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 JUNE 30, 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 ___
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At June 30, 2000, 2,629,037 shares of Resource Bankshares Corporation's common
stock, $1.50 par value, were outstanding.
RESOURCE BANKSHARES CORPORATION
FORM 10-Q
JUNE 30, 2000
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999 3
Consolidated Statements of Income for the periods ended
June 30, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity for the period
ended June 30, 2000 5
Consolidated Statements of Cash Flows for the periods ended
June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risks 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30 December 31
2000 1999
(unaudited)
(Dollars in thousands)
ASSETS
Cash and due from banks $ 9,300 $ 3,482
Interest bearing deposits 2,882 2,138
Federal funds sold - 1,445
----------- -----------
12,182 7,065
Funds advanced in settlement of mortgage loans 30,742 11,774
Securities available for sale (amortized cost of $7,425 and $6,750, respectively) 7,407 6,659
Securities held to maturity (fair value of $34,039 and $14,385, respectively) 35,031 16,536
Loans, net
Commercial 66,977 77,271
Real estate - construction 64,927 68,076
Commercial real estate 86,047 64,158
Residential real estate 39,137 41,820
Installment and consumer loans 3,647 4,345
----------- -----------
TOTAL LOANS 260,735 255,670
Allowance for loan losses (2,799) (2,686)
----------- -----------
NET LOANS 257,936 252,984
Other real estate owned 31 31
Premises and equipment , net 3,749 3,855
Other assets 8,418 5,781
Accrued interest 2,519 2,004
----------- -----------
$358,015 $306,689
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 19,644 $ 15,894
Interest bearing 275,718 244,575
----------- -----------
TOTAL DEPOSITS 295,362 260,469
Federal funds purchased 9,407 -
FHLB advances 20,124 18,300
Other liabilities 4,023 1,799
Accrued interest 2,149 1,052
Capital debt securities 9,200 9,200
----------- -----------
TOTAL LIABILITIES 340,265 290,820
STOCKHOLDERS' EQUITY
Preferred stock, par value $10 per share,
Shares authorized: 500,000; none issued and outstanding - -
Common stock, par value $1.50 a share
Shares authorized: 6,666,666
Shares issued and outstanding:
2000 - 2,629,037; 1999 2,538,913 3,944 3,808
Additional paid-in capital 11,053 10,579
Retained earnings 2,945 1,608
Accumulated other comprehensive income (loss) (192) (126)
----------- -----------
17,750 15,869
----------- -----------
$358,015 $306,689
=========== ===========
See notes to consolidated financial statements.
3
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30 June 30
2000 1999 2000 1999
(Dollars in Thousands) (Dollars in Thousands)
Interest and dividend income
Interest and fees on loans $5,494 $4,209 $10,847 $8,216
---------------------------------------------
Interest on investment securities:
Interest and dividends on securities available for sale 143 106 286 426
Interest on securities held to maturity 541 362 1,010 374
---------------------------------------------
684 468 1,296 800
---------------------------------------------
Interest on federal funds sold 94 17 170 56
Interest on funds advanced in settlement of mortgage loans 411 425 623 747
---------------------------------------------
Total interest income 6,683 5,119 12,936 9,819
---------------------------------------------
Interest expense
Interest on deposits 3,924 2,603 7,484 5,103
Interest on borrowings 217 138 487 239
Interest on capital debt securities 213 215 414 268
---------------------------------------------
Total interest expense 4,354 2,956 8,385 5,610
---------------------------------------------
Net interest income 2,329 2,163 4,551 4,209
Provision for loan losses - - 100 -
---------------------------------------------
Net interest income after provision for loan losses 2,329 2,163 4,451 4,209
Noninterest income
Mortgage banking income 1,902 1,543 3,409 2,745
Service charges 126 196 303 375
Gain on sale of assets 46 116 538 272
Other 5 13 6 43
---------------------------------------------
2,079 1,868 4,256 3,435
---------------------------------------------
Noninterest expense
Salaries and employee benefits 1,955 1,856 3,788 3,219
Occupancy expenses 303 285 624 571
Depreciation and equipment maintenance 257 190 482 354
Stationery and supplies 114 155 221 267
Marketing and business development 121 126 213 202
Professional fees 32 39 121 71
Outside computer services 137 149 275 248
FDIC insurance 13 (1) 26 27
Other 335 282 674 579
---------------------------------------------
3,267 3,081 6,424 5,538
---------------------------------------------
Income before income tax 1,141 950 2,283 2,106
Income tax expense 341 329 689 729
---------------------------------------------
Net income $ 800 $ 621 $ 1,594 $1,377
=============================================
Cash dividends declared per common share $0.00 $ 0.10 $ 0.10 $ 0.20
=============================================
Basic earnings per common share $0.31 $ 0.24 $ 0.62 $ 0.55
=============================================
Diluted earnings per common share $0.30 $ 0.22 $ 0.60 $ 0.50
=============================================
See notes to consolidated financial statements.
4
RESOURCE BANKSHARES CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Six Months Ended June 30, 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 1,594 1,594
Changes in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification
adjustment and tax effect - - - - (66) (66)
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Total comprehensive income 1,528
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Proceeds from exercise of stock options 33,332 51 49 - - 100
Common stock issued as a result of
business combination 56,792 85 425 510
Cash dividends declared - $.10 per share - - - (257) - (257)
-------------------------------------------------------------------
Balance, June 30, 2000 2,629,037 $3,944 $11,053 $2,945 ($192) $17,750
===================================================================
See notes to consolidated financial statements.
5
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended
June 30, 2000 June 30, 1999
Operating activities
(Dollars in thousands)
----------------------
Net income $ 1,594 $ 1,377
Adjustments to reconcile to net cash provided
(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 305 165
Amortization of investment securities premiums, net of
discounts 21 (28)
Gain on sale of loans or other real estate owned (160) (272)
Gain on disposition of premises and equipment (43) -
Gain on sale of assets (291) -
Deferred loan origination fees, net of costs 515 438
Changes in:
Funds advanced in settlement of mortgage loans (18,993) (309)
Interest receivable (515) (275)
Interest payable 909 281
Other assets (2,555) (696)
Other liabilities 2,121 153
-------- --------
Net cash (used) provided by operating activities (16,385) 834
-------- --------
Investing activities:
Proceeds from sale of real estate owned, net of costs - 375
Proceeds from sales and maturities of available-for-sale securities 318 2,508
Proceeds from maturities of held-to-maturity securities 42 228
Purchases of available-for-sale securities (18,539) (14,760)
Purchases of held-to-maturity securities (1,187) (1,043)
Loan originations, net of principal repayments (5,408) (34,383)
Purchases of premises, equipment and other assets (200) (910)
-------- --------
Net cash used by investing activities (24,974) (47,985)
-------- --------
Financing activities:
Proceeds from exercise of stock options and warrants 100 456
Payments to reacquire common stock - (309)
Cash dividends paid (511) (504)
Net proceeds in FHLB advances 11,231 6,600
Net proceeds from issuance of capital debt securities - 8,812
Net increase in demand deposits,
NOW accounts and savings accounts 53,127 4,970
Net (decrease) increase in certificates of deposit (18,235) 27,639
-------- --------
Net cash provided by financing activities 45,712 47,664
-------- --------
Increase in cash and cash equivalents 5,117 513
Cash and cash equivalents at beginning of period 7,065 8,481
-------- --------
Cash and cash equivalents at end of period $ 12,182 $ 8,994
======== ========
Supplemental schedules and disclosures of
cash flow information:
Cash paid for:
Interest on deposits and other borrowings $ 7,476 $ 5,329
-------- --------
Schedule of noncash investment activities:
Foreclosed real estate - $375
-------- --------
See notes to consolidated financial statements.
During the six month period ended June 30, 2000, the Company acquired assets
with a fair value of $510,000 in exchange for 56,792 shares of its common stock,
in a business combination accounted for as a purchase.
6
RESOURCE BANKSHARES CORPORATION
Notes to Consolidated Financial Statements
June 30, 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 consolidated financial statements of the Company include the accounts
of its wholly owned subsidiary, Resource Bank and the Bank's wholly owned
subsidiaries, CW and Company of Virginia and Resource Service Corporation
(inactive). All significant intercompany balances and transactions have been
eliminated in consolidation.
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
principles. 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 (96)
Recoveries 109
------
Balance at June 30, 2000 $2,799
======
(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
7
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 six months ended
June 30, 2000, and 1999 were 2,562,576 and 2,507,857, respectively. The diluted
average number of shares for the six months ended June 30, 2000 and 1999 were
2,678,864 and 2,729,199, respectively.
(5) COMPREHENSIVE INCOME
The components of other comprehensive income and related tax effects for the six
months ended June 30, 2000 and 1999 are as follows:
Six months ended
June 30, June 30,
2000 1999
Unrealized holding losses arising during the
period on available-for-sale securities ($107) ($328)
Tax effect 41 116
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Net-of-tax amount ($66) ($212)
===== =====
No reclassification adjustment was necessary as no realized gains or losses
were included in net income for the period.
(6) SUBSEQUENT EVENTS
In July 2000, the Board of Directors of the Company declared a $0.10 per
common share dividend to shareholders of record as of July 13, 2000 and to be
paid July 27, 2000.
-8-
(7) 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 June 30, 2000 and June 30,
1999.
Selected Financial Information
Commercial and Mortgage Banking
Other Operations Operations Total
--------------------------------------------------
Six Months Ended June 30, 2000:
Net interest income after provision for loan losses $ 4,245 $ 206 $ 4,451
Noninterest income 847 3,409 4,256
Noninterest expense (3,371) (3,053) (6,424)
------- ------- -------
Net income before income taxes $ 1,721 $ 562 $ 2,283
======= ======= =======
Six Months Ended June 30, 1999:
Net interest income after provision for loan losses $ 4,022 $ 187 $ 4,209
Noninterest income 690 2,745 3,435
Noninterest expense (2,602) (2,936) (5,538)
------- ------- -------
Net income before income taxes $ 2,110 $ (4) $ 2,106
======= ======= =======
Segment Assets
Commercial Mortgage
and Other Banking
Operations Operations Total
------------------------------------
June 30, 2000 $357,219 $ 796 $358,015
======== ====== ========
June 30, 1999 $281,953 $1,158 $283,111
======== ====== ========
-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 June 30, 2000 were $358,015, up 16.7% from $306,689 at
December 31, 1999, reflecting growth in securities and loans. The Company
purchased $13,000 of municipal securities during the first six months of 2000.
The principal components of the Company's assets at the end of the period were
$42,438 in securities, $12,182 in cash and cash equivalents, $30,742 in funds
advanced in settlement of mortgage loans and $257,936 in net loans. The
Company's lending activities are a principal source of income.
Total liabilities at June 30, 2000 were $340,265, up from $290,820 at
December 31, 1999, with the increase represented by $34,893 (13.4%) growth in
deposits and $11,231 (61.4%) in borrowed funds. Non-interest bearing demand
deposits increased $3,750 or 23.6%, while interest bearing deposits increased by
$31,143 or 12.7%. 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 were used by the Company in its stock
repurchase program. The marketable securities are categorized as held-to-
maturity. The Company's stock repurchase program was used during 1999 to offset
the otherwise dilutive effects of stock options granted to the Company's
management as employment recruitment and retention perquisites.
In May 2000 the Company entered into a definitive agreement to sell certain
assets, deposits and certain liabilities of its branch located in Reston,
Virginia to Century Bancshares, Inc. for $5,000,000. The transaction is expected
to close during the third quarter; however there can be no assurance that the
transaction will be completed.
-10-
On June 14, 2000, the Bank purchased CW and Company of Virginia ("CW"), a
title insurance and real estate closing agency, for a purchase price of
$510,000, which was paid through the issuance of common stock of the Company.
CW, which trades under the name "Real Estate Investment Protection Agency,"
operates as a wholly owned subsidiary of the Bank.
Total stockholders' equity at June 30, 2000 was $17,750, compared to
$15,869 at December 31, 1999. The Company had net income of $1,594 for six
months ended June 30, 2000 compared with net income of $1,377 for the comparable
period in 1999, an increase of 15.8%. This increase is attributable to the
growth in interest bearing assets, increases in the prime lending rate, and
increases in mortgage banking income while maintaining expenses.
Profitability as measured by the Company's return on average assets (ROA)
was 1.0% for the six months ended June 30, 2000, down .1% from the same period
of 1999. A key indicator of performance, the return on average equity (ROE) was
19.5% and 15.2% for the six months ended June 30, 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 on a tax equivalent basis, before provision for loan
losses, increased to $4,725 for the six months ended June 30, 2000 versus $4,209
for the same period in 1999, an increase of 8.1%. Average interest earning
assets increased $69,177 from June 30, 1999 to the current period while average
interest bearing liabilities increased $73,733 during the same comparative
period. The yield on average interest earning assets increased 30 basis points
to 8.4% at June 30, 2000 as compared to 8.1% at June 30, 1999. The yield on
interest bearing liabilities increased 60 basis points to 5.8% at June 30, 2000
as compared to 5.2% at June 30, 1999.
-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.
Three months ended Three months ended
June 30, 2000 June 30, 1999
Average Yield/ Average Yield/
Balance Interest Rate (2) Balance Interest Rate (2)
(Dollars in thousands)
-----------------------------------------------------------------
Assets
Interest-earning assets:
Securities (1) $ 37,008 $ 744 8.04% $ 22,189 $ 383 6.90%
Loans (3) 255,722 5,494 8.59% 206,625 4,209 8.15%
Interest-bearing deposits 8,650 125 5.78% 8,117 102 5.03%
Other interest-earning assets (4) 17,426 411 9.43% 17,929 425 9.48%
-----------------------------------------------------------------
Total interest-earning assets 318,806 6,774 8.50% 254,860 5,119 8.03%
Noninterest earning assets:
Cash and due from banks 4,678 3,902
Premises and equipment 3,792 3,773
Other assets 7,924 4,932
Less: Allowance for loan losses (2,805) (2,407)
-------- --------
Total noninterest earning assets 13,589 10,200
-------- --------
Total assets $332,395 $265,060
-------- --------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Demand/Money Market Accounts $ 54,303 $ 789 5.81% $ 12,421 $ 97 3.12%
Savings 18,415 216 4.69% 23,263 266 4.57%
Certificates of deposit 199,730 2,919 5.85% 171,271 2,240 5.23%
-----------------------------------------------------------------
Total interest-bearing deposits 272,448 3,924 5.76% 206,955 2,603 5.03%
FHLB advances and other borrowings 14,012 217 6.19% 10,035 138 5.50%
Capital debt securities 9,200 213 9.26% 9,200 215 9.35%
-----------------------------------------------------------------
Total interest-bearing liabilities 295,660 4,354 5.89% 226,190 2,956 5.23%
Noninterest-bearing liabilities:
Demand deposits 16,440 18,314
Other liabilities 3,694 2,099
-------- --------
Total noninterest-bearing liabilities 20,134 20,413
Stockholders' equity 16,601 18,457
-------- --------
Total liabilities and stockholders' equity $332,395 $265,060
-------- --------
Interest rate spread (1) (5) 2.61% 2.80%
Net interest income/net interest margin (1) (6) $2,420 3.04% $2,163 3.39%
Six months ended Six months ended
June 30, 2000 June 30, 1999
Average Yield/ Average Yield/
Balance Interest Rate (2) Balance Interest Rate (2)
--------- ------------------------------------------------
Assets
Interest-earning assets:
Securities (1) $ 35,032 $ 1,404 8.02% $ 18,276 $ 587 6.42%
Loans (3) 255,835 10,847 8.48% 197,690 8,216 8.31%
Interest-bearing deposits 8,466 236 5.58% 11,113 269 4.84%
Other interest-earning assets (4) 13,330 623 9.35% 16,407 747 9.11%
----------------------------------------------------------
Total interest-earning assets 312,663 13,110 8.39% 243,486 9,819 8.07%
Noninterest earning assets:
Cash and due from banks 4,353 3,945
Premises and equipment 3,819 3,536
Other assets 7,662 4,917
Less: Allowance for loan losses (2,767) (2,425)
-------- --------
Total noninterest earning assets 13,067 9,973
-------- --------
Total assets $325,730 $253,459
-------- --------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Demand/Money Market Accounts $ 36,878 $ 1,023 5.55% $ 12,796 $ 240 3.75%
Savings 19,721 465 4.72% 22,608 532 4.71%
Certificates of deposit 208,155 5,996 5.76% 166,923 4,331 5.19%
--------- ------------------------------------------------
Total interest-bearing deposits 264,754 7,484 5.65% 202,327 5,103 5.04%
FHLB advances and other borrowings 16,305 487 5.97% 8,675 239 5.51%
Capital debt securities 9,200 414 9.00% 5,794 268 9.25%
----------------------------------------------------------
Total interest-bearing liabilities 290,259 8,385 5.78% 216,796 5,610 5.18%
Noninterest-bearing liabilities:
Demand deposits 15,767 16,429
Other liabilities 3,282 2,028
-------- --------
Total noninterest-bearing liabilities 19,049 18,457
Stockholders' equity 16,422 18,206
-------- --------
Total liabilities and stockholders' equity $325,730 $253,459
-------- --------
Interest rate spread (1) (5) 2.61% 2.89%
Net interest income/net interest margin (1) (6) $ 4,725 3.02% $4,209 3.46%
(1)Tax equivalent basis. The tax equivalent adjustment to net interest income
was $174 thousand and $0 for the six months ended June 30, 2000 and 1999,
respectively.
(2)Yield and rate percentages are all computed through the annualization of
interest income and expenses divided by average daily balances based on
amortized cost.
(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.
-12-
(6)Net interest margin is net interest income annualized, expressed as a
percentage of average earning assets.
Non-interest income increased from $3,435 for the six months ended June 30,
1999 to $4,256 for the same period in 2000. This increase was primarily
attributable to increased activity in the Company's mortgage banking operations.
For the six months ended June 30, 2000, mortgage banking income increased by
24.2% or $664 to $3,409 versus the same period of 1999. Mortgage banking made a
significant contribution to the Company's results in the first six months 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 $157 to $847 for the six months ending June 30,
2000 compared to the same period in 1999. Service charges declined (19.2%)
while other non-interest income increased (72.7%). The gain on sale of assets
includes a $291 gain which was due to the full recognition of a deferred gain on
the sale of a building.
For the six months ended June 30, 2000, the Company's non-interest expense
totaled $6,424 or 16.0% higher than the same period in 1999. This increase was
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 59.0% of total non-interest expense,
increased 17.7% to $3,788 for the six months ended June 30, 2000 over the same
period in 1999, and was primarily attributed to the opening of the new offices.
Occupancy expense increased by 9.3% to $624, depreciation and equipment
maintenance increased by 36.2% to $482, marketing and business development
increased 5.5% to $213, and outside computer services increased by 10.9% to $275
for the six months ended June 30, 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 period-end loans was 1.1% and 1.1% at June 30, 2000
and 1999, respectively. The provisions for loan losses were $100 and $0 for the
six months ended June 30, 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.
June 30 December 31
2000 1999
---- ----
(Dollars in thousands)
Non accrual loans $ 661 $ 473
Other real estate 31 31
Loans 90 days or more past due and still
-------- --------
accruing interest 248 270
-------- --------
Total non performing assets $ 940 $ 774
======== ========
Total assets $358,015 $306,689
======== ========
Total non performing assets to total assets 0.26% 0.25%
======== ========
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Summary of Loan Loss Experience
The following table presents the Company=s loan loss experience and selected
loan loss ratios for the six months ended June 30, 2000 and 1999.
Six months ended
June 30
2000 1999
---- ----
(Dollars in thousands)
Balance of allowance for loan losses
at beginning of year $ 2,686 $ 2,500
Loans charged-off:
Commercial (95) (11)
Installment - (2)
Real Estate - (84)
Credit Cards and Other Consumer (1) (4)
------------ ------------------
Total loans charged-off (96) (101)
------------ ------------------
Recoveries of loans previously charged off:
Commercial 104 1
Installment - 1
Real Estate 4 -
Credit Cards and Other Consumer 1 -
------------ ------------------
Total recoveries 109 2
------------ ------------------
Net loan (charge-offs) recoveries 13 (99)
Additions to allowance charged to expense 100 -
Balance at end of period $ 2,799 $ 2,401
============ ==================
Average loans $255,835 $197,690
Loans at end of period $260,735 $222,519
Selected Loan Loss Ratios:
Net charge-offs (recoveries) 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 (recoveries) during
the period -769% 0%
Allowance for loan losses to loans at end of period 1.07% 1.08%
Non-performing assets at end of period $ 940 $ 1,280
Non-performing assets to total loans at end of period 0.36% 0.58%
Allowance for loan losses to non-performing assets at end
of period 298% 188%
-15-
Interest Rate Sensitivity and Liquidity
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 June 30,
2000, there were $18,624 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 $1,500 in outstanding
warehouse advances at June 30, 2000 and no outstanding warehouse advances at
June 30, 1999. At June 30, 1999, $7,300 was outstanding in FHLB advances outside
of the warehouse line.
The Company purchased Federal Funds from correspondent institutions in the
amount of $9,407 and $6,600 at June 30, 2000 and 1999, respectively. The Company
has lines of credit with other correspondent banks of $11,588 and $3,000.
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,
municipal bonds, preferred stocks and bonds of corporations with investment
grade ratings.
The Company's financial position at June 30, 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.
June 30, 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 $ 10,281 $ 2,898 $ 8,186 $21,073 $ 42,438
Loans 141,471 14,648 73,054 31,562 260,735
Interest bearing deposits 2,882 - - - 2,882
Other interest-earning assets 30,742 - - - 30,742
---------------------------------------------------------------
Total interest-earning assets 185,376 17,546 81,240 52,635 336,797
---------------------------------------------------------------
Interest-Bearing Liabilities:
Deposits
Demand and savings (1) 55,808 - 28,224 - 84,032
Time deposits, $100,000 and over 1,847 9,802 1,010 - 12,659
Other time deposits 55,890 100,331 22,806 - 179,027
Other interest-bearing liabilities 24,231 - 300 5,000 29,531
Capital debt securities - - - 9,200 9,200
---------------------------------------------------------------
Total interest-earning liabilities 137,776 110,133 52,340 14,200 314,449
---------------------------------------------------------------
Period Gap $ 47,600 ($92,587) $ 28,900 $38,435 $ 22,348
---------------------------------------------------------------
Cumulative Gap $ 47,600 ($44,987) ($16,087) $22,348
---------------------------------------------------
Ratio cumulative gap to total
interest-earning assets 14.13% -13.36% -4.78% 6.64%
---------------------------------------------------
(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 June 30, 2000.
Resource Resource
Required Ratio Bankshares Bank
--------------- ----------- ------
Tier 1 risk-based 4.00% 8.72% 9.05%
Total risk-based 8.00% 10.92% 10.06%
Tier 1 leverage 4.00 to 5.00% 7.18% 7.53%
The Company and the Bank are in full compliance with all relevant
regulatory capital requirements and is categorized by regulatory authorities as
well capitalized.
-17-
The effect of changing prices on financial institutions is typically
different from other industries 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 six 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 4. Submission of Matters to a Vote of Security Holders
Resource Bankshares Corporation held its 2000 Annual Meeting of
Shareholders on May 25, 2000. At the Annual Meeting, the following matters were
acted upon by shareholders.
1. Approval of an amendment to the Company's Articles of Incorporation to
create a classified Board of Directors with staggered three year terms.
FOR AGAINST ABSTAIN BROKER NON-VOTES
1,395,808 39,010 6,913 742,950
2. Approval of an amendment to the Company's Articles of Incorporation to
provide that directors may only be removed by shareholders for cause.
FOR AGAINST ABSTAIN BROKER NON-VOTES
1,374,915 58,900 7,916 742,950
3. Election of Directors. The following persons were elected as directors of
the Company to serve a one, two, or three year term as indicated, with
the votes For and Withheld indicated below:
-18-
DIRECTOR FOR WITHHELD
Class A - One Year
Louis R. Jones 2,170,529 13,452
A. Russell Kirk 2,169,655 14,325
Class B - Two Years
Alfred E. Abiouness 2,170,529 13,452
Elizabeth A. Twohy 2,170,529 13,452
Class C - Three Years
John B. Bernhardt 2,170,529 13,452
Thomas W. Hunt 2,170,529 13,452
Lawrence N. Smith 2,155,557 28,424
4. Ratification of the appointment of Goodman & Company, L.L.P. as the
Company's independent auditors for the year ending December 31, 2000.
FOR AGAINST ABSTAIN BROKER NON-VOTES
2,174,750 7,400 1,831 0
Item 6. Exhibits And Reports on Form 8-K
(a) The registrant includes herein the following exhibits.
Exhibit No. Item
----------- ----
3 Amended and Restated Articles of
Incorporation
27 Financial Data Schedule
-19-
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: August 11, 2000
/s/ Eleanor J. Whitehurst
-------------------------------
Eleanor J. Whitehurst
Senior Vice President & Chief Financial Officer
Date: August 11, 2000
-20-