SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE) FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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.
<PAGE>
RHBT FINANCIAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1999 and
December 31, 1998....................................................3
Condensed Consolidated Statements of Income - Nine months ended
September 30, 1999 and 1998 and Three months ended September 30,
1999 and 1998........................................................4
Condensed Consolidated Statements of Comprehensive Income -
Nine months ended September 30, 1999 and 1998 and Three months
ended September 30, 1999 and 1998....................................5
Condensed Consolidated Statement of Shareholders' Equity -
Nine months ended September 30, 1999.................................6
Condensed Consolidated Statements of Cash Flows - Nine
months ended September 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 6. Exhibits and Reports on Form 8-K....................................17
(a) Exhibits........................................................17
(b) Reports on Form 8-K.............................................17
2
<PAGE>
<TABLE>
<CAPTION>
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1999 1998
------------------- -------------------
<S> <C> <C>
ASSETS Cash and cash equivalents:
Cash and due from banks $ 3,741,909 $ 3,491,891
Federal funds sold and securities
purchased under agreements to resell 32,055,000 24,505,000
------------------- -------------------
35,796,909 27,996,891
Securities available-for-sale 7,828,306 7,414,072
Loans receivable 100,148,514 69,977,496
Less allowance for loan losses (1,084,682) (812,174)
------------------- -------------------
Loans, net 99,063,832 69,165,322
Accrued interest receivable 736,896 607,753
Premises and equipment, net 1,610,290 1,252,001
Other assets 1,232,916 625,682
------------------- -------------------
Total assets $ 146,269,149 $ 107,061,721
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 8,256,479 $ 6,157,776
Interest bearing 32,288,969 23,220,435
Savings 4,223,661 3,175,902
Time deposits $100,000 and over 29,533,358 18,123,683
Other time deposits 34,902,240 27,061,929
------------------- -------------------
109,204,707 77,739,725
Securities sold under agreement to repurchase 12,755,000 13,250,000
Accrued interest payable 450,845 316,981
Advances from FHLB 7,000,000 -
Other liabilities 199,376 177,069
------------------- -------------------
Total liabilities 129,609,928 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 17,203 -
Capital surplus 15,376,185 14,013,698
Retained earnings 1,210,347 180,077
Accumulated other comprehensive income 55,486 7,921
------------------- -------------------
Total shareholders' equity 16,659,221 15,577,946
------------------- -------------------
Total liabilities and shareholders' equity $ 146,269,149 $ 107,061,721
=================== ===================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------------------- ----------------------------------------
1999 1998 1999 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 5,977,594 $ 3,276,851 $ 2,287,980 $ 1,271,725
Investment securities, taxable 332,238 261,541 116,885 86,545
Other interest income 808,508 700,504 256,339 302,687
------------------ ------------------ ------------------ ------------------
Total 7,118,340 4,238,896 2,661,204 1,660,957
------------------ ------------------ ------------------ ------------------
INTEREST EXPENSE
Deposit accounts 3,064,383 1,977,793 1,141,992 745,431
Other interest expense 415,415 417,035 144,634 171,069
------------------ ------------------ ------------------ ------------------
Total 3,479,798 2,394,828 1,286,626 916,500
------------------ ------------------ ------------------ ------------------
NET INTEREST INCOME 3,638,542 1,844,068 1,374,578 744,457
Provision for loan losses 278,000 249,816 91,000 129,800
------------------ ------------------ ------------------ ------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,360,542 1,594,252 1,283,578 614,657
------------------ ------------------ ------------------ ------------------
OTHER INCOME
Service charges on deposit accounts 155,570 102,880 62,540 36,380
Other charges, commissions and fees 99,460 49,326 43,329 17,457
Income from fiduciary activities 140,042 78,543 57,438 53,664
------------------ ------------------ ------------------ ------------------
Total 395,072 230,749 163,307 107,501
------------------ ------------------ ------------------ ------------------
OTHER EXPENSE
Salaries and benefits 889,753 504,922 325,943 196,886
Occupancy expense 314,216 218,931 119,434 76,221
Advertising & marketing expense 97,026 24,827 50,054 11,854
Other operating expenses 795,909 401,640 276,536 166,008
------------------ ------------------ ------------------ ------------------
Total 2,096,904 1,150,320 771,967 450,969
------------------ ------------------ ------------------ ------------------
INCOME BEFORE INCOME TAXES 1,658,710 674,681 674,918 271,189
Income tax expense 625,000 250,000 260,942 101,000
------------------ ------------------ ------------------ ------------------
NET INCOME $ 1,033,710 $ 424,681 $ 413,976 $ 170,189
================== ================== ================== ==================
Basic net income per share $ .70 $ .44 $ .25 $ .12
Diluted net income per share $ .70 $ .44 $ .25 $ .12
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------------------- ----------------------------------------
1999 1998 1999 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
NET INCOME $ 1,033,710 $ 424,681 $ 413,976 $ 170,189
------------------ ------------------ ------------------ ------------------
Other comprehensive income, net of tax:
Unrealized gains (losses)
on securities during the period 47,565 2,206 100,909 9,225
Less: reclassification adjustment
for gains included in net income - - - -
------------------ ------------------ ------------------ ------------------
Other comprehensive income 47,565 2,206 100,909 9,225
------------------ ------------------ ------------------ ------------------
COMPREHENSIVE INCOME $ 1,081,275 $ 426,887 $ 514,885 $ 179,414
================== ================== ================== ==================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
Accumulated
Common Stock Other
--------------------------- Capital Retained Comprehensive
Shares Amount Surplus Earnings Income Total
------------ ------------ ------------- ------------ ------------- -------------
BALANCE,
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998 1,376,250 $ 1,376,250 $ 14,013,698 $ 180,077 $ 7,921 $ 15,577,946
Net income
for the period 1,033,710 1,033,710
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 3,440 (3,440)
Other comprehensive
income 47,565 47,565
------------ ------------ ------------- ------------ ------------- -------------
BALANCE,
SEPTEMBER 30, 1999 1,720,313 $ 17,203 $ 15,376,185 $ 1,210,347 $ 55,486 $ 16,659,221
============ ============ ============= ============ ============= =============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
RHBT FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,033,710 $ 424,681
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 121,704 61,088
Provision for loan losses 278,000 249,816
Accretion and premium amortization 23,763 (8,723)
Amortization of net loan fees and costs 39,944 26,373
Amortization of organizational costs 14,275 14,275
Increase in interest receivable and other assets (157,557) (290,022)
Increase in interest payable and other liabilities 156,171 88,606
------------------ ------------------
Net cash provided by operating activities 1,510,010 566,094
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available-for-sale (6,083,643) (6,399,610)
Maturities of securities available-for-sale 5,545,000 4,500,000
Net increase in loans made to customers (30,216,454) (29,091,233)
Purchases of premises and equipment (479,993) (480,235)
Purchase of FHLB and Community Financial stock (444,884) -
------------------ ------------------
Net cash used by investing activities (31,679,974) (31,471,078)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest
bearing transaction accounts and savings accounts 12,214,996 5,820,243
Net increase in certificates of deposit and other time deposits 19,249,986 18,287,022
Net increase (decrease) in securities sold under agreements to repurchase (495,000) 7,010,900
Advances from Federal Home Loan Bank 7,000,000
Net proceeds from issuance of stock - 9,483,677
------------------ ------------------
Net cash provided by financing activities 37,969,982 40,601,842
------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,800,018 9,696,858
CASH AND CASH EQUIVALENTS, BEGINNING 27,996,891 8,765,824
------------------ ------------------
CASH AND CASH EQUIVALENTS, ENDING $ 35,796,909 $ 18,462,682
================== ==================
Cash paid during the period for:
Income taxes $ 278,000 $ 141,200
Interest $ 3,345,934 $ 2,323,486
Noncash investing and financing activities:
Amount transferred from retained earnings
to common stock for stock split $ 3,440 $ -
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
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 September 30, 1999 and for the interim periods ended
September 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 September 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
<PAGE>
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 nine and three-month periods ended September
30, 1999 are as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1999
-----------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------ ------------------ ---------------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available to common shareholders $ 1,033,710 1,720,313 $ .70
=====================
EFFECT OF DILUTIVE SECURITIES
Stock options - 14,436
------------------ ------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 1,033,710 1,734,749 $ .70
================== ================== =====================
<CAPTION>
For the Three Months Ended September 30, 1999
-----------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------ ------------------ ---------------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available to common shareholders $ 413,976 1,720,313 $ .25
=====================
EFFECT OF DILUTIVE SECURITIES
Stock options - 21,258
------------------ ------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $ 413,976 1,741,571 $ .25
================== ================== =====================
</TABLE>
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
nine-month periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Pre-tax (Expense) Net of tax
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999: Amount Benefit Amount
------------------ ------------------ ------------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ 75,500 $ (27,935) $ 47,565
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
------------------ ------------------ ------------------
Net unrealized gains (losses) on securities 75,500 (27,935) 47,565
------------------ ------------------ ------------------
Other comprehensive income $ 75,500 $ (27,935) $ 47,565
================== ================== ==================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
RHBT FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - COMPREHENSIVE INCOME -- continued
Pre-tax (Expense) Net of tax
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998: Amount Benefit Amount
------------------ ------------------ ------------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ 3,501 $ (1,295) $ 2,206
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
------------------ ------------------ ------------------
Net unrealized gains (losses) on securities 3,501 (1,295) 2,206
------------------ ------------------ ------------------
Other comprehensive income $ 3,501 $ (1,295) $ 2,206
================== ================== ==================
<CAPTION>
Pre-tax (Expense) Net of tax
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999: Amount Benefit Amount
------------------ ------------------ ------------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ 160,173 $ (59,264) $ 100,909
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
------------------ ------------------ ------------------
Net unrealized gains (losses) on securities 160,173 (59,264) 100,909
------------------ ------------------ ------------------
Other comprehensive income $ 160,173 $ (59,264) $ 100,909
================== ================== ==================
<CAPTION>
Pre-tax (Expense) Net of tax
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998: Amount Benefit Amount
------------------ ------------------ ------------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ 14,642 $ (5,417) $ 9,225
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
------------------ ------------------ ------------------
Net unrealized gains (losses) on securities 14,642 (5,417) 9,225
------------------ ------------------ ------------------
Other comprehensive income $ 14,642 $ (5,417) $ 9,225
================== ================== ==================
</TABLE>
Accumulated other comprehensive income consists solely of the unrealized gain on
securities available for sale, net of the deferred tax effects.
10
<PAGE>
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
September 30, 1999 compared to December 31, 1998, and the results of operations
for the three and nine months ended September 30, 1999 compared to the three and
nine months ended September 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 nine months ended September 30, 1999, net interest income increased
$1,794,474, or 97.3%, to $3,638,542 as compared to $1,844,068 for the same
period in 1998. The net interest margin realized on earning assets increased
from 3.53% for the nine months ended September 30, 1998 to 4.07% for the same
period in 1999. The interest rate spread also increased by 36 basis points from
2.79% at September 30, 1998 to 3.15% at September 30, 1999.
Net interest income increased from $744,457 for the quarter ending September 30,
1998 to $1,374,578 for the quarter ending September 30, 1999. This represents an
increase of $630,121, or 84.6%. The net interest margin realized on earning
assets increased from 3.59% for the quarter ended September 30, 1998 to 4.26%
for the quarter ended September 30, 1999. The interest rate spread also
increased by 71 basis points from 2.64% at September 30, 1998 to 3.35% at
September 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 nine months ended September 30, 1999, the
provision charged to expense was $278,000. This increase of $28,184 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 September 30, 1999 and 1998, the provision charged to expense was
$91,000 and $129,800, 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 nine months ended September 30, 1999 was $395,072,
an increase of $164,323 from $230,749 during the comparable period in 1998. The
increase is primarily a result of an increase in service charges from $102,880
at September 30, 1998 to $155,570 at September 30, 1999. In addition, the Bank's
trust department continued to grow, resulting in income of $140,042 during the
nine months ended September 30, 1999, compared to $78,543 during the comparable
period in 1998.
11
<PAGE>
RHBT FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
NONINTEREST INCOME -- continued
For the quarter ended September 30, 1999, noninterest income increased $55,806,
or 51.9%, from $107,501 for the same period in 1998. This increase is primarily
due to income from service charges on deposit accounts which increased $26,160,
or 71.9%, from the quarter ended September 30, 1998. Other service charges,
commissions and fees also increased from $17,457 for the quarter ended September
30, 1998 to $43,329 for the quarter ended September 30, 1999.
NONINTEREST EXPENSE
Total noninterest expense for the nine months ended September 30, 1999 was
$2,096,904, or 82.3% higher than the $1,150,320 amount for the nine months ended
September 30, 1998. The largest increase was in other operating expenses, which
increased from $426,467 at September 30, 1998 to $892,935 for the nine months
ended September 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 $384,831 to $889,753 at
September 30, 1999. This increase is attributable to normal pay increases and
personnel hired to staff the Fort Mill/Tega Cay office which opened September
21, 1999.
For the quarter ended September 30, 1999, noninterest expense increased
$320,998, or 71.2%, over the same period in 1998. The largest increase between
the quarters ended September 30, 1999 and September 30, 1998 was in other
operating expense, which increased $148,728, or 83.6%. Salaries and employee
benefits also increased from $196,886 for the quarter ended September 30, 1998
to $325,943 at September 30, 1999. Salaries increased for the quarter ended
September 30, 1999 as compared to September 30, 1998 for the same reasons
discussed above.
INCOME TAXES
The income tax provision for the nine months ended September 30, 1999 was
$625,000 as compared to $250,000 for the same period in 1998. The increase in
the income tax provision is due to an increase in income before taxes between
the two periods. The effective tax rates were 37.7% and 37.1% at September 30,
1999 and September 30, 1998, respectively. The effective tax rates were 38.7%
and 37.2% for the quarter ended September 30, 1999 and September 30, 1998,
respectively.
NET INCOME
The combination of the above factors resulted in net income for the nine months
ended September 30, 1999 of $1,033,710 as compared to $424,681 for the same
period in 1998. This represents an increase of $609,029 over the same period in
1998. For the quarter ended September 30, 1999, net income was $413,976, or
$243,787 higher than $170,189 for the quarter ended September 30, 1998. This
increase reflects the Company's continued growth, as average earning assets
increased from $73,161,000 for the nine months ended September 30, 1998 to
$124,594,000, for the nine months ended September 30, 1999.
ASSETS AND LIABILITIES
During the first nine months of 1999, total assets increased $39,207,428, or
36.6%, when compared to December 31, 1998. The primary source of growth in
assets was in loans which increased $30,171,018 during the first nine months of
1999. Federal funds sold and repurchase agreements increased $7,550,000 from
December 31, 1998 to $32,055,000 at September 30, 1999. Total deposits increased
$31,464,982, or 40.5%, from the December 31, 1998 amount of $77,739,725. Within
the deposit area, certificates of deposit increased $19,249,986, or 42.6%,
during the first nine months of 1999. Securities sold under agreements to
repurchase decreased $495,000 to $12,755,000 at September 30, 1999.
12
<PAGE>
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
$7,828,306 at September 30, 1999. All of the Company's investment securities
were designated as available-for-sale at September 30, 1999.
LOANS
The Company continued its trend of significant growth during the first nine
months of 1999, especially in the loan area. Net loans increased $29,898,510, or
43.2%, during the period. As noted below, the main component of growth in the
loan portfolio was in real estate loans, which increased $14,686,641, or 37.5%.
Balances within the major loans receivable categories as of September 30, 1999
and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
-------------------- --------------------
<S> <C> <C>
Commercial $ 36,013,887 $ 27,054,936
Real estate 53,890,117 39,203,476
Home equity 2,338,867 1,699,601
Consumer and other 7,905,643 2,019,483
-------------------- --------------------
$ 100,148,514 $ 69,977,496
==================== ====================
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following is a summary of risk elements
in the loan portfolio:
September 30,
-----------------------------------------------
1999 1998
------------------- ------------------------
Loans: Nonaccrual loans $ 6,542 $ -
Accruing loans more than 90
days past due $ - $ -
Loans identified by the internal review mechanism:
Criticized $ 2,870 $ -
Classified $ - $ -
Activity in the Allowance for Loan Losses
is as follows:
September 30,
-----------------------------------------------
1999 1998
------------------- ------------------------
Balance, January 1, $ 812,174 $ 333,984
Provision for loan losses for the period 278,000 249,816
Net loans (charged off) recovered for
the period (5,492) (11,279)
-------------------- --------------------
Balance, end of period $ 1,084,682 $ 572,521
==================== ====================
Gross loans outstanding, end of period $ 100,148,514 $ 64,830,867
Allowance for Loan Losses to
loans outstanding 1.08% 0.88%
</TABLE>
13
<PAGE>
RHBT FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
DEPOSITS
At September 30, 1999, total deposits increased by $31,464,982, or 40.5%, from
December 31, 1998. The largest increase was in certificates of deposits which
increased $19,249,986, from December 31, 1998 to September 30, 1999. Expressed
in percentages, noninterest bearing deposits increased 34.1% and interest
bearing deposits increased 41.0%.
Balances within the major deposit categories as of September 30, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
Noninterest bearing demand deposits $ 8,256,479 $ 6,157,776
Interest bearing demand deposits 32,288,969 23,220,435
Savings deposits 4,223,661 3,175,902
Time deposits $100,000 and over 29,533,358 18,123,683
Other time deposits 34,902,240 27,061,929
-------------------- --------------------
$ 109,204,707 $ 77,739,725
==================== ====================
</TABLE>
ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank were $7,000,000 at September 30, 1999.
The advances are all scheduled to mature on September 30, 2009 and bear a fixed
rate of interest at 5.07%. The option to call these advances can be exercised in
2000.
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 77.7% at September 30, 1999 and
76.9% at December 31, 1998.
Securities available-for-sale, which totaled $7,828,306 at September 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 September 30, 1999, unused lines of credit totaled
$10,500,000.
CAPITAL RESOURCES
Total shareholders' equity increased from $15,577,946 at December 31, 1998 to
$16,659,221 at September 30, 1999. The increase of $1,081,275 is primarily
attributable to net income for the period of $1,033,710, and a positive change
of $47,565 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 1 capital (essentially common shareholders' equity less intangible
assets) and Tier 2 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 1 capital to
risk-weighted assets must be at least 4.0% and the ratio of total capital (Tier
1 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 1
capital to adjusted quarterly average total assets of 3.0%.
14
<PAGE>
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 September 30,
1999:
Shareholders' equity $ 16,603,735
Less: intangibles 31,722
--------------------
Tier 1 capital 16,572,013
Plus: allowance for loan losses (1) 1,084,682
--------------------
Total capital $ 17,656,695
====================
Risk-weighted assets $ 104,323,758
====================
Risk based capital ratios
Tier 1 15.89%
Total capital 16.92%
Leverage ratio 12.38%
(1) limited to 1.25% of risk-weighted assets
REGULATORY MATTERS
On November 4, 1999, the U.S. Senate and House of Representatives each passed
the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act is expected to be signed into law by
President Clinton in early November 1999. Among other things, the Act repeals
the restrictions on banks affiliating with securities firms contained in
sections 20 and 32 of the Glass-Steagall Act. The Act also creates a new
"financial holding company" under the Bank Holding Company Act, which will
permit holding companies to engage in a statutorily provided list of financial
activities, including insurance and securities underwriting and agency
activities, merchant banking, and insurance company portfolio investment
activities. The Act also authorizes activities that are "complementary" to
financial activities. The Act is intended to grant to community banks certain
powers as a matter of right that larger institutions have accumulated on an ad
hoc basis. Nevertheless, the Act may have the result of increasing the amount of
competition that the Company faces from larger institutions and other types of
companies. In fact, it is not possible to predict the full effect that the Act
will have on 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. 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 occurred on September 20, 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 $198,000 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, $53,000 as part of
the cost of the installation of the systems in the Company's Ebenezer Office,
and $8,000 to upgrade teller machines. Hardware and software for the Fort
Mill/Tega Cay office was purchased in September and was considered Year 2000
compliant. As of September 30, 1999, the installation of the new on-line system
was complete at all three of the Bank's offices.
15
<PAGE>
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 September 30, 1999. Testing of the ATMs was also completed as of
September 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
<PAGE>
RHBT FINANCIAL CORPORATION
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On November 8, 1999, the Company's common stock began trading on the Nasdaq
National Market effective under its previous symbol "RHBT." Since its initial
public offering in July 1998 through November 5, 1999, the stock traded on the
OTC Bulletin Board.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K - No reports were filed during the
quarter ended September 30, 1999.
Items 1, 3, and 4 are not applicable.
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
17
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,741,909
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 32,055,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,828,306
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 100,148,514
<ALLOWANCE> 1,084,682
<TOTAL-ASSETS> 146,269,149
<DEPOSITS> 109,204,707
<SHORT-TERM> 12,755,000
<LIABILITIES-OTHER> 650,221
<LONG-TERM> 0
0
0
<COMMON> 17,203
<OTHER-SE> 16,642,018
<TOTAL-LIABILITIES-AND-EQUITY> 146,269,149
<INTEREST-LOAN> 5,977,594
<INTEREST-INVEST> 332,238
<INTEREST-OTHER> 808,508
<INTEREST-TOTAL> 7,118,340
<INTEREST-DEPOSIT> 3,064,383
<INTEREST-EXPENSE> 3,479,798
<INTEREST-INCOME-NET> 3,638,542
<LOAN-LOSSES> 278,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,096,904
<INCOME-PRETAX> 1,658,710
<INCOME-PRE-EXTRAORDINARY> 1,658,710
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,033,710
<EPS-BASIC> 0.70
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 4.07
<LOANS-NON> 6,542
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,349
<ALLOWANCE-OPEN> 812,174
<CHARGE-OFFS> 5,492
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,084,682
<ALLOWANCE-DOMESTIC> 1,084,682
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
