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