U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 Number 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.
565,770 shares of common stock, $1.00 par value as of June 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 - June 30, 2003 and December 31, 2002......................................3
Condensed Consolidated Statements of Income - Six months ended June 30, 2003 and 2002
and Three months ended June 30, 2003 and 2002..................................................................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
Six months ended June 30, 2003 and 2002........................................................................5
Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 2003 and 2002........................6
Notes to Condensed Consolidated Financial Statements..........................................................7-10
Item 2. Management's Discussion and Analysis or Plan of Operation.....................................................11-16
Item 3. Controls and Procedures..........................................................................................17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..............................................................18
Item 6. Exhibits and Reports on Form 8-K.................................................................................18
(a) Exhibits....................................................................................................18
(b) Reports on Form 8-K.........................................................................................18
2
REGIONAL BANKSHARES, INC.
Condensed Consolidated Balance Sheets
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
June 30, December 31,
2003 2002
---- ----
(Unaudited)
Assets:
Cash and cash equivalents:
Cash and due from banks ......................................................... $ 2,241,802 $ 808,282
Federal funds sold .............................................................. 2,517,654 3,050,991
------------ ------------
Total cash and cash equivalents ............................................... 4,759,456 3,859,273
------------ ------------
Securities available-for-sale ..................................................... 2,040,779 2,513,281
Nonmarketable equity securities ................................................... 164,853 137,553
------------ ------------
Total investment securities ................................................... 2,205,632 2,650,834
------------ ------------
Loans receivable ..................................................................... 41,360,963 35,232,689
Less allowance for loan losses ....................................................... (418,973) (368,656)
------------ ------------
Loans, net .................................................................... 40,941,990 34,864,033
Accrued interest receivable .......................................................... 154,443 153,315
Premises and equipment, net .......................................................... 2,538,924 2,039,599
Other assets ......................................................................... 614,432 658,242
------------ ------------
Total assets .................................................................. $ 51,214,877 $ 44,225,296
============ ============
Liabilities:
Deposits:
Noninterest-bearing ............................................................... $ 5,820,496 $ 4,787,870
Interest-bearing .................................................................. 4,915,122 4,566,531
Savings ........................................................................... 10,589,605 8,077,824
Time deposits $100,000 and over ................................................... 7,944,984 6,898,433
Other time deposits ............................................................... 17,049,596 15,048,066
------------ ------------
Total deposits ................................................................ 46,319,803 39,378,724
------------ ------------
Accrued interest payable ............................................................. 147,406 209,496
Other liabilities .................................................................... 73,876 53,242
------------ ------------
Total liabilities ............................................................. 46,541,085 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,
565,770 and 563,670 shares issued and outstanding at
June 30, 2003 and December 31, 2002, respectively ............................... 565,770 563,670
Capital surplus ................................................................... 5,022,771 5,003,871
Retained earnings (deficit) ....................................................... (928,782) (992,074)
Accumulated other comprehensive income ............................................ 14,033 8,367
------------ ------------
Total shareholders' equity .................................................... 4,673,792 4,583,834
------------ ------------
Total liabilities and shareholders' equity .................................... $ 51,214,877 $ 44,225,296
============ ============
See notes to condensed consolidated financial statements.
3
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
-------- --------
2003 2002 2003 2002
---- ---- ---- ----
Interest income:
Loans, including fees ............................... $1,251,844 $1,074,092 $ 645,166 $ 553,440
Investment securities
Taxable ........................................... 36,815 9,962 17,193 6,149
Nonmarketable equity securities ................... 3,712 2,732 1,872 1,541
Federal funds sold ................................ 16,629 33,165 10,495 18,965
---------- ---------- ---------- ----------
Total ........................................... 1,309,000 1,119,951 674,726 580,095
---------- ---------- ---------- ----------
Interest expense:
Time deposits $100,000 and over ..................... 94,485 115,585 47,559 58,072
Other deposits ...................................... 263,389 262,068 136,904 138,085
Other interest expense .............................. 1,611 12,988 687 4,351
---------- ---------- ---------- ----------
Total ........................................... 359,485 390,641 185,150 200,508
---------- ---------- ---------- ----------
Net interest income .................................... 949,515 729,310 489,576 379,587
Provision for loan losses .............................. 52,000 60,000 25,000 30,000
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses ......................................... 897,515 669,310 464,576 349,587
Other income:
Service charges on deposit accounts ................. 102,738 76,274 52,777 40,048
Residential mortgage origination fees ............... 52,401 31,705 35,221 19,127
Brokerage fee commissions ........................... 58,706 49,152 39,715 14,625
Credit life insurance commissions ................... 1,201 4,302 478 3,089
Other income ........................................ 33,137 21,300 12,165 6,404
---------- ---------- ---------- ----------
Total ........................................... 248,183 182,733 140,356 83,293
---------- ---------- ---------- ----------
Other expense:
Salaries and employee benefits ...................... 579,513 432,830 317,861 212,222
Net occupancy expense ............................... 61,842 50,631 33,695 26,821
Furniture and fixture expense ....................... 68,486 58,416 40,032 30,538
Other operating expenses ............................ 335,393 281,011 175,499 147,549
---------- ---------- ---------- ----------
Total ........................................... 1,045,234 822,888 567,087 417,130
---------- ---------- ---------- ----------
Income before income taxes ............................. 100,464 29,155 37,845 15,750
Income tax expense ..................................... 37,172 10,809 14,003 5,831
---------- ---------- ---------- ----------
Net income ............................................. $ 63,292 $ 18,346 $ 23,842 $ 9,919
========== ========== ========== ==========
Earnings per share
Averages shares outstanding ............................ 564,227 563,670 564,778 563,670
Net income ............................................. $ 0.11 $ 0.03 $ 0.04 $ 0.02
See notes to condensed consolidated financial statements.
4
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Shareholders' Equity
and Comprehensive Income
For the six months ended June 30, 2003 and 2002
(Unaudited)
Accumulated
Common Stock Retained Other
------------ Capital Earnings Comprehensive
Shares Amount Surplus (Deficit) Income Total
------ ------ ------- --------- ------ -----
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 of $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
======== =========== =========== =========== =========== ===========
Balance,
December 31, 2002 .................... 563,670 $ 563,670 $ 5,003,871 $ (992,074) $ 8,367 $ 4,583,834
Net income
for the period ....................... 63,292 63,292
Other comprehensive income,
net of tax of $3,328 ................. 5,666 5,666
-----------
Comprehensive
income ............................... 68,958
-----------
Warrants exercised
at $10.00 per share .................. 2,100 2,100 18,900 21,000
-------- ----------- ----------- ----------- ----------- -----------
Balance,
June 30, 2003 ........................ 565,770 $ 565,770 $ 5,022,771 $ (928,782) $ 14,033 $ 4,673,792
======== =========== =========== =========== =========== ===========
See notes to condensed consolidated financial statements.
5
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------
2003 2002
---- ----
Cash flows from operating activities:
Net income ........................................................................ $ 63,292 $ 18,346
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................................. 68,771 63,856
Provision for possible loan losses ............................................ 52,000 60,000
Accretion and premium amortization ............................................ 781 (480)
Deferred income tax provision ................................................. 26,690 10,808
Increase in interest receivable ............................................... (1,128) (20,647)
Increase (decrease) in interest payable ....................................... (62,090) (22,408)
Decrease (increase) in other assets ........................................... 13,792 12,886
Increase in other liabilities ................................................. 20,634 24,285
Increase in gain (loss) on sale/paydown of securities ......................... 174 -
----------- -----------
Net cash provided by operating activities ................................... 182,916 146,646
----------- -----------
Cash flows from investing activities:
Purchases of securities available-for-sale ........................................ (2,026,094) (1,000,000)
Maturities of securities available-for-sale ....................................... 2,506,635 350,000
Purchase of nonmarketable equity securities ....................................... (27,300) -
Net increase in loans made to customers ........................................... (6,129,957) (3,135,628)
Purchases of premises and equipment ............................................... (568,096) (42,084)
----------- -----------
Net cash used by investing activities ....................................... (6,244,812) (3,827,712)
----------- -----------
Cash flows from financing activities:
Net increase in demand deposits, interest-bearing transaction
accounts and savings accounts ..................................................... 3,892,998 1,077,312
Net increase in certificates of deposit and other time deposits ................... 3,048,081 5,112,005
Repayments of Federal Home Loan Bank advances ..................................... - (1,750,000)
Proceeds from exercise of warrants ................................................ 21,000 -
----------- -----------
Net cash provided by financing activities ................................... 6,962,079 4,439,317
----------- -----------
Net increase in cash and cash equivalents ............................................ 900,183 758,251
Cash and cash equivalents, beginning ................................................. 3,859,273 4,195,960
----------- -----------
Cash and cash equivalents, ending .................................................... $ 4,759,456 $ 4,954,211
=========== ===========
Cash paid during the period for:
Income taxes ...................................................................... $ 2,850 $ -
Interest .......................................................................... $ 421,575 $ 413,049
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 June 30, 2003 and for the interim periods ended June 30, 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.
Six Months Ended June 30,
-------------------------
2003 2002
---- ----
Net income, as reported ..................................................... $ 63,292 $ 18,346
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects ............................... (12,263) (58,372)
-------------- ----------
Pro forma net income (loss) ................................................. $ 51,029 $ (40,026)
============== ==========
Earnings (loss) per share:
Basic - as reported ...................................................... $ 0.11 $ 0.03
============== ==========
Basic - pro forma ........................................................ $ 0.09 $ (0.07)
============== ==========
Diluted - as reported .................................................... $ 0.11 $ 0.03
============== ==========
Diluted - pro forma ...................................................... $ 0.09 $ (0.07)
============== ==========
Three Months Ended June 30,
---------------------------
2003 2002
---- ----
Net income, as reported ..................................................... $ 23,842 $ 9,919
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects ............................... (6,131) (29,643)
-------------- ----------
Pro forma net income (loss) ................................................. $ 17,711 $ (19,724)
============== ==========
Earnings (loss) per share:
Basic - as reported ...................................................... $ 0.04 $ 0.02
============== ==========
Basic - pro forma ........................................................ $ 0.03 $ (0.03)
============== ==========
Diluted - as reported .................................................... $ 0.04 $ 0.02
============== ==========
Diluted - pro forma ...................................................... $ 0.03 $ (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 are as follows:
Six Months Ended June 30, 2003
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share
Income available to common shareholders ............................ $63,292 564,227 $0.11
=====
Effect of dilutive securities
Stock options ...................................................... - 17,599
------- ------- -----
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ......................................... $63,292 581,826 $0.11
======= ======= =====
Six Months Ended June 30, 2002
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share
Income available to common shareholders ............................ $18,346 563,670 $0.03
=====
Effect of dilutive securities
Stock options ...................................................... - 17,671
------- -------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ......................................... $18,346 581,341 $0.03
======= ======= =====
Three Months Ended June 30, 2003
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share
Income available to common shareholders ............................ $23,842 564,778 $0.04
=====
Effect of dilutive securities
Stock options ...................................................... - 17,428
------- --------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ......................................... $23,842 582,206 $0.04
======= ======= =====
8
REGIONAL BANKSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Earnings Per Share - (continued)
Three Months Ended June 30, 2002
--------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share
Income available to common shareholders ............................ $ 9,919 563,670 $0.02
=====
Effect of dilutive securities
Stock options ...................................................... - 17,772
------- -----
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ......................................... $ 9,919 581,442 $0.02
======= ======= =====
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 and six month periods ended June 30, 2003
and 2002:
Six Months Ended June 30, 2003
------------------------------
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................... $ 8,994 $(3,328) $ 5,666
Plus: reclassification adjustment for gains (losses)
realized in net income ......................................................... - - -
------- ------- -------
Net unrealized gains (losses) on securities .................................... 8,994 (3,328) 5,666
------- ------- -------
Other comprehensive income ........................................................ $ 8,994 $(3,328) $ 5,666
======= ======= =======
Six Months Ended June 30, 2002
------------------------------
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
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
======= ======= =======
9
REGIONAL BANKSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Comprehensive Income - (continued)
Three Months Ended June 30, 2003
--------------------------------
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................... $15,345 $(5,678) $ 9,667
Plus: reclassification adjustment for gains (losses)
realized in net income ......................................................... - - -
------- ------- -------
Net unrealized gains (losses) on securities .................................... 15,345 (5,678) 9,667
------- ------- -------
Other comprehensive income ........................................................ $15,345 $(5,678) $ 9,667
======= ======= =======
Three Months Ended June 30, 2002
--------------------------------
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
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
======= ======= =======
Accumulated other comprehensive income consists solely of the unrealized gain
(loss) on securities available-for-sale, net of the deferred tax effects.
10
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, 2003
compared to December 31, 2002, and the results of operations for the three and
six months ended June 30, 2003, compared to the three and six months ended June
30, 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 six months ended June 30, 2003, net interest income increased $220,205,
or 30.19%, to $949,515 as compared to $729,310 for the same period in 2002.
Interest income from loans, including fees, increased $177,752, or 16.55%, from
the six months ended June 30, 2002 to the comparable period in 2003, as we
continued to experience growth in our loan portfolio. Interest expense for the
six months ended June 30, 2003 was $359,485 as compared to $390,641 for the same
period in 2002. Although interest bearing accounts such as savings accounts and
certificates of deposit increased for the six months ended June 30, 2003, rates
being paid on these accounts were lower due to a declining interest rate
environment when compared to the same period ended June 30, 2002, resulting in a
decrease in interest expense. The net interest margin realized on earning assets
decreased from 4.41% for the six months ended June 30, 2002 to 4.01% for the
same period in 2003. The interest rate spread increased by 9 basis points from
4.08% at June 30, 2002 to 4.17% at June 30, 2003.
For the quarter ended June 30, 2003, net interest income totaled $489,576, an
increase of $109,989, or 28.98%, when compared to the same quarter ended June
30, 2002. Interest income totaling $645,166 was generated from loans, including
fees, during the quarter ended June 30, 2003, as compared to $553,440 during the
comparable period in 2002. These changes also resulted from growth in the amount
of earning assets as well as supporting liabilities coupled with the effects of
a lower interest rate environment. Interest expense on deposit accounts was
$185,150 for the quarter ended June 30, 2003, as compared to $200,508 for the
same period in 2002. The net interest margin realized on earning assets was
3.82% for the quarter ended June 30, 2003, as compared to 4.36% during the same
period in 2002. The interest rate spread was 4.00% for the quarter ended June
30, 2003, as compared to 4.03% for the quarter ended June 30, 2002.
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 six
months ended June 30, 2003, the provision charged to expense was $52,000, as
compared to $60,000 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, 2003, the
provision charged to expense was $25,000, as compared to $30,000 for the same
period in 2002. The allowance represents 1.01% and 1.04% of gross loans at June
30, 2003 and 2002, 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.
11
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, 2003 was $248,183, an
increase of $65,450 from $182,733 during the comparable period in 2002. The
increase is primarily a result of commissions generated through our brokerage
services which totaled $58,706 as well as residential mortgage origination fees
totaling $52,401 for the six months ended June 30, 2003. 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 $76,274 during the six months ended June 30, 2002 to
$102,738 for the six months ended June 30, 2003.
For the quarter ended June 30, 2003, noninterest income was $140,356, an
increase of $57,063, or 68.51% from the same period ended June 30, 2002. The
largest component of noninterest income was service charges on deposit accounts,
which totaled $52,777 for the quarter ended June 30, 2003, as compared to
$40,048 for the quarter ended June 30, 2002. Income from brokerage fee
commissions totaled $39,715 for the quarter ended June 30, 2003.
Noninterest Expense
Total noninterest expense for the six months ended June 30, 2003 was $1,045,234,
which was 27.02% higher than the $822,888 amount for the six months ended June
30, 2002. The largest category, salaries and employee benefits, increased from
$432,830 for the six months ended June 30, 2002 to $579,513 for the six months
ended June 30, 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, including personnel to staff our new McBee Branch which officially
opened May 28, 2003.
For the quarter ended June 30, 2003, noninterest expense increased $149,957, or
35.95% as compared to the same period ended June 30, 2002. The largest category,
salaries and employee benefits, increased from $212,222 for the quarter ended
June 30, 2002 to $317,861 for the quarter ended June 30, 2003. 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, 2003 was $37,172, an
increase of $26,363 or 243.90% as compared to the same period ended June 30,
2002. The effective tax rate was 37.00% for the six months ended June 30, 2003,
as compared to an effective tax rate of 37.07% for the six months ended June 30,
2002. The effective tax rate was 37.00% and 37.02% for the quarters ended June
30, 2003 and 2002, respectively.
Net Income
The combination of the above factors resulted in net income for the six months
ended June 30, 2003 of $63,292 as compared to a net income of $18,346 for the
same period in 2002. The net income before taxes of $100,464 was partially
offset by the income tax expense of $37,172 during the six months ended June 30,
2003. The net income before taxes for the same period in 2002 was $29,155, which
was partially offset by the income tax expense of $10,809. For the quarter ended
June 30, 2003, net income was $23,842, as compared to net income of $9,919 for
the same period in 2002.
12
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation - (continued)
Financial Condition
Assets and Liabilities
During the first six months of 2003, total assets increased $6,989,581, or
15.80%, when compared to December 31, 2002. The primary source of growth in
assets was in loans, which increased $6,128,274, or 17.39%, during the first six
months of 2003. Total deposits also increased $6,941,079, or 17.63%, from
$39,378,724 at December 31, 2002 to $46,319,803 at June 30, 2003. Within the
deposit area, other time deposits increased $2,001,530, or 13.30%, during the
first six months of 2003. Savings deposits increased $2,511,781 during the first
six months of 2003.
Investment Securities
Investment securities decreased from $2,650,834 at December 31, 2002 to
$2,205,632 at June 30, 2003. This was mainly due to the call of many of our
bonds in the current low interest rate environment. All of the Bank's marketable
investment securities were designated as available-for-sale at June 30, 2003.
Loans
We continued our trend of growth during the first six months of 2003. The
increase in loans was attributable to the normal growth of the Bank, including
loans generated through our new branch in McBee. Net loans increased $6,077,957,
or 17.43%, during the period. As shown below, the main component of growth in
the loan portfolio was real estate - mortgage loans which increased 30.17%, or
$6,425,931, from December 31, 2002 to June 30, 2003. Balances within the major
loans receivable categories as of June 30, 2003 and December 31, 2002 are as
follows:
June 30, December 31,
2003 2002
---- ----
Real estate - construction ............... $ 2,646,615 $ 4,320,960
Real estate - mortgage ................... 27,727,946 21,302,015
Commercial and industrial ................ 5,080,163 3,474,108
Consumer and other ....................... 5,906,239 6,135,606
----------- -----------
$41,360,963 $35,232,689
=========== ===========
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
June 30, December 31,
2003 2002
---- ----
Loans: Nonaccrual loans ................................ $16,247 $24,118
Accruing loans more than 90 days past due .............. $ 1,430 $ -
Loans identified by the internal review mechanism:
Criticized ........................................... $77,113 $17,549
Classified ........................................... $16,448 $ 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 the Bank will
sustain a loss if the deficiencies are not corrected.
13
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation - (continued)
Allowance for Loan Losses
Activity in the Allowance for Loan Losses is as follows:
Six Months Ended June 30,
-------------------------
2003 2002
---- ----
Balance, January 1, ............................ $ 368,656 $ 268,446
Provisions for loan losses for the period ...... 52,000 60,000
Net Loans (charged-off) recovered for the period (1,683) (15,465)
------------ ------------
Balance, end of period ......................... $ 418,973 $ 312,981
============ ============
Gross loans outstanding, end of period ......... $ 41,360,963 $ 29,994,070
Allowance for loan losses to loans outstanding . 1.01% 1.04%
Deposits
During the first six months of 2003, total deposits increased by $6,941,079, or
17.63% from December 31, 2002. This increase was due to the normal growth of the
Bank, and in particular, new deposit accounts acquired in our new branch in
McBee. The largest increase was in savings deposits, which increased $2,511,781,
or 31.09% from December 31, 2002. The increase was attributable to the opening
of new accounts during the period. Expressed in percentages, noninterest bearing
deposits increased 21.57% and interest bearing deposits increased 7.63%.
Balances within the major deposit categories as of June 30, 2003 and December
31, 2002 are as follows:
June 30, December 31,
2003 2002
---- ----
Noninterest-bearing demand deposits ....... $ 5,820,496 $ 4,787,870
Interest-bearing demand deposits .......... 4,915,122 4,566,531
Savings deposits .......................... 10,589,605 8,077,824
Time deposits $100,000 and over ........... 7,944,984 6,898,433
Other time deposits ....................... 17,049,596 15,048,066
----------- -----------
$46,319,803 $39,378,724
=========== ===========
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 89.29% at June 30, 2003 and 89.47%
at December 31, 2002.
Securities available-for-sale, which totaled $2,040,779 at June 30, 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 June 30, 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 $5,121,000 of
June 30, 2003. As of June 30, 2003, we had no borrowings on this line.
14
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation - (continued)
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 June 30, 2003,
the Bank had issued commitments to extend credit of $5,290,167 and no standby
letters of credit. Approximately $1,218,230of these commitments to extend credit
had variable rates.
The following table sets forth the length of time until maturity for unused
commitments to extend credit and standby letters of credit at June 30, 2003.
After One After Three
Within Through Through Greater
One Three Twelve Within Than
Month Months Months One Year One Year Total
----- ------ ------ -------- -------- -----
Unused commitments
to extend credit ............... $ - $ 387,231 $1,121,902 $1,509,133 $3,781,034 $5,290,167
Standby letters of credit ......... - - - - - -
----------- ---------- ---------- ---------- ---------- ----------
Total ........................ $ - $ 387,231 $1,121,902 $1,509,133 $3,781,034 $5,290,167
=========== ========== ========== ========== ========== ==========
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 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 portions of our 2002 Annual
Report on Form 10-KSB and this form 10-QSB that addresses our allowance for loan
losses for a description of our processes and methodology for determining our
allowance for loan losses.
15
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation - (continued)
Recently Issued Accounting Standards
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-based
Compensation - Transition and Disclosure", an amendment of FASB Statement No.
123, "Accounting for Stock-Based Compensation", to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and Accounting Pronouncement Board ("APB")
Opinion No. 28, "Interim Financial Reporting", to require disclosure in the
summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
While SFAS No. 148 does not amend SFAS No. 123 to require companies to account
for employee stock options using the fair value method, the disclosure
provisions of SFAS No. 148 are applicable to all companies with stock-based
employee compensation, regardless of whether they account for that compensation
using the fair value method of SFAS No. 123 or the intrinsic value method of APB
Opinion No. 25. The provisions of SFAS No. 148 are effective for annual
financial statements for fiscal years ending after December 15, 2003, and for
financial reports containing condensed financial statements for interim periods
beginning after December 15, 2002. We have adopted the disclosure provisions of
SFAS No. 148, which had no impact on our financial condition or operating
results.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and loan commitments that relate to the
origination of mortgage loans held for sale, and for hedging activities under
SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003. The adoption of SFAS No. 149 will not have a
material impact on our financial condition or operating results.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is generally effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on our
financial condition or operating results.
In June 2003, the American Institute of Certified Public Accountants (AICPA)
issued an exposure draft of a proposed Statement of Position (SOP), Allowance
for Credit Losses. The proposed SOP addresses the recognition and measurement by
creditors of the allowance for credit losses related to all loans, as that term
is defined in SFAS No. 114, Accounting by Creditors for Impairment of a Loan.
The proposed SOP provides that the allowance for credit losses reported on a
creditor's balance sheet should consist only of (1) a component for individual
loan impairment recognized and measured pursuant to FASB Statement No. 114 and
(2) one or more components of collective loan impairment recognized pursuant to
FASB Statement No. 5, Accounting for Contingencies, and measured in accordance
with the guidance in the proposed SOP. The provisions of the proposed SOP would
be effective for financial statements for fiscal years beginning after December
15, 2003, with earlier application permitted. The effect of initially applying
the provisions of the proposed SOP would be reported as a change in accounting
estimate. Comments on the exposure draft are due by September 19, 2003. We have
not determined the effect on our financial condition or operating results
related to the adoption of this proposed SOP, but such effect would most likely
be material.
16
REGIONAL BANKSHARES, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation - (continued)
Capital Resources
Total shareholders' equity increased from $4,583,834 at December 31, 2002 to
$4,673,792 at June 30, 2003. The increase is due to net income for the period of
$63,292, a positive change in the fair value of securities available-for-sale of
$5,666, and the exercise of warrants of $21,000.
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 points above
the minimum. The Bank exceeded its minimum regulatory capital ratios as of June
30, 2003 as well as the ratios to be considered "well capitalized." Because it
has assets of less than $150 million, the Company's capital adequacy is measured
by the Bank's capital adequacy.
The following table summarizes the Bank's risk-based capital at June 30, 2003:
Shareholders' equity ....................................... $ 4,624,835
Less: intangibles ........................................ -
-----------
Tier 1 capital ........................................... 4,624,835
Plus: allowance for loan losses (1) ...................... 418,973
-----------
Total capital ............................................ $ 5,043,808
===========
Risk-weighted assets ..................................... $43,214,226
===========
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets) ................. 10.70%
Total capital (to risk-weighted assets) .................. 11.67%
Tier 1 capital (to total average assets) ................. 9.31%
(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.
17
REGIONAL BANKSHARES, INC.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On May 15, 2003, we held our annual meeting of shareholders for the purpose of
electing four directors to each serve a three-year term.
Of the 564,270 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 as follows:
Votes For Votes Against Votes Withheld
Randolph G. Rogers 386,476 - 4,630
Howard W. Tucker 386,276 200 4,630
Curtis A. Tyner 386,276 200 4,630
Patricia West 386,476 - 4,630
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, 2003.
18
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: August 11, 2003 By:/s/ Curtis A. Tyner
-----------------------------------------------
Curtis A. Tyner
President, Chief Executive Officer and Chief
Financial Officer
19
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: August 11, 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.
20