U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
Commission File Number: 000-24561
RESOURCE BANKSHARES CORPORATION
(Exact name of Registrant as specified in its charter)
Virginia 54-1904386
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3720 Virginia Beach Blvd., Va. Beach, VA.23452
(Address of principal executive offices) (Zip Code)
(757) 463-2265
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No ___
At March 31, 1999, 2,529,351 shares of Resource Bankshares Corporation's common
stock, $1.50 par value, were outstanding.
<PAGE>
RESOURCE BANKSHARES CORPORATION
FORM 10-Q
MARCH 31, 1999
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 3
Consolidated Statements of Income for the periods ended
March 31, 1999 and 1998 4
Consolidated Statements of Stockholder's Equity for the period
ended March 31, 1999 6
Consolidated Statements of Cash Flows for the periods ended
March 31, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 6. Exhibits and Reports on Form 8-K 22
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31 December 31
1999 1998
---- ----
(Dollars in thousands)
<S> <C>
ASSETS
Cash and due from banks $4,040 $4,325
Interest bearing deposits with banks 18,613 3,357
Federal funds sold 93 800
Funds advanced in settlement of mortgage loans 16,290 21,052
Securities available for sale 22,499 8,619
Securities held to maturity 1,053 1,224
Loans, net of unearned income:
Commercial 68,986 68,569
Real estate - construction 50,962 44,607
Commercial real estate 29,376 42,482
Residential real estate 36,036 28,702
Installment and consumer loans 3,794 4,162
--------------- ----------------
TOTAL LOANS 189,154 188,522
Allowance for loan losses (2,411) (2,500)
--------------- ----------------
NET LOANS 186,743 186,022
Other real estate owned 389 647
Premises and equipment 3,365 3,281
Other assets 3,315 2,531
Accrued interest 1,592 1,602
--------------- ----------------
$257,992 $233,460
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $18,423 $15,783
Interest bearing 202,044 190,436
--------------- ----------------
TOTAL DEPOSITS 220,467 206,219
FHLB advances 7,300 7,300
Other liabilities 1,851 1,500
Accrued interest 777 652
Capital debt securities 9,200 -
--------------- ----------------
TOTAL LIABILITIES 239,595 215,671
STOCKHOLDERS' EQUITY
Common stock, par value $1.50 a share
Shares authorized: 6,666,666
Shares issued and outstanding:
1999 - 2,529,351; 1998 2,477,124 3,794 3,716
Additional paid-in capital 10,883 10,702
Retained earnings 3,819 3,310
Accumulated other comprehensive income (99) 61
--------------- ----------------
18,397 17,789
--------------- ----------------
$257,992 $233,460
=============== ================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
March 31
1999 1998
---- ----
(Dollars in thousands)
<S> <C>
Interest income:
Interest and fees on loans $4,007 $3,547
Interest on investment securities 332 306
Interest on funds advanced 322 772
Interest on federal funds sold 39 6
---------------- ---------------
Total interest income 4,700 4,631
---------------- ---------------
Interest expense:
Interest on deposits 2,500 2,317
Interest on short-term borrowings 102 263
Interest on capital debt securities 52 -
---------------- ---------------
Total interest expense 2,654 2,580
---------------- ---------------
Net interest income 2,046 2,051
Provision for loan losses 125
---------------- ---------------
Net interest income after provision for loan losses 2,046 1,926
---------------- ---------------
Noninterest income:
Mortgage banking income 1,402 2,104
Service charges 212 158
Gain on sale of loans and other real estate 152 2
---------------- ---------------
1,766 2,264
---------------- ---------------
Noninterest expense:
Salaries and employee benefits 1,363 1,861
Occupancy expenses 286 272
Depreciation and equipment maintenance 164 162
Stationery and supplies 77 74
Marketing and business development 76 76
Professional fees 35 32
Outside computer services 98 149
Provision for funds advanced - 126
FDIC insurance 29 10
Expenses associated with other real estate 10 1
Other 519 285
---------------- ---------------
2,657 3,048
---------------- ---------------
Income before income tax 1,155 1,142
Income tax 400 400
---------------- ---------------
Net income $755 $742
================ ===============
</TABLE>
<PAGE>
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(UNAUDITED)
<TABLE>
<S> <C> <C>
Cash dividend declared per common share $0.06 $0.06
================ ===============
Basic earnings per common share (Note 5) $0.30 $0.30
================ ===============
Diluted earnings per common share (Note 5) $0.27 $0.27
================ ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
RESOURCE BANKSHARES CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 Accumulated
Other
Additional Retained Comprehensive
Common Stock Paid-in Earnings Income
Shares Amount Capital (Deficit) (Loss) Total
------ ------ ------- --------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 2,477,124 $3,716 $10,702 $3,310 $61 $17,789
Comprehensive income:
Net income - - - 756 - 756
Changes in unrealized appreciation
(depreciation) on securities
available for sale, net of
reclassification adjustment and
tax effect
Total comprehensive income - - - (160) (160)
Proceeds from exercise of stock
options 2,666 4 20 24
Proceeds from exercise of warrants 53,361 80 229 309
Reacquisition of common stock (3,800) (6) (68) (74)
Cash dividend declared
$ .10 per share - - - (247) (247)
Balance, March 31, 1999 2,529,351 $3,794 $10,883 $3,819 ($99) $18,397
============== ============= =============== ================ ================ ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31, 1999 March 31, 1998
-------------- --------------
Operating activities (Dollars in thousands)
<S> <C>
Net income $755 $742
Adjustments to reconcile to net cash
used by operating activities:
Provision for losses on loans and other real estate owned - 125
Depreciation and amortization 77 65
premiums, net of discounts (16) 9
Gain on sale of loans or other real estate owned (156) (2)
Deferred loan origination fees, net of costs 298 77
Changes in:
Funds advanced in settlement of mortgage loans 4,762 (56,540)
Interest receivable 10 (42)
Interest payable 125 87
Other assets (437) (387)
Other liabilities 352 990
-------------------- -----------------
Net cash used operating activities 5,770 (54,876)
Investing activities:
Proceeds from sale of real estate owned, net of costs 379 -
Proceeds from sales and maturities of
available-for-sale securities 1,054 1,802
Proceeds from maturities of
held-to-maturity securities 167 -
Purchases of available-for-sale securities (15,066) (1,004)
Loan originations, net of principal repayments (983) (8,029)
Purchases of premises, equipment and other assets (197) (92)
-------------------- -----------------
Net cash used investing activities (14,646) (7,323)
Financing activities:
Proceeds from exercise of stock options 333 -
Payments to reacquire common stock (74) -
Cash dividends declared (248) (147)
Net proceeds in FHLB advances - 22,370
Net proceeds from issuance of capital debt securities 8,883 -
Net increase in demand deposits,
NOW accounts and savings accounts 6,440 3,651
Net increase in certificates of deposit 7,807 38,580
-------------------- -----------------
Net cash provided by financing activities 23,141 64,454
Increase in cash and cash equivalents 14,265 2,255
Cash and cash equivalents at beginning of period 8,481 13,210
-------------------- -----------------
Cash and cash equivalents at end of period $22,746 $15,465
==================== =================
Supplemental schedules and disclosures of cash flow information:
Cash paid for:
Interest on deposits and other borrowings $2,476 $2,493
==================== =================
Schedule of noncash investment activities:
Foreclosed real estate $(380) $(50)
==================== =================
</TABLE>
See notes to consolidated financial statements
<PAGE>
RESOURCE BANKSHARES CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
(UNAUDITED)
(Dollars in thousands, except per share data)
Organization and Summary of Significant Accounting Policies
(1) GENERAL
Resource Bankshares Corporation, a Virginia Corporation (the
"Company"), was incorporated under the laws of the Commonwealth of Virginia on
February 4, 1998, primarily to serve as a holding company for Resource Bank (the
"Bank").
On July 1, 1998, all Resource Bank common stock, $3.00 par value was
converted to the common stock, $1.50 par value, of the Company on a two share
for one share exchange basis, making the Bank a wholly owned subsidiary of the
Company (the "Reorganization"). In order to effect the Reorganization, the
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 Reorganization became effective on July 1, 1998. The financial
statements reflect the financial position, results of operations, and cash flows
of the Company for the period ended March 31, 1999. 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 with banks, and federal funds
sold.
(3) SECURITIES
The amortized costs, gross unrealized gains, gross unrealized losses,
and fair values for securities at March 31, 1999, are shown in the following
table.
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Available-for-Sale: Amortized Costs Unrealized Gains Unrealized Losses Fair Values
--------------------------------- ---------------- ---------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
U.S. Government Agencies $5,835 $1 $24 $5,812
Corporate Securities 11,608 9 108 11,509
Other Securities 5,208 -- 30 5,178
--------------------------------- ---------------- ---------------------- ----------------------- -----------------
TOTALS $22,651 $10 $162 $22,499
--------------------------------- ---------------- ---------------------- ----------------------- -----------------
<CAPTION>
Gross Gross
Held-to-Maturity: Amortized Costs Unrealized Gains Unrealized Losses Fair Values
--------------------------------- ---------------- ---------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
U.S. Government and agency
securities $307 $7 $-- $314
Municipal securities 746 21 -- 767
--------------------------------- ---------------- ---------------------- ----------------------- -----------------
TOTALS $1,053 $28 $-- $1,081
--------------------------------- ---------------- ---------------------- ----------------------- -----------------
</TABLE>
(4) ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
Balance as of January 1, 1999 $2,500
Provision for loan losses --
Loans charged off (90)
Recoveries 1
------
Balance at March 31, 1999 $2,411
======
<PAGE>
(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 share (EPS). This statement
supersedes standards previously set forth 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 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 three months ended March 31, 1999, and 1998 were 2,447,737 and
2,453,380, respectively. The diluted average number of shares for the three
months ended March 31, 1999 and 1998 were 2,686,150 and 2,710,404, respectively.
<PAGE>
(6) COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 1999 is as
follows:
Net income $ 755
Other comprehensive income,
net of taxes of $ 37,311 $ (160)
-------
Comprehensive income $ 595
=====
Other comprehensive income consists only of unrealized gains or losses on
available for sale securities as illustrated below:
Accumulated other
comprehensive income
Beginning balance $ 61
Current period unrealized loss (160)
-----
Ending balance $ (99)
========
No reclassification adjustment was necessary as no realized gains or losses
were included in net income for the period.
(7) SEGMENT REPORTING
The Company has one reportable segment, its mortgage banking operations.
This segment originates residential loans and subsequently sells them to
investors. The commercial banking and other banking operations provide a broad
range of lending and deposit services to individual and commercial customers,
including such products as commercial and construction loans, as well as other
business financing arrangements.
The Company's reportable segment is a strategic business unit that offers
different products and services. It is managed separately because the segment
appeals to different markets and, accordingly, requires different technology and
marketing strategies.
The mortgage banking segment's most significant revenue and expense is
non-interest income and non-interest expense, respectively. The Company's
segments are reported below for the periods ended March 31, 1999 and March 31,
1998.
<PAGE>
Selected Financial Information
<TABLE>
<CAPTION>
Commercial Mortgage
and Other Banking
Operations Operations Total
---------- ---------- -----
<S> <C> <C> <C>
Three Months Ended March 31, 1999:
Net interest income after provision
for loan losses $ 2,046 $ -- $2,046
Noninterest income 364 1,402 1,766
Noninterest expense (1,251) (1,406) (2,657)
-------- ---------- --------
Net income before income taxes $ 1,159 $ (4) $1,155
======== ========== =======
Three Months Ended March 31, 1998:
Net interest income after provision
for loan losses $ 1,926 $ -- $ 1,926
Noninterest income 159 2,104 2,263
Noninterest expense (1,342) (1,705) (3,047)
--------- ------ -------
Net income before income taxes $ 743 $ 399 $ 1,142
======== ======= =======
<CAPTION>
Segment Assets
Commercial Mortgage
and Other Banking
Operations Operations Total
---------- ---------- -----
<S> <C> <C> <C>
March 31, 1999 $257,181 $ 811 $257,992
March 31, 1998 $274,311 $ 1,037 $275,348
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Dollars in thousands, except per share data)
Financial Condition and Results of Operations
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").
On July 1, 1998, all Resource Bank common stock, $3.00 par value was
converted to the common stock, $1.50 par value, of the Company on a two share
for one share exchange basis, making the Bank a wholly owned subsidiary of the
Company (the "Reorganization"). In order to effect the Reorganization, the
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.
In addition to historical information, the following discussion contains
forward looking statements that are subject to risks and uncertainties that
could cause the Company's actual results to differ materially from those
anticipated. These forward looking statements include, but are not limited to,
the effect of increasing interest rates on the Company's profitability and the
adequacy of the Company's allowance for future loan losses. Several factors,
including the local and national economy and the demand for residential mortgage
loans and the adequacy of the Company's Year 2000 compliance, may adversely
affect the Company's ability to achieve the expected results. Readers are
cautioned not to place undue reliance on these forward looking statements, which
reflect management's analysis only as of the date of this report.
Total assets at March 31, 1999 were $257,992, up 10.5% from $233,460 at
December 31, 1998, reflecting growth in securities and loans. The Company
purchased $11,357 of investment grade corporate securities in the first quarter
of 1999. The principal components of the Company's assets at the end of the
period were $23,552 in securities, $22,746 in cash and cash equivalents, $16,290
in funds advanced in settlement of mortgage loans and $186,743 in net loans. The
Company's lending activities are a principal source of income.
Total liabilities at March 31, 1999 were $239,595, up from $215,671 at
December 31, 1998, with the increase almost entirely represented by $14,248
(6.9%) growth in deposits and the issuance of $9,200 Trust Preferred Stock.
Non-interest bearing demand deposits increased $2,640 or 16.7%, while interest
bearing deposits increased by $11,608 or 6.1%. The Company's deposits are
provided by individuals and businesses located within the communities served as
well as the national market.
The Company raised $9,200 of additional capital in the first quarter of
1999 by issuing 368,000 Trust Preferred Securities at a price of $25.00 per
Security. The Trust Preferred Securities feature a 9.25% coupon. The Company, in
turn, purchased $5,000 of non-cumulative 9.25% Preferred Stock issued by the
Bank. This Preferred Stock qualifies as Tier 1 capital for the Bank for
regulatory purposes. Management believes that this additional Tier 1 capital
provides the Bank with an increased loans to one borrower limitation, and the
ability to continue to grow its balance sheet while maintaining its well
capitalized status. The Preferred Stock 9.25% coupon matches the coupon of the
Trust Preferred Securities.
<PAGE>
The funds generated by the Trust Preferred Securities offering have been
invested in marketable securities and will also be used by the Company in its
stock repurchase program. The marketable securities are held as
available-for-sale to meet liquidity needs. The Company's stock repurchase
program will be used to offset the otherwise dilutive effects of stock options
granted to the Company's management as employment recruitment and retention
perquisites.
Total shareholders' equity at March 31, 1999 was $18,397, compared to
$17,789 at December 31, 1998. The Company had net income of $755 for three
months ended March 31, 1999 compared with net income of $742 for the comparable
period in 1998, an increase of 1.8%.
Profitability as measured by the Company's return on average assets (ROA)
was 1.3% for the three months ended March 31, 1999, down .1% from the same
period of 1998. A key indicator of performance, the return on average equity
(ROE) was 16.9% and 19.2% for the quarters ended March 31, 1999 and 1998,
respectively.
Net interest income represents a principal source of earnings for
the Company. The first component is the loan portfolio. Making sound loans that
will increase the Company's net interest margin is the first priority of
management. The second component is gathering core deposits to match and fund
the loan production. The Company also 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, remained
almost unchanged at $2,046 for the three months ended March 31, 1999 versus
$2,051 for the same period in 1998. This slight decrease (0.2%) in net interest
income for the first quarter of 1999 in comparison to 1998 occurred primarily as
the result of decreases in the prime lending rate caused by Federal Reserve Bank
actions in the second half of 1998. Such rate cuts affected the Company's loan
portfolio yields more immediately than its interest bearing deposit costs. Net
interest income was also negatively impacted by a $10,557 reduction in average
balances related to funds advanced in settlement of mortgage loans, which are
interest bearing.
<PAGE>
Average Balances, Interest Income and Expenses, and Average Yields and Rates
The following table sets forth, for the periods indicated, information
regarding: (i) the total dollar amount of interest income of the Company 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. Since quarter-end balances can be distorted by
one-day fluctuations, an analysis of changes in the quarterly averages is
provided to give a better indication of balance sheet trends.
<TABLE>
<CAPTION>
1st Quarter 4th Quarter
1999 1998
Average Yield/ Average Yield/
Balance (1) Interest Rate (2) Balance (1) Interest Rate (2)
-------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Securities $15,699 $205 5.22% $10,385 $149 5.74%
Loans (3) 188,686 4,007 8.49% 182,720 4,084 8.94%
Interest bearing deposits in other banks 12,893 166 5.15% 5,725 77 5.38%
Other interest-earning assets (4) 14,869 322 8.66% 25,426 434 6.83%
------- ---- ----- ------- ---- -----
Total interest earning assets 232,147 4,700 8.10% 224,256 4,744 8.46%
Noninterest earning assets:
Cash and due from banks 3,989 3,880
Premises and equipment 3,296 3,273
Other assets 4,946 4,646
Less: Allowance for loan losses (2,442) (2,522)
------- -------
Total noninterest earning assets 9,789 9,277
------ -----
Total assets $241,936 $233,533
======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest bearing deposits:
Demand/Money Market Accounts $13,585 $108 3.18% $11,463 $97 3.38%
Savings 22,327 243 4.35% 20,245 234 4.62%
Certificates of deposit 160,154 2,149 5.37% 154,151 2,189 5.68%
-------- ------ ----- -------- ------ -----
Total interest bearing deposits 196,066 2,500 5.10% 185,859 2,520 5.42%
FHLB advances and other borrowings (5) 7,300 102 5.59% 10,978 156 5.68%
Capital debt securities 2,421 52 8.59% - - -
------ --- ----- -------- ------ ----
Total interest-bearing liabilities 205,787 2,654 5.16% 196,837 2,676 5.44%
-------- ------ ----- -------- ------ -----
Noninterest-bearing liabilities:
Demand deposits 16,154 15,928
Other liabilities 2,130 3,352
------ ------
Total noninterest earning liabilities 18,284 19,280
------- ------
Stockholders' equity 17,865 17,416
------- ------
Total liabilities and stockholder's equity $241,936 $233,533
========= ========
Net interest income/interest rate spread (6) $2,046 2.94% $2,068 3.02%
======= ===== ======= =====
Net interest position (7) / Net yield on
interest-earning assets (8) $ 26,360 0.88% $ 27,419 0.92%
======== ===== ======== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities (9) 112.81% 113.93%
======= =======
</TABLE>
<PAGE>
(1) Average balances are computed on daily balances.
(2) Yield and rate percentages are all computed through the annualization of
interest income and expenses versus the average balances of their respective
accounts.
(3) Non-accrual loans are included in the average loan balances, and income on
such loans is recognized on a cash basis.
(4) Consists of funds advanced in settlement on loans.
(5) Consists of FHLB advances and federal funds purchased.
(6) Represents the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities.
(7) Equals total interest-earning assets minus total interest-bearing
liabilities.
(8) Equals net interest income divided by average interest-earning assets.
(9) Equals average interest-earning assets divided by average
interest-bearing liabilities.
Non-interest income decreased from $2,264 for the three months ended
March 31, 1998 to $1,766 for the same period in 1999. This decrease was
primarily attributable to reduced activity in the Company's mortgage banking
operations. For the three months ended March 31, 1999, mortgage banking income
declined by 33.0% or $702 to $1,402 versus the same period of 1998. Mortgage
banking still made a significant contribution to the Company's results in the
first quarter of 1999. Because of the uncertainty of future loan origination
volume and the future level of interest rates, there can be no assurance that
the Company will realize the same level of mortgage banking income in future
periods. Other non-interest income, consisting mostly of service charges, and a
gain on sale of loans, increased by $204 to $364 for the quarter ending March
31, 1999 compared to the same period in 1998.
For the three months ended March 31, 1999, the Company's non-interest
expense totaled $2,657 or 12.8% lower than the same period in 1998. This
decrease in expenses was also primarily due to reduced mortgage banking
activity. The largest component of non-interest expense, salaries and employee
benefits, which represents 51.3% of total non-interest expense, decreased 26.8%
to $1,363 for the three months ended March 31, 1999 over the same period in
1998. Occupancy expense increased by 5.2% to $286, depreciation and equipment
maintenance increased by 1.2% to $164, marketing and business development
remained constant at $76, and outside computer services decreased (due to
one-time expenses incurred in 1998 in connection with a system conversion) by
34.2% to $98 for the three months ended March 31, 1999 over the same period in
1998.
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 March 31 was 1.3% and
1.7% for 1999 and 1998, respectively. The provisions for loan losses were $0 and
$125 for the three months ended March 31, 1999 and 1998, respectively.
While the Company believes it has sufficient allowance for its
existing portfolio, there can be no assurances that an additional allowance for
losses on existing loans may not be necessary in the future, particularly if the
economy worsens.
<PAGE>
Management believes that losses on these assets, if any, will be
minimal, although no assurance can be given in this regard. Loans are generally
placed in nonaccrual status when the collection of principal and interest is 90
days or more past due, unless the obligation is both well-secured and in the
process of collection.
Non Performing Assets
The following table presents the Company's non performing assets for
the periods set forth.
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
----- ----
(Dollars in thousands)
<S> <C> <C>
Non accrual loans $322 $533
Other real estate 389 647
Loans 90 days or more past due and still
accruing interest 1,088 412
------ ---
Total non performing assets $1,799 $1,592
======= ======
Total assets $257,992 $233,460
========= ========
Total non performing assets to total assets 0.70% 0.68%
===== =====
</TABLE>
<PAGE>
Summary of Loan Loss Experience
The following table presents the Company's loan loss experience and selected
loan loss ratios for the three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended March 31
1999 1998
(Dollars in thousands)
<S> <C> <C>
Balance of allowance for loan losses at beginning of year $2,500 $2,573
Loans charged-off:
Commercial (4) --
Installment (1) (4)
Real Estate (84) --
Credit Cards and Other Consumer (1) (6)
---- ---
Total loans charged-off (90) (10)
---- ----
Recoveries of loans previously charged-off:
Commercial - -
Installment 1 -
Real Estate - 3
Credit Cards and Other Consumer - 18
----- -----
Total recoveries 1 21
----- ------
Net loans charged-off (89) 11
Additions to allowance charged to expense - 125
---- ------
Balance at end of quarter $2,411 $2,709
------ ------
Average loans $203,444 $153,662
Loans at end of period $189,154 $158,553
Selected Loan Loss Ratios:
Net charge-off during the period to average loans 0.04% -0.01%
Provision for loan losses to average loans 0.00% 0.08%
Provision for loan losses to net charge-offs during the period 0% -1136%
Allowance for loan losses to loans at end of period 1.27% 1.71%
Non-performing assets at end of period $1,799 $2,734
Non-performing assets to total loans at end of period 0.95% 1.72%
Allowance for loan losses to non-performing assets at end of period 134% 99%
</TABLE>
Interest Rate Sensitivity
Management evaluates interest sensitivity through the use of an
asset/liability management reporting gap model on a quarterly basis and then
formulates strategies regarding asset generation and pricing, funding sources
and pricing, and off-balance sheet commitments in order to decrease sensitivity
risk. These strategies are based on management's outlook regarding interest rate
movements, the state of the regional and national economies and other financial
and business risk factors. In addition, the Company establishes prices for
deposits and loans based on local market conditions and manages its securities
portfolio under policies that take interest risk into account.
<PAGE>
Liquidity represents the institution's ability to meet present and
future financial obligations. Liquid assets include cash, interest bearing
deposits with banks, federal funds sold, investments and loans maturing within
one year. The Company's funding requirements are supplied from a range of
traditional sources, including various types of demand deposits, money market
accounts, certificates of deposit and short-term borrowings. Federal Home Loan
Bank ("FHLB") advances are utilized as funding sources by the Company. At March
31, 1999, there were $7,300 in FHLB advances outstanding. The Company has a
warehouse line of credit collateralized by first mortgage loans amounting to
$50,000, which expires December 2, 1999. The Company has no reason to believe
this arrangement will not be renewed. The Bank had $0 and $22,920 outstanding
warehouse advances at March 31, 1999 and 1998, respectively. At March 31, 1998,
$20,400 was outstanding in FHLB advances outside of the warehouse line.
Management seeks to ensure adequate liquidity to fund loans and meet
the Company's financial requirements and opportunities. To provide liquidity for
current, ongoing and unanticipated needs, the Company maintains short-term
interest bearing certificates of deposits, federal funds sold, and a portfolio
of debt securities. The Company also structures and monitors the flow of funds
from debt securities and from maturing loans. 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 Company's financial position at March 31, 1999 reflects liquidity
and capital levels that management believes are currently adequate to fund
anticipated future business expansion. Capital ratios are in excess of required
regulatory minimums for a well capitalized institution. The assessment of
capital adequacy depends on a number of factors such as asset quality,
liquidity, earnings performance, and changing competitive conditions and
economic forces. The adequacy of the Company's capital is reviewed by management
on an ongoing basis. Management seeks to maintain a capital structure that will
assure an adequate level of capital to support anticipated asset growth and to
absorb potential losses.
<PAGE>
The following table presents the amounts of the Company's interest
sensitive assets and liabilities that mature or reprice in the periods
indicated.
<TABLE>
<CAPTION>
March 31, 1999
Maturing
--------------------------------------------------------------------------
Within 4-12 1 - 5 Over
3 months Months Years 5 Years Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Investment securities $5,504 $1,671 $15,933 $537 $23,645
Loans 112,005 14,612 41,138 21,399 189,154
Interest bearing deposits in other banks 18,613 - - - 18,613
Other interest-earning assets 16,290 - - - 16,290
------ - ------ ------ ------ -------
Total interest-earning assets 152,412 16,283 57,071 21,936 247,702
------- ------ ------ ------ -------
Interest-Bearing Liabilities:
Deposits
Demand and savings (1) $37,253 - $37,253
Time deposits, $100,000 and over 2,883 7,183 757 - 10,823
Other time deposits 37,539 112,475 3,954 - 153,968
Other interest-bearing liabilities - 2,000 5,300 - 7,300
Capital debt securities - - - 9,200 9,200
------ ------- ------ ----- -------
Total interest-earning liabilities 40,422 121,658 47,264 9,200 218,544
------ ------- ------ ----- -------
Period Gap $111,990 $(105,375) $9,807 $12,736 $29,158
-------- ---------- ------ ------- -------
Cumulative Gap $111,990 $6,615 $16,422 $29,158
-------- ------ ------- -------
Ratio cumulative gap total
interest-earning assets 45.21% 2.67% 6.63% 11.77%
</TABLE>
(1) Management has determined that interest checking, money market and savings
accounts are not sensitive to changes in related market ratio and, therefore,
the Company has placed them in the 1-5 years category.
The capital adequacy standards are based on an established minimum
for Tier 1 Risk-Based Capital, Risk-Based Capital and the Tier 1 Leverage Ratio.
The following table summarizes regulatory capital ratios for the Company and its
subsidiary at March 31, 1999.
Resource Resource
Required Ratio Bankshares Bank
-------------- ---------- --------
Tier 1 risk-based 4.00% 11.89% 11.16%
Total risk-based 8.00% 14.54% 12.33%
Tier 1 leverage 4.00 to 5.00% 10.15% 9.53%
The Company and its subsidiary are in full compliance with all
relevant regulatory capital requirements.
<PAGE>
The effect of changing prices on financial institutions is typically
different from other industries as the Company's assets and liabilities are
monetary in nature. Interest rates are significantly impacted by inflation, but
neither the timing nor the magnitude of the changes are directly related to
price level indices. Impacts of inflation on interest rates, loan demand and
deposits are reflected in the Company's financial statements. Management
believes that the mortgage banking operations provide somewhat of a natural
interest rate hedge, in that the Company is interest rate sensitive in the
six-month period. When interest rates decline, the Company's earnings will be
negatively impacted in the six-month period but the mortgage operation's volume
should increase. The reverse should occur in rising interest rate markets.
Year 2000 Compliance
The ability of the Company's computers, software and other
equipment utilizing microprocessors to recognize and properly process data
fields containing a 2-digit year after 1999 is commonly referred to as the "Year
2000" issue. The Year 2000 issue is the result of computer programs and
equipment which are dependent on "embedded chip technology" using two digits
rather than four to define the applicable year. Any of the Company's computer
programs or equipment that are date dependent may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, or a temporary inability
to process transactions, or otherwise engage in similar normal business
activities.
The Company adopted a five phase plan of action developed by the
Federal Financial Institutions Examination Council ("FFIEC") to address Year
2000 issues. During phase one, "awareness," the Company developed an overall
strategy and timetable for the completion of all Year 2000 requirements. Phase
two, "assessment," involved analyzing, prioritizing and putting all internal
systems, both information technology (IT) and non-IT systems, on track for Year
2000 compliance according to the timetable established in the awareness phase.
The Company has no proprietary or in-house developed systems or software, so
non-IT systems are limited to infrastructure and communications. During the
third phase, "renovation," necessary upgrades were ordered for hardware and
software. In addition, each of the Company's vendors was contacted regarding
their Year 2000 progress. Phases one through three have been completed.
The Company changed data processors in late 1997 and is processed by
a Service Bureau which houses and maintains all hardware, software and backups
applicable to updating and maintaining the Company's customer and financial
records. Because this is the area of greatest risk to the Company with regard to
year 2000 issues, this arrangement means the Company must carefully oversee the
efforts of the vendor to ensure Year 2000 compliance is complete and timely. The
data processor has renovated and tested its systems and has supplied a series of
reports of their progress. The final stages of its live data testing occurred in
the first quarter of 1999 and to date all applications have tested Year 2000
ready.
As the Company proceeds with the fourth phase, "validation," it will
continue to monitor the validation of all its vendors' systems, as well as
continue validation of its internal systems through ongoing actual real life
testing of all the new upgrades and components. The Company will continue
testing and validation throughout the remainder of 1999 to ensure the continuing
reliability of its systems.
The final phase, "implementation," will occur at the turn of the
century with the readiness to execute contingency plans if necessary.
Contingency plans include alternatives for each critical system, which should
allow business to continue with little or no interruption past the turn of the
century. These alternatives are being subjected to the same process as the
Company's primary service providers. Additionally, the contingency plans include
performing tasks manually if necessary, until the appropriate applications are
operational.
In addition to verifying its internal and vendor supplied systems,
the Company has provided compliance certification questionnaires to its
customers in order to determine their ability to be Year 2000 compliant. If a
customer does not respond to the questionnaire or if its response does not
provide the Company with adequate assurance that such customer's failure to be
Year 2000 compliant would have a material adverse effect on the Company, the
Company is entitled to take steps to terminate its relationship with the
customer before December 31, 1999.
<PAGE>
Costs to date directly attributable to the Year 2000 project have not
been substantial due to the fact that the change in data processors and the
acquisition of a bank in late 1997 required a complete upgrade of all desktop
computer systems and servers. Year 2000 compliance was an important part of all
purchases and management believes that any known issues were corrected. Costs to
date total $35,000; however, testing by outside vendors may exceed $100 thousand
based on best estimates available to date. Management anticipates that these
funds will be financed internally.
Because the Company had a detailed Business Continuation Plan before
the Year 2000 plan began, various potential business interruptions and
alternatives were already documented which should permit a short term
continuance as long as the data processor preserves the ability to update
records. Loss of the data processor is the greatest risk to the Company. The
Year 2000 progress of all data processing companies is being monitored by
outside auditors and regulators and the Company receives regular reports
regarding the progress. While a change of data processors would be time
consuming, the Company's contingency plans include alternatives for each
critical system, as well as plans to perform tasks manually if necessary, until
appropriate applications are operational.
The Company's Year 2000 readiness is subject to supervision by the
Federal Reserve System through examination for compliance with the guidance
issued by the FFIEC. Should the Company's readiness be found deficient, it could
be subject to informal enforcement actions such as written notification of
deficiencies to be remediated, to formal enforcement actions such as civil
penalties, temporary cease and desist orders requiring immediate corrective
actions, and the possible public release of any such cease and desist order.
If the Company and its customers, suppliers and vendors were not Year
2000 compliant by January 1, 2000, the most reasonably likely worst case
scenario would be a temporary shutdown of operations. Any such shutdown could
have a material adverse effect on the Company's results of operations, liquidity
and financial position.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company
is a party or of which the property of the Company is subject. The Company is
party to certain nonmaterial legal proceedings ocurring in the normal course of
business.
Item 2. Changes in Securities
In the first quarter of 1999, the Company raised $9,200 of additional
capital through the issuance of Trust Preferred Securities ("Preferred
Securities") to the public. The issuer of these securities was Resource Capital
Trust I (the "Trust"). The common securities of the Trust are owned by the
Company. In connection with the Trust's issuance of the Preferred Securities to
the public, the Company issued Junior Subordinated Debt Securities ("Junior Debt
Securities") to the Trust. The Trust paid for the Junior Debt Securities with
proceeds from the sale of the Preferred Securities. The Company will make
payments due under the Junior Debt Securities to the Trust and the Trust will in
turn make payments to holders of Preferred Securities. The Company has
guaranteed the Trust's obligations to make these payments to holders of
Preferred Securities.
<PAGE>
Upon any voluntary or involuntary liquidation or bankruptcy of the
Company, the Trustee of the Trust, as holder of the Junior Debt Securities,
would be a subordinate creditor of the Company. However, the Company would be
obligated to pay all principal and interest due under the Junior Debt Securities
before any distribution, dividends or other payments could be made to holders of
the Company's Common Stock.
Item 6. Exhibits And Reports on Form 8-K
(a) The registrant includes herein the following exhibits.
Exhibit No. Item
----------- ----
27 Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the under-signed, thereunto
duly authorized.
RESOURCE BANKSHARES CORPORATION
/s/ Lawrence N. Smith
-----------------------------------
Lawrence N. Smith
President & Chief Executive Officer
Date: May 17, 1999
/s/ Eleanor J. Whitehurst
----------------------------------------------
Eleanor J. Whitehurst
Senior Vice President & Chief Financial Officer
Date: May 17, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,040
<INT-BEARING-DEPOSITS> 18,613
<FED-FUNDS-SOLD> 93
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,499
<INVESTMENTS-CARRYING> 1,053
<INVESTMENTS-MARKET> 1,081
<LOANS> 189,154
<ALLOWANCE> 2,411
<TOTAL-ASSETS> 257,992
<DEPOSITS> 220,467
<SHORT-TERM> 2,000
<LIABILITIES-OTHER> 2,628
<LONG-TERM> 14,500
0
0
<COMMON> 3,794
<OTHER-SE> 14,603
<TOTAL-LIABILITIES-AND-EQUITY> 257,992
<INTEREST-LOAN> 4,007
<INTEREST-INVEST> 332
<INTEREST-OTHER> 361
<INTEREST-TOTAL> 4,700
<INTEREST-DEPOSIT> 2,500
<INTEREST-EXPENSE> 2,654
<INTEREST-INCOME-NET> 2,046
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,657
<INCOME-PRETAX> 1,155
<INCOME-PRE-EXTRAORDINARY> 1,155
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 2.94
<LOANS-NON> 322
<LOANS-PAST> 1,088
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,500
<CHARGE-OFFS> 90
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 2,411
<ALLOWANCE-DOMESTIC> 2,411
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
