SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE) FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
-------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
-------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________TO_________
Commission File Number 000-26905
RHBT FINANCIAL CORPORATION*
(Exact name of registrant as specified in its charter)
South Carolina 58-2482426
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
315 EAST MAIN STREET
ROCK HILL, SC 29731
(Address of principal executive
offices, including zip code)
(803) 324-2500
(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 date of this filing.
1,720,313 SHARES OF COMMON STOCK, $.01 PAR VALUE
PAGE 1 OF 17
EXHIBIT INDEX ON PAGE 2
* The registrant is a successor issuer, within the meaning of Rule 15d-5 under
the Securities Exchange Act of 1934, to Rock Hill Bank & Trust, Rock Hill, South
Carolina.
RHBT FINANCIAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 1999 and December 31, 1998............................3
Condensed Consolidated Statements of Income - Six months ended June 30, 1999 and 1998
and Three months ended June 30, 1999 and 1998..........................................................4
Condensed Consolidated Statements of Comprehensive Income - Six months ended June 30, 1999
and 1998 and Three months ended June 30, 1999 and 1998.................................................5
Condensed Consolidated Statement of Shareholders' Equity - Six months ended June 30, 1999..............6
Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 1999 and 1998..............7
Notes to Condensed Consolidated Financial Statements................................................8-10
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.............11-16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................................................17
Item 6. Exhibits and Reports on Form 8-K....................................................................17
(a) Exhibits..........................................................................................17
(b) Reports on Form 8-K...............................................................................17
2
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1999 1998
------------- -------------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 4,805,330 $ 3,491,891
Federal funds sold and securities
purchased under agreements to resell 25,410,000 24,505,000
------------- -------------
30,215,330 27,996,891
Securities available-for-sale 8,848,892 7,414,072
Loans receivable 92,146,984 69,977,496
Less allowance for loan losses (993,682) (812,174)
------------- -------------
Loans, net 91,153,302 69,165,322
Accrued interest receivable 762,328 607,753
Premises and equipment, net 1,343,124 1,252,001
Other assets 817,063 625,682
------------- -------------
Total assets $ 133,140,039 $ 107,061,721
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 19,159,694 $ 6,157,776
Interest bearing 22,324,031 23,220,435
Savings 4,096,080 3,175,902
Time deposits $100,000 and over 14,818,747 18,123,683
Other time deposits 42,713,636 27,061,929
------------- -------------
103,112,188 77,739,725
Securities sold under agreement to repurchase 13,455,000 13,250,000
Accrued interest payable 394,677 316,981
Other liabilities 33,840 177,069
------------- -------------
Total liabilities 116,995,703 91,483,775
------------- -------------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; 10,000,000 shares
authorized, 1,376,250 shares issued and outstanding - 1,376,250
Common stock, $.01 par value; 10,000,000 shares
authorized, 1,720,313 shares issued and outstanding 17,204 -
Capital surplus 15,376,185 14,013,698
Retained earnings 796,370 180,077
Accumulated other comprehensive income (45,423) 7,921
------------- -------------
Total shareholders' equity 16,144,336 15,577,946
------------- -------------
Total liabilities and shareholders' equity $ 133,140,039 $ 107,061,721
============= =============
See notes to condensed consolidated financial statements.
3
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
INTEREST INCOME
Loans, including fees $3,689,614 $2,005,126 $1,980,967 $1,061,252
Investment securities, taxable 215,353 174,996 111,117 72,122
Federal funds sold and securities
purchased under agreements to resell 552,169 397,817 295,329 253,980
---------- ---------- ---------- ----------
Total 4,457,136 2,577,939 2,387,413 1,387,354
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposit accounts 1,922,391 1,232,362 987,546 652,886
Securities sold under agreements
to repurchase 270,781 245,966 145,302 155,911
---------- ---------- ---------- ----------
Total 2,193,172 1,478,328 1,132,848 808,797
---------- ---------- ---------- ----------
NET INTEREST INCOME 2,263,964 1,099,611 1,254,565 578,557
Provision for loan losses 187,000 120,016 106,000 60,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,076,964 979,595 1,148,565 518,557
---------- ---------- ---------- ----------
OTHER INCOME
Service charges on deposit accounts 93,030 66,500 51,635 33,563
Other charges, commissions and fees 56,131 31,869 29,388 17,566
Income from fiduciary activities 82,604 24,879 52,465 14,880
---------- ---------- ---------- ----------
Total 231,765 123,248 133,488 66,009
---------- ---------- ---------- ----------
OTHER EXPENSE
Salaries and benefits 563,810 308,036 302,583 170,087
Occupancy expense 194,782 142,710 99,990 71,215
Advertising & marketing expense 46,972 24,175 19,141 19,625
Other operating expenses 519,373 224,430 276,920 109,285
---------- ---------- ---------- ----------
Total 1,324,937 699,351 698,634 370,212
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 983,792 403,492 583,419 214,354
Income tax expense 364,058 149,000 216,058 79,000
---------- ---------- ---------- ----------
NET INCOME 619,734 254,492 367,361 135,354
========== ========== ========== ==========
Basic net income per share $ .36 $ .34 $ .21 $ .18
Diluted net income per share $ .36 $ .34 $ .21 $ .18
See notes to condensed consolidated financial statements.
4
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
NET INCOME $ 619,734 $ 254,492 $ 367,361 $ 135,354
--------- --------- --------- ---------
Other comprehensive income, net of tax:
Unrealized gains (losses)
on securities during the period (53,344) (7,019)
(30,038) (4,233)
Less: reclassification adjustment
for gains included in net income -- -- -- --
--------- --------- --------- ---------
Other comprehensive income (53,344) (7,019) (30,038) (4,233)
--------- --------- --------- ---------
COMPREHENSIVE INCOME $ 566,390 $ 247,473 $ 337,323 $ 131,121
========= ========= ========= =========
See notes to condensed consolidated financial statements.
5
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
Accumulated
Common Stock Other
------------------------- Capital Retained Comprehensive
Shares Amount Surplus Earnings Income Total
------ ------ ------- -------- ------------- -----
BALANCE,
DECEMBER 31, 1998 1,376,250 $1,376,250 $14,013,698 $180,077 $ 7,921 $15,577,946
Net income
for the period 619,734 619,734
Acquisition of the Bank's
common stock by RHBT
Financial Corporation (1,362,487) 1,362,487
Five-for-four stock split effected
in the form of a 25% stock
dividend declared July 16, 1999 344,063 3,441 (3,441)
Other comprehensive
income (53,344) (53,344)
--------- --------- ----------- --------- --------- -----------
BALANCE,
JUNE 30, 1999 1,720,313 $ 17,204 $15,376,185 $ 796,370 $ (45,423) $16,144,336
========= ========= =========== ========= ========= ===========
See notes to condensed consolidated financial statements.
6
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
----------------------------
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 619,734 $ 254,492
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 79,326 38,029
Provision for loan losses 187,000 120,016
Accretion and premium amortization 19,150 (6,519)
Amortization of net loan fees and costs 25,708 15,888
Amortization of organizational costs 9,517 9,517
(Increase) decrease in interest receivable (154,576) (48,145)
Increase (decrease) in interest payable 77,696 10,435
(Increase) decrease in other assets (37,098) 93,036
Increase (decrease) in other liabilities (111,901) 4,996
------------ ------------
Net cash provided by operating activities 714,556 491,745
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available-for-sale (6,083,643) --
Maturities of securities available-for-sale 4,545,000 4,000,000
Net increase in loans made to customers (22,200,688) (11,779,772)
Purchases of premises and equipment (170,449) (192,268)
Purchase of Federal Home Loan Bank Stock (163,800) (157,000)
------------ ------------
Net cash used by investing activities (24,073,580) (8,129,040)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest
bearing transaction accounts and savings accounts 13,025,692 6,089,453
Net increase in certificates of deposit and other time deposits 12,346,771 4,808,226
Net increase in securities sold under agreements to repurchase 205,000 12,045,900
------------ ------------
Net cash provided by financing activities 25,577,463 22,943,579
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,218,439 15,306,284
CASH AND CASH EQUIVALENTS, BEGINNING 27,996,891 8,765,824
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 30,215,330 $ 24,072,108
============ ============
Cash paid during the period for:
Income taxes $ 176,800 $ --
Interest $ 2,115,476 $ 1,467,892
Noncash investing and financing activities:
Amount transferred from retained earnings
to common stock for stock split $ 3,441 $ --
See notes to condensed consolidated financial statements.
7
RHBT FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with the requirements for interim financial statements and,
accordingly, they are condensed and omit disclosures which would substantially
duplicate those contained in the most recent annual report to shareholders. The
financial statements as of June 30, 1999 and for the interim periods ended June
30, 1999 and 1998 are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation. The financial information as of December 31, 1998 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 Rock
Hill Bank & Trust's 1998 Annual Report.
NOTE 2 - REORGANIZATION OF ROCK HILL BANK & TRUST
On April 15, 1999, the stockholders of Rock Hill Bank & Trust (the Bank)
approved a plan of corporate reorganization under which Rock Hill Bank & Trust
became a wholly owned subsidiary of RHBT Financial Corporation (the Company),
which was organized at the direction of the Bank's management. The original
authorized common stock of RHBT Financial Corporation is 10,000,000 shares with
a par value of $.01 per share. Pursuant to the reorganization, the Company
issued 1,376,250 shares of its common stock in exchange for all of the 1,376,250
outstanding common shares of the Bank. The effective date of the reorganization
was June 4, 1999 and was accounted for as if it were a pooling of interests. As
a result, the financial statements for the period ended June 30, 1999 are
presented as if the reorganization had occurred on January 1, 1999. The
accompanying financial statements for the periods ended in 1998 are unchanged
from the amounts previously reported by Rock Hill Bank & Trust.
NOTE 3 - SHAREHOLDERS' EQUITY
On July 16, 1999, the Company's Board of Directors declared a five-for-four
stock split effected in the form of a 25% stock dividend payable on September
10, 1999 to shareholders of record on August 1, 1999. This resulted in the
issuance of 344,063 additional shares of common stock.
All per share and weighted average share amounts in the accompanying financial
statements have been restated to reflect this stock split.
NOTE 4 - STOCK OPTIONS
At the annual shareholders' meeting on April 15, 1999, the shareholders approved
the Company's 1999 Stock Incentive Plan which provides for the granting of
awards of stock options and restricted stock of up to 247,725 shares, adjusted
for stock dividends of the Company's common stock, to officers, employees,
directors, and advisers and consultants of the Company. The Company may grant
awards for a term of up to ten years from the effective date of grant. The
per-share exercise price will be determined by the Board of Directors, but for
incentive stock options the price will not be less than 100% of the fair market
value of a share of common stock on the date the option is granted. The
per-share exercise price of non-incentive stock options will not be less than
85% of the fair market value of a share on the effective date of grant.
On February 19, 1999, the Company granted 184,375 options, adjusted for stock
dividends, pursuant to the terms of the Company's 1999 Stock Incentive Plan.
These options each have a seven year vesting term, vesting 20% upon the date of
grant and 80% ratably over the remainder of the term. The options are
exercisable at a price of $12.40 per share and expire February 19, 2006.
8
RHBT FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators used to calculate basic and
diluted earnings per share for the six and three-month periods ended June 30,
1999 are as follows:
For the Six Months Ended June 30, 1999
-------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ------------- -------------
BASIC EARNINGS PER SHARE
Income available to common shareholders $ 619,734 1,720,313 $ 0.36
========= ========= ========
EFFECT OF DILUTIVE SECURITIES
Stock options -- 11,302
--------- ---------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 619,734 1,731,615 $ 0.36
========= ========= ========
For the Three Months Ended June 30, 1999
-------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ------------- -------------
BASIC EARNINGS PER SHARE
Income available to common shareholders $ 367,361 1,720,313 $ 0.21
=======
EFFECT OF DILUTIVE SECURITIES
Stock options - 25,371
--------- ----------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 367,361 1,745,684 $ 0.21
========= ========== =======
There were no dilutive securities in existence in 1998. Therefore, basic and
dilutive earnings per share were the same.
NOTE 6 - COMPREHENSIVE INCOME
The following tables set 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, 1999 and 1998:
Pre-tax (Expense) Net of tax
Amount Benefit Amount
-------- -------- --------
FOR THE SIX MONTHS ENDED JUNE 30, 1999:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $(84,673) $ 31,329 $(53,344)
Plus: reclassification adjustment for gains (losses)
realized in net income -- -- --
-------- -------- --------
Net unrealized gains (losses) on securities (84,673) 31,329 (53,344)
-------- -------- --------
Other comprehensive income $(84,673) $ 31,329 $(53,344)
======== ======== ========
9
RHBT FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - COMPREHENSIVE INCOME -- continued
Pre-tax (Expense) Net of tax
Amount Benefit Amount
-------- -------- --------
FOR THE SIX MONTHS ENDED JUNE 30, 1998:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $(11,141) $ 4,122 $ (7,019)
Plus: reclassification adjustment for gains (losses)
realized in net income -- -- --
-------- -------- --------
Net unrealized gains (losses) on securities (11,141) 4,122 (7,019)
-------- -------- --------
Other comprehensive income $(11,141) $ 4,122 $ (7,019)
======== ======== ========
Pre-tax (Expense) Net of tax
Amount Benefit Amount
-------- -------- --------
FOR THE THREE MONTHS ENDED JUNE 30, 1999:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $(47,679) $ 17,641 $(30,038)
Plus: reclassification adjustment for gains (losses)
realized in net income -- -- --
-------- -------- --------
Net unrealized gains (losses) on securities (47,679) 17,641 (30,038)
-------- -------- --------
Other comprehensive income $(47,679) $ 17,641 $(30,038)
======== ======== ========
Pre-tax (Expense) Net of tax
Amount Benefit Amount
-------- -------- --------
FOR THE THREE MONTHS ENDED JUNE 30, 1998:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $(6,719) $ 2,486 $(4,233)
Plus: reclassification adjustment for gains (losses)
realized in net income -- -- --
------- ------- -------
Net unrealized gains (losses) on securities (6,719) 2,486 (4,233)
------- ------- -------
Other comprehensive income $(6,719) $ 2,486 $(4,233)
======= ======= =======
Accumulated other comprehensive income consists solely of the unrealized gain on
securities available for sale, net of the deferred tax effects.
10
RHBT FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following is a discussion of the Company's financial condition as of June
30, 1999 compared to December 31, 1998, and the results of operations for the
three and six months ended June 30, 1999 compared to the three and six months
ended June 30, 1998. These comments should be read in conjunction with the
Company's condensed consolidated financial statements and accompanying footnotes
appearing in this report. This report contains "forward-looking statements"
relating to, without limitation, future economic performance, plans and
objectives of management for future operations, and projections of revenues and
other financial items that are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. The words "expect," "estimate," "anticipate," and
"believe," as well as similar expressions, are intended to identify
forward-looking statements.
RESULTS OF OPERATIONS
NET INTEREST INCOME
For the six months ended June 30, 1999, net interest income increased
$1,164,353, or 105.9%, to $2,263,964 as compared to $1,099,611 for the same
period in 1998. The net interest margin realized on earning assets increased
from 3.49% for the six months ended June 30, 1998 to 3.97% for the same period
in 1999. The interest rate spread also increased by 13 basis points from 2.90%
at June 30, 1998 to 3.03% at June 30, 1999.
Net interest income increased from $578,557 for the quarter ending June 30, 1998
to $1,254,565 for the quarter ending June 30, 1999. This represents an increase
of $676,008, or 116.8%. The net interest margin realized on earning assets
increased from 3.35% for the quarter ended June 30, 1998 to 4.16% for the
quarter ended June 30, 1999. The interest rate spread also increased by 30 basis
points from 2.75% at June 30, 1998 to 3.05% at June 30, 1999.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the charge to operating earnings that
management believes is necessary to maintain the allowance for possible loan
losses at an adequate level. For the six months ended June 30, 1999, the
provision charged to expense was $187,000. This increase of $66,984 from the
comparable period in 1998 is a result of management's efforts to increase the
allowance for loan losses to match the growth in the loan portfolio. For the
quarter ended June 30, 1999 and 1998, the provision charged to expense was
$106,000 and $60,000, 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. The Company maintains an allowance for loan losses based on,
among other things, historical experience, an evaluation of economic conditions,
and regular reviews of delinquencies and loan portfolio quality. Management's
judgement about the adequacy of the allowance is based upon a number of
assumptions about future events which it believes to be reasonable but which may
not prove to be accurate. Thus, there is a risk that charge-offs in future
periods could exceed the allowance for loan losses or that substantial
additional increases in the allowance for loan losses could be required.
Additions to the allowance for loan losses would result in a decrease of the
Company's net income and, possibly, its capital.
NONINTEREST INCOME
Noninterest income during the six months ended June 30, 1999 was $231,765, an
increase of $108,517 from $123,248 during the comparable period in 1998. The
increase is primarily a result of an increase in service charges from $66,500 at
June 30, 1998 to $93,030 at June 30, 1999. In addition, the Bank's trust
department continued to grow, resulting in income of $82,604 during the six
months ended June 30, 1999, compared to $24,879 during the comparable period in
1998.
11
RHBT FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
NONINTEREST INCOME -- continued
For the quarter ended June 30, 1999, noninterest income increased $67,479, or
102.2%, from $66,009 for the same period in 1998. This increase is primarily due
to income from fiduciary activities which increased $37,585, or 252.6%, from the
quarter ended June 30, 1998. Service charges also increased from $33,563 for the
quarter ended June 30, 1998 to $51,635 for the quarter ended June 30, 1999.
NONINTEREST EXPENSE
Total noninterest expense for the six months ended June 30, 1999 was $1,324,937,
or 89.5% higher than the $699,351 amount for the six months ended June 30, 1998.
The largest increase was in other operating expenses, which increased from
$248,605 at June 30, 1998 to $566,345 for the six months ended June 30, 1999.
This increase can be attributed to expenses associated with the formation of the
holding company as well as the continuing growth of the bank. Salaries and
employee benefits also increased $255,774 to $563,810 at June 30, 1999. This
increase is attributable to normal pay increases, personnel hired in late 1998
to staff the Ebenezer office, and the additional personnel hired to staff the
Fort Mill/Tega Cay office which is scheduled to open in the third quarter of
this year.
For the quarter ended June 30, 1999, noninterest expense increased $328,422, or
88.7%, over the same period in 1998. The largest increase between the quarters
ended June 30, 1999 and June 30, 1998 was in other operating expense which
increased $167,151, or 129.7%. Expenses of $29,572 associated with the formation
of the holding company were included in other operating expenses for the quarter
ended June 30, 1999. Salaries and employee benefits also increased from $170,087
for the quarter ended June 30, 1998 to $302,583 at June 30, 1999. Salaries
increased for the quarter ended June 30, 1999 as compared to June 30, 1998 for
the same reasons discussed above.
INCOME TAXES
The income tax provision for the six months ended June 30, 1999 was $364,058 as
compared to $149,000 for the same period in 1998. The effective tax rates were
37% and 36.9% at June 30, 1999 and June 30, 1998, respectively. The effective
tax rates were 37% and 36.9% for the quarter ended June 30, 1999 and June 30,
1998, respectively.
NET INCOME
The combination of the above factors resulted in net income for the six months
ended June 30, 1999 of $619,734 as compared to $254,492 for the same period in
1998. This represents an increase of $365,242 over the same period in 1998. For
the quarter ended June 30, 1999, net income was $367,361, or $232,007 higher
than $135,354 for the quarter ended June 30, 1998. This increase reflects the
Company's continued growth, as average earning assets increased from $66,078,000
for the six months ended June 30, 1998 to $119,629,000, for the six months ended
June 30, 1999.
ASSETS AND LIABILITIES
During the first six months of 1999, total assets increased $26,078,318, or
24.4%, when compared to December 31, 1998. The primary source of growth in
assets was in loans which increased $22,169,488 during the first six months of
1999. Federal funds sold and repurchase agreements increased $905,000 from
December 31, 1998 to $25,410,000 at June 30, 1999. Total deposits increased
$25,372,463, or 32.6%, from the December 31, 1998 amount of $77,739,725. Within
the deposit area, certificates of deposit increased $12,346,771, or 27.3%,
during the first six months of 1999. Securities sold under agreements to
repurchase increased $205,000 to $13,455,000 at June 30, 1999.
12
RHBT FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
INVESTMENT SECURITIES
Investment securities increased from $7,414,072 at December 31, 1998 to
$8,848,892 at June 30, 1999. All of the Company's investment securities were
designated as available-for-sale at June 30, 1999.
LOANS
The Company continued its trend of significant growth during the first six
months of 1999, especially in the loan area. Net loans increased $21,987,980, or
31.8%, during the period. As noted below, the main component of growth in the
loan portfolio was in real estate loans, which increased $14,127,234, or 36%.
Balances within the major loans receivable categories as of June 30, 1999 and
December 31, 1998 are as follows:
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
Commercial $ 31,791,485 $ 27,054,936
Real estate 53,330,710 39,203,476
Home equity 2,168,240 1,699,601
Consumer and other 4,856,549 2,019,483
------------- -----------------
$ 92,146,984 $ 69,977,496
============= =================
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following is a summary of risk elements in the loan portfolio:
JUNE 30,
-----------------------------
1999 1998
------------ ------------
Loans: Nonaccrual loans $ 4,805 $ --
Accruing loans more than 90
days past due $ -- $ 1,000
Loans identified by the internal review mechanism:
Criticized $ 3,349 $ --
Classified $ -- $ --
Activity in the Allowance for Loan Losses
is as follows: JUNE 30,
-----------------------------
1999 1998
------------ ------------
Balance, January 1, $ 812,174 $ 333,984
Provision for loan losses for the period 187,000 120,016
Net loans (charged off) recovered for
the period (5,492) (8,322)
------------ ------------
Balance, end of period $ 993,682 $ 445,678
============ ============
Gross loans outstanding, end of period $ 92,146,984 $ 47,532,848
Allowance for Loan Losses to
loans outstanding 1.07% .93%
13
RHBT FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
DEPOSITS
At June 30, 1999, total deposits increased by $25,372,463, or 32.6%, from
December 31, 1998. The largest increase was in noninterest bearing deposits
which increased $13,001,918, from December 31, 1998 to June 30, 1999. Expressed
in percentages, noninterest bearing deposits increased 211.1% and interest
bearing deposits increased 17.3%.
Balances within the major deposit categories as of June 30, 1999 and December
31, 1998 are as follows:
June 30, December 31,
1999 1998
------------- --------------
Noninterest bearing demand deposits $ 19,159,694 $ 6,157,776
Interest bearing demand deposits 22,324,031 23,220,435
Savings deposits 4,096,080 3,175,902
Time deposits $100,000 and over 14,818,747 18,123,683
Other time deposits 42,713,636 27,061,929
------------- --------------
$ 103,112,188 $ 77,739,725
============= ==============
LIQUIDITY
Liquidity needs are met by the Company through scheduled maturities of loans and
investments on the asset side and through pricing policies on the liability side
for interest-bearing deposit accounts. The level of liquidity is measured by the
loan-to-total borrowed funds ratio which was at 79.1% at June 30, 1999 and 76.9%
at December 31, 1998.
Securities available-for-sale, which totaled $8,848,892 at June 30, 1999, serve
as a ready source of liquidity. The Company also has lines of credit available
with correspondent banks to purchase federal funds for periods from one to seven
days. At June 30, 1999, unused lines of credit totaled $2,750,000.
CAPITAL RESOURCES
Total shareholders' equity increased from $15,577,946 at December 31, 1998 to
$16,144,335 at June 30, 1999. The increase of $566,389 is primarily attributable
to net income for the period of $619,734, partially offset by a negative change
of $53,344 in the fair value of securities available-for-sale.
Bank holding companies, such as the Company, and their banking subsidiaries are
required by banking regulators to meet certain minimum levels of capital
adequacy which are expressed in the form of certain ratios. Capital is separated
into Tier I capital (essentially common shareholders' equity less intangible
assets) and Tier II capital (essentially the allowance for loan losses limited
to 1.25% of risk-weighted assets). The first two ratios, which are based on the
degree of credit risk in the Company's assets, provide the weighting of assets
based on assigned risk factors and include off-balance sheet items such as loan
commitments and stand-by letters of credit. The ratio of Tier I capital to
risk-weighted assets must be at least 4.0% and the ratio of total capital (Tier
I capital plus Tier 2 capital) to risk-weighted assets must be at least 8.0%.
The capital leverage ratio supplements the risk-based capital guidelines. Banks
and bank holding companies are required to maintain a minimum ratio of Tier I
capital to adjusted quarterly average total assets of 3.0%.
14
RHBT FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
CAPITAL RESOURCES -- continued
The following table summarizes the Company's risk-based capital at June 30,
1999:
Shareholders' equity $ 16,189,758
Less: intangibles 36,481
-------------
Tier 1 capital 16,153,277
Plus: allowance for loan losses (1) 993,682
-------------
Total capital $ 17,146,959
=============
Risk-weighted assets $ 97,298,560
=============
Risk based capital ratios
Tier 1 16.62%
Total capital 17.64%
Leverage ratio 12.79%
(1) limited to 1.25% of risk-weighted assets
REGULATORY MATTERS
From time to time, various bills are introduced in the United States Congress
with respect to the regulation of financial institutions. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. For example, the United States House of
Representatives recently passed House Bill 10, the Financial Services Act of
1999, which, if enacted into law, would make substantial changes to the
regulation of banks and other companies within the United States financial
services industry. The Company cannot predict whether any of these proposals
will be adopted or, if adopted, how these proposals would affect the Company.
YEAR 2000
Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for information systems processing. There is
concern among industry experts that on January 1, 2000 computers will be unable
to "read" the new year, which may result in widespread computer malfunctions.
While the Company believes that it has available resources and has adopted a
plan to address Year 2000 compliance, it is largely dependent on its outside
core data processing provider, and other third party vendors. The Company's
current outside data processing provider is M.S. Bailey & Son, Bankers, which
was acquired by Anchor Financial Corporation in April 1999. On May 13, 1999, the
Company signed a five year contract with Electronic Data Systems Corporation
(EDS) to provide core data processing to the Company. The conversion of data to
EDS is expected to occur on September 13, 1999. The Company also signed a
contract with Fiserv Solutions, Inc. (Fiserv) to provide proof operations in
conjunction with EDS. Both EDS and Fiserv have completed the testing of their
systems and have represented that they are Year 2000 compliant. The Company has
incurred approximately $190,000 in expenses to upgrade its computer systems to
become Year 2000 compliant. This includes approximately $132,000 for the
installation of a new on-line system for the Company's existing office and
$53,000 as part of the cost of the installation of the systems in the Company's
new Ebenezer Office. As of June 30, 1999, the installation of the new on-line
system was complete at the Main Office and the Ebenezer Office.
15
RHBT FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
YEAR 2000 -- continued
The Company anticipates that any other costs to upgrade other ancillary systems
will not materially differ from normal costs incurred during prior years to
upgrade and maintain its computer systems. The Company has completed an
evaluation of all its internal systems and software and the network connections
it maintains, and it may incur minimal additional costs. The Company has
obtained assurances about the Year 2000 compliance with respect to the other
third party hardware and software systems it uses, and the Company believes that
its internal systems and software and the network connections it maintains will
be adequately programmed to address the Year 2000 issue. The Company has
completed testing all ancillary systems, such as telephone systems and security
devices, as of June 30, 1999. Testing of the ATMs was also completed as of June
30, 1999. There can be no assurances that all hardware and software that the
Company uses will be Year 2000 compliant, and the Company cannot predict with
any certainty the costs it will incur to respond to any Year 2000 issues.
Factors which may affect the amount of these costs include the Company's
inability to control third party modification plans, the Company's ability to
identify and correct all relevant computer codes, the availability and cost of
engaging personnel trained in solving Year 2000 issues, and other similar
uncertainties.
The Company believes that the largest Year 2000 Problem exposure to most
financial institutions is the preparedness of their customers. The Company is
addressing with its customers the possible consequences of not being prepared
for Year 2000. Should large borrowers not sufficiently address this issue, the
Company may experience an increase in loan defaults. The amount of potential
loss from this issue is not quantifiable. The Company is attempting to reduce
this exposure by educating its customers. The Company has implemented a
comprehensive Year 2000 credit review policy for all existing loans that exceed
$100,000 as well as an underwriting policy for all new loan requests. At
present, the Company's review indicates that the Company's exposure to credit
risks associated with Year 2000 is considered to be low. The Company's credit
review procedures will continue to include these policies throughout 1999.
The Company adopted a Contingency Plan on July 23, 1998 for Year 2000. The
Contingency Plan covers several critical areas that would require an alternative
method of operation such as: the primary software and hardware used in
processing loans, deposits and the general ledger, use of the Federal Reserve's
wire system, ATM machines, and the loan processing system.
The Company expects to identify and resolve all Year 2000 Problems that could
materially adversely affect its business. However, the Company believes that it
is not possible to determine with complete certainty that all Year 2000 Problems
affecting it have been identified or corrected. The number of devices that could
be affected and the interactions among these devices are simply too numerous. In
addition, the Company cannot accurately predict how many failures related to the
Year 2000 Problem will occur with its suppliers, customers, or other third
parties or the severity, duration, or financial consequences of such failures.
As a result, the Company expects that it could possibly suffer the following
consequences:
o A number of operational inconveniences and inefficiencies for the Company,
its service providers, or its customers that may divert the Company's time
and attention and financial and human resources from its ordinary business
activities; and
o System malfunctions that may require significant efforts by the Company or
its service providers or customers to prevent or alleviate material
business disruptions.
Additionally, there may be a higher than usual demand for liquidity immediately
prior to the century change due to deposit withdrawals by customers concerned
about Year 2000 issues. To address this possible demand, the Company has secured
additional lines of credit with several correspondent banks.
16
RHBT FINANCIAL CORPORATION
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 15, 1999, the Bank held its Annual Meeting of Shareholders for the
purpose of (a) approving the formation of a holding company through a
reorganization agreement and plan of exchange with RHBT Financial Corporation,
(b) approving the 1999 stock incentive plan, and (c) electing three class 1
directors to serve for three year terms.
The proposal for the reorganization agreement received the number of affirmative
votes of shareholders required for approval pursuant to the Bylaws of the Bank.
Of the 1,376,250 outstanding shares of the Bank, 965,237 shares were voted for,
1,600 shares were voted against, and 4,715 abstained from voting for the
reorganization agreement. There were no withheld and no broker non-votes. The
proposal for the 1999 stock incentive plan also received the number of
affirmative votes of shareholders required for approval pursuant to the Bylaws
of the Bank. Of the 1,376,250 outstanding shares of the Bank, 952,197 shares
were voted for, 14,625 shares were voted against, and 4,730 abstained from
voting for the stock incentive plan. There were no withheld and no broker
non-votes. The three nominees for director received the number of affirmative
votes of shareholders required for such nominee's election in accordance with
the Bylaws of the Bank. Of the 1,376,250 outstanding shareholders of the Bank
shareholders voted for the election of each director as follows: Edwin L. Barnes
received 1,278,823 votes for his election, 1,175 abstentions, and no votes
against, withheld, or broker non-votes; William C. Beaty, Jr. received 1,278,023
votes for his election, 1,175 abstentions, 800 no votes, and no votes withheld
or broker non-votes; Hugh L. Harrelson, Sr. received 1,278,823 votes for his
election, 1,175 abstentions, and no votes against, withheld or broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) The Company filed a report on Form 8-K on June 3, 1999. This
Form 8-K was filed for the purpose of including in the files of
the Securities and Exchange Commission the annual report on Form
10-KSB for the year ended December 31, 1998 and the Form 10-QSB
for the quarter ended March 31, 1999 previously filed by Rock
Hill Bank & Trust with the Federal Deposit Insurance Corporation
so that such documents may be incorporated by reference into
filings with the Commission as filings of a predecessor
registrant to RHBT Financial Corporation.
The Form 8-K also reported that RHBT Financial Corporation
announced that its Board of Directors approved a 5-for-4 stock
split of its common stock in the form of a 25 percent stock
dividend which is payable on September 10, 1999 to shareholders of
record on August 1, 1999. These shareholders will receive one
additional share of common stock for each four shares of common
stock they hold on the record date. In lieu of fractional shares,
each shareholder will be paid a cash equivalent based on the
average closing price of the common stock on the OTC Bulletin Board
on August 1, 1999.
Items 1, 3 and 5 are not applicable.
17
RHBT FINANCIAL CORPORATION
PART II - OTHER INFORMATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By:
------------------------------------
J.A. Ferguson, Jr.
President & Chief Executive Officer
Date: By:
-------- ------------------------------------
Patricia M. Stone
Chief Financial Officer
18