SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q / A
Amendment No. 1
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For quarter Ended June 30, 1994
Commission File Number 0-13788
RHNB CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0740434
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
222 East Main Street, Rock Hill, South Carolina 29730
(Address of principal executive
offices, including zip code)
(803) 324-4444
(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 ninety (90) days.
YES X NO
The number of shares outstanding of each of registrant's classes
of common stock as of June 30, 1994: 2,500,517 shares of common
stock, $2.50 par value
PART I
ITEM 1 - FINANCIAL STATEMENTS
RHNB CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 1994 AND DECEMBER 31, 1993
June 30, December 31,
1994 1993
ASSETS:
Cash and due from banks $12,248,034 $13,322,114
Federal funds sold 4,233 -
Total cash and cash equivalents 12,252,267 13,322,114
Interest-bearing accounts with banks 658,000 1,314,479
Securities available for sale 22,102,894 41,173,100
Investment securities
(approximate market value: 1994, $33,960,000; 1993, $16,756,000) 35,313,217 16,716,032
Federal Reserve Bank stock 389,450 389,450
Loans 185,418,328 179,616,695
Less unearned income (389,979) (549,182)
Less allowance for loan losses (4,951,046) (4,912,447)
Net loans 180,077,303 174,155,066
Bank premises, furniture and equipment, net 3,064,470 2,692,823
Accrued interest receivable 1,319,950 1,305,886
Other real estate owned and repossessed personal property 644,430 738,706
Due from broker - 6290036
Other assets 2,468,490 1,778,943
Total assets $258,290,471 $259,876,635
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Demand deposits $37,336,196 $34,462,786
Savings and NOW deposits 97,543,041 93,914,406
Time deposits of $100,000 or more 14,786,660 19,925,493
Other time deposits 66,570,617 58,963,464
Total deposits 216,236,514 207,266,149
Securities sold under agreements
to repurchase and Federal funds purchased 16,161,286 27,206,625
U.S. Treasury demand notes 1,200,000 1,200,000
Convertible subordinated debentures 4,500,000 6,000,000
Note payable 350,000 500,000
Obligation under capital leases 733,745 751,386
Accrued interest on savings and time deposits 551,934 577,671
Other accrued liabilities 1,626,988 1,615,934
Total liabilities 241,360,467 245,117,765
Commitments and Contingencies
Shareholders' equity:
Common stock($2.50 par value; Shares authorized,
5,000,000; outstanding 1994, 2,500,517; 1993, 2,365,981) 6,251,292 5,914,952
Surplus 8,958,362 7,687,129
Retained earnings 2,514,337 1,204,886
Unrealized (loss) on available for sale securities (793,987) (48,097)
Total shareholders' equity 16,930,004 14,758,870
Total liabilities and shareholders' equity $258,290,471 $259,876,635
2
RHNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
Quarter Ended Six Months Ended
1994 1993 1994 1993
INTEREST INCOME:
Loans, including fees $3,929,589 $3,655,384 $7,674,461 $7,248,736
Taxable securities 759,517 755,165 1,464,834 1,508,716
Federal funds sold and other short term investments 16,185 89,203 16,932 147,358
Interest-bearing accounts with banks 21,085 43,152 45,743 85,839
Total interest income 4,726,376 4,542,904 9,201,970 8,990,649
INTEREST EXPENSE:
Time deposits of $100,000 or more 146,761 149,177 298,640 304,852
Other time and savings deposits 1,282,809 1,294,689 2,468,323 2,586,886
Federal funds purchased and securities
sold under repurchase agreements 145,415 139,982 290,603 299,063
U.S. Treasury demand notes 8,008 6,746 14,964 14,290
Convertible subordinated debentures 107,497 123,750 214,529 247,500
Other 34,318 35,231 62,719 77,856
Total interest expense 1,724,808 1,749,575 3,349,778 3,530,447
Net interest income 3,001,568 2,793,329 5,852,192 5,460,202
Provision for loan losses - 248,000 20,000 473,000
Net interest income after provision
for loan losses 3,001,568 2,545,329 5,832,192 4,987,202
OTHER INCOME:
Service charges on deposit accounts 549,073 495,041 1,062,702 960,650
Other service and exchange charges 18,487 21,561 34,238 60,118
Gain on the sale of investment securities - - - 43,935
Gain on the sale of securities available for sale 16,048 1,360 15,542 -
Other operating income 200,190 144,893 446,465 328,855
Total other income 783,798 662,855 1,558,947 1,393,558
OTHER EXPENSES:
Salaries, wages and employee benefits 1,395,346 1,319,196 2,758,901 2,662,846
Occupancy expense 265,699 251,435 488,225 527,036
Furniture and equipment expense 197,369 218,911 416,040 424,114
Other operating expense 1,141,462 857,842 1,902,320 1,748,129
Total other expense 2,999,876 2,647,384 5,565,486 5,362,125
Income before income taxes, cumulative effect
of accounting change 785,490 560,800 1,825,653 1,018,635
Provision for income taxes 170,000 5,000 370,000 77,000
Income before cumulative effect of change
in accounting principle 615,490 555,800 1,455,653 941,635
Cumulative effect of change in accounting principle - - - 160,000
Net income $615,490 $555,800 $1,455,653 $1,101,635
PER SHARE AMOUNTS:
Primary:
Income before cumulative effect of change in
accounting principle and extraordinary item $0.26 $0.24 $0.61 $0.40
Cumulative effect of change in accounting principle - - - 0.07
Net income $0.26 $0.24 $0.61 $0.47
Fully Diluted:
Net income $0.26 $0.24 $0.60 $0.47
3
RHNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
1994 1993
Increase (decrease) in cash and cash equivalents:
OPERATING ACTIVITIES:
Net income (loss) $1,455,653 $1,101,635
Adjustment to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan losses 20,000 473,000
Depreciation and amortization 268,907 265,097
Write-down of goodwill - -
Net premium amortization on investment securities 120,326 53,960
(Gain) loss on sale of securities (15,397) (43,935)
(Increase) decrease in accrued interest receivable (14,064) 63,002
(Increase) decrease in other assets (689,547) (129,184)
Decrease in due from broker 6,290,036 -
Decrease in accrued interest payable (25,737) (3,595)
Increase in other accrued liabilities 11,054 420,007
Net cash provided by (used in) operating activities 7,421,231 2,199,987
INVESTING ACTIVITIES:
Proceeds from sales of securities, net 6,606,445 1,002,389
Proceeds from maturities of securities 8,104,033 13,899,120
Purchase of securities (16,373,394) (23,615,597)
Net decrease in interest-bearing accounts with banks 656,479 377,000
Net decrease in Federal Reserve Bank stock - -
Net (increase) decrease in loans (5,963,937) 3,690,676
Proceeds from sale of premises and equipment 2,000 136,057
Purchase of premises and equipment 642,564 (210,531)
Decrease in other real estate owned 115,976 635,533
Net cash provided by (used in) investing activities (6,209,834) (4,085,353)
FINANCING ACTIVITIES:
Net increase in demand, NOW, and savings accounts 6,502,045 2,747,537
Net increase (decrease) in time deposits 2,468,320 (122,511)
Net decrease in short-term borrowings (11,045,339) (2,881,462)
Decrease in convertible subordinated debentures (1,500,000) -
Decrease in note payable (150,000) (125,000)
Decrease in obligation under capital leases (17,641) (23,072)
Cash dividends paid (146,202) (47,088)
Sale of stock via employee stock purchase plan and
stock option plan 67,294 31,401
Issuances of common stock via dividend reinvestment 40,279 21,430
Issuances of common stock via conversion of debentures 1,500,000 -
Net cash provided by (used in) financing activities (2,281,244) (398,765)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,069,847) (2,284,131)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,322,114 25,592,959
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,252,267 $23,308,828
4
RHNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
Retained Unrealized Loss Total
Common Earnings On Available For Shareholders'
Shares Stock Surplus (Deficit) Sale Securities Equity
Balance, January 1, 1994 2,365,981 $5,914,952 $7,687,129 $1,204,886 ($48,097) $14,758,870
Net income 1,455,653 1,455,653
Conversion of 8.25% Debentures 120,000 300,000 1,200,000 1,500,000
Exercise of stock options 6,500 16,250 24,375 40,625
Stock issuances via dividend
reinvestment plan and
employee stock purchase plan 8,036 20,090 46,858 66,948
Cash dividends paid ($0.06 per share) (146,202) (146,202)
Unrealized (loss) on available
for sale securities (793,987) (793,987)
Balance, June 30, 1994 2,500,517 $6,251,292 $8,958,362 $2,514,337 ($793,987) $16,930,004
Balance, January 1, 1993 2,347,573 $5,868,932 $7,611,858 ($1,305,427) $12,175,363
Net income 1,101,635 1,101,635
Stock issuances via dividend
reinvestment plan and
employee stock purchase plan 8,578 21,446 31,385 52,831
Cash dividends paid ($0.02 per share) (47,086) (47,086)
Balance, June 30, 1993 2,356,151 $5,890,378 $7,643,243 ($250,878) $13,282,743
5
RHNB CORPORATION AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The interim consolidated financial statements include
the accounts of RHNB Corporation (the "Company") and its
wholly owned subsidiary, Rock Hill National Bank (the
"Bank").
In the opinion of management, the accompanying interim
consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary for a
fair presentation of the financial position of the Company,
the results of its operations for the three and six months
ended June 30, 1994 and 1993, its cash flows for the six
months ended June 30, 1994 and 1993 and the changes in its
shareholders equity.
The accounting policies followed are set forth in note
"1" to the Company's 1993 Annual Report to Shareholders.
The results of operations for the period ended June 30,
1994 are not necessarily indicative of the results expected
for the full year.
Selected prior years information has been reclassified
to conform with 1994 presentation.
B. Shareholders' Equity
During the quarter ended June 30, 1994, $1.5 million of
the Company's 8.25% convertible subordinated debentures was
converted by an institutional owner into 120,000 shares of
the Company's common stock. Other minor issuances of stock
were made pursuant to the Company's dividend reinvestment
and employee stock purchase plans. The accompanying
Statements of Changes in Shareholders' Equity details these
changes in the Company's capital during the period.
6
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Review of Financial Position
Overview
On June 22, 1994, RHNB Corporation announced that its Board
of Directors had reached an agreement in principle under which
NationsBank Corporation (hereinafter "NationsBank"), would
acquire the Company. The agreement calls for the exchange of the
Company's common stock for the common stock of NationsBank at a
ratio of .35 shares of NationsBank for each share of RHNB common
stock. Based on the closing price of NationsBank common stock on
that date, the per share value of the offer to the Company's
shareholders was approximately $18.42. On July 8, 1994, a
definitive agreement was executed by both parties. To be
consummated, the proposed acquisition of the Company must be
approved by at least two thirds of its shareholders as well as
several regulatory authorities.
The Company continued to experience excellent performance
during the second quarter of 1994. For the quarter ended June
30, 1994, the Company's earnings increased approximately $60
thousand or 10.7%, to $615 thousand or $0.26 per share as
compared with $556 thousand or $0.24 per share during the same
period in 1993. During the first six months of 1994, earnings
increased $354 thousand or 32.1%, to $1.46 million or $0.61 per
share as compared with $1.1 million or $0.47 per share during the
first six months of 1993. Two significant non-recurring expense
items were recorded during the second quarter of 1994. The first
of these items was $125 thousand in legal and investment banking
fees directly related to the sale of the Company. The second
item consisted of a breakage fee totaling $68.5 thousand. This
fee was incurred when $1.5 million of the Company's 8.25%
convertible subordinated debentures was converted into 120
thousand shares of common stock. The Company cancelled $1.5
million of the $6 million swap associated with hedging the
interest rate risk of the convertible debt and incurred the $68
thousand breakage fee with the interest rate swap conterparty.
The Company's balance sheet remained relatively stable
throughout the second quarter, as did its interest margins. No
significant impact was noted on deposit or loan portfolios as a
result of the announced acquisition of the Company. However, as
the consummation of this transaction nears, it is possible that
the Company may experience some run off of loan or deposit
accounts.
Balance Sheet Analysis
The Company's total assets at June 30, 1994 remained
relatively unchanged as compared with December 31, 1993,
declining approximately $1.6 million or less than 1%. Gross loans
7
increased $5.8 million or 3.2% during the first six months
of 1994. The majority of this growth has occurred in commercial
and commercial real estate loans. With the substantial increases
in interest rates during this period, consumer loan originations,
particularly mortgage loan originations, slowed substantially.
During the second quarter, a decision was made to reclassify
approximately $20 million of the Company's mortgage backed
securities from "available for sale" to "held to maturity". The
original decision to classify these assets as "available for
sale" was made primarily as a result of uncertainty surrounding
regulatory interpretation of FAS 115 "Accounting for Investments
in Debt Securities". During the period, clarifications were made
by the Company's primary regulator as to specific interpretations
of certain issues contained within FAS 115. As a result,
management determined the reclassification of certain securities
to be appropriate since the Company had both the intent and
ability to hold these instruments until maturity.
Fixed assets increased during the first six months of 1994
primarily as a result of two events. During the period, the
Company completed the installation of its new ATMs, placing a
total of eight new machines in service over the six month
duration of this project. The second event was the purchase of a
leased branch facility of the Company.
At December 31, 1993, the Company had approximately $6.3
million in securities which were sold but for which sales had not
settled. The subsequent settlement of these securities sales
resulted in the decline in funds due from brokers. The Company's
other assets increased approximately $690 thousand at June 30,
1994 as compared with December 31, 1993. This increase resulted
principally from the increase in tax benefits generated from the
mark to market adjustment of the Company's available for sale
securities portfolio.
Total deposits increased nearly $9 million during the first
six months of 1994. Transaction accounts as well as certificates
of deposit increased during the period. Primarily as a result of
increases in commercial depositors, both the dollar amount and
item processing count of the Company's transaction accounts
increased during 1994. Certificates of deposit over $100
thousand decreased $5.1 million during the period primarily as a
result of withdrawals by a few large municipal customers.
Conversely, retail certificates, those under $100 thousand,
increased $7.6 million primarily as a result of increased sales
emphasis and changes in the Company's deposit pricing policies.
Asset Quality / Provision and Allowance For Loan Losses
The Company's asset quality continued to improve during the
first two quarters of 1994. Classified assets (those graded
substandard or worse plus one significant credit currently on
non-accruing status but not graded as substandard or worse)
declined $2.3 million or 14.9%. Classified assets at June 30,
1994 totaled $13.1 million or approximately 60.1% of the
Company's equity plus allowance for loan losses.
8
At June 30, 1994, the Company's $12.2 million in classified
assets were comprised of loans
graded as substandard and doubtful
of $9.9 million and $404 thousand, respectively, as well as $644
thousand in foreclosed properties and $2.2 million in a non-
accruing loan graded better than substandard.
During the first six months of 1994, the Company experienced
net recoveries and provided only $20 thousand for possible loan
losses during the period. This compares with a provision of $473
thousand for the same period during 1993. Management expects
that the continued improvement in the Company's asset quality
will be manifest in the form of minimal provisions for loan
losses for the remainder of 1994.
During the first six months of 1994, the Company recorded
no individual loan charge-offs which exceeded $200,000.
Results of Operations
For the Quarters Ended June 30, 1994 and 1993
As noted above, the Company's earnings increased
approximately 10.7% during the second quarter of 1994 as compared
with the same period in 1993. Net interest income increased $208
thousand or 7.5% during the period as compared with the same
period in 1993. This resulted primarily from increases in loan
volume and continuing emphasis on limiting increases in the
Company's cost of funds. Net interest margins continued at
favorable levels during the second quarter. However, this
condition may moderate by the end of 1994, depending upon further
changes in interest rates.
As the Company's asset quality has continued to improve,
loan charge offs have declined and have resulted in a
corresponding decrease in provisions for loan losses. During the
second quarter of 1994, no provision for loan losses was made.
The Company's analysis of the adequacy of its allowance for loan
losses at June 30, 1994 indicated that the allowance was
sufficient to absorb any known or anticipated losses within the
loan portfolio without further provisions. In addition to this
evaluation, the Company experienced net recoveries during the
quarter which further enhanced the adequacy of the allowance.
The Company experienced a significant increase in total non-
interest income during the second quarter of 1994 compared with
1993. This increase of $121 thousand or 18.2% resulted
principally from three items. Nearly 45% of the increase was
attributable to increases in fees from deposit accounts. This
increase was driven primarily by increases in transaction account
volume. Approximately $16 thousand of the increase resulted from
the sale of securities during the period. Commissions from the
sale of mutual funds and annuities accounted for most of the
remaining increase in non-interest income.
9
Non-interest expense increased approximately $353 thousand
during the second quarter as compared with the same period in
1993. The majority of this increase resulted from an increase of
approximately $76 thousand in personnel costs, $125 thousand in
legal and consulting costs associated with the sale of the
Company and the $68 thousand interest rate swap breakage fee
discussed previously.
The Company's tax expense increased substantially during the
second quarter of 1994 as compared with 1993. The Company
expects to utilize its remaining tax loss carryforwards during
1994 and as such, has estimated its tax liability during 1994 to
accrue at a rate of approximately 22%.
For the Six Months Ended June 30, 1994 and 1993
Earnings for the first six months of 1994 increased $354
thousand or 32.1% as compared to the corresponding period in
1993. Net interest income increased $392 thousand or 7.2%
during the first six months of 1994 as compared with the same
period in 1993. As noted above, the improving credit quality of
the Company's loan portfolio has minimized provisions for loan
losses during 1994. Consequently, only $20 thousand has been
provided for possible loan losses during the first two quarters
of 1994, compared with $473 thousand in the first six months of
1993. As a result, net interest income after provision for loan
losses increased $845 thousand or 16.9% during the first six
months of 1994.
Non-interest income increased $165 thousand or 11.9% during
the first six months of 1994. This increase resulted principally
from increases in deposit related fees totaling $102 thousand and
$117 in miscellaneous fees, predominately from the sale of mutual
funds and annuities.
The Company's non-interest expense increased $203 thousand
during the period. Of this amount, a subtantial portion was
attributed to direct and indirect costs associated with the sale
of the Company which were incurred during the second quarter.
Additionally, normal salary increases resulted in an increase in
personnel expense of $96 thousand or 3.6% during the first six
months of 1994 as compared with the same period in 1993.
Capital Resources and Liquidity
The Company and its banking subsidiary maintained capital
ratios above the minimums prescribed by regulatory authorities
throughout the period. At June 30, 1994, tier I, tier II and
leverage capital ratios for the Company were calculated to be
8.26%, 11.72% and 6.51%, respectively. Comparable ratios for the
Bank were 9.94%, 11.63% and 8.38% respectively.
As a result of the scheduled payment on the Company's note
payable, the balance of this debt was reduced to $350,000 at June
30, 1994. The Company continues to expect the liquidation of the
10
loans retained at the parent company level to provide the
majority of the funds necessary to fully retire this debt.
As previously noted, $1.5 million of the Company's 8.25%
convertible subordinated debentures were converted into 120,000
shares of common stock during the second quarter. These shares
represent approximately 4.8% of the outstanding common stock of
the Company after conversion.
During the first three months of 1994, the Bank's liquidity
remained at or above the levels targeted by management. At June
30, 1994, the Company's liquidity and cash levels were considered
sufficient to provide for all known or anticipated cash demands
on the Company.
11
Part II
Other Information
Item 1. Legal Proceedings.
No events required to be disclosed under this item have
occurred.
Item 2. Changes in Securities.
No events required to be disclosed under this item have
occurred.
Item 3. Defaults Upon Senior Securities.
No events required to be disclosed under this item have
occurred.
Item 4. Items Submitted for Shareholder Vote.
The Company's Annual Shareholders' meeting was
conducted on May 5, 1994. Matters upon which
shareholders voted included:
1) Election of Directors for three year terms:
For Withheld
O. T. Culp, Jr. 1,756,329 6,499
Ralph W. Norman 1,748,963 13,865
William S. Stephenson 1,756,474 6,354
Elvin F. Walker 1,753,880 8,948
2) Approval of the Company's 1994 Stock Option Plan.
For:1,740,818 Against: 22,425 Abstain: 10,853
3) Ratification of the appointment of KPMG/Peat
Marwick as independent accountants for the Company
for the fiscal year ending December 31, 1994.
For:1,766,086 Against: 2,820
12
Item 5. Other Information.
(a) On April 15, 1994, C. John Hipp, III, President of
RHNB Corporation and Rock Hill National Bank, left
the employ of the Company. Effective that date,
Michael F. Gooding, Jr. became President of the
Company.
(b) On May 25, 1994, the formal agreement between the
Company and the Federal Reserve was terminated.
The formal agreement between the Company and the
Office of the Comptroller of the Currency had
earlier been terminated on March 24, 1994.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10 (i) l - Definitive Agreement by and between
t h e Company and NationsBank
Corporation dated July 8, 1994.
(b) Reports on Form 8-K.
On June 24, 1994, a report on Form 8-K was
filed with the Commission. This filing
provided notification of the agreement
entered into on June 22, 1994 by and between
the Company and NationsBank Corporation,
whereby the Company's Board of Directors
agreed in principle to acquisition of the
Company by NationsBank. The agreement calls
for the exchange of each share of the
Company's common stock for .35 shares of
NationsBank's common stock.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to the signed
on its behalf by the undersigned thereunto duly authorized.
RHNB Corporation
Dated: September 20, 1994 /s/ Michael F. Gooding
Michael F. Gooding, President
/s/ Gregory L. Gibson
Gregory L. Gibson, Sr. Vice President
and Chief Financial Officer
14