1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number 000-21786
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 57-0962375
- --------------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7909 Parklane Road, Columbia, SC 29223
- --------------------------------------------- ----------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (803)741-3000
------------------------------
Indicate by check mark whether the registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (ii) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of common stock of the Registrant outstanding as of April
30, 2001 was 16,573,330.
Page 1
Exhibit Index on Pages A to G
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-Q for the quarter ended March 31, 2001
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements - (Unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of 15
Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 51
PART II. OTHER INFORMATION 51
ITEM 6. Exhibits and Reports on Form 8-K 51
SIGNATURES 52
EXHIBIT INDEX A-G
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
March 31, December 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
Cash $ 22,081 $ 15,205
Receivables 41,850 63,098
Mortgage loans held for sale 630,237 541,574
Lease receivables 196,822 191,777
Servicing rights, net 157,352 160,766
Premises and equipment, net 29,601 30,771
Accrued interest receivable 3,760 2,645
Goodwill and other intangibles 11,685 11,865
Other assets 46,272 52,052
------------ ------------
Total assets $ 1,139,660 $ 1,069,753
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 878,224 $ 811,750
Long-term borrowings 6,115 6,145
Accrued expenses 7,446 9,045
Other liabilities 104,552 91,044
------------ ------------
Total liabilities 996,337 917,984
------------ ------------
Preferred stock - par value $0.01 - 5,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock - par value $0.01 - 50,000,000 shares authorized;
31,637,331 shares issued and outstanding at March 31, 2001
and December 31, 2000 316 316
Additional paid-in capital 297,374 297,996
Retained earnings 4,510 6,291
Common stock held by subsidiary at cost - 7,767,099 shares at
March 31, 2001 and December 31, 2000 (98,953) (98,953)
Treasury stock - 7,237,571 and 6,949,711 shares at March 31, 2001
and December 31, 2000, respectively (52,071) (50,050)
Unearned shares of employee stock ownership plan - 310,320 and 310,320
unallocated shares at March 31, 2001 and December 31, 2000, respectively (3,800) (3,800)
Unearned variable option expense at March 31, 2001 and December 31, 2000,
respectively (23) (31)
Other comprehensive loss (4,030) --
------------ ------------
Total stockholders' equity 143,323 151,769
------------ ------------
Total liabilities and stockholders' equity $ 1,139,660 $ 1,069,753
------------ ------------
The accompanying notes are an integral part
of these consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED INCOME STATEMENTS
($ IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
For the Quarter Ended
March 31,
-----------------------------------
2001 2000
------------ ------------
REVENUES
Interest income $ 19,601 $ 15,294
Interest expense (14,993) (11,178)
------------ ------------
Net interest income 4,608 4,116
Net gain on sale of mortgage loans 17,856 8,647
Gain (loss) on sale of mortgage servicing rights (2,365) 808
Servicing fees 8,215 9,315
Mark-to-market on residual interests in subprime securitizations -- (7,675)
Other income 1,700 2,056
------------ ------------
Total revenues 30,014 17,267
------------ ------------
EXPENSES
Salary and employee benefits 10,825 14,753
Occupancy expense 3,808 3,320
Amortization and provision for impairment of mortgage servicing rights 5,215 6,277
Provision expense 2,540 2,001
General and administrative expenses 6,033 5,449
------------ ------------
Total expenses 28,421 31,800
------------ ------------
Income (loss) from continuing operations before income taxes 1,593 (14,533)
Income tax (expense) benefit (526) 5,331
------------ ------------
Income (loss) from continuing operations before transition adjustment 1,067 (9,202)
Cumulative effect of change in accounting principles - SFAS No. 133, net of tax (149) --
------------ ------------
Income (loss) from continuing operations 918 (9,202)
Discontinued operations:
Operating loss of Laureate Capital Corp. for the quarter ended
March 31, 2000 (less applicable income tax benefit of $465) -- (765)
------------ ------------
Net income (loss) $ 918 $ (9,967)
------------ ------------
Weighted average common shares outstanding -- Basic 16,545,113 18,657,683
------------ ------------
Net income (loss) per common share from continuing operations-- Basic $ 0.06 $ (0.49)
------------ ------------
Net income (loss) per common share from discontinued operations-- Basic $ -- $ (0.04)
------------ ------------
Weighted average common shares outstanding -- Diluted 16,778,471 18,657,683
------------ ------------
Net income (loss) per common share from continuing operations-- Diluted $ 0.05 $ (0.49)
------------ ------------
Net income (loss) per common share from discontinued operations-- Diluted $ -- $ (0.04)
------------ ------------
* Cumulative effect of change in accounting principle on other comprehensive
income is net of $1,948 in income tax.
** Net change in other comprehensive income is net of $38 in income tax.
The accompanying notes are an integral part
of these consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands, except share information)
(Unaudited)
Common Stock Additional Common Unearned Shares
Three Months Ended ------------------------ Paid-in Retained Stock Held by Treasury of Employee Stock
March 31, 2000 Shares Amount Capital Earnings Subsidiary Stock Ownership Plan
- ------------------------------ ---------- --------- ---------- --------- ------------- --------- -----------------
Balance, December 31, 1999 31,637,331 $ 316 $ 300,909 $ 56,506 $ (98,953) $ (41,148) $ (5,158)
Issuance of restricted stock (960) 1,750
Cash dividends (2,054)
Treasury stock purchases (2,960)
Exercise of stock options
Shares committed to be released
under Employee Stock Ownership
Plan 81 144
Purchase of shares by Employee
Stock Ownership Plan
Shares issued or purchased under
Dividend Reinvestment and
Stock Purchase Plan and Stock
Investment Plan (1,382) (18) 2,446
Net income (loss) (9,967)
Total comprehensive income
---------- --------- --------- --------- --------- --------- ---------
Balance, March 31, 2000 31,637,331 $ 316 $ 298,648 $ 44,467 $ (98,953) $ (39,912) $ (5,014)
========== ========= ========= ========= ========= ========= =========
Unearned Other Total
Three Months Ended Variable Option Comprehensive Stockholders'
March 31, 2000 Expense Income (loss) Equity
- ------------------------------ --------------- ------------- -------------
Balance, December 31, 1999 $-- $ -- 212,472
Issuance of restricted stock 790
Cash dividends (2,054)
Treasury stock purchases (2,960)
Exercise of stock options
Shares committed to be released
under Employee Stock Ownership
Plan 225
Purchase of shares by Employee
Stock Ownership Plan
Shares issued or purchased under
Dividend Reinvestment and
Stock Purchase Plan and Stock
Investment Plan 1,046
Net income (loss) (9,967)
Total comprehensive income
--- --------- ---------
Balance, March 31, 2000 $-- $ -- $ 199,552
=== ========= =========
Common Stock Additional Common
Three Months Ended ------------------------ Paid-in Retained Stock Held by Treasury
March 31, 2000 Shares Amount Capital Earnings Subsidiary Stock
- ------------------------------ ---------- --------- ---------- --------- ------------- ---------
Balance, December 31, 2000 31,637,331 $ 316 $ 297,996 $ 6,291 $ (98,953) $ (50,050)
Issuance of restricted stock
Cash dividends (2,686)
Treasury stock purchases (293,360
shares net of issuances 469,940 shares) (5,438)
Exercise of Stock Options 3,292
Shares committed to be released
under Employee Stock Ownership
Plan
Purchase of shares by Employee
Stock Ownership Plan
Variable Option Expense
Shares issued or purchased under
Dividend Reinvestment and
Stock Purchase Plan and Stock
Investment Plan (622) (13) 125
Net income (loss) 918
Cumulative effect of change in accounting
principle on other comprehensive income
Net change in other comprehensive income
---------- ----- --------- --------- --------- ---------
Balance, March 31, 2001 31,637,331 $ 316 $ 297,374 $ 4,510 $ (98,953) $ (52,071)
========== ===== ========= ========= ========= =========
Unearned Shares Unearned Other Total
Three Months Ended of Employee Stock Variable Option Comprehensive Stockholders'
March 31, 2000 Ownership Plan Expense Income (loss) Equity
- ------------------------------ ----------------- --------------- ------------- -------------
Balance, December 31, 2000 $ (3,800) $ (31) $ -- $ 151,769
Issuance of restricted stock
Cash dividends (2,686)
Treasury stock purchases (293,360
shares net of issuances 469,940 shares) (5,438)
Exercise of Stock Options 3,292
Shares committed to be released
under Employee Stock Ownership
Plan
Purchase of shares by Employee
Stock Ownership Plan
Variable Option Expense 8 8
Shares issued or purchased under
Dividend Reinvestment and
Stock Purchase Plan and Stock
Investment Plan 125 (510)
Net income (loss) 918
Cumulative effect of change in accounting
principle on other comprehensive income (3,951) (3,951)
Net change in other comprehensive income (79) (79)
--------- ----- --------- ---------
Balance, March 31, 2001 $ (3,800) $ (23) $ (4,030) $ 143,323
========= ===== ========= =========
See accompanying notes
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net income (loss) from continuing operations $ 918 $ (9,202)
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Depreciation and amortization 6,436 8,782
Employee Stock Ownership Plan compensation 205
Provision for estimated foreclosure losses and repurchased loans 2,540 2,001
Increase in receivables from sale of mortgage backed securities (90,455)
Decrease in receivables 21,248 5,642
Acquisition of mortgage loans (2,710,744) (1,314,606)
Proceeds from sales of mortgage loans
and mortgage-backed securities 2,638,543 1,356,606
Acquisition of mortgage servicing rights (62,858) (33,325)
Sales of mortgage servicing rights 58,692 31,929
Net gain on sales of mortgage loans and servicing rights (15,491) (9,455)
Increase in accrued interest on loans (1,115) (72)
Increase in lease receivables (6,191) (9,704)
Decrease (increase) in other assets 5,779 (1,800)
Decrease in residual certificates 6,778
Increase in accrued expenses and other liabilities 11,909 14,386
Cumulative effect of change in accounting
principle on other comprehensive income (net of tax) * (3,951)
Net change in other comprehensive income (net of tax) ** (79)
------------ ------------
Net cash provided by operating activities of continuing operations (54,364) (42,290)
------------ ------------
INVESTING ACTIVITIES
Purchases of premises and equipment (590) (1,209)
Disposition of premises and equipment 720 374
------------ ------------
Net cash provided by (used in) investing activities of continuing operations 130 (835)
------------ ------------
FINANCING ACTIVITIES
Proceeds from borrowings 3,986,447 1,718,663
Repayment of borrowings (3,920,003) (1,675,232)
Issuance of restricted stock 790
Shares issued under Dividend Reinvestment and Stock Purchase Plan
and Stock Investment Plan 112 1,046
Acquisition of treasury stock (6,060) (2,960)
Cash dividends (2,686) (2,054)
Exercise of stock options 3,292
Variable options expense 8
------------ ------------
Net cash provided by financing activities of continuing operations 61,110 40,253
------------ ------------
Discontinued Operations (6,456)
------------ ------------
Net increase (decrease) in cash 6,876 (9,328)
Cash, beginning of period 15,205 30,478
------------ ------------
Cash, end of period $ 22,081 $ 21,150
------------ ------------
* Cumulative effect of change in accounting principle on other comprehensive
income is net of $1,948 in income tax.
** Net change in other comprehensive income is net of $38 in income tax.
The accompanying notes are an integral part
of these consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
Note 1 - Basis of Presentation:
The financial information included herein should be read in conjunction
with the consolidated financial statements and related notes of Resource
Bancshares Mortgage Group, Inc. (the Company), included in the Company's
December 31, 2000, Annual Report on Form 10-K. Certain financial information,
which is normally included in financial statements prepared in accordance with
generally accepted accounting principles, is not required for interim financial
statements and has been omitted. The accompanying interim consolidated financial
statements are unaudited. However, in the opinion of management of the Company,
all adjustments, consisting of normal recurring items, necessary for a fair
presentation of operating results for the periods shown have been made.
Certain prior period amounts have been reclassified to conform to
current period presentation and for comparability purposes.
Note 2 - Earnings (Loss) and Dividends Per Share:
The following is a reconciliation of basic earnings (loss) per share
from continuing operations to diluted earnings (loss) per share from continuing
operations for the quarter ended March 31, 2001 and 2000, respectively:
($ IN THOUSANDS EXCEPT SHARE INFORMATION) FOR THE QUARTER ENDED
MARCH 31,
---------------------------------------
2001 2000
-------------- --------------
Net Income (loss) $ 918 $ (9,202)
Weighted average common shares outstanding - Basic 16,545,113 18,657,683
-------------- --------------
Net Income (loss) per common share from continuing
operations - Basic $ 0.06 $ (0.49)
-------------- --------------
Net Income (loss) per common share from discontinued
operations - Basic $ -- $ (0.04)
Weighted average common shares outstanding - Diluted 16,778,471 18,657,683
Net Income (loss) per common share from continuing
operations - Diluted $ 0.05 $ (0.49)
-------------- --------------
Net Income (loss) per common share from discontinued
operations - Diluted $ -- $ (0.04)
-------------- --------------
SUPPLEMENTAL DISCLOSURE:
Cumulative effect of change in accounting principles
SFAS No. 133, net of tax - Basic $ (0.01) $ --
Cumulative effect of change in accounting principles
SFAS No. 133, net of tax - Diluted $ (0.01) $ --
-------------- --------------
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The supplemental disclosure above represents the cumulative effect of
adopting Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133) on basic and
diluted earnings (loss) per share as of January 1, 2001. See Note 3 below for
additional information.
A cash dividend of $0.11 per share was approved by the Board of
Directors on February 6, 2001. This dividend was paid on March 15, 2001 to
holders of record as of February 15, 2001.
Note 3 - Change in Accounting Principle
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133. SFAS No. 133, as amended by SFAS No.'s 137 and 138, establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (2)
a hedge of the exposure to variable cash flows of a forecasted transaction or
(3) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security or a
foreign-currency denominated forecasted transaction. SFAS No. 133 is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company implemented SFAS No. 133 on January 1, 2001 and recorded certain
transition adjustments in the manner prescribed in SFAS No. 133.
Under SFAS No. 133, rate lock commitments given to borrowers,
correspondents or brokers are considered to be derivatives. The Derivative
Implementation Group (DIG) of the FASB has not yet made a final determination as
to how mortgage companies should value rate locks. Pending ultimate resolution
of this issue by the FASB, the Company has tentatively implemented SFAS No. 133
assuming that the value of such derivatives is zero at rate lock date.
Commencing January 1, 2001, the Company records on its balance sheet any changes
in value from the date of rate lock to the balance sheet date.
The Company hedges the interest rate risk inherent in rate lock
commitments with mandatory delivery commitments to sell loans and, to a lesser
extent, with options and futures transactions. Mandatory delivery commitments,
options and futures are considered to be derivatives under SFAS No. 133.
Accordingly, commencing January 1, 2001, these instruments are marked-to-market
at the balance sheet date, with the result being reported as an asset or
liability in the balance sheet.
Certain of the Company's derivatives no longer needed for hedging rate
locks are "paired-off" with an opposite position in the same derivative
security. Under SFAS No. 133, both positions are derivatives that are
marked-to-market and the result carried as assets or liabilities in the balance
sheet until settlement date of the respective trades.
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The Company hedges the future cash flows from sale of its inventory of
closed loans held-for-sale with mandatory delivery commitments to sell loans.
Mandatory delivery commitments are considered to be derivatives under SFAS No.
133 and are to be carried as an asset or liability on the balance sheet. Closed
loans are not derivatives and are carried at the lower of cost or market
("LOCOM") on the Company's balance sheet. Under SFAS No. 133, to the extent that
the Company establishes statistical correlation between changes in the value of
the hedge with changes in the value of the closed loans held-for-sale, it can
mark those derivatives to market and record the after tax impact of that in the
"Other Comprehensive Income" (OCI) caption in the equity section of the balance
sheet. If the LOCOM valuation of closed loans is a net loss, the Company records
a charge to earnings. Simultaneously, the Company takes out of OCI a like amount
and records it in the income statement as an offset to the LOCOM adjustment.
The Company hedges the interest rate risk (prepayment risk) inherent in
its servicing rights assets with various instruments including interest rate
floors, interest rate corridors, interest rate swaps, interest rate swaptions,
CPC call options, PO swaps, treasury futures and agency futures contracts. Each
of these instruments is considered to be a derivative under SFAS No. 133 and
must be marked-to-market, with the value being reported as an asset or a
liability in the balance sheet. Under SFAS No.133 and the guidance provided by
the DIG, the Company may elect, at its option, hedge accounting treatment for
its servicing rights. If changes in the value of the servicing rights and the
hedges meet certain correlation criteria, changes in the fair value of the
servicing rights may be offset in the income statement by changes in the fair
value of the hedging instrument. The Company may elect not to qualify for hedge
accounting treatment. Under SFAS No. 133, the hedges must be marked-to-market
through the income statement. In contrast, servicing rights are LOCOM assets
under GAAP. When values go down, the impact is recorded through the income
statement. When values go up, the increase may be recorded in earnings only to
the extent of impairment reserves established by previous writedowns of
servicing under SFAS No. 125. The election for hedge treatment must be made at
the beginning of the accounting period. The Company did not elect hedge
accounting treatment related to servicing rights as of January 1, 2001 or
throughout the quarter ended March 31, 2001. Since the Company already carried
the value of its servicing hedges on its balance sheet at December 31, 2000,
there was no transition adjustment made at January 1, 2001.
The Company enters into interest rate swaps to pay fixed rate and
receive floating rate as a cash flow hedge of its variable rate debt used to
finance its fixed rate lease receivables. Interest rate swaps are considered to
be derivatives under SFAS No. 133 and are to be carried at market value as
assets or liabilities in the balance sheet. Since this is a cash flow hedge
under SFAS No. 133, the after tax impact is charged to or credited to OCI.
Under the transition rules of SFAS No. 133, as of January 1, 2001, the
Company recognized the value of derivatives on its balance sheet. It recognized
in a separate line in its income statement the cumulative effect of changing to
SFAS No. 133. That cumulative effect is the difference between retained earnings
at December 31, 2000 and the amount of retained earnings that would have been
reported at that date if SFAS No.
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133 had been retroactively applied to all prior periods. The table below
highlights the impact of this transition adjustment.
($ IN THOUSANDS) BALANCE SHEET
------------- CUMULATIVE
DERIVATIVE TAX DERIVATIVE TAX EFFECT OF
ASSETS ASSET LIABILITIES LIABILITY OCI CHANGE
---------- ------ ----------- --------- ------- ----------
Rate lock commitments $1,366 $ $ $509 $ $ 857
Derivatives hedging rate lock
Commitments 308 663 1,779 115 (923)
Pairoffs of Derivatives 55 70 187 21 (83)
Derivatives hedging loans
Held-for-sale 1,703 4,568 (2,865)
Derivatives swapping variable
Rate debt to fixed rate debt 659 1,745 (1,086)
------ ------ ------ ---- ------- -----
Total impact $1,729 $3,095 $8,279 $645 $(3,951) $(149)
====== ====== ====== ==== ======= =====
In addition to the cumulative effect adjustment above, SFAS No. 133
resulted in an increase in net income net of tax of $640 thousand for the
quarter ($0.04 per share). Throughout the quarter, the Company elected not to
qualify for hedge accounting treatment for derivatives used to hedge its
interest rate exposure on servicing assets. The Company did elect hedge
accounting treatment for derivatives hedging the cash flows of loans
held-for-sale and the cash flows associated with its variable rate debt used to
finance its fixed rate lease receivables. During the quarter ended March 31,
2001, the Company recorded no net gain or loss representing the amount of the
hedges' ineffectiveness, and there was no component of the derivative
instruments' gain or loss excluded from the assessment of hedge effectiveness.
Note 4 - Disposal of Commercial Mortgage Segment:
On September 29, 2000, the Company closed on an agreement to sell
substantially all of the assets of Laureate to BB&T Corporation of
Winston-Salem, N.C.
Note 5 - Allocated Revenues and Expenses:
Through 2000, the Company reported segment data using agency-eligible
production, servicing, reinsurance, subprime production and leasing as its
segments. During the last half of 2000, the Company completed a company-wide
reorganization designed around business processes rather than traditional
product groupings to help the Company to become more customer centric. The new
segments are sales, customer fulfillment, servicing, portfolio, leasing and
administration. The sales segment includes the sales forces of the
agency-eligible and subprime units. The customer fulfillment segment includes
all the personnel responsible for underwriting, processing and closing or
purchasing loans. The portfolio segment is assumed to own the Company's balance
sheet and is responsible for managing the pipeline and inventory of loans, the
liquidity of the Company, and the servicing portfolio as well as performance of
secondary marketing
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activities. Servicing subservices the loans on behalf of the portfolio segment
and external subservicing customers, assists the portfolio segment in
transferring loans and servicing to end investors and obtains trailing
documentation necessary for final pool certification. Leasing includes all of
the sales and operating functions of the Company's leasing operation.
Administration includes general corporate administration, information systems,
finance, administrative services, legal, human resources and internal audit.
Each item of revenue and expense is initially charged or credited to
the segment that has the most control over the respective revenues and expenses.
The new segment reporting recognizes the existence of internal customer
relationships, and the resulting accounting includes transfer pricing based on
net value added for billings between segments. Overhead from administration is
allocated to the other segments based on headcount and budgeted overhead
expenses.
During 2001, the Company will present both the old and the new segments
to facilitate investor transition to the new view of the Company. Prior period
comparative information for the new segments is not available.
Following is a summary of the allocated revenues and expenses for each
of the Company's operating divisions for the quarters ended March 31, 2001 and
2000, respectively, based upon traditional product groupings:
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AGENCY-ELIGIBLE
FOR THE QUARTER ENDED MARCH 31, 2001(a) ------------------------------------ OTHER /
($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME LEASING TOTAL SEGMENTS ELIMINATIONS
(UNAUDITED)
---------- --------- ----------- -------- -------- -------------- ------------
Net interest income (expense) $ 1,340 $ (1,283) $ (10) $ 2,395 $ 2,680 $ 5,122 $ (514)
Net gain (loss) on sale of mortgage loans 13,155 -- -- 4,701 -- 17,856 --
Loss on sale of mortgage servicing rights -- (2,365) -- -- -- (2,365) --
Servicing fees -- 8,119 -- -- 96 8,215 --
Other income 206 281 900 9 287 1,683 17
-------- -------- ------ -------- -------- -------- --------
Total revenues 14,701 4,752 890 7,105 3,063 30,511 (497)
-------- -------- ------ -------- -------- -------- --------
Salary and employee benefits 6,492 775 -- 2,521 768 10,556 269
Occupancy expense 2,808 290 -- 749 125 3,972 (164)
Amortization and provision for impairment --
of mortgage servicing rights -- 5,215 -- -- -- 5,215 --
Provision expense 297 -- 60 1,097 1,086 2,540 --
General and administrative expenses 2,339 1,804 31 1,006 412 5,592 441
-------- -------- ------ -------- -------- -------- --------
Total expenses 11,936 8,084 91 5,373 2,391 27,875 546
-------- -------- ------ -------- -------- -------- --------
Income (loss) before income taxes 2,765 (3,332) 799 1,732 672 2,636 (1,043)
Income tax benefit (expense) (1,254) 1,511 (281) (708) (266) (998) 472
-------- -------- ------ -------- -------- -------- --------
Income (loss) from continuing operations
before transition adjustment 1,511 (1,821) 518 1,024 406 1,638 (571)
Transition Adjustment - FAS 133 (149)
-------- -------- ------ -------- -------- -------- --------
Net Income (loss) $ 1,511 $ (1,821) $ 518 $ 1,024 $ 406 $ 1,638 $ (720)
======== ======== ====== ======== ======== ======== ========
For the quarter ended March 31, 2001(a)
($ in thousands) Consolidated
(UNAUDITED)
------------
Net interest income $ 4,608
Net gain on sale of mortgage loans 17,856
Gain on sale of mortgage servicing rights (2,365)
Servicing fees 8,215
Other income 1,700
--------
Total revenues 30,014
--------
Salary and employee benefits 10,825
Occupancy expense 3,808
Amortization and provision for impairment --
of mortgage servicing rights 5,215
Provision expense 2,540
General and administrative expenses 6,033
--------
Total expenses 28,421
--------
Income (loss) before income taxes 1,593
Income tax benefit (expense) (526)
--------
Income (loss) from continuing operations
before transition adjustment 1,067
Transition Adjustment - FAS 133 (149)
--------
Net Income (loss) $ 918
========
(a) Revenues and expenses have been allocated on a direct basis to the extent
possible.
Management believes that these and all other revenues and expenses have been
allocated to the respective divisions on a reasonable basis.
AGENCY-ELIGIBLE
FOR THE QUARTER ENDED MARCH 31, 2000 (A) ---------------------------------- COMMERCIAL
($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE LEASING
---------- --------- ----------- -------- ---------- --------
(UNAUDITED)
Net interest income (expense) $ 238 $ (1,297) $ (16) $ 3,086 $ -- $ 2,127
-------- -------- ------ -------- ------ --------
Net gain on sale of mortgage loans 6,206 -- -- 2,441 -- --
Gain on sale of mortgage servicing rights -- 808 -- -- -- --
Servicing fees -- 9,365 -- -- -- 99
Mark to market on residual interests in subprime securitizations -- -- -- (7,675) -- --
Other income 120 128 746 893 -- 262
-------- -------- ------ -------- ------ --------
Total revenues 6,564 9,004 730 (1,255) -- 2,488
-------- -------- ------ -------- ------ --------
Salary and employee benefits 6,888 693 42 5,545 -- 760
Occupancy expense 2,690 55 -- 629 -- 120
Amortization and provision for impairment
of mortgage servicing rights -- 6,277 -- -- -- --
Provision expense 900 -- -- 742 -- 359
General and administrative expenses 2,514 938 89 1,454 -- 294
-------- -------- ------ -------- ------ --------
Total expenses 12,992 7,963 131 8,370 -- 1,533
-------- -------- ------ -------- ------ --------
Income (loss) before income taxes (6,428) 1,041 599 (9,625) -- 955
Income tax benefit (expense) 2,383 (386) (210) 3,521 (376)
-------- -------- ------ -------- ------ --------
Income (loss) from continuing operations (4,045) 655 389 (6,104) -- 579
Discontinued operations:
Loss on sale of operating assets of Laureate Capital Corp.
(less applicable income taxes of $261)
Operating losses of Laureate Capital Corp.
(plus applicable income tax benefit of $465) (765)
-------- -------- ------ -------- ------ --------
Net income (loss) $ (4,045) $ 655 $ 389 $ (6,104) $ (765) $ 579
======== ======== ====== ======== ====== ========
FOR THE QUARTER ENDED MARCH 31, 2000 (A) OTHER /
($ IN THOUSANDS) TOTAL SEGMENTS ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------
(UNAUDITED)
Net interest income $ 4,138 $ (22) $ 4,116
-------- -------- --------
Net gain on sale of mortgage loans 8,647 -- 8,647
Gain on sale of mortgage servicing rights 808 -- 808
Servicing fees 9,464 (149) 9,315
Mark to market on residual interests in subprime securitizations (7,675) -- (7,675)
Other income (loss) 2,149 (93) 2,056
-------- -------- --------
Total revenues 17,531 (264) 17,267
-------- -------- --------
Salary and employee benefits 13,928 825 14,753
Occupancy expense 3,494 (174) 3,320
Amortization and provision for impairment
of mortgage servicing rights 6,277 -- 6,277
Provision expense 2,001 -- 2,001
General and administrative expenses 5,289 160 5,449
-------- -------- --------
Total expenses 30,989 811 31,800
-------- -------- --------
Income (loss) before income taxes (13,458) (1,075) (14,533)
Income tax benefit (expense) 4,932 399 5,331
-------- -------- --------
Income (loss) from continuing operations (8,526) (676) (9,202)
Discontinued operations:
Loss on sale of operating assets of Laureate Capital Corp.
(less applicable income taxes of $261)
Operating losses of Laureate Capital Corp.
(plus applicable income tax benefit of $465) (765) (765)
-------- -------- --------
Net income (loss) $ (9,291) $ (676) $ (9,967)
======== ======== ========
(a) Revenues and expenses have been allocated on a direct basis to the extent
possible.
Management believes that these and all other revenues and expenses have been
allocated to the respective divisions on a reasonable basis.
12
13
Following is a summary of the allocated revenues and expenses for each
of the Company's operating divisions for the quarter ended March 31, 2001, based
upon business processes:
13
14
FOR THE QUARTER ENDED MARCH 31, 2001(A) CUSTOMER
($ IN THOUSANDS) SALES FULFILLMENT PORTFOLIO SERVICING LEASING ADMINISTRATION
(UNAUDITED)
-------- ----------- --------- --------- -------- --------------
Net interest income (expense) $ -- $ -- $ 2,033 $ -- $ 2,680 $ (105)
Net gain (loss) on sale of mortgage loans 1,912 (273) 20,875 (78) -- (5)
Gain on sale of mortgage servicing rights -- -- (2,365) -- -- --
Servicing fees -- -- 7,658 461 96 --
Other income 225 6 1,006 176 287 --
-------- -------- -------- -------- -------- --------
Total revenues 2,137 (267) 29,207 559 3,063 (110)
-------- -------- -------- -------- -------- --------
Salary and employee benefits 4,306 4,817 1,402 1,418 768 2,298
Occupancy expense 297 1,461 217 557 125 1,478
Amortization and provision for impairment
of mortgage servicing rights -- -- 5,215 -- -- --
Provision expense -- -- 1,454 -- 1,086 --
General and administrative expenses 690 1,210 604 1,828 412 1,140
-------- -------- -------- -------- -------- --------
Total expenses 5,293 7,488 8,892 3,803 2,391 4,916
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes (3,156) (7,755) 20,315 (3,244) 672 (5,026)
Income tax expense
-------- -------- -------- -------- -------- --------
Income (loss) before transition adjustment,
allocations and transfer pricing (3,156) (7,755) 20,315 (3,244) 672 (5,026)
Transition adjustment - FAS 133 -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Income (loss) before allocations and
transfer pricing (3,156) (7,755) 20,315 (3,244) 672 (5,026)
-------- -------- -------- -------- -------- --------
Overhead allocations 1,165 2,527 623 1,254 -- (5,569)
-------- -------- -------- -------- -------- --------
Income (loss) before transfer pricing (4,321) (10,282) 19,692 (4,498) 672 543
Transfer pricing 6,257 10,329 (19,819) 3,233 -- --
-------- -------- -------- -------- -------- --------
Net income (loss) $ 1,936 $ 47 $ (127) $ (1,265) $ 672 $ 543
======== ======== ======== ======== ======== ========
FOR THE QUARTER ENDED MARCH 31, 2001(A) (B) OTHER
($ IN THOUSANDS) ELIMINATIONS CONSOLIDATED
(UNAUDITED)
------------ --------------
Net interest income $ -- $ 4,608
Net gain on sale of mortgage loans (4,575) 17,856
Gain on sale of mortgage servicing rights -- (2,365)
Servicing fees -- 8,215
Other income -- 1,700
-------- --------
Total revenues (4,575) 30,014
-------- --------
Salary and employee benefits (4,184) 10,825
Occupancy expense (327) 3,808
Amortization and provision for impairment
of mortgage servicing rights -- 5,215
Provision expense -- 2,540
General and administrative expenses 149 6,033
-------- --------
Total expenses (4,362) 28,421
-------- --------
Income (loss) before income taxes (213) 1,593
Income tax expense (526) (526)
-------- --------
Income (loss) before transition adjustment,
allocations and transfer pricing (739) 1,067
Transition adjustment - FAS 133 (149) (149)
-------- --------
Income (loss) before allocations and
transfer pricing (888) 918
-------- --------
Overhead allocations -- --
-------- --------
Income (loss) before transfer pricing (888) 918
Transfer pricing -- --
-------- --------
Net income (expense) $ (888) $ 918
======== ========
(a) Revenues and expenses have been allocated on a direct basis to the extent
possible.
Management believes that these and all other revenues and expenses have been
allocated to the respective divisions on a reasonable basis.
(b) Includes consolidation eliminations, SFAS No. 91 and No. 133
14
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements of Resource Bancshares Mortgage
Group, Inc. (the Company) (and the notes thereto) and the other information
included or incorporated by reference into the Company's 2000 Annual Report on
Form 10-K. Statements included in this discussion and analysis (or elsewhere in
this quarterly report) which are not statements of historical fact are intended
to be, and are hereby identified as, "forward looking statements" for purposes
of the safe harbor provided by Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve a number of risks and
uncertainties, and that actual results could differ materially from those
indicated by such forward-looking statements. Important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements include, but are not limited to, the following which are described
herein or in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000: (i) interest rate risks, (ii) changes in economic conditions,
(iii) competition, (iv) possible changes in regulations and related matters, (v)
litigation affecting the mortgage banking business, (vi) delinquency and default
risks, (vii) changes in the market for servicing rights, mortgage loans and
lease receivables, (viii) environmental matters, (ix) changes in the demand for
mortgage loans and leases, (x) changes in the value of residual interests in
subprime securitizations, (xi) prepayment risks, (xii) changes in accounting
estimates and (xiii) availability and terms of funding sources and other risks
and uncertainties. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
THE COMPANY
The Company is a 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-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.
15
16
LOAN AND LEASE PRODUCTION
A summary of production by source for the periods indicated is set
forth below:
($ IN THOUSANDS)
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
2001 2000
---------- ----------
Agency-Eligible Loan Production:
Correspondent $1,973,522 $ 914,034
Wholesale 548,226 248,088
---------- ----------
Total Agency-Eligible Loan Production 2,521,748 1,162,122
Subprime Loan Production 188,996 152,484
Lease Production 24,984 24,246
---------- ----------
Total Mortgage Loan and Lease Production $2,735,728 $1,338,852
========== ==========
The Company purchases agency-eligible mortgage loans through its
correspondents and originates loans through its wholesale and subprime
divisions. The Company also has a small-ticket commercial equipment lease
operation. Correspondent operations accounted for 72% and 68% of the Company's
total production for the quarters ended March 31, 2001 and 2000, respectively.
Wholesale and subprime production accounted for 20% and 7%, respectively, of the
Company's production for the three months ended March 31, 2001 and 19% and 11%,
respectively, of the Company's production for the three months ended March 31,
2000. Lease production accounted for 1% and 2% of the Company's total production
for the quarter ended March 31, 2000 and 1999, respectively. A summary of key
information relevant to industry loan production activity is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31,
-------------------------------------
2001 2000
------------ ------------
U. S. 1-4 Family Mortgage Originations Statistics(1):
U. S. 1-4 Family Mortgage Originations $351,000,000 $197,000,000
Adjustable Rate Mortgage Market Share 13.00% 32.00%
Estimated Fixed Rate Mortgage Originations $305,000,000 $134,000,000
Company Information:
Residential Loan Production $ 2,710,744 $ 1,314,606
Estimated Company Market Share 0.77% 0.67%
(1) Source: Mortgage Bankers Association of America, Economics Department.
The Company's total residential mortgage production increased by 106%
to $2.7 billion for the first quarter of 2001 from $1.3 billion for the first
quarter of 2000. Interest rates began falling in December of 2000 and remained
low during the first quarter of 2001 as compared to the first quarter of 2000,
resulting in an increase in overall production levels industry-wide.
16
17
Correspondent Loan Production
The Company purchases closed mortgage loans through its network of
approved correspondent lenders. Correspondents are primarily mortgage lenders,
larger mortgage brokers and smaller savings and loan associations and commercial
banks that have met the Company's approval requirements. The Company continues
to emphasize correspondent loan production as its basic business focus because
of the lower fixed expenses and capital investment required of the Company. A
summary of key information relevant to the Company's correspondent loan
production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER
ENDED MARCH 31,
-------------------------
2001 2000
---------- ----------
Correspondent Loan Production $1,973,522 $ 914,034
Estimated Correspondent Market Share(1) 0.56% 0.46%
Approved Correspondents 935 944
Correspondent Division Expenses $ 8,749 $ 10,567
(1) Source: Mortgage Bankers Association of America, Economics Department.
The Company's correspondent loan production increased by 116% to $2.0
billion for the first quarter of 2001 from $0.9 billion for the first quarter of
2000. Mortgage interest rates were low during the first quarter of 2001 when
compared to the first quarter of 2000, resulting in an increase in overall
production levels industry-wide. The correspondent division expenses decreased
by 17% to $8.7 million for the first quarter of 2001 from $10.6 million for the
first quarter of 2000. This is a result of the Company's continued efforts to
reduce operating expenses through automation and re-engineering of work
processes.
Wholesale Loan Production
The wholesale division receives loan applications through brokers,
underwrites the loans, funds the loans at closing and prepares all closing
documentation. The Company's operating centers handle all shipping and follow-up
procedures on loans. Typically, mortgage is responsible for taking applications
and accumulating the information precedent to the Company's processing and
underwriting of the loans. Although the establishment of regional operating
centers involves the incurrence of fixed expenses associated with maintaining
those offices, wholesale operations also generally provide for higher profit
margins than correspondent loan production. Additionally, each regional
operating center can serve a relatively sizable geographic area by establishing
relationships with large numbers of independent mortgage loan brokers who bear
much of the cost of identifying and interacting directly with loan applicants.
During 2000, the Company completed the process started in 1999 of consolidating
from an 18 branch environment into regional operating centers to improve
operating cost efficiency levels. The Company's nationwide salesforce is now
supported by four such regional operating centers at March 31, 2001. A summary
of key information relevant to the Company's wholesale production activities is
set forth below:
17
18
($ IN THOUSANDS) AT OR FOR THE QUARTER
ENDED MARCH 31,
----------------------
2001 2000
-------- --------
Wholesale Loan Production $548,226 $248,088
Estimated Wholesale Market Share(1) 0.16% 0.13%
Wholesale Division Direct Operating Expenses $ 3,187 $ 2,425
Approved Brokers 4,389 4,173
Regional Operation Centers 4 5
Number of Employees 137 102
(1) Source: Mortgage Bankers Association of America, Economics Department.
Wholesale loan production increased 121% ($300.1 million) from $248.1
million for the first quarter of 2000 to $548.2 million for the first quarter of
2001. Commencing in December 2000, interest rates began to fall. Mortgage
interest rates remained low during the first quarter of 2001 when compared to
the first quarter of 2000, resulting in an increase in overall production levels
industry-wide.
Subprime Loan Production
The Company conducts subprime business through its wholly-owned
subsidiary, Meritage Mortgage Corporation (Meritage). A summary of key
information relevant to the Company's subprime production activities is set
forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER
ENDED MARCH 31,
---------------------
2001 2000
-------- --------
Subprime Loan Production $188,996 $152,484
Estimated Subprime Market Share(1) 0.05% 0.08%
Subprime Division Direct Operating Expenses $ 5,373 $ 8,370
Number of Brokers 3,925 3,529
Number of Employees 275 279
Number of Processing Centers 3 10
Subprime loan production increased by 24% to $189.0 million for the
first quarter of 2001 as compared to $152.5 million during the first quarter of
2000. Subprime direct operating expenses decreased by 36% to $5.4 million for
the first quarter of 2001 as compared to $8.4 million during the first quarter
of 2000. The first quarter of 2000 expenses include a workforce reduction charge
of $2.1 million. During 2000, the Company's salespeople commenced working out of
their homes or executive suites. The Company centralized subprime processing,
underwriting and closing functions into three regional operating centers where a
critical mass of volume could be achieved for better operating efficiency. As a
result, the Company reduced the direct operating expenses of the subprime
division by 129 bps comparing the first quarter of 2001 to the first quarter of
2000, excluding the $2.1 million workforce reduction charge.
18
19
Commercial Mortgage Production
On September 29, 2000, the Company closed on an agreement to sell
substantially all of the assets of its commercial mortgage division, Laureate
Capital Corp., to BB&T Corporation of Winston-Salem, N.C.
Lease Production
The Company's wholly-owned subsidiary, Republic Leasing Company, Inc.
(Republic Leasing), originates and services small-ticket commercial equipment
leases. Substantially all of Republic Leasing's lease receivables are acquired
from independent brokers who operate throughout the continental United States. A
summary of key information relevant to the Company's lease production activities
is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER
ENDED MARCH 31,
---------------------
2001 2000
-------- --------
Lease Production $ 24,984 $ 24,246
Lease Division Direct Operating Expenses $ 2,391 $ 1,533
Number of Brokers 195 207
Number of Employees 67 62
SERVICING
Residential Mortgage Servicing
Residential 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 as required of
the mortgaged premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults and
generally administering mortgage loans.
The Company is somewhat unique in that its strategy is to sell
substantially all of its produced agency-eligible mortgage servicing rights to
other approved servicers. Typically, the Company sells its agency-eligible
mortgage servicing rights within 90 to 180 days of purchase or origination.
However, for strategic reasons, the Company also strives to maintain a servicing
portfolio whose size is determined by reference to the Company's cash operating
costs which, in turn, are largely determined by the size of its loan production
platform.
19
20
A summary of key information relevant to the Company's agency-eligible
loan servicing activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER
ENDED MARCH 31,
-----------------------------
2001 2000
------------ ------------
Underlying Unpaid Principal Balances:
Beginning Balance* $ 8,047,179 $ 7,822,394
Agency-Eligible Loan Production (net of
servicing-released production)* 2,442,313 1,100,297
Net Change in Work-in-Progress* 144,940 77,109
Sales of Servicing* (2,176,537) (1,128,536)
Paid-In-Full Loans* (426,352) (106,809)
Amortization, Curtailments and Other, net* (51,114) (51,439)
------------ ------------
Ending Balance* 7,980,429 7,713,016
Subservicing Ending Balance 1,374,133 1,357,253
------------ ------------
Total Underlying Unpaid Principal Balances $ 9,354,562 $ 9,070,269
============ ============
* These numbers and statistics apply to the Company's owned agency-eligible
servicing portfolio and, therefore, exclude the subservicing portfolio. The
ending balance for the first quarter of 2001 and 2000, respectively, includes
$241,090 and $174,595, respectively, of subprime loans being temporarily
serviced until these loans are sold.
Of the $8.0 billion and $7.7 billion unpaid principal balance at March
31, 2001 and 2000, $5.4 billion and $6.3 billion, respectively, of the related
mortgage servicing right asset is classified as available-for-sale, while $2.6
billion and $1.4 billion, respectively, of the related mortgage servicing right
asset is classified as held-for-sale.
A summary of agency-eligible servicing statistics follows:
($ IN THOUSANDS) AT OR FOR THE QUARTER
ENDED MARCH 31,
-----------------------------
2001 2000
------------ ------------
Average Underlying Unpaid Principal Balances
(including subservicing) $ 9,165,459 $ 9,296,978
Weighted Average Note Rate* 7.49% 7.54%
Weighted Average Servicing Fee* 0.42% 0.44%
Delinquency (30+ days) Including Bankruptcies
and Foreclosures* 2.38% 2.61%
Number of Servicing Division Employees 77 76
* These numbers and statistics apply to the Company's owned agency-eligible
servicing portfolio and, therefore, exclude the subservicing portfolio.
The average underlying unpaid principal balance of agency-eligible
mortgage loans being serviced and subserviced for the first quarter of 2001 as
compared to the first quarter of 2000 decreased $0.1 million, or less than 2%.
The Company generally sells servicing rights related to the agency-eligible
loans it produces within 90 to 180 days of purchase or origination. While
production levels increased during the first quarter of 2001, the average
underlying unpaid
20
21
principal balance of agency-eligible mortgage loans being serviced and
subserviced decreased due to higher prepayments when compared to the first
quarter of 2000.
Lease Servicing
Republic Leasing services leases that are owned by it and also services
leases for investors. A summary of key information relevant to the Company's
lease servicing activity is set forth below:
AT OR FOR THE QUARTER ENDED MARCH 31,
-------------------------------------
($ IN THOUSANDS) 2000 2000
-------- --------
Owned Lease Servicing Portfolio $193,882 $161,576
Serviced For Investors Servicing Portfolio 2,466 10,539
-------- --------
Total Managed Lease Servicing Portfolio $196,348 $172,115
======== ========
Weighted Average Net Yield For Managed Lease Servicing
Portfolio 10.84% 10.63%
Delinquencies (30+ Days) Managed Lease Servicing Portfolio 2.62% 2.82%
Consolidated Coverage Ratios
A summary of the Company's consolidated ratios of servicing fees and
net interest income from owned leases to cash operating expenses net of
amortization and depreciation follows:
($ IN THOUSANDS) AT OR FOR THE QUARTER
ENDED MARCH 31,
---------------------
2001 2000
-------- --------
Total Company Servicing Fees $ 8,215 $ 9,315
Net Interest Income from Owned Leases 2,680 2,127
-------- --------
Total Servicing Fees and Interest from Owned Leases $ 10,895 $ 11,442
-------- --------
Total Company Operating Expenses $ 28,421 $ 31,800
Total Company Amortization and Depreciation 6,436 8,782
-------- --------
Total Company Operating Expenses, Net of
Amortization and Depreciation $ 21,985 $ 23,018
-------- --------
Coverage Ratio 50% 50%
======== ========
The Company's coverage ratios for the first quarter of 2001 and 2000
were 50% and 50%, respectively. The Company has a target level of between 50%
and 80%. In the opinion of the Company's management, market prices for servicing
rights were attractive throughout that period. Opportunistically and as market
conditions permit, management would expect to remain in line with the stated
objective of maintaining a coverage ratio of between 50% and 80%.
21
22
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 2001, COMPARED TO QUARTER ENDED
MARCH 31, 2000
SUMMARY BY OPERATING DIVISION (USING TRADITIONAL PRODUCT GROUPINGS)
Net income (loss) from continuing operations per common share on a
diluted basis for the first quarter of 2001 was $0.05 as compared to ($0.49)
for the first quarter of 2000. Following is a summary of the revenues and
expenses for each of the Company's operating divisions for the quarters ended
March 31, 2001 and 2000, respectively:
22
23
AGENCY-ELIGIBLE
--------------------------------
FOR THE QUARTER ENDED MARCH 31, 2001(a) TOTAL OTHER / CONSO-
($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME LEASING SEGMENTS ELIMINATIONS LIDATED
---------- --------- ----------- -------- ------- -------- ------------ -------
(UNAUDITED)
Net interest income (expense) $ 1,340 $(1,283) $ (10) $ 2,395 $ 2,680 $ 5,122 $ (514) $ 4,608
Net gain (loss) on sale of mortgage loans 13,155 -- -- 4,701 -- 17,856 -- 17,856
Gain on sale of mortgage servicing rights -- (2,365) -- -- -- (2,365) -- (2,365)
Servicing fees -- 8,119 -- -- 96 8,215 -- 8,215
Other income 206 281 900 9 287 1,683 17 1,700
-------- ------- ----- ------- ------- -------- ------- --------
Total revenues 14,701 4,752 890 7,105 3,063 30,511 (497) 30,014
-------- ------- ----- ------- ------- -------- ------- --------
Salary and employee benefits 6,492 775 -- 2,521 768 10,556 269 10,825
Occupancy expense 2,808 290 -- 749 125 3,972 (164) 3,808
Amortization and provision for impairment -- --
of mortgage servicing rights -- 5,215 -- -- -- 5,215 -- 5,215
Provision expense 297 -- 60 1,097 1,086 2,540 -- 2,540
General and administrative expenses 2,339 1,804 31 1,006 412 5,592 441 6,033
-------- ------- ----- ------- ------- -------- ------- --------
Total expenses 11,936 8,084 91 5,373 2,391 27,875 546 28,421
-------- ------- ----- ------- ------- -------- ------- --------
Income (loss) before income taxes 2,765 (3,332) 799 1,732 672 2,636 (1,043) 1,593
Income tax benefit (expense) (1,254) 1,511 (281) (708) (266) (998) 472 (526)
-------- ------- ----- ------- ------- -------- ------- --------
Income (loss) from continuing operations
before transition adjustment 1,511 (1,821) 518 1,024 406 1,638 (571) 1,067
Transition Adjustment - FAS 133 (149) (149)
-------- ------- ----- ------- ------- -------- ------- --------
Net Income (loss) $ 1,511 $(1,821) $ 518 $ 1,024 $ 406 $ 1,638 $ (720) $ 918
======== ======= ===== ======= ======= ======== ======= ========
(a) Revenues and expenses have been allocated on a direct basis to the
extent possible. Management believes that these and all other revenues
and expenses have been allocated to the respective divisions on a
reasonable basis.
AGENCY-ELIGIBLE
--------------------------------
FOR THE QUARTER ENDED MARCH 31, RE- COMMERCIAL TOTAL OTHER / CONSO-
2000(a) ($ IN THOUSANDS) PRODUCTION SERVICING INSURANCE SUBPRIME MORTGAGE LEASING SEGMENTS ELIMINATIONS LIDATED
---------- --------- --------- -------- ---------- -------- -------- ------------ -------
(UNAUDITED)
Net interest income (expense) $ 238 $(1,297) $ (16) $ 3,086 $ -- $2,127 $ 4,138 $ (22) $ 4,116
Net gain on sale of mortgage
loans 6,206 -- -- 2,441 -- -- 8,647 -- 8,647
Gain on sale of mortgage
servicing rights -- 808 -- -- -- -- 808 -- 808
Servicing fees -- 9,365 -- -- -- 99 9,464 (149) 9,315
Mark to market on residual
interests in subprime
securitizations -- -- -- (7,675) -- -- (7,675) -- (7,675)
Other income 120 128 746 893 -- 262 2,149 (93) 2,056
------- ------- ----- ------- ----- ------ -------- ------- --------
Total revenues 6,564 9,004 730 (1,255) -- 2,488 17,531 (264) 17,267
------- ------- ----- ------- ----- ------ -------- ------- --------
Salary and employee benefits 6,888 693 42 5,545 -- 760 13,928 825 14,753
Occupancy expense 2,690 55 -- 629 -- 120 3,494 (174) 3,320
Amortization and provision for
impairment of mortgage
servicing rights -- 6,277 -- -- -- -- 6,277 -- 6,277
Provision expense 900 -- -- 742 -- 359 2,001 -- 2,001
General and administrative expenses 2,514 938 89 1,454 -- 294 5,289 160 5,449
------- ------- ----- ------- ----- ------ -------- ------- --------
Total expenses 12,992 7,963 131 8,370 -- 1,533 30,989 811 31,800
------- ------- ----- ------- ----- ------ -------- ------- --------
Income (loss) before income taxes (6,428) 1,041 599 (9,625) -- 955 (13,458) (1,075) (14,533)
Income tax benefit (expense) 2,383 (386) (210) 3,521 -- (376) 4,932 399 5,331
------- ------- ----- ------- ----- ------ -------- ------- --------
Income (loss) from continuing
operations (4,045) 655 389 (6,104) -- 579 (8,526) (676) (9,202)
Discontinued operations:
Loss on sale of operating assets
of Laureate Capital Corp.
(less applicable income taxes
of $261)
Operating losses of Laureate
Capital Corp. (plus applicable
income tax benefit of $465) -- -- -- -- (765) -- (765) -- (765)
------- ------- ----- ------- ----- ------ -------- ------- --------
Net income (loss) $(4,045) $ 655 $ 389 $(6,104) $(765) $ 579 $ (9,291) $ (676) $ (9,967)
======= ======= ===== ======= ===== ====== ======== ======= ========
(a) Revenues and expenses have been allocated on a direct basis to the
extent possible. Management believes that these and all other revenues
and expenses have been allocated to the respective divisions on a
reasonable basis.
23
24
AGENCY-ELIGIBLE MORTGAGE OPERATIONS
Following is a comparison of the revenues and expenses of the
Company's agency-eligible mortgage production operations.
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
($ IN THOUSANDS) 2001 2000
---------- -----------
Net interest income $ 1,340 $ 238
Net gain on sale of mortgage loans 13,155 6,206
Other income 206 120
---------- -----------
Total production revenue 14,701 6,564
---------- -----------
Salary and employee benefits 6,492 6,888
Occupancy expense 2,808 2,690
Provision expense 297 900
General and administrative expenses 2,339 2,514
---------- -----------
Total production expenses 11,936 12,992
---------- -----------
Net pre-tax production margin $ 2,765 $ (6,428)
---------- -----------
Production $2,521,748 $ 1,162,122
Pooled production and whole loan sales $2,407,233 $ 1,164,906
Total production revenue to pool delivery 61 bps 56 bps
Total production expenses to production 47 bps 112 bps
---------- -----------
Net pre-tax production margin 14 bps (56) bps
========== ===========
Summary
The production revenue to pool delivery ratio increased 5 basis points for
the first quarter of 2001 as compared to the first quarter of 2000. Net gain on
sale of mortgage loans (55 basis points for the first quarter of 2001 versus 53
basis points for the first quarter of 2000) increased primarily due to an
improvement in the competitive environment as a result of reduced mortgage
interest rates and the resulting increase in loan production volumes. Net
interest income increased from 2 basis points in the first quarter of 2000 to 6
basis points in the first quarter of 2001 primarily as a result of a steepening
of the yield curve. The Company's interest income is earned on long-term
mortgages. Its borrowings on its mortgage inventory warehouse lines of credit
are based upon short-term rates. The production expenses to production ratio
decreased 65 basis points from the first quarter of 2000 to the first quarter of
2001. This was primarily due to the further consolidation of regional loan
processing centers during the second half of 2000 and the re-engineering of
workflows within those processing centers. As a consequence of the foregoing,
the Company's net agency-eligible pre-tax production margin increased 70 basis
points from the first quarter of 2000 to the first quarter of 2001.
24
25
Net Interest Income
The following table analyzes net interest income allocated to the
Company's agency-eligible mortgage production activities in terms of rate and
volume variances of the interest spread (the difference between interest rates
earned on loans and mortgage-backed securities and interest rates paid on
interest-bearing sources of funds) for the quarter ended March 31, 2001 and
2000, respectively:
($ IN THOUSANDS)
Variance
Average Volume Average Rate Interest Attributable to
- --------------------------------------- -------------------- -----------------
2001 2000 2001 2000 2001 2000 Variance Rate Volume
- --------------------------------------- ---------------------------------------------------
INTEREST INCOME
---------------
Mortgages Held-for-Sale
and Mortgage-Backed
$521,375 $267,699 7.47% 8.01% Securities $9,734 $ 5,364 $4,379 $(713) $5,083
- --------------------------------------- ---------------------------------------------------
INTEREST EXPENSE
----------------
$296,178 $259,132 5.37% 4.90% Warehouse Line* $3,978 $ 3,168 $ 810 $ 356 $ 454
196,220 -- 5.51% -- Gestation Line 2,704 -- 2,704 -- 2,704
112,813 123,309 5.89% 7.01% Servicing Secured Line 1,660 2,156 (496) (312) (184)
8,264 4,362 4.45% 5.88% Servicing Receivables
Line 92 64 28 (29) 57
7,939 7,685 8.77% 8.61% Other Borrowings 174 165 9 4 5
Facility Fees & Other
Charges 598 904 (306) -- (306)
- --------------------------------------- ---------------------------------------------------
$621,414 $394,488 5.93% 6.57% Total Interest Expense $9,206 $ 6,457 $2,749 $ 19 $2,730
======================================= ===================================================
Net Interest Income
Before Interdivisional
1.54% 1.44% Allocations $ 528 $(1,093) $1,621 $(732) $2,353
=============== ===================================================
Allocation to
Agency-Eligible
Servicing Division 1,283 1,297
Allocation to Other 165 127
Intercompany Net Interest
Expense Included
In Segment (636) (93)
-------------------
Net Interest Income $1,340 $ 238
===================
* The interest-rate yield on the warehouse line is net of the benefit of
escrow deposits.
The 10 basis point increase in the interest-rate spread for the
agency-eligible segment was primarily a result of a steepening of the yield
curve following the short-term rate cuts made by the Federal Reserve at the end
of 2000 and during the first quarter of 2001. The Company's mortgages and
mortgage-backed securities are generally sold and replaced within 30 to 35
days. Accordingly, the Company generally borrows at rates based upon short-term
indices, while its asset yields are primarily based upon long-term mortgage
rates.
25
26
Net Gain on Sale of Agency-Eligible Mortgage Loans
A reconciliation of gain on sale of agency-eligible mortgage loans for
the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED
-------------------------------------
MARCH 31,
-------------------------------------
2001 2000
----------- -----------
Gross proceeds on sales of mortgage loans $ 2,405,172 $ 1,208,385
Initial unadjusted acquisition cost of mortgage loans
sold, net of hedge results 2,409,089 1,209,729
----------- -----------
Unadjusted loss on sale of mortgage loans (3,917) (1,344)
Loan origination and correspondent program administrative fees 4,705 2,280
----------- -----------
Unadjusted aggregate margin 788 936
Acquisition basis allocated to mortgage servicing rights
(SFAS No. 125) 13,908 5,795
Net deferred costs and administrative fees recognized (1,541) (525)
----------- -----------
Net gain on sale of agency-eligible mortgage loans $ 13,155 $ 6,206
=========== ===========
Net gain on sale of agency-eligible mortgage loans increased $6.9
million from $6.2 million for the first quarter of 2000 to $13.2 million for
the first quarter of 2001. The increase is primarily due to an increase in
production and sales volumes and an improvement in margin on sale. Production
and sales volumes improved as a result of a lower interest rates during the
first quarter of 2001 compared with the first quarter of 2000. The margin
increased as a result of an improvement in the competitive environment.
AGENCY-ELIGIBLE REINSURANCE OPERATIONS
The Company has a captive insurance company, MG Reinsurance Company
(MG Reinsurance). MG Reinsurance is licensed as a property and casualty insurer
and operates as a monoline captive insurance company assuming reinsurance for
PMI policies on agency-eligible mortgage loans initially purchased or produced
by the Company. During the first quarter of 2001 and 2000, the Company
recognized premium and investment income of approximately $890 thousand and
$750 million, respectively, that has been included as other income in the
agency-eligible reinsurance segment.
26
27
SUBPRIME MORTGAGE OPERATIONS
Following is a comparison of the revenues and expenses of the
Company's subprime mortgage production operations for the periods indicated:
($ IN THOUSANDS) FOR THE QUARTER ENDED
MARCH 31,
-------------------------------
2001 2000
-------- ---------
Net interest income $ 2,395 $ 3,086
Net gain on sale of mortgage loans 4,701 2,441
Mark to market on residual interests in subprime securitizations -- (7,675)
Other income 9 893
-------- ---------
Total production revenue 7,105 (1,255)
-------- ---------
Salary and employee benefits 2,521 5,545
Occupancy expense 749 629
Provision expense 1,097 742
General and administrative expenses 1,006 1,454
-------- ---------
Total production expenses 5,373 8,370
-------- ---------
Net pre-tax production margin $ 1,732 $ (9,625)
-------- ---------
Production $188,996 $ 152,484
Whole loan sales and securitizations $211,632 $ 135,455
Total production revenue to whole loan sales and securitizations 336 bps (93) bps
Total production expenses to production 284 bps 549 bps
-------- ---------
Net pre-tax production margin 52 bps (642) bps
======== =========
Summary
During the first quarter of 2001 the subprime unit generated a 52 bps
net pre-tax production margin, a 694 bps improvement over the same period of
2000 (558 bps net of a one-time $2.1 million charge related to the Company's
reorganization and reengineering in 2000). The $8.4 million increase in
production revenues is attributable to the absence of the $7.7 million
mark-to-market of the residual interest in subprime securitizations, which were
sold for cash during the third quarter of 2000, and the $2.3 million increase
in gain on sale of mortgage loans due to the 56% increase in whole loan sales.
Due to the reorganization and reengineering efforts completed in 2000,
total production expenses to production improved by 265 bps (129 bps or $0.9
million net of the $2.1 million reorganization charge). The improvement is
attributable to the $0.9 million decrease in salary and wages net of the
reorganization charge and the $0.4 million decrease in general and
administrative expenses. These savings were slightly offset by the $0.1 million
increase in occupancy expense and the $0.4 million increase in provision
expense.
27
28
Net Interest Income
The following table analyzes net interest income allocated to the
Company's subprime mortgage production activities in terms of rate and volume
variances of the interest spread (the difference between interest rates earned
on loans and residual certificates and interest rates paid on interest-bearing
sources of funds) for the three months ended March 31, 2001 and 2000,
respectively.
($ IN THOUSANDS)
Variance
Average Volume Average Rate Interest Attributable to
- --------------------------------------- -------------------- -----------------
2001 2000 2001 2000 2001 2000 Variance Rate Volume
- --------------------------------------- ---------------------------------------------------
$152,902 $139,737 10.99% 10.48% Mortgages Held-for-Sale $4,202 $3,663 $ 539 $195 $ 344
-- 52,901 -- 14.60% Residual Certificates -- 1,931 (1,931) -- (1,931)
- --------------------------------------- ---------------------------------------------------
$152,902 $192,638 -- -- Total Interest Income $4,202 $5,594 $(1,392) $195 $(1,587)
- ---------------------------------------
$152,296 $135,963 7.12% 7.25% Total Interest Expense $2,712 $2,456 $ 256 $(39) $ 295
- --------------------------------------- ---------------------------------------------------
3.90% 4.37% Net Interest Income $1,490 $3,138 $(1,648) $234 $(1,882)
=============== ============================
Intercompany Net
Interest Included
In Segment 905 (52)
------------------
Net Interest Income $2,395 $3,086
==================
Net interest income from subprime products decreased $0.7 million for
the quarter ended March 31, 2001 compared to the quarter ended March 31, 2000 as
a result of the following: (1) during the fourth quarter of 2000, the Company
sold its residual certificates resulting in a reduction in interest income of
$1.9 million, (2) intercompany net interest increased $1.0 million, and (3) net
interest on mortgages held-for-sale decreased $0.3 million due primarily to a
drop in the average volume of loans held-for-sale during the quarter ended March
31, 2001.
Net Gain on Sale and Securitization of Subprime Mortgage Loans
The Company sold subprime mortgage loans for cash on a whole loan
basis during the first quarter of 2001 and 2000. Whole loans are generally sold
without recourse to third parties with the gain or loss being calculated based
on the difference between the carrying value of the loans sold and the gross
proceeds received from the purchaser less expenses. Generally, no interest in
these loans is retained by the Company.
28
29
A reconciliation of the gain on subprime mortgage whole loan sales for
the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED
MARCH 31,
---------------------------------
2001 2000
--------- ---------
Gross proceeds on whole loan sales of subprime mortgage loans $ 220,169 $ 139,435
Initial acquisition cost of subprime mortgage loans sold, net of fees 211,632 135,455
--------- ---------
Unadjusted gain on whole loan sales of subprime mortgage loans 8,537 3,980
Net deferred costs and administrative fees recognized (3,836) (1,539)
--------- ---------
Net gain on whole loan sales of subprime mortgage loans $ 4,701 $ 2,441
========= =========
The net gain on whole loan sales of subprime mortgage loans increased
$2.3 million from $2.4 million for the first quarter of 2000 to $4.7 million for
the first quarter of 2001. Also, in accordance with Statement of Financial
Accounting Standard No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases" (SFAS No. 91) the Company reduced its net gain on whole loan sales of
subprime mortgage loans by $3.8 million in the first quarter of 2001 as compared
to $1.5 million in the first quarter of 2000.
There were no securitization transactions during the first quarter of
2001 or 2000.
Mark-to-Market on Residual Interests in Subprime Securitizations
The Company historically has retained residual certificates in
connection with the securitization of subprime loans. For both fiscal 2000 and
the first quarter of 2001, the Company executed no securitization transactions
of subprime loans. For the quarter ended March 31, 2000, the mark-to-market loss
on residuals was approximately $7.7 million. Over the remaining quarters of
2000, the Company further marked down its residual interests in prior subprime
securitizations as a result of signing a definitive agreement to sell all of the
residual interests remaining on its balance sheet at September 30, 2000. The
Company closed on that sale during the fourth quarter of 2000 and currently has
not residuals on the balance sheet.
29
30
AGENCY-ELIGIBLE MORTGAGE SERVICING
Following is a comparison of the revenues and expenses of the
Company's agency-eligible mortgage servicing operations:
($ IN THOUSANDS) FOR THE QUARTER ENDED
-----------------------------------
MARCH 31,
-----------------------------------
2001 2000
----------- -----------
Net interest expense $ (1,283) $ (1,297)
Loan servicing fees 8,119 9,365
Other income 281 128
----------- -----------
Servicing revenues 7,117 8,196
----------- -----------
Salary and employee benefits 775 693
Occupancy expense 290 55
Amortization and provision for impairment of mortgage
servicing rights 5,215 6,277
General and administrative expenses 1,804 938
----------- -----------
Total loan servicing expenses 8,084 7,963
----------- -----------
Net pre-tax servicing margin (967) 233
Gain (Loss) on sale of mortgage servicing rights (2,365) 808
----------- -----------
Net pre-tax servicing contribution $ (3,332) $ 1,041
=========== ===========
Average servicing portfolio $ 8,088,582 $ 8,041,986
Servicing sold $ 2,176,537 $ 1,128,536
Net pre-tax servicing margin to average servicing portfolio (5) bps 1 bps
Gain (Loss) on sale of servicing to servicing sold (11) bps 7 bps
Summary
The $3.2 million decline in gain on sale of mortgage servicing rights
as compared to the first quarter of 2000 is due to the rapid decline in interest
rates during the first quarter of 2001 which triggered the Company's fourth
quarter servicing production to prepay at an unprecedented speed even before it
could be transferred to the takeout buyers. The $0.9 million increase in general
and administrative expenses results from lost interest from curtailments on
prepaid loans. Loan servicing fees declined to $8.1 million for the first
quarter of 2001, compared to $9.4 million for the first quarter of 2000, a
decrease of 13%, primarily due to a drop in weighted average servicing fees.
Management regularly assesses market prepay trends and adjusts
amortization accordingly. Management believes that the value of the Company's
mortgage servicing rights are reasonable in light of current market conditions.
However, there can be no guarantee that market conditions will not change such
that mortgage servicing rights valuations will require additional amortization
or impairment charges.
30
31
Net Interest Expense
The net interest expense for the first quarter of 2001 and the first
quarter of 2000 is composed of benefits from escrow accounts of $1.9 million
and $1.8 million, respectively, that is offset by $3.2 million and $3.1
million, respectively, in interest expense.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage
servicing rights for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED
-------------------------------------
MARCH 31,
-------------------------------------
2001 2000
----------- -----------
Underlying unpaid principal balances of agency-eligible
mortgage loans on which servicing rights were
sold during the period $ 2,176,537 $ 1,128,536
=========== ===========
Gross proceeds from sales of mortgage servicing rights $ 58,692 $ 31,929
Initial acquisition basis, net of amortization and hedge results 49,654 25,528
----------- -----------
Unadjusted gain on sale of mortgage servicing rights 9,038 6,401
Acquisition basis allocated from mortgage loans, net of
amortization (SFAS No. 125) (11,403) (5,593)
----------- -----------
Gain (loss) on sale of mortgage servicing rights $ (2,365) $ 808
=========== ===========
(Loss) gain on sale of mortgage servicing rights decreased $3.2 million
from $0.8 million for the first quarter of 2000 to $(2.4) million for the first
quarter of 2001. The decrease in the gain on sale of mortgage servicing rights
is primarily attributable the rapid decline in interest rates as described
previously in the agency-eligible mortgage servicing operations summary.
COMMERCIAL MORTGAGE OPERATIONS
On September 29, 2000, the Company closed on an agreement to sell
substantially all of the assets of Laureate Capital Corp. to BB&T Corporation of
Winston-Salem, N.C.
31
32
LEASING OPERATIONS
Following is a summary of the revenues and expenses of the Company's
small-ticket equipment leasing operations for the periods indicated:
($ IN THOUSANDS) FOR THE QUARTER ENDED
------------------------------
MARCH 31,
------------------------------
2001 2000
-------- --------
Net interest income $ 2,680 $ 2,127
Other income 287 262
-------- --------
Leasing production revenue 2,967 2,389
-------- --------
Salary and employee benefits 768 760
Occupancy expense 125 120
Provision expense 1,086 359
General and administrative expenses 412 294
-------- --------
Total lease operating expenses 2,391 1,533
2,391
Net pre-tax leasing production margin 576 856
Servicing fees 96 99
-------- --------
Net pre-tax leasing margin $ 672 $ 955
-------- --------
Average owned leasing portfolio $191,712 $156,209
Average serviced leasing portfolio 3,091 12,373
-------- --------
Average managed leasing portfolio $194,803 $168,582
======== ========
Leasing production revenue to average owned portfolio 619 bps 612 bps
Leasing operating expenses to average owned portfolio 499 bps 393 bps
-------- --------
Net pre-tax leasing production margin 120 bps 219 bps
======== ========
Servicing fees to average serviced leasing portfolio 1,242 bps 320 bps
======== ========
The 24% increase in leasing production revenue for the first quarter of
2001 as compared to the first quarter of 2000 is primarily due to the 23%
increase in the average owned leasing portfolio which is due to the policy of
retaining originated leases on the balance sheet. The net pre-tax leasing
production margin decreased 283 bps in the first quarter of 2001 as compared to
the first quarter of 2000 primarily as a result of the increased provision
expenses associated with higher delinquencies as the small business sectors are
beginning to exhibit signs of stress. Substantially all of the Company's lease
receivables are acquired from independent brokers who operate throughout the
continental United States and referrals from independent banks. The Company has
made an effort to increase the owned portfolio.
Net Interest Income
Net interest income for the first quarter of 2001 was $2.7 million as
compared to $2.1 million for the first quarter of 2000. This is equivalent to
an annualized net interest margin of 3.80% and 4.44% for the first quarter of
2001 and 2000, respectively, based upon average lease receivables owned of
$191.7 million and $156.2 million, respectively, and average debt outstanding
of $164.1 and $132.3 million, respectively.
32
33
UNUSUAL ITEMS
During the first quarter of 2001, the agency-eligible production
segment benefited from $700 thousand of over accrued employee benefit expense.
This one-time benefit was due to the Company's self-insured health plan
experiencing lower than expected claims following the reduction in workforce
completed in 2000.
During the fourth quarter of 1999, the Company initiated a workforce
reduction. The workforce reduction became necessary as the Company adapted to a
smaller overall residential mortgage market and intensely competitive pricing
conditions. In the first quarter of 2000, the Company reconsidered its current
positioning in the market and its corporate, management and leadership
structures. As a result, the Company began reorganizing around primary business
processes (production/sales, customer fulfillment, servicing and portfolio
management) and thus made certain changes in organization at its
agency-eligible and subprime units. In connection with the planned
reorganization, the Company made certain changes in its senior management team
and closed certain regional processing offices. The expense related to these
changes was incurred during 2000. The impact of the expense in the first
quarter of 2000 related to the workforce reduction and the planned
reorganization is summarized below by financial statement component and
operating division.
($ in thousands) Agency-Eligible Commercial
Production Subprime Mortgage Consolidated
--------------- -------- ---------- ------------
Salary and employee benefits $ 136 $ 2,075 $ 191 $ 2,402
Occupancy expense 171 -- -- 171
----- ------- ----- -------
Net pre-tax impact 307 2,075 191 2,573
Estimated allocable income tax benefit (113) (763) (70) (946)
----- ------- ----- -------
Net after-tax impact $ 194 $ 1,312 $ 121 $ 1,627
===== ======= ===== =======
33
34
SUPPLEMENTAL RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 2001
SUMMARY BY OPERATING DIVISION (USING SEGMENTS DEFINED BY BUSINESS PROCESSES)
Net income (loss) from continuing operations per common share on a
diluted basis for the first quarter of 2001 was $0.05 as compared to ($0.49) for
the first quarter of 2000. Following is a summary of the revenues and expenses
for each of the Company's operating divisions for the quarters ended March 31,
2001 using the Company's new net value added segment reporting:
34
35
CUSTOMER
FOR THE QUARTER ENDED MARCH 31, 2001 (a) ($ IN THOUSANDS) SALES FULFILLMENT PORTFOLIO SERVICING LEASING
(UNAUDITED)
------- ----------- --------- --------- -------
Net interest income $ -- $ -- $ 2,033 $ -- $2,680
Net gain on sale of mortgage loans 1,912 (273) 20,875 (78) --
Gain on sale of mortgage servicing rights -- -- (2,365) -- --
Servicing fees -- -- 7,658 461 96
Other income 225 6 1,006 176 287
------- -------- -------- ------- ------
Total revenues 2,137 (267) 29,207 559 3,063
------- -------- -------- ------- ------
Salary and employee benefits 4,306 4,817 1,402 1,418 768
Occupancy expense 297 1,461 217 557 125
Amortization and provision for impairment
of mortgage servicing rights -- -- 5,215 -- --
Provision expense -- -- 1,454 -- 1,086
General and administrative expenses 690 1,210 604 1,828 412
------- -------- -------- ------- ------
Total expenses 5,293 7,488 8,892 3,803 2,391
------- -------- -------- ------- ------
Income (loss) before income taxes (3,156) (7,755) 20,315 (3,244) 672
Income tax expense
------- -------- -------- ------- ------
Income (loss) before transition adjustment, allocations and transfer pricing (3,156) (7,755) 20,315 (3,244) 672
Transition adjustment - FAS 133 -- -- -- -- --
------- -------- -------- ------- ------
Income (loss) before allocations and transfer pricing (3,156) (7,755) 20,315 (3,244) 672
------- -------- -------- ------- ------
Overhead allocations 1,165 2,527 623 1,254 --
------- -------- -------- ------- ------
Income (loss) before transfer pricing (4,321) (10,282) 19,692 (4,498) 672
Transfer pricing 6,257 10,329 (19,819) 3,233 --
------- -------- -------- ------- ------
Net income (expense) $ 1,936 $ 47 $ (127) $(1,265) $ 672
======= ======== ======== ======= ======
(b) OTHER/
FOR THE QUARTER ENDED MARCH 31, 2001 (A) ($ IN THOUSANDS) ADMINISTRATION ELIMINATIONS CONSOLIDATED
(UNAUDITED)
-------------- ------------ ------------
Net interest income $ (105) $ -- $ 4,608
Net gain on sale of mortgage loans (5) (4,575) 17,856
Gain on sale of mortgage servicing rights -- -- (2,365)
Servicing fees -- -- 8,215
Other income -- -- 1,700
------- ------- --------
Total revenues (110) (4,575) 30,014
------- ------- --------
Salary and employee benefits 2,298 (4,184) 10,825
Occupancy expense 1,478 (327) 3,808
Amortization and provision for impairment
of mortgage servicing rights -- -- 5,215
Provision expense -- -- 2,540
General and administrative expenses 1,140 149 6,033
------- ------- --------
Total expenses 4,916 (4,362) 28,421
------- ------- --------
Income (loss) before income taxes (5,026) (213) 1,593
Income tax expense (526) (526)
------- ------- --------
Income (loss) before transition adjustment, allocations and transfer pricing (5,026) (739) 1,067
Transition adjustment - FAS 133 -- (149) (149)
------- ------- --------
Income (loss) before allocations and transfer pricing (5,026) (888) 918
------- ------- --------
Overhead allocations (5,569) -- --
------- ------- --------
Income (loss) before transfer pricing 543 (888) 918
Transfer pricing -- -- --
------- ------- --------
Net income (expense) $ 543 $ (888) $ 918
======= ======= ========
(a) Revenues and expenses have been allocated on a direct basis to the extent
possible. Management believes that these and all other revenues and expenses
have been allocated to the respective divisions on a reasonable basis.
(b) Includes consolidation eliminations, SFAS No. 91 and No. 133
35
36
REVENUE AND EXPENSE BY SEGMENT
The following table presents the percentage of revenues and expenses
contributed on a direct and NVA (transfer pricing basis) by each of the
Company's operating segments.
For the quarter ended March 31, 2001 DIRECT NVA
($ in thousands)
(unaudited)
REVENUES
Sales $ 2,137 7% $ 8,394 28%
Customer Fulfillment (267) -1% 10,062 33%
Portfolio 29,207 97% 9,388 31%
Servicing 559 2% 3,792 13%
Leasing 3,063 10% 3,063 10%
Administration (110) 0% (110) 0%
Other/Eliminations (4,575) -15% (4,575) -15%
-------- ---- -------- ---
Total revenues 30,014 100% 30,014 100%
EXPENSES
Sales 5,293 19% 6,458 23%
Customer Fulfillment 7,488 26% 10,015 35%
Portfolio 8,892 32% 9,515 33%
Servicing 3,803 13% 5,057 18%
Leasing 2,391 8% 2,391 8%
Administration 4,916 17% (653) -2%
Other/Eliminations (4,362) -15% (4,362) -15%
-------- ---- -------- ---
Total expenses 28,421 100% 28,421 100%
PRE-TAX INCOME (LOSS)
Sales (3,156) -198% 1,936 121%
Customer Fulfillment (7,755) -486% 47 3%
Portfolio 20,315 1275% (127) -8%
Servicing (3,244) -204% (1,265) -79%
Leasing 672 42% 672 42%
Administration (5,026) -316% 543 34%
Other/Eliminations (213) -13% (213) -13%
-------- ---- -------- ---
Total pre-tax income (loss) $ 1,593 100% $ 1,593 100%
======== ==== ======== ===
SALES
The sales segment includes the sales forces of both the agency-eligible
and subprime units. Under the Company's net value added (NVA) accounting, Sales
is responsible for establishing and maintaining relationships with
correspondents and brokers. The Customer Fulfillment segment processes loans on
behalf of Sales, and Portfolio funds the closing or acquisition of the loans.
Customer Fulfillment charges Sales fees for specific services based upon loan
and channel type. The transfer pricing between Sales and Portfolio is based on
Portfolio's budgeted margin on sale of loans and budgeted expenses per loan
times the actual number of loans produced. The following is a summary of Sale's
revenues and expenses and key operating statistics for the quarter ended March
31, 2001:
36
37
SALES
($ in thousands
except per unit)
(unaudited)
Direct revenues $ 2,137
Transfer pricing
6,257
----------
Total revenues 8,394
Direct expenses 5,293
Overhead expense allocation 1,165
----------
Total expenses 6,458
----------
Income $ 1,936
==========
Production $2,710,744
Units 20,009
Revenue per unit $ 420
Expenses per unit 323
----------
Net pre-tax sales margin $ 97
==========
Revenue per unit 31 bps
Expense per unit 24 bps
----------
Net pre-tax sales margin 7 bps
==========
FTEs 137
Units per FTE 146
Summary
As presented previously in the revenue and expense by segment table,
the Sales segment contributed 7% of direct revenues and 28% of NVA revenues.
Sales contributed 19% and 23% of direct expenses and NVA expenses, respectively.
The direct revenue of Sales is comprised of net fees less sales incentives. The
Sales segment is responsible for the pricing of fees and sales incentives, which
are included in gain on sale of mortgage loans as presented in the Company's
consolidated statement of income. As of March 31, 2001 there were 47 and 90
employees related to agency-eligible and subprime sales, respectively.
CUSTOMER FULFILLMENT
The Customer Fulfillment segment processes, underwrites, closes and
performs certain post-closing functions on behalf of Sales. Customer Fulfillment
charges Sales fees for specific services based upon loan and channel type. The
following is a summary of Customer Fulfillment's revenues and expenses and key
operating statistics for the quarter ended March 31, 2001:
37
38
CUSTOMER FULFILLMENT
($ in thousands
except per unit)
(unaudited)
Direct revenues $ (267)
Transfer pricing 10,329
------------
Total revenues 10,062
Direct expenses 7,488
Overhead expense allocation 2,527
------------
Total expenses 10,015
------------
Income (loss) $ 47
============
Production $ 2,710,744
Units 20,009
Revenue per unit $ 503
Expenses per unit 501
------------
Net pre-tax customer fulfillment margin $ 2
============
Revenue per unit 37 bps
Expense per unit 37 bps
------------
Net pre-tax customer fulfillment margin 0 bps
============
FTEs
374
Units per FTE
54
Summary
As presented in the revenue and expense by segment table, the Customer
Fulfillment segment contributed (-1%) of direct revenues and 34% of NVA
revenues. Customer Fulfillment contributed 26% and 35% of direct expenses and
NVA expenses, respectively. The Customer Fulfillment segment does not have any
actual direct revenues. It is debited with certain acquisition expenses which
are classified in gain on sale of mortgage loans in the revenue section of the
consolidated statement of income. As of March 31, 2001 there were 272 and 102
Customer fulfillment employees related to agency-eligible and subprime,
respectively.
PORTFOLIO
Under the Company's NVA accounting, the Portfolio segment is assumed to
own the Company's balance sheet and is responsible for managing the pipeline and
inventory of loans, the liquidity of the Company, and the servicing portfolio as
well as performance of secondary marketing activities. Portfolio funds loans on
behalf of Sales and sells or securitizes loans for delivery into the secondary
market in the form of whole loans, mortgage-backed securities (MBS) and
servicing rights. In addition to owning loans, MBSs and servicing rights
held-for-sale, Portfolio owns servicing rights held-for-investment. The
Servicing segment subservices on behalf of the Portfolio segment. The following
is a summary of Portfolio's revenues and expenses and key operating statistics
for the quarter ended March 31, 2001:
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SECONDARY SERVICING TOTAL
PORTFOLIO MARKETING ASSETS PORTFOLIO
($ in thousands except per unit) ----------- ----------- ---------
(unaudited)
Direct revenues $ 25,092 $ 4,115 $ 29,207
Transfer pricing (17,861) (1,958) (19,819)
----------- ----------- --------
Total revenues 7,231 2,157 9,388
Direct expenses 3,523 5,369 8,892
Overhead expense allocation 623 623
----------- ----------- --------
Total expenses 4,146 5,369 9,515
----------- ----------- --------
Income (loss) $ 3,086 $ (3,212) $ (127)
=========== =========== ========
Production and average owned servicing $ 2,710,744 $ 8,088,582
portfolio
Production and average owned servicing
portfolio units 20,009 75,488
Revenue per unit $ 361 $ 29
Expenses per unit 207 71
----------- -----------
Net pre-tax portfolio margin $ 154 $ (43)
=========== ===========
Revenue per unit 27 bps 11 bps
Expense per unit 15 bps 27 bps
----------- -----------
Net pre-tax portfolio margin 12 bps (16) bps
=========== ===========
FTEs 81 N/a
Units per FTE 247 N/a
Summary
As presented in the revenue and expense by segment table, the Portfolio
segment contributed 97% of direct revenues and 31% of NVA revenues.
The secondary marketing unit contributed 24% of total NVA revenues and
15% of total NVA expenses. The secondary marketing unit is responsible for
managing the pipeline and inventory of loans, the liquidity of the Company and
selling/securitizing loans for delivery into the secondary markets. Secondary
marketing's major direct revenues are net interest income and gain on sale of
mortgage loans. Transfer pricing for secondary marketing is calculated using the
actual number of loans it "purchases" from Sales times the budgeted margin and
budgeted expenses per loan. Secondary marketing's direct expenses include
provision expense. The segment's first quarter pre-tax income of $3.1 million is
primarily attributable to the actual margin exceeding the budgeted margin due to
an improved competitive environment during the first quarter of 2001. As of
March 31, 2001 there were 81 Portfolio employees.
The servicing assets unit contributed 7% of total NVA revenues and 18%
of total NVA expenses. The servicing assets unit is responsible for the
management the Company's owned servicing portfolio. Its direct revenues are from
the gain (loss) on sale of mortgage servicing rights and servicing fees
collected. Direct expenses are mainly amortization and impairment expense ($5.2
million of the $5.4 million). The first quarter loss of $3.2 million is mainly
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attributable to the $2.4 million loss on the sale of mortgage servicing rights
relating to high pre-payments on servicing held-for-sale that was sold during
the quarter.
SERVICING
The Servicing segment subservices loans on behalf of the Portfolio
segment and external subservicing customers. The Servicing segment also assists
the Portfolio segment in transferring loans and servicing to end investors and
obtains trailing documentation necessary for final pool certification (these
functions are referred to as "Portfolio Support"). Servicing charges Portfolio
fees for services rendered based upon the number of loans set-up, serviced and
transferred during the month. Fees for trailing documentation follow-up services
are charged on a per loan basis and are recognized by Servicing using the "Rule
of 78th" method over a 12 month period of time, approximating the timing of the
services performed. The following is a summary of Servicing's revenues and
expenses and key operating statistics for the quarter ended March 31, 2001:
SERVICING
($ in thousands except per unit)
(unaudited)
Direct revenues $ 559
Transfer pricing 3,233
-----------
Total revenues 3,792
Direct expenses 3,803
Overhead expense allocation 1,254
-----------
Total expenses 5,057
-----------
(Loss) $ (1,265)
===========
Production $ 2,710,744
Units 20,009
Revenue per unit $ 190
Expenses per unit 253
-----------
Net pre-tax servicing margin $ (63)
===========
Bps of revenue per unit 14 bps
Bps of expense per unit 19 bps
-----------
Net pre-tax servicing margin (5) bps
===========
FTEs 156
Units per FTE 128
Summary
As presented in the revenue and expense by segment table, the Servicing
segment contributed 2% of direct revenues and 13% of NVA revenues. Servicing
contributed 13% and 18% of direct expenses and NVA expenses, respectively. The
Servicing segment's direct revenues are comprised of miscellaneous servicing
fees, third party subservicing fees and other ancillary income related to
servicing. One of the larger items included in Servicing's direct expenses is
lost interest from curtailments relating to loans that prepay in full. This
expense aggregated $978 thousand for the quarter ended March 31, 2001, relating
to the high volume of loans prepaying in the lower interest rate environment.
Servicing had 156 employees as of March 31, 2001.
LEASING OPERATIONS
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See page 33 in the results of operations for the discussion of
Leasing's operating statistics. Leasing is not included in the new NVA
accounting methodology, and only direct revenue and expenses are presented.
ADMINISTRATION
Administration includes all corporate functions and support areas
including administrative services, information systems, finance, human
resources, legal and internal audit services. Administration's expenses are
allocated to Sales, Customer Fulfillment, Portfolio and Servicing based upon
budgeted administration expenses divided by budgeted headcount times the actual
headcount of those four segments.
ADMINISTRATION
(unaudited)
Direct revenues $ (110)
-----------
Total revenues (110)
Direct expenses 4,916
Overhead expense allocation (5,569)
-----------
Total expenses (653)
-----------
Income $ 543
===========
Production $ 2,710,744
Units 20,009
Direct expenses per unit $ 246
Direct expense per unit 18 bps
Summary
As described above, the Administration segment is credited or debited
with revenues and expenses directly related to corporate and support area
functions. These costs are then allocated to the business segments based on
headcount. The per headcount rates that are charged to the business segments are
set each quarter based on forecasted expenses and headcount. Positive pre-tax
income for the administration segment may demonstrate: a) Administration's
ability to manage costs below budgeted levels and/or b) the actual headcount of
the business segments exceeding the budgeted headcount, resulting in an
over-absorption of costs by the business segments. During the quarter ended
March 31, 2001, the administrative departments benefited from higher business
segment headcounts, due to the higher loan production volumes, which resulted in
an over-absorption of costs.
To control their own costs, the business segments can attempt to
negotiate lower per headcount rates or to control their respective employee
headcount, which reduces their respective allocations. Both methods of cost
control create pressure upon the administrative segment to further control its
costs. Allocation of overhead expenses based on headcount serves to promote the
automation of work processes throughout the organization.
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OTHER/ELIMINATION
Other/Elimination includes the impact SFAS No. 91 and No. 133,
intercompany eliminations, amortization of goodwill, taxes and the transition
adjustment due to the implementation of SFAS No.133.
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FINANCIAL CONDITION
During the first quarter of 2001, the Company experienced a 58%
increase in the volume of production originated and acquired compared to the
fourth quarter of 2000. Production increased to $2.7 billion during the first
quarter of 2001 from $1.7 billion in the fourth quarter of 2000. The March 31,
2001, locked residential mortgage application pipeline (mortgage loans not yet
closed but for which the interest rate has been locked) was approximately $1.3
billion and the application pipeline (mortgage loans for which the interest rate
has not yet been locked) was approximately $0.7 billion. This compares to a
locked mortgage application pipeline of $0.6 billion and a $0.4 billion
application pipeline at December 31, 2000.
Mortgage loans held-for-sale and mortgage-backed securities totaled
$0.6 billion at March 31, 2001 and $0.5 billion at December 31, 2000. The
Company's servicing portfolio (exclusive of loans serviced under subservicing
agreements) decreased to $7.9 billion at March 31, 2001, from $8.0 billion at
December 31, 2000, a decrease of 1%.
Short-term borrowings, which are the Company's primary source of funds,
totaled $0.9 billion at March 31, 2001, compared to $0.8 billion at December 31,
2000, an increase of 8%. At March 31, 2001 and December 31, 2000, there were
$6.1 million in long-term borrowings. Other liabilities totaled $104.5 million
as of March 31, 2001, compared to the December 31, 2000 balance of $91.0
million, an increase of $13.5 million, or 15%.
The Company continues to face the same challenges as other
production-oriented companies within the mortgage banking industry and as such
is not immune from significant volume declines precipitated by competitive
pricing, a rise in interest rates and other factors beyond the Company's
control. These and other important factors that could cause actual results to
differ materially from those reported are listed under the Risk Factors section
in the Company's 2000 annual report on Form 10K.
LIQUIDITY AND CAPITAL RESOURCES
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
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period of two consecutive fiscal quarters (the interest rate coverage ratio).
The Company also is required 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 March 31, 2001. 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 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 Prime Funding Company 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. 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 Corporation ("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
August 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.
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45
The Company has been repurchasing its stock pursuant to Board authority
since March 1998, and, as of March 31, 2001, the Company had remaining authority
to repurchase up to $2.8 million of the Company's common stock in either open
market transactions or in private or block trades. Decisions regarding the
amount and timing of repurchases will be made by management based upon market
conditions and other factors. Shares repurchased are maintained in the Company's
treasury account and are not retired. At March 31, 2001, there were 7,237,571
shares held in the Company's treasury account at an average cost of $7.22 per
share.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133. SFAS No. 133, as amended by SFAS No.'s 137 and 138, establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (2)
a hedge of the exposure to variable cash flows of a forecasted transaction or
(3) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security or a
foreign-currency denominated forecasted transaction. SFAS No. 133 is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company implemented SFAS No. 133 on January 1, 2001 and recorded certain
transition adjustments in the manner prescribed in SFAS No. 133.
Under SFAS No. 133, rate lock commitments given to borrowers,
correspondents or brokers are considered to be derivatives. The Derivative
Implementation Group (DIG) of the FASB has not yet made a final determination as
to how mortgage companies should value rate locks. Pending ultimate resolution
of this issue by the FASB, the Company has tentatively implemented SFAS No. 133
assuming that the value of such derivatives is zero at rate lock date.
Commencing January 1, 2001, the Company records on its balance sheet any changes
in value from the date of rate lock to the balance sheet date.
The Company hedges the interest rate risk inherent in rate lock
commitments with mandatory delivery commitments to sell loans and, to a lesser
extent, with options and futures transactions. Mandatory delivery commitments,
options and futures are considered to be derivatives under SFAS No. 133.
Accordingly, commencing January 1, 2001, these instruments are marked-to-market
at the balance sheet date, with the result being reported as an asset or
liability in the balance sheet.
Certain of the Company's derivatives no longer needed for hedging rate
locks are "paired-off" with an opposite position in the same derivative
security. Under SFAS No. 133, both positions
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are derivatives that are marked-to-market and the result carried as assets or
liabilities in the balance sheet until settlement date of the respective trades.
The Company hedges the future cash flows from sale of its inventory of
closed loans held-for-sale with mandatory delivery commitments to sell loans.
Mandatory delivery commitments are considered to be derivatives under SFAS No.
133 and are to be carried as an asset or liability on the balance sheet. Closed
loans are not derivatives and are carried at the lower of cost or market
("LOCOM") on the Company's balance sheet. Under SFAS No. 133, to the extent that
the Company establishes statistical correlation between changes in the value of
the hedge with changes in the value of the closed loans held-for-sale, it can
mark those derivatives to market and record the after tax impact of that in the
"Other Comprehensive Income" (OCI) caption in the equity section of the balance
sheet. If the LOCOM valuation of closed loans is a net loss, the Company records
a charge to earnings. Simultaneously, the Company takes out of OCI a like amount
and records it in the income statement as an offset to the LOCOM adjustment.
The Company hedges the interest rate risk (prepayment risk) inherent in
its servicing rights assets with various instruments including interest rate
floors, interest rate corridors, interest rate swaps, interest rate swaptions,
CPC call options, PO swaps, treasury futures and agency futures contracts. Each
of these instruments is considered to be a derivative under SFAS No. 133 and
must be marked-to-market, with the value being reported as an asset or a
liability in the balance sheet. Under SFAS No. 133 and the guidance provided by
the DIG, the Company may elect, at its option, hedge accounting treatment for
its servicing rights. If changes in the value of the servicing rights and the
hedges meet certain correlation criteria, changes in the fair value of the
servicing rights may be offset in the income statement by changes in the fair
value of the hedging instrument. The Company may elect not to qualify for hedge
accounting treatment. Under SFAS No. 133, the hedges must be marked-to-market
through the income statement. In contrast, servicing rights are LOCOM assets
under GAAP. When values go down, the impact is recorded through the income
statement. When values go up, the increase may be recorded in earnings only to
the extent of impairment reserves established by previous writedowns of
servicing under SFAS No. 125. The election for hedge treatment must be made at
the beginning of the accounting period. The Company did not elect hedge
accounting treatment related to servicing rights as of January 1, 2001 or
throughout the quarter ended March 31, 2001. Since the Company already carried
the value of its servicing hedges on its balance sheet at December 31, 2000,
there was no transition adjustment made at January 1, 2001.
The Company enters into interest rate swaps to pay fixed rate and
receive floating rate as a cash flow hedge of its variable rate debt used to
finance its fixed rate lease receivables. Interest rate swaps are considered to
be derivatives under SFAS No. 133 and are to be carried at market value as
assets or liabilities in the balance sheet. Since this is a cash flow hedge
under SFAS No. 133, the after tax impact is charged to or credited to OCI.
Under the transition rules of SFAS No. 133, as of January 1, 2001, the
Company recognized the value of derivatives on its balance sheet. It recognized
in a separate line in its income statement the cumulative effect of changing to
SFAS No. 133. That cumulative effect is the difference between retained earnings
at December 31, 2000 and the amount of retained
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earnings that would have been reported at that date if SFAS No. 133 had been
retroactively applied to all prior periods. The table below highlights the
impact of this transition adjustment.
($ IN THOUSANDS) BALANCE SHEET
------------- CUMULATIVE
DERIVATIVE TAX DERIVATIVE TAX EFFECT OF
ASSETS ASSET LIABILITIES LIABILITY OCI CHANGE
---------- ------ ----------- --------- ------- ----------
Rate lock commitments $1,366 $ $ $ 509 $ $ 857
Derivatives hedging rate lock
Commitments 308 663 1,779 115 (923)
Pairoffs of Derivatives 55 70 187 21 (83)
Derivatives hedging loans
Held-for-sale 1,703 4,568 (2,865)
Derivatives swapping variable
Rate debt to fixed rate debt 659 1,745 (1,086)
------ ------ ------ ------- ------- -------
Total impact $1,729 $3,095 $8,279 $ 645 $(3,951) $ (149)
====== ====== ====== ======= ======= =======
In addition to the cumulative effect adjustment above, SFAS No. 133
resulted in an increase in net income net of tax of $640 thousand for the
quarter ($0.04 per share). Throughout the quarter, the Company elected not to
qualify for hedge accounting treatment for derivatives used to hedge its
interest rate exposure on servicing assets. The Company did elect hedge
accounting treatment for derivatives hedging the cash flows of loans
held-for-sale and the cash flows associated with its variable rate debt used to
finance its fixed rate lease receivables. During the quarter ended March 31,
2001, the Company recorded no net gain or loss representing the amount of the
hedges' ineffectiveness, and there was no component of the derivative
instruments' gain or loss excluded from the assessment of hedge effectiveness.
DIVISIONAL ANALYSIS OF PRE-TAX FUNDS GENERATED FROM OPERATIONS
The analyses which follow are included solely to assist investors in
obtaining a better understanding of the material elements of the Company's funds
generated by operations at a divisional level. It is intended as a supplement,
and not an alternative to, and should be read in conjunction with, the
Consolidated Statement of Cash Flows, which provides information concerning
elements of the Company's cash flows.
SUMMARY
On a combined divisional basis, during the quarters ended March 31,
2001 and 2000, the Company generated approximately $14.3 million and $5.2
million, respectively, of positive funds from continuing operations.
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($ in thousands) FOR THE QUARTERS ENDED
MARCH 31,
-------------------------
2001 2000
-------- --------
Agency-eligible production $ 960 $ (2,897)
Agency-eligible servicing 4,476 6,553
Subprime production 7,030 213
Leasing 1,830 1,380
-------- --------
$ 14,296 $ 5,249
======== ========
Each of the Company's divisions produced positive operating funds
during both periods except for agency-eligible production which produced
negative operating funds in 2000. The combined positive operating funds were
invested to reduce indebtedness, pay dividends, repurchase stock and purchase
fixed assets.
AGENCY-ELIGIBLE PRODUCTION
Generally, the Company purchases agency-eligible mortgage loans which
are resold with the rights to service the loans being retained by the Company.
The Company then separately sells a large percentage of the servicing rights so
produced. When the loans are sold, current accounting principles require that
the Company capitalize the estimated fair value of the retained mortgage
servicing rights sold and subsequently amortize the servicing rights retained to
expense. Accordingly, amounts reported as gains on sale of agency-eligible
mortgage loans may not represent positive funds flow to the extent that the
associated servicing rights are not sold for cash but are instead retained and
capitalized. In this context, the table below reconciles the major elements of
pre-tax operating funds flow of the Company's agency-eligible production
activities.
($ in thousands) FOR THE QUARTER ENDED MARCH 31,
-------------------------------
2001 2000
-------- --------
Income (loss) before income taxes $ 2,765 $ (6,428)
Deduct:
Net gain on sale of mortgage loans, as reported (13,155) (6,206)
Add back:
Cash gains on sale of mortgage loans 788 936
Cash gains on sale of mortgage servicing rights 9,038 6,401
Depreciation and amortization 1,227 1,500
Provision expense 297 900
-------- --------
$ 960 $ (2,897)
======== ========
AGENCY-ELIGIBLE SERVICING
The Company's current strategy is to position itself as a national
supplier of agency-eligible servicing rights to the still consolidating mortgage
servicing industry. Accordingly, the Company
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generally sells a significant percentage of its produced mortgage servicing
rights to other approved servicers under forward committed bulk purchase
agreements. However, the Company maintains a relatively small mortgage servicing
portfolio. As discussed above, mortgage servicing rights produced or purchased
are initially capitalized and subsequently must be amortized to expense. Much
like depreciation, such amortization charges are "non-cash". In this context,
the table below reconciles the major elements of pre-tax operating funds flow of
the Company's agency-eligible mortgage servicing activities.
($ in thousands) FOR THE QUARTER ENDED MARCH 31,
-------------------------------
2001 2000
-------- --------
Income (loss) before income taxes $ (3,332) $ 1,041
Deduct:
Net gain on sale of mortgage servicing
rights, as reported 2,365 (808)
Add back:
Amortization and provision for impairment of
Mortgage servicing rights 5,215 6,277
Depreciation and amortization 228 43
-------- --------
$ 4,476 $ 6,553
======== ========
SUBPRIME PRODUCTION
Generally, the Company purchases subprime loans through a wholesale
broker network. The Company then sells or securitizes the loans so produced.
Existing accounting principles require that at the time loans are securitized,
the Company capitalize the estimated fair value of future cash flows to be
received in connection with retention by the Company of a residual interest in
the securitized loans. Accordingly, amounts reported as gains on sale of
subprime mortgage loans may not represent cash gains to the extent that
associated residual interests are retained and capitalized. In the first quarter
of 2000 and 2001, the Company sold all of its loans to the cash markets. In this
context, the table below reconciles the major elements of pre-tax operating
funds flow of the Company's subprime mortgage production activities.
($ in thousands) FOR THE QUARTER ENDED MARCH 31,
-------------------------------
2001 2000
-------- --------
Income (loss) before income taxes $ 1,732 $ (9,625)
Deduct:
Net gain on sale of subprime loans, as reported (4,701) (2,441)
Accretion income on residuals -- (1,888)
Add back:
Cash gains on sale of whole subprime loans 8,537 3,980
Cash received from investments in residual certificates -- 791
Depreciation and amortization
of goodwill and intangibles 365 779
Provision expense 1,097 742
Mark-to-market on residuals -- 7,875
-------- --------
$ 7,030 $ 213
======== ========
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LEASING
Generally, the Company originates small-ticket equipment leases for
commercial customers that are retained as investments by the Company.
Investments in leases originated and retained are financed through a borrowing
facility at draw rates that approximate the net cash investment in the related
lease. Accordingly, financing activities related to growth in the balance of
leases held for investment do not significantly impact operating cash flow. In
this context, the table below reconciles the major elements of operating funds
flow allocable to leasing activities.
($ in thousands) FOR THE QUARTER ENDED MARCH 31,
-------------------------------
2001 2000
-------- --------
Income before income taxes $ 672 $ 955
Add back:
Depreciation and amortization of
goodwill and intangibles 72 66
Provision expense 1,086 359
-------- --------
$ 1,830 $ 1,380
======== ========
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A primary market risk facing the Company is interest rate risk. The
Company attempts to manage this risk by striving to balance its loan origination
and loan servicing business segments, which are countercyclical in nature. In
addition, the Company uses various financial instruments, including derivatives
contracts, to manage the interest rate risk related specifically to its
committed pipeline, mortgage loan inventory, mortgage backed securities held for
sale, servicing rights and leases. The overall objective of the Company's
interest rate risk management policies is to mitigate potentially significant
adverse effects that changes in the values of these items, resulting from
changes in interest rates, might have on the Company's consolidated balance
sheet. The Company does not speculate on the direction of interest rates in its
management of interest rate risk.
For purposes of disclosure in the 2000 Annual Report on Form 10-K, the
Company performed various sensitivity analyses that quantify the net financial
impact of hypothetical changes in interest rates on its interest rate-sensitive
assets, liabilities and commitments. These analyses presume an instantaneous
parallel shift of the yield curve. Various techniques are employed to value the
underlying financial instruments which rely upon a number of critical
assumptions. Actual experience may differ materially from the estimated. To the
extent that yield curve shifts are non-parallel and to the extent that actual
variations in significant assumptions differ from those applied for purposes of
the valuations, the resultant valuations can also be expected to vary. Such
variances may prove material. The Company has procedures in place that monitor
whether material changes in market risk are likely to have occurred since
December 31, 2000. The Company does not believe that there have been any
material changes in market risk from those reported in the 2000 Annual Report on
Form 10-K.
PART II. OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
- (a) A list of exhibits filed with this Form 10-Q, along with the
exhibit index can be found on pages A to G following the signature page.
- (b) No reports on Form 8-K were filed during the first quarter of
2001.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
----------------------------------------
(Registrant)
Dated: May 15, 2001 /s/ Steven F. Herbert
------------------- ---------------------------------
Steven F. Herbert
Corporate Senior Executive Vice President and
Corporate Chief Financial Officer
(signing in the capacity of (i) duly
authorized officer of the registrant and
(ii) principal financial officer of the
registrant)
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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 Outside Directors' Stock Option Plan (as amended through *
March 19, 2001) is incorporated by reference to Exhibit
10.31 of the Registrant's Annual Report on Form 10-K for
the period ended December 31, 2000
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
54
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 incorporated by reference to Exhibit 10.7
(A) of the Registrant's Annual Report on Form 10-K for the
period ended December 31, 2000
(B) Employment Agreement dated November 1, 2000 between *
Resource Bancshares Mortgage Group and William M. Ross
incorporated by reference to Exhibit 10.7 (B) of the
Registrant's Annual Report on Form 10-K for the period
ended December 31, 2000
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
55
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 Registrant's 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 Registrant's 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 Registrant's Quarterly Report on Form 10-
Q for the period ended March 31, 2000
(C) Incentive Stock Option Agreement pursuant to Resource _____
Bancshares Mortgage Group, Inc. Omnibus Stock Award Plan
between the Company and Douglas K. Freeman dated January
10, 2000
C
56
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
(D) Incentive Stock Option Agreement under the Resource _____
Bancshares Mortgage Group, Inc. Omnibus Stock Award Plan
between the Company and Douglas K. Freeman dated February
1, 2001
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
D
57
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
(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) 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 incorporated 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
(E) 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 is *
incorporated by reference to Exhibit 10.20 (D) of the
Registrant's Annual Report on Form 10-K for the period
ended December 31, 2000
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
E
58
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
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
(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
59
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
60
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 (A) 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
(B) Amendment to employment agreement between David W. _____
Johnson, Jr. and the Company dated January 12, 2001
11.1 Statement re: Computation of Net Income per Common Share _____
*Incorporated by reference
H