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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)

OF THE SECURITIES EXCHANGE
ACT OF 1934



FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2003



Commission File Number: 001-14319



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RESOURCE BANKSHARES CORPORATION

(Exact name of Registrant as specified in its
charter)



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|Virginia                                                       |  | 54-1904386                           
|-------------------------------------------------------------- |  | -------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | ( I.R.S. Employer Identification No.)



3720 Virginia Beach
Blvd., Virginia Beach, VA 23452

(Address of principal executive offices) (Zip Code)



(757) 463-2265

(Registrants telephone number,

including area code)



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



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



At September 30, 2003, 6,014,327 shares of Resource Bankshares Corporations common stock, $1.50 par value, were outstanding.



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##### Table of Contents

RESOURCE BANKSHARES CORPORATION

FORM 10-Q

SEPTEMBER 30, 2003



INDEX



|PART I. FINANCIAL INFORMATION |  |                                                                                        
|----------------------------- |  | ---------------------------------------------------------------------------------------
|                              |  |                                                                                        
|Item 1.                       |  | Financial Statements                                                                   
|                              |  |                                                                                        
|                              |  | Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002             
|                              |  |                                                                                        
|                              |  | Consolidated Statements of Income for the periods ended September 30, 2003 and 2002    
|                              |  |                                                                                        
|                              |  | Consolidated Statements of Stockholders Equity for the period ended September 30, 2003
|                              |  |                                                                                        
|                              |  | Consolidated Statements of Cash Flows for the periods ended September 30, 2003 and 2002
|                              |  |                                                                                        
|                              |  | Notes to Consolidated Financial Statements                                             
|                              |  |                                                                                        
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations  
|                              |  |                                                                                        
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risks                            
|                              |  |                                                                                        
|Item 4.                       |  | Controls and Procedures                                                                
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                        
|                              |  |                                                                                        
|Item 1.                       |  | Legal Proceedings                                                                      
|                              |  |                                                                                        
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                    
|                              |  |                                                                                        
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                       



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PART I - FINANCIAL INFORMATION

Item I. Financial Statements



RESOURCE BANKSHARES CORPORATION

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                        |  | September 302003       |         |   | December 312002 |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | --------------- | -
|                                                                                                                                        |  | (Unaudited)            |         |   |                 |  
|                                                                                                                                        |  | (Dollars in thousands) |        
|ASSETS                                                                                                                                  |  |                        |         |   |                 |  
|Cash and due from banks                                                                                                                 |  | $                      | 45,498  |   |                 | $
|Interest bearing deposits                                                                                                               |  |                        | 4,689   |   |                 |  
|                                                                                                                                        |  |                        |         |   |                 |  
|                                                                                                                                        |  |                        | 50,187  |   |                 |  
|                                                                                                                                        |  |                       
|Funds advanced in settlement of mortgage loans                                                                                          |  |                        | 85,682  |   |                 |  
|Securities available for sale(amortized cost of $12,453 and $21,213,respectively)                                                       |  |                        | 12,437  |   |                 |  
|Securities held to maturity(fair value of $134,036 and $111,999,respectively)                                                           |  |                        | 135,219 |   |                 |  
|Loans, net                                                                                                                              |  |                        |         |   |                 |  
|Commercial                                                                                                                              |  |                        | 118,787 |   |                 |  
|Real estate - construction                                                                                                              |  |                        | 162,007 |   |                 |  
|Commercial real estate                                                                                                                  |  |                        | 187,449 |   |                 |  
|Residential real estate                                                                                                                 |  |                        | 64,184  |   |                 |  
|Installment and consumer loans                                                                                                          |  |                        | 4,800   |   |                 |  
|                                                                                                                                        |  |                        |         |   |                 |  
|TOTAL LOANS                                                                                                                             |  |                        | 537,227 |   |                 |  
|Allowance for loan losses                                                                                                               |  |                        | (5,034  | ) |                 |  
|                                                                                                                                        |  |                        |         |   |                 |  
|NET LOANS                                                                                                                               |  |                        | 532,193 |   |                 |  
|                                                                                                                                        |  |                       
|Other real estate owned                                                                                                                 |  |                        | 53      |   |                 |  
|Premises and equipment, net                                                                                                             |  |                        | 10,100  |   |                 |  
|Cash surrender value of life insurance                                                                                                  |  |                        | 13,324  |   |                 |  
|Accrued interest                                                                                                                        |  |                        | 3,991   |   |                 |  
|Other assets                                                                                                                            |  |                        | 8,250   |   |                 |  
|                                                                                                                                        |  |                        |         |   |                 |  
|                                                                                                                                        |  | $                      | 851,436 |   |                 | $
|                                                                                                                                        |  |                        |         |   |                 |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                    |  |                        |         |   |                 |  
|Deposits:                                                                                                                               |  |                        |         |   |                 |  
|Non interest bearing                                                                                                                    |  | $                      | 31,540  |   |                 | $
|Interest bearing                                                                                                                        |  |                        | 606,065 |   |                 |  
|                                                                                                                                        |  |                        |         |   |                 |  
|TOTAL DEPOSITS                                                                                                                          |  |                        | 637,605 |   |                 |  
|                                                                                                                                        |  |                       
|Federal funds purchased and securities sold under agreements to repurchase                                                              |  |                        | 18,000  |   |                 |  
|FHLB advances                                                                                                                           |  |                        | 109,000 |   |                 |  
|Capital debt securities                                                                                                                 |  |                        | 16,200  |   |                 |  
|Accrued interest                                                                                                                        |  |                        | 3,210   |   |                 |  
|Other liabilities                                                                                                                       |  |                        | 10,509  |   |                 |  
|                                                                                                                                        |  |                        |         |   |                 |  
|TOTAL LIABILITIES                                                                                                                       |  |                        | 794,524 |   |                 |  
|Preferred stock, par value $10 per share, Shares authorized: 500,000; none issued and outstanding                                       |  |                        |        |   |                 |  
|Common stock, par value $1.50 per share Shares authorized: 15,000,000 Shares issued and
outstanding: 2003 - 6,014,327; 2002 - 4,541,517 |  |                        | 9,021   |   |                 |  
|Additional paid in capital                                                                                                              |  |                        | 28,114  |   |                 |  
|Retained earnings                                                                                                                       |  |                        | 19,591  |   |                 |  
|Accumulated other comprehensive gain                                                                                                    |  |                        | 186     |   |                 |  
|                                                                                                                                        |  |                        |         |   |                 |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                              |  |                        | 56,912  |   |                 |  
|                                                                                                                                        |  |                        |         |   |                 |  
|                                                                                                                                        |  | $                      | 851,436 |   |                 | $
|                                                                                                                                        |  |                        |         |   |                 |  



See notes to consolidated financial
statements.



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RESOURCE BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                           |  | Three months endedSeptember 30 |        | Nine months endedSeptember 30
|---------------------------------------------------------- |  | ------------------------------ | ------ | -----------------------------
|                                                           |  | 2003                           |        | 2002                         
|                                                           |  | (Dollars in thousands)         |        | (Dollars in thousands)       
|Interest and dividend income                               |  |                                |        |                              
|Interest and fees on loans                                 |  | $                              | 6,818  |                              
|                                                           |  |                                |        |                              
|Interest on investment securities:                         |  |                                |        |                              
|Taxable                                                    |  |                                | 2,028  |                              
|Tax exempt                                                 |  |                                | 232    |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                | 2,260  |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Interest on funds advanced in settlement of mortgage loans |  |                                | 1,950  |                              
|                                                           |  |                                |        |                              
|Total interest income                                      |  |                                | 11,028 |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Interest expense                                           |  |                                |        |                              
|Interest on deposits                                       |  |                                | 3,059  |                              
|Interest on borrowings                                     |  |                                | 1,190  |                              
|Interest on capital debt securities                        |  |                                | 287    |                              
|                                                           |  |                                |        |                              
|Total interest expense                                     |  |                                | 4,536  |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Net interest income                                        |  |                                | 6,492  |                              
|                                                           |  |                                |        |                              
|Provision for loan losses                                  |  |                                |       |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Net interest income after provision for loan losses        |  |                                | 6,492  |                              
|                                                           |  |                                |        |                              
|Noninterest income                                         |  |                                |        |                              
|Mortgage banking income                                    |  |                                | 8,401  |                              
|Service charges                                            |  |                                | 134    |                              
|Gain(loss) on sale of assets                               |  |                                |       |                              
|Gain on sale of securities                                 |  |                                |       |                              
|Other                                                      |  |                                | 617    |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                | 9,152  |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Noninterest expense                                        |  |                                |        |                              
|Salaries and employee benefits                             |  |                                | 7,783  |                              
|Occupancy expenses                                         |  |                                | 581    |                              
|Depreciation and equipment maintenance                     |  |                                | 619    |                              
|Stationery and supplies                                    |  |                                | 243    |                              
|Marketing and business development                         |  |                                | 267    |                              
|Professional fees                                          |  |                                | 189    |                              
|Outside computer services                                  |  |                                | 290    |                              
|FDIC insurance                                             |  |                                | 21     |                              
|Other                                                      |  |                                | 906    |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                | 10,899 |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Income before income tax                                   |  |                                | 4,745  |                              
|Income tax expense                                         |  |                                | 1,449  |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Net income                                                 |  | $                              | 3,296  |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Cash dividends declared per common share                   |  | $                              | 0.11   |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Basic earnings per common share                            |  | $                              | 0.55   |                              
|                                                           |  |                                |        |                              
|                                                           |  |                                |        |                              
|Diluted earnings per common share                          |  | $                              | 0.51   |                              
|                                                           |  |                                |        |                              



See
notes to consolidated financial statements.



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RESOURCE BANKSHARES CORPORATION

STATEMENT OF STOCKHOLDERS EQUITY

(UNAUDITED)



|Nine Months Ended September 30, 2003                                                                                                 |  | (Dollars in Thousands) |  |             |       |                         
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- |  | ----------- | ----- | ------------------------
|                                                                                                                                     |  | CommonShares           |  | StockAmount |       | AdditionalPaid-inCapital
|Balance, December 31, 2002                                                                                                           |  | 4,541,517              |  | $           | 6,812 |                         
|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                                                                                           |  |                        |  |             |       |                         
|                                                                                                                                     |  |                        |  |             |       |                         
|Total comprehensive income                                                                                                           |  |                        |  |             |       |                         
|Proceeds from common stock issued - net of issuance costs                                                                            |  | 1,377,560              |  |             | 2,066 |                         
|Proceeds from exercise of stock options                                                                                              |  | 95,250                 |  |             | 143   |                         
|Cash dividends declared - $0.34 per share                                                                                            |  |                        |  |             |       |                         
|                                                                                                                                     |  |                        |  |             |       |                         
|Balance, September 30, 2003                                                                                                          |  | 6,014,327              |  | $           | 9,021 |                         
|                                                                                                                                     |  |                        |  |             |       |                         



See notes to consolidated financial
statements.



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RESOURCE BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                             |  | Nine months ended      |         
|---------------------------------------------------------------------------- |  | ---------------------- | --------
|                                                                             |  | Sept. 30,2003          |         
|                                                                             |  | (Dollars in thousands) |         
|Operating activities                                                         |  |                        |         
|Net income                                                                   |  | $                      | 8,706   
|Adjustments to reconcile to net cash used by operating activities:           |  |                        |         
|Provision for losses on loans and other real estate owned                    |  |                        | 150     
|Provision for losses on funds advanced in settlement of mortgage loans       |  |                        | 99      
|Depreciation and amortization                                                |  |                        | 1,055   
|Amortization of investment securities premiums, net of discounts             |  |                        | (1,377  
|(Gain)loss on sale of loans or other real estate owned                       |  |                        | 15      
|Gain on sale of securities                                                   |  |                        | (83     
|Increase in cash surrender value of life insurance                           |  |                        | (414    
|Deferred loan origination fees, net of costs                                 |  |                        | 238     
|Funds advanced in settlement of mortgage loans originated                    |  |                        | (959,333
|Sales proceeds from funds advanced in settlement of mortgage loans           |  |                        | 984,666 
|Changes in:                                                                  |  |                        |         
|Interest receivable                                                          |  |                        | (135    
|Interest payable                                                             |  |                        | (108    
|Other assets                                                                 |  |                        | (2,178  
|Other liabilities                                                            |  |                        | 2,609   
|                                                                             |  |                        |         
|Net cash provided(used) by operating activities                              |  |                        | 33,910  
|                                                                             |  |                       
|Investing activities:                                                        |  |                        |         
|Proceeds from sales and maturities of available-for-sale securities          |  |                        | 10,082  
|Proceeds from maturities of held-to-maturity securities                      |  |                        | 42,206  
|Purchases of held-to-maturity securities                                     |  |                        | (67,394 
|Purchases of available-for-sale securities                                   |  |                        | (1,246  
|Proceeds from sale of other real estate owned                                |  |                        | 23      
|Proceeds from sale of loans                                                  |  |                        |        
|Loan originations, net of principal repayments                               |  |                        | (104,922
|Purchases of premises, equipment and other assets                            |  |                        | (916    
|                                                                             |  |                        |         
|Net cash used by investing activities                                        |  |                        | (122,167
|                                                                             |  |                       
|Financing activities:                                                        |  |                        |         
|Proceeds from exercise of stock options and warrants                         |  |                        | 234     
|Payments to reacquire common stock                                           |  |                        |        
|Proceeds from sale of common stock, net of issuance costs                    |  |                        | 18,130  
|Cash dividends paid                                                          |  |                        | (1,873  
|Proceeds(repayment) of federal funds purchased                               |  |                        | (14,347 
|Net proceeds in FHLB advances                                                |  |                        | 4,000   
|Net increase(decrease) in demand deposits, NOW accounts and savings accounts |  |                        | 28,533  
|Net increase in certificates of deposits                                     |  |                        | 90,368  
|                                                                             |  |                        |         
|Net cash provided by financing activities                                    |  |                        | 125,045 



Continued



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RESOURCE BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                      |  | Nine months ended |       
|--------------------------------------------------------------------- |  | ----------------- | ------
|                                                                      |  | Sept. 30, 2003    |       
|Increase(decrease) in cash and cash equivalents                       |  |                   | 36,788
|Cash and cash equivalents at beginning of period                      |  |                   | 13,399
|                                                                      |  |                   |       
|Cash and cash equivalents at end of period                            |  | $                 | 50,187
|                                                                      |  |                   |       
|Supplemental schedules and disclosures of cash flow information:      |  |                   |       
|Cash paid for:                                                        |  |                   |       
|Interest on deposits and other borrowings                             |  | $                 | 13,584
|                                                                      |  |                   |       
|Supplemental schedule of non cash investing and financing activities: |  |                   |       
|Transfer from loans to real estate acquired through foreclosure       |  | $                 | 76    
|                                                                      |  |                   |       



See notes to consolidated financial
statements.



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RESOURCE BANKSHARES CORPORATION



Notes to Consolidated Financial Statements

September 30, 2003

(UNAUDITED)

(Dollars in thousands, except per
share data)



Organization and Summary of
Significant Accounting Policies



(1) GENERAL



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



The consolidated financial statements of the Company include the accounts of
its wholly owned subsidiaries, Resource Bank and Virginia Financial Services, LLC; and the Banks wholly owned subsidiaries, CW and Company of Virginia, Resource Service Corporation and Dominion Investment Group, LLC. All significant
inter-company balances and transactions have been eliminated in consolidation.



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



All per share figures have been adjusted to reflect a three-for-two stock split on September 5, 2003. Certain reclassifications have been made to prior
years information to conform with the current year presentation.



(2) CASH AND CASH EQUIVALENTS



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



(3) ALLOWANCE FOR LOAN LOSSES





|Changes in the allowance for loan losses are as follows: |  |   |       |  
|-------------------------------------------------------- |  | - | ----- | -
|                                                         | 
|Balance as of January 1, 2003                            |  | $ | 5,009 |  
|Provision for loan losses                                |  |   | 150   |  
|Loans charged off                                        |  |   | (127  | )
|Recoveries                                               |  |   | 2     |  
|                                                         |  |   |       |  
|Balance at September 30, 2003                            |  | $ | 5,034 |  
|                                                         |  |   |       |  



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(4) NET INCOME PER SHARE



Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average
number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock
that then shares in the earnings of the entity. The weighted average number of basic shares outstanding for the three and nine months ended September 30, 2003 were 5,985,307 and 5,690,613, respectively, and for the three and nine months ended
September 30, 2002 were 4,622,778 and 4,644,807, respectively. The diluted weighted average number of shares outstanding for the three and nine months ended September 30, 2003 were 6,404,911 and 6,058,103, respectively, and for the three and nine
months ended September 30, 2002 were 4,905,971 and 4,924,968, respectively.



(5) COMPREHENSIVE INCOME



The
components of other comprehensive income and related tax effects for the nine months ended September 30, 2003 and 2002 are as follows:



|                                                                                            |  | Nine months ended |     
|------------------------------------------------------------------------------------------- |  | ----------------- | ----
|                                                                                            |  | Sept. 30, 2003    |     
|Unrealized holding gains(losses) arising during the period on available-for-sale securities |  | $                 | 100 
|Reclassification adjustment for gains realized in income                                    |  |                   | (83 
|                                                                                            |  |                   |     
|Net unrealized gains                                                                        |  |                   | 17  
|Tax effect                                                                                  |  |                   | (5  
|                                                                                            |  |                   |     
|Net-of-tax amount                                                                           |  | $                 | 12  
|                                                                                            |  |                   |     
|Change in fair value of hedging derivatives                                                 |  | $                 | (464
|                                                                                            |  |                   |     



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(6) STOCK BASED COMPENSATION



Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock Based Compensation  Transition and
Disclosure  an amendment of SFAS 123, Accounting for Stock-Based Compensation, was issued by the FASB in December 2002. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting
for stock-based employee compensation. SFAS 148 also amends the disclosure requirements of SFAS 123, to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. Management adopted the disclosure provisions of this Standard in 2002 but is still assessing the recognition provisions of this Standard.



In accordance with SFAS 148, the Company provides disclosures as if the fair
value-based method of measuring all outstanding employee stock options was already adopted and recognized in 2003 and 2002. The following table presents the effect on net income and on basic and diluted net income per share as if the fair value
based method had been applied to all outstanding and unvested awards as September 30, 2003 and 2002.



|                                                                                                                                    |  | Three MonthsEndedSeptember 30, |       |   | Nine MonthsEndedSeptember 30, |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ----------------------------- | -
|                                                                                                                                    |  | 2003                           |       |   | 2002                          |  
|Net Income, as reported                                                                                                             |  | $                              | 3,296 |   |                               | $
|Deduct:                                                                                                                             |  |                                |       |   |                               |  
|Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                | (42   | ) |                               |  
|                                                                                                                                    |  |                                |       |   |                               |  
|Proforma net income                                                                                                                 |  | $                              | 3,254 |   |                               | $
|                                                                                                                                    |  |                                |       |   |                               |  
|Earnings per share:                                                                                                                 |  |                                |       |   |                               |  
|Basic - as reported                                                                                                                 |  | $                              | 0.55  |   |                               | $
|Basic - proforma                                                                                                                    |  |                                | 0.54  |   |                               |  
|                                                                                                                                    |  |                                |       |  
|Diluted - as reported                                                                                                               |  | $                              | 0.51  |   |                               | $
|Diluted - proforma                                                                                                                  |  |                                | 0.51  |   |                               |  



(7) DERIVATIVE
FINANCIAL INSTRUMENTS



Derivative financial instruments are
components of the Companys risk management profile. The Company monitors its sensitivity to changes in interest rates and may use derivative instruments to hedge this risk. In accordance with SFAS No. 133 all derivatives are recorded in the
financial statements at fair value. The Company has entered into a series of interest rate swaps to hedge certificate of deposit liabilities. The total notional value at September 30, 2003 was $200 million. These transactions are designated and
qualify for fair value hedge accounting. Both the interest rate swap (included in other assets in the consolidated balance sheets) and the certificates of deposit are



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recorded at fair value, with changes in fair value included in the statements of income as interest expense. No ineffectiveness was recognized during the
three and nine months ended September 30, 2003 as the hedge relationship is considered to be 100% effective.



(8) SEGMENT REPORTING



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



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



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



The mortgage banking segments most significant revenue and expense are non-interest income and non-interest expense, respectively. The
Companys segments are reported below for the periods ended September 30, 2003 and September 30, 2002.



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Selected Financial Information



|                                                    |  | Commercial andOther Operations |         |   | Mortgage BankingOperations |   |         | Total | 
|--------------------------------------------------- |  | ------------------------------ | ------- | - | -------------------------- | - | ------- | ----- | 
|Nine Months Ended September 30, 2003:               |  |                                |         |   |                            |   |         |       | 
|Net interest income after provision for loan losses |  | $                              | 17,409  |   |                            | $ |        |       | 
|Noninterest income                                  |  |                                | 2,117   |   |                            |   | 23,466  |       | 
|Noninterest expense                                 |  |                                | (10,972 | ) |                            |   | (19,507 | )     | 
|                                                    |  |                                |         |   |                            |   |         |       | 
|Net income before income taxes                      |  | $                              | 8,554   |   |                            | $ | 3,959   |       | 
|                                                    |  |                                |         |   |                            |   |         |       | 
|Nine Months Ended September 30, 2002:               |  |                                |         |   |                            |   |         |       | 
|Net interest income after provision for loan losses |  | $                              | 10,554  |   |                            | $ |        |       | 
|Noninterest income                                  |  |                                | 2,478   |   |                            |   | 14,565  |       | 
|Noninterest expense                                 |  |                                | (8,453  | ) |                            |   | (12,986 | )     | 
|                                                    |  |                                |         |   |                            |   |         |       | 
|Net income before income taxes                      |  | $                              | 4,579   |   |                            | $ | 1,579   |       | 
|                                                    |  |                                |         |   |                            |   |         |       | 
|                                                    |  |                                |        
|Segment Assets                                      |  |                                |         |   |                            |   |         |       | 
|                                                    |  | Commercial andOther Operations |         |   | Mortgage BankingOperations |   |         | Total | 
|September 30, 2003                                  |  | $                              | 850,078 |   |                            | $ | 1,358   |       | 
|                                                    |  |                                |         |   |                            |   |         |       | 
|September 30, 2002                                  |  | $                              | 645,992 |   |                            | $ | 1,369   |       | 
|                                                    |  |                                |         |   |                            |   |         |       | 



(9)
STOCK TRANSACTIONS



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



In August 2003, the Company announced a three-for-two stock split to be
effected in the form of a 50% stock dividend, which was paid on September 5, 2003 to shareholders of record on August 15, 2003. The stock dividend increased the total common shares outstanding from 3,979,167 to 6,014,327.



(10) SUBSEQUENT EVENTS



In October 2003, the Board of Directors of the Company declared a $0.11 per
common share dividend to shareholders of record as of October 15, 2003. The dividend was paid on October 29, 2003.



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##### Table of Contents

(11) PENDING MERGER WITH FULTON FINANCIAL CORPORATION



In August, the Company announced that it will merge with Fulton
Financial Corporation. Fulton is a $9.3 billion Lancaster, Pennsylvania-based financial holding company which operates 199 banking offices in Pennsylvania, Maryland, Delaware and New Jersey through the following affiliates: Fulton Bank, Lancaster,
PA; Lebanon Valley Farmers Bank, Lebanon, PA; Swineford National Bank, Middleburg, PA; Lafayette Ambassador Bank, Easton, PA; FNB Bank, N.A., Danville, PA; Hagerstown Trust, Hagerstown, MD; Delaware National Bank, Georgetown, DE; The Bank, Woodbury,
NJ; The Peoples Bank of Elkton, Elkton, MD, Skylands Community Bank, Hackettstown, NJ, and Premier Bank, Doylestown, PA.



Fultons financial services affiliates include Fulton Financial Advisors, N.A., Lancaster, PA; Fulton Insurance Services Group, Inc. Lancaster, PA;
and Dearden, Maguire, Weaver and Barrett, LLP, West Conshohocken, PA.



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



(Dollars in thousands, except per share data)



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



In August, the Company announced that it will merge with Fulton Financial Corporation. Fulton is a $9.3 billion Lancaster, Pennsylvania-based
financial holding company which operates 199 banking offices in Pennsylvania, Maryland, Delaware and New Jersey through the following affiliates: Fulton Bank, Lancaster, PA; Lebanon Valley Farmers Bank, Lebanon, PA; Swineford National Bank,
Middleburg, PA; Lafayette Ambassador Bank, Easton, PA; FNB Bank, N.A., Danville, PA; Hagerstown Trust, Hagerstown, MD; Delaware National Bank, Georgetown, DE; The Bank, Woodbury, NJ; The Peoples Bank of Elkton, Elkton, MD, Skylands Community Bank,
Hackettstown, NJ, and Premier Bank, Doylestown, PA.



Fultons financial services affiliates include Fulton Financial Advisors, N.A., Lancaster, PA; Fulton Insurance Services Group, Inc. Lancaster, PA; and Dearden, Maguire, Weaver and Barrett, LLP, West Conshohocken, PA.



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



Total assets at September 30, 2003 were $851,436, up 19.1%
from $715,167 at December 31, 2002, reflecting growth in securities and loans. The Companys investment portfolio increased by $17,815 during the first nine months of 2003, net loans increased by $104,458, while funds advanced in settlement of
mortgage loans decreased by $25,431 during the same period. The principal components of the Companys assets at the end of the period were $147,656 in securities, $50,187 in cash and cash equivalents, $85,682 in funds advanced in settlement of
mortgage loans and $532,193 in net loans. The Companys lending activities are a principal source of income.



Total liabilities at September 30, 2003 were $794,524, up from $683,000 at December 31, 2002, with the increase represented by a $121,156 (23.5%) growth
in deposits, which was offset by a decrease of $10,347 (6.7%) in borrowed funds. Non-interest bearing demand deposits increased $7,150 or 29.3%, and interest bearing deposits increased by $114,006 or 23.2%. The Companys deposits are provided
by individuals and businesses located within the communities served as well as the national market.



Total stockholders equity at September 30, 2003 was $56,912, compared to $32,167 at December 31, 2002. This increase was primarily attributable to
net proceeds of approximately $18.1 million received by the Company as a result of a public offering and sale of common stock in the first quarter of 2003. Additionally, the Company had net income of $8,706 for the nine months ended September 30,
2003 compared with net income of $4,341 for the comparable period in 2002, an increase of 100.6%. This increase is attributable to the growth in interest bearing assets, significant increases in mortgage banking income, and a significant decrease in
the Companys cost of funds.



Profitability as measured by
the Companys return on average assets (ROA) was 1.47% and .97% for the nine months ended September 30, 2003, and 2002, respectively. A key indicator of performance, the return on average equity (ROE) was 24.05% and 19.93% for the nine months
ended September 30, 2003 and 2002, respectively.



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##### Table of Contents

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



Net interest income on a tax equivalent basis, before provision for loan
losses, increased to $17,907 for the nine months ended September 30, 2003 versus $11,818 for the same period in 2002, an increase of 51.5%. Average interest earning assets increased $177,708 from September 30, 2002 to the current period while
average interest bearing liabilities increased $153,467 during the same comparative period. The yield on average interest earning assets decreased 61 basis points to 5.64% at September 30, 2003 as compared to 6.25% at September 30, 2002. The rate on
interest bearing liabilities decreased 103 basis points to 2.60% at September 30, 2003 as compared to 3.63% at September 30, 2002.



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##### Table of Contents

Average Balances, Income and Expenses, Yields and Rates



The following table sets forth average balances or total interest earning
assets and total interest bearing liabilities for the period indicated, showing the average distribution of assets, liabilities, stockholders equity and the related income, expense and corresponding weighted yields and costs.



|                                            |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | -
|                                            |  | 2003                             |         |   | 2002                            |  
|                                            |  | AverageBalance(1)                |         |   | Interest                        |  
|Assets                                      |  |                                  |         |   |                                 |  
|Interest-earning assets:                    |  |                                  |         |   |                                 |  
|Securities (3)                              |  | $                                | 146,648 |   |                                 | $
|Loans (4)                                   |  |                                  | 517,642 |   |                                 |  
|Interest-earning deposits                   |  |                                  | 15,226  |   |                                 |  
|Other interest-earning assets (5)           |  |                                  | 127,645 |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Total interest-earning assets               |  |                                  | 807,161 |   |                                 |  
|Noninterest earning assets:                 |  |                                  |         |   |                                 |  
|Cash and due from banks                     |  |                                  | 17,900  |   |                                 |  
|Premises and equipment                      |  |                                  | 10,155  |   |                                 |  
|Other assets                                |  |                                  | 25,119  |   |                                 |  
|Less: Allowance for loan losses             |  |                                  | (5,075  | ) |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Total noninterest earning assets            |  |                                  | 48,099  |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Total assets                                |  | $                                | 855,260 |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Liabilities and Stockholders Equity        |  |                                  |         |   |                                 |  
|Interest-bearing liabilities:               |  |                                  |         |   |                                 |  
|Interest-bearing deposits:                  |  |                                  |         |   |                                 |  
|Demand/Money Market Accounts                |  |                                  | 71,637  |   |                                 |  
|Savings                                     |  |                                  | 4,137   |   |                                 |  
|Certificates of deposit                     |  |                                  | 519,303 |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Total interest-bearing deposits             |  |                                  | 595,077 |   |                                 |  
|FHLB advances and other borrowings          |  |                                  | 135,087 |   |                                 |  
|Capital debt securities                     |  |                                  | 16,200  |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Total interest-bearing liabilities          |  |                                  | 746,364 |   |                                 |  
|Noninterest-bearing liabilities:            |  |                                  |         |   |                                 |  
|Demand deposits                             |  |                                  | 42,992  |   |                                 |  
|Other liabilities                           |  |                                  | 11,532  |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Total noninterest-bearing liabilities       |  |                                  | 54,524  |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Stockholders equity                        |  |                                  | 54,372  |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Total liabilities and stockholders equity  |  | $                                | 855,260 |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Interest spread (6)                         |  |                                  |         |   |                                 |  
|                                            |  |                                  |         |   |                                 |  
|Net interest income/net interest margin (7) |  |                                  |         |   |                                 | $

---

|(1) | Average balances are computed on daily balances and Management believes such balances are representative of the operations of the Company.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Yield and rate percentages are all computed through the annualization of interest income and expenses versus the average balances of their respective accounts.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Tax equivalent basis. The tax equivalent adjustment to net interest income was $348 thousand and $289 thousand for the nine months ended September 30, 2003 and 2002, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Non-accrual loans are included in the average loan balances, and income on such loans is recognized on a cash basis.
|--- | --------------------------------------------------------------------------------------------------------------------

|(5) | Consists of funds advanced in settlement of loans.
|--- | --------------------------------------------------

|(6) | Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(7) | Net interest margin is net interest income expressed as a percentage of average earning assets.
|--- | -----------------------------------------------------------------------------------------------



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##### Table of Contents

Non-interest income increased from $17,043 for the nine months ended September 30, 2002 to $25,583 for
the same period in 2003. This increase was primarily attributable to increased activity in the Companys mortgage banking operations. For the nine months ended September 30, 2003, mortgage banking income increased by 61.1% or $8,901 to $23,466
versus the same period of 2002. Mortgage banking made a significant contribution to the Companys results in the first nine months of 2003. Because of the uncertainty of future loan origination volume and the future level of interest rates,
there can be no assurance that the Company will realize the same level of mortgage banking income in future periods. The decrease in the gain on sale of assets of $726 was due to reduced portfolio loan sales during the nine months ended September
30, 2003, compared to the same period in 2002. The gain on sale of securities decreased by $153, while all other non-interest income increased by $518.



For the nine months ended September 30, 2003, the Companys non-interest expense totaled $30,479 or 42.2% higher than the same period in 2002. This
increase was primarily attributable to increased activity in the Companys mortgage banking operations. The largest component of non-interest expense, salaries and employee benefits, which represents 70.4% of total non-interest expense,
increased 48.4% to $21,448 for the nine months ended September 30, 2003 over the same period in 2002, and was primarily attributed to the aforementioned mortgage banking activities. Occupancy expense increased by 32.4% to $1,688, depreciation and
equipment maintenance increased by 21.4% to $1,863, marketing and business development increased 54.0% to $824, and all other non-interest expenses increased by 27.9% for the nine months ended September 30, 2003 over the same period in 2002.



In establishing the allowance for loan losses, management
considers a number of factors, including loan asset quality, related collateral and economic conditions prevailing during the loans repayment. In its loan policies, management emphasizes the borrowers ability to service the debt, the
borrowers general creditworthiness and the quality of collateral. Loans are generally placed in nonaccrual status when the collection of principal and interest is 90 days or more past due, unless the obligation is both well-secured and in the
process of collection.



While the Company believes it has a
sufficient loan loss allowance for its existing portfolio, there can be no assurances that an additional allowance for losses on existing loans may not be necessary in the future, particularly if the economy worsens. The allowance for loan losses as
a percentage of period-end loans was .94% and 1.1% at September 30, 2003 and 2002, respectively. The provisions for loan losses were $150 and $975 for the nine months ended September 30, 2003 and 2002, respectively.



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##### Table of Contents

Non Performing Assets



The following table presents the Companys nonperforming assets for the periods set forth below.



|                                                           |  | September 302003       |         |   | December 312002 |  
|---------------------------------------------------------- |  | ---------------------- | ------- | - | --------------- | -
|                                                           |  | (Dollars in thousands) |        
|Non accrual loans                                          |  | $                      | 636     |   |                 | $
|Other real estate                                          |  |                        | 53      |   |                 |  
|Loans 90 days or more past due and still accruing interest |  |                        | 523     |   |                 |  
|                                                           |  |                        |         |   |                 |  
|Total non performing assets                                |  | $                      | 1,212   |   |                 | $
|                                                           |  |                        |         |   |                 |  
|Total assets                                               |  | $                      | 851,436 |   |                 | $
|                                                           |  |                        |         |   |                 |  
|Total non performing assets to total assets                |  |                        | 0.14    | % |                 |  
|                                                           |  |                        |         |   |                 |  



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##### Table of Contents

Summary of Loan Loss Experience



The following table presents the Companys loan loss experience and selected loan loss ratios for the nine months ended September 30,
2003 and 2002.



|                                                                            |  | Nine months endedSeptember 30 |        
|--------------------------------------------------------------------------- |  | ----------------------------- | -------
|                                                                            |  | 2003                          |        
|                                                                            |  | (Dollars in thousands)        |        
|Balance of allowance for loan losses at beginning of year                   |  | $                             | 5,009  
|                                                                            |  |                              
|Loans charged-off:                                                          |  |                               |        
|Commercial                                                                  |  |                               | (121   
|Installment                                                                 |  |                               |       
|Real Estate                                                                 |  |                               |       
|Credit Cards and Other Consumer                                             |  |                               | (6     
|                                                                            |  |                               |        
|Total loans charged-off                                                     |  |                               | (127   
|                                                                            |  |                               |        
|Recoveries of loans previously charged off:                                 |  |                               |        
|Commercial                                                                  |  |                               | 2      
|Installment                                                                 |  |                               |       
|Real Estate                                                                 |  |                               |       
|Credit Cards and Other Consumer                                             |  |                               |       
|                                                                            |  |                               |        
|Total recoveries                                                            |  |                               | 2      
|                                                                            |  |                               |        
|Net loan (charge-offs) recoveries                                           |  |                               | (125   
|Additions to allowance charged to expense                                   |  |                               | 150    
|                                                                            |  |                               |        
|Balance at end of period                                                    |  | $                             | 5,034  
|                                                                            |  |                               |        
|Average loans                                                               |  | $                             | 484,644
|                                                                            |  |                              
|Loans at end of period                                                      |  | $                             | 537,227
|Selected Loan Loss Ratios:                                                  |  |                               |        
|Net charge-offs (recoveries) during the period to average loans             |  |                               | 0.03   
|Provision for loan losses to average loans                                  |  |                               | 0.03   
|Provision for loan losses to net charge-offs (recoveries) during the period |  |                               | 120    
|                                                                            |  |                              
|Allowance for loan losses to loans at end of period                         |  |                               | .94    
|                                                                            |  |                              
|Non-performing assets at end of period                                      |  | $                             | 1,212  
|                                                                            |  |                              
|Non-performing assets to total loans at end of period                       |  |                               | 0.23   
|                                                                            |  |                              
|Allowance for loan losses to non-performing assets at end of period         |  |                               | 415    



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##### Table of Contents

Interest Rate Sensitivity and Liquidity



Management evaluates interest sensitivity through the use of an asset/liability management reporting gap model on a
quarterly basis and then formulates strategies regarding asset generation and pricing, funding sources and pricing, and off-balance sheet commitments in order to decrease sensitivity risk. These strategies are based on managements outlook
regarding interest rate movements, the state of the regional and national economies and other financial and business risk factors. In addition, the Company establishes prices for deposits and loans based on local and national market conditions and
manages its securities portfolio under policies that take interest risk into account.



Liquidity represents the institutions ability to meet present and future financial obligations. Liquid assets include cash, interest bearing deposits with banks, federal funds sold, investments and loans
maturing within one year. The Companys funding requirements are supplied from a range of traditional sources, including various types of demand deposits, money market accounts, certificates of deposit and short-term borrowings. Federal Home
Loan Bank (FHLB) advances are utilized as funding sources by the Company. At September 30, 2003, there were $109,000 in FHLB advances outstanding. The Company has a warehouse line of credit collateralized by first mortgage loans
amounting to $75,000 which expires April 17, 2004. The Company has no reason to believe this arrangement will not be renewed. The Bank had no outstanding warehouse advances at September 30, 2003 and 2002, respectively.



The Company had purchased no Federal Funds from correspondent institutions at
September 30, 2003 and $14,665 at September 30, 2002. The Company has lines of credit with various correspondent banks totaling $50,800.



Management seeks to ensure adequate liquidity to fund loans and meet the Companys financial requirements and opportunities. To provide liquidity for
current, ongoing and unanticipated needs, the Company maintains short-term interest bearing certificates of deposits, federal funds sold, and a portfolio of debt securities. The Company also structures and monitors the flow of funds from debt
securities and from maturing loans. Securities are generally purchased to provide a source of liquidity. Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a net amount in a separate
component of stockholders equity until realized. Securities are composed of governmental or quasi-governmental agencies, municipal bonds, preferred stocks and bonds of corporations with investment grade ratings.



The Companys financial position at September 30, 2003 reflects
liquidity and capital levels that management believes are currently adequate to fund anticipated future business expansion. Capital ratios are in excess of required regulatory minimums for a well capitalized institution. The assessment of capital
adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, and changing competitive conditions and economic forces. The adequacy of the Companys capital is reviewed by management on an ongoing basis.
Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses.



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The following table presents the amounts of the Companys interest sensitive assets and liabilities
that mature or reprice in the periods indicated.



|                                                      |  | Sept. 30,2003 Maturing or Repricing
|----------------------------------------------------- |  | -----------------------------------
|                                                      |  | Within3 months                     
|                                                      |  | (Dollars in thousands)             
|Interest-Earning Assets:                              |  |                                    
|Investment securities                                 |  | $                                  
|Loans                                                 |  |                                    
|Interest bearing deposits                             |  |                                    
|Other interest-earning assets                         |  |                                    
|                                                      |  |                                    
|Total interest-earning assets                         |  |                                    
|                                                      |  |                                    
|Interest-Bearing Liabilities:                         |  |                                    
|Deposits                                              |  |                                    
|Demand and savings (1)                                |  |                                    
|Time deposits, $100,000 and over                      |  |                                    
|Other time deposits                                   |  |                                    
|Other interest-bearing liabilities                    |  |                                    
|Capital debt securities                               |  |                                    
|                                                      |  |                                    
|Total interest-earning liabilities                    |  |                                    
|                                                      |  |                                    
|Period Gap                                            |  | $                                  
|                                                      |  |                                    
|Cumulative Gap                                        |  | $                                  
|                                                      |  |                                    
|Ratio cumulative gap to total interest-earning assets |  |                                    
|                                                      |  |                                    

---

|(1) | Management has determined that interest checking, money market (except those generated by e banking) and savings accounts are not sensitive to changes in related market rates and,
therefore, have been placed in the 1-5 years category.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The capital adequacy standards are based on an established minimum for Tier 1 Risk-Based Capital, Risk-Based Capital and the Tier 1 Leverage Ratio. The following table summarizes regulatory capital ratios for the Company and Resource Bank
at September 30, 2003.



|                  |  | Required Ratio |   |  | ResourceBankshares |   |  | ResourceBank |  
|----------------- |  | -------------- | - |  | ------------------ | - |  | ------------ | -
|Tier 1 risk-based |  | 4.00           | % |  | 12.57              | % |  | 10.92        | %
|                  |  |                |  
|Total risk-based  |  | 8.00           | % |  | 13.45              | % |  | 11.80        | %
|                  |  |                |  
|Tier 1 leverage   |  | 4.00 to 5.00   | % |  | 8.44               | % |  | 7.39         | %



The Company and the
Bank are in full compliance with all relevant regulatory capital requirements and are categorized by regulatory authorities as well capitalized.



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##### Table of Contents

The effect of changing prices on financial institutions is typically different from other industries as
the Companys assets and liabilities are monetary in nature. Interest rates are significantly impacted by inflation, but neither the timing nor the magnitude of the changes are directly related to price level indices. Impacts of inflation on
interest rates, loan demand and deposits are reflected in the Companys financial statements. Management believes that the mortgage banking operations provide somewhat of a natural interest rate hedge. The Company is in an asset sensitive
position in the short term. When interest rates decline, the Companys earnings will be negatively impacted but the mortgage operations volume should increase. The reverse should occur in rising interest rate markets.



Recent Accounting and Regulatory Pronouncements



In April 2003, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 149), which amends and clarifies the accounting and reporting requirements for
derivative instruments and hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The requirements of this Statement are effective for contracts entered into or modified after June 30,
2003. Further, the requirements of the Statement are to be applied prospectively. The adoption of this standard is currently not expected to have a material impact on the Companys consolidated results of operations or financial position.



In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS 150), in May 2003. SFAS 150 initiates standards for how an issuer categorizes and evaluates certain financial
instruments that display characteristics similar to liabilities and equity in its statement of financial position. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. As a result, SFAS 150 will be effective for the Companys third quarter starting July 1, 2003. The adoption of this standard is not expected to have a material impact on the
consolidated financial statements.



In January 2003, the FASB
issued FASB Interpretation 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46). FIN 46 provides a new framework for identifying variable interest entities (VIEs) and determining
when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. FIN 46 is effective immediately for VIEs created after January 31, 2003, and is effective
beginning in the third quarter of 2003 for VIEs created prior to the issuance of the interpretation. Management does not currently expect this pronouncement to have a material impact on the Companys results of operations or financial position.



Critical Accounting Policies



The accounting principles followed by the Company and the methods of
applying these principles conform with generally accepted accounting principles and to general practices within the banking industry. The most critical accounting policies require managements judgment to ascertain the valuation of assets,
liabilities, commitments and contingencies. These policies require the use of subjective and complex estimates, assumptions and judgments, which are based on information available as of the date of the financial statements, that are important to the
portrayal of the Companys financial condition and results. Accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on
the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.



The allowance for loan losses is established and maintained at levels deemed adequate by management to cover losses inherent
in the loan portfolio, based upon evaluation of the risks in the portfolio and changes in the



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##### Table of Contents

nature and volume of loan activity. Estimates for loan losses are determined by analyzing historical loan losses, current trends in delinquencies and
charge-offs, the opinions of regulators, and changes in the size and composition of the loan portfolio. The Company also considers the impact of economic events, the outcome of which are uncertain. While management uses the best information
available in establishing the allowance, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in making valuations, or if required by regulators based upon information available to them at the
time of their examinations. Although management believes that the allowance for loan losses is adequate and properly recorded in the financial statements, differing economic conditions or alternate methods of estimation could result in materially
different amounts of loan losses.



As part of the
Companys funding strategy, derivative financial instruments are used to reduce exposure to changes in interest rates and market prices for financial instruments. All of these derivative financial instruments are interest rate swaps, which are
designated as hedges for financial reporting purposes. The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, and measurement of changes in the fair value of hedged items. Management believes that
the techniques for addressing these judgmental areas are in accordance with generally accepted accounting principles and in line with industry practices in assessing hedge effectiveness. However, if in the future the derivative financial instruments
in use no longer qualify for hedge accounting treatment and, consequently, the change in fair value of hedged items could not be recognized in earnings, the impact on consolidated results of operations and reported earnings could be significant.
Management believes hedge effectiveness is evaluated properly in preparation of the Companys financial statements. All of the derivative financial instruments used have active markets and indications of fair value can be readily obtained.



The estimation of fair value is significant to a number of
assets, including funds advanced in settlement of mortgage loans, available for sale investment securities, and other real estate owned, as well as assets and liabilities associated with derivative financial instruments. These are all recorded at
either fair value or at the lower of cost or fair value. Fair values can be volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates and market conditions, among others. Since these
factors can change significantly and rapidly, fair values are difficult to predict and are subject to material changes, which could impact the Companys financial condition.



Availability of Budgets and Related Financial Information



On an ongoing basis, the Companys management prepares and updates one year and five year forward looking budgets and
financial plans. This information is prepared by management for the purpose of assessing current business, economic and monetary conditions and the likely impact of those conditions on the Companys future business, results of operations and
financial condition. These budgets and financial plans are used by management to assist with decisions related to, among other matters, asset and liability management, capital resource allocation and loan loss projections. Upon prior request, this
budgetary and financial information is available for review by any current or potential shareholder.



Any current or potential shareholder that obtains this information from the Company should be aware that the budgetary and financial data necessarily
includes certain projections with respect to the potential future financial performance of the Company. The assumptions and estimates underlying the projections are inherently uncertain and, though considered reasonable by the Company, are subject
to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of the Company. Accordingly, there can be no assurance that the projected results will
be realized. The Companys actual results in the future will vary from the projected results, and those variations may be material. In addition, management is not under any obligation to update its budgets and financial plans, even in the event
the assumptions or estimates underlying the information are shown to be in error.



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Item 3. Quantitative and Qualitative Disclosures about Market Risk



Market Risk Management



The Companys primary market risk exposure is interest rate risk. Fluctuations in interest rates will impact both the level of interest income and
interest expense and the market value of the Companys interest earning assets and interest bearing liabilities. There were no known material changes in the Companys reported information and market risk management strategy, as stated in
the Companys 2002 annual report, during the first nine months of 2003.



Item 4. Controls and Procedures



(a) During the
third quarter, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in
the Companys Exchange Act filings.



(b) There have been no significant
changes in the Companys internal controls or in other factors which could significantly affect its internal controls subsequent to the date the Company carried out its evaluation.



PART II OTHER INFORMATION



Item 1. Legal Proceedings



Information regarding a lawsuit filed against Resource Bank in March 2002 under the Telephone Consumer Protection Act, or TCPA, is contained in the Companys 10-K/A for the fiscal year ended December 31, 2002. As described in the
10-K/A, the Bank filed a motion to dismiss the lawsuit on the grounds that the TCPA is unconstitutional. A hearing on the motion has been held on the matter and the matter is under submission with the court.



Item 4. Submission of Matters to a Vote of Security Holders



None.



Item 6. Exhibits and Reports on Form 8-K



| | 31.1 | Section 302 Certification  Chief Executive Officer
| | ---- | ---------------------------------------------------

| | 31.2 | Section 302 Certification  Chief Financial Officer
| | ---- | ---------------------------------------------------

| | 32.1 | Section 906 Certification  Chief Executive Officer
| | ---- | ---------------------------------------------------

| | 32.2 | Section 906 Certification  Chief Financial Officer
| | ---- | ---------------------------------------------------



The Company filed a Form 8-K on August 27, 2003 announcing that the Company had entered into a definitive merger agreement pursuant to which it will be
acquired by Fulton Financial Corporation.



The Company filed a
Form 8-K/A on August 29, 2003 to file the first amendment to the agreement and plan of merger with Fulton Financial Corporation.



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SIGNATURES



In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





RESOURCE BANKSHARES CORPORATION/s/ Lawrence N. SmithLawrence N. SmithChief Executive OfficerDate: November 10, 2003




/s/ Eleanor J. WhitehurstEleanor J. WhitehurstSenior Vice President & Chief Financial OfficerDate: November 10, 2003






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