ---- -------- -----
Unused commitments to extend credit ............ $ 95 $ 158,409 $ 591,000 $ 749,504 $3,824,049 $4,573,553
Standby letters of credit ...................... - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Totals ......................................... $ 95 $ 158,409 $ 591,000 $ 749,504 $3,824,049 $4,573,553
========== ========== ========== ========== ========== ==========
Based on historical experience, many of the commitments will expire unfunded.
Accordingly, the amounts shown in the table above do not necessarily reflect the
Bank's need for funds in the periods shown.
The Bank evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on its credit evaluation of the borrower.
Collateral varies but may include accounts receivable, inventory, property,
plant and equipment, commercial and residential real estate.
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, 2002 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 the 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 major 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 portions of our 2002 Annual
Report on Form 10-KSB and this Form 10-QSB that address our allowance for loan
losses for description of our processes and methodology for determining our
allowance for loan losses.
Capital Resources
Total shareholders' equity increased from $4,583,834 at December 31, 2002 to
$4,619,283 at March 31, 2003. The increase is due to net income for the period
of $39,450. The increase was offset partially by a negative change of $4,001 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.
14
REGIONAL BANKSHARES, INC.
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 March 31, 2003, as well as the ratios to be considered
"well capitalized."
The following table summarizes the Bank's risk-based capital at March 31, 2003:
Shareholders' equity ....................................... $ 4,600,993
Less: intangibles ......................................... -
-----------
Tier 1 capital ............................................ 4,600,993
-----------
Plus: allowance for loan losses (1) ....................... 395,466
-----------
Total capital ............................................. $ 4,996,459
===========
Risk-weighted assets ...................................... $39,363,434
===========
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets) ................ 11.69%
Total capital (to risk-weighted assets) ................. 12.69%
Tier 1capital (to total average assets) ................. 10.25%
(1) limited to 1.25% of risk-weighted assets
Item 3. Controls and Procedures
(a) Based on their 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. The following report was filed on Form 8-K during the
quarter ended March 31, 2003.
The Company filed a Form 8-K on January 7, 2003 regarding the resignation
of Tourville, Simpson, and Caskey, LLP as the company's certifying
accountant and the engagement of Elliott Davis, LLC, certified public
accountants, to audit the company's financial statements for the year
ending December 31, 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: May 13, 2003 /s/CURTIS A. TYNER
------------- -----------------------------------
Curtis A. Tyner
President, Chief Executive Officer
and Chief Financial Officer
17
REGIONAL BANKSHARES, INC.
CERTIFICATION
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: May 13, 2003 /s/ CURTIS A. TYNER
-------------- ---------------------------
Curtis A. Tyner
President, Chief Executive Officer
and Chief Financial Officer
*Pursuant to the instruction to the Certifications 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 the registrant.
18