U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 June 30, 2002, 3,091,961 shares of Resource Bankshares Corporation's common
stock, $1.50 par value, were outstanding.
RESOURCE BANKSHARES CORPORATION
FORM 10-Q
JUNE 30, 2002
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001 3
Consolidated Statements of Income for the periods ended
June 30, 2002 and 2001 4
Consolidated Statements of Stockholders' Equity for the period
ended June 30, 2002 5
Consolidated Statements of Cash Flows for the periods ended
June 30, 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 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Shareholders 18
Item 6. Exhibits and Reports on Form 8-K 18
-2-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS June 30 December 31
2002 2001
(Unaudited)
(Dollars in thousands)
ASSETS
Cash and due from banks $ 7,359 $ 7,928
Interest bearing deposits 1,003 1,682
----------------- ----------------
8,362 9,610
Funds advanced in settlement of mortgage loans 57,892 71,971
Securities available for sale (amortized cost of $22,842 and $114,878, respectively) 22,796 114,635
Securities held to maturity (fair value of $115,017 and $0, respectively) 113,184 -
Loans, net
Commercial 89,729 77,705
Real estate - construction 106,605 86,283
Commercial real estate 140,173 125,194
Residential real estate 41,964 51,888
Installment and consumer loans 3,904 3,866
----------------- ----------------
TOTAL LOANS 382,375 344,936
Allowance for loan losses (4,274) (3,697)
----------------- ----------------
NET LOANS 378,101 341,239
Other real estate owned - 43
Premises and equipment, net 9,989 8,912
Cash surrender value of life insurance 9,406 8,899
Accrued interest 3,482 3,367
Other assets 5,592 6,174
----------------- ----------------
$608,804 $564,850
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 18,948 $ 15,966
Interest bearing 410,932 395,538
----------------- ----------------
TOTAL DEPOSITS 429,880 411,504
Federal funds purchased and securities sold under agreements to repurchase 19,000 19,000
FHLB advances 106,879 83,800
Capital debt securities 14,200 14,200
Accrued interest 2,898 4,178
Other liabilities 5,605 3,389
----------------- ----------------
TOTAL LIABILITIES 578,462 536,071
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 - 3,091,961; 2001 3,103,495 4,638 4,655
Additional paid-in capital 15,552 16,124
Retained earnings 9,985 8,160
Accumulated other comprehensive income (loss) 167 (160)
----------------- ----------------
30,342 28,779
----------------- ----------------
$608,804 $564,850
================= ================
See notes to consolidated financial statements.
-3-
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended Six months ended
(UNAUDITED) June 30 June 30
2002 2001 2002 2001
(Dollars in Thousands) (Dollars in Thousands)
Interest and dividend income
Interest and fees on loans $5,797 $5,549 $11,090 $11,549
--------------------------------------------------------------
Interest on investment securities:
Taxable 1,975 1,341 3,814 2,738
Tax exempt 182 242 361 496
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2,157 1,583 4,175 3,234
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Interest on funds advanced in settlement of mortgage loans 907 887 1,765 1,220
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Total interest income 8,861 8,019 17,030 16,003
--------------------------------------------------------------
Interest expense
Interest on deposits 3,217 4,878 6,867 9,602
Interest on borrowings 1,313 448 2,355 999
Interest on capital debt securities 288 213 576 426
--------------------------------------------------------------
Total interest expense 4,818 5,539 9,798 11,027
--------------------------------------------------------------
Net interest income 4,043 2,480 7,232 4,976
Provision for loan losses 635 - 705 45
--------------------------------------------------------------
Net interest income after provision for loan losses 3,408 2,480 6,527 4,931
Noninterest income
Mortgage banking income 4,750 4,425 8,741 6,914
Service charges 173 144 330 302
Gain on sale of assets 362 16 711 195
Gain on sale of securities - 184 236 184
Other 617 418 979 610
--------------------------------------------------------------
5,902 5,187 10,997 8,205
--------------------------------------------------------------
Noninterest expense
Salaries and employee benefits 4,855 4,260 9,117 6,955
Occupancy expenses 419 399 848 710
Depreciation and equipment maintenance 531 491 1,033 794
Stationery and supplies 176 188 387 313
Marketing and business development 203 143 356 250
Professional fees 254 77 307 133
Outside computer services 249 151 475 276
FDIC insurance 18 16 36 31
Other 601 479 1,163 873
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7,306 6,204 13,722 10,335
--------------------------------------------------------------
Income before income tax 2,004 1,463 3,802 2,801
Income tax expense 587 418 1,107 806
--------------------------------------------------------------
Net income $1,417 $1,045 $2,695 $1,995
==============================================================
Cash dividends declared per common share $0.14 $0.12 $0.28 $0.24
==============================================================
Basic earnings per common share $0.46 $0.39 $0.87 $0.75
==============================================================
Diluted earnings per common share $0.43 $0.37 $0.82 $0.71
==============================================================
See notes to consolidated financial statements.
-4-
RESOURCE BANKSHARES CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Six Months Ended June 30, 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 2,695 2,695
Changes in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification
adjustment and tax effect - - - - 327 327
---
Total comprehensive income 3,022
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Reacquisition of common stock (38,000) (57) (672) - - (729)
Proceeds from exercise of stock options 26,466 40 100 140
Cash dividends declared - $0.28 per share - - - (870) - (870)
----------------------------------------------------------------------------------
Balance, June 30, 2002 3,091,961 $4,638 $15,552 $9,985 $167 $30,342
==================================================================================
See notes to consolidated financial statements.
-5-
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended
June 30, 2002 June 30, 2001
Operating activities
(Dollars in thousands)
----------------------
Net income $2,695 $1,995
Adjustments to reconcile to net cash
Provided(used) by operating activities:
Provision for losses on loans and other real estate owned 705 45
Provision for losses on funds advanced in settlement of
mortgage loans 50 -
Depreciation and amortization 638 399
Amortization of investment securities premiums, net of
Discounts (623) (851)
Gain on sale of loans or other real estate owned (711) (195)
Gain on sale of securities (236) (184)
Deferred loan origination fees, net of costs (359) 118
Changes in:
Funds advanced in settlement of mortgage loans 14,030 (42,697)
Interest receivable (116) (75)
Interest payable (1,280) 2
Other assets 76 (2,084)
Other liabilities 2,048 580
------- -------
Net cash provided(used) by operating activities 16,917 (42,947)
------- -------
Investing activities:
Proceeds from sales and maturities of available-for-sale securities 21,632 14,724
Proceeds from maturities of held-to-maturity securities - 2,401
Purchases of available-for-sale securities (41,623) (13,359)
Proceeds from sale of other real estate owned 46 -
Proceeds from sale of loans 21,846 1,697
Loan originations, net of principal repayments (58,346) (14,790)
Net cash used for acquisitions - (1,125)
Purchases of premises, equipment and other assets (1,715) (4,396)
------- -------
Net cash used by investing activities (58,160) (14,848)
------- -------
Financing activities:
Proceeds from exercise of stock options and warrants 140 -
Payments to reacquire common stock (729) (180)
Proceeds from stock offering - 6,446
Cash dividends paid (870) (629)
Proceeds from federal funds purchased - 54
Net proceeds in FHLB advances 23,079 -
Net decrease in demand deposits,
NOW accounts and savings accounts (23,360) (10,824)
Net increase in certificates of deposit 41,735 65,579
------- -------
Net cash provided by financing activities 39,995 60,446
------- -------
Increase(decrease) in cash and cash equivalents (1,248) 2,651
Cash and cash equivalents at beginning of period 9,610 9,342
------- -------
Cash and cash equivalents at end of period $8,362 $11,993
======= =======
Supplemental schedules and disclosures of cash flow information:
Cash paid for:
Interest on deposits and other borrowings $11,274 $11,025
------- -------
See notes to consolidated financial statements.
-6-
RESOURCE BANKSHARES CORPORATION
Notes to Consolidated Financial Statements
June 30, 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 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.
Certain reclassifications have been made to prior year's information to conform
with the current year presentation. 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 705
Loans charged off (128)
Recoveries -
------
Balance at June 30, 2002 $4,274
======
(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 and six months ended June 30,
2002, were 3,104,983 and 3,104,003, respectively, and for the three and six
months ended June 30, 2001 were 2,670,763 and 2,643,803, respectively. The
diluted weighted average number of shares for the three and six months ended
June 30, 2002 were 3,287,689 and 3,289,645, respectively, and for the same
periods of 2001 were 2,857,592 and 2,828,027, respectively.
-7-
(5) COMPREHENSIVE INCOME
The components of other comprehensive income and related tax effects
for the six months ended June 30, 2002 and 2001 are as follows:
Six months ended
June 30, 2002 June 30, 2001
Unrealized holding gains arising during the period on
available-for-sale securities $ 732 $ 805
Reclassification adjustment for gains realized
in income (236) (184)
----- ------
Net unrealized gains 496 621
Tax effect (169) (160)
----- -----
Net-of-tax amount $327 $ 461
===== =====
(6) SUBSEQUENT EVENTS
In July 2002, the Board of Directors of the Company declared a $0.14
per common share dividend to shareholders of record as of July 12, 2002. The
dividend was paid on July 26, 2002.
(7) SECURITIES
During the second quarter of 2002, management elected to reclassify
securities with a fair value of $113,599 at the time of transfer and an
amortized cost of $113,298 from the available for sale classification to the
held to maturity classification as of May 31, 2002. The difference of $301 has
been recorded as an adjustment to the amortized cost of the securities and is
being amortized over their respective lives.
(8) RECENT ACCOUNTING PRONOUNCEMENTS
The FASB has issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). This Statement requires recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred, as opposed to when the entity commits to an exit plan
under EITF No. 94-3. The Statement is effective for exit and disposal activities
initiated after December 31, 2002. The Company is currently assessing the effect
of this Statement on financial condition and results of operations, but does not
currently expect the Statement to have a material effect on its financial
statements in the foreseeable future.
(9) 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,
-8-
including such products as commercial and construction loans, as well as other
business financing arrangements.
The Company's reportable segment is a strategic business unit that
offers different products and services. It is managed separately because the
segment appeals to different markets and, accordingly, requires different
technology and marketing strategies.
The mortgage banking segment's most significant revenue and expense are
non-interest income and non-interest expense, respectively. The Company's
segments are reported below for the periods ended June 30, 2002 and 2001,
respectively.
Selected Financial Information
Commercial and Mortgage Banking
Other Operations Operations Total
--------------------------------------------------------
Six Months Ended June 30, 2002:
Net interest income after provision for loan losses
$ 6,527 $ 0 $ 6,527
Noninterest income 1,953 9,044 10,997
Noninterest expense (5,421) (8,301) (13,722)
------- ------- --------
Net income before income taxes $ 3,059 $ 743 $ 3,802
======= ======= ========
Six Months Ended June 30, 2001:
Net interest income after provision for loan losses
$ 4,931 $ 0 $ 4,931
Noninterest income 1,075 7,130 8,205
Noninterest expense (3,926) (6,409) (10,335)
------- ------- --------
Net income before income taxes $ 2,080 $ 721 $ 2,801
======= ======= ========
Segment Assets
Commercial and Mortgage Banking
Other Operations Operations Total
--------------------------------------------------------
June 30, 2002 $606,854 $ 1,950 $608,804
======== ========= ========
June 30, 2001 $465,522 $ 2,456 $467,978
======== ========= ========
-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 changes in interest rates on the Company's profitability and the
adequacy of the Company's allowance for future loan losses. Several factors,
including the local and national economy and the demand for residential mortgage
loans may adversely affect the Company's ability to achieve the expected
results. Readers are cautioned not to place undue reliance on these forward
looking statements, which reflect management's analysis only as of the date of
this report.
Total assets at June 30, 2002 were $608,804, up 7.8% from $564,850 at
December 31, 2001, reflecting growth in loans and securities. Net loans
increased by $36,862 and securities by $21,345. Funds advanced in settlement of
mortgage loans that have been sold decreased by $14,079 during the same period.
The principal components of the Company's assets at the end of the period were
$135,980 in securities, $8,362 in cash and cash equivalents, $57,892 in funds
advanced in settlement of mortgage loans and $378,101 in net loans. The
Company's lending activities are a principal source of income.
Total liabilities at June 30, 2002 were $578,462, up 7.9% from $536,071 at
December 31, 2001, with the increase represented mainly by a $18,376 growth in
deposits and a $23,079 growth in FHLB advances. Non-interest bearing demand
deposits increased $2,982 or 18.7%, while interest bearing deposits increased by
$15,395 or 3.9%. The Company's deposits are provided by individuals and
businesses located within the communities served as well as the national market
and the Internet.
Total stockholders' equity at June 30, 2002 was $30,342, compared to
$28,779 at December 31, 2001. The Company had net income of $2,695 for the six
months ended June 30, 2002 compared with net income of $1,995 for the comparable
period in 2001, an increase of 35.1%. This increase is attributable to the
growth in interest earning assets, increases in mortgage banking income, and a
significant decrease in the Company's cost of funds.
Profitability as measured by the Company's return on average assets (ROA)
was .93% and .92%, for the six months ended June 30, 2002 and 2001,
respectively. A key indicator of performance, the return on average equity (ROE)
was 18.9% and 19.7% for the six months ended June 30, 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 and the Internet to
generate deposits and Federal Home Loan Bank ("FHLB") advances as cost effective
sources of funds and to meet asset and liability management objectives.
Net interest income on a tax equivalent basis, before provision for loan
losses, increased to $7,424 for the six months ended June 30, 2002 versus $5,185
for the same period in 2001, an increase of 43.2%. Average interest earning
assets increased $133,745 from June 30, 2001 to the current period while average
interest bearing liabilities increased $130,493 during the same comparative
period. The yield on average interest earning assets decreased 160 basis points
to 6.3% at June 30, 2002 as compared to 7.9% at June 30, 2001. The rate on
interest bearing liabilities decreased 190 basis points to 3.8% at June 30, 2002
as compared to 5.7% at June 30, 2001.
-10-
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 June 30,
2002 2001
Average Yield/ Average Yield/
Balance(1) Interest Rate(2) Balance(1) Interest Rate(2)
--------------------------------------------------------
Assets
Interest-earning assets:
Securities (3) $133,178 $2,241 6.75% $ 81,151 $1,574 7.78%
Loans (4) 385,394 5,797 6.03% 299,134 5,529 7.41%
Interest-earning deposits 2,265 11 1.95% 11,544 113 3.93%
Other interest-earning assets (5) 46,071 908 7.91% 42,785 887 8.32%
--------------------------- ---------------------------
Total interest-earning assets 566,908 8,957 6.34% 434,614 8,103 7.48%
Noninterest earning assets:
Cash and due from banks 8,092 5,869
Premises and equipment 9,755 6,483
Other assets 16,862 10,323
Less: Allowance for loan
losses (3,797) (3,798)
----------- ----------
Total noninterest earning assets 30,912 18,877
----------- ----------
Total assets $597,820 $453,491
=========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Demand/Money Market Accounts $ 70,943 $ 329 1.86% $124,941 $1,444 4.64%
Savings 4,763 15 1.26% 4,538 38 3.36%
Certificates of deposit 302,068 2,873 3.81% 240,639 3,396 5.66%
--------------------------- ---------------------------
Total interest-bearing deposits 377,774 3,217 3.42% 370,118 4,878 5.29%
FHLB advances and other borrowings 147,661 1,313 3.57% 32,691 448 5.50%
Capital debt securities 14,200 288 8.11% 9,200 213 9.26%
--------------------------- ---------------------------
Total interest-bearing liabilities 539,635 4,818 3.58% 412,009 5,539 5.39%
Noninterest-bearing liabilities:
Demand deposits 23,768 15,362
Other liabilities 5,731 5,172
---------- ----------
Total noninterest-bearing liabilities 29,499 20,534
Stockholders' equity 28,686 20,948
---------- ----------
Total liabilities and stockholders'equity $597,820 $453,491
========== ==========
Interest rate spread (6) 2.76% 2.09%
Net interest income/net interest margin (7) $4,139 2.93% $2,564 2.37%
Six Months Ended June 30,
2002 2001
Average Yield/ Average Yield/
Balance(1) Interest Rate(2) Balance(1) Interest Rate(2)
---------------------------------------------------------
Assets
Interest-earning assets:
Securities (3) $ 126,671 $ 4,337 6.90% $ 81,868 $ 3,243 7.99%
Loans (4) 373,709 11,090 5.98% 294,847 11,549 7.90%
Interest-earning deposits 3,123 30 1.94% 9,360 200 4.31%
Other interest-earning assets (5) 45,934 1,765 7.75% 29,617 1,220 8.31%
--------------------------------------------------------
Total interest-earning assets 549,437 17,222 6.32% 415,692 16,212 7.86%
Noninterest earning assets:
Cash and due from banks 8,477 5,404
Premises and equipment 9,472 5,321
Other assets 17,041 9,529
Less: Allowance for loan losses (3,748) (3,729)
---------- ----------
Total noninterest earning assets 31,242 16,525
---------- ----------
Total assets $ 580,679 $ 432,217
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Demand/Money Market Accounts $ 77,647 $ 725 1.88% $ 126,816 $ 3,211 5.11%
Savings 4,686 30 1.29% 5,022 85 3.41%
Certificates of deposit 297,322 6,112 4.15% 215,437 6,306 5.90%
--------------------------------------------------------
Total interest-bearing deposits 379,655 6,867 3.65% 347,275 9,602 5.58%
FHLB advances and other borrowings 128,995 2,355 3.68% 35,882 999 5.61%
Capital debt securities 14,200 576 8.11% 9,200 426 9.26%
--------------------------------------------------------
Total interest-bearing liabilities 522,850 9,798 3.78% 392,357 11,027 5.66%
Noninterest-bearing liabilities:
Demand deposits 23,107 14,649
Other liabilities 6,157 4,992
---------- ----------
Total noninterest-bearing liabilities 29,264 19,641
Stockholders' equity 28,565 20,219
---------- ----------
Total liabilities and stockholders'equity $ 580,679 $ 432,217
========== ==========
Interest rate spread (6) 2.54% 2.20%
Net interest income/net interest margin (7) $ 7,424 2.72% $ 5,185 2.52%
(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 $192 thousand and $209 thousand for the six months ended June 30, 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.
-11-
Non-interest income increased from $8,205 for the six months ended June
30, 2001 to $10,997 for the same period in 2002. This increase was primarily
attributable to increased activity in the Company's mortgage banking operations
and gain on sale of assets categories. For the six months ended June 30, 2002,
mortgage banking income increased by 26.4%, or $1,827, to $8,741 versus the same
period of 2001. Mortgage banking made a significant contribution to the
Company's results in the first six 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. The total of the other non-interest income categories
increased by $965 to $2,256 for the six months ended June 30, 2002 compared to
the same period in 2001. This increase was primarily attributable to an increase
in the gain on sale of assets of $516 due to greater activity in loan sales
during the six months ended June 30, 2002.
For the six months ended June 30, 2002, the Company's non-interest
expense totaled $13,722 or 32.8% higher than the same period in 2001. This
increase was primarily the result of the acquisition of Atlantic Mortgage &
Investment, a commercial mortgage company, and First Jefferson Mortgage
Corporation, a residential mortgage company, late in the first quarter of 2001.
For the period ended June 30, 2002, a full six months of expenses are reflected
for these businesses, whose operations have been consolidated with the Company's
mortgage division. The largest component of non-interest expense, salaries and
employee benefits, which represents 66.4% of total non-interest expense,
increased 31.1% to $9,117 for the six months ended June 30, 2002 over the same
period in 2001, and was primarily attributed to the aforementioned acquisitions.
Occupancy expense increased by 19.4% to $848, depreciation and equipment
maintenance increased by 30.1% to $1,033, marketing and business development
increased 42.4% to $356, and outside computer services increased 72.1% to $475
for the six months ended June 30, 2002 as compared to the same period in 2001.
Total of the other non-interest expense categories increased 40.2% to $1,893 for
the six months ended June 30, 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 period. In its loan policies,
management emphasizes the borrower's ability to service the debt, the borrower's
general creditworthiness and the quality of collateral. The allowance for loan
losses as a percentage of period-end loans was 1.1% and 1.3% at June 30, 2002
and 2001, respectively. The provisions for loan losses were $705 and $45 for the
six months ended June 30, 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.
At June 30, 2002, the Company had $601 in non-accrual loans.
Non-accrual loans consisted of sixteen individual credits and the total was less
than one half of one percent of total loans. The Company had $604 in loans past
due 90 days or more that were still accruing at June 30, 2002. Management
believes that the loans past due 90 days or more and still accruing are well
secured and in the process of collection.
Management believes that losses on these assets, if any, will be
minimal, although no assurance can be given in this regard.
-12-
Non Performing Assets
The following table presents the Company's non performing assets for the periods
set forth.
June 30 December 31
2002 2001
----- ----
(Dollars in thousands)
Non accrual loans $601 $536
Other real estate - 43
Loans 90 days or more past due and still
accruing interest 604 1,086
---- -----
Total non performing assets $1,205 $1,665
======= ======
Total assets $608,804 $564,850
========= ========
Total non performing assets to total assets 0.20% 0.29%
===== =====
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Summary of Loan Loss Experience
The following table presents the Company's loan loss experience and selected
loan loss ratios for the six months ended June 30, 2002 and 2001.
Six months ended
June 30
2002 2001
---- ----
(Dollars in thousands)
Balance of allowance for loan losses
at beginning of year $3,697 $3,521
Loans charged-off:
Commercial (98) -
Installment - -
Real Estate (29) (5)
Credit Cards and Other Consumer (1) -
----------------- ------------------
Total loans charged-off (128) (5)
----------------- ------------------
Recoveries of loans previously charged off:
Commercial - 142
Installment - -
Real Estate - 97
Credit Cards and Other Consumer - -
----------------- ------------------
Total recoveries - 239
----------------- ------------------
Net loan (charge-offs) recoveries (128) 234
Additions to allowance charged to expense 705 45
----------------- ------------------
Balance at end of period $4,274 $3,800
================= ==================
Average loans $373,709 $294,847
Loans at end of period $382,375 $301,917
Selected Loan Loss Ratios:
Net charge-offs (recoveries) during the period to average loans 0.03% -0.08%
Provision for loan losses to average loans 0.19% 0.02%
Provision for loan losses to net charge-offs (recoveries) during
the period 551% -19%
Allowance for loan losses to loans at end of period 1.12% 1.26%
Non-performing assets at end of period $1,205 $2,828
Non-performing assets to total loans at end of period 0.32% 0.94%
Allowance for loan losses to non-performing assets at end
of period 355% 134%
-14-
Interest Rate Sensitivity and Liquidity
Management evaluates interest sensitivity through the use of an
asset/liability management reporting gap model on a quarterly basis and then
formulates strategies regarding asset generation and pricing, funding sources
and pricing, and off-balance sheet commitments in order to decrease sensitivity
risk. These strategies are based on management's outlook regarding interest rate
movements, the state of the regional and national economies and other financial
and business risk factors. In addition, the Company establishes prices for
deposits and loans based on local market conditions and manages its securities
portfolio under policies that take interest risk into account.
Liquidity represents the institution's ability to meet present and
future financial obligations. Liquid assets include cash, interest bearing
deposits with banks, federal funds sold, investments and loans maturing within
one year. The Company's funding requirements are supplied from a range of
traditional sources, including various types of demand deposits, money market
accounts, certificates of deposit and short-term borrowings. Federal Home Loan
Bank ("FHLB") advances are utilized as funding sources by the Company. At June
30, 2002, there were $106,879 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 June 30, 2002 and 2001, respectively.
The Company had no Federal Funds purchased from correspondent
institutions at June 30, 2002 and 2001. The Company had securities sold under
repurchase agreements in the amount of $19,000 and $0 at June 30, 2002 and 2001,
respectively. The Company has lines of credit with other correspondent banks of
$37,348.
Management seeks to ensure adequate liquidity to fund loans and meet
the Company's financial requirements and opportunities. To provide liquidity for
current, ongoing and unanticipated needs, the Company maintains short-term
interest bearing certificates of deposits, federal funds sold, and a portfolio
of debt securities. The Company also structures and monitors the flow of funds
from debt securities and from maturing loans. Securities are generally purchased
to provide a source of liquidity. Unrealized holding gains and losses for
available-for-sale securities are excluded from earnings and reported as a net
amount in a separate component of stockholders' equity until realized.
Securities are composed of governmental or quasi-governmental agencies,
municipal bonds, preferred stocks and bonds of corporations with investment
grade ratings.
The Company's financial position at June 30, 2002 reflects liquidity
and capital levels that management believes are currently adequate to fund
anticipated future business expansion. In addition, its 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.
-15-
The following table presents the amounts of the Company's interest
sensitive assets and liabilities that mature or reprice in the periods
indicated.
June 30, 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 $41,153 $8,914 $29,499 $56,414 $135,980
Loans 223,437 27,895 96,049 34,993 382,375
Interest bearing deposits 1,003 - - - 1,003
Other interest-earning assets 57,892 - - - 57,892
-------------------------------------------------------------------------------
Total interest-earning assets 323,485 36,809 125,548 91,407 577,249
-------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Deposits
Demand and savings (1) 56,237 - 17,384 - 73,621
Time deposits, $100,000 and over 1,572 1,809 675 - 4,056
Other time deposits 123,603 145,754 64,022 - 333,379
Other interest-bearing liabilities 10,879 19,000 96,000 - 125,879
Capital debt securities - 5,000 - 9,200 14,200
-------------------------------------------------------------------------------
Total interest-bearing liabilities 192,291 171,563 178,081 9,200 551,135
-------------------------------------------------------------------------------
Period Gap $131,194 ($134,754) $(52,533) $82,207 $26,114
-------------------------------------------------------------------------------
Cumulative Gap $131,194 ($3,560) $(56,093) $26,114
----------------------------------------------------------------
Ratio cumulative gap to total
interest-earning assets 22.73% -.62% -9.72% 4.52%
----------------------------------------------------------------
(1) Management has determined that interest checking, money market (except those
generated by e banking) and savings accounts are not sensitive to changes in
related market rates and, therefore, have been placed in the 1-5 years category.
The capital adequacy standards are based on an established minimum for
Tier 1 Risk-Based Capital, Risk-Based Capital and the Tier 1 Leverage Ratio. The
following table summarizes regulatory capital ratios for the Company and its
subsidiary at June 30, 2002.
Required Ratio Resource Bankshares Resource Bank
Tier 1 risk-based 4.00% 9.24% 9.28%
Total risk-based 8.00% 11.30% 10.30%
Tier 1 leverage 4.00 to 5.00% 6.54% 6.61%
The Company and the Bank are in full compliance with all relevant
regulatory capital requirements and are categorized by regulatory authorities as
well capitalized.
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
-16-
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 loan 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 material changes in the
Company's market risk management strategy, as stated in the Company's 2001
annual report, during the first six months of 2002.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding a lawsuit filed against the Company in March 2002
under the Telephone Consumer Protection Act is contained in the Company's 10-K
for the fiscal year ended December 31, 2001 and 10-Q for the quarter ended March
31, 2002.
-17-
Item 4. Submission of Matters to a Vote of Security Holders
Resource Bankshares Corporation held its 2002 Annual Meeting of
Shareholders on May 30, 2002. At the Annual Meeting, the following matters were
acted upon by shareholders.
1. Election of two Class B Directors to hold office for a term of three years:
DIRECTOR FOR WITHHELD
Alfred E. Abiouness 2,748,291 24,225
Elizabeth A. Twohy 2,748,607 23,090
2. Adoption of an amendment to the Resource Bankshares Corporation 2002 Stock
Incentive Plan.
FOR AGAINST ABSTAIN
2,714,889 37,718 19,909
3. Ratification of the appointment of Goodman & Company, L.L.P. as the Company's
independent auditors for the year ending December 31, 2002.
FOR AGAINST ABSTAIN
2,766,154 3,170 3,192
Item 6. Exhibits And Reports on Form 8-K
99.1 Certification under Sarbanes-Oxley Act of 2002.
-18-
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: August 12, 2002
/s/Eleanor J. Whitehurst
------------------------
Eleanor J. Whitehurst
Senior Vice President & Chief Financial Officer
Date: August 12, 2002
-19-