UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
//x// Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended March 31, 1994
// // Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-9819
RESOURCE MORTGAGE CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Virginia 52-1549373
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10500 Little Patuxent Parkway, Columbia, Maryland 21044
(Address of principal executive offices) (Zip Code)
(410) 715-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 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 ninety days. //x// Yes / / No
On April 30, 1994, the registrant had 19,734,872 shares of common stock
of $.01 value outstanding, which is the registrant's only class of
common stock.
RESOURCE MORTGAGE CAPITAL, INC.
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1994
and December 31, 1993 3
Consolidated Statements of Operations
for the three months
ended March 31, 1994 4
Consolidated Statement of Shareholders'
Equity for
the three months ended March 31, 1994 5
Consolidated Statements of Cash Flows
for the three months ended
March 31, 1994 and 1993 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RESOURCE MORTGAGE CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
March 31, December 31,
1994 1993
--------- ------------
ASSETS
Mortgage investments:
Collateral for CMOs $ 390,093 $ 434,698
Adjustable-rate mortgage
securities, net 2,150,553 2,021,196
Fixed-rate mortgage securities,
net 203,421 214,128
Other mortgage securities 81,539 65,625
Mortgage warehouse participations 94,591 156,688
----------- -------------
2,920,197 2,892,335
Mortgage loans in warehouse 573,724 777,769
Cash 7,401 1,549
Accrued interest receivable 13,468 13,466
Other assets 19,111 41,643
----------- -------------
$ 3,533,901 $ 3,726,762
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized mortgage
obligations $ 382,148 $ 432,677
Repurchase agreements 2,679,821 2,754,166
Notes payable 57,271 87,451
Commercial paper 86,615 148,672
Accrued interest payable 11,375 14,695
Deferred income 13,891 13,214
Other liabilities 14,562 22,855
------------ ------------
3,245,683 3,473,730
------------ ----------
SHAREHOLDERS' EQUITY
Common stock: par value $.01 per share,
50,000,000 shares authorized,
19,619,145 and 19,331,932 issued
and outstanding, respectively 196 193
Additional paid-in capital 267,517 259,622
Net unrealized gain on available-
for-sale mortgage investments 21,930 -
Retained earnings (deficit) (1,425 ) (6,783 )
------------ -----------
288,218 253,032
------------ -----------
$ 3,533,901 $ 3,726,762
============ ============
See notes to consolidated financial statements.
RESOURCE MORTGAGE CAPITAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except share data) Three Months Ended
March 31,
1994 1993
Interest Income:
Collateral for CMOs $ 8,539 $ 11,704
Adjustable-rate mortgage securities 25,296 17,071
Fixed-rate mortgage securities 4,118 3,267
Other mortgage investments 2,428 1,740
Mortgage warehouse participations 1,429 1,472
Mortgage loans in warehouse 9,485 4,549
-------- -------
51,295 39,803
-------- -------
Interest and CMO-related expense:
Collateralized mortgage obligations:
Interest 8,040 10,999
Other 408 552
Repurchase agreements 26,883 14,431
Notes payable 770 1,166
Commercial paper 803 927
Other 1,129 1,218
------- ------
38,033 29,293
------- ------
Net margin on mortgage assets 13,262 10,510
Gain on sale of mortgage assets, net of
associated costs 6,841 5,059
Other income 229 189
General & administrative expenses (4,832 ) (3,259)
--------- -------
Net income $ 15,500 $ 12,499
======== ==========
Net income per share $ 0.80 $ 0.76
======== ==========
Weighted average number of common shares
outstanding 19,447,618 16,517,599
========== ===========
See notes to consolidated financial statements.
RESOURCE MORTGAGE CAPITAL, INC.
CONSOLIDATED STATEMENT OF Net
SHAREHOLDERS' EQUITY unrealized
(amounts in thousands except share data) gain on
available-
Additional for-sale Retained
Number of Common paid-in mortgage earnings
shares stock capital investments (deficit) Total
Balance at
December 31, 1993
19,331,932 $ 193 $ 259,622 $ - $ (6,783) $ 253,032
Issuance of common
stock, net 287,213 3 7,895 - - 7,898
Net income -
three months ended
March 31, 1994
- - - - 15,500 15,500
Net change in
unrealized gain on
available-for-sale
mortgage
investments - - - 21,930 - 21,930
Dividends declared
- $0.52 per share - - - - (10,142) (10,142)
-------- ------- -------- ------- -------- --------
Balance at
March 31, 1994
19,619,145 $ 196 $ 267,517 $ 21,930 $ (1,425) $ 288,218
========== ===== ========= ======== ========= =========
See notes to consolidated financial statements.
RESOURCE MORTGAGE CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended
(amounts in thousands) March 31,
1994 1993
----- ------
Operating activities:
Net income $ 15,500 $ 12,499
Adjustments to reconcile net income to net
cash used for operating activities:
Amortization and depreciation 1,343 1,391
Net decrease (increase) in mortgage loans
held for sale 200,554 (94,379)
Net decrease (increase) in accrued interest,
other payables and other assets 20,251 (546)
Net gain from sales of mortgage investments (1,514) (803)
Other 85 -
---------- ----------
Net cash provided by (used for)
operating activities 236,219 (81,838)
---------- ----------
Investing activities:
Collateral for CMOs:
Principal payments on collateral 48,501 49,505
Net decrease in funds held by trustees 2,337 12,746
--------- --------
50,838 62,251
Purchase of other mortgage investments (260,152) (387,104)
Payments on other mortgage investments 136,071 19,419
Proceeds from sales of other mortgage investments 67,844 151,344
Capital expenditures (883) (161)
---------- ---------
Net cash used for investing activities (6,282) (154,251)
---------- ---------
Financing activities:
Principal payments on CMOs (50,232) (61,465)
(Repayments of) proceeds from short-term
borrowings, net (166,583) 314,556
Proceeds from stock offerings, net 7,897 577
Dividends paid (15,167) (18,165)
--------- ---------
Net cash provided by financing activities (224,085) 235,503
--------- ---------
Net increase (decrease) in cash 5,852 (586)
Cash at beginning of period 1,549 1,135
Cash at end of period $ 7,401 $ 549
=========== ===========
Cash paid for interest $ 40,376 $ 30,587
========== ===========
See notes to consolidated financial statements.
RESOURCE MORTGAGE CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
(amounts in thousands except share data)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of
the information and notes required by generally accepted accounting
principles for complete financial statements. The consolidated
financial statements include the accounts of Resource Mortgage Capital,
Inc., its wholly owned subsidiaries, and certain other entities. As
used herein, the "Company" refers to Resource Mortgage Capital, Inc.
("RMC") and each of the entities that is consolidated with RMC for
financial reporting purposes. The Company's mortgage loan purchase
program is operated by a taxable corporation that is consolidated with
RMC for financial reporting purposes, but is not consolidated for income
tax purposes. All significant intercompany balances and transactions
have been eliminated in consolidation.
In the opinion of management, all material adjustments, consisting of
normal recurring adjustments, considered necessary for a fair
presentation have been included. The Consolidated Balance Sheet at
March 31 1994, the Consolidated Statements of Operations for the three
months ended March 31, 1994 and 1993, the Consolidated Statement of
Stockholders' Equity for the three months ended March 31, 1994, the
Consolidated Statements of Cash Flows for the three months ended March
31, 1994 and 1993 and related notes are unaudited. Operating results
for the three months ended March 31, 1994 are not necessarily indicative
of the results that may be expected for the year ending December 31,
1994. For further information, refer to the audited consolidated
financial statements and footnotes included in the Company's Form 10-K
for the year ended December 31, 1993.
NOTE 2--MORTGAGE LOANS IN WAREHOUSE AND SECURITIZATION ACTIVITY
The Company purchases and originates fixed-rate and adjustable-rate
loans secured by first mortgages or first deeds of trust on single-
family attached or detached residential properties and originates fixed-
rate loans secured by first mortgages or deeds of trust on multi-family
residential properties. The Company funded mortgage loans with an
aggregate principal balance of $952,894 during the three months ended
March 31, 1994. During this period, the Company sold mortgage loans
with an aggregate principal balance of $1,155,432, primarily as
collateral for mortgage securities.
In the three months ended March 31, 1994, the Company recognized net
gains of $5,327 on securitizations and sales of mortgage loans.
Additionally, during the three months ended March 31, 1994, the Company
deferred gains of $1,530 related to securitization and sales of
adjustable-rate mortgage loans that are convertible to a fixed rate.
The deferred gain will be recognized as income over the five year
optional conversion period. The recognized gain and deferred gain are
net of related taxes totaling $459 for the three months ended March 31,
1994.
NOTE 3--AVAILABLE-FOR-SALE MORTGAGE INVESTMENTS
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt
and Equity Securities. This statement requires that investments in debt
and equity securities be classified as either held-to-maturity
securities, trading securities, or available-for-sale securities. Held-
to-maturity securities are defined as securities that the Company has
the positive intent and ability to hold to maturity and are measured at
amortized cost. Trading securities are defined as securities that are
bought and held principally for the purpose of selling in the near term
and are measured at fair value, with unrealized gains and losses
included in earnings. Securities not classified as either held-to-
maturity securities or trading securities are deemed to be available-for
sale securities and are measured at fair value, with unrealized gains
and losses reported as a separate component of stockholders' equity.
The Company has classified all of its mortgage investments as available-
for-sale securities.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
Resource Mortgage Capital, Inc. (the "Company") operates mortgage
conduits and invests in a portfolio of residential mortgage securities.
The Company's primary strategy is to use its mortgage conduit
operations, which involve the purchase and securitization of residential
mortgage loans, to create investments for its portfolio. The Company's
principal sources of income are net interest income on its investment
portfolio, gains on the securitization and sale of mortgage loans and
the interest spread realized while the mortgage loans are being
accumulated for securitization.
In recent periods, the Company's results have improved primarily from
an increase in the net margin on its mortgage assets. This increase in
net margin resulted primarily from the addition to the Company's
portfolio of investments created by the Company's mortgage conduit
operations. Lower overall mortgage loan originations in the market are
anticipated for 1994 as compared to 1993 as a result of the recent
increase in mortgage loan interest rates and the resulting decrease in
mortgage loan refinancings. The Company expects that new loan products
and other lines of business will reduce the impact on the Company of the
overall lower level of mortgage loan originations in the market.
Results of Operations
Three Months Ended
(amounts in thousands except per share March 31,
------------------------------
information) 1994 1993
---- ----
Net margin on mortgage assets $ 13,262 $ 10,510
Net gain on sale of mortgage assets 6,841 5,059
Net income 15,500 12,499
Net income per share 0.80 0.76
Principal balance of
mortgage loans funded 952,894 863,585
Three Months Ended March 31, 1994 Compared to Three Months Ended March
31, 1993
- ------------------------------------------------------------------------
The increase in the Company's earnings during the first three months
of 1994 as compared to the same period in 1993 is primarily the result
of the increase in net margin on mortgage assets and the increase in the
net gain on sale of mortgage assets. The increase in earnings was
partially offset by an increase in general and administrative expenses.
The net margin on mortgage assets increased to $13.3 million for the
three months ended March 31, 1994 from $10.5 million for the three
months ended March 31, 1993. This increase resulted primarily from the
overall growth of the portfolio partially offset by a decrease in the
net interest spread on the portfolio.
The gain on sale of mortgage assets increased to $6.8 million for the
three months ended March 31, 1994 from $5.1 million for the three months
ended March 31, 1993. This increase resulted from (i) an increase in
the gain on securitizations and sales of mortgage loans and the (ii) an
increase in the gain on sale of mortgage assets from the Company's
portfolio. As part of its ongoing portfolio management strategy, from
time to time the Company may sell mortgage assets from its portfolio.
The Company incurred $4.8 million of general and administrative
expenses for the three months ended March 31, 1994 as compared with $3.3
million during the three months ended March 31, 1993. The increase in
general and administrative expenses is due primarily to the growth of
the underwriting and risk management departments in late 1993.
The following tables summarize the average balances of the
Company's interest-earning assets and their average effective yields,
along with the Company's average interest-bearing liabilities and the
related average effective interest rates, for each of the periods
presented.
Average Balances and Effective Interest Rates
- ---------------------------------------------
Three Months Ended March 31,
----------------------------
(amounts in thousands) 1994 1993
Average Effective Average Effective
Balance Rate Balance Rate
-------- --------- -------- ----------
Interest-earning
assets : (1)
Collateral for CMOs (2) $ 384,179 8.89 % $ 505,092 9.27 %
Adjustable-rate mortgage
securities 2,126,564 4.76 1,314,080 5.20
Fixed-rate mortgage
securities 209,951 7.85 167,423 7.81
Other mortgage
securities 74,841 12.97 36,097 19.28
Mortgage warehouse
participations 103,456 5.53 118,405 4.97
---------- ----- --------- -----
Total portfolio
-related assets 2,898,991 5.77 2,141,097 6.59
Mortgage loans in
warehouse 650,776 5.83 263,620 6.90
---------- ----- --------- -----
Total interest
-earning assets $ 3,549,767 5.78 % $ 2,404,717 6.62 %
========== ===== ========= =====
Interest-bearing liabilities:
Portfolio-related
liabilities:
CMOs $ 394,540 8.15 % $ 514,282 8.55 %
Repurchase agreements:
Adjustable-rate
mortgage securities 2,055,643 3.62 1,215,304 3.68
Fixed-rate mortgage
securities 197,114 5.19 151,475 4.29
Other mortgage securities 11,214 3.71 6,652 3.85
Commercial paper 96,732 3.32 112,972 3.28
--------- ----- --------- -----
Total portfolio
-related liabilities 2,755,243 4.37 2,000,685 4.96
Warehouse-related
liabilities:
Repurchase agreements 508,760 4.41 136,356 4.60
Notes payable 51,098 6.03 79,948 5.83
--------- ----- --------- -----
Total warehouse
-related liabilities 559,858 4.56 216,304 5.06
--------- ----- --------- -----
Total interest-bearing
liabilities $ 3,315,101 4.40 % $ 2,216,989 4.97 %
========= ===== ========= ====
Net interest spread 1.38 % 1.65 %
===== ====
Net yield on average
interest earning assets 1.67 % 2.04 %
===== =====
- ------------------
(1) Average balances exclude adjustments made in accordance with
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities to record available-
for-sale securities at fair value.
(2) Average balances exclude funds held by trustees of $12,632 and
$20,841 for the three months ended March 31, 1994 and March 31, 1993,
respectively.
The decrease in net interest spread is primarily the result of the
decrease in the spread on adjustable-rate mortgage securities. The
decrease in the spread on adjustable-rate mortgage securities resulted
from securities retained in the portfolio during late 1993 and early
1994 with low initial pass-through rates (i.e., a "teaser rate"). The
spread on these securities may increase as the mortgage loans underlying
these securities reset to a level where the interest rate is not teased.
Conversely, the spread on these securities could decrease further should
the rates on the related repurchase borrowings increase faster than the
interest rates reset on these securities.
Portfolio Activity
The Company's investment strategy is to create a diversified portfolio
of mortgage securities that in the aggregate generate stable income in
a variety of interest rate and prepayment rate environments and preserve
the capital base of the Company. The Company has pursued its strategy
of concentrating on its mortgage conduit activities in order to create
investments with attractive yields and to benefit from potential gains
on securitization. In many instances the Company's investment strategy
involves not only the creation or acquisition of the asset, but also the
related borrowing to pay for a portion of that asset.
Three Months Ended March 31, 1994 Compared to Three Months Ended March
31, 1993
- ------------------------------------------------------------------------
The size of the Company's portfolio of mortgage investments at March
31, 1994 has increased as compared to March 31, 1993, through the
addition of investments created through the Company's conduit operations
and the purchase of mortgage investments. During the three months ended
March 31, 1994, the Company added approximately $204.6 million principal
amount of adjustable-rate mortgage securities, $8.8 million principal
amount of fixed-rate mortgage securities and $0.5 million of other
mortgage securities to its portfolio through its conduit operations.
Also during the three months ended March 31, 1994, the Company purchased
approximately $17.5 million principal amount of adjustable-rate mortgage
securities, $10.7 million principal amount of fixed-rate mortgage
securities and $16.0 million of other mortgage securities for its
portfolio. A portion of these securities were financed through
repurchase agreements with investment banking firms. Additionally,
during the three months ended March 31, 1994, the Company sold $55.5
million principal amount of adjustable-rate securities and $5.7 million
of other mortgage securities from its portfolio. During the three
months ended March 31, 1993, the Company sold $150.4 million principal
amount of fixed-rate mortgage securities from its portfolio. The
Company realized net gains of $1.5 million and $0.8 million on the sale
of mortgage securities for the three months ended March 31, 1994 and
1993.
The net margin on the Company's portfolio of mortgage investments
increased to $10.1 million for the three months ended March 31, 1994
from $8.7 million for the three months ended March 31, 1993. This
increase resulted from the overall growth of mortgage assets partially
offset by a decrease in the net interest spread on the portfolio.
The Company funds mortgage warehouse lines of credit to various
mortgage companies, either through the purchase of a participation in
such lines of credit, or a direct loan (collectively "lines of
credit"). The Company's obligations under such lines of credit are
funded primarily by sales of commercial paper. An agreement with a bond
guarantor and a syndicate of commercial banks provides 100% credit and
liquidity support for the commercial paper and for the Company's
obligations under such lines of credit. As of March 31, 1994, the
Company had $185.0 million of such lines of credit and had advanced
$94.6 million pursuant to such lines of credit. Under the Company's
liquidity agreement, which terminates on May 9, 1995, such lines of
credit are limited to $250 million.
Mortgage Operations
The Company acts primarily as an intermediary between the originators
of mortgage loans and the permanent investors in the mortgage loans or
the mortgage-related securities backed by such mortgage loans. The
Company also originates multi-family mortgage loans and recently began
to originate single family mortgage loans.
Single-family Mortgage Operations
Through its single-family mortgage operations, the Company purchases
mortgage loans from approved sellers, primarily mortgage companies,
savings and loan associations and commercial banks and, beginning in
1994, originates mortgage loans directly. When a sufficient volume of
mortgage loans is accumulated, the Company sells or securitizes these
mortgage loans through the issuance of CMOs or pass-through securities.
During the accumulation period, the Company finances its purchases of
mortgage loans through warehouse lines of credit or through repurchase
agreements.
The following table summarizes single-family activity for the three
months ended March 31, 1994 and 1993.
Three Months Ended
March 31,
(amounts in thousands) 1994 1993
----- -----
Principal amount of loans funded $ 952,894 $ 832,933
Principal amount securitized or sold 1,155,432 768,105
Investments added to portfolio from the
single-family conduit, net of
associated borrowings 19,837 16,028
Three Months Ended March 31, 1994 Compared to Three Months Ended March
31, 1993
- ------------------------------------------------------------------------
The increase in the funding volume of single-family loans for the three
months ended March 31, 1994 as compared to the three months ended March
31, 1993 reflects the success of new loan programs introduced by the
Company during 1993. The gain on securitizations and sales of mortgage
loans increased to $5.3 million for the three months ended March 31,
1994 from $4.3 million for the three months ended March 31, 1993. This
increase was primarily the result of the increased volume of mortgage
loans securitized or sold during the period.
During the first quarter of 1994, the Company began originating
certain single-family mortgage loans through a network of mortgage
brokers. The Company also plans to develop a mortgage servicing
capability during 1994 for these mortgage loans. The Company will have
complete control over the entire mortgage process on these loans, from
underwriting and origination to accumulation and securitization.
Multi-family Mortgage Operations
The Company originates multi-family mortgage loans secured by
properties that have qualified for low income housing tax credits
pursuant to Section 42 of the Internal Revenue Code. These tax credits,
which are available generally for ten years beginning when the property
was placed in service, provide a substantial incentive for the borrower
not to default on the mortgage loan, as the borrower would lose upon
foreclosure any future tax credits relating to the property and could
face recapture of a portion of the tax credits already taken.
At March 31, 1994, mortgage loans in warehouse included multi-family
mortgage loans with an aggregate principal balance of $11.2 million and
the Company had commitments outstanding to fund an additional $26.1
million in such mortgage loans.
Other Matters
The Company has limited exposure to losses due to fraud resulting from
the origination of a mortgage loan. The Company has established a loss
allowance for such losses. An estimate for such losses is made at the
time loans are sold or securitized, and the loss allowance is adjusted
accordingly. This estimate is based on management's judgement and the
allowance is evaluated periodically. At March 31, 1994 the allowance
totaled $5.5 million and was included in other liabilities.
The Company is exposed to losses to the extent that mortgage loans
which were in warehouse at the time of the January 1994 earthquake in
the Los Angeles area are secured by properties that were damaged as a
result of the earthquake. The Company does not expect that any losses
due to this earthquake will have a material effect on its financial
position or results of operations.
The Company and its qualified REIT subsidiaries (collectively
"Resource REIT") have elected to be treated as a real estate investment
trust for federal income tax purposes, and therefore is required to
distribute annually substantially all of its taxable income. Resource
REIT estimates that its taxable income for the three months ended March
31, 1994 was approximately $16.3 million. Taxable income differs from
the financial statement net income which is determined in accordance
with generally accepted accounting principles.
Liquidity and Capital Resources
The Company uses its cash flow from operations, issuance of CMOs or
pass-through securities, other borrowings and capital resources to meet
its working capital needs. Based on prior experience, the Company
believes that the cash flow from its portfolio and borrowing
arrangements provide sufficient liquidity for the conduct of its
operations.
The Company's borrowings may bear fixed or variable interest rates,
may require additional collateral in the event that the value of the
existing collateral declines, and may be due on demand or upon the
occurrence of certain events. If borrowing costs are higher than the
yields on the mortgage assets purchased with such funds, the Company's
ability to acquire mortgage assets may be substantially reduced and it
may experience losses.
The Company borrows funds on a short-term basis to support the
accumulation of mortgage loans prior to the sale of such mortgage loans
or the issuance of mortgage securities. These short-term borrowings
consist of the Company's warehouse lines of credit and repurchase
agreements and are paid down as the Company securitizes or sells
mortgage loans. The Company had a $150 million credit facility, which
also allows the Company to borrow up to $30 million on an unsecured
basis for working capital purposes. This credit facility expires in
February 1995. The Company presently has revolving committed repurchase
agreements of $300 million and $100 million maturing on June 25, 1994
and September 12, 1994, respectively. The Company has arranged separate
financing for the origination of multi-family mortgage loans for up to
$75 million. The Company expects that these credit facilities will be
renewed if necessary, at their respective expiration dates, although
there can be no assurance of such renewal. At March 31, 1994 the
Company had borrowed $481.2 million under these credit facilities. The
lines of credit contain certain financial covenants which the Company
met as of March 31, 1994. However, changes in asset levels or results
of operations could result in the violation of one or more covenants in
the future.
The Company finances adjustable-rate mortgage securities and certain
other mortgage assets through repurchase agreements. Repurchase
agreements allow the Company to sell mortgage assets for cash together
with a simultaneous agreement to repurchase the same mortgage assets on
a specified date for an increased price, which is equal to the original
sales price plus an interest component. At March 31, 1994, the Company
had outstanding obligations of $2.3 billion under such repurchase
agreements, of which $2.1 billion, $196.1 million and $8.4 million were
secured by adjustable-rate mortgage securities, fixed-rate mortgage
securities and other mortgage securities, respectively. Increases in
either short-term interest rates or long-term interest rates could
negatively impact the valuation of these mortgage assets and may limit
the Company's borrowing ability or cause various lenders to initiate
margin calls. Additionally, certain of the Company's adjustable-rate
mortgage securities are AA rated classes that are subordinate to related
AAA rated classes from the same series of securities. Such AA rated
classes have less liquidity than securities that are not
subordinated, and the value of such classes is more dependent on the
credit rating of the related mortgage pool insurer or the credit
performance of the underlying mortgage loans. As a result of either
changes in interest rates, a downgrade of a mortgage pool insurer, or
the deterioration of the credit quality of the underlying mortgage
collateral, the Company may be required to sell certain mortgage assets
in order to maintain liquidity. If required, these sales could be made
at prices lower than the carrying value of the assets, which could
result in losses.
The Company issues asset-backed commercial paper to support its
funding of mortgage warehouse lines of credit. An agreement with a
consortium of commercial banks provides 100% liquidity support for the
commercial paper and for the Company's obligation to fund on such lines
of credit. Based on such liquidity support, the Company's commercial
paper has been rated in the highest category by two nationally
recognized rating agencies.
A substantial portion of the assets of the Company are pledged to
secure indebtedness incurred by the Company. Accordingly, those assets
would not be available for distribution to any general creditors or the
stockholders of the Company in the event of the Company's liquidation,
except to the extent that the value of such assets exceeds the amount of
the indebtedness they secure.
The REIT provisions of the Internal Revenue Code require Resource REIT
to distribute to shareholders substantially all of its taxable income,
thereby restricting its ability to retain earnings. The Company may
issue additional common stock or other securities in the future in order
to fund growth in its operations, growth in its portfolio of mortgage
investments, or for other purposes.
During the quarter ended March 31, 1994 the Company issued 287,213
additional shares of common stock through its Dividend Reinvestment
Plan. Total net proceeds of $7.9 million were used for general
corporate purposes.
Subsequent Events
The rapid increase in market interest rates since May 5, 1994, may
adversely impact both the Company's net margin income during the
remainder of 1994 and the Company's volume of mortgage loans funded. In
particular, the interest rates that the Company pays under its various
borrowing arrangements may increase faster than the interest
rates the Company earns on its adjustable-rate mortgage securities or
mortgage loans in warehouse. Additionally, the increase in mortgage
interest rates will reduce overall mortgage origination activity in the
market, which may reduce the Company's ability to purchase or
originate mortgage loans at a volume level consistent with the $4.0
billion funded during 1993. To the extent that the Company experiences
a lower net margin and a lower volume of mortgage loans funded, the
Company would likely have lower income on a quarterly basis during the
remainder of 1994 than during the first quarter of 1994. Because the
Company's dividend is based on taxable income and the Company had a taxable
income carryover of $0.45 per share from 1993, the Company believes that a
temporary reduction in earnings would not necessitate a reduction in the
current dividend level.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In March 1993, the Company was notified by the Securities
and Exchange Commission (the "Commission") that a formal
order of investigation had been issued to review trading
activity in the Company's stock during April and May of
1992. In this regard, the Company and certain of its
officers and directors have produced documents and testified
before the staff of the Commission. The Company and the
subpoenaed officers and directors are complying with the
requests of the Commission. Based on information available
to the Company, and upon advice of counsel, management does
not believe that the investigation will result in any action
that will have a material adverse impact on the Company.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Analysis of Projected Yield.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCE MORTGAGE CAPITAL, INC.
By: -------------------------------
Thomas H. Potts, President
(authorized officer of registrant)
-------------------------------
Lynn K. Geurin, Executive Vice
President and Chief Financial Officer
(principal accounting officer)
Dated: May 16, 1994