U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Commission File Number: 000-24561
RESOURCE BANKSHARES CORPORATION
(Exact name of small business issuer as specified in its charter)
Virginia 54-1904386
(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
3720 Virginia Beach Blvd., Va. Beach, VA.23452
(Address of principal executive offices)
(757) 463-2265
Issuer's telephone number
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 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 ___
At June 30, 1998, 2,453,380 shares of Resource Bankshares Corporation's common
stock, $1.50 par value, were outstanding.
Traditional small business disclosure format: Yes___ No X
<PAGE>
RESOURCE BANKSHARES CORPORATION
FORM 10-QSB
JUNE 30, 1998
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 Financial Statements
<S> <C>
Balance Sheets as of June 30, 1998
and December 31, 1997 3
Statements of Income for the periods
ended June 30, 1998 and 1997 4
Statements of Cash Flows for the
periods ended June 30, 1998 and 1997 5
Statements of Stockholder's Equity for the
the period ended June 30, 1998 6
Notes to Financial Statements 7 - 9
Item 2 Management's Discussion and Analysis or
Plan of Operations 10 - 14
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 4 Submission of Matters to a Vote of
Security Holders 16
Item 5 Other Information 16 - 17
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30 December 31
1998 1997
---- ----
(Dollars in Thousands)
ASSETS
Cash and due from banks $ 3,912 $ 2,612
Interest bearing deposits with banks 18,169 9,679
Federal funds sold -- 1,920
Funds advanced in settlement of mortgage loans 42,105 23,744
Securities available for sale 10,095 12,432
Securities held to maturity 2,006 2,742
Loans, net of unearned income:
Commercial 67,598 50,713
Real estate - construction 45,181 37,626
Commercial real estate 11,598 9,016
Residential real estate 41,706 49,416
Installment and consumer loans 5,579 3,819
----------- -----------
TOTAL LOANS 171,662 150,590
Allowance for loan losses (2,600) (2,573)
----------- -----------
NET LOANS 169,062 148,017
Other real estate owned 488 684
Premises and equipment 3,320 3,237
Other assets 2,821 2,701
Accrued interest 1,559 1,562
----------- -----------
$ 253,537 $ 209,330
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 14,786 $ 11,493
Interest bearing 202,180 158,015
----------- -----------
TOTAL DEPOSITS 216,966 169,508
FHLB advances 15,500 20,950
Other liabilities 3,765 2,661
Accrued interest 742 609
----------- -----------
TOTAL LIABILITIES 236,973 193,728
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, par value $1.50 a share
Shares authorized: 6,666,666
Shares issued and outstanding: 2,453,380
3,680 3,680
Additional paid-in capital 10,769 10,769
Retained earnings 2,059 856
Accumulated other comprehensive income 56 297
----------- -----------
16,564 15,602
----------- -----------
$ 253,537 $ 209,330
============ ============
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended Six months ended
(UNAUDITED) June 30 June 30
------------------------------ ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C>
(Dollars in Thousands)
Interest income:
Interest and fees on loans $3,758 $1,996 $7,305 $3,828
Interest on investment securities 299 292 605 583
Interest on funds advanced 1,334 219 2,106 378
Interest on federal funds sold 20 10 26 35
------------- ----------- ------------- -------------
Total interest income 5,411 2,517 10,042 4,824
------------- ----------- ------------- -------------
Interest expense:
Interest on deposits 2,740 1,302 5,057 2,559
Interest on short-term borrowings 466 32 729 45
------------- ----------- ------------- -------------
Total interest expense 3,206 1,334 5,786 2,604
------------- ----------- ------------- -------------
Net interest income 2,205 1,183 4,256 2,220
Provision for loan losses - 30 125 45
------------- ----------- ------------- -------------
Net interest income after
provision for loan losses 2,205 1,153 4,131 2,175
------------- ----------- ------------- -------------
Noninterest income:
Mortgage banking income 2,193 887 4,297 1,601
Service charges 182 76 340 145
Gain on sale of foreclosed property - - 2 -
------------- ---------- ------------- -------------
2,375 963 4,639 1,746
-------------- ---------- ------------- -------------
Noninterest expense:
Salaries and employee benefits 1,945 929 3,806 1,742
Occupancy expenses 257 129 529 248
Depreciation and equipment maintenance 200 110 362 208
Stationery and supplies 90 41 164 70
Marketing and business development 95 48 171 82
Professional fees 43 24 75 38
Outside computer services 155 42 304 85
Provision for funds advanced 133 259
FDIC insurance 14 4 24 6
Expenses associated with other real estate 3 8 3 9
Other 484 124 770 220
------------- ----------- ------------- -------------
3,419 1,459 6,467 2,708
------------- ----------- ------------- -------------
Income before income tax 1,161 657 2,303 1,213
Income tax 406 223 806 412
------------- ----------- ------------- -------------
Net income $755 $434 $1,497 $801
========= ========== ======== =========
Basic earnings per common share (Note 5) $0.31 $0.22 $0.61 $0.41
========= ========== ======== =========
Diluted earnings per common share (Note 5) $0.28 $0.21 $0.55 $0.38
========= ========== ======== =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30 June 30
Operating activities 1998 1997
------- -------
(Dollars in thousands)
<S> <C>
Net income $1,497 $801
Adjustments to reconcile to net cash
used by operating activities:
Provision for losses on loans and other real estate owned 125 45
Depreciation and amortization 151 110
Gain on sale of investments (3)
Amortization of investment securities
premiums, net of discounts 44 10
Gain on sale of other real estate owned (2) -
Loss on premises and equipment 7 6
Deferred loan origination fees, net of costs (70) (35)
Changes in:
Funds advanced in settlement of mortgage loans (18,360) (106)
Interest receivable (72) (1)
Interest payable 134 36
Other assets 72 (664)
Other liabilities 1,104 818
----------------- -----------------
Net cash used operating activities (15,370) 1,017
Investing activities:
Proceeds from sales and maturities of
available-for-sale securities 3,358 1,184
Proceeds from maturities of
held-to-maturity securities 705 -
Purchases of available-for-sale securities (1,397) (551)
Loan originations, net of principal repayments (20,900) (7,615)
Purchases of premises, equipment and other assets (238) (296)
----------------- -----------------
Net cash used investing activities (18,472) (7,278)
Financing activities:
Cash dividends declared (294) -
Repayments from FHLB advances (5,450) (5,636)
Net increase in demand deposits,
NOW accounts and savings accounts 4,352 3,292
Net increase in certificates of deposit 43,105 9,346
----------------- -----------------
Net cash provided by financing activities 41,713 7,002
Increase in cash and cash equivalents 7,871 741
Cash and cash equivalents at beginning of period 13,210 4,133
----------------- -----------------
Cash and cash equivalents at end of period $21,081 $4,874
=========== ===========
Supplemental schedules and disclosures of cash flow information:
Cash paid for:
Interest on deposits and other borrowings $5,653 $2,068
=========== ===========
Schedule of noncash investment activities:
Foreclosed real estate ($509) $245
========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
RESOURCE BANKSHARES CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
(A)
.................................................................................................
(DOLLARS IN THOUSANDS)
<S> <C>
Balance, December 31, 1997 2,453,380 $3,680 $10,789 $856
Comprehensive income - - 1,497
Cash dividend declared
$ .06 per share (A) - - (147)
Cash dividend declared
$ .06 per share (A) - - (147)
-------------------------------------------------------------------------------------------------
Balance, June 30, 1998 2,453,380 $3,680 $10,789 $2,059
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Other
Comprehensive
Income Total
.................................................................
<S> <C>
Balance, December 31, 1997 $296 $15,601
Comprehensive income (240) 1,257
Cash dividend declared
$ .06 per share (A) (147)
$ .06 per share (A) (147)
-----------------------------------------------------------------
Balance, June 30, 1998 $56 $16,564
=================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
RESOURCE BANKSHARES CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
Organization and Summary of Significant Accounting Policies
(1) GENERAL
Resource Bankshares Corporation, A Virginia Corporation (the "Company"), was
incorporated under the laws of the Commonwealth of Virginia on February 4, 1998,
primarily to serve as a holding company for Resource Bank (the "Bank"). All
requisite regulatory approvals and the satisfaction of all other conditions to
the Reorganization have been completed. The Reorganization was effective on July
1, 1998. The financial statements reflect the financial position, results of
operations, and cash flows of the Bank, as the formation of the holding company
was consummated after the end of the quarter ending June 30, 1998.
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 Corporation (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. Accordingly, the average number of shares outstanding
and per share amounts for earnings, dividends declared, and book value have been
restated for all periods presented to give affect to the conversion.
The financial statements conform to generally accepted accounting principles and
to general banking industry practices. The interim period financial statements
are unaudited; however, in the opinion of management, all adjustments in the
normal recurring nature which are necessary for a fair presentation of the
financial statements included herein have been reflected in the financial
statements. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
(2) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, interest-bearing deposits, and federal funds sold.
(3) SECURITIES
The amortized costs, gross unrealized gains, gross unrealized losses, and fair
values for securities at June 30, 1998, are shown in the table below.
<PAGE>
(3) CONTINUED
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale: Costs Gains Losses Values
- ------------------ ---------- ------------ ------------------
U.S. Government Agencies $ 8,255 $86 $8,341
Other securities 1,599 1,599
Corporate securities 155 155
- --------------------------------------------------------------------------
TOTALS $10,009 $86 $10,095
- --------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Held-to-Maturity: Costs Gains Losses Values
- ------------------ ---------- ------------ ----------------------
U.S. Government and agency
securities $1,261 $3 $1,258
Municipal securities 745 745
- --------------------------------------------------------------------------
TOTALS $2,006 $3 $2,003
- --------------------------------------------------------------------------
(4) ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
Balance as of January 1, 1998 $2,573
Provision for loan losses 125
Loans charged off (155)
Recoveries 57
--------
Balance at June 30, 1998 $2,600
========
(5) NET INCOME PER 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 shares
(EPS). This statement supersedes standards previous 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 diluted EPS
computation. This Statement is effective for financial statements
<PAGE>
(5) CONTINUED
issued for periods after December 15, 1997. In accordance with the requirements
of this Statement, all prior period EPS 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 shares
in the earnings of the entity. The average number of basic shares outstanding
for the six months ended June 30, 1998 and 1997 were 2,453,380 and 1,935,748,
respectively. The diluted average number of shares for the six months ended June
30, 1998 and 1997 were 2,719,110 and 2,116,766, respectively.
(6) COMPREHENSIVE INCOME
Comprehensive income for the six months ended June 30, 1998 is as follows:
Net income $ 1,497
Other comprehensive
income, net of
taxes of $ 22,339 $ (240)
-------
Comprehensive income $ 1,257
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
Current period unrealized loss (240)
--------------
Ending balance 56
No reclassification adjustment was necessary as no realized gains or losses were
included in net income for the period.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
On June 9, 1998, the shareholders approved an Agreement and Plan of
Reorganization, dated April 10, 1998, as amended (the Agreement), relating to
the formation of a bank holding company structure with Resource Bankshares
Corporation (hereinafter referred to as "the Company") serving as the holding
company of the Bank. This transaction was consummated on July 1, 1998, and
accordingly, financial information for the period ended June 30, 1998, contained
herein, only reflects the operations of the Bank. For further discussion on the
holding company formation, the reader is directed to refer to Part II, Item 5
herein below.
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 effect 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 and the demand for residential mortgage
loans and the adequacy of the Bank's Year 2000 compliance, 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 in assets (including cash of $12,539), $8,082 in net
loans, and assumed $52,844 in deposit liabilities. Accordingly, these acquired
assets and liabilities contributed to the growth in total assets and liabilities
of the Bank for the six months ended June 30, 1998. The Bank's six months
results include results of operations from Eastern American Bank for the six
months ended June 30, 1998.
Total assets at June 30, 1998 were $253,537, up 21.1% from $209,330 at
December 31, 1997, reflecting growth in loans. The principal components of the
Bank's assets at the end of the period were $12,101 in securities, $22,081 in
cash and cash equivalents, $42,105 in funds advanced in settlement of mortgage
loans and $169,062 in net loans. During the six month period, gross loans
increased 14.0% or $21,072. The Bank's lending activities are a principal source
of income.
Total liabilities at June 30, 1998 were $236,973, up from $193,728 at
December 31, 1997, with the increase almost entirely represented by $47,458 or
28.0% growth in deposits. Non-interest bearing demand deposits increased $3,293
or 28.7% and represented 6.9% of total deposit growth. The Bank's deposits are
provided by individuals and businesses located within the communities served as
well as the national market.
Total shareholders' equity at June 30, 1998 was $16,564. At December 31,
1997, total shareholder's equity was $15,602.
The Bank had net income of $1,497 for the six months ended June 30, 1998
compared with net income of $801 for the comparable period in 1997, an increase
of 86.9%. During the second quarter, net income increased to $755 or 74.0% over
the same period in 1997.
Profitability as measured by the Bank's return on average assets (ROA) was
1.2% for the six months ended June 30, 1998, down .2% from the same period of
1997. A key indicator of performance, the return on average equity (ROE) was
19.3% and 17.9% for June 30, 1998 and 1997, respectively.
Net interest income represents a principal source of earnings for the
Bank. The first component is the loan portfolio. Making sound loans that will
increase the Bank's net interest margin is the first priority of management. The
second component is gathering core deposits to match fund the loan production.
The Bank also uses electronic funding of deposits and Federal Home Loan Bank
("FHLB") advances to fund loan growth either for asset and liability management
purposes or for a less expensive source of funds.
Net interest income, before provision for loan losses, increased from
$2,220 for the six months ended June 30, 1997 to $4,255 for the same period in
1998. During the second quarter, net interest income increased from $1,183 in
1997 to $2,204 in 1998.
Non-interest income increased from $1,746 for the six months ended June
30, 1997 to $4,639 for the same period in 1998. During the second quarter,
non-interest income increased from $963 in 1997 to $2,376 in 1998. 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 second
quarter of 1998, was a factor in the increase of mortgage banking income. For
the six months ended June 30, 1998, the Bank had an increase in mortgage banking
income of 168.4% or $2,696 to $4,297 over the same period of 1997. During the
second quarter of 1998, mortgage banking income increased 147.2% or $1,306 to
$2,193 over the same period in 1997. 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. Other non-interest income consists of service charges. This
increase of 134.5% to $340 for the period ended June 30, 1998 was primarily
attributable to service charges on deposit accounts which increased with the
addition of Eastern American.
For the six months ended June 30, 1998, the Bank had an increase in
non-interest expense of $3,759 or 138.8% over the same period in 1997. During
the second quarter of 1998, non-interest expense increased $1,960 or 134.3% over
the same period in 1997. All areas of non-interest expense were affected by the
increased volume in the mortgage banking operations and the merger with Eastern
American. The largest component of non-interest expense, salaries and employee
benefits which represents 58.9% of total non-interest expense, increased 118.4%
to $3,806 for the six months ended June 30, 1998 over the same period in 1997.
Occupancy expense increased by 113.3% to $529, depreciation and equipment
maintenance increased by 74.0% to $362, stationery and office supplies increased
by 134.3% to $164, marketing and business development increased by 108.5% to
$171 and outside computer services increased by 257.7% to $304 for the six
months ended June 30, 1998 over the same period in 1997.
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 $259 during the six months
ended June 30, 1998 and had no such provision during the same period of 1997.
In establishing the allowance for loan losses, management considers a
number of factors, including loan asset quality, related collateral and economic
conditions prevailing during the loan's repayment. In its loan policies,
management emphasizes the borrower's ability to service the debt, the borrower's
general creditworthiness and the quality of collateral. The allowance for loan
losses as a percentage of quarter-end loans at June 30 was 1.5% and 1.2% for
1998 and 1997, respectively. A provision for loan losses of $125 and $45 was
provided during the six months ended June 30, 1998 and 1997, respectively.
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.
At June 30, 1998, the Bank had $734 in non-accrual loans and $853 of loans
past due 90 days or more that are still accruing. Management believes losses, if
any, will be minimal. Loans are generally placed in nonaccrual status when the
collection of principal and interest is 90 days or more past due, unless the
obligation is both well-secured and in the process of collection.
Liquidity represents the institution's ability to meet present and future
financial obligations. Liquid assets include cash, interest bearing deposits
with banks, federal funds sold, investments and loans maturing within one year.
The 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. Federal Home Loan Bank
("FHLB") advances are utilized as funding sources by the Bank. At June 30, 1998,
there were $15,500 in FHLB advances outstanding. At June 30, 1997, $1,600 in
advances were outstanding. The Bank has a warehouse line of credit
collateralized by first mortgage loans amounting to $50,000 which expires
December 2, 1998. Also available is a variable rate line of credit on which the
Bank may borrow up to $9,200. This arrangement expires November 3, 1998, and can
be prepaid at anytime by the Bank. At June 30, 1998, the Bank had outstanding
$2,200 in warehouse advances and $13,300 outstanding in other advances. At June
30, 1997, $1,600 was outstanding in other advances. The Bank did not sell
federal funds sold to correspondent institutions on June 30, 1998 but sold $825
at June 30, 1997.
<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.
The Bank's financial position at June 30, 1998 reflects liquidity and
capital levels currently adequate to fund anticipated future business expansion.
Capital ratios are in excess of required regulatory minimums for a well
capitalized institution. The assessment of capital adequacy depends on a number
of factors such as asset quality, liquidity, earnings performance, and changing
competitive conditions and economic forces. The adequacy of the Company's
capital is reviewed by management on an ongoing basis. Management seeks to
maintain a capital structure that will assure an adequate level of capital to
support anticipated asset growth and to absorb potential losses.
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
June 30, 1998.
Required Ratio Actual Ratio
Tier 1 risk-based 4.00% 7.88%
Total risk-based 8.00% 9.13%
Tier 1 leverage 4.00 to 5.00% 6.24%
The Bank is in full compliance with all relevant regulatory capital
requirements.
The effect of changing prices on financial institutions is typically
different from other industries as the Bank's assets and liabilities are
monetary in nature. Interest rates are significantly impacted by inflation, but
neither the timing nor the magnitude of the changes are directly related to
price level indices. Impacts of inflation on interest rates, loan demand and
deposits are reflected in the financial statements. The mortgage banking
operations provide somewhat of a natural interest rate hedge, in that the Bank
is interest rate sensitive in the six-month period. When interest rates decline,
the Bank's earnings will be negatively impacted in the six-month period but the
mortgage operation's volume will increase. The reverse will happen in rising
interest rate markets.
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
organizations.
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
regulators.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Bank is a
party or of which the property of the Bank is subject.
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 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 $.05, and $.125 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 $.05 dividends at the 1996 Annual Meeting of
Shareholders and the $.125 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 and June 25, 1998, the Bank announced a quarterly
dividend of $.06 per share to be paid to shareholders of record on March 31,
1998 and June 30, 1998, respectively.
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 Corporation (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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Resource Bank Annual Shareholders Meeting was held on June 9, 1998.
(a) The following Directors were elected to the Board of Directors
for a period of one year:
Alfred Abiouness A. Russell Kirk
John B. Bernhardt Lawrence N. Smith
Thomas W. Hunt Elizabeth A. Twohy
Louis R. Jones
(b) Approval was given for the formation of a bank holding company,
of which the Bank will be a wholly owned subsidiary. The approval of
the Agreement (as defined in Part II, Item 5) served to elect each
of the directors listed in (a) above as directors of the Company
upon the effective date of the transaction.
Shares Voted
For Against Abstain
733,492 566 7,944
ITEM 5. OTHER INFORMATION: ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to an Agreement and Plan of Reorganization (the "Agreement")
dated April 10, 1998, as amended, Resource Bankshares Corporation, a bank
holding company organized under the laws of Virginia (the "Holding Company"),
acquired, effective July 1, 1998, all of the issued and outstanding capital
stock of Resource Bank, a state banking association headquartered in Virginia
Beach, Virginia (the "Bank"). The purpose of the Agreement was to create a bank
holding company structure for the Bank.
The Holding Company did not engage in any business activity prior to the
July 1, 1998, effective date of the Reorganization, and its only significant
asset at the present time is its investment in the Bank resulting from the
Reorganization (the "Continuing Bank").
The operations of the Continuing Bank will continue in substantially the
same manner as conducted by the Bank immediately prior to the Reorganization.
All seven directors of the Bank were appointed as of the consummation as the
directors of the Holding Company, and the Board of Directors of the Bank
automatically became directors of the Continuing Bank, and the officers and
employees of the Bank assumed corresponding positions with the Continuing Bank.
On the effective date of the Reorganization, each share of common stock of
the Bank, par value $3.00 per share, was converted into two (2) shares of common
stock of the Holding Company, par value $1.50 per share. In order to effect the
Reorganization, the Holding Company issued approximately 2,453,380 shares of its
common stock.
The prospectus/proxy statement ("Proxy Statement") used in connection with
the Annual Meeting contains a more complete description of the business of the
Bank and the Holding Company, as well as the terms of the Reorganization. Such
Proxy Statement in the form mailed to shareholders of the Bank was included in
the Form 8-K filed July 1, 1998 as Exhibit 99.3. which is incorporated herein by
reference. (The Agreement was filed as part of this Form 8-K as Exhibit 2, which
is incorporated herein by reference.)
Financial Statements. The Reorganization met all of the conditions set
forth in Staff Accounting Bulletin No. 50 "Financial Statement Requirements in
Filings Involving the Formation of a One Bank Holding Company". Therefore, the
Holding Company omitted from inclusion in the Proxy Statement the financial
statements of the Bank and the information required by Guide 3 of the Industry
Guides promulgated under the Securities Act of 1933. However, the audited
financial statements of the Bank for the two years ended December 31, 1997,
prepared in conformity with generally accepted accounting principles, as
contained in the 1997 Annual Report to Shareholders of the Bank, which was
furnished to shareholders along with the Proxy Statement, are incorporated
herein by reference.
In addition, the pro forma financial information is incorporated by
reference to page 15 of the Proxy Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The registrant includes herein the following exhibits.
Exhibit No. Item
2 Agreement and Plan of Reorganization,
dated as of April 10, 1998, as amended,
by and among Resource Bank and Resource
Bankshares Corporation. Filed July 1,
1998 as Exhibit 2 to the Registrant's
Form 8-K and incorporated herein by
reference.
20 A copy of the Prospectus/Proxy Statement
of Resource Bank (Exhibit A set forth as
Exhibit 2 above). Filed July 1, 1998 as
Exhibit 99.2 to the Registrant's Form
8-K, and incorporated herein by reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ending June 30,
1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the under-signed, thereunto
duly authorized.
RESOURCE BANKSHARES CORPORATION
/s/ Lawrence N. Smith 8-10-98
______________________________________ Date:________
Lawrence N. Smith
President & Chief Executive Officer
/s/ Eleanor J. Whitehurst
_____________________________________
Eleanor J. Whitehurst Date: 8-10-98
________
Senior Vice President & Chief Financial Officer
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