SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: February 27, 1997
RESOURCE MORTGAGE CAPITAL, INC.
(Exact Name of Registrant as Specified in Charter)
Virginia 1-9819 52-1549373
(State or Other (Commission File Numb (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
10900 Nuckols Road, Richmond, Virginia 23060
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 217-5800
4880 Cox Road, Glen Allen, Virginia 23060
(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events.
Attached as Annex A are the consolidated financial statements of Resource
Mortgage Capital, Inc., and the independent auditor's report thereon, for the
year ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
RESOURCE MORTGAGE CAPITAL, INC.
February 27, 1997 By: /s/ Thomas H. Potts
--------------------
Thomas H. Potts
President
Annex A to Form 8-K
Resource Mortgage Capital, Inc.
Consolidated Financial Statements
December 31, 1996 and 1995
CONSOLIDATED BALANCE SHEETS
RESOURCE MORTGAGE CAPITAL, INC.
December 31, 1996 and 1995
(amounts in thousands except share data)
ASSETS 1996 1995
-------- --------
Investments:
Portfolio assets:
Collateral for collateralized bonds $2,702,294 $1,028,935
Mortgage securities 892,037 2,149,416
Other 96,236 27,585
Loans held for securitization 265,537 220,048
-------- --------
3,956,104 3,425,984
Cash 11,396 22,229
Accrued interest receivable 8,078 14,851
Other assets 11,879 26,974
======== ========
$3,987,457 $3,490,038
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized bonds $ 2,519,70 $ 949,139
Repurchase agreements 756,448 1,983,358
Notes payable 177,124 154,041
Accrued interest payable 2,717 5,278
Other liabilities 27,843 43,399
-------- --------
3,483,840 3,135,215
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share,
50,000,000 shares authorized:
9.75% Cumulative Convertible Series A,
1,552,500 issued and outstanding, 35,460 35,460
respectively
9.55% Cumulative Convertible Series B,
2,196,824 issued and outstanding, 51,425 51,425
respectively
9.73% Cumulative Convertible Series C,
1,840,000 and none issued and 52,740 -
outstanding, respectively
Common stock, par value $.01 per share,
50,000,000 shares authorized,
20,653,593 and 20,198,654 issued and 207 202
outstanding, respectively
Additional paid-in capital 291,637 281,508
Net unrealized gain (loss) on investments 64,402 (4,759)
available-for-sale
Retained earnings (deficit) 7,746 (9,013)
--------
--------
503,617 354,823
-------- --------
$3,987,457 $3,490,038
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
RESOURCE MORTGAGE CAPITAL, INC.
Years ended December 31, 1996, 1995 and
1994
(amounts in thousands except share data)
1996 1995 1994
------- -------- --------
Interest income:
Collateral for collateralized bonds 148,675$ 61,007 $33,719
Mortgage securities 129,253 161,889 157,701
Other portfolio assets 4,700 2,637 765
Loans held for securitization 29,439 28,349 35,121
------- -------- --------
312,067 253,882 227,306
------- -------- --------
Interest and related expense:
Collateralized bonds 117,070 50,984 32,840
Repurchase agreements 105,970 142,474 134,791
Notes payable 8,195 11,186 6,189
Other 2,819 3,931 6,998
Provision for losses 3,106 2,888 2,124
------- -------- --------
237,160 211,463 182,942
------- -------- --------
Net interest margin 74,907 42,419 44,364
Gain on sale of single-family mortgage 17,285 - -
operations
Gain on sale of assets, net of associated 503 9,651 27,723
costs
Other income 1,116 2,963 1,454
General and administrative expenses (20,763) (18,123) (21,284)
------- -------- --------
Net income $73,048 $36,910 $ 52,257
======= ======== ========
Net income $ 73,04 $ 36,910 $52,257
Dividends on preferred stock (10,009) (2,746 ) -
======= ======== ========
Net income available to common $63,039 $ 34,164 $52,257
shareholders
======= ======== ========
Per common share:
Primary $ 3.08 $ 1.70 $2.64
======= ======== ========
Fully diluted $ $ $
2.96 1.70 2.64
======= ======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
RESOURCE MORTGAGE CAPITAL,
INC.
Years ended December 31, 1996, 1995 and 1994 (amounts in thousands except share
data)
Years ended December 31,
1996, 1995 and 1994
(amounts in thousands except
share data)
Net Unrealized
Additional Gain (Loss) Retained
Preferred Common Paid-in on Investments Earnings
Stock Stock Capital Available-for-Sale (Deficit) Total
------------------------------------------------------------------------------------
Balance at December 31, 1993 $ - $ 193 $ 259,622 $ - $ (6,783) $ 253,032
Issuance of common stock - 8 19,674 - - 19,682
Net income - 1994 - - - - 52,257 52,257
Change in net unrealized loss
on investments available-for-sale - - - (72,678) - (72,678)
Dividends on common stock
at $2.76 per share - - - (54,822) (54,822)
-
------------------------------------------------------------------------------------
Balance at December 31, 1994 - 201 279,296 (72,678) (9,348) 197,471
Issuance of common stock - 1 2,212 - - 2,213
Series A preferred stock issued,
net of issuance costs 35,460 - - - 35,460
-
Series B preferred stock issued,
net of issuance costs 51,425 - - - 51,425
-
Net income - 1995 - - - 36,910 36,910
-
Change in net unrealized loss
on investments available-for-sale - - 67,919 - 67,919
-
Dividends on common stock
at $1.68 per share - - - (33,829) (33,829)
-
Dividends on preferred stock - - - (2,746) (2,746)
-
------------------------------------------------------------------------------------
Balance at December 31, 1995 86,885 202 281,508 (4,759) (9,013) 354,823
Issuance of common stock - 5 10,129 - - 10,134
Series C preferred stock issued,
net of issuance costs 52,740 - - - 52,740
-
Net income - 1996 - - - 73,048 73,048
-
Change in net unrealized loss
on investments available-for-sale - - 69,161 - 69,161
-
Dividends on common stock
at $2.27 per share - - - (46,280) (46,280)
-
Dividends on preferred stock - - - (10,009) (10,009)
-
====================================================================================
Balance at December 31, 1996 $ 139,625 $ 207 $ 291,637 $ 64,402 $ 7,746 $ 503,617
====================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
RESOURCE MORTGAGE CAPITAL, INC.
Years ended December 31, 1996, 1995 and
1994
(amounts in thousands)
1996 1995 1994
--------- --------- ---------
Operating activities:
Net income $ 73,048 $36,910 $52,257
Adjustments to reconcile net income
to net cash
provided by (used for) operating
activities:
Provision for losses 3,106 2,888 2,124
Net gain from sale of portfolio (503 ) (2,276 ) (7,685 )
assets
Gain on sale of single-family (17,285 ) - -
operations
Amortization and depreciation 23,046 14,091 8,006
Net increase in accrued
interest, other
assets and other liabilities (22,891 ) (9,920 ) (3,006 )
Other - (2,639 ) (2,092 )
--------- --------- ---------
Net cash provided by 58,521 39,054 49,604
operating activities
--------- --------- ---------
Investing activities:
Collateral for collateralized bonds:
Fundings of loans subsequently (1,571,95)(708,954 ) (77,917 )
securitized
Principal payments on collateral 464,478 205,150 120,088
Net change in funds held by 3,056 952 12,917
trustees
--------- --------- ---------
(1,104,42)(502,852 ) 55,088
Net (increase) decrease in loans (60,005 ) 307,019 275,700
held for securitization
Purchase of collateralized bonds, net - - (1,890 )
Purchase of other portfolio assets (33,319 ) (15,665 ) (16,872 )
Payments on other portfolio assets 12,117 4,939 13
Purchase of mortgage securities (106,510 )(432,885 )(890,170 )
Principal payments on mortgage 305,112 260,850 436,351
securities
Proceeds from sales of mortgage 505,708 634,364 251,454
securities
Proceeds from sale of single-family 20,413 - -
operations
Capital expenditures (3,162 ) (911 ) (1,990 )
--------- --------- ---------
Net cash (used for) provided (464,067 ) 254,859 107,684
by investing activities
--------- --------- ---------
Financing activities:
Collateralized bonds:
Proceeds from issuance of 2,060,402 678,121 68,972
securities
Principal payments on securities (448,238 )(174,150 )(131,452 )
--------- --------- ---------
1,612,164 503,971 (62,480 )
Repayments of borrowings, net (1,228,60)(847,624 ) (48,283 )
Proceeds from stock offerings, net 62,874 89,097 19,682
Dividends paid (51,721 ) (25,042 ) (59,842 )
--------- --------- ---------
Net cash provided by (used 394,713 (279,598 )(150,923 )
for) financing activities
--------- --------- ---------
Net (decrease) increase in cash (10,833 ) 14,315 6,365
Cash at beginning of year 22,229 7,914 1,549
========= ========= =========
Cash at end of year $ 11,396 $22,229 $7,914
========= ========= =========
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESOURCE MORTGAGE CAPITAL, INC.
December 31, 1996, 1995 and 1994
(amounts in thousands except share data)
NOTE 1 - THE COMPANY
The Company is a mortgage and consumer finance company which uses its loan
production operations to create investments for its portfolio. The Company
originates or purchases mortgage loans and consumer installment loans throughout
the United States. Currently, the Company's primary production operations
include the origination of mortgage loans secured by multi-family properties and
the origination of loans secured by manufactured homes. The Company will
securitize the loans funded principally as collateral for collateralized bonds,
limiting its credit risk and providing long-term financing for those loans
securitized. The Company may also use other securitization vehicles for its loan
production, such as pass-through securities.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Resource Mortgage
Capital, Inc., its wholly owned subsidiaries (together, Resource Mortgage) and
certain other affiliated entities (collectively, the Company). All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts for 1995 and 1994 have been reclassified to conform to the
presentation for 1996.
Federal Income Taxes
Resource Mortgage has elected to be taxed as a real estate investment trust
(REIT) under the Internal Revenue Code. As a result, Resource Mortgage generally
will not be subject to federal income taxation at the corporate level to the
extent that it distributes at least 95 percent of its taxable income to its
shareholders and complies with certain other requirements. No provision has been
made for income taxes for Resource Mortgage and its qualified REIT subsidiaries
in the accompanying consolidated financial statements, as Resource Mortgage
believes it has met the prescribed distribution requirements.
Portfolio Assets
Collateral for Collateralized Bonds. Collateral for collateralized bonds
consists of single-family and multi-family mortgage loans which have been
pledged to secure collateralized bonds. Loans are carried at their outstanding
principal balances, net of unamortized premiums and discounts.
Mortgage Securities. Mortgage securities consist of adjustable-rate mortgage
securities (ARMs), fixed-rate mortgage securities, mortgage derivative
securities and mortgage residual interests.
Other Portfolio Assets. Other portfolio assets consists of a note receivable at
December 31, 1996 of $47,500 received in connection with the sale of the
Company's single-family mortgage operations in May 1996 (see Note 11), financing
lease receivables and single-family homes leased to home builders. Other
portfolio assets are considered held to maturity and are therefore reported at
their amortized cost basis.
Available-for-Sale Investments. Pursuant to the requirements of Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, the Company has classified collateral for
collateralized bonds and mortgage securities as available-for-sale. These
portfolio assets are therefore reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
shareholders' equity. The basis of any securities sold is computed using the
specific identification method. Any of these investments may be sold prior to
maturity to support the Company's investment strategies.
Loans Held for Securitization
Loans held for securitization at December 31, 1996 include mortgage loans
secured by multi-family and single-family residential properties and installment
loans secured by manufactured homes. These loans were originated through the
Company's loan production operations and will generally be securitized as
collateral for collateralized bonds. These loans are carried at their unpaid
principal balance, net of any unamortized discount or premium and adjusted for
deferred hedging gains or losses, if any.
Price Premiums and Discounts
Price premiums and discounts on mortgage securities, collateral for
collateralized bonds and collateralized bonds are deferred as an adjustment to
the basis of the related investment or obligation and are amortized into
interest income or expense, respectively, over the life of the related
investment or obligation using the effective yield method adjusted for the
effects of prepayments.
Deferred Issuance Costs
Costs incurred in connection with the issuance of collateralized bonds are
deferred and amortized over the estimated lives of the collateralized bonds
using the interest method adjusted for the effects of prepayments. These costs
are included in the carrying value of the collateral for collateralized bonds.
Hedging Instruments
The nature of the Company's investment and financing strategies expose the
Company to interest rate risk. Interest rate cap agreements may be utilized to
limit the Company's risks related to the financing of certain investments should
short-term interest rates rise above specified levels. The amortization of the
cost of such interest rate cap agreements will reduce net interest margin on the
related investment over the lives of the interest rate cap agreements. The
remaining unamortized cost is included with the related investment in the
consolidated balance sheets. The Company may also enter into financial futures
and options contracts and interest rate swaps to moderate the interest rate
risks inherent in the financing of its mortgage securities. Revenues or costs
associated with financial futures and options contracts are recognized in income
or expense in a manner consistent with the accounting for the asset or liability
being hedged. Revenues and costs associated with interest rate swaps are
recorded as adjustments to interest expense on the financing obligation being
hedged.
The Company may also enter into forward delivery contracts and into financial
futures and options contracts for the purpose of reducing exposure to the effect
of changes in interest rates on loans which the Company has funded or committed
to fund. Gains and losses on such contracts are either (i) deferred until such
time the related loans are sold, or (ii) deferred as an adjustment to the
carrying value of the related loan and amortized into income over the life of
the loan using the effective yield method adjusted for the effects of
prepayments.
Cash
Approximately $6,600 and $5,400 of cash at December 31, 1996 and 1995,
respectively, is restricted for the payment of premiums on various insurance
policies related to certain mortgage securities, or is held in trust to cover
losses not otherwise covered by insurance. Cash at December 31, 1995 also
included approximately $15,300 of deposits in-transit from repurchase agreement
counterparties or the trustee for certain mortgage securities pledged as
collateral for repurchase agreements.
Net Income Per Common Share
Net income per common share as shown on the consolidated statements of
operations for the years ended December 31, 1996, 1995 and 1994 is presented on
both a primary net income per common share and fully diluted net income per
common share basis. Fully diluted net income per common share assumes the
conversion of the convertible Preferred Stock into common stock, using the
if-converted method, and dilutive Stock Appreciation Rights, using the Treasury
Stock method. The average number of shares is increased by the assumed
conversion of convertible items, but only if these items are dilutive. For the
year ended December 31, 1996 only, the Company's Preferred Stock and Stock
Appreciation Rights were dilutive. The Preferred Stocks are convertible to
shares of common stock on a one-for-one basis. The following table summarizes
the average number of shares of common stock and equivalents used to compute
primary and fully diluted net income per common share for the years ended
December 31, 1996, 1995 and 1994:
- -----------------------------------------------------------
Year ended December 31,
1996 1995 1994
------------ ------------ -----------
Primary 20,444,790 20,122,772 19,829,609
============ ============ ===========
Fully diluted 24,662,677 20,122,772 19,829,609
============ ============ ===========
- -----------------------------------------------------------
Stock Appreciation Rights
In January 1996, the Company adopted Financial Accounting Standards Board
Statement No. 123, Accounting for Stock-Based Compensation (FAS No. 123).
FAS No. 123 establishes a fair value based method of accounting for
stock-based compensation plans. FAS No. 123 permits entities to expense an
estimated fair value of employee stock options or to continue to measure
compensation cost for these plans using the intrinsic value accounting method
contained in APB Opinion No. 25. As the Company issues only stock
appreciation rights pursuant to various stock incentive plans which are
currently paid in cash, the impact of adopting FAS No. 123 did not result in
a material change to the Company's financial position or results of
operations.
Use of Estimates
Fair Value. The Company uses estimates in establishing fair value for its
investments available-for-sale. Estimates of fair value for most investments are
based on market prices provided by certain dealers. Estimates of fair value for
certain other investments are determined by calculating the present value of the
projected net cash flows of the instruments using appropriate discount rates and
credit loss assumptions. The discount rates used are based on management's
estimates of market rates, and the net cash flows are projected utilizing the
current interest rate environment and forecasted prepayment rates. Estimates of
fair value for all remaining investments available-for-sale are based primarily
on management's judgment. Since the fair value of the Company's investments
available-for-sale are based on estimates, actual gains and losses recognized
may differ from those estimates recorded in the consolidated financial
statements. The fair value of all on- and off-balance sheet financial
instruments is presented in Notes 3 and 9.
Allowance for Losses. As discussed in Note 4, the Company has retained credit
risk on certain securitized loans. An allowance for losses has been estimated
and established for the credit risk retained based on management's judgment. The
allowance for losses is evaluated and adjusted periodically by management based
on the actual and projected timing and amount of potential credit losses, as
well as industry loss experience. Provisions made to increase the allowance
related to the credit risk retained is presented as "Provision for Losses" in
the accompanying financial statements. The Company's actual credit losses may
differ from those estimates used to establish the allowance.
Other Mortgage Securities. Income on certain other mortgage securities is
accrued using the effective yield method based upon estimates of future net cash
flows to be received over the estimated remaining lives of the mortgage
securities. Estimated effective yields are changed prospectively consistent with
changes in current interest rates and current prepayment assumptions on the
underlying mortgage collateral used by various dealers in mortgage-backed
securities. Reductions in carrying value are made when the total projected cash
flow is less than the Company's basis, based on either the dealers' prepayment
assumptions or, if it would accelerate such adjustments, management's
expectations of interest rates and future prepayment rates.
NOTE 3 - PORTFOLIO ASSETS
Collateral for Collateralized Bonds and Mortgage Securities The following table
summarizes the Company's amortized cost basis and fair value of portfolio assets
classified as available-for-sale at December 31, 1996 and 1995, and the related
average effective interest rates (calculated for the month ended December 31,
1996 and 1995, and excluding unrealized gains and losses):
- ------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------
Effective Effective
Interest Interest
Fair Rate Fair Rate
Value Value
- ------------------------------------------------------------------
Collateral for
collateralized bonds:
Amortized cost $2,668,633 7.9% $1,012,399 8.4%
Allowance for losses (31,732 ) (1,800)
-------- ---------
Amortized cost, net 2,636,901 1,010,599
Gross unrealized 73,696 20,208
gains
Gross unrealized (8,303 ) (1,872)
losses
- ------------------------------------------------------------------
$2,702,294 $1,028,935
- ------------------------------------------------------------------
Mortgage Securities:
Adjustable-rate $780,259 6.9% $2,087,435 6.8%
mortgage securities
Fixed-rate mortgage 29,505 10.9% 35,074 7.9%
securities
Other mortgage 88,198 16.4% 56,190 15.6%
securities
-------- ---------
897,962 2,178,699
Allowance for losses (4,934 ) (6,188)
-------- ---------
Amortized cost, 893,028 2,172,511
net
Gross unrealized 23,591 22,488
gains
Gross unrealized losses (24,582 ) (45,583)
- ------------------------------------------------------------------
$892,037 $2,149,416
- ------------------------------------------------------------------
Collateral for collateralized bonds. Collateral for collateralized bonds
consists of adjustable-rate and fixed-rate mortgage loans secured by first liens
on single-family and multi-family residential housing. All collateral for
collateralized bonds is pledged to secure repayment of the related debt
obligation. All principal and interest (less servicing related fees) on the
collateral is remitted to a trustee and is available for payment on the bond
obligation. The Company's exposure to loss on collateral for collateralized
bonds is limited to its net investment, as collateralized bonds are non-recourse
to the Company. The Company may also be exposed to losses from prepayments of
the underlying loans to the extent of unamortized net premium on the loans or
deferred costs related to the issuance of the collateralized bonds.
The components of collateral for collateralized bonds at December 31, 1996 and
1995 are as follows:
--------------------------------------------
1996 1995
--------------------------------------------
Mortgage collateral, net
of allowance $2,555,903 $974,380
Funds held by trustees 2,637 3,056
Accrued interest 18,575 7,801
receivable
Unamortized premiums and 55,833 22,107
discounts, net
Deferred issuance costs 3,953 3,255
Unrealized gain 65,393 18,336
--------------------------------------------
$ 2,702,294 $1,028,935
--------------------------------------------
Adjustable-Rate Mortgage Securities. ARMs consist of mortgage certificates
secured by adjustable-rate mortgage loans.
Fixed-Rate Mortgage Securities. Fixed-rate mortgage securities consist of
mortgage certificates secured by mortgage loans that have a fixed rate of
interest for at least one year from the balance sheet date.
Other Mortgage Securities. Other mortgage securities include primarily mortgage
derivative securities and mortgage residual interests. Mortgage derivative
securities are classes of collateralized bonds, mortgage pass-through
certificates, or mortgage certificates that pay to the holder substantially all
interest (i.e., an interest-only security), or substantially all principal
(i.e., a principal-only security). Mortgage residual interests represent the
right to receive the excess of (i) the cash flow from the collateral pledged to
secure related mortgage-backed securities, together with any reinvestment income
thereon, over (ii) the amount required for principal and interest payments on
the mortgage-backed securities or repurchase arrangements, together with any
related administrative expenses.
Sale of Securities. Proceeds from sales of mortgage securities totaled $505,708
in 1996, compared to $634,364 in 1995. Gross gains of $4,489 in 1996 and $15,513
in 1995, and gross losses of $6,887 in 1996 and $13,237 in 1995, were realized
on those sales. Gross realized losses in 1996 includes the reduction of the
basis in certain other mortgage securities recorded as writedowns for permanent
impairment as expectations of future prepayments rates would result in the
Company receiving less cash than its current basis in those investments. The
adjustment recorded by the Company was $1,460 and is included in the net gain on
sale of assets in the accompanying financial statements. Gross realized gains
for 1995 includes the recognition of the Company's basis in the repurchase
obligation related to convertible adjustable-rate mortgage loans previously
securitized or sold as a result of the transfer of this obligation to a third
party.
NOTE 4 - ALLOWANCE FOR LOSSES ON PORTFOLIO ASSETS
The following table summarizes the activity for the allowance for losses on
portfolio assets for the years ended December 31, 1996 and 1995:
-----------------------------------------------------------------
1996 1995
-----------------------------------------------------------------
-----------------------------------------------------------------
Collateral Collateral
for Mortgage for Mortgage
collateral Securities collateral Securities
bonds bonds
-----------------------------------------------------------------
Beginning balance $1,800 $ 6,188 $ - $ 8,703
Provision for losses
2,300 700 1,800 1,088
Provision recorded due
to sale of - -
single-family 29,434 1,600
operations (see Note 11)
Losses charged-off, net (3,603)
(1,802) (3,554) -
-----------------------------------------------------------------
$31,732 $4,934 $ 1,800 $ 6,188
-----------------------------------------------------------------
The Company has limited exposure to credit risk retained on loans which it has
securitized through the issuance of collateralized bonds. The aggregate loss
exposure is generally limited to the Company's net investment in these
collateralized bonds, excluding price premiums and discounts and hedge gains and
losses. The Company only incurs credit losses to the extent that losses are
incurred in the repossession, foreclosure and sale of the underlying collateral.
Such losses generally equal the excess of the principal amount outstanding plus
servicer advances, less any proceeds from mortgage or hazard insurance, over the
liquidation value of the collateral. An allowance for losses, which is based on
industry and Company experience, has been established for estimated potential
losses over the expected life of these securities. The allowance for losses for
collateralized bonds is included in collateral for collateralized bonds in the
accompanying consolidated balance sheets.
On certain mortgage securities collateralized by mortgage loans purchased by the
Company for which mortgage pool insurance is used as the primary source of
credit enhancement, the Company has limited exposure to certain credit risks
such as fraud in the origination and special hazard not covered by such
insurance. An allowance was established based on the estimate of losses at the
time of securitization. The Company has not significantly utilized pool
insurance as a form of credit enhancement since 1993. Accordingly, the Company's
exposure to such potential losses is declining as the remaining outstanding
securities pay-down. The allowance for losses for mortgage securities is
included in mortgage securities in the accompanying consolidated balance sheets.
The allowance for losses is evaluated and adjusted periodically by management
based on the actual and estimated amount of potential credit losses, as well as
industry and Company loss experience.
NOTE 5 - LOANS HELD FOR SECURITIZATION
The following table summarizes the Company's loans held for securitization at
December 31, 1996 and 1995, respectively.
----------------------------------------------------
1996 1995
----------------------------------------------------
Secured by multi-family
residential properties $208,230 $ 7,786
Secured by manufactured homes 40,745 -
Secured by single-family 21,735 190,898
residential properties
------- --------
270,710 198,684
Net premium (discount) (5,173) 21,364
----------------------------------------------------
$ 265,537 $220,048
----------------------------------------------------
The Company originates fixed-rate loans secured by first mortgages or deeds of
trust on multi-family residential properties. The Company also originates
fixed-rate and adjustable-rate installment loans on manufactured homes which are
secured by either a UCC filing or a title. Prior to the sale of its
single-family operations (see Note 11), the Company purchased and originated
fixed-rate and adjustable-rate loans secured by first mortgages or first deeds
of trust on single-family attached or detached residential properties.
Subsequent to the sale, the Company is prohibited through March 2001 from
purchasing through correspondent relationships or originating through a
wholesale network certain types of single-family mortgage loans.
Net premium (discount) on loans held for securitization includes premium paid
and discount obtained on loans held for securitization. Additionally, the net
premium (discount) is adjusted by the gains and losses generated from
corresponding hedging transactions, primarily used to protect the pipeline of
commitments to fund loans. The net premium (discount) is deferred as an
adjustment to the carrying value of the loans until the loans are securitized or
sold.
The Company funded mortgage loans with an aggregate principal balance of
$744,001, $893,953 and $2,861,443 during 1996, 1995 and 1994, respectively.
Additionally, the Company made bulk loan purchases totaling $731,460 and $22,433
in 1996 and 1995 respectively.
At December 31, 1996, a portion of the loans secured by single-family
residential properties consists of loans delinquent in excess of 90 days and not
covered by mortgage pool insurance. These loans were funded prior to the sale of
the single-family mortgage operations, and were not subsequently securitized due
to delinquency issues. The Company recorded a provision for losses of $2,636 at
the time of the sale of the single-family mortgage operations in May 1996.
During 1996, losses on loans totaling $520 were charged-off to the allowance,
and the balance of the allowance at December 31, 1996 and 1995 was $2,290 and
$174, respectively. The remaining balance of single-family residential loans
includes loans repurchased from mortgage pass-through securities issued by the
Company in prior years and which have mortgage pool insurance to cover losses.
NOTE 6 - COLLATERALIZED BONDS
he components of collateralized bonds along with certain other information at
December 31, 1996 and 1995 are summarized below:
--------------------------------------------------------
1996 1995
--------------------------------------------------------
--------------------------------------------------------
Bonds Range of Bonds Range
Outstanding Interest Outstanding of
Rates Interest
Rates
--------------------------------------------------------
Variable-rate $ 2,288,709 5.5% - $680,993 5.9% -
classes 6.0% 6.4%
Fixed-rate 6.5% - 253,183 6.5% -
classes 220,185 11.5% 15.0%
Accrued interest 4,688 3,021
payable
Unamortized 6,126 11,942
premium
--------------------------------------------------------
$ 2,519,708 $949,139
--------------------------------------------------------
Range of stated 1998-2030 1998 -2027
maturities
Number of series 31 37
--------------------------------------------------------
Each series of collateralized bonds may consist of various classes of bonds,
either at fixed or variable rates of interest. Payments received on the loans
pledged as collateral for collateralized bonds and any reinvestment income
thereon are used to make payments on the collateralized bonds (see Note 3). The
obligations under the collateralized bonds are payable solely from the
collateral for collateralized bonds and are otherwise non-recourse to the
Company. The maturity of each class is directly affected by the rate of
principal prepayments on the related mortgage collateral. Each series is also
subject to redemption according to specific terms of the respective indentures.
As a result, the actual maturity of any class of a collateralized bonds series
is likely to occur earlier than its stated maturity.
Included in the collateralized bond balance are certain bonds which were not
sold, but pledged as collateral for repurchase borrowings. The amount of those
repurchase agreements included in collateralized bonds was $366,689 and $102,027
at December 31, 1996 and 1995, respectively. These amounts are recourse to the
Company.
The variable rate classes are based on 1-month London InterBank Offered Rate
(LIBOR). The average effective rate of interest expense for collateralized bonds
was 6.5%, 7.2% and 8.3% for the years ended December 31, 1996, 1995 and 1994,
respectively.
NOTE 7 - REPURCHASE AGREEMENTS
The Company utilizes repurchase agreements to finance certain of its
investments. These repurchase agreements are generally recourse to the Company.
These repurchase agreements bear interest at rates indexed to LIBOR and may be
secured by adjustable-rate mortgage securities, fixed-rate mortgage securities,
loans held for securitization and certain other mortgage securities. At December
31, 1996, substantially all repurchase agreements had maturities within thirty
days. If the counterparty to the repurchase agreement fails to return the
collateral, the ultimate realization of the security by the Company may be
delayed or limited.
The excess market value of the mortgage assets securing the Company's repurchase
obligations at December 31, 1996 did not exceed 10% of shareholders' equity for
any of the individual counterparties with whom the Company had contracted these
agreements.
The following table summarizes the Company's repurchase agreements outstanding
and the weighted average annual rate for these agreements at December 31, 1996
and 1995:
- ----------------------------------------------------------
Weighted
Amount Average Market
Outstanding Annual Value of
Rate Collateral
- ----------------------------------------------------------
December 31, 1996:
Repurchase agreements
secured by:
Adjustable-rate $717,232 5.82% $ 757,389
mortgage securities
Fixed-rate mortgage 26,297 5.81% 28,502
securities
Other mortgage 12,919 5.96% 20,134
securities
- ----------------------------------------------------------
$756,448 $ 806,025
- ----------------------------------------------------------
December 31, 1995:
Repurchase agreements
secured by:
Adjustable-rate $1,951,492 5.80% $2,040,425
mortgage securities
Fixed-rate mortgage 24,165 6.03% 34,582
securities
Other mortgage 7,701 6.12% 32,202
securities
- ----------------------------------------------------------
$1,983,358 $2,107,209
- ----------------------------------------------------------
NOTE 8 - NOTES PAYABLE
The following table summarizes amounts outstanding under the below referenced
notes payable facilities and the weighted average annual rate of these
facilities at December 31, 1996 and 1995:
- -------------------------------------------------------
Weighted Carrying
Amount Average Value
Outstanding Annual of
Rate Collateral
- -------------------------------------------------------
December 31, 1996:
Secured:
Loans held for $119,500 6.98% $235,845
securitization
Other portfolio 11,583 7.87% 33,319
assets
Unsecured:
Series A 9.56% 9,000 9.56% -
senior notes
Series B 10.03% 35,000 10.03% -
senior notes
Acquisition notes 841 8.00% -
due 1997-1999
Acquisition notes 1,200 8.73% -
due 1999-2001
- -------------------------------------------------------
$177,124 $269,164
- -------------------------------------------------------
December 31, 1995:
Secured:
Loans held for $105,681 5.68% $153,298
securitization
Unsecured:
Series A 9.56% 12,000 9.56% -
senior notes
Series B 10.03% 35,000 10.03% -
senior notes
Acquisition notes 1,360 8.00% -
due 1997-1999
- -------------------------------------------------------
$154,041 $153,298
- -------------------------------------------------------
Secured. At December 31, 1996, the Company had three credit facilities
aggregating $500,000 to finance the funding of loans, of which $350,000 expires
in 1997 and $150,000 expires in 1998. The interest rates on these facilities
range from 1-month LIBOR plus 1% to 1-month LIBOR plus 1.375%. The contractual
rates paid on these facilities may be reduced by credits for compensating cash
balances. One of these facilities includes a sub-agreement which allows the
Company to borrow up to $30,000 unsecured for working capital purposes. 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.
Unsecured. The Company's Series A 9.56% senior notes are payable in annual
installments through 1999. The Company's Series B 10.03% senior notes are
payable in annual installments through 2001. The Company also issued various
unsecured notes payable in conjunction with the acquisition of a multi-family
mortgage broker (see Note 10) and the acquisition of a single-family mortgage
servicer which was sold in 1996 along with the single-family mortgage operations
(see Note 11). The aggregate principal payments due under the unsecured notes
for the next five years after December 31, 1996 are $3,406, $12,156, $12,695,
$8,894 and $8,894.
NOTE 9 - ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS
The following table presents the carrying values and estimated fair values of
the Company's recorded financial instruments, as well as information about
certain specific off-balance sheet financial instruments as of December 31, 1996
and 1995:
- -------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------
Notional Notional
Amount Cost Fair Amount Cost Fair
Basis Value Basis Value
- -------------------------------------------------------------------------
Recorded financial
instruments:
Assets:
Collateral for $ - $2,628,288 $2,699,687 $ - $1,010,59 $1,028,935
collateralized
bonds
Mortgage - 882,615 889,542 -- 2,148,759 2,145,670
securities
Interest rate cap 1,499,00 19,025 5,102 1,575,000 23,752 3,746
agreements
Loans held for - 265,537 277,710 -- 220,048 223,451
securitization
Other portfolio - 96,236 98,378 -- 27,585 27,585
assets
Cash - 11,396 11,396 -- 22,229 22,229
Liabilities:
Collateralized - 2,519,708 2,519,708 -- 949,139 949,139
bonds
Repurchase - 756,448 756,448 -- 1,983,358 1,983,358
agreements
Notes payable - 177,124 177,124 -- 154,041 154,041
Off-balance sheet financial instruments:
Financial futures contracts:
Repurchase - - - 1,000,000 -- (107)
agreements
Loans held for 78,170 - 515 274,700 -- (628)
securitization
Options on futures
contracts:
Repurchase - - - 2,130,000 -- 46
agreements
Loans held for 100,000 - (55) 30,000 -- (2)
securitization
Interest rate swap
agreements:
Mortgage securities 1,020,000 - (1,177) 1,020,000 -- 4,882
Collateralized 432,801 - 334 207,094 -- (3,898)
bonds
Forward delivery contracts:
Loans held for 76,280 - 293 - -- --
securitization
Commitments to fund 536,931 - 554,582 954,900 -- 985,200
loans
- -------------------------------------------------------------------------
The estimated fair values of financial instruments have been determined using
available market information and appropriate valuation methodologies. However, a
degree of judgment is necessary in evaluating market data and forming these
estimates.
Recorded Financial Instruments. The carrying amount of cash and liabilities
considered to be financial instruments approximates fair value at December 31,
1996 and 1995. As discussed in Note 2, the fair value of mortgage securities is
based on actual dealer price quotes, or by determining the present value of the
projected net cash flows using appropriate discount rates and prepayment
assumptions.
The Company has purchased over the past four years LIBOR and One-year Constant
Maturity Treasury Index (CMT) based interest rate cap agreements to limit its
exposure to the lifetime interest rate caps on certain of its adjustable-rate
mortgage securities and collateral for collateralized bonds. Under these
agreements, the Company will receive additional cash flow should the related
index increase above the contracted rates. Contract rates on these cap
agreements range from 8.0% to 11.5%, with expiration dates ranging from 1999 to
2004.
Off-Balance Sheet Financial Instruments. The Company may engage in derivative
financial instrument activities for the purpose of interest rate risk
management. As of December 31, 1996, all of the Company's derivative financial
instruments were for purposes other than trading. The Company has credit risk to
the extent that the counterparties to the derivative financial instruments do
not perform their obligation under the agreements. If one of the counterparties
does not perform, the Company would not receive the cash to which it would
otherwise be entitled under the conditions of the agreement.
The Company may utilize Eurodollar financial futures and options contracts to
moderate the risks inherent in the financing of its mortgage securities with
floating rate repurchase agreements. The Company utilizes these instruments to
synthetically lengthen the terms of the repurchase agreement financing,
generally from one month to three and six months. Under these contracts, the
Company will receive additional cash flow if the related Eurodollar index
increases above the contracted rates. The Company will pay additional cash flow
if the related Eurodollar index decreases below the contracted rates. As of
December 31, 1996, the Company had no such financial futures or option
contracts. As of December 31, 1995, the Company had contracts with a notional
value of $3,130,000 with contract rates ranging from 5.0% to 5.4%.
The Company may enter into various interest rate swap agreements to limit its
exposure to changes in financing rates of certain mortgage securities. The
Company has entered into a series of interest rate swap agreements which
effectively caps the increase in borrowing costs in any six-month period to 1%
for $1,020,000 notional amount of short-term borrowings. Pursuant to the terms
of this agreement, the Company pays the lesser of current 6-month LIBOR, or
6-month LIBOR in effect 180-days prior plus 1%, and receives current 6-month
LIBOR. These agreements expire in 2001. The Company has also entered into a
5-year amortizing interest rate swap agreement related to variable-rate
collateralized bond classes with a remaining notional of $178,045. Under the
terms of this agreement, the Company receives 1-month LIBOR and pays 6.15%. This
agreement expires in 2000. The Company entered into a 7-year amortizing interest
rate swap agreement with remaining notional of $254,756 related to prime-based
loans financed with LIBOR-based variable-rate collateralized bonds. Under the
terms of the agreement, the Company receives 1-month LIBOR plus 2.65% and pays
1-month average prime in effect 3 months prior.
Forward delivery contracts and financial futures and options contracts are used
to reduce exposure to the effect of changes in interest rates on funded mortgage
loans, as well as those mortgage loans which the Company has committed to fund.
As of December 31, 1996, the Company had entered into commitments to fund
multi-family mortgage loans of $521,684 and manufactured housing loans of
$15,247. The multi-family commitments had original terms of not more than 27
months. The manufactured housing commitments generally had original terms of not
more than 60 days. The Company has deferred net hedging gains of $2,022 at
December 31, 1996 and deferred net hedging losses of $16,647 at December 31,
1995 related to these positions.
NOTE 10 - ACQUISITION
On August 30, 1996, the Company acquired Multi-Family Capital Markets, Inc.
(MCM), which specializes in the sourcing, underwriting and closing of
multi-family loans secured by first liens on apartment properties that have
qualified for low income housing tax credits. The Company acquired all of the
outstanding stock and assets of MCM for $4,000. Of this amount, $2,800 was paid
in cash with the remaining $1,200 paid through the issuance of notes to the
sellers, due in installments through September 1, 1999 and September 1, 2001.
The acquisition was accounted for as a purchase, and accordingly, the purchase
price was allocated to the assets and liabilities acquired based on their
estimated fair values as of the date of acquisition. MCM's results of operations
are not material to the Company's consolidated financial statements and proforma
financial information has therefore not been presented.
NOTE 11 - SALE OF SINGLE-FAMILY MORTGAGE OPERATIONS
On May 13, 1996, the Company sold its single-family correspondent, wholesale and
servicing operations (collectively, the single-family mortgage operations) to
Dominion Mortgage Services, Inc. (Dominion), a wholly-owned subsidiary of
Dominion Resources, Inc. (NYSE: D). The purchase price was $67,958 for the stock
and assets of the single-family mortgage operations. The terms of the purchase
included an initial cash payment of $20,458, with the remainder of the purchase
price paid in five annual installments of $9,500 beginning January 2, 1997,
pursuant to a note agreement. The note bears interest at a rate of 6.50%. The
terms of the sale generally prohibit the Company from acquiring single-family,
non-conforming residential mortgages through either correspondent relationships
or a wholesale network for a period of five years. As a result of the sale, the
Company recorded a net gain of $17,285. Such amount includes a provision of
approximately $31,000 for possible losses on securitized single-family loans
where the Company, which performed the servicing of such loans prior to the
sale, has retained a portion of the credit risk on these loans.
NOTE 12 - PREFERRED STOCK
The following table presents a summary of the Company's issued and outstanding
preferred stock:
- ----------------------------------------------------------
Liquidation Dividends
Preference Per Share
Per 1996 1995
Share
- ----------------------------------------------------------
Series A 9.75% Cumulative $24.00 $2.375 $1.170
Convertible Preferred Stock
Series B 9.55% Cumulative 24.50 2.375 0.423
Convertible Preferred Stock
Series C 9.73% Cumulative 30.00 0.600 -
Convertible Preferred Stock
- ----------------------------------------------------------
The Company is authorized to issue up to 50,000,000 shares of preferred stock.
For all series issued, dividends are cumulative from the date of issue and are
payable quarterly in arrears. The dividends are equal, per share, to the greater
of (i) the per quarter base rate of $0.585 for Series A and Series B, and $0.73
for Series C , or (ii) the quarterly dividend declared on the Company's common
stock. Each share of Series A, Series B and Series C is convertible at any time
at the option of the holder into one share of common stock. Each series is
redeemable by the Company, in whole or in part, (i) for one share of common
stock, plus accrued and unpaid dividends, provided that for 20 trading days
within any period of 30 consecutive trading days, the closing price of the
common stock equals or exceeds the issue price, or (ii) for cash at the issue
price, plus any accrued and unpaid dividends beginning after June 30 and October
31, 1998 for Series A and B, respectively and September 30, 1999 for Series C.
Series C was issued in October 1996 with proceeds of $52,740 net of issuance
costs.
In the event of liquidation, the holders of all series of preferred stock will
be entitled to receive out of the assets of the Company, prior to any such
distribution to the common shareholders, the issue price per share in cash, plus
any accrued and unpaid dividends.
NOTE 13 - STOCK INCENTIVE PLAN
Pursuant to the Company's 1993 Stock Incentive Plan (the Employee Incentive
Plan), the Compensation Committee of the Board of Directors may grant to
eligible employees of the Company, its subsidiaries and affiliates for a period
of ten years beginning June 17, 1993, stock options, stock appreciation rights
(SARs) and restricted stock awards. An aggregate of 675,000 shares of common
stock are available for distribution pursuant to stock options, SARs and
restricted stock. The shares of common stock subject to any option or SAR that
terminates without a payment being made in the form of common stock would become
available for distribution pursuant to the Employee Incentive Plan. The
Compensation Committee of the Board of Directors may also grant dividend
equivalent rights (DERs) in connection with the grant of options or SARs. These
SARs and related DERs generally become exercisable as to 20 percent of the
granted amounts each year after the date of the grant.
The following table presents a summary of the SARs outstanding at December 31,
1996 and 1995:
-------------------------------------------
SARs Exercise
Price
-------------------------------------------
December 31, 1994 211,960 $8 3/4 - 29
Granted 122,585 16 1/8
Forfeitures (24,973 ) 17 7/8 -
29
SARs exercised (3,062 ) 17 7/8 -
29
-------------------------------------------
December 31, 1995 306,510 $8 3/4 - 29
Granted 72,065 $ 20 3/4
- 23 5/8
Forfeitures (11,517 16 1/8 -
20 3/4
SARs exercised (16,114 8 3/4 -
17 7/8
Terminated at sale of
single-family (67,035 ) 8 3/4 - 29
mortgage
operations
-------------------------------------------
December 31, 1996 283,909 $12 3/4 -
29
-------------------------------------------
The Company expensed $1,664, none and $8 for SARs and DERs during 1996, 1995 and
1994, respectively. There were no stock options outstanding as of December 31,
1996 and 1995. The number of SARs vested and exercisable at December 31, 1996
and 1995 was 106,807 and 94,000, respectively.
In 1995, the Company adopted a Stock Incentive Plan for its Board of Directors
(the Board Incentive Plan) with terms similar to the Employee Incentive Plan. On
May 1, 1995, the date of the initial date of grant under the Board Incentive
Plan, each member of the Board of Directors was granted 7,000 SARs. Each Board
member subsequently received a grant of 1,000 SARs on May 1, 1996 and will
receive an additional grant of 1,000 SARs on May 1, 1997 and 1998, respectively.
The SARs granted on May 1, 1995 will become exercisable as to 33 1/3% of the
granted amount each of the next three years. Each successive award will become
exercisable as to 20% of the granted amounts each year after the date of grant.
The maximum period in which any SAR may be exercised is 73 months from the date
of grant. The maximum number of shares of common stock encompassed by the SARs
granted under the Board Incentive Plan is 100,000. The Company expensed $163 for
SARs and DERs related to the Board Incentive Plan during 1996. There was no such
expense recorded for 1995. The number of SARs vested and exercisable at December
31, 1996 was 9,324. There were no SARs vested and exercisable at December 31,
1995.
NOTE 14 - EMPLOYEE SAVINGS PLAN
The Company provides an employee savings plan under Section 401(k) of the
Internal Revenue Code. The employee savings plan allows eligible employees to
defer up to 12% of their income on a pretax basis. The Company matched the
employees' contribution, up to 6% of the employees' income. The Company may also
make discretionary contributions based on the profitability of the Company. The
total expense related to the Company's matching and discretionary contributions
in 1996, 1995 and 1994 was $248, $136 and $331, respectively. The Company does
not provide post employment or post retirement benefits to its employees.
NOTE 15 - CONTINGENCIES
The Company makes various representations and warranties relating to the sale or
securitization of mortgage loans. To the extent the Company were to breach any
of these representations or warranties, and such breach could not be cured
within the allowable time period, the Company would be required to repurchase
such mortgage loans, and could incur losses. In the opinion of management, no
material losses are expected to result from any such representations and
warranties.
In connection with the sale of its single-family mortgage operations, the
Company has indemnified the purchaser for a period of up to five years for
various representations and warranties made as part of the sale. One of the
companies included in the sale has been named in a lawsuit seeking class action
status regarding violations of the Real Estate Settlement and Procedures Act
(RESPA). The lawsuit alleges that this entity violated RESPA by payment of
premiums to wholesale brokers for sourcing single-family mortgage loans with
above market rates. The plaintiffs seek compensatory and punitive damages.
Pursuant to the terms of the sale, the Company has indemnified the purchaser
against any such violations of RESPA on loans funded through May 13, 1996. While
the ultimate outcome of this action cannot be presently determined, management
believes that the ultimate settlement of the case will not have a material
adverse impact on the Company's financial condition. Additionally, the Company
believes that any other matters arising as a result of the indemnifications made
at the time of the sale will not have a material adverse effect on the Company's
financial condition.
As of December 31, 1996, the Company is obligated under noncancelable leases
with expiration dates through 2003. The future minimum lease payments under
these noncancelable leases are as follows: 1997--$721; 1998--$825; 1999--$787;
2000--$582; 2001--$600; and thereafter--$1,254.
NOTE 16 - SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION
- --------------------------------------------------------
Year Ended December
31,
1996 1995 1994
- --------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $228,969 $210,638 $177,943
- --------------------------------------------------------
Supplemental disclosure of non-cash activities:
Purchase of collateral for $ $ $
collateralized bonds -- -- (54,204)
Assumption of collateral for -- -- 52,314
collateralized bonds
- --------------------------------------------------------
Purchase of collateral for
collateralized bonds, net $ -- $ -- $(1,890)
- --------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Resource Mortgage Capital, Inc.:
We have audited the accompanying consolidated balance sheets of Resource
Mortgage Capital, Inc. as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Resource Mortgage
Capital, Inc. as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Richmond, Virginia
February 4, 1997