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, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ------------------------
Commission File Number 000-21786
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 Identification No.)
incorporation or organization)
7909 Parklane Road, Suite 150, Columbia, SC 29223
- - -------------------------------------------------- --------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (803)741-3000
--------------------------------------
Indicate by check mark whether the registrant 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 each shorter period that the registrant was
required to file reports) and 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 May 1,
1996, was 18,017,135.
Page 1
Exhibit Index on Pages A to E
2
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-Q for the quarter ended March 31, 1996
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
----
PART I. FINANCIAL INFORMATION
- - ---------------------------------
Item 1. Financial Statements - (Unaudited)
- - ------------------------------------------
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Changes in Stockholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of 8
- - ---------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
PART II. OTHER INFORMATION 17
- - ------------------------------
SIGNATURES 18
- - ----------
ITEM 6. Exhibits and Reports on Form 8-K A-E
- - ---------------------------------------------
2
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED BALANCE SHEET
($ in thousands)
March 31, December 31,
1996 1995
------------ -------------
(Unaudited)
ASSETS
Cash $ 3,307 $ 2,161
Receivables 67,912 57,893
Mortgage-backed securities 116,556 22,391
Mortgage loans held for sale 980,088 1,012,838
Mortgage servicing rights, net 100,845 99,912
Premises and equipment, net 18,840 16,314
Accrued interest on loans held for sale 8,647 9,464
Other assets 10,146 10,124
---------- ----------
Total assets $1,306,341 $1,231,097
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $1,063,465 $1,005,557
Long-term borrowings 24,000 65,530
Accrued expenses 10,702 10,036
Other liabilities 62,121 56,570
---------- ----------
Total liabilities 1,160,288 1,137,693
---------- ----------
Stockholders' equity
Common stock 180 146
Additional paid-in capital 132,588 84,533
Retained earnings 15,185 10,725
Unearned shares of employee stock ownership plan (1,900) (2,000)
---------- ----------
Total stockholders' equity 146,053 93,404
---------- ----------
Total liabilities and stockholders' equity $1,306,341 $1,231,097
========== ==========
See accompanying notes to consolidated financial statements.
3
4
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except share information)
(Unaudited)
For the Three Months Ended
March 31,
---------------------------
1996 1995
------------- -----------
REVENUES
Interest income $ 18,445 $ 3,444
Interest expense (15,202) (2,650)
----------- -----------
Net interest income 3,243 794
Net gain on sale of mortgage loans 18,533 550
Gain on sale of mortgage servicing rights 66 1,816
Loan servicing fees 7,130 5,851
Other income 78 537
----------- -----------
Total revenues 29,050 9,548
----------- -----------
EXPENSES
Salary and employee benefits 12,666 3,800
Occupancy expense 1,276 393
Amortization of mortgage servicing rights 3,670 2,028
General and administrative expenses 4,187 1,652
----------- -----------
Total expenses 21,799 7,873
----------- -----------
Income before income taxes 7,251 1,675
Income tax expense (2,791) (642)
----------- -----------
Net income $ 4,460 $ 1,033
=========== ===========
Weighted average shares 14,963,313 14,464,128
=========== ===========
Net income per common share $ 0.30 $ 0.07
=========== ===========
See accompanying notes to consolidated financial statements.
4
5
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands, except share information)
(Unaudited)
Unearned Shares of
Three Months Ended Additional Paid- Retained Employee Stock
March 31, 1995 Common Stock In Capital Earnings Ownership Plan Total
- - ----------------------------- ------------------- ---------------- -------- ----------------- ----------
Shares Amount
---------- --------
Balance, December 31, 1994 11,944,304 $ 119 $ 60,157 $ 20,338 $ $ 80,614
Issuance of restricted stock 43,402 1 406 407
Stock dividend adjustment 599,347 6 5,630 (5,636)
Loans to ESOP (500) (500)
Net income 1,033 1,033
---------- ----- --------- --------- -------- --------
Balance, March 31, 1995 12,587,053 $ 126 $ 66,193 $ 15,735 $ (500) $ 81,554
========== ===== ========= ========= ======== ========
Three Months Ended
March 31, 1996
- - --------------------------
Balance, December 31, 1995 14,550,462 $ 146 $ 84,533 $ 10,725 $ (2,000) $ 93,404
Issuance of restricted stock 16,410 * 256 256
Net proceeds of public offering 3,426,552 34 47,417 47,451
Shares issued under dividend
reinvestment and stock
purchase plan 23,711 * 335 335
Shares committed to be
released under ESOP 47 100 147
Net income 4,460 4,460
---------- ---- --------- -------- -------- --------
Balance, March 31, 1996 18,017,135 180 $ 132,588 $ 15,185 $ (1,900) $146,053
========== ==== ========= ======== ======== ========
* Amount less than $1
See accompanying notes to consolidated financial statements.
5
6
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
- - ------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1996 1995
- - ------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 4,460 $ 1,033
Adjustments to reconcile net
income to cash used in operating activities:
Depreciation and amortization 4,267 2,050
Net increase in allowance for estimated foreclosure losses 100
(Increase) decrease in receivables (10,019) 8,742
Acquisition of mortgage loans (3,137,847) (474,133)
Proceeds from sales of mortgage loans and mortgage-backed securities 3,094,843 405,958
Acquisition of mortgage servicing rights (54,547) (5,141)
Sales of mortgage servicing rights 50,032 6,122
Net gain on sales of mortgage loans and servicing rights (18,599) (2,366)
Decrease (increase) in accrued interest on loans 817 (188)
Increase in other assets (22) (483)
Increase in accrued expenses and other liabilities 6,217 1,268
- - -----------------------------------------------------------------------------------------------------------
Net cash used in operating activities (60,298) (57,138)
- - -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of premises and equipment, net (3,123) (227)
- - -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,123) (227)
- - -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from borrowings 10,663,502 1,536,018
Repayment of borrowings (10,647,124) (1,474,798)
Issuance of restricted stock 256 407
Net proceeds of public offering 47,451
Activity under Employee Stock Ownership Plan, net 147 (500)
Shares issued under dividend reinvestment and stock purchase plan 335
- - -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 64,567 61,127
- - -----------------------------------------------------------------------------------------------------------
Net increase in cash 1,146 3,762
Cash, beginning of year 2,161 232
- - -----------------------------------------------------------------------------------------------------------
Cash, end of year $ 3,307 $ 3,994
- - -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6
7
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
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, 1995, 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.
Prior to April 1, 1995, and in conjunction with the acquisition of mortgage
loans, the Company capitalized as mortgage servicing rights the portion of
the purchase price which represented the premium paid for the right to
service the mortgage loans. The amount capitalized was subsequently reduced
if the mortgage loans were sold at a gain. Effective April 1, 1995, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 122,
"Accounting for Mortgage Servicing Rights-An amendment of FASB Statement No.
65." Accordingly, effective April 1, 1995, and as required by SFAS No. 122,
the Company now allocates the total cost of a whole mortgage loan to the
mortgage servicing right (MSR) and the loan (without servicing rights) based
on relative fair values. The amount capitalized is no longer required to be
reduced if the mortgage loan is sold at a gain. The market value of the
servicing rights for purposes of allocating cost and evaluating impairments
is estimated based upon forward committed delivery prices allocated thereto
under the terms of existing contracts to sell the underlying MSRs. The
Company periodically assesses its capitalized MSRs for impairment (on a
stratified basis) based on the fair values of those rights. Impairment
would be recognized as a valuation allowance for each impaired stratum.
7
8
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the Financial Information, the Consolidated Financial Statements of the Company
(and the notes thereto) and the other information included or incorporated by
reference into the Company's 1995 Annual Report on Form 10-K and the interim
Consolidated Financial Statements contained herein. To the extent that any
statement below (or elsewhere in this document) is not a statement of historical
fact and could be considered a forward-looking statement, the "Risk Factors"
discussion set forth in the Company's final Prospectus dated March 11, 1996,
identifies important factors that could cause actual results to differ
materially from those in the forward-looking statement.
THE COMPANY
Resource Bancshares Mortgage Group, Inc. (the Company) was organized under
Delaware law in 1992 to acquire and operate the mortgage banking business of
Resource Bancshares Corporation (RBC), which commenced operations in May 1989.
The assets and liabilities of the mortgage banking business of RBC were
transferred to the Company on June 3, 1993, when the Company sold 58% of its
common stock in an initial public offering. As a result, RBC retained a
significant ownership interest in the Company. As of March 31, 1996, RBC owns
approximately 38% of the outstanding common stock of the Company.
The Company is principally engaged in the purchase and origination of
mortgage loans, which it aggregates into mortgage-backed securities issued or
guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC), the Federal
National Mortgage Association (FNMA) and the Government National Mortgage
Association (GNMA). The Company sells the mortgage-backed securities it
creates to institutional purchasers with the rights to service the underlying
loans being retained by the Company. The servicing rights retained are
generally sold separately but may be held for extended periods by the Company.
LOAN PRODUCTION
A summary of loan production by source for the periods indicated is set
forth below:
Quarter Ended March 31,
($ in thousands)
-------------------------------
(Unaudited) 1996 1995
------------ -----------
Loan Production:
Correspondent Division $2,556,751 $447,410
Wholesale Division 368,640 26,723
Retail Division 118,169
---------- --------
Total Loan Production $3,043,560 $474,133
========== ========
8
9
Average estimated market share for the first quarter of 1996 was 1.39% as
compared to 0.40% for the comparable period of 1995. Historically, the Company
was exclusively focused on purchasing loans through its correspondents. In
order to diversify its sources of loan volume, the Company started a wholesale
operation which purchased its first loan in May of 1994, and a retail operation,
which originated its first loan in May of 1995. Accordingly, correspondent
operations accounted for 84% of the Company's loan production and 1.17% of its
total market share for the first quarter of 1996 as compared to 94% and 0.38%
for the first quarter of 1995.
Correspondent Loan Production
A summary of key information relevant to the Company's correspondent loan
production activities is set forth below:
At or For the Quarter Ended March 31,
($ in thousands)
-------------------------------------
(Unaudited) 1996 1995
----------------- ----------------
U. S. 1-4 Family Mortgage Originations Statistics (1)
U. S. 1-4 Family Mortgage Originations 219,000,000 119,000,000
Adjustable Rate Mortgage Market Share 20.00% 52.00%
Company Information
Correspondent Loan Production $ 2,556,751 $ 447,410
Estimated Market Share of Correspondent Division 1.17% 0.38%
Approved Correspondents 787 551
(1) Source: Mortgage Bankers Association of America, Economics Department.
The 471% increase in correspondent loan production from $0.4 billion for
the first quarter of 1995 to $2.6 billion for the first quarter of 1996 was
primarily due to the combined positive impact of expansion of the Company's
correspondent network, an overall improvement in mortgage interest rates, and
the decline in the adjustable rate mortgage (ARM) share of the U.S. market from
52% in the first quarter of 1995 to an estimated 20% for the first quarter of
1996. The number of approved correspondents increased by 236 or 43% from 551
at March 31, 1995, to 787 at March 31, 1996.
Wholesale Loan Production
A summary of key information relevant to the Company's wholesale
production activities is set forth below:
At or For the Quarter Ended March 31,
($ in thousands)
--------------------------------------
(Unaudited) 1996 1995
-------------- -------------
Wholesale Loan Production $368,640 $26,723
Wholesale Division Direct
Operating Expenses $ 1,874 $ 392
Approved Brokers 1,393 291
Number of Branches 11 7
Number of Employees 106 30
9
10
The $342 million increase in wholesale loan production from $27 million for
the first quarter of 1995 to $369 million for the first quarter of 1996 relates
to the Company's initial expansion into these new activities beginning in May of
1994. That is, during the first quarter of 1995, this division was still
largely in its initial startup stage. Similarly, the numbers of approved
brokers, branches and employees has also increased significantly.
Retail Loan Production
A summary of key information relevant to the Company's retail production
activities that commenced in May of 1995 is set forth below:
At or For the Quarter Ended March 31,
($ in thousands)
-------------------------------------
(Unaudited) 1996 1995
--------------- -----------------
Retail Loan Production $118,169 N/A
Retail Division Operating Expenses $ 4,078 N/A
Number of Branches 6 N/A
Number of Employees 174 N/A
LOAN SERVICING
A summary of key information relevant to the Company's loan servicing
activities is set forth below:
At or For the Quarter Ended March 31,
($ in thousands)
-------------------------------------
(Unaudited) 1996 1995
------------ -------------
Underlying Unpaid Principal Balances:
Beginning Balance $5,562,930 $4,039,847
Loan Production (net of servicing released
production) 3,035,555 359,468
Net Change in Work-in-Process (253,958)
Bulk Acquisitions 21,636
Sales of Servicing (2,357,099) (372,347)
Paid-In-Full Loans (138,332) (25,224)
Amortization, Curtailments, and Others, net (21,825) (28,842)
------------ -----------
Ending Balance $5,827,271 $3,994,538
============ ===========
Loan Servicing Fees $ 7,130 $ 5,851
Cash Operating Expenses 18,129 5,845
Coverage Ratio 39% 100%
Average Underlying Unpaid Principal Balances $5,893,780 $4,098,234
Weighted Average Note Rate 7.67% 7.92%
Weighted Average Servicing Fee .41% .45%
Delinquency (30+ days) 2.64% 4.12%
Number of Servicing Division Employees 119 91
10
11
The $1.8 billion or 44% increase in the average underlying unpaid
principal balance of mortgage loans being serviced for the first quarter of
1996 as compared to the first quarter of 1995 is primarily related to the
Company's increased loan production volumes. Specifically, since the Company
generally sells servicing rights related to the loans it produces within 90 to
180 days of purchase or origination, the increased production volume for the
first quarter of 1996 resulted in a higher volume of mortgage servicing rights
held in inventory pending sale as compared to the first quarter of 1995.
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1996, COMPARED TO THE QUARTER
ENDED MARCH 31, 1995
SUMMARY
Total revenues of the Company increased 204% to $29.0 million for the
first quarter of 1996 as compared to $9.5 million for the first quarter of
1995. The $19.5 million increase in revenues was primarily due to a $2.4
million increase in net interest income and a $16.2 million increase in gains
on sales of loans and servicing rights, which were partially offset by a $12.3
million increase in operating expenses (exclusive of amortization and taxes).
The increase in net interest income is primarily due to the increased volume of
loans originated and purchased, which resulted in higher average volumes of
mortgages held pending resale. Similarly, the increase in gains on sales of
loans and servicing rights is related to the Company's increased first-quarter
1996 loan production volumes. The increase in operating expenses is primarily
attributable to increased costs associated with increased loan production and
loan servicing volumes and increased costs associated with expansion into
wholesale and retail operations. Costs related to the Company's expansion into
retail and wholesale operations account for approximately $4.1 million and
$1.5 million, or 33% and 12%, respectively, of the total increase in operating
expenses for the first quarter of 1996 compared to the same period of the
prior year.
The following sections discuss the components of the Company's results of
operations in greater detail.
NET INTEREST INCOME
The following table analyzes net interest income 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). All dollars are in thousands; the
information presented is unaudited.
Variance
Average Volume Average Rate Interest Attributable to
- - ------------------------------------ ----------------- -------------------
1996 1995 1996 1995 1996 1995 Variance Rate Volume
- - ------------------------------------ -----------------------------------------------
INTEREST INCOME
---------------
Mortgages Held for Sale and
$ 987,387 $165,999 7.47% 8.30% Mortgage-Backed Securities $18,445 $3,444 $15,001 $(2,039) $17,040
- - ------------------------------------ -----------------------------------------------
INTEREST EXPENSE
----------------
355,757 104,599 4.82% 3.81% Warehouse Line 4,261 983 3,278 918 2,360
589,994 49,482 5.87% 6.32% Gestation Line 8,604 771 7,833 (589) 8,422
57,694 24,533 8.25% 8.08% Servicing Secured Line 1,183 489 694 33 661
27,597 5.86% Servicing Receivable Line 402 402 402
21,198 8.23% Other Borrowings 434 434 434
Facility Fees & Other Charges 318 407 (89) (89)
- - ------------------------------------ -----------------------------------------------
1,052,240 178,614 5.81% 6.02% Total Interest Expense 15,202 2,650 12,552 362 12,190
- - ------------------------------------ -----------------------------------------------
1.66% 2.28% Net Interest Income $ 3,243 $ 794 $ 2,449 $(2,401) $ 4,850
================ ===============================================
11
12
Net interest income increased 308% to $3.2 million for the first quarter
of 1996 compared to $0.8 million for the first quarter of 1995. The $2.4
million increase in net interest income is primarily attributable to the 495%
increase in the average volume of mortgages held for sale and mortgage-backed
securities for the first quarter of 1996 from that of the first quarter of
1995. This increase in volume more than offset the negative effects of the
decrease in the interest-rate spread of 62 basis points to 166 basis points for
1996 as compared to 228 basis points for 1995. The Company's long-term
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 earning asset yields are based upon long-term rate
indices. Thus, the decrease in interest-rate spread was primarily the result
of the narrower spreads between long-term and short-term rates in the first
quarter of 1996 versus the first quarter of 1995.
NET GAINS ON SALES OF MORTGAGE LOANS AND MORTGAGE SERVICING RIGHTS
Net gains on sales of mortgage loans and mortgage servicing rights
increased $16.2 million or 675% to $18.6 million for the first quarter of 1996
as compared to $2.4 million for the first quarter of 1995. As further
discussed below, this increase is primarily due to higher volumes of mortgage
loans and mortgage servicing rights sold during the first quarter of 1996
compared to the first quarter of 1995, partially offset by the effects
of thinner profit margins on sales.
Net Gain on Sale of Mortgage Loans
A reconciliation of the effects of SFAS No. 91, SFAS No. 65, and SFAS No.
122 on the gain on sale of mortgage loans for the periods indicated follows:
For the Quarter Ended March 31,
($ in thousands)
-------------------------------
(Unaudited) 1996 1995
----------- ----------
Gross proceeds on sales of mortgage loans $3,094,843 $405,958
Initial unadjusted acquisition cost of
mortgage loans sold 3,093,179 405,319
---------- --------
Unadjusted gain on sale of mortgage loans 1,664 639
Administrative fees collected 8,775 833
---------- --------
Unadjusted aggregate margin 10,439 1,472
Acquisition basis allocated to mortgage
servicing rights (SFAS No. 122) 8,179
Gains deferred to reduce mortgage
servicing rights (SFAS No. 65) (922)
Net change in deferred administrative
fees (SFAS No. 91) (85)
---------- --------
Net gain on sale of mortgage loans $ 18,533 $ 550
========== ========
The Company sold loans during the first quarter of 1996 with an aggregate
unpaid principal balance of $3.1 billion compared to sales of $0.4 billion for
the first quarter of 1995. The amount of proceeds received on sales of
mortgage loans exceeded the initial unadjusted acquisition cost of the loans
sold by $1.7 million (5 basis points) for the first quarter of 1996 and $0.6
million (16 basis points) for the first quarter of 1995. The Company received
administrative fees of $8.7 million (28 basis points) on these loans during the
first quarter of 1996 and $0.8 million (21 basis points) during the first
quarter of 1995. The Company allocated $8.2 to basis in mortgage servicing
rights in the first quarter of 1996, due to the adoption of SFAS No. 122. Also,
there was no gain deferred against mortgage servicing rights during the first
quarter of 1996 due to the adoption of SFAS No. 122, while $0.9 million was
deferred during the comparable period of 1995. As a
12
13
result, net gain on sale of mortgage loans increased to $18.5 million for the
first quarter of 1996 versus $0.6 million for 1995. This increase was primarily
due to the 663% increase in the volume of mortgage loans sold, which was
partially offset by a two-basis point decrease in the aggregate unadjusted
margin from 36 basis points for the first quarter of 1995 to 34 basis points for
the first quarter of 1996. The thinner margin is primarily attributed to
competitive pricing conditions in 1996.
Although implementation of SFAS No. 122 accounts for a significant portion
of the increase in the amount reported as net gain on sale of mortgage loans,
implementation also accounts for a significant portion of the decrease in the
amount reported as gain on sale of mortgage servicing rights, as discussed
below.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage servicing rights
for the periods indicated follows:
For the Quarter Ended March 31,
($ in thousands)
-------------------------------
(Unaudited) 1996 1995
------------ -----------
Underlying unpaid principal balances of
mortgage loans on which servicing rights
were sold during the period $2,357,099 $372,347
========== ========
Gross proceeds from sales of mortgage
servicing rights $ 50,032 $ 6,122
Initial acquisition cost, net of amortization 44,280 5,880
---------- --------
Unadjusted gain on sale of mortgage
servicing rights 5,752 242
Acquisition basis allocated from mortgage loans,
net of amortization (SFAS No. 122) (5,686)
Previously deferred administrative fees and
gain on sale of mortgage loans recognized
(SFAS No. 65 and No. 91) 1,574
---------- --------
Gain on sale of mortgage servicing rights $ 66 $ 1,816
========== ========
During the first quarter of 1996, the Company completed nine sales of
mortgage servicing rights representing $2.4 billion of underlying unpaid
principal mortgage loan balances. This compares to one sale of mortgage
servicing rights representing $0.4 billion of underlying unpaid principal
mortgage loan balances in the first quarter of 1995. Unadjusted gain on sale of
mortgage servicing rights was $5.8 million for the first quarter of 1996, up
from $0.2 million for 1995. The Company reduced this unadjusted gain by $5.7
million in the first quarter of 1996 due to the adoption of SFAS No. 122
effective April 1, 1995. Similarly, prior to adoption of SFAS No. 122, the
Company recognized $1.6 million in previously deferred administrative fees and
gain on sales of mortgage loans. As discussed above, SFAS No. 122 does not
require that gains on sale of mortgage loans or administrative fees be deferred
as a reduction of basis in mortgage servicing rights. Thus, the $1.8 million
decline in gain on sale of mortgage servicing rights is primarily related to
adoption of SFAS No. 122.
13
14
NET SERVICING MARGIN
Loan servicing fees were $7.1 million for the first quarter of 1996,
compared to $5.9 million for the first quarter of 1995, an increase of 22%.
This increase is primarily related to an increase in the average aggregate
underlying unpaid principal balance of mortgage loans serviced to $5.9 billion
during the first quarter of 1996 from $4.1 billion during the first quarter of
1995, an increase of 44%. Similarly, amortization of mortgage servicing rights
also increased to $3.7 million during the first quarter of 1996 from $2.0
million during the first quarter of 1995, an increase of 81%. The increase in
amortization is primarily attributed to the growth in the average balance of
the mortgage loans serviced. As a result, net servicing margin decreased to
$3.5 million during the first quarter of 1996, compared to $3.9 million during
the first quarter of 1995, a decrease of 9%.
Included in loan servicing fees for 1996 and 1995 are subservicing fees
received by the Company of $318,000 and $253,000, respectively. The
subservicing fees are associated with temporary subservicing agreements between
the Company and purchasers of mortgage servicing rights.
The following tables summarizes the net servicing margin for the first
quarters of both 1996 and 1995:
For the Quarter Ended March 31,
($ in thousands)
-------------------------------------
(Unaudited) 1996 1995
------------- ----------------
Loan servicing fees $ 7,130 $ 5,851
Amortization of mortgage servicing rights 3,670 2,028
---------- ----------
Net servicing margin $ 3,460 $ 3,823
========== ==========
Average underlying unpaid principal balance
of mortgage loans serviced $5,893,780 $4,098,234
---------- ----------
OTHER INCOME
Other income decreased during 1996 compared to 1995, primarily due to a
decrease in administrative fees received from sales of servicing-released loans
during 1996.
EXPENSES
The $12.3 million increase in operating expenses (excluding amortization of
mortgage servicing rights) was centered in salary and employee benefits; which
increased $8.9 million, or 233%. Through the end of the first quarter of 1996,
the Company increased its employee headcount by 578 from 373 at March 31, 1995,
to 951 at March 31, 1996. The increased employee headcount and associated
increase in salary and employee benefit costs was necessitated by the Company's
increased loan production and average loan servicing volume, which were up 542%
and 44%, respectively. Employee headcount attributable to expansion of the
wholesale division and establishment of the retail division accounted for 250 of
the total 578 increase and for $5.6 million of the total $12.3 million increase
in operating expenses.
INCOME TAX EXPENSE
Income tax expense includes both federal and state income taxes. The
effective tax rates for 1996, and 1995 were 38.5% and 38.3%, respectively.
Income tax expense increased by 334% to $2.8 million for the first quarter of
1996 from $0.6 million for the first quarter of 1995 due to the above-described
factors that resulted in a 332% or $5.6 million increase in income before taxes.
14
15
FINANCIAL CONDITION
During the latter part of March 1996, the Company completed a public
offering of 3,842,961 shares of common stock priced at $14.50 per share. The
Company sold 2,530,000 shares in the offering, while certain stockholders sold
the remaining 1,312,961 shares. In a concurrent private placement, the Company
sold an additional 896,552 shares of common stock at the offering price of
$14.50 per share to RBC, which owned approximately 41% of the Company's
outstanding common stock prior to the public offering and private placement and
approximately 38% immediately thereafter. Net proceeds to the Company after
underwriting discounts and offering expenses totaled approximately $47.4
million. Proceeds of the offering were used to repay indebtedness to RBC and
will otherwise be used for other general corporate purposes, including the
continued growth and general expansion of the Company's business activities.
During the first quarter of 1996, the Company continued to establish new
correspondent relationships. The number of correspondents approved to do
business in the Company's correspondent lending program increased to 787 at
March 31, 1996, from 726 at December 31, 1995.
The Company also established an additional wholesale branch in Colorado
during the first quarter of 1996. This increased the number of wholesale
branches in operation at March 31, 1996 to 11. As of March 31, 1996, there
were approximately 1,393 wholesale brokers approved to do business with the
Company.
The Company's Retail Division, operating under the name of Intercounty
Mortgage, Inc., employed 174 people with offices in New York (4), New Jersey
and Pennsylvania at March 31, 1996.
The Company continues to face the same challenges as other companies
within the mortgage banking industry and as such is not immune from significant
volume declines precipitated by a rise in interest rates or other factors
beyond the Company's control. Management of the Company recognizes these
challenges and continues to manage the Company accordingly.
Mortgage loans held for sale and mortgage-backed securities totaled
$1,096.6 million at March 31, 1996, versus $1,035.2 million at December 31,
1995, an increase of 6%. The balance of mortgage loans held for sale and
mortgage-backed securities at March 31, 1996, increased over that held at
December 31, 1995, primarily as a result of an increase in mortgage loan
production in the first quarter of 1996 compared to the fourth quarter of 1995.
The Company's servicing portfolio (exclusive of loans under subservicing
agreements) increased to $5.8 billion at March 31, 1996, from $5.6 billion at
December 31, 1995, an increase of 5%.
15
16
Short-term borrowings, which are the Company's primary source of funds,
totaled $1,063.5 million at March 31, 1996, compared to $1,005.6 million at
December 31, 1995, an increase of 6%. The increase in the balance outstanding
at March 31, 1996, resulted from increased funding requirements related to an
increase in the balance of mortgage loans held for sale and mortgage-backed
securities and other assets at March 31, 1996. Long-term borrowings, which are
used primarily to finance the Company's servicing portfolio, were $24.0 million
at March 31, 1996, compared to $65.5 million at December 31, 1995.
Other liabilities totaled $62.1 million as of March 31, 1996, compared to
the December 31, 1995, balance of $56.6 million, an increase of $5.5 million or
10%. The increase in other liabilities resulted primarily from an increase at
month end in the volume of loans acquired through certain correspondent funding
programs of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash flow requirement involves the funding of loan
production, which is met primarily through external borrowings. The Company
has entered into a 364-day, $660 million warehouse line of credit provided by a
syndicate of unaffiliated banks which expires in May 1996. This warehouse line
of credit includes a $200 million gestation facility and a $10 million working
capital line of credit. The credit agreement includes covenants requiring the
Company to maintain (i) a minimum net worth of $60 million, plus net income
subsequent to the agreement date and capital contributions and minus permitted
dividends, (ii) a ratio of total liabilities to net worth of not more than 8.0
to 1.0, excluding debt incurred pursuant to gestation and repurchase financing
agreements, (iii) its eligibility as a servicer of GNMA, FHA, VA, FNMA and
FHLMC mortgage loans and (iv) a mortgage servicing rights portfolio with an
underlying unpaid principal balance of at least $2 billion. The provisions of
the agreement also restrict the Company's ability (i) to pay dividends in any
fiscal quarter which exceed 25% of the Company's net income for the quarter or
(ii) to engage in any type of business unrelated to the mortgage banking
business and the servicing of mortgage loans.
The Company has also entered into a gestation financing arrangement which
will expire in May 1996. The interest rate on funds borrowed pursuant to the
gestation line is based on a spread over the Federal Funds rate. The gestation
line, which is uncommitted, has a funding limit of $1 billion.
Additionally, the Company entered into a $100 million, 364-day revolving
credit facility with a syndicate of unaffiliated banks. This facility converts
upon maturity at September 29, 1996, into a five-year term loan and the facility
is secured by the Company's servicing portfolio. The facility includes the same
covenants required by the warehouse line of credit.
The Company has also entered into a $50 million, 364-day revolving
servicing sales receivable facility with a syndicate of unaffiliated banks.
The facility is secured by a first-priority security interest in receivables on
servicing rights sold. The facility includes covenants identical to those
described above with respect to the warehouse line of credit.
The Company has entered into a $6.6 million, 364-day revolving credit
facility secured by certain real property of the Company. The facility
includes covenants substantially the same as those described above with respect
to the warehouse line of credit.
The Company was in compliance with the covenants at March 31, 1996, and
December 31, 1995. Although management anticipates continued compliance, there
can be no assurance that the Company will be able to comply with the debt
covenants specified for each of these financing agreements. Failure to comply
could result in the loss of the related financing.
Beginning in June 1995, the Company has from time to time borrowed up to
$19 million on a short-term unsecured basis from RBC. Interest on these
borrowings is at the prime rate. There was no indebtedness to RBC at March 31,
1996.
16
17
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
- (A) A LIST OF THE EXHIBITS REQUIRED BY THIS FORM 10-Q, ALONG WITH
THE EXHIBIT INDEX CAN BE FOUND ON PAGES A TO E FOLLOWING THE
SIGNATURE PAGE.
- (B) THERE WERE NO REPORTS ON FORM 8-K FILED DURING THIS REPORTING
PERIOD.
17
18
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)
/s/ Steven F. Herbert
------------------------------------------
Steven F. Herbert
Executive Vice President and
Chief Financial Officer
(signing in the capacity of (i) duly authorized officer
of the registrant and (ii) principal financial officer
of the registrant)
DATED: May 9, 1996
18
19
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
- - ---------- ----------- ----
3.1 Restated Certificate of Incorporation of the Registrant incorporated by reference to *
Exhibit 3.3 of the Registrant's Registration No. 33-53980
3.2 Amended and Restated Bylaws of the Registrant incorporated by reference to *
Exhibit 3.4 of the Registrant's Registration No. 33-53980
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 Secured Revolving/Term Credit Agreement (the "Revolver") dated September 30, 1994, *
between the Registrant and the Banks Listed on the Signature Pages Thereof and The Bank
of New York as Agent and Collateral Agent incorporated by reference to Exhibit 4.2
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
4.3 Revolving/Term Security and Collateral Agency Agreement dated September 30, 1994, *
between the Registrant and The Bank of New York as Collateral Agent and Secured
Party incorporated by reference to Exhibit 4.3 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994
4.4 Amendment No. 1 dated as of December 27, 1994 to the Revolver between the Registrant *
and the Banks Listed on the Signature Pages Thereof and The Bank of New York as
Agent and Collateral Agent incorporated by reference to Exhibit 4.4 of the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1995
4.5 Amendment to the Revolver effective February 21, 1995, between the Registrant and *
the Banks Listed on the Signature Pages Thereof and The Bank of New York as Agent
and Collateral Agent incorporated by reference to Exhibit 4.5 of the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1995
4.6 Amendment No. 2 dated as of May 18, 1995 to the Revolver between the Registrant and the *
Banks Listed on the Signature Pages Thereof and The Bank of New York as Agent and
Collateral Agent incorporated by reference to Exhibit 4.6 of the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1995
4.7 Amendment No. 3 dated as of July 6, 1995 to the Revolver between the Registrant and the *
Banks Listed on the Signature Pages Thereof and The Bank of New York as Agent and
Collateral Agent incorporated by reference to Exhibit 4.7 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1995
4.8 Amendment No. 4 dated as of July 14, 1995 to the Revolver between the Registrant and the *
Banks Listed on the Signature Pages Thereof and The Bank of New York as Agent and
Collateral Agent incorporated by reference to Exhibit 4.8 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1995
4.9 Amended and Restated Secured Revolving/Term Credit Agreement dated *
September 29, 1995, between the Registrant and the Banks Listed on the Signature
Pages Thereof, Bank One, Texas, National Association, First Bank National Association,
Residential Funding Corporation and Chemical Bank as Co-agents and The Bank of New
York as Agent and Collateral Agent incorporated by reference to Exhibit 4.9 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1995
4.10 Amended and Restated Revolving/Term Security and Collateral Agency Agreement *
dated September 29, 1995, between the Registrant and The Bank of New York as
Collateral Agent and Secured Party incorporated by reference to Exhibit 4.10 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1995
A
20
EXHIBIT NO. DESCRIPTION PAGE
- - ---------- ----------- ----
4.11 Amendment No. 1 to Amended and Restated Secured Revolving/Term Credit Agreement dated _____
March 29, 1996, between the Registrant and the Banks Listed on the Signature
Pages Thereof, Bank One, Texas, National Association, First Bank National Association,
Residential Funding Corporation and Chemical Bank as Co-agents and The Bank of New
York as Agent and Collateral Agent
10.1 Employment Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. as amended by amendment dated October 22, 1993
incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
10.2 Employment Agreement dated June 3, 1993, between the Registrant and *
Lee E. Shelton as amended by amendment dated October 22, 1993 incorporated
by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993
10.3 Tax Agreement dated May 26, 1993, between Resource Bancshares Corporation (RBC) *
and the Registrant incorporated by reference to Exhibit 10.3 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
10.4 Formation Agreement dated May 26, 1993, among Republic National Bank, the *
Registrant, RBC and 1st Performance National Bank incorporated by reference to
Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993
10.5 Office Building Lease dated March 8, 1991, as amended by Modification of Office *
Lease dated October 1, 1991, incorporated by reference to Exhibit 10.5 of the Registrant's
Registration No. 33-53980
10.6 Assignment and Assumption of Office Lease incorporated by reference to Exhibit 10.6 *
of the Registrant's Registration No. 33-53980
10.8 (A) Stock Option Agreement between the Registrant and David W. Johnson, Jr. *
incorporated by reference to Exhibit 10.8 (A) of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
(B) Stock Option Agreement between the Registrant and Lee E. Shelton incorporated by
reference to Exhibit 10.8 (B) of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993
10.9 (A) Termination Agreement dated June 3, 1993, between the Registrant and * David W. *
Johnson, Jr. incorporated by reference to Exhibit 10.9 (A) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
(B) Termination Agreement dated June 3, 1993, between the Registrant and Lee E. Shelton
incorporated by reference to Exhibit 10.9 (B) of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993
10.10 (A) Deferred Compensation Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. incorporated by reference to Exhibit 10.10 (A) of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1993
B
21
EXHIBIT NO. DESCRIPTION PAGE
- - ----------- ----------- ----
(B) Deferred Compensation Agreement dated June 3, 1993, between the Registrant and Lee
E. Shelton incorporated by reference to Exhibit 10.10 (B) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
(C) Deferred Compensation Rabbi Trust, for David W. Johnson, dated January 19, 1994,
between RBC and First Union National Bank of North Carolina incorporated by reference
to Exhibit 10.10 (C) of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993
(D) Deferred Compensation Rabbi Trust, for Lee E. Shelton dated January 19, 1994, between
RBC and First Union National Bank of North Carolina incorporated by reference to Exhibit
10.10 (D) of the Registrant's Annual Report on Form 10-K for the year ended December 31,
1993
10.11 Registration Rights Agreement dated May 26, 1993, between RBC and the Registrant *
incorporated by reference to Exhibit 10.11 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
10.12 Phantom Stock Plan as amended January 26, 1995, incorporated by reference to Exhibit 10.12 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.13 Form of Phantom Stock Agreement incorporated by reference to Exhibit 10.13 of the *
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993
10.14 Retirement Savings Plan incorporated by reference to Exhibit 10.14 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1993
10.15 Retirement Savings Trust dated as of January 10, 1994, by and between the Company *
and First Trust Corporation incorporated by reference to Exhibit 10.15 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
10.16 Flexible Benefits Plan incorporated by reference to Exhibit 10.16 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1993
10.17 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
10.18 Pension Plan incorporated by reference to Exhibit 10.18 of the Registrant's Annual *
Report on Form 10-K for the year ended December 31, 1993
10.19 Governmental Real Estate Sub-Lease-Office, between Resource Bancshares Mortgage *
Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation
incorporated by reference to Exhibit 10.19 of the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 1994
10.20 First Sub-Lease Amendment to Governmental Real Estate Sub-Lease-Office, *
between Resource Bancshares Mortgage Group, Inc. and the South Carolina Department
of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1994
10.21 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
22
EXHIBIT NO. DESCRIPTION PAGE
- - ---------- ----------- ----
10.22 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
10.23 Amendment I to Retirement Savings Plan incorporated by reference to Exhibit 10.23 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.24 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
10.25 Pension Restoration Plan incorporated by reference to Exhibit 10.25 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.26 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the Registrant's *
Registration No. 33-87536
10.27 Amendment I to Stock Investment Plan incorporated by reference to Exhibit 10.27 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.29 Employee Stock Ownership Plan incorporated by reference to Exhibit 10.29 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.30 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
10.31 ESOP Loan and Security Agreement dated January 12, 1995, between the Registrant *
and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust
incorporated by reference to Exhibit 10.31 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994
10.33 Phantom Stock Agreement dated January 26, 1995, between the Registrant and *
Richard M. Duncan incorporated by reference to Exhibit 10.33 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
10.34 Employment Agreement dated June 30, 1995, between the Registrant and Steven F. Herbert *
incorporated by reference to Exhibit 10.34 of the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1995
10.35 Phantom Stock Agreement dated July 1, 1995, between the Registrant and Steven F. Herbert *
incorporated by reference to Exhibit 10.35 of the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1995
10.36 Formula Stock Option Plan incorporated by reference to Exhibit 10.36 of the Registrant's *
Quarterly Report on Form 10-Q for the period ended September 30, 1995
10.37 Omnibus Stock Award Plan incorporated by reference to Exhibit 10.37 of the Registrant's *
Quarterly Report on Form 10-Q for the period ended September 30, 1995
10.38 Employment Agreement dated September 25, 1995, between the Registrant and *
Richard M. Duncan incorporated by reference to Exhibit 10.38 of the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995
D
23
EXHIBIT NO. DESCRIPTION PAGE
- - ---------- ----------- ----
10.39 Request for Extension of Governmental Real Estate Sub-Lease-Office, between the Registrant *
and the South Carolina Department of Labor, Licensing and Regulation dated December 12, 1995
incorporated by reference to Exhibit 10.39 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995
10.40 First Amendment to Registration Rights Agreement dated March 11, 1996, between *
the Registrant and RBC incorporated by reference to Exhibit 10.40 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
10.41 First Amendment to Employee Stock Ownership Plan dated October 31, 1995 *
incorporated by reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995
10.42 Amendment to Pension Plan effective January 1, 1995 incorporated by reference to *
Exhibit 10.42 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995
10.43 Second Amendment to Retirement Savings Plan effective January 1, 1994 incorporated by *
reference to Exhibit 10.43 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995
10.44 Amendment to Omnibus Stock Award Plan dated March 22, 1996 _____
11.1 Statement re Computation of Net Income per Share _____
27.1 Financial Data Schedule (for SEC use only) _____
__________________________________
* Incorporated by reference
E