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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999 Commission File Number 000-21786
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware 57-0962375
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(State of Incorporation) (IRS Employer Identification Number)
7909 Parklane Road
Columbia, South Carolina 29223
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(Address of principal executive offices) (Zip Code)
(803) 741-3000
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(Registrant's telephone no., including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of class
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to
this Form 10-K. [ ]
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The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was $70,454,162 as of March 6, 2000, based on
the closing price of $3.81 per share of the registrant's Common Stock , par
value $.01 per share, on the NASDAQ National Market System on such date.
As of March 6, 2000, 19,168,376 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant Form 10-K Reference Locations
1999 Annual Report to Shareholders Parts II and IV
2000 Proxy Statement Part III
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-K for the year ended December 31, 1999
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
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PART I.
Item 1. Business 1
Executive Officers of the Registrant 22
Item 2. Properties 22
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 23
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results 23
of Operations
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 23
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements With Accountants on Accounting and 24
Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and Management 24
Item 13. Certain Relationships and Related Transactions 24
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 25
SIGNATURES 26
INDEX TO EXHIBITS A
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PART I
ITEM 1. BUSINESS
General
The Company is a diversified financial services company engaged through
wholly-owned subsidiaries primarily in the business of mortgage banking, through
the purchase (via a nationwide network of correspondents and brokers), sale and
servicing of agency-eligible and subprime residential, single-family (i.e.,
one-four family), first lien and second lien mortgage loans and the purchase and
sale of servicing rights associated with agency-eligible loans. In addition, two
of the Company's wholly-owned subsidiaries originate, sell and service
small-ticket commercial equipment leases and originate, sell, underwrite for
investors and service commercial mortgage loans.
As part of its primary business focus, residential mortgage banking,
the Company purchases agency-eligible mortgage loans through its correspondents
and funds loans through its wholesale division. The Company also purchases and
originates residential mortgage loans through its subprime division.
Substantially all of the residential mortgage loans purchased and originated by
the Company are sold to institutional purchasers, including national and
regional broker/dealers, as mortgage-backed securities issued or guaranteed by
Fannie Mae, Freddie Mac or Ginnie Mae or are securitized. Substantially all the
agency-eligible mortgage loans are sold with the rights to service the loans
being retained by the Company. The retained servicing is then either held in the
Company's portfolio or sold separately.
The Company receives loan servicing fees and subservicing fees with
respect to the agency-eligible loans it funds through its wholesale channel and
purchases through its correspondent channel. The Company also receives loan
servicing fees with respect to agency-eligible loans the mortgage servicing
rights for which were acquired through bulk acquisitions of servicing rights
related to agency-eligible loans originated by other lenders.
During 1999, mortgage rates rose causing a significant decline in
nationwide mortgage refinance activity. Production volumes declined and the
resultant industry overcapacity led to an increasingly intense competitive
pricing environment. The Company was not immune from these cyclical trends as
its volumes and gross production margins were adversely affected. Accordingly,
the Company reported net operating losses for the latter half of 1999.
In response, on December 1, 1999 the Company announced a planned
reorganization and workforce reduction which involved (1) consolidation of 18
existing agency-eligible wholesale branch locations into six regional operating
centers, (2) closure of three subprime branches, and (3) reduction of overall
agency-eligible production support and administrative staffing levels. In
connection with execution of the plan, 208 agency-eligible employees (out of
907) and 34 subprime employees (out of 320) were terminated. Although
implementation of the above described reorganization and workforce reduction
achieved the expected cost savings levels, its scope may prove inadequate to
return the Company to profitability in the short-term due primarily to continued
erosion of gross production margins during the latter portion of 1999.
On January 10, 2000 the Company named Douglas K Freeman as its new
Chief Executive Officer. On February 12 through 14, 2000 the senior management
team met and restated its corporate strategy, mission, goals, business
principles and core values. The Company's strategy is to become a customer
centric financial intermediary that combines the best of product depth,
relationship management and service quality. In order to realize this vision,
the Company plans to: (1) diversify its product array, (2) utilize and deploy
advanced technology to support a more effective order fulfillment process and
(3) to integrate enhanced customer relationship management systems and
disciplines into its ongoing sales and marketing operations.
The Company also intends to continue expansion of its small-ticket
commercial equipment lease portfolio.
The Company does not hold any material trademarks, licenses, franchises
or concessions.
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During 1999, mortgage rates rose causing a significant decline in
nationwide mortgage refinance activity. Production volumes declined and the
resultant industry overcapacity led to an increasingly intense competitive
pricing environment. The Company was not immune from these cyclical trends as
its volumes and gross production margins were adversely affected. Accordingly,
the Company reported net operating losses for the latter half of 1999.
In response, on December 1, 1999 the Company announced a planned
reorganization and workforce reduction which involved (1) consolidation of 18
existing agency-eligible wholesale branch locations into six regional operating
centers, (2) closure of three subprime branches, and (3) reduction of overall
agency-eligible production support and administrative staffing levels. In
connection with execution of the plan, 208 agency-eligible employees (out of
907) and 34 subprime employees (out of 320) were terminated. Although
implementation of the above described reorganization and workforce reduction
achieved the expected cost savings levels, its scope may prove inadequate to
return the Company to profitability in the short-term due primarily to continued
erosion of gross production margins during the latter portion of 1999.
On January 10, 2000 the Company named Douglas K Freeman as its new
Chief Executive Officer. On February 12 through 14, 2000 the senior management
team met and restated its corporate strategy, mission, goals, business
principles and core values. The Company's strategy is to become a customer
centric financial intermediary that combines the best of product depth,
relationship management and service quality. In order to realize this vision,
the Company plans to: (1) diversify its product array, (2) utilize and deploy
advanced technology to support a more effective order fulfillment process and
(3) to integrate enhanced customer relationship management systems and
disciplines into its ongoing sales and marketing operations.
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Segmented Income Statements
The Company operates under wholly-owned subsidiaries that are engaged
in the following lines of business: (a) agency-eligible production; (b)
agency-eligible servicing; (c) agency-eligible reinsurance; (d) subprime
residential production; (e) commercial mortgage lending; and (f) small-ticket
equipment leasing. Tables set forth under Note 17 in the Consolidated Financial
Statements in the Company's accompanying 1999 Annual Report to Shareholders
present a summary of the revenues and expenses for each of the Company's
subsidiaries for the years ended December 31, 1999, 1998 and 1997, respectively
and are hereby incorporated herein by reference. The following represents the
percentage and amount of total Company revenues as contributed by the various
operating divisions for the years ended December 31, 1999, 1998 and 1997:
($ in thousands)
1999 1999 1998 1998 1997 1997
$ Amount Percentage $ Amount Percentage $ Amount Percentage
--------- ---------- --------- ---------- --------- ----------
Agency-eligible
production $ 72,613 42% $ 143,650 59% $ 107,302 67%
Agency-eligible
servicing 45,080 26% 40,064 16% 38,824 24%
Agency-eligible
reinsurance 1,649 1% 1,189 1% -- --
Subprime 31,351 18% 38,277 16% 15,280 9%
Commercial mortgage 14,297 8% 13,335 5% -- --
Leasing 9,285 5% 6,404 3% -- --
Other
/eliminations (483) 0% 807 0% (388) 0%
--------- --------- --------- --------- --------- ---------
Total $ 173,792 100% $ 243,726 100% $ 161,018 100%
--------- --------- --------- --------- --------- ---------
Residential Loan Production
Correspondent
The Company purchases closed agency-eligible mortgage loans through its
network of approved correspondent lenders. Correspondents are primarily mortgage
lenders, mortgage brokers, savings and loan associations and small commercial
banks. At December 31, 1999, the Company had 909 correspondents originating
mortgage loans in 49 states and the District of Columbia.
Agency-eligible residential loan production for the Company by
correspondents is widely dispersed, with the top 20 correspondents supplying the
Company with 34% of its dollar volume of correspondent loans during 1999
compared to 27% in 1998. During 1999, the top five correspondents accounted for
approximately 16% of the year's mortgage loan correspondent purchase volume.
This compares to the top five correspondents accounting for approximately 12%
and 13% of the mortgage loan purchase volume during 1998 and 1997, respectively.
No single correspondent accounted for more than 5.8% of the Company's
agency-eligible mortgage loan purchase volume in 1999. In 1998 and 1997, 3.9%
and 3.3%, respectively, of the Company's total agency-eligible mortgage loan
purchase volume was acquired from the Company's highest-volume correspondent.
The Company continues to emphasize correspondent loan production as its
basic business focus. By emphasizing correspondent lending, the Company can
match its costs more directly with the volume
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of agency-eligible loans purchased, so that a substantial portion of the
Company's cost is variable rather than fixed. By emphasizing the correspondent
origination approach, the Company has greater flexibility to adjust to varying
market conditions. As conditions change, the Company can expand into new
geographic markets without incurring significant additional costs by utilizing
existing and new correspondents that operate in each new market. The use of
correspondents also enables the Company to exit markets easily if circumstances
dictate.
The Company attracts and maintains relationships with correspondents by
offering a variety of services that provide incentives for the correspondents to
sell agency-eligible mortgage loans to the Company. The Company's strategy with
respect to its correspondents is to provide a high level of service rather than
the lowest price. Services provided include timely underwriting and approval or
rejection of a loan (within approximately 48 hours after receipt of a completed
loan application), timely purchase of loans (within 96 hours after being
approved for acquisition), seminars on how to process and prepare a loan
application, and updates on current underwriting practices. In addition, the
Company provides correspondents with a variety of products and delivery
capabilities and multiple means of funding loans. As the mortgage lending market
increases in sophistication and loan-price differentials narrow among mortgage
bankers, the Company believes that the level of service and commitment it
provides to its correspondents will be paramount to its success.
Management believes that through correspondent lending it can manage
risks and maintain good quality control. Correspondents have to meet established
standards to be approved by the Veteran's Administration (VA), the U. S.
Department of Housing and Urban Development (HUD) or private mortgage insurance
companies. A correspondent qualifies to participate in the Company's
correspondent program only after a thorough review of its reputation and
mortgage lending expertise, including a review of references and financial
statements and a personal visit by one or more representatives of the Company.
After a correspondent qualifies for the Company's program, the Company closely
monitors the correspondent's performance in terms of delinquency ratios,
document exceptions and other pertinent data. Furthermore, all mortgage loans
purchased by the Company through correspondents are subject to various aspects
of the Company's underwriting criteria, and correspondents are required to
repurchase loans or otherwise indemnify the Company for its losses in the event
of fraud or misrepresentation in the origination process and for certain other
reasons, including noncompliance with underwriting standards.
All loan applications are subject to the Company's underwriting
criteria and the guidelines set forth by the Federal Housing Authority (FHA),
the VA, Ginnie Mae, Fannie Mae, Freddie Mac or private investors, as applicable.
The Company or the correspondent, in the case of a correspondent with delegated
underwriting authority, verifies each applicant's income and bank deposits, as
well as the accuracy of the other information submitted by the applicant, and
obtains and reviews a credit report from a credit reporting agency, a
preliminary title report and a real estate appraisal. Generally, delegated
underwriting authority is granted by the Company to its larger correspondents
that meet certain financial strength, delinquency ratio, underwriting and
quality control standards.
With respect to FHA and VA loans, HUD and the VA, respectively, have
established approval guidelines for the underwriting of loans to be covered by
FHA insurance or a VA guaranty. The Company is approved by both HUD and the VA
to underwrite FHA and VA loans submitted by specified correspondents and
wholesale brokers. The Company purchases FHA and VA loans only from those
correspondents who are approved to underwrite FHA and VA loans and from those
correspondents for whom the Company has been approved to underwrite FHA and VA
loans.
The Company has implemented a quality control program to monitor
compliance with the Company's established lending and servicing policies and
procedures, as well as with applicable laws
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and regulatory guidelines. The Company believes that the implementation and
enforcement of its comprehensive underwriting criteria and its quality control
program are significant elements in the Company's efforts to purchase
high-quality mortgage loans and servicing rights. The Company's quality control
department examines loans in order to evaluate the loan purchasing function for
compliance with underwriting criteria. The quality control department also
reviews loan applications for compliance with federal and state lending
standards, which may involve re-verifying employment and bank information and
obtaining separate credit reports and property appraisals.
Wholesale
The wholesale division receives loan applications through brokers,
underwrites the loans, funds the loans at closing and prepares all closing
documentation. The wholesale branches and regional operating centers handle all
shipping and follow-up procedures on loans. Typically, mortgage brokers are
responsible for taking applications and accumulating the information precedent
to the Company's processing of the loans. All loan applications processed by the
wholesale division are subject to underwriting and quality control comparable to
the standards used in the Company's correspondent lending program.
Although the establishment of wholesale branch offices and regional
operating centers involves the incurrence of fixed expenses associated with
maintaining those offices, wholesale operations also generally provide for
higher profit margins than correspondent loan production. Additionally, each
branch office and regional operating center can serve a relatively sizable
geographic area by establishing relationships with large numbers of independent
mortgage loan brokers who bear much of the cost of identifying and interacting
directly with loan applicants. In 1999, the Company closed several branch
offices and established regional operations centers to better facilitate service
to a larger geographic area. At December 31, 1999, the Company had 2 wholesale
branches and 5 regional operating centers serving approximately 4,300 brokers.
The offices are located in California (1), Colorado (1), Georgia (1),
Massachusetts (1), Minnesota (1), Missouri (1) and Utah (1).
Subprime
Subprime loan production increased by 20% to $728.4 million for 1999 as
compared to $607.7 million during 1998 as the Company has expanded its
operations. Between 1998 and 1999 the Company increased the number of its
subprime brokers by 1,265. The number of branches declined from 19 in 1998 to 10
at the end of 1999 as the Company reassessed the geographic regions that each
branch covers.
The following table shows residential production volume by source for
each of the three years in the period ended December 31, 1999.
RESIDENTIAL LOAN PRODUCTION VOLUME Year Ended December 31,
---------------------------------------------
($ in Thousands) 1999 1998 1997
----------- ----------- -----------
Correspondent $ 6,363,936 $11,666,560 $ 7,893,583
Wholesale 1,748,415 3,023,961 1,868,726
Retail -- 264,059 675,411
----------- ----------- -----------
Total Agency-Eligible Loan Production $ 8,112,351 $14,954,580 $10,437,720
Subprime Production 728,410 607,664 339,574
----------- ----------- -----------
Total Residential Production $ 8,840,761 $15,562,244 $10,777,294
=========== =========== ===========
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The Company purchases and originates conventional and subprime mortgage
loans and mortgage loans insured by the FHA or partially guaranteed by the VA.
All mortgage loans purchased or originated by the Company are purchased or
originated for resale. The majority of the Company's loans are conforming loans,
i.e., mortgage loans that qualify for inclusion in purchase and guarantee
programs sponsored by Fannie Mae, Freddie Mac and Ginnie Mae.
The Company purchases and originates a variety of mortgage loan
products that are designed, in conjunction with the requirements of prospective
purchasers of such loans, to respond to consumer needs and competitive factors.
In addition to 15-year and 30-year conventional mortgage loans and 15-year and
30-year FHA loans and VA loans, the Company purchases and originates products
designed to provide lower interest rates to borrowers or lower principal and
interest payments by borrowers, including balloon mortgage loans that have
relatively short terms (e.g., five or seven years) and longer amortization
schedules (e.g., 25 or 30 years) and adjustable rate mortgage loans. The Company
also purchases and originates mortgage loans featuring a variety of combinations
of interest rates and discount points so that borrowers may elect to pay higher
points at closing and less interest over the life of the loan, or pay a higher
interest rate and reduce or eliminate points payable at closing. The portion of
total loans held for sale at any time that consists of a particular product type
depends upon the interest rate environment at the time such loans are made.
The following table shows residential mortgage loan production volume
by type of loan for each of the three years in the period ended December 31,
1999.
Year Ended December 31,
-------------------------------------------
($ in Millions except as indicated) 1999 1998 1997
---------- ---------- ----------
CONVENTIONAL LOANS:
Volume $ 4,892.9 $ 10,674.1 $ 6,126.8
Percentage of total volume 55% 68% 57%
FHA / VA LOANS:
Volume $ 3,219.5 $ 4,280.4 $ 4,310.9
Percentage of total volume 37% 28% 40%
SUBPRIME LOANS
Volume $ 728.4 $ 607.7 $ 339.6
Percentage of total volume 8% 4% 3%
TOTAL LOANS:
Volume $ 8,840.8 $ 15,562.2 $ 10,777.3
Number of loans 79,322 131,630 99,349
Average loan size ($ in Thousands) $ 111.5 $ 118.2 $ 108.5
The following table shows residential loan production volume by state
for the year ended December 31, 1999, for each state that represented 5% or more
of the Company's total residential loan production volume for 1999.
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Year Ended December 31, 1999
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($ in Thousands) Percent of
State Amount Total
------------------------------ ---------------- ---------------
California $ 890,638 10.07%
Minnesota 746,244 8.44%
Illinois 733,646 8.30%
Colorado 674,314 7.63%
Ohio 541,283 6.12%
Massachusetts 444,982 5.03%
Georgia 442,624 5.01%
All Other 4,367,030 49.40%
---------------- ---------------
TOTAL $ 8,840,761 100.00%
================ ===============
Sale of Residential Loans
The Company customarily sells all agency-eligible mortgage loans that
it originates or purchases, retaining the mortgage servicing rights, which
currently are sold separately. Under ongoing programs established with Fannie
Mae and Freddie Mac, the Company aggregates its conforming conventional loans
into pools that are assigned to Fannie Mae or Freddie Mac in exchange for
mortgage-backed securities. The Company's FHA mortgage loans and VA mortgage
loans are generally pooled and sold in the form of Ginnie Mae mortgage-backed
securities. The Company pays certain fees to Freddie Mac, Fannie Mae or Ginnie
Mae, as applicable, in connection with these programs. The Company then sells
Freddie Mac, Fannie Mae and Ginnie Mae securities to securities dealers.
Substantially all of the Company's agency-eligible mortgage loans qualify under
the various Fannie Mae, Freddie Mac and Ginnie Mae program guidelines, which
include specific property and credit standards, including a loan size limit.
Subprime and non-conforming conventional residential mortgage loans are sold to
private investors through whole loan sales or securitizations.
In the case of conventional loans, subject to the obligations of any
primary mortgage insurer, the Company is generally at risk for any mortgage loan
default until the loan is sold (typically less than 45 days). Once the Company
sells the loan, the risk of loss from mortgage loan default and foreclosure
generally passes to the purchaser or insurer of the loan. In the case of FHA and
VA loans, the Company has, from the time such a loan is originated or purchased
until the first borrower payment is due, a minimum of 31 days, to request
insurance or a guarantee certificate. Once the insurance or the guarantee
certificate is issued, the Company has no risk of default, except with respect
to certain losses related to foreclosures of FHA mortgage loans and losses that
exceed the VA's guarantee limitations. In connection with the Company's loan
exchanges and sales, the Company makes representations and warranties customary
in the industry relating to, among other things, compliance with laws,
regulations and program standards and as to accuracy of information. In the
event of a breach of these representations and warranties, the Company may
become liable for certain damages or may be required to repurchase such loans
and bear any potential related loss on the disposition of those loans.
Typically, with respect to loans that the Company repurchases, the Company
corrects the flaws that had resulted in the repurchase and the loans are resold
in the market or are repurchased by the original correspondent pursuant to prior
agreement.
The Company uses hedging techniques to reduce its exposure to interest
rate risk in connection with loans not yet sold or securitized. The Company
projects the portion of the pipeline loans that the Company anticipates will
close. The Company assesses the interest-rate risk associated with the
commitments that it has extended to originate or purchase loans and evaluates
the interest-rate risk of
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these commitments based upon a number of factors, including the remaining term
of the commitment, the interest rate at which the commitment was provided,
current interest rates and interest-rate volatility. The Company constantly
monitors these factors and adjusts its hedging when appropriate throughout each
business day. The Company's hedging currently consists of utilizing a
combination of mandatory forward sales commitments on mortgage-backed securities
and mortgage loans and options on mortgage-backed securities.
The sale of mortgage loans may generate a gain or loss to the Company.
Gains or losses result primarily from two factors. First, the Company may
originate or purchase a loan at a price (i.e., interest rate and discount) that
may be higher or lower than the Company would receive if it immediately sold the
loan in the secondary market. These pricing differences occur principally as a
result of competitive pricing conditions in the primary loan origination market.
Second, gains or losses upon the sale of loans may result from changes in
interest rates, which cause changes in the market value of the loans, or
commitments to originate or purchase loans, from the time the price commitment
is given to the customer until the time that the loan is sold by the Company to
the investor. To reduce the effect of interest-rate changes on the gain and loss
on loan sales, the Company generally commits to sell all its agency-eligible
warehouse loans and a portion of its pipeline loans to investors for delivery at
a future time for a stated price.
In connection with its agency-eligible loan sale program, which
involves the sale of mortgage loans and mortgage-backed securities on a forward
or other deferred delivery and payment basis, the Company has credit risk
exposure to the extent purchasers are unable to meet the terms of their forward
purchase contracts. As is customary in the marketplace, none of the forward
payment obligations of any of the Company's counterparties is secured or subject
to margin requirements; however, the Company attempts to limit its credit
exposure on forward sales arrangements by entering into forward sales contracts
solely with institutions that the Company believes are sound credit risks, and
by limiting exposure to any single counterparty by selling to a number of
investors. For example, it is the Company's current policy that not more than
the lesser of (i) $350 million or (ii) 40% of the total forward purchase
contracts outstanding at any time be with any single counterparty. All
counterparties are obligated to settle such sales in accordance with the terms
of the related forward sale agreement.
Mortgage Servicing
Agency-eligible mortgage servicing includes collecting and remitting
mortgage loan payments, accounting for principal and interest, holding escrow
funds for payment of mortgage-related expenses such as taxes and insurance,
making advances to cover delinquent payments, making inspections of the
mortgaged premises as required, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults, and
generally administering agency-eligible mortgage loans. Failure to service
mortgage loans in accordance with contract requirements may lead to the
termination of the servicing rights and the loss of future servicing fees.
The Company's current strategy is to pool and sell substantially all of
its produced agency-eligible mortgage servicing rights to other approved
servicers. The Company retains a relatively small portion of its produced
agency-eligible servicing rights and sells available-for-sale servicing rights
in bulk transactions. The Company's credit facilities require it to maintain at
all times a mortgage servicing rights portfolio with an underlying unpaid
principal balance of at least $5.0 billion. The Company's policy with respect to
the sale, purchase or retention of mortgage servicing rights may change in the
future.
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In addition to servicing its agency-eligible mortgage servicing rights
portfolios, the Company also subservices agency-eligible mortgage servicing
rights portfolios during the period of approximately 90 days between the date
the Company has sold the related servicing rights and the date such servicing
rights are actually transferred to the purchaser. The Company receives fees for
servicing residential mortgage loans, ranging generally from 0.25% to 0.44% per
annum on the declining unpaid principal balances of the loans. Servicing fees
are collected by the Company from monthly mortgage loan payments. Other sources
of loan servicing revenues include fees incidental to the services provided.
As a servicer of mortgage loans underlying mortgage-backed securities,
the Company is obligated to make timely payments of principal and interest to
security holders, whether or not such payments have been made by mortgagors on
the underlying mortgage loans. Similarly, in the event of foreclosure, the
Company is responsible for covering with its own funds principal and foreclosure
costs to the extent not covered by FHA insurance or a VA guarantee.
The following table shows the delinquency percentages (excluding
bankruptcies and foreclosures) of the Company's residential mortgage servicing
rights portfolio (excluding loans serviced under subservicing agreements) at
December 31, 1999.
Days Delinquent
---------------
30 1.65%
60 0.30%
90+ days 0.17%
-------------
Total Delinquencies 2.12%
=============
At December 31, 1999, the Company's owned mortgage servicing rights
portfolio had an underlying unpaid principal balance of $7.8 billion. The
portfolio generally reflected characteristics representative of the then-current
market conditions and had a weighted average note rate of 7.50%.
In 1999, the Company produced or purchased servicing rights associated
with agency-eligible residential loans having an aggregate underlying unpaid
principal balance of $8.1 billion and had an average aggregate underlying unpaid
principal balance of loans being serviced of $11.8 billion. Typically, the
Company sells the majority of its produced agency-eligible mortgage servicing
rights between 90 days and 180 days of purchase. Nevertheless, certain market
and operating characteristics, including origination costs, adjusted basis,
market values, coupon rates, delinquency rates and current prepayment rates are
considered to determine whether mortgage servicing rights should be held for
longer periods of time.
The following table provides certain information regarding the
Company's agency-eligible mortgage servicing rights portfolio at December 31,
1999. *
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($ in Thousands) Percentage of
Aggregate Total Unpaid
Year of Number of Percentage of Unpaid Principal Principal
Origination Loans Total Loans Balance Balance
- ------------------------ ----------------- ----------------- ----------------------- -----------------
1992 or earlier 4,893 6.3% $ 264,255 3.4%
1993 6,412 8.3% 457,650 5.9%
1994 4,451 5.8% 366,708 4.7%
1995 1,520 2.0% 119,121 1.5%
1996 3,168 4.1% 314,113 4.0%
1997 11,689 15.1% 1,214,602 15.5%
1998 22,370 28.9% 2,592,733 33.2%
1999 22,810 29.5% 2,493,212 31.8%
----------------- ----------------- ----------------------- -----------------
Total 77,313 100.00% $ 7,822,394 100.00%
================= ================= ======================= =================
* Includes $139,376 (1,496 loans) of subprime loans as of December 31, 1999
being temporarily serviced until these loans are sold.
The following table sets forth the Company's agency-eligible mortgage
servicing rights portfolio by loan type:
($ in Thousands) At December 31, 1999
-------------------------------------------------------------------------------
Aggregate
Unpaid Weighted Weighted
Number Principal Average Average
Loan Type of Loans Balance Coupon Service Fee
- ------------------------------- ------------- --------------- ----------------- ----------------
FHA 9,146 $ 751,604 8.19% 0.5610%
VA 2,326 200,464 8.17% 0.5405%
Fannie Mae 39,596 4,112,007 7.38% 0.4568%
Freddie Mac 21,275 2,243,786 7.38% 0.3622%
Private 523 31,880 8.11% 0.3696%
Other 4,448 482,653 7.89% 0.3621%
------------- --------------- ----------------- ----------------
TOTAL 77,313 $ 7,822,394 7.50% 0.4342%
============= =============== ================= ================
* Includes $139,376 (1,496 loans) of subprime loans as of December 31, 1999
being temporarily serviced until these loans are sold.
The Company's agency-eligible mortgage servicing rights portfolio is
generally divided into two segments. The portion of the portfolio that is
generated by current loan production is classified as "held-for-sale," and the
portion of the portfolio that was acquired through bulk acquisitions or retained
for production of servicing income is classified as "available-for-sale." The
Company's held-for-sale portfolio had an aggregate underlying unpaid principal
balance of $1,499.8 million at December 31, 1999. The Company's
available-for-sale portfolio had an aggregate underlying unpaid principal
balance of $6,322.6 million at December 31, 1999.
As the servicing rights of the available-for-sale portfolio are
generally held as a longer-term investment, there are certain prepayment risks
inherent to it that do not attach to the portion of the portfolio held-for-sale
(the portfolio held-for-sale is generally sold within 90 to 180 days). During
periods of declining interest rates, prepayments of mortgage loans increase as
homeowners seek to refinance at lower rates, resulting in a decrease in the
value of the Company's available-for-sale portfolio. Mortgage loans with higher
interest rates are more likely to result in prepayments. The following table
sets forth certain information regarding the aggregate underlying unpaid
principal balance of mortgage
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loans in the available-for-sale portfolio serviced by the Company. The table
includes both fixed and adjustable rate loans. AVAILABLE-FOR-SALE PORTFOLIO
($ in Thousands) At December 31, 1999
----------------------------------------------------
Aggregate Percentage of Total
Unpaid Principal Unpaid Principal
Mortgage Interest Rate Balance Balance
- -------------------------------- ----------------------- -----------------------
Less than 7.00% $ 1,691,167 26.74%
7.00% - 7.49% 2,199,795 34.79%
7.50% - 7.99% 1,435,872 22.71%
8.00% - 8.49% 599,273 9.48%
8.50% - 8.99% 305,078 4.83%
9.00% - 9.49% 58,032 0.92%
Greater than 9.49% 33,374 0.53%
----------------------- -----------------------
TOTAL $ 6,322,591 100.00%
======================= =======================
The following table sets forth the geographic distribution of the
Company's available-for-sale portfolio for those states representing more than
3% of the portfolio:
($ in Thousands) At December 31, 1999
--------------------------------------------------------
Aggregate Percent of
Unpaid Principal Total Unpaid
State Balance Principal Balance
- ------------------------ ------------------- ----------------------------------
Massachusetts $ 642,480 10.16%
Minnesota 472,983 7.48%
California 462,769 7.32%
Illinois 378,865 5.99%
New York 363,734 5.75%
Ohio 316,845 5.01%
Texas 302,442 4.78%
Connecticut 283,421 4.48%
Colorado 250,098 3.96%
Michigan 242,784 3.84%
Georgia 206,637 3.27%
Florida 201,469 3.19%
All others 2,198,064 34.77%
------------------- ----------------------------------
TOTAL $6,322,591 100.00%
=================== ==================================
The following table sets forth certain information regarding the
aggregate underlying unpaid principal balance of the mortgage loans in the
held-for-sale portfolio serviced by the Company. The table includes both fixed
and adjustable rate loans.
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HELD-FOR-SALE PORTFOLIO
($ in Thousands) At December 31, 1999
--------------------------------------------------
Aggregate Percentage of
Unpaid Principal Total Unpaid
Mortgage Interest Rate Balance Principal Balance
- -------------------------------- ------------------------ -----------------------
Less than 7.00% $ 49,023 3.27%
7.00% - 7.49% 98,276 6.55%
7.50% - 7.99% 569,928 38.00%
8.00% - 8.49% 478,885 31.93%
8.50% - 8.99% 185,589 12.37%
9.00% - 9.49% 20,178 1.35%
Greater than 9.50% 97,924 6.53%
------------------------ -----------------------
TOTAL $1,499,803 100.00%
======================== =======================
To help the Company manage its risk related to prepayments of its
servicing portfolio, the Company has purchased interest-rate floor contracts,
which provide an interest rate differential on a fixed portion of the portfolio
in the event interest rates fall below a certain level. For a more detailed
discussion of interest rate floor contracts, see Note 16 of the Company's
Consolidated Financial Statements, found in the Company's accompanying 1999
Annual Report to shareholders included herein and hereby incorporated by
reference.
Leasing Operations
The Company's wholly-owned subsidiary, Republic Leasing Company, Inc.
(Republic Leasing), originates and services small-ticket commercial equipment
leases. Substantially all of Republic Leasing's lease receivables are acquired
from independent brokers who operate throughout the continental United States.
At December 31, 1999 the leasing division had 184 brokers. Lease production was
$100.2 million or 1.0% of the Company's total production volume during 1999. At
December 31, 1999 Republic Leasing managed a lease servicing portfolio of $166.6
million. Of this managed lease portfolio, $152.3 million was owned and $14.3
million was serviced for investors. The weighted average net yield for the
managed lease servicing portfolio at December 31, 1999 was 10.61%. Delinquencies
for the managed lease servicing portfolio at December 31, 1999 were 2.76%.
Commercial Mortgage Operations
The Company's wholly-owned subsidiary, Laureate Capital Corp.
(Laureate) originates commercial mortgage loans for various insurance companies
and other investors, primarily in Alabama, Florida, Indiana, North Carolina,
Pennsylvania, South Carolina, Tennessee and Virginia. Commercial mortgage loans
are generally originated in the name of the investor and, in most instances,
Laureate retains the right to service the loans under a servicing agreement.
Laureate produced $845.0 million or 9% of the Company's total production volume
during 1999 through 13 commercial mortgage branches. At December 31, 1999,
Laureate was servicing a commercial mortgage loan servicing portfolio of
approximately $4.1 billion. The weighted average note rate for the commercial
mortgage loan servicing portfolio was 7.94% at December 31, 1999. Delinquencies
for the commercial mortgage loan servicing portfolio were 0.29% at December 31,
1999.
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Seasonality
The residential mortgage banking industry is generally subject to
seasonal trends. These trends reflect the general pattern of resale of homes,
which typically peaks during the spring and summer seasons and declines to lower
levels from mid-November through January. Refinancings tend to be less seasonal
and more closely related to changes in interest rates. The commercial mortgage
and small-ticket equipment leasing industries are generally not considered
seasonal industries.
Changes in Economic Conditions
The Company's business is subject to various business risks, including
competition from other mortgage banking companies and other financial
institutions. Economic conditions affect the consumer's decision to buy or sell
residences as well as the number of residential mortgage loan delinquencies and
foreclosures, the value of collateral supporting loan portfolios, administrative
costs in evaluating and processing mortgage loan applications, and the cost and
availability of funds that mortgage banking companies rely upon to make or
purchase loans. Changes in the level of consumer confidence, tax laws, real
estate values, prevailing interest rates and investment returns expected by the
financial community could make mortgage loans of the types originated or
purchased by the Company less attractive to borrowers or investors. Competition
also may be affected by fluctuations in interest rates, general economic
conditions and localized economic conditions.
The Company continues to face the same challenges as other companies
within the mortgage banking industry and, therefore, is not immune from
significant volume declines precipitated by changes in interest rates or other
factors beyond its control.
Competition
The mortgage banking industry is highly competitive. The Company
competes with financial institutions, mainly mortgage banking companies,
commercial banks and savings and loan associations and, to a lesser extent,
credit unions and insurance companies. The Company competes principally by
purchasing or originating a variety of mortgage loans, emphasizing the quality
of its service and pricing the loans at competitive rates. Many of the Company's
competitors may have greater financial resources, better operating efficiencies
and longer operating histories than the Company. Many of the nation's largest
mortgage banking companies and commercial banks have a significant number of
branch offices in areas in which the Company's correspondents and wholesale
branches operate. Increased competition for mortgage loans from larger lenders
may result in a decrease in the volume of loans purchased or originated by the
Company, thereby likely reducing the Company's revenues. At the same time,
Fannie Mae and Freddie Mac are developing technologies and business practices
that could reduce their reliance on large mortgage banking companies for loan
production and enable them to access smaller producers for volume. Due to the
current highly competitive market pricing environment, the Company may be unable
to achieve its planned level of originations or consummate acquisitions of
servicing rights at a satisfactory cost. The Company does not have a significant
market share of mortgage banking activities in the areas in which it conducts
operations.
Both the small-ticket commercial equipment leasing industry and the
commercial mortgage banking industry are highly competitive. The Company is
subject to competition from other equipment leasing and commercial mortgage
banking companies, some of which may be better capitalized. The Company does not
have a significant market share of equipment leasing or commercial mortgage
banking in the areas in which it conducts operations.
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Due to the foregoing considerations, there can be no assurance that the
Company will be able to continue to compete successfully in the markets it
serves. Inability to compete successfully would have a material adverse effect
on the results of operations and financial condition of the Company.
Concentration
The Company typically sells the mortgage servicing rights associated
with its mortgage production into forward sales contracts. Additionally, from
time to time, the Company will sell residential mortgage servicing rights from
its available-for-sale portfolio. In 1999 approximately 79% of its sales under
these forward sales contracts were to four major customers. In 1998
approximately 97% of its sales under these forward sales contracts were to three
major customers. The loss of these purchasers would have a material adverse
effect on the Company's business if no suitable replacement could be found.
The growth and profitability of the Company's equipment leasing
business are dependent to a large extent on the ability to finance an increasing
balance of leases held in its portfolio or to sell leases to and service leases
for third parties. Currently, Republic Leasing has in place a $200 million lease
financing facility and an agreement to offer to sell equipment leases to only
one purchaser; however, neither party is obligated to buy or sell. The purchaser
has acquired leases on a regular basis from Republic Leasing since December
1997, but there is no assurance of future sales. At December 31, 1999,
approximately 9% and 9% of the Company's net lease receivables were located in
the states of California and Florida, respectively. At December 31, 1999,
approximately 7% and 9% of the Company's net lease receivables were
collateralized by computer equipment and titled equipment, respectively.
At December 31, 1999, 27% of commercial mortgage loans serviced were
for a single customer. In addition, at December 31, 1999, the Company was
servicing approximately $14.3 million of leases for a third party.
Interest Rate Risks
The Company's loans held for sale are generally funded by borrowings
under its revolving warehouse credit line. The Company's net warehouse interest
income is the difference between the interest income it earns on loans held for
sale (generally based on long-term interest rates) and the interest it pays on
its borrowings (generally based on short-term interest rates). The factors that
can affect this spread include interest rates charged by lenders, the
relationship between long-term and short-term interest rates and the use of
compensating balances (escrow funds held on deposit with lending banks) to
decrease interest rates charged on borrowed funds. There can be no assurance
that this spread will not decrease from its current level. A decrease in the
spread would have a negative effect on the Company's net interest income.
The Company's net income reflects a reduction in interest expense on
its borrowings with depository institutions for escrow funds placed with such
institutions. Net income could be adversely affected to the extent that any
revisions of applicable bank regulations cause these escrow accounts to be
recharacterized as demand deposit accounts, thereby requiring reserves to be
established with Federal Reserve Banks, which would reduce the amount of the
reduction in the Company's interest expense on its borrowings. Other regulatory
changes or interpretations that change the ability of the Company to receive
credit for escrow balances would adversely affect the Company.
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Certain states require that interest be paid to mortgagors on escrow
funds deposited by them to cover mortgage-related payments such as property
taxes and insurance premiums. Federal legislation has in the past been
introduced that would, if enacted, revise current escrow regulations and
establish a uniform interest payment requirement in all states. If such federal
legislation were enacted or if additional states enact legislation relating to
payment of, or increases in the rate of, interest on escrow balances, or if such
legislation were retroactively applied to loans in the Company's servicing
portfolio, the Company's earnings would be adversely affected.
Regulation
The operations of the Company are subject to extensive regulation by
federal and state governmental authorities and are subject to various laws and
judicial and administrative decisions that, among other things, regulate
credit-granting activities, require disclosures to customers, govern secured
transactions and establish collection, repossession and claims handling
procedures and other trade practices. The Company is subject to the rules and
regulations of the FHA, Freddie Mac, Fannie Mae, Ginnie Mae, HUD, the VA and
state regulatory authorities with respect to originating, processing,
underwriting, selling, securitizing and servicing mortgage loans.
In addition, there are other federal and state statutes and
regulations, as well as judicial decisions, affecting such activities. Those
rules and regulations, among other things, impose licensing obligations on the
Company, establish eligibility criteria for mortgage loans, prohibit
discrimination and establish underwriting guidelines that include provisions for
inspections and appraisals, require credit reports on prospective borrowers and
fix maximum loan amounts, and with respect to VA loans, fix maximum interest
rates. Moreover, lenders such as the Company are required to submit annually to
the FHA, Freddie Mac, Fannie Mae, Ginnie Mae and the VA audited financial
statements, and each regulatory entity has its own financial requirements. The
Company's affairs also are subject to examination by the FHA, Freddie Mac,
Fannie Mae, Ginnie Mae and the VA at all times to assure compliance with
applicable regulations, policies and procedures. Mortgage origination activities
are subject to, among others, the Equal Credit Opportunity Act and its related
regulations, which prohibit discrimination, and the Federal Truth-in-Lending Act
and the Real Estate Settlement Procedures Act and the regulations promulgated
thereunder, which require the disclosure of certain basic information to
mortgagors concerning credit terms and settlement costs, respectively. Many of
the aforementioned regulatory requirements are designed to protect the interests
of consumers, while others protect the owners or insurers of mortgage loans.
Failure to comply with these requirements can lead to loss of approved status,
termination of servicing contracts without compensation to the servicer, demands
for indemnification or loan repurchases, class-action lawsuits and
administrative enforcement actions. Such regulatory requirements are subject to
change from time to time and may in the future become more restrictive, thereby
making compliance more difficult or expensive or otherwise restricting the
ability of the Company to conduct its business as such business is now
conducted.
There are various state and local laws and regulations affecting the
Company's operations. The Company is in possession of licenses in all states in
which it does business that require such licenses. Mortgage loans also may be
subject to state usury statutes.
Litigation
In recent years, the mortgage banking industry has been subject to
class action lawsuits that allege violations of federal and state laws and
regulations, including the propriety of collecting and paying various fees and
charges and the calculation of escrow amounts. Most recently, at least 170
purported class action lawsuits have been commenced against various mortgage
banking companies,
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including the Company, alleging, inter alia, that the payment of certain fees to
mortgage brokers violates the anti-kickback provisions of RESPA. If these cases
are resolved against the lenders, it may cause an industry-wide change in the
way independent mortgage brokers are compensated. Such a change could have a
material adverse effect on the Company and the entire mortgage lending industry.
The Company's broker compensation and table-funded correspondent purchase
programs permit such payments. Although the Company believes these programs
comply with all applicable laws and are consistent with long-standing industry
practice and regulatory interpretations, in the future new regulatory
interpretations or judicial decisions may require the Company to change its
broker compensation and table-funded correspondent purchase practices. Class
action lawsuits may continue to be filed in the future against the mortgage
banking industry generally. No prediction can be made as to whether the ultimate
decisions in any of these class actions will be adverse to the defendant
mortgage banking companies.
Delinquency and Default
The Company's profitability may be negatively impacted by economic
downturns because during such periods the frequency of loan defaults tends to
increase, thereby increasing the cost to service the loans in the Company's
portfolio. Also, the Company is generally at risk for delinquency or default of
newly originated or purchased loans. In the case of conventional loans, the
Company is generally at risk for any mortgage loan default from origination or
purchase by the Company, as the case may be, until the loan is sold (typically
less than 45 days). Once the Company sells the loan, the risk of loss from
mortgage loan default and foreclosure generally passes to the purchaser or
insurer of the loan. The Company has from the time an FHA or VA mortgage loan is
originated or purchased until the first payment is due, a minimum of 31 days, to
request insurance or a guarantee certificate from the FHA and the VA,
respectively. Once the insurance or the guarantee certificate is issued, The
Company has no risk of default or foreclosure except with respect to certain
losses related to foreclosures of FHA mortgage loans and losses that exceed the
VA's guarantee limitation.
Moreover, under certain types of servicing contracts, particularly
contracts to service loans that have been pooled or securitized, the servicer
must advance all or part of the scheduled payments to the owner of the loan,
even when loan payments are delinquent. Also, to protect their liens on
mortgaged properties, owners of mortgage loans usually require the servicer to
advance mortgage and hazard insurance and tax payments on schedule even if
sufficient escrow funds are unavailable.
Prior to the liquidation of a loan, the servicer must absorb the cost
of funds advanced during the time the advance is outstanding. Further, the
servicer must bear the increased costs of attempting to collect on delinquent
and defaulted mortgage loans. The servicer generally is reimbursed ultimately by
the mortgage loan owner or from liquidation proceeds. In addition, if a default
is not cured, the mortgage loan will be extinguished as a result of foreclosure
proceedings and any servicing income will cease. As a consequence, the Company
will forego servicing income from the time such loan becomes delinquent until it
is foreclosed upon or is brought current. The Company maintains a reserve for
possible losses at a level considered adequate to provide for known and inherent
risks related to foreclosure and disposition losses. The Company's evaluation of
an adequate level of foreclosure reserves considers past loss experience,
industry loss experience, geographic and product concentrations, delinquency
trends, economic conditions and other relevant factors. The Company uses
currently available information to make such evaluation, therefore future
adjustments to the foreclosure reserve will be required as conditions and
assumptions are revised in response to changes in trends and the other factors
and assumptions relevant to the Company's evaluation.
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With respect to VA loans, the VA guarantees the initial losses on a
loan. The guaranteed amount generally ranges from 20% to 35% of the original
principal balance. Before each foreclosure sale, the VA determines whether to
bid to purchase the foreclosed loan by comparing the estimated net sale proceeds
to the outstanding principal balance and the servicer's accumulated reimbursable
costs and fees. If this amount is a loss and exceeds the guaranteed amount, the
VA typically issues a no-bid and pays the servicer the guaranteed amount.
Whenever a no-bid is issued, the servicer absorbs the loss, if any, in excess of
the sum of the guaranteed principal and amounts recovered at the foreclosure
sale. The Company's historical delinquency and foreclosure rate experience on VA
loans has generally been consistent with that of the industry.
In the case of loans insured by the FHA, the Company will not be
reimbursed for certain amounts if foreclosure becomes necessary. Such amounts
include interest on the mortgage loan for the first two months subsequent to the
loan becoming delinquent and a portion of the costs of foreclosure (generally
the unreimbursed amount of such costs is limited to one-third of such costs).
Financing of Operations
The Company's primary cash-flow requirement involves the funding of
loan production, which is met primarily through external borrowings. In August
1999, the Company and its wholly owned subsidiaries RBMG, Inc., Meritage
Mortgage Corporation (Meritage) and RBMG Asset Management Company, Inc. (not
including the Company, the Restricted Group), entered into a $540 million
warehouse line of credit provided by a syndicate of unaffiliated banks that
expires in July 2000. The credit agreement includes covenants requiring the
Restricted Group to maintain (i) a minimum net worth of $170 million, plus the
Restricted Group's net income subsequent to June 30, 1999, plus 90% of capital
contributions to the Restricted Group and minus restricted payments, (ii) a
ratio of total Restricted Group liabilities to tangible net worth of not more
than 8.0 to 1.0, excluding debt incurred pursuant to gestation and repurchase
financing agreements, (iii) RBMG, Inc.'s eligibility as a servicer of Ginnie
Mae, FHA, VA, Fannie Mae and Freddie Mac mortgage loans (iv) a mortgage
servicing rights portfolio with an underlying unpaid principal balance of at
least $5 billion and (v) a ratio of consolidated cash flow to consolidated
interest expense (these terms are defined in the loan agreements) of at least
1.50 to 1.00 (the interest rate coverage ratio). The provisions of the agreement
also restrict the Restricted Group's ability to engage significantly in any type
of business unrelated to the mortgage banking and lending business and the
servicing of mortgage loans.
In August 1999, the Company and the Restricted Group also entered into
a $210 million subprime revolving credit facility and a $250 million servicing
revolving credit facility, which expire in July 2000. These facilities include
covenants identical to those described above with respect to the warehouse line
of credit.
The Restricted Group was in compliance with the debt covenants in place at
December 31, 1999 after it obtained an amendment and waiver dated February 1,
2000. The covenant that had been violated was the interest rate coverage ratio.
The syndicate of unaffiliated banks waived the violation and amended the
agreements. The amended agreements require the Restricted Group to maintain an
interest rate coverage ratio of 1.10 to 1.00 for the quarter ending March 31,
2000; and 1.20 to 1.00 for any period of two consecutive fiscal quarters
thereafter. Although management anticipates continued compliance with current
debt covenants, there can be no assurance that the Restricted Group will be able
to comply with the debt covenants specified for each of these financing
agreements. Failure to comply could result in the loss of the related financing.
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RBMG Asset Management Company, Inc., a wholly-owned subsidiary of Meritage,
and a bank are parties to a master repurchase agreement, pursuant to which RBMG
Asset Management Company, Inc. is entitled from time to time to deliver to the
bank eligible subprime mortgage loans in an aggregate principal amount of up to
$200 million. The master repurchase agreement has been extended through July
2000.
The Company has entered into an uncommitted gestation financing
arrangement. The interest rate on funds borrowed pursuant to the gestation line
is based on a spread over the Federal Funds rate. The gestation line has a
funding limit of $1.2 billion.
The Company executed a $6.6 million note in May 1997. This debt is secured
by the Company's corporate headquarters. The terms of the related agreement
require the Company to make 120 equal monthly principal and interest payments
based upon a fixed interest rate of 8.07%. The note contains covenants similar
to those previously described.
The Company has entered into a $10.0 million unsecured line of credit
agreement that expires in July 2000. The interest rate on funds borrowed is
based upon the prime rate announced by a major money center bank.
Republic Leasing Company, Inc., a wholly-owned subsidiary of the Company,
has a $200 million credit facility to provide financing for its leasing
portfolio. The warehouse credit agreement matures in August 2000 and contains
various covenants regarding characteristics of the collateral and the
performance of the leases originated and serviced by Republic Leasing and that
require the Company to maintain a minimum net worth of $60 million and Republic
Leasing to maintain a ratio of total liabilities to net worth of no more than
10.0 to 1.0.
There can be no assurance that the Company will be able to comply with
the covenants in its various credit facilities, and failure to comply could
result in the loss of the related financing. In addition, there can be no
assurance that the Company will be able to renew these arrangements at the end
of their terms or obtain replacement financing on terms acceptable to the
Company. To the extent that the Company loses its financing sources, or if the
Company experiences difficulty in selling its mortgage loans or mortgage-backed
securities, it may have to curtail its mortgage loan origination and purchase
activities, which would have a material adverse effect on the Company's
operations and financial condition.
Changes in the Market for Servicing Rights, Mortgage Loans and Lease Receivables
Volume of Mortgage Loans Produced
During periods of declining interest rates, the Company typically
experiences an increase in loan originations because of increased home purchases
and, particularly, increased refinancing activity. Increases in interest rates
typically adversely affect refinancing activity, which has an adverse effect on
the Company's origination revenues.
Sales of Mortgage Loans
Gains or losses on sales of mortgage loans may result from changes in
interest rates from the time the interest rate on a customer's mortgage loan
application is established to the time the company sells the loan. At any given
time, the Company has committed to sell substantially all of its agency-eligible
mortgage loans that are closed and a percentage of the agency-eligible mortgage
loans that are
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not yet closed but for which the interest rate has been established ("pipeline
loans"). To manage the interest rate risk of the Company's pipeline loans, the
Company continuously projects the percentage of the pipeline loans it expects to
close and, on the basis of such projections, enters into forward sales
commitments to sell such loans. To reduce the effect of such interest rate
changes, the Company employs a variety of techniques, currently consisting of a
combination of mandatory forward sales commitments for mortgage-backed
securities and put and call option contracts on treasuries.
If interest rates make an unanticipated change, the actual percentage
of pipeline loans that close may differ from the projected percentage. A sudden
increase in interest rates can cause a higher percentage of pipeline loans to
close than projected. To the degree that this may not have been anticipated, the
Company may not have made forward sales commitments to sell these additional
loans and consequently may incur significant losses upon their sale at current
market prices, adversely affecting results of operations. Likewise, if a lower
percentage of pipeline loans closes than was projected, due to a sudden decrease
in interest rates or otherwise, the Company may have committed to sell more
loans than actually close and as a result may incur significant losses in
fulfilling these commitments, adversely affecting results of operations. This
risk is greater during times of volatility of interest rates.
Value of Mortgage Servicing Rights
The value of the Company's servicing portfolio may be adversely
affected if mortgage interest rates decline and loan prepayments increase. In
periods of declining interest rates, the economic advantages to borrowers of
refinancing their mortgage loans become greater. Increases in the rate of
mortgage loan prepayments reduce the period during which the Company receives
servicing income from such loans. The Company capitalizes the cost of the
acquisition of servicing rights from third parties and capitalizes estimated
servicing rights on loans that it originates. The value of servicing rights is
based upon the net present value of estimated future cash flows. If the rate of
prepayment of the related loans exceeds the rate assumed by the Company, due to
a significant reduction in interest rates or otherwise, the value of the
Company's servicing portfolio will decrease and accelerated amortization of
servicing rights or recognition of an impairment provision may become necessary,
thereby decreasing earnings. The Company attempts to mitigate these risks with
respect to the value of its servicing rights by maintaining a portfolio of
interest rate option contracts whose value tends to increase in periods of
declining interest rates thus mitigating the decline in value typical during the
same period with respect to servicing rights. However, there can be no assurance
that the Company's efforts to mitigate these risks will prevent value loss or
impairment provisions.
Sales of Mortgage Servicing Rights
The prices obtained by the Company upon the sale of its mortgage
servicing rights depend upon a number of factors, including the general supply
of and demand for mortgage servicing rights, as well as prepayment and
delinquency rates on the portfolio of mortgage servicing rights being sold.
Interest rate changes can affect the ability to sell, or the profitability of a
sale of, mortgage servicing rights. Purchasers of mortgage servicing rights
analyze a variety of factors, including prepayment sensitivity of loans
underlying servicing rights, to determine the purchase price they are willing to
pay. Thus, in periods of declining interest rates, sales of mortgage servicing
rights related to higher interest rate loans may be less profitable than sales
of mortgage servicing rights related to lower interest rate loans because it is
possible that the loans bearing higher interest rates will be refinanced.
Because these factors are largely beyond the control of the Company, there can
be no assurance that the current level of profitability from the sale of
mortgage servicing rights will be maintained.
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Liabilities Under Representations and Warranties
In the ordinary course of business, the Company makes representations
and warranties to the purchasers and insurers of its mortgage loans and the
purchasers of mortgage servicing rights regarding compliance with laws,
regulations and program standards and as to accuracy of information. Under
certain circumstances, the Company may become liable for certain damages or may
be required to repurchase a loan if there has been a breach of representations
or warranties. The Company generally receives similar representations and
warranties from the correspondents from whom it purchases loans. However, in the
event of breaches of such representations and warranties, the Company is subject
to the risk that a correspondent may not have the financial capacity to
repurchase loans when called upon to do so by the Company or otherwise may not
respond to demands made by the Company.
Environmental Matters
In the course of its business, through the foreclosure process, the
Company has acquired, and may acquire in the future, properties securing loans
that are in default. Although the Company lends to owners of residential
properties, there is a risk that the Company could be required to investigate
and cleanup hazardous or toxic substances or chemical releases at such
properties after its acquisition and might be held liable to a governmental
entity or to third-parties for property damage, personal injury and
investigation cleanup costs incurred by such parties in connection with the
contamination.
To date, the Company has not been required to perform any investigation
or cleanup activities of any material nature, nor has the Company been subject
to any environmental claims. No assurance can be given, however, that this will
remain the case in the future.
Changes in the Demand for Mortgage Loans and Leases
The Company's operating results can fluctuate substantially from period
to period as a result of a number of factors, including the volume of loan and
lease production, the level of interest rates, the level of amortization of
mortgage servicing rights required by prepayment rates and the performance of
the Company's servicing portfolio hedge, which currently consists primarily of
interest rate option contracts for ten year Constant Maturity Treasury and
Constant Maturity Swap floors. In particular, the Company's results are strongly
influenced by the level of loan and lease production, which is influenced by the
interest rate environment and other economic factors. Accordingly, it is likely
that the net income of the Company will fluctuate substantially from period to
period.
Changes in the Value of Residual Interests in Subprime Securitizations
Residual certificates are classified as trading securities and changes
in their value are recorded as adjustments to income in the period of change.
The Company assesses the fair value of the residual certificates quarterly,
based on an independent third party valuation. This valuation is based on the
discounted cash flows available to the holder of the residual certificate.
Significant assumptions used in this valuation include the discount rate,
prepayment speed and credit loss estimates. Each of these factors can be
significantly affected by, among other things, changes in the interest rate
environment and general economic conditions and expose the Company to
prepayment, basis and rate risks. Other factors evaluated in the determination
of fair value include, but are not necessarily limited to, the credit and
collateral quality of the underlying loans, current economic conditions and
various fees and costs (such as prepayment penalties) associated with ownership
of the residual certificate. Although the Company believes that the fair values
of its residual certificates are reasonable given current market conditions, the
assumptions used are estimates and actual experience may vary from these
estimates. Differences in the
19
24
actual prepayment speed and loss experience and other assumptions from those
applied for valuation purposes could have a significant effect on the estimated
fair value of the residual certificates.
Prepayment Risks
The market value of servicing rights acquired in bulk transactions,
rather than as a by-product of the Company's loan production activities, is
initially capitalized at the lower of cost or the estimated present value of
future expected net servicing income. Amounts capitalized as mortgage servicing
rights are amortized over the period of, and in proportion to, estimated future
net servicing income. The Company assesses its capitalized mortgage servicing
rights for impairment (on a stratified basis) based on the estimated market
values of those rights. Impairments are recognized as a valuation allowance for
each impaired stratum. Market value is estimated by an internal valuation which
is substantiated for reasonableness by reference to a third-party analysis. Both
analyses value such rights in consideration of current forward committed
delivery prices, prevailing interest, prepayment and default rates, mortgage to
treasury spreads and other relevant factors as appropriate or allocable to each
valuation stratum.
Dependence Upon Independent Mortgage Brokers and Mortgage Bankers
The Company depends largely upon independent mortgage bankers,
including smaller mortgage companies and commercial banks, and, to a lesser
extent, upon independent mortgage brokers, for its originations and purchases of
mortgage loans. Substantially all of the independent mortgage brokers and
mortgage bankers with whom the Company does business deal with multiple loan
originators for each prospective borrower. Wholesale lenders, such as the
Company, compete for business based upon pricing, service, loan fees and costs
and other factors. The Company's competitors also seek to establish
relationships with the same independent mortgage bankers and mortgage brokers
with whom the Company seeks to do business, none of whom is obligated by
contract or otherwise to continue to do business with the Company. Future
operating and financial results of the Company will be susceptible to
fluctuations in the volume and cost of its broker and mortgage banker-sourced
loans resulting from, among other things, competition from other purchasers of
such loans.
Possible Changes in Accounting Estimates
In preparing the financial statements, management is required to make
estimates based on available information that can affect the reported amounts of
assets, liabilities and disclosures as of the balance sheet date and revenues
and expenses for the related periods. Such estimates relate principally to the
Company's allowance for foreclosure losses and repurchased loans, its allowance
for lease losses and the fair values of its residual certificates. Additionally,
estimates concerning the fair values of mortgage loans held-for-sale, lease
receivables, servicing rights, servicing hedges and the Company's other hedging
instruments are all relevant to ensuring that leases and mortgage loans are
carried at the lower of cost or market, and that potential impairments of
servicing rights are recognized as and if required. Because of the inherent
uncertainties associated with any estimation process and due to possible future
changes in market and economic conditions that will affect fair values, it is
possible that actual future results in realization of the underlying assets and
liabilities could differ significantly from the amounts reflected as of the
balance sheet date.
20
25
Federal Programs; Availability of Active Secondary Market
The Company's ability to generate funds by sales of mortgage-backed
securities is largely dependent upon the continuation of programs administered
by Fannie Mae, Freddie Mac and Ginnie Mae, which facilitate the issuance of such
securities, as well as the Company's continued eligibility to participate in
such programs. Although the Company is not aware of any proposed discontinuation
of, or significant reduction in, the operation of such programs, any such
changes could have a material adverse effect on the Company's operations. The
Company anticipates that it will continue to remain eligible to participate in
such programs, but any significant impairment of such eligibility would
materially adversely affect its operations. In addition, the mortgage loan
products eligible for such programs may be changed from time to time by the
sponsor. The profitability of specific types of mortgage loan products may vary
depending on a number of factors, including the administrative costs to the
Company of originating or purchasing such types of mortgage loans.
There can be no assurance that the Company will be successful in
effecting the sale of mortgage loans at the historic price or volume levels in
any particular future periods. Any significant change in the secondary market
level of activity or underwriting criteria of Fannie Mae, Freddie Mac or private
investors could have a material adverse effect on the gain or loss on sales of
mortgage loans recorded by the Company and therefore on the Company's results of
operations.
Effect of Certain Charter and Bylaw Provisions;
Possible Issuance of Preferred Stock
Certain provisions of the Company's Certificate of Incorporation and
the Company's Bylaws could delay or frustrate the removal of incumbent directors
and could make more difficult a merger, tender offer or proxy contest involving
the Company, even if such events could be beneficial to the interests of the
Company's stockholders. For example, the Company's Certificate of Incorporation
and the Company's Bylaws provide certain limitations on the calling of a special
meeting of stockholders, and the Company's Bylaws require advance notice before
certain proposals can be considered at stockholder meetings. Pursuant to the
Company's Certificate of Incorporation, shares of preferred stock may be issued
in the future without further stockholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, as the Board of
Directors may determine. The ability to issue preferred stock provides desirable
flexibility in connection with acquisitions and other corporate transactions.
However, the rights of the holders of the Company's common stock will be subject
to, and may be adversely affected by, any preferred stock that may be issued in
the future, and the issuance of preferred stock could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of preferred stock; however,
the Company has adopted a Rights Agreement which provides that if a person or
group acquires 15% or more of the Company's Common Stock, shareholders would
have the right to acquire shares of preferred stock. The existence of the Rights
Agreement has anti-takeover effects because it may deter certain potential
acquirors from making takeover proposals or tender offers.
Year 2000 Risks
The Company's growth motivated a generalized review of the adequacy of its
existing software environment and technological infrastructure to meet the
Company's long-term operating requirements. The Company completed implementation
of LoanXchange and other mission critical systems discussed in previous filings
prior to December 31, 1999. All required modifications to existing systems or
systems provided by third parties were completed prior to December 31, 1999. The
Company has had no significant Year 2000 system problems to date.
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26
Employees
As of December 31, 1999, the Company had 1,127 employees, substantially
all of whom were full-time employees. None of the Company's employees are
represented by a union. The Company considers its relations with its employees
to be good.
Executive Officers of the Registrant
DOUGLAS K. FREEMAN, age 49, has been Chief Executive Officer of the
Company since January 2000. Mr. Freeman was President of Bank of America's
Consumer Finance Group, a major division of Bank of America. Mr. Freeman was
employed as Consumer Corporate Bank Executive with Barnett Bank, Inc. from 1991
through March 1996. He was then promoted to Chief Consumer Bank Executive in
March 1996 and held that position with Barnett Bank, Inc. until March 1998.
NationsBank, N.A. acquired Barnett Bank, Inc. in March 1998 and Mr. Freeman
became President of the Consumer Finance Division of NationsBank, N.A. until
April 1999. Bank of America merged with NationsBank, N.A. in April 1999 and Mr.
Freeman became the President of the Consumer Finance Group from April 1999
through January 2000.
DAVID W. JOHNSON, JR., age 51, has been President of the Company since
July 1999. Previously he had been Chief Executive Officer of the Company since
October 1999, Vice Chairman since October 1992 and Managing Director since July
1993.
RICHARD M. DUNCAN, age 52, has been President and Chief Executive
Officer of RBMG, Inc. (the Company's wholly-owned subsidiary handling
agency-eligible operations) since July 1999. Previously, Mr. Duncan had been
Senior Executive Vice President of Production since January 1997 and Executive
Vice President of Production since January 1995.
STEVEN F. HERBERT, age 43, has been Corporate Senior Executive Vice
President and Corporate Chief Financial Officer of the Company since July 1999.
Previously, he had been Senior Executive Vice President and Chief Financial
Officer of the Company since January 1997 and Executive Vice President and Chief
Financial Officer since July 1995. From September 1985 through June 1995, Mr.
Herbert was employed by Price Waterhouse LLP, most recently as the Client
Services Director of the Columbia, South Carolina office.
LARRY W. REED, age 54, has been President and Chief Executive Officer
of Meritge Mortgage Corporation (the Company's wholly-owned subsidiary handling
subprime operations) since July 1999. Prior to that he was President of Meritage
Mortgage Corporation since 1997. In August 1996 Mr. Reed came to the Company as
a Senior Vice President and Director of Subprime Lending. Mr. Reed was the
founder, President, and Chief Executive Officer of B First Residential, a
subprime mortgage lender in the Northeast, from 1992 until its sale in 1995.
ITEM 2. PROPERTIES
The Company's corporate and administrative headquarters, which is owned
by the Company, is located in Columbia, South Carolina and is subject to a
mortgage in the amount of $6.4 million as of December 31, 1999. This facility
comprises a building having approximately 120,000 square feet which houses the
Company's loan production and administrative operating groups and 16.5 acres of
land. The Company purchased an additional 17.9 acres of land adjacent to this
property in January 1996. In addition, the Company leases a 56,000 square foot
facility in Columbia, South Carolina which houses its loan servicing operations.
The Company has leased smaller amounts of office space in Columbia, South
Carolina and in 24 other states, consisting primarily of its leasing, commercial
mortgage, wholesale and subprime branch offices and regional underwriting
centers.
22
27
The Company's primary computer data system is provided through ALLTEL
Information Services, Mortgage Division (ALLTEL) (formerly Computer Power, Inc.
of Jacksonville, Florida). Company personnel enter data on computer hardware
located in-house. The data are transmitted directly to ALLTEL where it is
processed.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company and its
subsidiaries are from time to time subject to litigation. The Company and its
subsidiaries are not parties to any material pending legal proceedings other
than ordinary routine litigation incidental to their respective businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ. Additional
information required by this item is set forth under the caption "Stock Data" in
the Company's accompanying 1999 Annual Report to Shareholders and is hereby
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial
Highlights" in the Company's accompanying 1999 Annual Report to Shareholders is
hereby incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" (including all
tables presented under that caption) in the Company's accompanying 1999 Annual
Report to Shareholders is hereby incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth under the caption "Quantitative and
Qualitative Disclosure About Market Risk" in the Company's accompanying 1999
Annual Report to Shareholders is hereby incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information set forth in the Company's accompanying 1999
Annual Report to shareholders is hereby incorporated herein by reference:
23
28
The Consolidated Financial Statements of Resource Bancshares Mortgage
Group, Inc., together with the report thereon of PricewaterhouseCoopers LLP
dated February 7, 2000, including all Notes to such Consolidated Financial
Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements with
accountants on accounting and financial disclosure matters that require
disclosure pursuant to Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information set forth (i) under the caption "Proposal No. 1: Election
of Directors" in the definitive 2000 Proxy Statement of the Company furnished to
shareholders in connection with its 2000 Annual Meeting (the "2000 Proxy
Statement"), with respect to the name of each nominee or director, his age, his
positions and offices with the registrant, his business experience, his
directorships in other public companies and his service on the registrant's
Board of Directors, and (ii) under the caption "Beneficial Ownership--Section
16(a) Beneficial Ownership Reporting Compliance" in the 2000 Proxy Statement
with respect to Section 16 matters is hereby incorporated herein by reference.
Information with respect to executive officers is set forth in Item 1 of this
Report on Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to the remuneration of executive officers and
directors and certain other matters set forth in the 2000 Proxy Statement (i)
under the caption "Compensation of Officers and Directors" and (ii) under the
caption "Compensation Committee Interlocks and Insider Participation" to the
extent such information is required by Item 402 of Regulation S-K to be set
forth herein is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of (i) persons who
beneficially own 5% or more of the outstanding shares of the Company's common
stock, par value $.01 per share, (ii) directors, nominees and named executive
officers individually and (iii) directors and executive officers as a group set
forth in the 2000 Proxy Statement under the caption "Beneficial Ownership
- --Beneficial Owners of 5% or more of the Common Stock and --Stock Ownership of
the Company's Directors, Nominees and Executive Officers" is, to the extent such
information is required by Item 403 of Regulation S-K to be set forth herein,
hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to relationships and related transactions
between the Company and any director, nominee for director, executive officer,
security holder owning 5% or more of the Company's voting securities or any
associate or member of the immediate family of any of the above, as set forth in
the 2000 Proxy Statement under the caption "Compensation Committee Interlocks
and Insider Participation" is, to the extent such information is required by
Item 404 of Regulation S-K to be set forth herein, hereby incorporated herein by
reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
a. The following documents are filed as part of this report:
Page In Annual Report*
(1) Consolidated Financial Statements as of December 31, 1999:
Consolidated Balance Sheet at December 31, 1999 and 1998 ..................................
Consolidated Statement of Income for each of the three years in the period ended
December 31, 1999 ...............................................................
Consolidated Statement of Changes in Stockholders' Equity
for each of the three years in the period ended December 31, 1999 ...............
Consolidated Statement of Cash Flows for each of the three years in the period ended
December 31, 1999 ...............................................................
Notes to Consolidated Financial Statements ...............................................
* Incorporated by reference from the indicated pages of the Company's
1999 Annual Report to Shareholders.
(2) All other schedules are omitted because they are not applicable, or the
required information is shown in the consolidated financial statements
or notes thereto.
(3) The exhibits filed as part of this report and exhibits incorporated
herein by reference to other documents are listed in the Index to
Exhibits to this Annual Report on Form 10-K (pages A to F).
b. Not applicable
c. The exhibits filed as part of this report and exhibits incorporated herein
by reference to other documents are listed in the Index to Exhibits to this
Annual Report on Form 10-K (pages A to F).
d. Not applicable
With the exception of the information herein expressly incorporated by
reference, the Company's 1999 Annual Report to Shareholders and 2000 Proxy
Statement shall not be deemed filed as part of this Annual Report on Form 10-K.
25
30
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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 BANCSHARES MORTGAGE GROUP, INC.
Date: March 29, 2000 By: s/ Douglas K. Freeman
----------------------------------------
Douglas K. Freeman
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
s/ Boyd M. Guttery Chairman of the Board March 29, 2000
- --------------------------
Boyd M. Guttery
s/ Douglas K. Freeman Chief Executive Officer March 29, 2000
- -------------------------- (principal executive officer)
Douglas K. Freeman and Director
s/ David W. Johnson, Jr. President and Director March 29, 2000
- --------------------------
David W. Johnson, Jr.
s/ Steven F. Herbert Corporate Senior Executive March 29, 2000
- -------------------------- Vice President and Corporate
Steven F. Herbert Chief Financial Officer (principal
financial and accounting officer)
Director March __, 2000
- --------------------------
Stuart M. Cable
Director March __, 2000
- --------------------------
Robin C. Kelton
s/ John. O. Wolcott Director March 29, 2000
- --------------------------
John O. Wolcott
26
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3.1 Restated Certificate of Incorporation of the Registrant incorporated by reference to *
Exhibit 3.3 of the Registrant's Registration No. 33-53980
3.2 Certificate of Amendment of Certificate of Incorporation of the *
Registrant incorporated by reference to Exhibit 3.2 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997
3.3 Certificate of Designation of the Preferred Stock of the Registrant *
incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-A
filed on February 8, 1998
3.4 Amended and Restated Bylaws of the Registrant incorporated by reference to *
Exhibit 3.4 of the Registrant's Registration No. 33-53980
3.5 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. dated January 28, 1999 *
incorporated by reference to Exhibit 3.5 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998
3.6 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. incorporated by *
reference to Exhibit 3.1 of the Registrant's Registration No. 333-82105
4.1 Specimen Certificate of Registrant's Common Stock incorporated by *
reference to Exhibit 4.1 of the Registrant's Registration No.
33-53980
4.2 Rights Plan dated as of February 6, 1998 between the Registrant and First Chicago *
Trust Company of New York incorporated by reference to Exhibit 4.1 of
the Registrant's Form 8-A filed on February 8, 1998
4.3 Note Agreement between the Registrant and UNUM Life Insurance Company of *
America dated May 16, 1997 incorporated by reference to Exhibit 10.45 of the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997
10.1 Employment Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. as amended by amendment dated October 22, 1993
incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
10.2 (A) Stock Option Agreement between the Registrant and David W. Johnson, Jr. *
incorporated by reference to Exhibit 10.8 (A) of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
(B) Stock Option Agreement between the Registrant and Lee E. Shelton *
incorporated by reference to Exhibit 10.8 (B) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
10.3 Termination Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. incorporated by reference to Exhibit 10.9 (A) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
A
32
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.4 (A) Deferred Compensation Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. incorporated by reference to Exhibit 10.10 (A) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
(B) Deferred Compensation Rabbi Trust, for David W. Johnson, dated *
January 19, 1994, between Registrant and First Union National Bank of
North Carolina incorporated by reference to Exhibit 10.10 (C) of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993
10.5 Employment Agreement dated June 30, 1995, between the Registrant and *
Steven F. Herbert incorporated by reference to Exhibit 10.34 of the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1995
10.6 Employment Agreement dated September 25, 1995, between the Registrant and *
Richard M. Duncan incorporated by reference to Exhibit 10.38 of the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995
10.7 Office Building Lease dated March 8, 1991, as amended by Modification of Office *
Lease dated October 1, 1991, incorporated by reference to Exhibit 10.5 of the Registrant's
Registration No. 33-53980
10.8 Assignment and Assumption of Office Lease incorporated by reference to Exhibit 10.6 *
of the Registrant's Registration No. 33-53980
10.9 Governmental Real Estate Sub-Lease-Office, between Resource Bancshares Mortgage *
Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation
incorporated by reference to Exhibit 10.19 of the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 1994
10.10 First Sub-Lease Amendment to Governmental Real Estate Sub-Lease-Office, *
between Resource Bancshares Mortgage Group, Inc. and the South Carolina Department
of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1994
10.11 Request for Extension of Governmental Real Estate Sub-Lease-Office, between the Registrant *
and the South Carolina Department of Labor, Licensing and Regulation dated
December 12, 1995 incorporated by reference to Exhibit 10.39 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
10.12 Section 125 Plan incorporated by reference to Exhibit 10.17 of the Registrant's Annual *
Report on Form 10-K for the year ended December 31, 1993
10.13 Pension Plan incorporated by reference to Exhibit 10.18 of the Registrant's Annual *
Report on Form 10-K for the year ended December 31, 1993
10.14 Amendment I to Pension Plan incorporated by reference to Exhibit 10.21 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.15 Amendment II to Pension Plan incorporated by reference to Exhibit 10.22 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
B
33
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.16 Amendment to Pension Plan effective January 1, 1995 incorporated by *
reference to Exhibit 10.42 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995
10.17 (A) Phantom 401(k) Plan incorporated by reference to Exhibit 10.24 of *
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994
(B) Amendment to Phantom 401(k) Plan incorporated by reference to Exhibit *
10.17(B) of the Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1999
(C) Merger and Transfer Agreement Between The Resource Bancshares *
Mortgage Group, Inc. and Fidelity Management Trust Company incorporated
by reference to Exhibit 10.53 of the Registrant's Quarterly Report on
Form 10-Q for the period ended September 30, 1999.
10.18 Resource Bancshares Mortgage Group, Inc. Supplemental Executive Retirement Plan *
incorporated by reference to Exhibit 10.14 of the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1998.
10.19 First Amendment to Resource Bancshares Mortgage Group, Inc. Supplemental Executive *
Retirement Plan dated October 28, 1998 incorporated by reference to Exhibit 10.19 of
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998
10.20 Pension Restoration Plan incorporated by reference to Exhibit 10.25 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.21 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the Registrant's *
Registration No. 33-87536
10.22 Amendment I to Stock Investment Plan incorporated by reference to *
Exhibit 10.27 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994
10.23 Amendment II to Stock Investment Plan dated November 30, 1998 *
incorporated by reference To Exhibit 4.1(c) of the Registrant's
Registration Statement No. 333-68909
10.24 Employee Stock Ownership Plan incorporated by reference to Exhibit 10.29 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.25 First Amendment to Employee Stock Ownership Plan dated October 31, 1995 *
incorporated by reference to Exhibit 10.41 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
10.26 Second Amendment to Employee Stock Ownership Plan dated August 12, 1996 *
incorporated by reference to Exhibit 10.45 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1996
10.27 Amended Resource Bancshares Mortgage Group, Inc. Successor Employee Stock *
Ownership Trust Agreement dated December 1, 1994, between the Registrant and
Marine Midland Bank incorporated by reference to Exhibit 10.30 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994
C
34
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.28 ESOP Loan and Security Agreement dated January 12, 1995, between the Registrant *
and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust
incorporated by reference to Exhibit 10.31 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994
10.29 ESOP Loan and Security Agreement dated May 3, 1996, between the *
Registrant and The Resource Bancshares Mortgage Group, Inc. Employee
Stock Ownership Trust incorporated by reference to Exhibit 10.36 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996
10.30 (A) ESOP Notes dated January 20, 1998, April 1, 1998, July 1, 1998 and October 1, *
1998 between the Registrant and The Resource Bancshares Mortgage Group, Inc.
Employee Stock Ownership Trust incorporated by reference to Exhibit 10.30 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1998
(B) ESOP Notes dated March 8, 1999, April 26, 1999, July 1, 1999 and October 1, ______
1999 between the Registrant and The Resource Bancshares Mortgage Group, Inc.
Employee Stock Ownership Trust
10.31 Formula Stock Option Plan incorporated by reference to Exhibit 10.36 of the Registrant's *
Quarterly Report on Form 10-Q for the period ended September 30, 1995
10.32 Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock *
Option Plan and Non-Qualified Stock Option Plan incorporated by
reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1997
10.33 First Amendment to the Formula Stock Option Plan incorporated by *
reference to Exhibit 99.8 of the Registrant's Registration No.
333-29245 as filed on December 1, 1997
10.34 Second Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock *
Option Plan dated October 28, 1998 incorporated by reference to Exhibit 10.34 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1998
10.35 Amended and Restated Omnibus Stock Award Plan incorporated by reference to Exhibit 99.10 *
of the Registrant's Registration No. 333-29245 filed on December 1, 1997
10.36 First Amendment to Omnibus Stock Award Plan and form of Incentive Stock Option *
Agreement and Release to the Omnibus Stock Award Plan incorporated by reference to
Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1998.
10.37 Second Amendment to Resource Bancshares Mortgage Group, Inc. Omnibus *
Stock Award Plan dated October 29, 1998 incorporated by reference to
Exhibit 10.37 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998
10.38 Form of Incentive Stock Option Agreement (Omnibus Stock Award Plan) *
incorporated by reference to Exhibit 10.40 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1997
10.39 Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option Plan *
dated September 1, 1996 incorporated by reference to Exhibit 10.33 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996
D
35
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.40 Form of Non-Qualified Stock Option Agreement (Non-Qualified Stock *
Option Plan), incorporated by reference to Exhibit 10.41 of the
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 1997
10.41 First Amendment to Resource Bancshares Mortgage Group, Inc. *
Non-Qualified Stock Option Plan dated January 29, 1997 incorporated
by reference to Exhibit 10.41 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998
10.42 Second Amendment to the Non-Qualified Stock Option Plan dated February *
6, 1998 incorporated by reference to Exhibit 10.40 of the
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 1998
10.43 Third Amendment to Resource Bancshares Mortgage Group, Inc. *
Non-Qualified Stock Option Plan dated October 28, 1998 incorporated
by reference to Exhibit 10.43 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998
10.44 Agreement and Release Form of Non-Qualified Stock Option Agreement *
incorporated by reference to Exhibit 10.41 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1998
10.45 Amended and Restated Retirement Savings Plan dated April 1, 1996 *
incorporated by reference to Exhibit 10.34 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996
10.46 First Amendment to Amended and Restated Retirement Savings Plan dated as of *
November 8, 1996 incorporated by reference to Exhibit 10.35 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996
10.47 Second Amendment to Amended and Restated Retirement Savings Plan dated *
January 1997, incorporated by reference to Exhibit 10.38 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1997
10.48 (A) Agreement of Merger dated April 18, 1997 between Resource Bancshares *
Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation
incorporated by reference to Annex A of the Registrant's Registration No.333-29245
(B) First Amendment to Agreement of Merger dated April 18, 1997 between *
Resource Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and
Resource Bancshares Corporation incorporated by reference to Exhibit
10.42 of the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1997
(C) Second Amendment to Agreement of Merger dated April 18, 1997 *
between Resource Bancshares Mortgage Group, Inc., RBC Merger Sub,
Inc. and Resource Bancshares Corporation incorporated by reference to
Annex A of the Registrant's Registration No.
333-29245
10.49 (A) Mutual Release and Settlement Agreement between the Registrant, Lee E. Shelton *
and Constance P. Shelton dated January 31, 1997 incorporated by reference to Exhibit
10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997
(B) Amendment to Mutual Release and Settlement Agreement between Registrant, Lee *
E. Shelton and Constance P. Shelton dated January 31, 1997 incorporated by reference to
E
36
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1997
10.50 Preferred Provider Organization Plan for Retired Executives incorporated by reference to *
Exhibit 10.43 of the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1998
10.51 Resource Bancshares Mortgage Group, Inc. Flexible Benefits Plan Amended and *
Restated as of January 1, 1998 incorporated by reference to Exhibit 10.51 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1998
10.52 The Resource Bancshares Mortgage Group, Inc. Nonqualified Deferred Compensation *
Plan effective April 1, 1999 incorporated by reference to Exhibit 10.52
of the Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 1999
10.53 (B) Voluntary Employees' Beneficiary Association Trust for the Employees
of Resource Bancshares Mortgage Group, Inc. _____
11.1 Statement re: Computation of Net Income per Common Share _____
13.1 1999 Annual Report to Shareholders _____
21.1 Subsidiaries of the Registrant _____
23.1 Consents of PricewaterhouseCoopers LLP _____
27.1 Financial Data Schedule _____
- ----------------------------------
* Incorporated by reference
F