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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

Commission File Number: 001-14319

RESOURCE BANKSHARES CORPORATION

(Exact name of Registrant as specified in its charter)

(757) 463-2265
(Registrant’s telephone number,
including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated file (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

At March 31, 2003, 3,979,167 shares of Resource Bankshares Corporation’s common stock, $1.50 par value, were outstanding.

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RESOURCE BANKSHARES CORPORATION
FORM 10-Q
MARCH 31, 2003

INDEX

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PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

RESOURCE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

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RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

See notes to consolidated financial statements.

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RESOURCE BANKSHARES CORPORATION
STATEMENT OF STOCKHOLDERS’ EQUITY
(UNAUDITED)

See notes to consolidated financial statements.

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RESOURCE BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to consolidated financial statements.

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RESOURCE BANKSHARES CORPORATION

Notes to Consolidated Financial Statements
March 31, 2003
(UNAUDITED)
(Dollars in thousands, except per share data)

Organization and Summary of Significant Accounting Policies

(1)

GENERAL

Resource Bankshares Corporation, a Virginia Corporation (the “Company”), was incorporated under the laws of the Commonwealth of Virginia on February 4, 1998, primarily to serve as a holding company for Resource Bank (the “Bank”).

The consolidated financial statements of the Company include the accounts of its wholly owned subsidiary, Resource Bank and the Bank’s wholly owned subsidiaries, CW and Company of Virginia and Resource Service Corporation. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q, and therefore, do not include all of the disclosures and notes required by generally accepted accounting principles. In the opinion of management, all adjustments of a normal recurring nature which are necessary for a fair presentation of the financial statements included herein have been reflected in the financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

(2)

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks, and federal funds sold.

(3)

ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses are as follows:

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(4)

NET INCOME PER SHARE

Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that then shares in the earnings of the entity. The weighted average number of basic shares outstanding for the three months ended March 31, 2003, and 2002 were 3,404,991 and 3,103,011, respectively. The diluted weighted average number of shares for the three months ended March 31, 2003 and 2002 were 3,589,259 and 3,291,151, respectively.

(5)

COMPREHENSIVE INCOME

The components of other comprehensive income and related tax effects for the three months ended March 31, 2003 and 2002 are as follows:

(6)

SUBSEQUENT EVENTS

In April 2003, the Board of Directors of the Company declared a $0.17 per common share dividend to shareholders of record as of April 15, 2003. The dividend was paid on April 29, 2003.

(7)

DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments are components of the Company’s risk management profile. The Company monitors its sensitivity to changes in interest rates and may use derivative instruments to hedge this risk. In accordance with SFAS No. 133 all derivatives are recorded in the financial statements at fair value. At March 31, 2003 the Company has entered into a series of interest rate swaps with a total notional value of $145 million to hedge certificate of deposit liabilities. These transactions are designated and qualify for fair value hedge accounting. Both the interest rate swap (included in other assets in the consolidated balance sheets) and the certificates of deposit are recorded at fair value, with changes in fair value included in the statements of income as interest

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expense. No ineffectiveness was recognized during the quarter ended March 31, 2003 as the hedge relationship is considered to be 100% effective.

(8)

SEGMENT REPORTING

The Company has two reportable segments, its mortgage banking operations and its commercial banking and other banking operations. The mortgage banking segment originates residential loans and subsequently sells them to investors. The commercial banking and other banking operations provide a broad range of lending and deposit services to individual and commercial customers, including such products as commercial and construction loans, as well as other business financing arrangements. The Company does not have other reportable operating segments.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The chief operating decision maker of the Company evaluates performance based on profit or loss from operations before income taxes.

The Company’s mortgage banking segment is a strategic business unit that offers different products and services. It is managed separately because the segment appeals to different markets and, accordingly, requires different technology and marketing strategies.

The mortgage banking segment’s most significant revenue and expense are non-interest income and non-interest expense, respectively. The Company’s segments are reported below for the periods ended March 31, 2003 and March 31, 2002.

Selected Financial Information

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Segment Assets

(9)

STOCK TRANSACTIONS

In February 2003, the Company raised net proceeds of approximately $18.1 million through the sale of 918,373 shares of common stock in a public offering, at a price of $21.50 per share before underwriting discounts.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except per share data)

Resource Bankshares Corporation, a Virginia Corporation (the “Company”), was incorporated under the laws of the Commonwealth of Virginia on February 4, 1998, primarily to serve as a holding company for Resource Bank (the “Bank”).

In addition to historical information, the following discussion contains forward looking statements that are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from those anticipated. These forward looking statements include, but are not limited to, the effect of increasing interest rates on the Company’s profitability and the adequacy of the Company’s allowance for future loan losses. Several factors, including the local and national economy and the demand for residential mortgage loans may adversely affect the Company’s ability to achieve the expected results. Readers are cautioned not to place undue reliance on these forward looking statements, which reflect management’s analysis only as of the date of this report.

Total assets at March 31, 2003 were $737,109, up 3.1% from $715,167 at December 31, 2002, reflecting growth in securities and loans. The Company purchased $42,949 of securities during the first three months of 2003, net loans increased by $37,163, and funds advanced in settlement of mortgage loans decreased by $29,787 during the same period. The principal components of the Company’s assets at the end of the period were $147,293 in securities, $7,384 in cash and cash equivalents, $81,326 in funds advanced in settlement of mortgage loans and $464,898 in net loans. The Company’s lending activities are a principal source of income.

Total liabilities at March 31, 2003 were $685,485, up from $683,000 at December 31, 2002, with the increase represented by $5,054 (3.7%) growth in borrowed funds offset by a decrease of $4,104 (.8%) in deposits. Non-interest bearing demand deposits decreased $1,296 or 5.3%, and interest bearing deposits decreased by $2,808 or .6%. The Company’s deposits are provided by individuals and businesses located within the communities served as well as the national market.

Total stockholders’ equity at March 31, 2003 was $51,624, compared to $32,167 at December 31, 2002. This increase was primarily attributable to net proceeds of approximately $18.1 million received by the Company as a result of a public offering and sale of common stock in the first quarter of 2003. Additionally, the Company had net income of $2,203 for the three months ended March 31, 2003 compared with net income of $1,278 for the comparable period in 2002, an increase of 72.4%. This increase is attributable to the growth in interest bearing assets, increases in mortgage banking income, and a significant decrease in the Company’s cost of funds.

Profitability as measured by the Company’s return on average assets (ROA) was 1.24% and .91% for the three months ended March 31, 2003, and 2002, respectively. A key indicator of performance, the return on average equity (ROE) was 22.88% and 17.98% for the three months ended March 31, 2003 and 2002, respectively.

Net interest income represents a principal source of earnings for the Company. The first component is the loan portfolio. Making sound loans that will increase the Company’s net interest margin is the first priority of management. The second component is gathering core deposits to match and fund the loan production. The Company also utilizes national markets to generate deposits and Federal Home Loan Bank (“FHLB”) advances to fund loan growth either for asset and liability management purposes or for a less expensive source of funds.

Net interest income on a tax equivalent basis, before provision for loan losses, increased to $5,222 for the

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three months ended March 31, 2003 versus $3,283 for the same period in 2002, an increase of 59.1%. Average interest earning assets increased $139,054 from March 31, 2002 to the current period while average interest bearing liabilities increased $123,110 during the same comparative period. The yield on average interest earning assets decreased 40 basis points to 5.9% at March 31, 2003 as compared to 6.3% at March 31, 2002. The rate on interest bearing liabilities decreased 108 basis points to 2.9% at March 31, 2003 as compared to 4.0% at March 31, 2002.

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Average Balances, Income and Expenses, Yields and Rates

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.