As filed with the Securities and Exchange Commission on January 28, 1999.
Registration No. 333-70361 and Registration No. 333-70361-01
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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RESOURCE BANKSHARES CORPORATION RESOURCE CAPITAL TRUST I
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
Virginia Delaware
(State or other jurisdiction of incorporation or organization) (State or other jurisdiction of incorporation or organization)
54-1904386
(I.R.S. Employer Identification Number) (I.R.S. Employer Identification Number)
3720 Virginia Beach Boulevard c/o Resource Bankshares Corporation
Virginia Beach, VA 23452 3720 Virginia Beach Boulevard
(757) 463-2265 Virginia Beach, VA 23452
(757) 463-2265
(Address, including zip code, and telephone number, including (Address, including zip code, and telephone number, including
area code,of registrant's principal executive offices) area code,of registrant's principal executive offices)
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Lawrence N. Smith
3720 Virginia Beach Boulevard
Virginia Beach, VA 23452
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies of Communications to:
R. Brian Ball, Esquire
Wayne A. Whitham, Jr., Esquire
Williams, Mullen, Christian & Dobbins
1021 East Cary Street, 16th Floor
Richmond, VA 23219
(804) 643-1991
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |_|
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|_________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|__________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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SUBJECT TO COMPLETION, DATED JANUARY __, 1999
PROSPECTUS
RESOURCE CAPITAL TRUST I
$8,000,000
[logo]
$___________ CAPITAL SECURITIES
(LIQUIDATION AMOUNT $25 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED
IN THIS PROSPECTUS, BY RESOURCE BANKSHARES CORPORATION
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The Trust:
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We urge you to read carefully the "Risk Factors" o The Trust is offering Capital Securities representing preferred
section of this prospectus beginning on page 12, beneficial interests in the assets of the Trust.
where we describe specific risks associated with
the securities offered by this prospectus, and the o The common securities representing common beneficial
other information contained in this prospectus, interests in the assets of the Trust will be owned by
before you make your investment decision. Resource Bankshares Corporation.
These securities are not deposited or other obligations o The sole assets of the Trust are the __% junior subordinated
of a bank and are not insured by the Federal Deposit debt securities of Resource Bankshares Corporation, which
Insurance Corporation or any other governmental mature on __________, 2029.
agency.
o Distributions on the Capital Securities will be paid quarterly
on March 15, June 15, September 15 and December 15 of
each year commencing on ____________, 1999.
We plan to have the capital securities approved for quotation on
the Nasdaq OTC Bulletin Board under the trading symbol
"RBKVP."
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The Offering
Per Security Total
Public price........................... $25.00 $8,000,000
Underwriting discounts................. $ $
Proceeds to the Trust.................. $25.00 $8,000,000
o Resource Capital Trust I and Resource Bankshares Corporation have agreed to
indemnify the Underwriter against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting" on
page ____.
o Because the proceeds of the sale of the Capital Securities will be used by
the Trust to purchase the __% junior subordinated debt securities of
Resource Bankshares Corporation, Resource Bankshares Corporation will pay
the Underwriters as compensation $______ per Capital Security, or $______ in
the aggregate.
o All expenses of this offering will be paid by Resource Bankshares
Corporation.
o The table above assumes the sale of the entire 320,000 Capital Securities
offered hereby. If the Trust exercises its right to increase the aggregate
liquidation amount of the Capital Securities by $1.2 million, total proceeds
to the Trust will be $9.2 million and the total compensation to the
Underwriter will increase to $_______.
The Capital Securities are offered by the Underwriter, as Selling Agent for the
Trust, on a best efforts basis, which means that the Underwriter is not required
to sell any specific number or dollar amount of Capital Securities, but will use
its best efforts to sell the Capital Securities offered. The Capital Securities
are offered subject to prior sale, and subject to certain conditions, including
the right to reject any order in whole or in part. This Offering will close on
or about February __ 1999. Funds received by the Underwriter will be deposited
at, and held by, Wilmington Trust Company in a noninterest-bearing escrow
account in Wilmington, Delaware. It is expected that these funds will be
released from the escrow account and delivery of the Capital Securities will be
made on or about ____________, 1999.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
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McKINNON & COMPANY, INC.
The date of this prospectus is January __, 1999
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The Information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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WHERE YOU CAN FIND MORE INFORMATION
Resource Bankshares Corporation, which we will refer to as the
Corporation as well as we, us or our, is subject to the information requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and we
file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). You
may read and copy any document that we file at the Commission's public reference
room facility located at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Please call the Commission at 1-800-SEC-0330
for further information on the public reference room. The Commission maintains
an Internet site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers, including the
Corporation, that file documents with the Commission electronically through the
Commission's electronic data gathering, analysis and retrieval system known as
EDGAR. Our common stock is traded on the American Stock Exchange under the
symbol "RBV." Our reports, proxy and information statements may also be reviewed
at the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington D.C. 20006.
This prospectus is part of a registration statement filed by Resource
Capital Trust I and Resource Bankshares Corporation with the Commission. Because
the rules and regulations of the Commission allow us to omit certain portions of
the registration statement from this prospectus, this prospectus does not
contain all the information set forth in the registration statement. You may
review the registration statement and the exhibits filed with such registration
statement for further information regarding us, the Trust and the Capital
Securities being sold by this prospectus. The registration statement and its
exhibits may be inspected at the public reference facilities of the Commission
at the addresses set forth above.
INCORPORATION OF INFORMATION THAT WE FILE WITH THE SEC
The Commission allows us to "incorporate by reference" information we
have filed with the Commission. This means:
o incorporated documents are considered part of this prospectus;
o we can disclose important information to you by referring you
to those documents.
We incorporate by reference the documents listed below:
o Annual Report on Form 10-KSB for the year ended December 31,
1997 of Resource Bank, our predecessor.
o Quarterly report on Form 10-QSB of Resource Bank for the three
months ended March 31, 1998 and quarterly reports on Form
10-QSB of Resource Bankshares Corporation for the three month
periods ended June 30, 1998 and September 30, 1998.
Copies of the annual report on Form 10-KSB for the year ended December
31, 1997, the quarterly report on Form 10-QSB for the quarter ended September
30, 1998 and Resource Bank's proxy statement for the 1998 annual meeting of
shareholders are being delivered to you with this prospectus.
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You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us orally or in writing at the following
address:
Lu Ann Klevecz
Assistant Vice President
Resource Bank
3720 Virginia Beach Blvd.
Virginia Beach, Virginia 23452
(757) 463-2265
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. Neither the Corporation nor the
Trust is making an offer of the Capital Securities in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or any supplement is accurate as of any date other than the date on the front of
those documents because our financial condition and results may have changed
since that date.
Please refer to page 65 for an index of significant terms used in this
prospectus.
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PROSPECTUS SUMMARY
This summary is qualified by the more detailed information appearing
elsewhere in this prospectus and in the documents we have incorporated by
reference.
RESOURCE BANKSHARES CORPORATION
Resource Bankshares Corporation, a Virginia corporation, is a bank
holding company that was formed in 1998 and is headquartered in Virginia Beach,
Virginia. Our only subsidiary is Resource Bank, a Virginia-chartered commercial
bank. Resource Bank opened for business in September, 1988. In December, 1992,
after four years of losses, Resource Bank was recapitalized under a new
management team headed by Lawrence N. Smith and a new board. Resource Bank
operates a banking office in Virginia Beach, Virginia and one each in the towns
of Herndon and Reston, which are in Fairfax County, Virginia. Virginia Beach,
and Fairfax County are among the highest per capita income, largest and fastest
growing areas of Virginia. Resource Bank's mortgage division currently has two
offices in Richmond, Virginia, one each in Chesapeake, Reston and Virginia
Beach, Virginia and one in Bowie, Maryland.
On December 1, 1997, Resource Bank acquired Eastern American Bank, FSB
in a business combination accounted for as a purchase. All of the issued and
outstanding shares of Eastern American Bank were converted into shares of
Resource Bank common stock, amounting to a purchase price of $5.0 million. As a
result of the acquisition, Resource Bank acquired $66.5 million in assets
(including the Herndon and Reston branch offices), $48.1 million in net loans,
and assumed $52.8 million in deposit liabilities. The fair value of the assets
acquired, net of liabilities assumed, exceeded the purchase price by $547,000.
At September 30, 1998, we had total assets of $231.5 million, total
deposits of $201.2 million, and stockholders' equity of $17.4 million.
We employ a seasoned management team, hiring experienced lenders and
credit officers with a strong commercial loan following from large regional
banks. Since 1992 we have hired ten senior loan and credit officers each with at
least ten years of experience at large regional banks. Resource Bank recently
hired T. A. Grell, Jr., as President. For the past 14 years Mr. Grell served as
the senior loan and credit officer in eastern Virginia with a state-wide bank
that was acquired by a large regional bank in late 1997. In the six years since
the current management team assumed control, this strategy and the Eastern
American Bank acquisition have helped us achieve compound annual growth rates in
assets, loans and deposits of over 50%. Net income increased from $351,000 in
1993 to $1.8 million in 1997. For the first nine months of 1998, net income was
$2.3 million. Our return on average equity was 18.58% in the nine months ended
September 30, 1998 and was 18.59%, 20.46 % and 17.93% in 1997, 1996 and 1995,
respectively. Our net overhead ratio was 1.46% in the first nine months of 1998,
and 1.55%, 1.68% and 1.74% in 1997, 1996 and 1995, respectively.
Despite its high growth rate in assets, loans and deposits, we have
experienced a relatively low level of net charge-offs. Twice since 1992 the
Corporation has significantly reduced the ratio of non-performing assets to
loans and foreclosed properties. From December 31, 1992 to year-end 1993, the
first year under new management, the ratio declined from 5.6% to 0.66%. At
year-end 1997, non-performing assets
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increased significantly as a result of the Eastern American Bank acquisition.
However, the ratio of non-performing assets to loans and foreclosed properties,
which was 3.36% at December 31, 1997 had declined to 1.36% at September 30,
1998. Net charge-offs to average loans have ranged from 0.02% to 0.31% since
1993 and were 0.11% in the first nine months of 1998.
Management expects to open two to four loan production offices during
1999, each staffed with two or three senior commercial loan and credit officers
who gained their experience with large banks and who each has the potential to
bring a portfolio of commercial loans and small business loans of $10.0 million
to us.
Resource Bank's mortgage division had loan production of approximately
$290.0 million in 1997 and, for the first nine months of 1998, $501 million.
Business loans and construction loans make up approximately 50% of Resource
Bank's total loan portfolio. Resource Bank is an SBA Preferred Lender in the
Richmond and Washington, D.C. markets and is an active asset-based lender in
eastern and northern Virginia through an accounts receivable financing program
licensed from Private Business, Inc.
We are a legal entity separate and distinct from Resource Bank and its
non-banking subsidiaries. Accordingly, our right, and thus the right of our
creditors, to participate in any distribution of the assets or earnings of
Resource Bank or any other subsidiary is necessarily subject to the prior claims
of creditors of Resource Bank or such subsidiary, except to the extent that our
claims in our capacity as a creditor may be recognized. Our principal sources of
revenues are dividends from Resource Bank.
We are a bank holding company registered with the Board of Governors of
the Federal Reserve System under the Bank Holding Company Act of 1956, as
amended. Our executive offices are located at 3720 Virginia Beach Boulevard,
Virginia Beach, Virginia 23452. Its mailing address is P.O. Box 61009, Virginia
Beach, Virginia 23466 and its telephone number is (757) 463-2265.
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RESOURCE CAPITAL TRUST I
The Trust is a statutory business trust that we formed under Delaware
law on December 23, 1998. We, along with the trustees of the Trust, will enter
into an amended and restated declaration of trust in the form filed as an
exhibit to the registration statement relating to this offering of the Capital
Securities, which will state the terms and conditions for the Trust to issue and
sell its Capital Securities, as well as its Common Securities.
The Trust exists solely to:
o issue and sell the Capital Securities and the Common
Securities;
o use the proceeds from the sale of the Capital Securities and
Common Securities to purchase Junior Subordinated Debt
Securities of the Corporation, which will be the only assets
of the Trust; and
o engage in other activities that are necessary or incidental to
these purposes.
We will purchase all of the Common Securities of the Trust. The Common
Securities will represent an aggregate liquidation amount equal to 3.0% of the
Trust's total capitalization. The Capital Securities will represent the
remaining 97.0% of the total capitalization of the Trust. The Common Securities
will have terms substantially identical to, and will rank equal in priority of
payment with, the Capital Securities. However, if we default on the Junior
Subordinated Debt Securities, cash distributions and liquidation, redemption and
other amounts payable with respect to the Common Securities will be subordinate
to the Capital Securities in priority of payment.
The Trust has a term of approximately 40 years, but may be dissolved
earlier as provided in the Declaration. We have appointed the following trustees
to conduct the Trust's business and affairs:
o Wilmington Trust Company is the Property Trustee and the
Delaware Trustee;
o Two individuals who are employees and officers of Resource
Bankshares Corporation, T. A. Grell, Jr. and Harvard R.
Birdsong are the Administrative Trustees.
As the sole holder of the Common Securities, we can replace or remove
any of the Trustees. However, if an event of default occurs and is continuing
under the declaration of trust, the Property Trustee and the Delaware Trustee
can only be replaced and removed by the holders of at least a majority of the
Capital Securities. As owner of all of the Trust's Common Securities, it is only
us who can remove or replace the Administrative Trustees. The duties and
obligations of each Trustee are governed by the declaration of trust.
The Trust has no separate financial statements. The statements would
not be material to you because the Trust has no independent operations. The
Trust exists solely for the reasons summarized above.
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<PAGE>
THE OFFERING
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Securities Offered............. We are offering for sale 320,000 Capital Securities. The Trust has the right to
increase the number of Capital Securities offered for sale to 368,000.
Offering Price................. The offering price is $25.00 for each Capital Security.
Distributions.................. You will be entitled to receive cumulative cash distributions at the rate of
$_____ per year on each Capital Security, accruing from the original date of
issuance. Distributions will be payable quarterly, in arrears, on the 15th day
of March, June, September and December of each year, beginning on ___________
15, 1999.
Deferral of Interest
Payments....................... We have the right, at one or more times, to defer interest payments on the
Junior Subordinated Debt Securities for up to 20 consecutive quarters. No
interest deferral period may last beyond the stated maturity date of the Junior
Subordinated Debt Securities. We may not defer interest payments if we have
defaulted on the Junior Subordinated Debt Securities. However, electing to
defer interest payments, by itself, is not a default.
Deferral of
Distributions.................. If we elect to defer interest payments on the Junior Subordinated Debt
Securities, the Trust will also defer distributions on your Capital Securities.
During any period when distributions are deferred, you will still accumulate
distributions at an annual rate of __% of the liquidation amount of $25 per
Capital Security. You also will accumulate additional distributions at the same
rate, compounded quarterly, on any unpaid distributions. You will also be
required to continue to accrue interest income and include it in your gross
income for U.S. federal income tax purposes, even if you are a cash basis
taxpayer.
Our Obligations................ We are fully, irrevocably and unconditionally obligated on a subordinate basis,
to pay distributions and all other amounts on the Capital Securities. However,
this does not mean that we may not exercise our right, as described above, to
defer interest payments on the Junior Subordinated Debt Securities.
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Ranking of Capital
Securities..................... As long as we have not defaulted on the Junior Subordinated Debt Securities, the
Capital Securities will rank equal in priority, and payments thereon will be
made pro rata, with the Common Securities. If there is such a default, the
Capital Securities will be senior to, and payments thereon will be made prior
to, any payments on the Common Securities.
Ranking of Junior
Subordinated Debt
Securities..................... The Junior Subordinated Debt Securities will constitute our unsecured
obligations and will rank subordinate and junior in right of payment to all
Senior Indebtedness. Although we currently have no Senior Indebtedness, any
indebtedness we incur in the future is likely to be Senior Indebtedness. There
is no limit on the amount of Senior Indebtedness that we may incur. The
Guarantee also will be our unsecured obligation and will rank subordinate and
junior in right of payment to all Senior Indebtedness. In addition, because we
are a bank holding company, the Junior Subordinated Debt Securities and the
Guarantee will be effectively subordinated to all existing and future
liabilities of our subsidiaries, including Resource Bank's deposit liabilities.
Redemption..................... The Trust must redeem the Capital Securities when the Junior Subordinated Debt
Securities are paid at maturity on or after ___________, 2029, or upon earlier
redemption. Subject to our having received any required approval of regulatory
agencies, we have the option at any time on or after _______, 2004 to redeem the
Junior Subordinated Debt Securities, in whole or in part. We have the option at
any time prior to _______, 2004 to redeem the Junior Subordinated Debt
Securities, in whole but not in part, if certain regulatory or tax events occur
or if there is a change in the Investment Company Act of 1940 that requires the
Trust to register under that law.
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Limited Voting Rights.......... You will have no voting rights with respect to the Capital Securities, except in
limited circumstances.
No Rating...................... We do not expect the Capital Securities to be rated by any rating service. None
of the other securities that we issue are so rated.
ERISA Considerations........... Please carefully consider the information set forth in "Certain ERISA
Considerations", which begins on page __.
Use of Proceeds................ The Trust will use all of the proceeds from the sale of the Trust Securities to
purchase the Junior Subordinated Debt Securities from us. We intend to use the
net proceeds from the sale of the Junior Subordinated Debt Securities for
general corporate purposes, including making advances to Resource Bank to
support its continued growth. Pending any such application by us, we may invest
the net proceeds in interest-bearing assets.
Proposed Nasdaq OTC
Bulletin Board Symbol.......... We have applied to have the Capital Securities approved for quotation on the
Nasdaq OTC Bulletin Board under the symbol "RBKVP".
Risk Factors................... An investment in the Capital Securities involves a number of risks. Some of
these risks relate to the Capital Securities and other risks relate to us. We
urge you to carefully consider the information contained in "Risk Factors" set
forth on page __ of this prospectus, as well as the other information contained
in this prospectus and in the documents which are incorporated by reference in
this prospectus, before you buy any Capital Securities.
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A special note regarding forward-looking statements.
Some of the statements contained or incorporated by reference in this
prospectus may constitute "forward-looking statements." Statements which use
words such as "believes," "expects," "may," "will," "should," "projected,"
"contemplates" or "anticipates" or the negative of those terms or other
variations may constitute forward-looking statements. These statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements.
Some important factors that may cause actual results to differ from
that projected in a forward-looking statement, include for example,
o our ability to implement our business strategy;
o a decline in economic condition in our market areas;
o a tightening in the difference between our cost of funds and
what we earn on the loans we make;
o changes in governmental regulations affecting our business.
There are several other factors spelled out in "Risk Factors" beginning
on page __ of this prospectus.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratios of earnings to
fixed charges for each of the years in the five-year period ended December 31,
1997 and for the nine months ended September 30, 1998. For purposes of computing
these ratios, earnings represent net income, plus total taxes based on income,
plus fixed charges. Fixed charges include interest expense (ratios are presented
both excluding and including interest on deposits), the estimated interest
component of net rental expense and amortization of debt expense.
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Nine
Months
Ended
Sept. 30 Years Ended December 31
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1998 1997 1996 1995 1994 1993
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Ratio of Earnings to Fixed Charges
Excluding interest on deposits 5.01x 10.32x 17.52x 4.16x 5.57x 25.33x
Including interest on deposits 1.41x 1.46x 1.34x 1.30x 1.25x 1.19x
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SUMMARY FINANCIAL INFORMATION
The following consolidated summary sets forth selected financial data
for Resource Bankshares Corporation and its subsidiaries for the periods and at
the dates indicated. The following summary is qualified in its entirety by the
detailed information and the financial statements included in the documents
incorporated herein by reference.
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Nine Months Ended Sept. 30 Years Ended December 31
-------------------------- -----------------------------------------------------------
(unaudited)
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Income Statement Data: (Dollars in thousands, except per share data)
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Gross interest income............... $15,002 $7,592 $10,937 $8,295 $6,046 $3,988 $2,471
Gross interest expense.............. 8,660 4,133 5,983 4,690 3,500 1,905 1,145
Net interest income................. 6,342 3,459 4,954 3,605 2,546 2,083 1,326
Provision for possible loan losses.. 150 113 155 290 512 50 286
Net interest income after
provision for loan losses......... 6,192 3,346 4,799 3,315 2,034 2,033 1,040
Non-interest income................. 6,349 3,049 4,520 2,755 2,012 1,341 1,293
Non-interest expense................ 9,002 4,419 6,533 4,451 3,285 2,904 2,114
Income before income taxes.......... 3,539 1,976 2,786 1,619 761 471 219
Income taxes........................ 1,239 672 965 153 (144) (180) (132)
Net income.......................... 2,300 1,304 1,821 1,466 905 651 351
Per Share Data: (1)
Net income, basic................... $0.93 $0.67 $0.92 $0.79 $0.54 $0.39 $0.21
Net Income, diluted 0.85 0.61 0.84 0.76 0.54 0.39 0.21
Cash dividends...................... 0.18 0.125 0.125 0.05 - - -
Book value at period end............ 7.00 5.12 6.36 4.47 3.44 2.68 1.66
Tangible book value at period end... 7.00 5.12 6.36 4.47 3.44 2.68 1.66
Period-End Balance Sheet Data:
Total assets........................ $231,474 $142,935 $209,330 $115,836 $87,352 $63,735 $51,475
Total loans (net of unearned income) 176,790 93,411 150,590 81,975 58,464 41,034 31,166
Total deposits...................... 201,176 117,218 169,508 99,179 80,905 54,918 47,024
Long-term debt...................... 7,300 5,000 7,300 - - - -
Shareholders' equity................ 17,351 9,909 15,602 8,655 5,810 4,525 4,208
Performance Ratios: (2)
Return on average assets............ 1.27% 1.44% 1.40% 1.45% 1.24% 1.18% 0.93%
Return on average shareholders'
equity............................ 18.58% 18.94% 18.59% 20.46% 17.93% 14.38% 8.33%
Average shareholders' equity to
average total assets.............. 6.80% 7.61% 7.54% 7.10% 6.90% 8.16% 5.91%
Net Overhead Ratio (3).............. 1.46% 1.33% 1.55% 1.68% 1.74% 2.84% 2.18%
Net interest margin (4)............. 3.60% 3.95% 3.90% 3.70% 3.62% 4.00% 3.81%
Asset Quality Ratios
Net charge-offs to average loans.... 0.11% 0.01% 0.02% 0.15% 0.31% 0.20% 0.72%
Allowance to period-end loans....... 1.44% 1.22% 1.71% 1.27% 1.46% 1.20% 1.64%
Allowance to nonperforming loans.... 132.65% 138.55% 58.50% 247.03% 1220.00% 793.55% 441.38%
Nonaccrual loans to loans........... 0.40% 0.36% 2.03% 0.06% 0.10% 0.13% 0.36%
Nonperforming assets to loans and
foreclosed properties............. 1.36% 0.94% 3.36% 0.57% 0.24% 0.37% 0.66%
Capital Ratios:
Risk-based capital ratios
Tier 1 capital.................... 8.24% 8.79% 9.69% 10.22% 9.61% 10.23% 10.88%
Total capital..................... 9.45% 9.83% 10.93% 11.45% 10.86% 11.28% 12.13%
Leverage capital ratio.............. 7.12% 7.44% 9.67% 7.04% 6.25% 7.22% 7.60%
Total equity to total assets........ 7.50% 6.93% 7.45% 7.47% 6.65% 7.10% 8.17%
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(1) All per share figures have been adjusted to reflect a two-for-one stock
split on July 1, 1998.
(2) Annualized for the nine months ended September 30, 1998 and 1997.
(3) Computed by dividing the difference between noninterest expense and
noninterest income by average total assets.
(4) Net interest margin is calculated as tax-equivalent net interest income
divided by average earning assets and represents our net yield on our
earning assets.
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RISK FACTORS
An investment in the Capital Securities involves a number of risks. Some of
these risks relate to the Capital Securities and others relate to us. Please
carefully consider the following information, together with the other
information in this prospectus and in the documents that are incorporated by
reference in this prospectus before you buy any Capital Securities.
Risks Related To The Capital Securities
Our Obligations Are Unsecured and Subordinated
General Concerns. Our obligations under the Junior Subordinated Debt
Securities and the Guarantee are unsecured and rank subordinate and junior in
right of payment to all of our present and future Senior Indebtedness. As of
September 30, 1998, we had no Senior Indebtedness. However, any indebtedness we
incur in the future is likely to be Senior Indebtedness. There is no limit to
our ability or Resource Bank's ability to incur additional indebtedness,
including Senior Indebtedness.
The ability of the Trust to make payments on the Capital Securities
depends solely upon our making payments on the Junior Subordinated Debt
Securities as and when required. If we default on our obligations to pay
principal, premium or interest on the Junior Subordinated Debt Securities, the
Trust will not have sufficient funds to make distributions or to pay the
liquidation amount of $25 per Capital Security. You will not be able to rely
upon the Guarantee for payment of these amounts. Instead, you or the Property
Trustee may enforce the rights of the Trust under the Junior Subordinated Debt
Securities against us.
Resource Bankshares Corporation is a bank holding company. Our right to
participate in any distribution of assets from Resource Bank (and your ability
to benefit indirectly from such distribution) is subject to the prior claims of
creditors, including depositors of Resource Bank. At September 30, 1998,
Resource Bank, had total liabilities, including deposits, of $214.1 million.
Because the Junior Subordinated Debt Securities effectively will be subordinated
to all existing and future liabilities of our subsidiaries, including Resource
Bank's deposit liabilities, you should look only to our assets, and not assets
of our subsidiaries, for payments on the Junior Subordinated Debt Securities.
There are Limits on our Sources of Funds. As a bank holding company,
Resource Bankshares Corporation is regulated by the Board of Governors of the
Federal Reserve System. The Federal Reserve also regulates Resource Bank. Almost
all of our consolidated assets are owned by Resource Bank. We will rely almost
entirely on dividends from Resource Bank to satisfy our obligations to pay
principal and interest on the Junior Subordinated Debt Securities. There are
legal limits on the amount of dividends that a Virginia-chartered, Federal
Reserve member bank such as Resource Bank is permitted to pay. A
Virginia-chartered bank may pay dividends only from net undivided profits. In
addition, prior approval of the Federal Reserve is required if the total of all
dividends declared by a member bank in any calendar year will exceed the sum of
that bank's net profits for that year and its retained net profits for the
preceding two calendar years. At September 30, 1998, Resource Bank could have
paid approximately $2.7 million in dividends to us without prior regulatory
approval. Resource Bank's ability to pay dividends may also be affected by other
factors, such as the requirement to maintain adequate capital. In addition, the
Federal Reserve is authorized to determine, under certain circumstances relating
to the financial condition of a member bank, whether the payment of dividends
would be an unsafe or unsound banking practice and to prohibit payment thereof.
We cannot assure you that Resource Bank will be able to pay dividends at past
levels, or at all, in the future.
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<PAGE>
The Deferral of Distributions Have Adverse Tax and Market Price
Consequences
General Concerns. So long as no event of default under the Junior
Subordinated Debt Securities has occurred and is continuing, we have the right,
at one or more times, to defer interest payments on the Junior Subordinated Debt
Securities for up to 20 consecutive quarters, but not beyond their maturity
date. If we defer interest payments on the Junior Subordinated Debt Securities,
the Trust will defer distributions on the Capital Securities until we resume
interest payments. If we elect to defer interest payments, we will be prohibited
from, among other things, declaring or paying dividends on our capital stock or
from making any payments on or repaying, repurchasing or redeeming any
indebtedness that ranks equal to or junior in right of payment with the Junior
Subordinated Debt Securities until all deferred interest payments have been
made.
Some Possible Adverse Tax Consequences. If the Trust defers
distributions on the Capital Securities, you will be required to continue to
accrue interest income for U.S. federal income tax purposes on your pro rata
share of the Junior Subordinated Debt Securities held by the Trust, even if you
are a cash basis taxpayer. As a result, you must include the accrued interest in
your gross income for U.S. federal income tax purposes prior to your receiving
cash. You will not receive the cash related to any accrued and unpaid interest
from the Trust if you sell your Capital Securities before all deferred
distributions have been brought current. Accrued and unpaid distributions that
are included in your gross income will increase your tax basis in the Capital
Securities. If you sell your Capital Securities before all deferred
distributions have been brought current, your increased tax basis will decrease
the amount of any capital gain or will create a capital loss or increase the
amount of any capital loss that you realize on the sale. A capital loss, except
in certain limited circumstances, cannot be applied to offset ordinary income.
Possible Market Price Decline. We have no current intention of
exercising our right to defer interest payments on the Junior Subordinated Debt
Securities. However, if we exercise this right in the future, the market price
of the Capital Securities is likely to be adversely affected. If you sell your
Capital Securities during a time when distributions have been deferred, you may
not receive the same return on your investment as someone else who continues to
hold the Capital Securities.
You Have Limited Rights Against Us
If we default on our obligation to pay amounts under the Junior
Subordinated Debt Securities, the Trust would not have sufficient funds to pay
distributions on the Capital Securities or amounts payable on redemption of the
Capital Securities and you would not be able to rely on the Guarantee for
payment of such amounts. Instead, if we default in the payment of the principal
or interest under the Junior Subordinated Debt Securities, then you may
institute a legal proceeding directly against us to enforce payment. Except as
described in this prospectus, you will not be able to exercise directly any
other remedy available to holders of Junior Subordinated Debt Securities or to
assert directly any other right in respect of the Junior Subordinated Debt
Securities.
We May Cause an Early Redemption of the Capital Securities in Certain
Events
At any time that certain special events occur and are continuing, we
have the right to redeem the Junior Subordinated Debt Securities, in whole but
not in part. The redemption of the Junior Subordinated Debt Securities will
cause a mandatory redemption of the Capital Securities and the Common Securities
within 90 days of such event. Please refer to pages __ through __ for a
discussion of the special events that would allow us to redeem the Junior
Subordinated Debt Securities. We may have to obtain regulatory approval before
we redeem the Junior Subordinated Debt Securities under these provisions.
We Can Liquidate the Trust and Distribute the Junior Subordinated Debt
Securities to You
We will have the right at any time to terminate the Trust and cause the
Junior Subordinated Debt Securities to be distributed to you. Under current
United States federal income tax law, a distribution of Junior Subordinated Debt
Securities would not be a taxable event to you. If, however, the Trust is
characterized for United States federal income
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<PAGE>
tax purposes as an association taxable as a corporation at the time of
dissolution of the Trust, the distribution of the Junior Subordinated Debt
Securities may constitute a taxable event to you.
We give no assurance about the market prices for Capital Securities or
Junior Subordinated Debt Securities that may be distributed in exchange for
Capital Securities if a liquidation of the Trust occurs. Accordingly, the
Capital Securities or the Junior Subordinated Debt Securities may trade at a
discount to the price that you pay to purchase the Capital Securities. Because
you may receive Junior Subordinated Debt Securities on termination of the Trust,
you are also making an investment decision about the Junior Subordinated Debt
Securities and should carefully review all the information regarding the Junior
Subordinated Debt Securities in this prospectus.
You Have Limited Voting Rights
As a holder of Capital Securities, you will have limited voting rights.
These voting rights will relate only to the modification of the Capital
Securities, the dissolution, winding-up or liquidation of the Trust, and the
exercise of the Trust's rights as a holder of the Junior Subordinated Debt
Securities. In general, only we can replace or remove any of the Trustees. The
Property Trustee, the Administrative Trustees and the Corporation may amend the
declaration of trust without your consent in order to ensure that the Trust will
not be classified as an association taxable as a corporation or to enable the
Trust to qualify as a grantor trust, in each case for federal income tax
purposes, or to ensure that the Trust will not be required to register as an
"investment company" under the Investment Company Act of 1940, as amended, even
if such action adversely affects your interests. You will have no voting rights
on any matters submitted to a vote of the stockholders of the Corporation.
You will generally have limited voting rights relating only to the
modification of the Capital Securities, the dissolution, winding-up or
liquidation of the Trust, and the exercise of the Trust's rights as holder of
Junior Subordinated Debt Securities. The right to vote to appoint, remove or
replace the Property Trustee, the Delaware Trustee or the Administrative
Trustees is exclusively ours except, with respect to the Property Trustee and
the Delaware Trustee, upon the occurrence of certain events described herein.
We are Subject to Strict Regulatory Capital Requirements
We and Resource Bank are subject to regulatory capital guidelines. At
September 30, 1998, Resource Bank was in compliance with applicable regulatory
capital requirements. We, at that date, had a total capital to risk-weighted
assets ratio of 9.45% and a Tier I Capital to risk-weighted assets ratio of
8.24%, both above the minimum requirements of 8.0% and 4.0%, respectively. Our
leverage ratio at that date was 7.12%.
Although the minimum leverage ratio requirement is 3.0%, most bank
holding companies, including the Corporation, are expected to maintain an
additional cushion of at least 100 to 200 basis points above the minimum.
However, the Federal Reserve may assign a specific capital ratio to an
individual bank holding company based on its assessment of asset quality,
earnings performance, interest-rate risk and liquidity. As of the date of this
prospectus, the Federal Reserve has not advised us of a specific leverage ratio
requirement.
There can be no assurance that either we or Resource Bank will continue
to be able to meet our respective minimum capital ratios. In the event that we
or Resource Bank falls below the minimum capital requirements described above,
agencies may take regulatory action against us or Resource Bank. Such actions
could impair the Corporation's ability to make principal and interest payments
on the Junior Subordinated Debt Securities.
Absence of Public Market for the Capital Securities
There is no existing market for the Capital Securities and there can be
no assurance about the liquidity of any markets that may develop for the Capital
Securities, your ability to sell your Capital Securities or at what price you
will be able to sell your Capital Securities. Future trading prices of the
Capital Securities will depend on many factors including, among other things,
prevailing interest rates, our operating results and the market for similar
securities. The Underwriter has informed the Trust and the Corporation that it
intends to make a market in the Capital Securities offered
-14-
<PAGE>
hereby; however, the Underwriter is not obligated to do so and any such market
making activity may be terminated at any time without notice to the holders of
the Capital Securities.
Risks Related To Us
Risks of Rapid Growth
It is our intention to expand our asset base. In particular, we hope to
use the funds raised in the Offering to support anticipated increases in our
deposit base and loans. Additional capital also would increase our legal lending
limit under federal law, which in turn would allow us to compete more actively
in our market area for larger loans. Our ability to manage growth successfully
will depend on our ability to maintain cost controls and asset quality while
attracting additional loans and deposits, as well as on factors beyond our
control, such as economic conditions and interest rate trends. If we grow too
quickly and are not able to control costs and maintain asset quality, growth
could materially adversely affect our financial performance.
Our Dependence on Senior Management
Our future performance will depend largely on the contributions of a
few senior executive officers of Resource Bank, including Lawrence N. Smith, the
Chief Executive Officer, T.A. Grell, Jr., the President, and Chief Operating
Officer and Resource Bank's four senior lending officers. The loss of the
services of one or more of those individuals could have a material adverse
effect on our business and development.
The Credit Risks of Being a Lender
There are certain risks inherent in making all loans, including risks
with respect to the period of time over which loans may be repaid, risks
resulting from changes in economic and industry conditions, risks inherent in
dealing with individual borrowers, and, in the case of a collateralized loan,
risks resulting from uncertainties about the future value of the collateral.
Resource Bank maintains an allowance for loan losses based on, among other
things, historical experience, an evaluation of economic conditions, and regular
reviews of delinquencies and loan portfolio quality. Management's judgment as to
the adequacy of the allowance is based upon a number of assumptions about future
events that it believes to be reasonable but that may or may not be valid. Thus,
there can be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the allowance for loan
losses will not be required. Additions to the allowance for loan losses would
result in a decrease in our net income and, possibly, our capital.
Potential Adverse Impact of Changes in Interest Rates
Our profitability is dependent to a large extent on the net interest
income of Resource Bank, which is the difference between Resource Bank's
interest income on interest-earning assets and Resource Bank's interest expense
on interest-bearing liabilities. Our net interest income will tend to decrease
in a climate of declining interest rates. Conversely, our mortgage banking
revenue will tend to decline in a climate of rising interest rates. We, like
most financial institution holding companies, will continue to be affected by
changes in general interest rate levels and other economic factors beyond our
control.
Our Concerns About Year 2000 Compliance
The ability of our 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" compliance
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 our 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, send invoices or engage in similar normal business activities.
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<PAGE>
We began the process of assessing and preparing our computer systems
and applications to be functional on January 1, 2000 in July 1996. We have also
been communicating with third parties, such as customers, counter parties,
payment systems, vendors and others to determine whether they will be functional
on or before January 1, 2000.
We have provided compliance certification questionnaires to our
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 us with adequate assurance that such customer's failure to be Year 2000
compliant would not have a material adverse effect on the Corporation, we are
entitled to take steps to terminate our relationship with the customer before
December 31, 1999.
While we believe we are taking all necessary measures to be Year 2000
compliant, if we failed to modify all of our mission critical applications or if
a number of our customers defaulted on their obligations to us as a result of
their Year 2000 problems, this could have a material adverse effect on our
business and results.
USE OF PROCEEDS
The Trust will use all of the proceeds from the sale of the Trust
Securities to purchase the Junior Subordinated Debt Securities. We intend to
apply the net proceeds from the sale of the Junior Subordinated Debt Securities
to our general funds to be used for general corporate purposes, including, from
time to time, making advances to Resource Bank to support its continued growth.
Pending any such application by us, the net proceeds may be invested in
interest-bearing assets.
RESOURCE CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law on
December 23, 1998. Wilmington Trust Company is the Delaware Trustee and the
Property Trustee. T. A. Grell, Jr. and Harvard R. Birdsong, officers of the
Corporation, are the Administrative Trustees.
The Trust exists for the exclusive purposes of:
o issuing and selling the Trust Securities;
o using the proceeds from the sale of the Trust Securities to
purchase the Junior Subordinated Debt Securities; and
o engaging in only those other activities necessary or
incidental thereto.
The Junior Subordinated Debt Securities will be the sole assets of the
Trust, and payments under the Junior Subordinated Debt Securities will be the
sole revenues of the Trust. All of the Common Securities will be owned by us.
The Common Securities will rank equally, and payments will be made thereon pro
rata, with the Capital Securities, except that upon the occurrence and
continuance of any Debenture Event of Default (or an event that, with notice or
the passage of time, would become such an Event of Default) or an Event of
Default under the Declaration, our rights as holder of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Capital
Securities.
We will acquire Common Securities in an aggregate Liquidation Amount
equal to 3% of the total capital of the Trust. The Trust has a term of
approximately 40 years, but may terminate earlier as provided in the
Declaration. The Trust's business and affairs are conducted by its trustees,
each appointed by us as holder of the Common Securities.
Wilmington Trust Company, as Property Trustee, will act as sole
indenture trustee under the Declaration. Wilmington Trust Company will also act
as trustee under the Guarantee Agreement and the Indenture. The holder of the
Common Securities, or the holders of a majority in Liquidation Amount of the
Capital Securities if an Event of Default under the Declaration resulting from a
Debenture Event of Default has occurred and is continuing, will be entitled to
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<PAGE>
appoint, remove or replace the Property Trustee and/or Delaware Trustee. In no
event will the holders of the Capital Securities have the right to vote to
appoint, remove or replace the Administrative Trustees; such voting rights are
vested exclusively in the holder of the Common Securities. The duties and
obligations of each Trustee are governed by the Declaration. Pursuant to the
expense provisions under the Indenture, we, as obligor on the Junior
Subordinated Debt Securities, will pay all fees and expenses related to the
Trust and the offering of the Capital Securities and will pay, directly or
indirectly, all ongoing costs, expenses and liabilities of the Trust. The
address and telephone number of the principal executive office of the Trust is
c/o:
Resource Bankshares Corporation
3720 Virginia Beach Boulevard
Virginia Beach, Virginia 23452
Attention: Lu Ann Klevecz
(757) 463-2265
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SELECTED HISTORICAL FINANCIAL INFORMATION
The following consolidated summary sets forth selected financial data
for Resource Bankshares Corporation and its subsidiaries for the periods and at
the dates indicated. The following summary is qualified in its entirety by the
detailed information and the financial statements included in the documents
incorporated herein by reference. Please see "Incorporation of Information that
We File with the SEC" on page __.
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30 Years Ended December 31
-------------------------- -----------------------------------------------------------
(unaudited)
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Income Statement Data: (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Gross interest income............... $15,002 $7,592 $10,937 $8,295 $6,046 $3,988 $2,471
Gross interest expense.............. 8,660 4,133 5,983 4,690 3,500 1,905 1,145
Net interest income................. 6,342 3,459 4,954 3,605 2,546 2,083 1,326
Provision for possible loan losses.. 150 113 155 290 512 50 286
Net interest income after
provision for loan losses......... 6,192 3,346 4,799 3,315 2,034 2,033 1,040
Non-interest income................. 6,349 3,049 4,520 2,755 2,012 1,341 1,293
Non-interest expense................ 9,002 4,419 6,533 4,451 3,285 2,904 2,114
Income before income taxes.......... 3,539 1,976 2,786 1,619 761 471 219
Income taxes........................ 1,239 672 965 153 (144) (180) (132)
Net income.......................... 2,300 1,304 1,821 1,466 905 651 351
Per Share Data: (1)
Net income, basic................... $0.93 $0.67 $0.92 $0.79 $0.54 $0.39 $0.21
Net Income, diluted 0.85 0.61 0.84 0.76 0.54 0.39 0.21
Cash dividends...................... 0.18 0.125 0.125 0.05 - - -
Book value at period end............ 7.00 5.12 6.36 4.47 3.44 2.68 1.66
Tangible book value at period end... 7.00 5.12 6.36 4.47 3.44 2.68 1.66
Period-End Balance Sheet Data:
Total assets........................ $231,474 $142,935 $209,330 $115,836 $87,352 $63,735 $51,475
Total loans (net of unearned income) 176,790 93,411 150,590 81,975 58,464 41,034 31,166
Total deposits...................... 201,176 117,218 169,508 99,179 80,905 54,918 47,024
Long-term debt...................... 7,300 5,000 7,300 - - - -
Shareholders' equity................ 17,351 9,909 15,602 8,655 5,810 4,525 4,208
Performance Ratios: (2)
Return on average assets............ 1.27% 1.44% 1.40% 1.45% 1.24% 1.18% 0.93%
Return on average shareholders'
equity............................ 18.58% 18.94% 18.59% 20.46% 17.93% 14.38% 8.33%
Average shareholders' equity to
average total assets.............. 6.80% 7.61% 7.54% 7.10% 6.90% 8.16% 5.91%
Net Overhead Ratio (3).............. 1.46% 1.33% 1.55% 1.68% 1.74% 2.84% 2.18%
Net interest margin (4)............. 3.60% 3.95% 3.90% 3.70% 3.62% 4.00% 3.81%
Earnings to Fixed Charges
Excluding interest on deposits...... 5.01x 12.69x 10.32x 17.52x 4.16x 5.57x 25.33x
Including interest on deposits...... 1.41x 1.48x 1.46x 1.34x 1.30x 1.25x 1.19x
Asset Quality Ratios
Net charge-offs to average loans.... 0.11% 0.01% 0.02% 0.15% 0.31% 0.20% 0.72%
Allowance to period-end loans....... 1.44% 1.22% 1.71% 1.27% 1.46% 1.20% 1.64%
Allowance to nonperforming loans.... 132.65% 138.55% 58.50% 247.03% 1220.00% 793.55% 441.38%
Nonaccrual loans to loans........... 0.40% 0.36% 2.03% 0.06% 0.10% 0.13% 0.36%
Nonperforming assets to loans and
foreclosed properties............. 1.36% 0.94% 3.36% 0.57% 0.24% 0.37% 0.66%
Capital Ratios:
Risk-based capital ratios
Tier 1 capital................. 8.24% 8.79% 9.69% 10.22% 9.61% 10.23% 10.88%
Total capital.................. 9.45% 9.83% 10.93% 11.45% 10.86% 11.28% 12.13%
Leverage capital ratio........... 7.12% 7.44% 9.67% 7.04% 6.25% 7.22% 7.60%
Total equity to total assets..... 7.50% 6.93% 7.45% 7.47% 6.65% 7.10% 8.17%
</TABLE>
___________________
(1) All per share figures have been adjusted to reflect a two-for-one stock
split on July 1, 1998.
(2) Annualized for the nine months ended September 30, 1998 and 1997.
(3) Computed by dividing the difference between noninterest expense and
noninterest income by average total assets.
(4) Net interest margin is calculated as tax-equivalent net interest income
divided by average earning assets and represents our net yield on our
earning assets.
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RESOURCE BANKSHARES CORPORATION
The following discussion includes selected financial and other data for
Resource Bankshares Corporation and its subsidiaries which we will refer to
collectively as the Corporation as well as we, us or our. This discussion is
qualified in its entirety by the detailed information, and should be read in
conjunction with, the financial statements and other information, included in
the documents incorporated herein by reference.
The Corporation is a bank holding company that was formed in 1998 and
is headquartered in Virginia Beach, Virginia. The Corporation's only subsidiary
is Resource Bank, which we will refer to as Resource Bank or the Bank, a
Virginia-chartered commercial bank, which opened for business in September,
1988. In December, 1992 after four years of losses, the Bank was recapitalized
under a new board and management. Currently the Bank operates a banking office
in Virginia Beach, Virginia, and one each in the towns of Herndon and Reston,
which are in Fairfax County, Virginia. The Herndon and Reston offices, including
certain loans and deposits, were acquired December 1, 1997 from Eastern
American.
From December 31, 1992 through December 31, 1997 the Corporation's
assets, loans, and deposits increased at compound annual growth rates of: 53.9%;
56.6%; and 53.5%, respectively. Net income increased from a loss of $351,000 in
1992 to $351,000 in 1993, $651,000 in 1994, $905,000 in 1995, $1.466 million in
1996 and, having used up a $4 million tax loss carryforward from 1992 to 1996,
$1.821 million in 1997. At September 30, 1998 total assets of the Corporation
were $231.5 million, total deposits $201.2 million, and stockholders' equity
$17.4 million. Net income in the nine months ended September 30, 1998 increased
76.4% to $2.3 million, up from $1.3 million in the first nine months of 1997,
while diluted earnings per share increased 39.3% from the comparable period of
fiscal 1997 to $.85.
Virginia Beach and Fairfax County are among the highest per capita,
largest and fastest growing areas of Virginia. The Corporation's growth has been
accomplished by hiring experienced bank officers, particularly loan and credit
officers, from large state-wide banks, and achieving significant increases in
loan volume. Since 1992 the Corporation has hired ten senior loan and credit
officers each with at least ten years of experience at large banks. The Banks'
mortgage division had loan production of approximately $290.0 million in 1997
and, for the first nine months of 1998, $501 million. Business loans and
construction loans make up approximately 50% of the Bank's total loan portfolio.
The Bank is an SBA Preferred Lender in the Richmond and Washington, D.C. markets
and is an active asset-based lender in Eastern and Northern Virginia through an
account receivable financing program licensed from Private Business, Inc.
The Corporation's return on average equity increased from 8.33% in 1993
to 14.38% in 1994, 17.93% in 1995, and 20.46% in 1996 and, with the acquisition
of Eastern American, on a purchase basis, was 18.59% in 1997. For the nine
months ended September 30, 1998, on an annualized basis, the return on average
equity was 18.58%.
The Corporation is a legal entity separate and distinct from the Bank
and its non-banking subsidiaries. Accordingly, the right of the Corporation, and
thus the right of the Corporation's creditors, to participate in any
distribution of the assets or earnings of the Bank or any other subsidiary is
necessarily subject to the prior claims of creditors of the Bank or such
subsidiary, except to the extent that claims of the Corporation in its capacity
as a creditor may be recognized. The principal sources of the Corporation's
revenues are dividends from the Bank.
The Corporation is a bank holding company registered with the Board of
Governors of the Federal Reserve under the Bank Holding Company Act of 1956, as
amended (the "BHCA"). The Corporation's executive offices are located at 3720
Virginia Beach Boulevard, Virginia Beach, Virginia 23452. Its mailing address is
P. O. Box 61009, Virginia Beach, Virginia 23466 , and its telephone number is
(757) 463-2265.
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The following table sets forth average balances of total interest
earning assets and total interest bearing liabilities for the periods indicated,
showing the average distribution of assets, liabilities, stockholders' equity
and the related income, expense and corresponding weighted-average yields and
costs.
Average Balances, Interest Income and Expenses, and Average Yields and Rates
<TABLE>
<CAPTION>
Nine months ended Sept. 30 Year ended December 31
---------------------------- -----------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance(1) Expense Rate(2) Balance(1) Expense Rate(2) Balance(1) Expense Rate(2)
---------- ------- ------- ---------- ------- ------- ---------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest Earning Assets:
Securities......................... $13,061 $563 5.75% $15,935 $1,009 6.33% $16,885 $1,185 7.02%
Loans(3)........................... 163,435 11,268 9.19% 93,839 8,316 8.86% 69,488 6,268 9.02%
Interest bearing deposits in
other banks...................... 13,684 546 5.32% 4,127 232 5.62% 4,411 137 3.11%
Other earning assets (4) 44,902 2,625 7.79% 13,153 1,380 10.49% 6,688 705 10.54%
---------- ------- ------- ---------- ------- ------- ---------- ------- -------
Total interest earning
assets......................... 235,082 15,002 8.51% 127,054 10,937 8.61% 97,472 8,295 8.51%
Noninterest earning assets:
Cash and due from banks............ 2,994 1,700 1,760
Premises and equipment............. 3,290 965 614
Other assets....................... 4,318 1,480 2,027
Less: Allowance for loan
losses........................... (2,612) (1,252) (993)
---------- ---------- ----------
Total noninterest earning
assets......................... 7,990 2,893 3,408
---------- ---------- ----------
Total Assets................. $243,072 $129,947 $100,880
========== ========== ==========
Liabilities and Stockholders'
Equity
Interest Bearing Liabilities:
Interest bearing deposits:
Demand/MMDA accounts............. $11,715 287 3.27% $8,543 285 3.34% 7,787 261 3.35%
Savings.......................... 19,919 682 4.57% 2,289 93 4.06% 779 23 2.95%
Certificates of deposit.......... 158,046 6,827 5.76% 96,370 5,318 5.52% 76,932 4,317 5.61%
---------- ------- ------- ---------- ------- ------- ---------- ------- -------
Total interest bearing
deposits..................... 189,680 7,796 5.48% 107,202 5,696 5.31% 85,498 4,601 5.38%
FHLB advances and other
borrowings..................... 20,108 864 5.73% 4,959 287 5.79% 1,617 89 5.50%
Total interest bearing
liabilities.................. 209,788 8,660 5.50% 112,161 5,983 5.33% 87,115 4,690 5.38%
Noninterest bearing liabilities:
Demand deposits.................. 13,870 6,898 5,800
Other liabilities................ 2,906 1,090 799
---------- ---------- ----------
Total liabilities.............. 16,776 7,988 6,599
Stockholders' equity................. 16,508 9,798 7,166
Total liabilities and
stockholders' equity......... $243,072 $129,947 $100,880
========== ========== ==========
Interest spread (5).................. 3.01% 3.28% 3.13%
Net interest income/net
interest margin (6)................ $6,342 3.60% $4,954 3.90% $3,605 3.70%
======== ======= =======
</TABLE>
----------------------------
1995
----------------------------
Average Income/ Yield/
Balance(1) Expense Rate(2)
---------- ------- -------
Assets
Interest Earning Assets:
Securities......................... $12,826 $871 6.79%
Loans(3)........................... 48,465 4,446 9.17%
Interest bearing deposits in
other banks...................... 5,742 335 5.83%
Other earning assets (4) 3,277 394 12.02%
---------- ------- ------
Total interest earning
assets......................... 70,310 6,046 8.60%
Noninterest earning assets:
Cash and due from banks............ 1,485
Premises and equipment............. 606
Other assets....................... 1,320
Less: Allowance for loan
losses........................... (593)
----------
Total noninterest earning
assets......................... 2,818
----------
Total Assets................. $73,128
==========
Liabilities and Stockholders'
Equity
Interest Bearing Liabilities:
Interest bearing deposits:
Demand/MMDA accounts............. 7,108 229 3.22%
Savings.......................... 955 28 2.93%
Certificates of deposit.......... 50,679 2,999 5.92%
---------- ------- -----
Total interest bearing
deposits..................... 58,742 3,256 5.54%
FHLB advances and other
borrowings..................... 3,809 244 6.41%
Total interest bearing
liabilities.................. 62,551 3,500 5.60%
Noninterest bearing liabilities:
Demand deposits.................. 5,081
Other liabilities................ 449
----------
Total liabilities.............. 5,530
Stockholders' equity................. 5,047
Total liabilities and
stockholders' equity......... $73,128
==========
Interest spread (5).................. 3.00%
Net interest income/net
interest margin (6)................ $2,546 3.62%
=======
_________________________
(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 of loans.
(5) Interest spread is the average yield earned on earning assets, less the
average rate incurred on interest bearing liabilities.
(6) Net interest margin is net interest income, expressed as a percentage of
average earning assets.
-20-
<PAGE>
As the largest component of income, net interest income represents the
amount that interest and fees earned on loans and investments exceeds the
interest costs of funds used to support these earning assets. Net interest
income is determined by the relative levels, rates and mix of earning assets and
interest-bearing liabilities.
For the nine months ended September 30, 1998, net interest income was
$6.3 million, compared to $3.5 million for the same period in 1997. Net interest
income for the year-ended December 31, 1997 increased 37.5%, or approximately
$1.35 million over 1996. Average interest earning assets increased $29.6 million
from 1996 to 1997 while average interest-bearing liabilities increased $25.0
million. The yield on average interest-earning assets for the year ended
December 31, 1997 was 8.61% compared with 8.51% for the comparable 1996 period.
The 1997 yield on loans was 8.86%, compared to 9.02% in 1996. The cost on
average interest-bearing liabilities decreased seven basis points during 1997 to
5.31%, compared to 5.38% during 1996.
The Corporation's net interest margin is sensitive to the volume of
mortgage banking division loan originations. All loans originated by the
mortgage banking division are sold, servicing released, in the secondary
mortgage market. Each mortgage loan originated is sold when the borrower
locks-in the interest rate on the loan. When the volume of mortgage loan
originations increases, typically in a declining interest rate environment,
"funds advanced in settlement of mortgage loans" increases. This balance sheet
item represents funds advanced to close mortgage loans, pending delivery of the
loans to the loan purchaser. Until a mortgage loan is transferred to the
purchaser, the Corporation receives interest on the loan at the note rate. Funds
advanced in settlement of mortgage loans are financed to a large extent with
short term Federal Home Loan Bank borrowings. While such funds advanced
contribute to net interest income, the interest rate spread on this item is not
as great as the spread on the Bank's loan portfolio, which normally carries a
higher interest yield and is financed with lower cost deposits. Thus, as funds
advanced in settlement of mortgage loans increase, the interest spread and the
net interest margin decrease. The average balance of funds advanced in
settlement of mortgage loans was $44.9 in the nine months ended September 30,
1998, compared to $13.2 million in the year ended December 31, 1998.
Net interest income is affected by changes in both average interest
rates and average volumes of interest earning assets and interest bearing
liabilities. The following table sets forth the amounts of the total change in
interest income that can be attributed to changes in the volume of
interest-bearing assets and liabilities and the amount of the change that can be
attributed to changes in interest rates. The amount of the change not solely due
to rate or volume changes was allocated between the change due to rate and the
change due to volume based on the relative size of the rate and volume changes.
<TABLE>
<CAPTION>
Year Ended December 31
Nine Months Ended Sept. 30 --------------------------------------------------------
1998 compared to 1997 1997 compared to 1996 1996 compared to 1995
--------------------- --------------------- ---------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Changes In: Due to Changes In: Due to Changes In:
Volume Rate Net Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- --- ------ ---- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Securities $(206) $(110) $(316) $(64) $(112) $(176) $284 $30 $314
Loans (1) 7,392 (172) 7,220 2,792 (69) 2,723 2,234 (101) 2,133
Interest bearing
deposits in other
banks 507 (1) 506 (8) 103 95 (66) (132) (198)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total $7,693 $(283) $7,410 $2,720 $(78) $2,642 $2,452 $(203) $2,249
------ ------ ------ ------ ------ ------ ------ ------ ------
Interest Expense:
Interest bearing
deposits $3,661 $162 $3,823 $1,152 $(57) $1,095 $1,437 $(92) $1,345
FHLB advances and
other borrowings 704 0 704 193 5 198 (125) (30) (155)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total $4,365 162 $4,527 $1,345 $(52) $1,293 $1,312 $(122) $1,190
------ ------ ------ ------ ------ ------ ------ ------ ------
Increase
(decrease) in
net interest income $3,328 $(445) $2,883 $1,375 $(26) $1,349 $1,140 $(81) $1,059
====== ====== ====== ====== ====== ====== ======= ====== ======
</TABLE>
(1) Loans includes funds advanced in settlement of loans.
-21-
<PAGE>
Interest Rate Sensitivity Analysis
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 Corporation establishes prices for
deposits and loans based on local market conditions and manages its securities
portfolio with policies set by itself.
The following table presents the amounts of the Corporation's interest
sensitive assets and liabilities that mature or reprice in the periods
indicated.
<TABLE>
<CAPTION>
September 30, 1998
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 $8,195 $939 $1,127 $585 $10,846
Loans 95,048 20,155 37,207 24,380 176,790
Other interest-earning assets 35,232 - - - 35,232
------- ------- ------- ------- -------
Total interest-earning assets 138,475 21,094 38,334 24,965 222,868
------- ------- ------- ------- -------
Interest-Bearing Liabilities:
Deposits
Demand and savings (1) - 29,271 - 29,271
Time deposits, $100,000 and over 3,032 5,011 629 - 8,672
Other time deposits 41,880 98,030 5,746 5 145,661
Other interest-bearing liabilities 2,000 - 7,300 - 9,300
------- ------- ------- ------- -------
Total interest-bearing liabilities 46,912 103,041 42,946 5 192,904
------- ------- ------- ------- -------
Period Gap $91,563 $(81,947) $(4,612) $24,960 $29,964
------- ------- ------- ------- -------
Cumulative Gap $91,563 $9,616 $5,004 $29,964
------- ------- ------- -------
Ratio cumulative gap to total
interest-earning assets 41.08% 4.31% 2.25% 13.44%
</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 Corporation has placed them in the 1-5 years category.
The September 30, 1998 results of the rate sensitivity analysis show
the Corporation had $91.6 million more in assets than liabilities subject to
repricing within three months or less and was, therefore, in an asset sensitive
position. The cumulative gap at the end of one year was a positive $9.6 million,
an asset-sensitive position. Approximately $115.2 million, or 65.2% of the total
loan portfolio, matures or reprices within one year or less. An asset-sensitive
institution's net interest margin and net interest income generally will be
impacted favorably by rising interest rates, while that of a liability sensitive
institution generally will be impacted favorably by declining rates.
-22-
<PAGE>
Increases and decreases in the Corporation's mortgage banking income
(which consists primarily of gains on sales of mortgage loans) tend to offset
decreases and increases in the net interest margin. In a climate of lower or
declining interest rates, the Corporation's net interest margin will tend to
decrease as the yield on interest earning assets decreases faster than the cost
of interest bearing liabilities. Mortgage banking income, in contrast, tends to
increase in times of lower or declining interest rates, as refinancing activity
leads to an increase in mortgage loan originations. In a climate of rising or
higher interest rates, the net interest margin will tend to increase, while a
decrease in mortgage loan originations leads to a decrease in mortgage banking
income.
Loan Portfolio
The table below classifies loans, net of unearned income, by major
category and percentage distribution at the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995
----------------------- ---------------------- ---------------------- ---------------------- ---------------------
Description Amount Percentage Amount Percentage Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $75,116 42.49% $43,336 46.39% $50,713 33.68% $34,021 41.50% $25,005 42.77%
Real Estate 96,683 54.69 45,752 48.98 96,058 63.79 43,195 52.69 28,214 48.26
Consumer 4,991 2.82 4,323 4.63 3,819 2.53 4,759 5.81 5,245 8.97
------- ----- ------- ------ -------- ------ ------- ------ ------- ------
Total $176,790 100.00% $93,411 100.00% $150,590 100.00% $81,975 100.00% $58,464 100.00%
======== ====== ======= ====== ======== ====== ======= ====== ======= ======
</TABLE>
December 31,
------------------------------------------------
1994 1993
---------------------- ----------------------
Description Amount Percentage Amount Percentage
------ ---------- ------ ----------
(Dollars in thousands)
Commercial $3,444 8.39% $2,631 8.44%
Real Estate 21,730 52.96% 13,354 42.85%
Consumer 15,860 38.65% 15,181 48.71%
------ ------
Total $41,034 100.00% $31,166 100.00%
======= ====== ======= ======
Securities Portfolio
The following tables present certain information on the Corporation's
investment securities portfolio:
Securities Available for Sale(1)
<TABLE>
<CAPTION>
September 30, December 31
------------- --------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government Agencies $7,700 $9,802 $15,799 $10,011
Federal Reserve Bank Stock 434 297 246 165
Federal Home Loan Bank Stock 1,162 2,233 747 316
Other 155 100 100 55
------ ------- ------- -------
$9,451 $12,432 $16,893 $10,547
====== ======= ======= =======
</TABLE>
_________
(1) Carried at fair value
Securities Held to Maturity(1)
<TABLE>
<CAPTION>
September 30, December 31
------------- ----------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Government and Agencies $649 $1,996 - -
State and Municipal 746 746 - -
------ ------ ------ ------
$1,395 $2,742 - -
====== ======
</TABLE>
______________
(1) Carried at cost, adjusted for amortization of premium or accretion of
discount using the interest method.
-23-
<PAGE>
At September 30, 1998 and December 31, 1997 there were no unrealized
losses on securities available for sale and gross unrealized gains were $97,000
and $449,000, respectively. At December 31, 1996 gross unrealized gains and
losses on securities available for sale were $90,000 and $125,000, respectively.
At December 31, 1995 gross unrealized gains and losses on securities available
for sale were $42,000 and $3,000, respectively.
At September 30, 1998 and December 31, 1997 gross unrealized gains on
securities held to maturity were $26,000 and $11,000, respectively. At December
31, 1997 there were $37,000 of gross unrealized losses on securities held to
maturity. The Corporation had no securities held to maturity at December 31,
1996 or December 31, 1995.
The following table presents information on the maturities of the
Corporation's investment securities at December 31, 1997.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
---------------- ------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Due in:
One year or less $938 $919 $ - $ -
One to five years 1,210 1,192 - -
Five to ten years 415 415 - -
After ten years 179 190 9,352 9,801
Federal Reserve Bank Stock - - 297 297
Federal Home Loan Bank Stock - - 2,234 2,234
Other - - 100 100
------ ------ ------- -------
$2,742 $2,716 $11,983 $12,432
====== ====== ======= =======
</TABLE>
In 1997 the average yield on investment securities was 6.33%, compared
to 5.75% for the nine months ended September 30, 1998. At September 30, 1998 and
December 31, 1997, all securities with a maturity of over 10 years carried
variable interest rates. The maturity characteristics of the Corporation's
investment securities portfolio did not change materially from December 31, 1997
to September 30, 1998.
Nonperforming Assets
Unless well secured and in the process of collection, the Corporation
places loans on non-accrual status after being delinquent greater than ninety
days, or earlier in situations in which the loans have developed inherent
problems that indicated payment of principal and interest may not be made in
full. Whenever the accrual of interest is stopped, previously accrued but
uncollected income is reversed. Thereafter, interest is recognized only as cash
is received. The loan is reinstated to an accrual basis after it has been
brought current as to principal and interest under the contractual terms of the
loan. At September 30, 1998, nonaccrual loans were $711,000, compared to $3.1
million at December 31, 1997 and $50,000 at December 31, 1996. The increase in
non-accrual loans from year end 1996 to 1997 was primarily the result of the
Eastern American Bank acquisition. At the time of the acquisition, Eastern
American Bank had $3.04 million of nonaccrual loans, while Resource Bank had
nonaccrual loans of $12,000. During 1998 Resource Bank implemented its plan to
substantially reduce the level of nonaccrual loans acquired from Eastern
American Bank. Of the Corporation's $711,000 of nonaccrual loans at September
30, 1998, $322,000 were acquired from Eastern American Bank. All of the
non-accrual loans at September 30, 1998 were secured by real estate. When the
Corporation acquired Eastern American Bank, it also acquired a $1.4 million
allowance for loan losses.
-24-
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $711 $340 $3,059 $50 $57 $52 $113
Loans contractually past due 90 days or
more and still accruing(1) 1,203 485 1,339 371 13 10 3
Troubled debt restructuring - - - - - - -
------ ---- ------ ---- ---- ---- ----
Total nonperforming loans 1,914 825 4,398 421 70 62 116
Other real estate owned 488 52 684 50 71 91 91
------ ---- ------ ---- ---- ---- ----
Total nonperforming assets $2,402 $877 $5,082 $471 $141 $153 $207
====== ==== ====== ==== ==== ==== ====
Nonperforming assets to period-end total
loans and other real estate 1.36% 0.94% 3.36% 0.57% 0.24% 0.37% 0.66%
</TABLE>
___________
(1) At September 30, 1998, consisted of vehicle loans purchased from dealers
with recourse to the dealer after the loan is 120 days past due and loans
secured by single family residences.
Summary of Loan Loss Experience
The allowance for loan losses is increased by the provision for loan
losses and reduced by loans charged off net of recoveries. The allowance for
loan losses is established and maintained at a level judged by management to be
adequate to cover any anticipated loan losses to be incurred in the collection
of outstanding loans. In determining the adequate level of the allowance for
loan losses, management considers the following factors: (a) loan loss
experience; (b) problem loans, including loans judged to exhibit potential
charge-off characteristics, loans on which interest is no longer being accrued,
loans which are past due and loans which have been classified in the most recent
regulatory examination; and (c) anticipated economic conditions and the
potential impact these conditions may have on individual classifications of
borrowers.
-25-
<PAGE>
The following table presents the Corporation's loan loss experience for
the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
September 30, -------------------------------------------------------
--------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses at
beginning of period $2,573 $1,040 $1,040 $854 $492 $512 $403
Loans charged off:
Commercial 89 2 2 5 21 124 123
Real Estate 141 42 56 109 148 11 36
Consumer 13 5 7 6 17 63 75
------ ------ ------ ------ ------ ------ ------
Total 243 49 65 120 186 198 234
Recoveries of loans previously charged
off:
Commercial 1 33 34 6 23 116 24
Real Estate 35 - - - - - 27
Consumer 23 6 9 10 13 12 5
------ ------ ------ ------ ------ ------ ------
Total 59 39 43 16 36 128 56
------ ------ ------ ------ ------ ------ ------
Net loans charged off 184 10 22 104 150 70 178
Provision for loan losses 150 113 155 290 512 50 287
------ ------ ------ ------ ------ ------ ------
Allowance acquired through business
combination - - 1,400 - - - -
------ ------ ------ ------ ------ ------ ------
Allowance for loan losses end of
period $2,539 $1,143 $2,573 $1,040 $854 $492 $512
====== ====== ====== ====== ====== ====== ======
Average total loans (net of unearned
income) $163,435 $86,097 $93,839 $69,488 $48,465 $35,714 $24,530
Total loans (net of unearned income)
at period-end $176,790 $93,411 $150,590 $81,975 $58,464 $41,034 $31,166
Ratio of net charge-offs to average
loans 0.11% 0.01% 0.02% 0.15% 0.31% 0.20% 0.72%
Ratio of provision for loan losses to
average loans 0.09% 0.13% 0.17% 0.42% 1.06% 0.14% 1.17%
Ratio of provision for loan losses to
net charge-offs 81.52% 1130.00% 704.55% 278.85% 341.33% 71.43% 161.24%
Allowance for loan losses to
period-end loans 1.44% 1.22% 1.71% 1.27% 1.46% 1.20% 1.64%
</TABLE>
In establishing the allowance for loan losses, in addition to the
factors described above, management considers the following risk elements in the
loan portfolio.
Construction lending often involves larger loan balances with single
borrowers. Construction loans involve risks attributable to the fact that loan
funds are advanced upon the security of the home under construction, which is of
uncertain value prior to the completion of construction. If there is a default,
the corporation may be required to complete and sell the home.
Commercial real estate loans typically involve larger loan balances
concentrated with single borrowers or groups of related borrowers. Additionally,
the payment experience on loans secured by income producing properties is
typically dependent on the successful operation of a business or a real estate
project and thus may be subject to a greater extent, to adverse conditions in
the real estate market or in the economy generally.
Consumer loans entail risks, particularly in the case of consumer loans
which are unsecured, such as lines of credit, or secured by rapidly depreciable
assets such as automobiles. In such cases, any repossessed collateral for a
-26-
<PAGE>
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage, loss
or depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, thus
are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and involves laws, may limit the
amount which can be recovered on such loans. Such loans may also give rise to
claims and defenses by a consumer loan borrower against an assignee of such loan
such as the Corporation, and a borrower may be able to assert against such
assignee claims and defenses which it has against the seller of the underlying
collateral.
Commercial business loans typically are made on the basis of the
borrower's ability to make repayment from cash flow from its business and are
secured by business assets, such as commercial real estate, accounts receivable,
equipment and inventory. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself. Further, the collateral for commercial business
loans may depreciate over time and cannot be appraised with as much precision as
residential real estate.
Sources of Funds
The Corporation's primary source of funds is deposit accounts, which
include demand deposits, savings and money market accounts and other time
deposits. The following table is a summary of average deposits and average rates
paid.
Average Deposits and Average Rates Paid
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------- ---------------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $13,870 - $6,898 - $5,800 - $5,081 -
Demand/MMDA accounts
11,715 3.27% 8,543 3.34% 7,787 3.35% 7,108 3.22%
Savings 19,919 4.57% 2,289 4.06% 779 2.95% 955 2.93%
Certificates of deposit 158,046 5.76% 96,370 5.52% 76,932 5.61% 50,679 5.92%
------- ------ ------ ------
Total (weighted average
rate) $203,550 3.83% $114,100 4.99% $91,298 5.04% $63,823 5.10%
======== ======== ======= =======
</TABLE>
The following table is a summary of time deposits of $100,000 or more
by remaining maturities at September 30, 1998.
At September 30, 1998
-----------------------------------------
Amount Percent
(Dollars in Thousands)
Three months or less $3,033 34.97%
Three to twelve months 5,011 57.78%
Over twelve 629 7.25%
------ ------
Total $8,673 100.00%
====== ======
-27-
<PAGE>
Certain information on short term borrowings is presented in the
following table. All such borrowings represent advances to the Bank by the
Federal Home Loan Bank of Atlanta and are secured by Federal Home Loan Bank
stock, investment securities and first mortgage loans.
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended ---------------------------------------------------
September 30, 1998 1997 1996 1995
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Balance at period end $2,000 $13,650 $7,237 $ -
Average balance during period $12,044 $4,959 $1,617 $3,809
Average rate 5.72% 5.79% 5.50% 6.41%
Maximum outstanding during period $39,137 $13,650 $7,237 $6,300
</TABLE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation at September 30, 1998. This table is based on, and is qualified in
its entirety by, the historical consolidated financial statements of the
Corporation, including the related notes thereto, which are included in
documents incorporated by reference herein, and should be read in conjunction
therewith.
<TABLE>
<CAPTION>
Sept. 30, 1998
--------------
(Dollars in Thousands)
<S> <C>
Long-term debt (1) $7,300
Capitalized lease obligations -
Shareholders' Equity
Common Stock, par value $1.50 per share, authorized 6,666,666
shares, shares outstanding - 2,479,446 3,719
Capital surplus 10,855
Retained earnings 2,713
Accumulated other comprehensive income 64
-------
Total shareholders' equity 17,351
-------
Total capitalization $24,651
=======
___________
(1) Federal Home Loan Bank advances
Consolidated Capital Ratios
Equity to assets 7.50%
Tier 1 Capital 8.24%
Total Capital 9.45%
</TABLE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated into the
Corporation's consolidated financial statements, with the Capital Securities
treated as minority interest and shown in the Corporation's consolidated balance
sheet as "Corporation-Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trust." The financial statement footnotes of the Corporation will
reflect that the sole asset of the Trust will be the amount of the Junior
Subordinated Debt Securities maturing on January __, 2029. All future reports
filed by the Corporation under the Exchange Act will present information
regarding the Trust and any other similar trusts in the manner described above.
-28-
<PAGE>
REGULATORY TREATMENT
As a registered bank holding company, the Corporation is required by
the Federal Reserve to maintain certain levels of capital for bank regulatory
purposes. The Corporation expects that the Capital Securities will be treated as
"Tier I Capital" of the Corporation for such purposes; provided that the Capital
Securities can only comprise 25% of the Corporation's Tier I Capital. Based on
the Corporation's Tier I Capital at September 30, 1998, approximately $5.8
million of the Capital Securities would be initially included in the
Corporation's Tier I Capital.
DESCRIPTION OF CAPITAL SECURITIES
Under the amended and restated declaration of trust (the
"Declaration"), the Trust will issue the Capital Securities and the Common
Securities, which will represent beneficial ownership interests in the Trust.
The Declaration will be qualified under the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). This summary of certain provisions of the Capital
Securities, the Common Securities and the Declaration does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Declaration, including the definitions therein of
certain terms. The form of the Declaration is available upon request from the
Trustees.
General
The Capital Securities will be limited to $8.0 million aggregate
Liquidation Amount at any one time outstanding. The Trust reserves the right to
increase the aggregate Liquidation Amount by not more than $1.2 million. The
Capital Securities will rank equally, and payments will be made thereon pro
rata, with the Common Securities except as described under "Subordination of
Common Securities." Legal title to the Junior Subordinated Debt Securities will
be held by the Property Trustee on behalf of the Trust in trust for the benefit
of the holders of the Capital Securities and Common Securities. The Guarantee
Agreement executed by the Corporation for the benefit of the holders of the
Capital Securities (the "Guarantee Agreement") will provide for the Guarantee on
a subordinated basis with respect to the Capital Securities but will not
guarantee payment of Distributions or amounts payable on redemption of the
Capital Securities or on liquidation of the Trust when the Trust does not have
funds on hand available to make such payments.
Distributions
The Capital Securities represent beneficial ownership interests in the
Trust. Distributions on each Capital Security will be payable at ____% per annum
of the stated Liquidation Amount of $25. Distributions will be payable quarterly
in arrears on the 15th day of March, June, September and December of each year
to the holders of the Capital Securities at the close of business on the
Business Day immediately preceding such Distribution Date (each, a "record
date"). A "Business Day" shall mean any day other than a Saturday or a Sunday,
or a day on which banking institutions in Richmond, Virginia are authorized or
required by law or executive order to remain closed, or a day on which the
corporate trust office of the Property Trustee or the Debenture Trustee is
closed for business.
Distributions on the Capital Securities will be cumulative.
Distributions will accumulate from the Issue Date. The first Distribution Date
for the Capital Securities will be____ 15, 1999. The amount of Distributions
payable for any period will be computed on the actual number of days elapsed in
a year of twelve 30-day months. If any date on which Distributions are payable
on the Capital Securities is not a Business Day, payment of the Distributions
payable on such date will be made on the next succeeding day that is a Business
Day (and without any additional Distributions or other payments in respect to
any such delay) with the same force and effect as if made on the date such
payment was originally payable (each date on which Distributions are payable in
accordance with the foregoing a "Distribution Date").
So long as no Debenture Event of Default has occurred and is
continuing, the Corporation has the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debt Securities at any time or
from time to time for a period not exceeding 20 consecutive quarterly periods
(an "Extension Period") with respect to each Extension Period.
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However, no Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debt Securities. As a consequence of any such election, quarterly
Distributions on the Capital Securities by the Trust will be deferred during any
such Extension Period. Distributions to which holders of the Capital Securities
are entitled will accumulate additional Distributions thereon at ____% per annum
thereof, compounded quarterly from the relevant payment date for such
Distributions during any Extension Period, to the extent permitted by applicable
law. The term "Distributions" as used herein shall include any such additional
Distributions.
During any Extension Period, the Corporation may not:
o declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect
to, any of the Corporation's capital stock (which includes
common and preferred stock);
o make any payment of principal, interest or premium, if any, on
or repay, repurchase or redeem any debt securities of the
Corporation that rank equally with or junior in interest to
the Junior Subordinated Debt Securities; or
o make any guarantee payments with respect to any guarantee by
the Corporation of the debt securities of any subsidiary of
the Corporation if such guarantee ranks equally with or junior
in interest to the Junior Subordinated Debt Securities.
However, during an Extension Period, the Corporation may:
o pay dividends or make distributions in common stock of the
Corporation;
o declare a dividend in connection with the implementation of a
stockholders' rights plan, issue stock under any such plan in
the future, or redeem or repurchase any such rights pursuant
thereto;
o make payments under the Guarantee;
o purchase or acquire shares of the Corporation's Common Stock
in connection with the satisfaction by the Corporation of its
obligations under any employee benefit plan or any other
contractual obligation of the Corporation (other than a
contractual obligation ranking equally with or junior to the
Junior Subordinated Debt Securities);
o make a distribution as a result of a reclassification of the
Corporation's capital stock or the exchange or conversion of
one class or series of the Corporation's capital stock for
another class or series of the Corporation's capital stock; or
o purchase fractional interests in shares of the Corporation's
stock pursuant to the conversion or exchange provisions, of
such capital stock or the security being converted or
exchanged.
Prior to the termination of any Extension Period, the Corporation may
further extend such Extension Period. However, no Extension Period may exceed 20
consecutive quarterly periods or extend beyond the Stated Maturity of the Junior
Subordinated Debt Securities. Upon the termination of any Extension Period and
the payment of all amounts then accrued and unpaid on the Junior Subordinated
Debt Securities (together with interest thereon accrued at __% per annum,
compounded quarterly, to the extent permitted by applicable law), the
Corporation may elect to begin a new Extension Period. No interest or other
amounts shall be due and payable during an Extension Period, except at the end
thereof.
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The Corporation must give the Property Trustee, the Administrative
Trustees and the Debenture Trustee notice of its election of any such Extension
Period at least three Business Days prior to the earlier of (i) the date the
Distributions on the Capital Securities would have been payable except for the
election to begin such Extension Period or (ii) the date the Administrative
Trustees are required to give notice to any automated quotation system or to
holders of such Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than three Business Days
prior to such record date. The Debenture Trustee shall give notice of the
Corporation's election to begin or extend an Extension Period to the holders of
the Capital Securities. There is no limitation on the number of times that the
Corporation may elect to begin an Extension Period.
The Corporation has no current intention of exercising its right to
defer payments of interest on the Junior Subordinated Debt Securities.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debt Securities. If the Corporation does not make interest payments on the
Junior Subordinated Debt Securities, the Property Trustee will not have funds
available to pay Distributions on the Capital Securities. The payment of
Distributions (if and to the extent the Trust has funds legally available for
the payment of such Distributions and cash sufficient to make such payments) is
guaranteed by the Corporation on a limited basis as set forth herein under
"Description of Guarantee."
Mandatory Redemption
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debt Securities, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Trust Securities, upon not less than 30 nor more than
60 days' notice, at a redemption price (the "Redemption Price") equal to the
aggregate Liquidation Amount of such Capital Securities plus accumulated but
unpaid Distributions thereon to the date of redemption (the "Redemption Date")
and the related amount of the premium, if any, paid by the Corporation upon the
concurrent redemption of such Junior Subordinated Debt Securities. If less than
all the Junior Subordinated Debt Securities are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption pro rata of the Capital Securities and the Common
Securities. The amount of premium, if any, paid by the Corporation upon the
redemption of all or any part of the Junior Subordinated Debt Securities to be
repaid or redeemed on a Redemption Date shall be allocated to the redemption pro
rata of the Capital Securities and the Common Securities.
The Corporation has the right to redeem the Junior Subordinated Debt
Securities (i) on or after __________ 15, 2004, in whole at any time or in part
from time to time, or (ii) in whole, but not in part, at any time within 90 days
following the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event (each as defined below), in each case
subject to possible regulatory approval. A redemption of the Junior Subordinated
Debt Securities would cause a mandatory redemption of a Like Amount of the
Capital Securities and Common Securities at the Redemption Price.
The Redemption Price, in the case of a redemption on or after
_________________ 15, 2004, shall equal the following prices, expressed in
percentages of the Liquidation Amount (as defined below), together with
accumulated Distributions to but excluding the date fixed for redemption, if
redeemed during the 12-month period beginning _____________ 15:
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Year Redemption Price
2004 % ($_______)
2005
2006
2007
2008
2009
2010
2011
2012
2013
and at 100% on or after _______________ 15, 2014
The Redemption Price, in the case of a redemption prior to 15, 2004
following a Tax Event, Investment Company Event or Capital Treatment Event, will
equal for each Capital Security the Make-Whole Amount for a corresponding $25
principal amount of Junior Subordinated Debt Securities together with
accumulated Distributions to but excluding the date fixed for redemption. The
"Make-Whole Amount" will be equal to the greater of (i) 100% of the principal
amount of such Junior Subordinated Debt Securities and (ii) as determined by a
Quotation Agent (as defined below), the sum of the present values of the
principal amount and premium payable as part of the Redemption Price with
respect to an optional redemption of such Junior Subordinated Debt Securities on
___________ 15, 2004 together with the present values of scheduled payments of
interest (not including the portion of any such payments of interest accrued as
of the Redemption Date) from the Redemption Date to ______________ 15, 2004 (the
"Remaining Life"), in each case discounted to the Redemption Date on a quarterly
basis (assuming a 360-day year consisting of 30-day months) at the Adjusted
Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any Redemption Date,
the Treasury Rate plus (i) 2.00% if such Redemption Date occurs on or before
January 15, 1999, or (ii) 1.25% if such Redemption Date occurs after _________
15, 2000
"Treasury Rate" means:
o the yield, under the heading which represents the average for
the week immediately prior to the calculation date, appearing
in the most recently published statistical release designated
"H.15 (519)" or any successor publication which is published
weekly by the Federal Reserve and which establishes yields on
actively traded United States Treasury securities adjusted to
constant maturity under the caption "Treasury Constant
Maturities," for the maturity corresponding to the Remaining
Life (if no maturity is within three months before or after
the Remaining Life, yields for the two published maturities
most closely corresponding to the Remaining Life shall be
determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis,
rounding to the nearest month); or
o if such release (or any successor release) is not published
during the week preceding the calculation date or does not
contain such yields, the rate per annum equal to the
semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, calculated using a price for the Comparable
Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such
Redemption Date. The Treasury Rate shall be calculated on the
third Business Day preceding the Redemption Date.
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"Like Amount" means, with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debt Securities to be
contemporaneously redeemed in accordance with the Junior Subordinated Indenture,
allocated to the Common Securities and to the Capital Securities based upon the
relative Liquidation Amounts of such classes. With respect to a distribution of
Junior Subordinated Debt Securities to holders of Trust Securities in connection
with a dissolution or liquidation of the Trust, "Like Amount" means Junior
Subordinated Debt Securities having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debt Securities are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the Trust of an opinion of counsel to
the Corporation experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Capital Securities, there is more than an insubstantial risk
that:
o the Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior
Subordinated Debt Securities;
o interest payable by the Corporation on the Junior Subordinated
Debt Securities is not, or within 90 days of the delivery of
such opinion, will not be, deductible by the Corporation, in
whole or in part, for United States federal income tax
purposes; or
o the Trust is, or will be within 90 days of the delivery of
such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the Trust of an opinion
of counsel to the Corporation experienced in such matters to the effect that, as
a result of the occurrence of a change in law or regulation or a written change
(including any announced prospective change) in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, there is more than an insubstantial risk that the Trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act, which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Capital Securities.
"Capital Treatment Event" means the reasonable determination by the
Corporation that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities, there is more than an insubstantial risk that the Corporation will
not be entitled to treat an amount equal to the Liquidation Amount of the
Capital Securities as "Tier I Capital" (or the then equivalent thereof) for
purposes of the risk-based capital adequacy guidelines of the Federal Reserve,
as then in effect and applicable to the Corporation.
Payment of Additional Sums. If a Tax Event described in clause (i) or
(iii) of the definition of Tax Event above has occurred and is continuing and
the Trust is the holder of all the Junior Subordinated Debt Securities, the
Corporation will pay Additional Sums (as defined below), if any, on the Junior
Subordinated Debt Securities.
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"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities of the Trust will not be
reduced as a result of any additional taxes, duties and other governmental
charges to which the Trust has become subject as a result of a Tax Event.
Redemption Procedures
Trust Securities shall be redeemed, if at all, at the Redemption Price
with the proceeds from the contemporaneous repayment or redemption of the Junior
Subordinated Debt Securities. Redemptions of the Trust Securities shall be made
and the Redemption Price shall be payable on each Redemption Date (as defined
below) only to the extent that the Trust has funds on hand available for the
payment of such Redemption Price. See also "Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, Richmond, Virginia time, on the date fixed for
redemption (the "Redemption Date"), to the extent funds are available, with
respect to the Capital Securities held in global form, the Property Trustee will
deposit irrevocably with DTC funds sufficient to pay the Redemption Price and
will give DTC irrevocable instructions and authority to pay the Redemption Price
to the holders of the Capital Securities. With respect to the Capital Securities
held in certificated form, the Property Trustee, to the extent funds are
available, will irrevocably deposit with the paying agent for the Capital
Securities funds sufficient to pay the Redemption Price and will give such
paying agent irrevocable instructions and authority to pay the Redemption Price
to the holders thereof upon surrender of their certificates evidencing the
Capital Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date shall be payable to the holders of the Capital
Securities on the relevant record dates for the related Distribution Dates.
If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of the holders of the
Capital Securities will cease, except the right of the holders of the Capital
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and the Capital Securities will cease to be outstanding. In
the event that any date fixed for redemption of Capital Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the Redemption
Price is improperly withheld or refused and not paid either by the Trust or by
the Corporation pursuant to the Guarantee as described under "Description of
Guarantee," Distributions on Capital Securities will continue to accrue at the
then applicable rate, from the Redemption Date originally established by the
Trust to the date such Redemption Price is actually paid, in which case the
actual payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Corporation or its subsidiaries may at any time
and from time to time purchase outstanding, Capital Securities by tender in the
open market or by private agreement.
Notice of any redemption (other than at the Stated Maturity of the
Junior Subordinated Debt Securities) will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each holder of Trust Securities
at its registered address. Unless the Corporation defaults in payment of the
Redemption Price on, or in the repayment of, the Junior Subordinated Debt
Securities, on and after the Redemption Date, Distributions will cease to accrue
on the Trust Securities called for redemption.
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Liquidation of the Trust and Distribution of Junior Subordinated Debt Securities
The Corporation, as the holder of the outstanding Common Securities,
will have the right at any time (including, without limitation, upon the
occurrence of a Tax Event or Capital Treatment Event) to terminate the Trust and
cause a Like Amount of the Junior Subordinated Debt Securities to be distributed
to the holders of the Trust Securities upon liquidation of the Trust. Such right
to terminate is subject to prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal Reserve.
Upon liquidation of the Trust and certain other events, the Junior
Subordinated Debt Securities may be distributed to holders of the Capital
Securities. Under current United States federal income tax law, a distribution
of Junior Subordinated Debt Securities upon the dissolution of the Trust would
not be a taxable event to holders of the Capital Securities. If, however, the
Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of dissolution of the Trust,
the distribution of the Junior Subordinated Debt Securities may constitute a
taxable event to holders of Capital Securities.
The Trust shall automatically terminate upon the first to occur of:
o certain events of bankruptcy, dissolution or liquidation of
the Corporation;
o the distribution of a Like Amount of the Junior Subordinated
Debt Securities to the holders of the Trust Securities if the
Corporation, as Depositor, has given written direction to the
Property Trustee to terminate the Trust (which direction is
optional and, except as described above, wholly within the
discretion of the Corporation, as Depositor);
o redemption of all of the Trust Securities as described under
"Mandatory Redemption" above;
o expiration of the term of the Trust; and
o the entry of an order for the dissolution of the Trust by a
court of competent jurisdiction.
If an early termination occurs as described above, unless the Trust
Securities are redeemed, the Trust shall be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, to the holders of such Trust Securities a Like Amount of the Junior
Subordinated Debt Securities, unless such distribution would not be practical,
in which event such holders will be entitled to receive out of the assets of the
Trust available for distribution to holders, after satisfaction of liabilities
to creditors of the Trust as provided by applicable law, an amount equal to, in
the case of holders of Capital Securities, the aggregate of the Liquidation
Amount plus accumulated and unpaid Distributions thereon to the date of payment
(such amount being the "Liquidation Distribution").
If the Liquidation Distribution can be paid only in part because the
Trust has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Trust on the Capital
Securities shall be paid on a pro rata basis. The holder(s) of the Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the Capital Securities, except that if a Debenture
Event of Default (or an event that, with notice or passage of time, would become
such an Event of Default) or an Event of Default under the Declaration has
occurred and is continuing, the Capital Securities shall have a priority over
the Common Securities with respect to any such distributions. If an early
termination occurs as the result of a court order, the Junior Subordinated Debt
Securities will be subject to optional redemption in whole (but not in part).
If the Corporation elects not to redeem the Junior Subordinated Debt
Securities prior to maturity and the Trust is not liquidated and the Junior
Subordinated Debt Securities are not distributed to holders of the Trust
Securities, the
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Capital Securities will remain outstanding until the repayment of the Junior
Subordinated Debt Securities at the Stated Maturity.
On and after the liquidation date is fixed for any distribution of
Junior Subordinated Debt Securities to holders of the Trust Securities:
o the Capital Securities will no longer be deemed to be
outstanding;
o DTC or its nominee, as the record holder of the Capital
Securities, will receive a registered global certificate or
certificates representing the Junior Subordinated Debt
Securities to be delivered upon such distribution with respect
to Capital Securities held by DTC or its nominee; and
o any certificates representing Capital Securities not held by
DTC or its nominee will be deemed to represent Junior
Subordinated Debt Securities having a principal amount equal
to the Liquidation Amount of such Capital Securities and
bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on such Capital
Securities until such certificates are presented to the
Administrative Trustees or their agent for cancellation,
whereupon the Corporation will issue to such holder, and the
Debenture Trustee will authenticate, a certificate
representing such Junior Subordinated Debt Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debt Securities that may be distributed in
exchange for the Trust Securities if a dissolution and liquidation of the Trust
were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debt Securities that the investor may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the Capital Securities offered
hereby.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata to the
holders of Capital Securities and Common Securities based on the Liquidation
Amount of the Trust Securities. However, if on any Distribution Date or
Redemption Date any Debenture Event of Default (or an event that, with notice or
passage of time, would become such an Event of Default) or an Event of Default
under the Declaration shall have occurred and be continuing, no payment of any
Distribution on, or Redemption Price of, any of the Common Securities, and no
other payment on account of the redemption, liquidation or other acquisition of
such Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Capital
Securities for all Distribution periods terminating on or prior thereto, or, in
the case of payment of the Redemption Price, the full amount of such Redemption
Price on all of the outstanding Capital Securities, shall have been made or
provided for, and all funds available to the Property Trustee shall first be
applied to the payment in full in cash of all Distributions on, or the
Redemption Price of, the Capital Securities then due and payable.
In the case of any Event of Default under the Declaration resulting
from a Debenture Event of Default, the Corporation as holder of the Common
Securities will be deemed to have waived any right to act with respect to any
such Event of Default under the Declaration until the effect of all such Events
of Default have been cured, waived or otherwise eliminated. Until all such
Events of Default under the Declaration have been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the holders of
such Capital Securities and not on behalf of the Corporation as holder of the
Common Securities, and only the holders of the Capital Securities will have the
right to direct the Property Trustee to act on their behalf.
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Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under
the Declaration (an "Event of Default") (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
o the occurrence of a Debenture Event of Default; or
o default by the Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default
for a period of 30 days; or
o default by the Trust in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
o default in the performance, or breach, in any material
respect, of any covenant or warranty of the Trustees in the
Declaration (other than a covenant or warranty, a default in
the performance of which or the breach of which is addressed
in clause (ii) or (iii) above), and continuation of such
default or breach for a period of 60 days after there has been
given, by registered or certified mail, to the defaulting
Trustee or Trustees by the holders of at least 25% in
aggregate Liquidation Amount of the outstanding Capital
Securities, a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice
is a "Notice of Default" under the Declaration; or
o the occurrence of certain events of bankruptcy or insolvency
with respect to the Property Trustee and the failure by the
Corporation to appoint a successor Property Trustee within 60
days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Corporation, as Depositor, unless such Event of
Default shall have been cured or waived. The Corporation, as Depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Declaration.
If a Debenture Event of Default (or an event that with notice or the
passage of time, would become such an Event of Default) or an Event of Default
under the Declaration has occurred and is continuing, the Capital Securities
shall have a preference over the Common Securities as described above.
Removal of Trustees
Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Corporation as the holder of the
Common Securities. No resignation or removal of a Trustee and no appointment of
a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Declaration.
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Co-trustees and Separate Property Trustee
Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the Trust's
property may at the time be located, the Corporation, as the holder of the
Common Securities, and the Administrative Trustees shall have power to appoint
one or more persons either to act as a co-trustee, jointly with the Property
Trustee, of all or any part of such Trust's property, or to act as separate
trustee of any such property, in either case with such powers as may be provided
in the instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the Declaration. In case a Debenture Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make such appointment.
Merger or Consolidation of Trustees
Any person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any person resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
person succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under the Declaration,
provided such person shall be otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The Trust may not merge with or into, consolidate, amalgamate or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below or as otherwise set forth in the Declaration.
The Trust may, at the request of the Corporation, as Depositor, with
the consent of the Administrative Trustees but without the consent of the
holders of the Capital Securities, the Property Trustee or the Delaware Trustee,
merge with or into, consolidate, amalgamate or be replaced by, or convey,
transfer or lease its properties and assets substantially as an entirety to, a
trust organized as such under the laws of any State; provided, however, that:
o such successor entity either (a) expressly assumes all of the
obligations of the Trust with respect to the Capital
Securities or (b) substitutes for the Capital Securities other
securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Capital Securities
rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise;
o the Corporation expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property
Trustee as the holder of the Junior Subordinated Debt
Securities;
o the Successor Securities are listed or traded, or any
Successor Securities will be listed or traded upon
notification of issuance, on any national securities exchange
or other organization on which the Capital Securities are then
listed or traded, if any;
o such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the
Capital Securities (including any Successor Securities) in any
material respect;
o such successor entity has a purpose identical and limited to
that of the Trust;
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o prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Corporation
has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (a) such
merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any
material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer
or lease, neither the Trust nor such successor entity will be
required to register as an investment company under the
Investment Company Act of 1940 (the "Investment Company Act");
and
o the Corporation or any permitted successor or assignee owns
all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the
Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the
consent of holders of 100% in Liquidation Amount of the Trust Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it, if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Trust or the
successor entity to be classified as an association taxable as a corporation or
as other than a grantor trust for United States federal income tax purposes.
Voting Rights; Amendment of the Declaration
Except as provided below and under "Description of
Guarantee--Amendments and Assignment" and as otherwise required by law and the
Declaration, the holders of the Capital Securities will have no voting rights.
The Declaration may be amended from time to time by the Corporation,
the Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities, to:
o cure any ambiguity, correct or supplement any provision in the
Declaration that may be inconsistent with any other provision,
or to make any other provisions with respect to matters or
questions arising under the Declaration, which shall not be
inconsistent with the other provisions of the Declaration, or
o modify, eliminate or add to any provisions of the Declaration
to such extent as shall be necessary to ensure that the Trust
will be classified for United States federal income tax
purposes as a grantor trust or as other than an association
taxable as a corporation at all times that any Trust
Securities are outstanding or to ensure that the Trust will
not be required to register as an "investment company" under
the Investment Company Act.
However, amendment made under clause (i), above may not adversely
affect in any material respect the interests of any holder of Trust Securities,
and any amendments of the Declaration shall become effective when notice thereof
is given to the holders of the Trust Securities.
The Declaration may otherwise be amended by the Trustees and the
Corporation with the consent of holders representing not less than a majority
(based upon Liquidation Amounts) of the outstanding Capital Securities, and
receipt by the Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Trustees in accordance
with such amendment will not cause the Trust to be classified as an association
taxable as a corporation or affect the Trust's status as a grantor trust for
United States federal income tax purposes or the Trust's exemption from status
as an "investment company" under the Investment Company Act.
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However, without the consent of each holder of Trust Securities, the
Declaration may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debt Securities are held by the
Trust, the Trustees shall not:
o direct the time, method and place of conducting any proceeding
for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on the Property Trustee
with respect to the Junior Subordinated Debt Securities;
o waive any past default that is waivable under Section 5.13 of
the Indenture;
o exercise any right to rescind or annul a declaration that the
principal of all the Junior Subordinated Debt Securities shall
be due and payable or
o consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debt Securities, where
such consent shall be required, without, in each case,
obtaining the prior approval of the holders of a majority in
aggregate Liquidation Amount of all outstanding Capital
Securities.
However, where a consent under the Indenture would require the consent
of each holder of Junior Subordinated Debt Securities affected thereby, no such
consent shall be given by the Property Trustee without the prior consent of each
holder of the Capital Securities. The Trustees shall not revoke any action
previously authorized or approved by a vote of the holders of the Capital
Securities except by subsequent vote of such holders. The Property Trustee shall
notify each holder of Capital Securities of any notice of default with respect
to the Junior Subordinated Debt Securities. In addition to obtaining the
foregoing approvals of such holders of the Capital Securities, prior to taking
any of the foregoing actions, the Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust will not be classified
as an association taxable as a corporation for United States federal income tax
purposes as a result of such action and such action would not cause the Trust to
be classified as other than a grantor trust for United States federal income tax
purposes.
Any required approval of holders of Capital Securities may be given at
a meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Capital Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be given to each
holder of record of Capital Securities in the manner set forth in the
Declaration.
No vote or consent of the holders of Capital Securities will be
required for the Trust to redeem and cancel the Capital Securities in accordance
with the Declaration.
Notwithstanding that holders of the Capital Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Capital Securities that are owned by the Corporation, the Trustees or any
affiliate of the Corporation or any Trustees, shall, for purposes of such vote
or consent, be treated as if they were not outstanding.
Expenses and Taxes
In the Indenture, the Corporation, as borrower, has agreed to pay all
debts, expenses and other obligations of the Trust (other than payments of
Distributions, amounts payable upon redemption and the Liquidation Amount of the
Trust Securities). These expenses include costs and expenses relating to the
organization of the Trust, the fees and expenses of the Trustees, the costs and
expenses of operating the Trust, costs of offering the Capital Securities, and
all taxes and all
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costs and expenses with respect to the foregoing (other than United States
withholding taxes) to which the Trust might become subject. The foregoing
obligations of the Corporation under the Indenture are for the benefit of, and
shall be enforceable by, any person to whom any such debts, obligations, costs,
expenses and taxes are owed (a "Creditor") whether or not such Creditor has
received notice thereof. Any Creditor may enforce such obligations of the
Corporation directly against the Corporation, and the Corporation has
irrevocably waived any right or remedy to require that any such Creditor take
any action against the Trust or any other person before proceeding against the
Corporation. The Corporation has also agreed in the Indenture to execute such
additional agreement(s) as may be necessary or desirable to give full effect to
the foregoing.
Form, Denomination, Book-Entry Procedures and Transfer
The Capital Securities initially will be evidenced by certificates in
fully registered form (each, a "Certificate"). The Property Trustee will from
time to time register the transfer of any outstanding Certificate upon surrender
thereof at the office of the Property Trustee which is currently located at 1100
N. Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration (the "Property Trustee's Office"), duly endorsed by, or
accompanied by a written instrument or instruments of transfer in a form
satisfactory to the Property Trustee duly executed by the holder thereof, a duly
appointed legal representative or a duly authorized attorney. Such signature
must be guaranteed by a bank or trust company having a correspondent office in
New York City or by a broker or dealer that is a member of the National
Association of Securities Dealers, Inc. (the "NASD") or a member of a national
securities exchange. A new Certificate will be issued to the transferee upon any
such registration of transfer.
At the option of a holder, Certificates may be exchanged for other
Certificates representing a like number of Capital Securities, upon surrender to
the Property Trustee at the Property Trustee's Office of the Certificates to be
exchanged. The Corporation will thereupon execute, and the Property Trustee will
authenticate and deliver, one or more new Certificates representing such like
number of Capital Securities.
If any Certificate is mutilated, lost, stolen or destroyed, the
Corporation shall execute, and the Property Trustee shall authenticate and
deliver, in exchange and substitution for such mutilated Certificate, or in
replacement for such lost, stolen or destroyed Certificate, a new Certificate
representing the same number of Capital Securities represented by such
Certificate, but only upon receipt of evidence satisfactory to the Corporation
and to the Property Trustee of loss, theft or destruction of such Certificate
and security or indemnity, if requested, satisfactory to them. Holders
requesting replacement Certificates must also comply with such other reasonable
regulations as the Corporation or the Property Trustee may prescribe.
No service charge will be made for any registration of transfer or
exchange of Certificates, but the Corporation may require the payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection therewith, other than exchanges not involving any transfer. In the
case of the replacement of mutilated, lost, stolen or destroyed Certificates,
the Corporation may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith and any
other expenses (including the fees and expenses of the Property Trustee)
connected therewith.
Possible Exchange for Book-Entry Capital Securities.
Following the issuance of the Capital Securities, the Corporation will
make the Capital Securities available in book-entry form ("Book-Entry Capital
Securities"). Holders may (but are not required to) exchange Certificates for
Book-Entry Capital Securities, which will be represented by a beneficial
interest in a Global Security (as defined below), by causing the Certificates to
be delivered to The Depository Trust Company ("DTC"), in proper form for deposit
into DTC's book-entry system, on or after the Initial Exchange Date (as defined
below). Certificates received by DTC for exchange during the period commencing
on a date designated by the Corporation (the "Initial Exchange Date") and ending
on the fifth day after the Initial Exchange Date (the "Initial Exchange Period")
will be exchanged for Book-Entry
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Capital Securities by the close of business on the Business Day on which they
are received by DTC (if received by DTC by its then applicable cut-off time for
same-day credit) or on the following Business Day (if received by DTC by its
then applicable cut-off time for next-day credit).
After the last day of the Initial Exchange Period, DTC will not be
required to accept delivery of Certificates in exchange for Book-Entry Capital
Securities, but DTC may permit such Certificates to be so exchanged on a
case-by-case basis. It is anticipated that after the Initial Exchange Period,
Certificates delivered to DTC in good order and in proper form for deposit will
be accepted by DTC for exchange for Book-Entry Capital Securities generally
within three to four Business Days after delivery to DTC. However, there can be
no assurance that such Certificates will be accepted for exchange or, if
accepted, that such exchange will occur within such time period. Certificates
surrendered at any time for exchange for Book-Entry Capital Securities may not
be delivered for settlement or transfer until such exchange has been effected.
Accordingly, persons purchasing Capital Securities in secondary market trading
after the Initial Exchange Date may wish to make specific arrangements with
brokers or DTC's participants if they wish to purchase only Book-Entry Capital
Securities and not Certificates.
The Corporation will notify DTC, the Property Trustee and each holder
of a Certificate by overnight mail that exchanges of Certificates for Book-Entry
Capital Securities will commence on the Initial Exchange Date, which will be
approximately one Business Day after the date on which the Corporation notifies
DTC that it has elected to permit such exchanges. The Initial Exchange Date will
not be later than one day after _________ __, 1999.
In order to be exchanged for Book-Entry Capital Securities, a
Certificate must be delivered to DTC, in proper form for deposit, by a
Participant. Accordingly, holders of Capital Securities that are not
Participants must deliver their Certificates, in proper form for deposit, to a
Participant, either directly or through a brokerage firm that maintains an
account with a Participant, in order to have their Certificates exchanged for
Book-Entry Capital Securities. Holders of Capital Securities that want to
exchange their Certificates for Book-Entry Capital Securities should contact
their broker or a Participant to obtain information on procedures for submitting
their Certificates to DTC, including the proper form for submission and (during
the Initial Exchange Period) the cut-off times for same-day and next-day
exchange. A Certificate that is held on behalf of a beneficial owner in nominee
or "street name" may be automatically exchanged for Book-Entry Capital
Securities by the broker or other entity that is the registered holder of such
Capital Securities, without any action of or consent by the beneficial owner of
the Capital Securities.
Book-Entry System.
Any Book-Entry Capital Securities will be represented by a single
global security (a "Global Security"), which will be deposited with, or on
behalf of, DTC, and registered in the name of a nominee of DTC. Certificates
that have been exchanged for Book-Entry Capital Securities may not be
re-exchanged for Certificates, except under the limited circumstances described
in "Description of Capital Securities--Form, Denomination, Book-Entry Procedures
and Transfer--Exchange of Book-Entry Capital Securities for Certificated Capital
Securities." Unless and until it is exchanged in whole or in part for
Certificates, the Global Security may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC.
Transfer of beneficial interests in the Global Capital Securities will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants which may change from time to time.
Depositary Procedures
DTC has advised the Trust and the Corporation as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants
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through electronic book-entry changes to accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers (including the Underwriter), banks, trust
companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Corporation that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital Securities,
DTC will credit the accounts of Participants with portions of the principal
amount of the Global Capital Securities and (ii) ownership of such interests in
the Global Capital Securities will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Capital
Securities).
Investors in the Global Capital Securities may hold their interests
therein directly through DTC, if they are Participants in DTC, or indirectly
through organizations which are Participants in such system. All interests in a
Global Capital Security will be subject to the procedures and requirements of
DTC. The laws of some states require that certain persons take physical delivery
in certificated form of certain securities, such as the Capital Securities, that
they own. Consequently, the ability to transfer beneficial interests in a Global
Capital Security to such persons will be limited to that extent. Because DTC can
act only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a Global Capital Security to pledge such interests to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests.
Except as described below, owners of beneficial interests in the Global
Capital Securities will not be entitled to have Capital Securities registered in
their names, will not receive or be entitled to receive physical delivery of
Capital Securities in certificated form and will not be considered the
registered owners or holders thereof under the Declaration for any purpose.
Payments in respect of the Global Capital Security registered in the
name of DTC or its nominee will be payable by the Property Trustee to DTC or its
nominee as the registered holder under the Declaration by wire transfer in
immediately available funds on each Distribution Date. Under the terms of the
Declaration, the Property Trustee will treat the persons in whose names the
Capital Securities, including the Global Capital Securities, are registered as
the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for:
o any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to, or payments made on account
of, beneficial ownership interests in the Global Capital
Securities, or for maintaining, supervising or reviewing any
of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership
interests in the Global Capital Securities, or
o any other matter relating to the actions and practices of DTC
or any of its Participants or Indirect Participants.
DTC has advised the Trust and the Corporation that its current
practice, upon receipt of any payment in respect of securities such as the
Capital Securities, is to credit the accounts of the relevant Participants with
the payment on the payment date, in amounts proportionate to their respective
holdings in Liquidation Amount of beneficial interests in the Global Capital
Security, as shown on the records of DTC, unless DTC has reason to believe it
will not receive payment
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on such payment date. Payments by the Participants and the Indirect Participants
to the beneficial owners of Capital Securities represented by Global Capital
Securities held through such Participants will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Property Trustee or the Trust. Neither the Trust nor the Property
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Capital Securities, and the Trust and
the Property Trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee for all purposes.
Interests in the Global Capital Securities will trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such interests
will therefore settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its Participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Trust and the Corporation that it will take any
action permitted to be taken by a holder of Capital Securities (including,
without limitation, the presentation of Capital Securities for exchange as
described below) only at the direction of one or more Participants to whose
account with DTC interests in the Global Capital Securities are credited and
only in respect of such portion of the aggregate Liquidation Amount of the
Capital Securities represented by the Global Capital Securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Declaration, DTC reserves the right to exchange
the Global Capital Securities for legended Capital Securities in certificated
form and to distribute such Capital Securities to its Participants.
So long as DTC or its nominee is the registered owner of the Global
Capital Securities, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Capital Securities represented by the Global
Capital Security for all purposes under the Declaration.
Neither DTC nor its nominee will consent or vote with respect to the
Capital Securities. Under its usual procedures, DTC would mail an omnibus proxy
to the Trust as soon as possible after the record date. The omnibus proxy
assigns the consenting or voting rights of DTC or its nominee to those
Participants to whose accounts the Capital Securities are credited on the record
date (identified in a listing attached to the omnibus proxy).
The information in this section concerning DTC and its book-entry
system has been obtained from sources that the Trust and the Corporation believe
to be reliable, but neither the Trust nor the Corporation takes responsibility
for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interest in the Global Capital Securities among Participants in
DTC, it is under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trust nor the Property Trustee will have any responsibility for the performance
by DTC or its Participants or Indirect Participants of their respective
obligations under the rules and procedures governing their operations.
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Exchange of Book-Entry Capital Securities for Certificated Capital Securities
A Global Capital Security is exchangeable for Capital Securities in
registered certificated form if:
o DTC notifies the Trust that it is no longer willing or able to
properly discharge its responsibilities with respect to the
Capital Securities and the Corporation is unable to locate a
qualified successor, or has ceased to be a "clearing agency"
registered under the Exchange Act;
o the Trust at its sole option elects to terminate the
book-entry system through DTC; or
o there shall have occurred and be continuing a Debenture Event
of Default.
In addition, beneficial interests in a Global Capital Security may be
exchanged by or on behalf of DTC for certificated Capital Securities upon
request by DTC, but only upon at least 20 days prior written notice given to the
Property Trustee in accordance with DTC's customary procedures. In all cases,
certificated Capital Securities delivered in exchange for any Global Capital
Security or beneficial interests therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf of DTC (in
accordance with its customary procedures).
Payment and Paying Agency
Payments in respect of the Capital Securities held in global form shall
be made to DTC, which shall credit the relevant accounts at DTC on the
applicable Distribution Dates or in respect of the Capital Securities that are
not held by DTC, such payments shall be made by check mailed to the address of
the holder entitled thereto as such address shall appear on the register. The
paying agent (the "Paying Agent") shall initially be the Property Trustee and
any co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Corporation. The Paying Agent shall be permitted
to resign as Paying Agent upon 30 days' written notice to the Property Trustee,
the Administrative Trustees and the Corporation. In the event that the Property
Trustee shall no longer be the Paying Agent, the Administrative Trustees shall
appoint a successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and the Corporation) to act as Paying Agent.
Wilmington Trust Company has informed the Trust that so long as it
serves as paying agent for the Capital Securities, it anticipates that
information regarding Distributions on the Capital Securities, including payment
date, record date and redemption information, will be made available through
Wilmington Trust Company at 1100 N. Market Street, Wilmington, Delaware,
Attention: Corporate Trust Administration.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of the Capital Securities will be effected
without charge by or on behalf of the Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Trust will not be required to register or cause to be
registered the transfer or exchange of the Capital Securities after they have
been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance
of an Event of Default, undertakes to perform only such duties as are
specifically set forth in the Declaration and, during the existence of an Event
of Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by
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the Declaration at the request of any holder of Trust Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is continuing
and the Property Trustee is required to decide between alternative causes of
action, construe ambiguous provisions in the Declaration or is unsure of the
application of any provision of the Declaration, and the matter is not one on
which holders of the Capital Securities or the Common Securities are entitled
under the Declaration to vote, then the Property Trustee shall take such action
as is directed by the Corporation and, if not so directed, shall take such
action as it deems advisable and in the best interests of the holders of the
Trust Securities and will have no liability except for its own bad faith,
negligence or willful misconduct.
Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes or as other than a grantor trust
for United States federal income tax purposes, and so that the Junior
Subordinated Debt Securities will be treated as indebtedness of the Corporation
for United States federal income tax purposes. In this connection, the
Corporation and the Administrative Trustees are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of the Trust or
the Declaration, that the Corporation and the Administrative Trustees determine
in their discretion to be necessary or desirable for such purposes, as long as
such action does not materially adversely affect the interests of the holders of
the Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money or issue debt or mortgage or pledge any
of its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBT SECURITIES
The Junior Subordinated Debt Securities are to be issued as a separate
series under a Junior Subordinated Indenture, as supplemented from time to time
(as so supplemented, the "Indenture"), between the Corporation and Wilmington
Trust Company, as trustee (the "Debenture Trustee"). The Indenture will be
qualified under the Trust Indenture Act. This summary of certain terms and
provisions of the Junior Subordinated Debt Securities and the Indenture does not
purport to be complete, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, some
of which are not otherwise defined herein, are qualified in their entirety by
reference to all of the provisions of the Indenture and those terms made a part
of the Indenture by the Trust Indenture Act.
General
Concurrently with the issuance of the Trust Securities, the Trust will
invest the proceeds thereof in Junior Subordinated Debt Securities issued by the
Corporation. The Junior Subordinated Debt Securities will bear interest at
_____% per annum of the principal amount thereof, payable quarterly in arrears
on the 15th day of March, June, September and December of each year (each, an
"Interest Payment Date"), commencing ____ 15, 1999, to the person in whose name
each Junior Subordinated Debt Security is registered, subject to certain
exceptions, at the close of business on the Business Day next preceding such
Interest Payment Date. It is anticipated that, until the liquidation of the
Trust, each Junior Subordinated Debt Security will be held in the name of the
Property Trustee in trust for the benefit of the holders of the Trust
Securities. The amount of interest payable for any period will be computed on
the basis of the actual number of days elapsed in a year of twelve 30-day
months. In the event that any date on which interest is payable on the Junior
Subordinated Debt Securities is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that
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is not paid on the applicable Interest Payment Date will bear additional
interest on the amount thereof (to the extent permitted by law) at ____% per
annum thereof, compounded quarterly from the relevant Interest Payment Date. The
term "interest" as used herein shall include quarterly payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date and
Additional Sums, as applicable.
The Junior Subordinated Debt Securities will be issued as a series of
Junior Subordinated Debt Securities under the Indenture. Unless previously
redeemed or repurchased, the Junior Subordinated Debt Securities will mature on
_____________ 15, 2029.
The Junior Subordinated Debt Securities will be unsecured and will rank
junior and be subordinate in right of payment to all Senior Debt. Because the
Corporation is a bank holding company, the right of the Corporation to
participate in any distribution of assets of any subsidiary, including the Bank,
upon such subsidiary's liquidation or reorganization or otherwise (and thus the
ability of holders of the Capital Securities to benefit indirectly from such
distribution), is subject to the prior claims of creditors of such subsidiary,
except to the extent that the Corporation may itself be recognized as a creditor
of such subsidiary. Accordingly, the Junior Subordinated Debt Securities will be
subordinated to all Senior Debt and effectively subordinated to all existing and
future liabilities of the Corporation's subsidiaries, and holders of Junior
Subordinated Debt Securities should look only to the assets of the Corporation
for payments on the Junior Subordinated Debt Securities. The Indenture does not
limit the incurrence or issuance of other secured or unsecured debt of the
Corporation, including Senior Debt, whether under the Indenture or any existing
or other indenture that the Corporation may enter into in the future or
otherwise.
The Junior Subordinated Debt Securities will rank equally with all
Other Debentures issued under the Indenture and will be unsecured and
subordinate and junior in right of payment to the extent and in the manner set
forth in the Indenture to all Senior Debt of the Corporation. As a holding
company, the Corporation conducts its operations principally through the Bank
and, therefore, its principal source of cash, is receipt of dividends from the
Bank. The Corporation is a legal entity separate and distinct from the Bank. The
Bank is subject to certain restrictions imposed by federal law on any extensions
of credit to, and certain other transactions with, the Corporation and certain
other affiliates, and on investments in stock or other securities thereof. Such
restrictions prevent the Corporation and such other affiliates from borrowing
from the Bank unless the loans are secured by various types of collateral. In
addition, payment of dividends to the Corporation by the Bank is subject to
ongoing review by banking regulators and is subject to various statutory
limitations and in certain circumstances requires approval by banking regulatory
authorities. The Other Debentures will be issuable in one or more series
pursuant to an indenture supplemental to the Indenture or a resolution of the
Corporation's Board of Directors or a committee thereof.
Denominations, Registration and Transfer
The Junior Subordinated Debt Securities will be represented by one or
more global certificates registered in the name of Cede & Co. as the nominee of
DTC if, and only if, distributed to the holders of the Trust Securities. Until
such time, the Junior Subordinated Debt Securities will be held in the name of
the Property Trustee in trust for the benefit of the holders of the Trust
Securities. Should the Junior Subordinated Debt Securities be distributed to
holders of the Trust Securities, beneficial interests in the Junior Subordinated
Debt Securities will be shown on, and transfers thereof will be effected only
through, records maintained by Participants in DTC. Except as described below,
Junior Subordinated Debt Securities in certificated form will not be issued in
exchange for the global certificates.
A global security shall be exchangeable for Junior Subordinated Debt
Securities registered in the names of persons other than Cede & Co. only if:
o DTC notifies the Corporation that it is unwilling or unable to
continue as a depositary for such global security and no
successor depositary shall have been appointed, or if at any
time DTC ceases to be a
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"clearing agency" registered under the Exchange Act, at a time
when DTC is required to be so registered to act as such
depositary;
o the Corporation in its sole discretion determines that such
global security shall be so exchangeable; or
o there shall have occurred and be continuing a Debenture Event
of Default.
Any global security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for certificates registered in such names as DTC
shall direct. It is expected that such instructions will be based upon
directions received by DTC from its Participants with respect to ownership of
beneficial interests in such global security.
Payments on Junior Subordinated Debt Securities represented by a global
security will be made to DTC, as the depositary for the Junior Subordinated Debt
Securities. In the event Junior Subordinated Debt Securities are issued in
certificated form, principal and interest will be payable, the transfer of the
Junior Subordinated Debt Securities will be registrable, and Junior Subordinated
Debt Securities will be exchangeable for Junior Subordinated Debt Securities of
other denominations of a like aggregate principal amount, at the corporate
office of the Debenture Trustee in Wilmington, Delaware, or at the offices of
any paying agent or transfer agent appointed by the Corporation, provided that
payment of interest may be made at the option of the Corporation by check mailed
to the address of the persons entitled thereto or by wire transfer.
If the Junior Subordinated Debt Securities are distributed to the
holders of the Trust Securities upon the termination of the Trust, the form,
denomination, book-entry and transfer procedures with respect to the Capital
Securities as described under "Description of Capital Securities--Form,
Denomination, Book-Entry Procedures and Transfer," shall apply to the Junior
Subordinated Debt Securities.
Payment and Paying Agents
Payment of principal of and any interest on Junior Subordinated Debt
Securities will be made at the office of the Debenture Trustee in Wilmington,
Delaware or at the office of such Paying Agent or Paying Agents as the
Corporation may designate from time to time, except that at the option of the
Corporation payment of any interest may be made (except in the case of Junior
Subordinated Debt Securities in global form), by check mailed to the address of
the person entitled thereto as such address shall appear in the register for
Junior Subordinated Debt Securities or by wire transfer to an account specified
by the person entitled thereto as specified in such register, provided that
proper transfer instructions have been received by the relevant Record Date.
Payment of any interest on any Junior Subordinated Debt Security will be made to
the person in whose name such Junior Subordinated Debt Security is registered at
the close of business on the Record Date for such interest, except in the case
of defaulted interest. The Corporation may at any time designate additional
Paying Agents or rescind the designation of any Paying Agent; however the
Corporation will at all times be required to maintain a Paying Agent in each
Place of Payment for the Junior Subordinated Debt Securities.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Corporation in trust, for the payment of the principal of or
interest on any Junior Subordinated Debt Security and remaining unclaimed for
two years after such principal or interest has become due and payable shall, at
the request of the Corporation, be repaid to the Corporation and the holder of
such Junior Subordinated Debt Security shall thereafter look, as a general
unsecured creditor, only to the Corporation for payment thereof.
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Option to Extend Interest Payment Date
So long as no Debenture Event of Default has occurred and is
continuing, the Corporation has the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debt Securities at any time or
from time to time for a period not exceeding 20 consecutive quarterly periods
with respect to each Extension Period, provided, that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debt Securities. At
the end of an Extension Period, the Corporation must pay all interest then
accrued and unpaid on the Junior Subordinated Debt Securities (together with
interest thereon accrued at ____% per annum, compounded quarterly from the
relevant Interest Payment Date, to the extent permitted by applicable law).
During an Extension Period and for so long as the Junior Subordinated Debt
Securities remain outstanding, interest will continue to accrue and holders of
Junior Subordinated Debt Securities (and holders of the Capital Securities while
Capital Securities are outstanding) will be required to accrue interest income
(in the form of OID) for United States federal income tax purposes.
With certain exceptions, during any Extension Period, the Corporation
may not pay dividends on its capital stock or acquire shares of its capital
stock. Additionally, the Corporation may not make any payment on or repay,
repurchase or redeem any debt securities of the Corporation that rank equally
with or junior in interest to the Junior Subordinated Debt Securities or make
any guarantee payments with respect to any guarantee by the Corporation of the
debt securities of any subsidiary of the Corporation if such guarantee ranks
equally with or junior in interest to the Junior Subordinated Debt Securities.
Optional Redemption
The Junior Subordinated Debt Securities are redeemable prior to
maturity at the option of the Corporation on or after _____________ 15, 2004, in
whole at any time or in part from time to time, or in whole, but not in part, at
any time within 90 days following the occurrence and during the continuation of
a Tax Event, Investment Company Event or Capital Treatment Event (each as
defined under "Description of Capital Securities--Mandatory Redemption"), in
each case at the redemption price described below. The proceeds of any such
redemption will be used by the Trust to redeem the Capital Securities.
The Federal Reserve's risk-based capital guidelines, which are subject
to change, currently provide that redemptions of permanent equity or other
capital instruments before stated maturity could have a significant impact on a
bank holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debt Securities by the
Corporation prior to their Stated Maturity would constitute the redemption of
capital instruments under the Federal Reserve's current risk-based capital
guidelines and may be subject to the prior approval of the Federal Reserve. The
redemption of the Junior Subordinated Debt Securities also could be subject to
the additional prior approval of the Federal Reserve under its current
risk-based capital guidelines.
The Redemption Price for Junior Subordinated Debt Securities in the
case of a redemption on or after ___________ 15, 2004 shall equal the following
prices, expressed in percentages of the principal amount, together with accrued
interest to but excluding the date fixed for redemption. If redeemed during the
12-month period beginning ____________ 15:
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Year Redemption Price
2004 % ($_______)
2005
2006
2007
2008
2009
2010
2011
2012
2013
and at 100% on or after _______________ 15, 2014
The Redemption Price for Junior Subordinated Debt Securities, in the
case of a redemption prior to ____________ 15, 2004 following a Tax Event,
Investment Company Event or Capital Treatment Event as described under (ii)
above, will equal the Make-Whole Amount (as defined under "Description of
Capital Securities--Mandatory Redemption"), together with accrued interest to
but excluding the date fixed for redemption.
Additional Sums
The Corporation has covenanted in the Junior Subordinated Indenture
that, if and for so long as (i) the Trust is the holder of all Junior
Subordinated Debt Securities and (ii) the Trust is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, the Company will pay as additional sums on the Junior Subordinated Debt
Securities such amounts as may be required so that the Distributions payable by
the Trust will not be reduced as a result of any such additional taxes, duties
or other governmental charges.
Interest
The Junior Subordinated Debt Securities shall bear interest at ___% per
annum, from the original date of issuance, payable quarterly in arrears on the
15th day of March, June, September and December of each year, commencing
________ 15, 1999, to the person in whose name such Junior Subordinated Debt
Security is registered, subject to certain exceptions, at the close of business
on the Business Day next preceding, such Interest Payment Date. The term
"interest" as used herein, as such term relates to the Junior Subordinated Debt
Securities, includes any compounded interest or Additional Sums or any
Additional Distributions payable unless otherwise stated. In the event the
Junior Subordinated Debt Securities are not held solely in book-entry only form,
the Corporation will select relevant record dates, which shall be 15 days prior
to the relevant Interest Payment Date.
The amount of interest payable for any period will be computed on the
basis of the actual number of days elapsed in a year of twelve 30-day months. In
the event that any date on which interest is payable on the Junior Subordinated
Debt Securities is not a Business Day, then payment of the interest payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) with the
same force and effect as if made on such date.
Modification of Indenture
From time to time the Corporation and the Debenture Trustee may,
without the consent of the holders of Junior Subordinated Debt Securities,
amend, waive or supplement the Indenture for specified purposes, including,
among other things, curing ambiguities, defects or inconsistencies (provided
that any such action does not materially adversely affect the interest of the
holders of Junior Subordinated Debt Securities or the holders of the Capital
Securities so long as they
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remain outstanding) and maintaining the qualification of the Indenture under the
Trust Indenture Act. The Indenture contains provisions permitting the
Corporation and the Debenture Trustee, with the consent of the holders of not
less than a majority in principal amount of outstanding Junior Subordinated Debt
Securities, to modify the Indenture in a manner affecting the rights of the
holders of Junior Subordinated Debt Securities; provided, however, that no such
modification may, without the consent of the holder of each outstanding Junior
Subordinated Debt Security so affected, change the Stated Maturity, or reduce
the principal amount of the Junior Subordinated Debt Securities, or reduce the
rate or extend the time of payment of interest thereon or reduce the percentage
of principal amount of Junior Subordinated Debt Securities, or have certain
other effects as set forth in the Indenture.
In addition, the Corporation and the Debenture Trustee may execute,
without the consent of any holder of Junior Subordinated Debt Securities, any
supplemental Indenture for the purpose of creating any Other Debentures.
Debenture Events of Default
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debt Securities that has occurred
and is continuing constitutes a "Debenture Event of Default":
o failure for 30 days to pay any interest on the Junior
Subordinated Debt Securities when due (subject to the deferral
of any due date in the case of an Extension Period); or
o failure to pay any principal on the Junior Subordinated Debt
Securities when due, whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
o failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after
written notice to the Corporation from the Debenture Trustee
or the holders of at least 25% in aggregate outstanding
principal amount of the Junior Subordinated Debt Securities;
or
o certain events in bankruptcy, insolvency or reorganization of
the Corporation; or
o the voluntary or involuntary dissolution, winding-up or
termination of the Trust, except in connection with the
distribution of the Junior Subordinated Debt Securities to the
holder of Trust Securities in liquidation of the Trust, the
redemption of all of the Trust Securities of the Trust, or
certain mergers, consolidations or amalgamations, each as
permitted by the Declaration.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debt Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of the Junior Subordinated Debt
Securities may declare the principal due and payable immediately upon a
Debenture Event of Default and, should the Debenture Trustee or such holders of
Junior Subordinated Debt Securities fail to make such declaration, the holders
of at least 25% in aggregate Liquidation Amount of the Capital Securities shall
have such right. The holders of a majority in aggregate outstanding principal
amount of the Junior Subordinated Debt Securities may annul such declaration and
waive the default if the default (other than the nonpayment of the principal of
the Junior Subordinated Debt Securities which has become due solely by such
acceleration) has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debt Securities fail to annul such declaration and waive such
default, the holders of a majority in aggregate Liquidation Amount of the
Capital Securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debt Securities affected thereby may, on behalf of the
holders of all the Junior Subordinated Debt Securities, waive any past default,
except a default in the payment of principal of or interest (unless such default
has been cured and a sum sufficient to pay
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all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) on the Junior
Subordinated Debt Securities or a default in respect of a covenant or provision
which under the Indenture cannot be modified or amended without the consent of
the holder of each outstanding Junior Subordinated Debt Security. Should the
holders of such Junior Subordinated Debt Securities fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Capital Securities shall have such right. The
Corporation is required to file annually with the Debenture Trustee a
certificate as to whether or not the Corporation is in compliance with all the
conditions and covenants applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing, the
Property Trustee will have the right to declare the principal of and the
interest on the Junior Subordinated Debt Securities, and any other amounts
payable under the Indenture, to be forthwith due and payable and to enforce its
other rights as a creditor with respect to the Junior Subordinated Debt
Securities.
Enforcement of Certain Rights by Holders of Capital Securities
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Corporation to pay interest or
principal on the Junior Subordinated Debt Securities on the date such interest
or principal is otherwise payable, a holder of Capital Securities may institute
a Direct Action. The Corporation may not amend the Indenture to remove the
foregoing right to bring a Direct Action without the prior written consent of
the holders of all of the Capital Securities. Notwithstanding any payments made
to a holder of Capital Securities by the Corporation in connection with a Direct
Action, the Corporation shall remain obligated to pay the principal of and
interest on the Junior Subordinated Debt Securities, and the Corporation shall
be subrogated to the rights of the holder of such Capital Securities with
respect to payments on the Capital Securities to the extent of any payments made
by the Corporation to such holder in any Direct Action.
The holders of the Capital Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Junior Subordinated Debt Securities unless there
shall have been an Event of Default under the Declaration.
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that the Corporation shall not consolidate with
or merge with or into any other person or convey, transfer or lease its
properties and assets substantially as an entirety to any person, and no person
shall consolidate with or merge with or into the Corporation or convey, transfer
or lease its properties and assets substantially as an entirety to the
Corporation, unless:
o in case the Corporation consolidates with or merges with or
into another person or conveys or transfers its properties and
assets substantially as an entirety to any person, the
successor person is organized under the laws of the United
States or any state or the District of Columbia, and such
successor person expressly assumes the Corporation's
obligations on the Junior Subordinated Debt Securities issued
under the Indenture;
o immediately after giving effect thereto, no Debenture Event of
Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have
occurred and be continuing;
o if at the time any Capital Securities are outstanding, such
transaction is permitted under the Declaration and the
Guarantee and does not give rise to any breach or violation of
the Declaration or the Guarantee; and
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o certain other conditions as prescribed in the Indenture are
met.
The general provisions of the Indenture do not afford holders of the
Junior Subordinated Debt Securities protection in the event of a highly
leveraged or other transaction involving the Corporation that may adversely
affect holders of the Junior Subordinated Debt Securities.
Subordination
In the Indenture, the Corporation has covenanted and agreed that any
Junior Subordinated Debt Securities issued thereunder shall be subordinate and
junior in right of payment to all Senior Debt to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding-up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Corporation, the holders of Senior Debt will first
be entitled to receive payment in full of principal of and interest, if any, on
such Senior Debt before the holders of Junior Subordinated Debt Securities, or
the Property Trustee on behalf of the holders, will be entitled to receive or
retain any payment or distribution in respect thereof.
In the event of the acceleration of the maturity of the Junior
Subordinated Debt Securities, the holders of all Senior Debt outstanding at the
time of such acceleration will first be entitled to receive payment in full of
all amounts due thereon (including any amounts due upon acceleration) before the
holders of the Junior Subordinates Debt Securities will be entitled to receive
or retain any payment in respect of the principal of or interest, if any, on the
Junior Subordinated Debt Securities.
In the event that the Corporation shall default in the payment of any
principal of or interest, if any, on any, Senior Debt when the same becomes due
and payable, whether at maturity or at a date fixed for prepayment or by
declaration of acceleration or otherwise, then, unless and until such default
shall have been cured or waived or shall have ceased to exist or all Senior Debt
shall have been paid, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to be made for
principal or interest, if any, on the Junior Subordinated Debt Securities, or in
respect of any redemption, repayment, retirement, purchase or other acquisition
of any of the Junior Subordinated Debt Securities.
"Senior Debt" means:
o the principal of, and premium, if any, and interest on all
indebtedness of the Corporation for money borrowed, whether
outstanding on the date of execution of the Indenture or
thereafter created, assumed or incurred, except indebtedness
that is expressly stated to rank junior to or equally with the
Junior Subordinated Debt Securities;
o all obligations (except those that are expressly stated to
rank junior to or equally with the Junior Subordinated Debt
Securities) to make payment pursuant to the terms of financial
instruments, such as,
(i) securities contracts and foreign currency exchange
contracts,
(ii) derivative instruments, such as swap agreements
(including interest rate and foreign exchange rate
swap agreements), cap agreements, floor agreements,
collar agreements, interest rate agreements, foreign
exchange agreements, options, commodity futures
contracts and commodity options contracts, and
(iii) similar financial instruments;
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o indebtedness or obligations of others of the kinds described
above for the payment of which the Corporation is responsible
or liable as guarantor or otherwise, and
o any deferrals, renewals or extensions of any such Senior Debt.
However, Senior Debt shall not be deemed to include
o any debt of the Corporation which, when incurred and without
respect to any election under Section 1111 (b) of the United
States Bankruptcy Code of 1978, was without recourse to the
Corporation,
o any debt of the Corporation to any of its subsidiaries,
o debt to any employee of the Corporation,
o debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course
of business to the extent that payments made to the holders of
such debt by the holders of the Junior Subordinated Debt
Securities as a result of the subordination provisions of the
Indenture would be greater than such payments otherwise would
have been as a result of any obligation of such holders of
such debt to pay amounts over to the obligees on such trade
accounts payable or accrued liabilities arising in the
ordinary course of business as a result of subordination
provisions to which such debt is subject,
o trade accounts payable or accrued liabilities arising in the
ordinary course of business and
o any other debt securities issued pursuant to the Indenture.
The Indenture places no limitation on the amount of Senior Debt that
may be incurred by the Corporation. The Corporation expects from time to time to
incur additional indebtedness constituting Senior Debt. At September 30, 1998
the Corporation had no Senior Debt on an unconsolidated basis. The Indenture
also places no limitation on the indebtedness of the Corporation's subsidiaries,
which rank senior in right of payment to the Junior Subordinated Debt
Securities.
Governing Law
The Indenture and the Junior Subordinated Debt Securities will be
governed by and construed in accordance with the laws of the State of Virginia.
Information Concerning the Debenture Trustee
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debt Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Debenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
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DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Corporation
concurrently with the issuance by the Trust of the Trust Securities for the
benefit of the holders from time to time of such Trust Securities. Wilmington
Trust Company will act as trustee (the "Guarantee Trustee") under the Guarantee
Agreement. The Guarantee Agreement will be qualified under the Trust Indenture
Act. This summary of certain provisions of the Guarantee does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Guarantee, including the definitions therein of certain
terms, and the Trust Indenture Act. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Trust Securities.
General
The Corporation will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined
herein) to the holders of the Trust Securities, as and when due, regardless of
any defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
Trust Securities, to the extent not paid by or on behalf of the Trust (the
"Guarantee Payments"), will be subject to the Guarantee:
o any accrued and unpaid Distributions required to be paid on
the Trust Securities, to the extent that the Trust has funds
on hand available therefor at such time,
o the Redemption Price with respect to Trust Securities called
for redemption, to the extent that the Trust has funds on hand
available therefor at such time, and
o upon a voluntary or involuntary dissolution, winding up or
liquidation of the Trust (other than in connection with the
distribution of Junior Subordinated Debt Securities to the
holders of the Trust Securities or the redemption of all of
the Capital Securities) the lesser of (a) the Liquidation
Distribution, to the extent the Trust has funds available
therefor and (b) the amount of assets of the Trust remaining
available for distribution to holders of the Trust Securities
upon liquidation of the Trust after satisfaction of
liabilities to creditors of the Trust as required by
applicable law.
The Corporation's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Corporation to the
holders of the Trust Securities or by causing the Trust to pay such amounts to
such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis
of the Trust's obligations under the Trust Securities, although it will apply
only to the extent that the Trust has funds sufficient to make such payments,
and is not a guarantee of collection. If the Corporation does not make interest
payments on the Junior Subordinated Debt Securities held by the Trust, the Trust
will not be able to pay Distributions on the Capital Securities and will not
have funds legally available therefor.
The Guarantee will rank subordinate and junior in right of payment to
all Senior Debt. As a holding company, the Corporation conducts its operations
principally through its subsidiaries and, therefore, its principal source of
cash is receipt of dividends from the Bank. However, there are legal limitations
on the source and amount of dividends that a Virginia-chartered, Federal Reserve
member bank such as the Bank is permitted to pay. A Virginia-chartered bank may
pay dividends only from net undivided profits. Additionally, a dividend may not
be paid if it would impair the paid-in capital of the bank. In addition, prior
approval of the Federal Reserve is required if the total of all dividends
declared by a member bank in any calendar year will exceed the sum of that
bank's net profits for that year and its retained net profits for the preceding
two calendar years, less any required transfers to either surplus or any fund
for the retirement of any preferred stock. At September 30, 1998, the Bank could
have paid approximately $2.7 million in dividends to the
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Corporation without prior Federal Reserve approval. The payment of dividends by
the Bank may also be affected by other factors, such as requirements for the
maintenance of adequate capital. In addition, the Federal Reserve is authorized
to determine, under certain circumstances relating to the financial condition of
a member bank, whether the payment of dividends would be an unsafe or unsound
banking practice and to prohibit payment thereof. The Guarantee does not limit
the incurrence or issuance of other secured or unsecured debt of the
Corporation, including Senior Debt, whether under the Indenture, any other
indenture that the Corporation may enter into in the future or otherwise.
Taken together, the Corporation's obligations under the Guarantee, the
Declaration, the Junior Subordinated Debt Securities and the Indenture,
including the Corporation's obligation to pay the costs, expenses and other
liabilities of the Trust (other than the Trust's obligations to the holders of
the Trust Securities under the Trust Securities), provide, in the aggregate, a
full, irrevocable and unconditional guarantee of all of the Trust's obligations
under the Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Capital Securities.
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the
Corporation and will rank subordinate and junior in right of payment to all
Senior Debt in the same manner as Junior Subordinated Debt Securities.
The Guarantee will rank equally with all Other Guarantees issued by the
Corporation. The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Corporation to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Trust Securities.
The Guarantee will not be discharged except by payment of the Guarantee Payments
in full to the extent not paid by the Trust or upon distribution to the holders
of the Trust Securities of the Junior Subordinated Debt Securities. The
Guarantee does not place a limitation on the amount of additional Senior Debt
that may be incurred by the Corporation. The Corporation expects from time to
time to incur additional indebtedness constituting Senior Debt.
Amendments and Assignment
Except with respect to any changes that do not materially adversely
affect the rights of holders of the Trust Securities (in which case no vote will
be required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of such
outstanding Capital Securities. The manner of obtaining any such approval will
be as set forth under "Description of Capital Securities--Voting Rights;
Amendment of the Declaration." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Corporation and shall inure to the benefit of the holders
of the Capital Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of
the Corporation to perform any of its payment or other obligations thereunder;
provided, however, that except with respect to a default in payment of any
Guarantee Payment, the Corporation shall have received notice of default and
shall not have cured such default within 60 days after receipt of such notice;
and provided, further, that no event of default under the Guarantee shall occur
unless an Event of Default under the Declaration or a Debenture Event of Default
shall have occurred. The holders of not less than a majority in aggregate
Liquidation Amount of the Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee.
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Any holder of the Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity.
The Corporation, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Corporation in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of the Trust Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Trust Securities, upon full payment
of the amounts payable upon liquidation of the Trust or upon distribution of
Junior Subordinated Debt Securities to the holders of the Trust Securities. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Trust Securities must restore payment of
any sums paid under the Trust Securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of Virginia.
RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE JUNIOR SUBORDINATED DEBT SECURITIES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Capital
Securities (to the extent the Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Corporation as and to the
extent set forth under "Description of Guarantee." Taken together, the
Corporation's obligations under the Junior Subordinated Debt Securities, the
Indenture, the Declaration and the Guarantee provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of Distributions and other
amounts due on the Capital Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Capital Securities. If and to the extent that the
Corporation does not make payments on the Junior Subordinated Debt Securities,
the Trust will not pay Distributions or other amounts due on the Capital
Securities. The Guarantee does not cover payment of Distributions when the Trust
does not have sufficient funds to pay such Distributions. In such event, the
remedy of a holder of Capital Securities is to institute a Direct Action. The
obligations of the Corporation under the Guarantee are subordinate and junior in
right of payment to all Senior Debt.
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Sufficiency of Payments
As long as payments of interest and other payments are made when due on
the Junior Subordinated Debt Securities, such payments will be sufficient to
cover Distributions and other payments due on the Capital Securities, primarily
because:
o the aggregate principal amount or Redemption Price of the
Junior Subordinated Debt Securities will be equal to the sum
of the aggregate Liquidation Amount or Redemption Price, as
applicable, of the Trust Securities;
o the interest rate and interest and other payment dates on the
Junior Subordinated Debt Securities will match the
Distribution rate and Distribution and other payment dates for
the Capital Securities;
o the Corporation shall pay for all costs, expenses and
liabilities of the Trust except the Trust's obligations to
holders of Trust Securities under such Trust Securities; and
o the Declaration further provides that the Trust will not
engage in any activity that is not consistent with the limited
purposes thereof.
Notwithstanding anything to the contrary in the Indenture, the
Corporation has the right to set off any payment it is otherwise required to
make thereunder with and to the extent the Corporation has theretofore made, or
is concurrently on the date of such payment making, any payment under the
Guarantee used to satisfy the related payment of indebtedness under the
Indenture.
Enforcement Rights of Holders of Capital Securities
A holder of any Capital Security may institute a legal proceeding
directly against the Corporation to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Guarantee Trustee, the
Trust or any other person or entity.
A default or event of default under any Senior Debt would not
constitute a default or Event of Default under the Declaration. However, in the
event of payment defaults under, or acceleration of, Senior Debt, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debt Securities until such Senior Debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on Junior Subordinated Debt Securities would
constitute an Event of Default under the Declaration.
Limited Purpose of the Trust
The Capital Securities evidence a beneficial interest in the Trust, and
the Trust exists for the sole purpose of issuing the Capital Securities and
Common Securities, investing the proceeds of the Trust Securities in Junior
Subordinated Debt Securities and engaging in other activities necessary or
incidental thereto.
Rights Upon Termination
Upon any voluntary or involuntary termination, winding-up or
liquidation of the Trust involving the liquidation of the Junior Subordinated
Debt Securities, after satisfaction of the liabilities of creditors of the Trust
as required by applicable law, the holders of the Trust Securities will be
entitled to receive, out of assets held by the Trust, the Liquidation
Distribution in cash. Upon any voluntary or involuntary liquidation or
bankruptcy of the Corporation, the Property Trustee, as holder of the Junior
Subordinated Debt Securities, would be a subordinated creditor of the
Corporation, subordinated in right of payment to all Senior Debt as set forth in
the Indenture, but entitled to receive
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payment in full of principal and interest, before any stockholders of the
Corporation receive payments or distributions. Since the Corporation is the
guarantor under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of the Trust (other than the Trust's obligations to the holders of
its Trust Securities), the positions of a holder of Capital Securities and a
holder of Junior Subordinated Debt Securities relative to other creditors and to
stockholders of the Corporation in the event of liquidation or bankruptcy of the
Corporation are expected to be substantially the same.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal
income tax consequences of the purchase, ownership and disposition of Capital
Securities. Unless otherwise stated, this summary addresses only the tax
consequences to a "U.S. Holder" (as defined below) that acquires Capital
Securities on their original issue at their original offering price and does not
address the tax consequences to persons that may be subject to special treatment
under United States federal income tax law, such as banks, insurance companies,
thrift institutions, regulated investment companies, real estate investment
trusts, tax-exempt organizations, dealers in securities or currencies, persons
that hold Capital Securities as part of a position in a "straddle" or as part of
a "hedging", "conversion" or other integrated investment transaction for United
States federal income tax purposes, persons whose functional currency is not the
United States dollar or persons that do not hold Capital Securities as capital
assets. For purposes of this summary, a "U.S. Holder" is a Securityholder (as
defined below) who or that is an individual citizen or resident of the United
States, a domestic corporation or partnership organized under the laws of the
United States or any State thereof or the District of Columbia or an estate or
trust the income of which is subject to United States federal income taxation
regardless of source.
The statements of law or legal conclusions set forth in this summary
constitute the opinion of Williams Mullen Christian & Dobbins, tax counsel to
the Corporation and the Trust. This summary is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue
Service rulings and pronouncements and judicial decisions now in effect, all of
which are subject to change at any time. Such changes may be applied
retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a beneficial owner of the Capital Securities. The authorities on which
this summary is based are subject to various interpretations, and it is
therefore possible that the United States federal income tax treatment of the
purchase, ownership and disposition of the Capital Securities may differ from
the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Classification of the Junior Subordinated Debt Securities and the Trust
Under current law and assuming compliance with the terms of the Trust
Agreement, the Trust will not be classified as an association taxable as a
corporation for United States federal income tax purposes. Moreover, the Trust
should be classified as a grantor trust, and if not so classified will be
classified as a partnership, for United States federal income tax purposes. As a
result, each beneficial owner of Capital Securities (a "Securityholder") that is
a U.S. Holder will be required to include in its gross income its pro rata share
of the interest income, including OID, paid or accrued with respect to the
Junior Subordinated Debt Securities, whether or not cash is actually distributed
to the Securityholders. The Junior Subordinated Debt Securities will be
classified as indebtedness of the Corporation for United States federal income
tax purposes.
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Interest Income and Original Issue Discount
Under applicable Treasury regulations (the "Regulations"), a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether a debt instrument is issued with OID. The Corporation
believes that the likelihood of its exercising its option to defer payments of
interest is remote. Based on the foregoing, the Corporation believes that the
Junior Subordinated Debt Securities will not be considered to be issued with OID
at the time of their original issuance.
Because the discount at which the Junior Subordinated Debt Securities
are being issued is less than 1/4 of 1 percent of the Junior Subordinated Debt
Securities stated redemption price at maturity times the number of complete
years to maturity of the Junior Subordinated Debt Securities, such discount will
constitute de minimis OID and will not be required to be taken into account on a
current basis. The following discussion assumes that unless and until the
Corporation exercises its option to defer interest on the Junior Subordinated
Debt Securities, the Junior Subordinated Debt Securities will not be treated as
issued with OID other than de minimis OID.
Under the Regulations, if the Corporation exercised its option to defer
any payment of interest, the Junior Subordinated Debt Securities would be
treated as reissued with OID, and, thereafter, all stated interest on the Junior
Subordinated Debentures would be treated as OID as long as the Junior
Subordinated Debt Securities remained outstanding. In such event, all of a U.S.
Holder's taxable interest income with respect to the Junior Subordinated Debt
Securities would be accounted for as OID on an economic accrual basis regardless
of such U.S. Holder's method of tax accounting, and actual distributions of
stated interest would not be reported separately as taxable income.
Consequently, a U.S. Holder would be required to include OID in gross income
even though the Corporation would not make any actual cash payments during an
Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take the
position that the Junior Subordinated Debt Securities were issued with OID at
the time of their original issuance.
Because income on the Capital Securities will constitute interest or
OID, corporate U.S. Holders will not be entitled to the dividends-received
deduction with respect to any income recognized with respect to the Capital
Securities. If any Special Interest or Additional Distributions are paid on the
Capital Securities it is possible that such Special Interest or Additional
Distributions might constitute OID (whether or not an Extension Period has
occurred).
Subsequent uses of the term "interest" in this summary shall include
income in the form of OID.
Distribution of the Junior Subordinated Debt Securities to Holders of Capital
Securities
Under current law, a distribution by the Trust of the Junior
Subordinated Debt Securities, as described under the caption "Description of
Capital Securities--Liquidation of the Trust and Distribution of Junior
Subordinated Debt Securities," will be nontaxable and will result in a U.S.
Holder receiving directly its pro rata share of the Junior Subordinated Debt
Securities previously held indirectly through the Trust, with a holding period
and aggregate adjusted tax basis equal to the holding period and aggregate
adjusted tax basis such U.S. Holder had in its Capital Securities immediately
before such distribution. If, however, the liquidation of the Trust were to
occur because the Trust were subject to United States federal income tax with
respect to income accrued or received on the Junior Subordinated Debt
Securities, the distribution of Junior Subordinated Debt Securities to U.S.
Holders by the Trust would be a taxable event to the Trust and each U.S. Holder,
and each U.S. Holder would recognize gain or loss as if the U.S. Holder had
exchanged its Capital Securities for the Junior Subordinated Debt Securities it
received upon the liquidation of the Trust. A U.S. Holder will include interest
in respect of the Junior Subordinated Debt Securities received from the Trust in
the manner described above under "Interest Income and Original Issue Discount."
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Sales or Redemption of the Capital Securities
Gain or loss will be recognized by a U.S. Holder on a sale, exchange,
or other disposition of the Capital Securities (including a redemption for cash)
in an amount equal to the difference between the amount realized and the U.S.
Holder's adjusted tax basis in the Capital Securities sold or so redeemed.
Assuming that the Corporation does not exercise its option to defer payment of
interest on the Junior Subordinated Debt Securities, a U.S. Holder's adjusted
tax basis in the Capital Securities generally will be its initial purchase
price. If the Junior Subordinated Debentures are deemed to be issued with OID
(as a result of the Corporation's deferral of any interest payment), a U.S.
Holder's adjusted tax basis in the Capital Securities generally will be its
initial purchase price, increased by OID previously included in such U.S.
Holder's gross income to the date of disposition and decreased by distributions
or other payments received on the Capital Securities other than payments of
stated interest that are not treated as OID. Gain or loss recognized by a U.S.
Holder on the Capital Securities generally will be taxable as capital gain or
loss (except to the extent any amount realized is treated as a payment of
accrued interest with respect to such U.S. Holder's pro rata share of the Junior
Subordinated Debt Securities required to be included in income) and generally
will be long-term capital gain or loss if the Capital Securities have been held
for more than one year.
Should the Corporation exercise its option to defer any payment of
interest on the Junior Subordinated Debt Securities, the Capital Securities may
trade at a price that does not fully reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debt Securities. In
the event of such a deferral, a Securityholder that disposes of its Capital
Securities between record dates for payments of Distributions (and consequently
does not receive a Distribution from the Trust for the period prior to such
disposition) will nevertheless be required to include in income as ordinary
income accrued but unpaid interest on the Junior Subordinated Debt Securities
through the date of disposition and to add such amount to its adjusted tax basis
in its Capital Securities disposed of Such U.S. Holder will recognize a capital
loss on the disposition of its Capital Securities to the extent the selling
price (which may not fully reflect the value of accrued but unpaid interest) is
less than the U.S. Holder's adjusted tax basis in the Capital Securities (which
will include accrued but unpaid interest). Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a nonresident alien individual, a foreign
partnership or a nonresident fiduciary of a foreign estate or trust.
Under current United States federal income tax law, and subject to the
discussion of backup withholding below, payments by the Trust or any of its
paying agents to any Securityholder who or that is a United States Alien Holder
will not be subject to United States federal withholding tax; provided that:
o the Securityholder does not actually or constructively own 10%
or more of the total combined voting power of all classes of
stock of the Corporation entitled to vote;
o the Securityholder is not a controlled foreign corporation
that is related to the Corporation through stock ownership;
and
o either the Securityholder certifies to the Trust or its agent,
under penalties of perjury, that it is not a United States
holder and provides its name and address, or a securities
clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its
trade or business (a Financial Institution), holding the
Capital Security in such capacity, certifies to the Trust or
its agent, under penalties of perjury, that such statement has
been received from the Securityholder by it or by a
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financial institution holding such security for the
Securityholder and furnishes the Trust or its agent with a
copy thereof.
Additionally, a United States Alien Holder of a Capital Security will
not be subject to United States federal withholding tax on any gain realized
upon the sale or other disposition of a Capital Security.
Information Reporting to Securityholders
Generally, income on the Capital Securities will be reported to
Securityholders on Forms 1099, which forms should be mailed to Securityholders
by January 31 following each calendar year.
Backup Withholding
Payments made on, and proceeds from the sale of, the Capital Securities
may be subject to a "backup" withholding tax of 31% unless the Securityholder
complies with certain certification requirements. Any withheld amounts will be
allowed as a credit against the Securityholder's United States federal income
tax, provided the required information is furnished to the Internal Revenue
Service on a timely basis.
CERTAIN ERISA CONSIDERATIONS
ERISA pension plans, qualified retirement plans, and IRAs (collectively
referred to as retirement plans) are subject to certain transactional
restrictions under ERISA and/or the Internal Revenue Code. For example, a
fiduciary (generally, someone who has discretionary control over plan assets or
receives money for investment advice) is prohibited under these restrictions
from (1) engaging in transactions in its own interest or for its own account or
(2) from receiving consideration from any party dealing with a plan with regard
to its assets. In addition, a plan may not enter into purchase, sale, or loan
transaction with a disqualified person. A disqualified person includes, among
other things, a fiduciary, the plan sponsor, and any entity providing services
(for example, custodial or administrative services) to a plan. Violation of
these transactional restrictions can result in the imposition of federal excise
taxes, federal and state income tax on otherwise exempt retirement trusts, and
accelerated federal and state income tax on the otherwise deferred income
accounts of retirement plan participants.
In the usual case, when a retirement plan invests plan assets in a
security, the security purchased replaces the purchase money as a plan asset and
the purchase money becomes an asset of the entity who offered the security for
sale. Because of a concern that certain enterprises were in reality functioning
as investment managers to plans, but avoiding classification as a fiduciary
under ERISA through the device of issuing participation units in, for example,
limited partnerships, the Department of Labor issued regulations (the "Plan
Asset Regulations") which provide that when certain equity interests (including
a beneficial interest in a trust as well as participation in a limited
partnership) are acquired by a plan, both the equity interest acquired in the
hands of the purchasing plan and the purchase money in the hands of the issuer
of the equity interest constitute plan assets. Since the issuer has
discretionary control over these assets, the issuer becomes a fiduciary under
ERISA with respect to the investing plan. As a result, unless an exception
applies, the Trust's purchase of the Junior Subordinated Debt Securities from
the Corporation with assets invested by retirement plans would constitute an
instance of the Trust as a fiduciary dealing on its own account and in its own
interest with plan assets or receiving consideration from an entity (the
Corporation) engaged in a transaction involving plan assets. The Plan Asset
Regulations provide certain exemptions to its plan asset characterization rules.
It appears that one of the exemptions provided by the Plan Asset
Regulations, namely, the publicly-offered exemption, applies to Junior
Subordinated Debt Securities purchased by the Trust as consequence of a
retirement plan's investment in Capital Securities with the result that the
purchase money or Junior Subordinated Debt Securities will not be deemed to be
plan assets in the hands of the Trustee. Under the Plan Asset Regulations, a
publicly-offered equity interest in a trust or other non-operating entity
purchased by a plan does not constitute a plan asset if the interest is freely
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transferable and widely held. The Plan Asset Regulations provide that a security
is publicly-offered if it is sold to a plan as part of an offering of securities
to the public pursuant to an effective registration statement under the
Securities Act of 1933 and the class of securities of which such security is
part is registered under the Securities Exchange Act of 1934 within 120 days (or
such later time as may be allowed by the Securities and Exchange Commission)
after the end of the fiscal year of the issuer during which the offering of such
securities to the public occurred. The Corporation intends to cause the Capital
Securities to be so registered under the Securities Exchange Act of 1934.
Further, although ultimately under the Plan Asset Regulations it is a question
of fact, a security will generally be deemed to be freely transferable if its
purchase price is $25,000 or less at the time of the public offering. If, in
addition, the securities when offered initially to the public will be held by
100 or more persons independent of the issuer or of one another, they will
generally be deemed to be widely held. It is anticipated that with regard to
these criteria provided by the Plan Asset Regulations, the Capital Securities at
the time of being initially offered constitute securities which are
publicly-offered, widely held, and freely transferable. Retirement plans should,
nevertheless, consult with their own counsel regarding the application of the
Plan Asset Regulations to the purchase of Capital Securities from the Trust.
If the Corporation or the Bank provides any services to an investing
retirement plan, then it is a disqualified person with respect to that plan
irrespective of whether the Trust qualifies under the publicly-offered
securities exemption to the Plan Asset Regulations. Consequently, the purchase
of Junior Subordinated Debt Securities by the Trust would be an indirect loan
made by the retirement plan to the Corporation and, as such, would constitute a
prohibited transaction under ERISA.
UNDERWRITING
The Underwriter, McKinnon & Company, Inc., 555 Main Street, Norfolk,
Virginia, has agreed, subject to the terms and conditions contained in an
Underwriting Agreement with the Trust and the Corporation, to sell, as selling
agent, on a best efforts basis, up to $8.0 million (aggregate liquidation
amount) of Capital Securities. The Trust has, however, reserved the right to
increase the aggregate liquidation amount by not more than $1.2 million. The
Underwriter is not obligated to purchase the Capital Securities if they are not
sold to the public.
The Underwriter has informed the Trust and the Corporation that it
proposes to sell the Capital Securities as selling agent for the Trust, subject
to prior sale, when, as and if issued by the Trust, in part to the public at the
public offering price set forth on the cover page of this prospectus and, in
part, through certain selected dealers, who are members of the National
Association of Securities Dealers, Inc., to customers of such selected dealers
at such public offering price, for which each selected dealer will receive a
commission of $____, for each $25 of Capital Securities that it sells. The
Underwriter reserves the right to reject any order for the purchase of Capital
Securities through it in whole or in part.
The public offering is not contingent upon the occurrence of any event
or the sale of a minimum or maximum number of Capital Securities. Funds received
by the Underwriter from investors in the public offering will be deposited with
and held by the escrow agent in a non-interest bearing account until the closing
of the public offering. Closing is expected to occur on or about ______ __,
1999.
As the proceeds of the sale of the Capital Securities will ultimately
be used to purchase the Junior Subordinated Debt Securities, the Underwriting
Agreement provides that the Corporation will pay as compensation ("Underwriter's
Compensation") an amount directly to the Underwriter for its arranging the
investment therein of such proceeds $0.__ per Capital Security (or up to $______
in the aggregate) for the account of the Underwriter.
The Underwriting Agreement provides that Corporation and the Trust will
indemnify the Underwriter against certain liabilities, including liabilities
under the Securities Act or contribute to payments the Underwriter may be
required to make in respect thereof.
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The Capital Securities are a new issue of securities with no
established trading market. The Corporation and the Trust do not intend to apply
for listing of the Capital Securities on any securities exchange. The
Corporation and the Trust have been advised by the Underwriter that it may make
a market in the Capital Securities. The Underwriter, however, is not obligated
to make a market in the Capital Securities. It also may discontinue any market
making at any time without notice. Neither the Corporation nor the Trust can
provide any assurance that a secondary market for the Capital Securities will
develop.
The Underwriter provides or has provided investment banking services to
the Corporation from time to time in the ordinary course of business.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Declaration and the formation of the Trust
will be passed upon by Richards, Layton & Finger, special Delaware counsel to
the Corporation and the Trust. The validity of the Guarantee and the Junior
Subordinated Debt Securities, as well as certain matters relating to United
States federal income tax considerations, will be passed upon for the
Corporation by Williams Mullen Christian & Dobbins. Williams Mullen Christian &
Dobbins will rely on the opinion of Richards, Layton & Finger as to matters of
Delaware law.
ACCOUNTANTS
The financial statements of Resource Bank as of December 31, 1997 and
1996 and for each of the years then ended, included in the Bank's 1997 Annual
Report on Form 10-KSB incorporated by reference into this prospectus, have been
incorporated by reference herein in reliance upon the report of Goodman &
Company, L.L.P., independent auditors, included in the Bank's 1997 Form 10-KSB
and incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
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INDEX OF SIGNIFICANT TERMS
<TABLE>
<CAPTION>
<S> <C>
Additional Sums.......................34 Initial Exchange Period...............41
Adjusted Treasury Rate................32 Interest..............................47
Administrative Trustees................6 Interest Payment Date.................46
Bank..................................19 Investment Company Act................39
BHCA..................................19 Investment Company Event..............33
Book-Entry Capital Securities.........41 Like Amount...........................33
Business Day..........................29 Liquidation Amount....................33
Capital Treatment Event...............33 Liquidation Distribution..............35
Certificate...........................41 Make-Whole Amount.....................32
Code..................................59 NASD..................................41
Commission.............................2 Participants..........................42
Corporation........................2, 19 Paying Agent..........................45
Creditor..............................41 Plan Asset Regulations................62
Debenture Event of Default............51 Property Trustee.......................6
Debenture Trustee.....................46 Property Trustee's Office.............41
Declaration...........................29 Record date...........................29
Delaware Trustee.......................6 Redemption Date.......................31
Distribution Date.....................29 Redemption Price......................31
DTC...................................41 Regulations...........................60
EDGAR..................................2 Remaining Life........................32
Event of Default......................37 Securityholder........................59
Extension Period......................29 Senior Debt...........................53
Federal Reserve.......................12 Successor Securities..................38
Financial Institution.................61 Tax Event.............................33
Global Security.......................42 Treasury Rate.........................32
Guarantee Agreement...................29 Trust..................................6
Guarantee Payments....................55 Trust Indenture Act...................29
Guarantee Trustee.....................55 U.S. Holder...........................59
Indenture.............................46 Underwriter's Compensation............63
Indirect Participants.................43 United States Alien Holder............61
Initial Exchange Date.................41
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
========================================================== ==========================================================
We have not authorized any dealer, salesperson or other
person to give any information or to represent anything
not contained in this prospectus. You must not rely on any
unauthorized information or representations. This
prospectus is an offer to sell only the securities offered $8,000,000
hereby, but only in the jurisdictions where it is lawful RESOURCE CAPITAL TRUST I
to do so. The information contained in this prospectus is
current only as of __________, 1999. $_______ Capital Securities
-------------- (Liquidation Amount
$25 per Capital Security)
TABLE OF CONTENTS
Fully and Unconditionally Guaranteed,
Where You Can Find More Information......................2 as described herein, by
Incorporation OfInformation That We File With
The Sec................................................2 RESOURCE BANKSHARES CORPORATION
Prospectus Summary.......................................4
The Offering.............................................7
Ratio Of Earnings To Fixed Charges......................10
Summary Financial Information...........................11
Risk Factors............................................12 McKinnon & Company, Inc.
Use Of Proceeds.........................................16
Resource Capital Trust I................................16 Prospectus
Selected Historical Financial Information...............18
Resource Bankshares Corporation.........................19 Dated , 1999
Capitalization..........................................28
Accounting Treatment....................................28
Regulatory Treatment....................................29
Description Of Capital Securities.......................29
Description Of Junior Subordinated Debt Securities......46
Description Of Guarantee................................55
Relationship Among The Capital Securities, The
Junior Subordinated Debt Securities And The
Guarantee.............................................57
Certain United States Federal Income Tax Consequences...59
Certain Erisa Considerations............................62
Underwriting............................................63
Validity Of Securities..................................64
Accountants.............................................64
Index Of Significant Terms..............................65
========================================================== ==========================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits
The following exhibits are filed on behalf of the Registrant as part of
this Registration Statement:
EXHIBIT NO. DESCRIPTION
1.1 Form of Underwriting Agreement for offering of Capital
Securities*
3.1 Amended and Restated Articles of Incorporation of Resource
Bankshares Corporation (incorporated herein by reference to
Exhibit 3.1 to Resource Bankshares Corporation's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on July 1, 1998)
3.2 Bylaws of Resource Bankshares Corporation (incorporated
herein by reference to Exhibit 3.2 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
4.1 Certificate of Trust of Resource Capital Trust I*
4.2 Trust Agreement between Resource Bankshares Corporation and
Wilmington Trust Company*
4.3 Form of Amended and Restated Declaration of Trust for
Resource Capital Trust I*
4.4 Form of Junior Subordinated Indenture between Resource
Bankshares Corporation and Wilmington Trust Company, as
Trustee*
4.5 Form of Capital Security (included in Exhibit 4.3 above)
4.6 Form of Junior Subordinated Debt Security (included in
Exhibit 4.4 above)
4.7 Form of Guarantee Agreement with respect to Trust
Securities issued by Resource Capital Trust I*
4.8 Form of Escrow Agreement among McKinnon & Company, Inc.,
Resource Capital Trust I, Resource Bankshares Corporation
and Wilmington Trust Company*
5.1 Opinion of Williams, Mullen, Christian & Dobbins, P.C.*
5.2 Opinion of Richards, Layton & Finger*
8.1 Opinion of Williams, Mullen, Christian & Dobbins, P.C. as
to tax matters*
12.1 Calculation of Ratio of Earnings to Fixed Charges*
23.1 Consent of Goodman & Company, L.L.P.
23.2 Consent of Williams, Mullen, Christian & Dobbins, P.C.
(included in Exhibit 5.1 above)
23.3 Consent of Richards, Layton & Finger (included in Exhibit
5.2 above)
24.1 Powers of Attorney (included on signature page)*
II-1
<PAGE>
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Trustee
under the Junior Subordinated Indenture*
25.2 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Property
Trustee under the Amended and Restated Declaration of Trust
of Resource Capital Trust I*
25.3 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Guarantee
Trustee under the Guarantee Agreement for the benefit of
holders of Trust Securities of Resource Capital Trust I*
99.1 Resource Bank's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997, as filed with the Board of
Governors of the Federal Reserve System (incorporated
herein by reference to Exhibit 99.1 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
99.2 Resource Bank's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1998, as filed with the Board of
Governors of the Federal Reserve System (incorporated
herein by reference to Exhibit 99.2 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
99.3 Proxy Statement relating to the 1998 Annual Meeting of
Shareholder of Resource Bank (incorporated herein by
reference to Exhibit 99.3 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
- ---------------------
* Previously filed.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of a
Registrant pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer or controlling person of a Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Each of the undersigned Registrants hereby undertakes to deliver or
cause to be delivered with the Prospectus, to each person to whom the Prospectus
is sent or given, the latest annual report, to security holders that is
incorporated by reference in the Prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the Prospectus, to
deliver, or cause to be delivered to each person to whom the Prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial information.
II-2
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Virginia Beach, Commonwealth of Virginia, on January 25,
1999.
RESOURCE BANKSHARES CORPORATION
By: /s/ Lawrence N. Smith
-------------------------------------
Lawrence N. Smith
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lawrence N. Smith President, Chief Executive Officer and January 25, 1999
- ------------------------------------------- Director
Lawrence N. Smith (Principal Executive Officer)
/s/ Eleanor J. Whitehurst Senior Vice President, Chief Financial January 25, 1999
- ------------------------------------------- Officer and Treasurer
Eleanor J. Whitehurst (Principal Financial Officer)
(Principal Accounting Officer)
Chairman of the Board
- -------------------------------------------
John B. Bernhardt
* Director
- -------------------------------------------
Alfred E. Abiouness
Director
- -------------------------------------------
Thomas W. Hunt
<PAGE>
Signature Title Date
--------- ----- ----
* Director
- -------------------------------------------
Louis R. Jones
Director
- -------------------------------------------
A. Russell Kirk
* Director
- -------------------------------------------
Elizabeth A. Twohy
</TABLE>
* Lawrence N. Smith, by signing his name hereto, signs this document on
behalf of each of the persons indicated by an asterisk above pursuant to powers
of attorney duly executed by such persons and previously filed with the
Securities and Exchange Commission as part of the registration statement.
Date: January 25, 1999 /s/ Lawrence N. Smith
-------------------------------------
Lawrence N. Smith
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Virginia Beach, Commonwealth of Virginia, on January 25,
1999.
RESOURCE CAPITAL TRUST I
By: Resource Bankshares Corporation,
as Depositor
By: /s/ Lawrence N. Smith
-------------------------------------
Lawrence N. Smith
President and Chief Executive Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
1.1 Form of Underwriting Agreement for offering of Capital
Securities*
3.1 Amended and Restated Articles of Incorporation of Resource
Bankshares Corporation (incorporated herein by reference to
Exhibit 3.1 to Resource Bankshares Corporation's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on July 1, 1998)
3.2 Bylaws of Resource Bankshares Corporation (incorporated
herein by reference to Exhibit 3.2 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
4.1 Certificate of Trust of Resource Capital Trust I*
4.2 Trust Agreement between Resource Bankshares Corporation and
Wilmington Trust Company*
4.3 Form of Amended and Restated Declaration of Trust for
Resource Capital Trust I*
4.4 Form of Junior Subordinated Indenture between Resource
Bankshares Corporation and Wilmington Trust Company, as
Trustee*
4.5 Form of Capital Security (included in Exhibit 4.3 above)
4.6 Form of Junior Subordinated Debt Security (included in
Exhibit 4.4 above)
4.7 Form of Guarantee Agreement with respect to Trust
Securities issued by Resource Capital Trust I*
4.8 Form of Escrow Agreement among McKinnon & Company, Inc.,
Resource Capital Trust I, Resource Bankshares Corporation
and Wilmington Trust Company*
5.1 Opinion of Williams, Mullen, Christian & Dobbins, P.C.*
5.2 Opinion of Richards, Layton & Finger*
8.1 Opinion of Williams, Mullen, Christian & Dobbins, P.C. as
to tax matters*
12.1 Calculation of Ratio of Earnings to Fixed Charges*
23.1 Consent of Goodman & Company, L.L.P.
23.2 Consent of Williams, Mullen, Christian & Dobbins, P.C.
(included in Exhibit 5.1 above)
23.3 Consent of Richards, Layton & Finger (included in Exhibit
5.2 above)
24.1 Powers of Attorney (included on signature page)*
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Trustee
under the Junior Subordinated Indenture*
25.2 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Property
Trustee under the Amended and Restated Declaration of Trust
of Resource Capital Trust I*
<PAGE>
25.3 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Guarantee
Trustee under the Guarantee Agreement for the benefit of
holders of Trust Securities of Resource Capital Trust I*
99.1 Resource Bank's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997, as filed with the Board of
Governors of the Federal Reserve System (incorporated
herein by reference to Exhibit 99.1 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
99.2 Resource Bank's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1998, as filed with the Board of
Governors of the Federal Reserve System (incorporated
herein by reference to Exhibit 99.2 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
99.3 Proxy Statement relating to the 1998 Annual Meeting of
Shareholder of Resource Bank (incorporated herein by
reference to Exhibit 99.3 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
- ---------------------
* Previously filed.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in the
Form S-2 Registration Statement for Resource Bankshares Corporation of our
report, dated January 30, 1998, on the financial statements of Resource Bank for
the years ended December 31, 1997 and 1996, and to the reference to our firm in
the "Experts Section" of the Form S-2 Registration Statement.
/s/ Goodman & Company, L.L.P.
One Commercial Place
Norfolk, Virginia
January 28, 1999
