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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, 2000 Commission File Number 000-21786
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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
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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 $127,437,522 as of March 15, 2001, based on
the closing price of $7.844 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 15, 2001, 16,246,497 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
2000 Annual Report to Shareholders Parts II and IV
2001 Proxy Statement Part III
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PART I
ITEM 1. BUSINESS
General
Resource Bancshares Mortgage Group, Inc. (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, one of the Company's
wholly-owned subsidiaries originates, sells and services small-ticket commercial
equipment leases.
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 as whole loans. Substantially all the
agency-eligible mortgage loans are sold with the rights to service the loans
being retained by the Company. The majority of the retained servicing is sold
separately with only a small portion held in the Company's servicing portfolio.
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 mortgage servicing rights which
were acquired through bulk acquisitions of servicing rights related to
agency-eligible loans originated by other lenders.
During the second half of 1999 and 2000, 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 throughout
2000.
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. During
2000, the Company further consolidated its six agency eligible regional
operating centers into four centers and centralized processing of its subprime
loans into three regional operating centers. Previously, the Company processed
subprime loans in branch offices in major markets throughout the country. The
Company also underwent a re-engineering of work processes at its regional
operating centers and at its centralized post-closing operation resulting in
additional cost savings. The Company was able to reduce its operating expenses
(salaries and employee benefits, occupancy expenses, and general and
administrative expenses) from $111.5 million in 1999 to $89.3 million in 2000.
On January 10, 2000 the Company named Douglas K. Freeman as its new
Chief Executive Officer. Soon thereafter, the senior management team met and
restated its corporate strategy, mission, goals, business principles and core
values. The Company's strategy is to become a customer centric financial
intermediary that combines the best of product depth, relationship management
and service quality. Pursuant to this strategy, during 2000 the Company: (1)
diversified its product array, (2) began to utilize and deploy advanced
technology to support a more
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effective order fulfillment process and (3) integrated enhanced customer
relationship management systems and disciplines into its ongoing sales and
marketing operations.
The Company does not hold any material trademarks, licenses, franchises
or concessions.
Segmented Income Statements
The Company operates through wholly-owned subsidiaries that are engaged
in the following lines of business: (a) agency-eligible production; (b)
agency-eligible servicing; (c) agency-eligible reinsurance; (d) subprime
residential production; and (e) small-ticket equipment leasing. During 2000, the
Company sold substantially all of the assets of Laureate Capital Corp.
(Laureate), which conducted its commercial mortgage operations (See Note 21 to
the financial statements). The tables set forth under Note 18 in the
Consolidated Financial Statements in the Company's accompanying 2000 Annual
Report to Shareholders present a summary of the revenues and expenses for each
of the Company's business segments for the years ended December 31, 2000, 1999
and 1998, respectively, and are hereby incorporated herein by reference. The
following represents the percentage and amount of total Company revenues
contributed by the various operating divisions for the years ended December 31,
2000, 1999 and 1998:
($ in thousands)
2000 2000 1999 1999 1998 1998
$ Amount Percentage $ Amount Percentage $ Amount Percentage
--------- ---------- -------- ---------- -------- ----------
Agency-eligible
production $ 26,624 47% $ 72,613 45% $ 143,650 62%
Agency-eligible
servicing 32,151 56% 45,080 28% 40,064 17%
Agency-eligible
reinsurance 3,050 5% 1,649 1% 1,189 1%
Subprime (14,171) (25)% 31,351 20% 38,277 17%
Leasing 10,906 19% 9,285 6% 6,404 3%
Other
/eliminations (1,326) (2)% (483) 0% 807 0%
------------------ -------------------- -------------------
Total $ 57,234 100% $ 159,495 100% $ 230,391 100%
================== ==================== ===================
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, 2000, the Company had 924 correspondents originating
mortgage loans in 48 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 39% of its dollar volume of correspondent loans during 2000
compared to 34% in 1999. During 2000, the top five correspondents accounted for
approximately 20% of the year's mortgage loan correspondent purchase volume.
This compares to the top five correspondents accounting for approximately 16%
and 12% of the correspondent mortgage loan purchase volume during 1999 and 1998,
respectively. No single correspondent accounted for more than 8.7% of the
Company's agency-eligible mortgage loan purchase volume in 2000. In 1999
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and 1998, 5.8% and 3.9%, 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 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 best 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. During 2000, the Company
introduced e-RBMG, its business-to-business Internet offering. e-RBMG makes it
easier for correspondents to interact with the Company by automating the flow of
information between the correspondent and the Company. e-RBMG allows
correspondent lenders to upload/key files, register and lock a loan, submit a
loan to Fannie Mae Desktop Underwriting, print out a fax cover with a bar code
to be faxed and routed electronically, submit an electronic file to one of the
Company's regional operating centers for validation and request closing funds
on-line. 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.
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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 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 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.
In 1999 and 2000, the Company closed its branch offices and established
regional operations centers to better facilitate service to a larger geographic
area. At December 31, 2000, the Company had four regional operations centers
serving approximately 4,227 brokers. The offices are located in San Jose,
California; Boston, Massachusetts; Minneapolis, Minnesota; and St. Louis,
Missouri. Although maintaining regional operations 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 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. The Company also
offers the use of e-RBMG to its brokers. e-RBMG has the same features and
benefits for brokers as enumerated above for the correspondent lending program.
Subprime
Subprime loan production decreased by 8% to $669.6 million for 2000 as
compared to $728.4 million during 1999. Between 1999 and 2000 the Company
increased the number of its subprime brokers by 453. During 2000, the Company
phased out its branch facilities in favor of three regional operating centers
where a critical mass of volume could be achieved for better operating
efficiency.
Residential production volume
The following table shows residential production volume by source for
each of the three years in the period ended December 31, 2000.
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RESIDENTIAL LOAN PRODUCTION VOLUME Year Ended December 31,
-------------------------------------------------------
($ in Thousands) 2000 1999 1998
----------------- ----------------- -----------------
Correspondent $4,532,335 $6,363,936 $11,666,560
Wholesale 1,098,699 1,748,415 3,023,961
Retail -- -- 264,059
----------------- ----------------- -----------------
Total agency-eligible loan production $5,631,034 $8,112,351 $14,954,580
Subprime production 669,622 728,410 607,664
----------------- ----------------- -----------------
Total residential production $6,300,656 $8,840,761 $15,562,244
================= ================= =================
The Company purchases and originates conventional and subprime mortgage
loans and mortgage loans insured by the FHA or partially guaranteed by the VA.
All mortgage loans purchased or originated by the Company are purchased or
originated for resale. The majority of the Company's loans are conforming loans,
i.e., mortgage loans that qualify for inclusion in purchase and guarantee
programs sponsored by Fannie Mae, Freddie Mac and Ginnie Mae.
The Company purchases and originates a variety of mortgage loan
products that are designed, in conjunction with the requirements of prospective
purchasers of such loans, to respond to consumer needs and competitive factors.
In addition to 15-year and 30-year conventional mortgage loans and 15-year and
30-year FHA loans and VA loans, the Company purchases and originates products
designed to provide lower interest rates to borrowers or lower principal and
interest payments by borrowers, including balloon mortgage loans that have
relatively short terms (e.g., five or seven years) and longer amortization
schedules (e.g., 25 or 30 years) and adjustable rate mortgage loans. The Company
also purchases and originates mortgage loans featuring a variety of combinations
of interest rates and discount points so that borrowers may elect to pay higher
points at closing and less interest over the life of the loan, or pay a higher
interest rate and reduce or eliminate points payable at closing. The portion of
total loans held for sale at any time that consists of a particular product type
depends upon the interest rate and competitive environments at the time such
loans are made.
Volume
The following table shows residential mortgage loan production volume
by type of loan for each of the three years in the period ended December 31,
2000.
Year Ended December 31,
-------------------------------------------------------
($ in Millions except as indicated) 2000 1999 1998
--------------- --------------- ---------------
CONVENTIONAL LOANS:
Volume $ 3,519.5 $ 4,892.9 $ 10,674.1
Percentage of total volume 56% 55% 68%
FHA / VA LOANS:
Volume $ 2,111.6 $ 3,219.5 $ 4,280.4
Percentage of total volume 34% 37% 28%
SUBPRIME LOANS:
Volume $ 669.6 $ 728.4 $ 607.7
Percentage of total volume 10% 8% 4%
TOTAL LOANS:
Volume $ 6,300.7 $ 8,840.8 $ 15,562.2
Number of loans 53,897 79,322 131,630
Average loan size ($ in Thousands) $ 116.9 $ 111.5 $ 118.2
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The following table shows residential loan production volume by state
for the year ended December 31, 2000, for each state that represented 5% or more
of the Company's total residential loan production volume for 2000.
Year Ended December 31, 2000
-------------------------------------
($ in Thousands) Percent of
State Amount Total
--------------------------------- ---------------- ---------------
California $ 806,497 12.80%
Massachusetts 611,078 9.69%
Minnesota 558,233 8.86%
Colorado 405,495 6.44%
Ohio 388,124 6.16%
Illinois 341,993 5.43%
All other 3,189,236 50.62%
--------------- ----------------
TOTAL $ 6,300,656 100.00%
================ ================
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. Prior to 2000, the Company
securitized a portion of its subprime production. During 2000, the Company sold
its subprime production on a whole loan basis for cash.
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.
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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 to
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 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 treasuries.
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) $500 million or (ii) 30% 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 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, 2000.
December 31, December 31,
Days Delinquent 2000 1999
--------------- ------------- -------------
30 1.83% 1.65%
60 .26% .30%
90+ days .14% .17%
------------- -------------
Total delinquencies 2.23% 2.12%
============= =============
At December 31, 2000, the Company's owned mortgage servicing rights
portfolio had an underlying unpaid principal balance of $8.0 billion. The
portfolio generally reflected characteristics representative of the then-current
market conditions and had a weighted average note rate of 7.67%.
In 2000, the Company produced or purchased servicing rights associated
with agency-eligible residential loans having an aggregate underlying unpaid
principal balance of $5.6 billion and had an average aggregate underlying unpaid
principal balance of loans being serviced of $9.0 billion. Typically, the
Company sells the majority of its produced agency-eligible mortgage servicing
rights between 90 days and 180 days of purchase. Nevertheless, certain market
and operating characteristics, including origination costs, adjusted basis,
market values, coupon rates, delinquency rates and current prepayment rates are
considered to determine whether mortgage servicing rights should be held for
longer periods of time.
The following table provides certain information regarding the
Company's agency-eligible mortgage servicing rights portfolio at December 31,
2000.*
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($ in Thousands) Percentage of
Aggregate Total Unpaid
Year of Number of Loans Percentage of Unpaid Principal Principal
Origination Total Loans Balance Balance
------------------------ ----------------- ------------------ --------------------- -----------------
1992 or earlier 4,312 5.7% $ 219,638 2.7%
1993 5,670 7.5% 383,913 4.8%
1994 3,966 5.2% 315,699 3.9%
1995 1,327 1.8% 101,376 1.3%
1996 2,526 3.3% 256,951 3.2%
1997 9,363 12.4% 1,001,975 12.5%
1998 18,087 23.9% 2,195,268 27.3%
1999 8,707 11.5% 891,870 11.1%
2000 21,690 28.7% 2,680,489 33.2%
----------------- ------------------ --------------------- -----------------
Total 75,648 100.00% $8,047,179 100.00%
================= ================== ===================== =================
* Includes $236,267 (2,499 loans) of subprime loans as of December 31, 2000
being temporarily serviced until these loans are sold.
The following table sets forth the Company's agency-eligible mortgage
servicing rights portfolio by loan type*:
($ in Thousands) At December 31, 2000
-------------------------------------------------------------------------------
Aggregate
Unpaid Weighted Weighted
Number Principal Average Average
Loan Type of Loans Balance Coupon Service Fee
- ------------------------------- ------------- --------------- ----------------- ----------------
FHA 4,187 $ 444,578 8.34% .5672%
VA 772 89,127 8.19% .5408%
Fannie Mae 44,683 4,770,714 7.61% .4479%
Freddie Mac 19,504 2,015,409 7.37% .3620%
Private 425 24,949 8.83% .4033%
Other 6,077 702,402 8.03% .2968%
------------- --------------- ----------------- ----------------
TOTAL 75,648 $8,047,179 7.67% .4223%
============= =============== ================= ================
* Includes $236,267 (2,499 loans) of subprime loans as of December 31, 2000
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 $2,566.2 million at December 31, 2000. The Company's
available-for-sale portfolio had an aggregate underlying unpaid principal
balance of $5,480.9 million at December 31, 2000.
As the servicing rights of the available-for-sale portfolio are
generally held as a longer-term investment, there are certain prepayment risks
inherent to it that do not attach to the portion of the portfolio held-for-sale
(the portfolio held-for-sale is generally sold within 90 to 180 days). During
periods of declining interest rates, prepayments of mortgage loans increase as
homeowners seek to refinance at lower rates, resulting in a decrease in the
value of the Company's available-for-sale portfolio. Mortgage loans with higher
interest rates are more likely to result in prepayments. The following table
sets forth certain information regarding the aggregate underlying unpaid
principal balance of mortgage
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loans in the available-for-sale portfolio serviced by the Company. The table
includes both fixed and adjustable rate loans.
Available-For-Sale Portfolio
($ in Thousands) At December 31, 2000
----------------------------------------------------
Aggregate Percentage of Total
Unpaid Principal Unpaid Principal
Mortgage Interest Rate Balance Balance
- -------------------------------- ----------------------- -----------------------
Less than 7.00% $1,494,538 27.27%
7.00% - 7.49% 1,864,327 34.01%
7.50% - 7.99% 1,074,547 19.61%
8.00% - 8.49% 571,886 10.43%
8.50% - 8.99% 342,360 6.25%
9.00% - 9.49% 88,084 1.61%
Greater than 9.49% 45,187 0.82%
----------------------- -----------------------
TOTAL $5,480,929 100.00%
======================= =======================
The following table sets forth the geographic distribution of the
Company's available-for-sale servicing portfolio for those states representing
more than 3% of the portfolio:
($ in Thousands) At December 31, 2000
-------------------------------------------------------
Aggregate Percentage of
Unpaid Principal Total Unpaid
State Balance Principal Balance
- ------------------------------- ------------------- ----------------------------------
Massachusetts $ 587,860 10.73%
Minnesota 461,152 8.41%
California 412,258 7.52%
Illinois 366,134 6.68%
New York 319,356 5.83%
Ohio 273,393 4.99%
Connecticut 250,290 4.57%
Texas 247,737 4.52%
Colorado 214,922 3.92%
Michigan 203,062 3.70%
Georgia 169,047 3.08%
Florida 167,848 3.06%
All others 1,807,870 32.99%
------------------- ----------------------------------
TOTAL $ 5,480,929 100.00%
=================== ==================================
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, 2000
-----------------------------------------------
Aggregate Percentage of Total
Unpaid Principal Unpaid Principal
Mortgage Interest Rate Balance Balance
- --------------------------------------- --------------------- -----------------------
Less than 7.00% $ 4,181 0.16%
7.00% - 7.49% 375,989 14.65%
7.50% - 7.99% 482,729 18.81%
8.00% - 8.49% 976,681 38.06%
8.50% - 8.99% 424,908 16.57%
9.00% - 9.49% 75,479 2.94%
Greater than 9.50% 226,282 8.81%
--------------------- -----------------------
TOTAL $ 2,566,249 100.00%
===================== =======================
To help the Company manage its risk related to prepayments of its
servicing portfolio, the Company has purchased interest-rate floor contracts and
callable pass-through certificates, 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
and callable pass-through certificates, see Note 17 of the Company's
Consolidated Financial Statements, found in the Company's accompanying 2000
Annual Report to Shareholders, included herein and 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, 2000 the leasing division had 181 brokers. Lease production was
$103.3 million, or 1.6% of the Company's total production volume, during 2000.
At December 31, 2000, Republic Leasing managed a lease servicing portfolio of
$192.6 million. Of this managed lease portfolio, $188.9 million was owned and
$3.7 million was serviced for investors. The weighted average net yield for the
managed lease servicing portfolio at December 31, 2000 was 10.8%. Delinquencies
for the managed lease servicing portfolio at December 31, 2000 were 2.4%.
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 small-ticket
equipment leasing industry is generally not considered to be seasonal.
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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 and general and local
economic conditions.
The Company continues to face the same challenges as other companies
within the mortgage banking industry and, therefore, is not immune to
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
regional operations centers 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.
The small-ticket commercial equipment leasing industry is highly
competitive. The Company is subject to competition from other equipment leasing
companies, some of which may be better capitalized. The Company does not have a
significant market share of equipment leasing in the areas in which it conducts
operations.
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 2000 approximately 94% of its sales under
these forward sales contracts were to two major customers. In 1999,
approximately 79% of its sales under these forward sales contracts were to four
major customers. The loss of these purchasers would have a material adverse
effect on the Company's business if no suitable replacement purchasers could be
found.
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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. At December 31, 2000, approximately 16% and 7% of the
Company's net lease receivables were located in the states of California and
Florida, respectively. At December 31, 2000, approximately 16% and 5% of the
Company's net lease receivables were collateralized by computer equipment and
titled equipment, respectively.
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.
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
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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, including the Company, alleging 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 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.
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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 for such
advances 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 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.
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 July
2000, the Company and its wholly owned subsidiaries RBMG, Inc., Meritage
Mortgage Corporation and RBMG Asset Management Company, Inc. (not including the
Company, the "Restricted Group"), entered into a $325 million warehouse line of
credit provided by a syndicate of unaffiliated banks that expires in July 2001.
The credit agreement includes covenants requiring the Restricted Group to
maintain (i) a minimum net worth of $150 million, plus the Restricted Group's
net income subsequent to June 30, 2000, 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 1.25 to 1.00 for any period of two
consecutive fiscal quarters (the interest rate coverage ratio). The Company is
required
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to maintain $10 million of liquidity pursuant to the agreement. 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 July 2000, the Company and the Restricted Group also entered into a
$65 million subprime revolving credit facility and a $200 million servicing
revolving credit facility, which expire in July 2001. 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, 2000. 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.
Meritage, RBMG and a bank are parties to a master repurchase agreement,
pursuant to which Meritage and RBMG are entitled from time to time to deliver
eligible subprime mortgage loans in an aggregate principal amount of up to $150
million to the bank. The master repurchase agreement has been extended through
July 2001.
RBMG, Inc. and RBMG PFC, Inc. entered into a $50 million commercial
paper conduit facility in November 2000. The facility expires in November 2001.
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 facility. 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 2001. The interest rate on funds borrowed is
based upon the prime rate announced by a major money center bank.
Republic Leasing, 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 February 2001 and contains various
covenants regarding characteristics of the collateral and the performance of the
leases originated and serviced by Republic Leasing. The warehouse credit
agreement also requires 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
- --------------------------------------------------------------------------------
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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 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
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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.
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 or 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 and Callable Pass-through Certificates. 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.
Prepayment Risks
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
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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, and its
allowance for lease losses. 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.
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
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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.
Employees
As of December 31, 2000, the Company had 932 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 50, has been Chairman and 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.
HAROLD LEWIS, JR., age 40, serves as the Chief Portfolio Management
Executive since November 2000. Previously he had been the Executive Vice
President of Portfolio Management since March 2000. From January 1996 through
March 2000, Mr. Lewis was employed by Bank of America (formerly
20
23
NationsBank and Barnett Bank), most recently as the President of Home Equity
Services and NationsCredit Consumer Corporation.
WILLIAM M. ROSS, age 52, has been Chief Sales and Fulfillment Executive
since November of 2000. Mr. Ross was President of EquiCredit a wholly owned
subprime mortgage company of Bank of America from 1998 through 2000. Mr. Ross
retired from Bank of America after 23 years of service. Prior to EquiCredit he
held the following positions at Bank of America and companies attained through
acquisitions, Southeast Production Manager for NationsBanc Mortgage Company 1997
through 1998 and Executive Vice President of Barnett Mortgage Company (acquired
by NationsBank) 1986 through 1997.
STEVEN F. HERBERT, age 44, has been Chief Financial Executive of the
Company since July 1995.
ITEM 2. PROPERTIES
The Company's corporate and administrative headquarters facility, which
is owned by the Company, is located in Columbia, South Carolina and is subject
to a mortgage in the amount of $6.3 million as of December 31, 2000. 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 leases smaller amounts of office space in
Columbia, South Carolina and in 10 other states, consisting primarily of its
leasing, wholesale and subprime regional offices and regional operations
centers.
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
21
24
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 2000 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial
Highlights" in the Company's accompanying 2000 Annual Report to Shareholders is
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 2000 Annual
Report to Shareholders is 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 2000
Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information set forth in the Company's accompanying 2000
Annual Report to Shareholders is incorporated herein by reference:
The Consolidated Financial Statements of Resource Bancshares Mortgage
Group, Inc., together with the report thereon of Ernst & Young, LLP dated
January 31, 2001, including all Notes to such Consolidated Financial Statements
except Note 19 - Quarterly Financial Data.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with accountants on accounting and
financial disclosure matters that require disclosure pursuant to Item 304 of
Regulation S-K. During 2000, the Company changed accountants. This was
previously reported on a Form 8-K filed March 29, 2000.
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 Proxy Statement of the Company furnished to shareholders in
connection with its 2001 Annual Meeting (the "2001 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
22
25
service on the registrant's Board of Directors, and (ii) under the caption
"Beneficial Ownership--Section 16 (a) Beneficial Ownership Reporting Compliance"
in the 2001 Proxy Statement with respect to Section 16 matters is 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 2001 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 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 2001 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, 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 2001 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, incorporated herein by
reference.
23
26
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, 2000:
Consolidated Balance Sheet at December 31, 2000 and 1999 ................ 32
Consolidated Statement of Income for each of the three years in the
period ended December 31, 2000 ...................................... 33
Consolidated Statement of Changes in Stockholders' Equity for each
of the three years in the period ended December 31, 2000 ............ 34
Consolidated Statement of Cash Flows for each of the three years in
the period ended December 31, 2000 .................................. 35
Notes to Consolidated Financial Statements .............................. 36-55
* Incorporated by reference from the indicated pages of the Company's
2000 Annual Report to Shareholders.
(2) Report of Independent Accountants on Consolidated Financial Statements
at December 31, 1999 and for each of the two years in the period ended
December 31, 1999 are filed as part of this report at exhibit 99.1 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 H).
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 H).
d. Not applicable
With the exception of the information herein expressly incorporated by
reference, the Company's 2000 Annual Report to Shareholders and 2001 Proxy
Statement shall not be deemed filed as part of this Annual Report on Form 10-K.
24
27
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, 2001 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/ Douglas K. Freeman Chairman and Chief Executive March 29, 2001
---------------------- Officer (principal executive
Douglas K. Freeman officer) and Director
/s/ Steven F. Herbert
---------------------- Chief Financial Executive March 29, 2001
Steven F. Herbert and Chief Financial Officer
(principal financial and
accounting officer)
/s/ Boyd M. Guttery Director March 29,2001
----------------------
Boyd M. Guttery
/s/ Stuart M. Cable Director March 29, 2001
----------------------
Stuart M. Cable
/s/ Robin C. Kelton Director March 29, 2001
----------------------
Robin C. Kelton
/s/ Joel A. Smith Director March 29, 2001
----------------------
Joel A. Smith
/s/ Roger O. Goldman Director March 29, 2001
----------------------
Roger O. Goldman
/s/ David W. Johnson Director March 29, 2001
----------------------
David W. Johnson
25
28
INDEX TO EXHIBITS
EXHIBITS 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 as amended through *
November 8, 2000 incorporated by reference to Exhibit 4.2 of the
Registrant's Registration No. 333-55054.
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 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
Director Deferred Compensation Plan dated June 2000 incorporated by
reference to Exhibit 10.57 of the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 2000
10.4 Outside Director Life Insurance Plan dated June 2000 incorporated by *
reference to the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 2000
10.5 Change of Control Agreement by and between Resource Bancshares Mortgage *
Group, Inc. and Steven F. Herbert, dated as of July 27, 2000.
10.6 (A) Employment Agreement dated April 3, 2000, between Resource *
Bancshares Mortgage Group, Inc. and Harold Lewis, Jr. incorporated by
reference to Exhibit 10.6 (A) of the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 2000
A
29
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
(B) Change of Control Agreement dated May 3, 2000, by and *
between Resource Bancshares Mortgage Group, Inc. and Harold
Lewis, Jr. incorporated by reference to Exhibit 10.6 (B) of
the Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2000
10.7 (A) Change of Control Agreement dated November 8, 2000 by and --
between Resource Bancshares Mortgage Group, Inc. and William
M. Ross
(B) Employment Agreement dated November 1, 2000 between --
Resource Bancshares Mortgage Group and William M. Ross
10.8 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
10.9 (A) 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
(B) 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
(C) 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 .
(D) 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
(E) Amendment IV to Pension Plan effective May 31, 2000 *
incorporated by reference to Exhibit 10.16 (B) of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2000
10.10 (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.
B
30
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
10.11 (A) 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.
(B) 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
(C) Second Amendment to Resource Bancshares Mortgage Group, *
Inc. Supplemental Executive Retirement Plan dated May 31,
2000 incorporated by reference to Exhibit 10.19 (B) of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2000
10.12 (A) 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
(B) Resolution of Board of Directors freezing additional *
accruals under the Pension Restoration Plan effective May
31, 2000 incorporated by reference to Exhibit 10.20 (B) of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2000
10.13 (A) Stock Investment Plan incorporated by reference to Exhibit *
4.1 of the Registrant's Registration No. 33-87536
(B) 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
(C) 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
(D) Amendment III to Stock Investment Plan dated February 2, *
2000 incorporated by reference to Exhibit 10.22 (C) of the
Registrants Quarterly Report on Form 10-Q for the period ended
March 31, 2000
10.14 (A) Change of Control Agreement by and between Resource *
Bancshares Mortgage Group, Inc. and Douglas K. Freeman, dated
as of January 10, 2000 incorporated by reference to Exhibit
10.23 (A) of the Registrants Quarterly Report on Form 10-Q for
the period ended March 31, 2000.
(B) Employment Agreement between Resource Bancshares Mortgage *
Group, Inc. and Douglas K. Freeman dated as of January 10,
2000 incorporated by reference to Exhibit 10.23 (C) of the
Registrants Quarterly Report on Form 10- Q for the period
ended March 31, 2000
C
31
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
10.15 (A) 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
(B) 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
(C) 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
(D) 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
10.16 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
10.17 (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 incorporated by reference to Exhibit 10.30 (B)
of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999
10.18 (A) 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
(B) 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
(C) 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
D
32
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
(D) 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
(E) Third Amendment to Resource Bancshares Mortgage Group, *
Inc. Formula Stock Option Plan by reference to Exhibit 3.4
of the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 2000
10.19 Form of Indemnity Agreement by and between Resource Bancshares *
Mortgage Group, Inc. and Directors and/or Officers of the
Corporation.
10.20 (A) 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
(B) 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
(C) 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
(D) Third Amendment to Omnibus Stock Award Plan. --
10.21 (A) 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
(B) Form of Incentive Stock Option Agreement (Omnibus Stock *
Award Plan) effective June 2000 (officer vesting provisions)
incorporated by reference to Exhibit 10.38 (B) of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2000
(C) Form of Incentive Stock Option Agreement (Omnibus Stock *
Award Plan) effective June 2000 ($16 vesting provisions)
incorporated by reference to Exhibit 10.38 (C) of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2000
10.22 (A) 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
E
33
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
(B) 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
(C) 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
(D) 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
(E) 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
(F) 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
10.23 (A) 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
(B) 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
(C) 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
(D) Third Amendment to Amended and Restated Retirement Savings Plan *
dated May 31, 2000 incorporated by reference to Exhibit 10.47 (B) of
the Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 2000
10.24 (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
F
34
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
(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
10.25 (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 Exhibit 10.44 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1997
10.26 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
10.27 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
10.28 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
10.29 (A) Voluntary Employees' Beneficiary Association Trust for the *
Employees of Resource Bancshares Mortgage Group, Inc. incorporated by
reference to Exhibit 10.53 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1999
(B) Voluntary Employees' Beneficiary Association Plan for the Employees *
of Resource Bancshares Mortgage Group, Inc. incorporated by reference
to Exhibit 10.54 of the Registrant's Quarterly Report on Form 10-Q for
the period ended March 31, 2000
10.30 MSC Stock Option Agreement between Resource Bancshares Mortgage Group, *
Inc. and Boyd M. Guttery dated February 2, 2000 incorporated by
reference to Exhibit 10.55 of the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 2000
G
35
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
10.31 MSC Stock Option Agreement between Resource Bancshares Mortgage Group, *
Inc. and Stuart M. Cable dated February 2, 2000 incorporated by
reference to Exhibit 10.56 of the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 2000
10.32 Outside Directors' Stock Option Plan (as amended through March 19, 2001) --
11.1 Statement re: Computation of Net Income per Common Share --
13.1 2000 Annual Report to Shareholders --
21.1 Subsidiaries of the Registrant --
23.1 Consent of Ernst & Young LLP --
23.2 Consent of PricewaterhouseCoopers LLP to the incorporation by reference --
of the Registration Statements on Form S-3 of Resource Bancshares
Mortgage Group, Inc.
23.3 Consent of PricewaterhouseCoopers LLP to the incorporation by reference --
of the Registration Statements on Form S-8 of Resource Bancshares
Mortgage Group, Inc.
99.1 Report of Independent Accountants on Consolidated Financial Statements --
at December 31, 1999 and for each of the two years in the period ended
December 31, 1999
*Incorporated by reference
H