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, 2000
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.
1,720,938 shares of common stock, $.01 par value
PAGE 1 OF 17
EXHIBIT INDEX ON PAGE 2
<PAGE>
RHBT FINANCIAL CORPORATION
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
-----------------------------
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets - September 30, 2000 and December 31, 1999.........................3
Condensed Consolidated Statements of Income - Nine months ended September 30, 2000 and 1999
and Three months ended September 30, 2000 and 1999.....................................................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
Nine months ended September 30, 2000...................................................................5
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 2000 and 1999..........................................................6
Notes to Condensed Consolidated Financial Statements...................................................7-9
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations...................................................................................10-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................................................................16
(a) Exhibits............................................................................................16
(b) Reports on Form 8-K.................................................................................16
</TABLE>
<PAGE>
RHBT FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
Assets (Unaudited)
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks $ 4,333,429 $ 3,680,173
Federal funds sold and securities
purchased under agreements to resell 24,670,000 16,425,000
------------------ ------------------
29,003,429 20,105,173
------------------ ------------------
Securities available-for-sale 5,923,883 7,832,559
Loans receivable 150,366,961 118,709,167
Less allowance for loan losses (1,536,139) (1,226,442)
------------------ ------------------
Loans, net 148,830,822 117,482,725
Accrued interest receivable 1,263,340 825,111
Premises and equipment, net 1,623,034 1,672,998
Other assets 1,746,807 1,529,614
------------------ ------------------
Total assets $ 188,391,315 $ 149,448,180
================== =================
Liabilities
Deposits:
Noninterest-bearing $ 9,580,820 $ 6,555,078
Interest-bearing 27,161,845 34,659,500
Savings 6,708,815 4,426,598
Time deposits $100,000 and over 52,613,620 29,434,939
Other time deposits 53,060,174 32,749,958
------------------ ------------------
149,125,274 107,826,073
Securities sold under agreement to repurchase 5,030,000 9,105,000
Federal funds purchased 5,000,000 5,000,000
Advances from the Federal Home Loan Bank 10,000,000 10,000,000
Accrued interest payable 548,651 483,114
Other liabilities 186,452 120,539
------------------ ------------------
Total liabilities 169,890,377 132,534,726
------------------ ------------------
Shareholders' Equity
Common stock, $ .01 par value; 10,000,000 shares authorized, 17,208 17,208
1,720,938 shares issued and outstanding
Capital surplus 15,383,930 15,383,930
Retained earnings 3,131,750 1,564,652
Accumulated other comprehensive income (loss) (31,950) (52,336)
------------------ ------------------
Total shareholders' equity 18,500,938 16,913,454
------------------ ------------------
Total liabilities and shareholders' equity $ 188,391,315 $ 149,448,180
================== ==================
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
RHBT FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
----- ----- ----- ----
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 10,192,611 $ 5,977,594 $ 3,719,816 $ 2,287,980
Investment securities, taxable 317,958 332,238 103,574 116,885
Federal funds sold and securities
purchased under agreements to resell 804,408 808,508 202,420 256,339
-------------- -------------- -------------- --------------
Total 11,314,977 7,118,340 4,025,810 2,661,204
-------------- -------------- -------------- --------------
Interest expense
Deposit accounts 5,393,718 3,064,383 1,969,683 1,141,992
Securities sold under agreements to 254,938 415,415 82,880 144,634
repurchase
Advances from the Federal Home 344,860 - 137,018 -
-------------- -------------- -------------- --------------
Loan Bank
Total 5,993,516 3,479,798 2,189,581 1,286,626
-------------- -------------- -------------- --------------
Net interest income 5,321,461 3,638,542 1,836,229 1,374,578
Provision for loan losses 404,000 278,000 115,000 91,000
-------------- -------------- -------------- --------------
Net interest income after provision
for loan losses 4,917,461 3,360,542 1,721,229 1,283,578
-------------- -------------- -------------- --------------
Other income
Service charges on deposit accounts 244,517 155,570 89,943 62,540
Other charges, commissions and fees 135,864 99,460 42,998 43,329
Income from fiduciary activities 243,825 140,042 69,209 57,438
-------------- -------------- -------------- --------------
Total 624,206 395,072 202,150 163,307
-------------- -------------- -------------- --------------
Other expense
Salaries and employee benefits 1,235,654 889,753 441,231 325,943
Occupancy expense 463,379 314,216 155,521 119,434
Advertising and marketing expense 60,851 97,026 30,709 50,054
Other operating expenses 1,294,178 795,909 477,620 276,536
-------------- -------------- -------------- --------------
Total 3,054,062 2,096,904 1,105,081 771,967
-------------- -------------- -------------- --------------
Income before income taxes 2,487,605 1,658,710 818,298 674,918
Income tax expense 920,506 625,000 302,910 260,942
-------------- -------------- -------------- --------------
Net income $ 1,567,099 $ 1,033,710 $ 515,388 $ 413,976
============== ============== ============== ==============
Basic net income per share $ 0.91 $ 0.70 $ 0.30 $ 0.25
Diluted net income per share 0.90 0.70 0.30 0.25
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
RHBT FINANCIAL CORPORATION
Condensed Consolidated Statement of Shareholders' Equity and
Comprehensive Income for the nine months ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Capital Retained Accumulated
------------- Other
Comprehensive
Shares Amount Surplus Earnings Income Total
------- ------- -------- --------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1999 1,720,938 $ 17,208 $ 15,383,930 $ 1,564,652 $ (52,336) $16,913,454
Net income
for the period 1,567,098 1,567,098
Other comprehensive
income, net of
tax $11,973 20,386 20,386
------------
Comprehensive income 1,587,484
---------- -------- ------------ ----------- ---------- -------------
Balance,
September 30, 2000 1,720,938 $ 17,208 $ 15,383,930 $ 3,131,750 $ (31,950) $18,500,938
========== ======== ============ =========== ========== ============
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
RHBT FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
2000 1999
----- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,567,099 $ 1,033,710
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 187,935 121,704
Provision for loan losses 404,000 278,000
Accretion and premium amortization (11,212) 23,763
Amortization of net loan fees and costs 42,135 39,944
Amortization of organizational costs 14,275 14,275
(Increase) decrease in interest receivable (438,229) (129,143)
Increase (decrease) in interest payable 65,537 133,864
(Increase) decrease in other assets (53,441) (28,414)
(Increase) decrease in other liabilities 65,913 22,307
------------------- -----------------
Net cash provided by operating activities 1,844,012 1,510,010
------------------- -----------------
Cash flows from investing activities:
Purchases of securities available-for-sale (1,962,754) (6,083,643)
Maturities of securities available-for-sale 3,915,000 5,545,000
Net increase in loans made to customers (31,794,232) (30,216,454)
Purchases of premises and equipment (137,971) (479,993)
Purchase of Federal Home Loan Bank Stock (190,000) (444,884)
------------------- -----------------
Net cash used by investing activities (30,169,957) (31,679,974)
------------------- -----------------
Cash flows from financing activities:
Net increase in demand deposits, interest-bearing transaction
accounts and savings accounts (2,189,696) 12,214,996
Net increase in certificates of deposit and other time deposits 43,488,897 19,249,986
Net increase (decrease) in securities sold under agreements
to repurchase (4,075,000) (495,000)
Repayments of advances from the Federal Home Loan Bank - 7,000,000
------------------- -----------------
Net cash provided by financing activities 37,224,201 37,969,982
------------------- -----------------
Net increase in cash and cash equivalents 8,898,256 7,800,018
Cash and cash equivalents, beginning 20,105,173 27,996,891
------------------- -----------------
Cash and cash equivalents, ending $ 29,003,429 $ 35,796,909
=================== =================
Cash paid during the period for:
Income taxes $ 357,000 $ 278,000
Interest $ 5,927,979 $ 3,345,934
</TABLE>
See notes to condensed financial statements.
6
<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, 2000 and for the interim periods ended
September 30, 2000 and 1999 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,
1999 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
RHBT Financial Corporation's 1999 Annual Report.
Note 2 - Merger with Ridgeway Bancshares, Inc.
On June 28, 2000, RHBT Financial Corporation (the Company) announced that it
signed a letter of intent to acquire Ridgeway Bancshares, Inc. and its
subsidiary, the Bank of Ridgeway. The Bank of Ridgeway is South Carolina's
oldest banking organization with approximately $67.5 million in total assets.
Upon the consummation of the merger, the Bank of Ridgeway would continue to
operate as a separate bank, wholly owned by the Company. Under the agreement,
the Company will exchange 26.355 shares of its common stock for each outstanding
share of Ridgeway Bancshares, Inc. common stock. Following the proposed merger,
the Company will have 2,775,138 total shares outstanding of its common stock.
The merger will be accounted for under the pooling of interests method of
accounting. The merger is expected to be completed by the end of first quarter
2001. The expenses already incurred that are associated with the merger are
included in the accompanying consolidated statement of income.
Note 3 - Comprehensive Income
Comprehensive income includes net income and other comprehensive income, which
is defined as non-owner related transactions in equity. The following table sets
forth the amounts of other comprehensive income included in equity along with
the related tax effect for the three and nine month periods ended September 30,
2000 and 1999.
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
----------- ----------- ----------
For the Nine Months Ended September 30, 2000:
Unrealized gains (losses) on securities:
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during the period $ 32,359 $ (11,973) $ 20,386
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
--------- ---------- ---------
Net unrealized gains (losses) on securities 32,359 (11,973) 20,386
--------- ---------- ---------
Other comprehensive income $ 32,359 $ (11,973) $ 20,386
========= ========== =========
</TABLE>
7
<PAGE>
RHBT FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Comprehensive Income - continued
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
---------- ---------- ----------
For the Nine Months Ended September 30, 1999:
Unrealized gains (losses) on securities:
<S> <C> <C> <C>
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
========= =========== =========
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
--------- ---------- ----------
For the Three Months Ended September 30, 2000:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 43,165 $ (15,971) $ 27,194
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
--------- ----------- ---------
Net unrealized gains (losses) on securities 43,165 (15,971) 27,194
--------- ----------- ---------
Other comprehensive income $ 43,165 $ (15,971) $ 27,194
========= =========== =========
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
--------- ---------- ----------
For the Three Months Ended September 30, 1999:
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
========= =========== =========
</TABLE>
Accumulated other comprehensive income consists solely of the unrealized gain on
securities available for sale, net of the deferred tax effects.
8
<PAGE>
RHBT FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Earnings Per Share
Net income per share - basic is computed by dividing net income by the weighted
average number of common shares outstanding. Net income per share - diluted is
computed by dividing net income by the weighted average number of common shares
outstanding and dilutive common share equivalents using the treasury stock
method. Dilutive common share equivalents include common shares issuable upon
exercise of outstanding stock options.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- ------------------------
2000 1999 2000 1999
----- ----- ----- ----
Net income per share - basic computation:
<S> <C> <C> <C> <C>
Net income available to common shareholders $1,567,099 $1,033,710 $ 515,388 $ 413,976
=========== =========== ========== =========
Average common shares outstanding - basic 1,720,938 1,472,033 1,720,938 1,660,476
=========== =========== ========== =========
Net income per share - basic $ 0.91 $ 0.70 $ 0.30 $ 0.25
=========== =========== ========== =========
Net income per share - diluted computation:
Net income available to common shareholders $1,567,099 $1,033,710 $ 515,388 $ 413,976
=========== =========== ========== =========
Average common shares outstanding - basic 1,720,938 1,472,033 1,720,938 1,660,476
=========== =========== ========== =========
Incremental shares from assumed conversions:
Stock options 18,654 14,437 24,208 21,258
----------- ----------- ---------- ---------
Average common shares outstanding - diluted 1,739,592 1,486,470 1,745,146 1,681,734
----------- ----------- ---------- ---------
Net income per share - diluted $ 0.90 $ 0.70 $ 0.30 $ 0.25
=========== =========== ========== =========
</TABLE>
9
<PAGE>
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
The following is a discussion of our financial condition as of September 30,
2000 compared to December 31, 1999, and the results of operations for the three
and nine months ended September 30, 2000 compared to the three and nine months
ended September 30, 1999. These comments should be read in conjunction with our
condensed 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 our management, as well as assumptions made by and
information currently available to our management. The words "expect,"
"estimate," "anticipate," and "believe," as well as similar expressions, are
intended to identify forward-looking statements. Our actual results may differ
materially from the results discussed in the forward-looking statements, and our
operating performance each quarter is subject to various risks and uncertainties
that are discussed in detail in our filings with the Securities and Exchange
Commission.
Results of Operations
Net Interest Income
For the nine months ended September 30, 2000, net interest income increased $1.7
million, or 46.3%, to $5.3 million as compared to $3.6 million for the same
period in 1999. The net interest margin realized on earning assets increased
from 4.1% for the nine months ended September 30, 1999 to 4.3% for the same
period in 2000. The interest rate spread also increased by 7 basis points from
3.2% at September 30, 1999 to 3.2% at September 30, 2000.
Net interest income increased from $1.4 million for the quarter ending September
30, 1999 to $1.8 million for the quarter ending September 30, 2000. This
represents an increase of $461,651, or 33.6%. The net interest margin realized
on earning assets increased from 4.3% for the quarter ended September 30, 1999
to 4.4% for the quarter ended September 30, 2000. The interest rate spread
decreased by 11 basis points from 3.3% at September 30, 1999 to 3.2% at
September 30, 2000.
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, 2000, the
provision charged to expense was $404,000. This increase of $126,000 from the
comparable period in 1999 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, 2000 and 1999, the provision charged to expense was
$115,000 and $91,000, 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. We maintain an allowance for loan losses based on, among
other things, historical experience, an evaluation of economic conditions, and
regular reviews of delinquencies and loan portfolio quality. Our judgment about
the adequacy of the allowance is based upon a number of assumptions about future
events, which it believes to be reasonable, but which may not prove to be
accurate. Thus, there is a risk that chargeoffs in future periods could exceed
the allowance for loan losses or that substantial additional increases in the
allowance for loan losses could be required. Additions to the allowance for loan
losses would result in a decrease of our net income and, possibly, our capital.
10
<PAGE>
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Noninterest Income
Noninterest income during the nine months ended September 30, 2000 was $624,206,
an increase of $229,134 from $395,072 during the comparable period in 1999. The
increase is primarily a result of an increase in income from fiduciary
activities from $140,042 for the nine months ended September 30, 1999 to
$243,825 for the nine months ended September 30, 2000. In addition, service
charges on deposit accounts resulted in income of $244,517 during the nine
months ended September 30, 2000, compared to $155,570 during the comparable
period in 1999. This was due to an overall increase in deposit accounts over the
two periods.
For the quarter ended September 30, 2000, noninterest income increased $38,843,
or 23.8%, from $163,307 for the same period in 1999. This increase is primarily
due to income from service charges on deposit accounts, which increased $27,403,
or 43.8%, from the quarter ended September 30, 1999. Income from fiduciary
activities also increased from $57,438 for the quarter ended September 30, 1999
to $69,209 for the quarter ended September 30, 2000. However, we do not
anticipate that our income from fiduciary activities will continue at these
levels. We are revamping our trust department to focus on more traditional trust
activities for local customers. As a result, we expect that income from
fiduciary activities will decline, at least in the short-term.
Noninterest Expense
Total noninterest expense for the nine months ended September 30, 2000 was $3.1
million, or 45.7% higher than the $2.1 million amount for the nine months ended
September 30, 1999. The largest increase was in other operating expenses, which
increased from $795,909 at September 30, 1999 to $1.3 million for the nine
months ended September 30, 2000. Other operating expenses increased in most all
categories as a result of our growth, including expenses associated with the
merger with Ridgeway Bancshares, Inc., which totaled $97,659 for the nine months
ended September 30, 2000. One such increase was in professional fees, which
increased from $46,971 for the nine months ended September 30, 1999 to $91,738
for the nine months ended September 30, 2000. Salaries and employee benefits
also increased $345,901, or 38.9%, to $1.2 million for the nine months ended
September 30, 2000. This increase is attributable to normal pay increases and
the hiring of additional staff to meet needs associated with our growth.
For the quarter ended September 30, 2000, noninterest expense increased
$333,114, or 43.2%, over the same period in 1999. The largest increase between
the quarters ended September 30, 2000 and September 30, 1999 was in other
operating expense, which increased $201,084, or 72.7%. The $97,659 in merger
expenses noted above were all incurred in the quarter ending September 30, 2000.
Salaries and employee benefits also increased from $325,943 for the quarter
ended September 30, 1999 to $441,231 for the quarter ended September 30, 2000.
Normal pay raises and additional staff contributed to this increase.
Income Taxes
The income tax provision for the nine months ended September 30, 2000 was
$920,506 as compared to $625,000 for the same period in 1999. The increase in
the income tax provision is a result of the increased income before taxes. The
effective tax rate was 37.0% and 37.7% at September 30, 2000 and September 30,
1999, respectively. The effective tax rate was 37.0% and 38.7% for the quarters
ended September 30, 2000 and September 30, 1999, respectively.
11
<PAGE>
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Net Income
The combination of the above factors resulted in net income for the nine months
ended September 30, 2000 of $1.6 million as compared to $1.0 million for the
same period in 1999. This represents an increase of $533,389 over the same
period in 1999. For the quarter ended September 30, 2000, net income was
$515,388 or $101,412 higher than $413,976 for the quarter ended September 30,
1999. This increase reflects our continued growth, as average-earning assets
increased from $119.0 million for the nine months ended September 30, 1999 to
$164.0 million, for the nine months ended September 30, 2000.
Assets and Liabilities
During the first nine months of 2000, total assets increased $38.9 million, or
26.1%, when compared to December 31, 1999. The primary source of growth in
assets was loans, which increased $31.2 million during the first nine months of
2000. Federal funds sold and repurchase agreements increased $8.2 million from
December 31, 1999 to $24.7 million at September 30, 2000. Total deposits also
increased $41.3 million, or 38.3%, from the December 31, 1999 amount of $107.8
million. Within the deposit area, certificates of deposit increased $43.5
million, or 69.9%, during the first nine months of 2000. Federal funds purchased
totaled $5.0 million at September 30, 2000 and 1999. Advances from the Federal
Home Loan Bank totaled $10.0 million at September 30, 2000 and 1999. Securities
sold under agreements to repurchase decreased $4.1 million to $5.0 million at
September 30, 2000.
Investment Securities
Investment securities decreased from $7.8 million at December 31, 1999 to $5.9
million at September 30, 2000. The decrease can be attributed to the maturing of
seven securities during the first nine months of the year. The funds from the
securities were invested in higher yielding loans. All of our investment
securities were designated as available-for-sale at September 30, 2000.
Loans
We continued our trend of growth during the first nine months of 2000,
especially in the loan area. Net loans increased $31.3 million, or 26.7%, during
the period. As shown below, the main component of growth in the loan portfolio
was commercial and industrial loans, which increased 68.7%, or $34.0 million,
from December 31, 1999. Commercial and industrial loans include discounted
accounts receivable loans that totaled $9.6 million at September 30, 2000. This
represents a decrease of $452,061 or 4.5%, when compared to December 31,1999. In
addition, real estate - construction loans increased $3.3 million, or 60.2%
during the first nine months of 2000. Balances within the major loans receivable
categories as of September 30, 2000 and December 31, 1999 are as follows:
September 30, December 31,
2000 1999
----- ----
Real estate - construction $ 8,681,983 $ 5,419,664
Real estate - mortgage 53,487,784 57,996,758
Commercial and industrial 83,611,225 49,569,153
Consumer and other 4,585,969 5,723,592
------------------ --------------------
$ 150,366,961 $ 118,709,167
================== ====================
12
<PAGE>
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
<TABLE>
<CAPTION>
September 30,
-------------
2000 1999
----- ----
<S> <C> <C>
Loans: Nonaccrual loans $ 1,864,690 $ 6,542
Accruing loans more than 90 days past due $ - $ -
Loans identified by the internal review mechanism:
Criticized $ 1,915,343 $ 2,870
Classified $ - $ -
Activity in the Allowance for Loan Losses is as follows:
September 30,
-------------
2000 1999
----- ----
Balance, January 1, $ 1,226,442 $ 812,174
Provision for loan losses for the period 404,000 78,000
Net loans (charged-off) recovered for the period (94,303) (5,492)
---------------- --------------
Balance, end of period $ 1,536,139 $ 1,084,682
================ ==============
Gross loans outstanding, end of period $ 150,366,961 $100,148,514
Allowance for loan losses to loans outstanding 1.02% 1.08%
</TABLE>
13
<PAGE>
RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Deposits
At September 30, 2000, total deposits increased by $41.3 million, or 38.3%, from
December 31, 1999. The largest increase was in certificates of deposit, which
increased $43.5 million, or 70.0%, from December 31, 1999 to September 30, 2000.
At September 30, 2000, certificates of deposit included brokered deposits
totaling $35.5 million. Brokered deposits increased $23.4 million, or 193.7%
from December 31, 1999. Management determined that the cost of funds using
brokered deposits was less than the cost of obtaining traditional deposits and
therefore used brokered deposits more in 2000 to meet funding needs. Expressed
in percentages, noninterest-bearing deposits increased 46.2% and
interest-bearing deposits increased 37.8%.
Balances within the major deposit categories as of September 30, 2000 and
December 31, 1999 are as follows:
September 30, December 31,
------------- ------------
2000 1999
----- ----
Noninterest-bearing demand deposits $ 9,580,820 $ 6,555,078
Interest-bearing demand deposits 27,161,845 34,659,500
Savings deposits 6,708,815 4,426,598
Time deposits $100,000 and over 52,613,620 29,434,939
Other time deposits 53,060,174 32,749,958
----------------- ------------------
$ 149,125,274 $ 107,826,073
================= ==================
Advances from the Federal Home Loan Bank
At September 30, 2000, Advances from the Federal Home Loan Bank totaled $10.0
million. One of the advances totaled $7.0 million and bears an interest rate of
6.7% at September 30, 2000 and has a maturity date of September 30, 2009. The
option to call this advance can be exercised in 2000. A second advance totaled
$3.0 million and bears an interest rate of 6.9% at September 30, 2000. This
advance was paid off on October 2, 2000.
Liquidity
We meet our liquidity needs 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 88.9% at September 30, 2000 and
89.9% at December 31, 1999.
Securities available-for-sale, which totaled $5.9 million at September 30, 2000,
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 September 30, 2000, unused lines of credit totaled $11.3 million.
14
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RHBT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Capital Resources
Total shareholders' equity increased from $16.9 million at December 31, 1999 to
$18.5 million at September 30, 2000. The increase is due to net income for the
period of $1.6 million and a positive change of $20,386 in the fair value of
securities available-for-sale.
The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk-weights ranging from 0% to 100%. Under the risk-based standard, capital is
classified into two tiers. Tier 1 capital consists of common shareholders'
equity, excluding the unrealized gain (loss) on available-for-sale securities,
minus certain intangible assets. Tier 2 capital consists of the general reserve
for loan losses subject to certain limitations. An institutions' qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for
Tier 1 and 8% for total risk-based capital.
Banks and bank holding companies are also required to maintain a 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%, but all but the highest rated
institutions are required to maintain ratios 100 to 200 basis point above the
minimum. Both the Company and the Bank exceeded their minimum regulatory capital
ratios as of September 30, 2000, as reflected in the following table.
The following table summarizes our risk-based capital at September 30, 2000:
Shareholders' equity $ 18,532,888
Less: intangibles 12,689
-------------
Tier 1 capital 18,520,199
Plus: allowance for loan losses (1) 1,536,139
-------------
Total capital $ 20,056,338
=============
Risk-weighted assets $148,683,752
=============
Risk based capital ratios
Tier 1 capital (to risk-weighted assets) 12.43%
Total capital (to risk-weighted assets) 13.46%
Tier 1 capital (to total average assets) 10.66%
(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. We cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect us.
15
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RHBT FINANCIAL CORPORATION
Part II - Other Information
Item 6. Exhibits And Reports on Form 8-K
(a) Exhibits
10.1 Right of First Refusal Agreement dated May 16, 1998 with
Bailey Financial Corporation and the Bank. (Incorporated by
reference to the Bank's Registration Statement of Form 10-SB
filed July 30, 1998).
10.2 Share Exchange Agreement dated April 6, 1998 with Bailey
Financial Corporation and the Bank. (Incorporated by reference
to the Bank's Registration Statement on Form 10-SB filed July
30, 1998).
10.3 Letter of Intent to Merge between the Company and Ridgeway
Bancshares, Inc. dated June 23,2000 (Incorporated by
reference as Exhibit 2.1 to the Company's Form 8-K filed
with the SEC on June 30, 2000)
27.1 Financial Data Schedule for the period ended September 30,
2000.
Reports on Form 8-K
(b) Reports on Form 8-K - None
Items 1, 2, 3, 4, and 5 are not applicable.
16
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RHBT FINANCIAL CORPORATION
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: /s/ J.A. FERGUSON, JR.
-----------------------------------
J.A. Ferguson, Jr.
President & Chief Executive Officer
Date: November 9, 2000 By: /s/ PATRICIA M. STONE
-----------------------------------
Patricia M. Stone
Chief Financial Officer
