U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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Commission File Number: 000-24561
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RESOURCE BANKSHARES CORPORATION
(Exact name of Registrant as specified in its charter)
Virginia 54-1904386
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
3720 Virginia Beach Blvd., Virginia. Beach, VA 23452
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(Address of principal executive offices) (Zip Code)
(757) 463-2265
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(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 Exchange Act 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 ___
---
At March 31, 2000, 2,555,579 shares of Resource Bankshares Corporation's common
stock, $1.50 par value, were outstanding.
RESOURCE BANKSHARES CORPORATION
FORM 10-Q
MARCH 31, 2000
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Income for the periods ended
March 31, 2000 and 1999 4
Consolidated Statements of Stockholder's Equity for the period
ended March 31, 2000 5
Consolidated Statements of Cash Flows for the periods ended
March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31 December 31
2000 1999
(Dollars in thousands)
ASSETS
Cash and due from banks $ 10,673 $ 3,482
Interest bearing deposits 1,941 2,138
Federal funds sold - 1,445
------------- --------
12,614 7,065
Funds advanced in settlement of mortgage loans 14,412 11,774
Securities available for sale 6,363 6,659
Securities held to maturity 29,039 16,536
Loans, net
Commercial 66,270 77,271
Real estate - construction 71,182 68,076
Commercial real estate 79,384 64,158
Residential real estate 35,202 41,820
Installment and consumer loans 4,737 4,345
------------- --------
TOTAL LOANS 256,775 255,670
Allowance for loan losses (2,810) (2,686)
-------------- ---------
NET LOANS 253,965 252,984
Other real estate owned 31 31
Premises and equipment 3,801 3,855
Other assets 6,620 5,781
Accrued interest 2,219 2,004
------------- --------
$329,064 $306,689
============= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 16,657 $ 15,894
Interest bearing 266,996 244,575
------------- --------
TOTAL DEPOSITS 283,653 260,469
FHLB advances 16,300 18,300
Other liabilities 1,797 1,799
Accrued interest 1,792 1,052
Capital debt securities 9,200 9,200
------------- --------
TOTAL LIABILITIES 312,742 290,820
STOCKHOLDERS' EQUITY
Common stock, par value $1.50 a share
Shares authorized: 6,666,666
Shares issued and outstanding:
2000 - 2,555,579; 1999 2,538,913 3,833 3,808
Additional paid-in capital 10,604 10,579
Retained earnings 2,145 1,608
Accumulated other comprehensive income (loss) (260) (126)
------------- --------
16,322 15,869
------------- --------
$329,064 $306,689
============= ========
See notes to consolidated financial statements.
3
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
2000 1999
(Dollars in thousands)
Interest and dividend income
Interest and fees on loans $ 5,353 $ 4,007
-----------------------------
Interest on investment securities:
Interest and dividends on securities available for sale 143 320
Interest on securities held to maturity 470 12
-----------------------------
613 332
-----------------------------
Interest on federal funds sold 75 39
Interest on funds advanced 212 322
-----------------------------
Total interest income 6,253 4,700
-----------------------------
Interest expense
Interest on deposits 3,559 2,500
Interest on short-term borrowings 203 31
Interest on long-term borrowings 268 123
-----------------------------
Total interest expense 4,030 2,654
Net interest income 2,223 2,046
Provision for loan losses (100) -
-----------------------------
Net interest income after provision for loan losses 2,123 2,046
Noninterest income
Mortgage banking income 1,507 1,202
Service charges 177 179
Gain on sale of assets 291 -
Other 202 186
-----------------------------
2,177 1,567
-----------------------------
Noninterest expense
Salaries and employee benefits 1,833 1,363
Occupancy expenses 321 286
Depreciation and equipment maintenance 225 164
Professional fees 89 32
Outside computer services 138 99
FDIC insurance 12 29
Stationery and supplies 107 114
Marketing and business development 93 76
Other 340 295
-----------------------------
3,158 2,458
-----------------------------
Income before income tax 1,142 1,155
Income tax expense 348 400
-----------------------------
Net (loss) income $ 794 $ 755
=============================
Cash dividend declared per common share $ 0.10 $ 0.10
=============================
Basic earnings per common share $ 0.31 $ 0.30
=============================
Diluted earnings per share $ 0.30 $ 0.27
=============================
See notes to consolidated financial statements.
4
RESOURCE BANKSHARES CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Three Months Ended March 31, 2000 (Dollars in thousands)
Accumulated
Other
Additional Comprehensive
Common Stock Paid-in Retained Income
Shares Amount Capital Earnings (Loss) Total
-------------------------------------------------------------------
Balance, December 31, 1999 2,538,913 $3,808 $10,579 $1,608 ($126) $15,869
Comprehensive income:
Net income 794 794
Changes in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification
adjustment and tax effect - - - - (134) (134)
-------
Total comprehensive income 660
-------
Proceeds from exercise of stock options 16,666 25 25 - - 50
Cash dividends declared $.10 per share - - - (257) - (257)
-------------------------------------------------------------------
Balance, March 31, 2000 2,555,579 $3,833 $10,604 $2,145 ($260) $16,322
===================================================================
See notes to consolidated financial statements.
5
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
Operating activities March 31, 2000 March 31, 1999
(Dollars in thousands)
--------------------
Net income $ 794 $ 755
Adjustments to reconcile to net cash
used by operating activities:
Provision for losses on loans and other real estate owned 100 -
Provision for losses on funds advanced in settlement of
mortgage loans 25 -
Depreciation and amortization 161 77
premiums, net of discounts (12) (16)
Gain on sale of loans or other real estate owned (152) (156)
Gain on premises and equipment (7) -
Gain on sale of assets 291 -
Deferred loan origination fees, net of costs 336 298
Changes in:
Funds advanced in settlement of mortgage loans (2,663) 4,762
Interest receivable (216) 10
Interest payable 552 125
Other assets (1,071) (437)
Other liabilities (104) 352
-------- --------
Net cash (used) provided by operating activities (1,966) 5,770
-------- --------
Investing activities:
Proceeds from sale of real estate owned, net of costs - 379
Proceeds from sales and maturities of
available-for-sale securities 250 1,054
Proceeds from sales and maturities of
held-to-maturity securities 22 167
Purchases of available-for-sale securities (165) (3,458)
Purchases of held-to-maturity securities (12,437) (11,608)
Loan originations, net of principal repayments (1,265) (983)
Purchases of premises, equipment and other assets 134 (197)
-------- --------
Net cash used investing activities (13,461) (14,646)
-------- --------
Financing activities:
Proceeds from exercise of stock options 50 333
Payments to reacquire common stock - (74)
Cash dividends declared (257) (248)
Net repayments in FHLB advances (2,000) -
Net proceeds from issuance of capital debt securities - 8,883
Net increase in demand deposits,
NOW accounts and savings accounts 18,827 6,440
Net increase in certificates of deposit 4,356 7,807
-------- --------
Net cash provided by financing activities 20,976 23,141
-------- --------
Increase in cash and cash equivalents 5,549 14,265
Cash and cash equivalents at beginning of period 7,065 8,481
-------- --------
Cash and cash equivalents at end of period $ 12,614 $ 22,746
======== ========
Supplemental schedules and disclosures of
cash flow information:
Cash paid for:
Interest on deposits and other borrowings $ 3,479 $ 2,476
======== ========
Schedule of noncash investment activities:
Foreclosed real estate - ($380)
======== ========
See notes to consolidated financial statements.
6
RESOURCE BANKSHARES CORPORATION
Notes to Consolidated Financial Statements
March 31, 2000
(UNAUDITED)
(Dollars in thousands, except per share data)
Organization and Summary of Significant Accounting Policies
(1) GENERAL
Resource Bankshares Corporation, a Virginia Corporation (the "Company"),
was incorporated under the laws of the Commonwealth of Virginia on February 4,
1998, primarily to serve as a holding company for Resource Bank (the "Bank").
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q, and therefore, do not include all
of the disclosures and notes required by generally accepted accounting
principals. In the opinion of management, all adjustments in the normal
recurring nature which are necessary for a fair presentation of the financial
statements included herein have been reflected in the financial statements. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year.
(2) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, interest-bearing deposits with banks, and federal funds
sold.
(3) ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
Balance as of January 1, 2000 $2,686
Provision for loan losses 100
Loans charged off (78)
Recoveries 102
------
Balance at March 31, 2000 $2,810
======
(4) NET INCOME PER SHARE
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised, converted
into common stock or resulted in the issuance of common stock that then shares
in the earnings of the entity. The average number of basic shares outstanding
for the three months ended March 31, 2000, and 1999 were 2,555,213 and
2,447,737, respectively. The diluted average number of shares for the three
months ended March 31, 2000 and 1999 were 2,690,696 and 2,686,150, respectively.
-7-
(5) COMPREHENSIVE INCOME
Comprehensive Income
The components of other comprehensive income and related tax effects for the
three months ended March 31, 2000 and 1999 are as follows:
Three months ended
March 31, 2000 March 31, 1999
Unrealized holding losses arising during the
period on available-for-sale securities ($210) ($246)
Tax effect 76 86
---- -----
Net-of-tax amount ($134) ($160)
==== =====
No reclassification adjustment was necessary as no realized gains or losses
were included in net income for the period.
-8-
(6) SEGMENT REPORTING
The Company has one reportable segment, its mortgage banking operations.
This segment originates residential loans and subsequently sells them to
investors. The commercial banking and other banking operations provide a broad
range of lending and deposit services to individual and commercial customers,
including such products as commercial and construction loans, as well as other
business financing arrangements.
The Company's reportable segment is a strategic business unit that offers
different products and services. It is managed separately because the segment
appeals to different markets and, accordingly, requires different technology and
marketing strategies.
The mortgage banking segment's most significant revenue and expense are
non-interest income and non-interest expense, respectively. The Company's
segments are reported below for the periods ended March 31, 2000 and March 31,
1999.
Selected Financial Information
Commercial and Mortgage Banking
Other Operations Operations Total
---------------------------------------------
Three Months Ended March 31, 2000:
Net interest income after provision for loan
losses $ 2,051 $ 72 $ 2,123
Noninterest income 670 1,507 2,177
Noninterest expense (1,701) (1,457) (3,158)
------- ------- -------
Net income before income taxes $ 1,020 $ 122 $ 1,142
======= ======= =======
Three Months Ended March 31, 1999:
Net interest income after provision for loan
losses $ 1,978 $ 68 $ 2,046
Noninterest income 365 1,202 1,567
Noninterest expense (1,252) (1,206) (2,458)
------- ------- -------
Net income before income taxes $ 1,091 $ 64 $ 1,155
======= ======= =======
Segment Assets
Commercial Mortgage
and Other Banking
Operations Operations Total
-----------------------------------------------
March 31, 2000 $328,416 $648 $329,064
======== ==== ========
March 31, 1999 $257,181 $811 $257,992
======== ==== ========
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Dollars in thousands, except per share data)
Resource Bankshares Corporation, a Virginia Corporation (the "Company"),
was incorporated under the laws of the Commonwealth of Virginia on February 4,
1998, primarily to serve as a holding company for Resource Bank (the "Bank").
In addition to historical information, the following discussion contains
forward looking statements that are subject to risks and uncertainties that
could cause the Company's actual results to differ materially from those
anticipated. These forward looking statements include, but are not limited to,
the effect of increasing interest rates on the Company's profitability and the
adequacy of the Company's allowance for future loan losses. Several factors,
including the local and national economy and the demand for residential mortgage
loans may adversely affect the Company's ability to achieve the expected
results. Readers are cautioned not to place undue reliance on these forward
looking statements, which reflect management's analysis only as of the date of
this report.
Total assets at March 31, 2000 were $329,064, up 7.3% from $306,689 at
December 31, 1999, reflecting growth in securities and loans. The Company
purchased $12,500 of municipal securities in the first quarter of 2000. The
principal components of the Company's assets at the end of the period were
$35,402 in securities, $12,614 in cash and cash equivalents, $14,412 in funds
advanced in settlement of mortgage loans and $253,965 in net loans. The
Company's lending activities are a principal source of income.
Total liabilities at March 31, 2000 were $312,742, up from $290,820 at
December 31, 1999, with the increase almost entirely represented by a $23,184
(8.9%) growth in deposits. Non-interest bearing demand deposits increased $763
or 4.8%, while interest bearing deposits increased by $22,421 or 9.2%. The
Company's deposits are provided by individuals and businesses located within the
communities served as well as the national market.
The Company raised $9,200 of additional capital in the first quarter of
1999 by issuing 368,000 Trust Preferred Securities at a price of $25.00 per
Security. The Trust Preferred Securities feature a 9.25% coupon. The Company has
purchased $7,350 of non-cumulative 9.25% Preferred Stock issued by the Bank. The
Preferred Stock 9.25% coupon matches the coupon of the Trust Preferred
Securities. The Preferred Stock, issued by Resource Bank, qualifies as Tier 1
capital for regulatory purposes. This additional Tier 1 capital provides the
Bank with an increased loans to one borrower limitation, and the ability to
continue to grow its balance sheet while maintaining its well capitalized
status.
The funds generated by the Trust Preferred Securities offering have been
invested in marketable securities and will also be used by the Company in its
stock repurchase program. The marketable securities are held as available-for-
sale to meet liquidity needs. The Company's stock repurchase program has been
and will continue to be used to offset the otherwise dilutive effects of stock
options granted to the Company's management as employment recruitment and
retention perquisites.
Total shareholders' equity at March 31, 2000 was $16,322, compared to
$15,869 at December 31, 1999. The Company had net income of $794 for three
months ended March 31, 2000 compared with net income of $755 for the comparable
period in 1999, an increase of 5.2%.
Profitability as measured by the Company's return on average assets (ROA)
was 1.0% for the
-10-
three months ended March 31, 2000, down .3% from the same period of 1999. A key
indicator of performance, the return on average equity (ROE) was 19.8% and 16.9%
for the quarters ended March 31, 2000 and 1999, respectively.
Net interest income represents a principal source of earnings for the
Company. The first component is the loan portfolio. Making sound loans that will
increase the Company's net interest margin is the first priority of management.
The second component is gathering core deposits to match and fund the loan
production. The Company also utilizes national markets to generate deposits and
Federal Home Loan Bank ("FHLB") advances to fund loan growth either for asset
and liability management purposes or for a less expensive source of funds.
Net interest income, before provision for loan losses, increased to $2,223
for the three months ended March 31, 2000 versus $2,046 for the same period in
1999. This increase (8.7%) in net interest income for the first quarter of 2000
in comparison to 1999 occurred as a result of the growth in interest earning
assets and increases in the prime lending rate caused by Federal Reserve Bank
actions in the second half of 1999 and first quarter of 2000. Such rate
increases affected the Company's loan portfolio yields more immediately than its
interest bearing deposit costs. No assurances can be given regarding future
interest rate trends.
-11-
Average Balances, Income and Expenses, Yields and Rates
The following table sets forth average balances of total interest earning assets
and total interest bearing liabilities for the periods indicated, showing the
average distribution of assets, liabilities, stockholders' equity and the
related income, expense and corresponding weighted average yields and costs.
1st Quarter 4th Quarter
2000 1999
Average Yield/ Average Yield/
Balance Interest Rate (2) Balance (1) Interest Rate (2)
Assets
Interest Earning Assets:
Securities $ 34,393 $ 592 6.89% $ 23,760 $ 439 7.39%
Loans (3) 255,949 5,353 8.37% 243,106 5,102 8.39%
Interest bearing deposits in other banks 6,718 96 5.72% 2,970 34 4.58%
Other earning assets (4) 9,234 212 9.18% 13,133 336 10.23%
---------------------------------------------------------------------
Total interest-earning assets 306,294 6,253 8.17% 282,969 5,911 8.36%
Non interest earning assets:
Cash and due from banks 4,036 4,663
Premises and equipment 3,846 3,855
Other assets 7,626 7,449
Less: Allowance for loan losses (2,730) (3,279)
-------- --------
Total noninterest earning assets 12,778 12,688
-------- --------
Total assets $319,072 $295,657
======== ========
Liabilities and Stockholders' Equity
Interest Bearing liabilities
Interest bearing deposits:
Demand/Money Market Accounts $ 19,653 $ 233 4.74% $ 11,819 $ 120 4.06%
Savings 21,045 249 4.73% 22,699 268 4.72%
Certificates of deposits 216,594 3,077 5.68% 201,583 2,722 5.40%
---------------------------------------------------------------------
Total interest bearing deposits 257,292 3,559 5.53% 236,101 3,110 5.27%
FHLB advances and other borrowings 18,598 270 5.81% 16,161 229 5.67%
Capital debt securities 9,200 201 8.74% 9,200 217 9.43%
---------------------------------------------------------------------
Total interest bearing liabilities 285,090 4,030 5.65% 261,462 3,556 5.44%
Noninterest bearing liabilities:
Demand deposits 15,022 16,037
Other liabilities 2,864 2,471
-------- --------
Total liabilities 17,886 18,508
Stockholders' equity 16,096 15,687
Total liabilities and stockholder's equity $319,072 $295,657
======== ========
Interest spread (5) 2.52% 2.91%
====
Net interest income/net interest margin (6) $2,223 2.90% $2,355 3.33%
====== ======
-12-
(1) Average balances are computed on daily balances and Management believes such
balances are representative of the operations of the Company.
(2) Yield and rate percentages are all computed through the annualization of
interest income and expenses versus the average balance of their respective
accounts.
(3) Non-accrual loans are included in the average loan balances, and income on
such loans is recognized on a cash basis.
(4) Consists of funds advanced in settlement of loans.
(5) Interest spread is the average yield earned on earning assets, less the
average rate incurred on interest bearing liabilities.
(6) Net interest margin is net interest income annualized, expressed as a
percentage of average earning assets.
Non-interest income increased from $1,567 for the three months ended March
31, 1999 to $2,177 for the same period in 2000. This increase was primarily
attributable to increased activity in the Company's mortgage banking operations.
For the three months ended March 31, 2000, mortgage banking income increased by
25.4% or $305 to $1,507 versus the same period of 1999. Mortgage banking made a
significant contribution to the Company's results in the first quarter of 2000.
Because of the uncertainty of future loan origination volume and the future
level of interest rates, there can be no assurance that the Company will realize
the same level of mortgage banking income in future periods. Other non-interest
income increased by $305 to $670 for the quarter ending March 31, 2000 compared
to the same period in 1999. Service charges declined slightly (1.1%) while other
non-interest income increased slightly (8.6%). The gain on sale of assets of
$291 was due to the full recognition of a deferred gain on the sale of a
building.
For the three months ended March 31, 2000, the Company's non-interest
expense totaled $3,158 or 28.5% higher than the same period in 1999 as the
result of adding full service banking operations in Chesapeake and Newport News,
Virginia, as well as establishing loan production offices in Newport News and
Richmond, Virginia. The largest component of non-interest expense, salaries and
employee benefits, which represents 58.0% of total non-interest expense,
increased 34.5% to $1,833 for the three months ended March 31, 2000 over the
same period in 1999, and was primarily attributed to the opening of the new
offices. Occupancy expense increased by 12.2% to $321, depreciation and
equipment maintenance increased by 37.2% to $321, marketing and business
development increased 22.4% to $93, and outside computer services increased by
39.4% to $138 for the three months ended March 31, 2000 over the same period in
1999.
In establishing the allowance for loan losses, management considers a
number of factors, including loan asset quality, related collateral and economic
conditions prevailing during the loan's repayment. In its loan policies,
management emphasizes the borrower's ability to service the debt, the borrower's
general creditworthiness and the quality of collateral. The allowance for loan
losses as a percentage of quarter-end loans at March 31 was 1.1% and 1.3% for
2000 and 1999, respectively. The provisions for loan losses were $100 and $0 for
the three months ended March 31, 2000 and 1999, respectively.
While the Company believes it has sufficient allowance for its existing
portfolio, there can be no assurances that an additional allowance for losses on
existing loans may not be necessary in the future, particularly if the economy
worsens.
Management believes that losses on these assets, if any, will be minimal,
although no assurance can be given in this regard. Loans are generally placed in
nonaccrual status when the collection of principal and interest is 90 days or
more past due, unless the obligation is both well-secured and in the process of
collection.
-13-
Non Performing Assets
The following table presents the Company's non performing assets for the periods
set forth.
March 31 December 31
2000 1999
---- ----
(Dollars in thousands)
Non accrual loans $ 648 $ 473
Other real estate 31 31
Loans 90 days or more past due and still
accruing interest 10 270
-------- ---------
Total non performing assets $ 689 $ 774
======== =========
Total assets $329,064 $ 306,689
======== =========
Total non performing assets to total assets 0.21% 0.25%
======== =========
-14-
Summary of Loan Loss Experience
The following table presents the Company's loan loss experience and selected
loan loss ratios for the three months ended March 31, 2000 and 1999.
Three months ended
March 31
2000 1999
-------- --------
(Dollars in thousands)
Balance of allowance for loan losses
at beginning of year $ 2,686 $ 2,500
Loans charged-off:
Commercial (78) (4)
Installment - (1)
Real Estate - (84)
Credit Cards and Other Consumer - (1)
-------- ---------
Total loans charged-off (78) (90)
Recoveries of loans previously charged off:
Commercial 99 -
Installment - 1
Real Estate 3 -
Credit Cards and Other Consumer - -
--------- ---------
Total recoveries 102 1
--------- ---------
Net loans charged-off 24 (89)
Additions to allowance charged to expense 100 -
Balance at end of year $ 2,810 $ 2,411
========= =========
Average loans $ 255,949 $ 188,686
Loans at end of period $ 256,775 $ 189,154
Selected Loan Loss Ratios:
Net charge-off during the period to average loans -0.01% 0.05%
Provision for loan losses to average loans 0.04% 0.00%
Provision for loan losses to net charge-offs during
the period -417% 0%
Allowance for loan losses to loans at end of period 1.09% 1.27%
Non-performing assets at end of period $ 689 $ 1,799
Non-performing assets to total loans at end of period 0.27% 0.95%
Allowance for loan losses to non-performing assets at end
of period 408% 134%
-15-
Interest Rate Sensitivity
Management evaluates interest sensitivity through the use of an
asset/liability management reporting gap model on a quarterly basis and then
formulates strategies regarding asset generation and pricing, funding sources
and pricing, and off-balance sheet commitments in order to decrease sensitivity
risk. These strategies are based on management's outlook regarding interest
rate movements, the state of the regional and national economies and other
financial and business risk factors. In addition, the Company establishes
prices for deposits and loans based on local market conditions and manages its
securities portfolio under policies that take interest risk into account.
Liquidity represents the institution's ability to meet present and future
financial obligations. Liquid assets include cash, interest bearing deposits
with banks, federal funds sold, investments and loans maturing within one year.
The Company's funding requirements are supplied from a range of traditional
sources, including various types of demand deposits, money market accounts,
certificates of deposit and short-term borrowings. Federal Home Loan Bank
("FHLB") advances are utilized as funding sources by the Company. At March 31,
2000, there were $16,300 in FHLB advances outstanding. The Company has a
warehouse line of credit collateralized by first mortgage loans amounting to
$50,000, which expires December 2, 2000. The Company has no reason to believe
this arrangement will not be renewed. The Bank had no outstanding warehouse
advances at March 31, 2000 and 1999, respectively. At March 31, 1999, $16,300
was outstanding in FHLB advances outside of the warehouse line. Federal funds
sold to correspondent institutions were $0 at March 31, 2000 and $1,445 at
December 31, 1999.
Management seeks to ensure adequate liquidity to fund loans and meet the
Company's financial requirements and opportunities. To provide liquidity for
current, ongoing and unanticipated needs, the Company maintains short-term
interest bearing certificates of deposits, federal funds sold, and a portfolio
of debt securities. The Company also structures and monitors the flow of funds
from debt securities and from maturing loans. Securities are generally purchased
to provide a source of liquidity. Unrealized holding gains and losses for
available-for-sale securities are excluded from earnings and reported as a net
amount in a separate component of stockholders' equity until realized.
Securities are composed of governmental or quasi-governmental agencies,
preferred stocks and bonds of corporations with a credit rating of no less than
Bb and obligations of municipalities with a credit rating of no less than AAA.
The Company's financial position at March 31, 2000 reflects liquidity and
capital levels that management believes are currently adequate to fund
anticipated future business expansion. Capital ratios are in excess of required
regulatory minimums for a well capitalized institution. The assessment of
capital adequacy depends on a number of factors such as asset quality,
liquidity, earnings performance, and changing competitive conditions and
economic forces. The adequacy of the Company's capital is reviewed by management
on an ongoing basis. Management seeks to maintain a capital structure that will
assure an adequate level of capital to support anticipated asset growth and to
absorb potential losses.
-16-
The following table presents the amounts of the Company's interest
sensitive assets and liabilities that mature or reprice in the periods
indicated.
March 31, 2000
Maturing or Repricing
--------------------------------------------------------
Within 4-12 1 - 5 Over
-------- ---------- --------- -------
3 months Months Years 5 Years Total
-------- ---------- --------- ------- --------
(Dollars in thousands)
Interest-Earning Assets:
Investment securities $ 3,931 $ 2,031 $ 632 $28,808 $ 35,402
Loans 145,379 14,085 67,867 29,444 256,775
Interest bearing deposits 1,941 - - - 1,941
Other interest-earning assets 14,412 - - - 14,412
--------------------------------------------------------
Total interest-earning assets 165,663 16,116 68,499 58,252 308,530
--------------------------------------------------------
Interest-Bearing Liabilities:
Deposits
Demand and savings (1) 20,979 - 31,723 - 52,702
Time deposits, $100,000 and over 1,458 8,763 894 - 11,115
Other time deposits 54,897 124,573 23,709 - 203,179
Other interest-bearing liabilities 16,000 - 300 - 16,300
Capital debt securities - - - 9,200 9,200
--------------------------------------------------------
Total interest-earning liabilities 93,334 133,336 56,626 9,200 292,496
--------------------------------------------------------
Period Gap $ 72,329 ($117,220) $ 11,873 $49,052 $ 16,034
--------------------------------------------------------
Cumulative Gap $ 72,329 ($44,891) ($33,018) $16,034
---------------------------------------------
Ratio cumulative gap to total
interest-earning assets 23.44% -14.55% -10.70% 5.20%
---------------------------------------------
(1) Management has determined that interest checking, money market (except those
generated by e banking) and savings accounts are not sensitive to changes in
related market rates and, therefore, have been placed in the 1-5 years category.
The capital adequacy standards are based on an established minimum for Tier
1 Risk-Based Capital, Risk-Based Capital and the Tier 1 Leverage Ratio. The
following table summarizes regulatory capital ratios for the Company and its
subsidiary at March 31, 2000.
Resource Resource
Required Ratio Bankshares Bank
--------------- ----------- ------
Tier 1 risk-based 4.00% 8.49% 9.17%
Total risk-based 8.00% 10.98% 10.25%
Tier 1 leverage 4.00 to 5.00% 6.93% 7.47%
The Company and the Bank are in full compliance with all relevant
regulatory capital requirements.
The effect of changing prices on financial institutions is typically
different from other industries
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as the Company's assets and liabilities are monetary in nature. Interest rates
are significantly impacted by inflation, but neither the timing nor the
magnitude of the changes are directly related to price level indices. Impacts of
inflation on interest rates, loan demand and deposits are reflected in the
Company's financial statements. Management believes that the mortgage banking
operations provide somewhat of a natural interest rate hedge, in that the
Company is interest rate sensitive in the six-month period. When interest rates
decline, the Company's earnings will be negatively impacted in the six-month
period but the mortgage operation's volume should increase. The reverse should
occur in rising interest rate markets.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Management
The Company's primary market risk exposure is interest rate risk.
Fluctuations in interest rates will impact both the level of interest income and
interest expense and the market value of the Company's interest earning assets
and interest bearing liabilities. There were no material changes in the
Company's market risk management strategy, as stated in the Company's 1999
annual report, during the first three months of 2000.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company is
a party or of which the property of the Company is subject. The Company is party
to certain nonmaterial legal proceedings occurring in the normal course of
business.
Item 6. Exhibits And Reports on Form 8-K
(a) The registrant includes herein the following exhibits.
Exhibit No. Item
----------- ----
27 Financial Data Schedule
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the under-signed, thereunto
duly authorized.
RESOURCE BANKSHARES CORPORATION
/s/ Lawrence N. Smith
----------------------
Lawrence N. Smith
President & Chief Executive Officer
Date: May 11, 2000
/s/ Eleanor J. Whitehurst
-------------------------
Eleanor J. Whitehurst
Senior Vice President & Chief Financial Officer
Date: May 11, 2000
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