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 SEPTEMBER 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 September 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
SEPTEMBER 30, 2000
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 3
Consolidated Statements of Income for the periods ended
September 30, 2000 and 1999 4
Consolidated Statement of Stockholders' Equity for the period
ended September 30, 2000 5
Consolidated Statements of Cash Flows for the periods ended
September 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 6. Exhibits and Reports on Form 8-K 18
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS September 30 December 31
2000 1999
(Unaudited)
(Dollars in thousands)
ASSETS
Cash and due from banks $ 6,137 $ 3,482
Interest bearing deposits 3,435 2,138
Federal funds sold 2,657 1,445
------------- -------------
12,229 7,065
Funds advanced in settlement of mortgage loans 24,553 11,774
Securities available for sale (amortized cost of $7,672 and $6,750, respectively) 7,648 6,659
Securities held to maturity (fair value of $61,964 and $14,385, respectively) 62,550 16,536
Loans, net
Commercial 65,813 77,271
Real estate - construction 68,176 68,076
Commercial real estate 88,713 64,158
Residential real estate 40,662 41,820
Installment and consumer loans 4,316 4,345
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TOTAL LOANS 267,680 255,670
Allowance for loan losses (3,726) (2,686)
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NET LOANS 263,954 252,984
Other real estate owned - 31
Premises and equipment, net 2,475 4,077
Other assets 7,857 5,560
Accrued interest 2,867 2,003
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$ 384,133 $ 306,689
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 14,714 $ 15,894
Interest bearing 303,879 244,575
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TOTAL DEPOSITS 318,593 260,469
FHLB advances 30,300 18,300
Other liabilities 4,601 1,610
Accrued interest 2,139 1,241
Capital debt securities 9,200 9,200
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TOTAL LIABILITIES 364,833 290,820
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STOCKHOLDERS' EQUITY
Preferred stock, par value $10 per share,
Shares authorized: 500,000; none issued and outstanding - -
Common stock, par value $1.50 a share
Shares authorized: 6,666,666
Shares issued and outstanding:
2000 - 2,629,037; 1999 2,538,913 3,944 3,808
Additional paid-in capital 11,053 10,579
Retained earnings 4,495 1,608
Accumulated other comprehensive income (loss) (192) (126)
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19,300 15,869
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$ 384,133 $ 306,689
============= =============
See notes to consolidated financial statements.
3
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended Nine months ended
(UNAUDITED) September 30 September 30
2000 1999 2000 1999
(Dollars in Thousands) (Dollars in Thousands)
Interest and dividend income
Interest and fees on loans $ 5,815 $ 4,754 $ 16,662 $ 12,970
-------------------------------------------------------
Interest on investment securities:
Interest and dividends on securities available for sale 164 135 449 560
Interest on securities held to maturity 711 296 1,723 671
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875 431 2,172 1,231
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Interest on federal funds sold 59 1 228 57
Interest on funds advanced in settlement of mortgage loans 504 465 1,127 1,212
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Total interest income 7,253 5,651 20,189 15,470
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Interest expense
Interest on deposits 4,450 2,824 11,933 7,927
Interest on borrowings 239 228 726 468
Interest on capital debt securities 213 217 627 484
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Total interest expense 4,902 3,269 13,286 8,879
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Net interest income 2,351 2,382 6,903 6,591
Provision for loan losses 1,000 4,667 1,100 4,667
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Net interest income (loss) after provision for loan losses 1,351 (2,285) 5,803 1,924
Noninterest income
Mortgage banking income 1,795 1,631 5,203 4,375
Service charges 157 193 452 568
Gain on sale of deposits 2,532 - 2,532 -
Gain on sale of assets 1,150 12 1,688 284
Other 79 15 94 58
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5,713 1,851 9,969 5,285
-------------------------------------------------------
Noninterest expense
Salaries and employee benefits 2,373 1,920 6,160 5,139
Occupancy expenses 304 304 929 875
Depreciation and equipment maintenance 260 292 742 646
Stationery and supplies 98 123 328 390
Marketing and business development 124 123 337 325
Professional fees 121 135 237 206
Outside computer services 126 119 386 367
FDIC insurance 35 15 61 42
Other 935 604 1,622 1,183
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4,376 3,635 10,802 9,173
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Income (loss) before income tax 2,687 (4,069) 4,970 (1,964)
Income tax (benefit) expense 874 (1,418) 1,563 (690)
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Net income (loss) $ 1,813 $ (2,651) $ 3,407 $ (1,274)
=======================================================
Cash dividends declared per common share $ 0.10 $ 0.10 $ 0.20 $ 0.30
=======================================================
Basic earnings (loss) per common share $ 0.69 $ (1.04) $ 1.32 $ (0.51)
=======================================================
Diluted earnings (loss) per common share $ 0.66 $ (1.04) $ 1.26 $ (0.51)
=======================================================
See notes to consolidated financial statements.
4
RESOURCE BANKSHARES CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Nine Months Ended September 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 3,407 3,407
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 3,341
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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 - $.20 per share - - - (520) - (520)
--------------------------------------------------------------------------
Balance, September 30, 2000 2,629,037 $3,944 $11,053 $4,495 ($192) $19,300
==========================================================================
See notes to consolidated financial statements.
5
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended
Sept 30, 2000 Sept 30, 1999
(Dollars in thousands)
---------------------
Operating activities
Net income $ 3,407 $ (1,274)
Adjustments to reconcile to net cash provided
(used) by operating activities:
Provision for losses on loans and other real estate owned 1,100 4,667
Provision for losses on funds advanced in settlement of
mortgage loans 75 275
Depreciation and amortization 493 310
Amortization of investment securities premiums, net of discount (21) 40
Gain on sale of loans or other real estate owned (128) (280)
Gain on disposition of premises and equipment (1,193) (1)
Gain on sale of deposits (2,532) -
Deposits disposed of in branch sale (51,783) -
Gain on sale of assets (291) -
Deferred loan origination fees, net of costs 540 502
Changes in:
Funds advanced in settlement of mortgage loans (12,854) 4,397
Interest receivable (864) (334)
Interest payable 781 375
Other assets (1,498) (2,186)
Other liabilities 3,399 (91)
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Net cash (used) provided by operating activities (61,369) 6,400
-------- --------
Investing activities:
Proceeds from sale of real estate owned, net of costs - 590
Proceeds from sales and maturities of available-for-sale securities 5,068 2,282
Proceeds from maturities of held-to-maturity securities 510 320
Proceeds from sale of premises and land 2,700 -
Purchases of available-for-sale securities (51,048) (647)
Purchases of held-to-maturity securities (1,614) (14,760)
Loan originations, net of principal repayments (12,450) (52,503)
Purchases of premises, equipment and other assets (651) (1,059)
-------- --------
Net cash used by investing activities (57,485) (65,777)
-------- --------
Financing activities:
Proceeds from exercise of stock options and warrants 100 495
Payments to reacquire common stock - (556)
Cash dividends paid (520) (757)
Net proceeds from FHLB advances 12,000 15,324
Net proceeds from issuance of capital debt securities - 8,816
Net increase in demand deposits,
NOW accounts and savings accounts 83,428 2,542
Net increase in certificates of deposit 29,010 31,278
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Net cash provided by financing activities 124,018 57,142
-------- --------
Increase(decrease) in cash and cash equivalents 5,164 (2,235)
Cash and cash equivalents at beginning of period 7,065 8,481
-------- --------
Cash and cash equivalents at end of period $ 12,229 $ 6,246
======== ========
Supplemental schedules and disclosures of
cash flow information:
Cash paid for:
Interest on deposits and other borrowings $ 11,265 $ 8,505
-------- --------
Schedule of noncash investment activities:
Foreclosed real estate - $ (590)
-------- --------
See notes to consolidated financial statements.
During the nine month period ended September 30, 2000, the Company acquired
assets with a fair value of $510 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
September 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. 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 1,100
Loans charged off (171)
Recoveries 111
------
Balance at September 30, 2000 $3,726
======
(4) NET INCOME(LOSS) PER SHARE
Basic earnings per share excludes the potentially dilutive effect of common
stock equivalents and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
-7-
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
common shares outstanding for the nine months ended September 30, 2000, and 1999
were 2,584,891 and 2,520,023, respectively. The diluted average number of shares
for the nine months ended September 30, 2000 and 1999 were 2,702,537 and
2,520,023, respectively. The effect of dilutive securities was not used to
compute diluted earnings per share for 1999 because the effect would have been
antidilutive.
(5) COMPREHENSIVE INCOME
The components of other comprehensive income and related tax effects for the
nine months ended September 30, 2000 and 1999 are as follows:
Nine months ended
Sept 30, 2000 Sept 30, 1999
Unrealized holding losses arising during the
period on available-for-sale securities ($109) ($292)
Tax effect 43 105
----- -----
Net-of-tax amount ($66) ($187)
===== =====
No reclassification adjustment was necessary as no realized gains or losses
were included in net income for the period.
(6) SUBSEQUENT EVENTS
In October 2000, the Board of Directors of the Company declared a $0.12 per
common share dividend to shareholders of record as of October 12, 2000. The
dividend was paid on October 26, 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 September 30, 2000 and
September 30, 1999.
Selected Financial Information
Commercial and Mortgage Banking
Other Operations Operations Total
------------------------------------------------------
Nine Months Ended September 30, 2000:
Net interest income after provision for loan
losses $ 5,444 $ 359 $ 5,803
Noninterest income 4,766 5,203 9,969
Noninterest expense (6,126) (4,676) (10,802)
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Net income before income taxes $ 4,084 $ 886 $ 4,970
======= ======= ========
Nine Months Ended September 30, 1999:
Net interest income after provision for loan
losses $ 1,615 $ 309 $ 1,924
Noninterest income 910 4,375 5,285
Noninterest expense (4,471) (4,702) (9,173)
------- ------- --------
Net income (loss) before income taxes $(1,946) $ (18) $ (1,964)
======= ======= ========
Segment Assets
Commercial Mortgage
and Other Banking
Operations Operations Total
-------------------------------------
September 30, 2000 $383,269 $ 864 $384,133
======== ====== ========
September 30, 1999 $288,777 $1,032 $289,809
======== ====== ========
-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.
In order to provide information regarding the Company's financial condition
and prospectus, the Company will maintain a copy of its latest 12 month budget
and 5 year financial plan in the headquarters office for any shareholder or
investor to review. Both of these plans will be reviewed by Management on a
quarterly basis and updated as needed.
Total assets at September 30, 2000 were $384,133, up 25.3% from $306,689 at
December 31, 1999, reflecting growth in securities and loans. The increase in
total assets resulted primarily from the Company's increase in deposits
including $53,457 of securities purchased during the first nine months of 2000.
The principal components of the Company's assets at the end of the period were
$70,198 in securities, $12,229 in cash and cash equivalents, $24,553 in funds
advanced in settlement of mortgage loans and $263,954 in net loans. The
Company's lending activities are a principal source of income.
Total liabilities at September 30, 2000 were $364,833, up from $290,820 at
December 31, 1999, with the increase represented by $58,124 (20%) growth in
deposits and $12,000 (65.6%) in borrowed funds. Non-interest bearing demand
deposits decreased $1,180 or 7.4%, while interest bearing deposits increased by
$59,304 or 24.3%. The Company's deposits are provided by individuals and
businesses located within the communities served as well as the national market.
During the first quarter of 2000, the Company established an internet site to
provide an additional service to customers. At September 30, 2000, total
outstanding deposits derived from internet banking were $89,671 from customers
in approximately 43 states.
The Company raised $9,200 of additional funding 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, and are
classified as debt on the Company's balance sheet. In conjunction with this
transaction, 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
-10-
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.
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,
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.
On August 15, 2000, Resource Service Corporation entered into a joint
venture with Financial Planners Mortgage Company, Inc. and formed a partnership
titled Financial Planners Mortgage, LLP. The partnership will participate in
real estate settlement activities.
On August 25, 2000, the Company sold certain assets, deposits and certain
liabilities of its branch located in Reston, Virginia to Century Bankshares,
Inc. The Company received $4,566 for the deposit accounts, branch building and
related assets.
Total stockholders' equity at September 30, 2000 was $19,300, compared to
$15,869 at December 31, 1999. The Company had net income of $3,407 for the nine
months ended September 30, 2000 compared with a net loss of $1,274 for the
comparable period in 1999. During the third quarter of 2000, the Company sold a
banking branch in Reston, Virginia as well as the furniture and equipment
associated with the branch. During the quarter, the Company also sold a parcel
of real estate acquired with the property on which the Bank intends to build its
Northern Virginia headquarters. During the third quarter of 1999, the Company
incurred an operating loss related to a one time loan loss provision. This loan
loss provision occurred as a result of a significant credit loss and exiting the
asset-based lending business.
Excluding nonrecurring transactions for both years, the core earnings of
the Company would have been approximately $739, or $0.27 per diluted share, for
the third quarter 2000 as compared to approximately $624, or $0.23 per diluted
share, for the same period in 1999. Core earnings for the nine months ended
September 30, 2000 would have been approximately $2,333, or $.086 per diluted
share as compared to approximately $2,001, or $0.73 per diluted share, for the
nine months ended September 30, 1999. Core earnings increased 18.5% for the
quarter ending September 30, 2000 over the prior year and 16.6% for the nine
months over the prior year.
Profitability as measured by the Company's return on average assets (ROA)
was 1.4% for the nine months ended September 30, 2000, as compared to (.6%) for
the same period of 1999. A key indicator of performance, the return on average
equity (ROE) was 26.7% and (9.3%) for the nine months ended September 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 $7,175 for the nine months ended September 30, 2000 versus
$6,591 for the same period in 1999, an increase of 8.9%. Average interest
earning assets increased $66,389 from September 30, 1999 to the current period
while average interest bearing liabilities increased $69,980 during the same
-11-
comparative period. The yield on average interest earning assets increased 40
basis points to 8.5% at September 30, 2000 as compared to 8.1% at September 30,
1999. The cost of interest bearing liabilities increased 80 basis points to 6%
at September 30, 2000 as compared to 5.2% at September 30, 1999.
-12-
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
September 30, 2000 September 30, 2000
Average Yield/ Average Yield/
Balance Interest Rate (2) Balance Interest Rate (2)
(Dollars in thousands)
------------------------------------------------------------------------
Assets
Interest-earning assets:
Securities (1) $ 44,051 $ 973 8.84% $ 22,524 $ 390 6.93%
Loans (3) 264,148 5,815 8.81% 230,470 4,754 8.25%
Interest-bearing deposits 7,622 59 3.10% 3,021 42 5.56%
Other interest-earning assets (4) 21,226 504 9.50% 19,504 465 9.54%
-------------------------------------------------------------------------
Total interest-earning assets 337,047 7,351 8.72% 275,519 5,651 8.20%
Noninterest earning assets:
Cash and due from banks 5,328 4,555
Premises and equipment 3,239 3,936
Other assets 9,783 5,272
Less: Allowance for loan losses (3,117) (2,292)
-------- --------
Total noninterest earning assets 15,233 11,471
-------- --------
Total assets $352,280 $286,990
-------- --------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Demand/Money Market Accounts $ 79,364 $1,215 6.12% $ 12,247 $ 101 3.30%
Savings 11,859 135 4.55% 23,588 269 4.56%
Certificates of deposit 195,320 3,100 6.35% 186,507 2,454 5.26%
-------------------------------------------------------------------------
Total interest-bearing deposits 286,543 4,450 6.21% 222,342 2,824 5.08%
FHLB advances and other borrowings 15,122 239 6.32% 16,389 228 5.56%
Capital debt securities 9,200 213 9.26% 9,200 217 9.43%
-------------------------------------------------------------------------
Total interest-bearing liabilities 310,865 4,902 6.31% 247,931 3,269 5.27%
Noninterest-bearing liabilities:
Demand deposits 17,709 17,996
Other liabilities 5,579 2,355
-------- --------
Total noninterest-bearing liabilities 23,288 20,351
Stockholders' equity 18,127 18,708
-------- --------
Total liabilities and stockholders' equity $352,280 $286,990
-------- --------
Interest rate spread (1) (5) 2.41% 2.93%
Net interest income/net interest margin (1) (6) $2,449 2.91% $2,382 3.46%
Nine months ended Nine months ended
September 30, 2000 September 30, 1999
Average Yield/ Average Yield/
Balance Interest Rate (2) Balance Interest Rate (2)
-----------------------------------------------------------------------
Assets
Interest-earning assets:
Securities (1) $ 37,904 $ 2,444 8.60% $ 19,728 $ 977 6.60%
Loans (3) 258,626 16,662 8.59% 208,968 12,970 8.28%
Interest-bearing deposits 8,183 228 3.72% 8,385 311 4.95%
Other interest-earning assets (4) 15,981 1,127 9.40% 17,224 1,212 9.38%
---------------------------------------------------------------------
Total interest-earning assets 320,694 20,461 8.51% 254,305 15,470 8.11%
Noninterest earning assets:
Cash and due from banks 4,683 4,151
Premises and equipment 3,625 3,671
Other assets 8,530 5,038
Less: Allowance for loan losses (2,885) (2,380)
-------- --------
Total noninterest earning assets 13,953 10,480
-------- --------
Total assets $334,647 $264,785
-------- --------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Demand/Money Market Accounts $ 51,335 $ 2,202 5.72% $ 12,746 $ 307 3.21%
Savings 17,469 577 4.40% 22,770 778 4.56%
Certificates of deposit 202,881 9,154 6.02% 173,057 6,842 5.27%
---------------------------------------------------------------------
Total interest-bearing deposits 271,685 11,933 5.86% 208,573 7,927 5.07%
FHLB advances and other borrowings 15,908 726 6.08% 11,275 468 5.53%
Capital debt securities 9,200 627 9.09% 6,965 484 9.27%
---------------------------------------------------------------------
Total interest-bearing liabilities 296,793 13,286 5.97% 226,813 8,879 5.22%
Noninterest-bearing liabilities:
Demand deposits 16,905 17,455
Other liabilities 3,954 2,114
-------- --------
Total noninterest-bearing liabilities 20,859 19,569
Stockholders' equity 16,995 18,403
-------- --------
Total liabilities and stockholders' equity $334,647 $264,785
-------- --------
Interest rate spread (1) (5) 2.54% 2.89%
Net interest income/net interest margin (1) (6) $ 7,175 2.98% $ 6,591 3.46%
(1) Tax equivalent basis. The tax equivalent adjustment to net interest income
was $272 thousand and $0 for the nine months ended September 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.
(6) Net interest margin is net interest income annualized, expressed as a
percentage of average earning assets.
-13-
Non-interest income increased from $5,285 for the nine months ended
September 30, 1999 to $9,969 for the same period in 2000. This increase was
primarily attributable to increased activity in the Company's mortgage banking
operations, and the gain on sale of the branch in Reston. For the nine months
ended September 30, 2000, mortgage banking income increased by 18.9% or $828 to
$5,203 versus the same period of 1999. Mortgage banking made a significant
contribution to the Company's results in the first nine 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 $3,856 to $4,766 for the nine months ending September 30, 2000
compared to the same period in 1999. Service charges declined $116 while other
non-interest income increased by $3,972. The gain on sale of assets includes a
$530 gain on furniture and equipment associated with the branch sale and a $620
gain on the disposition of a parcel of land. The gain on the sale of deposits
with the branch sale amounted to $2,532.
For the nine months ended September 30, 2000, the Company's non-interest
expense totaled $10,802 or 17.8% 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 57.0% of total non-
interest expense, increased 19.9% to $6,160 for the nine months ended September
30, 2000 over the same period in 1999, and was primarily attributed to the
opening of the new offices. Other non-interest expenses increased by $608, or
15.1% over the same period in 1999. This increase was due primarily to a $500
write down in value of an other asset held by the Company.
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 1.4% and 1.6% at September 30,
2000 and 1999, respectively. The provisions for loan losses were $1,100 and
$4,667 for the nine months ended September 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.
-14-
Non-Performing Assets
The following table presents the Company's non-performing assets for the periods
set forth.
September 30 December 31
2000 1999
---- ----
(Dollars in thousands)
Non accrual loans $ 1,028 $ 473
Other real estate - 31
Loans 90 days or more past due and still
accruing interest 327 270
-------- --------
Total non-performing assets $ 1,355 $ 774
======== ========
Total assets $384,133 $306,689
======== ========
Total non-performing assets to total assets 0.35% 0.25%
======== ========
-15-
Summary of Loan Loss Experience
The following table presents the Company's loan loss experience and selected
loan loss ratios for the nine months ended September 30, 2000 and 1999.
Nine months ended
September 30
2000 1999
---- ----
(Dollars in thousands)
Balance of allowance for loan losses
at beginning of year $ 2,686 $ 2,500
Loans charged-off:
Commercial (170) (3,358)
Installment - (2)
Real Estate - (84)
Credit Cards and Other Consumer (1) (4)
-------- --------
Total loans charged-off (171) (3,448)
-------- --------
Recoveries of loans previously charged off:
Commercial 105 1
Installment - 1
Real Estate 5 -
Credit Cards and Other Consumer 1 2
-------- --------
Total recoveries 111 4
-------- --------
Net loan (charge-offs) recoveries (60) (3,444)
Additions to allowance charged to expense 1,100 4,667
Balance at end of period $ 3,726 $ 3,723
======== ========
Average loans $258,626 $208,968
Loans at end of period $267,680 $237,230
Selected Loan Loss Ratios:
Net charge-offs (recoveries) during the period to average loans 0.02% 1.65%
Provision for loan losses to average loans 0.43% 2.23%
Provision for loan losses to net charge-offs (recoveries) during
the period 1833.33% 136%
Allowance for loan losses to loans at end of period 1.39% 1.57%
Non-performing assets at end of period $ 1,355 $ 2,472
Non-performing assets to total loans at end of period 0.51% 1.04%
Allowance for loan losses to non-performing assets at end
of period 275% 151%
-16-
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 September
30, 2000, there were $30,300 in FHLB advances outstanding against credit
availability of $64,210. The Company also 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 September 30, 2000
and no outstanding warehouse advances at September 30, 1999. At September 30,
1999, $14,703 was outstanding in FHLB advances outside of the warehouse line.
The Company purchased Federal Funds from correspondent institutions in the
amount of $0 and $7,921 at September 30, 2000 and 1999, respectively. The
Company has lines of credit with other correspondent banks of $11,588 and $3,000
which are also used as a source of liquidity. The Company has approximately
$129,000 in total available credit with $30,300 in FHLB advances outstanding at
September 30, 2000 leaving approximately $98,700 in borrowing capacity.
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 September 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.
-17-
The following table presents the amounts of the Company's interest
sensitive assets and liabilities that mature or reprice in the periods
indicated.
Sept 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 $ 28,848 $ 11,548 $10,945 $18,857 $ 70,198
Loans 144,742 15,904 77,848 29,186 267,680
Interest bearing deposits 6,092 - - - 6,092
Other interest-earning assets 24,553 - - - 24,553
------------------------------------------------------------------------------------------
Total interest-earning assets 204,235 27,452 88,793 48,043 368,523
------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Deposits
Demand and savings (1) 83,112 - 17,907 - 101,019
Time deposits, $100,000 and over 1,591 3,709 689 - 5,989
Other time deposits 58,536 131,582 6,703 50 196,871
Other interest-bearing
liabilities - - 300 30,000 30,300
Capital debt securities - - - 9,200 9,200
------------------------------------------------------------------------------------------
Total interest-earning liabilities 143,239 135,291 25,599 39,250 343,379
------------------------------------------------------------------------------------------
Period Gap $ 60,996 ($107,839) $63,194 $ 8,793 $ 25,144
------------------------------------------------------------------------------------------
Cumulative Gap $ 60,996 ($46,843) $16,351 $25,144
------------------------------------------------------------------------
Ratio cumulative gap to total
interest-earning assets 16.55% -12.71% 4.44% 6.82%
------------------------------------------------------------------------
(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 September 30, 2000.
Resource Resource
Required Ratio Bankshares Bank
--------------- ----------- --------
Tier 1 risk-based 4.00% 9.04% 9.23%
Total risk-based 8.00% 11.22% 10.49%
Tier 1 leverage 4.00 to 5.00% 7.36% 7.50%
The Company and the Bank are in full compliance with all relevant
regulatory capital requirements and are categorized by regulatory authorities as
well capitalized.
-18-
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. When interest rates decline, the Company's earnings will be
negatively impacted 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 nine 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
-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: November 10, 2000
/s/ Eleanor J. Whitehurst
--------------------------
Eleanor J. Whitehurst
Senior Vice President & Chief Financial Officer
Date: November 10, 2000
-20-