Filed Pursuant to Rule 424(B)(1)
File No. 333-60034
500,000 Shares
RESOURCE BANKSHARES CORPORATION
[RESOURCE BANKSHARES LOGO]
Common Stock
----------------
Resource Bankshares Corporation is offering 500,000 shares of its common
stock.
Our common stock is traded on the Nasdaq National Market under the symbol
"RBKV". As of June 14, 2001, the last reported sale price of our common stock
on the Nasdaq National Market was $15.50 per share.
Investing in our common stock involves risks. See "Risk Factors" on page 7 to
read about factors you should consider before buying shares of the common
stock.
----------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The shares of common stock offered are not deposit accounts and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
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Per Share Total
--------- -----
Public offering price..................... $14.00 $7,000,000
Underwriting discount..................... $ 0.98 $ 490,000
Proceeds, before expenses, to Resource
Bankshares............................... $13.02 $6,510,000
To the extent that the underwriter sells more than 500,000 shares of our
common stock, the underwriter has the option to purchase up to an additional
75,000 shares from Resource Bankshares at the public offering price less the
underwriting discount.
----------------
The underwriter expects to deliver the shares to purchasers on June 20, 2001.
SCOTT & STRINGFELLOW, INC.
This prospectus is dated June 15, 2001.
[Back of front cover]
RESOURCE BANKSHARES CORPORATION
[MAP OF BRANCH LOCATIONS]
PROSPECTUS SUMMARY
This summary highlights information about our company and the offering. This
summary does not contain all the information that you should consider before
investing in our common stock. You should read the entire prospectus carefully.
Resource Bankshares Corporation
Resource Bankshares Corporation is a bank holding company headquartered in
Virginia Beach, Virginia. Our wholly owned subsidiary, Resource Bank, began
operating as a Virginia commercial bank in September of 1988. We provide our
financial services primarily to customers located in the three largest
metropolitan areas in Virginia--Greater Hampton Roads, northern Virginia and
Greater Richmond. In recent years, these areas have seen significant population
growth and each has developed an energetic business climate, which has in turn
promoted further growth. We continue to capitalize on these growth markets by
obtaining, building and enhancing relationships with customers that require
sophisticated financial services, but that also value personal relationship
banking.
As of March 31, 2001, we had assets of $443.8 million, deposits of $375.5
million and stockholders' equity of $20.4 million. We reported net income of
$950,000, or $0.36 per share, for the first quarter of 2001. Our assets
increased by 35% and our net income increased by 20%, compared to the same
three-month period in 2000. Loans outstanding as of March 31, 2001 amounted to
$295.5 million, an increase of 15.1% over the first quarter of 2000. At March
31, 2001, our total Internet deposits were $133.4 million, with average
balances in excess of $50,000 per customer and accounts from 45 states.
Banking Operations
Resource Bank has four full service banking offices--in Virginia Beach,
Chesapeake, Newport News and Herndon, Virginia. The bank also operates a loan
production office in Richmond, Virginia that it anticipates replacing with a
full service banking office by the end of 2001. Resource Bank markets its
products to individuals, small to medium sized businesses and professionals by
emphasizing personalized service. The bank's financial products include
checking and savings accounts, certificates of deposit and charge cards, as
well as services typically associated with larger banks, such as sweep account
capacity, automatic reconciliation and corporate credit cards. Additionally, we
offer online banking services, providing customers with the ability to conduct
banking business 24 hours per day through our Internet site,
ResourceBankOnline.
Mortgage Operations
Resource Mortgage, the bank's mortgage division, originates mortgage loans
and sells them to investors in the national secondary market. Resource Mortgage
originates both conforming and non-conforming single-family loans on a national
basis and commercial loans in the mid-Atlantic region. Mortgage loan
origination occurs from our four banking offices, as well as from our mortgage
offices in Virginia Beach, Richmond, Chesapeake, Newport News, Herndon, Oakton
and Roanoke, Virginia; Bowie and Rockville, Maryland; Raleigh, North Carolina;
and Fort Lauderdale and Jacksonville, Florida. Additionally, Resource Mortgage
originates loans throughout the southwestern United States through its
wholesale operations, as well as through its participation in a limited
liability company specializing in relocation services. During 2000, we
originated and sold mortgage loans totaling over $326 million. In the first
quarter of 2001, we originated and sold mortgage loans totaling over $121
million. We significantly expanded our mortgage operations in the first quarter
of 2001 by purchasing First Jefferson Mortgage Corporation, a Virginia based
residential mortgage origination company and Atlantic Mortgage and Investment
Company, a commercial loan origination and servicing company.
3
Our Strategy
Implementing our strategic plan has allowed us to experience steady growth
while improving profitability. Our strategic plan has three primary components:
. Hire experienced lending officers. During the past four years, Resource
Bank has hired a group of talented and experienced senior lending
officers from major regional banks. These officers have been able to
attract customers with which they have built relationships over the
years, typically allowing the officers to enhance our loan production
immediately. Resource Bank currently has 19 senior lending officers with
an average age of 46 and an average of 22 years of experience in the
financial services industry. These senior lending officers, together
with our executive management team, have solid experience in asset and
liability management, loan production and credit administration--key
strengths in building and growing our company.
. Fund asset growth with the lowest cost deposits possible. Our liability
funding strategy is to generate the lowest cost deposits possible
through various sources, while also diversifying our sources of funds
and liquidity risks. Our bank funds its asset growth with a combination
of local deposits, Internet deposits, national market deposits, federal
fund borrowings and Federal Home Loan Bank borrowings. The bank also
generates demand deposits through its four banking offices. Each week
the bank's asset and liability committee surveys our three major
markets, sets interest rates on deposits and makes funding decisions
based on current market rates and maturities needed to fund new asset
growth. Our target deposit mix is 30% in local deposits, 30% in national
deposits, 30% in Internet deposits and 10% in borrowings. At March 31,
2001, our deposits reflected this strategy.
. Generate significant non-interest income through our bank's mortgage
operations. In addition to increasing our overall profitability, our
mortgage operations help offset reduced net interest margins in periods
of falling interest rates because lower interest rates cause an increase
in demand for new mortgage loans and re-financings. We have expanded our
mortgage operations and increased our non-interest income by both hiring
experienced mortgage loan officers and by making strategic acquisitions.
In particular, we completed two important acquisitions in the first
quarter of 2001, purchasing First Jefferson Mortgage Corporation, a
Virginia based residential mortgage origination company, and Atlantic
Mortgage and Investment Company, which specializes in commercial
mortgage originations, placements and servicing. The purchase of First
Jefferson added offices in Fort Lauderdale and Jacksonville, Florida and
Roanoke, Virginia, as well as in the Hampton Roads and Richmond areas.
First Jefferson closed over $250 million in mortgage loans in 2000.
Atlantic Mortgage, which has offices in Richmond and Chesapeake,
Virginia and Raleigh, North Carolina, closed over $100 million in
commercial mortgage loans in 2000. We anticipate that both of these
acquisitions will increase the profitability of our mortgage operations.
We believe that the net proceeds raised in this offering will allow us to
further implement our strategy by providing the equity capital necessary to
support future loan production and asset growth.
4
The Offering
Common stock offered by Resource 500,000 shares.
Bankshares.....................
Common stock outstanding after 3,115,214 shares.
the offering...................
Use of proceeds................. We will use the net proceeds to increase
Resource Bank's equity capital and for
general corporate purposes, including the
future growth and expansion of Resource Bank.
See "Use of Proceeds" on page 11.
Dividends....................... We have declared quarterly cash dividends for
each of the last 14 fiscal quarters. These
dividends have ranged from $0.06 to $0.12 per
share. See "Market For Common Stock" on page
12.
Nasdaq National Market symbol... RBKV
Risk factors.................... You should read the "Risk Factors" section
beginning on page 7 before deciding to
purchase any of the shares offered.
The number of shares of our common stock outstanding after this offering is
based on the number of shares outstanding on March 31, 2001, and excludes
457,713 shares of common stock issuable upon exercise of stock options
outstanding under our stock option plans on March 31, 2001, of which 211,642
were exercisable.
Except as otherwise indicated, all information in this prospectus assumes no
exercise of the underwriter's over-allotment option.
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We were founded as a Virginia corporation in 1998 for the sole purpose of
becoming a holding company for Resource Bank. Our principal executive offices
are located at 3720 Virginia Beach Blvd., Virginia Beach, Virginia 23452. Our
telephone number is (757) 463-2265.
Except as otherwise indicated or required by the context, references in this
prospectus to we, our, us, or Resource Bankshares refer to Resource Bankshares
Corporation and its subsidiaries collectively. Financial information in this
prospectus for periods before the date Resource Bankshares became a holding
company for Resource Bank reflects the results of operations of Resource Bank.
5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
You should read the following summary consolidated financial information of
Resource Bankshares in conjunction with our financial statements and the
accompanying notes that are included elsewhere in this prospectus and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 14.
Three Months
Ended March
31,(1) Years Ended December 31,
------------------ ---------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
Income Statement Data:
Net interest income.... $ 2,496 $ 2,223 $ 9,437 $ 8,946 $ 8,410 $ 4,954 $ 3,605
Provision for loan
losses................ 45 100 1,100 4,667 150 155 290
Non-interest income.... 3,018 2,177 11,890 6,811 7,943 4,520 2,755
Non-interest expense... 4,131 3,158 14,109 12,168 11,565 6,533 4,451
Income taxes
(benefit)............. 388 348 1,886 (387) 1,591 965 153
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 950 $ 794 $ 4,233 $ (691)(2) $ 3,047 $ 1,821 $ 1,466
======== ======== ======== ======== ======== ======== ========
Per Share Data(3):
Net income(4).......... $ 0.36 $ 0.31 $ 1.63 $ (0.27)(2) $ 1.24 $ 0.92 $ 0.79
Cash dividends
declared.............. 0.12 0.10 0.42 0.40 0.24 0.12 0.05
Book value at period
end................... 7.81 6.39 7.50 6.25 7.18 6.36 4.47
Tangible book value at
period end............ 7.54 6.39 7.47 6.25 7.18 6.36 4.47
Balance Sheet Data:
Total assets........... $443,841 $329,064 $404,494 $306,690 $233,460 $209,330 $115,836
Total loans (net of
unearned income)...... 295,473 256,775 288,513 255,671 188,522 150,590 81,975
Total deposits......... 375,472 283,653 330,645 260,469 206,219 169,508 99,179
Stockholders' equity... 20,412 16,322 19,672 15,870 17,789 15,602 8,655
Performance Ratios(5):
Return (loss) on
average assets........ 0.93% 1.00% 1.21% (0.25)% 1.27% 1.40% 1.45%
Return (loss) on
average stockholders'
equity................ 19.51 19.80 24.13 (3.90) 18.19 18.59 20.46
Net interest
margin(6)............. 2.68 2.90 2.92 3.42 3.62 3.90 3.70
Asset Quality Ratios:
Allowance to period-end
loans................. 1.27% 1.09% 1.22% 1.04% 1.33% 1.71% 1.27%
Allowance to
nonperforming loans... 273.34 427.05 263.75 361.51 264.55 58.50 247.03
Nonperforming assets to
total assets.......... 0.23 0.21 0.33 0.25 0.68 2.43 0.41
Net charge-offs to
average loans(5)...... (0.06) (0.01) 0.10 2.06 0.13 0.02 0.15
Capital Ratios:
Tier 1 risk-based
capital............... 8.38% 8.49% 8.74% 8.20% 9.23% 9.69% 10.22%
Total risk-based
capital............... 9.56 10.98 10.75 9.24 10.48 10.93 11.45
Leverage capital
ratio................. 6.46 6.93 6.69 7.19 7.52 9.67 7.04
Total equity to total
assets................ 4.60 4.96 4.86 5.17 7.62 7.45 7.47
- --------
(1) Unaudited.
(2) Our loss in 1999 was attributable to a $4.7 million provision for loan
losses in the third quarter that occurred as a result of credit problems
with a significant borrower in our asset based lending portfolio.
(3) All per share figures have been adjusted to reflect a two-for-one stock
split on July 1, 1998.
(4) Net income per share is computed using the weighted average outstanding
shares.
(5) Ratios for the three months ended March 31, 2001 and 2000 have been
annualized.
(6) Net interest margin is calculated as tax-equivalent net interest income
divided by average earning assets and represents our net yield on earning
assets.
6
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before you purchase our common stock. If any of
the following risks actually occur, our business, financial condition and
results of operation could suffer, in which case the trading price of our
common stock could decline. The risks and uncertainties described below are not
the only ones facing Resource Bankshares. Additional risks and uncertainties,
including those not presently known to us or that we currently consider
immaterial, may also impair our business.
Our focus on commercial loans may increase the risk of substantial credit
losses.
We offer a variety of loan products, including residential mortgage,
consumer, construction, and commercial loans. At March 31, 2001, approximately
57% of Resource Bank's loans were commercial loans, including those secured by
commercial real estate. We expect that, as we grow, this percentage will remain
about the same. Commercial lending is more risky than mortgage and consumer
lending because loan balances are greater, and the borrower's ability to repay
is contingent on the successful operation of a business. Risk of loan defaults
is unavoidable in the banking industry, and we try to limit exposure to this
risk by monitoring carefully the amount of loans in specific industries and by
exercising prudent lending practices. However, we cannot eliminate the risk,
and substantial credit losses could result in reduced earnings or losses.
Our allowance for loan losses may prove to be insufficient to absorb potential
losses in our loan portfolio.
We maintain an allowance for loan losses that we believe is appropriate to
provide for any potential losses in our loan portfolio. The amount of this
allowance is determined by management through a periodic review and
consideration of several factors, including:
. an ongoing review of the quality, size and diversity of our loan
portfolio;
. evaluation of nonperforming loans;
. historical loan loss experience; and
. the amount and quality of collateral, including guarantees, securing the
loans.
Although we believe our loan loss allowance is adequate to absorb probable
losses in our loan portfolio, we cannot predict such losses or that our
allowance will be adequate. Excess loan losses could have a material adverse
effect on our financial condition and results of operations.
Our profitability depends on interest rates generally.
Our profitability depends in substantial part on our net interest margin,
which is the difference between the rates we receive on loans and investments
and the rates we pay for deposits and other sources of funds. Our net interest
margin depends on many factors that are partly or completely outside of our
control, including competition, federal economic, monetary and fiscal policies,
and economic conditions generally. Recently, net interest margins for some
financial institutions have changed in response to these and other factors.
Changes in interest rates will affect our operating performance and financial
condition. We try to minimize our exposure to interest rate risk, but we are
unable to completely eliminate this risk.
Periods of rising interest rates will adversely affect our income from our
mortgage division.
One of the components of our strategic plan is to generate significant non-
interest income from our mortgage division. In periods of rising interest
rates, consumer demand for new mortgages and re-financings decreases, which in
turn adversely impacts our mortgage division. Because interest rates depend on
factors outside of our control, we cannot eliminate the interest rate risk
associated with our mortgage operations.
7
We may be adversely affected by changes in government monetary policy.
As a bank holding company, our business is affected by the monetary policies
established by the Board of Governors of the Federal Reserve System, which
regulates the national money supply in order to mitigate recessionary and
inflationary pressures. In setting its policy, the Federal Reserve may utilize
techniques such as the following:
. engaging in open market transactions in United States government
securities;
. setting the discount rate on member bank borrowings; and
. determining reserve requirements.
These techniques may have an adverse effect on our deposit levels, net interest
margin, loan demand or our business and operations.
We will use the net proceeds from this offering to increase our equity capital
in order to continue our sustained growth.
It is our intention to expand our asset base. In particular, we intend to use
the funds raised in this offering to support anticipated increases in our
deposits and loans. Additional capital also would increase our legal lending
limit under federal law, which in turn would allow us to compete more actively
in our market area for larger loans. Our ability to manage growth successfully
will depend on our ability to maintain cost controls and asset quality while
attracting additional loans and deposits, as well as on factors beyond our
control, such as economic conditions and interest rate trends. If we grow too
quickly and are not able to control costs and maintain asset quality, growth
could materially adversely affect our financial performance.
Our future success will depend on our ability to compete effectively in the
highly competitive financial services industry.
We face substantial competition in all phases of our operations from a
variety of different competitors. In particular, there is very strong
competition for financial services in the three large metropolitan areas of
Virginia in which we conduct a substantial portion of our business. Our future
growth and success will depend on our ability to compete effectively in this
highly competitive financial services environment. Many of our competitors
offer products and services which we do not, and many have substantially
greater resources, name recognition and market presence that benefit them in
attracting business. In addition, larger competitors may be able to price loans
and deposits more aggressively than we do. Some of the financial services
organizations with which we compete are not subject to the same degree of
regulation as is imposed on bank holding companies and federally insured state-
chartered banks, national banks and federal savings institutions. As a result,
these nonbank competitors have certain advantages over us in accessing funding
and in providing various services.
We continually encounter technological change, and we may have fewer resources
than many of our competitors to continue to invest in technological
improvements.
The financial services industry is undergoing rapid technological changes,
with frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. Our future
success will depend, in part, upon our ability to address the needs of our
customers by using technology to provide products and services that will
satisfy customer demands for convenience, as well as to create additional
efficiencies in our operations. Many of our competitors have substantially
greater resources to invest in technological improvements. We may not be able
to effectively implement new technology-driven products and services or be
successful in marketing these products and services to our customers.
As a service to our clients, we currently offer ResourceBankOnline, our
internet branch. Use of this service involves the transmission of confidential
information over public networks. We cannot be sure that
8
advances in computer capabilities, new discoveries in the field of cryptography
or other developments will not result in a compromise or breach in the
commercially available encryption and authentication technology that we use to
protect our customer's transaction data. If we were to experience such a breach
or compromise, we could suffer losses and our operations could be adversely
affected.
We depend on the services of a number of key personnel, and a loss of any of
those personnel could disrupt our operations and result in reduced revenues.
We are a relationship-driven organization. Our growth and development to date
have depended in large part on the efforts of our senior officers, who have
primary contact with our customers and are extremely important in maintaining
personalized relationships with our customer base, a key aspect of our business
strategy, and in increasing our market presence. The unexpected loss of
services of one or more of these key employees could have a material adverse
effect on our operations and possibly result in reduced revenues.
Our senior officers have many years of experience in the banking industry and
are extremely valuable to us and would be difficult to replace. The loss of the
services of these officers could have a material adverse effect upon our future
prospects. Although we have entered into employment contracts with Lawrence N.
Smith, our President and Chief Executive Officer, and most other senior
officers, and have purchased key man life insurance policies to mitigate the
risk of an unforeseen departure or death of our senior officers, we cannot
offer any assurance that they and other key employees will remain employed by
us.
We cannot offer assurance that economic conditions in the markets in which we
operate will remain favorable.
Our financial success is dependent to a certain extent upon the general
economic conditions in the geographic markets in which we operate. Future
economic conditions in these markets will depend on factors outside of our
control. Adverse changes in economic conditions in Resource Bank's geographic
markets would likely impair the bank's ability to collect loans and could
otherwise have a negative effect on our financial condition.
Our executive officers and directors will be able to influence the outcome of
any shareholder vote.
After the offering, our executive officers and directors will own
approximately 18% of our outstanding common stock. Accordingly, our executive
officers and directors will be able to influence the outcome of all matters
that are submitted to our shareholders for approval, including the election of
members to our board of directors or other significant corporate transactions.
We may not pay dividends to shareholders in the future.
Although we have paid cash dividends to our shareholders for the past 14
fiscal quarters, we cannot assure you that we will pay cash dividends in the
future. We may elect to retain our earnings to support the development and
growth of our business. Our board of directors will determine our future
dividend policy based on an analysis of factors that the board deems relevant.
Our ability to pay dividends to our shareholders is also limited by certain
restrictions imposed by state and federal laws.
Our common stock trades publicly, but has a limited trading volume compared to
other stocks.
Our common stock is traded publicly on the Nasdaq National Market under the
symbol "RBKV." However, daily trading volumes for our stock are relatively
small compared to many other stocks quoted on the Nasdaq National Market.
Although we have several market makers in our stock, this alone does not assure
significant trading volume or liquidity. We cannot assure you that this
offering will increase the trading volume for our stock.
9
Virginia law and our charter documents contain anti-takeover provisions that
may make it more difficult or expensive to acquire us in the future or may
adversely affect our stock price.
Virginia corporate law and our charter documents contain several provisions
that may make it more difficult for a third party to acquire control of us
without the approval of our board of directors and may make it more difficult
or expensive for a third party to acquire a majority of our outstanding common
stock. They may also delay, prevent or deter a merger, acquisition, tender
offer, proxy contest or other transaction that might otherwise result in our
shareholders receiving a premium over the market price for their common stock.
Our stock price could also be negatively affected.
FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. These forward-looking statements include statements
regarding profitability, liquidity, allowance for loan losses, interest rate
sensitivity, market risk, and financial and other goals. Forward-looking
statements often use words such as "believes," "expects," "plans," "may,"
"will," "should," "projects," "contemplates," "anticipates," "forecasts,"
"intends" or other words of similar meaning. You can also identify them by the
fact that they do not relate strictly to historical or current facts. The
forward-looking statements we use in this prospectus are subject to significant
risks, assumptions and uncertainties, including, among other things, the
following important factors that could affect the actual outcome of future
events:
. fluctuations in market rates of interest and loan and deposit pricing,
which could negatively affect our net interest margin, asset valuations
and expense projections;
. adverse changes in the economies of southeastern and northern Virginia,
our market areas, which might affect our business prospects and could
cause credit-related losses and expenses;
. continuing the well-established and valued relationships we have built
with our customers;
. adverse developments in our loan origination volume;
. competitive factors in the banking industry, such as the trend towards
consolidation in the markets in which we operate; and
. changes in banking legislation or the regulatory requirements of federal
and state agencies applicable to bank holding companies and banks like
ours.
Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. In addition, our past results of operations do not necessarily
indicate our future results.
We caution you that the above list of important factors is not exclusive, and
other factors are discussed in more detail under "Risk Factors" in this
prospectus. These forward-looking statements are made as of the date of this
prospectus and we may not undertake to update forward-looking statements to
reflect the impact of circumstances or events that arise after the date the
forward-looking statement was made.
10
USE OF PROCEEDS
We estimate that we will receive $6.4 million in net proceeds from the sale
of 500,000 shares of our common stock, using the public offering price of
$14.00 per share and after deducting the underwriting discount and other
estimated offering expenses. We will receive additional net proceeds of up to
$976,500 if the underwriter exercises the option granted to it in connection
with this offering to cover over-allotments. We currently intend to contribute
a substantial portion of the net proceeds to enhance and support the equity
capital of Resource Bank and retain the balance in Resource Bankshares. The net
proceeds retained by Resource Bankshares will be used for working capital and
other general corporate purposes, including providing additional contributions
to Resource Bank's capital, as needed. Our officers and directors will have
broad authority in deciding how to utilize the net proceeds of the offering.
CAPITALIZATION
The following table shows (a) our capitalization at March 31, 2001, and (b)
our capitalization at March 31, 2001, as adjusted to reflect the receipt of
$6.4 million in net proceeds from the sale of 500,000 shares of our common
stock in this offering at a public offering price of $14.00 per share, after
giving effect to estimated offering expenses.
At March 31, 2001
--------------------
Actual As Adjusted
------- -----------
(in thousands)
Stockholders' equity:
Preferred stock, par value $10.00; 500,000 shares
authorized; none issued
and outstanding........................................ $ -- $ --
Common stock, par value $1.50; 6,666,666 shares
authorized; 2,615,214 shares issued and outstanding,
3,115,214 shares issued and outstanding, as adjusted... 3,923 4,673
Additional paid-in capital.............................. 10,900 16,550
Retained earnings....................................... 5,639 5,639
Accumulated other comprehensive income (loss)........... (50) (50)
------- -------
Total stockholders' equity................................ $20,412 $26,812
======= =======
The table excludes 457,713 shares of common stock issuable upon the exercise
of stock options outstanding under our stock option plans on March 31, 2001, of
which 211,642 were exercisable.
11
MARKET FOR COMMON STOCK
Our common stock trades on the Nasdaq National Market under the symbol
"RBKV." The following table shows the high and low closing sales prices of our
common stock and the dividends declared per share for the periods indicated.
High Low Cash Dividend Declared
------ ------ ----------------------
2001
Second Quarter (through June 14)....... $16.00 $14.00 $0.12
First Quarter.......................... 16.50 10.13 0.12
2000
Fourth Quarter......................... 11.00 9.63 0.12
Third Quarter.......................... 10.00 7.88 0.10
Second Quarter......................... 10.63 8.63 0.10
First Quarter.......................... 12.63 8.63 0.10
1999
Fourth Quarter......................... 15.25 8.50 0.10
Third Quarter.......................... 19.38 14.63 0.10
Second Quarter......................... 22.13 19.00 0.10
First Quarter.......................... 22.50 17.25 0.10
As of March 31, 2001, there were 2,615,214 shares of our common stock
outstanding held by approximately 763 shareholders of record.
DIVIDEND POLICY
We have declared and paid cash dividends for the past 14 fiscal quarters.
Declarations of dividends are at the discretion of our board of directors, and
we cannot assure you that dividends will be declared at any time in the future.
We will depend on dividends we receive from Resource Bank to provide funding
for future dividends, if any, on our common stock. As a banking corporation
organized under Virginia law, Resource Bank is restricted as to the maximum
amount of dividends it may pay to us. A Virginia bank may not pay dividends
from its original capital. All dividends must be paid out of net undivided
profits on hand, after deducting expenses, losses, interest, and taxes accrued
and contributions to capital necessary for Resource Bank's original capital to
be restored to its initial level.
The Board of Governors of the Federal Reserve System recommends that banking
organizations pay dividends only if the net income available to shareholders in
the past year fully funds those dividends and the expected rate of earnings
retention is consistent with capital needs, asset quality and overall financial
condition. Our dividend policy complies with this recommendation.
12
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
Resource Bankshares Corporation. The financial data for the five years ended
December 31, 2000 are derived from our consolidated financial statements. The
financial data for the three-month periods ended March 31, 2001 and 2000 are
derived from our unaudited consolidated financial statements. Operating results
for the three months ended March 31, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. You should
read the consolidated selected financial data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
consolidated financial statements and accompanying notes and other financial
data included elsewhere in this prospectus.
Three Months
Ended March 31,(1) Years Ended December 31,
-------------------- ---------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
--------- --------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
Income Statement Data:
Net interest income.... $ 2,496 $ 2,223 $ 9,437 $ 8,946 $ 8,410 $ 4,954 $ 3,605
Provision for loan
losses................ 45 100 1,100 4,667 150 155 290
Non-interest income.... 3,018 2,177 11,890 6,811 7,943 4,520 2,755
Non-interest expense... 4,131 3,158 14,109 12,168 11,565 6,533 4,451
Income taxes
(benefit)............. 388 348 1,886 (387) 1,591 965 153
--------- --------- -------- -------- -------- -------- --------
Net income (loss)...... $ 950 $ 794 $ 4,233 $ (691)(2) $ 3,047 $ 1,821 $ 1,466
========= ========= ======== ======== ======== ======== ========
Per Share Data(3):
Net income(4).......... $ 0.36 $ 0.31 $ 1.63 $ (0.27)(2) $ 1.24 $ 0.92 $ 0.79
Cash dividends
declared.............. 0.12 0.10 0.42 0.40 0.24 0.12 0.05
Book value at period
end................... 7.81 6.39 7.50 6.25 7.18 6.36 4.47
Tangible book value at
period end............ 7.54 6.39 7.47 6.25 7.18 6.36 4.47
Balance Sheet Data:
Total assets........... $ 443,841 $ 329,064 $404,494 $306,690 $233,460 $209,330 $115,836
Total loans (net of
unearned income)...... 295,473 256,775 288,513 255,671 188,522 150,590 81,975
Total deposits......... 375,472 283,653 330,645 260,469 206,219 169,508 99,179
Stockholders' equity... 20,412 16,322 19,672 15,870 17,789 15,602 8,655
Performance Ratios(5):
Return (loss) on
average assets........ 0.93% 1.00% 1.21% (0.25)% 1.27% 1.40% 1.45%
Return (loss) on
average stockholders'
equity................ 19.51 19.80 24.13 (3.90) 18.19 18.59 20.46
Net interest
margin(6)............. 2.68 2.90 2.92 3.42 3.62 3.90 3.70
Asset Quality Ratios:
Allowance to period-end
loans................. 1.27% 1.09% 1.22% 1.04% 1.33% 1.71% 1.27%
Allowance to
nonperforming loans... 273.34 427.05 263.75 361.51 264.55 58.50 247.03
Nonperforming assets to
total assets.......... 0.23 0.21 0.33 0.25 0.68 2.43 0.41
Net charge-offs to
average loans(5)...... (0.06) (0.01) 0.10 2.06 0.13 0.02 0.15
Capital Ratios:
Tier 1 risk-based
capital............... 8.38% 8.49% 8.74% 8.20% 9.23% 9.69% 10.22%
Total risk-based
capital............... 9.56 10.98 10.75 9.24 10.48 10.93 11.45
Leverage capital
ratio................. 6.46 6.93 6.69 7.19 7.52 9.67 7.04
Total equity to total
assets................ 4.60 4.96 4.86 5.17 7.62 7.45 7.47
- --------
(1) Unaudited.
(2) Our loss in 1999 was attributable to a $4.7 million provision for loan
losses in the third quarter that occurred as a result of credit problems
with a significant borrower in our asset based lending portfolio.
(3) All per share figures have been adjusted to reflect a two-for-one stock
split on July 1, 1998.
(4) Net income per share is computed using the weighted average outstanding
shares.
(5) Ratios for the three months ended March 31, 2001 and 2000 have been
annualized.
(6) Net interest margin is calculated as tax-equivalent net interest income
divided by average earning assets and represents our net yield on earning
assets.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is intended to assist readers in understanding and
evaluating our financial condition and results of operations. In conjunction
with reviewing the following discussion, you should also read and review our
consolidated financial statements and accompanying notes that are included
elsewhere in this prospectus.
Overview
For the three months ended March 31, 2001, our net income increased by 20.0%
from $794,000 to $950,000. Earnings per share for the first quarter of 2001
were $0.36 per share compared to $0.31 for the comparable period of 2000. This
increase primarily resulted from loan growth and increases in mortgage banking
fee income, as falling interest rates generated greater demand for new
residential mortgage loans and re-financings. Our return on average assets was
0.9% for the first three months of 2001, compared to 1.0% for the first quarter
of 2000. Our return on average equity was 19.5% and 19.8% for the three months
ended March 31, 2001 and 2000, respectively.
In 2000, we had net income of $4.2 million compared to a net loss of $690,800
in 1999 and net income of $3.0 million in 1998. Our earnings per share were
$1.63 in 2000, compared to a $0.27 per share loss in 1999 and $1.24 per share
earnings in 1998. Our loss in 1999 was directly attributable to a $4.7 million
provision for loan losses taken in the third quarter. This provision occurred
primarily as a result of credit problems with an affiliated group of borrowers
in our asset based lending portfolio. Since the loan loss in 1999, we have
terminated our asset based lending program.
During the first quarter of 2001, total loans increased 2.4% from $288.5
million at December 31, 2000 to $295.5 million at March 31, 2001. Total
deposits at March 31, 2001 were $375.5 million, up 13.6% from $330.6 million at
December 31, 2000. During 2000, our total loans grew 12.9% from $255.7 million
at year end 1999 to $288.5 million at year end 2000 and our total deposits grew
26.9% from $260.5 million at year end 1999 to $330.6 million at year end 2000.
The growth in our loans and deposits reflects Resource Bank's sustained growth
and continued penetration in its markets.
Our allowance for loan losses was $3.7 million at March 31, 2001, compared to
$2.8 million at March 31, 2000. The allowance for loan losses as a percentage
of period end loans was 1.3% and 1.1% at March 31, 2001 and March 31, 2000,
respectively. The provisions for loan losses were $45,000 and $100,000 for the
three months ended March 31, 2001 and 2000, respectively. Total nonperforming
assets, which includes non-accrual loans and loans 90 days or more past due and
still accruing, were $1.0 million at March 31, 2001, down from $1.3 million at
December 31, 2000.
Three Months Ended March 31, 2001 and March 31, 2000
Results of Operations
Summary. For the three months ended March 31, 2001, our net income increased
by 20.0% from $794,000 to $950,000. Earnings per share for the first quarter of
2001 were $0.36 per share compared to $0.31 for the comparable period of 2000.
The increase in our first quarter net income occurred primarily as a result of
growth in interest bearing assets and increases in mortgage banking income. Our
return on average assets was 0.9% for the first three months of 2001, compared
to 1.0% for the first quarter of 2000. Our return on average equity was 19.5%
and 19.8% for the three months ended March 31, 2001 and 2000, respectively.
Net Interest Income. Our net interest income for the first quarter of 2001
compared to the first quarter of 2000 increased by 12.3% from $2.2 million to
$2.5 million. On a tax equivalent basis, net interest income was $2.6 million
in the first quarter of 2001 compared to $2.2 million during the comparable
period of 2000. The
14
increase in our net interest income was attributable primarily to a 29.5%
increase in average interest earning assets. This increase in average earning
assets was partially offset by a decline in our net interest margin from 2.9%
for the first quarter of 2000 to 2.7% for the first quarter of 2001. The
decrease in our net interest margin occurred primarily as a result of a series
of interest rate cuts by the Federal Reserve.
Non-interest Income. Our non-interest income for the first quarter of 2001
compared to the first quarter of 2000 increased by 38.6% from $2.2 million to
$3.0 million. The increase in our non-interest income was primarily
attributable to increased activity in our mortgage banking division. For the
first quarter of 2001 compared to the first quarter of 2000, mortgage banking
income increased by 67.2% from $1.5 million to $2.5 million. The increased
income and profitability in our mortgage division occurred in large part
because of a declining interest rate environment. During periods of declining
interest rates, demand for new residential mortgages, particularly re-
financings, tends to increase significantly.
Non-interest Expense. Our non-interest expense for the first quarter of 2001
compared to the first quarter of 2000 increased 30.8% from $3.2 million to $4.1
million. The increase was attributable in part to expenses we incurred in
connection with separate acquisitions of a commercial mortgage company and a
residential mortgage company in the first quarter of 2001. The largest
component of non-interest expense, salaries and employee benefits, increased
47.0% from $1.8 million to $2.7 million primarily as a result of these
acquisitions. During the three months ended March 31, 2001, occupancy expense
decreased 3.1%, depreciation and equipment maintenance expense increased by
10.2%, and marketing and business development expense increased by 15.1%
compared to the first quarter of 2000.
Income Taxes. We incurred income taxes of $388,000 in the first quarter of
2001 compared to $348,000 for the comparable period of 2000, resulting in
effective tax rates of 29% and 30% for the respective periods.
Analysis of Financial Condition
Investment Securities. Our securities available for sale were $21.6 million
at March 31, 2001, an increase of 18.1% or $3.3 million from a balance of $18.3
million at December 31, 2000. Securities held to maturity declined slightly in
the first quarter of 2001, from $63.8 million at December 31, 2000 to $63.4
million at March 31, 2001. Due to heavy loan origination volume in our mortgage
banking division, funds advanced in settlement of mortgage loans were $42.4
million at March 31, 2001, an increase of $27.0 million or 175% compared to a
balance of $15.4 million at year end 2000.
Loans. During the first quarter of 2001, total loans increased 2.4% from
$288.5 million at December 31, 2000 to $295.5 million at March 31, 2001.
Average loans represented 73.3% of average interest earning assets for the
first quarter of 2001, compared to 83.6% for the first quarter of 2000.
Asset Quality. Our allowance for loan losses was $3.7 million at March 31,
2001, compared to $3.5 million at December 31, 2000 and $2.8 million at March
31, 2000. The allowance for loan losses as a percentage of period end loans was
1.3% and 1.1% at March 31, 2001 and 2000, respectively. The provisions for loan
losses were $45,000 and $100,000 for the three months ended March 31, 2001 and
2000, respectively. Total nonperforming assets, which includes non-accrual
loans and loans 90 days or more past due and still accruing, were $1.0 million
at March 31, 2001, down from $1.3 million at December 31, 2000.
Deposits. Total deposits at March 31, 2001 were $375.5 million, up 13.6% from
$330.6 million at December 31, 2000. Of our average interest bearing deposits
during the first quarter of 2001, 58.6% were certificates of deposit, 39.7%
were demand or money market accounts and 1.7% were savings accounts. Our
deposits at March 31, 2001 approximated our target deposit mix of one-third
local deposits, one-third national deposits and one-third Internet deposits.
Borrowed Funds. FHLB advances were $30.3 million at March 31, 2001, unchanged
from the balance at December 31, 2000.
15
Capital Structure. Stockholders' equity was $20.4 million at March 31, 2001,
an increase of $740,000 or 3.8% from December 31, 2000.
Three Years Ended December 31, 2000
Results of Operations
Summary. In 2000, we had net income of $4.2 million, compared to a net loss
of $690,800 in 1999 and net income of $3.0 million in 1998. Our earnings per
share were $1.63 in 2000, compared to a $0.27 per share loss in 1999 and $1.24
per share earnings in 1998. Our loss in 1999 was directly attributable to a
$4.7 million provision for loan losses taken in the third quarter. Management
concluded this provision was necessary as a result of credit problems with an
affiliated group of borrowers in our asset based lending portfolio. Since the
loss in 1999, we have terminated our asset based lending program.
In 2000, our mortgage banking division reported net income before taxes of
$673,990, compared to a $418,897 net loss before taxes in 1999 and $661,187 of
net income before taxes in 1998. The loss in our mortgage division in 1999
occurred as a result of expenses associated with reorganizing our mortgage
division and decreased loan origination volume. Rising interest rates in 1999
resulted in a decrease in mortgage loan origination for the year.
Net Interest Income. As the largest component of income, net interest income
represents the amount that interest and fees earned on loans and investments
exceed the interest costs of funds used to support these earning assets. Net
interest income is determined by the relative levels, rates and mix of earning
assets and interest-bearing liabilities. For the year ended December 31, 2000,
net interest income was $9.4 million, an increase of approximately $492,000, or
5.5%, over $9.0 million for the same period in 1999. Average interest earning
assets increased $74.4 million from 1999 to 2000 while average interest bearing
liabilities increased $75.3 million. The yield on average interest earning
assets for the year ended December 31, 2000 was 8.6% compared with 8.2% for the
comparable 1999 period. The 2000 yield on loans was 8.7% compared to 8.3% in
1999. The cost on average interest bearing liabilities increased 82 basis
points during 2000 to 6.1%, compared to 5.3% during 1999.
Net interest income for the year-ended December 31, 1999 increased 6.4%, or
$536,000, over 1998. Average interest earning assets increased $29.0 million
from 1998 to 1999 while average interest bearing liabilities increased $28.8
million. The yield on average interest earning assets for the year ended
December 31, 1999 was 8.2% compared with 8.5% for the comparable 1998 period.
The 1999 yield on loans was 8.3%, compared to 9.1% in 1998. The cost on average
interest bearing liabilities decreased 20 basis points during 1999 to 5.3%,
compared to 5.5% during 1998.
Our net interest margin is sensitive to the loan origination volume of our
mortgage banking division. All loans originated by the mortgage banking
division are sold, servicing released, in the secondary mortgage market. Each
mortgage loan originated is sold when the borrower locks in the interest rate
on the loan. When the volume of mortgage loan originations increases, typically
in a declining interest rate environment, "funds advanced in settlement of
mortgage loans" increase. This balance sheet item represents funds advanced to
close mortgage loans, pending delivery of the loans to the loan purchaser.
Until a mortgage loan is transferred to the purchaser, we receive interest on
the loan at the note rate. Funds advanced in settlement of mortgage loans are
financed to a large extent with short term Federal Home Loan Bank borrowings
and short term certificates of deposit. While such funds advanced contribute to
net interest income, the interest rate spread on this item is not as great as
the spread on the commercial loan portfolio, which normally carries a higher
interest yield and is financed with lower cost deposits. Thus, as funds
advanced in settlement of mortgage loans increase, the interest spread and the
net interest margin decrease. The average balance of funds advanced in
settlement of mortgage loans was $16.2 million for the year ended December 31,
2000, compared to $16.1 million in the year ended December 31, 1999 and $39.9
million in the year ended December 31, 1998.
16
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.
Average Balances, Interest Income and Expenses, and Average Yields and Rates
Year Ended December 31,
--------------------------------------------------------------------------------
2000 1999 1998
-------------------------- -------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance(1) Expense Rate(2) Balance(1) Expense Rate(2) Balance(1) Expense Rate(2)
---------- ------- ------- ---------- ------- ------- ---------- ------- -------
(Dollars in thousands)
Assets:
Interest Earning Assets:
Securities(3).......... $ 48,012 $ 3,870 8.06% $ 21,791 $ 1,468 6.74% $ 12,386 $ 712 5.75%
Loans(4)............... 263,110 22,821 8.67% 217,598 18,072 8.31% 168,271 15,352 9.12%
Interest bearing
deposits in other
banks................. 8,487 537 6.33% 5,974 293 4.90% 11,870 623 5.25%
Other earning
assets(5).............. 16,227 1,561 9.62% 16,118 1,548 9.60% 39,934 3,059 7.66%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest
earning assets...... 335,836 28,789 8.57% 261,481 21,381 8.18% 232,461 19,746 8.49%
Non-interest earning
assets:
Cash and due from
banks................. 5,025 4,280 3,027
Premises and
equipment............. 3,392 3,717 3,286
Other assets............ 8,828 5,644 4,669
Less: Allowance for
loan losses........... (3,083) (2,606) (2,775)
-------- -------- --------
Total non-interest
earning assets........ 14,162 11,035 8,207
-------- -------- --------
Total assets......... $349,998 $272,516 $240,668
======== ======== ========
Liabilities and
Stockholders' Equity:
Interest Bearing
Liabilities:
Interest bearing
deposits:
Demand/MMDA
accounts............. $ 67,844 4,053 5.97% $ 12,362 410 3.32% $ 11,437 384 3.36%
Savings............... 14,618 631 4.32% 22,943 1,034 4.51% 19,334 916 4.74%
Certificates of
deposit.............. 200,137 12,296 6.14% 180,764 9,593 5.31% 158,740 9,016 5.68%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest
bearing deposits.... 282,599 16,980 6.01% 216,069 11,037 5.11% 189,511 10,316 5.44%
FHLB advances and
other borrowings..... 19,625 1,156 5.89% 12,506 697 5.57% 17,806 1,020 5.73%
Capital debt
securities........... 9,200 839 9.12% 7,528 702 9.33% -- -- --
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest
bearing
liabilities......... 311,424 18,975 6.09% 236,103 12,436 5.27% 207,317 11,336 5.47%
Non-interest Bearing
Liabilities:
Demand deposits........ 16,407 16,541 13,565
Other liabilities...... 4,623 2,139 3,037
-------- -------- --------
Total liabilities.... 21,030 18,680 16,602
Stockholders' equity.... 17,544 17,733 16,749
-------- -------- --------
Total liabilities and
stockholders' equity.. $349,998 $272,516 $240,668
======== ======== ========
Interest spread(6)...... 2.48% 2.91% 3.02%
Net interest income/net
interest margin(7)..... $ 9,814 2.92% $ 8,945 3.42% $ 8,410 3.62%
- -------
(1) Average balances are computed on daily balances and our management
believes such balances are representative of operations.
(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) Tax equivalent basis. The tax equivalent adjustment to net interest income
was $377,000, $0 and $0 for the years ended December 31, 2000, 1999 and
1998, respectively.
(4) Non-accrual loans are included in the average loan balances, and income on
such loans is recognized on a cash basis.
(5) Consists of funds advanced in settlement of loans.
(6) Interest spread is the average yield earned on earning assets, less the
average rate incurred on interest bearing liabilities.
(7) Net interest margin is net interest income, expressed as a percentage of
average earning assets.
17
Net interest income is affected by changes in both average interest rates and
average volumes of interest earning assets and interest bearing liabilities.
During the period of June 1999 through March 2000, the Federal Reserve
increased interest rates five times, raising short term rates by 125 basis
points during this period. During the period of April 2000 through December
2000, the Federal Reserve decreased interest rates once, lowering short term
rates by 50 basis points. Since the beginning of 2001, the Federal Reserve has
made five 50 basis point interest rate cuts, three in the first quarter and two
in the second quarter of 2001. Increases in rates are intended to slow economic
growth and reduce borrowing activities while decreases in rates are intended to
promote economic growth and increase borrowing activities.
The following table sets forth the amounts of the total change in interest
income that can be attributed to changes in the volume of interest-bearing
assets and liabilities and the amount of the change that can be attributed to
changes in interest rates. The amount of the change not solely due to rate or
volume changes was allocated between the change due to rate and the change due
to volume based on the relative size of the rate and volume changes.
Year Ended December 31,
--------------------------------------------
2000 compared to 1999 compared to
1999 Increase 1998 Increase
(Decrease) (Decrease)
Due to Changes in: Due to Changes in:
--------------------- ----------------------
Volume Rate Net Volume Rate Net
------ ------ ------ ------ ------ ------
(Dollars in thousands)
Interest Income:
Securities................. $2,065 $ 337 $2,402 $ 616 $ 140 $ 756
Loans(1)................... 3,964 798 4,762 2,069 (860) 1,209
Interest bearing deposit in
other banks............... 145 99 244 (291) (39) (330)
------ ------ ------ ------ ------ ------
Total.................... 6,174 1,234 7,408 2,394 (759) 1,635
------ ------ ------ ------ ------ ------
Interest Expense:
Interest bearing deposits.. 3,782 2,161 5,943 1,271 (550) 721
FHLB advances and other
borrowing................. 608 (12) 596 138 241 379
------ ------ ------ ------ ------ ------
Total.................... 4,390 2,149 6,539 1,409 (309) 1,100
------ ------ ------ ------ ------ ------
Increase (decrease) in net
interest income............. $1,784 $ (915) $ 869 $ 985 $ (450) $ 535
====== ====== ====== ====== ====== ======
- --------
(1) Loans include funds advanced in settlement of loans.
Provision for Loan Losses. Provisions for loan losses are charged to income
to bring the total allowance for loan losses to a level we deem appropriate and
are based on such factors as our judgment of anticipated losses within our loan
portfolio, loan growth, net charge-offs, changes in the composition of our loan
portfolio, delinquencies and our assessment of the quality of our loan
portfolio and general economic conditions.
The provisions for loan loss taken by us for the years ended December 31,
2000, 1999 and 1998 were $1.1 million, $4.7 million, and $150,000,
respectively. The significant increase in the provision for loan loss in 1999
was primarily the result of credit problems with an affiliated group of
borrowers in our asset based lending program. This related group of borrowers
defaulted on a series of loans secured by receivables, which resulted in our
large loan loss in 1999. We no longer engage in the type of asset based lending
with respect to which this loan loss occurred.
Non-interest Income. Non-interest income in 2000 was $11.9 million up 74.6%
from $6.8 million in 1999. During the third quarter of 2000, we sold a banking
office in Reston, Virginia for a gain of $2.5 million, as well as the furniture
and equipment associated with the office, for a gain of $529,938. During the
same quarter, we also sold a parcel of real estate acquired with the property
on which the bank is building its northern Virginia headquarters for a gain of
$619,755. Excluding nonrecurring transactions, non-interest income in 2000 was
$8.2 million, up 20.5% over 1999. Non-interest income decreased in 1999 by
14.3% over 1998,
18
due to the lower income derived from mortgage banking operations. Increases in
market interest rates in 1999 caused a decline in the residential mortgage
market volume and a resulting decrease in our mortgage banking income of 19.2%
to $5.7 million. Because of the uncertainty of future loan origination volume
and the future level of interest rates, we may experience reductions in
mortgage banking income in future periods. Service charge income decreased 3.8%
to $731,473 and 0.2% to $759,289 in 2000 and 1999, respectively and increased
85.8% to $760,581 in 1998, stemming from the increased volume of deposit
activity after Resource Bank's acquisition of Eastern American Bank in late
1997.
Non-interest Expense. Total non-interest expense was $14.1 million in 2000,
an increase of 16.0% from $12.2 million in 1999. Non-interest expense in 1999
increased 5.2% from $11.6 million in 1998. Non-interest expense increased in
2000 compared to 1999 as a result of adding a full service banking office in
Newport News during the first quarter of 2000 and establishing loan production
offices in Newport News and Richmond, as well as from expenses associated with
offering online banking services. Non-interest expense increased in 1999 over
1998 as the result of adding a full service banking office in Chesapeake and a
loan production office in Newport News, Virginia, as well as from expenses
related to exiting our asset based lending program.
The largest component of non-interest expense, salaries and employee
benefits, increased 19.8% in 2000 to $8.1 million and increased 0.7% in 1999 to
$6.7 million. This category comprised 57.2% of our total non-interest expense
in 2000, 55.4% in 1999 and 57.8% in 1998. Occupancy expense increased to just
over $1.2 million in 2000, up 2.2% from 1999, and increased to just under $1.2
million in 1999, up 8.9% from 1998. Depreciation and equipment maintenance
expense increased by 5.4% in 2000 to $976,982 and increased by 22.0% in 1999 to
$926,702. Our depreciation and equipment maintenance expense increased in 2000
as a result of opening the Newport News banking office and establishing loan
production offices in Newport News and Richmond. Outside computer service
expense increased by 6.9% in 2000 to $518,982. In 1999, outside computer
service expense decreased 11.3% to $485,458. Professional fees decreased 16.1%
in 2000 compared to 1999 and increased 110% in 1999 compared to 1998 as the
result of the previously discussed credit problems in our asset based lending
program.
Federal Deposit Insurance Corporation, or FDIC, premiums increased 68.7% in
2000 to $98,062 and increased 10.6% to $58,125 in 1999. As the result of
Resource Bank's 1997 acquisition of Eastern American Bank, FSB, which was a
savings association, approximately 68.0% of Resource Bank's deposits are
subject to Bank Insurance Fund, or BIF, rates, and approximately 32.0% of
deposits are subject to Savings Association Insurance Fund, or SAIF, rates.
This ratio of BIF and SAIF assessment rates was established at the time of the
acquisition based on the relative sizes of Resource Bank's and Eastern American
Bank's deposit bases at December 1, 1997.
Stationery and supplies expense decreased by 16.9% in 2000 to $412,683 and
decreased 5.6% in 1999 to $496,814. Marketing and business development expense
increased by 18.7% to $475,778 in 2000 and increased 16.8% in 1999 to $400,938.
Other non-interest expense increased by 34.8% in 2000 to $2.0 million and
increased 5.3% in 1999 to $1.5 million. The increase in 2000 was due primarily
to a $500,000 write down in value of an other asset held by Resource Bank.
Income Taxes. Income taxes on 2000 earnings amounted to $1.9 million,
resulting in an effective tax rate of 30.8%. This rate is lower than our
historical effective tax rate as a result of the increase in tax free municipal
securities in Resource Bank's securities portfolio. The income tax benefit from
our 1999 loss was $386,958, resulting in an effective tax rate of 35.9%. Income
taxes on 1998 earnings amounted to $1.6 million, resulting in an effective tax
rate of 34.3%.
19
Analysis of Financial Condition
Investment Securities. The following tables present certain information on
our investment securities portfolio for the periods indicated:
Securities Available for
Sale at December 31,(1)
------------------------
2000 1999 1998
-------- ------- -------
(Dollars in thousands)
U. S. Government Agencies.......................... $ 14,918 $ 4,662 $ 6,868
Federal Reserve Bank Stock......................... 673 587 434
Federal Home Loan Bank Stock....................... 1,560 915 1,162
Preferred Stock.................................... 1,043 351 --
Other.............................................. 123 144 155
-------- ------- -------
Total............................................ $ 18,317 $ 6,659 $ 8,619
======== ======= =======
- --------
(1) Carried at fair value.
Securities Held to
Maturity at
December 31,(1)
----------------------
2000 1999 1998
------- ------- ------
(Dollars in thousands)
U. S. Government Agencies............................ $28,664 $ 151 $ 478
State and Municipal.................................. 15,969 746 746
Corporate Bonds...................................... 7,201 7,208 --
Preferred Stock...................................... 11,970 8,431 --
------- ------- ------
Total.............................................. $63,804 $16,536 $1,224
======= ======= ======
- --------
(1) Carried at cost, adjusted for amortization of premium or accretion of
discount using the interest method.
20
The following table presents information on the maturities and weighted
average yields of our investment securities at December 31, 2000. The weighted
average yields are calculated on the basis of book value of the investment
securities and on the interest income of the investments adjusted for
amortization of premium and accretion of discount.
December 31, 2000,
-----------------------------------------------------
Held to Maturity Available for Sale
-------------------------- --------------------------
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
--------- ------- -------- --------- ------- --------
(Dollars in thousands)
U. S. government
agencies:
Within one year........ $ -- $ -- $ -- $ --
After one year to five
years................. -- -- 500 499 6.20%
After five years
through ten years..... 33 35 10.00% -- --
After ten years........ 28,631 28,504 8.12% 14,397 14,419 7.87%
------- ------- ------- -------
Total................ 28,664 28,539 14,897 14,918
------- ------- ------- -------
State and municipals:
Within one year........ -- -- -- --
After one year to five
years................. -- -- -- --
After five years
through ten years..... 415 423 4.90% -- --
After ten years........ 15,554 16,918 6.41% -- --
------- ------- ------- -------
Total................ 15,969 17,341 -- --
------- ------- ------- -------
Other securities:
Within one year........ -- -- -- --
After one year to five
years................. -- -- -- --
After five years
through ten years..... -- -- -- --
After ten years........ 7,201 6,225 7.98% -- --
------- ------- ------- -------
Total................ 7,201 6,225 7.98% -- --
------- ------- ------- -------
Total debt securities.... $51,834 $52,105 $14,897 $14,918
Equity and others........ $11,970 $11,919 $ 3,735 $ 3,399
------- ------- ------- -------
Total securities......... $63,804 $64,024 $18,632 $18,317
======= ======= ======= =======
Loans. Resource Bank's loan portfolio is the largest category of our earnings
assets and is comprised of commercial loans, commercial real estate loans, real
estate construction loans, residential real estate loans and consumer or
installment loans. Resource Bank concentrates its lending within the Greater
Hampton Roads, northern Virginia and Greater Richmond metropolitan areas.
Commercial business loans totaled $68.3 million, or 23.7%, of Resource Bank's
loan portfolio at December 31, 2000. These loans are typically made on the
basis of the borrower's ability to make repayment from cash flow from its
business and are secured by business assets, such as commercial real estate,
accounts receivable, equipment and inventory. Commercial real estate loans and
real estate construction loans collectively amounted to $171.2 million, or
59.3%, of the loan portfolio at December 31, 2000. These loans typically
involve larger loan balances concentrated with single borrowers or groups of
related borrowers and payment experience is typically dependent on the
successful operation of a business or real estate project. Residential real
estate loans amounted to $44.8 million, or 15.5%, of Resource Bank's loan
portfolio at December 31, 2000. Consumer or installment loans totaled $4.1
million, and accounted for less than 2%, of Resource Bank's loan portfolio at
December 31, 2000. Consumer loans include home improvement loans, automobile
loans and unsecured lines of credit.
21
The table below classifies loans, net of unearned income, by major category
and percentage distribution at the dates indicated:
December 31,
--------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------- ------------------- ------------------- ------------------- ------------------
Description Amount Percentage Amount Percentage Amount Percentage Amount Percentage Amount Percentage
- ----------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- ------- ----------
(Dollars in thousands)
Commercial.......... $ 68,274 23.66% $ 77,507 30.32% $ 68,569 36.37% $ 50,713 33.68% $34,021 41.50%
Real estate--
construction....... 72,395 25.09 68,076 26.63 44,607 23.66 37,626 24.99 21,588 26.33
Commercial real
estate............. 98,844 34.26 64,158 25.09 42,483 22.53 9,016 5.99 8,985 10.96
Residential real
estate............. 44,817 15.53 41,554 16.25 28,702 15.22 49,416 32.81 12,622 15.40
Installment and
consumer........... 4,183 1.45 4,375 1.71 4,163 2.21 3,819 2.53 4,759 5.81
-------- ------ -------- ------ -------- ------ -------- ------ ------- ------
Total.............. $288,513 100.00% $255,671 100.00% $188,522 100.00% $150,590 100.00% $81,975 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======= ======
The table below presents information regarding the maturity of our loans at
December 31, 2000:
December 31, 2000
-------------------------------------
Over one
through
One Year Five Five Years
or less Years or more Total
-------- -------- ---------- --------
(Dollars in thousands)
Commercial............................ $ 23,900 $ 30,076 $14,298 $ 68,274
Real estate--construction............. 59,208 12,065 1,122 72,395
Commercial real estate................ 31,599 39,107 28,138 98,844
Residential real estate............... 3,305 25,333 16,179 44,817
Installment and consumer ............. 1,568 2,326 289 4,183
-------- -------- ------- --------
$119,580 $108,907 $60,026 $288,513
======== ======== ======= ========
Asset Quality. Unless well secured and in the process of collection, we place
loans on non-accrual status after being delinquent greater than 90 days, or
earlier in situations in which the loans have developed inherent problems that
indicate payment of principal and interest may not be made in full. Whenever
the accrual of interest is stopped, previously accrued but uncollected income
is reversed. Thereafter, interest is recognized only as cash is received. The
loan is reinstated to an accrual basis after it has been brought current as to
principal and interest under the contractual terms of the loan. As of December
31, 2000, 1999, and 1998, non-accrual loans amounted to $1.0 million, $473,000,
and $533,000, respectively. A summary of nonperforming assets at December 31 is
shown for each of the years presented in the following table.
December 31,
----------------------------------
2000 1999 1998 1997 1996
------ ---- ------ ------ ----
(Dollars in thousands)
Non-accrual loans....................... $1,015 $473 $ 533 $3,059 $ 50
Loans contractually past due 90 days or
more
and still accruing..................... 320 270 412 1,339 371
Troubled debt restructuring............. -- -- -- -- --
------ ---- ------ ------ ----
Total nonperforming loans............... 1,335 743 945 4,398 421
Other real estate owned................. -- 31 647 684 50
------ ---- ------ ------ ----
Total nonperforming assets.............. $1,335 $774 $1,592 $5,082 $471
------ ---- ------ ------ ----
Total nonperforming assets to total
loans.................................. 0.46% 0.30% 0.84% 3.37% 0.57%
Total nonperforming assets to total
assets................................. 0.33% 0.25% 0.68% 2.43% 0.41%
We continually monitor our loan portfolio to ensure that all loans
potentially having a material adverse impact on future operating results,
liquidity or capital resource have been classified as nonperforming. Should
economic conditions deteriorate in our markets, the inability of distressed
customers to service their existing debt could cause higher levels of
nonperforming loans.
22
The allowance for loan losses is increased by the provision for loan losses
and reduced by loans charged off, net of recoveries. The allowance for loan
losses is established and maintained at a level judged by management to be
adequate to cover any anticipated loan losses to be incurred in the collection
of outstanding loans. In determining the adequate level of the allowance for
loan losses, management considers the following factors: (a) loan loss
experience; (b) problem loans, including loans judged to exhibit potential
charge-off characteristics, loans on which interest is no longer being accrued,
loans which are past due and loans which have been classified in the most
recent regulatory examination; and (c) anticipated economic conditions and the
potential impact these conditions may have on individual classifications of
borrowers.
We believe the established allowance for loan losses is adequate to absorb
inherent losses that relate to loans outstanding at December 31, 2000, although
future additions to the reserve may be necessary based on changes in economic
and/or other performance related conditions. In view of our plans to continue
loan growth, we will continue to monitor closely the performance of Resource
Bank's loan portfolio and make additional provisions as necessary. In addition,
various regulatory agencies periodically review our allowance for loan losses
as an integral component of the examination process. These agencies may require
the recognition of additions to the allowance based on their judgments of
information available to them at the time of their examinations. We do not
presently anticipate that such provisions will have a material adverse impact
on our results of operations for future periods.
The following table presents Resource Bank's loan loss experience for the
periods indicated:
Year Ended December 31,
-----------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- -------
(Dollars in thousands)
Allowance for loan losses at
beginning of period......... $ 2,686 $ 2,500 $ 2,573 $ 1,040 $ 854
Loans charged off:
Commercial................. 228 4,436 126 2 5
Real Estate................ 156 84 141 56 109
Consumer................... 11 6 20 7 6
-------- -------- -------- -------- -------
Total.................... 395 4,526 287 65 120
-------- -------- -------- -------- -------
Recoveries of loans
previously charged off:
Commercial................. 124 35 1 34 6
Real Estate................ 5 7 40 -- --
Consumer................... 1 3 23 9 10
-------- -------- -------- -------- -------
Total.................... 130 45 64 43 16
-------- -------- -------- -------- -------
Net loans charged off: 265 4,481 223 22 104
Provision for loan losses.. 1,100 4,667 150 155 290
-------- -------- -------- -------- -------
Allowance acquired through
business combination...... -- -- -- 1,400 --
-------- -------- -------- -------- -------
Allowance for loan losses
end of period............. $ 3,521 $ 2,686 $ 2,500 $ 2,573 $ 1,040
-------- -------- -------- -------- -------
Average total loans (net of
unearned income).......... $263,110 $217,598 $168,271 $ 93,839 $69,488
Total loans (net of
unearned income) at
period-end................ $288,513 $255,671 $188,522 $150,590 $81,975
Ratio of net charge-offs to
average loans............... 0.10% 2.06% 0.13% 0.02% 0.15%
Ratio of provision for loan
losses to average loans..... 0.42% 2.14% 0.09% 0.17% 0.42%
Ratio of provision for loan
losses to net charge-offs... 415.09% 104.15% 67.26% 704.55% 278.85%
Allowance for loan losses to
period-end loans............ 1.22% 1.05% 1.33% 1.71% 1.27%
Allowance to nonperforming
assets...................... 263.75% 347.03% 157.04% 50.63% 220.81%
23
In establishing the allowance for loan losses, in addition to the factors
described above, we consider the following risk elements in the loan portfolio:
. Construction lending often involves larger loan balances with single
borrowers. Construction loans involve risks attributable to the fact
that loan funds are advanced upon the security of the home under
construction, which is of uncertain value prior to the completion of
construction. If there is a default, we may be required to complete and
sell the home.
. Commercial real estate loans typically involve larger loan balances
concentrated with single borrowers or groups of related borrowers.
Additionally, the payment experience on loans secured by income
producing properties is typically dependent on the successful operation
of a business or a real estate project and thus may be subject to a
greater extent to adverse conditions in the real estate market or in the
economy generally. Many of our real estate loans have personal
endorsements as additional security.
. Consumer loans entail risks, particularly in the case of consumer loans
which are unsecured, such as lines of credit, or secured by rapidly
depreciable assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the
greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts
against the borrower. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability and thus are
more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Furthermore, the application of various federal and
state laws, including federal and state bankruptcy laws, may limit the
amount which we can recover on these types of loans. These loans may
also give rise to claims and defenses by a consumer loan borrower
against an assignee of such loan, and a borrower may be able to assert
against the assignee claims and defenses which it has against the seller
of the underlying collateral.
. Commercial business loans typically are made on the basis of the
borrower's ability to make repayment from cash flow from its business
and are secured by business assets, such as commercial real estate,
accounts receivable, equipment and inventory. As a result, the
availability of funds for the repayment of commercial business loans may
be substantially dependent on the success of the business itself.
Further, the collateral for commercial business loans may depreciate
over time and cannot be appraised with as much precision as residential
real estate.
Deposits. We primarily use deposits to fund our loan and investment
portfolio. Resource Bank offers a variety of deposit accounts to individuals
and businesses. Deposit accounts include checking, savings, money market and
certificates of deposit. The table below presents average deposits and average
rates paid, by major category, at the dates indicated:
Year Ended December 31,
--------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
Interest bearing
deposits
Demand/MMDA accounts.. $ 67,844 5.97% $ 12,362 3.32% $ 11,437 3.36%
Savings............... 14,618 4.32% 22,943 4.51% 19,334 4.74%
Certificates of
deposit.............. 200,137 6.14% 180,764 5.31% 158,740 5.68%
-------- -------- --------
Total interest
bearing deposits... 282,599 6.01% 216,069 5.11% 189,511 5.44%
Non interest bearing
deposits............... 16,407 -- 16,541 -- 13,565 --
-------- -------- --------
Total average deposits.. $299,006 5.68% $232,610 4.74% $203,106 5.08%
======== ======== ========
24
The following table is a summary of time deposits of $100,000 or more by
remaining maturities at December 31, 2000:
Amount Percent
----------- -----------
(Dollars in thousands)
Three months or less............................. $ 3,157 47.22%
Three to twelve months........................... 2,639 39.47%
Over twelve months............................... 890 13.31%
----------- -----------
Total.......................................... $ 6,686 100.00%
=========== ===========
Borrowed Funds. The following table sets forth consolidated short term
borrowings. These borrowings represent advances to Resource Bank by the Federal
Home Loan Bank of Atlanta and are secured by Federal Home Loan Bank stock,
investment securities and first mortgage loans and federal funds purchased.
During 2000, Resource Bank purchased federal funds on an unsecured basis for up
to thirty consecutive days from a correspondent bank.
Years Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Balance at period end.......................... $ 7,546 $ 13,000 $ 2,000
Average balance during period.................. $ 7,030 $ 7,289 $ 17,806
Average rate................................... 6.37% 5.60% 5.65%
Maximum outstanding during period.............. $ 23,246 $ 16,000 $ 46,420
Liquidity. Our 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. Large certificates of
deposit accounted for 2.0% and 4.4% of our total deposits at December 31, 2000
and 1999, respectively. Federal Home Loan Bank of Atlanta, or FHLB, advances
are also utilized as funding sources, with $30.3 million and $18.3 million in
such advances outstanding at December 31, 2000 and December 31, 1999,
respectively. Pursuant to the terms of a variable rate line of credit with the
FHLB, Resource Bank may borrow up to 18% of its assets. This FHLB credit
facility has no expiration date, but is re-evaluated periodically to determine
our credit worthiness. Resource Bank also has a $50 million warehouse line of
credit collateralized by first mortgage loans, which is renewable annually. As
of December 31, 2000, there was no balance on this line of credit. Management
has no reason to believe these funding arrangements will not be renewed.
Management seeks to ensure adequate liquidity to fund loans and meet our
financial requirements and opportunities. To provide liquidity for current,
ongoing and unanticipated needs, we maintain federal funds sold, money market
accounts and a portfolio of debt securities. We also structure and monitor the
flow of funds from debt securities and from maturing loans. Securities are
generally purchased to provide a source of liquidity. At December 31, 2000, we
had $18.3 million, fair market value, in securities available-for-sale and
$63.8 million, amortized cost, in securities held-to-maturity. 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, and preferred stocks and bonds of corporations with a
credit rating no less than an S&P rating of Bb. Net unrealized depreciation,
net of tax effect, on securities available-for-sale was $258,222 and $126,036
at December 31, 2000 and 1999, respectively. Federal funds sold to
correspondent institutions were $0 and $1.4 million at year end 2000 and 1999,
respectively.
Gross unrealized losses on securities available for sale were $339,100 at
December 31, 2000 and $114,500 at December 31, 1999 and gross unrealized gains
were $25,300 and $13,200 at December 31, 2000 and 1999, respectively. At
December 31, 2000 and December 31, 1999, gross unrealized gains on securities
held to maturity were $1.5 million and $4,100, respectively. At December 31,
2000 and 1999, gross unrealized losses on securities held to maturity were $1.3
million and $2.2 million, respectively.
25
We raised approximately $9.2 million of additional capital in the first
quarter of 1999 by offering 368,000 trust preferred securities at a price of
$25.00 per security. The securities feature a 9.25% coupon. We, in turn,
purchased $7.3 million of non-cumulative 9.25% preferred stock issued by
Resource Bank during the course of 1999. This preferred stock qualifies as Tier
1 capital for Resource Bank for regulatory purposes. This additional Tier 1
capital provided us with an increased loans to one borrower limitation, and the
ability to continue to grow our balance sheet. The preferred stock 9.25% coupon
matches the coupon of the trust preferred securities. The remainder of funds
generated by the trust preferred securities offering, estimated at $1.6 million
after offering expenses, were invested in marketable securities and used by us
in our stock repurchase program. These marketable securities are held as
available-for-sale to meet liquidity needs.
Interest Rate Sensitivity Analysis
Our management evaluates interest sensitivity through the use of an
asset/liability management reporting 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, we establish prices for
deposits and loans based on local market conditions and manage our securities
portfolio under policies that take interest risk into account.
The following table presents the amounts of our interest sensitive assets and
liabilities that mature or re-price in the periods indicated.
December 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........ $ 34,972 $ 15,573 $12,083 $19,493 $ 82,121
Loans........................ 169,517 12,203 84,350 22,443 288,513
Interest bearing deposits.... 2,195 -- -- -- 2,195
Other interest earning
assets...................... 15,445 -- -- -- 15,455
-------- -------- ------- ------- --------
Total interest earning
assets................... 222,129 27,776 96,433 41,936 388,274
-------- -------- ------- ------- --------
Interest Bearing Liabilities:
Deposits
Demand and savings(1)....... 120,380 -- 18,195 -- 138,575
Time deposits, $100,000 and
over....................... 3,157 2,639 890 -- 6,686
Other time deposits......... 98,859 68,098 4,866 50 171,873
Other interest bearing
liabilities................ 7,546 -- 300 30,000 37,846
Capital debt securities..... -- -- -- 9,200 9,200
-------- -------- ------- ------- --------
Total interest bearing
liabilities.............. 229,942 70,737 24,251 39,250 364,180
-------- -------- ------- ------- --------
Period Gap.................. $ (7,813) $(42,961) $72,182 $ 2,686 $ 24,094
-------- -------- ------- -------
Cumulative Gap.............. $ (7,813) $(50,774) $21,408 $24,094
======== ======== ======= =======
Ratio cumulative gap to
total interest earning
assets..................... (2.01)% (13.08)% 5.51% 6.21%
======== ======== ======= =======
- --------
(1) Our 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.
26
The December 31, 2000 results of the rate sensitivity analysis show that we
had $7.8 million more in liabilities than assets subject to repricing within
three months or less and we were, therefore, in a liability sensitive position.
The cumulative gap at the end of one year was a negative $50.8 million, a
liability-sensitive position. Approximately $181.7 million, or 63.0% of the
total loan portfolio, matures or re-prices within one year or less. An asset-
sensitive institution's net interest margin and net interest income generally
will be impacted favorably by rising interest rates, while that of a liability
sensitive institution generally will be impacted favorably by declining rates.
Increases and decreases in our mortgage banking income, which consists
primarily of gains on sales of mortgage loans, tend to offset decreases and
increases in the net interest margin. In a climate of lower or declining
interest rates, our net interest margin will tend to decrease as the yield on
interest earning assets decreases faster than the cost of interest bearing
liabilities. Mortgage banking income, in contrast, tends to increase in times
of lower or declining interest rates, as refinancing activity leads to an
increase in mortgage loan originations. In a climate of rising or higher
interest rates, the net interest margin will tend to increase, while a decrease
in mortgage loan originations leads to a decrease in mortgage banking income.
Interest Rate Risk
Our methodology to measure interest rate sensitivity includes an analysis of
the potential gain or loss in future fair values of interest rate sensitive
instruments. Our analysis assumes a hypothetical 200 basis point instantaneous
and parallel shift in the yield curve in interest rates. A present value
computation is used in determining the effect of the hypothetical interest rate
changes on the fair value of our interest rate sensitive instruments as of
December 31, 2000. Computations of prospective effects of hypothetical interest
rate changes are based on many assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay. They should not be relied
upon as indicative of actual results. Further, the computations do not
contemplate certain actions we could undertake in response to changes in
interest rates. Certain shortcomings are inherent in this method of analysis.
If market conditions vary from assumptions used in the calculation of present
value, actual values may differ from amounts disclosed. However, if a
hypothetical, parallel and instantaneous 200 basis point increase and decrease
were experienced, net fair values of interest sensitive instruments would be
decreased by $1.4 million and decreased by $636,000, respectively.
This fair value analysis, performed for us by a third party vendor, tends to
overstate interest rate risk within our balance sheet. The analysis assigns the
contractual long term maturity to mortgage loans within the funds advanced for
settlement account. Such loans are generally held by us for less than 60 days,
being pre-sold to third party purchasers when the individual borrowers lock in
their interest rates. This extension of loan terms within this category of our
balance sheet increases interest rate risk sensitivity calculated by the
analysis.
The analysis also does not include a forecast of loan and deposit volume
changes due to the hypothetical 200 basis point interest rate change. In
addition, anticipated increased volume in our mortgage banking operation from a
200 basis point decrease in rates is not included in the analysis. This
expected volume increase in mortgage lending as the result of a decline in
interest rates would positively impact our earnings.
The standard algebraic formula for calculating present value is utilized. The
calculation discounts the future cash flows of our portfolio of interest rate
sensitive instruments to present value utilizing techniques designed to
approximate current market rates for securities, current offering rates for
loans, and the cost of alternative funding for the given maturity of deposits,
and then assumes a 200 basis point instantaneous and parallel shift in these
rates. The difference between these numbers represents the resulting
hypothetical change in the fair value of interest rate sensitive instruments.
Other significant assumptions used in the calculation include: (1) no growth
in volume (i.e., replacement of maturities in like instruments, with no change
in balance sheet mix); (2) constant market interest rates
27
reflecting the average rate from the last month of the given quarter; and (3)
pricing spreads to market rates derived from an historical analysis, or from
assumptions by instrument type.
We are not engaged in investment strategies involving derivative financial
instruments. Asset and liability management is conducted without the use of
forward-based contracts, options, swap agreements, or other synthetic financial
instruments.
Return on Equity and Assets
The following table sets forth ratios considered to be significant indicators
of our profitability and financial condition during the periods indicated:
Year Ended
December 31,
--------------------
2000 1999 1998
----- ----- -----
Return on average assets............................... 1.21% (0.25)% 1.27%
Return on average equity............................... 24.13% (3.90)% 18.19%
Recent Accounting Pronouncements
In September 2000, the financial accounting standards board, or FASB, issued
Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities." Statement No. 140 replaces FASB Statement
No. 125, and revises the standards for accounting securitization and other
transfers of financial assets and collateral and requires certain additional
disclosures. This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities.
Those standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. The
disclosure requirement and collateral provisions of FASB Statement No. 140 are
effective for fiscal years ending after December 15, 2000, while the other
provisions of the new standard apply prospectively to transfers and servicing
of financial assets and extinguishment of liabilities occurring after March 31,
2001. The adoption of Statement No. 140 is not expected to have a material
effect on our financial position or the results of our operations.
28
BUSINESS
General
Resource Bankshares Corporation, a Virginia corporation, was established in
1998 and is headquartered in Virginia Beach, Virginia. We were capitalized on
July 1, 1998 as the result of a share exchange with Resource Bank, a Virginia
state chartered bank. In the share exchange, the shareholders of Resource Bank
exchanged each of their shares of common stock for two shares of our common
stock, and Resource Bank became our wholly owned subsidiary. We conduct
virtually all of our business through Resource Bank. The bank markets its
financial services to individuals, small to medium-sized businesses and
professionals located in the three largest metropolitan areas in Virginia--
Greater Hampton Roads, northern Virginia and Greater Richmond.
Our primary source of revenue is the interest income and fees which we earn
by lending and investing the funds which are held on deposit. Because loans
generally earn higher rates of interest than investments, we seek to employ as
much of our deposit funds as possible in the form of loans to individuals,
businesses, professionals and other organizations. In the interest of
liquidity, however, portions of our deposits are maintained in cash, government
securities, deposits with other financial institutions, and overnight loans of
excess reserves, known as federal funds sold, to large correspondent banks. The
revenue that we earn, before deducting overhead expenses, is essentially a
function of the amount of our loans and deposits, as well as the profit margin,
or interest spread, and fee income which can be generated on the loans.
Our strategic plan is directed toward enhancing our franchise value and
operating profitability by (a) increasing our asset size by hiring experienced
lending officers that can attract customers to the bank, (b) funding this
growth with the lowest cost deposits possible and (c) generating significant
non-interest income by building our mortgage operation. In addition, the bank
has expanded, and expects to continue to expand, in the markets in which we
operate. In June 1999, Resource Bank opened a banking office in Chesapeake,
Virginia and in February 2000 the bank opened a banking office in Newport News,
Virginia. The bank opened a loan production office in Richmond, Virginia in May
1995, and plans to replace it with a full service banking office by the end of
2001. We are currently in the process of building our northern Virginia
regional office to replace the bank's administration and banking offices that
are presently located in Herndon. The office will be located in Herndon on
Elden Street, a main business thoroughfare in the Dulles corridor.
Furthering our expansion strategy related to our mortgage operation, we
recently completed two important acquisitions. In February 2001, the bank
acquired the operating assets of Atlantic Mortgage and Investment Company, a
company that specializes in commercial loan originations, placements and
servicing in the mid-Atlantic region of the United States. In addition, the
bank acquired the operating assets of First Jefferson Mortgage Corporation, a
Virginia based residential mortgage loan origination company, in March 2001.
These acquisitions have expanded the scope of mortgage services we market, and
we believe will enhance our mortgage operation.
Market Areas
Resource Bank provides its financial services primarily to individuals and
businesses located in the three largest metropolitan areas in Virginia--Greater
Hampton Roads, northern Virginia and Greater Richmond. When combined, these
areas accounted for over 70% of all deposits in Virginia as of June 30, 2000,
the most recent date that deposit numbers are available. In the past decade,
these areas have seen significant population growth, and each has developed an
energetic business climate, which has in turn promoted further population
growth. Ancillary effects from this growth are increases in both small to
medium-sized businesses and professional firms--primary market groups for the
bank. The following provides highlights on our three market areas.
Greater Hampton Roads
. Population--estimated at 1.6 million in 2000. The population of the
Greater Hampton Roads region has grown by 8.0% since 1990 and is
projected to grow another 1.7% by 2005.
29
. Deposits--financial institution deposits in the region totaled $13.7
billion as of June 30, 2000, representing 12.6% of the total deposits in
Virginia.
. Household Income--median household income in the region grew 33.3% to
$41,059 in 2000 from 1990 and is projected to grow another 9.0% by 2005.
For the purposes of the information presented directly above, the Greater
Hampton Roads area consists of the Norfolk-Virginia Beach-Newport News
Metropolitan Statistical Area.
Northern Virginia
. Population--estimated at 2.1 million in 2000. The population of northern
Virginia has grown by 21.8% since 1990 and is projected to grow another
9.0% by 2005.
. Deposits--financial institution deposits in the region totaled $53.9
billion as of June 30, 2000, representing 50.0% of the total deposits in
Virginia.
. Household Income--median household income in the region grew 41.0% to
$62,352 in 2000 from 1990 and is projected to grow another 14.1% by
2005.
For the purposes of the information presented directly above, northern Virginia
consists of the Virginia portion of the Washington D.C. Primary Metropolitan
Statistical Area.
Greater Richmond
. Population--estimated at 1.0 million in 2000. The population of Greater
Richmond has grown 12.4% since 1990 and is projected to grow another
3.6% by 2005.
. Deposits--financial institution deposits in the region totaled $17.5
billion as of June 30, 2000, representing 16.1% of the total deposits in
Virginia.
. Household Income--median household income in the region grew 34.7% to
$45,212 in 2000 from 1990 and is projected to grow another 9.3% by 2005.
For the purposes of the information presented directly above, Greater Richmond
consists of the Richmond-Petersburg Metropolitan Statistical Area.
Banking Services
Resource Bank has four full service banking offices--in Virginia Beach,
Chesapeake, Newport News and Herndon, Virginia. The bank also operates a loan
production office in Richmond, Virginia that it anticipates replacing with a
full service banking office by the end of 2001.
Resource Bank markets its services to consumers, small to medium sized
businesses and professional persons. We emphasize personal relationship banking
and strive to build customer loyalty. The bank's services include checking and
savings accounts, certificates of deposit and charge cards, as well as services
typically associated with larger banks, such as sweep account capacity,
automatic reconciliation and corporate credit cards.
We have contracted with a nationally recognized Internet banking software
company to provide a secure, comprehensive Internet package to market our
products and services to our customers. This Internet branch,
ResourceBankOnline (www.resourcebankonline.com), provides customers with the
ability to conduct banking business via a personal computer or other secure
browser-enabled device 24 hours per day. We offer special deposit accounts
through ResourceBankOnline, which features competitive interest rates and ready
access to funds on deposit. Online bill payment and a download capability for
most personal financial software packages are also included on our Internet
branch.
Resource Bank is a preferred lender under the Small Business Administration,
or SBA, loan program in both the Richmond, Virginia and Washington, D.C. SBA
districts, ranking first in the number of SBA loans
30
in the Richmond district and in the top 10 in the number of SBA loans in the
Washington, D.C. district in the six month period ending March 31, 2001.
At March 31, 2001, 69% of the bank's loan portfolio was attributable to
borrowers in the Greater Hampton Roads area, 18% to borrowers in northern
Virginia and 13% to borrowers in Greater Richmond. For loans attributed to the
Greater Hampton Roads area, 58% were generated primarily in the Chesapeake,
Norfolk and Virginia Beach areas, and 11% were generated in Hampton, Newport
News and York County.
Mortgage Operations
Resource Mortgage, the bank's mortgage division, originates residential
mortgage loans and sells them to investors in the national secondary market.
Resource Mortgage originates both conforming and non-conforming single-family
loans on a national basis and commercial loans in the mid-Atlantic region.
Mortgage loan origination occurs from our four banking offices, as well as from
our twelve mortgage offices in Virginia Beach, Richmond, Chesapeake, Newport
News, Herndon, Oakton and Roanoke, Virginia; Bowie and Rockville, Maryland;
Raleigh, North Carolina; and Fort Lauderdale and Jacksonville, Florida.
Additionally, Resource Mortgage originates loans throughout the southwestern
United States through its wholesale operations, as well as through its
participation in a limited liability company specializing in relocation
services. During 2000, Resource Mortgage originated and sold mortgage loans in
excess of $326 million.
During the first quarter of 2001, the bank acquired First Jefferson Mortgage
Corporation, a Virginia based residential mortgage origination company, and
Atlantic Mortgage and Investment Company, which specializes in commercial
mortgage originations, placements and servicing. The purchase of First
Jefferson added offices in Fort Lauderdale and Jacksonville, Florida and
Roanoke, Virginia, as well as in the Hampton Roads and Richmond markets. First
Jefferson closed over $250 million in mortgage loans in 2000. Atlantic
Mortgage, which has offices in Richmond and Chesapeake, Virginia and Raleigh,
North Carolina, closed over $100 million in commercial mortgage loans in 2000.
Strategic Plan
We believe that implementing our strategic plan has allowed us to experience
steady growth while improving profitability. We also believe that the net
proceeds raised in this offering will allow us to further implement our
strategic plan by providing the equity capital necessary to support future loan
production and asset growth. Our strategic plan has three primary components:
. Hire experienced lending officers. During the past four years, Resource
Bank has hired a group of talented and experienced senior lending
officers from major regional banks. These officers have been able to
attract customers with which they have built relationships over the
years, typically allowing the officers to enhance our loan production
immediately. Resource Bank currently has 19 senior lending officers with
an average age of 46 and an average of 22 years of experience in the
financial services industry. These senior lending officers, together
with our executive management team, have solid experience in asset and
liability management, loan production and credit administration.
. Fund asset growth with the lowest cost deposits possible. Our liability
funding strategy is to generate the lowest cost deposits possible
through various sources, while also diversifying our sources of funds
and liquidity risks. Our bank funds its asset growth with a combination
of local deposits, Internet deposits, national market deposits, federal
fund borrowings and Federal Home Loan Bank borrowings. The bank also
generates demand deposits through its four banking offices. Each week
the bank's asset and liability committee surveys our three major
markets, sets interest rates on deposits and makes funding decisions
based on current market rates and maturities needed to fund new asset
growth. Our target deposit mix is 30% in local deposits, 30% in national
deposits, 30% in Internet deposits and 10% in borrowings. At March 31,
2001, our deposits reflected this strategy. We anticipate that this
deposit mix will vary from year to year based on the sources of funds in
each
31
segment. At March 31, 2001, our total Internet deposits were $133.4
million, with average balances in excess of $50,000 per customer and
accounts from 45 states.
. Generate significant non-interest income through our bank's mortgage
operation. One of our strategic goals is to continue to generate
significant non-interest income through our mortgage division. In
addition to increasing our overall profitability, our mortgage
operations help offset reduced net interest margins in periods of
falling interest rates because lower interest rates cause an increase in
demand for new mortgage loans and re-financings. We have expanded our
mortgage operations and increased our non-interest income by both hiring
experienced mortgage loan officers and by making strategic acquisitions.
As described above, we completed two important acquisitions in the first
quarter of 2001, purchasing First Jefferson Mortgage Corporation and
Atlantic Mortgage and Investment Company. We believe these additions to
our mortgage operations will enhance our capability to serve and be
responsive to current and prospective customer needs in residential and
commercial mortgages.
Credit Administration
Loan Policy and Approval Authorization. Management has developed, and
Resource Bank's board of directors has approved, detailed credit policies and
procedures which provide for prudent loan decisions through the consistent use
of sound underwriting practices. In addition, these policies provide for
various levels of loan authorization for individual lending personnel. When
aggregate outstanding loans (on both a direct and indirect basis) exceed an
individual loan officer's lending authority, the loan request must receive the
additional approval of a senior lending officer who possesses a higher level
of authority, or by the bank's loan committee. This committee meets not less
than weekly and consists of eleven members of management. All loans in excess
of $500,000 receive subsequent review and ratification by the board of
directors.
Loan Review. All lending personnel, in concert with loan administration
staff, conduct an ongoing review of all "special mentioned" and "classified"
credits as well as all loans which are past due in excess of 30 days. Prior to
each monthly board meeting, a report is developed and presented citing all
special mentioned and classified loans, all loans over 30 days past due, all
non-accrual loans, and real estate owned. Further, on a quarterly basis, the
bank loan review staff conducts an independent review of all loans $100,000 or
greater and has discussions, as necessary, with the appropriate loan manager.
Based on this review and discussion, a report is developed for the board's
review, which presents the risk profile of the portfolio. Any modifications to
the list of classified credits are reflected in the monthly reports presented
to the board.
In addition to the quarterly review described above, the loan review staff
has developed a loan review plan, which requires specific focus on the loan
portfolios of individual regions as well as individual officers. These reviews
require, in some cases, on site reviews allowing for the examination of
documentation. The plan approved by the bank's board of directors for 2001
requires the review of:
. all loans of $750,000 or more;
. all loans delinquent 30 days or more;
. all non-accrual loans;
. all restructured loans;
. all loans currently identified as either special mentioned or
classified;
. all loans originated to facilitate the sale of real estate owned; and
. all insider loans as defined under Federal Reserve regulations.
In addition, a random sampling of not less than 2% of those loans not
included in the above-mentioned categories are reviewed to ensure proper
classification and compliance with internal and external policies and
regulations. The results of these reviews are presented to management with any
significant issues or adverse trends reported directly to the board of
directors.
32
Concentration of Risk. Resource Bank has developed a business strategy
focused on serving small to medium sized business customers, and providing
credit facilities to developers and builders of single-family residential
communities and selected commercial projects. Currently, approximately 75% of
the bank's loan portfolio consists of loans to real estate related projects,
with the remainder consisting of loans to operating or commercial concerns. Our
exposure to real estate related lending is consistent with management's
philosophy to seek adequate collateralization for every loan. This strategy has
proven to be advantageous for the bank based on its levels of real estate owned
and, with the exception of an isolated event in 1999, its levels of loan loss.
The loss in 1999 was related to an asset based lending program which has been
discontinued.
In order to keep management and the board of directors informed about the
bank's real estate activities, a semi-annual analysis of the bank's real estate
loan activities is prepared and reported to the board. This analysis sets out
the detail of our real estate activity and cites any area or developments of
concern.
Acquisition Program
We believe that our franchise value and operating profitability would be
enhanced by a significant increase in our asset size. For this reason, we have
in the past explored, and expect to continue to explore in the future, merger
and acquisition opportunities that would accelerate our progress toward the
achievement of our strategic plan. The transactions during the past year in
which we acquired (1) a title company, (2) a residential mortgage company and
(3) a commercial mortgage operation are examples of the type of transactions
that we may consider.
We cannot assure you that we will be successful in implementing any of the
future plans described above or that, even if implemented, the actions will
produce the desired financial results. You should take into account the matters
described in this section when considering the more specific discussion of our
financial performance provided elsewhere in this prospectus.
Competition
We operate in highly competitive environments in all of our service areas,
competing for deposits and loans with major regional and national banks, as
well as other financial institutions, many of which have greater financial
resources than us. Most maintain numerous banking locations and many perform
services, such as trust services, which we do not offer. Additionally, many of
these competitors have higher lending limits than us. We have been able to
compete effectively with other financial institutions by
. emphasizing personal relationship banking,
. establishing long-term customer relationships,
. building customer loyalty,
. providing products and services designed to address the specific needs
of our customers, and
. promoting local management and decision making in our marketing
strategies.
Properties
The leases covering our banking facilities are long-term with renewal
provisions designed to assure that we will be able to operate in these
facilities for the foreseeable future. Details of our leases may be reviewed in
the notes to our consolidated financial statements that accompany this
prospectus. We purchased a four acre lot in Herndon, Virginia in December of
1997 for future construction of a northern Virginia regional office to
accommodate Resource Bank's administration and branch offices that are
currently located in Herndon. Construction began during 2000 with completion
anticipated in 2001. During the third quarter of 2000, we sold the portion of
this property that we will not need for our facility.
33
Employees
At March 31, 2001, we had 261 full time and 19 part time employees. None of
our employees are represented by any collective bargaining unit, and we believe
that relations with our employees are good.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business.
On November 5, 1999, AGM Development Corporation, a Norfolk, Virginia
business, and Michael Agnew and Barbara Agnew, the owners of AGM Development,
filed a lawsuit against Resource Bank. AGM Development and the Agnews were the
borrowers and guarantors under certain loans that the bank declared in default
in August of 1999. For further discussion of this loan default, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Three Years Ended December 31, 2000--Results of Operations--
Provision for Loan Losses" on page 18.
Among other claims, the lawsuit alleges that the bank did not act in a
commercially reasonable manner when it seized and liquidated certain collateral
that secured the defaulted loans. Based on advice of counsel, management does
not believe that the relief sought by AGM Development and the Agnews will be
granted, and to date it has not.
On May 1, 2001, United Leasing Corporation, a Mechanicsville, Virginia
business, filed a motion for judgment against the bank. The action centers on
certain financing arrangements made by Resource Bank for United Leasing in June
of 1999 in order for United Leasing to provide funding to AGM Development. As
noted above, the bank declared AGM Development's loans in default in August of
1999. In October of 1999, United Leasing and the bank entered into a
liquidation and loan modification agreement, the purpose of which was to
resolve any claims United Leasing and the bank might have against one another.
The United Leasing lawsuit alleges that the liquidation and loan modification
agreement is not enforceable and seeks monetary damages for losses United
Leasing incurred as a result of its financing arrangements with the bank. Among
other claims, the lawsuit alleges that the bank made fraudulent
misrepresentations regarding its lending relationship with AGM Development.
Based on its preliminary review of the motion for judgment, Resource Bank
believes that the allegations contained in the lawsuit are untrue and that it
has valid defenses to each of the claims asserted by United Leasing.
Specifically, the bank believes that the liquidation and loan modification
agreement is enforceable and precludes United Leasing from obtaining a
favorable judgment in the lawsuit.
We have and will continue to vigorously defend all allegations made by those
who have instituted the lawsuits described above. We do not believe that the
lawsuits will have a material adverse effect on our business, consolidated
financial condition or results of operations.
34
MANAGEMENT
Directors and Executive Officers
The following contains information concerning our directors and executive
officers as of June 15, 2001, each of whom is expected to continue to serve in
the following capacities for us and Resource Bank after this offering.
Name Age Position
---- --- --------
Alfred E. Abiouness..... 69 Director
T. A. Grell, Jr......... 52 Director; Executive Vice President; President--Resource
Bank
Thomas W. Hunt.......... 45 Director; Chairman
Louis R. Jones.......... 65 Director
A. Russell Kirk......... 53 Director
Lawrence N. Smith....... 63 Director; President and Chief Executive Officer; Chief
Executive Officer--Resource Bank
Elizabeth A. Twohy...... 48 Director
Harvard R. Birdsong, 51 Senior Vice President; Chief Credit Officer--Resource
II..................... Bank
Debra C. Dyckman........ 51 Senior Vice President of Operations and Secretary
Eleanor J. Whitehurst... 58 Senior Vice President and Chief Financial Officer
Alfred E. Abiouness has been President of Abiouness, Cross & Bradshaw, Inc.,
a Norfolk structural engineering and architectural consulting firm, since 1974.
Mr. Abiouness is a past Commissioner of the Norfolk Redevelopment and Housing
Authority. He has served as a director of Resource Bankshares since its
inception in 1998 and as a director of Resource Bank since 1988.
T. A. Grell, Jr. has been Executive Vice President of Resource Bankshares and
President of Resource Bank since December 1998. Mr. Grell has also served as a
director of Resource Bankshares and Resource Bank since October 2000. From 1984
until joining Resource Bank, he was a senior officer at Central Fidelity Bank,
ultimately serving as Executive Vice President prior to Wachovia Bank's
acquisition of Central Fidelity. Mr. Grell has 29 years of experience in the
banking industry.
Thomas W. Hunt is the Vice President of Summit Enterprises, Inc. of McLean,
Virginia, an investment management company focused primarily on venture capital
opportunities, where he has been employed since 1984. He is the former Chairman
of the Board of Directors of Eastern American Bank, FSB, which Resource Bank
acquired in 1997. Mr. Hunt is a director of Bryce Office Systems, Inc.,
Intelisys Electronic Commerce and Digital Access Control. Mr. Hunt currently
serves as the Chairman of the Board of each of Resource Bankshares and Resource
Bank. He has served as a director of Resource Bankshares since its inception in
1998 and as a director of Resource Bank since 1997.
Louis R. Jones has been President of Hollomon-Brown Funeral Home, Inc. since
1954. Mr. Jones is also Chairman of the Board of Snelling Funeral Homes, Inc.
and is President of Allstate Leasing Corporation, Memorial Services Planning
Corporation, Advance Charge Plan, Inc., Tidewater Cemetery Corporation and Lu-
El Realty, Inc. Mr. Jones serves on the City Council of Virginia Beach. He has
served as a director of Resource Bankshares since its inception in 1998 and as
a director of Resource Bank since 1993.
A. Russell Kirk has been President of Armada/Hoffler Holding Company, a real
estate land development, construction and properties management firm, since
1983 and has been Co-Chief Executive Officer of Goodman Segar Hogan Hoffler,
also a real estate development, construction and properties management firm,
since 1993. Mr. Kirk is also Chairman and Commissioner of the Virginia Port
Authority, Norfolk, Virginia. He has served as a director of Resource
Bankshares since its inception in 1998 and as a director of Resource Bank since
1992.
35
Lawrence N. Smith joined Resource Bank in December 1992 and served as its
President and Chief Executive Officer until the formation of Resource
Bankshares in 1998, at which time he was appointed its President and Chief
Executive Officer. Mr. Smith continues to serve as the Chief Executive Officer
of Resource Bank. He has served as a director of Resource Bankshares since its
inception in 1998 and as a director of Resource Bank since 1992. Mr. Smith has
over 19 years of experience with United Virginia Bank/Seaboard National and
United Virginia Bank--Eastern Region, predecessor to Crestar Bank--Eastern
Region. From 1973 until May 1983, Mr. Smith was President of United Virginia
Bank and also served on major committees of its holding company, United
Virginia Bankshares, Inc., the predecessor of Crestar Bankshares, Inc. He
retired from United Virginia Bank in May 1983. Mr. Smith formed Essex Financial
Group, Inc., a financial holding company, in May 1983. Mr. Smith serves on the
boards of directors of Heilig-Meyers Corporation, a national furniture retailer
that recently filed for bankruptcy protection, and Empire Machinery and Supply
Corporation, a Norfolk based supplier of industrial products. He has served as
a director of Resource Bankshares since its inception in 1998 and as a director
of Resource Bank since 1992.
Elizabeth A. Twohy is President of Capital Concrete, Inc. of Norfolk,
Virginia, a ready-mixed concrete manufacturer, where she has been employed
since 1975. Ms. Twohy is on the Board of Directors of Tidewater Builders
Association and is past President of the Virginia Ready-Mixed Concrete
Association. She has served as a director of Resource Bankshares since its
inception in 1998 and as a director of Resource Bank since 1993.
Harvard R. Birdsong, II has been a Senior Vice President of Resource
Bankshares since December 1998 and Senior Vice President and Chief Credit
Officer of Resource Bank since January 1997. Before joining Resource Bank, he
was a senior credit officer at Essex Savings Bank, where he was employed from
1984 through 1996. He has been employed in the banking industry for over 30
years.
Debra C. Dyckman has been Senior Vice President of Operations and Secretary
of Resource Bank since 1992 and of Resource Bankshares since its inception in
1998. She has been in banking for 30 years and serves on the Board of Trustees
of Cape Henry Collegiate School.
Eleanor J. Whitehurst has been a Senior Vice President and Chief Financial
Officer of Resource Bank since 1992 and of Resource Bankshares since its
inception in 1998. She has more than 30 years of experience in the banking
industry.
Board Structure
Our board of directors is divided into three classes serving staggered three
year terms. The terms of Mr. Abiouness and Ms. Twohy expire in 2002, the terms
of Messrs. Grell, Hunt and Smith expire in 2003, and the terms of Messrs. Jones
and Kirk expire in 2004.
Compensation of Directors
Directors who are also our employees do not receive any extra compensation
for attendance at board or committee meetings of Resource Bankshares or
Resource Bank. The members of our board of directors and Resource Bank's board
of directors are currently the same, and directors do not receive separate
compensation for serving on both boards. During 2000, non-employee directors of
Resource Bank received compensation for their service on its board of directors
in the amount of $1,250 for each meeting attended. In addition, an annual
retainer of $12,000 was paid to the Chairman of Resource Bank's board and an
annual retainer of $10,000 was paid to the other non-employee directors. Non-
employee directors also received $500 for each audit committee and compensation
committee meeting attended.
36
Executive Compensation
The following table presents an overview of compensation paid by Resource
Bankshares and our subsidiaries during 2000, 1999 and 1998 to our chief
executive officer and to our other executive officers whose combined salary and
bonus exceeded $100,000 in 2000.
Summary Compensation Table
Long Term
Compensation
------------
Annual
Compensation Securities
Name and Principal ------------------ Underlying All Other
Position Year Salary($) Bonus($) Options(#) Compensation($)(1)
------------------ ---- --------- -------- ------------ ------------------
Lawrence N. Smith.......
President and CEO of 2000 $275,625 $220,000 20,000 $5,332
Resource Bankshares; 1999 262,500 -- -- 5,078
CEO of Resource Bank 1998 250,000 200,000 -- 5,000
T. A. Grell, Jr. .......
Executive Vice
President of Resource 2000 210,000 186,000 5,000 5,370
Bankshares; President 1999 200,000 46,900 15,000 5,100
of Resource Bank(2) 1998 12,179 -- -- 377
Harvard R. Birdsong, 2000 115,763 60,000 2,500 2,131
II..................... 1999 110,250 20,000 -- 2,034
Senior Vice President 1998 90,000 45,000 -- 2,021
of Resource Bankshares;
Senior Vice President
and Chief Credit
Officer--Resource Bank
Debra C. Dyckman........ 2000 106,050 60,000 2,500 2,108
Senior Vice President 1999 101,000 25,000 -- 2,014
of Operations 1998 92,900 45,000 -- 2,053
Eleanor J. Whitehurst...
Senior Vice President 2000 74,550 48,000 2,500 2,112
and Chief Financial 1999 71,000 -- -- 2,029
Officer 1998 67,000 30,000 -- 2,070
- --------
(1) Consists of contributions to 401(k) Plan.
(2) Mr. Grell became employed by Resource Bank effective December 9, 1998.
Option Grants in Last Fiscal Year
The table below sets forth information regarding stock option grants to the
executive officers named in the summary compensation table during the fiscal
year ended December 31, 2000.
Number of Percent of Total
Securities Options Granted to
Underlying Employees in Exercise Expiration Grant Date
Name Options Granted(#) Fiscal Year Price($/Sh) Date Present Value($)(1)
---- ------------------ ------------------ ----------- ---------- -------------------
Lawrence N. Smith....... 10,000 12.16% $ 9.12 1/3/10 $32,000
10,000 12.16 18.50 1/3/10 18,700
T. A. Grell Jr. ........ 5,000 6.08 9.12 1/3/10 16,000
Harvard R. Birdsong,
II..................... 2,500 3.04 9.12 1/3/10 8,000
Debra C. Dyckman........ 2,500 3.04 9.12 1/3/10 8,000
Eleanor J. Whitehurst... 2,500 3.04 9.12 1/3/10 8,000
- --------
(1) The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 5.5%, dividend yield of 4%,
volatility factor of the expected market price of our common stock of 0.43,
and a weighted-average expected life of the options of 7.0 years. The
actual value, if any, that may be realized will depend on the excess of the
stock price over the exercise price on the date the option is exercised, so
there can be no assurance that the value realized will be at or near the
value estimated by the Black-Scholes model.
37
Option Exercises and Fiscal Year-End Options Values
The table below sets forth information regarding (a) the exercise of stock
options by the executive officers named in the summary compensation table in
2000 and (b) exercisable and unexercisable stock options held as of December
31, 2000 by these executive officers.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at Fiscal Year-End (#) Fiscal Year-End ($)(1)
Acquired on Value ----------------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ --------------- ---------------- ----------- -------------
Lawrence N. Smith....... 0 -- 58,266 10,000 $294,691(2) $14,400(3)
T. A. Grell, Jr......... 0 -- -- 20,000 -- 7,200(4)
Harvard R. Birdsong,
II..................... 0 -- -- 17,500 -- 3,600(5)
Debra C. Dyckman........ 0 -- 21,066 2,500 112,459(6) 3,600(7)
Eleanor J. Whitehurst... 2,000 $16,000(8) 14,400 2,500 62,064(9) 3,600(10)
- --------
(1) The closing price of our common stock on the Nasdaq National Market on
December 31, 2000 was $10.56 per share. Under Securities and Exchange
Commission rules, an option was "in the money" on December 31, 2000 if the
exercise price per share was less than $10.56.
(2) 26,666 of the options are exercisable at $3.00 per share and 21,600 of the
options are exercisable at $6.25 per share. 10,000 of the options are
exercisable at $18.50 per share and therefore were not in the money on
December 31, 2000.
(3) These 10,000 options are exercisable at $9.12 per share.
(4) 5,000 of the options are exercisable at $9.12 per share and 14,571 of the
options are exercisable at $17.87 per share. 429 of the options are
exercisable at $21.75 per share, and therefore were not in the money on
December 31, 2000.
(5) 2,500 of the options are exercisable at $9.12 per share. 15,000 of these
options are exercisable at $15.75 per share, and therefore were not in the
money on December 31, 2000.
(6) 6,666 of the options are exercisable at $3.00 per share and 14,400 of the
options are exercisable at $6.25 per share.
(7) These options are exercisable at $9.12 per share.
(8) The exercise price of these options was $3.00 per share and the closing
price of our common stock on the Nasdaq National Market on December 21,
2000, the date of exercise, was $11.00 per share.
(9) The exercise price of these options is $6.25 per share.
(10) The exercise price of these options is $9.12 per share.
Retirement Savings Plan
Employees that are eligible may participate in Resource Bank's Retirement
Savings Plan. The plan is a combined 401(k) profit sharing, stock bonus and
employee stock ownership plan, which means that contributions may be made by
Resource Bank to the plan in either cash or Resource Bankshares common stock
and are derived from current or accumulated profits. The plan's assets may be
invested in shares of Resource Bankshares common stock purchased from third
parties on the open market. The plan's 401(k) provisions permit employees to
contribute to the plan through voluntary payroll savings on a pretax basis.
These contributions are matched by Resource Bank in an amount equal to 50% of
payroll savings contributions made by employees, up to 6% of an employee's
total compensation.
Retirement Benefits and Key Man Insurance Policies
During 1996, the board of directors of Resource Bank approved a plan for the
payment of retirement benefits to certain key employees and entered into
limited binding agreements with these key employees. Under the terms of the
plan, Resource Bank may fund the liabilities associated with the plan with life
insurance contracts. In connection with funding the projected retirement
benefits, Resource Bank paid premiums on applicable life insurance contracts in
the amount of approximately $646,445 during 2000, and may continue to
38
pay, in its sole discretion, the same annual amount of insurance premiums over
the next three years. Resource Bank owns the insurance polices and, under the
plan, will recoup all the premiums advanced upon the death of the individual
officer.
Stock Option Plans
We currently have three stock option plans under which our directors and
officers have been granted options. These plans were initially adopted by
Resource Bank and were converted into plans of Resource Bankshares shortly
after we were formed to be the holding company for Resource Bank. The 1993
Long-Term Incentive Plan provided for the issuance of options to purchase
shares of our common stock to our key employees. The 1994 Long-Term Director
Incentive Plan provided for the issuance of options to purchase shares of our
common stock to our directors.
Our 1996 Long-Term Incentive Plan originally provided for the issuance of
options to purchase 87,500 shares of our common stock to directors, 82,500 of
which options have been granted, and permitted the grant of options to purchase
up to 160,000 shares of our common stock to our key employees, all of which
options have been granted. At our 1999 annual meeting, our shareholders
approved an amended and restated 1996 Plan that, in addition to other
amendments, authorized the issuance to directors and key employees of options
to purchase an additional 150,000 shares of common stock. Under the terms of
the 1996 Plan, our board has the discretion to allocate these 150,000 shares
among option awards to key employees and directors. Since the 1996 Plan was
amended to authorize the issuance of 150,000 additional option shares, a total
of 142,679 options have been granted to key employees under this plan.
At our 2001 annual meeting of shareholders, we will ask our shareholders to
adopt and approve the 2001 Stock Incentive Plan, which would authorize the
issuance of stock based awards to our directors and key employees. If
shareholders approve this new plan, 100,000 shares of our common stock would be
available for awards.
In most cases, options granted to our employees do not vest and become
exercisable unless the employee is still providing services to us five years
after the option grant date. In addition, all of our options have been granted
at an exercise price that is equal to, or in limited cases higher than, the
fair market value of our common stock on the date of grant.
Employment Agreements
We believe that employment agreements are an important component of
attracting and retaining quality management and key personnel. We also believe
that our employment agreements provide us important protection by imposing
certain non-competition, confidentiality, and non-solicitation of employee
covenants upon our executive officers and other key employees. To provide us
flexibility with respect to our employment needs, however, most of our
employment agreements are terminable by us with or without cause, subject
generally to severance payment obligations by us if we terminate employment
without cause.
We entered into an employment agreement with Lawrence N. Smith in January
1999, under which Mr. Smith serves as our President and Chief Executive Officer
and as the Chief Executive Officer of Resource Bank. The initial term of Mr.
Smith's agreement is five years. Under the terms of his agreement, Mr. Smith's
initial annual base salary was required to be at least $262,500. In 2000, Mr.
Smith's annual salary was $275,625. Mr. Smith's current annual salary under
this agreement is $325,000. On an ongoing basis, Resource Bank's board of
directors will determine Mr. Smith's annual salary in a manner commensurate
with his position and performance. Mr. Smith is also eligible to participate in
benefit, disability and retirement plans and in bonus programs as determined by
the boards of directors of Resource Bankshares or Resource Bank from time to
time. In January of 2000, Mr. Smith was granted options to purchase 20,000
shares, 10,000 of which are exercisable at $9.12 per share and 10,000 of which
are exercisable at $18.50 per share.
39
If Resource Bank terminates Mr. Smith's employment "without cause" (as
defined in the agreement), it is required to pay his regular base salary for
the lesser of the remainder of the initial five year term or a three year
period following termination. However, no further payments would be payable if
Mr. Smith violates the non-competition covenants set forth in his agreement.
Upon a "change of control" (as defined in the agreement) Resource Bank in which
Mr. Smith is not given reasonably equivalent duties, responsibilities and
compensation, Mr. Smith's employment with Resource Bank may be terminated or he
may resign and, in either case, Mr. Smith will be entitled to receive a one
time payment of 2.99 times the average of his regular base salary for the three
year period prior to the change of control. If he has been employed less than
three years at the time of the change of control, he will receive a one time
payment of 2.99 times his regular base salary then in effect.
In addition to the agreement with Mr. Smith, Resource Bank entered into an
employment agreement with T. A. Grell, Jr. in January of 1999, under which Mr.
Grell serves as our Executive Vice President and as President of Resource Bank.
Mr. Grell's agreement has substantially the same terms as Mr. Smith's
agreement, except that Mr. Grell's annual base salary in 2000 was $210,000. Mr.
Grell's current annual salary under his agreement is $220,500. In January of
2000, Mr. Grell was granted options to purchase 5,000 shares exercisable at
$9.12 per share.
Resource Bank has also entered into written employment agreements with our
other executive officers, including Debra C. Dyckman, Harvard R. Birdsong, II
and Eleanor J. Whitehurst. These employment agreements are substantially
similar to the agreements described in the preceding paragraphs, except that
the initial annual base salaries differ from employee to employee and severance
payments upon termination of employment without cause generally would be made
for the lesser of the remainder of the initial term of the agreements or 18
months following termination of employment. The current annual salary under Ms.
Dyckman's employment agreement is $111,500, the current annual salary under Mr.
Birdsong's employment agreement is $121,500 and the current annual salary under
Ms. Whitehurst's employment agreement is $78,500. In 2000, we also granted each
of these executive officers options to purchase 2,500 shares exercisable at
$9.12.
In addition to employment agreements with our executive officers, we have
also entered into employment agreements with key employees in Resource Bank's
mortgage division and with many of our senior lending officers. Employment
agreements for our mortgage division executives typically have terms of five
years, provide for certain severance payments upon termination without cause
and provide for change of control payments of 2.99 times base salary. Of our 19
senior lending officers, we currently have written employment agreements
with 12.
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee was also an officer or employee of
Resource Bank during 2000. During 2000, Lawrence Smith served on the
compensation committee of Heilig-Meyers Company, a public company, but no
directors, officers or other employees of Heilig-Meyers other than Mr. Smith
served (or currently serve) on Resource Bankshares' or Resource Bank's boards
of directors or any of our board committees. In addition, prior to his death in
October 2000, John Bernhardt served on our board of directors and also served
on the compensation committee of Dominion Resources, Inc., also a public
company. No directors, officers or other employees of Dominion Resources other
than Mr. Bernhardt served on Resource Bankshares' or Resource Bank's boards of
directors or any of our board committees during 2000. During 2000, none of our
executive officers other than Mr. Smith served as a member of the compensation
committee of another entity, nor did any of our executive officers serve as a
director of another entity, one of whose executive officers served on our
compensation committee.
Two members of our compensation committee, Alfred Abiouness and Russell Kirk,
have outstanding loans with Resource Bank. Each of these loans was made in the
ordinary course of business on substantially the same terms, including interest
rates, collateral and repayment terms, as those prevailing at the time for
comparable transactions with unrelated parties and did not involve more than
the normal risk of collectibility or present other unfavorable features.
40
Certain Relationships and Related Transactions
The directors and executive officers of Resource Bank and Resource
Bankshares, and their family members and certain business organizations and
individuals associated with each of them, have been customers of Resource Bank,
have had normal banking transactions, including loans, with Resource Bank, and
are expected to continue to do so in the future. As of December 31, 2000,
Resource Bank had aggregate direct and indirect loans to the directors and
executive officers of Resource Bankshares and Resource Bank totaling
approximately $8.0 million, which represented approximately 40.5% of our
stockholders' equity as of that date. Each of these transactions was made in
the ordinary course of business on substantially the same terms, including
interest rates, collateral and repayment terms, as those prevailing at the time
for comparable transactions with unrelated parties and did not involve more
than the normal risk of collectibility or present other unfavorable features.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of June 4, 2001, relating to
the beneficial ownership of our common stock by each of our directors and
executive officers and all of our directors and executive officers as a group.
The executive officers consist of those individuals for whom compensation
information is provided in the "Summary Compensation Table" appearing on page
37 of this prospectus. Except as otherwise set forth below, we are not aware of
any person or group of affiliated persons who owns more than 5% of our common
stock. The address of each of the persons in this table is c/o Resource
Bankshares Corporation, 3720 Virginia Beach Blvd., Virginia Beach, Virginia
23452.
Number of Shares Percent of
Name Beneficially Owned Outstanding Shares
---- ------------------ ------------------
Alfred E. Abiouness.................. 74,846(1) 2.83%
T. A. Grell, Jr...................... 5,497 *
Thomas W. Hunt....................... 64,440(2) 2.47
Louis R. Jones....................... 251,158(3) 9.55
A. Russell Kirk...................... 102,781(4) 3.94
Lawrence N. Smith.................... 147,187(5) 5.52
Elizabeth A. Twohy................... 41,479(6) 1.58
Harvard R. Birdsong, II.............. 5,151 *
Debra C. Dyckman..................... 47,374(7) 1.80
Eleanor J. Whitehurst................ 25,230(8) *
All directors and executive officers
as a group (10 persons)............. 765,143 27.44%
- --------
* Less than 1% ownership
(1) Includes options to purchase 30,166 shares that are currently exercisable.
(2) Includes 38,844 shares owned by Mr. Hunt's spouse and 20,234 shares owned
by Mr. Hunt's children, for which Mr. Hunt shares voting and investment
power. Does not include 40,964 shares held jointly by Mr. Hunt's spouse and
Alan M. Voorhees as trustees for the benefit of Mr. Voorhees'
grandchildren, for which Mr. Hunt does not share voting or investment
power.
(3) Includes options to purchase 20,166 shares that are currently exercisable.
(4) Includes options to purchase 13,500 shares that are currently exercisable.
(5) Includes options to purchase 58,266 shares that are currently exercisable.
Also includes 52,202 shares owned by the Smith Family Partnership for which
Mr. Smith shares voting and investment power and 10,500 shares owned by the
Smith Family Trust for which Mr. Smith shares voting and investment power.
(6) Includes options to purchase 20,166 shares that are currently exercisable.
Also includes 6,473 shares owned by Ms. Twohy's minor children.
(7) Includes options to purchase 21,066 shares that are currently exercisable.
Also includes 1,000 shares that are held jointly by Ms. Dyckman and her
mother.
(8) Includes options to purchase 14,400 shares that are currently exercisable.
41
SUPERVISION AND REGULATION
Set forth below is a summary of statutes and regulations affecting bank
holding companies like Resource Bankshares and banks like Resource Bank.
Federal and state laws and regulations provide regulatory oversight for
virtually all aspects of our operations. This summary is qualified in its
entirety by reference to these statutes and regulations.
Supervision and Regulation of Resource Bankshares
General Banking Regulation. Resource Bankshares is a bank holding company
within the meaning of the Bank Holding Company Act of 1956 and the Virginia
Banking Act. As a bank holding company, Resource Bankshares is required to file
with the Federal Reserve periodic reports and information regarding its
business operations and those of Resource Bank. Resource Bankshares also must
provide the Virginia Bureau of Financial Institutions with information
regarding itself and Resource Bank. Resource Bankshares and Resource Bank also
are examined by the Federal Reserve and by the Virginia Bureau of Financial
Institutions.
A bank holding company is required to obtain prior approval from the Federal
Reserve before acquiring control of substantially all the assets of any non-
affiliated bank or more than 5% of the voting shares of any bank it does not
already own, or before it merges or consolidates with another institution or
engages in any business other than banking or managing, controlling or
furnishing services to banks and other subsidiaries, and a limited list of
activities closely related to or incidental to banking. Similarly, approval of
the Virginia Bureau of Financial Institutions is required for certain
acquisitions of other banks and bank holding companies. The Federal Reserve
will approve the ownership by a bank holding company of shares in a company
engaged in activities determined by order or regulation to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. In other words, regulatory involvement, and frequently
approval, is required if we engage in non-banking activities.
Resource Bankshares would be compelled by the Federal Reserve to invest
additional capital in the event Resource Bank experiences either significant
loan losses or rapid growth of loans or deposits. The Federal Reserve requires
a bank holding company to act as a source of financial strength and to take
measures to preserve and protect its bank subsidiaries.
Holding Company Capital Guidelines. As a bank holding company, we operate
under the capital adequacy guidelines established by the Federal Reserve. Under
the Federal Reserve's current risk-based capital guidelines for bank holding
companies, the minimum required ratio for total capital to risk weighted assets
we are required to maintain is 8%, with at least 4% consisting of Tier 1
capital. Tier 1 capital consists of common and qualifying preferred stock,
certain other qualifying instruments, and minority interests in equity accounts
of consolidated subsidiaries, less goodwill and other intangible assets. These
risk-based capital guidelines establish minimum standards, and bank holding
companies generally are expected to operate well above the minimum standards.
We may raise this capital with certain types of debt, and we may raise capital
by selling company stock, as we are doing with this offering.
Financial Modernization Legislation. A bank holding company generally is
restricted to activities related or incidental to banking. In the past, bank
holding companies were specifically prohibited from engaging in the issue,
flotation, underwriting, public sale, or distribution of third party
securities. Limits also were placed on underwriting and selling insurance. The
activities permissible to bank holding companies and their affiliates were
substantially expanded by the Gramm-Leach-Bliley Act, which became effective in
March of 2000. This new act repeals the banking/securities industry anti-
affiliation rules and permits the common ownership of commercial banks,
investment banks, and insurance companies. Under this new law, a bank holding
company can elect to be treated as a financial holding company, which may
engage in any activity that the Federal Reserve determines is financial in
nature. A financial holding company also may engage in any activity that is
complementary to a financial activity and does not pose a substantial risk to
the safety and soundness of the related depository institutions or the
financial system generally.
42
In order for a bank holding company to qualify as a financial holding
company, all of its depository subsidiaries (i.e., banks and thrifts) must be
well capitalized and well managed, and must meet their Community Reinvestment
Act, or CRA, obligations, as explained below. The bank holding company also
must declare its intention to become a financial holding company to the Federal
Reserve and certify that it meets the requirements. Banks and thrifts acquired
by a financial holding company within 12 months prior to the date on which the
election is filed may be excluded from this test if they have less than a
satisfactory CRA rating, but they must submit a plan to the applicable federal
banking agency describing how the CRA rating will be brought into conformance.
Financial holding company powers that are either specified in the statute or
have been determined by the Federal Reserve to be financial in nature include
the following:
. underwriting insurance or annuities;
. providing financial or investment advice;
. underwriting, dealing in, or making markets in securities;
. merchant banking, subject to limitations on size and capital
restrictions;
. insurance portfolio investing, subject to limitations; and
. any other activities previously found to be closely related to banking
by the Federal Reserve.
The Act also establishes a system of functional regulation for financial
holding companies and banks providing regulation of securities by the
Securities and Exchange Commission and state securities regulators, regulation
of futures by the Commodity Futures Trading Commission, and regulation of
insurance activities by the state insurance regulators. Banks may sell title
insurance only when specifically permitted under applicable state law.
This new law also imposes new customer privacy requirements on financial
institutions. Financial institutions generally are prohibited from disclosing
customer information to non-affiliated third parties, unless the customer has
been given the opportunity to object and has not objected to such disclosure.
Financial institutions must disclose their specific privacy policies to their
customers annually. Upon making such disclosure, there is no specific
restriction on financial institutions disclosing customer information to
affiliated parties. Financial institutions must comply with state law, however,
if it protects customer privacy more fully than federal law.
The new law also revises the present Federal Home Loan Bank system, imposing
new capital requirements on Federal Home Loan Banks and authorizing them to
issue two classes of stock with differing dividend rates and redemption
requirements. Permissible uses of Federal Home Loan Bank advances by community
financial institutions (under $500 million in assets) have been expanded to
include funding loans to small businesses, and small farms and agribusiness.
The new law contains a variety of other provisions. For example, automated
teller machine surcharges are prohibited unless the customer first has been
provided notice of the imposition and amount of the fee, CRA examinations for
smaller institutions will be less frequent and certain reporting requirements
are now imposed on depository institutions that make payments to non-
governmental entities in connection with the CRA.
Resource Bankshares does not currently intend to become a "financial holding
company" under the terms of this new law, but may consider doing so at some
point in the future. We are unable to predict the impact of this new law on our
competition or our operations at this time.
Securities. Resource Bankshares also must comply with the requirements of the
Securities Exchange Act of 1934, which include the filing of annual, quarterly
and other reports with the Securities and Exchange Commission.
43
Supervision and Regulation of Resource Bank
General. Resource Bank is a state bank and member of the Federal Reserve
System. The Federal Reserve and the Virginia Bureau of Financial Institutions
regulate and monitor all significant aspects of Resource Bank's operations. The
Federal Reserve requires quarterly reports on Resource Bank's financial
condition, and both federal and state regulators conduct periodic examinations
of the bank. The cost of complying with these regulations and reporting
requirements can be significant. In addition, some of these regulations impact
investors directly. For example, Resource Bank may pay dividends only out of
its net undivided profits after deducting expenses, bad debts, losses, interest
and taxes accrued, and contribution to capital necessary for the bank's
original capital to be restored. The Federal Reserve recommends that banks pay
dividends only if the net income available to shareholders in the past year
fully funds those dividends, and the expected rate of earnings retention is
consistent with capital needs, asset quality, and overall financial condition.
Regulatory restrictions on Resource Bank's ability to pay dividends may
adversely impact Resource Bankshares' ability to pay dividends to its
shareholders.
As a member of the Federal Reserve, Resource Bank also will have to comply
with rules that restrict preferential loans by the bank to "insiders," require
Resource Bank to keep information on loans to principal shareholders and
executive officers, and prohibit certain director and officer interlocks
between financial institutions. Resource Bank's loan operations, particularly
for consumer and residential real estate loans, are also subject to numerous
legal requirements as are its deposit activities. In addition to regulatory
compliance costs, these laws may create the risk of liability to Resource Bank
for noncompliance.
FDIC Insurance. Resource Bank's deposits are insured by the FDIC for a
maximum of $100,000 per depositor. For this protection, Resource Bank pays a
semi-annual statutory assessment and must comply with the rules and regulations
of the FDIC. FDIC assessments can change, affecting Resource Bank's costs,
depending on the solvency of the banking industry as a whole. In addition, the
cost of complying with FDIC rules and regulations may negatively impact
Resource Bank's profitability. For member banks like Resource Bank, the Federal
Reserve has the authority to prevent the continuance or development of unsound
and unsafe banking practices and to approve conversions, mergers and
consolidations. Obtaining regulatory approval of these transactions can be
expensive, time consuming, and ultimately may not be successful.
Bank Capital Guidelines. Federal bank regulatory authorities have adopted
risk-based capital adequacy guidelines that redefine traditional capital ratios
to take into account assessments of risks related to each balance sheet
category, as well as off-balance sheet financing activities. This represents an
effort to measure capital adequacy in a way that is more sensitive to the
individual risk profiles of specific financial institutions. The risk-weighted
asset base is equal to the sum of the aggregate dollar value of assets and
certain off-balance sheet items (such as currency or interest rate swaps) in
each of the four separate risk categories, multiplied by the risk weight
assigned to each specific asset category. After the items in each category have
been totaled and multiplied by the category's risk factor, category totals are
aggregated to derive the total risk-weighted assets, and the total adjusted
capital base is divided by the total risk-weighted assets to derive a ratio.
Under the Federal Reserve's current risk-based capital guidelines for member
banks, Resource Bank is required to maintain a minimum ratio of total capital
to risk weighted assets of 8%, with at least 4% consisting of Tier 1 capital.
Tier 1 capital consists of common and qualifying preferred stock, certain other
qualifying instruments, and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and other intangible assets. In
addition, the Federal Reserve requires its member banks to maintain a minimum
ratio of Tier 1 capital to average total assets. This capital measure generally
is referred to as the leverage capital ratio. The minimum required leverage
capital ratio is 4% if the Federal Reserve determines that the institution is
not anticipating or experiencing significant growth and has well-diversified
risks--including no undue interest rate exposure, excellent asset quality, high
liquidity and good earnings--and, in general, is considered a strong banking
organization and rated Composite 1 under the Uniform Financial Institutions
Rating Systems. If Resource Bank does not satisfy any of these criteria it may
be required to maintain a ratio of total capital to risk-based assets of 10%
and a ratio of Tier 1 capital to risk-based assets of at least 6%. Resource
Bank would
44
then be required to maintain a 5% leverage capital ratio. These regulations can
impact Resource Bank by requiring it to hold more capital and thereby inhibit
its ability to grow. At March 31, 2001, Resource Bankshares and Resource Bank
had the following risk-based capital and leverage ratios relative to regulatory
minimums:
Resource Resource
Ratio Bankshares Bank Minimum
----- ---------- -------- -------
Tier 1 risk-based capital........................ 8.38% 8.85% 4.0%
Total risk-based capital......................... 9.56 10.04 8.0
Leverage......................................... 6.46 6.86 4.0
Affiliate Transactions and Branching. The Federal Reserve Act restricts
loans, investments, asset purchases and other transactions between banks and
their affiliates, including placing collateral requirements and requiring that
those transactions are on terms and under conditions substantially the same as
those prevailing at the time for comparable transactions with non-affiliates.
Resource Bank may branch without geographic restriction in Virginia, and it may
acquire branches or banks or merge across state lines in most cases.
Community Reinvestment Act. The CRA requires that federal banking regulators
evaluate the record of the financial institutions in meeting the credit needs
of their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions. These
factors are also considered in evaluating mergers, acquisitions, and
applications to open a branch or facility. Resource Bank received a
"Satisfactory" CRA rating in its latest CRA examination.
Other Regulation. Resource Bank is subject to a variety of other regulations.
State and federal laws restrict interest rates on loans, potentially affecting
our income. The Truth in Lending Act and the Home Mortgage Disclosure Act
impose information requirements on Resource Bank in making loans. The Equal
Credit Opportunity Act prohibits discrimination in lending on the basis of
race, creed, or other prohibited factors. The Fair Credit Reporting Act governs
the use and release of information to credit reporting agencies. The Truth in
Savings Act requires disclosure of yields and costs of deposits and deposit
accounts. Other acts govern confidentiality of consumer financial records,
automatic deposits and withdrawals, check settlement, endorsement and
presentment, and disclosure of cash transactions exceeding $10,000 to the
Internal Revenue Service.
Monetary Policy
Banking is a business that depends on interest rate differentials. The
difference between the interest rates paid by Resource Bank on its deposits and
other borrowings and the interest rates received on loans extended to its
customers and on securities held in its portfolio comprises the major portion
of Resource Bank's earnings.
The earnings and growth of Resource Bank will be affected not only by general
economic conditions, both domestic and foreign, but also by the monetary and
fiscal policies of the United States and its agencies, particularly the Federal
Reserve. The Federal Reserve implements national monetary policy by its open
market operations in United States government securities, adjustments in the
amount of industry reserves that banks and other financial institutions are
required to maintain and adjustments to the discount rates applicable to
borrowings by banks from the Federal Reserve. The actions of the Federal
Reserve in these areas influence the growth of bank loans, investments, and
deposits and also affect interest rates charged and paid on deposits. We cannot
predict the nature and impact of any future changes in monetary policies.
45
DESCRIPTION OF CAPITAL STOCK
Our Articles of Incorporation authorize 6,666,666 shares of common stock, of
which 2,615,214 shares were issued and outstanding on March 31, 2001. As of
March 31, 2001, there were approximately 763 shareholders of record of our
common stock and approximately 1,077 beneficial holders. In addition, our
Articles authorize 500,000 shares of preferred stock. There are no shares of
preferred stock outstanding. The board may issue shares of common stock and
preferred stock as the board deems advisable without further shareholder
approval, except, for example, in the case of an acquisition of or combination
with another bank or company. In other words, the board may decide to issue
additional stock and dilute your ownership interest.
Summary of Shareholders Rights
Dividend Rights. Resource Bankshares may pay dividends as declared from time
to time by the board out of funds that are legally available, subject to
certain restrictions imposed by state and federal laws. See "Dividend Policy"
on page 12.
Voting Rights. In all elections of directors, a shareholder has the right to
cast one vote for each share of stock held by him or her for as many persons as
there are directors to be elected. We do not have cumulative voting rights. On
any other question to be determined by a vote of shares at any meeting of
shareholders, each shareholder is entitled to one vote for each share of stock
held by him or her and entitled to vote.
Preemptive Rights. Holders of common stock do not have preemptive rights with
respect to issuances of common stock. Accordingly, your share ownership may be
diluted if the board decides to issue additional stock in the future.
Liquidation Rights. Upon liquidation, after payment of all creditors, our
remaining assets would be distributed to the holders of common stock on a pro-
rata basis.
Calls and Assessments. All common stock outstanding is fully paid and non-
assessable.
Indemnification of Officers and Directors. Our Articles of Incorporation
provide for the indemnification of our officers and directors for their actions
unless a court finds them liable for willful misconduct or a knowing violation
of the criminal law. In any proceeding brought by shareholders against an
officer or director in connection with his or her position with Resource
Bankshares or Resource Bank, no damages may be assessed against that officer or
director unless he or she is liable for willful misconduct or a knowing
violation of criminal or securities laws. We are advised that in the opinion of
the Securities and Exchange Commission indemnification of directors, officers,
and controlling persons for liabilities under the Securities Act of 1933 is
against public policy and is, therefore, unenforceable.
Reports to Shareholders. We furnish shareholders with annual reports,
including audited financial statements.
Anti-Takeover Provisions in Articles of Incorporation
There are several provisions in our Articles of Incorporation that may
discourage attempts to acquire control of Resource Bankshares. First, our
Articles of Incorporation authorize our board of directors to issue shares of
preferred stock without shareholder approval on terms that the board deems
appropriate. Although we currently have no plans to utilize the issuance of
preferred stock as a deterrent to possible takeover attempts, the power to
issue shares of preferred stock without shareholder approval and to determine
rights and preferences with respect to each series of preferred stock could
allow our board of directors to issue shares of preferred stock for the purpose
of deterring a takeover attempt.
In addition, our Articles of Incorporation provide that our directors are
divided into three separate classes, each of which class serves a three year
term, and that shareholders may only remove directors for cause.
46
Together, these provisions make it more difficult for shareholders to change
the composition of our board of directors and, therefore, may deter attempts to
acquire control of Resource Bankshares.
Virginia Anti-Takeover Statutes
State Anti-Takeover Statutes. Virginia law restricts transactions between a
Virginia corporation and its affiliates and potential acquirers. The following
discussion summarizes the two Virginia statutes that may discourage an attempt
to acquire control of Resource Bankshares. We encourage you to read the entire
statutes referenced below.
Affiliated Transaction. Virginia Code Sections 13.1-725--727.1 govern
"Affiliated Transactions." These provisions, with several exceptions discussed
below, require approval by the holders of at least two-thirds of the remaining
voting shares of material acquisition transactions between a Virginia
corporation and any holder of more than 10% of any class of its outstanding
voting shares. Affiliated Transactions include mergers, share exchanges,
material dispositions of corporate assets not in the ordinary course of
business, any dissolution of the corporation proposed by or on behalf of an
interested shareholder, or any reclassification, including a reverse stock
split, recapitalization, or merger of the corporation with its subsidiaries
which increases the percentage of voting shares owned beneficially by any 10%
shareholder by more than 5%.
For three years following the time that a shareholder becomes an owner of 10%
of the outstanding voting shares, a Virginia corporation cannot engage in an
Affiliated Transaction with that shareholder without approval of two-thirds of
the voting shares other than those shares beneficially owned by that
shareholder, and majority approval of the disinterested directors. A
disinterested director is a member of the Resource Bankshares board of
directors who was (1) a member on the date the shareholder acquired more than
10% and (2) recommended for election by, or was elected to fill a vacancy and
received the affirmative vote of, a majority of the disinterested directors
then on the board. At the expiration of the three-year period, the statute
requires approval of Affiliated Transactions by two-thirds of the voting shares
other than those beneficially owned by the 10% shareholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three-year period has expired and require
either that the transaction be approved by a majority of the corporation's
disinterested directors or that the transaction satisfy the fair-price
requirement of the statute. In general, the fair-price requirement provides
that in a two-step acquisition transaction, the 10% shareholder must pay the
shareholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Virginia corporation's
shares in the first step.
None of the foregoing limitations and special voting requirements applies to
a transaction with any 10% shareholder whose acquisition of shares taking him
or her over 10% was approved by a majority of the corporation's disinterested
directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any 10% shareholder, a
corporation can adopt an amendment to its articles of incorporation or bylaws
providing that the Affiliated Transactions provisions shall not apply to the
corporation. We have not "opted out" of the Affiliated Transactions provisions.
Control Share Acquisitions. Virginia law also provides that shares acquired
in a transaction that would cause the acquiring person's voting strength to
meet or exceed any of the three thresholds (20%, 33 1/3% or 50%) have no voting
rights for those shares exceeding that threshold, unless granted by a majority
vote of shares not owned by the acquiring person. This provision empowers an
acquiring person to require the Virginia corporation to hold a special meeting
of shareholders to consider the matter within 50 days of the request.
Both of these statutes provide impediments to a hostile or unwelcome takeover
of Resource Bankshares. In doing so, they may discourage transactions that some
shareholders may feel are in their best interest.
47
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement,
Scott & Stringfellow, Inc., the underwriter, has agreed to purchase from us all
of the shares of common stock in this offering. The underwriter is committed to
purchase and pay for all such shares if any are purchased. The underwriting
agreement further provides that the obligations of the underwriter are subject
to approval of certain legal matters by its counsel and to various other
conditions.
The underwriter proposes to offer the shares of common stock to the public at
the public offering price set forth on the cover of this prospectus and to
certain securities dealers at that price less a concession not to exceed $0.59
per share. The underwriter may allow, and these dealers may re-allow, a
concession, not more than $0.10 per share to certain other dealers. After the
offering, the underwriter may change the offering price and other selling
terms.
We have granted to the underwriter an option, exercisable for 30 days after
the date of this prospectus, to purchase up to 75,000 additional shares of
common stock at the public offering price less the underwriting discount set
forth on the cover page of this prospectus. The underwriter may exercise this
option only to cover over-allotments, if any, made in connection with this
offering. We will be obligated, pursuant to the option, to sell these
additional shares of common stock to the underwriter to the extent the option
is exercised. If any additional shares of common stock are purchased, the
underwriter will offer the additional shares on the same terms as those on
which the 500,000 shares are being offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriter to us per share of common
stock. The underwriting fee is 7.0% of the public offering price. The following
table shows the per share and total underwriting discount to be paid to the
underwriter by us in connection with this offering. This amount is shown
assuming both no exercise and full exercise of the underwriter's over-allotment
option.
No Exercise Full Exercise
----------- -------------
Per share.......................................... $ 0.98 $ 0.98
Total.............................................. $490,000 $563,500
In addition, we estimate that the total expenses of this offering payable by
us, excluding the underwriting discount, will be approximately $110,000.
Each of our executive officers and directors have agreed that they will not
offer, sell, contract to sell or otherwise dispose of any shares of common
stock or any securities exercisable for or convertible into common stock owned
by them or acquired in the offering, in the open market or otherwise, for a
period of 90 days from the date of this prospectus, without the prior written
consent of Scott & Stringfellow. This consent may be given at any time without
public notice.
In connection with the offering, the underwriter may engage in transactions
that are intended to stabilize, maintain or otherwise affect the price of our
common stock during and after the offering, such as the following:
. the underwriter may over-allot or otherwise create a short position in
our common stock for its own account by selling more common stock than
has been sold to them;
. the underwriter may elect to cover any short position by purchasing
common stock in the open market or by exercising the over-allotment
option;
. the underwriter may stabilize or maintain the price of our common stock
by bidding;
. the underwriter may engage in passive market-making transactions; and
. the underwriter may impose penalty bids, under which selling concessions
allowed to other broker-dealers participating in this offering are
reclaimed if common stock previously distributed in the offering is
repurchased in connection with stabilization transactions or otherwise.
48
The effect of these transactions may be to stabilize or maintain the market
price at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of our common stock
to the extent that it discourages resales. No representation is made as to the
magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected in the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The underwriter presently makes a market in our common stock and intends to
continue to do so after completing this offering.
LEGAL MATTERS
Certain matters in this offering, including the legality of the common stock
offered pursuant to this prospectus, will be passed upon for Resource
Bankshares by Kaufman & Canoles, a Professional Corporation, Norfolk, Virginia.
Certain matters in this offering will be passed upon for Scott & Stringfellow,
Inc. by LeClair Ryan, A Professional Corporation, Richmond, Virginia.
EXPERTS
Goodman & Company, L.L.P., independent auditors, audited the consolidated
financial statements of Resource Bankshares as of December 31, 2000 and 1999
and for the years then ended included in this prospectus. Their report on the
financial statements referred to in the preceding sentence included in this
prospectus is included in reliance on the report of Goodman & Company, L.L.P.,
given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission with respect to the shares of common stock offered by this
prospectus. The prospectus, which is a part of the registration statement, does
not contain all of the information included in the registration statement. For
further information with respect to our business, reference is made to the
registration statement and its exhibits. You may review a copy of the
registration statement, including exhibits, at the public reference rooms
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the SEC's regional offices in New York (7 World Trade Center,
Suite 1300, New York, New York 10048) and Chicago (Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661). Please call 1-800-SEC-
0330 for further information about the operation of the public reference rooms.
We also file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
or other information on file at the SEC's public reference rooms. You can also
request copies of these documents, for a copying fee, by writing to the SEC.
The registration statement and our other SEC filings can also be reviewed by
accessing the SEC's Internet web site at http://www.sec.gov, which contains
reports, proxy and other information about registrants that file electronically
with the SEC.
Our common stock is listed on the Nasdaq National Market, and such reports,
proxy statements and other information can also be inspected at the offices of
the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
49
RESOURCE BANKSHARES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
INTERIM PERIODS (UNAUDITED)
Consolidated Balance Sheet as of March 31, 2001......................... F-2
Consolidated Statements of Operations for the three months ended March
31, 2001 and 2000...................................................... F-3
Consolidated Statements of Stockholders' Equity for the three months
ended March 31, 2001 and 2000.......................................... F-4
Consolidated Statements of Cash Flows for the three months ended March
31, 2001 and 2000...................................................... F-5
FULL FISCAL YEARS (AUDITED)
Independent Auditors' Report............................................ F-9
Consolidated Balance Sheets as of December 31, 2000 and 1999............ F-10
Consolidated Statements of Operations for years ended December 31, 2000,
1999 and 1998.......................................................... F-11
Consolidated Statements of Stockholders' Equity for years ended December
31, 2000, 1999 and 1998................................................ F-12
Consolidated Statements of Cash Flows for years ended December 31, 2000,
1999 and 1998.......................................................... F-13
Notes to Consolidated Financial Statements.............................. F-14
F-1
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, 2001
----------------------
(Dollars in thousands)
Assets
Cash and due from banks................................ $ 5,716
Interest bearing deposits with banks................... 3,150
Federal funds sold..................................... --
--------
Cash and cash equivalents............................ 8,866
Funds advanced in settlement of mortgage loans......... 42,406
Investment securities:
Available-for-sale (amortized cost of $21,628)....... 21,626
Held-to-maturity (fair value of $65,317)............. 63,393
Loans
Commercial........................................... 69,230
Real estate--construction............................ 78,403
Commercial real estate............................... 98,601
Residential real estate.............................. 44,763
Installment and consumer loans....................... 4,476
--------
Total loans........................................ 295,473
Allowance for loan losses............................ (3,742)
--------
Net loans.......................................... 291,731
Other real estate owned................................ --
Premises and equipment, net............................ 4,957
Other assets........................................... 7,870
Accrued interest....................................... 2,992
--------
Total assets....................................... $443,841
========
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing deposits........................ $ 12,953
Interest bearing deposits............................ 362,519
--------
Total deposits..................................... 375,472
Federal funds purchased................................ 3,000
FHLB advances.......................................... 30,300
Other liabilities...................................... 3,345
Accrued interest....................................... 2,112
Capital Trust borrowings............................... 9,200
--------
Total liabilities.................................. 423,429
Preferred stock, par value $10 per share, shares
authorized: 500,000; none issued and outstanding...... --
Common stock, par value $1.50, shares authorized:
6,666,666; shares issued and outstanding: 2,615,214... 3,923
Additional paid-in capital............................. 10,900
Retained earnings...................................... 5,639
Accumulated other comprehensive income (loss).......... (50)
--------
Total stockholders' equity......................... 20,412
--------
$443,841
========
See notes to consolidated financial statements.
F-2
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31
------------------------
2001 2000
----------- -----------
(Dollars in thousands)
Interest and dividend income
Interest and fees on loans.......................... $ 6,000 $ 5,353
----------- -----------
Interest on investment securities:
Interest and dividends on securities available-
for-sale......................................... 215 143
Interest on securities held-to-maturity........... 1,436 470
----------- -----------
1,651 613
----------- -----------
Interest on federal funds sold...................... -- 75
Interest on funds advanced in settlement of mortgage
loans.............................................. 333 212
----------- -----------
Total interest income............................. 7,984 6,253
----------- -----------
Interest expense
Interest on deposits................................ 4,724 3,559
Interest on short term borrowings................... 137 203
Interest on long term borrowings.................... 627 268
----------- -----------
Total interest expense............................ 5,488 4,030
----------- -----------
Net interest income............................... 2,496 2,223
Provision for loan losses........................... (45) (100)
----------- -----------
Net interest income after provision for loan
losses........................................... 2,451 2,123
----------- -----------
Noninterest income
Mortgage banking income............................. 2,520 1,507
Service charges..................................... 301 177
Gain on sale of assets.............................. -- 291
Other............................................... 197 202
----------- -----------
3,018 2,177
----------- -----------
Noninterest expense
Salaries and employee benefits...................... 2,695 1,833
Occupancy expenses.................................. 311 321
Depreciation and equipment maintenance.............. 248 225
Stationery and supplies............................. 118 107
Marketing and business development.................. 107 93
Professional fees................................... 34 89
Outside computer services........................... 128 138
FDIC insurance...................................... 16 12
Other............................................... 474 340
----------- -----------
4,131 3,158
----------- -----------
Income before income taxes.......................... 1,338 1,142
Income tax expense.................................. 388 348
=========== ===========
Net income........................................ $ 950 $ 794
=========== ===========
Cash dividends declared per common share............ $ 0.12 $ 0.10
=========== ===========
Basic earnings per common share..................... $ 0.36 $ 0.31
=========== ===========
Diluted earnings per common share................... $ 0.34 $ 0.30
=========== ===========
See notes to consolidated financial statements.
F-3
RESOURCE BANKSHARES CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Three Months Ended March 31, 2001
------------------------------------------------------------
Accumulated
Common Stock Additional Other
----------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income (Loss) Total
--------- ------ ---------- -------- ------------- -------
(Dollars in thousands)
Balance, December 31,
2000................... 2,623,861 $3,936 $10,989 $5,005 $(258) $19,672
Comprehensive income:
Net income............ -- -- -- 950 -- 950
Changes in unrealized
appreciation
(depreciation) on
securities available-
for-sale, net of
reclassification
adjustment and tax
effect............... -- -- -- -- 208 208
-------
Total comprehensive
income............. 1,158
-------
Reacquisition of common
stock.................. (8,647) (13) (89) -- -- (102)
Cash dividends
declared--$.12 per
share.................. -- -- -- (316) -- (316)
--------- ------ ------- ------ ----- -------
Balance, March 31,
2001................... 2,615,214 $3,923 $10,900 $5,639 $ (50) $20,412
========= ====== ======= ====== ===== =======
Three Months Ended March 31, 2000
------------------------------------------------------------
Accumulated
Common Stock Additional Other
----------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income (Loss) Total
--------- ------ ---------- -------- ------------- -------
(Dollars in thousands)
Balance, December 31,
1999................... 2,538,913 $3,808 $10,579 $1,608 $(126) $15,869
Comprehensive income:
Net income............ -- -- -- 794 -- 794
Changes in unrealized
appreciation
(depreciation) on
securities available-
for-sale, net of
reclassification
adjustment and tax
effect............... -- -- -- -- (134) (134)
-------
Total comprehensive
income............. 660
-------
Reacquisition of common
stock.................. 16,666 25 25 -- -- 50
Cash dividends
declared--$.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.
F-4
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
-----------------------------
March 31, 2001 March 31, 2000
-------------- --------------
(Dollars in thousands)
Operating activities
Net income...................................... $ 950 $ 794
Adjustments to reconcile to net cash provided
(used) by operating activities:
Provision for losses on loans and other real
estate owned................................. 45 100
Provision for losses on funds advanced in
settlement of Mortgage loans................. -- 25
Depreciation and amortization................. 163 161
Amortization of investment securities
premiums, net of Discounts................... (886) (12)
Gain on sale of loans or other real estate
owned........................................ (179) (152)
Gain on disposition of premises and
equipment.................................... -- (7)
Gain on sale of assets........................ -- (291)
Deferred loan origination fees, net of costs.. 87 336
Changes in:
Funds advanced in settlement of mortgage
loans....................................... (26,961) (2,663)
Interest receivable.......................... 19 (216)
Interest payable............................. (698) 552
Other assets................................. (922) (759)
Other liabilities............................ (976) 478
-------- --------
Net cash used by operating activities....... (29,358) (1,654)
-------- --------
Investing activities:
Proceeds from sales and maturities of available-
for-sale securities............................ 744 250
Proceeds from maturities of held-to-maturity
securities..................................... 965 22
Purchases of available-for-sale securities...... (3,512) (165)
Purchases of held-to-maturity securities........ -- (12,437)
Loan originations, net of principal repayments.. (6,693) (1,265)
Net cash used for acquisitions.................. (1,125) --
Purchases of premises, equipment and other
assets......................................... (1,360) (178)
-------- --------
Net cash used by investing activities..... (10,981) (13,773)
-------- --------
Financing activities:
Proceeds from exercise of stock options and
warrants....................................... -- 50
Payments to reacquire common stock.............. (102) --
Cash dividends paid............................. (316) (257)
Repayments of federal funds purchased........... (4,546) --
Net repayments on FHLB advances................. -- (2,000)
Net (decrease) increase in demand deposits, NOW
accounts and savings accounts.................. (4,127) 18,827
Net increase in certificates of deposit......... 48,954 4,356
-------- --------
Net cash provided by financing
activities............................... 39,863 20,976
-------- --------
Increase (decrease) in cash and cash equivalents (476) 5,549
Cash and cash equivalents at beginning of
period......................................... 9,342 7,065
-------- --------
Cash and cash equivalents at end of period...... $ 8,866 $ 12,614
======== ========
Supplemental schedules and disclosures of cash
flow information:
Cash paid for:
Interest on deposits and other borrowings... $ 6,186 $ 3,479
-------- --------
See notes to consolidated financial statements.
F-5
RESOURCE BANKSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(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 inter-company balances and transactions have been eliminated in
consolidation.
The accompanying unaudited financial statements 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, 2001........................................ $3,521
Provision for loan losses............................................ 45
Loans charged off.................................................... (3)
Recoveries........................................................... 179
------
Balance at March 31, 2001............................................ $3,742
======
(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 weighted average number of basic shares
outstanding for the three months ended March 31, 2001 and 2000 were 2,616,543
and 2,555,213, respectively. The diluted weighted average number of shares for
the three months ended March 31, 2001 and 2000 were 2,800,120 and 2,690,696,
respectively.
F-6
(5) Comprehensive Income
The components of other comprehensive income and related tax effects for the
three months ended March 31, 2001 and 2000 are as follows:
Three months ended
-----------------------------
March 31, 2001 March 31, 2000
-------------- --------------
Unrealized holding gains (losses) arising
during the period on available-for-sale
securities................................... $ 312 $(210)
Tax effect.................................... (104) 76
----- -----
Net-of-tax amount........................... $ 208 $(134)
===== =====
No reclassification adjustment was necessary as no realized gains or losses
were included in net income for the period.
(6) Subsequent Events
In April 2001, the Board of Directors of the Company declared a $0.12 per
common share dividend to shareholders of record as of April 12, 2001. The
dividend was paid on April 26, 2001.
(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 March 31, 2001 and March 31, 2000.
F-7
Selected Financial Information
Commercial and Mortgage Banking
Other Operations Operations Total
---------------- ---------------- --------
Three Months Ended March 31, 2001:
Net interest income after
provision for loan losses........ $ 2,350 $ 101 $ 2,451
Noninterest income................ 508 2,510 3,018
Noninterest expense............... (1,949) (2,182) (4,131)
-------- ------- --------
Net income before income taxes.. $ 909 $ 429 $ 1,338
======== ======= ========
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
======== ======= ========
Segment Assets
Commercial and Mortgage Banking
Other Operations Operations Total
---------------- ---------------- --------
March 31, 2001.................... $441,812 $ 2,029 $443,841
======== ======= ========
March 31, 2000.................... $328,416 $ 648 $329,064
======== ======= ========
F-8
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Resource Bankshares Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Resource
Bankshares Corporation and Subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of
Resource Bankshares Corporation and Subsidiaries' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Resource
Bankshares Corporation and Subsidiaries' of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 2000, in conformity with generally
accepted accounting principles.
/s/ Goodman & Company, LLP
Norfolk, Virginia
January 30, 2001
F-9
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
--------------------------
2000 1999
------------ ------------
Assets
Cash and due from banks............................ $ 7,146,330 $ 3,481,696
Interest bearing deposits with banks............... 2,195,282 2,138,236
Federal funds sold................................. -- 1,445,000
------------ ------------
Cash and cash equivalents........................ 9,341,612 7,064,932
Funds advanced in settlement of mortgage loans..... 15,445,028 11,773,851
Investment securities:
Available-for-sale (amortized cost of $18,631,296
and $6,760,303, respectively)................... 18,317,479 6,658,954
Held-to-maturity (fair value of $64,024,299 and
$14,385,283, respectively)...................... 63,804,083 16,536,027
Loans, net of allowance of $3,520,702 in 2000 and
$2,686,468
in 1999........................................... 284,991,714 252,984,101
Other real estate owned............................ -- 31,370
Premises and equipment............................. 3,761,309 4,076,620
Other assets....................................... 5,821,996 5,560,294
Accrued interest................................... 3,010,793 2,003,536
------------ ------------
$404,494,014 $306,689,685
============ ============
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing deposits..................... $ 13,511,442 $ 15,893,948
Interest-bearing deposits........................ 317,133,366 244,574,926
------------ ------------
330,644,808 260,468,874
Capital Trust borrowings........................... 9,200,000 9,200,000
Federal funds purchased............................ 7,546,000 --
FHLB advances...................................... 30,300,000 18,300,000
Other liabilities.................................. 4,321,000 1,610,467
Accrued interest................................... 2,810,506 1,240,805
------------ ------------
$384,822,314 $290,820,146
============ ============
Stockholders' equity:
Preferred stock, par value $10 per share; 500,000
shares authorized; none issued and outstanding.. $ -- $ --
Common stock, $1.50 par value--6,666,666 shares
authorized; shares issued and outstanding:
2000--2,623,861;
1999--2,538,913................................. 3,935,791 3,808,370
Additional paid-in capital....................... 10,988,620 10,578,811
Retained earnings................................ 5,005,511 1,608,394
Accumulated other comprehensive loss............. (258,222) (126,036)
------------ ------------
Total stockholders' equity..................... $ 19,671,700 $ 15,869,539
------------ ------------
$404,494,014 $306,689,685
============ ============
The notes to the consolidated financial statements are an integral part of this
statement.
F-10
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
-------------------------------------
2000 1999 1998
----------- ----------- -----------
Interest and Dividend Income
Interest and fees on loans............ $22,820,733 $18,071,728 $15,352,330
----------- ----------- -----------
Interest on investment securities:
Interest and dividends on securities
available-for-sale................. 893,624 706,217 641,318
Interest on securities held-to-
maturity........................... 2,895,198 981,227 70,517
----------- ----------- -----------
3,788,822 1,687,444 711,835
----------- ----------- -----------
Interest on federal funds sold........ 242,662 73,997 623,189
Interest on funds advanced in
settlement of mortgage loans......... 1,560,582 1,548,039 3,059,074
----------- ----------- -----------
Total interest income............. 28,412,799 21,381,208 19,746,428
----------- ----------- -----------
Interest Expense
Interest on deposits.................. 16,980,295 11,036,446 10,316,463
Interest on short-term borrowings..... 448,259 408,263 1,019,982
Interest on long-term borrowings...... 1,546,748 990,839 --
----------- ----------- -----------
Total interest expense............ 18,975,302 12,435,548 11,336,445
----------- ----------- -----------
Net interest income............... 9,437,497 8,945,660 8,409,983
Provision for loan losses............... (1,100,000) (4,667,000) (150,000)
----------- ----------- -----------
Net interest income after
provision for loan losses........ 8,337,497 4,278,660 8,259,983
----------- ----------- -----------
Noninterest Income
Mortgage banking income............... 6,916,584 5,709,225 7,062,445
Service charges....................... 731,473 759,289 760,581
Gain on sale of assets................ 1,688,140 332,245 88,938
Gain on sale of branch deposits....... 2,532,260 -- --
Other................................. 21,611 10,583 31,449
----------- ----------- -----------
11,890,068 6,811,342 7,943,413
----------- ----------- -----------
Noninterest Expense
Salaries and employee benefits........ 8,071,927 6,735,896 6,686,381
Occupancy expenses.................... 1,211,649 1,185,861 1,089,447
Depreciation and equipment
maintenance.......................... 976,982 926,702 759,330
Professional fees..................... 285,861 340,821 162,124
Outside computer service.............. 518,982 485,458 547,160
FDIC insurance........................ 98,062 58,125 52,580
Stationery and supplies............... 412,683 496,814 526,495
Marketing and business development.... 475,778 400,938 343,157
Miscellaneous loan expense............ 47,859 46,489 --
Other................................. 2,009,363 1,490,664 1,398,942
----------- ----------- -----------
14,109,146 12,167,768 11,565,616
----------- ----------- -----------
Income (loss) before income taxes..... 6,118,419 (1,077,766) 4,637,780
Income tax expense (benefit).......... 1,885,689 (386,958) 1,590,933
----------- ----------- -----------
Net income (loss)................. $ 4,232,730 $ (690,808) $ 3,046,847
=========== =========== ===========
Basic earnings per common share......... $ 1.63 $ (0.27) $ 1.24
=========== =========== ===========
Diluted earnings per share.............. $ 1.56 $ (0.27) $ 1.13
=========== =========== ===========
The notes to the consolidated financial statements are an integral part of this
statement.
F-11
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
--------------------------------------------------------------------------
Accumulated
Common Stock Additional Other
--------------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income (Loss) Total
--------- ---------- ----------- ----------- ------------- -----------
Balance,
December 31, 1997...... 2,453,380 $3,680,070 $10,769,249 $ 856,122 $ 296,376 $15,601,817
Comprehensive income:
Net income............. -- -- -- 3,046,847 -- 3,046,847
Changes in unrealized
appreciation
(depreciation) on
securities available-
for-sale, net of
reclassification
adjustment and tax
effect................ -- -- -- -- (235,447) (235,447)
--------- ---------- ----------- ----------- --------- -----------
Total comprehensive
income................ 2,811,400
========= ========== =========== =========== ========= ===========
Proceeds from exercise
of stock options....... 32,732 49,098 95,900 -- -- 144,998
Reacquisition of common
stock.................. (8,988) (13,482) (162,962) -- -- (176,444)
Cash dividends declared,
$.24 per share......... -- -- -- (592,339) -- (592,339)
--------- ---------- ----------- ----------- --------- -----------
Balance, December 31,
1998................... 2,477,124 3,715,686 10,702,187 3,310,630 60,929 17,789,432
Comprehensive income:
Net loss............... -- -- -- (690,808) -- (690,808)
Changes in unrealized
appreciation
(depreciation) on
securities available-
for-sale, net of
reclassification
adjustment and tax
effect................ -- -- -- -- (186,965) (186,965)
--------- ---------- ----------- ----------- --------- -----------
Total comprehensive
loss.................. (877,773)
========= ========== =========== =========== ========= ===========
Proceeds from exercise
of stock options and
warrants............... 90,888 136,332 389,216 -- -- 525,548
Reacquisition of common
stock.................. (29,099) (43,648) (512,592) -- -- (556,240)
Cash dividends declared,
$.40 per share......... -- -- -- (1,011,428) -- (1,011,428)
--------- ---------- ----------- ----------- --------- -----------
Balance, December 31,
1999................... 2,538,913 3,808,370 10,578,811 1,608,394 (126,036) 15,869,539
Comprehensive income:
Net income............. -- -- -- 4,232,730 -- 4,232,730
Changes in unrealized
appreciation
(depreciation) on
securities available-
for-sale, net of
reclassification
adjustment and tax
effect................ -- -- -- -- (132,186) (132,186)
--------- ---------- ----------- ----------- --------- -----------
Total comprehensive
income................ 4,100,544
========= ========== =========== =========== ========= ===========
Proceeds from exercise
of stock options....... 35,332 52,997 52,748 -- -- 105,745
Common stock issued as a
result of business
combination............ 56,792 85,188 424,812 -- -- 510,000
Reacquisition of common
stock.................. (7,176) (10,764) (67,751) -- -- (78,515)
Cash dividends declared,
$.32 per share......... -- -- -- (835,613) -- (835,613)
--------- ---------- ----------- ----------- --------- -----------
Balance, December 31,
2000................... 2,623,861 $3,935,791 $10,988,620 $ 5,005,511 $(258,222) $19,671,700
========= ========== =========== =========== ========= ===========
The notes to the consolidated financial statements are an integral part of this
statement.
F-12
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Operating Activities
Net income (loss)..................... $ 4,232,730 $ (690,808) $ 3,046,847
Adjustments to reconcile to net cash
provided (used) by operating
activities:
Provision for losses on loans........ 1,100,000 4,667,000 150,000
Provision for losses on funds
advanced on settlement of mortgage
loans............................... 75,000 275,000 270,651
Depreciation and amortization........ 646,670 475,212 310,867
Amortization of investment securities
premiums, net of discounts.......... (326,499) 47,426 66,064
Gain on sale of assets............... (1,688,140) 2,960 (14,143)
Gain on sale of deposits............. (2,532,260) -- --
Deposits disposed of in branch
sale ............................... (51,782,936) -- --
Deferred loan origination fees, net
of costs............................ 1,192,793 904,392 181,416
Changes in:
Funds advanced in settlement of
mortgage loans...................... (3,746,177) 8,855,015 2,420,998
Interest receivable.................. (1,007,257) (401,346) (40,434)
Interest payable..................... 1,569,701 589,274 42,675
Other assets......................... (195,851) (2,968,422) 296,305
Other liabilities.................... 3,082,218 500,620 (1,160,739)
------------ ------------ ------------
Net cash provided (used) by
operating activities............... $(49,380,008) $ 12,256,323 $ 5,570,507
------------ ------------ ------------
Investing Activities
Proceeds from sales and maturities of
available-for-sale securities........ $ 627,188 $ 3,003,770 $ 5,322,265
Proceeds from maturities and
prepayments of held-to-maturity
securities........................... 825,001 321,750 1,485,129
Purchases of available-for-sale
securities .......................... (12,500,393) (1,252,675) (1,897,250)
Purchases of held-to-maturity
securities........................... (47,749,915) (15,760,235) --
Proceeds from maturities of time
deposits............................. -- -- 1,000,000
Loan originations, net of principal
repayments........................... (34,140,721) (72,696,479) (39,656,489)
Proceeds from sales of foreclosed real
estate............................... -- 940,620 1,366,874
Proceeds from sales of premises and
equipment............................ 2,786,708 1,400 41,344
Purchases of premises and equipment
and other assets..................... (1,419,927) (1,247,479) (399,276)
------------ ------------ ------------
Net cash used by investing
activities......................... $(91,572,059) $(86,689,328) $(32,737,403)
------------ ------------ ------------
Financing Activities
Proceeds from federal funds
purchased............................ $ 7,546,000 $ 8,809,573 $ --
Proceeds from exercise of stock
options.............................. 105,745 525,548 144,998
Payments to reacquire common stock.... (78,515) (556,240) (176,444)
Cash dividends paid................... (835,613) (1,011,428) (592,339)
Proceeds from FHLB advances
(repayments of)...................... 12,000,000 11,000,000 (13,650,000)
Net increase in demand deposits, NOW
accounts and savings accounts........ 120,001,370 3,613,095 5,511,311
Net increase in certificates of
deposit.............................. 4,489,760 50,636,584 31,199,552
------------ ------------ ------------
Net cash provided by financing
activities......................... $143,228,747 $ 73,017,132 $ 22,437,078
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents.......................... $ 2,276,680 $ (1,415,873) $ (4,729,818)
Cash and cash equivalents at beginning
of year.............................. 7,064,932 8,480,805 13,210,623
------------ ------------ ------------
Cash and cash equivalents at end of
year................................. $ 9,341,612 $ 7,064,932 $ 8,480,805
============ ============ ============
Supplemental Schedules and
Disclosures of Cash Flow Information
Cash paid for:
Income taxes paid.................... $ 870,000 $ 850,000 $ 2,108,479
Interest on deposits and other
borrowings.......................... 17,405,601 11,846,274 11,293,770
Supplemental Schedule of Noncash
Investing and Financing Activities
Transfers from loans to real estate
acquired through foreclosure......... $ -- $ 312,027 $ 1,319,184
The notes to the consolidated financial statements are an integral part of this
statement.
F-13
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
Note 1. Organization and Business
Resource Bankshares Corporation (the "Corporation") is a Virginia corporation
organized in June 1998 by Resource Bank (the "Bank") for the purpose of
becoming a unitary holding company of the Bank. The Corporation's assets
consist primarily of its investment in the Bank.
The Bank is a state-chartered commercial bank headquartered in Virginia
Beach, Virginia where its commercial bank and operations office is located. The
Bank was organized in April, 1987, and commenced operations on September 1,
1988. The Bank's primary market areas are Fairfax County and Virginia Beach,
Virginia and, to a lesser extent, in the surrounding cities of the South
Hampton Roads area.
The Bank's principal business consists of providing a broad range of lending
and deposit services to individual and commercial customers with an emphasis on
those services traditionally associated with independent community banks. These
services include checking and savings accounts, certificates of deposit and
charge cards. The Bank's lending activities include commercial and personal
loans, lines of credit, installment loans, home improvement loans, overdraft
protection, construction loans, and other commercial finance transactions.
The Bank also operates a mortgage company which, as a division of the Bank,
originates residential mortgage loans and subsequently sells them to investors.
A competitive range of mortgage financing is provided through offices in the
Richmond and Hampton Roads metropolitan areas, and the northern
Virginia/Washington, D.C. metropolitan area.
On June 14, 2000, the Bank purchased CW and Company of Virginia ("CW"), a
title abstract 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.
On August 15, 2000, Resource Service Corporation, a wholly owned subsidiary
of the Bank, entered into a joint venture with Financial Planners Mortgage
Company, Inc. and formed a partnership titled Financial Planners Mortgage, LLP.
The partnership participates in residential one to four family mortgage loan
production.
Resource Capital Trust, a wholly owned subsidiary of the Corporation, is a
finance subsidiary, whose sole purpose is to hold Capital Trust securities.
In December, 1997, the Bank acquired a financial institution operating in
northern Virginia. It provides lending and deposit services to individual and
commercial customers. It formerly operated two branches under the name Eastern
American Bank.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of Resource
Bankshares Corporation and its wholly-owned subsidiaries, Resource Bank and
Resource Capital Trust. All significant intercompany balances and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, interest bearing deposits with banks and
federal funds sold. Generally, federal funds are sold for one-day
F-14
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
periods. Interest bearing deposits with maturities extending beyond 90 days
are not considered cash equivalents for cash flow reporting purposes. The
Corporation had no such deposits at December 31, 2000 and 1999.
Securities
Securities that management has both the positive intent and ability to hold
to maturity are classified as securities held to maturity and are carried at
cost, adjusted for amortization of premium or accretion of discount using the
interest method. Securities purchased for trading purposes, if any, are held
in the trading portfolio at market value, with market adjustments included in
noninterest income. Securities not classified as held to maturity or trading
are classified as available for sale. Available for sale securities may be
sold prior to maturity for asset/liability management purposes, in response to
changes in interest rates or prepayment risk, to increase regulatory capital
or other similar factors. Securities available for sale are carried at fair
value, with any adjustments to fair value, after tax, reported as a separate
component of other comprehensive income.
Interest and dividends on securities, including the amortization of premiums
and the accretion of discounts, are reported in interest and dividends on
securities using the interest method. Gains and losses on the sale of
securities are recorded on the trade date and are calculated using the
specific identification method. Declines in the fair value of individual held-
to-maturity and available-for-sale securities below their cost that are other
than temporary, if any, are included in earnings as realized losses.
Funds Advanced in Settlement of Mortgage Loans
Funds are advanced in settlement of mortgage loans originated on behalf of
investor banks. Mortgage banking income is recognized when control over the
related mortgage instrument is transferred to the investor bank.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over
the assets has been surrendered. Control over transferred assets is deemed to
be surrendered when (1) the assets have been isolated from the Corporation,
(2) the transferee obtains the right (free of conditions that constrain it
from taking advantage of that right) to pledge or exchange the transferred
assets, and (3) the Corporation does not maintain effective control over the
transferred assets through an agreement to repurchase them before their
maturity.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are stated at their outstanding
unpaid principal balances net of any deferred fees or costs on originated
loans, or unamortized premiums or discounts on purchased loans. Interest
income is accrued on the unpaid principal balance. Discounts and premiums are
amortized to income using the interest method. Loan origination fees, net of
certain direct origination costs, are deferred and recognized as an adjustment
to the yield (interest income) of the related loans.
Allowance for Loan Losses
A loan is considered impaired, based on current information and events, if
it is probable that the Bank will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the
loan agreement. The measurement of impaired loans is generally based on the
present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent loans are
measured for impairment based on the fair value of the collateral.
F-15
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The adequacy of the allowance for loan losses is periodically evaluated by
the Bank, in order to maintain the allowance at a level that is sufficient to
absorb probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Bank's historical loss experience, known
and inherent risks in the loan portfolio, including adverse circumstances that
may affect the ability of the borrower to repay interest and/or principal, the
estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs, and the risk ratings of the various loan
categories. Such factors as the level and trend of interest rates and the
condition of the national and local economies are also considered. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Increases and decreases in the
allowance due to changes in the measurement of impaired loans, if applicable,
are included in the provision for loan losses. Loans continue to be classified
as impaired unless they are brought fully current and the collection of
scheduled interest and principal is considered probable.
When a loan or portion of a loan is determined to be uncollectible, the
portion deemed uncollectible is charged against the allowance and subsequent
recoveries, if any, are credited to the allowance.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. If a loan or a portion of a loan is adversely
classified, or is partially charged off, the loan is generally classified as
nonaccrual. Loans that are on a current payment status or past due less than 90
days may also be classified as nonaccrual, if repayment in full of principal
and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained period
of repayment performance by the borrower, in accordance with the contractual
terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior charge-offs
have been fully recovered.
Other Real Estate Owned
Real estate acquired through foreclosure is initially recorded at the lower
of fair value or the loan balance at date of foreclosure. Property that is held
for resale is carried at the lower of cost or fair value minus estimated
selling costs. Costs relating to the development and improvement of property
are capitalized, whereas those relating to holding the property are charged to
expense.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its fair value minus estimated selling costs.
F-16
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Restructured Loans
Loans are considered troubled debt restructurings if, for economic or legal
reasons, a concession has been granted to the borrower related to the
borrower's financial difficulties that the Bank would not have otherwise
considered. The Bank has restructured certain loans in instances where a
determination was made that greater economic value will be realized under new
terms than through foreclosure, liquidation, or other disposition. The terms of
the renegotiation generally involve some or all of the following
characteristics: a reduction in the interest pay rate to reflect actual
operating income, an extension of the loan maturity date to allow time for
stabilization of operating income, and partial forgiveness of principal and
interest.
The carrying value of a restructured loan is reduced by the fair value of any
assets or equity interest received, if any. In addition, if the present value
of future cash receipts required under the new terms does not equal the
recorded investment in the loan at the time of restructuring, the carrying
value would be further reduced by a charge to the allowance. In addition, at
the time of restructuring, loans are generally classified as impaired. A
restructured loan that is not impaired, based on the restructured terms and
that has a stated interest rate greater than or equal to a market interest rate
at the date of the restructuring, is reclassified as unimpaired in the year
immediately following the year it was disclosed as restructured.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. For
financial reporting purposes, assets are depreciated over their estimated
useful lives using the straight-line and accelerated methods. For income tax
purposes, the accelerated cost recovery system and the modified accelerated
cost recovery system are used.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements, and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of investment securities,
deferred loan fees, allowance for loan losses, allowance for losses on
foreclosed real estate, accumulated depreciation and intangible assets for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered
or settled.
Advertising Costs
Advertising costs are expensed as incurred.
Deferred Compensation Plans
The Corporation maintains deferred compensation and retirement arrangements
with certain officers. The Corporation's policy is to accrue the estimated
amounts to be paid under the contracts over the expected period of active
employment. The Corporation purchased life insurance contracts to fund the
expected liabilities under the contracts.
Stock Compensation Plans
FASB Statement No. 123, Accounting for Stock-Based Compensation, encourages
all entities to adopt a fair value based method of accounting for employee
stock compensation plans, whereby compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is
F-17
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
usually the vesting period. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date (or
other measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the Corporation's stock option plan have no
intrinsic value at the grant date, and under Opinion No. 25 no compensation
cost is recognized for them. The Corporation has elected to continue with the
accounting methodology in Opinion No. 25 and, as a result, has provided pro
forma disclosures of net income and earnings per share and other disclosures,
as if the fair value based method of accounting had been applied. The pro forma
disclosures include the effects of all awards granted on or after January 1,
1995.
Earnings Per Common Share
Basic Earnings per share (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 shared in the earnings of the entity.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Although certain changes in assets
and liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
The components of other comprehensive income and related tax effects are as
follows:
Years Ended December 31,
-------------------------------
2000 1999 1998
--------- --------- ---------
Unrealized holding gains (losses) arising
during the year on available-for-sale
securities................................ $(205,530) $(287,742) $(355,317)
Reclassification adjustment for losses
(gains) realized in income................ -- -- --
--------- --------- ---------
Net unrealized gains (losses).............. (205,530) (287,742) (355,317)
Tax effect................................. 73,344 100,777 119,870
--------- --------- ---------
Net-of-tax amount.......................... $(132,186) $(186,965) $(235,447)
========= ========= =========
Segment Reporting
Public business enterprises are required to report information about
operating segments in annual financial statements and selected information
about operating segments in financial reports issued to shareholders. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by management in deciding
how to allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments.
F-18
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Derivative Instruments and Hedging Transactions
On April 1, 1999, the Corporation adopted FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities, which established accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Corporation's
adoption of this statement did not materially impact the consolidated financial
condition or consolidated results of operations.
Computer Software
During the year ended December 31, 1999, the Corporation adopted Statement of
Position (SOP) 98-1, Accounting for Costs of Computer Software Developed or
Obtained for Internal Use. This SOP was effective for financial statements for
fiscal years beginning after December 31, 1998. The SOP requires entities to
capitalize certain internal-use software costs once certain criteria are met.
Generally, internal costs with respect to software configuration and interface,
coding, installation to hardware, testing (including parallel processing), and
data conversion costs allowing access of old data by new systems should be
capitalized. All other data conversion costs, training, application
maintenance, and ongoing support activities should be expensed. The
Corporation's adoption of this SOP on January 1, 1999 did not materially impact
the consolidated financial condition or results of operations.
Start-up Activities
During the year ended December 31, 1999, the Corporation adopted SOP 98-5,
Reporting on the Cost of Start-up Activities. The SOP requires such costs to be
expensed as incurred instead of being capitalized and amortized. It applies to
start-up activities and costs of organization for both development stage and
established operating activities as those one-time activities that relate to
the opening of a new facility, introduction of a new product or service, doing
business in a new territory, initiating a new process in an existing facility,
doing business with a new class of customer or beneficiary, or commencing some
new operation. The SOP was effective for financial statements for fiscal years
beginning after December 15, 1998. Consistent with banking industry practice,
the Corporation's policy is to expense such costs. Therefore, its adoption, on
January 1, 1999, did not effect the Corporation's consolidated financial
position or results of operations.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit,
standby letters of credit, and financial guarantees written. Such financial
instruments are recorded in the financial statements when they become payable.
Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. While management uses available information to recognize
losses on loans and foreclosed
F-19
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
real estate, future additions to the allowances may be necessary based on
changes in local economic conditions and other factors.
Reclassifications
Certain reclassifications have been made to prior year's information to
conform with the current year presentation.
Note 3. Restrictions on Cash and Due From Bank Accounts
The Bank is required by the Federal Reserve Bank to maintain average reserve
balances. The average amount of these reserve balances was approximately
$759,000 for the year ended December 31, 2000. On December 31, 2000, the
required reserve balance was $376,000.
Note 4. Securities
Securities at December 31, 2000 and 1999 are as follows:
December 31, 2000
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
Securities available-for-sale
U.S. government agencies..... $14,896,711 $ 25,312 $ 3,559 $14,918,464
Federal Reserve Bank stock... 673,000 -- -- 673,000
Federal Home Loan Bank
stock....................... 1,559,900 -- -- 1,559,900
Preferred stock.............. 1,308,817 -- 265,558 1,043,259
Other........................ 192,868 -- 70,012 122,856
----------- ---------- ---------- -----------
$18,631,296 $ 25,312 $ 339,129 $18,317,479
=========== ========== ========== ===========
Securities held-to-maturity
U.S. government and agency
securities.................. $28,664,005 $ 86,483 $ 211,215 $28,539,273
State and municipal
securities.................. 15,968,975 1,370,041 -- 17,339,016
Corporate bonds.............. 7,200,723 -- 975,969 6,224,754
Preferred stock.............. 11,970,380 60,485 109,609 11,921,256
----------- ---------- ---------- -----------
$63,804,083 $1,517,009 $1,296,793 $64,024,299
=========== ========== ========== ===========
F-20
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
Securities available-for-sale
U.S. government agencies..... $ 4,669,880 $13,180 $ 20,585 $ 4,662,475
Federal Reserve Bank stock... 587,250 -- -- 587,250
Federal Home Loan Bank
stock....................... 915,000 -- -- 915,000
Preferred stock.............. 431,298 -- 80,600 350,698
Other........................ 156,875 -- 13,344 143,531
----------- ------- ---------- -----------
$ 6,760,303 $13,180 $ 114,529 $ 6,658,954
=========== ======= ========== ===========
Securities held to maturity
U.S. government and agency
securities.................. $ 150,881 $ 2,409 $ 2,011 $ 151,279
State and municipal
securities.................. 745,526 1,677 3,484 743,719
Corporate bonds.............. 7,208,085 -- 679,675 6,528,410
Preferred stock.............. 8,431,535 -- 1,469,660 6,961,875
----------- ------- ---------- -----------
$16,536,027 $ 4,086 $2,154,830 $14,385,283
=========== ======= ========== ===========
Federal Reserve Bank stock, Federal Home Loan Bank stock and other securities
are restricted securities, carried at cost, and periodically evaluated for
impairment. These securities are restricted, do not have a readily determinable
fair value, and lack a market.
At December 31, 2000 and 1999, respectively, approximately $915,000 and
$1,246,000, was pledged to secure deposits of the U.S. government or the
Commonwealth of Virginia. In addition, securities with a carrying value of
$42,978,700 and $3,982,000 are pledged to secure Federal Home Loan Bank
advances as of December 31, 2000 and 1999, respectively.
In conjunction with the Corporation's adoption of FASB Statement No. 133,
which allows for a reassessment of intent with respect to the investment
portfolio, management elected to transfer securities with a fair value of
$11,356,845 at the time of transfer and an amortized cost of $11,254,689, from
the available-for-sale classification to the held-to-maturity classification as
of April 1, 2000. The difference of $102,156 has been recorded as an adjustment
to the amortized cost of the securities and is being amortized over their
respective lives.
The amortized cost and fair value of securities by maturity date at December
31, 2000 are as follows:
Securities Held-to- Securities Available-
Maturity for-Sale
----------------------- -----------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
Due in one year or less.... $ -- $ -- $ -- $ --
Due from one to five
years..................... -- -- 500,000 498,680
Due from five to ten
years..................... 447,982 457,769 -- --
Due after ten years........ 51,385,721 51,645,274 14,396,711 14,419,784
----------- ----------- ----------- -----------
Total debt securities.... 51,833,703 52,103,043 14,896,711 14,918,464
Federal Reserve Bank
stock..................... -- -- 673,000 673,000
Federal Home Loan Bank
stock..................... -- -- 1,559,900 1,559,900
Preferred stock............ 11,970,380 11,921,256 1,308,817 1,043,259
Other...................... -- -- 192,868 122,856
----------- ----------- ----------- -----------
$63,804,083 $64,024,299 $18,631,296 $18,317,479
=========== =========== =========== ===========
F-21
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Gross realized gains and losses on available-for-sale securities were:
December 31,
--------------
2000 1999 1998
---- ---- ----
Gross realized gains:
U.S. government agencies................................... $-- $-- $--
==== ==== ====
Gross realized losses:
U.S. government agencies................................... $-- $-- $
==== ==== ====
Note 5. Loans
Loans consist of the following:
December 31,
--------------------------
2000 1999
------------ ------------
Gross loans:
Commercial..................................... $ 68,273,676 $ 77,507,162
Real estate--construction...................... 72,395,198 68,075,931
Commercial real estate......................... 98,843,705 64,158,463
Residential real estate mortgages.............. 44,817,286 41,554,246
Installment and consumer loans................. 4,182,551 4,374,767
------------ ------------
Total gross loans.............................. 288,512,416 255,670,569
Less--allowance for loan losses................ (3,520,702) (2,686,468)
------------ ------------
Loans, net................................... $284,991,714 $252,984,101
============ ============
A summary of the activity in the allowance for loan losses account is as
follows:
Years Ended December 31,
-----------------------------------
2000 1999 1998
---------- ----------- ----------
Balance, beginning of year.............. $2,686,468 $ 2,500,193 $2,573,346
Provision charged to operations......... 1,100,000 4,667,000 150,000
Loans charged-off....................... (395,564) (4,526,324) (287,238)
Recoveries.............................. 129,798 45,599 64,085
---------- ----------- ----------
Balance, end of year.................... $3,520,702 $ 2,686,468 $2,500,193
========== =========== ==========
Accounting standards require certain disclosures concerning impaired loans,
as defined by generally accepted accounting principles, regardless of whether
or not an impairment loss exists. At December 31, 2000 and December 31, 1999
there were no such loans. Management does not believe an impairment loss exists
with respect to these loans. Impaired loans amount to $1,015,060 and $472,548
as of December 31, 2000 and 1999, respectively. Both restructured and impaired
loans have a valuation allowance allocation of $190,173 and $104,828 at those
respective dates. The average recorded investment in impaired loans and
restructured loans was approximately $636,476, $828,846, and $1,699,686 in
2000, 1999 and 1998, respectively. The Bank recognized $58,614, $19,997 and
$46,332 of interest income on impaired loans during 2000, 1999 and 1998,
respectively.
Loans on which the accrual of interest has been discontinued amounted to
$1,015,060 and $472,548 at December 31, 2000 and 1999, respectively. If
interest on those loans had been accrued, such income would have approximated
$30,631, $17,045, and $16,394 for 2000, 1999 and 1998, respectively. After
being classified as nonaccrual, no interest was received or recognized on the
cash basis on these loans in 2000, 1999 and 1998.
F-22
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. Premises and Equipment
Premises and equipment consist of the following:
December 31,
------------------------
2000 1999
----------- -----------
Land............................................... $ 900,499 $ 1,725,000
Leasehold improvements............................. 713,110 1,449,754
Equipment, furniture and fixtures.................. 2,086,788 2,222,580
Software........................................... 666,382 444,619
Construction in progress........................... 1,091,235 --
----------- -----------
5,458,014 5,841,953
Less--accumulated depreciation................... (1,696,705) (1,765,333)
----------- -----------
$ 3,761,309 $ 4,076,620
=========== ===========
Depreciation charged to operating expense for 2000, 1999 and 1998 was
$646,670, $475,212, and $310,867, respectively.
Note 7. Deposits
Interest-bearing deposits consist of the following:
December 31,
-------------------------
2000 1999
------------ ------------
Money market and NOW account deposits............. $132,833,257 $ 13,801,688
Savings deposits.................................. 5,741,637 21,655,029
Time deposits $100,000 and over................... 6,685,784 11,461,070
Other time deposits............................... 171,872,688 197,657,139
------------ ------------
$317,133,366 $244,574,926
============ ============
The scheduled maturities of time deposits at December 31, 2000 are as
follows:
Less than one year................................ $172,752,647
One to two years.................................. 5,219,577
Three to five years............................... 536,248
Over five years................................... 50,000
------------
$178,558,472
============
F-23
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8. Federal Home Loan Bank Advances and Other Borrowings
Federal Home Loan Bank (FHLB) advances consist of the following:
December 31,
-----------------------
2000 1999
----------- -----------
5.97% FHLB advance due February 1, 2000............. $ -- $13,000,000
5.07% FHLB advance due September 30, 2009........... -- 5,000,000
5.82% FHLB advance due April 5, 2010................ 5,000,000 --
5.69% FHLB advance due February 6, 2002............. 300,000 300,000
5.45% FHLB advance due September 15, 2010........... 25,000,000 --
----------- -----------
$30,300,000 $18,300,000
=========== ===========
Information regarding FHLB advances is summarized below:
2000 1999 1998
----------- ----------- -----------
Weighted average rate................. 5.51% 5.72% 5.65%
=========== =========== ===========
Average balance....................... $18,352,954 $10,136,728 $17,794,400
=========== =========== ===========
Maximum outstanding at month-end...... $30,300,000 $18,300,000 $46,420,000
=========== =========== ===========
As of December 31, 2000 and 1999, advances are collateralized by FHLB stock
with a cost of $1,559,900 and $915,000, respectively. In addition, securities
of $42,978,700 and $3,982,000 are pledged against these advances, as of
December 31, 2000 and 1999, respectively. First mortgage loans of $1,555,600
also serve to provide additional collateral for these advances at December 31,
2000. Pursuant to the terms of the variable rate line of credit, the Bank may
borrow up to 18% of the Bank's total assets. The FHLB advances arrangement has
no expiration date, but is reevaluated periodically to determine the Bank's
credit worthiness. Additionally, the Bank has a warehouse line of credit of
$50,000,000 collateralized by first mortgage loans and expiring December 6,
2001. As of December 31, 2000, the Bank had not drawn from this line of credit.
Resource Capital Trust I (the Trust) is a wholly-owned special purpose
finance subsidiary of the Parent, operating in the form of a grantor trust. The
Trust was created in 1999 solely to issue capital securities and remit the
proceeds to the Corporation. The Corporation is the sole owner of the common
stock securities of the Trust. In 1999, the Trust issued 368,000 shares of
preferred stock capital securities (Trust preferred stock) with a stated value
of $25 per share, and a fixed dividend yield of 9.25% of the stated value. The
stated value of the Trust preferred stock is unconditionally guaranteed on a
subordinated basis by the Parent. The securities have a mandatory redemption
date of April 15, 2029, and are subject to varying call provisions at the
option of the Corporation beginning April 15, 2004. Through an intercompany
lending transaction, proceeds received by the Trust from the sale of the
securities were lent to the Parent for general corporate purposes.
The Trust preferred stock is senior to the Corporation's common stock in
event of claims against Resource, but is subordinate to all senior and
subordinated debt securities. The Corporation has the right to terminate the
Trust upon the occurrence of certain events, including (a) dividend payments on
the preferred stock securities are no longer deemed tax-deductible, or the
Trust is taxed on the income received from the underlying intercompany debt
agreement with the Parent, (b) the capital securities are no longer considered
Tier 1 capital under Federal Reserve Bank guidelines, or (c) the Trust, through
a change of law, is deemed to be an investment company under the Investment
Company Act of 1940 (the Act) and subject to that Act's reporting requirements.
Shares of the Trust preferred stock are capital securities which are distinct
from the common stock or preferred stock of the Corporation, and the dividends
thereon are tax-deductible. Dividends accrued for payment by the Trust are
classified as interest expense on long-term debt in the consolidated statement
of operations of the Corporation. The Trust preferred stock is shown as
"Capital Trust Borrowings" and classified as a liability in the consolidated
balance sheets.
F-24
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Stockholders' Equity
In 2000, stock options were exercised resulting in the issuance of 35,332
additional common shares. In June, 2000, the Corporation issued 56,792 shares
of its common stock as a result of the acquisition of CW Company of Virginia.
The Corporation also reacquired 7,176 shares of its outstanding common stock.
In 1999, stock options and warrants were exercised resulting in the issuance
of 90,888 additional common shares. The Corporation also reacquired 29,099
shares of its outstanding common stock.
During 1998, stock options were exercised resulting in the issuance of 32,732
additional common shares. On July 1, 1998, the Corporation effected a two for
one stock split in relation to the formation of the holding company. In the
fourth quarter of 1998, the Corporation reacquired 8,988 shares of its
outstanding common stock.
Note 10. Employee Benefit Plans
401(k) Profit Sharing Plan
The Corporation has a 401(k) Profit Sharing Plan whereby substantially all
employees participate in the Plan. Employees may contribute up to 15% of their
compensation subject to certain limits based on federal tax laws. The
Corporation makes matching contributions equal to 50% of the first 6% of an
employee's compensation contributed to the Plan. The Corporation may also make
a discretionary profit sharing contribution based on certain eligibility
requirements as set forth in the Plan. Employer account contributions vest to
the employee over a two-year period. For 2000, 1999 and 1998, expenses
attributable to the Plan amounted to $214,700, $181,000, and $139,000,
respectively.
Stock Compensation Plans
At December 31, 2000, the Corporation has four stock compensation plans for
its officers and directors. Each plan is a fixed option plan. Three of these
plans, the May 1993 Long-Term Incentive Plan, the December 1993 Long-Term
Incentive Plan, and the 1994 Long-Term Incentive Plan were implemented and
grants were made prior to the effective date of FASB Statement No. 123,
Accounting for Stock Based Compensation. The Corporation applies APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations
in accounting for all its plans. Accordingly, no compensation cost has been
recognized for these plans against earnings.
The Corporation's 1996 Long-Term Incentive Plan authorized the granting of
options to management personnel and directors of 47,000 shares of the Bank's
common stock in 1997. All options have 10-year terms, and are not exercisable
for five years from the date of grant. No stock options were granted in 1998.
During 1999, this Plan was amended allowing additional shares to management.
The Corporation granted 86,750 and 90,500 of these shares in 2000 and 1999,
respectively.
Pro forma information regarding net income and earnings per share is required
by FASB Statement No. 123, and has been determined as if the Corporation had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model.
F-25
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Black-Scholes option model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Corporation's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Had compensation cost for the Corporation's stock options been determined
based on the fair value method prescribed by FASB No. 123, the Corporation's
net income and earnings per share would have been reduced to the pro-forma
amounts indicated for the year ended December 31:
2000 1999 1998
---------- --------- ----------
Net income (loss).............. As reported $4,232,730 $(690,808) $3,046,847
Pro forma $4,069,411 $(815,864) $3,000,535
Basic earnings per share....... As reported $ 1.63 $ (0.27) $ 1.24
Pro forma $ 1.57 $ (0.32) $ 1.22
Diluted earnings per share..... As reported $ 1.56 $ (0.27) $ 1.13
Pro forma $ 1.50 $ (0.32) $ 1.11
The fair value of each option granted is estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2000 1999 1998
------- ------- ----
Dividend yield.......................................... 4% 2.35% --
Expected life........................................... 7 years 7 years --
Expected volatility..................................... 43% 36% --
Risk-free interest rate................................. 5.50% 6.25% --
The following is a summary of the Corporation's stock option activity, and
related information for the years ended December 31:
2000 1999 1998
------------------ ------------------ ------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- --------- ------- --------- ------- ---------
Outstanding--beginning
of year................ 401,791 $ 9.17 339,024 $ 6.16 371,756 $5.96
Granted................. 86,750 10.39 90,500 19.06 -- --
Exercised............... (35,332) 2.99 (27,733) 4.75 (32,732) 4.43
Forfeited............... (3,000) 12.25 -- -- -- --
------- ------ ------- ------ ------- -----
Outstanding--end of
year................... 450,209 9.86 401,791 9.17 339,024 6.16
------- ------ ------- ------ ------- -----
Exercisable--end of
year................... 238,959 $ 5.44 264,291 $ 4.61 292,024 $4.62
------- ------ ------- ------ ------- -----
Weighted average fair
value of options
granted during the
year................... $ 3.30 $ 7.34 $ --
====== ====== =====
F-26
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information pertaining to options outstanding at December 31, 2000 is as
follows:
Options Outstanding Options Exercisable
----------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
----------------- ----------- ----------- -------- ----------- --------
$ 3.00-$ 6.25 228,959 4.1 years $ 4.87 228,959 $ 4.87
$ 9.12-$12.00 84,750 9.4 years $ 9.51 -- --
$15.75-$17.87 65,071 8.1 years $16.32 -- --
$18.50-$21.75 71,429 8.4 years $20.47 10,000 $18.50
------- --------- ------ ------- ------
Outstanding at end of
year 450,209 8.7 years $ 9.86 238,959 $ 5.44
======= ========= ====== ======= ======
Note 11. Income Taxes
The principal components of the income tax expense (benefit) were as follows:
2000 1999 1998
---------- --------- ----------
Federal--current........................... $2,179,986 $(957,512) $1,589,996
Federal--deferred.......................... (294,297) 570,554 937
---------- --------- ----------
$1,885,689 $(386,958) $1,590,933
========== ========= ==========
The differences between expected federal income taxes at statutory rates to
actual income tax expense are summarized as follows:
2000 1999 1998
---------- --------- ----------
Income tax expense (benefit) computed
at federal statutory rates............ $2,080,260 $(366,440) $1,576,845
Tax effects of:
Tax-exempt interest.................. (233,180) (18,716) (9,242)
Nondeductible merger and
reorganization expenses............. 5,469 5,469 23,060
Other................................ 33,140 (7,271) 270
---------- --------- ----------
$1,885,689 $(386,958) $1,590,933
========== ========= ==========
F-27
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Corporation's deferred tax assets and liabilities and their components
are as follows:
December 31,
----------------------
2000 1999
---------- ----------
Deferred tax assets:
Intangible assets................................... $ 15,688 $ 127,380
Bad debts and other provisions...................... 741,036 440,175
Fixed assets........................................ 280,189 241,565
Other............................................... 5,795 13,266
Deferred compensation............................... 95,125 56,840
Unrealized loss on securities....................... 135,151 65,962
---------- ----------
Total deferred tax asset.......................... 1,272,984 945,183
---------- ----------
Deferred tax liabilities:
Loans............................................... 256,605 278,140
Deposits............................................ 186,707 551,885
Deferred fees....................................... 1,181,954 829,140
FHLB stock.......................................... 17,821 17,821
Other............................................... 4,734 6,520
---------- ----------
Total deferred tax liability...................... 1,647,821 1,683,506
---------- ----------
Net deferred tax liability.......................... $ (374,837) $ (738,323)
========== ==========
Note 12. Commitments and Contingencies
The Bank leases its main office in Virginia Beach along with offices of the
mortgage division and northern Virginia offices acquired through the business
combination. The leases provide for options to renew for various periods. All
escalation clauses based on fixed percentages are included in the disclosure
below. Pursuant to the terms of these leases, the following is a schedule, by
year, of future minimum lease payments required under noncancelable lease
agreements.
Lease
Payments
----------
2001.............................................................. $ 812,459
2002.............................................................. 716,971
2003.............................................................. 686,979
2004.............................................................. 439,278
2005.............................................................. 266,788
Thereafter........................................................ 533,576
----------
$3,456,051
==========
Total rental expense was $894,131, $878,234 and $801,120 for 2000, 1999 and
1998, respectively.
The Corporation and the Bank are defendants in certain claims and legal
actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
financial position of the Bank.
F-28
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 13. Related Party Transactions
In the ordinary course of business, the Bank has loan and deposit
transactions with its officers and directors, and with companies in which the
officers and directors have a significant financial interest. A summary of
related party loan activity during 2000 is as follows:
Balance, December 31, 1999....................................... $5,882,300
Originations--2000............................................... 3,182,726
Repayments--2000................................................. (216,731)
----------
Balance, December 31, 2000....................................... $8,848,295
==========
Commitments to extend credit to related parties amounted to $77,000 and
$146,000 at December 31, 2000 and 1999.
Deposits from related parties held by the Bank at December 31, 2000 and 1999
amounted to $6,413,000 and $4,194,000, respectively.
Note 14. Credit Commitments and Concentrations of Credit Risk
The Bank has outstanding at any time a significant dollar amount of
commitments to extend credit. To accommodate major customers, the Bank also
provides standby letters of credit and guarantees to third parties. Those
arrangements are subject to strict credit control assessments. Guarantees and
standby letters of credit specify limits to the Bank's obligations. The amounts
of loan commitments, guarantees and standby letters of credit are set out in
the following table as of December 31, 2000 and 1999. Because many commitments
and almost all standby letters of credit and guarantees expire without being
funded in whole or in part, the contract amounts are not estimates of future
cash flows.
Variable
Rate Fixed Rate
Commitments Commitments
------------ -----------
December 31, 2000
Loan commitments................................ $ 93,450,425 $ 4,198,687
Standby letters of credit and guarantees
written........................................ $ 4,797,965 $ --
December 31, 1999
Loan commitments................................ $103,368,922 $18,994,524
Standby letters of credit and guarantees
written........................................ $ 5,553,074 $ --
All of the guarantees outstanding at December 31, 2000 expire at various
dates between 2000 and 2001. Interest rates on fixed-rate commitments range
from 6.91% on commercial loans to 18% on consumer debt as of December 31, 2000.
Loan commitments, standby letters of credit and guarantees written have off-
balance-sheet credit risk because only origination fees and accruals for
probable losses, if any, are recognized in the statement of financial position
until the commitments are fulfilled or the standby letters of credit or
guarantees expire. Credit risk represents the accounting loss that would be
recognized at the reporting date if counterparties failed completely to perform
as contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that, in accordance with the
requirements of FASB Statement No. 105, Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentrations of Credit Risk, collateral or other security is of no
value. The Bank's policy is to require customers to provide collateral prior to
the disbursement of approved loans. For retail loans, the Bank usually retains
a security interest in the property or products financed, which provides
repossession rights in the event of default by the customer. For business loans
and financial guarantees, collateral is usually in the form of inventory or
marketable securities (held in trust) or property (notations on title).
F-29
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
There are no commitments to extend credit on impaired loans at December 31,
2000.
Concentrations of credit risk (whether on or off balance sheet) arising from
financial instruments exist in relation to certain groups of customers. A group
concentration arises when a number of counterparties have similar economic
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions. The Bank
does not have significant exposure to any individual customer or counterparty.
However, a geographic concentration arises because the Bank operates primarily
in southeastern and northern Virginia.
The credit risk amounts represent the maximum accounting loss that would be
recognized at the reporting date if counterparties failed completely to perform
as contracted and any collateral or security proved to be of no value. The Bank
has experienced little difficulty in accessing collateral when required. The
amounts of credit risk shown, therefore, greatly exceed expected losses, which
are included in the allowance for loan losses.
Note 15. Regulatory Matters
The Corporation (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory,
and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's and the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation and the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Corporation's and the Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 2000, the Corporation and the Bank meet all capital adequacy requirements
to which it is subject.
As of December 31, 2000, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
F-30
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Corporation's and the Bank's actual capital amounts and ratios are
presented in the table below.
To Be Well Capitalized Under
Prompt Corrective Action
Actual For Capital Adequacy Purposes Provisions
------------------ --------------------------------- ----------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------ ----------- --------------------- ----------- ----------------------
As of December 31, 2000:
Total Capital (to
Risk-Weighted Assets)
Consolidated........ $32,543,000 10.75% $24,220,000 (greater than or =)8% N/A N/A
Bank................ $30,294,000 10.04% $24,151,000 (greater than or =)8% $30,188,000 (greater than or =)10%
Tier I Capital (to
Risk-Weighted Assets)
Consolidated........ $26,450,000 8.74% $12,110,000 (greater than or =)4% N/A N/A
Bank................ $26,773,000 8.87% $12,075,000 (greater than or =)4% $18,113,000 (greater than or =) 6%
Tier I Capital (to
Average Assets)
Consolidated........ $26,450,000 6.69% $15,816,000 (greater than or =)4% N/A N/A
Bank................ $26,773,000 6.80% $15,573,000 (greater than or =)4% $19,691,000 (greater than or =) 5%
As of December 31, 1999:
Total Capital (to
Risk-Weighted Assets)
Consolidated........ $23,947,000 9.24% $20,732,000 (greater than or =)8% N/A N/A
Bank................ $25,921,000 10.05% $20,634,000 (greater than or =)8% $25,792,000 (greater than or =)10%
Tier I Capital (to
Risk-Weighted Assets)
Consolidated........ $21,261,000 8.20% $10,366,000 (greater than or =)4% N/A N/A
Bank................ $23,235,000 9.01% $10,315,000 (greater than or =)4% $15,473,000 (greater than or =) 6%
Tier I Capital (to
Average Assets)
Consolidated........ $21,261,000 7.19% $11,826,000 (greater than or =)4% N/A N/A
Bank................ $23,235,000 7.90% $11,765,000 (greater than or =)4% $14,706,000 (greater than or =) 5%
F-31
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16. Fair Value of Financial Instruments
The following table presents the carrying amounts and fair value of the
Bank's financial instruments as of December 31, 2000 and 1999. FASB Statement
No. 107, Disclosures about Fair Value of Financial Instruments, defines the
fair value of financial instruments as the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. The carrying amounts in the table are included in
the balance sheets under the indicated captions.
2000 1999
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Dollars in thousands)
Financial Assets
Cash and cash equivalents................. $ 9,342 $ 9,342 $ 7,065 $ 7,065
Loans, net................................ 284,992 293,420 252,984 254,755
Investment securities..................... 82,122 82,342 23,195 21,044
Funds advanced in settlement of mortgage
loans.................................... 15,445 15,445 11,774 11,774
Accrued interest receivable............... 3,011 3,011 2,004 2,004
Financial Liabilities
Deposit liabilities....................... 330,645 331,384 260,469 260,547
Short-term borrowings................... 7,546 7,546 13,000 13,000
Long-term borrowings.................... 39,500 38,056 14,500 13,764
Accrued interest payable................ 2,811 2,811 1,241 1,241
Estimation of Fair Values
The following notes summarize the major methods and assumptions used in
estimating the fair value of financial instruments:
Short-term financial instruments are valued at their carrying amounts
included in the Bank's balance sheet, which are reasonable estimates of fair
value due to the relatively short period to maturity of the instruments. This
approach applies to cash and cash equivalents, deposits in other banks, funds
advanced in settlement of mortgage loans, and short-term borrowings.
Loans are valued on the basis of estimated future receipts of principal and
interest, discounted at various rates. Loan prepayments are assumed to occur at
the same rate as in previous periods when interest rates were at levels similar
to current levels. Future cash flows for homogeneous categories of consumer
loans, such as motor vehicle loans, are estimated on a portfolio basis and
discounted at current rates offered for similar loan terms to new borrowers
with similar credit profiles. The fair value of nonaccrual loans also is
estimated on a present value basis, using higher discount rates appropriate to
the higher risk involved.
Investment securities are valued at quoted market prices if available. For
unquoted securities, the fair value is estimated by the Bank on the basis of
financial and other information.
The fair value of demand deposits and deposits with no defined maturity is
taken to be the amount payable on demand at the reporting date. The fair value
of fixed--maturity deposits is estimated using rates currently offered for
deposits of similar remaining maturities. The intangible value of long-term
relationships with depositors is not taken into account in estimating the fair
values disclosed.
The carrying amounts of accrued interest receivable and payable, and certain
other assets approximate fair value.
F-32
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
It is not practicable to separately estimate the fair values for off-balance-
sheet credit commitments, including standby letters of credit and guarantees
written, due to the lack of cost effective, reliable measurement methods for
these instruments.
Note 17. Earnings Per Share Reconciliation
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations. The number of shares have
been retroactively restated for the two-for-one stock split in 1998.
2000 1999 1998
---------- ---------- ----------
Net income (loss) (numerator, basic and
diluted)................................... $4,232,730 $ (690,808) $3,046,847
Weighted average shares outstanding
(denominator).............................. 2,595,474 2,524,337 2,467,031
---------- ---------- ----------
Earnings per common share-basic............. $ 1.63 $ (.27) $ 1.24
========== ========== ==========
Effect of dilutive securities:
Weighted average shares outstanding....... 2,595,474 2,524,337 2,467,031
Effect of stock options................... 118,473 -- 235,940
---------- ---------- ----------
Diluted average shares outstanding
(denominator).............................. 2,713,947 2,524,337 2,702,971
---------- ---------- ----------
Earnings per common share--assuming
dilution................................... $ 1.56 $ (.27) $ 1.13
========== ========== ==========
The effect of dilutive securities was not used to compute diluted earnings
per share for 1999, because the effect would have been antidilutive.
F-33
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 18. Condensed Financial Statements of Parent Company
Financial information pertaining only to Resource Bankshares Corporation is
as follows:
Balance Sheets
December 31,
------------------------
2000 1999
----------- -----------
Assets
Cash and due from banks.......................... $ 1,450,893 $ 450,218
Cash on deposit at Resource Bank................. 1,004,331 1,024,087
----------- -----------
Total cash and due from banks.................. 2,455,224 1,474,305
Investment securities available for sale......... 278,236 350,698
Due from (to) Resource Bank...................... (992,167) (71,109)
Investment in preferred stock of Resource Capital
Trust........................................... 284,550 284,550
Investment in preferred stock of Resource Bank... 7,350,000 7,350,000
Investment in common stock of Resource Bank...... 19,345,213 15,825,441
Other assets..................................... 612,486 583,206
----------- -----------
Total assets................................... $29,333,542 $25,797,091
=========== ===========
Liabilities and Stockholders' equity
Interest payable................................. $ 177,292 $ 189,111
Dividends payable................................ -- 253,891
Capital Trust borrowings......................... 9,484,550 9,484,550
----------- -----------
9,661,842 9,927,552
Stockholders' equity............................. 19,671,700 15,869,539
----------- -----------
Total liabilities and stockholders' equity..... $29,333,542 $25,797,091
=========== ===========
Statements of Operations
Years Ended December 31,
----------------------------------
2000 1999 1998
---------- ----------- ----------
Income
Dividends from Resource Bank........... $1,486,851 $ 1,290,213 $ 924,934
Interest on investments................ 58,622 30,674 162
Management and service fees............ 480,300 349,800 --
---------- ----------- ----------
2,025,773 1,670,687 925,096
---------- ----------- ----------
Expenses
Interest expense--Capital Trust
borrowings............................ 839,181 702,075 --
Other expenses......................... 204,736 179,798 --
---------- ----------- ----------
1,043,917 881,873 --
---------- ----------- ----------
Income before income taxes and equity in
undistributed net income (loss) of
Resource Bank........................... 981,856 788,814 925,096
Equity in undistributed net income (loss)
of Resource Bank........................ 3,076,146 (1,653,106) 2,121,751
---------- ----------- ----------
Income (loss) before tax benefit......... 4,058,002 (864,292) 3,046,847
Income tax benefit....................... 174,728 173,484 --
---------- ----------- ----------
Net income (loss).................... $4,232,730 $ (690,808) $3,046,847
========== =========== ==========
F-34
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statement of Cash Flows
Years Ended December 31,
-------------------------------------
2000 1999 1998
----------- ----------- -----------
Cash Flows From Operating Activities
Net income (loss)................... $ 4,232,730 $ (690,808) $ 3,046,847
Adjustments to reconcile to net cash
provided by operating activities:
Accretion of investment securities
discounts net of premiums........ -- (4,448) --
Equity in undistributed net
(income) loss of Resource Bank... (3,076,146) 1,653,106 (2,121,751)
Changes in:
Other assets.................... 290,095 (463,889) (19,998)
Accrued expenses................ (12,417) 189,111 --
Other liabilities............... 388,276 104,725 149,166
----------- ----------- -----------
Net cash provided by operating
activities................... 1,822,538 787,797 1,054,264
----------- ----------- -----------
Cash Flows From Investing Activities
Purchases of available-for-sale
securities......................... (33,236) (426,850) --
Purchase of Resource Capital Trust
preferred stock.................... -- (284,550) --
Purchase of Resource Bank preferred
stock.............................. -- (7,350,000) --
----------- ----------- -----------
Net cash used by investing
activities................... (33,236) (8,061,400) --
----------- ----------- -----------
Cash Flows From Financing Activities
Proceeds from Capital Trust
borrowings......................... -- 9,484,550 --
Proceeds from sale of common stock
upon exercise of stock options..... 105,745 525,548 19,998
Payments to reacquire common stock.. (78,515) (556,240) (176,444)
Cash dividends paid on common
stock.............................. (835,613) (1,011,429) (592,339)
----------- ----------- -----------
Net cash provided (used) for
financing activities......... (808,383) 8,442,429 (748,785)
----------- ----------- -----------
Net increase in cash and cash
equivalents........................ 980,919 1,168,826 305,479
Cash and cash equivalents at
beginning of year.................. 1,474,305 305,479 --
----------- ----------- -----------
Cash and cash equivalents at end of
year............................... $ 2,455,224 $ 1,474,305 $ 305,479
=========== =========== ===========
Federal and state banking regulations place certain restrictions on dividends
paid and loans or advances made by the Bank to the Corporation. The total
amount of dividends which may be paid at any date is generally limited to the
retained earnings of the Bank, and loans or advances are limited to 10% of the
Bank's capital stock and surplus on a secured basis.
At December 31, 2000, the Bank's retained earnings available for the payment
of dividends without prior regulatory approval was $4,400,000, and funds
available for loans or advances amounted to $1,508,000.
In addition, dividends paid by the Bank to the Corporation would be
prohibited if the effect thereof would cause the Bank's capital to be reduced
below applicable minimum capital requirements.
F-35
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 19. Segment Reporting
The Corporation has one reportable segment, its mortgage banking operations.
The mortgage banking 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 construction loans, and other
business financing arrangements. The Corporation does not have other reportable
operating segments.
The accounting policies of the segment are the same as those described in the
summary of significant accounting policies. The chief operating decision maker
of the Corporation evaluates performance based on profit or loss from
operations before income taxes.
The Corporation'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 segment's most significant revenue and expense is noninterest income and
noninterest expense, respectively. The segments are reported below for the
years ended December 31.
Selected Financial Information
Mortgage Commercial
Banking and Other
Operations Banking Total
----------- ------------ ------------
Year Ended December 31, 2000
Net interest income after
provision for loan losses........ $ -- $ 8,337,497 $ 8,337,497
Noninterest income................ 6,916,584 4,973,484 11,890,068
Noninterest expense............... (6,242,594) (7,866,552) (14,109,146)
----------- ------------ ------------
Net income before income taxes.. $ 673,990 $ 5,444,429 $ 6,118,419
=========== ============ ============
Year Ended December 31, 1999
Net interest income after
provision for loan losses........ $ -- $ 4,278,660 $ 4,278,660
Noninterest income................ 5,709,225 1,102,117 6,811,342
Noninterest expense............... (6,128,122) (6,039,646) (12,167,768)
----------- ------------ ------------
Net loss before income taxes.... $ (418,897) $ (658,869) $ (1,077,766)
=========== ============ ============
Year Ended December 31, 1998
Net interest income after
provision for loan losses........ $ -- $ 8,259,983 $ 8,259,983
Noninterest income................ 7,062,445 880,968 7,943,413
Noninterest expense............... (6,401,258) (5,164,358) (11,565,616)
----------- ------------ ------------
Net income before income taxes.. $ 661,187 $ 3,976,593 $ 4,637,780
=========== ============ ============
Mortgage
Banking Commercial
Operations Banking Total
----------- ------------ ------------
Segment Assets
2000.............................. $ 709,879 $403,784,135 $404,494,014
1999.............................. 675,597 306,014,088 306,689,685
1998.............................. $ 514,989 $232,945,443 $233,460,432
F-36
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Corporation does not have a single external customer from which it
derives 15 percent or more of its revenues.
Note 20. Quarterly Data (Unaudited)
Year Ended December 31, 2000
--------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
Interest and dividend
income................... $ 8,224,008 $ 7,252,787 $ 6,682,881 $ 6,253,123
Interest expense.......... (5,689,192) (4,901,647) (4,354,037) (4,030,426)
----------- ----------- ----------- -----------
Net interest income....... 2,534,816 2,351,140 2,328,844 2,222,697
Provision for loan
losses................... -- (1,000,000) -- (100,000)
----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses................... 2,534,816 1,351,140 2,328,844 2,122,697
Noninterest income........ 1,921,563 5,712,400 2,079,396 2,176,709
Noninterest expenses...... (3,307,490) (4,376,871) (3,267,390) (3,157,395)
----------- ----------- ----------- -----------
Income before income
taxes.................... 1,148,889 2,686,669 1,140,850 1,142,011
Provision for income
taxes.................... (322,948) (873,926) (340,843) (347,972)
----------- ----------- ----------- -----------
$ 825,941 $ 1,812,743 $ 800,007 $ 794,039
=========== =========== =========== ===========
Earnings per common share:
Basic................... $ 0.32 $ 0.69 $ 0.31 $ 0.31
=========== =========== =========== ===========
Diluted................. $ 0.30 $ 0.66 $ 0.30 $ 0.30
=========== =========== =========== ===========
Year Ended December 31, 1999
--------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
Interest and dividend
income................... $ 5,911,330 $ 5,651,128 $ 5,118,926 $ 4,699,824
Interest expense.......... (3,556,269) (3,269,340) (2,956,204) (2,653,735)
----------- ----------- ----------- -----------
Net interest income....... 2,355,061 2,381,788 2,162,722 2,046,089
Provision for loan
losses................... -- (4,667,000) -- --
----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses................... 2,355,061 (2,285,212) 2,162,722 2,046,089
Noninterest income........ 1,472,437 1,796,795 1,866,825 1,675,285
Noninterest expenses...... (2,941,136) (3,581,171) (3,079,428) (2,566,033)
----------- ----------- ----------- -----------
Income before income
taxes.................... 886,362 (4,069,588) 950,119 1,155,341
Provision for income
taxes.................... (303,021) 1,418,468 (328,741) (399,748)
----------- ----------- ----------- -----------
$ 583,341 $(2,651,120) $ 621,378 $ 755,593
=========== =========== =========== ===========
Earnings per common share:
Basic................... $ 0.23 $ (1.04) $ 0.24 $ 0.30
=========== =========== =========== ===========
Diluted................. $ 0.23 $ (1.04) $ 0.22 $ 0.27
=========== =========== =========== ===========
F-37
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an of-
fer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
---------------
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 10
Use of Proceeds.......................................................... 11
Capitalization........................................................... 11
Market for Common Stock.................................................. 12
Dividend Policy.......................................................... 12
Selected Consolidated Financial Data..................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
Business................................................................. 29
Management............................................................... 35
Security Ownership of Management and Certain Beneficial Owners........... 41
Supervision and Regulation............................................... 42
Description of Capital Stock............................................. 46
Underwriting............................................................. 48
Legal Matters............................................................ 49
Experts.................................................................. 49
Where You Can Find More Information...................................... 49
Index to Consolidated Financial Statements............................... F-1
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500,000 Shares
[RESOURCE BANKSHARES LOGO]
RESOURCE
BANKSHARES
CORPORATION
Common Stock
---------------
PROSPECTUS
---------------
SCOTT & STRINGFELLOW, INC.
June 15, 2001
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