| | FINANCIAL STATEMENTS      
| | --------------------------
| | YEARS ENDED               
| | DECEMBER 31, 2002 AND 2001
| |                           
| | RESOURCE BANKSHARES       
| | CORPORATION AND           
| | SUBSIDIARIES              
| |                           



---

REPORT OF INDEPENDENT AUDITORS

Board of Directors and StockholdersResource Bankshares Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of
Resource Bankshares Corporation and Subsidiaries (the Corporation) as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders equity and cash flows for each of the three years in
the period ended December 31, 2002.  These consolidated financial statements are the responsibility of the Corporations management.  Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement
presentation.  We believe that our audits provide a reasonable  basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of Resource Bankshares Corporation and Subsidiaries as of December 31, 2002 and 2001, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

|/s/ GOODMAN & COMPANY, L.L.P.
|-----------------------------

Norfolk, Virginia
January 31, 2003

2



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RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|December 31,                                                               |                                                                                                                                | 2002 |             | 2001        |  
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ---- | ----------- | ----------- | -
|                                                                           |                                                                                                                                |      |             |             |  
|ASSETS                                                                     |                                                                                                                                |      |             |             |  
|Cash and due from banks                                                    |                                                                                                                                | $    | 11,252,583  |             | $
|Interest bearing deposits with banks                                       |                                                                                                                                |      | 2,146,770   |             |  
|                                                                           |                                                                                                                                |      |             |             |  
|                                                                           | Cash and cash equivalents                                                                                                      |      |             | 13,399,353  |  
|Funds advanced in settlement of mortgage loans                             |                                                                                                                                |      | 111,113,447 |             |  
|Investment securities                                                      |                                                                                                                                |      |             |             |  
|                                                                           | Available-for-sale (amortized cost of $21,213,271 and $114,877,807, respectively)                                              |      |             | 21,190,957  |  
|                                                                           | Held-to-maturity (fair value of $111,998,808 and $0, respectively)                                                             |      |             | 108,649,635 |  
|Loans, net of allowance of $5,008,808 in 2002 and $3,696,860 in 2001       |                                                                                                                                |      | 427,735,241 |             |  
|Other real estate owned                                                    |                                                                                                                                |      |            |             |  
|Premises and equipment                                                     |                                                                                                                                |      | 10,238,843  |             |  
|Cash surrender value of life insurance                                     |                                                                                                                                |      | 9,574,311   |             |  
|Other assets                                                               |                                                                                                                                |      | 9,409,673   |             |  
|Accrued interest                                                           |                                                                                                                                |      | 3,855,179   |             |  
|                                                                           |                                                                                                                                |      |             |             |  
|                                                                           |                                                                                                                                | $    | 715,166,639 |             | $
|                                                                           |                                                                                                                                |      |             |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                       |                                                                                                                                |      |             |             |  
|Deposits                                                                   |                                                                                                                                |      |             |             |  
|                                                                           | Noninterest-bearing deposits                                                                                                   |      | $           | 24,390,266  |  
|                                                                           | Interest-bearing deposits                                                                                                      |      |             | 492,058,531 |  
|                                                                           |                                                                                                                                |      |             |             |  
|                                                                           |                                                                                                                                |      | 516,448,797 |             |  
|Capital Trust borrowings                                                   |                                                                                                                                |      | 16,200,000  |             |  
|Federal funds purchased and securities sold under agreements to repurchase |                                                                                                                                |      | 32,347,000  |             |  
|FHLB advances                                                              |                                                                                                                                |      | 105,000,000 |             |  
|Other liabilities                                                          |                                                                                                                                |      | 9,482,052   |             |  
|Accrued interest                                                           |                                                                                                                                |      | 3,521,788   |             |  
|                                                                           |                                                                                                                                |      |             |             |  
|                                                                           | Total liabilities                                                                                                              |      |             | 682,999,637 |  
|                                                                           |                                                                                                                                |      |             |             |  
|Stockholders equity                                                       |                                                                                                                                |      |             |             |  
|                                                                           | Preferred stock, par value $10 per share, 500,000 shares authorized; none issued and outstanding                               |      |             |            |  
|                                                                           | Common stock, $1.50 par value - 6,666,666 shares authorized; shares issued and outstanding: 2002
- 3,027,461; 2001 - 3,103,495 |      |             | 4,541,191   |  
|                                                                           | Additional paid-in capital                                                                                                     |      |             | 14,230,417  |  
|                                                                           | Retained earnings                                                                                                              |      |             | 12,757,858  |  
|                                                                           | Accumulated other comprehensive income (loss)                                                                                  |      |             | 637,536     |  
|                                                                           |                                                                                                                                |      |             |             |  
|                                                                           | Total stockholders equity                                                                                                     |      |             | 32,167,002  |  
|                                                                           |                                                                                                                                |      |             |             |  
|                                                                           |                                                                                                                                | $    | 715,166,639 |             | $
|                                                                           |                                                                                                                                |      |             |             |  
|                                                                           |                                                                                                                                |      |             |             |  

The notes to the consolidated financial statements are an integral part of this statement.

3



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RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|Years Ended December 31,          |                                                            | 2002 |            | 2001       |   | 2000       |           
|--------------------------------- | ---------------------------------------------------------- | ---- | ---------- | ---------- | - | ---------- | ----------
|                                  |                                                            |      |            |            |   |            |           
|Interest and dividend income      |                                                            |      |            |            |   |            |           
|                                  | Interest and fees on loans                                 |      | $          | 23,137,410 |   | $          | 22,147,882
|                                  |                                                            |      |            |            |   |            |           
|                                  | Interest on investment securities:                         |      |            |            |   |            |           
|                                  | Taxable                                                    |      |            | 7,657,899  |   |            | 6,167,752 
|                                  | Tax exempt                                                 |      |            | 730,247    |   |            | 852,282   
|                                  |                                                            |      |            |            |   |            |           
|                                  |                                                            |      | 8,388,146  |            |   | 7,020,034  |           
|                                  |                                                            |      |            |            |   |            |           
|                                  | Interest on federal funds sold                             |      |            |           |   |            | 483       
|                                  | Interest on funds advanced in settlement of mortgage loans |      |            | 4,272,203  |   |            | 3,523,255 
|                                  |                                                            |      |            |            |   |            |           
|                                  | Total interest income                                      |      |            | 35,797,759 |   |            | 32,691,654
|                                  |                                                            |      |            |            |   |            |           
|Interest expense                  |                                                            |      |            |            |   |            |           
|                                  | Interest on deposits                                       |      |            | 13,484,098 |   |            | 18,503,723
|                                  | Interest on short-term borrowings                          |      |            | 917,608    |   |            | 565,189   
|                                  | Interest on long-term borrowings                           |      |            | 5,023,521  |   |            | 2,589,973 
|                                  |                                                            |      |            |            |   |            |           
|                                  | Total interest expense                                     |      |            | 19,425,227 |   |            | 21,658,885
|                                  |                                                            |      |            |            |   |            |           
|                                  | Net interest income                                        |      |            | 16,372,532 |   |            | 11,032,769
|Provision for loan losses         |                                                            |      | (1,550,000 | )          |   | (195,000   | )         
|                                  |                                                            |      |            |            |   |            |           
|                                  | Net interest income after provision for loan losses        |      |            | 14,822,532 |   |            | 10,837,769
|                                  |                                                            |      |            |            |   |            |           
|Noninterest income                |                                                            |      |            |            |   |            |           
|                                  | Mortgage banking income                                    |      |            | 21,123,056 |   |            | 17,604,747
|                                  | Title insurance income                                     |      |            | 818,731    |   |            | 704,800   
|                                  | Service charges                                            |      |            | 634,281    |   |            | 648,809   
|                                  | Gain on sale of investment securities                      |      |            | 236,079    |   |            | 454,918   
|                                  | Gain on sale of assets                                     |      |            | 718,780    |   |            | 413,444   
|                                  | Gain on sale of branch deposits                            |      |            |           |   |            |          
|                                  | Other                                                      |      |            | 645,073    |   |            | 317,143   
|                                  |                                                            |      |            |            |   |            |           
|                                  |                                                            |      | 24,176,000 |            |   | 20,143,861 |           
|                                  |                                                            |      |            |            |   |            |           
|Noninterest expense               |                                                            |      |            |            |   |            |           
|                                  | Salaries and employee benefits                             |      |            | 20,464,002 |   |            | 16,289,407
|                                  | Occupancy expenses                                         |      |            | 1,742,135  |   |            | 1,585,141 
|                                  | Depreciation and equipment maintenance                     |      |            | 2,043,144  |   |            | 1,768,822 
|                                  | Professional fees                                          |      |            | 694,292    |   |            | 419,049   
|                                  | Outside computer service                                   |      |            | 888,896    |   |            | 812,684   
|                                  | FDIC insurance                                             |      |            | 71,544     |   |            | 66,340    
|                                  | Stationery and supplies                                    |      |            | 767,195    |   |            | 681,761   
|                                  | Marketing and business development                         |      |            | 875,333    |   |            | 536,850   
|                                  | Miscellaneous loan expense                                 |      |            | 119,622    |   |            | 88,460    
|                                  | Other                                                      |      |            | 2,645,314  |   |            | 2,272,287 
|                                  |                                                            |      |            |            |   |            |           
|                                  |                                                            |      | 30,311,477 |            |   | 24,520,801 |           
|                                  |                                                            |      |            |            |   |            |           
|Income before income taxes        |                                                            |      | 8,687,055  |            |   | 6,460,829  |           
|Income tax expense                |                                                            |      | 2,357,837  |            |   | 1,918,208  |           
|                                  |                                                            |      |            |            |   |            |           
|Net income                        |                                                            | $    | 6,329,218  |            | $ | 4,542,621  |           
|                                  |                                                            |      |            |            |   |            |           
|Basic earnings per common share   |                                                            | $    | 2.05       |            | $ | 1.57       |           
|                                  |                                                            |      |            |            |   |            |           
|Diluted earnings per common share |                                                            | $    | 1.93       |            | $ | 1.49       |           
|                                  |                                                            |      |            |            |   |            |           
|                                  |                                                            |      |            |            |   |            |           

The notes to the consolidated financial statements are an integral part of this statement.

4



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RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                        |                                                                                                                                        |              |           | Additional Paid-in Capital |   | Retained Earnings |   | Additional Other Comprehensive Income (Loss) |            | Total |  
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------ | --------- | -------------------------- | - | ----------------- | - | -------------------------------------------- | ---------- | ----- | -
|                                                        |                                                                                                                                        | Common Stock |           |                            |   |                   |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |  
|                                                        |                                                                                                                                        | Shares       |           | Amount                     |   |                   |   |                                              |           
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|Balance, December 31, 1999                              |                                                                                                                                        |              | 2,538,913 |                            | $ | 3,808,370         |   | $                                            | 10,578,811 |       | $
|Comprehensive income:                                   |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|                                                        | Net income                                                                                                                             |              |           |                           |   |                   |  |                                              |            |      |  
|                                                        | Changes in unrealized appreciation (depreciation) on securities available-for-sale, net of reclassification adjustment
and tax effect  |              |           |                           |   |                   |  |                                              |            |      |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|                                                        | Total comprehensive income                                                                                                             |              |           |                            |   |                   |   |                                              |            |       |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|Proceeds from exercise of stock options                 |                                                                                                                                        |              | 35,332    |                            |   | 52,997            |   |                                              | 52,748     |       |  
|Common stock issued as a result of business combination |                                                                                                                                        |              | 56,792    |                            |   | 85,188            |   |                                              | 424,812    |       |  
|Reacquisition of common stock                           |                                                                                                                                        |              | (7,176    | )                          |   | (10,764           | ) |                                              | (67,751    | )     |  
|Cash dividends declared, $.32 per share                 |                                                                                                                                        |              |          |                            |   |                  |   |                                              |           |       |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|Balance, December 31, 2000                              |                                                                                                                                        |              | 2,623,861 |                            |   | 3,935,791         |   |                                              | 10,988,620 |       |  
|Comprehensive income:                                   |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|                                                        | Net income                                                                                                                             |              |           |                           |   |                   |  |                                              |            |      |  
|                                                        | Changes in unrealized appreciation (depreciation) on securities available-for-sale, net of reclassification adjustment
and tax effect  |              |           |                           |   |                   |  |                                              |            |      |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|Total comprehensive income                              |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|Proceeds from common stock issued-net of issuance costs |                                                                                                                                        |              | 572,500   |                            |   | 858,750           |   |                                              | 6,483,461  |       |  
|Reacquisition of common stock                           |                                                                                                                                        |              | (92,866   | )                          |   | (139,299          | ) |                                              | (1,347,733 | )     |  
|Cash dividends declared, $.48 per share                 |                                                                                                                                        |              |          |                            |   |                  |   |                                              |           |       |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|Balance, December 31, 2001                              |                                                                                                                                        |              | 3,103,495 |                            |   | 4,655,242         |   |                                              | 16,124,348 |       |  
|Comprehensive income:                                   |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|                                                        | Net income                                                                                                                             |              |           |                           |   |                   |  |                                              |            |      |  
|                                                        | Changes in unrealized appreciation  (depreciation) on securities available-for-sale, net of reclassification
adjustment and tax effect |              |           |                           |   |                   |  |                                              |            |      |  
|                                                        | Change in fair value of hedging derivative, net of tax effect                                                                          |              |           |                           |   |                   |  |                                              |            |      |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|                                                        | Total comprehensive income                                                                                                             |              |           |                            |   |                   |   |                                              |            |       |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|Proceeds from exercise of stock options                 |                                                                                                                                        |              | 31,466    |                            |   | 47,199            |   |                                              | 152,549    |       |  
|Reacquisition of common stock                           |                                                                                                                                        |              | (107,500  | )                          |   | (161,250          | ) |                                              | (2,046,480 | )     |  
|Cash dividends declared, $.56 per share                 |                                                                                                                                        |              |          |                            |   |                  |   |                                              |           |       |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|Balance, December 31, 2002                              |                                                                                                                                        |              | 3,027,461 |                            | $ | 4,541,191         |   | $                                            | 14,230,417 |       | $
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  
|                                                        |                                                                                                                                        |              |           |                            |   |                   |   |                                              |            |       |  

The notes to the consolidated financial statements are an integral part of this statement.

5



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RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|Years Ended December 31,                                            |                                                                                          | 2002 |            | 2001         |   | 2000      |             
|------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ---- | ---------- | ------------ | - | --------- | ------------
|                                                                    |                                                                                          |      |            |              |   |           |             
|Operating activities                                                |                                                                                          |      |            |              |   |           |             
|                                                                    | Net income                                                                               |      | $          | 6,329,218    |   | $         | 4,542,621   
|                                                                    | Adjustments to reconcile to net cash from operating activities:                          |      |            |              |   |           |             
|                                                                    | Provision for losses on loans                                                            |      |            | 1,550,000    |   |           | 195,000     
|                                                                    | Provision for losses on funds advanced on settlement of mortgage loans                   |      |            | 265,000      |   |           | 170,000     
|                                                                    | Depreciation and amortization                                                            |      |            | 1,241,894    |   |           | 979,181     
|                                                                    | Amortization of investment securities premiums, net of discounts                         |      |            | (1,204,065   | ) |           | (1,367,501  
|                                                                    | Gain on sale of investment securities                                                    |      |            | (236,079     | ) |           | (454,918    
|                                                                    | Gain on sale of assets                                                                   |      |            | (718,780     | ) |           | (413,444    
|                                                                    | Gain on sale of deposits                                                                 |      |            |             |   |           |            
|                                                                    | Deposits disposed of in branch sale                                                      |      |            |             |   |           |            
|                                                                    | Deferred loan origination fees, net of costs                                             |      |            | 12,453       |   |           | 478,687     
|                                                                    | Funds advanced in settlement of mortgage loans originated                                |      |            | (903,581,171 | ) |           | (730,779,359
|                                                                    | Sales proceeds from funds advanced in settlement of mortgage loans                       |      |            | 864,174,086  |   |           | 674,083,025 
|                                                                    | Changes in:                                                                              |      |            |              |   |           |             
|                                                                    | Interest receivable                                                                      |      |            | (488,321     | ) |           | (356,065    
|                                                                    | Interest payable                                                                         |      |            | (859,552     | ) |           | 1,367,463   
|                                                                    | Other assets                                                                             |      |            | (3,911,130   | ) |           | (8,280,588  
|                                                                    | Other liabilities                                                                        |      |            | 6,123,765    |   |           | (931,818    
|                                                                    |                                                                                          |      |            |              |   |           |             
|                                                                    | Net cash from operating activities                                                       |      |            | (31,302,682  | ) |           | (60,767,716 
|                                                                    |                                                                                          |      |            |              |   |           |             
|Investing activities                                                |                                                                                          |      |            |              |   |           |             
|                                                                    | Proceeds from sales and maturities of available-for-sale securities                      |      |            | 3,098,557    |   |           | 41,366,493  
|                                                                    | Proceeds from maturities and prepayments of held-to-maturity securities                  |      |            | 30,661,235   |   |           | 14,723,400  
|                                                                    | Purchases of available-for-sale securities                                               |      |            | (42,330,600  | ) |           | (86,528,087 
|                                                                    | Purchases of held-to-maturity securities                                                 |      |            | (4,687,799   | ) |           |            
|                                                                    | Net cash used for acquisitions                                                           |      |            |             |   |           | (1,125,000  
|                                                                    | Loan originations, net of principal repayments                                           |      |            | (110,950,038 | ) |           | (56,550,722 
|                                                                    | Proceeds from sales of foreclosed real estate                                            |      |            | 119,703      |   |           |            
|                                                                    | Proceeds from sale of loans                                                              |      |            | 23,533,613   |   |           |            
|                                                                    | Proceeds from sales of premises and equipment                                            |      |            |             |   |           |            
|                                                                    | Purchases of premises and equipment and other assets                                     |      |            | (2,568,765   | ) |           | (6,129,844  
|                                                                    |                                                                                          |      |            |              |   |           |             
|                                                                    | Net cash from investing activities                                                       |      |            | (103,124,094 | ) |           | (94,243,760 
|                                                                    |                                                                                          |      |            |              |   |           |             
|Financing activities                                                |                                                                                          |      |            |              |   |           |             
|                                                                    | Proceeds from federal funds purchased and securities sold under agreements to repurchase |      |            | 13,347,000   |   |           | 11,454,000  
|                                                                    | Proceeds from sale of common stock, net of issuance costs                                |      |            |             |   |           | 7,342,211   
|                                                                    | Proceeds from exercise of stock options                                                  |      |            | 199,748      |   |           |            
|                                                                    | Proceeds from capital trust borrowings                                                   |      |            | 2,000,000    |   |           | 5,000,000   
|                                                                    | Payments to reacquire common stock                                                       |      |            | (2,207,730   | ) |           | (1,487,032  
|                                                                    | Cash dividends paid                                                                      |      |            | (1,731,013   | ) |           | (1,388,479  
|                                                                    | Proceeds from FHLB advances                                                              |      |            | 21,200,000   |   |           | 53,500,000  
|                                                                    | Net (decrease) increase in demand deposits,                                              |      |            |              |   |           |             
|                                                                    | NOW accounts and savings accounts                                                        |      |            | (24,070,212  | ) |           | (37,871,976 
|                                                                    | Net increase in certificates of deposit                                                  |      |            | 129,478,553  |   |           | 118,730,923 
|                                                                    |                                                                                          |      |            |              |   |           |             
|                                                                    | Net cash from financing activities                                                       |      |            | 138,216,346  |   |           | 155,279,647 
|                                                                    |                                                                                          |      |            |              |   |           |             
|Increase in cash and cash equivalents                               |                                                                                          |      | 3,789,570  |              |   | 268,171   |             
|Cash and cash equivalents at beginning of year                      |                                                                                          |      | 9,609,783  |              |   | 9,341,612 |             
|                                                                    |                                                                                          |      |            |              |   |           |             
|Cash and cash equivalents at end of year                            |                                                                                          | $    | 13,399,353 |              | $ | 9,609,783 |             
|                                                                    |                                                                                          |      |            |              |   |           |             
|Supplemental schedules and disclosures of cash flow information     |                                                                                          |      |            |              |   |           |             
|                                                                    | Cash paid for:                                                                           |      |            |              |   |           |             
|                                                                    | Income taxes paid                                                                        |      | $          | 1,860,000    |   | $         | 1,610,000   
|                                                                    | Interest on deposits and other borrowings                                                |      |            | 20,284,779   |   |           | 20,291,422  
|Supplemental schedule of noncash investing and financing activities |                                                                                          |      |            |              |   |           |             
|                                                                    | Transfers from loans to real estate acquired through foreclosure                         |      | $          | 70,300       |   | $         | 42,899      
|                                                                    |                                                                                          |      |            |              |   |           |             

The notes to the consolidated financial statements are an integral part of this statement.

6



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RESOURCE BANKSHARES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

DECEMBER 31, 2002 AND 2001

NOTE 1 - ORGANIZATION AND BUSINESS

Resource Bankshares Corporation (the Corporation) is a Virginia corporation organized in June 1998 by Resource Bank (the Bank) for the purpose of becoming a unitary holding company of the Bank. 
The Corporations assets consist primarily of its investment in the Bank.

The Bank is a state-chartered commercial bank headquartered in Virginia Beach, Virginia where its commercial bank and
operations office is located.  The Bank was organized in April, 1987, and commenced operations on September 1, 1988.  The Banks primary market areas are Fairfax County and Virginia Beach, Virginia and, to a lesser extent, in the
surrounding cities of the South Hampton Roads area.

The Banks principal business consists of providing a broad range of lending and deposit services to individual and commercial customers
with an emphasis on those services traditionally associated with independent community banks.  These services include checking and savings accounts, certificates of deposit and charge cards.  The Banks lending activities include
commercial and personal loans, lines of credit, installment loans, home improvement loans, overdraft protection, construction loans, and other commercial finance transactions.

The Bank also
operates a mortgage company which, as a division of the Bank, originates residential mortgage loans and subsequently sells them to investors.  A competitive range of mortgage financing is provided through offices in the Richmond and Hampton
Roads metropolitan areas, and the Northern Virginia/Washington, D.C. metropolitan area.

In June, 2000, the Bank purchased CW and Company of Virginia (CW), a title insurance and real
estate closing agency, for a purchase price of $510,000, which was paid through the issuance of common stock of the Company. CW, which trades under the name Real Estate Investment Protection Agency, operates as a wholly owned subsidiary
of the Bank.

In August, 2000, Resource Service Corporation, a wholly owned subsidiary of the Bank, entered into a joint venture with Financial Planners Mortgage Company, Inc. and formed a
partnership titled Financial Planners Mortgage, LLP. The partnership will participate in real estate settlement activities.

During 2001, the Bank purchased Atlantic Mortgage and Investment Company
(AMIC), a commercial mortgage company, First Jefferson Mortgage Corporation (First Jefferson), a mortgage loan origination company, and PRC Title LLC (PRC), a title insurance agency and real estate closing
agency.  All three transactions were accounted for under the purchase method of accounting, and resulted in the acquisition of $772,670 of fixed assets, the capitalization of $469,000 of mortgage servicing rights, and the capitalization of
$716,650 of other intangible assets and goodwill. First Jefferson and AMIC were integrated into divisions within the Bank, PRC operates as a wholly owned subsidiary of the Bank.

Resource Capital
Trust I, II, and III, wholly owned subsidiaries of the Corporation, are finance subsidiaries, whose sole purpose is to hold Capital Trust securities.

(Notes continued on next
page)

7



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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and
Consolidation

The consolidated financial statements include the accounts of Resource Bankshares Corporation and its wholly-owned subsidiaries, Resource Bank and the Resource Capital Trust
entities.  All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits with banks and federal funds sold.  Generally, federal funds are sold for one-day
periods.  Interest bearing deposits with maturities extending beyond 90 days are not considered cash equivalents for cash flow reporting purposes.  The Corporation had no such deposits at December 31, 2002 and 2001.

Securities

Securities that management has both the positive intent and ability to hold to maturity are classified as securities held to maturity and
are carried at cost, adjusted for amortization of premium or accretion of discount using the interest method.  Securities purchased for trading purposes, if any, are held in the trading portfolio at market value, with market adjustments
included in noninterest income.  Securities not classified as held to maturity or trading are classified as available for sale.  Available for sale securities may be sold prior to maturity for asset/liability management purposes, in
response to changes in interest rates or prepayment risk, to increase regulatory capital or other similar factors.  Securities available for sale are carried at fair value, with any adjustments to fair value, after tax, reported as a separate
component of other comprehensive income.

Interest and dividends on securities, including the amortization of premiums and the accretion of discounts, are reported in interest and dividends on
securities using the interest method.  Gains and losses on the sale of securities are recorded on the trade date and are calculated using the specific identification method.  Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary, if any, are included in earnings as realized losses.

Funds Advanced in Settlement of Mortgage
Loans

The Corporation advances funds in settlement of mortgage loans originated on behalf of investor banks.  The mortgage division has contractual agreements with these third party
investors under which loans are originated in accordance with an investors particular underwriting standards and procedures.  When a borrower locks in their loan rate, the Bank locks in the rate with the subject investor as soon as is
practicable.  When each loan is locked and funded, there is an obligation by both parties to deliver the loan at the agreed upon price.  This caption represents loans that have been closed and funded but not yet delivered to
investors.

(Notes continued on next page)

8



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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Mortgage Banking Income

The Bank derives its mortgage banking income from discount fees, or points, collected on loans originated, premiums received on the sale of mortgage loans and their related servicing rights to investors, and
other fees.  The Bank recognizes this income, including discount fees and points, when control over the related mortgage instrument is transferred to an investor bank.  All of these components determine the gain on sale of the underlying
mortgage loans to investors.  On average, the Banks mortgage banking income equals approximately 2.25% of its total mortgage loan volume.  Of this 2.25%, on average the Bank derives 1% from mortgage borrowers in the form of
origination fees, 1% from the sale of loans to investors and 0.25% from other miscellaneous mortgage banking income, which includes fees on brokered loans sold to third parties and other miscellaneous fee income.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.  Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are stated at their
outstanding unpaid principal balances net of any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance.  Discounts and premiums are
amortized to income using the interest method.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment to the yield (interest income) of the related loans.

Allowance for Loan Losses

A loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.

The adequacy of the allowance for loan losses is
periodically evaluated by the Bank, in order to maintain the allowance at a level that is sufficient to absorb probable credit losses.  Managements evaluation of the adequacy of the allowance is based on a review of the Banks
historical loss experience, known and inherent risks in the loan portfolio, including adverse circumstances that may affect the ability of the borrower to repay interest and/or principal, the estimated value of collateral, and an analysis of the
levels and trends of delinquencies, charge-offs, and the risk ratings of the various loan categories.  Such factors as the level and trend of interest rates and the condition of the national and local economies are also considered.  In
addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for losses on loans.  Such agencies may require the Bank to recognize additions to the allowance based on
their judgments of information available to them at the time of their examination.

(Notes continued on next page)

9



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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

The allowance for loan losses is established
through charges to earnings in the form of a provision for loan losses.  Increases and decreases in the allowance due to changes in the measurement of impaired loans, if applicable, are included in the provision for loan losses.  Loans
continue to be classified as impaired unless they are brought fully current and the collection of scheduled interest and principal is considered probable.

When a loan or portion of a loan is
determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance.

Income Recognition on
Impaired and Nonaccrual Loans

Loans, including impaired loans, are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period
of more than 90 days, unless such loans are well-secured and in the process of collection.  If a loan or a portion of a loan is adversely classified, or is partially charged off, the loan is generally classified as nonaccrual.  Loans that
are on a current payment status or past due less than 90 days may also be classified as nonaccrual, if repayment in full of principal and/or interest is in doubt.

Loans may be returned to accrual
status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance
with the contractual terms of interest and principal.

While a loan is classified as nonaccrual and the future collectibility of the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to principal outstanding.  When the future collectibility of the recorded loan balance is expected, interest income may be recognized on a cash basis.  In the case where a nonaccrual loan had
been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate.  Cash interest receipts in excess of that amount are recorded
as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.

Other Real Estate Owned

Real
estate acquired through foreclosure is initially recorded at the lower of fair value or the loan balance at date of foreclosure.  Property that is held for resale is carried at the lower of cost or fair value minus estimated selling
costs.  Costs relating to the development and improvement of property are capitalized, whereas those relating to holding the property are charged to expense.

Valuations are periodically
performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its fair value minus estimated selling costs.

(Notes continued on next page)

10



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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Restructured Loans

Loans are considered troubled debt restructurings if, for economic or legal reasons, a concession has been granted to the borrower related to the borrowers financial difficulties that the Bank would not
have otherwise considered.  The Bank has restructured certain loans in instances where a determination was made that greater economic value will be realized under new terms than through foreclosure, liquidation, or other disposition.  The
terms of the renegotiation generally involve some or all of the following characteristics:  a reduction in the interest pay rate to reflect actual operating income, an extension of the loan maturity date to allow time for stabilization of
operating income, and partial forgiveness of principal and interest.

The carrying value of a restructured loan is reduced by the fair value of any assets or equity interest received, if any. 
In addition, if the present value of future cash receipts required under the new terms does not equal the recorded investment in the loan at the time of restructuring, the carrying value would be further reduced by a charge to the allowance. 
In addition, at the time of restructuring, loans are generally classified as impaired.  A restructured loan that is not impaired, based on the restructured terms and that has a stated interest rate greater than or equal to a market interest
rate at the date of the restructuring, is reclassified as unimpaired in the year immediately following the year it was disclosed as restructured.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation.  For financial reporting purposes, assets are depreciated over their estimated useful lives using the straight-line and
accelerated methods.  For income tax purposes, the accelerated cost recovery system and the modified accelerated cost recovery system are used.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements, and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of
investment securities, deferred loan fees, allowance for loan losses, allowance for losses on foreclosed real estate, accumulated depreciation and intangible assets for financial and income tax reporting.  The deferred tax assets and
liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.

Advertising
Costs

Advertising costs are expensed as incurred.

Deferred Compensation Plans

The Corporation maintains deferred compensation and retirement arrangements with certain officers.  The Corporations policy is to accrue the estimated amounts to be paid under the contracts over the expected period
of active employment.  The Corporation purchased life insurance contracts to fund the expected liabilities under the contracts.

(Notes continued on next page)

11



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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Stock Compensation Plans

FASB Statement No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the estimated fair value of the award and is recognized over the service period, which is usually the vesting period.  However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price
of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock.  Stock options issued under the Corporations stock option plans have no intrinsic value at the grant date and, under
Opinion No. 25, no compensation cost is recognized for them.  The Corporation has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided pro forma disclosures of net income and earnings per share
and other disclosures, as if the fair value based method of accounting had been applied.  The pro forma disclosures include the effects of all awards granted on or after January 1, 1995 as follows:

|                           |  |  |             |  | 2002 |           | 2001 |   | 2000      | 
|-------------------------- |  |  | ----------- |  | ---- | --------- | ---- | - | --------- | 
|                           |  |  |             |  |      |           |      |   |           | 
|Net income                 |  |  | As reported |  | $    | 6,329,218 |      | $ | 4,542,621 | 
|                           |  |  | Pro forma   |  | $    | 6,162,259 |      | $ | 4,251,710 | 
|Basic earnings per share   |  |  | As reported |  | $    | 2.05      |      | $ | 1.57      | 
|                           |  |  | Pro forma   |  | $    | 2.00      |      | $ | 1.47      | 
|Diluted earnings per share |  |  | As reported |  | $    | 1.93      |      | $ | 1.49      | 
|                           |  |  | Pro forma   |  | $    | 1.88      |      | $ | 1.39      | 

The fair value of each option granted is estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:

|                        |  | 2002 |         | 2001 |  | 2000    |  
|----------------------- |  | ---- | ------- | ---- |  | ------- | -
|                        |  |      |         |      |  |         |  
|Dividend yield          |  |      | 2.80    | %    |  | 2.67    | %
|Expected life           |  |      | 7 years |      |  | 5 years |  
|Expected volatility     |  |      | 28      | %    |  | 53      | %
|Risk-free interest rate |  |      | 3.50    | %    |  | 4.50    | %

Earnings Per Common Share

Basic
earnings per share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

(Notes continued on next page)

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

The components of other comprehensive income and related tax effects are as follows:

|                                                                                           |  | Years Ended December 31, |         
|------------------------------------------------------------------------------------------ |  | ------------------------ | --------
|                                                                                           |  |                          |         
|                                                                                           |  | 2002                     |         
|                                                                                           |  |                          |         
|Unrealized holding gains (losses) arising during the year on available-for-sale securities |  | $                        | 743,363 
|Reclassification adjustment for losses (gains) realized in income                          |  |                          | (236,079
|                                                                                           |  |                          |         
|Net unrealized gains (losses)                                                              |  |                          | 507,284 
|Tax effect                                                                                 |  |                          | (172,477
|                                                                                           |  |                          |         
|Net-of-tax amount                                                                          |  | $                        | 334,807 
|                                                                                           |  |                          |         
|Change in fair value of derivatives used for cash flow hedges, net of tax                  |  | $                        | 463,299 
|                                                                                           |  |                          |         

Segment Reporting

Public
business enterprises are required to report information about operating segments in annual financial statements and selected information about operating segments in financial reports issued to shareholders.  Operating segments are components of
an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance.  Generally, financial information is required to be reported on
the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments.

Derivative Instruments and Hedging Transactions

The Corporation applies FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities.  It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments at fair value.

Interest Rate Swap Agreements:  For asset/liability management purposes, the
Corporation uses interest rate swap agreements to hedge various exposures or to modify interest rate characteristics of various balance sheet accounts.  Such derivatives are used as part of the asset/liability management process and are linked
to specific assets or liabilities, and have a high correlation between the contract and the underlying item being hedged, both at inception and throughout the hedge period.

(Notes continued on next page)

13



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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Derivative Instruments and Hedging
Transactions (continued)

Interest rate swap contracts designated and qualifying as cash flow hedges are reported at fair value.  The gain or loss on the effective portion of the hedge
initially is included as a component of other comprehensive income and is subsequently reclassified into earnings in the same period that the hedge cash flows impact earnings.

Rate Lock
Commitments:  On March 13, 2002, the Derivatives Implementation Group of the Financial Accounting Standards Board determined that loan commitments related to the origination or acquisition of mortgage loans that will be held for sale must
be accounted for as derivative instruments. Accordingly, in the fourth quarter of 2002, the Corporation adopted such accounting.

The Bank enters into commitments to originate loans whereby
the interest rate on the loan is determined prior to funding (rate lock commitments).  Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives.  Accordingly, such commitments, along with any
related fees received from potential borrowers, are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans.  Fair value is based on fees currently
charged to enter into similar agreements, and for fixed-rate commitments also considers the difference between current levels of interest rates and the committed rates.  Prior to adoption, such commitments were recorded to the extent of fees
received.  Fees received were subsequently included in the net gain or loss on sale of mortgage loans.

The cumulative effect of adopting SFAS No. 133 for rate lock commitments was not
material.

Off-Balance-Sheet Financial Instruments

In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit, standby letters of credit, and financial guarantees written.  Such financial
instruments are recorded in the financial statements when they become payable.

Use of Estimates

The preparation of financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the
determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.  While management uses available information to recognize losses on loans and foreclosed
real estate, future additions to the allowances may be necessary based on changes in local economic conditions and other factors.

(Notes continued on next page)

14



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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Accounting Changes

The Corporation adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), effective January 1, 2002.  Accordingly, goodwill is no
longer subject to amortization over its estimated useful life, but is subject to an annual assessment for impairment by applying a fair value based test.  Additionally, under SFAS 142, acquired intangible assets are separately recognized if the
benefit of the asset can be sold, transferred, licensed, rented, or exchanged, and amortized over their useful life.  Branch acquisition transactions were outside the scope of SFAS 142 and, accordingly, intangible assets related to such
transactions continued to amortize upon the adoption of SFAS 142.  The adoption of SFAS 142 did not have a material effect on the consolidated financial condition and results of operations of the Corporation.

In August 2001, the Financial Accounting Standards Board (FSAB) issued Statement No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets (SFAS 144).  SFAS 144 is effective for financial
statements issued for the fiscal years beginning after December 15, 2001.  The statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets.  The statement specifies criteria for classifying
assets as held for sale.  Among other things, those criteria specify that (a) the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and (b) the sale
of the asset must be probable, and its transfer expected to qualify for recognition as a completed sale, within one year, with certain exceptions.  If an asset classified as held for sale is reclassified as held and used, the reclassified asset
is measured at the lower of its (a) carrying value before being classified as held for sale, adjusted for any depreciation (amortization expense) that would have been recognized had the asset been continuously classified as held and used, or (b)
fair value at the date the asset is reclassified as held and used.  Effective January 1, 2002, the Corporation adopted SFAS 144.  The adoption of SFAS 144 did not have a material effect on the consolidated financial condition and results
of operations of the Corporation.

On October 31, 2002, the Corporation adopted Statement of Financial Accounting Standards  No. 147, Acquisitions of Certain Financial
Institutions (SFAS 147).  This Statement amends (except for transactions between two or more mutual enterprises) previous interpretive guidance on the application of the purchase method of accounting to acquisitions of financial
institutions, and requires the application of SFAS 141, Business Combinations, and SFAS 142 to branch acquisitions if such transactions meet the definition of a business combination.  This Statement amends SFAS 144, Accounting for
Impairment or Disposal of Long-Lived Assets, to include in its scope core deposit intangibles of financial institutions.  Accordingly, such intangibles are subject to a recoverability test based on undiscounted cash flows, and to the
impairment recognition and measurement provisions that are required for other long-lived assets that are held and used.  The transitional provisions of SFAS 147 require previously recognized unidentifiable intangible assets acquired in a
business combination that occurred before October 1, 2002 to be reclassified as goodwill.  The Corporation transferred approximately $700,000 in unidentifiable intangible assets to goodwill at October 1, 2002.  The Corporation does not
expect the adoption of this Statement to have a material impact on the Corporations financial position or results of operations.

(Notes continued on next
page)

15



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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Accounting Changes
(continued)

On December 15, 2002, the Corporation adopted the disclosure requirements of Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure and Amendment of FASB Statement No. 123 (SFAS 148).  This Statement provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for
stock-based employee compensation, and amends the disclosure provisions of SFAS 123 to require prominent disclosure about the effects on reported net income of an entitys accounting policy decision with respect to stock-based
compensation.  The Corporation is currently evaluating whether or not it should adopt the fair value recognition provisions of SFAS 148.

On December 31, 2001, the American Institute of
Certified Public Accountants (AICPA) issued Statement of Position 01-6, Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others, to reconcile and conform the
accounting and financial reporting provisions established by various AICPA industry audit guides.  This Statement is effective for annual and interim financial statements issued for fiscal years beginning after December 15, 2002, and did not
have a material impact on the Corporations consolidated financial statements.

Subsequent Accounting Changes

In June
2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which requires recognition of a liability, when incurred, for a cost
associated with an exit or disposal activity.  The liability shall be recognized at fair value.  The provisions of the Statement are effective for exit or disposal activities initiated after December 31, 2002.  Management does not
anticipate that the adoption of this Statement will have a material impact on the consolidated financial statements in the foreseeable future.

Reclassifications

Certain reclassifications have been made to prior years information to conform with the current year presentation.

NOTE 3 - RESTRICTIONS ON CASH AND
DUE FROM BANK ACCOUNTS

The Bank is required by the Federal Reserve Bank to maintain average reserve balances.  The average amount of these reserve balances was approximately $965,000 and
$776,000 for the years ended December 31, 2002 and 2001, respectively.  On December 31, 2002 and 2001, the required reserve balance was $766,000 and $568,000, respectively.

(Notes continued on next page)

16



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NOTE 4 - SECURITIES

Securities at December 31, 2002 and 2001 are as follows:

|December 31, 2002              |                              | Amortized Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |           | Fair Value |        
|------------------------------ | ---------------------------- | -------------- | ---------- | ---------------------- | - | ----------------------- | --------- | ---------- | -------
|                               |                              |                |            |                        |   |                         |           |            |        
|Securities available-for-sale: |                              |                |            |                        |   |                         |           |            |        
|                               | U.S. government agencies     |                | $          | 4,062,690              |   | $                       | 13,527    |            | $      
|                               | Federal Reserve Bank stock   |                |            | 956,550                |   |                         |          |            |        
|                               | Federal Home Loan Bank stock |                |            | 5,250,000              |   |                         |          |            |        
|                               | Trust preferred stock        |                |            | 9,491,964              |   |                         | 29,540    |            |        
|                               | Other                        |                |            | 1,452,067              |   |                         | 43,881    |            |        
|                               |                              |                |            |                        |   |                         |           |            |        
|                               |                              | $              | 21,213,271 |                        | $ | 86,948                  |           | $          | 109,262
|                               |                              |                |            |                        |   |                         |           |            |        
|Securities held-to-maturity:   |                              |                |            |                        |   |                         |           |            |        
|                               | U. S. Government Agencies    |                | $          | 62,257,740             |   | $                       | 1,812,211 |            | $      
|                               | State & Municipal Securities |                |            | 13,153,919             |   |                         | 893,645   |            |        
|                               | Corporate Bonds              |                |            | 2,098,200              |   |                         | 23,649    |            |        
|                               | Trust preferred stock        |                |            | 31,139,776             |   |                         | 669,475   |            |        
|                               |                              |                |            |                        |   |                         |           |            |        
|                               | Total                        |                | $          | 108,649,635            |   | $                       | 3,398,980 |            | $      
|                               |                              |                |            |                        |   |                         |           |            |        
|                               |                              |                |            |                        |   |                         |           |            |        



|December 31, 2001              |                                | Amortized Cost |             | Gross Unrealized Gains |   | Gross Unrealized Losses |         | Fair Value |          
|------------------------------ | ------------------------------ | -------------- | ----------- | ---------------------- | - | ----------------------- | ------- | ---------- | ---------
|                               |                                |                |             |                        |   |                         |         |            |          
|Securities available-for-sale: |                                |                |             |                        |   |                         |         |            |          
|                               | U.S. government agencies       |                | $           | 59,423,698             |   | $                       | 233,251 |            | $        
|                               | State and municipal Securities |                |             | 12,275,891             |   |                         | 642,796 |            |          
|                               | Federal Reserve Bank stock     |                |             | 866,550                |   |                         |        |            |          
|                               | Federal Home Loan Bank stock   |                |             | 4,240,000              |   |                         |        |            |          
|                               | Trust preferred stock          |                |             | 33,754,132             |   |                         | 311,098 |            |          
|                               | Corporate bonds                |                |             | 3,103,820              |   |                         |        |            |          
|                               | Other                          |                |             | 1,213,716              |   |                         | 5,496   |            |          
|                               |                                |                |             |                        |   |                         |         |            |          
|                               |                                | $              | 114,877,807 |                        | $ | 1,192,641               |         | $          | 1,435,929
|                               |                                |                |             |                        |   |                         |         |            |          

There were no held-to-maturity securities at December 31, 2001.

Federal Reserve Bank stock and Federal Home Loan Bank stock are restricted securities, carried at cost, and periodically evaluated for impairment.  These securities do not have a readily determinable fair value, and lack
a market.

At December 31, 2002 and 2001, securities with a carrying value of approximately $4,629,600 and $5,137,700, respectively, were pledged to secure deposits of the U.S. government or the
Commonwealth of Virginia.  In addition, securities with a carrying value of $41,930,000 and $37,060,700 are pledged to secure Federal Home Loan Bank advances as of December 31, 2002 and 2001, respectively.

(Notes continued on next page)

17



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NOTE 4 - SECURITIES(Continued)

In the second quarter of 2001, securities were sold from the held-to-maturity
investment portfolio for reasons other than those identified in Statement of Financial Accounting Standard No. 115 (SFAS 115) paragraph 8 (a)  (f).  In conformity with SFAS 115, the remaining securities, with a fair value of $49,994,919
at the time of transfer and an amortized cost of $49,309,701, were transferred from the held-to-maturity classification to the available-for-sale classification.  The gross unrealized gains and losses amounted to $2,202,424 and $1,517,206,
respectively, at the time of transfer.  In particular, concerns over the corporate credit exposure within the investment securities portfolio lead management to conclude that corporate investment securities, including all non-financial
corporate issues, should be liquidated in a re-structuring of the portfolio to shield the Corporation from a perceived growing credit risk in a weakening economy.

In the second quarter of 2002,
management elected to reclassify securities with a fair value of $113,599,000 at the time of transfer and an amortized cost of $113,298,000 from the available-for-sale classification to the held-to-maturity classification.  The difference of
$301,000 has been recorded as an adjustment to the amortized cost of the securities and is being amortized over their respective lives.

The amortized cost and fair value of securities by maturity
date at December 31, 2002 are as follows:

|                             |                       | Securities Held-to-Maturity |             | Securities Available-for-Sale |  
|---------------------------- | --------------------- | --------------------------- | ----------- | ----------------------------- | -
|                             |                       |                             |             |                               |  
|                             |                       | Amortized Cost              |             | Fair Value                    |  
|                             |                       |                             |             |                               |  
|Due in one year or less      |                       | $                           |            |                               | $
|Due from one to five years   |                       |                             |            |                               |  
|Due from five to ten years   |                       |                             | 4,535,129   |                               |  
|Due after ten years          |                       |                             | 71,727,538  |                               |  
|                             |                       |                             |             |                               |  
|                             | Total debt securities |                             |             | 76,262,667                    |  
|Federal Reserve Bank stock   |                       |                             |             |                               |  
|Federal Home Loan Bank stock |                       |                             |             |                               |  
|Preferred stock              |                       |                             | 30,288,768  |                               |  
|Other                        |                       |                             | 2,098,200   |                               |  
|                             |                       |                             |             |                               |  
|                             |                       | $                           | 108,649,635 |                               | $
|                             |                       |                             |             |                               |  
|                             |                       |                             |             |                               |  

Gross realized gains and losses on available-for-sale securities were:

|                      |  | December 31, |        
|--------------------- |  | ------------ | -------
|                      |  |              |        
|                      |  | 2002         |        
|                      |  |              |        
|Gross realized gains  |  | $            | 238,955
|                      |  |              |        
|Gross realized losses |  | $            | 2,876  
|                      |  |              |        

(Notes continued on next page)

18



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NOTE 5 - LOANS

Loans consist of the following:

|             |                                   | December 31, |  
|------------ | --------------------------------- | ------------ | -
|             |                                   |              |  
|             |                                   | 2002         |  
|             |                                   |              |  
|Gross loans: |                                   |              |  
|             | Commercial                        |              | $
|             | Real estate  construction        |              |  
|             | Commercial real estate            |              |  
|             | Residential real estate mortgages |              |  
|             | Installment and consumer loans    |              |  
|             |                                   |              |  
|             | Total gross loans                 |              |  
|             | Less - allowance for loan losses  |              |  
|             |                                   |              |  
|             | Loans, net                        |              | $
|             |                                   |              |  
|             |                                   |              |  

Gross loans include deferred loan costs in excess of unearned loan income of $2,918,301 and $2,930,753 at December 31, 2002 and 2001, respectively.

A summary of the activity in the allowance for loan losses account is as follows:

|                                |  | Years Ended December 31, |          
|------------------------------- |  | ------------------------ | ---------
|                                |  |                          |          
|                                |  | 2002                     |          
|                                |  |                          |          
|Balance, beginning of year      |  | $                        | 3,696,860
|Provision charged to operations |  |                          | 1,550,000
|Loans charged-off               |  |                          | (279,036 
|Recoveries                      |  |                          | 40,984   
|                                |  |                          |          
|Balance, end of year            |  | $                        | 5,008,808
|                                |  |                          |          

Accounting standards require certain disclosures concerning impaired loans, as defined by
generally accepted accounting principles, regardless of whether or not an impairment loss exists. Impaired loans amount to $505,699, $535,706 and $1,015,060 as of December 31, 2002, 2001 and 2000, respectively.  Impaired loans have a valuation
allowance allocation of $62,807 and $84,899 at those respective dates.  The average recorded investment in impaired loans was approximately $469,556, $1,336,419, and $636,476 in 2002, 2001 and 2000, respectively.  The Bank recognized
$54,067, $30,955, and $58,614 of interest income on impaired loans during 2002, 2001 and 2000, respectively.

Loans on which the accrual of interest has been discontinued amounted to $505,699,
$535,706 and $1,015,060 at December 31, 2002 , 2001 and 2000 respectively.  If interest on those loans had been accrued, such income would have approximated $31,798, $12,293, and $30,631 for the years ended December 31, 2002, 2001 and 2000,
respectively.

(Notes continued on next page)

19



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NOTE 6 - PREMISES AND EQUIPMENT

Premises and equipment consist of the following:

|                                  |  | December 31, |           
|--------------------------------- |  | ------------ | ----------
|                                  |  |              |           
|                                  |  | 2002         |           
|                                  |  |              |           
|Land                              |  | $            | 1,775,944 
|Buildings                         |  |              | 5,876,708 
|Leasehold improvements            |  |              | 1,442,467 
|Equipment, furniture and fixtures |  |              | 3,674,329 
|Software                          |  |              | 1,091,714 
|Construction in progress          |  |              | 32,609    
|                                  |  |              |           
|                                  |  |              | 13,893,771
|Less - accumulated depreciation   |  |              | (3,654,928
|                                  |  |              |           
|                                  |  | $            | 10,238,843
|                                  |  |              |           

Depreciation charged to operating expense for 2002, 2001 and 2000 was $1,241,894, $979,181, and
$646,670, respectively.

NOTE 7 - DEPOSITS

Interest-bearing deposits consist of the following:

|                                      |  | December 31, |            
|------------------------------------- |  | ------------ | -----------
|                                      |  |              |            
|                                      |  | 2002         |            
|                                      |  |              |            
|Money market and NOW account deposits |  | $            | 61,937,890 
|Savings deposits                      |  |              | 3,902,083  
|Time deposits $100,000 and over       |  |              | 10,261,244 
|Other time deposits                   |  |              | 415,957,314
|                                      |  |              |            
|                                      |  | $            | 492,058,531
|                                      |  |              |            

The scheduled maturities of time deposits at December 31, 2002 are as follows:

|Less than one year  |  | $ | 230,390,436 | 
|------------------- |  | - | ----------- | 
|One to two years    |  |   | 79,949,689  | 
|Three to five years |  |   | 15,854,857  | 
|Over five years     |  |   | 100,023,576 | 
|                    |  |   |             | 
|                    |  | $ | 426,218,558 | 
|                    |  |   |             | 

(Notes continued on next page)

20



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NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Federal Home Loan Bank (FHLB) advances consist of the following:

|                                          |  | December 31, |            
|----------------------------------------- |  | ------------ | -----------
|                                          |  |              |            
|                                          |  | 2002         |            
|                                          |  |              |            
|5.82% FHLB advance due April 5, 2010      |  | $            | 5,000,000  
|5.69% FHLB advance due February 6, 2002   |  |              |           
|5.45% FHLB advance due September 15, 2010 |  |              | 25,000,000 
|4.21% FHLB advance due August 1, 2003     |  |              | 2,000,000  
|4.64% FHLB advance due August 7, 2006     |  |              | 2,000,000  
|3.86% FHLB advance due November 7, 2011   |  |              | 10,000,000 
|3.98% FHLB advance due November 28 2011   |  |              | 10,000,000 
|3.14% FHLB advance due December 4, 2011   |  |              | 12,000,000 
|3.54% FHLB advance due February 23, 2004  |  |              | 25,000,000 
|3.98% FHLB advance due May 7, 2007        |  |              | 5,000,000  
|1.83% FHLB advance due January 16, 2002   |  |              |           
|1.30% FHLB advance due January 17, 2003   |  |              | 9,000,000  
|                                          |  |              |            
|                                          |  | $            | 105,000,000
|                                          |  |              |            

Information regarding FHLB advances is summarized below:

|                                 |  | 2002 |             | 2001 |   | 2000       |  
|-------------------------------- |  | ---- | ----------- | ---- | - | ---------- | -
|                                 |  |      |             |      |   |            |  
|Weighted average rate            |  |      | 4.04        | %    |   | 4.98       | %
|                                 |  |      |             |      |   |            |  
|Average balance                  |  |      | 102,888,710 |      | $ | 42,690,685 |  
|                                 |  |      |             |      |   |            |  
|Maximum outstanding at month-end |  | $    | 128,100,000 |      | $ | 83,800,000 |  
|                                 |  |      |             |      |   |            |  

As of December 31, 2002 and 2001, advances were collateralized by FHLB stock with a cost of
$5,250,000 and $4,240,000, respectively.  In addition, securities of $41,930,000 and $37,060,700 were pledged against these advances, as of December 31, 2002 and 2001, respectively.  Mortgage loans of $71,148,400 also served to provide
additional collateral for these advances at December 31, 2002.  Pursuant to the terms of the variable rate line of credit, the Bank may borrow up to 30% of the Banks total assets.  The FHLB advances arrangement has no expiration
date, but is reevaluated periodically to determine the Banks credit worthiness. Additionally, the Bank has a warehouse line of credit of $75,000,000 collateralized by first mortgage loans and expiring February 19, 2003.  As of December
31, 2002, the Bank had not drawn from this line of credit.

Resource Capital Trust I (Trust I), Resource Capital Trust II (Trust II), and Resource Capital Trust III (Trust III) are wholly-owned
special purpose finance subsidiaries of the Parent, operating in the form of a grantor trust (collectively referred to as the Trusts).

Trust I was created in 1999 solely to issue capital
securities and remit the proceeds to the Corporation. The Corporation is the sole owner of the common stock securities of the Trust.  In 1999,  Trust I issued 368,000 shares of preferred stock capital securities (Trust I preferred stock)
with a stated value of $25 per share, and a fixed dividend yield of 9.25% of the stated value.  The stated value of the Trust preferred stock is unconditionally guaranteed on a subordinated basis by the Parent.  The Trust I securities have
a mandatory redemption date of April 15, 2029, and are subject to varying call provisions at the option of the Corporation beginning April 15, 2004.

(Notes continued on
next page)

21



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NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS(Continued)

Trust II was created in 2001 solely to
issue capital securities and remit the proceeds to the Corporation. The Corporation is the sole owner of the common stock securities of the Trust.  In 2001, Trust II issued 5,000 shares of preferred stock capital securities (Trust II preferred
stock) with a stated value of $1,000 per share, and bearing a variable distribution rate per annum, reset semi-annually, equal to LIBOR plus 3.75% provided, that the applicable interest rate may not exceed 11.0% through the interest payment date in
December 2006.  The Trust II securities have a mandatory redemption date of December 8, 2031, and are subject to varying call provisions at the option of the Corporation beginning December 8, 2006.

Trust III was created in 2002 solely to issue capital securities and remit the proceeds to the Corporation.  The Corporation is the sole owner of the common stock securities of the Trust.  In 2002, Trust III issued
3,000 shares of preferred stock capital securities (Trust III preferred stock) with a stated value of $1,000 per share, and bearing a variable distribution rate per annum, reset quarterly, equal to LIBOR plus 3.45% provided that the applicable
interest rate may not exceed 12.5% through the interest payment date in November 2007.  These securities have a mandatory redemption date of November 7, 2032, and are subject to varying call provisions at the option of the Corporation beginning
November 7, 2007.

The Parent unconditionally guarantees the stated value of the Trust preferred stock on a subordinated basis.  Through an intercompany lending transaction, proceeds
received by the Trusts from sale of the securities were lent to the Parent for general corporate purposes.

The Trust preferred stock is senior to the Corporations common stock in event of
claims against Resource, but is subordinate to all senior and subordinated debt securities.  The Corporation has the right to terminate the Trusts upon the occurrence of certain events, including (a) dividend payments on the preferred stock
securities are no longer deemed tax-deductible, or the Trust is taxed on the income received from the underlying intercompany debt agreement with the Parent, (b) the capital securities are no longer considered Tier 1 capital under Federal Reserve
Bank guidelines, or (c) the Trust, through a change of law, is deemed to be an investment company under the Investment Company Act of 1940 (the Act) and subject to that Acts reporting requirements.

Shares of the Trust preferred stock are capital securities, which are distinct from the common stock or preferred stock of the Corporation, and the dividends thereon are tax-deductible.  Dividends accrued for payment by
the Trust are classified as interest expense on long-term debt in the consolidated statement of operations of the Corporation.  The Trust preferred stock is shown as Capital Trust borrowings and classified as a liability in the
consolidated balance sheets.

NOTE 9 - STOCKHOLDERS EQUITY

In 2002, stock options were exercised resulting in the issuance of
31,466 additional common shares.  The Corporation also reacquired 107,500 shares of its outstanding common stock at an average price of $20.53 per share.

In 2001, no stock options were
exercised, however, the Corporation reacquired 92,866 shares of its outstanding common stock at an average price of $16.01 per share.  In addition, the Corporation issued 572,500 shares of common stock at a price of $14 per share in a public
securities offering that resulted in proceeds of $7,342,211, net of offering costs of $672,789.

(Notes continued on next page)

22



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NOTE 9 - STOCKHOLDERS EQUITY(Continued)

In 2000, stock options were exercised resulting in the issuance of
35,332 additional common shares.  In June, 2000, the Corporation issued 56,792 shares of its common stock as a result of the acquisition of CW Company of Virginia.  The Corporation also reacquired 7,176 shares of its outstanding common
stock  at an average price of $10.94 per share.

NOTE 10 - EMPLOYEE BENEFIT PLANS

401(k) Profit Sharing
Plan

The Corporation has a 401(k) Profit Sharing Plan whereby substantially all employees participate in the Plan.  Employees may contribute up to 15% of their compensation subject to
certain limits based on federal tax laws.  The Corporation makes matching contributions equal to 50% of the first 6% of an employees compensation contributed to the Plan.  The Corporation may also make a discretionary profit sharing
contribution based on certain eligibility requirements as set forth in the Plan.  Employer account contributions vest to the employee equally over a three-year period.  For 2002, 2001 and 2000, expenses attributable to the Plan amounted to
$448,500, $343,500, and $214,700, respectively, and are presented in the Statements of Income as part of salaries and employee benefits.

Stock Compensation Plans

At December 31, 2002, the Corporation has five stock compensation plans for its officers and directors.  Each plan is a fixed option plan.  Three of these plans, the May 1993 Long-Term Incentive Plan,
the December 1993 Long-Term Incentive Plan, and the 1994 Long-Term Incentive Plan were implemented and grants were made prior to the effective date of FASB Statement No. 123, Accounting for Stock Based Compensation. The Corporation
applies APB Opinion No. 25, Accounting for Stock Issued to Employees,and related interpretations in accounting for all its plans.  Accordingly, no compensation cost has been recognized for these plans against earnings.

The Corporations 1996 Long-Term Incentive Plan authorized the granting of options to management personnel and directors of 47,000 shares of the Banks common stock in 1997.  All options have
10-year terms, and are not exercisable for five years from the date of grant.  No stock options were granted in 1998.  During 1999, this Plan was amended allowing additional shares to management.  The Corporation granted 27,321 and
86,750 of these shares in 2001 and 2000, respectively.

In May, 2001, the Corporations shareholders approved the Resource Bankshares Corporation 2001 Stock Incentive Plan.  This plan,
which expires in May, 2001, makes available up to 100,000 shares of common stock for the granting of awards in the form of incentive stock options, nonqualified stock options, or other stock based awards.  During the year ended December 31,
2002 and 2001, the Corporation granted, at fair value, 2,500 and 62,247 incentive stock options and none and 23,832 nonqualified options under this plan, respectively.

Pro forma information
regarding net income and earnings per share is required by FASB Statement No. 123, and has been determined as if the Corporation had accounted for its employee stock options under the fair value method of that statement.  The fair value for
these options was estimated at the date of grant using a Black-Scholes option pricing model.

(Notes continued on next page)

23



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NOTE 10 - EMPLOYEE BENEFIT PLANS(Continued)

Stock Compensation Plans (continued)

The Black-Scholes option model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable.  In addition, option valuation models
require the input of highly subjective assumptions including the expected stock price volatility.  Because the Corporations employee stock options have characteristics significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock
options.

The following is a summary of the Corporations stock option activity, and related information for the years ended December 31:

|                                                               |  | 2002    |         | 2001                              |   | 2000    | 
|-------------------------------------------------------------- |  | ------- | ------- | --------------------------------- | - | ------- | 
|                                                               |  |         |         |                                   |   |         | 
|                                                               |  | Options |         | Weighted - Average Exercise Price |   | Options | 
|                                                               |  |         |         |                                   |   |         | 
|Outstanding  beginning of year                                |  |         | 558,613 |                                   | $ | 11.19   | 
|Granted                                                        |  |         | 2,500   |                                   |   | 19.65   | 
|Exercised                                                      |  |         | (31,466 | )                                 |   | 6.35    | 
|Forfeited                                                      |  |         | (10,000 | )                                 |   | 17.61   | 
|                                                               |  |         |         |                                   |   |         | 
|Outstanding - end of year                                      |  |         | 519,647 |                                   | $ | 11.40   | 
|                                                               |  |         |         |                                   |   |         | 
|Exercisable - end of  year                                     |  |         | 258,497 |                                   | $ | 7.30    | 
|                                                               |  |         |         |                                   |   |         | 
|Weighted average fair value of options granted during the year |  |         |         |                                   | $ | 3.97    | 
|                                                               |  |         |         |                                   |   |         | 

(Notes continued on next page)

24



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NOTE 10 - EMPLOYEE BENEFIT PLANS(Continued)

Stock Compensation Plans (continued)

Information pertaining to options outstanding at December 31, 2002 is as follows:

|                           |  |                    |         |                                             | Options Outstanding |                                 | Options Exercisable |                   
|-------------------------- |  | ------------------ | ------- | ------------------------------------------- | ------------------- | ------------------------------- | ------------------- | ------------------
|                           |  |                    |         |                                             |                     |                                 |                     |                   
|Range of Exercise Prices   |  | Number Outstanding |         | Weighted Average Remaining Contractual Life |                     | Weighted Average Exercise Price |                     | Number Exercisable
|                           |  |                    |         |                                             |                     |                                 |                     |                   
|$2.98 - $4.85              |  |                    | 79,997  |                                             |                     | .9 years                        |                     | $                 
|$4.86 - $6.73              |  |                    | 125,600 |                                             |                     | 3.5 years                       |                     | $                 
|$8.61 - $10.49             |  |                    | 69,750  |                                             |                     | 7.1 years                       |                     | $                 
|$10.49 - $12.36            |  |                    | 10,000  |                                             |                     | 7.5 years                       |                     | $                 
|$14.24 - $16.11            |  |                    | 50,000  |                                             |                     | 5.2 years                       |                     | $                 
|$16.12 - $17.99            |  |                    | 113,471 |                                             |                     | 8.5 years                       |                     | $                 
|$18.00 - $19.87            |  |                    | 41,000  |                                             |                     | 6.4 years                       |                     | $                 
|$19.87  $21.75            |  |                    | 29,929  |                                             |                     | 6.6 years                       |                     | $                 
|                           |  |                    |         |                                             |                     |                                 |                     |                   
|Outstanding at end of year |  |                    | 519,647 |                                             |                     | 5.3 years                       |                     | $                 
|                           |  |                    |         |                                             |                     |                                 |                     |                   

NOTE 11 - INCOME TAXES

The principal
components of the income tax expense were as follows:

|                   |  | 2002 |           | 2001 |   | 2000      | 
|------------------ |  | ---- | --------- | ---- | - | --------- | 
|                   |  |      |           |      |   |           | 
|Federal  current  |  | $    | 3,018,714 |      | $ | 1,914,075 | 
|Federal  deferred |  |      | (660,877  | )    |   | 4,133     | 
|                   |  |      |           |      |   |           | 
|                   |  | $    | 2,357,837 |      | $ | 1,918,208 | 
|                   |  |      |           |      |   |           | 

The differences between expected federal income taxes at statutory rates to actual income tax
expense are summarized as follows:

|                                                              |  | 2002 |           | 2001 |   | 2000      |  
|------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                                              |  |      |           |      |   |           |  
|Income tax expense computed at federal statutory rates        |  | $    | 2,953,599 |      | $ | 2,196,682 |  
|Tax effects of:                                               |  |      |           |      |   |           |  
|Tax-exempt interest                                           |  |      | (244,737  | )    |   | (264,247  | )
|Tax-exempt increase in cash surrender value of life insurance |  |      | (145,383  | )    |   | (40,120   | )
|Tax credits                                                   |  |      | (224,451  | )    |   |          |  
|Other                                                         |  |      | 18,809    |      |   | 25,893    |  
|                                                              |  |      |           |      |   |           |  
|                                                              |  | $    | 2,357,837 |      | $ | 1,918,208 |  
|                                                              |  |      |           |      |   |           |  

(Notes continued on next page)

25



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NOTE 11 - INCOME TAXES(Continued)

The Corporations deferred tax assets and liabilities and their components
are as follows:



|                                   |                                | December 31, |          
|---------------------------------- | ------------------------------ | ------------ | ---------
|                                   |                                |              |          
|                                   |                                | 2002         |          
|                                   |                                |              |          
|Deferred tax assets:               |                                |              |          
|                                   | Intangible assets              |              | $        
|                                   | Bad debts and other provisions |              |          
|                                   | Fixed assets                   |              |          
|                                   | Other                          |              |          
|                                   | Deferred compensation          |              |          
|                                   | Unrealized loss on securities  |              |          
|                                   |                                |              |          
|Total deferred tax asset           |                                |              | 2,105,994
|                                   |                                |              |          
|Deferred tax liabilities:          |                                |              |          
|                                   | Loans                          |              |          
|                                   | Deposits                       |              |          
|                                   | Deferred fees                  |              |          
|                                   | FHLB stock                     |              |          
|                                   |                                |              |          
|Total deferred tax liability       |                                |              | 1,869,549
|                                   |                                |              |          
|Net deferred tax asset (liability) |                                | $            | 236,445  
|                                   |                                |              |          

NOTE 12 - COMMITMENTS AND CONTINGENCIES

The Bank leases office space in Hampton Roads and Richmond as well as various offices for the mortgage division.  The Bank owns its office space in Northern Virginia.   The leases provide for options to renew
for various periods.  All escalation clauses based on fixed percentages are included in the disclosure below.  Pursuant to the terms of these leases, the following is a schedule, by year, of future minimum lease payments required under
these noncancelable operating lease agreements.

|           |  | Lease Payments |          
|---------- |  | -------------- | ---------
|           |  |                |          
|           |  |                |          
|2003       |  | $              | 1,362,230
|2004       |  |                | 1,005,782
|2005       |  |                | 626,590  
|2006       |  |                | 571,020  
|2007       |  |                | 387,171  
|Thereafter |  |                | 630,360  
|           |  |                |          
|           |  | $              | 4,583,153
|           |  |                |          

(Notes continued on next page)

26



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NOTE 12 - COMMITMENTS AND CONTINGENCIES(Continued)

Total rental expense was $1,119,207, $1,165,439, and $894,131
for 2002, 2001 and 2000, respectively.

The Bank is the defendant in a class action lawsuit under the Telephone Consumer Protection Act, or TCPA.  The lawsuit alleges that the Bank violated
the TCPA by sending unsolicited fax advertisements without obtaining express invitation or permission to send the faxes.  These faxes were sent by Resource Mortgage, a division of Resource Bank, which has historically used facsimiles to
disseminate product and interest rate information to mortgage brokers on a national basis.  This facsimile form of business communication is consistent with industry practice.

Under the
TCPA, recipients of unsolicited fax advertisements are entitled to damages from $500 to $1,500 per fax.  The number of faxes transmitted during the period for which the plaintiff seeks class certification is not known currently, however the
number of faxes is likely to be significant.

The Bank is contesting the lawsuit vigorously and asserting a number of defenses.  In addition, the Bank has filed a motion to dismiss the
lawsuit on constitutional grounds.  The Bank has insurance coverage for the litigation subject to a policy limit of $3 million.

As this lawsuit will remain pending for the foreseeable future,
it is not possible to determine the possible outcome of the case, nor is it possible at this stage to determine the range of loss if the outcome were unfavorable.

The Corporation and the Bank are
also defendants in certain other claims and legal actions arising in the ordinary course of business.  In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a
material adverse effect on the financial position of the Bank.

NOTE 13  ON BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Derivative financial instruments are components of the Corporations risk management profile.  The Company monitors its sensitivity to changes in interest rates and may use derivatives to hedge this risk.  In
accordance with SFAS No. 133 all derivatives are recorded in the financial statements at fair value.  During 2002, the Company entered into a series of interest rate swaps with a total notional amount of $100 million to hedge certain
certificate of deposit liabilities.  These transactions were designated and qualify for cash flow hedge accounting and have a weighed average maturity of 10  years.  Unrealized gains of $463,000 on these instruments are included in
accumulated other comprehensive and will be reclassified into interest expense in the same period that the hedged cash flows impact earnings.

Risk management results for the year ended
December 31, 2002 indicate that the hedges were 100% effective and that there was no component of the derivative instruments gain or loss that was excluded from the assessment of hedge effectiveness. The net amount of other comprehensive
income reclassified into interest expense during the year ended December 31, 2002 was $155,000.  No interest rate swap agreements were terminated prior to maturity in 2002.  The Corporation had no interest rate swap agreements prior to
2002.

(Notes continued on next page)

27



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NOTE 14 - RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Bank has loan and deposit transactions
with its officers and directors, and with companies in which the officers and directors have a significant financial interest.  A summary of related party loan activity during 2002 is as follows:

|Balance, December 31, 2001 |  | $ | 6,254,789  |  
|-------------------------- |  | - | ---------- | -
|Originations  2002        |  |   | 2,045,533  |  
|Repayments  2002          |  |   | (4,823,744 | )
|                           |  |   |            |  
|Balance, December 31, 2002 |  | $ | 3,476,578  |  
|                           |  |   |            |  

Mr. Russell Kirk, a director of the Corporation and the Bank, is also an officer of Armada
Hoffler Holding Company, the parent of Armada-Hoffler Construction Company. Loans due from, or  guaranteed by, Mr. Kirk or Armada-Hoffler totaled $3,502,023 and $5,441,140 at December 31, 2001 and 2000, respectively. Mr. Kirks guarantees
relates to loans made by the Bank in the ordinary course of business to entities and businesses with which Mr. Kirk is affiliated. Each of these loan transactions or guarantees was made in the ordinary course of business on substantially the same
terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable transactions with unrelated parties and did not involve more than the normal risk of collectibility or present other unfavorable
features.

Commitments to extend credit to related parties amounted to $230,100 and $ - at December 31, 2002 and 2001.

Deposits from related
parties held by the Bank at December 31, 2002 and 2001, amounted to $4,589,722 and $6,111,000, respectively.

NOTE 15 - CREDIT COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK

The Bank has outstanding at any time a significant dollar amount of commitments to extend credit.  To accommodate major customers, the Bank also provides standby letters of credit and guarantees to third
parties.  Those arrangements are subject to strict credit control assessments. Guarantees and standby letters of credit specify limits to the Banks obligations.  The amounts of loan commitments, guarantees and standby letters of
credit are set out in the following table as of December 31, 2002 and 2001.  Because many commitments and almost all standby letters of credit and guarantees expire without being funded in whole or in part, the contract amounts are not
estimates of future cash flows.

|                  |                                                  | Variable Rate Commitments |   | Fixed Rate Commitments | 
|----------------- | ------------------------------------------------ | ------------------------- | - | ---------------------- | 
|                  |                                                  |                           |   |                        | 
|December 31, 2002 |                                                  |                           |   |                        | 
|                  | Loan commitments                                 |                           | $ | 150,974,465            | 
|                  | Standby letters of credit and guarantees written |                           | $ | 10,936,635             | 
|December 31, 2001 |                                                  |                           |   |                        | 
|                  | Loan commitments                                 |                           | $ | 109,192,896            | 
|                  | Standby letters of credit and guarantees written |                           | $ | 5,571,615              | 

(Notes continued on next page)

28



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NOTE 15 - CREDIT COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK (Continued)

Loan commitments, standby letters of
credit and guarantees written have off-balance-sheet credit risk because only origination fees and accruals for probable losses, if any, are recognized in the statement of financial position until the commitments are fulfilled or the standby letters
of credit or guarantees expire.  Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted.  The credit risk amounts are equal to the contractual
amounts, assuming that the amounts are fully advanced and that, in accordance with the requirements of FASB Statement No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk,collateral or other security is of no value.  The Banks policy is to require customers to provide collateral prior to the disbursement of approved loans.  For retail loans, the Bank usually retains
a security interest in the property or products financed, which provides repossession rights in the event of default by the customer.  For business loans and financial guarantees, collateral is usually in the form of inventory or marketable
securities (held in trust) or property (notations on title).  Additionally, the Bank had $111,113 million in mortgage loans sold to investors with various recourse and warranty provisions. The Bank provides an allowance for estimated losses
from such provisions that management considered adequate at December 31, 2002.

There are no commitments to extend credit on impaired loans at December 31, 2002.

Concentrations of credit risk (whether on or off balance sheet) arising from financial instruments exist in relation to certain groups of customers.  A group concentration arises when a number of counterparties have
similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.  The Bank does not have significant exposure to any individual customer or
counterparty.  However, a geographic concentration arises because the Bank operates primarily in southeastern and northern Virginia.

The credit risk amounts represent the maximum accounting
loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and any collateral or security proved to be of no value.  The Bank has experienced little difficulty in accessing collateral when
required.  The amounts of credit risk shown, therefore, greatly exceed expected losses, which are included in the allowance for loan losses.

NOTE 16 - REGULATORY MATTERS

The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporations and the Banks financial statements.  Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices.  The Corporations and the Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).  Management believes, as of December 31, 2002, the Corporation and the Bank meet
all capital adequacy requirements to which it is subject.

(Notes continued on next page)

28



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NOTE 16 - REGULATORY MATTERS (Continued)

As of December 31, 2002, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table.  There are no conditions or events since that notification that management believes have changed the institutions category.

The
Corporations and the Banks actual capital amounts and ratios are presented in the table below.

|                         |                                           | Actual |   | For Capital Adequacy Purposes |  | To Be Well Capitalized Under Prompt Corrective Action Provisions |      
|------------------------ | ----------------------------------------- | ------ | - | ----------------------------- |  | ---------------------------------------------------------------- | -----
|                         |                                           |        |   |                               |  |                                                                  |      
|                         |                                           | Amount |   | Ratio                         |  | Amount                                                           |      
|                         |                                           |        |   |                               |  |                                                                  |      
|As of December 31, 2002: |                                           |        |   |                               |  |                                                                  |      
|                         | Total Capital (to Risk-Weighted Assets)   |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        | $ | 51,865,000                    |  |                                                                  | 10.58
|                         | Bank                                      |        | $ | 49,433,000                    |  |                                                                  | 10.14
|                         | Tier I Capital (to Risk Weighted Assets) |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        | $ | 40,875,000                    |  |                                                                  | 8.34 
|                         | Bank                                      |        | $ | 44,424,000                    |  |                                                                  | 9.11 
|                         | Tier I Capital (to Average Assets)        |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        | $ | 40,875,000                    |  |                                                                  | 6.64 
|                         | Bank                                      |        | $ | 44,424,000                    |  |                                                                  | 7.27 
|As of December 31, 2001: |                                           |        |   |                               |  |                                                                  |      
|                         | Total Capital (to Risk-Weighted Assets)   |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        | $ | 40,903,000                    |  |                                                                  | 10.44
|                         | Bank                                      |        | $ | 39,051,000                    |  |                                                                  | 10.00
|                         | Tier I Capital (to Risk Weighted Assets) |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        | $ | 37,206,000                    |  |                                                                  | 9.49 
|                         | Bank                                      |        | $ | 35,354,000                    |  |                                                                  | 9.05 
|                         | Tier I Capital (to Average Assets)        |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        | $ | 37,206,000                    |  |                                                                  | 6.88 
|                         | Bank                                      |        | $ | 35,354,000                    |  |                                                                  | 6.58 
|                         |                                           |        |   |                               |  |                                                                  |      

(Notes continued on next page)

30



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NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and fair value of
the Banks financial instruments as of December 31, 2002 and 2001.  FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments,defines the fair value of financial instruments as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.  The carrying amounts in the table are included in the balance sheets under the indicated captions.

|                                                   |                                                | 2002                   |   | 2001                   | 
|-------------------------------------------------- | ---------------------------------------------- | ---------------------- | - | ---------------------- | 
|                                                   |                                                |                        |   |                        | 
|                                                   |                                                | Carrying Amount        |   | Fair Value             | 
|                                                   |                                                |                        |   |                        | 
|                                                   |                                                | (Dollars in thousands) |   | (Dollars in thousands) | 
|Financial Assets:                                  |                                                |                        |   |                        | 
|                                                   | Cash and cash equivalents                      |                        | $ | 13,399                 | 
|                                                   | Loans, net                                     |                        |   | 427,735                | 
|                                                   | Investment securities                          |                        |   | 129,841                | 
|                                                   | Funds advanced in settlement of mortgage loans |                        |   | 111,113                | 
|                                                   | Accrued interest receivable                    |                        |   | 3,855                  | 
|Financial Liabilities:                             |                                                |                        |   |                        | 
|                                                   | Deposit liabilities                            |                        |   | 516,449                | 
|                                                   | Short-term borrowings                          |                        |   | 43,347                 | 
|                                                   | Long-term borrowings                           |                        |   | 110,200                | 
|                                                   | Accrued interest payable                       |                        |   | 3,522                  | 
|On-balance sheet derivative financial instruments: |                                                |                        |   |                        | 
|                                                   | Interest rate swap assets                      |                        |   | 463                    | 

Estimation of Fair Values

The following notes summarize the major methods and assumptions used in estimating the fair value of financial instruments:

Short-term financial instruments are
valued at their carrying amounts included in the Banks balance sheet, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments.  This approach applies to cash and cash equivalents,
deposits in other banks, funds advanced in settlement of mortgage loans, and short-term borrowings.

Loans are valued on the basis of estimated future receipts of principal and interest,
discounted at various rates.  Loan prepayments are assumed to occur at the same rate as in previous periods when interest rates were at levels similar to current levels.  Future cash flows for homogeneous categories of consumer loans, such
as motor vehicle loans, are estimated on a portfolio basis and discounted at current rates offered for similar loan terms to new borrowers with similar credit profiles.  The fair value of nonaccrual loans also is estimated on a present value
basis, using higher discount rates appropriate to the higher risk involved.

(Notes continued on next page)

31



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NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Investment securities are valued at quoted market
prices if available.  For unquoted securities, the fair value is estimated by the Bank on the basis of financial and other information.

The fair value of demand deposits and deposits
with no defined maturity is taken to be the amount payable on demand at the reporting date.  The fair value of fixed - maturity deposits is estimated using rates currently offered for deposits of similar remaining
maturities.  The intangible value of long-term relationships with depositors is not taken into account in estimating the fair values disclosed.

The carrying amounts of accrued interest
receivable and payable, and certain other assetsapproximate fair value.

The fair values for interest rate swap agreements are based upon the amounts required to settle the
contracts.

NOTE 18 - EARNINGS PER SHARE RECONCILIATION

The following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations.

|                                                  |  | 2002 |           | 2001 |   | 2000      | 
|------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                                                  |  |      |           |      |   |           | 
|Net income (numerator, basic and diluted)         |  | $    | 6,329,218 |      | $ | 4,542,621 | 
|Weighted average shares outstanding (denominator) |  |      | 3,082,142 |      |   | 2,895,508 | 
|                                                  |  |      |           |      |   |           | 
|Earnings per common share-basic                   |  | $    | 2.05      |      | $ | 1.57      | 
|                                                  |  |      |           |      |   |           | 
|Effect of dilutive securities:                    |  |      |           |      |   |           | 
|Weighted average shares outstanding               |  |      | 3,082,142 |      |   | 2,895,508 | 
|Effect of stock options                           |  |      | 189,740   |      |   | 157,537   | 
|                                                  |  |      |           |      |   |           | 
|Diluted average shares outstanding (denominator)  |  |      | 3,271,882 |      |   | 3,053,045 | 
|                                                  |  |      |           |      |   |           | 
|Earnings per common share - assuming dilution     |  | $    | 1.93      |      | $ | 1.49      | 
|                                                  |  |      |           |      |   |           | 

(Notes continued on next page)

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NOTE 19 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

Financial information pertaining only to Resource
Bankshares Corporation is as follows:

Balance Sheets

|December 31,                         |                                                             | 2002 |            | 2001       | 
|------------------------------------ | ----------------------------------------------------------- | ---- | ---------- | ---------- | 
|                                     |                                                             |      |            |            | 
|Assets                               |                                                             |      |            |            | 
|                                     | Cash and due from banks                                     |      | $          | 37,111     | 
|                                     | Cash on deposit at Resource Bank                            |      |            | 1,969,663  | 
|                                     |                                                             |      |            |            | 
|                                     | Total cash and due from banks                               |      |            | 2,006,774  | 
|                                     | Investment securities available for sale                    |      |            | 305,081    | 
|                                     | Investment in preferred stock of Resource Capital Trust I   |      |            | 284,550    | 
|                                     | Investment in preferred stock of Resource Capital Trust II  |      |            | 155,000    | 
|                                     | Investment in preferred stock of Resource Capital Trust III |      |            | 93,000     | 
|                                     | Investment in preferred stock of Resource Bank              |      |            | 13,900,000 | 
|                                     | Investment in common stock of Resource Bank                 |      |            | 32,048,656 | 
|                                     | Other equity investments                                    |      |            | 1,790,047  | 
|                                     | Other assets                                                |      |            | 594,206    | 
|                                     |                                                             |      |            |            | 
|                                     | Total assets                                                |      | $          | 51,177,314 | 
|                                     |                                                             |      |            |            | 
|Liabilities and Stockholders equity |                                                             |      |            |            | 
|                                     | Interest payable                                            |      | $          | 203,371    | 
|                                     | Other liabilities                                           |      |            | 2,074,391  | 
|                                     | Capital Trust borrowings                                    |      |            | 16,732,550 | 
|                                     |                                                             |      |            |            | 
|                                     |                                                             |      | 19,010,312 |            | 
|                                     | Stockholders equity                                        |      |            | 32,167,002 | 
|                                     |                                                             |      |            |            | 
|                                     | Total liabilities and stockholders equity                  |      | $          | 51,177,314 | 
|                                     |                                                             |      |            |            | 
|                                     |                                                             |      |            |            | 

Statements of Operations

|Years Ended December 31,                                                           |                                             |   | 2002      |           |   | 2001      |           |   | 2000      |          
|---------------------------------------------------------------------------------- | ------------------------------------------- | - | --------- | --------- | - | --------- | --------- | - | --------- | ---------
|                                                                                   |                                             |   |           |           |   |           |           |   |           |          
|Income                                                                             |                                             |   |           |           |   |           |           |   |           |          
|                                                                                   | Dividends from Resource Bank                |   | $         | 2,704,832 |   | $         | 2,152,645 |   | $         | 1,486,851
|                                                                                   | Interest and dividends on investments       |   |           | 4,182     |   |           | 43,803    |   |           | 58,622   
|                                                                                   | Management and service fees                 |   |           |          |   |           | 28,200    |   |           | 480,300  
|                                                                                   | Other income                                |   |           | 20,000    |   |           |          |   |           |         
|                                                                                   | Gain on sale of assets                      |   |           |          |   |           | 81,311    |   |           |         
|                                                                                   |                                             |   |           |           |   |           |           |   |           |          
|                                                                                   |                                             |   | 2,729,014 |           |   | 2,305,959 |           |   | 2,025,773 |          
|                                                                                   |                                             |   |           |           |   |           |           |   |           |          
|Expenses                                                                           |                                             |   |           |           |   |           |           |   |           |          
|                                                                                   | Interest expense - Capital Trust borrowings |   |           | 1,132,708 |   |           | 879,342   |   |           | 839,181  
|                                                                                   | Other expenses                              |   |           | 298,458   |   |           | 213,577   |   |           | 204,736  
|                                                                                   |                                             |   |           |           |   |           |           |   |           |          
|                                                                                   |                                             |   | 1,431,166 |           |   | 1,092,919 |           |   | 1,043,917 |          
|                                                                                   |                                             |   |           |           |   |           |           |   |           |          
|Income before income taxes and equity in undistributed net income of Resource Bank |                                             |   | 1,297,848 |           |   | 1,213,040 |           |   | 981,856   |          
|Equity in undistributed net income of:                                             |                                             |   |           |           |   |           |           |   |           |          
|                                                                                   | Resource Bank                               |   |           | 4,329,683 |   |           | 3,010,115 |   |           | 3,076,146
|                                                                                   |                                             |   |           |           |   |           |           |   |           |          
|Income before tax benefit                                                          |                                             |   | 5,627,531 |           |   | 4,223,155 |           |   | 4,058,002 |          
|                                                                                   |                                             |   |           |           |   |           |           |   |           |          
|Income tax benefit                                                                 |                                             |   | 701,687   |           |   | 319,466   |           |   | 174,728   |          
|                                                                                   |                                             |   |           |           |   |           |           |   |           |          
|Net income                                                                         |                                             | $ | 6,329,218 |           | $ | 4,542,621 |           | $ | 4,232,730 |          
|                                                                                   |                                             |   |           |           |   |           |           |   |           |          

(Notes continued on next page)

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NOTE 19 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY(Continued)

|Years Ended December 31,                       |                                                                     | 2002 |            | 2001       |   | 2000      |           
|---------------------------------------------- | ------------------------------------------------------------------- | ---- | ---------- | ---------- | - | --------- | ----------
|                                               |                                                                     |      |            |            |   |           |           
|Statement of Cash Flows                        |                                                                     |      |            |            |   |           |           
|Cash flows from operating activities           |                                                                     |      |            |            |   |           |           
|                                               | Net income                                                          |      | $          | 6,329,218  |   | $         | 4,542,621 
|                                               | Adjustments to reconcile to net cash from operating activities:     |      |            |            |   |           |           
|                                               | Equity in undistributed net (income) loss of Resource Bank          |      |            | (4,329,683 | ) |           | (3,010,115
|                                               | Equity in loss of other investments                                 |      |            | 38,039     |   |           |           
|                                               | Gain on sale of assets                                              |      |            |           |   |           | (81,311   
|                                               | Changes in:                                                         |      |            |            |   |           |           
|                                               | Other assets                                                        |      |            | 52,303     |   |           | (30,425   
|                                               | Accrued expenses                                                    |      |            | (98,590    | ) |           | 28,342    
|                                               | Other liabilities                                                   |      |            | 2,069,880  |   |           | (989,919  
|                                               |                                                                     |      |            |            |   |           |           
|                                               | Net cash from operating activities                                  |      |            | 4,061,167  |   |           | 459,193   
|                                               |                                                                     |      |            |            |   |           |           
|Cash flows from investing activities           |                                                                     |      |            |            |   |           |           
|                                               | Proceeds from sales and maturities of available-for-sale securities |      |            |           |   |           | 515,287   
|                                               | Purchases of available-for-sale securities                          |      |            | (238,354   | ) |           | (19,539   
|                                               | Purchases of other investments                                      |      |            | (1,828,086 | ) |           |           
|                                               | Purchase of Resource Capital Trust preferred stock                  |      |            | (93,000    | ) |           | (155,000  
|                                               | Capital contributed to Resource Bank                                |      |            |           |   |           | (4,575,822
|                                               | Purchase of Resource Bank preferred stock                           |      |            | (4,700,000 | ) |           | (1,850,000
|                                               |                                                                     |      |            |            |   |           |           
|                                               | Net cash from investing activities                                  |      |            | (6,859,440 | ) |           | (6,085,074
|                                               |                                                                     |      |            |            |   |           |           
|Cash flows from financing activities           |                                                                     |      |            |            |   |           |           
|                                               | Proceeds from Capital Trust borrowings                              |      |            | 3,093,000  |   |           | 5,155,000 
|                                               | Reacquisition of Capital Trust borrowings                           |      |            | (1,000,000 | ) |           |          
|                                               | Proceeds from sale of common stock, net of issuance costs           |      |            |           |   |           | 7,342,211 
|                                               | Proceeds from sale of common stock  upon exercise of stock options  |      |            | 199,748    |   |           |          
|                                               | Payments to reacquire common stock                                  |      |            | (2,207,730 | ) |           | (1,487,033
|                                               | Cash dividends paid on common stock                                 |      |            | (1,731,013 | ) |           | (1,388,479
|                                               |                                                                     |      |            |            |   |           |           
|                                               | Net cash from financing activities                                  |      |            | (1,645,995 | ) |           | 9,621,699 
|                                               |                                                                     |      |            |            |   |           |           
|Net change in cash and cash equivalents        |                                                                     |      | (4,444,268 | )          |   | 3,995,818 |           
|Cash and cash equivalents at beginning of year |                                                                     |      | 6,451,042  |            |   | 2,455,224 |           
|                                               |                                                                     |      |            |            |   |           |           
|Cash and cash equivalents at end of year       |                                                                     | $    | 2,006,774  |            | $ | 6,451,042 |           
|                                               |                                                                     |      |            |            |   |           |           
|                                               |                                                                     |      |            |            |   |           |           

Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Corporation.  The total amount of
dividends which may be paid at any date is generally limited to the retained earnings of the Bank, and loans or advances are limited to 10% of the Banks capital stock and surplus on a secured basis.

At December 31, 2002, the Banks retained earnings available for the payment of dividends without prior regulatory approval was $11,740,000, and funds available for loans or advances amounted to $1,968,000.

In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Banks capital to be reduced below applicable minimum capital requirements.

(Notes continued on next page)

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NOTE 20 - SEGMENT REPORTING

The Corporation has two reportable segments, its mortgage banking operations and its
commercial 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 construction loans, and other business financing arrangements.  The Corporation does not have other reportable operating segments.

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

The Corporation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 segments most significant revenue and expense is noninterest
income and noninterest expense, respectively.  The segments are reported below for the years ended December 31.

Selected Financial Information

|                             |                                                     | Mortgage Banking Operations |   | Commercial and Other Banking |   | Total |            
|---------------------------- | --------------------------------------------------- | --------------------------- | - | ---------------------------- | - | ----- | -----------
|                             |                                                     |                             |   |                              |   |       |            
|Year Ended December 31, 2002 |                                                     |                             |   |                              |   |       |            
|                             | Net interest income after provision for loan losses |                             | $ |                             |   | $     | 14,822,532 
|                             | Noninterest income                                  |                             |   | 21,123,056                   |   |       | 3,052,944  
|                             | Noninterest expense                                 |                             |   | (18,509,451                  | ) |       | (11,802,026
|                             |                                                     |                             |   |                              |   |       |            
|                             | Net income before income taxes                      |                             | $ | 2,613,605                    |   | $     | 6,073,450  
|                             |                                                     |                             |   |                              |   |       |            
|Year Ended December 31, 2001 |                                                     |                             |   |                              |   |       |            
|                             | Net interest income after provision for loan losses |                             | $ |                             |   | $     | 10,837,769 
|                             | Noninterest income                                  |                             |   | 17,604,747                   |   |       | 2,539,114  
|                             | Noninterest expense                                 |                             |   | (15,274,744                  | ) |       | (9,246,057 
|                             |                                                     |                             |   |                              |   |       |            
|                             | Net income before income taxes                      |                             | $ | 2,330,003                    |   | $     | 4,130,826  
|                             |                                                     |                             |   |                              |   |       |            
|Year Ended December 31, 2000 |                                                     |                             |   |                              |   |       |            
|                             | Net interest income after provision for loan losses |                             | $ |                             |   | $     | 8,337,497  
|                             | Noninterest income                                  |                             |   | 6,916,584                    |   |       | 4,973,484  
|                             | Noninterest expense                                 |                             |   | (6,242,594                   | ) |       | (7,866,552 
|                             |                                                     |                             |   |                              |   |       |            
|                             | Net income before income taxes                      |                             | $ | 673,990                      |   | $     | 5,444,429  
|                             |                                                     |                             |   |                              |   |       |            

(Notes continued on next page)

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NOTE 20 - SEGMENT REPORTING(Continued)

|Segment Assets |  | Mortgage Banking Operations |           | Commercial Banking |   | Total       | 
|-------------- |  | --------------------------- | --------- | ------------------ | - | ----------- | 
|               |  |                             |           |                    |   |             | 
|2002           |  | $                           | 2,655,496 |                    | $ | 712,511,143 | 
|2001           |  | $                           | 2,398,888 |                    | $ | 562,450,691 | 
|2000           |  | $                           | 709,879   |                    | $ | 403,784,135 | 

The Corporation does not have a single external customer from which it derives
15 percent or more of its revenues.

NOTE 21 - QUARTERLY DATA (UNAUDITED)

|                                                    |         | Year Ended December 31, 2002 |           
|--------------------------------------------------- | ------- | ---------------------------- | ----------
|                                                    |         |                              |           
|                                                    |         | Fourth Quarter               |           
|                                                    |         |                              |           
|Interest and dividend income                        |         | $                            | 9,637,517 
|Interest expense                                    |         |                              | (4,794,317
|                                                    |         |                              |           
|Net interest income                                 |         |                              | 4,843,200 
|Provision for loan losses                           |         |                              | (575,000  
|                                                    |         |                              |           
|Net interest income after provision for loan losses |         |                              | 4,268,200 
|Noninterest income                                  |         |                              | 7,133,394 
|Noninterest expenses                                |         |                              | (8,873,327
|                                                    |         |                              |           
|Income before income taxes                          |         |                              | 2,528,267 
|Provision for income taxes                          |         |                              | (540,168  
|                                                    |         |                              |           
|                                                    |         | $                            | 1,988,099 
|                                                    |         |                              |           
|Earnings per common share:                          |         |                              |           
|                                                    | Basic   |                              | $         
|                                                    |         |                              |           
|                                                    | Diluted |                              | $         
|                                                    |         |                              |           

(Notes continued on next page)

36



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NOTE 21 - QUARTERLY DATA (UNAUDITED)(Continued)

|                                                    |         | Year Ended December 31, 2001 |           
|--------------------------------------------------- | ------- | ---------------------------- | ----------
|                                                    |         |                              |           
|                                                    |         | Fourth Quarter               |           
|                                                    |         |                              |           
|Interest and dividend income                        |         | $                            | 8,341,548 
|Interest expense                                    |         |                              | (5,038,794
|                                                    |         |                              |           
|Net interest income                                 |         |                              | 3,302,754 
|Provision for loan losses                           |         |                              | (150,000  
|                                                    |         |                              |           
|Net interest income after provision for loan losses |         |                              | 3,152,754 
|Noninterest income                                  |         |                              | 6,246,715 
|Noninterest expenses                                |         |                              | (7,523,752
|                                                    |         |                              |           
|Income before income taxes                          |         |                              | 1,875,717 
|Provision for income taxes                          |         |                              | (576,967  
|                                                    |         |                              |           
|                                                    |         | $                            | 1,298,750 
|                                                    |         |                              |           
|Earnings per common share:                          |         |                              |           
|                                                    | Basic   |                              | $         
|                                                    |         |                              |           
|                                                    | Diluted |                              | $         
|                                                    |         |                              |           

NOTE 22  SUBSEQUENT EVENT

In
February 2003, the Corporation issued 918,373 shares of its common stock through a public offering of its common stock at a price of $21.50 per share resulting in proceeds of $19,745,020, to net $18,100,000 after offering costs.

* * * * *

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