UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 1998
RESOURCE BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Virginia Applied For
--------------- ------------- -------------------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of Incorporation)
3720 Virginia Beach Blvd, Virginia Beach, Virginia 23452
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (757) 463-2265
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On June 9, 1998, Resources Bank's shareholders approved an
Agreement and Plan of Reorganization, dated as of April 10, 1998 and related
Plan of Share Exchange (the "Agreement") which provided for the reorganization
of Resource Bank (the "Bank") under a bank holding company structure. Resource
Bankshares Corporation ("Holding Company") was organized to serve as the holding
company for the Bank. On July 1, 1998, the effective date of the Reorganization,
all Resource Bank common stock, $3.00 par value (the "Bank Stock") was converted
to the common stock, $1.50 par value, of Resource Bankshares (the " Holding
Company Common Stock") on a two share for one share exchange basis, making the
Bank a wholly owned subsidiary of the Holding Company (the "Reorganization"). In
order to effect the Reorganization, the Holding Company issued approximately
2,453,380 shares of common stock.
The Holding Company did not engage in any business activity
prior to the effective date of the reorganization, and its only significant
asset at the present time is its investment in the Bank. The operations of the
Bank will continue in substantially the same manner as conducted by the Bank
immediately prior to the reorganization.
The management of the Bank did not change as a result of the
reorganization and the individuals elected to serve as directors of the Holding
Company served and currently serve as directors of the Bank.
The Bank Stock was previously registered under ss. 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the
Board of Governors of the Federal Reserve System. Pursuant to Rule 12g-3
promulgated under the Exchange Act, the Holding Company Common Stock is deemed
automatically registered under the Exchange Act. In addition, the Holding
Company Common Stock has been substituted for the Bank Stock on the NASDAQ
National Market System under the symbol "RBKV."
Item 7. Financial Statements and Exhibits
The following exhibits are filed as a part of this report:
Exhibit No. Item
----------- ----
2 Agreement and Plan of Reorganization, dated April 10, 1998
(included as Exhibit A to the Proxy Statement of Resource
Bank).
3.1 Amended and Restated Articles of Incorporation for Resource
Bankshares Corporation.
3.2 Bylaws for Resource Bankshares Corporation.
23.1 Consent of Goodman & Company, L.L.P.
99.1 Resource Bank's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997,
as filed with the FRB.
99.2 Resource Bank's Quarterly Report on Form
10-QSB for the three month period ended
March 31, 1998, as filed with the FRB.
99.3 Proxy Statement relating to the 1998 Annual Meeting of
Shareholders of Resource Bank.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Resource Bankshares Corporation
Date: July 1, 1998 By: /s/ Lawrence N. Smith
---------------------------
Lawrence N. Smith
President and
Chief Executive Officer
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
RESOURCE BANKSHARES CORPORATION
ARTICLE I
NAME
The name of the Corporation is:
Resource Bankshares Corporation
ARTICLE II
PURPOSE
The purpose for which the Corporation is organized is to act as a bank
holding company and to transact any and all lawful business, not required to be
specifically stated in the Articles of Incorporation, for which corporations may
be incorporated under the Virginia Stock Corporation Act (the "VSCA").
ARTICLE III
CAPITAL STOCK
(a) The Corporation shall have the authority to issue 6,666,666 shares
of Common Stock, par value $1.50 per share, and 500,000 shares of Preferred
Stock, par value $10.00 per share.
(b) The Board of Directors may determine the preferences, limitations
and relative rights, to the extent permitted by the VSCA, of any class of shares
of Preferred Stock before the issuance of any shares of that class, or of one or
more series within a class before the issuance of any shares of that series.
Each class or series shall be appropriately designated by a distinguishing
designation prior to the issuance of any share thereof. The Preferred Stock of
all series shall have the preferences, limitations and relative rights identical
with those of other shares of the same series and, except to the extent
otherwise provided in the description of the series, with those of shares of
other series in the same class. Dividends on outstanding shares of Preferred
Stock shall be paid or declared and set apart for payment before any dividends
shall be paid or declared and set apart for payment on outstanding shares of
Common Stock with respect to the same dividend period. If upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
assets available for distribution to holders of shares of Preferred Stock of all
series shall be insufficient to pay such holders the full preferential amount to
which they are entitled, then such assets shall be distributed ratably among the
shares of all series of Preferred Stock in accordance with the respective
preferential amounts (including unpaid cumulative dividends, if any) payable
with respect thereto.
ARTICLE IV
NO PREEMPTIVE RIGHTS
No holder of any shares of any class of the Corporation shall have any
preemptive or preferential right to purchase or subscribe to (i) any shares of
any class of the Corporation whether now or hereafter authorized; (ii) any
warrants, rights or options to purchase any shares; or (iii) any securities or
obligations convertible into any such shares or into warrants, rights or options
to purchase such shares.
ARTICLE V
LIMIT ON LIABILITY AND INDEMNIFICATION
(a) To the full extent that the VSCA, as it exists on the date hereof
or may hereafter be amended, permits the limitation or elimination of the
liability of directors or officers, a director or officer of the Corporation
shall not be liable to the Corporation or its shareholders for monetary damages.
(b) To the full extent permitted and in the manner prescribed by the
VSCA and any other applicable law, the Corporation shall indemnify a director or
officer of the Corporation who is or was a party to any proceeding by reason of
the fact that he is or was such a director or officer or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise.
(c) Reference herein to directors, officers, employees or agents shall
include former directors, officers, employees and agents and their respective
heirs, executors and administrators.
ARTICLE VI
SHAREHOLDER APPROVAL OF CERTAIN TRANSACTIONS
Unless the Board of Directors conditions its submission of a proposed
extraordinary corporate event (as defined below) on receipt of a greater vote,
any extraordinary corporate event that requires shareholder approval under the
VSCA shall be approved by not less than a majority of the votes entitled to be
cast on the proposed extraordinary corporate event by each class or series of
stock entitled to vote on such extraordinary corporate event at a meeting at
which a quorum of each such class or series exists. For purposes of this Article
VI, "extraordinary corporate event" means (i) any amendment to these Articles of
Incorporation that requires shareholder approval under ss. 13.1-707 of the VSCA,
(ii) any merger pursuant to ss. 13.1-716 of the VSCA, (iii) any statutory share
exchange pursuant to ss. 13.1-717 of the VSCA, (iv) any sale of all or
substantially all of the assets of the Corporation pursuant to ss. 13.1-724 of
the VSCA or (v) any dissolution of the Corporation pursuant to ss. 13.1-742 of
the VSCA, or any such extraordinary corporate event under any successor statutes
to any of the foregoing. The provisions of this Article VI shall not be deemed
to affect any shareholder vote required by Article 14 of the VSCA.
EXHIBIT 3.2
BY-LAWS
OF
RESOURCE BANKSHARES CORPORATION
ARTICLE I - OFFICES
The office of the Corporation shall be located in the City of Virginia Beach.
The Corporation may also maintain offices at such other places within the United
States as the Board of Directors may, from time to time, determine.
ARTICLE II - MEETING OF THE SHAREHOLDERS
Section 1 - Annual Meeting:
The annual meeting of the shareholders of the Corporation should be held on the
fourth Thursday in April of each year for the purpose of electing directors, and
transacting such other business as may properly come before the meeting.
Section 2 - Special Meetings:
Special meetings of the shareholders may be called at any time by the Chairman,
or the Secretary at the written request of the holders of twenty five percent
(25%) of the shares then outstanding and entitled to vote thereat, or as
otherwise required under the provisions of the Laws of the Commonwealth of
Virginia.
Section 3 - Place of Meetings:
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
Section 4 - Notice of Meetings:
(a) Written notice of each meeting of shareholders, whether annual or
special, stating the time when and place where it is to be held, shall be served
either personally or by mail, not less than ten or more than fifty days before
the meeting, upon each shareholder of record entitled to vote at such meeting,
and to any other shareholder to whom the giving of notice may be required by
law. Notice of a special meeting shall also state the purpose or purposes for
which the meeting is called, and shall indicate that it is being issued by, or
at the direction of, the person or persons calling the meeting. If, at any
meeting, action is proposed to be taken that would, if taken, entitle
shareholders to receive payment for their shares, the notice of such meeting
shall include a statement of that purpose and to that effect. If mailed, such
notice shall be directed to each such shareholder at his address, as it appears
on the records of the shareholders of the Corporation, unless he shall have
previously filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to some other address, in which case, it
shall be mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Quorum:
(a) Except as otherwise provided herein, or by statute, or in the Articles
of Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Articles of Incorporation"), at all meetings of
shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record fifty one
percent (51%) of the total number of shares of the Corporation then issued and
outstanding and entitled to vote, shall be necessary and sufficient to
constitute a quorum for the transaction of any business. The withdrawal of any
shareholder after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called if a quorum
had been present.
Section 6 - Voting:
(a) Except as otherwise provided by statute or by the Articles of
Incorporation, any corporate action, other than the election of directors to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Articles of
Incorporation, at each meeting of shareholders, each holder of record of shares
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent
without a meeting, may do so by proxy; provided, however, that the instrument
authorizing such proxy to act shall have been executed in writing by the
shareholder himself, or by his attorney-in-fact thereunto duly authorized in
writing. No proxy shall be valid after the expiration of eleven months from the
date of its execution, unless the persons executing it shall have specified
therein the length of time it is to continue in force. Such instrument shall be
exhibited to the Secretary at the meeting and shall be filed with the records of
the Corporation.
(d) Any resolution in writing, signed by all of the shareholders entitled
to vote thereon, shall be and constitute action by such shareholders to the
effect therein expressed, with the same force and effect as if the same had been
duly passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number, Election and Term of Office:
(a) The number of the directors of the Corporation shall be no more than
fifteen (15), unless and until otherwise determined by vote of three-fourths
(3/4) of the entire Board of Directors. The number of Directors shall not be
less than five (5), unless all of the outstanding shares are owned beneficially
and of record by less than three shareholders, in which event the number of
directors shall not be less than the number of shareholders.
(b) Except as may otherwise be provided herein or in the Articles of
Incorporation, the members of the Board of Directors of the Corporation who must
meet the minimum ownership requirements by the Commonwealth of Virginia, shall
be elected by a majority of the votes cast at a meeting of shareholders, by the
holders of shares entitled to vote in the election.
(c) Each director shall hold office until the annual meeting of the
shareholders next succeeding the term of his expiration, and until his successor
is elected and qualified, or until his prior death, resignation or removal. The
terms of the directors shall be staggered in a manner that will provide for five
directors being elected each year for a three year term. The initial directors
shall be elected for staggered terms with five (5) each having terms of three
(3) years; two (2) years; and one (1) year.
Section 2 - Duties and Powers:
The board of directors of every bank is charged with absolute responsibility for
directing the bank's affairs. In doing so, however, the board is not expected to
involve itself in actual, direct supervision of the daily routine operation of
the bank, which is the function and responsibility of management. "Directing"
means providing the bank's operating management with a clear and concise set of
guidelines and policies which will serve as the framework within which the
bank's affairs should be conducted, limited, or controlled. But it means more
- -- it also means that the board needs to establish a mechanism for overseeing
the performance of management in such a way as to ensure that policies and
guidelines are being executed effectively. Such guidelines and policies should
cover all major functions, including (but not necessarily limited to) market
strategy, management of resources, lending, investments, personnel, and
conflicts of interest.
In addition, policies and guidelines should be reviewed periodically for
effectiveness and possible revisions or updating. They should be reaffirmed at
least annually and that action noted in the board's minutes.
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Articles of Incorporation or by
statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be held
immediately following the annual meeting of the shareholders, at the place of
such annual meeting of shareholders and at least once a month thereafter.
(b) The Board of Directors, from time to time, may provide by resolution
for the holding of other regular meetings of the Board of Directors, and may fix
the time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting,
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meting at which such action
was taken within the time limited, and in the manner set forth in paragraph (b)
of Section 4 of this Article III, with respect to special meetings, unless such
notice shall be waived in the manner set forth in paragraph (c) of such Section
4.
Section 4 - Special Meetings; Notice:
(a) Special Meetings of the Board of Directors shall be held whenever
called by the Chairman or at the request of two-thirds (2/3) of the Board of
Directors, at such time and place may be specified in the respective notices or
waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at his residence or usual place of business, at least two (2)
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegram, radio or cable, or shall be delivered to him
personally or given to him orally, not later than the day before the day on
which the meeting is to be held.
A notice, or waiver of notice, except as required by Section 8 of this Article
III, need not specify the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
At all meetings of the Board of Directors, the Chairman of the Board shall
preside. In his absence, the Vice Chairman shall preside; in his absence, the
Secretary shall preside.
Section 6 - Rules of Order:
All meetings of the shareholders and Board of Directors, whether regular or
special, shall be conducted in pursuance to the requirement of Roberts Rules of
Order.
Section 7 - Quorum and Adjournments:
(a) At all meetings of the Board of Directors, the presence of two-thirds
(2/3) of the entire Board shall be necessary and sufficient to constitute a
quorum for the transaction of business, except as otherwise provided by law, by
the Articles of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any
regular or special meeting, although less than a quorum, may adjourn the same
from time to time without notice, until a quorum shall be present.
Section 8 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director present shall
have one vote, irrespective of the number of shares of stock which he may hold.
No voting by proxy will be allowed at Board or Committee meetings.
(b) Except as otherwise provided by statute, by the Articles of
Incorporation, or by these By-Laws, the action of a majority of the directors
present at any meeting which a quorum is present shall be the act of the Board
of Directors.
Any action authorized, in writing, by all of the directors entitled to vote
thereon and filed with the minutes of the corporation shall be the act of the
Board of Directors with the same force and effect as if the same had been passed
by unanimous vote at a duly called meeting of the Board.
(c) There are several actions that shall necessitate a vote of two-thirds
(2/3) of the members of the Board of Directors. These actions shall include:
1) Amendments to Bylaws
2) Acquisition or Merger Actions
3) Authorization to Construct a New Building
4) Capital Expenditures greater than $100,000
5) Removal of a Director from the Board
6) Removal of the President or Executive Vice President from
their respective positions
7) Adoption of an Annual Budget
8) Contracts with a value of over $50,000
9) Any contracts or Loans with a Director or Officer
Section 9 - Vacancies:
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 10 - Resignation:
Any director may resign at any time by giving written notice to the Board of
Directors, the Chairman or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
Section 11 - Removal:
Any director may be removed with or without cause at any time by the
shareholders, at a special meeting of the shareholders called for that purpose,
and may be removed for the cause by action of the Board within the guidelines
provided in Section 8 (c).
Section 12 - Salary:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board or committee meetings; provided, however, that nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 13 - Contracts:
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be
counted in determining the presence of a quorum at such meeting. This Section
shall not be construed to impair or invalidate or in any way affect any contract
or other transaction which would otherwise be valid under the law (common,
statutory or otherwise) applicable thereto.
Section 14 - Committees:
The Chairman of the Board may from time to time designate from among its members
an executive committee and such other committees, and alternate members thereof,
as the Chairman may deem desirable, each committee consisting of three or more
members, with such powers and authority (to the extent permitted by law) as may
be provided in such designation. Each committee shall serve at the pleasure of
the Chairman. The Chairman shall also appoint each Committee Chairman to
preside over the activities of that particular committee.
Section 15 - Indemnification of Directors and Officers:
A. To the full extent that the Virginia Stock Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of directors or officers, a Director or officer of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages. Any amendment to or repeal of this Section 5 shall not
adversely affect any right or protection of a Director or officer of the
Corporation for or with respect to any acts or omissions of such Director or
officer occurring prior to such amendment or repeal.
B. To the full extent permitted and in the manner prescribed by the
Virginia Stock Corporation Act and any other applicable law, the Corporation
shall indemnify a Director or officer of the Corporation who is or was a party
to any proceeding by reason of the fact that he is or was such a Director or
officer or is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise. The Board of Directors is
hereby empowered, by majority vote of a quorum of disinterested Directors, to
contract in advance to indemnify any Director or officer.
C. The Board of Directors is hereby empowered, by majority vote of a
quorum of disinterested Directors, to cause the Corporation to indemnify or
contract in advance to indemnify any person not specified in Section B of this
Section who was or is a party to any proceeding, by reason of the fact that he
is or was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, other enterprise, to the same extent as if such person were
specified as one to whom indemnification is granted in Section B.
D. The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Section and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred by such person in
any such capacity arising from his status as such, whether or not the
Corporation would have power to indemnify him against such liability under the
provisions of this Section.
E. In the event there has been a change in the composition of a majority
of the Board of Directors after the date of the alleged act or omission with
respect to which indemnification is claimed, any determination as to the
indemnification and advancement of expenses with respect to any claim for
indemnification made pursuant to Section A of this Article 5 shall be made by
special legal counsel agreed upon by the Board of Directors and the proposed
indemnitee are unable to agree upon such special legal counsel, the Board of
Directors and the proposed indemnitee each shall select a nominee, and the
nominees shall select such special legal counsel.
F. The provisions of this Article 5 shall be applicable to all actions,
claims, suits or proceedings commenced after the adoption hereof, whether
arising from any action taken or failure to act before or after such adoption.
No amendment, modification or repeal of this Article shall diminish the rights
provided hereby or diminish the right to indemnification with respect to any
claim, issue or matter in any then pending or subsequent proceeding that is
based in any material respect on any alleged action or failure to act prior to
such amendment, modification or repeal.
G. Reference herein to Directors, officers, employees or agents shall
include former Directors, officers, employees and agents and their respective
heirs, executors and administrators.
ARTICLE IV - OFFICERS
Section 1 Number, Qualifications, Election and Term of Office:
(a) The officers of the Corporation shall consist of a President, a
Secretary, a Treasurer, and such other officers, including a Chairman of the
Board of Directors, Vice Chairman, and one or more Vice Presidents or other
officers, as the Board of Directors may from time to time deem advisable. Any
officer other than the Chairman of the Board of Directors may be, but is not
required to be, a director of the Corporation. Any two or more offices may be
held by the same person, except the offices of the President and Secretary.
(b) The officers of the Corporation shall be elected by the Board of
Directors at the regular annual meeting of the Board following the annual
meeting of shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such
resignation shall take effect upon receipt thereof by the Board of Directors or
by such officer, and the acceptance of such resignation shall not be necessary
to make it effective.
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by the Board at any time except as otherwise provided for by specific
contract.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-Laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive office of
the Corporation.
Section 6 - Shares of Other Corporations:
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the Chairman or such other person as the Chairman may authorize.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock:
(a) The certificates representing shares of the Corporation shall be in
such form as shall be adopted by the Board of Directors, and shall be numbered
and registered in the order issued. They shall bear the holder's name and the
number of shares, and shall be signed by (i) the Chairman of the Board, and (ii)
the Secretary, or any Assistant Secretary, and may bear the corporate seal.
(b) No certificate representing shares shall be issued until the full
amount of consideration therefor has been paid, except as otherwise permitted by
law.
Section 2 - Lost or Destroyed Certificates:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction as the Board of
Directors in its discretion may require; the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
Section 3 - Transfers of Shares:
(a) Transfers of shares of the Corporation shall be made on the share
records of the Corporation only by the holder of record thereof, in person or by
his duly authorized attorney, upon surrender for cancellation of the certificate
or certificates representing such shares, with an assignment or power of
transfer endorsed thereon or delivered therewith duly executed, with such proof
of the authenticity of the signature and of authority to transfer and of payment
of transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, not less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
ARTICLE VI - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine and within the guidelines and constraints set
up by appropriate regulatory bodies.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be January 1 - December 31, subject to
applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by a two-thirds (2/3) vote of shareholders at the time
entitled to vote in the election of directors.
Section 2 - By Directors:
The Board of Directors, by a majority vote of two-thirds (2/3), shall have power
to make, adopt, alter, amend and repeal, from time to time, by-laws of the
Corporation; provided, however, that the shareholders entitled to vote with
respect thereto as in this Article IX above-provided may alter, amend or repeal
by-laws made by the Board of Directors, except that the Board of Directors shall
have no power to change the quorum for meetings of shareholders or of the Board
of Directors, or to change any provisions of the by-laws with respect to the
removal of directors or the filling of vacancies in the Board resulting from the
removal by the shareholders. If any by-laws regulating an impending election of
directors is adopted, amended or repealed by the Board of Directors, there shall
be set forth in the notice of the next meeting of shareholders for the election
of directors, the by-law so adopted, amended or repealed, together with a
concise statement of the changes made.
The undersigned certify the foregoing by-laws have been adopted as the
first by-laws of the Corporation, in accordance with the requirements of the
Commonwealth of Virginia.
Dated:_____________________________________
EXHIBIT 23.1
[Letterhead of Goodman & Company, L.L.P.]
July 1, 1998
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in this
Registration Statement of Resource Bankshares Corporation on Form 8-K of our
report dated January 30, 1998 (except for Note 19, as to which the date is March
16, 1998) incorporated by reference in Resource Bank's 1997 Annual Report on
Form 10-KSB and appearing in Resource Bank's 1997 Annual Report to Shareholders.
/s/ Goodman & Company, L.L.P.
Norfolk, Virginia
July 1, 1998
Board of Governors of the
Federal Reserve System
Washington, D. C. 20551
FORM 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1943 [No Fee Required]
For the fiscal year ended December 31, 1997
Commission file number Not Applicable
RESOURCE BANK
(Name of small business issuer in its charter)
Virginia 54-1414459
(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
3720 Va. Beach Blvd. Va. Beach, VA. 23452
Address of principal executive offices) (Zip Code)
Issuer's telephone number (757) 463-2265
Securities registered under Section 12(b) of the Exchange Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, Par Value $3.00 per share
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. _X_ Yes __ No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $15,457,814
As of March 5, 1998, the aggregate market value of common stock held by
non-affiliates was $26,951,175. This figure is based on the sales price for a
share of Resource Bank Common Stock which was $37.50 on March 5, 1998. As of
March 5, 1998, the issuer had 1,226,690 shares of common stock, par value $3.00
per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1998 Annual Meeting of Shareholders to
be held during the second quarter 1998, are incorporated by reference into this
Form 10-KSB.
<PAGE>
PART I
In addition to historical information, the following discussion contains
forward looking statements that are subject to risks and uncertainties that
could cause the Bank's actual results to differ materially from those
anticipated. These forward looking statements include, but are not limited to,
the affect of increasing interest rates on the Bank's profitability, and the
adequacy of the Bank's allowance for future loan losses. Several factors,
including the local and national economy, the demand for residential mortgage
loans, the adequacy of the Bank's Year 2000 compliance, and the Bank's ability
to integrate the operations of Eastern American Bank may adversely affect the
Bank'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.
Item 1. Description of Business
General
Resource Bank (the "Bank") is a Virginia state-chartered commercial bank
headquartered in Virginia Beach, Virginia. The Bank was organized in April 1987
and commenced operations on September 1, 1988. Since January 1, 1993, when the
current management team began operating the Bank, the Banks assets, deposits and
net income have grown from $24,257,200, $19,882,300 and a 1992 net loss of
$350,700 to $209,330,000, $169,508,300 and a profit of $1,821,200, respectively,
at December 31, 1997.
March 24, 1998, the Bank announced a proposal to form a holding company,
Resource Bankshares Corporation. This proposal will be presented for approval at
the 1998 Annual Meeting of Shareholders.
The Bank operates full service banking offices in Virginia Beach, Reston and
Herndon, Virginia. Prior to December 1997, the Bank operated only one banking
office in Virginia Beach, Virginia. On December 1, 1997, Eastern American Bank
FSB, ("Eastern American") a federal savings bank, was merged into Resource Bank.
As a result of the merger, Resource added two full service branches, one in
Herndon and one in Reston, Virginia, and an administrative office in Herndon,
Virginia. The Reston and Herndon branches are operated as "Eastern American
Bank, a division of Resource Bank".
The Bank's mortgage department originates residential 1 to 4 family unit
mortgage loans and sells them to investors in the national secondary market.
With the continued decline in interest rates during 1997, the mortgage
department's loan demand increased. During 1997, the Bank originated and sold
loans aggregating $296 million. The Bank originates mortgages from its existing
banking offices and two offices in the Richmond, Virginia metropolitan area, one
office in the Colonial Heights, Virginia area, one office in the Northern
Virginia area, one office in the Chesapeake, Virginia area, and one office in
Hilton Head, South Carolina. The Bank also originates loans through- out the
Southwestern United States through its wholesale operations. The Bank operates a
closing and shipping office in Virginia Beach, Virginia.
<PAGE>
The Bank services customers throughout the State of Virginia, providing
banking services primarily to individuals and businesses located in the South
Hampton Roads area (which includes the cities of Virginia Beach, Norfolk,
Chesapeake, Portsmouth and Suffolk), with significant concentration in Virginia
Beach, and the market area geographically defined as Fairfax County, Virginia.
Through the Bank's mortgage department, the Bank services residents in these
areas as well as metropolitan Richmond, Colonial Heights, Virginia, Hilton Head,
South Carolina and portions of the Southwestern United States. The South Hampton
Roads economy is generally balanced, with a strong base in tourism, military,
industry, agriculture, construction, real estate, conventions, retail and
wholesale businesses. The work force in Fairfax County is well educated and has
one of the highest per capita incomes in the State of Virginia. The Fairfax
County market has been one of the fastest growing economic areas in the United
States in the past 10 years.
The Bank markets its services to consumers, small to medium-sized businesses
and professional people. The Bank provides a range of services traditionally
associated with independent community banks, with an emphasis on personal
relationship banking. These services include checking and savings accounts,
certificates of deposit and charge cards. The Bank also offers services
typically associated with large banks and bank holding companies. These services
include sweep account capacity, automatic reconcilement, and corporate credit
cards.
The Bank performs a broad range of lending and deposit services to individual
and commercial customers. Loan activity includes commercial and personal loans,
lines of credit, installment loans, home improvement loans, overdraft protection
and construction loans. The Bank offers other related services such as safe
deposit boxes, tax deposits, travelers' checks, wire transfers and savings
bonds.
Management emphasizes service to commercial and corporate accounts. The
marketing and operating strategy targets commercial accounts of firms with net
worth in excess of $250,000, operating profits for the past five years, and
experienced management. The Bank emphasizes its ability and willingness to
extend credit to creditworthy commercial and corporate accounts up to the Bank's
legal lending limit, which was $2,300,000 at December 31, 1997.
Management expanded the Bank's deposit base by encouraging non-borrowing
corporate customers to place deposits in the Bank. In particular, the management
team seeks corporate relationships with those companies having little to no
borrowing needs, but excess cash to invest in short term bank investments to
strengthen the Bank's deposit base. The Bank strives for the lowest deposit
costs at all times. The Bank does not use brokers to develop deposits. The Bank
does receive deposits in the national market, primarily from other financial
institutions, which may require payment of slightly higher interest rates, but
the operating costs of servicing national depositors are significantly lower
than the operating costs of servicing local deposits. The Bank does not
generally accept more than $100,000 from an out-of-area depositor, and attempts
to stagger the maturity of such out-of-area depositors from 90 days to one year
for purposes of matching the maturity of these deposits with the Bank's loan
portfolio.
<PAGE>
In addition to its membership in the Federal Reserve System, the Bank is a
member of the Federal Home Loan Bank System. The Federal Home Loan Bank
membership allows the Bank to obtain longer term advances against certain Bank
assets as a more stable source of funds. The Bank also has a working capital
line of credit to finance mortgage loans.
Competition
The banking industry in highly competitive and significant changes continue
to occur. The bank competes actively with national and state banks, savings and
loan associations, securities dealers, mortgage bankers, finance companies and
insurance companies. Additional competition for depositors' funds comes from
issuers and suppliers of U.S. Government securities, private debt obligations
and other investment alternatives for depositors. Many of the Bank's non-bank
competitors are not subject to the same extensive federal and state regulations,
that govern federally insured and state chartered banks. As a result, such
non-bank competitors may have certain advantages over the Bank in providing
certain services. Competition continues to grow as customers select from a
variety of traditional and nontraditional financial institutions. As the
industry consolidates, competition changes as some regional and local
institutions are absorbed, while at the same time creating a growing number of
financial institutions with multi-regional operations.
In South Hampton Roads, the Bank's competition includes 13 commercial banking
organizations, 4 savings banks and 3 major credit unions. In Fairfax County, the
Bank competes with approximately 27 commercial banking organizations, 8 savings
banks and 35 credit unions ranging from the small to the major institutions.
Most of the Bank's competitors have substantially greater resources than the
Bank, which enables the competitors to maintain numerous banking locations and
mount extensive promotional and advertising campaigns. In many instances, these
institutions perform services for the customers, such as trust services, which
the Bank does not offer. Further, these competitors may have greater loan
capacities and, what would be a large loan for the Bank (i.e., $500,000 to
$2,000,000) could be a relatively small loan for many of its competitors.
Competition among financial institutions includes competition with respect to
interest rates offered on deposit accounts, interest rates charged on loans and
other credit and service charges, the quality of services rendered, the
convenience of banking facilities and, in the case of loans to large commercial
borrowers, relative lending limits. There is also significant competition among
lenders with respect to secured versus unsecured or less secured loans. There
will always be competitive pressures on the Bank to meet similar terms and
conditions of its larger competitors.
<PAGE>
In addition, the Bank also competes with other financial institutions such as
savings and loan associations, finance companies, credit unions, industrial loan
associations, small loan companies, money market funds, stock brokerage firms,
insurance companies, mortgage companies and others involved in obtaining funds
and making loans. Additional competition for depositor's funds comes from
issuers and suppliers of U.S. Government securities, private debt obligations
and other investment alternatives for depositors. Many of the Bank's non-bank
competitors are not subject to the same extensive federal and state regulations,
which govern federally insured and state chartered banks. As a result, such
non-bank competitors may have certain advantages over the Bank in providing
certain services.
The Bank's market of the South Hampton Roads area, covers the Norfolk-Virginia
Beach-Newport News Metropolitan Statistical Area ("MSA"), with a population of
1.5 million people - enough to rank the region 27th among metropolitan
statistical areas in the United States. This area, which covers both the north
and south sides of the James River at the mouth of the Chesapeake Bay, contains
the two largest Virginia cities in terms of population - Virginia Beach and
Norfolk, with populations in 1996 of 420,000 and 232,000, respectively. In
addition, this area contains the cities of Hampton, Newport News, Chesapeake and
Portsmouth, each with populations over 100,000, and the City of Suffolk with a
population of 58,000 in 1996. The economy of this area is largely influenced by
major United States military installations and extensive port activity. Ship
building and ship repair, a diversified industrial base and tourism also
contribute significantly to the local economy.
The Bank's market of Fairfax County, Virginia, covers an area of
approximately 420 square miles, bordered by the Potomac River on its east and
north sides, and Arlington, Alexandria, Prince William and Loudoun counties to
the south and west, with a population of over 915,000 people (it would rank as
the eleventh largest city in the nation). The County's median annual household
income in 1995 was $70,000, with more than 56 percent of its adult population
holding college degrees. There are more than 425,000 people employed in the
County, with technology and service industries, as well as government workers
comprising a significant percentage of these jobs. Fairfax County is home to
four Fortune 500 companies, with more than 78 million square feet of office
space in total (more than Atlanta, Boston, Dallas, Detroit, or Seattle, among
others). Over 25,000 businesses are located in the County, 75 percent of which
employ 10 or fewer persons.
Employees
The Bank has 119 full-time and 10 part-time employees. Of these employees,
60 are associated with the mortgage department.
<PAGE>
Regulatory Matters
Resource Bank is subject to Commonwealth of Virginia and Federal banking
laws and regulations which impose specific requirements or restrictions and
provide for general regulatory oversight with respect to virtually all aspects
of operations, including, but not limited to, maintenance of cash reserves,
loans, mortgages, maintenance of minimum capital, payment of dividends, and
establishment of branch offices.
As a state-chartered bank and a member of the Federal Reserve System, the
Bank is supervised and regularly examined by the Federal Reserve Bank (the
"Federal Reserve") and the Bureau of Financial Institutions of the Commonwealth
of Virginia.
Deposit Insurance
The deposits of the Bank are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to the limits set forth under applicable law. The
majority of the Bank's deposits are subject to the deposit assessments of the
Bank Insurance Fund ("BIF") of the FDIC. A portion of the deposits of the Bank
(those acquired as a result of the merger with Eastern American) are subject to
assessments imposed the Savings Association Insurance Funds ("SAIF") of the
FDIC.
Effective January 1, 1997, the FDIC equalized the assessment rates for BIF
and SAIF insured deposits and the semi-annual assessments for FDIC deposits have
a range of .0% to .27% basis points per $100 of insured deposits, depending on
the Bank's capital position and other supervisory factors. The Deposit Insurance
Funds Act of 1996 (the "Funds Act") was enacted September 30, 1996. This
legislation requires that both SAIF and BIF insured deposits pay a pro rata
portion of the interest due on the obligations issued by the Financing
Corporation ("FICO"). The FDIC is currently assessing BIF insured deposits an
additional 1.244 basis points per $100 of deposits and SAIF insured deposits an
additional 6.22 basis points per $100 of deposits.
Regulations
On October 1, 1996, the banking agencies issued new guidelines amending the
Interagency Guidelines Establishing Standards for Safety and Soundness (the
"Guidelines") to include asset quality and earnings standards. The Guidelines
were adopted pursuant to the requirements of Section 39 of the Federal Deposit
Insurance Act. The Guidelines require financial institutions to identify problem
assets and estimate inherent losses. In order to comply with these Guidelines a
financial institution shall: (1) consider the size and potential risks of
material concentrations of credit risk; (2) compare the level of problem assets
to the level of capital and establish reserves sufficient to absorb anticipated
losses on those and other assets; (3) take appropriate corrective action to
resolve problem assets, as appropriate; and (4) provide periodic asset quality
reports to the board of directors to assess the level of asset risk. The
earnings standards specified by the Guidelines require an institution to compare
its earnings trends (relative to equity, assets, and other common benchmarks)
with its historical experience and with the earnings trends of its peers. The
Guidelines, relative to the earnings standards, require the institution to: (1)
evaluate the adequacy of earnings with regard to the institution's relative size
and complexity, and the risk profile of the institution's assets and operations;
<PAGE>
(2) assess the source, volatility, and sustainability of earnings; (3) evaluate
the effect of nonrecurring or extraordinary income or expense; (4) take steps to
ensure that earnings are sufficient to maintain adequate capital and reserves
after considering asset quality and the institution's rate of growth; and (5)
provide periodic reports with adequate information for management and the board
of directors to assess earnings performance. The Guidelines note that the
complexity and sophistication of an institution's monitoring, reporting systems,
and corrective actions should be commensurate with the size, nature and scope of
the institution's operations. The Bank does not believe that these Guidelines
will materially affect its operations or financial condition.
On December 20, 1996 the FDIC Board of Directors adopted the FFIEC's updated
statement of policy entitled Uniform Financial Institutions Rating System
("UFIRS"). The updated UFIRS replaces the previous rating system and is
effective January 1, 1997. Under the existing UFIRS, each financial institution
is assigned a composite rating based on an evaluation and rating of five
essential components of an institution's financial condition and operations. The
five component areas are Capital adequacy, Asset quality, Management, Earnings
and Liquidity ("CAMEL"). The updated UFIRS includes the addition of a sixth
component for Sensitivity to market risk ("CAMELS"). The new sixth component
addresses the degree to which changes in interest rates, foreign exchange rates,
commodity prices or equity prices can adversely affect a financial institution's
earnings or capital. The new component focuses on an institution's ability to
monitor and manage its market risk, and will provide an institution's management
with a clearer and more focused indication of supervisory concerns in this area.
The Bank does not believe that this statement of policy will materially affect
its operations.
Item 2. Description of Properties
The Bank leases facilities in which to operate all of its banking and mortgage
origination offices. The leases covering the Bank's banking offices are all long
term leases with extensive renewal provisions assuring the Bank that it may
continue to operate in the facilities for the foreseeable future. In December
1997, the Bank purchased a four acre lot in Herndon, Virginia, for $1.725
million, on which it plans to construct a Northern Virginia regional office. The
building, which is anticipated to be completed in 1999, will contain both the
Bank's administration and branch offices that are currently located in Herndon.
For discussion of the Bank's leases, see Note 12 to the Bank's 1997 financial
statements.
<PAGE>
Item 3. Legal Proceedings
The Bank is a party to various lawsuits arising in the ordinary course of
business. Management, however, does not believe that the outcome of these
lawsuits, individually or in the aggregate, will have a material adverse effect
on its business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of shareholders during the fourth
quarter of 1997.
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters
The Bank's Common Stock is listed on the NASDAQ National Market System
("NASDAQ/NM") under the symbol "RBKV". The high and low closing sales prices of
the Bank's Common Stock on the NASDAQ/NM from April 12, 1996 (the date the stock
was listed on NASDAQ/NM) and December 31, 1997, are set forth in the following
table. From January 1, 1996, through April 11, 1996, the Bank's Common Stock was
quoted on the NNOTC Bulletin Board, sponsored and operated by the National
Association of Securities Dealers, an inter-dealer quotation system for equity
securities not listed on the NASDAQ Stock market. The high and low closing bid
prices during this period are also set forth in the following table. The
quotations reflect interdealer prices, without retail mark up, mark down or
commission, and may not represent actual transactions.
Cash
Closing Sales Price Dividends
HIGH LOW Paid
NASDAQ/NM
1997
Fourth Quarter $45.00 $27.50
Third Quarter 29.00 23.50 $.25
Second Quarter 26.00 18.50
First Quarter 20.50 18.00
1996
Fourth Quarter $18.75 $13.50
Third Quarter 13.50 11.75 $.10
Second Quarter(beginning April 12, 1996) 13.75 12.00
Closing Bid Price
HIGH LOW
NNOTC Bulletin Board
1996
Second Quarter(through April 11, 1996) $12.50 $11.50
First Quarter 12.00 10.13
During 1996, the Bank's Board of Directors sold 124,133 of Common Stock for
$12.50 per share to the Bank's stockholders, depositors and the public.
The Bank's 1,226,690 outstanding shares were held by approximately 950 record
holders as of December 31, 1997.
<PAGE>
Prior to the Bank's current management assuming office, the Bank had
accumulated a significant deficit. The Bank was prohibited from paying dividends
under Virginia banking law until it had restored any deficits in its capital
funds as originally paid in. Additionally, Federal Reserve Board regulations
limit the payment of dividends to net profits, as defined, of the current year,
plus retained net profits of the previous two years. Consequently, until 1996
dividends were precluded under these regulations.
In each of January 1996 and April 1997, the Board of Directors approved a
one-time dividend of $.10 and $.25 per share, respectively, contingent upon
approval of the Board of Governors of the Federal Reserve System and the
Commonwealth of Virginia, State Corporation Commission, Bureau of Financial
Institutions. Subsequently, the dividends were approved by the relevant
regulatory authorities, subject to certain provisions of Regulation H of the
Federal Reserve System. These provisions required the Bank to obtain approval of
at least two-thirds of the holders of its Common Stock. Accordingly, the
shareholders approved the $.10 at the 1996 Annual Meeting of Shareholders and
the $.25 dividend and the 1997 Annual Meeting of Shareholders. As a result of
the Bank's improved financial position, such approvals are no longer required as
long as the Bank continues to achieve satisfactory earnings.
On March 16, 1998, the Bank announced a quarterly dividend of $.12 per
share to be paid to shareholders of record on March 31, 1998.
Item 6. Management's Discussion and Analysis or Plan of Operation
In addition to historical information, the following discussion contains
forward looking statements that are subject to risks and uncertainties that
could cause the Bank's actual results to differ materially from those
anticipated. These forward looking statements include, but are not limited to,
the affect of increasing interest rates on the Bank's profitability, and the
adequacy of the Bank's allowance for future loan losses. Several factors,
including the local and national economy, the demand for residential mortgage
loans, the adequacy of the Bank's Year 2000 compliance, and the Bank's ability
to integrate the operations of Eastern American Bank may adversely affect the
Bank'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.
On December 1, 1997, the Bank acquired Eastern American Bank, FSB, in a
business combination accounted for under the purchase method of accounting,
whereby the purchase price has been allocated to the underlying assets acquired
and liabilities assumed based on their respective fair values at the time of
acquisition. In an exchange of common shares, 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. Accordingly, these acquired assets and
liabilities contributed to the growth in total assets and liabilities of the
Bank for the year ended December 31, 1997 (See Note 18 to the consolidated
financial statements). The Bank's 1997 results includes results by operations
from Eastern American Bank for the month of December 1997.
<PAGE>
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto.
Results of Operations and Financial Condition
The Bank had net income of $1,821,200 and $1,466,200 for 1997 and 1996,
respectively. This constituted net basic earnings per common share of $1.84 for
1997, and $1.58 for 1996. With the diluted effect of common stock equivalents,
earnings per common share were $1.67 for 1997, an increase of 9.9% over the
$1.52 in 1996. The expanded levels of earning assets increased the Bank's net
interest income during 1997. This factor, along with managed expense control,
increased volume in the mortgage banking operation, and expansion of the Bank's
business loan portfolio, provided the basis for increased earnings.
At December 31, 1997, 55.4% of total loans were due in one year or less.
Floating rate loans with maturities of one year or less represented 49.2% of
total loans, and the remainder of loans had fixed rates.
Average loans, net of unearned income, to average deposits were 82.2% and
76.1% in 1997 and 1996, respectively.
Net Interest Income
Net interest income, before provision for loan losses, increased 37.4% to
$4,954,100 in 1997 over 1996. The 1997 increase in net interest income was
proportionate with the increase in average earning assets and interest bearing
liabilities during 1997. During 1997, due to the increased banking activity
precipitated by lower interest rates, average loans increased 35.0% to
$93,839,500. Due to the competitive pricing of the Bank's deposit products,
average deposits increase 25.0% to $114,100,000. As part of its mortgage banking
operations, funds were advanced on behalf of investor banks in settlement of
mortgage loans. Average funds advanced in settlement of such loans increased
96.7% to $13,153,300 in 1997 while average securities decreased 5.6% to
$15,934,900 and average certificates of deposit invested at other banks remained
at $1,000,000.
For an historical analysis of net interest income, see the table entitled
"Summary of Net Interest Income". For an analysis of the potential for a change
in interest rates to impact the ability of the Bank to generate future net
interest income, see the table entitled "Scheduled Maturity or Repricing". This
is frequently referred to as the GAP analysis, which analyzes the difference
between interest-sensitive assets and liabilities for the repricing/maturity
periods indicated.
<PAGE>
Summary of Net Interest Income
The following table sets forth, for the periods indicated, information
regarding: (i) the total dollar amount of interest income of the Bank from
categories of interest-bearing assets and the resultant average yield; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest position; (iv) net interest income;
(v) net interest rate spread; (vi) net interest yield on interest-earning
assets; and (vii) the ratio of total interest-earning assets to total
interest-bearing liabilities. For the purposes of this table, non-accrual loans
are considered noninterest earning assets and loan fees are included in interest
income.
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------
1997 1996
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------
<S> <C>
Interest-earning assets:
Loans $93,839 $8,316 8.86% $69,488 $6,268 9.02%
Securities held to maturity 226 15 6.64% - - -
Securities available for sale (1) 15,709 1,103 7.02% 16,885 1,185 7.02%
Other interest-earning assets (2) 17,280 1,503 8.70% 11,099 842 7.59%
------- ------ ----- ------- ----- -----
Total interest-earning assets 127,054 10,937 8.61% 97,472 8,295 8.51%
------- ------ ----- ------- ----- -----
Noninterest-earning assets 2,893 3,408
------- -------
Total assets $129,947 $100,880
======= =======
Interest-bearing liabilities
Deposits
Savings/Money Market Accounts (3) $17,730 $378 2.13% $14,366 $284 1.98%
Time deposits 96,370 5,318 5.52% 76,932 4,316 5.61%
Short-term borrowings (4) 4,959 287 5.79% 1,617 89 5.50%
------- ----- ----- ------- ----- -----
Total interest-bearing liabilities 119,059 5,983 5.03% 92,915 4,689 5.05%
------- ----- ----- ------- ----- -----
Noninterest-bearing liabilities 1,090 799
Stockholders' equity 9,798 7,166
------- -------
Total liabilities and stockholder's equity $129,947 $100,880
======= =======
Net interest income/interest rate spread (5) $4,954 3.58% $3,606 3.46%
====== ===== ====== =====
Net interest position (6) / Net yield on
interest-earning assets (7) $7,995 3.90% $4,557 3.70%
====== ===== ====== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities (8) 106.72% 104.90%
====== ======
</TABLE>
(1) Represents the average balances of amortized cost for available-for-sale
securities.
(2) Consists of interest-sensitive deposits in other financial institutions,
federal funds sold and funds advanced in settlement of mortgage loans.
(3) Includes noninterest-bearing accounts.
(4) Consists of FHLB advances and federal funds purchased.
(5) Represents the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities.
(6) Equals total interest-earning assets minus total interest-bearing
liabilities.
(7) Equals net interest income divided by average interest-earning assets.
(8) Equals average interest-earning assets divided by average interest-bearing
liabilities.
<PAGE>
As can be seen from the historical analysis and the GAP analysis, the Bank
is in an asset-sensitive position. In a period of rising interest rates, the
Bank is positioned to increase future net interest income. Conversely, in a
period of declining interest rates the Bank will be in a position to have a
decrease in future interest income. This managed GAP does not include the impact
of mortgage loan volume which provides a natural hedge against this GAP
position.
<PAGE>
Scheduled Maturity or Repricing
The following table summaries the estimated aggregate maturity/repricing of the
Bank's assets and liabilities at December 31, 1997. The table does not
necessarily indicate the impact of general interest rate movement on net income
because the repricing of certain categories of assets and liabilities is
discretionary and is subject to competitive and other pressures. As a result,
certain assets and liabilities indicated as repricing within a stated period,
may, in fact, reprice at different rate levels. Nonperforming loans are included
in interest-sensitive assets.
<TABLE>
<CAPTION>
Scheduled Maturity or Repricing
---------------------------------------------------
3 months 4 months 1 year More
or to to than
less 1 year 5 years 5 years Total
---------------------------------------------------
(Dollars in Thousands)
<S> <C>
Interest-sensitive assets:
Loans:
Fixed rate $14,374 $6,599 $15,345 $14,411 $50,729
Adjustable rate 62,449 11,578 21,974 3,860 99,861
------ ------ ------ ------ ------
Total loans 76,823 18,177 37,319 18,271 150,590
Securities available for sale 11,360 1,072 - - 12,432
Securities held to maturity 359 579 1,210 594 2,742
Other interest-sensitive assets (1) 34,343 1,000 - - 35,343
------- ------ ------- ------ -------
Total interest-sensitive assets (2) $122,885 $20,828 $38,529 $18,865 $201,107
======= ====== ======= ====== =======
Interest-sensitive liabilities:
Deposits:
Savings accounts $20,677 - - - $20,677
NOW accounts 2,987 - - - 2,987
Money market accounts 8,568 - - - 8,568
Certificates of deposit 31,352 88,802 5,629 - 125,783
------- ------ ------- ------ ------
Total deposits 63,584 88,802 5,629 - 158,015
FHLB advances 9,650 4,000 7,300 - 20,950
------- ------ ------- ------ -------
Total interest-sensitive liabilities $73,234 $92,802 $12,929 - $178,965
======= ====== ======= ====== =======
Difference between interest-sensitive assets
and interest-sensitive liabilities ("GAP") $49,651 ($71,974) $25,600 $18,865 22,142
======= ====== ======= ====== ======
Cumulative GAP $49,651 ($22,323 $3,277 $22,142
======= ====== ======= ======
Cumulative interest-sensitive assets to
interest-sensitive liabilities 167.80% 86.56% 101.83% 112.37%
====== ===== ====== ======
Cumulative interest-sensitive assets less
interest-sensitive liabilities as a
percentage of total assets 23.72% -10.66% 1.57% 10.58%
===== ===== ==== =====
</TABLE>
(1) Consists of interest-sensitive deposits in other financial institutions,
federal funds sold and funds advanced in settlement of mortgage loans.
(2) Total interest-sensitive assets would be $196,709 if nonperforming loans
were excluded.
<PAGE>
Allowance for Loan Losses
The ratio of net loans charged off to average loans was .0% in 1997 and .15%
in 1996. The allowance for loan losses as a percentage of year end loans was
1.71% in 1997 and 1.27% in 1996. The level of non-performing loans at year end
was $4,398,000 and $421,000 in 1997 and 1996, or 2.92% and .51%, respectively,
of total loans. Management made a provision for loan losses of $155,000 in 1997
and $290,000 in 1996. The majority of the non-accrual loans were housed in
Eastern American Bank at the time of merger. The Bank has a plan in place to
substantially reduce the level of non-accruing loans during the first half of
1998 and these assets were marked to market at the time of merger. The Bank
anticipates increasing the quality of assets at Eastern American Bank through
the employment of experienced commercial lending officers.
In establishing the allowance for loan losses, management considers a number
of factors, including loan asset quality, related collateral and economic
conditions prevailing during the loan's repayment. In its loan policies,
management has emphasized the borrower's ability to service the debt, the
borrower's general creditworthiness and the quality of collateral.
While the Bank 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.
Potential Problem Loans
At December 31, 1997, the Bank had $3,059,000 in non-accrual loans and
$1,339,000 of loans past due 90 days or more that were still accruing. In
addition to loans on either non-accrual status or loans past due 90 days or more
and still accruing, the Bank had identified $1,842,800 of loans that have been
internally classified. These loans require more than normal attention and are
potentially problem loans.
For the historical analysis of the Bank's loan loss experience, see the
table entitled "Summary of Loan Loss Experience".
<PAGE>
Summary of Loan Loss Experience
The following table presents the Bank's loan loss experience and selected loan
loss ratios for the two years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C>
Balance of allowance for loan losses
at beginning of year $1,040 $854
Loans charged-off:
Commercial (2) (5)
Installment (2) (1)
Real Estate (56) (109)
Credit Cards and Other Consumer (5) (5)
-------- --------
Total loans charged-off (65) (120)
-------- --------
Recoveries of loans previously charged-off:
Commercial 34 6
Installment 4 7
Real Estate - -
Credit Cards and Other Consumer 5 3
-------- --------
Total recoveries 43 16
-------- --------
Net loans charged-off (22) (104)
Additions to allowance charged
to expense 155 290
Allowance acquired through business combination 1,400 -
-------- ---------
Balance at end of year $2,573 $1,040
======== =========
Average loans $93,839 $69,488
Loans at end of period $150,590 $81,975
Selected Loan Loss Ratios:
Net charge-off during the
period to average loans 0.02% 0.15%
Provision for loan losses
to average loans 0.17% 0.42%
Provision for loan losses
to net charge-offs during
the period 705% 279%
Allowance for loan losses
to loans at end of period 1.71% 1.27%
Non-performing assets at
end of period $4,398 $421
Non-performing assets to
total loans at end of
period 2.92% 0.51%
Allowance for loan losses
to non-performing assets
at end of period 59% 247%
</TABLE>
<PAGE>
Noninterest Income and Noninterest Expenses
Noninterest income was $4,520,000 in 1997, an increase of 64.1% over 1996.
This increase was primarily from income derived from mortgage banking
operations. The general decline in interest rates, which began in 1995 and
continued through 1997, was a factor in the increase of mortgage banking income
of 69.4% to $4,111,000. Because of the uncertainty of future loan origination
volume and the future level of interest rates, there can be no assurance that
the Bank will realize the same level of mortgage banking income in future
periods. There was a slight increase in other income during 1997 over 1996 which
included a gain on sale of loans of $105,400 realized during 1997. The Bank
realized a gain on sale of loans of $25,900 during 1996.
Total noninterest expense was $6,533,300 in 1997, a 46.8% increase over
1996. All areas of noninterest expenses were affected by the increased volume in
the mortgage banking operations. The largest component of noninterest expense,
salaries and employee benefits, increased 52.0% to $4,035,900 in 1997 over 1996.
This category comprised 61.8% of the total noninterest expense in 1997, and
59.7% in 1996. Occupancy expense increased 46.2% in 1997 over 1996. Depreciation
and equipment maintenance expense increased 29.9% in 1997 over 1996. Outside
computer service increased 87.4% to $242,900. Federal Deposit Insurance
Corporation ("FDIC") premiums increased 522.6% to $12,500 in 1997 over the
$2,000, minimum amount paid in 1996. See "Business - Deposit Insurance".
Income Taxes
Applicable income taxes on 1997 earnings amounted to $964,648, resulting in
an effective tax rate of 34.6% compared to
9.5% in 1996.
The effective rate differed from statutory rates for the year ended
December 31, 1996, due to the Bank's utilization of net operating loss
carryforwards for financial statement purposes during 1996. As a result, the
Bank recorded a deferred tax asset and related income tax benefit of $448,127
for the realization of these loss carryforwards in 1996. All net operating loss
carryforwards are now fully utilized for financial statement and income tax
return purposes.
Liquidity
The Bank'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. Large certificates of deposit
accounted for 2.2% and .10% of total deposits at December 31, 1997 and 1996,
respectively. Federal Home Loan Bank ("FHLB") advances were also utilized as
funding sources by the Bank in 1997 and 1996. The Bank had $20,950,000 in such
advances outstanding at December 31, 1997 and $7,236,500 in such advances
outstanding at December 31, 1996. Pursuant to the terms of the variable rate
line of credit, the Bank may borrow up to $30,000,000. This FHLB advances
arrangement expires November 3, 1998, and can be prepaid at anytime by the Bank.
Additionally, the Bank has a warehouse line of credit collateralized by first
mortgage loans, amounting to $10,000,000 which expires December 2, 1998. As of
December 31, 1997, the Bank had not drawn from this line of credit. The Bank has
no reason to believe these arrangements will not be renewed.
<PAGE>
Management seeks to ensure adequate liquidity to fund loans and meet the
Bank's financial requirements and opportunities. To provide liquidity for
current, ongoing and unanticipated needs, the Bank maintains short-term interest
bearing certificates of deposits, federal funds sold, and a portfolio of debt
securities. The Bank also structures and monitors the flow of funds from debt
securities and from maturing loans. As securities are generally purchased to
provide a source of liquidity, most are classified as securities
available-for-sale when purchased. 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 primarily of governmental or quasi-governmental
agencies. Net unrealized appreciation, net of tax effect, on securities
available-for-sale was $296,400 for 1997, and net unrealized depreciation on
securities available-for-sale was $23,100 for 1996. The Bank from time to time
also maintains short-term interest bearing certificates of deposit with other
financial institutions. These certificates of deposit amounted to $1,000,000 at
December 31, 1997 and 1996, respectively. Federal funds sold to correspondent
institutions were $1,920,000, and $170,000 at year end 1997 and 1996.
Recent Accounting Pronouncements
During June 1997, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 130, Reporting Comprehensive Income. This pronouncement
establishes standards for reporting and displaying of comprehensive income and
its components (revenue, expenses, gains and losses) in a full set of general
purpose financial statements. FASB No. 130 is effective for financial statement
periods beginning after December 15, 1997. As the Bank's only known item of
comprehensive income is the unrealized appreciation or depreciation on
investment securities available for sale, Management does not expect the
application of this pronouncement to have a material impact on the Bank's
financial statements.
FASB Statement No. 131, Disclosures about Segments of an Enterprise,
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 interim financial reports issued to shareholders, and is effective
for financial statements for periods beginning after December 15, 1997, and
requires restatement of all prior periods presented. It also establishes
standards for related disclosures about products and services. geographic areas,
and major customers. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Generally, financial information is required to be
reported on the basis that is used internally for evaluating segment performance
and deciding how to allocate resources to segments.
<PAGE>
This Statement also requires that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts in the enterprise's general-purpose financial
statements. It requires that all public business enterprises report information
about the revenues derived from the enterprise's products or services (or groups
of similar products and services,) about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of whether
that information is used in making operating decisions. However, this Statement
does not require an enterprise to report information that is not prepared for
internal use if reporting it would be impracticable. Management is currently
assessing the impact of this statement on future financial statement
disclosures.
FASB Statement No. 132, Employer's Disclosures about Pension and Other Post
Retirement Benefits, revises disclosures regarding pension and other post
retirement benefits and standardizes certain disclosure requirements regarding
these items. This Statement is effective for fiscal years beginning after
December 15, 1997. Management will assess the impact, if any, of this Statement
on the Bank's future disclosures.
Capital Resources and Adequacy
The Federal Reserve Board, the FDIC and the Office of Thrift Supervision
have issued substantially similar risk-based and leverage capital guidelines
applicable to banking organizations they supervise. Due to the Bank's
capitalization, it is classified as "well capitalized".
The Bank's year-end capital-to-asset ratio was relatively flat at 7.45% at
December 31, 1997 as compared to 7.47% at December 31, 1996.
The capital adequacy standards are based on an established minimum for
Risk-Based Capital, Tier 1 Risk-Based Capital and the Tier 1 Leverage Ratio.
The following table summarizes the Bank's regulatory capital ratios at
December 31, 1997.
Required Ratio Actual Ratio
Tier 1 risk-based 4.00% 9.69%
Total risk-based 8.00% 10.93%
Tier 1 leverage 4.00 to 5.00% 9.67%
<PAGE>
The Bank is in full compliance with all relevant regulatory capital
requirements.
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organization.
In July 1996, the Bank began the examination and resolution of the Year 2000
issue by appointing a project manager and advising the Board of Directors of the
potential impact on the Bank's ability to do business if the Year 2000 issue is
not resolved. The project manager prepared an action plan, risk analysis and
inventory of Year 2000 related issues in compliance with a directive issued by
the Federal Reserve. The project manager continues to add items to the
inventory. Estimated completion of user testing of all high and moderate risk
items is the first quarter of 1999, with a contingency plan for each item to be
in place. In late 1997, the Bank upgraded or replaced software and hardware in
conjunction with an internally financed change in data processors. The current
data processor is certified to be Year 2000 compliant and user testing will
begin during the third quarter of 1998.
The Board of Directors receives periodic updates, which include the status
and estimated completion dates of each item on the inventory. A failure to
become Year 2000 compliant could disrupt the Bank's operating results and
financial condition; therefore, progress is being closely monitored both
internally by management and the Board of Directors, and externally by the
regulators.
<TABLE>
<CAPTION>
<S> <C>
Item 7. Financial Statements
Balance sheets - December 31, 1997 and 1996
Statements of income - Years ended December 31, 1997 and 1996
Statements of stockholders' equity - Years ended December 31, 1997 and
1996
Statements of cash flows - Years ended December 31, 1997 and 1996
Notes to financial statements - December 31, 1997 and 1996
</TABLE>
These statements are attached at the end of this report and are
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Information called for in this section is incorporated by reference to
the Bank's Proxy Statement for the 1998 Annual Meeting.
Item 10. Executive Compensation
Information called for in this section is incorporated by reference to
the Bank's Proxy Statement for the 1998 Annual Meeting.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Information called for in this section is incorporated by reference to the
Bank's Proxy Statement for the 1998 Annual Meeting.
Item 12. Certain Relationships and Related Transactions
Information called for in this section is incorporated by reference to the
Bank's Proxy Statement for the 1998 Annual Meeting.
Item 13. Exhibits and Reports on Form 8-K
(a) Certain documents filed as part of this Form 10-KSB
Exhibits:
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
April 8, 1997 between Resource Bank and Eastern American Bank FSB.
Filed June 24, 1997 as Exhibit A to the Issuer's Proxy Statement
for its 1997 Annual Meeting to Shareholders, and is incorporated
herein by reference.
3.1 Articles of Incorporation. Filed April 28, 1993 as Exhibit 3.1
to the Issuer's Form 10-KSB and is incorporated herein by
reference.
3.2 By-laws. Filed April 28, 1993 as Exhibit 3.2 to the Issuer's
Form 10-KSB and is incorporated herein by reference.
3.3 Amendment to Articles of Incorporation, as amended. Filed March
30, 1995 as Exhibit 3.3 to the Issuer's Form 10-KSB, and is
incorporated herein by reference.
* 3.4 Articles of Merger of Eastern American Bank, FSB with and into
Resource Bank dated December 1, 1997, which contain the amended and
restated Articles of Incorporation of Resource Bank.
10.1 Director's Stock Option Agreement dated June 15, 1989. Filed April
28, 1993 as Exhibit 10.3 to the Issuer's Form 10-KSB, and is
incorporated herein by reference.
10.2 Non-Employee Director Incentive Stock Option Plan dated June 15,
1989. Filed April 28, 1993 as Exhibit 10.4 to the Issuer's Form
10-KSB, and is incorporated herein by reference.
<PAGE>
10.3 Resource Bank 1993 Long-Term Incentive Plan. Filed March 22,
1994 as Exhibit 10.6 to the Issuer's Form 10-KSB, and is
incorporated herein by reference.
10.4 Resource Bank 1993 Long-Term Incentive Plan, First Amendment.
Filed March 30, 1995 as Exhibit 10.9 to the Issuer's Form 10-KSB,
and is incorporated herein by reference.
10.5 Resource Bank 1993 Long-Term Incentive Plan, Second Amendment.
Filed March 31, 1997 as Exhibit 10.21 to the Issuer's Form 10-KSB,
and is incorporated herein by reference.
10.6 Resource Bank 1994 Long-Term Incentive Plan. Filed March 30,
1995 as Exhibit 10.10 to the Issuer's Form 10-KSB, and is
incorporated herein by reference.
10.7 Resource Bank 1994 Long-Term Incentive Plan, First Amendment.
Filed March 31, 1997 as Exhibit 10.22 to the Issuer's Form 10-KSB,
and is incorporated herein by reference.
* 10.8 Resource Bank 1996 Long-Term Incentive Plan, Amended and
Restated.
10.9 Resource Bank Retirement Savings Plan. Filed March 20, 1996 as
Exhibit 10.18 to the Issuer's Form 10-KSB, and is incorporated
herein by reference.
10.10 Lease agreement dated November 1, 1990 by and between Birchwood
Mall Associates and Resource Bank and letter dated November 12,
1992 from Resource Bank to Fleder, Caplan, Jaffee Associates to
amend the lease. Filed April 28, 1993 as Exhibit 10.1 to the
Issuer's Form 10-KSB, and is incorporated herein by reference.
10.11 Lease agreement dated September 22, 1994 by and between Resource
Mortgage and A. R. Marketing, Inc. Filed March 30, 1995 as
Exhibit 10.12 to the Issuer's From 10-KSB, and is incorporated
herein by reference.
10.12 Assignment of Lease dated February 28, 1994 with Resource Mortgage
to Contract Publishing, Inc. Filed March 30, 1995 as Exhibit 10.15
to the Issuer's Form 10-KSB, and is incorporated herein by
reference.
10.13 Lease agreement dated April 1, 1994 by and between Whooping Crane
Limited Partnership and Southern Mortgage Financial Company. Filed
March 20, 1996 as Exhibit 10.16 to the Issuer's Form 10-KSB, and
is incorporated herein by reference.
10.14 Lease agreement and Addendum to Lease both dated April 20, 1995,
and First Lease Amendment dated December 13, 1995 to Lease by and
between Glen Forest Professional Center Associates and Resource
Bank. Filed March 20, 1996 as Exhibit 10.17 to the Issuer's Form
10-KSB, and is incorporated herein by reference.
10.15 Lease agreement and Addendum to Lease both dated May 1, 1996 by
and between Birchwood Mall Associates and Resource Bank. Filed
March 31, 1997 as Exhibit 10.19 to the Issuer's Form 10-KSB, and
is incorporated herein by reference.
* 10.16 Lease agreement dated July 22, 1997 by and between Washington
Real Estate Investment Trust and Resource Bank.
* 10.17 Lease agreement dated July 19, 1993 by and between Reston North
Point Village Limited Partnership and Eastern American Bank, FSB.
* 10.18 Lease agreement dated July 18, 1995 by and between The Richmond
Corporation and Eastern American Bank FSB.
* 10.19 Lease agreement dated October 31, 1995 by and between Elden
Investments, L.L.C. and Eastern American Bank, FSB.
* 10.20 Lease agreement dated October 24, 1994 by and between Greenbrier
Point Partners, L.P. and CitizensBanc Mortgage Company and
Assignment, Assumption and Release Agreement dated January 7, 1997
among Citizens Mortgage Company, Resource Bank and
Greenbrier Point Partners, L.P.
* 10.21 Lease agreement dated December 5, 1996 and Amendment dated August
5, 1997 by and between The Bon Air Green Company and Resource
Bank.
* Filed herein.
(b) Report on Form 8-K
The Bank filed a current report on Form 8-K, dated December 1, 1997,
reporting the acquisition or disposition of assets following the merger between
Resource Bank and Eastern American Bank FSB. Audited Financial Statements,
including Auditor's Reports, for Eastern American Bank FSB's operations for the
Years Ended December 31, 1996 and 1995, Interim Unaudited Financial Statements
for the Three Months Ended March 31, 1997 and 1996, and Pro Forma Financial
Information as if the Merger had been consummated on March 31, 1997, included in
the Joint Proxy Statement were filed on Pages F-1 through F-40 and pages 56-60
of the Joint Proxy Statement.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RESOURCE BANK
By /s/ Lawrence N. Smith Date: 3-19-98
--------------------------------- ------------
Lawrence N. Smith
President & Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lawrence N. Smith and John B. Bernhardt
and each of them individually, as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place, and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Board of Governors of the
Federal Reserve System, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ John B. Bernhardt Date: 03-19-98
- ---------------------------------------------- ----------
John B. Bernhardt, Chairman of the Board
/s/ Lawrence N. Smith Date: 03-19-98
- ---------------------------------------------- ----------
Lawrence N. Smith, President &
Chief Executive Officer & Director
/s/ Eleanor J. Whitehurst Date: 03-19-98
- ---------------------------------------------- ----------
Eleanor J. Whitehurst, SVP &
Chief Financial Officer
/s/ Alfred E. Abiouness Date: 03-19-98
- ---------------------------------------------- ----------
Alfred E. Abiouness, Director
/s/ Thomas W. Hunt Date: 03-19-98
- ---------------------------------------------- ----------
Thomas W. Hunt, Director
/s/ Louis Ray Jones Date: 03-19-98
- ---------------------------------------------- ----------
Louis Ray Jones, Director
/s/ Arthur Russell Kirk Date: 03-19-98
- ---------------------------------------------- ----------
Arthur Russell Kirk, Director
/s/ Elizabeth A. Twohy Date: 03-19-98
- ---------------------------------------------- ----------
Elizabeth A. Twohy, Director
<PAGE>
Financial Statements
Years Ended December 31,
1997 and 1996
[Resource Bank Logo]
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Resource Bank
Virginia Beach, Virginia
We have audited the accompanying balance sheets of Resource Bank (the
"Bank") as of December 31, 1997 and 1996, and the related statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 financial statements referred to above present
fairly, in all material respects, the financial position of Resource Bank as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Goodman & Company, L.L.P.
--------------------------
Goodman & Company, L.L.P.
One Commercial Place
Norfolk, Virginia
January 30, 1998, except for
Note 19, as to which the
date is March 16, 1998
- 1 -
<PAGE>
RESOURCE BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Cash and due from banks $ 2,611,891 $ 2,109,357
Interest bearing deposits with banks 9,678,732 1,853,357
Federal funds sold 1,920,000 170,000
Funds advanced in settlement of mortgage loans 23,744,135 11,034,743
Investment securities
Available for sale 12,432,253 16,892,436
Held to maturity 2,742,032 -
Loans, net 148,016,531 80,934,739
Other real estate owned 684,591 50,000
Premises and equipment 3,236,907 610,622
Other assets 2,701,190 1,419,063
Accrued interest 1,561,756 761,994
--------------------------------------------
$ 209,330,018 $ 115,836,311
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 11,493,456 $ 6,595,774
Interest-bearing deposits 158,014,876 92,582,781
--------------------------------------------
** 169,508,332 ** 99,178,555
FHLB advances 20,950,000 7,236,500
Other liabilities 2,661,013 250,045
Accrued interest 608,856 516,150
--------------------------------------------
193,728,201 107,181,250
--------------------------------------------
Stockholders' equity
Common stock, $3 par value - 3,333,333 shares authorized; shares
issued and outstanding:
1997 - 1,226,690; 1996 - 967,874 3,680,070 2,903,622
Additional paid-in capital 10,769,249 6,497,615
Retained earnings (accumulated deficit) 856,122 (723,072)
Net unrealized appreciation (depreciation) on
securities available for sale, net of
income taxes 296,376 (23,104)
--------------------------------------------
15,601,817 8,655,061
--------------------------------------------
$ 209,330,018 $ 115,836,311
============================================
</TABLE>
The notes to the financial statements are an integral part of this statement.
- 2 -
<PAGE>
RESOURCE BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest income
Interest and fees on loans $ 8,315,741 $ 6,268,239
----------------------------------------
Interest on investment securities:
Interest on securities available for sale 1,103,257 1,185,350
Interest on securities held to maturity 15,414 -
----------------------------------------
1,118,671 1,185,350
----------------------------------------
Interest on federal funds sold 123,227 136,671
Interest on funds advanced in settlement of
mortgage loans 1,379,856 704,792
----------------------------------------
Total interest income 10,937,495 8,295,052
----------------------------------------
Interest expense
Interest on deposits 5,695,994 4,600,337
Interest on short-term borrowings 287,430 89,421
----------------------------------------
Total interest expense 5,983,424 4,689,758
----------------------------------------
Net interest income 4,954,071 3,605,294
Provision for loan losses (155,254) (290,000)
----------------------------------------
Net interest income after provision for loan losses 4,798,817 3,315,294
----------------------------------------
Noninterest income
Mortgage banking income 4,110,868 2,426,766
Service charges 409,451 328,437
----------------------------------------
4,520,319 2,755,203
----------------------------------------
Noninterest expense
Salaries and employee benefits 4,035,860 2,654,946
Occupancy expenses 571,231 390,602
Depreciation and equipment maintenance 458,126 352,598
Professional fees 120,439 111,264
Outside computer service 242,871 129,607
FDIC insurance 12,452 2,000
Stationery and supplies 295,875 211,319
Marketing and business development 205,073 175,427
Other 591,399 423,275
----------------------------------------
6,533,326 4,451,038
----------------------------------------
Income before income taxes 2,785,810 1,619,459
Income tax expense 964,648 153,274
----------------------------------------
Net income $ 1,821,162 $ 1,466,185
========================================
Basic earnings per common share $ 1.84 $ 1.58
========================================
Diluted earnings per share $ 1.67 $ 1.52
========================================
The notes to the financial statements are an integral part of this statement.
- 3 -
<PAGE>
RESOURCE BANK
STATEMENTS OF STOCKHOLDERS' EQUITY
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1997 and 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized
Appreciation
(Depreciation)
Common Stock Additional on Securities
--------------------------- Paid-in Accumulated Available for
Shares Amount Capital Deficit Sale Total
--------------------------- ------------ ------------- --------------- --------
<S> <C>
Balance, December 31, 1995 844,042 $2,532,126 $5,332,233 $(2,092,470) $ 38,577 $ 5,810,466
Net changes in unrealized depreciation
on securities available for sale, net
of income taxes - - - - (61,681) (61,681)
Proceeds from common stock
issued - net of issuance costs 123,832 371,496 1,165,382 - - 1,536,878
Cash dividends paid
$.10 per share - - - (96,787) - (96,787)
Net income for 1996 - - - 1,466,185 - 1,466,185
-------------------------------------------------------------------------------------
Balance, December 31, 1996 967,874 2,903,622** 6,497,615** (723,072) (23,104)** 8,655,061
Net changes in unrealized appreciation
on securities available for sale, net
of income taxes - - - - 319,480 319,480
Common stock issued as a result
of business combination 258,816 776,448 4,271,634 - - 5,048,082
Cash dividends paid
$.25 per share - - - (241,968) - (241,968)
Net income for 1997 - - - 1,821,162 - 1,821,162
-------------------------------------------------------------------------------------
Balance, December 31, 1997 1,226,690 $ 3,680,070 $10,769,249 $ 856,122 $296,376 $ 15,601,817
=====================================================================================
</TABLE>
The notes to the financial statements are an integral part of this statement.
- 4 -
<PAGE>
RESOURCE BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Operating activities
Net income $ 1,821,162 $ 1,466,185
Adjustments to reconcile to net cash
used by operating activities:
Provision for losses on loans and other real estate owned 155,254 324,764
Loss on sale of investment securities 45,313 -
Depreciation and amortization 265,047 174,010
Amortization of investment securities
premiums, net of discounts 21,170 26,084
Loss on disposition of premises and equipment 11,198 225
Deferred loan origination fees, net of costs (152,955) 58,425
Changes in:
Funds advanced in settlement of mortgage loans (12,709,392) (5,559,746)
Interest receivable (445,545) (203,470)
Interest payable 92,699 95,777
Other assets (1,003,497) (191,552)
Other liabilities (75,474) 34,227
----------------------------------------
Net cash used by operating activities (11,975,020) (3,775,071)
----------------------------------------
Investing activities
Cash acquired in business combination
Proceeds from sales and maturities of available-for-sale 12,539,233 -
securities 7,972,963 2,887,874
Proceeds from maturities of held-to-maturity securities 28,654 -
Purchases of available-for-sale securities (2,589,000) (9,422,096)
Loan originations, net of principal repayments (18,318,736) (23,673,309)
Purchases of premises and equipment and other assets (2,237,125) (169,723)
----------------------------------------
Net cash used by investing activities (2,604,011) (30,377,254)
----------------------------------------
Financing activities
Proceeds from common stock issued, net of issuance costs - 1,536,878
Cash dividends paid (241,968) (96,787)
Proceeds (repayments) from FHLB advances 7,413,500 7,236,500
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (2,618,793) 3,315,651
Net increase in certificates of deposit 20,104,201 14,957,405
----------------------------------------
Net cash provided by financing activities 24,656,940 26,949,647
----------------------------------------
Increase (decrease) in cash and cash equivalents 10,077,909 (7,202,678)
Cash and cash equivalents at beginning of year 3,132,714 10,335,392
----------------------------------------
Cash and cash equivalents at end of year $ 13,210,623 $ 3,132,714
========================================
Supplemental schedules and disclosures of cash
flow information
Cash paid for:
Interest on deposits and other borrowings $ 5,674,357 $ 4,593,781
========================================
</TABLE>
The notes to the financial statements are an integral part of this statement.
- 5 -
<PAGE>
RESOURCE BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND BUSINESS
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 area is within Virginia Beach and, to a lesser
extent, in the surrounding cities of the South Hampton Roads area, including
Norfolk, Chesapeake, Portsmouth and Suffolk.
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, Hilton Head, South
Carolina, and the northern Virginia/Washington, D.C. metropolitan area.
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 operates two branches under the name Eastern American
Bank.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Such deposits
amounted to $1,000,000 as of both December 31, 1997 and 1996.
(Notes continued on next page)
- 6 -
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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, or that may be sold
in response to changes in interest rates, changes in prepayment risk, to
increase regulatory capital or other similar factors, are classified as
securities available for sale and carried at fair value with any adjustments to
fair value, after tax, reported as a separate component of shareholders' equity.
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
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.
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 of 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.
(Notes continued on next page)
- 7 -
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (continued)
The adequacy of the allowance for loan losses is periodically evaluated
by the Bank, in order to maintain the allowance at a level that is sufficient to
absorb probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Bank's historical loss experience, known
and inherent risks in the loan portfolio, including adverse circumstances that
may affect the ability of the borrower to repay interest and/or principal, the
estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs, and the risk ratings of the various loan categories.
Such factors as the level and trend of interest rates and the condition of the
national and local economies are also considered. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans. Such agencies may
require the Bank to recognize additions to the allowance based on their
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.
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 classified as
doubtful, 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 (generally a minimum of six months) 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.
(Notes continued on next page)
- 8 -
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Real Estate Owned
Other real estate owned is comprised of real estate and other assets
acquired through foreclosure, acceptance of a deed in lieu of foreclosure, or
loans in which the Bank receives physical possession of the debtor's assets.
Other real estate owned is carried at the lower of the recorded investment in
the loan or the fair value less estimated costs to sell. Upon transfer of a loan
to foreclosed status, an appraisal is obtained and any excess of the loan
balance over the fair value less estimated costs to sell is charged against the
provision for credit losses. Revenues and expenses, and subsequent adjustments
to fair value less estimated costs to sell are classified as an expense for
other real estate owned.
Restructured Loans
Loans are considered troubled debt restructurings if, for economic or
legal reasons, a concession has been granted to the borrower related to the
borrower's financial difficulties that the Bank would not have otherwise
considered. The Bank has restructured certain loans in instances where a
determination was made that greater economic value will be realized under new
terms than through foreclosure, liquidation, or other disposition. The terms of
the renegotiation generally involve some or all of the following
characteristics: a reduction in the interest pay rate to reflect actual
operating income, an extension of the loan maturity date to allow time for
stabilization of operating income, and partial forgiveness of principal and
interest.
The carrying value of a restructured loan is reduced by the fair value
of any assets or equity interest received, if any. In addition, if the present
value of future cash receipts required under the new terms does not equal the
recorded investment in the loan at the time of restructuring, the carrying value
would be further reduced by a charge to the allowance. Prior to demonstrating
performance, the Bank generally classifies impaired restructured loans, if any,
as nonaccrual. The accrual of interest resumes when such loans can demonstrate
performance, generally evidenced by six months of pre- or post-restructuring
payment performance in accordance with the restructured terms, or by the
presence of other significant factors. 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.
Goodwill
Goodwill related to the purchase of the mortgage company is amortized
over five years using the straight-line method.
(Notes continued on next page)
- 9 -
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Income taxes are provided for the tax effects of the 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.
Earnings Per Common Share
The Bank 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 No. 128 requires dual presentation of basic and diluted EPS on the face of
the income statement, 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, 1997. 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.
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. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties. 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.
(Notes continued on next page)
- 10 -
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain reclassifications have been made to prior year financial
statements to conform them to the current year's 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
$283,000 for the year ended December 31, 1997. On December 31, 1997, the
required reserve balance was $158,000.
NOTE 4 - SECURITIES
Securities at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
---------------- ------------- ------------- ----------
<S> <C>
Securities available for sale
U.S. Government agencies $ 9,352,448 $ 449,055 $ - $ 9,801,503
Federal Reserve Bank
stock 297,250 - - 297,250
Federal Home Loan Bank
stock 2,233,500 - - 2,233,500
Other 100,000 - - 100,000
----------- ---------- ------- ---------
$ 11,983,198 $ 449,055 $ - $ 12,432,253
============ ========== ======= ============
Securities held to maturity
U.S. Government and agency
securities $ 1,995,739 $ 11,310 $ 36,193 $ 1,970,856
State and municipal securities 746,293 - 1,293 745,000
----------- ------- ------- ---------
$ 2,742,032 $ 11,310 $ 37,486 $ 2,715,856
=========== ======== ======== ===========
December 31, 1996
Securities available for sale
U.S. Government agencies $ 15,834,093 $ 89,591 $ 124,598 $ 15,799,086
Federal Reserve Bank stock 245,750 - - 245,750
Federal Home Loan Bank
stock 747,600 - - 747,600
Other 100,000 - - 100,000
----------- ------- ------- ---------
$ 16,927,443 $ 89,591 $ 124,598 $ 16,892,436
============ ======== ========= ==============
There were no securities deemed to be held to maturity as of December 31, 1996.
(Notes continued on next page)
- 11 -
<PAGE>
NOTE 4 - SECURITIES (Continued)
Federal Reserve Bank stock, Federal Home Loan Bank stock and other
securities are restricted securities, carried at cost, and periodically
evaluated for impairment.
At December 31, 1997 and 1996, respectively, approximately $1,671,000
and $150,000, was pledged to secure deposits of the U.S. Government or the
Commonwealth of Virginia.
The amortized cost and fair value of securities by maturity date at
December 31, 1997 are as follows:
</TABLE>
<TABLE>
<CAPTION>
Securities held to Maturity Securities Available for Sale
----------------------------------- --------------------------------
Amortizeded Amortizeded
Cost Fair Value Cost Fair Value
---------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Due in one year or less $ 937,89 $ 919,296 $ - $ -
Due from one to five years 1,210,149 1,191,990 - -
Due from five to ten years 415,000 415,000 - -
Due after ten years 178,985 189,570 9,352,448 9,801,503
Federal Reserve Bank stock - - 297,250 297,250
Federal Home Loan Bank stock - - 2,233,500 2,233,500
Other - - 100,000 100,000
--------------- --------------- --------------- ---------------
$ 2,742,032 $ 2,715,856 $ 11,983,198 $ 12,432,253
=============== =============== =============== ===============
</TABLE>
With respect to securities due after ten years, these securities have
variable rates which change with market conditions.
Gross realized gains and gross realized losses on available-for-sale
securities were:
<TABLE>
<CAPTION>
December 31,
-----------------------
Gross realized gains: 1997 1996
------ ------
<S> <C>
U.S. government agencies $ - $ -
=========================
Gross realized losses:
U.S. government agencies $45,313 -
=========================
</TABLE>
NOTE 5 - LOANS
Loans consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
Gross loans: 1997 1996
------ ------
<S> <C> <C>
Commercial $ 50,712,937 $ 34,021,264
Real estate - construction 37,626,006 21,588,184
Commercial real estate 9,015,703 8,984,852
Residential real estate 49,415,863 12,622,224
Installment and consumer loans 3,819,368 4,758,462
------------------------------
Total gross loans 150,589,877 81,974,986
Less - allowance for loan losses (2,573,346) (1,040,247)
----------------------------------
Loans, net $ 148,016,531 $ 80,934,739
=================================
(Notes continued on next page)
- 12 -
<PAGE>
NOTE 5 - LOANS (Continued)
A summary of the activity in the allowance for loan losses account is as
follows:
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1996
------------ ----------
<S> <C> <C>
Balance, beginning of year $ 1,040,247 $ 854,171
Allowance acquired through business combination 1,400,000 -
Provision charged to operations 155,254 290,000
Loans charged-off (65,051) (119,925)
Recoveries 42,896 16,001
--------------------------------
Balance, end of year $ 2,573,346 $ 1,040,247
================================
</TABLE>
Current accounting standards require certain disclosures concerning
restructured loans, regardless of whether or not an impairment loss exists. At
December 31, 1997 and 1996, such loans amounted to $65,000 and $913,000,
respectively. Management does not believe an impairment loss exists with respect
to these loans. These restructured loans, and impaired loans amounting to
$3,048,976 and $32,421 as of December 31, 1997 and 1996, respectively, have a
valuation allowance allocation of $450,183 and $139,950 at those respective
dates. Substantially all of the loans considered impaired at December 31, 1997
were acquired in the business combination with Eastern American Bank in
December, 1997. For the year ended December 31, 1997, the average recorded
investment in these loans and the restructured loans was approximately $754,110.
The Bank recognized $34,570 and $56,814 of interest income on both categories of
loans during the years ended December 31, 1997 and 1996, respectively. None of
the interest income was recognized on the cash basis.
Loans on which the accrual of interest has been discontinued amounted to
$3,048,976 and $50,311 at December 31, 1997 and 1996, respectively. If interest
on those loans had been accrued, such income would have approximated $11,964 and
$1,797 for 1997 and 1996, respectively. No interest was recognized or received
on these loans in 1997 and 1996.
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
December 31,
---------------------------------
1997 1996
---------------------------------
Land $1,725,000 $ -
Leasehold improvements 1,295,293 430,180
Equipment, furniture and fixtures 1,212,476 970,433
----------------------------------
4,232,769 1,400,613
Less - accumulated depreciation (995,862) (789,991)
----------------------------------
$3,236,907 $ 610,622
==================================
Depreciation charged to operating expense for the years ended December 31,
1997 and 1996 was $265,047 and $149,218, respectively.
(Notes continued on next page)
- 13 -
<PAGE>
NOTE 7 - DEPOSITS
Interest-bearing deposits consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996
------------------------------------------
<S> <C> <C>
Money Market and NOW account deposits $ 11,554,162 $ 8,584,535
Savings deposits 20,677,173 669,964
Time deposits $100,000 and over 1,228,198 101,000
Other time deposits 124,555,343 83,227,282
------------------------------------------
$158,014,876 $ 92,582,781
==========================================
The scheduled maturities of time deposits were as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------
(In thousands)
1997 1996
---------------------------------------
<S> <C> <C>
Less than one year $ 120,155 $ 80,176
One to five years 5,629 3,051
Over five years - 101
---------------------------------------
$ 125,784 $ 83,328
======================================
</TABLE>
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
------------------------------------
<S> <C>
Variable rate (6.95% at December 31, 1996)
FHLB advance due November 3, 1997 $ - $ 6,750,000
5.28% FHLB advance due January 3, 1997 - 486,500
Variable rate (6.20% at December 31, 1997)
FHLB advance due November 28, 1998 9,650,000 -
7.53% FHLB advance due April 3, 1998 1,000,000 -
5.37% FHLB advance due July 1, 1998 1,000,000 -
5.68% FHLB advance due December 28, 1998 2,000,000 -
5.42% FHLB advance due October 28, 1999 2,000,000 -
5.69% FHLB advance due February 6, 2000 300,000 -
5.88% FHLB advance due September 24, 2002 5,000,000 -
------------------------------------
$ 20,950,000 $ 7,236,500
====================================
Information regarding FHLB advances is summarized below:
Weighed average rate $ 5.79% $ 5.50%
================ =============
Average balance $ 4,959,000 $ 1,617,000
================ ================
Maximum outstanding at month end $ 20,950,000 $ 7,236,500
====================================
</TABLE>
(Notes continued on next page)
- 14 -
<PAGE>
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES (Continued)
As of December 31, 1997 and 1996, respectively, advances are
collateralized by FHLB stock with a cost of $2,233,500 and $747,600. In
addition, securities amounting to $7,600,000 and $10,300,000 are pledged against
these advances, as of December 31, 1997 and 1996, respectively. First mortgage
loans amounting to $19,000,000 also serve to provide additional collateral for
these advances at December 31, 1997. Pursuant to the terms of the variable rate
line of credit, the Bank may borrow up to $30,000,000. The FHLB advances
arrangement expires November 3, 1998, but can be prepaid at anytime by the Bank.
Additionally, the Bank has a warehouse line of credit collateralized by first
mortgage loans, amounting to $10,000,000 and expiring November 18, 1998. As of
December 31, 1997, the Bank not drawn from this line of credit.
NOTE 9 - STOCKHOLDERS' EQUITY
At December 31, 1997, the Bank is in full compliance with all relevant
regulatory capital requirements. However, under state law, the Bank may not pay
dividends until it has restored any deficits in its capital funds as originally
paid in, or unless permission is obtained from the State Corporation Commission
and approved by stockholders. During April, 1997 and January, 1996,
respectively, the Board of Directors approved $.25 and $.10 per share dividends,
for total dividends of $241,968 and $96,787, which were approved by the State
Corporation Commission and subject to shareholder approval. The cash dividends
were paid to stockholders in October, 1997 and July, 1996, respectively. 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 $.12 per share dividend in the first quarter of 1998.
In December, 1997, the Bank issued 258,816 shares of its common stock in
a share exchange which resulted in the acquisition of Eastern American Bank, FSB
(see Note 18). Costs associated with the acquisition of $218,000 were
capitalized and will be amortized into expense over a fifteen year period on a
straight-line basis.
During 1996, the Bank offered shares of its common stock for sale at a
price of $12.50 per share. In connection with the stock offering, 124,133 shares
were sold. Costs associated with the stock offering of $14,800 were charged
against additional paid-in capital in 1996.
NOTE 10 - STOCK COMPENSATION PLANS
At December 31, 1997, the Bank 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 Bank 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.
(Notes continued on next page)
- 15 -
<PAGE>
NOTE 10 - STOCK COMPENSATION PLANS (Continued)
The Bank's 1996 Long-Term Incentive Plan authorized the grant of options
to management personnel and directors of 22,500 and 80,550 shares of the Bank's
common stock in 1997 and 1996, respectively. 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 $25 per share for at least thirty consecutive days.
The 1997 stock options are not exercisable for five years from the date of
grant.
Pro forma information regarding net income and earnings per share is
required by FASB No. 123, and has been determined as if the Bank 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 with the following weighted-average
assumptions: risk free interest rate of 5.75% and 5.5% in 1997 and 1996,
respectively; no dividend yields; volatility factors of the expected market
price of Bank's common stock of 29% and 42% in 1997 and 1996, respectively, and
a weighted-average expected life of the option of five years in 1997 and one
year in 1996.
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 Bank'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
measurre of the fair value of its employee stock options.
Had compensation cost for the Bank's 1996 Long-Term Incentive Plan been
determined based on the fair value method prescribed by FASB No. 123, the Bank's
net income and earnings per share would have been reduced to the pro-forma
amounts indicated for the year ended December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------------
<S> <C>
Net income As reported $1,821,162 $ 1,466,385
Pro forma $1,774,850 $ 1,331,622
Basic earnings per share As reported $ 1.84 $ 1.58
Pro forma $ 1.79 $ 1.44
Diluted earnings per share As reported $ 1.67 $ 1.52
Pro forma $ 1.62 $ 1.38
</TABLE>
(Notes continued on next page)
- 16 -
<PAGE>
NOTE 10 - STOCK COMPENSATION PLANS (Continued)
The following is a summary of the Bank's stock option activity, and
related information for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
------ -----
Weighted - Weighted -
Average Average
Exercise Exercise
Options Price Options Price
---------- ---------- -------- -----------
<S> <C>
Outstanding - beginning of year 162,382 $ 9.20 81,832 $ 5.96
Granted 22,500 31.50 80,550 12.50
Exercised - - - -
Forfeited - - - -
--------------------------------------------------------------------
Outstanding - end of year 184,882 11.91 162,382 9.20
--------------------------------------------------------------------
Exercisable - end of year 162,382 $ 9.20 81,832 $ 5.96
--------------------------------------------------------------------
Weighted average fair value of
options granted during the
year $ 11.61 $ 2.53
======== =======
</TABLE>
NOTE 11 - INCOME TAXES
The principal components of the income tax expense were as follows:
December 31,
------------------------------------
1997 1996
------------- -----------
Federal - current $ 485,846 $ 35,925
Federal - deferred 478,802 117,349
------------------------------------
$ 964,648 $ 153,274
====================================
The differences between expected federal income taxes at statutory rates
to actual income tax expense are summarized as follows:
December 31,
------------------------------------
1997 1996
Income tax expense computed at federal ------------ ------------
statutory rates $ 947,175 $ 550,616
Tax effects of:
Valuation allowance - (407,698)
Other 17,473 10,356
----------------------------------
$ 964,648 $ 153,274
==================================
(Notes continued on next page)
- 17 -
<PAGE>
NOTE 11 - INCOME TAXES (Continued)
The Bank's deferred tax assets and liabilities and their principal
components are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------- ------------
<S> <C>
Deferred tax assets:
Intangible assets $ 153,487 $ 21,563
Bad debts 615,448 58,143
Fixed assets 255,814 15,638
Other 19,796 22,061
Alternative minimum tax credit - 27,504
Net operating loss - 448,127
------------------------------------
Total deferred tax asset 1,044,545 593,036
------------------------------------
Deferred tax liabilities:
Loans $ 321,205 $ -
Deposits 637,340 -
Deferred fees 300,937 250,385
FHLB stock 17,821 -
Unrealized gain on securities
available for sale 152,679 -
-------------- -------------
Total deferred tax liability 1,429,982 250,385
-------------- -------------
Net deferred tax asset (liability) $ (385,473) $ 342,651
============== ==============
</TABLE>
The Bank had a net operating loss carryforward for income tax purposes of
$1,318,020 as of December 31, 1996. The Bank recorded a deferred tax asset of
$448,127 for the benefit of the loss carryforwards. At December 31, 1997, all
net operating loss carryforwards have been fully utilized for both financial
statement and income tax return purposes.
(Notes continued on next page)
- 18 -
<PAGE>
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 long-term
non-cancelable lease agreements.
Lease
Payments
------------
1998 $ 844,485
1999 837,640
2000 751,285
2001 660,731
2002 613,863
Thereafter 1,898,821
-------------
$ 5,606,825
=============
Total lease expense was $392,222 and $278,656 for 1997 and 1996,
respectively.
The Bank is a defendant 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
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
1996 is as follows:
Balance, December 31, 1996 $ 1,745,765
Acquired through business combination 653,705
Originations - 1997 -
Repayments - 1997 (790,089)
-----------------
Balance, December 31, 1997 $ 1,609,381
=================
In the opinion of Management, such loans are made in the ordinary course
of business at normal credit terms, including interest rate and collateral
requirements and do not represent more than normal credit risk.
There were no commitments to extend credit and letters of credit to
related parties at December 31, 1997.
(Notes continued on next page)
- 19 -
<PAGE>
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, 1997. 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.
<TABLE>
<CAPTION>
Variable Rate Fixed Rate
Commitments Commitments
--------------- ---------------
<S> <C>
December 31, 1997
Loan Commitments $ 53,810,327 $ 6,820,324
Standby letters of credit and guarantees written $ 2,946,393 $ -
December 31, 1996
Loan Commitments $ 29,373,641 $ 3,572,964
Standby letters of credit and guarantees written $ 864,135 $ -
</TABLE>
All of the guarantees outstanding at December 31, 1997 expire at various
dates between 1998 and 2001. Interest rates on fixed-rate commitments range from
7.5% to 12% as of December 31, 1997.
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).
(Notes continued on next page)
- 20 -
<PAGE>
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.
The major concentrations of credit risk for the Bank arise by customer loan type
in relation to loans and credit commitments, as shown in the following table. A
geographic concentration arises because the Bank operates primarily in
southeastern Virginia.
<TABLE>
<CAPTION>
Installment
Residential Commercial Small and
Property Property Business Consumer Total
------------- ------------- -------------- --------------- --------------
<S> <C>
Loans and
receivables $ 87,041,869 $ 9,015,703 $ 50,712,937 $ 3,819,368 $ 150,589,877
Credit
commitments 45,386,958 3,289,205 11,479,993 474,495 60,630,651
-------------- ------------- -------------- ------------ ------------
$ 132,427,827 $ 12,304,908 $ 62,192,930 $ 4,293,863 $ 211,220,528
=============== ============== ============== ============ =============
</TABLE>
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 Bank is 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 Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, 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 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 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, 1997, the Bank
meets all capital adequacy requirements to which it is subject.
(Notes continued on next page)
- 21 -
<PAGE>
NOTE 15 - REGULATORY MATTERS (Continued)
As of September 30, 1996, 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 Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------ ----- ------ -----
<S> <C>
As of December 31, 1997:
Total Capital
(to Risk-Weighted Assets) $ 17,298,000 10.93% $ 12,657,680 > 8% $ 15,822,100 > 10%
- -
Tier I Capital
(to Risk-Weighted Assets) $ 15,324,000 9.69% $ 6,328,840 > 4% $ 9,493,260 > 6%
- -
Tier I Capital
(to Average Assets) $ 15,324,000 9.61% $ 6,340,520 > 4% $ 7,925,650 > 5%
- -
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------ ----- ------ -----
As of December 31, 1996:
Total Capital
(to Risk-Weighted Assets) $ 9,692,000 11.45% $ 6,770,480 > 8% $ 8,463,100 > 10%
- -
Tier I Capital
(to Risk-Weighted Assets) $ 8,652,000 10.22% $ 3,385,240 > 4% $ 5,077,860 > 6%
- -
Tier I Capital
(to Average Assets) $ 8,652,000 8.11% $ 4,269,800 > 4% $ 5,337,250 > 5%
- -
</TABLE>
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, 1997 and 1996. FASB Statement
No. 107, Disclosures about Fair Value of Financial Instruments, defines the fair
value of a 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 sheet under the indicated captions.
(Notes continued on next page)
- 22 -
<PAGE>
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
1997 1996
------------------------------ ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- ------------ ---------------- -----------
(Dollars in thousands) (Dollars in thousands)
<S> <C>
Financial Assets:
Cash and cash equivalents $ 13,211 $ 13,211 $ 3,133 $ 3,133
Deposits in other banks 1,000 1,000 1,000 1,000
Loans (net) 148,017 151,316 80,934 82,360
Investment securities 15,174 15,148 16,892 16,892
Funds advanced in settlement of
mortgage loans 23,744 23,744 11,035 11,035
Accrued interest receivable 1,562 1,562 762 762
Financial Liabilities:
Deposit liabilities 169,508 169,821 99,178 99,448
Short-term borrowings 13,650 13,650 7,236 7,236
Long-term borrowings 7,300 7,016 - -
Accrued interest payable 609 609 516 516
</TABLE>
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 and 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.
(Notes continued on next page)
- 23 -
<PAGE>
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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.
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.
<TABLE>
<CAPTION>
1997 1996
----------------------------------
<S> <C>
Net income (numerator, basic and diluted) $ 1,821,162 1,466,185
Weighted average shares outstanding (denominator) 989,442 926,825
----------------------------------
Earnings per common share-basic $ 1.84 1.58
==================================
Effect of dilutive securities:
Weighted average shares outstanding 989,442 926,825
Effect of stock options 102,297 40,712
----------------------------------
Diluted average shares outstanding (denominator) 1,092,739 967,537
-----------------------------------
Earnings per common share - assuming dilution $ 1.67 $ 1.52
===================================
</TABLE>
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.
(Notes continued on next page)
- 24 -
<PAGE>
NOTE 18 - BUSINESS COMBINATION (Continued)
The following unaudited pro forma financial information for the years
ended December 31, 1997 and 1996 is presented for informational purposes only.
This information assumes the business combination was consummated on January 1,
of each year 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.
<TABLE>
<CAPTION>
Unaudited Pro Forma
Results of Operations
Years Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C>
Total interest income $ 16,904 $ 14,477
Net interest income $ 7,554 $ 5,888
Net income $ 1,607 $ 1,633
Basic earnings per common share $ 1.31 $ 1.38
Diluted earnings per share $ 1.21 $ 1.33
</TABLE>
NOTE 19 - SUBSEQUENT EVENT
On March 16, 1998, the Bank declared a quarterly dividend of $.12 per
share to be paid to shareholders of record on March 31, 1998.
* * * * *
- 25 -
I. FORM 10-QSB
QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
FORM 10-QSB
Board of Governors of the
Federal Reserve System
Washington, D. C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to _____________
Commission file number Not Applicable
RESOURCE BANK
(Exact name of small business issuer as specified in its charter)
Virginia 54-1414459
(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
3720 Virginia Beach Blvd., Va. Beach, VA.23452
(Address of principal executive offices)
(757) 463-2265
Issuer's telephone number
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or of 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Common Stock, $3.00 Par Value -- 1,226,690 shares as of March 31, 1998
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
RESOURCE BANK
CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31 December 31
1998 1997
(Dollars in Thousands)
<S> <C>
ASSETS
Cash and due from banks $3,969 $2,612
Interest bearing deposits with banks 13,005 9,679
Federal funds sold - 1,920
Funds advanced in settlement of mortgage loans 80,284 23,744
Securities available for sale 11,756 12,432
Securities held to maturity 2,227 2,742
Loans, net of unearned income:
Commercial 52,862 50,713
Real estate - construction 46,355 37,626
Commercial real estate 8,421 9,016
Residential real estate 45,528 49,416
Installment and consumer loans 5,387 3,819
-------- --------
TOTAL LOANS 158,553 150,590
Allowance for loan losses (2,709) (2,573)
--------- ---------
NET LOANS 155,844 148,017
Other real estate owned 178 684
Premises and equipment 3,265 3,237
Other assets 3,290 2,701
Accrued interest 1,530 1,562
--------- ---------
$275,348 $209,330
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $16,804 $11,493
Interest bearing 194,935 158,015
--------- --------
TOTAL DEPOSITS 211,739 169,508
FHLB advances 43,320 20,950
Other liabilities 3,651 2,661
Accrued interest 696 609
--------- ---------
TOTAL LIABILITIES 259,406 193,728
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, par value $3.00 a share
Shares authorized: 3,333,333 1/3
Shares issued and outstanding:
1,226,690 3,680 3,680
Additional paid-in capital 10,622 10,769
Retained earnings 1,599 856
Accumulated other comprehensive income 41 297
--------- ---------
15,942 15,602
--------- ---------
$275,348 $209,330
========= =========
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
RESOURCE BANK
CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended
(UNAUDITED) March 31
1998 1997
Interest income: (Dollars in thousands, except per share data)
<S> <C>
Interest and fees on loans $3,547 $1,831
Interest on investment securities 306 291
Interest on funds advanced 772 159
Interest on federal funds sold 6 25
------ -----
Total interest income 4,631 2,306
------ ------
Interest expense:
Interest on deposits 2,317 1,257
Interest on short-term borrowings 263 13
------ -----
Total interest expense 2,580 1,270
----- ------
Net interest income 2,051 1,036
Provision for loan losses 125 15
----- -------
Net interest income after
provision for loan losses 1,926 1,021
----- ------
Noninterest income:
Mortgage banking income 2,104 714
Service charges 158 69
Gain on sale of foreclosed property 2 -
----- ------
2,264 783
----- ------
Noninterest expense:
Salaries and employee benefits 1,861 812
Occupancy expenses 272 119
Depreciation and equipment maintenance 162 98
Professional fees 32 14
Outside computer services 149 43
FDIC insurance 10 2
Stationery and supplies 74 29
Marketing and business development 76 34
Provision for funds advanced 126 -
Other 286 97
------ ------
3,048 1,248
------ ------
Income before income taxes 1,142 556
Income tax expense 400 189
------ ------
Net income $742 $367
====== ======
Basic earnings per common share (Note B) $0.60 $0.38
===== =====
Diluted earnings per share (Note B) $0.53 $0.35
===== =====
See notes to consolidated financial statements.
</TABLE>
-2-
<PAGE>
RESOURCE BANK
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income Total
<S> <C>
Balance, December 31, 1997 1,226,690 $3,680,070 $10,769,249 $856,122 $296,376 $15,601,817
Comprehensive income - - 742,393 (254,889) 487,504
Cash dividend declared
$ .12 per share - - (147,203) (147,203)
----------------------------------------------------------------------------------------
Balance, March 31, 1998 1,226,690 $3,680,070 $10,769,249 $1,451,312 $41,487 $15,942,118
========================================================================================
</TABLE>
-3-
See notes to consolidated financial statements.
<PAGE>
RESOURCE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31 March 31
Operating activities 1998 1997
(Dollars in thousands)
<S> <C>
Net income $742 $367
Adjustments to reconcile to net cash
used by operating activities:
Provision for losses on loans and other real estate owned 125 15
Depreciation and amortization 65 50
Amortization of investment securities
premiums, net of discounts 9 4
Gain on sale of other real estate owned (2) -
Loss on premises and equipment - 2
Deferred loan origination fees, net of costs 77 (9)
Changes in:
Funds advanced in settlement of mortgage loans (56,540) 759
Interest receivable (42) 54
Interest payable 87 20
Other assets (387) (160)
Other liabilities 990 416
-------- -------
Net cash provided (used) by operating activities (54,876) 1,518
Investing activities:
Proceeds from sales and maturities of
available-for-sale securities 1,802 703
Purchases of available-for-sale securities (1,004) (14)
Loan originations, net of principal repayments (8,029) (344)
Purchases of premises, equipment and other assets (92) (69)
------- ------
Net cash (used) provided by investing activities (7,323) 276
Financing activities:
Cash dividends declared (147)
Proceeds (repayments) from FHLB advances 22,370 (7,237)
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 3,651 (1,108)
Net increase in certificates of deposit 38,580 6,729
------ -------
Net cash (provided) used by financing activities 64,454 (1,616)
Increase in cash and cash equivalents 2,255 178
Cash and cash equivalents at beginning of period 13,210 4,133
------- -------
Cash and cash equivalents at end of period $15,465 $4,311
======= =======
Supplemental schedules and disclosures of cash flow information:
Cash paid for:
Interest on deposits and other borrowings $2,493 $749
======= =======
Schedule of noncash investment activities:
Foreclosed real estate ($50) $163
======= =======
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
In addition to historical information, the following discussion contains forward
looking statements that are subject to risks and uncertainties that could cause
the Bank's actual results to differ materially from those anticipated. These
forward looking statements include, but are not limited to, the affect of
increasing interest rates on the Bank's profitability, and the adequacy of the
Bank's allowance for future loan losses. Several factors, including the local
and national economy, the demand for residential mortgage loans, the adequacy of
the Bank's Year 2000 compliance, and the Bank's ability to integrate the
operations of Eastern American Bank may adversely affect the Bank'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.
On December 1, 1997, the Bank acquired Eastern American Bank, FSB, ("Eastern
American") in a business combination accounted for under the purchase method of
accounting, whereby the purchase price has been allocated to the underlying
assets acquired and liabilities assumed based on their respective fair values at
the time of acquisition. In an exchange of common shares, 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. Accordingly, these acquired
assets and liabilities contributed to the growth in total assets and liabilities
of the Bank for the quarter ended March 31, 1998. The Bank's first quarter 1998
results includes results by operations from Eastern American Bank for the three
months ended March 1998.
Results of Operations and Financial Condition
The net income for the quarter ended March 31, 1998 totalled $742,400, an
increase of $375,700 over the first quarter of 1997. This constituted net basic
earnings per common share of $.60 for 1998, and $.38 for 1997. With the diluted
effect of common stock equivalents, earnings per common share were $.53 for
1998, and $.35 for 1997. The expanded levels of earning assets increased the
Bank's net interest income during the first quarter of 1998. This factor, along
with managed expense control, increased volume in the mortgage banking
operation, and expansion of the Bank's business loan portfolio, provided the
basis for increased earnings.
At March 31, 1998, 86.3% of total loans were due in one year or less. Floating
rate loans with maturities of one year or less represented 35.7% of total loans,
and the remainder of loans had fixed rates.
Average loans, net of unearned income, to average deposits were 83.4% and 79.0%
in 1998 and 1997, respectively.
Net Interest Income
Net interest income, before provision for loan losses, increased 98.0% to
$2,051,000 in during the first quarter 1998 over 1997. The 1998 increase in net
interest income was proportionate with the increase in average earning assets
and interest bearing liabilities during the first quarter of 1998. During the
first quarter of 1998, due to the increased banking activity precipitated by
lower interest rates and the acquisition of Eastern American, average loans
increased 90.1% to $153,700,000. During the first quarter of 1998, due to the
competitive pricing of the Bank's deposit products and the acquisition of
Eastern American, average deposits increased 79.9% to $184,150,000. As part of
its mortgage banking operations, funds were advanced on behalf of investor banks
in settlement of mortgage loans. During the first quarter average funds advanced
in settlement of such loans increased 341.7% to $37,623,000 in 1998 while
average securities decreased 17.5% to $13,853,000. The increase in these assets
were funded by Federal Home Loan Bank advances and the average life of the
assets were less than 30 days.
Allowance for Loan Losses
The ratio of net loans charged off to average loans was .0% in 1998 and in 1997.
The allowance for loan losses as a percentage of quarter end loans was 1.71% in
1998 and 1.30% in 1997. The level of non-performing loans at quarter end was
$2,556,000 and $303,000 in 1998 and 1997, or 1.61% and .37%, respectively, of
total loans. Management made a provision for loan losses of $125,000 during the
first quarter of 1998 and $15,000 during the same period of 1997. The majority
of the non-accrual loans were housed in Eastern American Bank at the time of
merger. The Bank has a plan in place to substantially reduce the level of
non-accruing loans during the first half of 1998 and these assets were marked to
market at the time of merger. The Bank anticipates increasing the quality of
assets at Eastern American Bank through the employment of experienced commercial
lending officers.
In establishing the allowance for loan losses, management considers a number of
factors, including loan asset quality, related collateral and economic
conditions prevailing during the loan's repayment. In its loan policies,
management has emphasized the borrower's ability to service the debt, the
borrower's general creditworthiness and the quality of collateral.
While the Bank 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.
Potential Problem Loans
At March 31, 1998, the Bank had $2,333,000 in non-accrual loans and $222,000 of
loans past due 90 days or more that were still accruing. In addition to loans on
either non-accrual status or loans past due 90 days or more and still accruing,
the Bank had identified $1,382,100 of loans that have been internally
classified. These loans require more than normal attention and are potentially
problem loans.
<PAGE>
Noninterest Income and Noninterest Expenses
Noninterest income was $2,264,000 for the first quarter of 1998, an increase of
189.1% over 1997. This increase was primarily from income derived from mortgage
banking operations. The general decline in interest rates, which began in 1995
and continued through the first quarter 1998, was a factor in the increase of
mortgage banking income of 194.7% to $2,104,000. Because of the uncertainty of
future loan origination volume and the future level of interest rates, there can
be no assurance that the Bank will realize the same level of mortgage banking
income in future periods. The increase in other income during the first quarter
of 1998 over 1997 was primarily attributable to service charges on deposit
accounts which increased with the addition of Eastern American Bank. The Bank
realized a gain on sale of loans of $2,000 during 1998.
Total noninterest expense was $3,048,000 for the first quarter of 1998, a 144.2%
increase over the same period in 1997. All areas of noninterest expenses were
affected by the increased volume in the mortgage banking operations and the
merger with Eastern American. The largest component of noninterest expense,
salaries and employee benefits, increased 129.2% to $1,861,000 during the first
three months in 1998 over 1997. This category comprised 61.1% of the total
noninterest expense during the first quarter in 1998, and 65.1% in 1997.
Comparing the first quarter of 1998 over 1997, occupancy expense increased
128.6%, depreciation and equipment maintenance expense increased 65.3%, and
outside computer service increased 246.5%.
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. Based on the increased volume, market
conditions and the changes thereto that could prompt potential losses,
management made a provision for funds advanced of $126,000 during the first
quarter of 1998 and no such provision during the same period of 1997.
Deposit Insurance
The deposits of the Bank are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to the limits set forth under applicable law. The
majority of the Bank's deposits are subject to the deposit assessments of the
Bank Insurance Funds ("BIF") of the FDIC. A portion of the deposits of the Bank
(those acquired as a result of the merger with Eastern American) are subject to
assessments imposed by the Savings Association Insurance Funds ("SAIF") of the
FDIC.
Effective January 1, 1997, the Federal Deposit Insurance Corporation ("FDIC")
equalized the assessment rates for BIF and SAIF insured deposits and the
semi-annual assessments for FDIC deposits have a range of .0% to .27% basis
points per $100 of insured deposits, depending on the Bank's capital position
and other supervisory factors. The Deposit Insurance Funds Act of 1996 (the
"Funds Act") was enacted September 30, 1996. This legislation requires that both
SAIF and BIF insured deposits pay a pro rata portion of the interest due on the
obligations issued by the Financing Corporation ("FICO"). The FDIC is currently
assessing BIF insured deposits and additional 1.244 basis points per $100 of
deposits and the SAIF insured deposits an additional 6.22 basis points per $100
of deposits. FDIC premiums increased 400.0% to $10,000 in the first three months
of 1998 over the $2,000 paid during the same period in 1997.
<PAGE>
Income Taxes
During the first three months of 1998, the Bank made a provision for income
taxes of $400,000 and a provision of $189,000 for the same period in 1997.
Liquidity
The Bank'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. Large certificates of deposit
accounted for 1.02% and .01% of total deposits at March 31, 1998 and 1997,
respectively. Federal Home Loan Bank ("FHLB") advances were also utilized as
funding sources by the Bank during the first quarter of 1998 and 1997. The Bank
had $43,320,000 in such advances outstanding at March 31, 1998 and none of these
advances outstanding at March 31, 1997. The Bank has a warehouse line of credit
collateralized by first mortgage loans amounting to $40,000.000 which expires
December 2, 1998. Also available is a variable rate line of credit on which the
Bank may borrow up to $23,500,000. This arrangement expires November 3, 1998,
and can be prepaid at anytime by the Bank. At March 31, 1998, the Bank had
outstanding $22,920,000 in warehouse advances and $20,400,000 outstanding in
other advances. At March 31, 1997, no such advances were outstanding. The Bank
has no reason to believe these arrangements will not be renewed.
Management seeks to ensure adequate liquidity to fund loans and meet the Bank's
financial requirements and opportunities. To provide liquidity for current,
ongoing and unanticipated needs, the Bank maintains short-term interest bearing
certificates of deposits, federal funds sold, and a portfolio of debt
securities. The Bank also structures and monitors the flow of funds from debt
securities and from maturing loans. As securities are generally purchased to
provide a source of liquidity, most are classified as securities
available-for-sale when purchased. 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 primarily of governmental or quasi-governmental
agencies. Net unrealized appreciation, net of tax effect, on securities
available-for-sale was $41,000 at March 31, 1998 and net unrealized depreciation
on securities available-for-sale of $125,000 at March 31, 1997. The Bank from
time to time also maintains short-term interest bearing certificates of deposit
with other financial institutions. These certificates of deposit amounted to
$1,000,000 at March 31, 1998 and 1997, respectively. There were no federal funds
sold to correspondent institutions at March 31, 1998 and $1,250,000 sold at
March 31, 1997.
<PAGE>
Capital Resources and Adequacy
The Federal Reserve Board, the FDIC and the Office of Thrift Supervision have
issued substantially similar risk-based and leverage capital guidelines
applicable to banking organizations they supervise. Due to the Bank's
capitalization, it is classified as "well capitalized".
The Bank's capital-to-asset ratio decreased to 5.79% at March 31, 1998 as
compared to 7.76% at March 31, 1997, as a result of increased assets.
The capital adequacy standards are based on an established minimum for
Risk-Based Capital, Tier 1 Risk-Based Capital and the Tier 1 Leverage Ratio.
The following table summarizes the Bank's regulatory capital ratios at March 31,
1998.
Required Ratio Actual Ratio
Tier 1 risk-based 4.00% 7.60%
Total risk-based 8.00% 8.85%
Tier 1 leverage 4.00 to 5.00% 7.14%
The Bank is in full compliance with all relevant regulatory capital
requirements.
Net Overhead Ratio
To measure the real efficiency of the Bank, non-interest income should be
subtracted from non-interest expense and divided by the average assets. Since
the mortgage banking department's loan volume will exceed the Bank's assets on a
yearly basis, it masks the progress of the operating bank. Therefore, netting
the mortgage department's contribution reflects the real value of the Bank.
OPERATING EXPENSE INFORMATION
(Dollars in thousands)
March 31, 1998 March 31, 1997
Consolidated data:
Average assets $ 220,292 $ 112,885
Net non-interest expense 784 465
Net overhead ratio 1.42% 1.65%
Peer Group (2.5% - 3.5%) 3.00% 3.00%
Bank data:
Net non-interest expense $ 1,177 $ 502
Net overhead ratio 2.14% 1.78%
Peer Group (2.5% - 3.5%) 3.00% 3.00%
FTE Bank employees 73 33
FTE Mortgage department employees 74 42
Total FTE employees 147 75
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. The
Year 2000 issue affects virtually all companies and organization.
In July 1996, the Bank began the examination and resolution of the Year 2000
issue by appointing a project manager and advising the Board of Directors of the
potential impact on the Bank's ability to do business if the Year 2000 issue is
not resolved. The project manager prepared an action plan, risk analysis and
inventory of Year 2000 related issues in compliance with a directive issued by
the Federal Reserve. The project manager continues to add items to the
inventory. Estimated completion of user testing of all high and moderate risk
items is the first quarter of 1999, with a contingency plan for each item to be
in place. In late 1997, the Bank upgraded or replaced software and hardware in
conjunction with an internally financed change in data processors. The current
data processor is certified to be Year 2000 compliant and user testing will
begin during the third quarter of 1998.
The Board of Directors receives periodic updates, which include the status and
estimated completion dates of each item on the inventory. A failure to become
Year 2000 compliant could disrupt the Bank's operating results and financial
condition; therefore, progress is being closely monitored both internally by
management and the Board of Directors, and externally by the regulators.
<PAGE>
RESOURCE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-QSB. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, in
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. For further information, refer to the financial statements and footnotes
thereto included in the Bank's annual report on Form 10-KSB for the year ended
December 31, 1997.
NOTE B -- EARNINGS PER COMMON SHARE
The Bank adopted Financial Accounting Standards Board (FASB) Statement No. 128,
Earnings Per Share, on December 31, 1997. This statement established standards
for computing and presenting earnings per share (EPS). This Statement supersedes
standards previously set in APB Opinion No. 15, Earnings Per Share. FASB No. 128
requires dual presentation of basic and diluted EPS on the face of the income
statement, 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, 1997. In accordance with the requirements of
this Statement, all prior periods 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. The weighted-average number of shares outstanding
for the three months ending March 31, 1998 and 1997 were 1,226,690 and 967,874,
respectively. The diluted number of shares for the three months ended March 31,
1998 and 1997 were 1,389,068 and 1,049,702, respectively.
<PAGE>
NOTE C -- COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 1998 is as follows:
Net income $ 742,393
Other comprehensive
income, net of
taxes of $ 22,339 (254,889)
-------
Comprehensive income $ 487,504
=======
Other comprehensive income consists only of unrealized gains or losses on
available for sale securities as illustrated below:
Accumulated other
Comprehensive income
Beginning balance $ 296,376
Current period unrealized loss (254,889)
-------
Ending balance $ 41,487
=======
No reclassification adjustment was necessary as no realized gains or losses
were included in net income for the period.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Prior to the Bank's current management assuming office, the Bank had
accumulated a significant deficit. The Bank was prohibited from paying
dividends under Virginia banking law until it had restored any deficits
in its capital funds as originally paid in. Additionally, Federal
Reserve Board regulations limit the payment of dividends to net
profits, as defined, of the current year, plus retained net profits of
the previous tow years. Consequently, until 1996 dividends were
precluded under these regulations.
In each of January 1996 and April 1997, the Board of Directors approved
a one-time dividend of $.10, and $.25 per share, respectively,
contingent upon approval of the Board of Governors of the Federal
Reserve System and the Commonwealth of Virginia, State Corporation
Commission, Bureau of Financial Institutions. Subsequently, the
dividends were approved by the relevant regulatory authorities, subject
to certain provisions of Regulation H of the Federal Reserve System.
These provisions required the Bank to obtain approval of at least
two-thirds of the holders of its Common Stock. Accordingly, the
shareholders approved the $.10 at the 1996 Annual Meeting of
Shareholders and the $.25 dividend at the 1997 Annual Meeting of
Shareholders. As a result of the Bank's improved financial position,
such approvals are no longer required as long as the Bank continues to
achieve satisfactory earnings.
On December 1, 1997, Eastern American Bank FSB, ("Eastern American") a
federal savings bank, was merged into Resource Bank. Each share of
Eastern American Bank stock became .77 shares of Resource Bank Common
Stock.
On March 16, 1998, the Bank announced a quarterly dividend
of $.12 per share to be paid to shareholders of record on March 31,
1998.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Information called for in this section is incorporated by reference to
the Bank's Proxy Statement for the 1998 Annual Meeting.
Item 5. Other Information.
Not applicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
20.1 1997 Annual Report on Form 10-KSB. Filed March
30, 1998 and incorporated herein by reference.
23.1 Notice of 1998 Annual Meeting of Shareholders and
Proxy Statement. Filed April 29, 1998 and incorporated herein
by reference.
b. Reports on Form 8-K.
Resource Bank filed no reports on Form 8-K with the Board of Governors
of the Federal Reserve System during the quarter ended March 31, 1998.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RESOURCE BANK
/s/ Lawrence N. Smith 5/13/98
____________________________________ Date:_________
Lawrence N. Smith
President & Chief Executive Officer
/s/ Eleanor J. Whitehurst 5/13/98
_____________________________________ Date:_________
Eleanor J. Whitehurst
Senior Vice President & Chief Financial Officer
EXHIBIT 99.3
[LETTERHEAD OF RESOURCE BANK]
April 29, 1998
Dear Fellow Shareholders:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of Resource Bank on June 9, 1998, at 3:30 p.m., at the main office
of Resource Bank, located at 3720 Virginia Beach Boulevard, Virginia Beach,
Virginia 23452. The accompanying Notice and Proxy Statement describe the
proposed formation of a holding company, which we will be considering at that
meeting, as well as other regular items of business to be considered. Please
read this document carefully.
Specifically, at this meeting you will be asked to consider and approve
a proposal to adopt the formation of a bank holding company, to be called
Resource Bankshares Corporation. Under the proposal, the Bank will conduct its
banking operations as a wholly-owned subsidiary of Resource Bankshares
Corporation, a Virginia corporation organized for the purpose of serving as the
holding company for the Bank (the "Holding Company"). Each share of your stock
in the Bank will be converted, in a tax-free transaction, into two shares of
common stock in the Holding Company. Following the reorganization of the Bank
into a holding company structure, your percentage of equity ownership in the
Holding Company will be exactly the same as your present ownership in the Bank,
and the Bank will continue to operate from the same offices it currently
occupies.
The financial services industry is one of the most rapidly changing
segments of Virginia's and the nation's economy. Historical distinctions between
various types of financial institutions are eroding rapidly, and banks are
subject to new and more aggressive competition from all sides. Your Board
believes that the greater flexibility and investment opportunities provided by
the establishment of a holding company will help your management operate more
efficiently and take advantage of opportunities as they arise in this rapidly
changing environment.
You will also be asked to consider and approve three other items of
business: (i) the election of seven incumbent directors, each of whom will serve
a one year term and until their successors are duly elected and qualify, and
(ii) the ratification of the appointment of Goodman & Company, L.L.P. as
independent auditors for the 1998 fiscal year. The Board of Directors encourages
you to read carefully the enclosed Proxy Statement and to VOTE FOR the
reorganization of the Bank and the other matters to be considered at the
meeting.
We hope you can attend the Meeting. WHETHER OR NOT YOU PLAN TO ATTEND,
PLEASE COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE. Your vote is important regardless of the number of
shares you own. We look forward to seeing you at this Annual Meeting, and we
appreciate your continued loyalty and support.
Sincerely,
RESOURCE BANK
/s/ Lawrence N. Smith
Lawrence N. Smith
President and Chief Executive Officer
<PAGE>
RESOURCE BANK
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 9, 1998
To Our Shareholders:
The 1998 Annual Meeting of Shareholders of Resource Bank (the "Bank")
will be held at its main office located at 3720 Virginia Beach Boulevard,
Virginia Beach, Virginia, on June 9, 1998, at 3:30 p.m., for the following
purposes:
1. To consider and vote upon an Agreement and Plan of
Reorganization dated as of April 10, 1998, and a related Plan
of Share Exchange (collectively, the "Agreement"), a copy of
which is attached to the accompanying Proxy Statement as
Exhibit A, providing for a share exchange in which each
shareholder of the Bank will receive two shares of common
stock of Resource Bankshares Corporation, a bank holding
company formed to serve as the holding company for the Bank,
for each share of Resource Bank common stock they now own.
2. To consider and vote upon the election of seven directors to
serve a one year term and until their successors are duly
elected and qualify.
3. To consider and vote upon the ratification of the
appointment of Goodman & Company, L.L.P. as independent
auditors for the 1998 fiscal year.
4. To transact such other business as may properly come before
the meeting.
Shareholders of record at the close of business on April 23, 1998,
will be entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
Each Bank Shareholder will have the right to dissent from the
Reorganization and to demand payment of the fair value of his shares in the
event the Reorganization is approved and consummated. Any right of a shareholder
to receive such payment is contingent upon strict compliance with the
requirements set forth in Article 15 of the Virginia Stock Corporation Act, the
full text of which is enclosed as Exhibit B attached to the accompanying Proxy
Statement/Prospectus.
Approval of the Reorganization will require the affirmative vote of a
majority of the outstanding shares of Bank Common Stock. Directors are elected
by a plurality of the votes cast. The affirmative vote of a majority of votes
cast by Bank shareholders is required to ratify the appointment of auditors. THE
BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF EACH OF THE ABOVE ITEMS.
By Order of the Board of Directors
/s/ Debra C. Dyckman
Debra C. Dyckman
Secretary of the Board
April 29, 1998
<PAGE>
RESOURCE BANK
3720 Virginia Beach Boulevard
P. O. Box 61009
Virginia Beach, Virginia 23462-0218
PROXY STATEMENT
This Proxy Statement is furnished to the Shareholders of Resource Bank
(the "Bank") in connection with the solicitation of proxies by the Board of
Directors of the Bank for use at its 1998 Annual Meeting of Shareholders to be
held on June 9, 1998, at the time and place set forth in the accompanying Notice
of 1998 Annual Meeting of Shareholders and at any adjournment thereof (the
"Annual Meeting"). This Proxy Statement and the enclosed Proxy are being mailed
to the Shareholders of the Bank on or about April 29, 1998.
At the Annual Meeting, Shareholders will be asked to approve the
reorganization of the Bank into a holding company structure (the
"Reorganization") in accordance with the terms and conditions set forth in the
Agreement and Plan of Reorganization, dated as of April 10, 1998, and a related
Plan of Share Exchange (collectively, the "Agreement") between the Bank and
Resource Bankshares Corporation, a copy of which is attached as Exhibit A to
this Proxy Statement. The Agreement provides for the reorganization of the Bank
into a wholly-owned subsidiary of Resource Bankshares Corporation, a Virginia
corporation recently organized to serve as the holding company for the Bank (the
"Holding Company"). Under the terms of the Agreement, each Shareholder of the
Bank will receive two shares of Holding Company Common Stock in exchange for
each share of Bank Common Stock which they hold, in a tax-free transaction.
Existing warrants and options for Bank Common Stock will likewise be converted
into a corresponding number of warrants and options, respectively, for Holding
Company Stock based upon the two-for-one exchange ratio. After consummation of
the Reorganization, the Bank will conduct its business as a wholly-owned
subsidiary of the Holding Company in substantially the same manner and from the
same offices as before the Reorganization. If an adjournment is proposed, the
persons named as proxies will vote in favor of such adjournment those proxies
which are entitled to be voted in favor of the Agreement and against such
adjournment those proxies containing instructions to vote against approval of
the Agreement, unless the Shareholder clearly writes on the face of that Proxy
specific instructions stating how that Proxy should be voted in the case of an
adjournment proposed prior to a vote on the Reorganization. See "The Proposed
Reorganization."
At the Annual Meeting, shareholders of the Bank will also be asked to
vote on (i) the election of seven incumbent directors to serve a one year term
and until their successors are duly elected and qualify, and (ii) the
ratification of the appointment of Goodman & Company, L.L.P. as independent
auditors for the ensuing year.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE FEDERAL
RESERVE BOARD OF GOVERNORS OR THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS
ANY GOVERNMENT AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
THE SHARES OF HOLDING COMPANY COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THE DATE OF THIS PROXY STATEMENT IS APRIL 29, 1998.
<PAGE>
This Proxy Statement also describes 2,640,758 shares of Holding Company
Common Stock, par value $3.00 per share, (which includes all shares authorized
for issuance pursuant to warrants and/or option plans of the Bank) to be issued
to Shareholders (and warrant and option holders) of the Bank in exchange for
their shares of Bank Common Stock or to be issued pursuant to outstanding
warrants and options. The trading market for Holding Company Common Stock is not
expected to vary significantly from the Bank's current trading market.
AVAILABLE INFORMATION
The Bank is currently subject to the informational requirements of the
rules and regulations of the Board of Governors of the Federal Reserve System
(the "FRB"), as promulgated under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), in accordance therewith files reports, proxy
statements and other information with the FRB. In addition, the Holding Company
that will become the parent corporation of the Bank has filed proxy materials
with the FRB relating to this Reorganization. Such reports, proxy statements and
other information can be inspected and copied at the FRB's Freedom of
Information Department, 20th and Constitution Streets, N.W., Washington, DC
20551 or at the FRB's office in Richmond, Virginia at 701 East Byrd Street,
Richmond, VA 23219. Bank Common Stock is quoted on the NASDAQ National Market
System and such reports, proxy statements and other information are also
available for inspection and copying at NASDAQ's Listings Department, 1735 K
Street, N.W., Washington, DC 20006.
Pursuant to the Reorganization, the Holding Company will assume
reporting responsibilities with the Securities and Exchange Commission under the
Exchange Act as a successor issuer to the Bank, and will undertake similar
responsibilities with the Commission as previously performed by the Bank under
the rules and regulations of the FRB.
INFORMATION INCORPORATED BY REFERENCE AND
DELIVERED WITH THIS PROXY STATEMENT
THIS PROXY STATEMENT INCORPORATES CERTAIN DOCUMENTS OF THE BANK AND
REFERENCE WHICH ARE NOT PRESENTED HEREIN. COPIES OF ANY SUCH DOCUMENTS, OTHER
THAN EXHIBITS THERETO, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS DELIVERED UPON WRITTEN OR ORAL
REQUEST TO THE BANK, 3720 VIRGINIA BEACH BOULEVARD, VIRGINIA BEACH, VIRGINIA
23452, ATTENTION: DEBRA C. DYCKMAN, SENIOR VICE PRESIDENT, (757) 463-2265. IN
ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE RECEIVED NO
LATER THAN MAY 15, 1998.
<PAGE>
THE FOLLOWING DOCUMENTS OF THE BANK, FILED WITH THE FRB AND DELIVERED
HEREWITH, ARE INCORPORATED BY REFERENCE HEREIN:
The Bank's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997.
In addition, all documents filed by the Bank pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act and the rules and regulations of
the FRB and all documents filed by the Holding Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, in each case subsequent to the
date of this Proxy Statement and prior to latter of the termination of the
distribution of Holding Company Common Stock described herein, shall be deemed
to be incorporated herein and to be a part hereof from the respective dates of
filing thereof (all such documents being hereinafter referred to as
"Incorporated Documents"). Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein or in any supplement hereto modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part hereof, except as so modified or superseded.
This Proxy Statement contains certain forward-looking statements with
respect to the financial condition, results of operations and business of the
Bank. These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) competitive pressure in the banking industry
increases significantly; (2) changes in the interest rate environment reduces
margins or affects the fair market value of the Bank's assets to be acquired in
the Reorganization; (3) general economic conditions, either nationally or
regionally, are less favorable than expected, resulting in, among other things,
a deterioration in credit quality; (4) changes occur in the regulatory
environment; (5) changes occur in business conditions and inflation; and (6)
changes occur in the securities markets.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PROXY STATEMENT...................................................................................... 1
AVAILABLE INFORMATION................................................................................ 2
SUMMARY OF THE PROXY STATEMENT....................................................................... 5
SELECTED HISTORICAL FINANCIAL INFORMATION............................................................ 8
GENERAL INFORMATION.................................................................................. 9
Use and Revocation of Proxies................................................................ 9
Shareholders Entitled to Vote and Vote Required.............................................. 9
Solicitation of Proxies...................................................................... 9
Financial Statements......................................................................... 10
THE PROPOSED REORGANIZATION.......................................................................... 10
Description of the Reorganization............................................................ 10
Reasons for the Reorganization............................................................... 10
Management of the Holding Company............................................................ 11
Anticipated Effective Date of Reorganization................................................. 11
Conversion and Exchange of Stock............................................................. 11
Federal Income Tax Consequences.............................................................. 12
Required Regulatory Approvals................................................................ 12
Possible Abandonment of the Reorganization................................................... 13
Rights of Dissenting Shareholders............................................................ 13
Historical and Pro Forma Capitalization...................................................... 15
Prior to the Reorganization........................................................... 15
After the Reorganization.............................................................. 15
RESOURCE BANK ...................................................................................... 16
The Bank..................................................................................... 16
General...................................................................................... 16
Competition.................................................................................. 16
Description of Common Stock.................................................................. 17
Market for Bank Common Stock................................................................. 17
DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK......................................................... 18
Authorized and Outstanding Capital Stock..................................................... 18
Common Stock................................................................................. 18
Preferred Stock.............................................................................. 19
COMPARATIVE RIGHTS OF SHAREHOLDERS................................................................... 19
General...................................................................................... 19
ELECTION OF DIRECTORS................................................................................ 20
BENEFICIAL OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND PRINCIPAL SHAREHOLDERS OF THE BANK ........................................................... 22
APPOINTMENT OF AUDITORS ............................................................................. 26
REGULATION AND SUPERVISION........................................................................... 27
The Bank..................................................................................... 27
The Holding Company.......................................................................... 27
SUBMISSION OF PROPOSALS.............................................................................. 28
LEGAL MATTERS ...................................................................................... 29
EXHIBIT A
Agreement and Plan of Reorganization and Plan of Share Exchange
EXHIBIT B
Article 15 of Title 13.1 of the Virginia Stock Corporation Act
</TABLE>
<PAGE>
SUMMARY OF THE PROXY STATEMENT
The following material is qualified in its entirety by the information
appearing elsewhere in this Proxy Statement and the Exhibits hereto.
ANNUAL MEETING
DATE, TIME AND PLACE. June 9, 1998 at 3:30 p.m. at the main office of
the Bank, 3720 Virginia Beach Boulevard, Virginia Beach, Virginia.
PURPOSE. Shareholders will be asked to vote on the proposed Agreement
and formation of a bank holding company for the Bank as well as other regular
matters of business. The affirmative vote of persons holding a majority of the
outstanding shares of Bank Common Stock will be required to approve this matter.
The vote required for approval of other matters is described below in "General
Information." The Bank's Board of Directors recommends that shareholders vote
"FOR" the Reorganization and other matters before the meeting.
THE REORGANIZATION
At the direction of the Board of Directors of the Bank, Resource
Bankshares Corporation (the "Holding Company") was incorporated under the laws
of Virginia to serve as a holding company for the Bank. The Bank and the Holding
Company have entered into an agreement by which the Bank will become a
wholly-owned subsidiary of the Holding Company in a tax-free share exchange
transaction. At the effective date of the Reorganization, shareholders of the
Bank will automatically become shareholders of the Holding Company and will
receive two shares of Holding Company common stock in exchange for each share of
Bank Common Stock they hold. Existing warrants and options for Bank Common Stock
will be converted into warrants and options for Holding Company Common Stock.
See "The Proposed Reorganization."
REASONS FOR THE REORGANIZATION
The Board of Directors believes that the establishment of a holding
company structure for the Bank will provide greater flexibility in responding to
the expanding financial needs of the Bank's customers and in meeting increasing
and ever-changing forms of competition for financial services. In particular,
the Holding Company will provide the Bank greater flexibility in repurchasing
common stock from shareholders, may facilitate affiliations with other financial
institutions, and in the future, may provide more defenses against an unwanted
attempt by another party to gain control of the Bank. The holding company
structure also may afford certain investment opportunities that otherwise would
not be available to the Bank. See "The Proposed Reorganization."
MANAGEMENT OF THE HOLDING COMPANY
Management of the Bank will not change as a result of the
Reorganization. The officers of the Holding Company will be Lawrence N. Smith -
President and Chief Executive Officer; Debra C. Dyckman - Senior Vice President
and Secretary; and Eleanor J. Whitehurst, Senior Vice President, Chief Financial
Officer, and Treasurer. The seven individuals currently slated to serve as
directors of the Holding Company include John B. Bernhardt (Chairman), Alfred E.
Abiouness, Thomas W. Hunt, Louis R. Jones, A. Russell Kirk, Lawrence N. Smith,
and Elizabeth A. Twohy, all currently serving also as directors of the Bank. See
"The Proposed Reorganization."
MARKET FOR COMMON STOCK
Bank Common Stock is listed on NASDAQ/NMS. There are several local
brokerage offices, "market makers," that will match or pair "buy" and "sell"
orders. Accordingly, there is an established market for the Bank's Common Stock;
however, due to the sporadic trades which occur, the prices quoted fluctuate.
Trades in Bank Common Stock since December 31, 1997 have been in the range of
$36.00 to $46.00 per share, with the most recent trade occurring on April 22,
1998, for 900 shares at a sales price of $49.13 per share. The Bank's management
is currently considering listing the Bank's, and subsequently the Holding
Company's, common stock on the American Stock Exchange; however, there can be no
guarantee that this listing will occur or what effect such a listing will have
upon trading in such stock. In addition, the current trading range may or may
not reflect the price a shareholder would receive if the stock were traded more
actively. Holding Company Common Stock is expected to trade primarily in the
local market in a substantially similar manner as the Bank's Common Stock. The
formation of a holding company should have little or no effect on the market or
market price of Common Stock.
THERE CAN BE NO ASSURANCE AS TO THE MARKET OR TRADING VALUE OF HOLDING
COMPANY COMMON STOCK AT THE EFFECTIVE DATE OR AT ANY TIME THEREAFTER.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free "reorganization" under Sections 368(a)(1)(B) of the
Internal Revenue Code in which no gain or loss will be recognized by a Bank
shareholder upon receipt of Holding Company Common Stock in exchange for Bank
Common Stock. See "The Proposed Reorganization."
COMPARISON IN THE RIGHTS OF SHAREHOLDERS
The Holding Company, like the Bank, is organized as a Virginia
corporation, subject to the provisions of the Virginia Stock Corporation Act
(the "Virginia SCA"). The articles of incorporation and bylaws of the Holding
Company, at least initially, will be virtually identical to those of the Bank.
Accordingly, there will be no material differences between the rights of the
Bank's present shareholders and the rights of shareholders receiving Holding
Company Common Stock in the Reorganization. See "The Proposed Reorganization."
GOVERNMENT REGULATION AND SUPERVISION
After the effective date, the Holding Company will be subject to the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and will be subject
to regulation by the FRB with respect to its operations as a bank holding
company. The Bank will continue to be subject to regulation by the FRB and the
Virginia State Corporation Commission (the "SCC"). See "Regulation and
Supervision."
RIGHTS OF DISSENTING SHAREHOLDERS
Those shareholders of the Bank who object to the Reorganization will be
entitled to dissenters rights as provided in the Virginia SCA. See "The Proposed
Reorganization-Rights of Dissenting Shareholders."
CONDITIONS FOR CONSUMMATION, ANTICIPATED EFFECTIVE DATE, AND TERMINATION
Consummation of the Reorganization is subject to, among other things,
(i) the affirmative vote of a majority of the outstanding shares of Bank Common
Stock, and (ii) the approval by the SCC and the FRB. Applications for approval
of the Reorganization have been filed, and the Reorganization is expected to be
consummated on or about June 30, 1998. The Reorganization may be terminated by
either the Holding Company or the Bank prior to the approval of the Agreement by
the shareholders or by the mutual consent of the Board of Directors of the
Holding Company and the Bank after any required shareholder approval are
received. See "The Proposed Reorganization."
OTHER ITEMS OF BUSINESS
You will also be asked to consider and approve (i) the election of
seven incumbent directors, each of whom will serve a one year term and until
their successors are duly elected and qualify, and (ii) the ratification of the
appointment of Goodman & Company, L.L.P. as independent auditors for the 1998
fiscal year.
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth certain selected financial
information for the Bank. The selected financial information should be
read in conjunction with the financial statements of the Bank and the
related notes thereto in documents incorporated herein by reference. See
"Available Information."
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C>
Income Statement Data:
Interest Income $10,937,495 $8,295,052
Interest Expense 5,983,424 4,689,758
Net Interest Income 4,954,071 3,605,294
Provision for Loan Losses (155,254) (290,000)
Other Income 4,520,319 2,755,203
Other Expense 6,533,326 4,451,038
Income Tax Expense (964,648) (153,274)
Net Income $1,821,162 $1,466,185
Per Share Data:
Net Income $1.84 $1.58
Cash Dividend $.25 $.10
Book Value $12.72 $8.94
Balance Sheet Data
Assets $209,330,018 $115,836,311
Loans Net of Unearned Income 148,016,531 80,934,739
Securities, available for sale 12,432,253 16,892,436
Securities, held to maturity 2,742,032 -
Deposits 169,508,332 99,178,555
Shareholders' Equity 15,601,817 8,655,061
Shares Outstanding 1,226,690 967,874
Performance Ratios:
Return on Average Assets 1.43% 1.45%
Return on Average Equity 18.92% 20.46%
Dividend Payout 14.97% 6.58%
Asset Quality Ratios:
Allowance for Loan Losses to Period
end loans 1.71% 1.27%
Allowance for Loan Losses to
non-performing loans 59% 247%
Non-performing assets to period end
loans and foreclosed property 2.91% .51%
Net Charge-offs to average loans .03% .15%
Capital Ratios:
Leverage 9.67% 7.04%
Risk-based
Tier I Capital 9.69% 10.22%
Tier II Capital 10.93% 11.45%
</TABLE>
<PAGE>
GENERAL INFORMATION
USE AND REVOCATION OF PROXIES
If the enclosed Proxy is properly executed and returned in time for
voting at the Annual Meeting, the shares represented thereby will be voted in
accordance with such instructions. If no instructions are given in a returned,
executed Proxy, the Proxy will be voted in favor of the Reorganization and the
other two matters for consideration at the meeting, and in the discretion of the
proxyholders as to any other matters which may properly come before the meeting.
Proxies will extend to, and will be voted at, any properly adjourned session of
the Annual Meeting, unless otherwise revoked. If an adjournment is proposed, the
persons named as proxies will vote in favor of such adjournment those Proxies
which are entitled to be voted in favor of the Reorganization and against such
adjournment those Proxies containing instructions to vote against the
Reorganization unless the shareholder clearly writes on the face of that Proxy
specific instructions stating how the Proxy should be voted in the case of an
adjournment proposed prior to a vote on the Reorganization.
Execution of a Proxy will not affect a shareholder's right to attend
the Annual Meeting and to vote in person. Any shareholder who has executed and
returned a Proxy for any reason desires to revoke it may do so at any time
before the Proxy is exercised by filing with the Secretary of the Bank an
instrument revoking it or a duly exercised Proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
SHAREHOLDERS ENTITLED TO VOTE AND VOTE REQUIRED
Only holders of record of Bank Common Stock at the close of business on
April 23, 1998 (the "Record Date") are entitled to vote at the Annual Meeting.
On the Record Date, there were 1,226,690 shares of Bank Common Stock, par value
$3.00 per share, outstanding and entitled to vote. Each share of outstanding
Bank Common Stock is entitled to one vote on all matters presented at the Annual
Meeting. In order for the Reorganization to become effective, a majority of the
outstanding shares of Bank Common Stock must be voted in favor of the
Reorganization.
Although abstentions and broker non-votes (shares held by customers
which may not be voted on certain matters because the broker has not received
specific instructions from the customer) are counted for purposes of determining
the presence or absence of a quorum for the transaction of business, they are
generally not counted for purposes of determining whether such proposals have
been approved and therefore have no effect.
Directors, Executive Officers and their affiliates beneficially own and
may vote 423,944 of the outstanding shares of the Bank's Common Stock entitled
to vote on the Reorganization, which shares represent 34.6% of the votes
required to approve the Reorganization. The Bank believes that all of these
shares will be voted FOR the Reorganization.
SOLICITATION OF PROXIES
The Bank will bear its own expenses incident to soliciting proxies.
Directors, Officers, and employees of the Bank acting without commission or
other special compensation may solicit proxies in person, by telephone or by
mail.
FINANCIAL STATEMENTS
The consolidated financial statements for the year ended December 31,
1997 have previously been provided to Shareholders and are available upon
request. Additional copies of the reports will be furnished without charge to
Shareholders upon written request directed to Debra Dyckman, Senior Vice
President, at the Bank's address set forth on the cover page of the Proxy
Statement. The above-referenced financial statements and interim call reports
will be available at the Annual Meeting for inspection by Shareholders.
Additional financial information will be provided upon request (see "Additional
Information," above).
PROPOSAL ONE
THE PROPOSED REORGANIZATION
DESCRIPTION OF THE REORGANIZATION
The Board of Directors of the Bank has unanimously approved the
proposed Reorganization whereby the business of the Bank will be conducted under
a Holding Company structure. The Holding Company will be organized under the
laws of Virginia. The affirmative vote of persons holding a majority of the
outstanding shares of Bank Common Stock will be required to approve the
Reorganization.
The Bank and the Holding Company have entered into the Agreement under
the terms of which the Bank will become a wholly-owned subsidiary of the Holding
Company in a share exchange transaction. The material terms of the Agreement are
provided below. Pursuant to the Reorganization, each share of Bank Common Stock
will be exchanged for two shares of Holding Company Common Stock in a tax free
transaction. Each warrant or option to purchase shares of Bank Common Stock will
be converted into a warrant or option to purchase Holding Company Stock. The
Articles of Incorporation and Bylaws of the Holding Company will be
substantially identical to the Articles of Incorporation and Bylaws of the Bank.
Upon consummation of the Reorganization, shareholders of the Bank automatically
will become shareholders of the Holding Company and will receive two shares of
Holding Company Common Stock for each share of Bank Common Stock they hold
immediately prior to the Effective Date.
The Bank will conduct its business under the same name and in the same
manner as it did prior to the Reorganization. The officers and personnel of the
Bank will continue in their same capacity after the Reorganization. The Bank
will pay all expenses incurred in connection with the Reorganization, including
the costs of organizing the Holding Company.
REASONS FOR THE REORGANIZATION
The financial services industry is one of the most rapidly changing
segments of our nation's economy. Historical distinctions between different
types of financial institutions are eroding rapidly as a result of new
technology, legislative changes, and changing regulatory philosophies. In
addition, traditional restrictions on branch banking have given way to
multi-state banking and multi-bank holding companies. Accordingly, banks are
subject to aggressive competition from a wide variety of institutions offering
an expanding array of financial products and services. Current laws and
regulations applicable to banks limit their ability to supplement traditional
financial services and products and to diversify into other banking-related
ventures in response to increasing competition and changing customer needs. The
laws and regulations applicable to bank holding companies allow holding
companies greater flexibility in expanding their markets and in increasing the
variety of services they and their subsidiaries provide to customers. The Bank
has a number of large shareholders, and this flexibility may be particularly
useful to respond to an improving equity position at the Bank or to react to the
needs of a large shareholder to liquidate stock quickly. The Board of Directors
of the Bank believes that the new corporate structure will enhance the
institution's ability to compete under existing laws and regulations and to
respond effectively to changing market conditions.
A holding company structure also might facilitate future affiliations
between the Bank and other financial institutions. Although neither the Bank nor
the Holding Company has made any commitment to expand significantly its market
through acquisition of existing banks or to engage in activities other than
those currently conducted by the Bank, the Board anticipates that the holding
company structure will facilitate future combinations with other financial
institutions, if suitable opportunities arise for acquisition, expansion, or
affiliation. The holding company structure also may provide opportunities to
engage in new activities related to banking. Finally, the Holding Company may
provide more defenses against an unwanted attempt by another party to acquire or
gain control of the Bank, although the Bank is not presently aware of anyone who
has such plans.
MANAGEMENT OF THE HOLDING COMPANY
At the Effective Date, the Board of Directors, officers and employees
of the Bank will not change as a result of the Reorganization. Following the
Reorganization, the Bank will keep its existing name and office locations and
will continue to carry on its banking businesses in the same manner as before
the Share Exchange. The Board of Directors of the Holding Company will consist
of seven individuals currently serving as directors of the Bank, Alfred E.
Abiouness, John B. Bernhardt, Thomas W. Hunt, Louis R. Jones, A. Russell Kirk,
Lawrence N. Smith, and Elizabeth A. Twohy. Approval of the Reorganization by the
shareholders of the Bank at the Annual Meeting will be deemed to ratify the
seven designees as directors of the Holding Company. The Board of Directors and
executive officers of the Bank (and their affiliates) currently control
approximately 34.6 percent of Bank Common Stock outstanding, and all of those
individuals have indicated that they intend to vote for the Reorganization.
ANTICIPATED EFFECTIVE DATE OF REORGANIZATION
If the holders of a majority of the outstanding shares of Bank Common
Stock approve the Reorganization, the Reorganization will become effective upon
satisfaction of certain conditions and the receipt of required regulatory
approvals, including approval by the FRB and the State Corporate Commission
Bureau of Financial Institutions ("SCC"). Applications for approval of the
Reorganization have been filed with the FRB and the SCC. Subject to receipt of
all requisite regulatory approvals and the satisfaction of all other conditions
to the Reorganization, the objective is to have the Reorganization declared
effective on or about June 30, 1998 (the "Effective Date").
CONVERSION AND EXCHANGE OF STOCK
On the Effective Date, shareholders of the Bank will become
shareholders of the Holding Company. Each share of Bank Common Stock, par value
$3.00 per share, will, by virtue of the share exchange transsation, shall
represent two shares of Holding Company Common Stock, par value $3.00 per share.
(the "Exchange Ratio"). Outstanding certificates representing shares of Bank
Common Stock will thereafter represent an equal number of Holding Company Common
Stock and the holder thereof also shall be entitled to receive a certificate of
Holding Company Common Stock to reflect the additional shares deemed issued
pursuant to the Exchange Ratio. Shareholders shall maintain the same
proportional share interest in the Holding Company as they currently hold in the
Bank, except for nominal changes in interests resulting from the exercise, if
any, of dissenting shareholders' rights under Virginia law. Shareholders holding
certificates of Bank Common Stock will be entitled to exchange their
certificates at any time after the Effective Date for certificates of Holding
Company Common Stock.
Upon consummation of the Reorganization, promptly after the Effective
Date, the Bank, as exchange agent, will mail to Bank Common Stock shareholders
who hold stock immediately prior to the Effective Date the additional
certificates of Holding Company Common Stock to which they are entitled. A
letter of transmittal and instructions relating to the exchange of Bank Common
Stock certificates shall be made available upon request.
BANK SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES WITHOUT
CONTACTING THE BANK FIRST REGARDING DIRECTIONS FOR DOING SO.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify as a "reorganization" under
Section 368(a)(1)(B) of the Internal Revenue Code, and the material federal
income tax consequences summarized below are based on that assumption. One
condition to consummation of the Reorganization is the Bank's receipt of an
opinion of Mays & Valentine, L.L.P., counsel to the Bank and Holding Company,
that the Reorganization will qualify as a reorganization under Section
368(a)(1)(B) and that, for the Bank's shareholders who receive Holding Company
Common Stock for their Bank Common Stock, the exchange will result in the
non-recognition of gain or loss. A copy of that opinion is available for
inspection upon request from Debra C. Dyckman, Senior Vice President, Resource
Bank, 3720 Virginia Beach Boulevard, P. O. Box 61009, Virginia Beach, Virginia
23462-0218.
The Bank's shareholders will not recognize any gain or loss on the
exchange of Bank Common Stock solely for Holding Company Common Stock. A
shareholder's tax basis in the shares of Holding Company Common Stock received
in exchange for his Bank Common Stock will equal his tax basis in the shares of
Bank Common Stock exchanged therefor. The holding period for those shares of
Holding Company Common Stock will include the shareholder's holding period for
the shares of Bank Common Stock exchanged therefor, if they are held as a
capital asset at the time of the exchange.
Upon consummation of the Reorganization, no gain or loss will be
recognized by the Holding Company or Bank.
It is intended that the Reorganization will receive accounting
treatment similar to that for a pooling of interests.
THE FOREGOING DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES IS A
SUMMARY OF GENERAL INFORMATION MATERIAL TO MOST SHAREHOLDERS. DUE TO THE
INDIVIDUAL NATURE OF THE TAX CONSEQUENCES OF A REORGANIZATION, EACH BANK
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH REGARD TO
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE REORGANIZATION.
REQUIRED REGULATORY APPROVALS
The Reorganization must be approved by the FRB and the SCC. Management
of the Bank has filed the required applications for approval of the
Reorganization with the appropriate regulatory authorities. Subject to the
approval of the FRB and the SCC and the satisfaction of all other conditions to
the Reorganization, Management believes that the Reorganization will be declared
effective on or about June 30, 1998.
POSSIBLE ABANDONMENT OF THE REORGANIZATION
Consummation of the Reorganization is subject to obtaining the required
shareholder approval and various regulatory approvals. The Agreement may be
terminated by the unilateral action of the Boards of Directors of the Bank or
the Holding Company prior to the approval of the Reorganization by the
shareholders or by mutual consent of the respective Boards of Directors of the
Bank and the Holding Company after any required shareholder approval has been
obtained.
RIGHTS OF DISSENTING SHAREHOLDERS
A shareholder of Bank Common Stock who objects to the Reorganization (a
"Dissenting Shareholder") and who complies with provisions of Article 15 of
Title 13.1 of the Virginia SCA (specifically "Article 15") may demand the right
to receive a cash payment, if the Reorganization is consummated, for the fair
value of his or her stock immediately before the Effective Date, exclusive of
any appreciation or depreciation in anticipation of the Reorganization unless
such exclusion would be inequitable. In order to receive payment, a Dissenting
Shareholder must deliver to the Bank prior to the Annual Meeting a written
notice of intent to demand payment for his or her shares if the Reorganization
is consummated (an "Intent to Demand Payment") and must not vote his or her
shares in favor of the Reorganization. The Intent to Demand Payment should be
addressed to Lawrence N. Smith, President and CEO, Resource Bank, 3720 Virginia
Beach Boulevard, P. O. Box 61009, Virginia Beach, Virginia 23462-0218. A VOTE
AGAINST THE REORGANIZATION WILL NOT ITSELF CONSTITUTE SUCH WRITTEN NOTICE AND A
FAILURE TO VOTE WILL NOT CONSTITUTE A TIMELY WRITTEN NOTICE OF INTENT TO DEMAND
PAYMENT.
A shareholder of record of Bank Common Stock may assert dissenters'
rights as to fewer than all the shares registered in his or her name only if the
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies the Bank in writing of the name and address of each person
on whose behalf he asserts dissenters' rights. The rights of such a partial
dissenter are determined as if the shares to which he dissents and his other
shares were registered in the names of different shareholders. A beneficial
shareholder of Bank Common Stock may assert dissenters' rights as to shares held
on his behalf by a shareholder of record only if (i) he submits to the Bank the
record shareholder's written consent to the dissent not later than the time when
the beneficial shareholder asserts dissenters' rights, and (ii) he dissents with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
Within 10 days after the Effective Date, the Bank is required to
deliver a notice in writing (a "Dissenter's Notice") to each Dissenting
Shareholder who has filed an Intent to Demand Payment and who has not voted such
shares in favor of the Reorganization. The Dissenter's Notice shall (i) state
where the demand for payment (the "Payment Demand") shall be sent and where and
when stock certificates shall be deposited; (ii) supply a form for demanding
payment; (iii) set a date by which the Bank must receive the Payment Demand; and
(iv) be accompanied by a copy of Article 15. A Dissenting Shareholder who is
sent a Dissenter's Notice must submit the Payment Demand and deposit his or her
stock certificates in accordance with the terms of, and within the time frames
set forth in, the Dissenter's Notice. As a part of the Payment Demand, the
Dissenting Shareholder must certify whether he or she acquired beneficial
ownership of the shares before or after the date of the first public
announcement of the proposed Reorganization (the "Announcement Date"), which was
March __, 1998. The Bank will specify the Announcement Date in the Dissenter's
Notice.
Except with respect to shares acquired after the Announcement Date, the
Bank shall pay a Dissenting Shareholder the amount the Bank estimates to be the
fair value of his or her shares, plus accrued interest. Such payment shall be
made within 30 days of receipt of the Dissenting Shareholder's Payment Demand.
As to shares acquired after the Announcement Date, the Bank is only obligated to
estimate the fair value of the shares, plus accrued interest, and to offer to
pay this amount to the Dissenting Shareholder conditioned upon the Dissenting
Shareholder's agreement to accept it in full satisfaction of his or her claim.
If a Dissenting Shareholder believes that the amount paid or offered by
the Bank is less than the fair value of his or her shares, or that the interest
due is incorrectly calculated, that Dissenting Shareholder may notify the Bank
of his or her own estimate of the fair value of his shares and amount of
interest due and demand payment of such estimate (less any amount already
received by the Dissenting Shareholder) (the "Estimate and Demand"). The
Dissenting Shareholder must notify the Bank of the Estimate and Demand within 30
days after the date the Bank makes or offers to make payment to the Dissenting
Shareholder.
Within 60 days after receiving the Estimate and Demand, the Bank must
either commence a proceeding in the appropriate circuit court to determine the
fair value of the Dissenting Shareholder's shares and accrued interest, or the
Bank must pay each Dissenting Shareholder whose demand remains unsettled the
amount demanded. If a proceeding is commenced, the court must determine all
costs of the proceeding and must assess those costs against the Bank, except
that the court may assess costs against all or some of the Dissenting
Shareholders to the extent the court finds that the Dissenting Shareholders did
not act in good faith in demanding payment of the Dissenting Shareholder's
Estimates.
The foregoing discussion is a summary of the material provisions of
Article 15. Shareholders are strongly encouraged to review carefully the full
text of Article 15, which is included as Appendix B to this Proxy Statement. The
provisions of Article 15 are technical and complex, and a shareholder failing to
comply strictly with them may forfeit his Dissenting Shareholder's rights. Any
shareholder who intends to dissent from the Reorganization should review the
text of those provisions carefully and also should consult with his attorney. NO
FURTHER NOTICE OF THE EVENTS GIVING RISE TO DISSENTERS' RIGHTS OR ANY STEPS
ASSOCIATED THEREWITH WILL BE FURNISHED TO BANK SHAREHOLDERS, EXCEPT AS INDICATED
ABOVE OR OTHERWISE REQUIRED BY LAW.
Any Dissenting Shareholder who perfects his/her right to be paid the
fair value of his shares will recognize gain or loss, if any, for federal income
tax purposes upon the receipt of cash for his shares. The amount of gain or loss
and its character as ordinary or capital gain or loss will be determined in
accordance with applicable provisions of the Internal Revenue Code. See "The
Proposed Reorganization-Federal Income Tax Consequences."
<PAGE>
HISTORICAL AND PRO FORMA CAPITALIZATION
The table below sets forth the capitalization of the Bank as of
December 31, 1997, and the pro forma capitalization of the Bank and Holding
Company as adjusted to reflect the consummation of the Reorganization.
<TABLE>
<CAPTION>
HOLDING
PRIOR TO THE REORGANIZATION BANK COMPANY
---- -------
<S> <C>
Number of shares of Capital Stock
Authorized Common Stock............................................ 3,333,333 6,666,666
Issued and Outstanding Common Stock................................ 1,226,690 0
Shares Authorized Preferred Stock.................................. 500,000 500,000
Issued and Outstanding Preferred Stock............................. 0 0
Shareholders' Equity
Common Stock....................................................... $ 3,680,070 0
Surplus............................................................ 10,769,249 0
Undivided Profits.................................................. 856,122 0
Net Unrealized Gains on Securities Available-
for-Sale, Net of Tax Effect...................................... 296,376 0
Total Shareholders' Equity............................................. $15,601817 0
---------
<CAPTION>
HOLDING COMPANY
COMBINED WITH
AFTER THE REORGANIZATION BANK THE BANK
---- ----------------
<S> <C>
Number of shares of Capital Stock
Authorized Common Stock............................................ 3,333,333 6,666,666
Issued and Outstanding Common Stock................................ 1,226,690 2,453,380
Shares Authorized Preferred Stock.................................. 500,000 500,000
Issued and Outstanding Preferred Stock............................. 0 0
Shareholders' Equity
Common Stock....................................................... $ 3,680,070 $ 3,680,070
Surplus............................................................ 10,769,249 10,769,249
Undivided Profits.................................................. 856,122 856,122
Net Unrealized Gains on Securities Available-
for-Sale, Net of Tax Effect...................................... 296,376 296,376
Total Shareholders' Equity............................................. $15,601817 $15,601817
--------- ---------
</TABLE>
- -----------------
(1) It is intended that the Reorganization will receive accounting
treatment similar to that for a pooling of interests.
(2) At the Effective Date, each of the issued and outstanding shares of
Bank common stock, par value $3.00 per share will be converted into and
become two shares of Holding Company common stock, par value $1.50 per
share, and the shareholders of the Bank will thereupon become
shareholders of the Holding Company. The Holding Company will then own
all the outstanding shares of Bank common stock. Shareholders of the
Bank will own the same proportional share interest in the Holding
Company as they hold in the Bank, except for nominal changes as a
result of the exercise, if any, of dissenters' rights under Virginia
law.
THE BANK BOARD UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AGREEMENT.
<PAGE>
RESOURCE BANK
THE BANK
General. The Bank is a Virginia state-chartered commercial bank with
one full-service office in Virginia Beach, Virginia. The Bank was organized in
April of 1987 and commenced operations on September 1, 1988. The Bank's
principal executive office is located at 3720 Virginia Beach Boulevard, Virginia
Beach, Virginia 23452 and its telephone number is (757) 463-2265.
The Bank's primary market area is Virginia Beach and, to a lesser
extent, the surrounding cities of the South Hampton Roads area, including
Norfolk, Chesapeake, Portsmouth and Suffolk. The population of the market area
is estimated to be approximately 1 million.
The Bank has historically marketed its services to consumers, small to
medium sized businesses and professional people. The Bank provides a range of
services traditionally associated with independent community banks, with an
emphasis on personal relationship banking. These services include checking and
savings accounts, certificates of deposit and credit cards. The Bank also offers
services typically associated with large banks and bank holding companies. These
services include sweep account capacity, and corporate credit cards. The Bank
also offers a broad range of lending and deposit services to individual and
commercial customers. Loan activity includes home improvement loans, overdraft
protection and construction loans. The Bank offers other related services such
as safe deposit boxes, tax deposits, travelers checks, wire transfers and
savings bonds.
The Bank conducts mortgage operations through a division of the Bank.
This division 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, Hilton Head, South
Carolina, and the northern Virginia/Washington, D.C. metropolitan areas.
The authorized capital stock of the Bank consists of Common Stock and
Preferred Stock. There are 1,226,690 shares of common stock outstanding held of
record by 949 stockholders as of December 31, 1997. The Bank is authorized to
issue the aggregate number of 3,333,333 shares of Common Stock, par value $3.00
per share, and 500,000 shares of Preferred Stock, par value $10.00 per share.
There are no shares of Preferred Stock currently outstanding. The Bank's common
stock is listed on the NASDAQ National Market System under the symbol "RBKV."
The Bank employs 119 full-time employees and 10 part-time employees.
On December 1, 1997, the Bank acquired Eastern American Bank FSB.
Pursuant to regulatory authority granted to the Bank in effecting the
acquisition, the Bank operates Eastern American Bank's offices as a branch of
the Bank under its own name.
Competition. Federal and state legislative changes have significantly
increased competition among financial institutions, and current trends toward
deregulation may be expected to increase competition even further. In its market
area, the Bank operates in an extremely competitive banking environment that
includes fourteen commercial banks, four savings banks and three credit unions.
Many of these institutions have substantially greater assets and capital than
the Bank. In many instances, these institutions have greater lending limits than
the Bank. As of March 31, 1998, the Bank could not loan in excess of $2.3
million to a single borrower, unless the Bank could sell participations in such
a loan to other financial institutions. Finally, the Bank faces competition for
deposits from short-term money market mutual funds and other corporate and
government securities funds. In summary, the Bank competes with many
institutions which are larger in size and therefore can offer more products than
the Bank at very competitive rates.
DESCRIPTION OF COMMON STOCK
As of the Record Date, the capital stock of the Bank consists of its
common stock, par value $3.00 per share, of which 3,333,333 shares are
authorized and its preferred stock, par value $10.00 per share, of which 500,000
shares are authorized. 1,226,690 shares of common stock were issued and
outstanding. No shares of preferred stock are issued, and there are currently no
plans to issue any.
The holders of Bank common stock are entitled to dividends, out of
funds legally available therefor, when and as declared by the Board of
Directors. Holders of Bank Common Stock are entitled to one vote for each share
held. Holders do not possess cumulative voting rights in the election of
directors or preemptive rights to purchase additional shares of Bank common
stock. The holders of Bank preferred stock, if and when issued, would be
entitled to such preferences, limitations and rights as the Board in its sole
discretion may assign. The Bank's preferred stock authorization is identical in
material respects to the Holding Company preferred stock described below in
"Description of Holding Company Capital Stock."
In the event of liquidation of the Bank, after payment of all debts and
expenses, the remaining assets of the Bank would be distributed to the holders
of Bank common stock ratably according to the number of shares held by each of
them, and to the holders of Bank preferred stock in accordance with the
preferences, limitations and rights that the Board may assign.
The outstanding shares of Bank common stock are fully paid and
nonassessable.
Wachovia Corporation is the transfer agent for the Bank's common stock.
The Bank furnishes its shareholders with annual reports which contain
audited consolidated financial statements for the Bank for the prior two years.
MARKET FOR BANK COMMON STOCK
Bank Common Stock is listed on the NASDAQ National Market System
("NASDAQ/NMS") under the symbol "RBKV." Quarterly information on the high and
low closing sales prices of Bank Common Stock on NASDAQ/NMS from April 12, 1996,
the date the stock was listed on NASDAQ/NMS, to March 31, 1998, are set forth in
the following table. From January 1, 1995, through April 11, 1996, Bank Common
Stock was quoted on the NNOTC Bulletin Board, an NASD sponsored and operated
inter-dealer quotation system for equity securities not listed on the NASDAQ
Stock Market. Quarterly information on the high and low closing bid prices for
this period is available upon request from the Bank.
<PAGE>
NASDAQ/NMS
----------
Closing Sales Price*
High Low
---- ---
1998
Second Quarter (thru April 29) $50.00 $42.00
First Quarter 46.00 36.00
1997
Fourth Quarter $45.00 $27.50
Third Quarter 29.00 23.50
Second Quarter 26.00 18.50
First Quarter 20.50 18.00
1996
Fourth Quarter $18.75 $13.50
Third Quarter 13.50 11.75
Second Quarter (beginning April 12, 1996) 13.75 12.00
* The Exchange Ratio provided under the terms of the Reorganization
correspondingly will affect the price of Holding Company Common Stock after
the Effective Date.
During 1996, the Bank Board offered shares of Bank Common Stock for
sale at a price of $12.50 per share. In connection with the stock offering,
124,133 shares were sold to shareholders, depositors and the public. In December
1997, the Bank completed its acquisition of Eastern American Bank.
Pursuant to that transaction, the Bank issued 258,816 shares of its common
stock.
SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR BANK
COMMON STOCK. It is expected that, at least initially, Holding Company Common
Stock will be traded in a manner essentially similar to Bank common stock
pursuant to the Exchange Ratio provided in the Reorganization, the market price
is expected to be adjusted downward accordingly to approximately half of its
current price. However, no assurance can be given as to the market price of
Holding Company Common Stock at or after the Effective Date.
DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Holding Company is authorized to issue up to 3,333,333 shares of
its common stock, par value $3.00 per share, and 500,000 shares of its preferred
stock, par value $10.00 per share. The following summary description of the
capital stock of the Holding Company is qualified in its entirety by reference
to the Articles of Incorporation of the Holding Company (the "Holding Company's
Articles") and the Holding Company's Bylaws, copies of which are available upon
written request to the President of the Bank at its principal office.
COMMON STOCK
In a manner identical to current Bank shareholder rights, the holders
of Holding Company Common Stock will be entitled to one vote per share on all
matters submitted to a vote of shareholders. Subject to certain limitations on
the payment of dividends, holders of Holding Company Common Stock will be
entitled to receive dividends when declared by the Holding Company's Board of
Directors for which funds are legally available.
All shares of Holding Company Common Stock to be issued in the
Reorganization are fully paid (or will be fully paid) and nonassessible. Holders
of common stock will not be entitled to cumulative voting rights. Therefore, the
holders of a majority of the shares voted in the election of directors can elect
all of the directors then standing for election subject to the rights of holders
of preferred stock, if and when issued. Holders of common stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the common stock. See
"Comparative Rights of Shareholders" below.
PREFERRED STOCK
Like the Bank, the Holding Company will be authorized to issue 500,000
shares of preferred stock, par value $10.00 per share. The Board of Directors is
authorized pursuant to the proposed Articles of Incorporation of the Holding
Company to assign preferences, limitations and relative rights to the shares of
preferred stock when they are issued. This authority gives the Board of
Directors of the Holding Company flexibility in the structuring and financing of
acquisitions and other financial activities. Like the Bank, the Holding Company
will also be able to use the Preferred Stock to help deter hostile takeover
attempts by assigning certain rights and preferences to the preferred stock that
will make it more difficult for a third party to gain control of the Holding
Company. See "Comparative Rights of Shareholders" below.
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
The Bank is a state bank organized as a Virginia corporation and,
therefore, subject to the provisions of the Virginia SCA. Shareholders of the
Bank, whose rights are governed by the Bank's Articles of Incorporation and
Bylaws, will become shareholders of the Holding Company upon consummation of the
Reorganization. Upon consummation of the Reorganization, the rights of
shareholders of the Holding Company will be governed by the Holding Company's
Articles and Bylaws and by the Virginia SCA.
Except as otherwise discussed below, there are no material differences
between the rights of the Bank's shareholders and the rights of shareholders
receiving Holding Company Common Stock in the Reorganization. The Articles of
Incorporation and the Bylaws of the Bank and the Holding Company are
substantially identical in all respects with one exception, the increase in the
number of authorized shares. Under Virginia law, a board of directors is
permitting in the absence of anything to the contrary stated in the articles of
incorporation to amend a corporation's articles, without shareholder approval,
to convert each issued and unissued authorized share of an outstanding class
into a greater number of whole shares if the corporation has only shares of that
class outstanding. The Bank Board has designed the Reorganization to accomplish
this purpose. The authorized shares of the Holding Company Common Stock have
been set at a level which will have the effect of the above described conversion
when the Reorganization is consummated upon the Effective Date. With an Exchange
Ratio of two-to-one, the shareholders are receiving the same proportional
interests in the Holding Company as they currently hold in the Bank, and this
change is immaterial to the rights of shareholders. Management may at some point
consider other amendments to the Articles of Incorporation or Bylaws of the
Holding Company subsequent to consummation of the Reorganization, but no such
specific amendments are contemplated at this time. As required by Virginia law,
the shareholders of the Bank and its successor will be solicited separately
related to such proposals and will have an opportunity to vote on matters
requiring such vote.
The rights of the shareholders of the Bank and the Holding Company are
virtually identical in all respects. Neither group has preemptive rights to
subscribe for and purchase additional shares of stock or cumulative voting
rights with respect to the election of directors. In addition, there will be no
increase in the number of authorized shares of common stock or preferred stock
for issuance by the Holding Company. The Holding Company's Articles of
Incorporation do not change the maximum or minimum number of directors permitted
to serve on the Board of Directors, affect the terms for removal of directors,
vary the vote required to approve certain significant corporate actions, nor
change the limitation of liability and indemnification provisions applicable to
officers and directors, in any respect from that currently applicable under the
Bank's Articles of Incorporation and Bylaws.
In transactions involving mergers of Virginia banks which are governed
by Article 5 of the Virginia Banking Act, shareholders of state banks do not
have any dissenters' rights under the Virginia SCA. Therefore, if the Bank were
to engage in a merger transaction with another Virginia bank or national bank
doing business in the state, the shareholders of the Bank would not have the
right to dissent under Article 15 of the Virginia SCA. Conversely, if the
Holding Company were to merge with another entity, the shareholders of the
Holding Company would have the right to dissent from the transaction.
PROPOSAL TWO
ELECTION OF DIRECTORS
OF RESOURCE BANK
NOMINEES FOR ELECTION
Seven persons have been nominated by the Bank Board to serve as
directors until the 1999 Annual Meeting of Shareholders, and until their
successors have been elected and duly qualified. Proxies received from the Bank
shareholders will be voted for the election of such nominees unless marked to
the contrary. A shareholder of the Bank who desires to withhold voting of the
proxy for all or one or more nominees may so indicate on his or her proxy. All
of the nominees are currently members of the Bank Board and all have consented
to be named and have indicated their intent to service if elected. If any
nominee becomes unable to serve, an event which is not anticipated, the proxy
will be voted for a substitute nominee to be designated by the Bank Board, or
the number of directors will be reduced. The Bank Board does not have a separate
Nominating Committee.
<PAGE>
The following table sets forth the names, ages and date of each
nominee's first election to the Board:
NAME AGE DIRECTOR SINCE
---- --- --------------
Alfred E. Abiouness(A)(C)(D) 66 1988
John B. Bernhardt(A)(B)(C)(D) 68 1992
Thomas W. Hunt(A)(B)(D) 41 1997
Louis R. Jones(A)(B)(D) 62 1993
A. Russell Kirk(A)(B)(D) 50 1992
Lawrence N. Smith(A)(B)(C) 60 1992
Elizabeth A. Twohy(A)(B) 46 1993
(A) Member of the Credit Risk Committee, which reviews all loan activity
and policy, acts upon large loan requests presented to the Bank, and
monitors outstanding loans and collection efforts. Also member of the
Market Risk and Liquidity Risk Committees. Each of these three
committees held 12 meetings in 1997.
(B) Member of the Audit Committee, which assists in establishing a budget
and audit compliance, establishes and periodically reviews the Bank's
asset management policy with emphasis on liquidity, cost of funds and
yield on investments, thoroughly reviews regulatory examinations and
assures strict compliance with such examinations. The Audit Committee
held 2 meetings in 1997.
(C) Member of the Proxy Committee, which collects and accounts for all
proxies and exercises the Bank's and/or the Bank Board's proxy
authority at all shareholder meeting. The Proxy Committee held 1
meeting in 1997.
(D) Member of the Compensation Committee, which recommends to the Bank
Board the salaries for officers and the compensation to be paid
directors, and determines the persons to whom incentive stock options
are granted, the number of shares subject to option, and the
appropriate vesting schedule.
The Compensation Committee held 2 meetings in 1997.
BACKGROUND AND EXPERIENCE
The following information relates to the seven director-nominees. There
are no family relationships among any of the director-nominees nor is there any
arrangement or understanding between any director-nominees and any other person
pursuant to which the director-nominee was selected.
Mr. Abiouness has been President of Abiouness, Cross & Bradshaw, Inc.,
a Norfolk structural engineering and architectural consulting firm since 1974.
Mr. Abiouness is a past Commissioner of the Norfolk Redevelopment and Housing
Authority.
Mr. Bernhardt has 31 years of commercial banking experience. Mr.
Bernhardt served as Executive Vice President of Virginia National Bank and
Virginia National Bankshares, Inc. from 1972 to 1979, and as President and
Director of those institutions from 1980 to 1983. From 1984 to 1988, Mr.
Bernhardt was the Vice Chairman of the Board of Director of Sovran Financial
Corporation, Norfolk, Virginia, and Sovran Bank, N.A., Richmond, Virginia. He
was also the President and Chief Executive Officer of Sovran Services from 1986
to 1988. Mr. Bernhardt resigned from all of his Sovran positions in April of
1988. He is currently a Managing Director of Bernhardt/Gibson, Inc., a financial
services firm, and serves as a director of Dominion the Banks, Inc.
Mr. Hunt is the Vice President of Summit Enterprises, 1997 Inc. of
McLean, Virginia, an investment management company focused primarily on venture
capital opportunities. He is the former Chairman of the Board of Directors of
Eastern American Bank, FSB, which the Bank acquired in 1997.
Mr. Jones has been President of Hollomon-Brown Funeral Home, Inc. since
1954. Mr. Jones has also been active in civic affairs and serves on the City
Council of Virginia Beach.
Mr. Kirk has been President of Armada/Hoffler Holding Company (a real
estate land development, construction and properties management firm) since 1983
and has been Co-CEO of Goodman Segar Hogan Hoffler since 1993. Mr. Kirk is also
Chairman and Commissioner of the Virginia Port Authority, Norfolk, Virginia.
Mr. Smith joined the Bank in December 1992 and serves as its President
and Chief Executive Officer. Mr. Smith has over 19 years of experience with
United Virginia Bank/Seaboard National and United Virginia Bank -- Eastern
Region, now known as Crestar Bank -- Eastern Region ("Crestar"). From 1973 until
May 1983, Mr. Smith was President of Crestar and also served on major committees
of the holding company, United Virginia Bankshares, Inc., now known as Crestar
Bankshares, Inc. He retired from Crestar in May 1983. Mr. Smith formed Essex
Financial Group, Inc., a savings and loan holding company, in May 1983 and still
serves as its Chairman. Mr. Smith serves on the board of Heilig-Meyers
Corporation, a national furniture retailer, Empire Machinery and Supply
Corporation, a Norfolk based supplier of industrial products, and he has been
active in civic affairs for the past 30 years.
Ms. Twohy is President of Capital Concrete, Inc. of Norfolk, Virginia,
a ready-mixed concrete manufacturer, and has been employed by the firm since
1976. Ms. Twohy is on the Board of Directors of Tidewater Builders Association
and is past president of the Virginia Ready-Mixed Concrete Association.
BENEFICIAL OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND PRINCIPAL SHAREHOLDERS OF THE BANK
The following table sets forth for (1) each director of the Bank, (2)
all directors and executive officers of the Bank as a group and (3) any persons
known by the Bank to own beneficially 5% or more of the outstanding shares of
Bank Common Stock: (i) the number of shares of the Bank Common Stock
beneficially owned on April 23, 1998, (ii) the percentage of ownership of
outstanding shares of Bank Common Stock on such date, and (iii) such persons'
percentage ownership of Bank Common Stock. Except as set forth below, the Bank
is not aware of any shareholder that beneficially owns 5% or more of the
outstanding shares of Bank Common Stock. All of the Bank's directors and
executive officers receive mail at the Bank's principal executive office at 3720
Virginia Beach Boulevard, Virginia Beach, Virginia 23452.
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED OUTSTANDING SHARES(1)
- ---- ------------------ ---------------------
<S> <C>
Alfred Abiouness 31,090(2) 2.6%
John B. Bernhardt 25,082(3) 2.0
Thomas W. Hunt 31,351(4) 2.5
Louis R. Jones 111,478(5) 9.1
A. Russell Kirk 51,148(6) 4.1
Lawrence N. Smith 64,856(7) 5.2
Elizabeth A. Twohy 19,670(8) 1.6
Directors and executives
officers as a group (7 persons) 341,425(9) 27.7%
Alan M. Voorhees 75,990(10) 6.1%
</TABLE>
*Less than 1% beneficial ownership.
(1) Based upon 1,226,690 outstanding shares of Bank Common Stock. For
purposes of this table, beneficial ownership has been determined in
accordance with the provision of Rule 13d-3 of the Securities Exchange
Act of 1934 under which, in general, a person is deemed to be the
beneficial owner of a security if he or she has or shares the power to
vote or direct the voting of the security or the power to dispose of or
direct the disposition of the security, or if he has the right to
acquire beneficial ownership of the security within sixty days.
(2) Includes currently exercisable options to purchase 15,083 shares of
Bank Common Stock.
(3) Includes currently exercisable options to purchase 23,416 shares of
Bank Common Stock.
(4) Mr. Hunt is the son-in-law of Mr. Voorhees. Includes 2,464 shares held
in his sole name. Also, includes 6,930 shares held for the benefit of
Mr. Hunt's children, 15,207 shares by Mr. Hunt's spouse, and warrants
to purchase 6,750 shares held by Mr. Hunt's spouse and children, as to
which Mr. Hunt disclaims beneficial ownership. Does not include 20,482
shares held jointly by Mr. Hunt's spouse and Mr. Voorhees' spouse as
trustees for the benefit of Mr. Voorhees grandchildren.
(5) Includes currently exercisable options to purchase 10,083 shares of
Bank Common Stock.
(6) Includes currently exercisable options to purchase 10,083 shares of
Bank Common Stock.
(7) Includes currently exercisable options to purchase 24,133 shares of
Bank Common Stock.
(8) Includes currently exercisable options to purchase 10,083 shares of
Bank Common Stock.
(9) Includes currently exercisable options to purchase 92,881 shares of
Bank Common Stock.
(10) Includes 42,273 shares held by Mr. Voorhees' spouse as trustee for
several trusts, the beneficiaries of which are Mr. Voorhees' children
and grandchildren, as to which shares Mr. Voorhees disclaims beneficial
ownership. Also, includes warrants to purchase 9,000 shares held by Mr.
Voorhees and his spouse. Does not include an aggregate of 55,629 shares
held by Mr. Voorhees' adult children and Mr. Hunt, Mr. Voorhees
son-in-law, for their own benefit or for the benefit of Mr. Voorhees'
grandchildren.
BOARD AND COMMITTEE MEETINGS
The business of the Bank is managed under the direction of the Bank
Board. The Bank Board meets at least monthly to review significant developments
affecting the Bank and to act on matters requiring approval by the Bank Board.
The Bank Board held 12 meetings in 1997. During 1997, each member of the Bank
Board participated in at least 75% of all meetings of the Bank Board and at
least 75% of all applicable committee meetings.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors, officers and persons who beneficially own more than 10% of
Bank Common Stock to file initial reports of ownership and reports of changes in
beneficial ownership with the FRB. Such persons are also required to furnish the
Bank with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Bank, the Bank believes that all Section 16(a) filing requirements applicable to
its directors, officers and greater than 10% beneficial owners were complied
with in 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The directors and chief executive officer of the Bank, as well as
businesses and organizations with which they are associated or have a
significant financial interest, conduct normal banking relationships with the
Bank, including loans, and are expected to continue to do so. As of December 31,
1997, the Bank had direct and indirect loans to its directors and listed
executive officers totalling $1,302,456, which represented 8.35% of
stockholders' equity as of such date. All such transactions were made in the
normal course of business, at substantially the same rates, terms, collateral
and repayment terms as those prevailing at the same time for other comparable
transactions with other unrelated parties. Loan made to these individuals or
groups do not involve more than the normal risk of collectibility.
DIRECTORS COMPENSATION
Board members who are employees of the Bank do not receive any extra
compensation for attendance at Board or Committee meetings. During 1997,
non-employee directors received compensation for their service on the Bank Board
in the amount of $500 for each meeting attended. Non-employee directors received
$250 for each Market Risk Committee and Liquidity Risk Committee meeting
attended, $250 for each Credit Risk Committee meeting attended, and $500 for
each Audit Committee and Compensation Committee meeting attended. In addition,
an annual retainer of $8,000 was paid to the Chairman of the Bank Board in 1997,
and an annual retainer of $6,000 was paid to all of the other non-employee
directors.
EXECUTIVE COMPENSATION
The following table presents a summary of the executive compensation
paid to Lawrence N. Smith, the Bank's President and Chief Executive Officer,
during 1997, 1996, and 1995.
<PAGE>
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation -------------
------------------- Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options(#) Compensation(1)
--------------------------- ---- ------ ----- ---------- ----------------
<S> <C>
Lawrence N. Smith 1997 $200,000 $160,000 --- $4,774
President and Chief 1996 175,000 110,000 10,800 4,774
Executive Officer 1995 131,000 78,600 --- 4,834
</TABLE>
(1) Represents the Bank's matching contributions under its 401(k) Plan.
The table below sets forth information for Mr. Smith concerning
unexercised stock options held as of December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In the Money Options
Options at Fiscal at Fiscal
Year-End(#) Year-End($)(1)(2)
----------------------- ---------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C>
Lawrence N. Smith 13,333(1) 0 $453,322(1) 0
10,800(2) 0 $297,000(2) 0
</TABLE>
(1) These options entitle the named executive to purchase 13,333 shares at
$6.00 per share. These options were granted under the Bank's Employee
Stock Option Plan. At December 31, 1997, the "NASDAQ/NM", on which the
Bank's common stock is traded, listed a "bid" of $40.00, an "ask" of
$45.00, and the last sale at $40.00.
(2) These options entitle the named executive to purchase 10,800 shares at
$12.50 per share and were not execrable until the average price of
Common Stock traded on NASDAQ/NM (or any other over-the-counter
automated quotation system or national exchange on which the Common
Stock is actively traded) had been at least $25 for thirty (30)
consecutive trading days. These options were granted under the Bank's
1996 Long-Term Incentive Plan. See footnote (1) above for information
on the valuation of the shares at December 31, 1997. 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. Option valuation models
require the input of highly subjective assumptions including the
expected stock price volatility. Because the Bank'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.
Mr. Smith is eligible to participate in the Bank's Retirement Savings
Plan ("Plan"). The Plan is a combined 401(k) profit sharing, stock bonus and
employee stock ownership plan, which means that contributions may be made by the
Bank to the Plan in either cash or Bank Common Stock and are derived from
current or accumulated profits. The Plan's assets may be invested in shares of
Bank Common Stock purchased either directly from the Bank or from third parties.
The Plan's 401(k) provisions permit employees to contribute to the Plan through
voluntary payroll savings on a pretax basis. These contributions are matched by
the Bank in an amount equal to 50% of payroll savings contributions made by
employees, up to 6% of an employee's total compensation.
The Bank has three stock option plans under which its directors and
officers have been granted options. The 1993 Long-Term Incentive Plan provided
for the issuance of options to purchase 16,666 shares of Bank Common Stock to
directors named in the plan and permitted the grant of options to purchase
43,333 shares of Bank Common Stock to key employees of the Bank. The 1994
Long-Term Bank Director Incentive Plan provided for the issuance of options to
purchase 26,667 shares of Bank Common Stock to the Bank's directors as specified
in the plan. The 1996 Long-Term Incentive Plan provides for the issuance of
options to purchase 33,750 shares of Bank Common Stock to directors named in the
plan, all of which options have been granted, and permits the grant of options
to purchase up to 50,000 shares of Bank Common Stock to key employees of the
Bank, 46,800 of which options have been granted.
During 1996, the Bank's Board of Directors approved a plan for the
payment of retirement benefits to certain key employees, and has entered into
limited binding agreements with these key employees. Under the terms of the
plan, the Bank may fund the liabilities associated with this plan with life
insurance contracts. In connection with funding the projected retirement
benefits, the Bank paid premiums on applicable life insurance contracts in the
amount of approximately $371,000 during 1997, and may continue to pay, in its
sole discretion, the same annual amount of insurance premiums over the next
three years. The present value of future benefits payable in connection with the
plan are currently insignificant, and the cash surrender value of the applicable
life insurance policies approximates the 1997 life insurance premium. As a
result, the plan did not materially affect the financial condition and results
of operations of the Bank in 1997.
THE BANK BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" ALL NOMINEES PROPOSED FOR DIRECTORS.
PROPOSAL THREE
APPOINTMENT OF AUDITORS
The Bank Board, upon recommendation of its Audit Committee, intends to
appoint Goodman & Company, L.L.P. as the firm of independent certified public
accountants to audit the Bank's financial statements for the year 1998, and the
Bank Board desires that such appointment be ratified by the shareholders at this
1998 Annual Meeting. Goodman & Company, L.L.P. has audited the financial
statements of the Bank since 1992. A representative of Goodman & Company, L.L.P.
will be present at the Bank Annual Meeting and will be available to respond to
appropriate questions and will have the opportunity to make a statement if he or
she desires.
THE BANK BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE RATIFICATION OF GOODMAN & COMPANY, L.L.P.
<PAGE>
REGULATION AND SUPERVISION
THE BANK
The Bank operates, and upon consummation of the Reorganization will
continue to operate, as a state banking association subject to supervision and
regulatio1n by the Bureau of Financial Institutions of the SCC. The Bureau of
Financial Institutions regulates all areas of a state bank's commercial banking
and trust operations including reserves, loans, mergers, payment of dividends,
establishment of branches and other aspects of operations.
Additionally, the Bank is a member of the FRB System and will continue
to be subject to the regulations of the FRB. The Bank is also insured by the
FDIC which insures that member banks pay depositors to the extent provided by
law in the event an insured bank is closed without adequately providing for the
claims of depositors.
The earnings and growth of the banking industry are affected by the
general conditions of the economy and by the fiscal and monetary policies of the
Federal Government and its agencies, including the FRB Bank. The Board of
Governors regulates money and credit conditions and, as a result, has a strong
influence on interest rates and on general economic conditions. The effect of
such policies in the future on the business an earnings of the Bank cannot be
predicted with certainty.
THE HOLDING COMPANY
At the time the Holding Company acquires the shares of the Bank, and
thereby becomes a bank holding company within the meaning of the BHCA, it will
be registered as a bank holding company with the FRB, and will then be subject
to ongoing regulation, supervision and examination by the FRB. The Holding
Company will be required to file with the FRB periodic and annual reports and
other information concerning its own business operations and those of its
subsidiaries. In addition, the BHCA requires a bank holding company to obtain
FRB approval before it acquires, directly or indirectly, ownership or control of
any voting shares of a second or subsequent bank if, after such acquisition, it
would own or control more than 5% of such shares, unless it already owns or
controls a majority of such voting shares. FRB approval must also be obtained
before a bank holding company acquires all or substantially all of the assets of
another bank or merges or consolidates with another bank holding company.
A bank holding company is prohibited under the BHCA, with limited
exceptions, from acquiring or obtaining direct or indirect ownership or control
of more than 5% of the voting shares of any company which is not a bank, or from
engaging in any activities other than those of banking or of managing or
controlling banks or furnishing services to or performing services for its
subsidiaries. One of the exceptions to these prohibitions permits a bank holding
company to engage in, or acquire an interest in a company which engages in
activities which, after due notice and opportunity for hearing, the FRB by
regulation or order has determined is so closely related to banking or of
managing or controlling banks as to be a proper incident thereto. Specific
non-banking activities which current regulations of the FRB state are
sufficiently closely related to banking include, among others: (1) making,
acquiring, brokering, or servicing loans or other extensions of credit
(including factoring, issuing letters of credit and accepting drafts) for the
company's account or for the account of others; (2) performing any activity
usual in connection with making, acquiring, brokering or servicing loans or
other extensions of credit (including real estate and personal property
appraisal, arranging commercial real estate equity financing, check-guaranty
services, collection agency services, credit bureau services, asset management,
servicing, and collection activities, acquiring debt in default, and real estate
settlement services); (3) leasing personal or real property or acting as agent,
broker, or adviser in leasing such property; (4) operating nonbank depository
institutions (including industrial banks and savings associations); (5)
performing trust company functions or activities; (6) acting as investment or
financial advisor; (7) providing transactional services for customer investments
(including securities brokerage, riskless principal transactions, private
placement services, and futures commission merchant); (8) acting as principal in
investment transactions (including underwriting and dealing in government
obligations and money market instruments; foreign exchange; forward contracts,
options, futures, and similar contracts; buying and selling bullion and related
activities); (9) management consulting and counseling activities; (10) support
services(including courier services and printing and selling MICR-encoded
items); (11)insurance agency and underwriting; (12) performing community
development activities; (13) issuing and selling money orders and similar
consumer-type payment instruments, savings bonds, and traveler's checks; (14)
providing data processing and data transmission services. Other financially
related activities have been permitted by the FRB by order on a case-by-case
basis.
A bank holding company may not, without providing prior notice to the
FRB, purchase or redeem its own stock if the gross consideration to be paid,
when added to the net consideration paid by the company for all purchases or
redemptions by the company of its equity securities within the preceding 12
months, will equal 10% or more of the company's consolidated net worth unless it
meets the requirements of a well-capitalized and well-managed organization.
Under certain amendments to the Virginia Financial Institutions Holding
Company Act that became effective July 1, 1983, no corporation, partnership or
other business entity may acquire, or make any public offer to acquire, more
than 5% of the stock of any Virginia financial institution, or any Virginia
financial institution holding company, unless it first files an application with
the SCC. The SCC is directed by the statute to solicit the views of the affected
financial institution, or financial institution holding company, with respect to
such stock acquisition, and is empowered to conduct an investigation during the
60 days following receipt of such an application. If the SCC takes no action
within the prescribed period, or if during the prescribed period it issues
notice of its intent not to disapprove an application, the acquisition may be
completed. Under the BHCA, the FRB may disapprove an application or approve an
application subject to such conditions as it may deem advisable.
In addition to the filings required by the FRB as discussed above, the
Holding Company, upon consummation of the Reorganization and on a continuing
basis thereafter, will be required to make certain periodic filings with the SEC
as well as file certain reports on the occurrence of certain material events
specified in the 1934 Act. The Holding Company will be required to file
quarterly and annual reports with the SEC under Section 13 of the 1934 Act,
furnish annual reports to shareholders prior to annual meetings of shareholders,
and send proxy statements to shareholders prior to any shareholders' meeting,
all of which must comply with the provisions of the 1934 Act. In addition,
directors, officers and certain shareholders must make some detailed disclosures
under the 1934 Act.
SUBMISSION OF PROPOSALS
The next Annual Meeting of Shareholders of the Bank is scheduled for
May, 1999. Any shareholder who wishes to submit a proposal for consideration at
that meeting must submit the proposal in writing to Lawrence N. Smith,
President, before December 29, 1998.
LEGAL MATTERS
The legality of Holding Company common stock to be issued pursuant to
the Reorganization will be passed upon for the Holding Company by the law firm
of Mays & Valentine, L.L.P., Richmond, Virginia, which has acted as counsel to
the Bank and the Holding Company in connection with the Reorganization.
BY ORDER OF THE BOARD OF DIRECTORS
OF THE BANK
/s/ Debra C. Dyckman
Virginia Beach, Virginia ---------------------------
April 29, 1998 Debra C. Dyckman, Secretary
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
April 10, 1998, by and between Resource Bankshares Corporation, a proposed bank
holding company organized under the laws of Virginia, with its principal office
in Virginia Beach, Virginia (the "Holding Company"), and Resource Bank, a
banking corporation organized under the laws of the Commonwealth of Virginia,
with its main office in Virginia Beach, Virginia (the "Bank").
WITNESSETH:
The respective Boards of Directors of the Holding Company and the Bank
have resolved that the reorganization of the Bank under a holding company
structure pursuant to a statutory share exchange transaction under the Virginia
Stock Corporation Act (the "Share Exchange") so that the Bank will become a
wholly-owned subsidiary of the Holding Company, is in the respective best
interests of the constituent corporations and their shareholders. To that end,
each such Board has approved this Agreement and Plan of Reorganization.
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, the constituent corporations agree as follows:
1. THE SHARE EXCHANGE. At the Effective Date of the Share Exchange, the
Bank shall become a banking subsidiary of the Holding Company. The Share
Exchange shall be effective upon the issuance of a Certificate of Share Exchange
by the Virginia State Corporation Commission upon filing of a Plan of Share
Exchange by the Constituent Corporations, substantially in the form attached
hereto as Appendix I.
2. NAME; ARTICLES OF INCORPORATION; BYLAWS; OFFICES. At the Effective
Date, the respective names, articles of incorporation and bylaws of the Holding
Company and Bank will not change. The main offices and branches of the Holding
Company and Bank immediately prior to the Share Exchange shall not change as a
result of the Share Exchange.
3. CONVERSION OF SHARES. Upon, and by reason of, the Share Exchange
becoming effective pursuant to the issuance of a Certificate of Share Exchange
by the Virginia State Corporation Commission (the "Effective Date"), no cash
shall be allocated to the shareholders of the Bank, and stock shall be issued
and allocated as follows:
(a) Each of the issued and outstanding shares of common stock of
the Bank ("Bank Common Stock") shall for all corporate purposes, and without any
action on the part of the holder thereof, automatically become and be converted
into two shares of common stock of the Holding Company ("Holding Company Common
Stock"). Outstanding certificates representing shares of Bank Common Stock will
thereafter represent an equal number of shares of Holding Company Common Stock
and the holder thereof shall be entitled to receive additional certificates of
Holding Company Common Stock in accordance with the Plan of Share Exchange. As
soon a practicable thereafter, the Holding Company will issue new stock
certificates representing the shares of Holding Company Common Stock received in
the Share Exchange. Certificates representing Bank Common Stock may at any time
thereafter be surrendered to the Wachovia Corporation, acting as exchange agent,
or such other or additional exchange agent as the Bank may select (together with
any transmittal materials or endorsements required by the exchange agent). Upon
the surrender of Bank stock certificates, duly endorsed for transfer, to the
Holding Company, the holder thereof will be entitled to receive in exchange
therefor a certificate or certificates representing an equivalent number of
shares of Holding Company Common Stock, but shareholders will not be required to
surrender their Bank stock certificates.
(b) Shares of Bank Common Stock issued and outstanding shall, by
virtue of the Share Exchange, continue to be issued and outstanding shares held
by the Holding Company.
4. CONVERSION OF STOCK OPTIONS AND WARRANTS. At the Effective Date, each
unexercised and theretofore unexpired outstanding option or warrant to purchase
Bank Common Stock shall be automatically exchanged for a new option or warrant
to acquire, for the same aggregate exercise price and under the same terms, the
number of shares, adjusted pursuant to the Exchange Ratio, of Holding Company
Common Stock. Outstanding Bank options or warrants will thereafter represent two
times the number of Holding Company options or warrants. As soon as practicable
thereafter, the Holding Company will issue instruments representing new warrants
or options to acquire Holding Company Common Stock. Instruments representing
Bank options or warrants may at any time thereafter be surrendered to the Bank,
acting as exchange agent, or such other or additional exchange agent as the Bank
may select (together with any transmittal materials or endorsements required by
the exchange agent). Each holder of Bank options or warrants, upon the surrender
of such instruments representing Bank options or warrants to the Holding Company
duly endorsed for transfer, will be entitled to receive in exchange therefor
replacement instrument(s) representing the aforementioned number of Holding
Company options or warrants, but holders will not be required to surrender such
Bank options or warrants.
5. CAPITAL OF THE BANK. The capital, surplus and undivided profits of
the Bank at the Effective Date will be equal to the capital structure of the
Bank at December 31, 1997, adjusted, however, for capital contributions, normal
earnings and expenses, and other capital changes between December 31, 1997, and
the Effective Date.
6. BOARD OF DIRECTORS; OFFICERS. (a) At the Effective Date, the members
of the boards of directors of the Bank and the Holding Company shall continue in
office as the directors of the Bank and the Holding Company, respectively,
except as otherwise determined in the discretion of the Boards prior to the
Effective Date, until the next annual meeting or until such time as their
successors have been elected and qualified.
(b) At the Effective Date, the respective officers of the Bank
and the Holding Company shall continue to serve in their then current positions
until such time as their successors have been elected or appointed.
7. RIGHTS OF DISSENTING SHAREHOLDERS. Shareholders of the Bank who
dissent from the Share Exchange will be entitled to the dissenters' rights and
remedies set forth in Article 15 of the Virginia Stock Corporation Act, Sections
13.1-729 et seq.
8. CONDITIONS TO THE SHARE EXCHANGE. Consummation of the Share Exchange
is conditioned upon (i) the approval of this Agreement by the affirmative vote
of the shareholders owning a majority of the outstanding shares of common stock
of the Bank at a meeting to be held on the call of its board of directors, (ii)
the receipt of the required regulatory approvals, and (iii) the receipt of an
opinion of counsel as to the tax-free nature of the transaction. Upon the
satisfaction of the foregoing conditions, the Share Exchange shall become
effective at the time specified in a Certificate of Share Exchange to be issued
by the Virginia State Corporation Commission approving the Share Exchange.
9. TERMINATION. This Agreement may be terminated by the unilateral
action of either of the boards of directors of the Bank or the Holding Company
prior to the approval of the Agreement by the Bank's shareholders or by the
mutual consent of the respective boards of directors of the Bank and the Holding
Company after the Bank's shareholders approve the transaction. Upon termination
for any reason, this Agreement shall be void and of no further effect, and there
shall be no liability by reason of this Agreement or the termination thereof on
the part of the Bank or the Holding Company or any of their directors, officers,
employees, agents or shareholders.
WITNESS, the following signatures and seals for the parties, each
hereunto set by its President and attested by its Secretary, pursuant to duly
authorized resolutions of its board of Directors.
ATTEST: RESOURCE BANK
/s/ Debra C. Dyckman By: /s/ Lawrence N. Smith
- ------------------------ ------------------------------
Secretary Lawrence N. Smith
President
ATTEST: RESOURCE BANKSHARES CORPORATION
/s/ Debra C. Dyckman By: /s/ Lawrence N. Smith
- ------------------------- ------------------------------
Secretary Lawrence N. Smith
President
