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, 2005
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 (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
206 South Fifth Street
Hartsville, South Carolina 29550
(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.
575,404 shares of common stock, $1.00 par value on April 30, 2005
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, 2005 and December 31, 2004...................................3
Condensed Consolidated Statements of Income - Three months ended March 31, 2005 and 2004.......................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
Three months ended March 31, 2005 and 2004...................................................................5
Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2005 and 2004...................6
Notes to Condensed Consolidated Financial Statements............................................................7-9
Item 2. Management's Discussion and Analysis or Plan of Operation.............................................10-15
Item 3. Controls and Procedures..................................................................................15
PART II. OTHER INFORMATION
Item 6. Exhibits.................................................................................................16
2
REGIONAL BANKSHARES, INC.
Condensed Consolidated Balance Sheets
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
March 31, December 31,
2005 2004
---- ----
(Unaudited)
Assets:
Cash and cash equivalents:
Cash and due from banks ......................................................... $ 1,825,512 $ 2,201,849
Federal funds sold .............................................................. 2,629,882 6,395,757
------------ ------------
Total cash and cash equivalents ............................................... 4,455,394 8,597,606
------------ ------------
Investment securities:
Securities available-for-sale ..................................................... 7,992,238 3,555,552
Nonmarketable equity securities ................................................... 492,792 446,153
------------ ------------
Total investment securities ................................................... 8,485,030 4,001,705
------------ ------------
Loans receivable ..................................................................... 56,285,965 55,052,377
Less allowance for loan losses .................................................... (623,348) (589,765)
------------ ------------
Loans receivable, net ......................................................... 55,662,617 54,462,612
------------ ------------
Premises and equipment, net .......................................................... 2,509,392 2,454,548
Accrued interest receivable .......................................................... 240,204 237,244
Other assets ......................................................................... 581,040 506,686
------------ ------------
Total assets .................................................................. $ 71,933,677 $ 70,260,401
============ ============
Liabilities:
Deposits:
Noninterest-bearing transaction accounts .......................................... $ 6,551,018 $ 8,280,977
Interest-bearing transaction accounts ............................................. 6,351,965 5,775,786
Savings ........................................................................... 18,784,499 18,969,783
Time deposits $100,000 and over ................................................... 5,529,936 5,776,697
Other time deposits ............................................................... 21,908,025 18,887,953
------------ ------------
Total deposits ................................................................ 59,125,443 57,691,196
------------ ------------
Note payable ......................................................................... 1,100,000 1,000,000
Advances from Federal Home Loan Bank ................................................. 6,250,000 6,250,000
Accrued interest payable ............................................................. 171,911 117,773
Other liabilities .................................................................... 183,375 107,833
------------ ------------
Total liabilities ............................................................. 66,830,729 65,166,802
------------ ------------
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,
572,070 shares issued and outstanding at March 31, 2005 and
December 31, 2004 ............................................................... 572,070 572,070
Capital surplus ................................................................... 5,079,471 5,079,471
Retained deficit .................................................................. (493,192) (535,783)
Accumulated other comprehensive income (loss) ..................................... (55,401) (22,159)
------------ ------------
Total shareholders' equity .................................................... 5,102,948 5,093,599
------------ ------------
Total liabilities and shareholders' equity .................................... $ 71,933,677 $ 70,260,401
============ ============
See notes to condensed consolidated financial statements.
3
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended
March 31,
---------
2005 2004
---- ----
Interest income:
Loans, including fees ......................................................... $ 958,097 $ 723,122
Investment Securities:
Taxable ..................................................................... 38,848 22,279
Nonmarketable equity securities ............................................. 3,321 1,859
Federal funds sold ............................................................ 35,203 5,358
---------- ----------
Total ................................................................... 1,035,469 752,618
---------- ----------
Interest expense:
Time deposits $100,000 and over ............................................... 30,144 34,437
Other deposits ................................................................ 183,532 129,831
Note Payable .................................................................. 13,631 -
Advances from Federal Home Loan Bank .......................................... 65,361 6,463
Short term borrowings ......................................................... - 22
---------- ----------
Total ................................................................... 292,668 170,753
---------- ----------
Net interest income .............................................................. 742,801 581,865
Provision for loan losses ........................................................ 36,000 25,000
---------- ----------
Net interest income after provision for loan losses .............................. 706,801 556,865
---------- ----------
Noninterest income:
Service charges on deposit accounts ........................................... 66,102 62,591
Residential mortgage origination fees ......................................... 12,883 17,132
Brokerage fee commissions ..................................................... - 20,708
Credit life insurance commissions ............................................. 411 594
Other income .................................................................. 24,248 17,115
---------- ----------
Total ................................................................... 103,644 118,140
---------- ----------
Noninterest expense:
Salaries and employee benefits ................................................ 381,127 344,525
Net occupancy expense ......................................................... 66,565 42,805
Furniture and fixture expense ................................................. 39,530 41,934
Other operating expenses ...................................................... 255,618 195,071
---------- ----------
Total ................................................................... 742,840 624,335
---------- ----------
Income before income taxes ....................................................... 67,605 50,670
Income tax expense ............................................................... 25,014 18,748
---------- ----------
Net income ....................................................................... $ 42,591 $ 31,922
========== ==========
Earnings per share
Average shares outstanding ....................................................... 572,070 567,319
Net income - basic ............................................................... $ 0.07 $ 0.06
Net income - diluted ............................................................. $ 0.07 $ 0.05
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, 2005 and 2004
(Unaudited)
Accumulated
Common Stock Retained Other
------------ Capital Earnings Comprehensive
Shares Amount Surplus (Deficit) Income Total
------ ------ ------- --------- ------ -----
Balance,
December 31, 2003 ................. 566,770 $566,770 $5,031,771 $ (856,905) $ (13,740) $4,727,896
Net income
for the period .................... 31,922 31,922
Other comprehensive income,
net of expense of $8,102 .......... 13,796 13,796
----------
Comprehensive
income ............................ 45,718
----------
Exercise of stock warrants ........... 2,500 2,500 22,500 25,000
------- -------- ---------- ---------- ---------- ----------
Balance,
March 31, 2004 .................... 569,270 $569,270 $5,054,271 $ (824,983) $ 56 $4,798,614
======= ======== ========== ========== ========== ==========
Balance,
December 31, 2004 ................. 572,070 $572,070 $5,079,471 $ (535,783) $ (22,159) $5,093,599
Net income
for the period .................... 42,591 42,591
Other comprehensive loss,
net of benefit of $19,523 ......... (33,242) (33,242)
----------
Comprehensive
income ............................ 9,349
------- -------- ---------- ---------- ---------- ----------
Balance,
March 31, 2005 .................... 572,070 $572,070 $5,079,471 $ (493,192) $ (55,401) $5,102,948
======= ======== ========== ========== ========== ==========
See notes to condensed consolidated financial statements.
5
REGIONAL BANKSHARES, INC.
Condensed Consolidated Statements of Cash Flows
Three months ended
March 31,
---------
2005 2004
---- ----
Cash flows from operating activities:
Net income ........................................................................ $ 42,591 $ 31,922
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................................. 42,779 38,035
Provision for loan losses ..................................................... 36,000 25,000
Accretion and premium amortization ............................................ 1,001 2,408
Deferred income tax provision ................................................. 42,901 50,238
Increase in interest receivable ............................................... (2,960) (9,281)
Increase (decrease) in interest payable ....................................... 54,138 (15,221)
Increase in other assets ...................................................... (97,732) (12,390)
Increase (decrease) in other liabilities ...................................... 75,542 (56,566)
----------- -----------
Net cash provided by operating activities ................................... 194,260 54,145
----------- -----------
Cash flows from investing activities:
Purchase of nonmarketable equity securities ....................................... (46,639) -
Calls and maturities of securities available-for-sale ............................. 51,357 551,936
Purchase of securities available-for-sale ......................................... (4,541,809) (1,505,592)
Net increase in loans made to customers ........................................... (1,236,005) (968,084)
Purchases of premises and equipment ............................................... (97,623) (8,145)
----------- -----------
Net cash used by investing activities ....................................... (5,870,719) (1,929,885)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest-bearing
transaction accounts and savings accounts ....................................... (1,339,064) 4,983,257
Net increase (decrease) in certificates of deposit and
other time deposits ............................................................. 2,773,311 (1,526,372)
Advances from Federal Home Loan Bank .............................................. 1,000,000 1,000,000
Repayment of advances from Federal Home Loan Bank ................................. (1,000,000) (2,000,000)
Proceeds from Note Payable ........................................................ 100,000 -
Proceeds from exercise of stock warrants .......................................... - 25,000
----------- -----------
Net cash provided by financing activities ................................... 1,534,247 2,481,885
----------- -----------
Net increase (decrease) in cash and cash equivalents ................................. (4,142,212) 606,145
Cash and cash equivalents, beginning ................................................. 8,597,606 3,785,684
----------- -----------
Cash and cash equivalents, ending .................................................... $ 4,455,394 $ 4,391,829
=========== ===========
Cash paid during the period for:
Income taxes ...................................................................... $ 3,965 $ 1,993
Interest .......................................................................... $ 238,530 $ 185,974
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, 2005 and for the interim periods ended March 31,
2005 and 2004, 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, 2004 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, 2004.
Note 2 - Recently Issued Accounting Pronouncements
The following is a summary of recent authoritative pronouncements that affect
accounting, reporting, and disclosure of financial information by the Company:
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123(R)"). Statement No.123(R) covers a wide range of
share-based compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights, and employee share
purchase plans. SFAS No. 123(R) will require companies to measure all employee
stock-based compensation awards using a fair value method and record such
expense in its financial statements. In addition, the adoption of SFAS No.
123(R) requires additional accounting and disclosure related to the income tax
and cash flow effects resulting from share-based payment arrangements. SFAS No.
123(R) is effective for small business issuers beginning with the first interim
or annual reporting period of a company's first fiscal year beginning on or
after December 15, 2005.
In April 2005, the Securities and Exchange Commission's Office of the Chief
Accountant and its Division of Corporation Finance has released Staff Accounting
Bulletin (SAB) No.107. SAB 107 provides interpretive guidance related to the
interaction between Statement No.123 and certain SEC rules and regulations, as
well as the staff's views regarding the valuation of share-based payment
arrangements for public companies. SAB 107 also reminds public companies of the
importance of including disclosures within filings made with the SEC relating to
the accounting for share-based payment transactions, particularly during the
transition to Statement No.123. The Company is currently evaluating the impact
that the adoption of SFAS No. 123 will have on its financial position, results
of operations and cash flows. The cumulative effect of adoption, if any, will be
measured and recognized in the statement of income on the date of adoption.
7
REGIONAL BANKSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Recently Issued Accounting Pronouncements - continued
In November 2003, the Emerging Issues Task Force ("EITF") reached a consensus
that certain quantitative and qualitative disclosures should be required for
debt and marketable equity securities classified as available for sale or held
to maturity under SFAS No. 115 and SFAS No. 124 that are impaired at the balance
sheet date but for which other-than-temporary impairment has not been
recognized. Accordingly the EITF issued EITF No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments."
This issue addresses the meaning of other-than-temporary impairment and its
application to investments classified as either available for sale or held to
maturity under SFAS No. 115 and provides guidance on quantitative and
qualitative disclosures. The disclosure requirements of EITF No. 03-1 are
effective for annual financial statements for fiscal years ending after June 15,
2004. The effective date for the measurement and recognition guidance of EITF
No. 03-1 has been delayed. The FASB staff has issued a proposed Board-directed
FASB Staff Position ("FSP"), FSP EITF 03-1-a, "Implementation Guidance for the
Application of Paragraph 16 of Issue No. 03-1." The proposed FSP would provide
implementation guidance with respect to debt securities that are impaired solely
due to interest rates and/or sector spreads and analyzed for
other-than-temporary impairment under the measurement and recognition
requirements of EITF No. 03-1. The delay of the effective date for the
measurement and recognition requirements of EITF No. 03-1 will be superseded
concurrent with the final issuance of FSP EITF 03-1-a. Adopting the disclosure
provisions of EITF No. 03-1 did not have any impact on the Company's financial
position or results of operations.
Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.
Note 3 - 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 and earnings 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,
---------
2005 2004
---- ----
Net income, as reported ......................... $ 42,591 $ 31,922
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects .... (35,492) (6,131)
-------------- ----------
Pro forma net income ............................ $ 7,099 $ 25,791
============== ==========
Earnings per share:
Basic - as reported ........................... $ 0.07 $ 0.06
============== ==========
Basic - pro forma ............................. $ 0.01 $ 0.05
============== ==========
Diluted - as reported ......................... $ 0.07 $ 0.05
============== ==========
Diluted - pro forma ........................... $ 0.01 $ 0.04
============== ==========
8
REGIONAL BANKSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - 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, 2005 and
2004 are as follows:
Three Months Ended March 31, 2005
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share
Income available to common shareholders ............................ $42,591 572,070 $0.07
=====
Effect of dilutive securities
Stock options and warrants ......................................... - 17,835
------- -------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ......................................... $42,591 589,905 $0.07
======= ======= =====
Three Months Ended March 31, 2004
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share
Income available to common shareholders ............................ $31,922 567,319 $0.06
=====
Effect of dilutive securities
Stock options and warrants ......................................... - 14,373
------- -------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ......................................... $31,922 581,692 $0.05
======= ======= =====
Note 5 - 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, 2005 and
2004:
Three Months Ended March 31, 2005
---------------------------------
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period ................ $(52,765) $19,523 $(33,242)
Plus: reclassification adjustment for gains (losses)
realized in net income ..................................................... - - -
-------- ------- --------
Net unrealized gains (losses) on securities ................................ (52,765) 19,523 (33,242)
-------- ------- --------
Other comprehensive income (loss) ............................................. $(52,765) $19,523 $(33,242)
======== ======= ========
9
REGIONAL BANKSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Comprehensive Income - continued
Three Months Ended March 31, 2004
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period .................... $21,898 $(8,102) $13,796
Plus: reclassification adjustment for gains (losses)
realized in net income ......................................................... - - -
------- ------- -------
Net unrealized gains (losses) on securities .................................... 21,898 (8,102) 13,796
------- ------- -------
Other comprehensive income ........................................................ $21,898 $(8,102) $13,796
======= ======= =======
Accumulated other comprehensive income consists solely of the unrealized gain
(loss) on securities available-for-sale, net of the deferred tax effects.
Subsequent Event
In May, 2005, we abandoned our sponsorship of the organization of another bank
in a different market. We plan to dispose of the property leased for that bank's
office in 2005.
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 March 31, 2005
compared to December 31, 2004, and the results of operations for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004.
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, 2004. 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. Words such as "expect," "estimate," "anticipate,"
"believe," "project," "intend," "plan," and 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, 2005, net interest income increased
$160,936, or 27.66%, to $742,801 as compared to $581,865 for the same period in
2004. Interest income from loans, including fees increased $234,975, or 32.49%,
from the three months ended March 31, 2004 to the comparable period in 2005 as
we continue to experience growth in our loan portfolio. Interest expense for the
three months ended March 31, 2005 was $292,668 as compared to $170,753 for the
same period in 2004. The net interest margin realized on earning assets
increased from 4.38% for the three months ended March 31, 2004 to 4.68% for the
same period in 2005. The interest rate spread increased by 18 basis points from
4.21% at March 31, 2004 to 4.39% at March 31, 2005.
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, 2005, the provision charged to expense was $36,000,
as compared to $25,000 for the same period in 2004. The allowance for loan
losses represents 1.11% of gross loans at March 31, 2005 and 1.04% at March 31,
2004. 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 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.
Noninterest Income
Noninterest income during the three months ended March 31, 2005 was $103,644, a
decrease of $14,496 from $118,140 during the comparable period in 2004. The
largest component of noninterest income was service charges on deposit accounts,
which totaled $66,102 for the three months ended March 31, 2005, as compared to
$62,591 for the three months ended March 31, 2004. There was no brokerage fee
commissions income for the three months ended March 31, 2005 due to a transition
in brokerage personnel.
Noninterest Expense
Total noninterest expense for the three months ended March 31, 2005 was
$742,841, which was 18.98% higher than the $624,335 amount for the three months
ended March 31, 2004. The largest category, salaries and employee benefits,
increased from $344,525 for the three months ended March 31, 2004 to $381,127
for the three months ended March 31, 2005. 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 $33,300 related to the
organization of a proposed subsidiary bank. Net occupancy expense increased
$23,760, or 55.51% to $66,565 for the three months ended March 31, 2005 when
compared to the same period in 2004. This increase is mainly due to occupancy
expenses associated with the proposed subsidiary bank. We abandoned our
sponsorship of the proposed subsidiary bank in May, 2005.
Income Taxes
Income tax expense for the three months ended March 31, 2005 was $25,014 as
compared to an income tax expense of $18,748 for the same period in 2004. The
effective tax rate was 37% for the three months ended March 31, 2005 and 2004.
Net Income
The combination of the above factors resulted in net income for the three months
ended March 31, 2005 of $42,591 as compared to net income of $31,922 for the
same period in 2004. Net income before taxes of $67,605 was partially offset by
the income tax expense of $25,014. Net income before taxes for the same period
in 2004 was $50,670, which was partially offset by the income tax expense of
$18,748.
Financial Condition
Assets and Liabilities
During the first three months of 2005, total assets increased $1,673,276, or
2.38%, when compared to December 31, 2004. Total loans increased $1,233,588, or
2.24% during the first three months of 2005. Total deposits also increased
$1,434,247, or 2.49%, from the December 31, 2004 amount of $57,691,196. Federal
funds sold decreased $3,764,875 from December 31, 2004 to $2,629,882 at March
31, 2005. Other time deposits increased $3,020,072, or 15.99%, during the first
three months of 2005 while noninterest-bearing transaction accounts decreased
$1,729,957, or 20.89%. Savings deposits also decreased $185,284, or 0.98%,
during the first three months of 2005.
Investment Securities
Investment securities increased from $4,901,705 at December 31, 2004 to
$8,485,030 at March 31, 2005. The increase is due to the purchase of short-term
securities in an effort to further improve the Bank's yield on earning assets.
All of the Bank's marketable investment securities were designated as
available-for-sale at March 31, 2005.
12
REGIONAL BANKSHARES, INC.
Loans
We continued our trend of loan growth during the first three months of 2005. Net
loans increased $1,200,005, or 2.20%, during the period. As shown below, the
main component of growth in the loan portfolio was real estate - mortgage loans
which increased 2.91%, or $1,133,402, from December 31, 2004 to March 31, 2005.
Balances within the major loans receivable categories as of March 31, 2005 and
December 31, 2004 are as follows:
March 31, December 31,
2005 2004
---- ----
Real estate - construction ............... $ 5,354,686 $ 5,152,299
Real estate - mortgage ................... 40,109,665 38,976,263
Commercial and industrial ................ 5,153,054 4,941,323
Consumer and other ....................... 5,668,560 5,982,492
----------- -----------
$56,285,965 $55,052,377
=========== ===========
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
March 31, December 31,
2005 2004
---- ----
Loans: Nonaccrual loans ............................... $ 15,185 $ 23,847
Accruing loans more than 90 days past due .............. $ 10,266 $ 2,157
Loans identified by the internal review mechanism:
Criticized ........................................... $574,427 $578,868
Classified ........................................... $ 26,864 $ 30,160
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,
----------------------------
2005 2004
---- ----
Balance, January 1, ............................ $ 589,765 $ 482,875
Provisions for loan losses for the period ...... 36,000 25,000
Net loans (charged-off) recovered
for the period .............................. (2,417) 2,850
----------- -----------
Balance, end of period ......................... $ 623,348 $ 510,725
=========== ===========
Gross loans outstanding, end of period ......... $56,285,965 $49,233,722
Allowance for loan losses to loans outstanding . 1.11% 1.04%
13
REGIONAL BANKSHARES, INC.
Deposits
At March 31, 2005, total deposits had increased by $1,434,247, or 2.49%, from
December 31, 2004. The largest increase was in other time deposits, which
increased $3,020,072, or 15.99%, from December 31, 2004 to March 31, 2005.
Expressed in percentages, noninterest-bearing deposits decreased 20.89% and
interest-bearing deposits increased 6.40%. The decline in noninterest-bearing
deposits was a result of seasonality of some of the Bank's depositors.
Balances within the major deposit categories as of March 31, 2005 and December
31, 2004 are as follows:
March 31, December 31,
2005 2004
---- ----
Noninterest-bearing demand deposits ........ $ 6,551,018 $ 8,280,977
Interest-bearing demand deposits ........... 6,351,965 5,775,786
Savings deposits ........................... 18,784,499 18,969,783
Time deposits $100,000 and over ............ 5,529,936 5,776,697
Other time deposits ........................ 21,908,025 18,887,953
----------- -----------
$59,125,443 $57,691,196
=========== ===========
Liquidity
We meet our liquidity needs through scheduled maturities of loans and
investments and through pricing policies designed to attract interest-bearing
deposits. The level of liquidity is measured by the loan-to-total borrowed funds
(which includes deposits) ratio, which was 84.67% and 84.77% at March 31, 2005
and December 31, 2004, respectively.
Securities available-for-sale, which totaled $7,992,238 at March 31, 2005, 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, 2005, unused lines of credit totaled $3,750,000. 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 $7,182,891 as
of March 31, 2005. As of March 31, 2005 we had $6,250,000 borrowed 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, 2005,
the Bank had issued commitments to extend credit of $12,301,923 and standby
letters of credit totaling $60,000. Approximately $11,368,472 of these
commitments to extend credit had variable rates.
14
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, 2005.
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 .................... $935,060 $925,266 $1,937,080 $3,797,406 $8,504,517 $12,301,923
Standby letters of credit .......... - - 60,000 60,000 - 60,000
-------- -------- ---------- ---------- ---------- -----------
Totals ............................. $935,060 $925,266 $1,997,080 $3,857,406 $8,504,517 $12,361,923
======== ======== ========== ========== ========== ===========
Based on historical experience, many of the commitments and letters of credit
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, 2004 as
filed in our annual report on Form 10-KSB. Certain accounting policies involve
significant judgments and assumptions by us which have a material impact on the
carrying value of certain assets and liabilities. We consider these accounting
policies to be critical accounting policies. The judgments and assumptions we
use are based on 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 2004 Annual
Report on Form 10-KSB and this Form 10-QSB that address our allowance for loan
losses for a description of our processes and methodology for determining our
allowance for loan losses.
Capital Resources
Total shareholders' equity increased from $5,093,599 at December 31, 2004 to
$5,102,948 at March 31, 2005. The increase is mainly due to net income for the
period of $42,591. The net income was partially offset by a $33,242 decline 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.
Because the Company has total assets less than $150 million, its capital
adequacy is judged only on the adequacy of the Bank's capital. Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum ratios of Tier 1 and total capital as 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. For
the Bank, Tier 1 capital consists of common shareholders' equity, excluding the
unrealized gain (loss) on available-for-sale securities, minus certain
intangible assets. For the Bank, 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.
15
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. The Bank exceeded its minimum regulatory capital ratios as of March
31, 2005, as well as the ratios to be considered "well capitalized."
The following table summarizes the Bank's risk-based capital at March 31, 2005:
Shareholders' equity ....................................... $ 6,150,801
Less: intangibles ........................................ -
-----------
Tier 1 capital ........................................... 6,150,801
Plus: allowance for loan losses (1) ...................... 623,348
-----------
Total capital ............................................ $ 6,774,149
===========
Risk-weighted assets ..................................... $70,533,519
===========
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets) ................. 10.07%
Total capital (to risk-weighted assets) .................. 11.09%
Tier 1 capital (to total average assets) ................. 8.72%
(1) Limited to 1.25% of risk-weighted assets
The Company is in the process of evaluating its capital requirements for the
future.
Item 3. Controls and Procedures
Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)), the Company's Chief
Executive Officer and Chief Financial Officer concluded that such controls and
procedures, as of the end of the period covered by this quarterly report, were
effective.
There has been no change in the Company's internal control over financial
reporting during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
16
REGIONAL BANKSHARES, INC.
Part II - Other Information
Item 6. Exhibits
Exhibits
Exhibit 10 - Information relating to compensation of directors
(incorporated by reference to Current Report on Form 8-K filed February 25,
2005).
Exhibit 31 - Certification of Principal Executive Officer and Principal
Financial Officer required by Rule 13a-14(a) or Rule 15d - 14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32 - Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
17
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 12, 2005 /s/ CURTIS A. TYNER
-------------------------------------------------
Curtis A. Tyner, President,
Chief Executive Officer and Chief Financial
Officer
18
REGIONAL BANKSHARES, INC.
Exhibit Index
10 Information relating to compensation of directors (incorporated by
reference to Current Report on Form 8-K filed February 25, 2005).
31 Certification of Principal Executive Officer and Principal Financial
Officer required by Rule 13a-14(a) or Rule 15d - 14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit is
not "filed" for purposes of Section 18 of the Securities Exchange Act of
1934 but is instead furnished as provided by applicable rules of the
Securities and Exchange Commission.
19