Financial Statements
Years Ended
December 31, 1999 and 1998
[GRAPHIC OMITTED]
RESOURCE BANKSHARES
CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Resource Bankshares Corporation and Subsidiaries
Virginia Beach, Virginia
We have audited the accompanying consolidated balance sheets of Resource
Bankshares Corporation and Subsidiaries as of December 31, 1999 and 1998, 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, 1999.
These consolidated financial statements are the responsibility of Resource
Bankshares Corporation and Subsidiary's 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 Subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Goodman & Company, L.L.P.
Norfolk, Virginia
February 2, 2000
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
====================================================================================================
December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 3,481,696 $ 4,324,515
Interest bearing deposits with banks 2,138,236 3,356,290
Federal funds sold 1,445,000 800,000
-----------------------------------
Cash and cash equivalents 7,064,932 8,480,805
Funds advanced in settlement of mortgage loans 11,773,851 21,052,486
Investment securities
Available for sale (amortized cost of $6,760,303
and $8,525,386, respectively) 6,658,954 8,619,123
Held to maturity (fair value of $14,385,283 and
$1,251,795, respectively) 16,536,027 1,223,636
Loans, net of allowance of $2,686,468 in 1999 and
$2,500,193 in 1998 252,984,101 186,022,421
Other real estate owned 31,370 647,038
Premises and equipment 4,076,620 3,321,639
Other assets 5,560,294 2,491,094
Accrued interest 2,003,536 1,602,190
-----------------------------------
$ 306,689,685 $ 233,460,432
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 15,893,948 $ 15,782,703
Interest-bearing deposits 244,574,926 190,436,492
-----------------------------------
260,468,874 206,219,195
Capital Trust borrowings 9,200,000 -
FHLB advances 18,300,000 7,300,000
Other liabilities 1,610,467 1,500,274
Accrued interest 1,240,805 651,531
-----------------------------------
290,820,146 215,671,000
===================================
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:
1999 - 2,538,913; 1998 - 2,477,124 3,808,370 3,715,686
Additional paid-in capital 10,578,811 10,702,187
Retained earnings 1,608,394 3,310,630
Accumulated other comprehensive income (loss) (126,036) 60,929
-----------------------------------
15,869,539 17,789,432
-----------------------------------
$ 306,689,685 $ 233,460,432
==================================
The notes to consolidated financial statements are an integral part of this statement.
-2-
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
======================================================================================================================
Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Interest and dividend income
Interest and fees on loans $ 18,071,728 $ 15,352,330 $ 8,315,741
---------------------------------------------------
Interest on investment securities:
Interest and dividends on securities available for sale 706,217 641,318 1,103,257
Interest on securities held to maturity 981,227 70,517 15,414
===================================================
1,687,444 711,835 1,118,671
---------------------------------------------------
Interest on federal funds sold 73,997 623,189 123,227
Interest on funds advanced in settlement of
mortgage loans 1,548,039 3,059,074 1,379,856
===================================================
Total interest income 21,381,208 19,746,428 10,937,495
---------------------------------------------------
Interest expense
Interest on deposits 11,036,446 10,316,463 5,695,994
Interest on long-term borrowings 990,839 - -
Interest on short-term borrowings 408,263 1,019,982 287,430
---------------------------------------------------
Total interest expense 12,435,548 11,336,445 5,983,424
===================================================
Net interest income 8,945,660 8,409,983 4,954,071
Provision for loan losses (4,667,000) (150,000) (155,254)
===================================================
Net interest income after provision
for loan losses 4,278,660 8,259,983 4,798,817
---------------------------------------------------
Noninterest income
Mortgage banking income 5,709,225 7,062,445 4,110,868
Service charges 759,289 760,581 409,451
Other 342,828 120,387 -
---------------------------------------------------
6,811,342 7,943,413 4,520,319
===================================================
Noninterest expense
Salaries and employee benefits 6,735,896 6,686,381 4,035,860
Occupancy expenses 1,185,861 1,089,447 571,231
Depreciation and equipment maintenance 926,702 759,330 458,126
Professional fees 340,821 162,124 120,439
Outside computer service 485,458 547,160 242,871
FDIC insurance 58,125 52,580 12,452
Stationery and supplies 496,814 526,495 295,875
Marketing and business development 400,938 343,157 205,073
Other 1,537,153 1,398,942 591,399
===================================================
12,167,768 11,565,616 6,533,326
---------------------------------------------------
Income (loss) before income taxes (1,077,766) 4,637,780 2,785,810
Income tax expense (benefit) (386,958) 1,590,933 964,648
---------------------------------------------------
Net income (loss) $ (690,808) $ 3,046,847 $ 1,821,162
===================================================
Basic earnings per common share $ (0.27) $ 1.24 $ 0.92
===================================================
Diluted earnings per share $ (0.27) $ 1.13 $ 0.83
===================================================
The notes to consolidated financial statements are an integral part of this statement.
-3-
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
===========================================================================================================================
Years Ended December 31, 1999, 1998 and 1997
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Retained
--------------------------- Paid-in Earnings
Shares Amount Capital (Deficit)
------------ ------------- -------------- --------------
Balance, December 31, 1996 1,935,748 $ 2,903,622 $ 6,497,615 $ (723,072)
Comprehensive income:
Net income - - - 1,821,162
Changes in unrealized appreciation
(depreciation) on securities
available for sale, net of reclassification
adjustment and tax effect - - - -
Total comprehensive income
Common stock issued as a result
of business combination 517,632 776,448 4,271,634 -
Cash dividends declared
$.25 per share - - - (241,968)
---------------------------------------------------------------------
Balance, December 31, 1997 2,453,380 3,680,070 10,769,249 856,122
Comprehensive income:
Net income - - - 3,046,847
Changes in unrealized appreciation
(depreciation) on securities
available for sale, net of reclassification
adjustment and tax effect - - - -
Total comprehensive income
Proceeds from exercise of stock
options 32,732 49,098 95,900 -
Reacquisition of common stock (8,988) (13,482) (162,962) -
Cash dividends declared
$.24 per share - - - (592,339)
---------------------------------------------------------------------
Balance, December 31, 1998 2,477,124 3,715,686 10,702,187 3,310,630
Comprehensive income:
Net loss (690,808)
Changes in unrealized appreciation
(depreciation) on securities
available for sale, net of reclassification
adjustment and tax effect
Total comprehensive income
Proceeds from exercise of stock
options and warrants 90,888 136,332 389,216
Reacquisition of common stock (29,099) (43,648) (512,592)
Cash dividends declared
$.40 per share (1,011,428)
---------------------------------------------------------------------
Balance, December 31, 1999 $ 2,538,913 $ 3,808,370 $ 10,578,811 $ 1,608,394
=====================================================================
Accumulated
Other
Comprehensive
Income
(Loss) Total
-------------- --------------
Balance, December 31, 1996 $ (23,104) $ 8,655,061
Comprehensive income:
Net income - 1,821,162
Changes in unrealized appreciation
(depreciation) on securities
available for sale, net of reclassification
adjustment and tax effect 319,480 319,480
-------------
Total comprehensive income 2,140,642
-------------
Common stock issued as a result
of business combination - 5,048,082
Cash dividends declared
$.25 per share - (241,968)
---------------------------------
Balance, December 31, 1997 296,376 15,601,817
Comprehensive income:
Net income - 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 - 144,998
Reacquisition of common stock - (176,444)
Cash dividends declared
$.24 per share - (592,339)
---------------------------------
Balance, December 31, 1998 60,929 17,789,432
Comprehensive income:
Net loss (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 income (877,773)
--------------
Proceeds from exercise of stock
options and warrants 525,548
Reacquisition of common stock (556,240)
Cash dividends declared
$.40 per share (1,011,428)
---------------------------------
Balance, December 31, 1999 $ (126,036) $ 15,869,539
=================================
The notes to consolidated financial statements are an integral part of this statement.
- 4 -
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
===========================================================================================================================
Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Operating activities
Net income (loss) $ (690,808) $ 3,046,847 $ 1,821,162
Adjustments to reconcile to net cash provided
(used) by operating activities:
Provision for losses on loans and other real estate owned 4,667,000 150,000 155,254
Provision for losses on funds advanced on settlement of
mortgage loans 275,000 270,651 -
Loss on sale of investment securities - - 45,313
Depreciation and amortization 475,212 310,867 265,047
Amortization of investment securities
premiums, net of discounts 47,426 66,064 21,170
Loss (gain) on disposition of premises and equipment 15,892 (4,006) 11,198
Gain on sale of real estate owned (12,932) (10,137) -
Deferred loan origination fees, net of costs 904,392 181,416 (152,955)
Changes in:
Funds advanced in settlement of mortgage loans 8,855,015 2,420,998 (12,709,392)
Interest receivable (401,346) (40,434) (445,545)
Interest payable 589,274 42,675 92,699
Other assets (2,968,422) 296,305 (1,003,497)
Other liabilities 500,620 (1,160,739) (75,474)
---------------------------------------------------
Net cash provided (used) by operating activities 12,256,323 5,570,507 (11,975,020)
===================================================
Investing activities
Cash acquired in business combination - - 12,539,233
Proceeds from sales, maturities and calls of available-for-sale
securities 3,003,770 5,322,265 7,972,963
Proceeds from maturities of held-to-maturity securities 321,750 1,485,129 28,654
Purchases of available-for-sale securities (1,252,675) (1,897,250) (2,589,000)
Purchases of held-to-maturity securities (15,760,235) - -
Proceeds from maturities of time deposits - 1,000,000 -
Loan originations, net of principal repayments (72,696,479) (39,656,489) (18,318,736)
Proceeds from sales of foreclosed real estate 940,620 1,366,874 -
Proceeds from sales of premises and equipment 1,400 41,344 -
Purchases of premises and equipment and other assets (1,247,479) (399,276) (2,237,125)
---------------------------------------------------
Net cash used by investing activities (86,689,328) (32,737,403) (2,604,011)
===================================================
Financing activities
Proceeds from Capital Trust borrowings 8,809,573 - -
Proceeds from exercise of stock options 525,548 144,998 -
Payments to reacquire common stock (556,240) (176,444) -
Cash dividends paid (1,011,428) (592,339) (241,968)
Proceeds (repayments) from FHLB advances 11,000,000 (13,650,000) 7,413,500
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 3,613,095 5,511,311 (2,618,793)
Net increase in certificates of deposit 50,636,584 31,199,552 20,104,201
===================================================
Net cash provided by financing activities 73,017,132 22,437,078 24,656,940
---------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,415,873) (4,729,818) 10,077,909
Cash and cash equivalents at beginning of year 8,480,805 13,210,623 3,132,714
---------------------------------------------------
Cash and cash equivalents at end of year $ 7,064,932 $ 8,480,805 $ 13,210,623
===================================================
Supplemental schedules and disclosures of cash
flow information
Cash paid for:
Income taxes paid $ 850,000 $ 2,108,479 $ 485,158
Interest on deposits and other borrowings $ 11,846,274 $ 11,293,770 $ 5,674,357
Supplemental schedule of non-cash investing and
financing activities
Transfers from loans to real estate acquired
through foreclosure $ 312,027 $ 1,319,184 $ -
The notes to consolidated financial statements are an integral part of this statement.
- 5 -
RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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.
Resource Service Corporation, a wholly owned subsidiary of the Bank, has
been inactive through December 31, 1999 and has no significant assets or
liabilities.
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 subsidiary, Resource Bank. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(Notes continued on next page)
-6-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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, 1999 and 1998. Such deposits amounted to
$1,000,000 as of December 31, 1997.
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 the related mortgage
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.
(Notes continued on next page)
-7-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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
judgements 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.
(Notes continued on next page)
-8-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
(Notes continued on next page)
-9-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Restructured Loans (continued)
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.
(Notes continued on next page)
-10-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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
The Corporation adopted Financial Accounting Standards Board (FASB)
Statement No. 128, Earnings Per Share, on December 31, 1997. This statement
establishes standards for computing and presenting earnings per share (EPS).
This Statement supersedes standards previously set in APB Opinion No. 15,
Earnings Per Share. FASB Statement No. 128 requires dual presentation of basic
and diluted EPS on the face of the statement of operations, and it requires a
reconciliation of the numerator and denominator of the basic EPS computation
with the numerator and denominator of the diluted EPS computation. This
Statement is effective for financial statements issued for periods ending after
December 15, 1998. In accordance with the requirements of this Statement, all
prior period EPS data have been restated to reflect the change in reporting
requirements.
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 shared
in the earnings of the entity.
Comprehensive Income
The Corporation adopted FASB Statement No. 130, Reporting Comprehensive
Income, as of January 1, 1998. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net income.
However, certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component of
comprehensive income, and reported in the consolidated statements of
stockholders' equity. The adoption of FASB Statement No. 130 had no effect on
the Corporation's net income or shareholders' equity.
(Notes continued on next page)
-11-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income (continued)
The components of other comprehensive income and related tax effects are as
follows:
Years Ended December 31,
------------------------
1999 1998 1997
--------- --------- ---------
Unrealized holding gains (losses) arising
during the year on available-for-sale
securities $(287,742) $(355,317) $ 438,749
Reclassification adjustment for losses (gains)
realized in income - - 45,313
--------- --------- ---------
Net unrealized gains (losses) (287,742) (355,317) 484,062
Tax effect 100,777 119,870 (164,582)
--------- --------- ---------
Net-of-tax amount $(186,965) $(235,447) $ 319,480
========= ========= =========
Segment Reporting
During the year ended December 31, 1998, the Corporation adopted FASB
Statement No. 131, Disclosures about Segments of an Enterprise, which
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report 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.
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 Corporation's 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 Corporation's
consolidated financial condition or results of operations.
(Notes continued on next page)
-12-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 materially affect 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 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
$676,000 for the year ended December 31, 1999. On December 31, 1999, the
required reserve balance was $499,000.
(Notes continued on next page)
-13-
NOTE 4 - SECURITIES
Securities at December 31, 1999 and 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 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
=========== =========== =========== ===========
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
----------- ----------- ----------- -----------
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
=========== =========== =========== ===========
December 31, 1998
Securities available for sale
U.S. government agencies $ 6,774,386 $ 95,312 $ 1,575 $ 6,868,123
Federal Reserve Bank stock 434,300 - - 434,300
Federal Home Loan Bank
stock 1,161,700 - - 1,161,700
Other 155,000 - - 155,000
----------- ----------- ----------- -----------
$ 8,525,386 $ 95,312 $ 1,575 $ 8,619,123
=========== =========== =========== ===========
Securities held to maturity
U.S. government and agency
securities $ 477,675 $ 7,156 $ 1,461 $ 483,370
State and municipal securities 745,961 22,464 - 768,425
----------- ----------- ----------- -----------
$ 1,223,636 $ 29,620 $ 1,461 $ 1,251,795
=========== =========== =========== ===========
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.
(Notes continued on next page)
-14-
NOTE 4 - SECURITIES (Continued)
At December 31, 1999 and 1998, respectively, approximately $1,246,000 and
$200,000, was pledged to secure deposits of the U.S. government or the
Commonwealth of Virginia.
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 original cost of $11,254,689, from
the available for sale classification to the held to maturity classification as
of April 1, 1999. 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, 1999 are as follows:
Securities Held to Maturity Securities Available for Sale
--------------------------- -----------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
----------- ----------- ---------- ----------
Due in one year or less $ 395,917 $ 397,488 $ - $ -
Due from one to five years - - 771,833 760,527
Due from five to ten years 455,545 454,241 303,592 302,078
Due after ten years 7,253,030 6,571,679 3,594,455 3,599,870
Federal Reserve Bank stock - - 587,250 587,250
Federal Home Loan Bank stock - - 915,000 915,000
Preferred stock 8,431,535 6,961,875 431,298 350,698
Other - - 156,875 143,531
----------- ----------- ----------- -----------
$16,536,027 $14,385,283 $ 6,760,303 $ 6,658,954
=========== =========== =========== ===========
Gross realized gains and losses on available-for-sale securities were:
December 31,
------------
1999 1998 1997
----------- ----------- ----------
Gross realized gains:
U.S. government agencies $ - $ - $ -
=========== =========== ==========
Gross realized losses:
U.S. government agencies $ - $ - $ 45,313
=========== =========== ==========
During 1997 the Corporation received proceeds of $4,954,687 from the sale
of available-for-sale securities.
NOTE 5 - LOANS
Loans consist of the following:
December 31,
--------------------------------
Gross loans: 1999 1998
------------- -------------
Commercial $ 77,507,162 $ 68,568,799
Real estate - construction 68,075,931 44,606,768
Commercial real estate 64,158,463 42,482,709
Residential real estate mortgages 41,554,246 28,701,731
Installment and consumer loans 4,374,767 4,162,607
------------- -------------
Total gross loans 255,670,569 188,522,614
Less - allowance for loan losses (2,686,468) (2,500,193)
------------- -------------
Loans, net $ 252,984,101 $ 186,022,421
============= =============
(Notes continued on next page)
-15-
NOTE 5 - LOANS (Continued)
A summary of the activity in the allowance for loan losses account is as
follows:
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Balance, beginning of year $ 2,500,193 $ 2,573,346 $ 1,040,247
Allowance acquired through business
combination - - 1,400,000
Provision charged to operations 4,667,000 150,000 155,254
Loans charged-off (4,526,324) (287,238) (65,051)
Recoveries 45,599 64,085 42,896
----------- ----------- -----------
Balance, end of year $ 2,686,468 $ 2,500,193 $ 2,573,346
=========== =========== ===========
Accounting standards require certain disclosures concerning restructured
loans, regardless of whether or not an impairment loss exists. At December 31,
1999 there were no such loans, and at December 31, 1998, such loans amounted to
$2,078,079. Management does not believe an impairment loss exists with respect
to these loans. Impaired loans amount to $472,548 and $532,674 as of December
31, 1999 and 1998, respectively. Both restructured and impaired loans have a
valuation allowance allocation of $104,828 and $179,687 at those respective
dates. Substantially all of the loans considered impaired at December 31, 1998
were acquired in the business combination with Eastern American Bank in
December, 1997. The average recorded investment in impaired loans and
restructured loans was approximately $828,846, $1,699,686 and $754,100 in 1999,
1998 and 1997, respectively. The Bank recognized $19,997, $46,332 and $34,570 of
interest income on both categories of loans during 1999, 1998 and 1997,
respectively.
Loans on which the accrual of interest has been discontinued amounted to
$472,548 and $532,674 at December 31, 1999 and 1998, respectively. If interest
on those loans had been accrued, such income would have approximated $17,045,
$16,394 and $11,964 for 1999, 1998 and 1997, respectively. After being
classified as nonaccrual, no interest was received or recognized on the cash
basis on these loans in 1999, 1998 and 1997.
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
December 31,
----------------------------
1999 1998
----------- -----------
Land $ 1,725,000 $ 1,725,000
Leasehold improvements 1,449,754 1,343,155
Equipment, furniture and fixtures 2,222,580 1,371,583
Software 444,619 196,423
----------- -----------
5,841,953 4,636,161
Less - accumulated depreciation (1,765,333) (1,314,522)
----------- -----------
$ 4,076,620 $ 3,321,639
=========== ===========
Depreciation charged to operating expense for 1999, 1998 and 1997 was
$475,212, $310,867 and $265,047, respectively.
(Notes continued on next page)
-16-
NOTE 7 - DEPOSITS
Interest-bearing deposits consist of the following:
December 31,
-----------------------------------
1999 1998
--------------- ---------------
Money market and NOW account deposits $ 13,801,688 $ 12,731,482
Savings deposits 21,655,029 20,721,917
Time deposits $100,000 and over 11,461,070 9,717,569
Other time deposits 197,657,139 147,265,524
--------------- ---------------
$ 244,574,926 $ 190,436,492
=============== ===============
The scheduled maturities of time deposits at December 31, 1999 are as
follows:
Less than one year $ 177,259,480
One to two years 31,102,027
Three to five years 756,702
Over five years -
----------------
$ 209,118,209
================
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
Federal Home Loan Bank (FHLB) advances consist of the following:
December 31,
----------------------------------------
1999 1998
----------------- ------------------
5.97% FHLB advance due February 1, 2000 $ 13,000,000 -
5.07% FHLB advance due September 30, 2009 5,000,000 -
5.42% FHLB advance due October 28, 1999 - 2,000,000
5.69% FHLB advance due February 6, 2000 300,000 300,000
5.88% FHLB advance due September 24, 2002 - 5,000,000
----------------- -----------------
$ 18,300,000 $ 7,300,000
================= =================
Information regarding FHLB advances is summarized below:
1999 1998 1997
-------------- -------------- --------------
Weighted average rate 5.72% 5.65% 5.79%
============== ============== ==============
Average balance $ 10,136,728 $ 17,794,400 $ 4,959,000
============== ============== ==============
Maximum outstanding at month end $ 18,300,000 $ 46,420,000 $ 20,950,000
============== ============== ==============
(Notes continued on next page)
-17-
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS (Continued)
As of December 31, 1999 and 1998, advances are collateralized by FHLB stock
with a cost of $915,000 and $1,161,700, respectively. In addition, securities of
$3,982,000 and $5,900,000 are pledged against these advances, as of December 31,
1999 and 1998, respectively. First mortgage loans of $20,680,000 also serve to
provide additional collateral for these advances at December 31, 1999. Pursuant
to the terms of the variable rate line of credit, the Bank may borrow up to 12%
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 2, 2000. As of
December 31, 1999, 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 inter-company 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 inter-company 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 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.
NOTE 9 - STOCKHOLDERS' EQUITY
At December 31, 1999, the Corporation is in full compliance with all
relevant regulatory capital requirements. Prior to 1998, under state law, the
Bank was not able to pay dividends until it had restored any deficits in its
capital funds as originally paid in, or unless permission was obtained from the
State Corporation Commission and approved by stockholders. During April, 1997,
the Board of Directors approved a $.25 per share dividend, totalling $241,968,
which was approved by the State Corporation Commission and stockholders. The
cash dividends were paid to stockholders in October, 1997. As a result of the
Bank"s improved financial condition, such approvals are no longer required as
long as the Bank continues to achieve satisfactory earnings. In 1998, the Board
established a quarterly dividend policy, which resulted in a declaration of a
$.10 and $.06 per share dividend for each quarter of 1999 and 1998,
respectively.
(Notes continued on next page)
-18-
NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
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.
In December, 1997, the Bank issued 517,632 shares of its common stock (as
adjusted for the stock split) in a share exchange which resulted in the
acquisition of Eastern American Bank, FSB. Costs associated with the acquisition
of $218,000 were capitalized and are being amortized into expense over a fifteen
year period on a straight-line basis.
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 equally over a three-year period. For 1999, 1998 and 1997, expenses
attributable to the Plan amounted to $181,000, $139,000 and $89,000,
respectively.
Stock Compensation Plans
At December 31, 1999, 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 become fully
exercisable when the Bank's average market price of its common stock has
attained at least $12.50 per share for at least thirty consecutive days. The
1997 stock options 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
150,000 additional shares to management. The Corporation granted 90,500 of these
shares in 1999.
(Notes continued on next page)
NOTE 10 - STOCK COMPENSATION PLANS (Continued)
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.
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 1999 and 1997 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:
1999 1998 1997
----------- ----------- ------------
Net income (loss) As reported $ (690,808) $ 3,046,847 $ 1,821,162
Pro forma $ (815,864) $ 3,000,535 $ 1,774,850
Basic earnings per share As reported $ (0.27) $ 1.24 $ .92
Pro forma $ (0.32) $ 1.22 $ .89
Diluted earnings per share As reported $ (0.27) $ 1.13 $ .83
Pro forma $ (0.32) $ 1.11 $ .81
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:
1999 1998 1997
----------- ----------- ------------
Dividend yield 2.35% - -
Expected life 7 years - 5 years
Expected volatility 36% - 29%
Risk-free interest rate 6.25% - 5.75%
(Notes continued on next page)
-20-
NOTE 10 - STOCK COMPENSATION PLANS (Continued)
The following is a summary of the Corporation's stock option activity, and
related information for the years ended December 31:
1999 1998 1997
--------------------------- ---------------------------- --------------------------
Weighted - Weighted - Weighted -
Average Average Average
Exercise Exercize Exercize
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Outstanding -
beginning of
year 339,024 $ 6.16 371,756 $ 5.96 324,756 $ 4.60
Granted 90,500 19.06 - - 47,000 15.75
Exercised 27,733 4.75 32,732 4.43 - -
Forfeited - - - - - -
--------- --------- --------- --------- -------- ---------
Outstanding -
end of year 401,791 9.17 339,024 6.16 371,756 5.96
--------- --------- --------- --------- -------- ---------
Exercisable - end
of year 264,291 $ 4.61 292,024 $ 4.62 324,756 $ 4.60
--------- --------- --------- --------- -------- ---------
Weighted average
fair value of
options granted
during the year $ 7.34 $ - $ 5.81
========= ========= =========
Information pertaining to options outstanding at December 31, 1999 is as
follows:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
$ 3.00 - $ 6.25 264,291 5.1 years $ 4.63 264,291 $ 4.63
$15.75 - $17.37 49,500 7.2 years $ 15.83 - -
$18.50 - $21.75 88,000 9.5 years $ 19.65 - -
------ -----------
Outstanding at
end of year 401,791 6.3 years $ 9.30 264,291 $ 4.63
======= ===========
(Notes continued on next page)
-21-
NOTE 11 - INCOME TAXES
The principal components of the income tax expense (benefit) were as
follows:
December 31,
-------------------------------------------------
1999 1998 1997
----------- ----------- -----------
Federal - current $ (957,512) $ 1,589,996 $ 485,846
Federal - deferred 570,554 937 478,802
----------- ----------- -----------
$ (386,958) $ 1,590,933 $ 964,648
=========== =========== ===========
The differences between expected federal income taxes at statutory rates to
actual income tax expense are summarized as follows:
December 31,
-------------------------------------------------
1999 1998 1997
----------- ----------- -----------
Income tax expense (benefit) computed at
federal statutory rates $ (366,440) $ 1,576,845 $ 947,175
Tax effects of:
Tax-exempt interest (18,716) (9,242) -
Nondeductible merger and
reorganization expenses 5,469 23,060 -
Other (7,271) 270 17,473
----------- ----------- -----------
$ (386,958) $ 1,590,933 $ 964,648
=========== =========== ===========
The Corporation's deferred tax assets and liabilities, included in
liabilities, and their components are as follows:
December 31,
----------------------------
1999 1998
----------- -----------
Deferred tax assets:
Intangible assets $ 127,380 $ 141,800
Bad debts and other provisions 440,175 682,800
Fixed assets 241,565 242,245
Other 13,266 9,200
Deferred compensation 56,840 31,520
Unrealized loss on securities 65,962 -
----------- -----------
Total deferred tax asset 945,183 1,107,565
=========== ===========
Deferred tax liabilities:
Loans 278,140 299,670
Deposits 551,885 594,610
Deferred fees 829,140 426,000
FHLB stock 17,821 17,821
Unrealized gain on securities - 31,871
Other 6,520 3,195
----------- -----------
Total deferred tax liability 1,683,506 1,373,167
----------- -----------
Net deferred tax liability $ (738,323) $ (265,602)
=========== ===========
(Notes continued on next page)
-22-
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 non-cancelable lease
agreements.
Lease
Payments
-------------
2000 $ 1,044,842
2001 895,478
2002 859,947
2003 840,538
2004 598,980
Thereafter 2,385,924
-------------
$ 6,625,709
=============
Total lease expense was $878,234, $801,120 and $392,222 for 1999, 1998 and
1997, 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.
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 1999 is as follows:
Balance, December 31, 1999 $ 1,842,409
Originations - 1999 5,294,127
Repayments - 1999 (1,254,236)
------------
Balance, December 31, 1999 $ 5,882,300
============
In the opinion of management, such loans are made at normal credit terms,
including interest rate and collateral requirements and do not represent more
than normal credit risk.
Commitments to extend credit to related parties amounted to $146,000 at
December 31, 1999. There were no commitments to extend credit and letters of
credit to related parties at December 31, 1998.
Deposits from related parties held by the Bank at December 31, 1999 and
1998 amounted to $4,194,000 and $4,203,000, respectively.
(Notes continued on next page)
- 23 -
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, 1999 and 1998. 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, 1999
Loan commitments $103,368,922 $18,994,524
Standby letters of credit and guarantees written $ 5,553,074 $ -
December 31, 1998
Loan commitments $ 95,358,583 $17,036,278
Standby letters of credit and guarantees written $ 4,033,347 $ -
All of the guarantees outstanding at December 31, 1999 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, 1999.
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).
There are no commitments to extend credit on impaired loans at December 31,
1999.
(Notes continued on next page)
- 24 -
NOTE 14 - CREDIT COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK (Continued)
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,
1999, the Corporation and the Bank meet all capital adequacy requirements to
which it is subject.
As of September 30, 1999, the most recent notification from the Federal
Reserve Bank of Richmond 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.
The Corporation's and the Bank's actual capital amounts and ratios are
presented in the table below. There is no significant difference between the
Bank"s amounts and ratios and those for the Corporation on a consolidated basis
as of December 31, 1998.
(Notes continued on next page)
- 25 -
NOTE 15 - REGULATORY MATTERS (Continued)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- ---------- ---------- ---------- ----------
As of December 31, 1999:
Total Capital (to Risk-
Weighted Assets)
Consolidated $23,947,000 9.24% $ 20,732,000 more than or equal to 8% N/A N/A
Bank $25,921,000 10.05% $ 20,634,000 more than or equal to 8% $25,792,000 more than or equal to 10%
Tier I Capital (to Risk -
Weighted Assets)
Consolidated $21,261,000 8.20% $ 10,366,000 more than or equal to 4% N/A N/A
Bank $23,235,000 9.01% $ 10,315,000 more than or equal to 4% $15,473,000 more than or equal to 6%
Tier I Capital (to Average
Assets)
Consolidated $21,261,000 7.19% $ 11,826,000 more than or equal to 4% N/A N/A
Bank $23,235,000 7.90% $ 11,765,000 more than or equal to 4% $14,706,000 more than or equal to 5%
Amount Ratio Amount Ratio Amount Ratio
-------- -------- ---------- ---------- ---------- ----------
As of December 31, 1998:
Total Capital
(to Risk-Weighted Assets) $19,929,000 10.48% $ 15,209,920 more than or equal to 8% $19,012,400 more than or equal to 10%
Tier I Capital
(to Risk-Weighted Assets) $17,552,000 9.23% $ 7,604,960 more than or equal to 4% $11,407,440 more than or equal to 6%
Tier I Capital
(to Average Assets) $17,552,000 7.52% $ 9,339,320 more than or equal to 4% $11,674,150 more than or equal to 5%
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, 1999 and 1998. 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.
1999 1998
---------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ------------
(Dollars in thousands) (Dollars in thousands)
Financial Assets:
Cash and cash equivalents $ 7,065 $ 7,065 $ 8,481 $ 8,481
Loans, net 252,984 254,755 186,022 191,266
Investment securities 23,195 21,044 9,843 9,871
Funds advanced in settlement of
mortgage loans 11,774 11,774 21,052 21,052
Accrued interest receivable 2,004 2,004 1,602 1,602
(Notes continued on next page)
- 26 -
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Financial Liabilities:
Deposit liabilities 260,469 260,547 206,219 207,756
Short-term borrowings 13,000 13,000 2,000 2,000
Long-term borrowings 14,500 13,764 5,300 5,540
Accrued interest payable 1,241 1,241 652 652
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.
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.
(Notes continued on next page)
- 27 -
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 restated for the two for one stock split in 1998.
1999 1998 1997
----------- ----------- -----------
Net (loss) income (numerator, basic and diluted) $ (690,808) $ 3,046,847 $ 1,821,162
Weighted average shares outstanding (denominator) 2,524,337 2,467,031 1,978,884
----------- ----------- -----------
Earnings per common share-basic $ (.27) $ 1.24 $ .92
=========== =========== ===========
Effect of dilutive securities:
Weighted average shares outstanding 2,524,337 2,467,031 1,978,884
Effect of stock options - 235,940 206,572
----------- ----------- -----------
Diluted average shares outstanding (denominator) 2,524,337 2,702,971 2,185,456
----------- ----------- -----------
Earnings per common share - assuming dilution $ (.27) $ 1.13 $ .83
=========== =========== ===========
The effect of dilutive securities was not used to compute diluted earnings
per share for 1999 because the effect would have been antidilutive.
(Notes continued on next page)
- 28 -
NOTE 18 - BUSINESS COMBINATION
On December 1, 1997, the Bank acquired Eastern American Bank, FSB, in a
business combination accounted for under the purchase method of accounting. In
an exchange of shares, all of the issued and outstanding common and preferred
stock of Eastern American Bank were converted into the right to receive 258,816
shares of Resource Bank common stock, amounting to a purchase price of
$5,048,082. As a result of the combination, the Bank acquired $66,514,000 in
assets (including cash of $12,539,000), $48,082,200 in net loans, and assumed
$52,844,000 in deposit liabilities. The fair value of the assets acquired, net
of liabilities assumed, exceeded the purchase price by $547,000. Accordingly,
this excess was allocated to, and eliminated, certain property and equipment and
other non current assets of the acquired bank. The acquisition did not have a
material effect on the results of operations for the year ended December 31,
1997, as the results of operations only include Eastern American Bank's activity
for the month then ended. In 1998, the former Eastern American Bank's operations
were integrated into Resource Bank.
The following unaudited pro forma financial information for the year ended
December 31, 1997 is presented for informational purposes only. This information
assumes the business combination was consummated on January 1, and is not
necessarily indicative of the combined results of operations which would
actually have occurred had the transaction been consummated on that date or
which may be obtained in the future. This financial information includes the
actual separate operating results of the Bank and Eastern American through
November 30, 1997, the financial impact of all pro forma adjustments, and the
actual combined operating results of the Bank for the period December 1, 1997
through December 31, 1997. Dollars are in thousands, except per share data.
Unaudited Pro Forma
Results of Operations
Year Ended
December 31, 1997
-----------------
Total interest income $ 16,904
Net interest income $ 7,554
Net income $ 1,607
Basic earnings per common share $ .66
Diluted earnings per share $ .61
(Notes continued on next page)
- 29 -
NOTE 19 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
Financial information pertaining only to Resource Bankshares Corporation is as follows:
Balance Sheets
December 31, 1999 1998
================================================================================================
Assets
Cash and due from banks $ 450,218 $ 56,868
Cash on deposit at Resource Bank 1,024,087 248,611
-------------------------------
Total cash and due from banks 1,474,305 305,479
Investment securities available for sale 350,698 -
Due from (to) Resource Bank (71,109) 19,998
Investment in preferred stock of Resource Capital Trust 284,550 -
Investment in preferred stock of Resource Bank 7,350,000 -
Investment in common stock of Resource Bank 15,825,441 17,613,122
Other assets 583,206 -
-------------------------------
Total assets $ 25,797,091 $ 17,938,599
===============================
Liabilities and Stockholders' Equity
Interest payable $ 189,111 $ -
Dividends payable 253,891 149,167
Capital Trust borrowings 9,484,550 -
-------------------------------
9,927,552 149,167
Stockholders' equity 15,869,539 17,789,432
===============================
Total liabilities and stockholders' equity $ 25,797,091 $ 17,938,599
===============================
Statements of Operations
Years Ended December 31, 1999 1998
===============================================================================================
Income
Dividends from Resource Bank $ 1,290,213 $ 924,934
Interest on investments 30,674 162
Management fees 349,800 -
-------------------------------
1,670,687 925,096
===============================
Expenses
Interest expense - Capital Trust borrowings 702,075 -
Other expenses 179,798 -
-------------------------------
881,873 -
===============================
Income before income taxes and equity in
undistributed net income (loss) of Resource Bank 788,814 925,096
Equity in undistributed net income (loss) of
Resource Bank (1,653,106) 2,121,751
-------------------------------
Income (loss) before tax benefit (864,292) 3,046,847
Income tax benefit 173,484 -
-------------------------------
Net income (loss) $ (690,808) $ 3,046,847
================================
(Notes continued on next page)
- 30 -
NOTE 19 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (Continued)
December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------
Statements of Cash Flows
Cash flows from operating activities
Net income (loss) $ (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 1,653,106 (2,121,751)
Increase in other assets (463,889) (19,998)
Increase in accrued expenses 189,111 -
Increase in other liabilities 104,725 149,166
-------------------------------
Net cash provided by operating activities 787,797 1,054,264
-------------------------------
Cash flows from investing activities
Purchases of available-for-sale securities (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 (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 525,548 19,998
Payments to reacquire common stock (556,240) (176,444)
Cash dividends paid on common stock (1,011,429) (592,339)
-------------------------------
Net cash provided (used) for financing activities 8,442,429 (748,785)
-------------------------------
Net increase in cash and cash equivalents 1,168,826 305,479
Cash and cash equivalents at beginning of year 305,479 -
-------------------------------
Cash and cash equivalents at end of year $ 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 are generally restricted to net profits, as
defined, for the current year plus retained net profits for the previous two
years, (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, 1999, the Bank's retained earnings available for the payment of
dividends without prior regulatory approval was $1,604,000, and funds available
for loans or advances amounted to $2,164,500.
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.
(Notes continued on next page)
NOTE 20 - SEGMENT REPORTING
The Corporation has one reportable segments, 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 non-interest income
and non-interest expense, respectively. The segments are reported below for the
years ended December 31.
Selected Financial Information
Mortgage Commercial
Banking and Other
Year Ended December 31, 1999 Operations Banking Total
---------- ------- -------
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
============ ============ ============
Year Ended December 31, 1997
Net interest income after provision for
Loan losses $ - $ 4,798,817 $ 4,798,817
Noninterest income 4,110,868 409,451 4,520,319
Noninterest expense (3,517,157) (3,016,169) (6,533,326)
------------ ------------ ------------
Net income before income taxes $ 593,711 $ 2,192,099 $ 2,785,810
============ ============ ============
(Notes continued on next page)
- 32 -
NOTE 20 - SEGMENT REPORTING (Continued)
Mortgage
Segment Assets Banking Commercial
Operation Banking Total
------------------- --------------------- ---------------------
1999 $ 675,597 $ 306,014,088 $ 306,689,685
$ 514,989 $ 232,945,443 $ 233,460,432
$ 775,396 $ 208,554,622 $ 209,330,018
The Corporation does not have a single external customer from which it
derives 15 percent or more of its revenues.
NOTE 21 - QUARTERLY DATA (UNAUDITED)
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 (charges) 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 (loss) 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)
-----------------------------------------------------------------
Net income (loss) $ 583,341 $(2,651,120) $ 621,378 $ 755,593
=================================================================
Earnings per common share
Basis $ 0.23 $ (1.04) $ 0.24 $ 0.30
=================================================================
Diluted $ 0.23 $ (1.04) $ 0.22 $ 0.27
=================================================================
-33-