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, 1998
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, 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
April 30, 1998, was 23,542,105.
Page 1
Exhibit Index on Pages A to E
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-Q for the quarter ended March 31, 1998
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 32
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 33
EXHIBIT INDEX A-E
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED BALANCE SHEET
($ in thousands)
March 31, December 31,
1998 1997
----------- -----------
ASSETS (Unaudited)
Cash $ 15,378 $ 13,546
Receivables 88,475 87,702
Trading Securities:
Mortgage-backed securities 322,514 334,598
Residual interest in subprime securitizations 22,936 19,684
Mortgage loans held for sale 1,318,523 844,590
Lease receivables 58,191 51,494
Mortgage servicing rights, net 145,676 127,326
Premises and equipment, net 29,546 27,723
Accrued interest on loans held for sale 5,129 4,372
Goodwill and other intangibles 15,252 15,519
Other assets 36,293 30,375
----------- -----------
Total assets $ 2,057,913 $ 1,556,929
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 1,679,774 $ 1,224,489
Long-term borrowings 6,438 6,461
Accrued expenses 25,537 24,262
Other liabilities 124,650 86,578
----------- -----------
Total liabilities 1,836,399 1,341,790
----------- -----------
Stockholders' equity
Common stock 312 311
Additional paid-in capital 300,746 299,516
Retained earnings 26,153 17,763
Common stock held by subsidiary at cost (98,953) (98,953)
Treasury stock (3,034)
Unearned shares of employee stock ownership plan (3,710) (3,498)
----------- -----------
Total stockholders' equity 221,514 215,139
----------- -----------
Total liabilities and stockholders' equity $ 2,057,913 $ 1,556,929
=========== ===========
See accompanying notes to consolidated financial statements.
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4
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except share information)
(Unaudited)
For the Three Months Ended
March 31,
-------------------------------
1998 1997
------------ ------------
REVENUES
Interest income $ 22,981 $ 13,455
Interest expense (18,689) (9,720)
------------ ------------
Net interest income 4,292 3,735
Net gain on sale of mortgage loans 40,545 17,027
Gain on sale of servicing rights 628 1,491
Servicing fees 9,080 7,535
Other income 974 269
------------ ------------
Total revenues 55,519 30,057
------------ ------------
EXPENSES
Salary and employee benefits 21,862 12,264
Occupancy expense 2,780 1,592
Amortization of servicing rights 5,629 4,108
General and administrative expenses 9,792 4,875
------------ ------------
Total expenses 40,063 22,839
------------ ------------
Income before income taxes 15,456 7,218
Income tax expense (5,875) (2,748)
------------ ------------
Net income $ 9,581 $ 4,470
============ ============
Weighted average common shares outstanding -- Basic 23,060,458 19,838,701
============ ============
Net income per common share -- Basic $ 0.42 $ 0.23
============ ============
Weighted average common shares outstanding -- Diluted 23,505,793 20,232,186
============ ============
Net income per common share -- Diluted $ 0.41 $ 0.22
============ ============
See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands, except share information)
(Unaudited)
Unearned
Common Stock Additional Shares of Employee Common Total
Three Months Ended -------------------- Paid-in Retained Stock Ownership Stock Held by Treasury Stockholders'
March 31, 1997 Shares Amount Capital Earnings Plan Subsidiary Stock Equity
- ------------------------ ---------- -------- ------- ------- ------- ----------- -------- -------------
Balance, December 31, 1996 19,285,020 $ 193 $149,653 $12,007 $(4,552) $157,301
Issuance of restricted stock 23,528 * 328 328
Shares issued under Dividend
Reinvestment and Stock
Purchase Plan and Stock
Investment Plan 3,290 * 42 (26) 16
Cash dividends (579) (579)
Shares committed to be
released under ESOP 29 111 140
Net income 4,470
Total comprehensive income 4,470
----------- ------- -------- ------- ------- --------- --------- --------
Balance, March 31, 1997 19,311,838 $ 193 $150,052 $15,872 $(4,441) $161,676
=========== ======= ======== ======= ======= ========= ========= ========
Unearned
Common Stock Additional Shares of Employee Common Total
Three Months Ended -------------------- Paid-in Retained Stock Ownership Stock Held by Treasury Stockholders'
March 31, 1998 Shares Amount Capital Earnings Plan Subsidiary Stock Equity
- ------------------------ ---------- -------- ------- ------- ------- ----------- -------- --------------
Balance, December 31, 1997 31,120,383 $ 311 $ 299,516 $ 17,763 $ (3,498) $ (98,953) $ 215,139
Issuance of restricted stock 20,056 * 328 328
Cash dividends (1,161) (1,161)
Exercise of stock options 60,932 1 403 404
Shares committed to be
released under ESOP 162 288 450
Loans to Employee Stock
Ownership Plan (500) (500)
Shares issued under Dividend
Reinvestment and Stock
Purchase Plan and Stock
Investment Plan 22,167 * 337 (30) 307
Purchase of 200,000 shares
of treasury stock $ (3,034) (3,034)
Net income 9,581
Total comprehensive income 9,581
---------- ------- --------- -------- -------- --------- -------- ---------
Balance, March 31, 1998 31,223,538 $ 312 $ 300,746 $ 26,153 $ (3,710) $ (98,953) $ (3,034) $ 221,514
========== ======= ========= ======== ======== ========= ======== =========
* Amount less than $1
See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1998 1997
- --------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 9,581 $ 4,470
Adjustments to reconcile net
income to cash used in operating activities:
Depreciation and amortization 6,984 4,856
Employee Stock Ownership Plan compensation 450 140
Provision for estimated foreclosure losses 1,962 265
Increase in receivables (773) (3,170)
Acquisition of mortgage loans (4,116,642) (2,169,288)
Proceeds from sales of mortgage loans and mortgage-backed securities 3,693,418 2,004,835
Acquisition of mortgage servicing rights (79,299) (62,007)
Sales of mortgage servicing rights 56,367 39,159
Net gain on sales of mortgage loans and servicing rights (41,173) (18,518)
Decrease in accrued interest on loans (757) (1,279)
Increase in lease receivables (6,697)
Increase in other assets (6,329) 910
Increase in residual certificates (3,252)
Increase in accrued expenses and other liabilities 39,347 6,323
- --------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (446,813) (193,304)
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of premises and equipment, net (2,961) (700)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,961) (700)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from borrowings 8,523,846 5,891,276
Repayment of borrowings (8,068,584) (5,695,677)
Issuance of restricted stock 328 328
Shares issued under Dividend Reinvestment and Stock Purchase Plan
and Stock Investment Plan 307 16
Debt issuance costs (175)
Cash dividends (1,161) (579)
Acquisition of treasury stock (3,034)
Exercise of stock options 404
Loans to Employee Stock Ownership Plan (500)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 451,606 195,189
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash 1,832 1,185
Cash, beginning of period 13,546 2,492
- --------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 15,378 $ 3,677
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
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, 1997, 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.
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No.
128), which is effective for financial statements issued for periods ending
after December 15, 1997 and has retroactively restated to report its
earnings per share on a comparable basis for all periods presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which requires that changes in the amounts of comprehensive income
items, currently reported as separate components of equity, be shown in a
financial statement, displayed as prominently as other financial
statements. The most common components of other comprehensive income
include foreign currency translation adjustments, minimum pension liability
adjustments and/or unrealized gains and losses on available-for-sale
securities. SFAS No. 130 does not require a specific format for the new
statement, but does require that an amount representing total comprehensive
income be reported. SFAS No. 130 is required to be adopted for fiscal years
beginning after December 15, 1997. The Company adopted SFAS No. 130 for
the full-year 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which establishes new
standards for business segment reporting. Requirements of SFAS No. 131
include reporting of (a) financial and descriptive information about
reportable operating segments, (b) a measure of segment profit or loss,
certain specific revenue and expense items and segment assets with
reconciliations of such amounts to the Company's financial statements and
(c) information regarding revenues derived from the Company's products and
services, information about major customers and information related to
geographic areas. SFAS No 131 is effective for fiscal years beginning after
December 15, 1997. The Company plans to adopt SFAS No. 131 for the
full-year 1998.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pension and Other Postretirement
Benefits" which revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. The statement is effective for fiscal years
beginning after December 15, 1997. The Company plans to adopt SFAS No. 132
for the full-year 1998.
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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 Resource
Bancshares Mortgage Group, Inc. (the Company) (and the notes thereto) and the
other information included or incorporated by reference into the Company's 1997
Annual Report on Form 10-K and the interim Consolidated Financial Statements
contained herein. Statements included in this discussion and analysis (or
elsewhere in this document) 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 in
the Company's Joint Proxy Statement/ Prospectus dated December 2, 1997: (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 (x) availability of funding sources and other risks and
uncertainties, discussed elsewhere herein, in the Company's Joint Proxy
Statement/ Prospectus dated December 2, 1997 or from time to time in the
Company's periodic reports filed with the Securities and Exchange Commission.
The Company disclaims any obligation to update any forward-looking statements.
THE COMPANY
The Company is a diversified financial services company engaged primarily
in the business of mortgage banking, through the origination and purchase
(through a nationwide network of correspondents, brokers and retail offices),
sale and servicing of agency-eligible and subprime residential, single-family,
first-mortgage loans and the purchase and sale of servicing rights associated
with such loans. In addition, the Company originates, sells and services small
ticket commercial equipment leases and originates, sells, underwrites for
investors and services commercial mortgage loans.
PRODUCTION
The Company purchases residential mortgage loans from its correspondents
and through its wholesale division and until its sale in May 1998, originated
mortgage loans through its retail division. The Company also purchases and
originates subprime mortgage loans through a separate division. The Company also
originates commercial mortgage loans and leases small ticket equipment items.
9
A summary of production by source for the periods indicated is set forth
below:
($ IN THOUSANDS) QUARTER ENDED MARCH 31,
--------------------------
1998 1997
---------- ----------
Loan Production:
Correspondent Division $2,891,746 $1,605,726
Wholesale Division 734,860 388,905
Retail Division 187,881 127,900
---------- ----------
Total Agency-Eligible Loan Production 3,814,487 2,122,531
Subprime Division 109,640 46,757
Commercial Mortgage (for Investors and Conduits) 192,515
Leases 12,840
---------- ----------
Total Production $4,129,482 $2,169,288
========== ==========
Initially, the Company was exclusively focused on purchasing
agency-eligible mortgage loans through its correspondents. In order to diversify
its sources of loan volume, the Company started a wholesale operation in 1994, a
retail operation in 1995 and a subprime division in 1997. Management anticipates
that its higher margin wholesale and subprime production will continue to
account for an increasing percentage of total mortgage loan production as those
divisions are expanded more rapidly than the correspondent operations. In
general, management has targeted as a near-term goal a production mix of
approximately 70% correspondent, 25% wholesale and 5% subprime. In order to
further diversify its sources of production and revenue, in December 1997, the
Company acquired Resource Bancshares Corporation (RBC), through which the
Company originates small ticket commercial equipment leases and commercial
mortgage loans. These two new sources of production accounted for 5% of the
Company's total first quarter 1998 production.
A summary of key information relevant to industry residential mortgage loan
production activity is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31,
--------------------------------------
1998 1997
------------- -------------
U. S. 1-4 Family Mortgage Originations Statistics (1):
U. S. 1-4 Family Mortgage Originations $ 310,000,000 $ 172,000,000
Adjustable Rate Mortgage Market Share 13% 25%
Estimated Fixed Rate Mortgage Originations 270,000,000 129,000,000
Company Information:
Agency-Eligible Loan Production $ 3,814,487 $ 2,122,531
Estimated Company Market Share 1.23% 1.23%
(1) Source: Mortgage Bankers Association of America, Economics Department.
The Company's total agency-eligible residential mortgage production
increased by 80% for the first quarter of 1998 as compared to the first quarter
of 1997. The Company's estimated share of the U.S. 1-4 family mortgage
originations remained essentially constant for these periods and the Company
remained among the nation's top 15 mortgage originators for the first
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quarter of 1998. The Company's 80% agency-eligible loan production increase
directly correlates with the nationwide 80% increase in 1-4 family mortgage
originations for the first quarter of 1998 as compared to the first quarter of
1997.
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,
which 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. That is, the Company has developed a cost structure
that is more directly variable with loan production because the correspondent
incurs most of the fixed costs of operating and maintaining branch offices and
of identifying and interacting directly with loan applicants.
A summary of key information relevant to the Company's correspondent
residential loan production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31,
-----------------------------------------------
1998 1997
---------------------- --------------------
Correspondent Loan Production $ 2,891,746 $ 1,605,726
Estimated Correspondent Market Share (1) 0.93% 0.93%
Approved Correspondents 900 897
(1) Source: Mortgage Bankers Association of America, Economics Department.
The Company's correspondent market share remained constant at 0.93% for the
first quarters of 1998 and 1997, while the Company's total correspondent loan
production increased by 80%. The increase in correspondent loan production is
primarily a factor of the 80% nationwide increase in mortgage loan production.
The number of approved correspondent lenders at the end of the first quarter of
1998 remained constant with that of the first quarter of 1997 as the Company
focused on maintenance of those correspondent relationships most compatible with
the Company's overall business strategies while continuing a disciplined and
measured expansion through establishment of new correspondent relationships.
Wholesale Loan Production
In May 1994, the Company began its expansion into the wholesale mortgage
banking business. In connection therewith, the Company receives loan
applications through brokers, underwrites the loans, funds the loans at closing
and prepares all closing documentation. The wholesale branches also handle all
shipping and follow-up procedures on loans. Typically mortgage brokers are
responsible for taking applications and accumulating the information precedent
to the Company's processing of the loans. Although the establishment of
wholesale branch offices involves the incurrence of fixed expenses associated
with maintaining those offices, wholesale operations also provide for higher
profit margins than correspondent loan
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production. Additionally, each branch office 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.
A summary of key information relevant to the Company's wholesale production
activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31,
---------------------------------------------------
1998 1997
------------------------- ------------------------
Wholesale Loan Production $ 734,860 $ 388,905
Estimated Wholesale Market Share (1) 0.24% 0.23%
Wholesale Division Operating Expenses $ 3,797 $ 2,234
Approved Brokers 3,090 2,423
Number of Branches 15 13
Number of Employees 146 128
(1) Source: Mortgage Bankers Association of America, Economics Department.
The 89% ($346 million) increase in wholesale loan production, from $388.9
million for the first quarter of 1997 to $734.9 million during the first quarter
of 1998, resulted from the 80% nationwide increase in loan production and the
Company's addition of two new wholesale branches between the first quarter of
1997 and the first quarter of 1998. The increase in operating expenses for the
wholesale division was primarily a result of the increased production. Wholesale
division operating expenses as a percentage of production decreased 10% from 57
basis points in the first quarter of 1997 to 52 basis points in the first
quarter of 1998.
Strategically, management anticipates focusing in the near-term on
significantly expanding its wholesale presence nationwide due to the relatively
higher margins attributable to this channel. Management anticipates that the
wholesale division will continue to account for an increasing percentage of the
Company's total loan production.
Retail Loan Production
During late 1997, the Company began reviewing the compatibility of the
retail operation with its primary business focus. On March 11, 1998, the Company
signed a definitive agreement with CFS Bank under which the Company sold the
retail production franchise of Intercounty Mortgage, Inc. to CFS Bank effective
May 1, 1998. Historically, the Company has focused on accumulation of loan
production through third-party correspondent and wholesale broker channels
because of the relatively lower fixed expenses and capital investments required,
among other reasons. Management believes the sale of the retail operation will
allow the Company to refocus on its core competency as a correspondent and
wholesale mortgage lender.
A summary of key information relevant to the Company's retail production
activities is set forth below:
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($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31,
---------------------------------------------------
1998 1997
-------------------- --------------------
Retail Loan Production $ 187,881 $ 127,900
Estimated Retail Market Share (1) 0.06% 0.07%
Retail Division Operating Expenses $ 3,919 $ 4,093
Number of Branches 6 6
Number of Employees 186 212
(1) Source: Mortgage Bankers Association of America, Economics Department.
Retail loan production increased 47% for the first quarter of 1998 as
compared to the first quarter of 1997. Retail division operating expenses as a
percentage of production decreased from 320 basis points for the first quarter
of 1997 to 209 basis points for the first quarter of 1998.
Subprime Loan Production
During the past several years the Company has diversified its sources of
agency-eligible loan production through de novo expansions into wholesale and
retail operations. In 1997, this basic business strategy was supplemented by
further diversification across markets through the Company's initial expansion
into subprime lending activities. In connection therewith, the Company acquired
Meritage Mortgage Corporation (Meritage), a wholesale producer of subprime
mortgage loans, in April 1997. The Company's subprime division produced $110
million during the first quarter of 1998 or 3% of the Company's total first
quarter 1998 residential mortgage loan production volume.
Management anticipates significant expansion of its subprime division in
1998 as subprime branches opened or acquired in 1997 reach full year production
levels, as additional wholesale subprime branches are opened and as subprime
operations are introduced and made available through the Company's existing 15
branch agency-eligible wholesale network, and in the future, as products are
introduced through the Company's existing nationwide correspondent production
channel.
A summary of key information relevant to the Company's subprime production
activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31,
--------------------------------------------------
1998 1997
-------------------- ---------------------
Subprime Loan Production $ 109,640 $ 46,757
Subprime Division Operating Expenses $ 4,623 $ 441
Number of Brokers 794
Number of Employees 173 16
Subprime loan production increased by 134% to $110 million for the first
quarter of 1998 as compared to $47 million during the first quarter of 1997.
During the first quarter of 1997, the
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Company's subprime division was in its startup stage and substantially all of
the production for that quarter was purchased in bulk from Meritage prior to the
Company's acquisition of Meritage.
Commercial Mortgage Production
In connection with its acquisition of RBC on December 31, 1997, the Company
acquired RBC's subsidiary, Laureate Realty. Laureate Realty originates
commercial mortgage loans for various insurance companies and other investors.
Commercial mortgage loans are generally originated in the name of the investor
and, in most instances, Laureate Realty retains the right to service the loans
under a servicing agreement.
A summary of key information relevant to the Company's commercial mortgage
production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED
MARCH 31,
---------------------------------
1998 1997
-------------- -------------
Commercial Mortgage Production $ 192,515 N/A
Commercial Mortgage Division Operating Expenses $ 2,450 N/A
Number of Branches 10 N/A
Number of Employees 70 N/A
Lease Production
The Company's leasing division, Republic Leasing, acquired on December 31,
1997, originates and services small-ticket 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,
---------------------------------
1998 1997
-------------- -------------
Lease Production $ 12,840 N/A
Lease Division Operating Expenses $ 1,220 N/A
Number of Brokers 207 N/A
Number of Employees 61 N/A
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AGENCY-ELIGIBLE MORTGAGE SERVICING
Agency-eligible mortgage servicing includes collecting and remitting
mortgage loan payments, accounting for principal and interest, holding escrow
funds for payment of mortgage-related expenses such as taxes and insurance,
making advances to cover delinquent payments, making inspections 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. In that regard, the Company believes it is the largest
national supplier of agency-eligible servicing rights to the still-consolidating
mega-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. By continuing to focus on the low-cost correspondent and wholesale
production channels, the Company is able to minimize the cash operating costs of
its loan production platform and thus the strategically required size of its
agency-eligible loan servicing operation.
15
A summary of key information relevant to the Company's loan servicing
activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31,
-------------------------------------
1998 1997
------------ -----------
Underlying Unpaid Principal Balances:
Beginning Balance* $ 7,125,222 $ 6,670,267
Loan Production (net of servicing-
released production) 4,242,687 2,327,189
Net Change in Work-in-Process (404,655) (261,160)
Bulk Acquisitions 605,761
Sales of Servicing (2,535,016) (1,711,276)
Paid-In-Full Loans (366,636) (132,896)
Amortization, Curtailments and Other, net (81,421) (77,102)
------------ -----------
Ending Balance* 7,980,181 7,420,783
Subservicing Ending Balance 2,989,622 1,992,983
------------ -----------
Total Underlying Unpaid Principal Balances $ 10,969,803 $ 9,413,766
============ ===========
Total Company Loan Servicing Fees $ 9,080 $ 7,535
Net Interest Income from Owned Leases 946
------------ -----------
10,026 7,535
------------ -----------
Total Company Operating Expenses 40,063 22,839
Total Company Amortization and Depreciation (6,984) (4,856)
------------ -----------
Total Company Cash Operating Expenses 33,079 17,983
------------ -----------
Coverage Ratio 30% 42%
============ ===========
The Company's coverage ratio for the first quarter of 1998 at 30% was lower than
the Company's target level of between 50% and 80%. The Company's expansion into
the relatively high cost subprime production channel and diversification into
the commercial mortgage and small ticket equipment leasing businesses, together
with normal inflationary pressures on costs, have combined to increase cash
operating costs at a 84% pace for the first quarter of 1998 over that for the
first quarter of 1997. Although the servicing portfolio and servicing fees have
increased during the same period, such increases have not kept pace with the
pace of growth in cash operating expenses. Strategically, and in the opinion of
the Company's management, market prices for servicing rights have been
attractive throughout this period. Accordingly, management has consciously
determined on a risk versus return basis to allow this ratio to move below its
stated goals. Opportunistically and as market conditions permit, management
would expect to bring this ratio back in-line with the stated objective.
Effective May 1, 1998, the Company sold its retail production franchise, which
accounted for $3,919 of the Company's cash operating expenses for the first
quarter of 1998. Without retail division operating expenses for the first
quarter of 1998, the Company's coverage ratio would have been 34%.
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31,
-------------------------------------
1998 1997
------------ -----------
Average Underlying Unpaid Principal Balances
(including subservicing) $ 10,346,482 $ 8,886,145
Weighted Average Note Rate* 7.51% 7.78%
Weighted Average Servicing Fee* 0.40% 0.40%
Delinquency (30+ days) Including
Bankruptcies and Foreclosures* 2.49% 3.74%
Number of Servicing Division Employees 152 133
* These numbers and statistics apply to the Company's owned agency-eligible
servicing portfolio and therefore exclude the subservicing portfolio.
The $1.5 billion, or 16%, increase in the average underlying unpaid
principal balance of agency-eligible mortgage loans being serviced for the first
quarter of 1998 as compared to the first quarter of 1997 is primarily related to
the Company's increased loan production volumes during the latter half of 1997
and the first quarter of 1998 compared to the same periods of the prior years.
Since the Company generally sells servicing rights related to the
agency-eligible loans it produces within 90 to 180 days of purchase or
origination, increased production volumes generally result in a higher volume of
mortgage servicing rights held in inventory pending sale.
16
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1998, COMPARED TO QUARTER ENDED
MARCH 31, 1997
SUMMARY BY OPERATING DIVISION
Following is a summary of the allocated revenues and expenses for each of
the Company's operating divisions for the quarters ended March 31, 1998 and
1997, respectively:
RESIDENTIAL
------------------------------------
($ IN THOUSANDS) MORTGAGE PRODUCTION
---------------------- AGENCY -
AGENCY - ELIGIBLE COMMERCIAL
FOR THE QUARTER ENDED MARCH 31, 1998* ELIGIBLE SUBPRIME SERVICING MORTGAGE LEASING OTHER CONSOLIDATED
- ------------------------------------- -------- -------- --------- -------- ------- ------- ------------
Net interest income $ 1,736 $ 1,347 $ 129 $ 946 $ 134 $ 4,292
Net gain on sale of mortgage loans 32,189 6,171 2,185 40,545
Gain on sale of mortgage servicing rights $ 628 628
Servicing fees 8,120 692 268 9,080
Other income 87 395 93 2 219 178 974
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Total revenues 34,012 7,913 8,841 3,008 1,433 312 55,519
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Salary and employee benefits 15,489 3,299 828 1,521 553 172 21,862
Occupancy expense 1,972 372 120 186 80 50 2,780
Amortization of mortgage servicing rights 5,302 327 5,629
General and administrative expenses 6,142 952 1,520 416 587 175 9,792
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Total expenses 23,603 4,623 7,770 2,450 1,220 397 40,063
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Income before income taxes 10,409 3,290 1,071 558 213 (85) 15,456
Income tax expense (3,957) (1,251) (407) (212) (81) 33 (5,875)
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Net income $ 6,452 $ 2,039 $ 664 $ 346 $ 132 $ (52) $ 9,581
======== ======== ======== ======== ======= ======= ========
RESIDENTIAL
------------------------------------
($ IN THOUSANDS) MORTGAGE PRODUCTION
---------------------- AGENCY -
AGENCY - ELIGIBLE COMMERCIAL
FOR THE QUARTER ENDED MARCH 31, 1997* ELIGIBLE SUBPRIME SERVICING MORTGAGE LEASING OTHER CONSOLIDATED
- ------------------------------------- -------- -------- --------- -------- ------- ------- ------------
Net interest income $ 3,735 $ 3,735
Net gain on sale of mortgage loans 17,027 17,027
Gain on sale of mortgage servicing rights $ 1,491 1,491
Servicing fees 7,535 7,535
Other income 269 269
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Total revenues 21,031 9,026 30,057
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Salary and employee benefits 11,239 $ 324 701 12,264
Occupancy expense 1,474 40 78 1,592
Amortization of mortgage servicing rights 4,108 4,108
General and administrative expenses 3,655 77 1,143 4,875
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Total expenses 16,368 441 6,030 22,839
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Income before income taxes 4,663 (441) 2,996 7,218
Income tax expense (1,775) 168 (1,141) (2,748)
- ------------------------------------- -------- -------- -------- -------- ------- ------- --------
Net income $ 2,888 $ (273) $ 1,855 $ 4,470
======== ======== ======== ======== ======= ======= ========
*Revenues and expenses have been recorded on a direct basis to the extent
possible. Other than direct allocation, management believes that revenues and
expenses have been allocated to the respective divisions on a reasonable basis.
17
AGENCY-ELIGIBLE MORTGAGE OPERATIONS
Following is a comparison of the revenues and expenses allocated to
the Company's agency-eligible mortgage production operations.
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
($ IN THOUSANDS) 1998 1997
---------- ----------
Net interest income $ 1,736 $ 3,735
Net gain on sale of mortgage loans 32,189 17,027
Other income 87 269
---------- ----------
Total production revenue 34,012 21,031
---------- ----------
Salary and employee benefits 15,489 11,239
Occupancy expense 1,972 1,474
General and administrative expenses 6,142 3,655
---------- ----------
Total production expenses 23,603 16,368
---------- ----------
Net pre-tax production margin $ 10,409 $ 4,663
---------- ----------
Production $3,814,487 $2,122,531
Pool delivery 3,319,382 2,031,525
Total production revenue to pool delivery 102 bps 104 bps
Total production expenses to production 62 bps 77 bps
---------- ----------
Net pre-tax production margin 40 bps 27 bps
========== ==========
Summary
The production revenue to pool delivery ratio declined two basis points, or
2%, for the first quarter of 1998 as compared to the first quarter of 1997.
Generally, net gain on sale of mortgage loans (97 basis points for 1998 versus
84 basis points for 1997) improved due to better overall execution into the
secondary markets. However, net interest income (5 basis points for 1998 versus
18 basis points for 1997) declined and offset this improvement due to the
relatively flatter yield curve environment. The production expenses to
production ratio decreased 15 basis points, or 19%, for the first quarter of
1998 as compared to the first quarter of 1997. Generally, this relates to better
leverage of fixed operating expenses in the higher volume production environment
for the first quarter of 1998 versus the comparable period of 1997. As a
consequence of the foregoing, the Company's net agency-eligible pre-tax
production margin improved 13 basis points, or 48%, to 40 basis points while in
absolute dollars it increased $5.7 million, or 123%.
18
Net Interest Income
The following table analyzes net interest income allocated to the Company's
agency-eligible mortgage production activities in terms of rate and volume
variances of the interest spread (the difference between interest rates earned
on loans and mortgage-backed securities and interest rates paid on
interest-bearing sources of funds).
19
($ IN THOUSANDS)
Variance
Average Volume Average Rate Interest Attributable to
- --------------------------------------- --------------------- ---------------------
1998 1997 1998 1997 1998 1997 Variance Rate Volume
- --------------------------------------- ----------------------------------------------------
INTEREST INCOME
Mortgages Held for Sale
and Mortgage-Backed
$1,161,423 $ 722,308 6.59% 7.45% Securities $ 19,131 $ 13,455 $ 5,676 $ (2,504) $ 8,180
- --------------------------------------- ----------------------------------------------------
INTEREST EXPENSE
$ 475,934 $ 375,129 4.64% 4.60% Warehouse Line $ 5,443 $ 4,257 $ 1,186 $ 42 $ 1,144
624,057 329,892 5.84% 5.32% Gestation Line 8,984 4,325 4,659 803 3,856
90,422 19,744 6.69% 6.29% Servicing Secured Line 1,491 306 1,185 87 1,098
36,203 19,067 5.90% 6.14% Servicing Receivable Line 527 282 245 (9) 254
6,538 8.18% Other Borrowings Facility 132 132 132
Fees & Other Charges 818 550 268 268
- --------------------------------------- ----------------------------------------------------
$1,233,154 $ 743,832 5.72% 5.30% Total Interest Expense $ 17,395 $ 9,720 $ 7,675 $ 1,055 $ 6,620
- --------------------------------------- ----------------------------------------------------
0.87% 2.15% Net Interest Income $ 1,736 $ 3,735 $(1,999) $ (3,559) $ 1,560
================== ====================================================
Net interest income from agency-eligible product decreased 54% to $1.7
million for the first quarter of 1998 compared to $3.7 million for the first
quarter of 1997. The 128 basis point decrease in the interest-rate spread was
primarily the result of the narrower spreads between long and short-term rates
in the first quarter of 1998 compared to the first quarter of 1997. The
Company's mortgages and mortgage-backed securities are generally sold and
replaced within 30 to 35 days. Accordingly, the Company generally borrows at
rates based upon short-term indices, while its asset yields are primarily based
upon long-term mortgage rates.
20
Net Gain on Sale of Agency-eligible Mortgage Loans
A reconciliation of gain on sale of agency-eligible mortgage loans for the
periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31,
-------------------------------
1998 1997
---------- ----------
Gross proceeds on sales of mortgage loans $3,363,265 $2,004,835
Initial unadjusted acquisition cost of mortgage loans sold, net
of hedge results 3,361,895 2,003,036
---------- ----------
Unadjusted gain on sale of mortgage loans 1,370 1,799
Loan origination and correspondent program administrative fees 8,970 6,501
---------- ----------
Unadjusted aggregate margin 10,340 8,300
Acquisition basis allocated to mortgage servicing rights
(SFAS No. 125) 20,640 8,506
Net change in deferred administrative fees 1,209 221
---------- ----------
Net gain on sale of agency-eligible mortgage loans $ 32,189 $ 17,027
========== ==========
The Company sold agency-eligible loans during the first quarter of 1998
with an aggregate unpaid principal balance of $3.4 billion compared to sales of
$2.0 billion for the first quarter of 1997. The amount of proceeds received on
sales of mortgage loans exceeded the initial unadjusted acquisition cost of the
loans sold by $1.4 million (4 basis points) for the first quarter of 1998 as
compared to $1.8 million (9 basis points) for the comparable period of the prior
year. The Company received loan origination and correspondent program
administrative fees of $9.0 million (27 basis points) on these loans during the
first quarter of 1998 and $6.5 million (32 basis points) during the first
quarter of 1997. The Company allocated $20.6 million (61 basis points) to basis
in mortgage servicing rights for loans sold in the first quarter of 1998 as
compared to $8.5 million (42 basis points) during the first quarter of 1997 in
accordance with Statement of Financial Accounting Standards (SFAS) No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". Overall, the increase is attributed to better execution into
the secondary markets. Consequently, net gain on sale of agency-eligible
mortgage loans increased to $32.2 million for the first quarter of 1998 versus
$17.0 million for the first quarter of 1997.
SUBPRIME MORTGAGE OPERATIONS
Following is an analysis of the revenues and expenses allocated to
the Company's subprime mortgage production operations.
21
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
$ IN THOUSANDS) 1998 1997
-------- --------
Net interest income $ 1,347
Net gain on sale of mortgage loans 6,171
Other income 395
-------- --------
Total production revenue 7,913
-------- --------
Salary and employee benefits $ 3,299 $ 324
Occupancy expense 372 40
General and administrative expenses 952 77
-------- --------
Total production expenses 4,623 441
-------- --------
Net pre-tax production margin $ 3,290 $ (441)
-------- --------
Production $109,640 $ 46,757
Whole loan sales and securitizations 86,703
Total production revenue to whole loan sales and securitizations 913 bps
Total production expenses to production 422 bps 94 bps
-------- --------
Net pre-tax production margin 491 bps (94 bps)
======== ========
Summary
During the first quarter of 1998, the Company produced $109.6 million of
subprime loans. The Company sold approximately $61.5 million (71%) of its first
quarter 1998 production in whole loan transactions and delivered $25.2 million
into the secondary markets through securitization transactions. Overall, the
Company operated during the first quarter of 1998 at a 4.91% pre-tax subprime
production margin. At March 31, 1998, the Company had unsold subprime mortgage
loans of $63.5 million. During the first quarter of 1997, the Company's subprime
division was in its initial startup phase and substantially all of the
production for that quarter was purchased in bulk from Meritage Mortgage
Corporation prior to the Company's acquisition of Meritage. The Company
purchased $46.8 million of subprime mortgage loans from Meritage, prior to the
acquisition.
Net Interest Income
($ IN THOUSANDS)
Variance
Average Volume Average Rate Interest Attributable to
- --------------------------------------- --------------------- ---------------------
1998 1997 1998 1997 1998 1997 Variance Rate Volume
- --------------------------------------- ----------------------------------------------------
INTEREST INCOME
Mortgages Held for Sale
$ 83,971 9.50% and Residual Certificates $ 1,994 $ 1,994 $ 1,994
- --------------------------------------- ----------------------------------------------------
INTEREST EXPENSE
$ 43,967 5.97% Total Interest Expense $ 647 $ 647 $ 647
- --------------------------------------- ----------------------------------------------------
3.53% Net Interest Income $ 1,347 $ 1,347 $ 1,347
================ ====================================================
Net interest income on subprime loans and accretion income on residuals
was $1.3 million and the interest rate spread was 353 basis points, for the
first quarter of 1998. This was primarily the result of the larger interest rate
spreads possible for subprime product.
22
Net Gain on Securitization and Sale of Subprime Mortgage Loans
A reconciliation of the gain on securitization of subprime mortgage loans
for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31,
-------------------------------
1998 1997
-------- -------
Gross proceeds on securitization of subprime mortgage loans $ 24,867
Initial acquisition cost of subprime mortgage loans
securitized, net of fees 25,376
-------- -------
Unadjusted loss on securitization of subprime mortgage loans (509)
Initial capitalization of residual certificates 2,187
-------- -------
Net gain on securitization of subprime mortgage loans $ 1,678
======== =======
Residual certificates arising from subprime securitizations are classified
as trading securities (as defined in SFAS No. 115), and changes in the fair
value of such certificates are recorded as adjustments to income in the period
of change. The Company assesses the fair value of the residual certificates
quarterly, based on an independent third party valuation. This valuation is
based on the discounted cash flows expected to be available to the holder of the
residual certificate. Significant assumptions used for purposes of the March 31,
1998 valuation are set forth below:
Discount Rate 13.00%
Prepayment Speeds
Fixed rate mortgages 4.8% to 28% constant prepayment rate
Adjustable rate mortgages 4.8% to 32% constant prepayment rate
Ramp to Full Prepayment Speeds Ramping period based on prepayment penalty
period and adjustable rate mortgage first
reset dates.
Constant Default Rate 3%
Loss Severity 25%
23
The assumptions above are estimated based on current conditions for similar
instruments that are subject to prepayment and credit risks. Other factors
evaluated in the determination of fair value include credit and collateral
quality of the underlying loans, current economic conditions and various fees
and costs (such as prepayment penalties) associated with ownership of the
residual certificate. Although the Company believes that the fair values of its
residual certificates are reasonable given current market conditions, the
assumptions used are estimates and actual experience may vary from these
estimates. Difference in the actual prepayment speed and loss experience from
the assumptions used, could have a significant effect on the fair value of the
residual certificates.
The Company also sold subprime mortgage loans on a whole loan basis during
the first quarter of 1998. 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. No interest in these loans is retained by the Company.
A reconciliation of the gain on subprime mortgage whole loan sales for the
periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31,
------------------------------------------
1998 1997
----------------- ------------------
Gross proceeds on whole loan sales of subprime mortgage loans $ 65,957
Initial acquisition cost of subprime mortgage loans sold, net of fees 61,464
----------------- ------------------
Net gain on whole loan sales of subprime mortgage loans $ 4,493
================= ==================
As discussed above, during the first quarter of 1998 the Company sold
approximately $14.4 million of second mortgage loans and $47.1 million of first
mortgage subprime loan product into the whole loan market for a cash price of
105.60. The characteristics of the underlying first mortgage loans were
substantially similar to the collateral included in the 1997-1 and 1997-2
securitizations, except in that the collateral yield was 9.55% (versus a 10.11%
yield for the securitized product). Had the Company elected to securitize this
product into a structure similar to its 1997 securitizations, the expected
excess yield would have approximated 3.10% (9.55% collateral yield minus 0.69%
estimated securitization cost minus 5.76% estimated bond equivalent cost). This
implies that similar collateral is valued at 1.81 times the excess yield in
the whole loan market (the 5.60 premium over par divided by the 3.10 expected
excess yield). As summarized in the following analysis, the recorded residual
values imply that the Company's 1997 securitizations are valued at 1.80 times
the implied excess yield as compared to the 1.81 multiple implied for the cash
market.
($ in thousands) Securitizations
-------------------
1997-1 1997-2 Subtotal Other Total
-------- -------- -------- ------- -------
Residual Certificates $ 8,401 $ 9,471 $ 17,872 $ 5,064 $ 22,936
Bonds $82,689* $ 97,205* $179,894 $63,814** $243,708
-------- -------- -------- ------- --------
Subtotal $91,090 $106,676 $197,766 $68,878 $266,644
Unpaid Principal Balance $85,476* $100,062* $185,538 $65,560** $251,098
-------- -------- -------- ------- --------
Implied Price 106.57 106.61 106.59 105.06 106.19
-------- -------- -------- ------- --------
* Amounts were based upon trustee statements dated April 27, 1998 that covered
the period ended March 31, 1998.
** Amounts were based upon trustee statements dated March 31, 1998 that covered
the period ended February 28, 1998.
Collateral Yield 10.37 9.89 10.11 11.08 10.36
Collateral Equivalent
Securitization Costs (0.73) (0.66) (0.69) (0.50) (0.64)
Collateral Equivalent
Bond Rate (5.71) (5.80) (5.76) (7.25) (6.15)
-------- -------- -------- ------- --------
3.93 3.43 3.66 3.33 3.57
-------- -------- -------- ------- --------
Implied Premium
Above Par 6.57 6.61 6.59 5.06 6.19
Implied Collateral
Equivalent Excess Yield 3.93 3.43 3.66 3.33 3.57
-------- -------- -------- ------- --------
Multiple 1.67x 1.93x 1.80x 1.52x 1.73x
-------- -------- -------- ------- --------
24
AGENCY-ELIGIBLE MORTGAGE SERVICING
Following is a summary of the revenues and expenses allocated to the
Company's agency-eligible mortgage servicing operations for the quarters ended
March 31, 1998 and 1997:
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
($ IN THOUSANDS) 1998 1997
---------- ----------
Servicing fees $ 8,120 $ 7,535
Other income 93
---------- ----------
Servicing revenues 8,213 7,535
---------- ----------
Salary and employee benefits 828 701
Occupancy expense 120 78
Amortization of mortgage servicing rights 5,302 4,108
General and administrative expenses 1,520 1,143
---------- ----------
Total loan servicing expenses 7,770 6,030
---------- ----------
Net pre-tax servicing margin 443 1,505
Gain on sale of mortgage servicing rights 628 1,491
---------- ----------
Net pre-tax servicing contribution $ 1,071 $ 2,996
========== ==========
Average owned servicing portfolio $7,796,911 $7,118,832
Servicing sold 2,535,016 1,712,308
Net pre-tax servicing margin to average servicing portfolio 2 bps 8 bps
Gain on sale of servicing to servicing sold 2 bps 9 bps
Summary
The ratio of net pre-tax servicing margin to the average servicing
portfolio declined six basis points primarily due to relatively larger increases
in amortization and general and administrative expenses. The increased
amortization expense is attributable to generally higher levels of mortgage
servicing rights held for sale which are carried at a higher basis than older
available-for-sale mortgage servicing rights and thus require a relatively
higher periodic amortization charge.
Overall, the servicing division contributed $1.1 million to first quarter
1998 pre-tax net income, a $1.9 million, or 64%, decrease from the $3.0 million
contribution for the first quarter of 1997.
25
Loan servicing fees were $8.1 million for the first quarter of 1998,
compared to $7.5 million for the first quarter of 1997, an increase of 8%. This
increase is primarily related to an increase in the average aggregate underlying
unpaid principal balance of mortgage loans serviced to $7.8 billion during the
first quarter of 1998 from $7.1 billion during the first quarter of 1997, an
increase of 10%. Similarly, amortization of mortgage servicing rights also
increased to $5.3 million during the first quarter of 1998 from $4.1 million
during the first quarter of 1997, an increase of 29%. The increase in
amortization is primarily attributable to the growth in the average balance of
the mortgage loans serviced and the higher basis in the servicing rights. As a
result, net servicing margin decreased 18% to $2.8 million during the first
quarter of 1998, from $3.4 million during the first quarter of 1997.
Included in loan servicing fees for the first quarters of 1998 and 1997 are
subservicing fees received by the Company of $268 thousand and $148 thousand,
respectively. The subservicing fees are associated with temporary subservicing
agreements between the Company and purchasers of mortgage servicing rights.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage servicing
rights for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31,
-------------------------------
1998 1997
----------- -----------
Underlying unpaid principal balances of mortgage loans on
which servicing rights were sold during the period $ 2,535,016 $ 1,712,308
=========== ===========
Gross proceeds from sales of mortgage servicing rights $ 56,367 $ 39,159
Initial acquisition basis, net of amortization and hedge results 43,031 28,745
----------- -----------
Unadjusted gain on sale of mortgage servicing rights 13,336 10,414
Acquisition basis allocated from mortgage loans, net of
amortization (SFAS No. 125) (12,708) (8,923)
----------- -----------
Gain on sale of mortgage servicing rights $ 628 $ 1,491
=========== ===========
During the first quarter of 1998, the Company completed six sales of
mortgage servicing rights representing $2.5 billion of underlying unpaid
principal mortgage loan balances. This compares to eight sales of mortgage
servicing rights representing $1.7 billion of underlying unpaid principal
mortgage loan balances in the first quarter of 1997. The unadjusted gain on the
sale of mortgage servicing rights was $13.3 million (53 basis points) for the
first quarter of 1998, up from $10.4 million (61 basis points) for the first
quarter of 1997. The Company reduced this unadjusted gain by $12.7 million in
the first quarter of 1998, versus an $8.9 million reduction during the first
quarter of 1997, in accordance with SFAS No. 125.
26
COMMERCIAL MORTGAGE OPERATIONS
Following is a summary of the revenues and expenses allocated to the
Company's commercial mortgage production operations.
FOR THE QUARTER ENDED MARCH 31,
---------------------------------------
($ IN THOUSANDS) 1998 1997
--------------- ---------------
Net interest income $ 129
Net gain on sale of mortgage loans 2,185
Other income 2
--------------- ---------------
Total production revenue 2,316
--------------- ---------------
Salary and employee benefits 1,521
Occupancy expense 186
General and administrative expenses 416
--------------- ---------------
Total production expenses 2,123
--------------- ---------------
Net pre-tax production margin $ 193
--------------- ---------------
Servicing fees $ 692
Amortization of mortgage servicing rights 327
--------------- ---------------
Net pre-tax servicing margin 365
--------------- ---------------
Pre-tax income $ 558
--------------- ---------------
Production $ 192,515
Whole loan sales 192,515
Average commercial mortgage servicing portfolio 2,793,242
Total production revenue to whole loan sales 120 bps
Total production cost to production 110 bps
--------------- ---------------
Net pre-tax production margin 10 bps
--------------- ---------------
Servicing fees to average servicing portfolio 10 bps
--------------- ---------------
Amortization of mortgage servicing rights to average
servicing portfolio 5 bps
--------------- ---------------
Net pre-tax servicing margin to average servicing portfolio 5 bps
--------------- ---------------
Laureate Realty originates commercial mortgage loans for various insurance
companies and other investors, primarily in Alabama, Florida, Indiana, North
Carolina, South Carolina, Tennessee and Virginia. Substantially all loans
originated by Laureate Realty have been originated in the name of the investor,
and in most cases, Laureate Realty has retained the right to service the loans
under a servicing agreement with the investor. Most commercial mortgage loan
servicing agreements are short-term, and retention of the servicing contract is
dependent on maintaining the investor relationship.
27
Net Gain on Sale of Commercial Mortgage Loans
A reconciliation of gain on sale of commercial mortgage loans for the
periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31,
-------------------------------------------
1998 1997
---------------- ----------------
Gross proceeds on sales of commercial mortgage loans $ 192,515
Initial unadjusted acquisition cost of commercial mortgage loans
sold 192,515
---------------- ----------------
Unadjusted gain on sale of commercial mortgage loans
Commercial mortgage and transaction processing fees 1,888
---------------- ----------------
Unadjusted aggregate margin 1,888
Initial acquisition cost allocated to basis in
commercial mortgage servicing rights (SFAS No. 125) 297
---------------- ----------------
Net gain on sale of commercial mortgage loans $ 2,185
================ ================
During the first quarter of 1998, the commercial mortgage division
originated and sold approximately $193 million in commercial loans. Commercial
mortgage fees on these loans were $1.9 million or 98 basis points. Origination
fees are generally between 50 and 100 basis points on the loan amount. In
addition the commercial mortgage division allocated $0.3 million, or 15 basis
points, in basis to the commercial mortgage loans as a SFAS No. 125 step-up in
basis.
LEASING OPERATIONS
Following is a summary of the revenues and expenses allocated to the
Company's small ticket equipment leasing servicing operations for the periods
indicated:
FOR THE QUARTER ENDED MARCH 31,
-------------------------------------------------
($ IN THOUSANDS) 1998 1997
-------------------- --------------------
Net interest income $ 946
Other income 219
-------------------- --------------------
Leasing production revenue 1,165
-------------------- --------------------
Salary and employee benefits 553
Occupancy expense 80
General and administrative expenses 587
-------------------- --------------------
Total lease operating expenses 1,220
-------------------- --------------------
Net pre-tax leasing production margin (55)
-------------------- --------------------
Servicing fees 268
-------------------- --------------------
Net pre-tax leasing margin $ 213
-------------------- --------------------
Average owned leasing portfolio $ 52,836
Average serviced leasing portfolio 68,086
-------------------- --------------------
Average total leasing portfolio $ 120,922
==================== ====================
Leasing production revenue to average owned portfolio 882 bps
Lease operating expense to average owned portfolio 924 bps
-------------------- --------------------
Net pre-tax leasing production margin (42) bps
==================== ====================
Servicing fees to average serviced portfolio 157 bps
28
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. At March 31, 1998 the Company's managed lease
servicing portfolio was $120.2 million. Of this managed lease portfolio, $56.2
million was owned and $64.0 million was serviced for investors. The negative
net pre-tax leasing margin is primarily attributable to the size of the
Company's owned leasing portfolio. As this owned leasing portfolio is expanded,
the net pre-tax leasing margin can be expected to improve.
Net Interest Income
Net interest income for the first quarter of 1998 was $0.9 million. This is
an annualized net interest margin of 7.17% based upon average lease receivables
owned of $52.8 million and average debt outstanding of $29.9 million.
Earnings Per Share
The following is a reconciliation of basic earnings per share to diluted
earnings per share as calculated under SFAS No. 128 for the quarters ended
March 31, 1998 and 1997, respectively:
Income Shares Per Share
For the Quarter Ended March 31, 1998 (Numerator) (Denominator) Amount
- ------------------------------------ ----------- ------------- ---------
Net Income Per Common Share - Basic
Income available to common
stockholders $9,581 23,060,458 $0.42
=====
Effect of Dilutive Securities
Stock options 445,335
------ ----------
Net Income Per Common Share - Diluted
Income available to common
stockholders plus assumed
conversions $9,581 23,505,793 $0.41
====== ========== =====
Options to purchase 6,300 shares of common stock at $16.27 per share were
outstanding during the first quarter of 1998 but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares. The options,
which will expire on August 26, 2007, were still outstanding at March 31, 1998.
Income Shares Per Share
For the Quarter Ended March 31, 1997 (Numerator) (Denominator) Amount
- ------------------------------------ ----------- ------------- ---------
Net Income Per Common Share - Basic
Income available to common
stockholders $4,470 19,838,701 $0.23
=====
Effect of Dilutive Securities
Stock options 393,485
------ ----------
Net Income Per Common Share - Diluted
Income available to common
stockholders plus assumed
conversions $4,470 20,232,186 $0.22
====== ========== =====
Options to purchase 112,350 shares of common stock at $14.25 per share,
17,850 shares of common stock at $14.31 per share, 7,875 shares of common
stock at $14.27 per share, 5,250 shares of common stock at $15.91 per share,
6,300 shares of common stock at $16.27 per share, 6,300 shares of common stock
at $15.94 per share, 10,500 shares of common stock at $14.73 per share, 31,500
shares of common stock at $14.53 per share, 56,175 shares of common stock at
$14.16 per share and 52,500 shares of common stock at $15.91 per share were
outstanding during the first quarter of 1997 but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares. The options,
which will expire on October 30, 2005, November 8, 2006, November 12, 2006,
September 3, 2007, August 26, 2007, September 16, 2007, April 11, 2007, April
18, 2007, September 1, 2005, and September 1, 2007, respectively, were still
outstanding at March 31, 1997.
29
FINANCIAL CONDITION
During the first quarter of 1998, the Company experienced a 38%
increase in total production originated and acquired compared to the fourth
quarter of 1997, from $3.0 billion during the fourth quarter of 1997 to $4.1
billion during the first quarter of 1998. Agency-eligible mortgage loan
production increased to $3.8 billion during the first quarter of 1998 from $2.9
billion during the fourth quarter of 1997. The March 31, 1998, locked mortgage
application pipeline (mortgage loans not yet closed but for which the interest
rate has been locked) was approximately $1.5 billion and the application
pipeline (mortgage loans for which the interest rate has not yet been locked)
was approximately $0.7 billion.
Residential mortgage loans held for sale and mortgage-backed securities
totaled $1.6 billion at March 31, 1998, versus $1.2 billion at December 31,
1997, an increase of 39%. The Company's servicing portfolio (exclusive of loans
under subservicing agreements) increased to $8.0 billion at March 31, 1998, from
$7.1 billion at December 31, 1997, an increase of 12%.
Short-term borrowings, which are the Company's primary source of funds,
totaled $1.7 billion at March 31, 1998, compared to $1.2 million at December 31,
1997, an increase of 37%. The increase in the balance outstanding at March 31,
1998, resulted from increased funding requirements related to the increase in
the balance of mortgage loans held for sale and mortgage-backed securities. At
March 31, 1998, there were $6.4 million in long-term borrowings, compared to
$6.5 million at December 31, 1997.
Other liabilities totaled $124.7 million as of March 31, 1998, compared to
the December 31, 1997, balance of $86.6 million, an increase of $38.1 million,
or 44%. The increase in other liabilities resulted primarily from an increase in
the volume of loans acquired through certain correspondent funding programs of
the Company.
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.
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, $670 million warehouse line of credit provided by a
syndicate of unaffiliated banks that expires in July 1998. The credit agreement
includes covenants requiring the Company to maintain (i) a minimum net worth of
$130 million, plus net income subsequent to July 31, 1996, 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 Ginnie Mae, FHA, VA, Fannie Mae and Freddie Mac mortgage loans and
(iv) a mortgage servicing rights portfolio with an underlying unpaid
30
principal balance of at least $4 billion. The provisions of the agreement also
restrict the Company's ability (i) to pay dividends in any fiscal quarter which
exceed 50% of the Company's net income for the quarter or (ii) to engage
significantly in any type of business unrelated to the mortgage banking business
and the servicing of mortgage loans.
Additionally, the Company entered into a $200 million, 364-day term
revolving credit facility with a syndicate of unaffiliated banks. An $80 million
portion of the revolver facility converts on July 29, 1998, into a four-year
term loan. The facility is secured by the Company's servicing portfolio
designated as "available-for-sale". A $70 million portion of the revolver
facility matures on July 29, 1998, and is secured by the Company's servicing
portfolio designated as "held-for-sale". A $50 million portion of the revolver
facility matures on July 29, 1998, and 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 also entered into a $200 million, 364-day term subprime
revolving credit facility, which expires in July 1998. The facility includes
covenants identical to those described above with respect to the warehouse line
of credit.
The Company was in compliance with the above-mentioned debt covenants at
March 31, 1998. 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.
The Company has also 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 entered into a $6.6 million note agreement in May 1997. This
debt is secured by the Company's corporate headquarters. The terms of the
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 described above.
RBC has a 364-day $50 million revolving credit facility to provide financing
for its leasing portfolio. The warehouse credit agreement matures on June 30,
1998 and contains various covenants regarding characteristics of the collateral
and the performance of the leases originated and serviced by RBC and which
restrict RBC's ability to incur debt, encumber assets, other than as collateral
for the facility, sell assets, merge, declare or pay any dividends or change its
corporate by-laws or certificate of incorporation.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. For
reasons independent from the Year 2000 issue, the Company had already undertaken
an initiative
31
to replace significant portions of its enterprise wide mortgage systems. The new
systems are Year 2000 compliant. This effort encompasses the major systems that
perform our mission critical functions. Several components have been installed
and we are currently targeted to complete these installations by December 31,
1998. The Company does not believe that Year 2000 issues will have a material
impact on its correspondent and broker relationships. The Company is also
communicating with suppliers, dealers, financial institutions and others with
which it does business to coordinate Year 2000 conversion. The Company does not
foresee a material impact to the Company surrounding the Year 2000 compliance
with such correspondents, brokers, suppliers, dealers, financial institutions
and others. Direct costs associated exclusively with achieving Year 2000
compliance is not expected to be material to the Company and will be incurred
through 1999.
32
PART II. OTHER INFORMATION
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
ON JANUARY 30, 1998, THE COMPANY ISSUED 20,056 SHARES OF ITS COMMON
STOCK, PAR VALUE $0.01 PER SHARE, TO DAVID W. JOHNSON, JR. THESE SHARES WERE
ISSUED PURSUANT TO THE TERMS OF MR. JOHNSON'S EMPLOYMENT AGREEMENT DATED AS OF
JUNE 3, 1993 AND REPRESENTED A PORTION OF HIS BONUS FOR 1997. THE FAIR MARKET
VALUE OF THE SHARES ON THE DATE OF ISSUANCE TO MR. JOHNSON WAS $324,667 BASED ON
THE CLOSING PRICE OF $16.188 PER SHARE ON THE NASDAQ MARKET SYSTEM ON SUCH DATE.
THE COMPANY BELIEVES THAT THE ISSUANCE OF THE SHARES TO MR. JOHNSON WAS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
UNDER SECTION 4 (2) BY VIRTUE OF HIS POSITION AS VICE CHAIRMAN AND MANAGING
DIRECTOR OF THE COMPANY.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
- (A) A LIST OF THE EXHIBITS FILED WITH THIS FORM 10-Q, ALONG WITH
THE EXHIBIT INDEX CAN BE FOUND ON PAGES A TO E FOLLOWING THE
SIGNATURE PAGE.
- (B) ON JANUARY 15, 1998, THE COMPANY FILED A REPORT ON FORM
8-K ANNOUNCING THE COMPANY'S COMPLETION OF THE ACQUISITION OF
RESOURCE BANCSHARES CORPORATION. ON FEBRUARY 9, 1998, THE
COMPANY FILED A REPORT ON FORM 8-K ANNOUNCING THE COMPANY'S
ADOPTION OF A STOCKHOLDERS RIGHTS PLAN.
18
33
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
Senior 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 14, 1998
19
34
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3.1 Restated Certificate of Incorporation of the Registrant incorporated by reference to *
Exhibit 3.3 of the Registrant's Registration No. 33-53980
3.2 Certificate of Amendment of Certificate of Incorporation of the *
Registrant incorporated by reference to Exhibit 3.2 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997
3.3 Certificate of Designation of the Preferred Stock of the Registrant *
incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-A
filed on February 8, 1998
3.4 Amended and Restated Bylaws of the Registrant incorporated by reference to *
Exhibit 3.4 of the Registrant's Registration No. 33-53980
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 Agreement 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 Second Amended and Restated Secured Revolving/Term Credit Agreement *
dated as of July 31, 1996, between the Registrant and the Banks
Listed on the Signature Pages Thereof, Bank One, Texas, National
Association, First Bank National Association, NationsBank of Texas,
N.A. and Texas Commerce Bank, National Association, as Co-agents and
the Bank of New York as Agent and Collateral Agent incorporated by
reference to Exhibit 4.2 of the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1996
4.4 Second Amended and Restated Revolving/Term Security Collateral Agency *
Agreement dated as of July 31, 1996, 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 Form 10-Q for the period
ended September 30, 1996
4.5 Amendment No. 1 dated as of July 30, 1997 to and under the Second *
Amended and Restated Secured Revolving/Term Credit Agreement dated as
of July 31, 1996, among the Registrant, the Banks and Co-Agents named
therein and The Bank of New York as 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 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
10.3 Assignment and Assumption of Office Lease incorporated by reference to Exhibit 10.6 *
of the Registrant's Registration No. 33-53980
A
35
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.4 (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
10.5 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
10.6 (A) Deferred Compensation Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. incorporated by reference to Exhibit 10.10 (A) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
(B) Deferred Compensation Rabbi Trust, for David W. Johnson, dated *
January 19, 1994, between 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
10.7 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
10.8 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 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
10.10 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
10.11 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
10.12 Amendment I to Pension Plan incorporated by reference to Exhibit 10.21 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.13 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
10.14 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
36
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.15 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
10.16 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the Registrant's *
Registration No. 33-87536
10.17 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
10.18 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
10.19 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
10.20 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
10.21 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
10.22 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
10.23 Amended and Restated Omnibus Stock Award Plan incorporated by reference to Exhibit 99.10 *
of the Registrant's Registration No. 333-29245 filed on December 1, 1997
10.24 Employment Agreement dated September 25, 1995, between the Registrant and *
Richard M. Duncan incorporated by reference to Exhibit 10.38 of the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995
10.25 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
10.26 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
10.27 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
C
37
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.28 Second Amendment to Employee Stock Ownership Plan dated August 12, 1996 *
incorporated by reference to Exhibit 10.45 of the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1996
10.29 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
10.30 Amended and Restated Retirement Savings Plan dated April 1, 1996 *
incorporated by reference to Exhibit 10.34 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996
10.31 First Amendment to Amended and Restated Retirement Savings Plan dated as of *
November 8, 1996 incorporated by reference to Exhibit 10.35 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996
10.32 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
10.33 Second Amendment to Amended and Restated Retirement Savings Plan dated *
January 1997, incorporated by reference to Exhibit 10.38 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1997
10.34 Form of Incentive Stock Option Agreement (Omnibus Stock Award Plan) *
incorporated by reference to Exhibit 10.40 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1997
10.35 Form of Non-Qualified Stock Option Agreement (Non-Qualified Stock *
Option Plan), incorporated by reference to Exhibit 10.41 of the
Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997
10.36 First Amendment to the Formula Stock Option Plan incorporated by *
reference to Exhibit 99.8 of the Registrant's Registration No.
333-29245 as filed on December 1, 1997
10.37 (A) Agreement of Merger dated April 18, 1997 between Resource Bancshares *
Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation
incorporated by reference to Annex A of the Registrant's Registration No.333-29245
(B) First Amendment to Agreement of Merger dated April 18, 1997 between *
Resource Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and
Resource Bancshares Corporation incorporated by reference to Exhibit
10.42 of the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1997
(C) Second Amendment to Agreement of Merger dated April 18, 1997 *
between Resource Bancshares Mortgage Group, Inc., RBC Merger Sub,
Inc. and Resource Bancshares Corporation incorporated by reference to
Annex A of the Registrant's Registration No. 333-29245
D
38
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.38 (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 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 September 30, 1997
10.39 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
10.40 Second Amendment to the Non-qualified Stock Option Agreement dated
February 6, 1998 _____
10.41 Agreement and Release Form for Non-qualified Stock Stock Option Agreement _____
11.1 Statement re: Computation of Net Income per Share _____
27.1 Financial Data Schedule _____
- ----------------------------------
* Incorporated by reference
E