U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
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Commission File Number: 000-24561
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RESOURCE BANKSHARES CORPORATION
(Exact name of Registrant as specified in its charter)
Virginia 54-1904386
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3720 Virginia Beach Blvd., Virginia Beach, VA 23452
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(Address of principal executive offices) (Zip Code)
(757) 463-2265
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(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No ___
---
At March 31, 2002, 3,111,961 shares of Resource Bankshares Corporation's common
stock, $1.50 par value, were outstanding.
RESOURCE BANKSHARES CORPORATION
FORM 10-Q
MARCH 31, 2002
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001 3
Consolidated Statements of Income for the periods ended
March 31, 2002 and 2001 4
Consolidated Statements of Stockholders' Equity for the period
ended March 31, 2002 5
Consolidated Statements of Cash Flows for the periods ended
March 31, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS March 31 December 31
2002 2001
(Unaudited)
(Dollars in thousands)
ASSETS
Cash and due from banks $ 5,638 $ 7,928
Interest bearing deposits 240 1,682
----------- -----------
5,878 9,610
Funds advanced in settlement of mortgage loans 46,228 71,971
Securities available for sale (amortized cost of $131,654 and $114,878, respectively) 129,816 114,635
Loans, net
Commercial 83,415 77,705
Real estate - construction 98,089 86,283
Commercial real estate 143,486 125,194
Residential real estate 56,706 51,888
Installment and consumer loans 3,132 3,866
----------- -----------
TOTAL LOANS 384,828 344,936
Allowance for loan losses (3,767) (3,697)
----------- -----------
NET LOANS 381,061 341,239
Other real estate owned 51 43
Premises and equipment, net 9,664 8,912
Cash surrender value of life insurance 9,013 8,899
Other assets 4,696 6,174
Accrued interest 3,550 3,367
----------- -----------
$589,957 $564,850
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 16,217 $ 15,966
Interest bearing 381,626 395,537
----------- -----------
TOTAL DEPOSITS 397,843 411,504
Federal funds purchased and securities sold under agreements
to repurchase 28,608 19,000
FHLB advances 114,000 83,800
Other liabilities 4,673 3,389
Accrued interest 2,255 4,178
Capital debt securities 14,200 14,200
----------- -----------
TOTAL LIABILITIES 561,579 536,071
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $10 per share,
Shares authorized: 500,000; none issued and outstanding - -
Common stock, par value $1.50 a share Shares authorized:
6,666,666 Shares issued and outstanding:
2002 - 3,111,961; 2001 3,103,495 4,668 4,655
Additional paid-in capital 15,919 16,124
Retained earnings 9,004 8,160
Accumulated other comprehensive loss (1,213) (160)
----------- -----------
28,378 28,779
----------- -----------
$589,957 $564,850
=========== ===========
See notes to consolidated financial statements.
3
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME Three months ended
(UNAUDITED) March 31
2002 2001
(Dollars in Thousands)
Interest and dividend income
Interest and fees on loans $5,293 $6,000
-------------------------------
Interest on investment securities:
Taxable 1,839 1,397
Tax exempt 180 254
-------------------------------
2,019 1,651
-------------------------------
Interest on funds advanced in settlement of mortgage loans 857 333
-------------------------------
Total interest income 8,169 7,984
-------------------------------
Interest expense
Interest on deposits 3,650 4,724
Interest on borrowings 1,043 551
Interest on capital debt securities 288 213
-------------------------------
Total interest expense 4,981 5,488
-------------------------------
Net interest income 3,188 2,496
Provision for loan losses (70) (45)
-------------------------------
Net interest income after provision for loan losses 3,118 2,451
Noninterest income
Mortgage banking income 3,991 2,489
Service charges 157 158
Gain on sale of assets 348 179
Gain on sale of securities 236 -
Other 363 192
-------------------------------
5,095 3,018
-------------------------------
Noninterest expense
Salaries and employee benefits 4,262 2,695
Occupancy expenses 429 311
Depreciation and equipment maintenance 501 303
Stationery and supplies 211 118
Marketing and business development 152 107
Professional fees 36 34
Outside computer services 226 128
FDIC insurance 18 16
Other 581 419
-------------------------------
6,416 4,131
-------------------------------
Income before income tax 1,797 1,338
Income tax expense 519 388
-------------------------------
Net income $1,278 $ 950
===============================
Cash dividends declared per common share $ 0.14 $ 0.12
===============================
Basic earnings per common share $ 0.41 $ 0.36
===============================
Diluted earnings per common share $ 0.39 $ 0.34
===============================
See notes to consolidated financial statements.
4
RESOURCE BANKSHARES CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Three Months Ended March 31, 2002 (Dollars in thousands)
Accumulated
Other
Additional Comprehensive
Common Stock Paid-in Retained Income
Shares Amount Capital Earnings (Loss) Total
------------------------------------------------------------------------
Balance, December 31, 2001 3,103,495 $4,655 $16,124 $8,160 ($160) $28,779
Comprehensive income:
Net income 1,278 1,278
Changes in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification
adjustment and tax effect - - - - (1,053) (1,053)
-------
Total comprehensive income 225
-------
Reacquisition of common stock (18,000) (27) (305) - - (332)
Proceeds from exercise of stock options 26,466 40 100 140
Cash dividends declared - $.14 per share - - - (434) - (434)
------------------------------------------------------------------------
Balance, March 31, 2002 3,111,961 $4,668 $15,919 $9,004 ($1,213) $28,378
========================================================================
See notes to consolidated financial statements.
5
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended
March 31, 2002 March 31, 2001
Operating activities
(Dollars in thousands)
----------------------
Net income $ 1,278 $ 950
Adjustments to reconcile to net cash provided
(used) by operating activities:
Provision for losses on loans and other real estate owned 70 45
Depreciation and amortization 319 163
Amortization of investment securities premiums, net of
discounts (308) (886)
Gain on sale of loans or other real estate owned (348) (179)
Gain on sale of securities (236) --
Deferred loan origination fees, net of costs (183) 87
Changes in:
Funds advanced in settlement of mortgage loans 25,743 (26,961)
Interest receivable (184) 19
Interest payable (1,922) (698)
Other assets 1,368 (922)
Other liabilities 1,826 976
-------- --------
Net cash (used) provided by operating activities 27,418 (29,358)
-------- --------
Investing activities:
Proceeds from sales and maturities of available-for-sale
securities 19,971 744
Purchases of available-for-sale securities (36,203) (3,512)
Proceeds from maturities of held-to-maturity securities -- 965
Loan originations, net of principal repayments (39,369) (6,693)
Net cash used for acquisitions -- (1,125)
Purchases of premises, equipment and other assets (1,071) (1,360)
-------- --------
Net cash used by investing activities (56,672) (10,981)
-------- --------
Financing activities:
Proceeds from exercise of stock options and warrants 140 --
Payments to reacquire common stock (332) (102)
Cash dividends (434) (316)
Proceeds(repayments) of federal funds purchased 9,608 (4,546)
Net proceeds on FHLB advances 30,200 --
Net decrease in demand deposits,
NOW accounts and savings accounts (17,104) (4,127)
Net increase in certificates of deposit 3,444 48,954
-------- --------
Net cash provided by financing activities 25,522 39,863
-------- --------
Decrease in cash and cash equivalents (3,732) (476)
Cash and cash equivalents at beginning of period 9,610 9,342
-------- --------
Cash and cash equivalents at end of period $ 5,878 $ 8,866
======== ========
Supplemental schedules and disclosures of
cash flow information:
Cash paid for:
Interest on deposits and other borrowings $ 6,903 $ 6,186
-------- --------
See notes to consolidated financial statements.
6
RESOURCE BANKSHARES CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
(UNAUDITED)
(Dollars in thousands, except per share data)
Organization and Summary of Significant Accounting Policies
(1) GENERAL
Resource Bankshares Corporation, a Virginia Corporation (the
"Company"), was incorporated under the laws of the Commonwealth of Virginia on
February 4, 1998, primarily to serve as a holding company for Resource Bank (the
"Bank").
The consolidated financial statements of the Company include the accounts
of its wholly owned subsidiary, Resource Bank and the Bank's wholly owned
subsidiaries, CW and Company of Virginia and Resource Service Corporation. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q, and therefore, do not include all
of the disclosures and notes required by generally accepted accounting
principles. In the opinion of management, all adjustments of a 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, 2002 $3,697
Provision for loan losses 70
Loans charged off -
Recoveries -
-------
Balance at March 31, 2002 $3,767
=======
(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
7
shares in the earnings of the entity. The weighted average number of basic
shares outstanding for the three months ended March 31, 2002, and 2001 were
3,103,011 and 2,616,543, respectively. The diluted weighted average number of
shares for the three months ended March 31, 2002 and 2001 were 3,291,151 and
2,800,120, respectively.
(5) COMPREHENSIVE INCOME
The components of other comprehensive income and related tax effects for
the three months ended March 31, 2002 and 2001 are as follows:
Three months ended
March 31, 2002 March 31, 2001
-------------- --------------
Unrealized holding gains(losses) arising
during the period on available-for-sale
securities $ (1,831) $ 312
Reclassification adjustment for gains realized
in income 236 --
-------- -------
Net unrealized gains(losses) (1,595) 312
Tax effect (542) (104)
-------- -------
Net-of-tax amount ($1,053) $ 208
======== =======
(6) SUBSEQUENT EVENTS
In April 2002, the Board of Directors of the Company declared a $0.14 per
common share dividend to shareholders of record as of April 12, 2002. The
dividend was paid on April 26, 2002.
8
(7) SEGMENT REPORTING
The Company has one reportable segment, its mortgage banking
operations. This segment originates residential loans and subsequently sells
them to investors. The commercial banking and other banking operations provide a
broad range of lending and deposit services to individual and commercial
customers, including such products as commercial and construction loans, as well
as other business financing arrangements.
The Company's reportable segment is a strategic business unit that
offers different products and services. It is managed separately because the
segment appeals to different markets and, accordingly, requires different
technology and marketing strategies.
The mortgage banking segment's most significant revenue and expense are
non-interest income and non-interest expense, respectively. The Company's
segments are reported below for the periods ended March 31, 2002 and March 31,
2001.
Selected Financial Information
Commercial and Mortgage Banking
Other Operations Operations Total
----------------------------------------------------
Three Months Ended March 31, 2002:
Net interest income after provision for loan losses
$ 3,118 $ - $ 3,118
Noninterest income 1,104 3,991 5,095
Noninterest expense (2,536) (3,880) (6,416)
------- ------- -------
Net income before income taxes $ 1,686 $ 111 $ 1,797
======= ======= =======
Three Months Ended March 31, 2001:
Net interest income after provision for loan losses
$ 2,451 $ - $ 2,451
Noninterest income 529 2,489 3,018
Noninterest expense (1,962) (2,169) (4,131)
------- ------- -------
Net income before income taxes $ 1,018 $ 320 $ 1,338
======= ======= =======
Segment Assets
Commercial and Mortgage Banking
Other Operations Operations Total
----------------------------------------------------
March 31, 2002 $ 588,148 $ 1,809 $ 589,957
========= ======= =========
March 31, 2001 $ 441,812 $ 2,029 $ 443,841
========= ======= =========
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands, except per share data)
Resource Bankshares Corporation, a Virginia Corporation (the "Company"),
was incorporated under the laws of the Commonwealth of Virginia on February 4,
1998, primarily to serve as a holding company for Resource Bank (the "Bank").
In addition to historical information, the following discussion contains
forward looking statements that are subject to risks and uncertainties that
could cause the Company's actual results to differ materially from those
anticipated. These forward looking statements include, but are not limited to,
the effect of increasing interest rates on the Company's profitability and the
adequacy of the Company's allowance for future loan losses. Several factors,
including the local and national economy and the demand for residential mortgage
loans may adversely affect the Company's ability to achieve the expected
results. Readers are cautioned not to place undue reliance on these forward
looking statements, which reflect management's analysis only as of the date of
this report.
Total assets at March 31, 2002 were $589,957, up 4.4% from $564,850 at
December 31, 2001, reflecting growth in securities and loans. The Company
purchased $36,203 of securities during the first three months of 2002, net loans
increased by $39,822, and funds advanced in settlement of mortgage loans
decreased by $25,743 during the same period. The principal components of the
Company's assets at the end of the period were $129,816 in securities, $5,878 in
cash and cash equivalents, $46,228 in funds advanced in settlement of mortgage
loans and $381,061 in net loans. The Company's lending activities are a
principal source of income.
Total liabilities at March 31, 2002 were $561,579, up from $536,071 at
December 31, 2001, with the increase represented by $39,808 (38.7%) growth in
borrowed funds offset by a decrease of $13,661 (3.3%) in deposits. Non-interest
bearing demand deposits increased $251 or 1.6%, while interest bearing deposits
decreased by $13,911 or 3.5%. The Company's deposits are provided by individuals
and businesses located within the communities served as well as the national
market.
Total stockholders' equity at March 31, 2002 was $28,378, compared to
$28,779 at December 31, 2001. The Company had net income of $1,278 for the three
months ended March 31, 2002 compared with net income of $950 for the comparable
period in 2001, an increase of 34.5%. This increase is attributable to the
growth in interest bearing assets and increases in mortgage banking income. The
decrease in total stockholders' equity of $401 from December 31, 2001 to March
31, 2002 was due mainly to an increase in the unrealized depreciation on
securities available for sale of $1,053, which mostly offset the $1,278 in net
income for the first quarter of 2002.
Profitability as measured by the Company's return on average assets (ROA)
was .91% for the three months ended March 31, 2002, down .02% from the same
period of 2001. A key indicator of performance, the return on average equity
(ROE) was 18.0% and 19.5% for the three months ended March 31, 2002 and 2001,
respectively.
Net interest income represents a principal source of earnings for the
Company. The first component is the loan portfolio. Making sound loans that will
increase the Company's net interest margin is the first priority of management.
The second component is gathering core deposits to match and fund the loan
production. The Company also utilizes national markets to generate deposits and
Federal Home Loan Bank ("FHLB") advances to fund loan growth either for asset
and liability management purposes or for a less expensive source of funds.
-10-
Net interest income on a tax equivalent basis, before provision for loan
losses, increased to $3,283 for the three months ended March 31, 2002 versus
$2,623 for the same period in 2001, an increase of 25.2%. Average interest
earning assets increased $135,216 from March 31, 2001 to the current period
while average interest bearing liabilities increased $133,392 during the same
comparative period. The yield on average interest earning assets decreased 200
basis points to 6.3% at March 31, 2002 as compared to 8.3% at March 31, 2001.
The rate on interest bearing liabilities decreased 200 basis points to 4.0% at
March 31, 2002 as compared to 6.0% at March 31, 2001.
-11-
Average Balances, Income and Expenses, Yields and Rates
The following table sets forth average balances of total interest earning
assets and total interest bearing liabilities for the periods indicated,
showing the average distribution of assets, liabilities, stockholders' equity
and the related income, expense and corresponding weighted average yields and
costs.
Three months ended Three months ended
March 31, 2002 March 31, 2001
Average Yield/ Average Yield/
Balance(1) Interest Rate(2) Balance(1) Interest Rate (2)
(Dollars in thousands)
-------------------------------------------------------
Assets
Interest-earning assets:
Securities (3) $120,092 $2,094 7.07% $ 82,591 $1,708 8.39%
Loans (4) 361,888 5,293 5.93% 290,511 6,000 8.38%
Interest-bearing deposits 3,991 20 2.03% 7,153 70 3.97%
Other interest-earning assets (5) 45,802 857 7.59% 16,302 333 8.28%
----------------------------------------------------
Total interest-earning assets 531,773 8,264 6.30% 396,557 8,111 8.30%
Noninterest earning assets:
Cash and due from banks 8,865 4,935
Premises and equipment 9,186 4,136
Other assets 17,223 8,726
Less: Allowance for loan losses (3,699) (3,659)
-------- --------
Total noninterest earning assets 31,575 14,138
-------- --------
Total assets $563,348 $410,695
-------- --------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Demand/Money Market Accounts $ 84,425 $395 1.90% $128,713 $1,766 5.56%
Savings 4,612 34 2.99% 5,514 47 3.46%
Certificates of deposit 292,519 3,221 4.47% 189,952 2,910 6.21%
----------------------------------------------------
Total interest-bearing deposits 381,556 3,650 3.88% 324,179 4,723 5.91%
FHLB advances and other borrowings 110,121 1,043 3.84% 39,106 552 5.72%
Capital debt securities 14,200 288 8.11% 9,200 213 9.26%
----------------------------------------------------
Total interest-bearing liabilities 505,877 4,981 3.99% 372,485 5,488 5.98%
Noninterest-bearing liabilities:
Demand deposits 22,439 13,928
Other liabilities 6,589 4,800
-------- --------
Total noninterest-bearing liabilities 29,028 18,728
Stockholders' equity 28,443 19,482
-------- --------
Total liabilities and stockholders' equity $563,348 $410,695
-------- --------
Interest rate spread (6) 2.31% 2.32%
Net interest income/net interest margin (7) $3,283 2.50% $2,623 2.68%
(1) Average balances are computed on daily balances and Management believes such
balances are representative of the operations of the Company.
(2) Yield and rate percentages are all computed through the annualization of
interest income and expenses versus the average balances of their respective
accounts.
(3) Tax equivalent basis. The tax equivalent adjustment to net interest income
was $95 and $127 for the three months ended March 31, 2002 and 2001,
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 annualized, expressed as a
percentage of average earning assets.
-12-
Non-interest income increased from $3,018 for the three months ended
March 31, 2001 to $5,095 for the same period in 2002. This increase was
primarily attributable to increased activity in the Company's mortgage banking
operations and the result of adding Atlantic Mortgage & Investment to the
Company's commercial mortgage division and First Jefferson Mortgage Corporation
to the residential mortgage group late in the first quarter of 2001. In the
first quarter of 2002, a full three months of income is reflected. For the three
months ended March 31, 2002, mortgage banking income increased by 60.3% or
$1,502 to $3,991 versus the same period of 2001. Mortgage banking made a
significant contribution to the Company's results in the first three months of
2002. Because of the uncertainty of future loan origination volume and the
future level of interest rates, there can be no assurance that the Company will
realize the same level of mortgage banking income in future periods. Other
non-interest income increased by $575 to $1,104 for the three months ending
March 31, 2002 compared to the same period in 2001. The increase in the gain on
sale of assets of $169 was due to greater activity in loan sales during the
three months ended March 31, 2002. The gain on sale of securities increased by
$236 while other non-interest income increased by $170.
For the three months ended March 31, 2002, the Company's non-interest
expense totaled $6,416 or 55.3% higher than the same period in 2001. This
increase was the result of adding Atlantic Mortgage & Investment to the
Company's commercial mortgage division and First Jefferson Mortgage Corporation
to the residential mortgage group late in the first quarter of 2001. In the
first quarter of 2002, a full three months of expenses are reflected. The
largest component of non-interest expense, salaries and employee benefits, which
represents 66.4% of total non-interest expense, increased 58.1% to $4,262 for
the three months ended March 31, 2002 over the same period in 2001, and was
primarily attributed to the aforementioned additions. Occupancy expense
increased by 37.9% to $429, depreciation and equipment maintenance increased by
65.4% to $501, marketing and business development increased 42.1% to $152, and
outside computer services increased by 76.6% to $226 for the three months ended
March 31, 2002 over the same period in 2001.
In establishing the allowance for loan losses, management considers a
number of factors, including loan asset quality, related collateral and economic
conditions prevailing during the loan's repayment. In its loan policies,
management emphasizes the borrower's ability to service the debt, the borrower's
general creditworthiness and the quality of collateral. The allowance for loan
losses as a percentage of period-end loans was 1.0% and 1.3% at March 31, 2002
and 2001, respectively. The provisions for loan losses were $70 and $45 for the
three months ended March 31, 2002 and 2001, respectively.
While the Company believes it has sufficient allowance for its existing
portfolio, there can be no assurances that an additional allowance for losses on
existing loans may not be necessary in the future, particularly if the economy
worsens.
Management believes that losses on these assets, if any, will be
minimal, although no assurance can be given in this regard. Loans are generally
placed in nonaccrual status when the collection of principal and interest is 90
days or more past due, unless the obligation is both well-secured and in the
process of collection.
-13-
Non Performing Assets
The following table presents the Company's nonperforming assets for the periods
set forth below.
March 31 December 31
2002 2001
----- -----
(Dollars in thousands)
Non accrual loans $ 405 $ 536
Other real estate 51 43
Loans 90 days or more past due and still
accruing interest 1,268 1,086
-------- --------
Total non performing assets $ 1,724 $ 1,665
======== ========
Total assets $589,957 $564,850
======== ========
Total non performing assets to total assets 0.29% 0.29%
======== ========
Summary of Loan Loss Experience
The following table presents the Company's loan loss experience and selected
loan loss ratios for the three months ended March 31, 2002 and 2001.
Three months ended
March 31
2002 2001
--------- ---------
(Dollars in thousands)
Balance of allowance for loan losses
at beginning of year $ 3,697 $ 3,521
Loans charged-off:
Commercial -- --
Installment -- --
Real Estate -- --
Credit Cards and Other Consumer -- (3)
--------- ---------
Total loans charged-off -- (3)
--------- ---------
Recoveries of loans previously charged off:
Commercial -- 83
Installment -- --
Real Estate -- 96
Credit Cards and Other Consumer -- --
--------- ---------
Total recoveries -- 179
--------- ---------
Net loan (charge-offs) recoveries -- 176
Additions to allowance charged to expense 70 45
Balance at end of period $ 3,767 $ 3,742
========= =========
Average loans $ 361,888 $ 290,511
Loans at end of period $ 384,828 $ 295,473
Selected Loan Loss Ratios:
Net charge-offs (recoveries) during the period to average loans 0.00% -0.06%
Provision for loan losses to average loans 0.02% 0.02%
Provision for loan losses to net charge-offs (recoveries) during
the period N/A -26%
Allowance for loan losses to loans at end of period 0.98% 1.27%
Non-performing assets at end of period $ 1,724 $ 1,369
Non-performing assets to total loans at end of period 0.45% 0.46%
Allowance for loan losses to non-performing assets at end
of period 219% 273%
-15-
Interest Rate Sensitivity and Liquidity
Management evaluates interest sensitivity through the use of an
asset/liability management reporting gap model on a quarterly basis and then
formulates strategies regarding asset generation and pricing, funding sources
and pricing, and off-balance sheet commitments in order to decrease sensitivity
risk. These strategies are based on management's outlook regarding interest rate
movements, the state of the regional and national economies and other financial
and business risk factors. In addition, the Company establishes prices for
deposits and loans based on local market conditions and manages its securities
portfolio under policies that take interest risk into account.
Liquidity represents the institution's ability to meet present and future
financial obligations. Liquid assets include cash, interest bearing deposits
with banks, federal funds sold, investments and loans maturing within one year.
The Company's funding requirements are supplied from a range of traditional
sources, including various types of demand deposits, money market accounts,
certificates of deposit and short-term borrowings. Federal Home Loan Bank
("FHLB") advances are utilized as funding sources by the Company. At March 31,
2002, there was $114,000 in FHLB advances outstanding. The Company has a
warehouse line of credit collateralized by first mortgage loans amounting to
$75,000, which expires February 19, 2003. The Company has no reason to believe
this arrangement will not be renewed. The Bank had no outstanding warehouse
advances at March 31, 2002 and 2001, respectively.
The Company purchased Federal Funds from correspondent institutions in the
amount of $9,608 and $3,000 at March 31, 2002 and 2001, respectively. The
Company has lines of credit with various correspondent banks totalling $31,000.
Management seeks to ensure adequate liquidity to fund loans and meet the
Company's financial requirements and opportunities. To provide liquidity for
current, ongoing and unanticipated needs, the Company maintains short-term
interest bearing certificates of deposits, federal funds sold, and a portfolio
of debt securities. The Company also structures and monitors the flow of funds
from debt securities and from maturing loans. Securities are generally purchased
to provide a source of liquidity. Unrealized holding gains and losses for
available-for-sale securities are excluded from earnings and reported as a net
amount in a separate component of stockholders' equity until realized.
Securities are composed of governmental or quasi-governmental agencies,
municipal bonds, preferred stocks and bonds of corporations with investment
grade ratings.
The Company's financial position at March 31, 2002 reflects liquidity and
capital levels that management believes are currently adequate to fund
anticipated future business expansion. Capital ratios are in excess of required
regulatory minimums for a well capitalized institution. The assessment of
capital adequacy depends on a number of factors such as asset quality,
liquidity, earnings performance, and changing competitive conditions and
economic forces. The adequacy of the Company's capital is reviewed by management
on an ongoing basis. Management seeks to maintain a capital structure that will
assure an adequate level of capital to support anticipated asset growth and to
absorb potential losses.
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The following table presents the amounts of the Company's interest
sensitive assets and liabilities that mature or reprice in the periods
indicated.
March 31,2002
Maturing or
Repricing
--------------------------------------------------------------
Within 4-12 1 - 5 Over
------ ---- ----- ----
3 months Months Years 5 Years Total
-------- ------ ----- ------- -----
(Dollars in thousands)
Interest-Earning Assets:
Investment securities $ 20,695 $ 27,750 $ 22,168 $ 59,203 $ 129,816
Loans 226,528 28,065 91,909 38,326 384,828
Interest bearing deposits 240 -- -- -- 240
Other interest-earning assets 46,228 -- -- -- 46,228
--------------------------------------------------------------
Total interest-earning assets 293,691 55,815 114,077 97,529 561,112
--------------------------------------------------------------
Interest-Bearing Liabilities:
Deposits
Demand and savings (1) 66,454 -- 16,552 -- 83,006
Time deposits, $100,000 and over 2,567 2,442 485 -- 5,494
Other time deposits 81,817 175,441 36,214 -- 293,472
Other interest-bearing liabilities 32,608 19,000 91,000 -- 142,608
Capital debt securities 5,000 -- -- 9,200 14,200
--------------------------------------------------------------
Total interest-earning liabilities 188,446 196,883 144,251 9,200 538,780
--------------------------------------------------------------
Period Gap $105,245 ($141,068) ($30,174) 88,330 $ 22,333
--------------------------------------------------------------
Cumulative Gap 105,245 ($35,823) ($65,997) $ 22,333
-----------------------------------------------
Ratio cumulative gap to total
interest-earning assets 18.76% -6.38% -11.76% 3.98%
-----------------------------------------------
(1) Management has determined that interest checking, money market (except those
generated by e banking) and savings accounts are not sensitive to changes in
related market rates and, therefore, have been placed in the 1-5 years category.
The capital adequacy standards are based on an established minimum for Tier
1 Risk-Based Capital, Risk-Based Capital and the Tier 1 Leverage Ratio. The
following table summarizes regulatory capital ratios for the Company and
Resource Bank at March 31, 2002.
Resource Resource
Required Ratio Bankshares Bank
-------------- ---------- -----------
Tier 1 risk-based 4.00% 9.28% 9.29%
Total risk-based 8.00% 10.20% 10.21%
Tier 1 leverage 4.00 to 5.00% 6.78% 6.65%
The Company and the Bank are in full compliance with all relevant
regulatory capital requirements and are categorized by regulatory authorities as
well capitalized.
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The effect of changing prices on financial institutions is typically
different from other industries as the Company's assets and liabilities are
monetary in nature. Interest rates are significantly impacted by inflation, but
neither the timing nor the magnitude of the changes are directly related to
price level indices. Impacts of inflation on interest rates, loan demand and
deposits are reflected in the Company's financial statements. Management
believes that the mortgage banking operations provide somewhat of a natural
interest rate hedge. The Company is in an asset sensitive position in the short
term. When interest rates decline, the Company's earnings will be negatively
impacted but the mortgage operation's volume should increase. The reverse should
occur in rising interest rate markets.
Availability of Budgets and Related Financial Information
On an ongoing basis, the Company's management prepares and updates one
year and five year forward looking budgets and financial plans. This information
is prepared by management for the purpose of assessing current business,
economic and monetary conditions and the likely impact of those conditions on
the Company's future business, results of operations and financial condition.
These budgets and financial plans are used by management to assist with
decisions related to, among other matters, asset and liability management,
capital resource allocation and loan loss projections. Upon prior request, this
budgetary and financial information is available for review by any current or
potential shareholder.
Any current or potential shareholder that obtains this information from
the Company should be aware that the budgetary and financial data necessarily
includes certain projections with respect to the potential future financial
performance of the Company. The assumptions and estimates underlying the
projections are inherently uncertain and, though considered reasonable by the
Company, are subject to significant business, economic and competitive
uncertainties and contingencies, all of which are difficult to predict and many
of which are beyond the control of the Company. Accordingly, there can be no
assurance that the projected results will be realized. The Company's actual
results in the future will vary from the projected results, and those variations
may be material. In addition, management is not under any obligation to update
its budgets and financial plans, even in the event the assumptions or estimates
underlying the information are shown to be in error.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Management
The Company's primary market risk exposure is interest rate risk.
Fluctuations in interest rates will impact both the level of interest income and
interest expense and the market value of the Company's interest earning assets
and interest bearing liabilities. There were no known material changes in the
Company's reported information and market risk management strategy, as stated in
the Company's 2001 annual report, during the first three months of 2002.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On March 8, 2002, Cohen & Malad, LLP, an Indianapolis, Indiana law firm
acting as plaintiff, filed a class action complaint in the Circuit/Superior
Court of Marion County, Indiana against the Company and the Bank. The suit
alleges that the mortgage division of the Bank violated the Telephone Consumer
Protection Act by sending unsolicited advertisements by facsimile without
obtaining prior express invitation or permission to send the facsimiles. The
suit seeks certification of a class action to pursue common claims amongst
recipients of unsolicited facsimiles and seeks monetary damages. The Company and
Bank believe that the facsimile allegedly received by the plaintiff was
transmitted by a third party fax service retained by the Bank.
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As the lawsuit was just received, the Company and the Bank are still in the
process of factually investigating the claims. The Company and the Bank intend
to defend the suit vigorously. In particular, the Company and the Bank intend to
vigorously contest class certification on the grounds that individual issues
surrounding each facsimile precludes class certification. If appropriate, the
Company and the Bank will also vigorously explore possible causes of action
against the fax service provider that transmitted the facsimile allegedly
received by the plaintiff in the lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits And Reports on Form 8-K
(a) The registrant includes herein the following exhibits.
Exhibit No. Item
----------- ----
3.2 Amended and Restated Bylaws of Resource Bankshares
Corporation
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the under-signed, thereunto
duly authorized.
RESOURCE BANKSHARES CORPORATION
/s/ Lawrence N. Smith
----------------------
Lawrence N. Smith
Chief Executive Officer
Date: May 13, 2002
/s/ Eleanor J. Whitehurst
--------------------------
Eleanor J. Whitehurst
Senior Vice President & Chief Financial Officer
Date: May 13, 2002
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