1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998 Commission File Number 000-21786
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
(Exact name of registrant as specified in its charter)
---------------------
Delaware 57-0962375
- ------------------------ ------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
7909 Parklane Road
Columbia, South Carolina 29223
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(803) 741-3000
(Registrant's telephone no., including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of class
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to
this Form 10-K. [ ]
2
The aggregate market value of the voting and non-voting equity held by
non-affiliates of the registrant was $269,338,339 as of March 19, 1999, based on
the closing price of $12.38 per share of the registrant's Common Stock, par
value $.01 per share, on the NASDAQ National Market System on such date.
As of March 19, 1999, 22,503,599 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant Form 10-K Reference Locations
1998 Annual Report to Shareholders Parts II and IV
1999 Proxy Statement Part III
3
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-K for the year ended December 31, 1998
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
PART I. ----
Item 1. Business 1
Item 2. Properties 23
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 23
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial Condition and Results 24
of Operations
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements With Accountants on Accounting and 24
Financial Disclosure
PART III.
Item 10. Directors and Executive Officers 24
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 25
SIGNATURES 27
INDEX TO EXHIBITS A
4
PART I
Item 1. BUSINESS
General
Resource Bancshares Mortgage Group, Inc. (the Company) is a diversified
financial services company engaged primarily in the business of mortgage
banking, through the purchase (via a nationwide network of correspondent and
brokers), sale and servicing of agency-eligible and subprime residential,
single-family, first-mortgage loans and the purchase and sale of servicing
rights associated with agency-eligible 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.
As part of its primary business focus, residential mortgage banking,
the Company purchases agency-eligible mortgage loans through its correspondents
and its wholesale division. The Company also purchases and originates mortgage
loans through its subprime division. Substantially all of the mortgage loans
purchased and originated by the Company are sold to institutional purchasers,
including national and regional broker/dealers, as mortgage-backed securities
issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae or securitized.
Substantially all the agency-eligible mortgage loans are sold with the rights to
service the loans being retained by the Company. The retained servicing is
either held in the Company's portfolio or sold separately.
The Company receives loan servicing fees and subservicing fees on
agency-eligible loans it purchases through wholesale and correspondent channels.
The Company also receives loan servicing fees on agency-eligible mortgage
servicing rights acquired through bulk acquisitions of servicing rights related
to agency-eligible loans originated by other lenders.
To further position itself as a nationwide producer and supplier of
mortgage loans and mortgage servicing, the Company intends to increase its
market penetration and the breadth of its mortgage origination sources,
particularly in the western and northeastern United States, by: (i) maintaining
corporate flexibility to operate in fluctuating mortgage markets; (ii) remaining
among the mortgage industry's lowest-cost producers; (iii) continuing its
commitment to high quality in underwriting and customer service; (iv) utilizing
advanced technology and (v) further developing its presence in the subprime
lending market. The Company also intends to continue expansion of its
small-ticket commercial equipment lease portfolio and to increase its commercial
mortgage loan production.
The Company does not hold any material trademarks, licenses, franchises
or concessions.
Loan Production
Correspondent
The Company purchases closed agency-eligible mortgage loans through its
network of approved correspondent lenders. Correspondents are primarily mortgage
lenders, mortgage brokers, savings and loan associations and small commercial
banks. At December 31, 1998, the Company had 852 correspondents originating
mortgage loans in 48 states and the District of Columbia.
Agency-eligible residential loan production for the Company by
correspondents is widely dispersed, with the top 20 correspondents supplying the
Company with just 27% of its dollar volume of correspondent loans during 1998
compared to 29% in 1997. During 1998, the top five correspondents accounted for
approximately 12% of the year's mortgage loan correspondent purchase volume.
This compares to the top five
1
5
correspondents accounting for approximately 13% and 15%, of the agency-eligible
mortgage loan purchase volume during 1997 and 1996, respectively. No single
correspondent accounted for more than 3.9% of the Company's agency-eligible
mortgage loan purchase volume in 1998. In 1997 and 1996, 3.3% and 3.4%,
respectively, of the Company's total agency-eligible mortgage loan purchase
volume was acquired from the Company's highest-volume correspondent.
Management believes that lending through correspondents is an efficient
and cost-effective method of producing agency-eligible loans because of the low
fixed expenses and capital investment required of the Company. Because the
correspondents incur the cost of operating branch office networks and generating
loans, the Company lowers its cost structure and provides the correspondents
with cost-efficient access to the secondary loan markets. By emphasizing
correspondent lending, the Company can match its costs more directly with the
volume of agency-eligible loans purchased, so that a substantial portion of the
Company's cost is variable rather than fixed. Management also believes that, by
emphasizing the correspondent origination approach, the Company has greater
flexibility to adjust to varying market conditions. As conditions change, the
Company can expand into new geographic markets without incurring significant
additional costs by utilizing existing and new correspondents that operate in
each new market. The use of correspondents also enables the Company to exit
markets easily if circumstances dictate.
The Company attracts and maintains relationships with correspondents by
offering a variety of services that provide incentives for the correspondents to
sell agency-eligible mortgage loans to the Company. The Company's strategy with
respect to its correspondents is to provide a high level of service rather than
the lowest price. Services provided include timely underwriting and approval or
rejection of a loan (within approximately 48 hours after receipt of a completed
loan application), timely purchase of loans (within 96 hours after being
approved for acquisition), seminars on how to process and prepare a loan
application and updates on current underwriting practices. In addition, the
Company provides correspondents with a variety of products and delivery
capabilities and multiple means of funding loans. As the mortgage lending market
increases in sophistication and loan-price differentials narrow among mortgage
bankers, the Company believes that the level of service and commitment it
provides to its correspondents will be paramount to its continued success.
Management believes that through correspondent lending it can manage
risks and maintain good quality control. Correspondents have to meet established
standards to be approved by the Veteran's Administration (VA), the U. S.
Department of Housing and Urban Development (HUD) or private mortgage insurance
companies. A correspondent qualifies to participate in the Company's
correspondent program only after a thorough review of its reputation and
mortgage lending expertise, including a review of references and financial
statements and a personal visit by one or more representatives of the Company.
After a correspondent qualifies for the Company's program, the Company closely
monitors the correspondent's performance in terms of delinquency ratios,
document exceptions and other pertinent data. Furthermore, all mortgage loans
purchased by the Company through correspondents are subject to various aspects
of the Company's underwriting criteria, and correspondents are required to
repurchase loans or otherwise indemnify the Company for its losses in the event
of fraud or misrepresentation in the origination process and for certain other
reasons, including noncompliance with underwriting standards.
All loan applications are subject to the Company's underwriting
criteria and the guidelines set forth by the Federal Housing Authority (FHA),
the VA, Ginnie Mae, Fannie Mae, Freddie Mac or private investors, as applicable.
The Company or the correspondent, in the case of a correspondent with delegated
underwriting authority, verifies each applicant's income and bank deposits, as
well as the accuracy of the other information submitted by the applicant, and
obtains and reviews a credit report from a credit reporting agency, a
preliminary title report and a real estate appraisal. Generally, delegated
underwriting authority is granted by the Company to its larger correspondents
and is granted only to
2
6
correspondents who meet certain financial strength, delinquency ratio,
underwriting and quality control standards that the Company has established for
granting delegated underwriting authority to correspondents.
With respect to FHA and VA loans, HUD and the VA, respectively, have
established approval guidelines for the underwriting of loans to be covered by
FHA insurance or a VA guaranty. The Company is approved by both HUD and the VA
to underwrite FHA and VA loans submitted by specified correspondents and
wholesale brokers. The Company purchases FHA and VA loans only from those
correspondents who are approved to underwrite FHA and VA loans and from those
correspondents for whom the Company has been approved to underwrite FHA and VA
loans. For those FHA and VA loans purchased from correspondents and brokers, the
appropriate FHA mortgage insurance premium or VA funding fee must be remitted to
the Company by the correspondent within fifteen days of closing.
The Company has implemented a quality control program to monitor
compliance with the Company's established lending and servicing policies and
procedures, as well as with applicable laws and regulatory guidelines. The
Company believes that the implementation and enforcement of its comprehensive
underwriting criteria and its quality control program are significant elements
in the Company's efforts to purchase high-quality mortgage loans and servicing
rights. The Company's quality control department examines loans in order to
evaluate the loan purchasing function for compliance with underwriting criteria.
The quality control department also reviews loan applications for compliance
with federal and state lending standards, which may involve reverifying
employment and bank information and obtaining separate credit reports and
property appraisals.
Wholesale
As other financial institutions were exiting the wholesale mortgage
lending business, the Company made a decision in late 1994 to incorporate
expansion into the wholesale mortgage market into its primary business strategy.
Expansion into the wholesale mortgage banking business involves the
establishment of wholesale branch offices and the incurrence of the fixed
expenses associated with maintaining those offices. However, wholesale mortgage
purchases typically provide for higher profit margins than correspondent
production, and each branch office can serve a relatively sizable geographic
area by establishing relationships with large numbers of independent mortgage
loan brokers who bear most of the cost of identifying and interacting directly
with loan applicants. Accordingly, management believes that the wholesale
division affords the Company an opportunity to identify markets where higher
profit margins and diversification of the Company's sources of loan volumes can
be appropriately balanced against the increased earnings risks associated with a
somewhat higher fixed-cost structure.
At December 31, 1998, the Company had 15 wholesale branches, serving
approximately 3,400 brokers. The offices are located in Arizona (1), Colorado
(1), Florida (1), Georgia (1), Illinois (1), Maryland (1), Massachusetts (1),
Missouri (1), Nevada (1), North Carolina (1), Ohio (1), Texas (2), Utah (1) and
Washington (1). The Company receives loan applications through these brokers,
underwrites each loan, funds each loan at closing and prepares all closing
documentation. The wholesale branches also handle all shipping and follow-up
procedures on these loans. All loan applications processed by the wholesale
division are subject to underwriting and quality control comparable to the
standards used in the Company's correspondent lending program.
Retail
In mid-1995, the Company expanded into the retail mortgage banking
business in the Northeast. With the establishment of a retail subsidiary
operating through six
3
7
branches located in New York (4), New Jersey (1) and Pennsylvania (1), the
Company began to originate mortgage loans through its employees. From its
organization in 1995 through May 1, 1998, the retail division originated
$1.9 billion in mortgage loans.
During late 1997, the Company began reviewing the compatibility of the
retail operation with its primary business focus. Effective May 1, 1998, the
Company sold its retail production franchise to CFS Bank. 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 has allowed the Company to refocus on
its core competency as a correspondent and wholesale mortgage lender.
Subprime
In 1997, the Company began its initial expansion into subprime lending
activities. In connection therewith, the Company acquired Meritage Mortgage
Corporation (Meritage) in April 1997. The Company's subprime division produced
$607.7 million or 4% of the Company's total production volume during 1998.
Management anticipates continuing near-term increases in subprime
production volumes as subprime operations introduced and made available through
the Company's existing 15 branch agency-eligible wholesale network reach full
year production levels. In the future, the Company also plans to offer select
subprime loan products through its existing nationwide correspondent production
channel.
The following table shows residential production volume by source for
each of the three years in the period ended December 31, 1998.
Year Ended December 31,
----------------------------------------------------------
($ in Thousands) 1998 1997 1996
----------------- ----------------- ----------------
Correspondent $11,666,560 $ 7,893,583 $ 7,915,323
Wholesale 3,023,961 1,868,726 1,411,643
Retail 264,059 675,411 668,759
----------------- ----------------- ----------------
Total Agency-Eligible Loan Production $14,954,580 $ 10,437,720 $ 9,995,725
Subprime Production 607,664 339,574 -
----------------- ----------------- ----------------
Total Residential Production $15,562,244 $ 10,777,294 $ 9,995,725
================= ================= ================
The Company purchases and originates conventional and subprime mortgage
loans and mortgage loans insured by the FHA or partially guaranteed by the VA.
All mortgage loans purchased or originated by the Company are purchased or
originated for resale. The majority of the Company's loans are conforming loans,
i.e., mortgage loans that qualify for inclusion in purchase and guarantee
programs sponsored by Fannie Mae, Freddie Mac and Ginnie Mae.
The Company purchases and originates a variety of mortgage loan
products that are designed, in conjunction with the requirements of prospective
purchasers of such loans, to respond to consumer needs and competitive factors.
In addition to 15-year and 30-year conventional mortgage loans and 15-year and
30-year FHA loans and VA loans, the Company purchases and originates products
designed to provide lower rates or lower principal and interest payments to
borrowers, including balloon mortgage loans that have relatively short maturity
dates (e.g., five or seven years) and longer amortization
4
8
schedules (e.g., 25 or 30 years) and adjustable rate mortgage loans. The Company
also purchases and originates mortgage loans featuring a variety of combinations
of interest rates and discount points so that borrowers may elect to pay higher
points at closing and less interest over the life of the loan, or pay a higher
interest rate and reduce or eliminate points payable at closing. The portion of
total loans held for sale at any time that consists of a particular product type
depends upon the interest rate environment at the time such loans are made. The
Company does not believe that any of its products pose unusual risks.
The following table shows residential mortgage loan production volume
by type of loan for each of the three years in the period ended December 31,
1998.
Year Ended December 31,
-------------------------------------------------------
($ in Millions Except as Indicated) 1998 1997 1996
--------------- --------------- ---------------
Conventional Loans:
Volume $ 10,674.1 $ 6,126.8 $ 6,197.3
Percentage of total volume 68% 57% 62%
FHA / VA Loans:
Volume $ 4,280.4 $ 4,310.9 $ 3,798.4
Percentage of total volume 28% 40% 38%
Subprime Loans
Volume $ 607.7 $ 339.6
Percentage of total volume 4% 3%
Total Loans:
Volume $ 15,562.2 $10,777.3 $ 9,995.7
Number of loans 131,630 99,349 98,237
Average loan size ($ in Thousands) $ 118.2 $ 108.5 $ 101.8
The following table shows residential loan production volume by state
for the year ended December 31, 1998, for each state that represented 5% or more
of the Company's total residential loan production volume for 1998.
Year Ended December 31, 1998
-------------------------------------
($ in Thousands) Percent of
State Amount Total
--------------------------------- ---------------- ---------------
Illinois $ 1,543,482 9.92%
Minnesota 1,520,796 9.77%
Massachusetts 1,437,262 9.23%
Colorado 1,344,030 8.64%
California 1,228,862 7.90%
Ohio 854,829 5.49%
All Other 7,632,983 49.05%
---------------- ---------------
Total $ 15,562,244 100.00%
================ ===============
Sale of Residential Loans
The Company customarily sells all agency-eligible residential mortgage
loans that it originates or purchases, retaining the mortgage servicing rights,
which currently are sold separately. Under ongoing programs established with
Fannie Mae and Freddie Mac, the Company aggregates its conforming conventional
loans into pools that are assigned to Fannie Mae or Freddie Mac in exchange
5
9
for mortgage-backed securities. The Company's FHA mortgage loans and VA mortgage
loans are generally pooled and sold in the form of Ginnie Mae mortgage-backed
securities. The Company pays certain fees to Freddie Mac, Fannie Mae or Ginnie
Mae, as applicable, in connection with these programs. The Company then sells
Freddie Mac, Fannie Mae and Ginnie Mae securities to securities dealers.
Substantially all of the Company's agency-eligible mortgage loans qualify under
the various Fannie Mae, Freddie Mac and Ginnie Mae program guidelines, which
include specific property and credit standards, including a loan size limit.
Subprime and non-conforming conventional residential mortgage loans are sold to
private investors through whole loan sales or securitizations.
In the case of conventional loans, subject to the obligations of any
primary mortgage insurer, the Company is generally at risk for any mortgage loan
default until the loan is sold (typically less than 45 days). Once the Company
sells the loan, the risk of loss from mortgage loan default and foreclosure
generally passes to the purchaser or insurer of the loan. In the case of FHA and
VA loans, the Company has, from the time such a loan is originated or purchased
until the first borrower payment is due, a minimum of 31 days to request
insurance or a guarantee certificate. Once the insurance or the guarantee
certificate is issued, the Company has no risk of default, except with respect
to certain losses related to foreclosures of FHA mortgage loans and losses that
exceed the VA's guarantee limitations. In connection with the Company's loan
exchanges and sales, the Company makes representations and warranties customary
in the industry relating to, among other things, compliance with laws,
regulations and program standards and as to accuracy of information. In the
event of a breach of these representations and warranties, the Company may
become liable for certain damages or may be required to repurchase such loans
and bear any potential related loss on the disposition of those loans.
Typically, any flaws with respect to repurchased loans are corrected and the
loans are resold or are repurchased by the original correspondent pursuant to
prior agreement.
Prior to the sale of originated or purchased mortgage loans, the
Company uses hedging techniques to reduce its exposure to interest rate risk.
The Company projects the portion of the pipeline loans that the Company
anticipates will close. The Company assesses the interest-rate risk associated
with the commitments that it has extended to originate or purchase loans and
evaluates the interest-rate risk of these commitments based upon a number of
factors, including the remaining term of the commitment, the interest rate at
which the commitment was provided, current interest rates and interest-rate
volatility. The Company constantly monitors these factors and adjusts its
hedging when appropriate throughout each business day. The Company's hedging
currently consists of utilizing a combination of mandatory forward sales
commitments on mortgage-backed securities and mortgage loans and options on
mortgage-backed securities.
The sale of mortgage loans may generate a gain or loss to the Company.
Gains or losses result primarily from two factors. First, the Company may
originate or purchase a loan at a price (i.e., interest rate and discount) that
may be higher or lower than the Company would receive if it immediately sold the
loan in the secondary market. These pricing differences occur principally as a
result of competitive pricing conditions in the primary loan origination market.
Second, gains or losses upon the sale of loans may result from changes in
interest rates that cause changes in the market value of the loans, or
commitments to originate or purchase loans, from the time the price commitment
is given to the customer until the time that the loan is sold by the Company to
the investor. To reduce the effect of interest-rate changes on the gain and loss
on loan sales, the Company generally commits to sell all its agency-eligible
warehouse loans and a portion of its pipeline loans to investors for delivery at
a future time for a stated price. The Company does not currently hedge the
interest rate risk associated with subprime loans.
In connection with its agency-eligible loan sale program, which
involves the sale of mortgage loans and mortgage-backed securities on a forward
or other deferred delivery and payment basis, the Company has credit risk
exposure to the extent purchasers are unable to meet the terms of their forward
purchase contracts. As is customary in the marketplace, none of the forward
payment obligations of any of the
6
10
Company's counterparties is secured or subject to margin requirements; however,
the Company attempts to limit its credit exposure on forward sales arrangements
by entering into forward sales contracts solely with institutions that the
Company believes are sound credit risks, and by limiting exposure to any single
counterparty by selling to a number of investors. For example, it is the
Company's current policy that not more than the lesser of (i) $350 million or
(ii) 40% of the total forward purchase contracts outstanding at any time be with
any single counterparty. All counterparties are obligated to settle such sales
in accordance with the terms of the related forward sale agreement.
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 of the
mortgaged premises as required, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults and
generally administering agency-eligible mortgage loans. A servicer's obligation
to provide mortgage loan servicing and its right to collect fees are set forth
in a servicing contract. Failure to service mortgage loans in accordance with
contract requirements may lead to the termination of the servicing rights and
the loss of future servicing fees.
The Company's current strategy is to pool and sell substantially all of
its produced agency-eligible mortgage servicing rights to other approved
servicers. The Company currently follows a strategy of retaining a relatively
small portion of its produced agency eligible mortgage servicing rights and
exploring opportunities to sell available-for-sale servicing rights in bulk
transactions. The Company's credit facilities require it to maintain at all
times a mortgage servicing rights portfolio with an underlying unpaid principal
balance of at least $4.0 billion. The Company's policy with respect to the sale,
purchase or retention of mortgage servicing rights may change in the future.
In addition to servicing its agency-eligible mortgage servicing rights
portfolios, the Company also subservices agency-eligible mortgage servicing
rights portfolios during the period of approximately 90 days between the date
the Company has sold the related servicing rights and the transfer date. In the
future, the Company also may seek other subservicing business.
The Company receives fees for servicing agency-eligible residential
mortgage loans, ranging generally from 0.25% to 0.44% per annum on the declining
unpaid principal balances of the loans. Servicing fees are collected by the
Company from monthly mortgage loan payments. Other sources of loan servicing
revenues include fees incidental to the services provided.
As a servicer of mortgage loans underlying mortgage-backed securities,
the Company is obligated to make timely payments of principal and interest to
security holders, whether or not such payments have been made by mortgagors on
the underlying mortgage loans. Similarly, in the event of foreclosure, the
Company is responsible for covering with its own funds principal and foreclosure
costs to the extent not covered by FHA insurance or a VA guarantee.
The following table shows the delinquency percentages (excluding
bankruptcies and foreclosures) of the Company's residential mortgage servicing
rights portfolio (excluding loans serviced under subservicing agreements) at
December 31, 1998.
7
11
Days Delinquent
30 1.20%
60 0.20%
90+ days 0.11%
-------------
Total Delinquencies 1.51%
=============
At December 31, 1998, the Company's owned mortgage servicing rights
portfolio had an underlying unpaid principal balance of $9.9 billion. The
portfolio generally reflected characteristics representative of the then-current
market conditions and had a weighted average note rate of 7.20%, which is
somewhat higher than for current production.
In 1998, the Company produced or purchased servicing rights associated
with agency-eligible residential loans having an aggregate underlying unpaid
principal balance of $15.0 billion and had an average balance of aggregate
underlying unpaid principal balance of loans being serviced of $11.9 billion.
Typically, the Company sells the majority of its produced agency-eligible
mortgage servicing rights between 90 days and 180 days of purchase.
Nevertheless, certain market and operating characteristics, including
origination costs, adjusted basis, market values, coupon rates, delinquency
rates and current prepayment rates are considered to determine whether mortgage
servicing rights should be held for longer periods of time.
The following table provides certain information regarding the
Company's agency-eligible mortgage servicing rights portfolio at December 31,
1998.
($ in Thousands) Percentage of
Year of Percentage of Aggregate Total Unpaid
Origination Number of Loans Total Loans Unpaid Principal Amount Principal Amount
- ---------------------- ----------------- ----------------- ----------------------- -----------------
1991 or earlier 2,530 2.8% $ 106,996 1.1%
1992 3,519 3.8% 247,152 2.5%
1993 7,458 8.1% 564,832 5.7%
1994 5,351 5.8% 459,895 4.7%
1995 1,884 2.0% 153,708 1.6%
1996 3,975 4.3% 409,115 4.2%
1997 13,859 15.0% 1,475,955 14.9%
1998 53,615 58.2% 6,447,447 65.3%
----------------- ----------------- ----------------------- -----------------
Total 92,191 100.00% $ 9,865,100 100.00%
================= ================= ======================= =================
The following table sets forth the Company's agency-eligible mortgage
servicing rights portfolio by loan type:
8
12
($ in Thousands) At December 31, 1998
-------------------------------------------------------------------------------
Aggregate
Unpaid Weighted Weighted
Number Principal Average Average
Loan Type of Loans Balance Coupon Service Fee
- ------------------------------- ------------- --------------- ----------------- ----------------
FHA 8,002 $ 656,417 7.10% 0.5625%
VA 3,526 362,287 6.87% 0.4834%
Fannie Mae 43,099 4,716,719 7.18% 0.4497%
Freddie Mac 28,134 3,121,008 7.30% 0.3490%
Private 620 38,787 8.36% 0.3971%
Other 8,810 969,882 7.09% 0.3162%
============= =============== ================= ================
TOTAL 92,191 $ 9,865,100 7.20% 0.4168%
============= =============== ================= ================
The Company's agency-eligible mortgage servicing rights portfolio is
generally divided into two segments. The portion of the portfolio that is
generated by current loan production is classified as "held-for-sale," and the
portion of the portfolio that was acquired through bulk acquisitions or retained
for production of servicing income is classified as "available-for-sale." The
Company's held-for-sale portfolio had an aggregate underlying unpaid principal
balance of $4,406.8 million at December 31, 1998. The Company's
available-for-sale portfolio had an aggregate underlying unpaid principal
balance of $5,458.3 million at December 31, 1998.
As the servicing rights of the available-for-sale portfolio are
generally held as a longer-term investment, there are certain prepayment risks
inherent to it that do not attach to the portion of the portfolio held-for-sale
(the portfolio held-for-sale is generally sold within 90 to 180 days). During
periods of declining interest rates, prepayments of mortgage loans increase as
homeowners seek to refinance at lower rates, resulting in a decrease in the
value of the Company's available-for-sale portfolio. Mortgage loans with higher
interest rates are more likely to result in prepayments. The following table
sets forth certain information regarding the aggregate underlying unpaid
principal balance of mortgage loans in the available-for-sale portfolio serviced
by the Company. The table includes both fixed and adjustable rate loans.
Available-for-Sale Portfolio
($ in Thousands) At December 31, 1998
----------------------------------------------------
Aggregate Percentage of Total
Unpaid Principal Unpaid Principal
Mortgage Interest Rate Balance Amount
- -------------------------------- ----------------------- -----------------------
Less than 7.00% $ 917,684 16.81%
7.00% - 7.49% 2,015,044 36.92%
7.50% - 7.99% 1,435,904 26.31%
8.00% - 8.49% 668,721 12.25%
8.50% - 8.99% 306,815 5.62%
9.00% - 9.49% 70,249 1.29%
Greater than 9.49% 43,917 0.80%
----------------------- -----------------------
TOTAL $ 5,458,334 100.00%
======================= =======================
The following table sets forth the geographic distribution of the
Company's available-for-sale portfolio for those states representing more than
3% of the portfolio:
9
13
($ in Thousands) At December 31, 1998
--------------------------------------------------------
Aggregate Percent of
Unpaid Principal Total Aggregate Unpaid
State Balance Principal Balance
- ------------------------ ------------------- ----------------------------------
Massachusetts $ 607,975 11.14%
New York 383,703 7.03%
California 355,045 6.51%
Minnesota 345,087 6.32%
Connecticut 333,325 6.11%
Texas 291,999 5.35%
Illinois 275,746 5.05%
Ohio 240,353 4.40%
Colorado 228,643 4.19%
Florida 220,653 4.04%
Georgia 170,561 3.12%
New Jersey 168,712 3.09%
All others 1,836,532 33.65%
=================== ==================================
TOTAL $5,458,334 100.00%
=================== ==================================
The following table sets forth certain information regarding the
aggregate underlying unpaid principal balance of the mortgage loans in the
held-for-sale portfolio serviced by the Company. The table includes both fixed
and adjustable rate loans.
Held-for-Sale Portfolio
($ in Thousands) At December 31, 1998
--------------------------------------------------
Aggregate Percentage of Total
Unpaid Principal Aggregate Unpaid
Mortgage Interest Rate Balance Principal Balance
- -------------------------------- ------------------------ -----------------------
Less than 6.00% $ 31,613 0.72%
6.00% - 6.49% 467,619 10.61%
6.50% - 6.99% 2,680,487 60.83%
7.00% - 7.49% 1,011,905 22.96%
7.50% - 7.99% 154,215 3.50%
8.00% - 8.49% 10,256 0.23%
8.50% - 8.99% 5,994 0.14%
Greater than 8.99% 44,677 1.01%
======================== =======================
TOTAL $4,406,766 100.00%
======================== =======================
To help the Company manage its risk related to prepayments of its
servicing portfolio, the Company has purchased interest-rate floor contracts,
which provide an interest rate differential on a fixed portion of the portfolio
should interest rates fall below a certain level. For a more detailed discussion
of interest rate floor contracts, see Note 18 of the Company's Consolidated
Financial Statements, found in the Company's accompanying 1998 Annual Report to
shareholders included herein and hereby incorporated by reference.
10
14
Leasing Operations
The Company's leasing division, Republic Leasing, acquired on December
31, 1997, originates and services small-ticket commercial equipment leases.
Substantially all of Republic Leasing's lease receivables are acquired from
independent brokers who operate throughout the continental United States. At
December 31, 1998 the leasing division had 218 brokers. Lease production was
$78.1 million or 0.5% of the Company's total production volume during 1998. At
December 31, 1998 Republic Leasing managed a lease servicing portfolio of $136.5
million. Of this managed lease portfolio, $98.9 million was owned and $37.6
million was serviced for investors. The weighted average net yield for the
managed lease servicing portfolio at December 31, 1998 was 10.81%. Delinquencies
for the managed lease servicing portfolio at December 31, 1998 were 2.00%.
Commercial Mortgage Operations
In connection with its acquisition of RBC on December 31, 1997, the
Company acquired RBC's subsidiary Laureate. Laureate originates commercial
mortgage loans for various insurance companies and other investors, primarily in
Alabama, Florida, Indiana, North Carolina, South Carolina, Tennessee and
Virginia. Commercial mortgage loans are generally originated in the name of the
investor and, in most instances, Laureate retains the right to service the loans
under a servicing agreement. Laureate produced $899.7 million or 5% of the
Company's total production volume during 1998 through 12 commercial mortgage
branches. At December 31, 1998, Laureate was servicing a commercial mortgage
loan servicing portfolio of approximately $3.3 billion. The weighted average
note rate for the commercial mortgage loan servicing portfolio was 8.11% at
December 31, 1998. Delinquencies for the commercial mortgage loan servicing
portfolio were 0.42% at December 31, 1998.
Seasonality
The residential mortgage banking industry is generally subject to
seasonal trends. These trends reflect the general pattern of resale of homes,
which typically peaks during the spring and summer seasons and declines to lower
levels from mid-November through January. Refinancings tend to be less seasonal
and more closely related to changes in interest rates. The residential mortgage
servicing business is generally not subject to seasonal trends, except to the
extent that growth of the portfolio is generally higher in periods of greater
mortgage loan originations. The commercial mortgage and small-ticket equipment
leasing industries are generally not considered seasonal industries.
Changes in Economic Conditions
The Company's business is subject to various business risks, including
competition from other mortgage companies and other financial institutions.
Economic conditions affect the consumer's decision to buy or sell residences as
well as the number of residential mortgage loan delinquencies and foreclosures,
the value of collateral supporting loan portfolios, administrative costs in
evaluating and processing mortgage loan applications and the cost and
availability of funds that mortgage banking companies rely upon to make or
purchase loans. Changes in the level of consumer confidence, tax laws, real
estate values, prevailing interest rates and investment returns expected by the
financial community could make mortgage loans of the types originated or
purchased by the Company less attractive to
11
15
borrowers or investors. Competition also may be affected by fluctuations in
interest rates, general economic conditions and localized economic conditions.
The Company continues to face the same challenges as other companies
within the mortgage banking industry and as such is not immune from significant
volume declines precipitated by changes in interest rates or other factors
beyond its control.
Competition
The mortgage banking industry is highly competitive. The Company
competes with financial institutions, mainly mortgage companies, commercial
banks and savings and loan associations and, to a certain extent, credit unions
and insurance companies. The Company competes principally by purchasing or
originating a variety of mortgage loans, emphasizing the quality of its service
and pricing the loans at competitive rates. Many of the Company's competitors
may have greater financial resources, better operating efficiencies and longer
operating histories than the Company. Many of the nation's largest mortgage
companies and commercial banks have a significant number of branch offices in
areas in which the Company's correspondents and wholesale branches operate.
Increased competition for mortgage loans from larger lenders may result in a
decrease in the volume of loans purchased by the Company, thereby possibly
reducing the Company's revenues. At the same time, Fannie Mae and Freddie Mac
are developing technologies and business practices that could reduce their
reliance on large mortgage companies for loan production and enable them to
access smaller producers for volume. To the extent that market pricing becomes
more competitive, the Company may be unable to achieve its planned level of
originations and may be unable to consummate acquisitions of servicing rights at
a satisfactory cost. The Company does not have a significant market share of
mortgage banking activities in the areas in which it conducts operations.
Both the small-ticket commercial equipment leasing industry and the
commercial mortgage banking industry are highly competitive. The Company is
subject to competition from other equipment leasing and commercial mortgage
banking companies some of which may be better capitalized. The Company does not
have a significant market share of equipment leasing or commercial mortgage
banking in the areas in which it conducts operations.
Due to the foregoing considerations, there can be no assurance that the
Company will be able to continue to compete successfully in the markets it
serves. Inability to compete successfully would have a material adverse effect
on the results of operations and financial condition of Company.
Concentration
The Company typically sells the mortgage servicing rights associated
with its mortgage production into forward sales contracts. Additionally, from
time to time, the Company will sell residential mortgage servicing rights from
its available for sale portfolio. In 1998, approximately 97% of its sales under
these forward sales contracts were to four major customers. In 1997
approximately 84% of its sales under these forward sales contracts were to three
major customers. The loss of these clients could have a material adverse effect
on the Company's residential mortgage servicing business if no suitable
replacement can be found.
The growth and profitability of the Company's equipment leasing
business are dependent to a large extent on the ability to finance an increasing
balance of leases held in its portfolio or to sell leases to and service leases
for third parties. Currently, Resource Bancshares Corporation (RBC) has in place
a $100 million lease financing facility and an agreement to offer to sell
equipment leases to only one client; however, neither party is obligated to buy
or sell. The client has acquired leases on a regular basis from RBC since
December 1996, but there is no
12
16
assurance of future sales. At December 31, 1998, approximately 17% and 9% of the
Company's net lease receivables were located in the states of California and
Florida, respectively. At December 31, 1998, approximately 19% and 9% of the
Company's net lease receivables were collateralized by computer equipment and
titled equipment, respectively. Otherwise, there are no lessee geographic,
equipment type or lessee industry concentrations greater than 9%.
At December 31, 1998, 35% of commercial mortgage loans serviced were
for a single customer. In addition, at December 31, 1998, the Company was
servicing approximately $37.6 million of leases for third parties, 98% of which
was serviced for a single customer. The loss of these clients could have a
material adverse effect on the equipment leasing and commercial mortgage
businesses.
Interest Rate Risks
The Company's loans held for sale are generally funded by borrowings
under its revolving warehouse credit line. The Company's net warehouse interest
income is the difference between the interest income it earns on loans held for
sale (generally based on long-term interest rates) and the interest it pays on
its borrowings (generally based on short-term interest rates). The factors that
can affect this spread include interest rates charged by lenders, the
relationship between long-term and short-term interest rates and the use of
compensating balances (escrow funds held on deposit with lending banks) to
decrease interest rates charged on borrowed funds. There can be no assurance
that this spread will not decrease from its current level. A decrease in the
spread would have a negative effect on the Company's net interest income.
The Company's net income reflects a reduction in interest expense on
its borrowings with depository institutions for escrow funds placed with such
institutions. Net income could be adversely affected to the extent that proposed
revisions of applicable bank regulations cause these escrow accounts to be
recharacterized as demand deposit accounts, thereby requiring reserves to be
established with Federal Reserve Banks, which would reduce the amount of the
reduction in the Company's interest expense on its borrowings. Other regulatory
changes or interpretations that change the ability of the Company to receive
credit for escrow balances would adversely affect the Company.
In addition, certain states require that interest be paid to mortgagors
on escrow funds deposited by them to cover mortgage-related payments such as
property taxes and insurance premiums. Federal legislation has in the past been
introduced that would, if enacted, revise current escrow regulations and
establish a uniform interest payment requirement in all states. If such federal
legislation were enacted or if additional states enact legislation relating to
payment of, or increases in the rate of, interest on escrow balances, or if such
legislation were retroactively applied to loans in the Company's servicing
portfolio, the Company's earnings would be adversely affected.
Regulation
The operations of the Company are subject to extensive regulation by
federal and state governmental authorities and are subject to various laws and
judicial and administrative decisions that, among other things, regulate
credit-granting activities, require disclosures to customers, govern secured
transactions and establish collection, repossession and claims handling
procedures and other trade practices. The Company is subject to the rules and
regulations of the FHA, Freddie Mac, Fannie Mae, Ginnie Mae, HUD, the VA and
state regulatory authorities with respect to originating, processing,
underwriting, selling, securitizing and servicing mortgage loans.
13
17
In addition, there are other federal and state statutes and
regulations, as well as judicial decisions, affecting such activities. Those
rules and regulations, among other things, impose licensing obligations on the
Company, establish eligibility criteria for mortgage loans, prohibit
discrimination and establish underwriting guidelines that include provisions for
inspections and appraisals, require credit reports on prospective borrowers and
fix maximum loan amounts, and with respect to VA loans, fix maximum interest
rates. Moreover, lenders such as the Company are required to submit annually to
the FHA, Freddie Mac, Fannie Mae, Ginnie Mae and the VA audited financial
statements, and each regulatory entity has its own financial requirements. The
Company's affairs also are subject to examination by the FHA, Freddie Mac,
Fannie Mae, Ginnie Mae and the VA at all times to assure compliance with
applicable regulations, policies and procedures. Mortgage origination activities
are subject to, among others, the Equal Credit Opportunity Act and its related
regulations, which prohibit discrimination, and the Federal Truth-in-Lending
Act and the Real Estate Settlement Procedures Act and the regulations
promulgated thereunder, which require the disclosure of certain basic
information to mortgagors concerning credit terms and settlement costs,
respectively. Many of the aforementioned regulatory requirements are designed to
protect the interests of consumers, while others protect the owners or insurers
of mortgage loans. Failure to comply with these requirements can lead to loss of
approved status, termination of servicing contracts without compensation to the
servicer, demands for indemnification or loan repurchases, class-action lawsuits
and administrative enforcement actions. Such regulatory requirements are subject
to change from time to time and may in the future become more restrictive,
thereby making compliance more difficult or expensive or otherwise restricting
the ability of the Company to conduct its business as such business is now
conducted.
Certain states require that interest be paid to mortgagors on funds
deposited by them in escrow to cover mortgage-related payments such as property
taxes and insurance premiums. Currently there are nine states in which the
Company does business where it is required to pay interest on escrow accounts.
Loans from these nine states amounted to approximately 30.3% of the Company's
mortgage servicing rights portfolio at December 31, 1998. The amount of interest
paid on escrow accounts for 1998 was approximately $500 thousand.
From time to time, state and federal legislation has been proposed to
regulate certain practices with respect to mortgage servicers holding escrow
accounts of borrowers. Such proposed legislation has included provisions that
would (i) require that interest be paid on escrow accounts, (ii) permit
mortgagors to terminate escrow accounts at such time as their loan balances
decline below a specified level and (iii) require calculation of escrow balances
by mortgage banks on a basis that would be less advantageous to such companies
than presently permitted. The Company would be adversely affected by enactment
of such legislation. It is impossible to predict whether such legislation or any
similar legislation regulating escrow practices will be enacted, or if enacted,
what form it will take. If any additional legislative restrictions are imposed
on the Company by state or federal laws or regulations, the effect on the
Company's results of operations would depend on the requirements of such laws or
regulations, and such effect could be materially adverse. In addition to
legislative changes, a change of prevailing judicial interpretations regarding a
servicer's duty to pay interest on the escrow deposits could be materially
adverse to the Company's results of operations.
There are various state and local laws and regulations affecting the
Company's operations. The Company is in possession of licenses in all states in
which it does business that require such licenses. Mortgage loans also may be
subject to state usury statutes.
14
18
Litigation
In recent years, the mortgage banking industry has been subject to
class action lawsuits that allege violations of federal and state laws and
regulations, including the propriety of collecting and paying various fees and
charges and the calculation of escrow amounts. Most recently, at least 150
purported class action lawsuits have been commenced against various mortgage
companies, including the Company, alleging, inter alia, that the payment of
certain fees to mortgage brokers violates the anti-kickback provisions of RESPA.
If these cases are resolved against the lenders, it may cause an industry-wide
change in the way independent mortgage brokers are compensated. Such a change
could have a material adverse effect on the Company and the entire mortgage
lending industry. The Company's broker compensation and table-funded
correspondent purchase programs permit such payments. Although the Company
believes these programs comply with all applicable laws and are consistent with
long-standing industry practice and regulatory interpretations, in the future
new regulatory interpretations or judicial decisions may require the Company to
change its broker compensation and table-funded correspondent purchase
practices. Class action lawsuits may continue to be filed in the future against
the mortgage banking industry generally. No prediction can be made as to whether
the ultimate decisions in any of these class actions will be adverse to the
defendant mortgage companies.
Delinquency and Default
The Company's profitability may be negatively impacted by economic
downturns as during such periods the frequency of loan defaults tends to
increase. The Company originates and purchases conventional loans as well as
loans insured by the FHA or partially guaranteed by the VA. In the case of
conventional loans, the Company is generally at risk for any mortgage loan
default from origination or purchase by the Company, as the case may be, until
the loan is sold (typically less than 45 days). Once the Company sells the loan,
the risk of loss from mortgage loan default and foreclosure generally passes to
the purchaser or insurer of the loan. The Company has from the time an FHA or VA
mortgage loan is originated or purchased until the first payment is due, a
minimum of 31 days, to request insurance or a guarantee certificate from the FHA
and the VA, respectively. Once the insurance or the guarantee certificate is
issued, The Company has no risk of default or foreclosure except with respect to
certain losses related to foreclosures of FHA mortgage loans and losses that
exceed the VA's guarantee limitation.
The Company is also affected by mortgage loan delinquencies and
defaults on the mortgage loans that it services. Under certain types of
servicing contracts, particularly contracts to service loans that have been
pooled or securitized, the servicer must advance all or part of the scheduled
payments to the owner of the loan, even when loan payments are delinquent. Also,
to protect their liens on mortgaged properties, owners of mortgage loans usually
require the servicer to advance mortgage and hazard insurance and tax payments
on schedule even if sufficient escrow funds are unavailable.
With respect to VA loans, the VA guarantees the initial losses on a
loan. The guaranteed amount generally ranges from 20% to 35% of the original
principal balance. Before each foreclosure sale, the VA determines whether to
bid to purchase the foreclosed loan by comparing the estimated net sale proceeds
to the outstanding principal balance and the servicer's accumulated reimbursable
costs and fees. If this amount is a loss and exceeds the guaranteed amount, the
VA typically issues a no-bid and pays the servicer the guaranteed amount.
Whenever a no-bid is issued, the servicer absorbs the loss, if any, in excess of
the sum of the guaranteed principal and amounts recovered at the foreclosure
sale. The Company's historical delinquency and foreclosure rate experience on VA
loans has generally been consistent with that of the industry.
15
19
In the case of loans insured by the FHA, the Company will not be
reimbursed for certain amounts if foreclosure becomes necessary. Such amounts
include interest on the mortgage loan for the first two months subsequent to the
loan becoming delinquent and a portion of the costs of foreclosure (generally
the unreimbursed amount of such costs is limited to one-third of such costs).
With respect to VA loans, FHA loans and conventional loans, the
servicer generally is reimbursed ultimately by the mortgage loan owner or from
liquidation proceeds. However, in the interim, the servicer must absorb the cost
of funds advanced during the time the advance is outstanding. Further, the
servicer must bear the increased costs of attempting to collect on delinquent
and defaulted mortgage loans. In addition, if a default is not cured, the
mortgage loan will be extinguished as a result of foreclosure proceedings and
any servicing income will cease. As a consequence, the Company will forego
servicing income from the time such loan becomes delinquent until it is
foreclosed upon or is brought current. The Company maintains a reserve for
possible losses at a level considered adequate to provide for known and inherent
risks related to foreclosure and disposition losses. The Company's evaluation of
an adequate level of foreclosure reserves considers past loss experience,
industry loss experience, geographic and product concentrations, delinquency
trends, economic conditions and other relevant factors. While the Company uses
the best currently available information to make such evaluation, future
adjustments to the foreclosure reserve will be required as conditions and
assumptions are revised in response to changes in trends and the other factors
and assumptions relevant to the Company's evaluation.
Financing of Operations
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 1999. The credit agreement
includes covenants requiring the Company to maintain (i) a minimum net worth of
$185 million, plus net income subsequent to June 30, 1998, 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 principal
balance of at least $4 billion. The provisions of the agreement also restrict
the Company's ability (i) to pay dividends which exceed 70% of the Company's net
income or (ii) to engage significantly in any type of business unrelated to the
mortgage banking business, the servicing of mortgage loans or equipment leasing.
Additionally, the Company has entered into a $230 million, 364-day term
revolving credit facility with a syndicate of unaffiliated banks. An $80 million
portion of the revolver facility converts in July 1999, into a four-year term
loan. The facility is secured by the Company's servicing portfolio designated as
"available-for-sale." A $100 million portion of the revolver facility matures in
July 1999, and is secured by the Company's servicing portfolio designated as
"held-for-sale." A $50 million portion of the revolver facility matures in July
1999, 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 1999. The facility includes
covenants identical to those described above with respect to the warehouse line
of credit.
16
20
The Company was in compliance with the above-mentioned debt covenants
at December 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.
RBMG Asset Management Company, Inc. (Asset Management Co.), a
wholly-owned subsidiary of the Company, and a bank entered into a master
repurchase agreement dated as of December 11, 1997, pursuant to the terms of
which Asset Management Co. is entitled from time to time to deliver eligible
subprime mortgage loans in an aggregate principal amount of up to $150 million
to the bank. The term of this repurchase agreement is 364 days. As of December
31, 1998, no loans had been sold under this agreement. The master repurchase
agreement has been extended through April 1999 and is in the process of being
renewed.
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 $100 million credit facility to provide financing for
its leasing portfolio. The warehouse credit agreement matures in July 1999, and
contains various covenants regarding characteristics of the collateral and the
performance of the leases originated and serviced by RBC and which require RBC
to maintain a minimal net worth of $40 million and a ratio of total liabilities
to net worth of no more than 10.0 to 1.0.
There can be no assurance that the Company will be able to comply with
the covenants in its various credit facilities, and failure to comply could
result in the loss of the related financing. In addition, there can be no
assurance that the Company will be able to renew these arrangements at the end
of their terms or obtain replacement financing on terms acceptable to the
Company. To the extent that the Company loses its financing sources, or if the
Company experiences difficulty in selling its mortgage loans or mortgage-backed
securities, it may have to curtail its mortgage loan origination and purchase
activities, which could have a material adverse effect on the Company's
operations and financial condition.
Changes in the Market for Servicing Rights, Mortgage Loans and Lease Receivables
Volume of Mortgage Loans Produced
During periods of declining interest rates, the Company typically
experiences an increase in loan originations because of increased home purchases
and, particularly, increased refinancing activity. Increases in interest rates
in the future may adversely affect refinancing activity, which could have an
adverse effect on the Company's origination revenues.
17
21
Sales of Mortgage Loans
Gains or losses on sales of mortgage loans may result from changes in
interest rates from the time the interest rate on a customer's mortgage loan
application is established to the time the company sells the loan. At any given
time, the Company has committed to sell substantially all of its mortgage loans
that are closed and a percentage of the mortgage loans that are not yet closed
but for which the interest rate has been established ("pipeline loans"). To
manage the interest rate risk of the Company's pipeline loans, the Company
continuously projects the percentage of the pipeline loans it expects to close
and, on the basis of such projections, enters into forward sales commitments to
sell such loans. To reduce the effect of such interest rate changes, the Company
employs a variety of techniques, currently consisting of a combination of
mandatory forward sales commitments for mortgage-backed securities and put and
call option contracts on treasuries.
If interest rates make an unanticipated change, the actual percentage
of pipeline loans that close may differ from the projected percentage. A sudden
increase in interest rates can cause a higher percentage of pipeline loans to
close than projected. To the degree that this may not have been anticipated, the
Company may not have made forward sales commitments to sell these additional
loans and consequently may incur significant losses upon their sale at current
market prices, adversely affecting results of operations. Likewise, if a lower
percentage of pipeline loans closes than was projected, due to a sudden decrease
in interest rates or otherwise, the Company may have committed to sell more
loans than actually close and as a result may incur significant losses in
fulfilling these commitments, adversely affecting results of operations. This
risk is greater during times of volatility of interest rates.
Value of Mortgage Servicing Rights
The value of the Company's servicing portfolio may be adversely
affected if mortgage interest rates decline and loan prepayments increase. In
periods of declining interest rates, the economic advantages to borrowers of
refinancing their mortgage loans become greater. Increases in the rate of
mortgage loan prepayments reduce the period during which the Company receives
servicing income from such loans. The Company capitalizes the cost of the
acquisition of servicing rights from third parties and capitalizes estimated
servicing rights on loans that it originates. The value of servicing rights is
based upon the net present value of estimated future cash flows. If the rate of
prepayment of the related loans exceeds the rate assumed by the Company, due to
a significant reduction in interest rates or otherwise, the value of the
Company's servicing portfolio will decrease and accelerated amortization of
servicing rights or recognition of an impairment provision may become necessary,
thereby decreasing earnings. The Company attempts to mitigate these risks with
respect to the value of its servicing rights by maintaining a portfolio of
interest rate option contracts whose value tends to increase in periods of
declining interest rates thus mitigating the decline in value typical during the
same period with respect to servicing rights. However, there can be no assurance
that the Company's efforts to mitigate these risks will prevent value loss or
impairment provisions.
Sales of Mortgage Servicing Rights
The prices obtained by the Company upon the sale of its mortgage
servicing rights depend upon a number of factors, including the general supply
of and demand for mortgage servicing rights, as well as prepayment and
delinquency rates on the portfolio of mortgage servicing rights being sold.
Interest rate changes can affect the ability to sell, or the profitability of a
sale of, mortgage servicing rights to a third party. Purchasers of mortgage
servicing rights analyze a variety of factors, including prepayment sensitivity
of loans underlying servicing rights, to determine the purchase price they are
willing to pay.
18
22
Thus, in periods of declining interest rates, sales of mortgage servicing rights
related to higher interest rate loans may be less profitable than sales of
mortgage servicing rights related to lower interest rate loans as it is possible
that such higher interest rate loans will be refinanced. Because these factors
are largely beyond the control of the Company, there can be no assurance that
the current level of profitability from the sale of mortgage servicing rights
will be maintained.
Liabilities Under Representations and Warranties
In the ordinary course of business, the Company makes representations
and warranties to the purchasers and insurers of its mortgage loans and the
purchasers of mortgage servicing rights regarding compliance with laws,
regulations and program standards and as to accuracy of information. Under
certain circumstances, the Company may become liable for certain damages or may
be required to repurchase a loan if there has been a breach of representations
or warranties. The Company generally receives similar representations and
warranties from the correspondents from whom it purchases loans. However, in the
event of breaches of such representations and warranties, the Company is subject
to the risk that a correspondent may not have the financial capacity to
repurchase loans when called upon to do so by the Company or otherwise may not
respond to demands made by the Company.
Environmental Matters
In the course of its business, through the foreclosure process, the
Company has acquired, and may acquire in the future, properties securing loans
that are in default. Although the Company lends to owners of residential
properties, there is a risk that the Company could be required to investigate
and cleanup hazardous or toxic substances or chemical releases at such
properties after its acquisition and may be held liable to a governmental entity
or to third-parties for property damage, personal injury and investigation
cleanup costs incurred by such parties in connection with the contamination.
To date, the Company has not been required to perform any investigation
or cleanup activities of any material nature, nor has the Company been subject
to any environmental claims. No assurance can be given, however, that this will
remain the case in the future.
Changes in the Demand for Mortgage Loans and Leases
The Company's operating results can fluctuate substantially from period
to period as a result of a number of factors, including the volume of loan
production, interest rates, the level of amortization of mortgage servicing
rights required by prepayment rates and the performance of the Company's
servicing portfolio hedge, which currently consists primarily of interest rate
option contracts for ten year Constant Maturity Treasury and Constant Maturity
Swap floors. In particular, the Company's results are strongly influenced by the
level of loan production, which is influenced by the interest rate environment
and other economic factors. Accordingly, the net income of the Company may
fluctuate substantially from period to period.
Changes in the Value of Residual Interests in Subprime Securitizations
Residual certificates are classified as trading securities and changes
in their value are recorded as adjustments to income in the period of change.
The Company assesses the fair value of the residual certificates quarterly,
based on an independent third party valuation. This valuation is based on the
19
23
discounted cash flows available to the holder of the residual certificate.
Significant assumptions used in this valuation include the discount rate,
prepayment speed and credit loss estimates. Each of these factors can be
significantly affected by, among other things, changes in the interest rate
environment and general economic conditions and expose the Company to
prepayment, basis and rate risks. Other factors evaluated in the determination
of fair value include, but are not necessarily limited to, the credit and
collateral quality of the underlying loans, current economic conditions and
various fees and costs (such as prepayment penalties) associated with ownership
of the residual certificate. Although the Company believes that the fair values
of its residual certificates are reasonable given current market conditions, the
assumptions used are estimates and actual experience may vary from these
estimates. Differences in the actual prepayment speed and loss experience and
other assumptions from those applied for valuation purposes, could have a
significant effect on the estimated fair value of the residual certificates.
Prepayment Risks
The market value of servicing rights acquired in bulk transactions,
rather than as a by-product of the Company's loan production activities, is
initially capitalized at the lower of cost or the estimated present value of
future expected net servicing income. Amounts capitalized as mortgage servicing
rights are amortized over the period of, and in proportion to, estimated future
net servicing income. The Company assesses its capitalized mortgage servicing
rights for impairment (on a stratified basis) based on the estimated market
values of those rights. Impairments are recognized as a valuation allowance for
each impaired stratum. Market value is estimated by an internal valuation which
is substantiated for reasonableness by reference to a third-party analysis. Both
analyses value such rights in consideration of current forward committed
delivery prices, prevailing interest, prepayment and default rates, mortgage to
treasury spreads and other relevant factors as appropriate or allocable to each
valuation stratum.
Dependence Upon Independent Mortgage Brokers and Mortgage Bankers
The Company depends largely upon independent mortgage bankers,
including smaller mortgage companies and commercial banks, and, to a lesser
extent, upon independent mortgage brokers, for its originations and purchases of
mortgage loans. Substantially all of the independent mortgage brokers and
mortgage bankers with whom the Company does business deal with multiple loan
originators for each prospective borrower. Wholesale originators, such as the
Company, compete for business based upon pricing, service, loan fees and costs
and other factors. The Company's competitors also seek to establish
relationships with such independent mortgage bankers and mortgage brokers, none
of whom is obligated by contract or otherwise to continue to do business with
the Company. In addition, the Company expects the volume of broker and mortgage
banker-sourced loans purchased by it to increase. Future operating and financial
results of the Company may be more susceptible to fluctuations in the volume and
cost of its broker and mortgage banker-sourced loans resulting from, among other
things, competition from other purchasers of such loans.
Possible Changes in Accounting Estimates
In preparing the financial statements, management is required to make
estimates based on available information that can affect the reported amounts of
assets, liabilities and disclosures as of the balance sheet date and revenues
and expenses for the related periods. Such estimates relate principally to the
Company's allowance for foreclosure losses and repurchased loans, its allowance
for lease losses and fair values of its residual certificates. Additionally,
estimates concerning the fair values of mortgage loans held-for-sale, lease
receivables, servicing rights, servicing hedges and the Company's other hedging
instruments are all relevant to ensuring that leases and mortgage loans are
carried at the lower of
20
24
cost or market, and that potential impairments of servicing rights are
recognized as and if required. Because of the inherent uncertainties associated
with any estimation process and due to possible future changes in market and
economic conditions that will affect fair values, it is possible that actual
future results in realization of the underlying assets and liabilities could
differ significantly from the amounts reflected as of the balance sheet date.
Federal Programs; Availability of Active Secondary Market
The Company's ability to generate funds by sales of mortgage-backed
securities is largely dependent upon the continuation of programs administered
by Fannie Mae, Freddie Mac and Ginnie Mae, which facilitate the issuance of such
securities, as well as the Company's continued eligibility to participate in
such programs. Although the Company is not aware of any proposed discontinuation
of, or significant reduction in, the operation of such programs, any such
changes could have a material adverse effect on the Company's operations. The
Company anticipates that it will continue to remain eligible to participate in
such programs, but any significant impairment of such eligibility would
materially adversely affect its operations. In addition, the mortgage loan
products eligible for such programs may be changed from time to time by the
sponsor. The profitability of specific types of mortgage loan products may vary
depending on a number of factors, including the administrative costs to the
Company of originating or purchasing such types of mortgage loans.
There can be no assurance that the Company will be successful in
effecting the sale of mortgage loans at the historic price or volume levels in
any particular future periods. Any significant change in the secondary market
level of activity or underwriting criteria of Fannie Mae, Freddie Mac or private
investors could have a material adverse effect on the gain or loss on sales of
mortgage loans recorded by the Company and therefore on the Company's results of
operations.
Effect of Certain Charter and Bylaw Provisions;
Possible Issuance of Preferred Stock
Certain provisions of the Company's Certificate of Incorporation and
the Company's Bylaws could delay or frustrate the removal of incumbent directors
and could make more difficult a merger, tender offer or proxy contest involving
the Company, even if such events could be beneficial to the interests of the
Company's stockholders. For example, the Company's Certificate of Incorporation
and the Company's Bylaws provide certain limitations on the calling of a special
meeting of stockholders, and the Company's Bylaws require advance notice before
certain proposals can be considered at stockholder meetings. Pursuant to the
Company's Certificate of Incorporation, shares of preferred stock may be issued
in the future without further stockholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, as the Board of
Directors may determine. The ability to issue preferred stock provides desirable
flexibility in connection with acquisitions and other corporate transactions.
However, the rights of the holders of the Company's common stock will be subject
to, and may be adversely affected by, any preferred stock that may be issued in
the future, and the issuance of preferred stock could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of preferred stock; however,
the Company has adopted a Rights Agreement which provides that if a person or
group acquires 15% or more of the Company's Common Stock, shareholders would
have the right to acquire shares of preferred stock. The existence of the
Rights Agreement has anti-takeover effects because it may deter certain
potential acquirors from making takeover proposals or tender offers.
Dependence on Key Individuals
The success of the Company is in large part dependent upon the efforts
of Edward J. Sebastian, Chairman and Chief Executive Officer, and David W.
Johnson, Jr., Vice Chairman and Managing Director. The loss of the services of
either of these two officers could have a material adverse effect upon
21
25
the Company if a suitable replacement could not be quickly retained. The Company
has obtained key man life insurance policies on Mr. Sebastian in the amount of
$2,000,000 and Mr. Johnson in the amount of $5,000,000. The Company also has
entered into certain employment and employment related agreements with Mr.
Johnson.
Year 2000 Risks
The Company recognizes the need to address the potentially adverse
impact that Year 2000 issues might have on its business operations. The
Company's compliance efforts are ongoing under the guidance of the Director of
Operations and involve employees throughout the Company as well as outside
consultants and contractors. The Company's Year 2000 Project leadership team
meets with the Company's executive management weekly and the Board of Directors
is routinely updated on the status of their efforts.
Further discussion on this Year 2000 project is incorporated herein by
reference to the discussion thereof in the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Company's accompanying
1998 Annual Report to Shareholders in Item 7 herein.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer code and unforeseen circumstances causing the
Company to allocate its resources elsewhere.
Failure by either the Company or third parties to achieve Year 2000
compliance could cause short-term operational inconveniences and inefficiencies
for the Company. To the extent reasonably achievable, the Company will seek to
prevent or mitigate the effects of such possible failures through its
contingency planning efforts. This may temporarily divert management's time and
attention from ordinary business activities.
Employees
As of December 31, 1998, the Company had 1,396 employees, substantially
all of whom were full-time employees. None of the Company's employees are
represented by a union. The Company considers its relations with its employees
to be good.
Executive Officers of the Registrant
Edward J. Sebastian, age 52, has been Chairman and Chief Executive
Officer of the Company since September 1992.
David W. Johnson, Jr., age 50, has been Vice Chairman of the Company
since October 1992 and Managing Director since July 1993.
Richard M. Duncan, age 50, has been Senior Executive Vice President of
Production since January 1997. Previously he had been Executive Vice President
of Production since January 1995. He has been with the Company since May 1994,
joining it as Senior Vice President of Business Development. From May 1984
through April 1994, Mr. Duncan was an Executive Vice President of Fleet Mortgage
Group, Inc.
22
26
Steven F. Herbert, age 43, has been Senior Executive Vice President and
Chief Financial Officer of the Company since January 1997. Previously, he had
been Executive Vice President and Chief Financial Officer since July 1995. From
September 1985 through June 1995, Mr. Herbert was employed by Price Waterhouse
LLP, most recently as the Client Services Director of the Columbia, South
Carolina office.
Item 2. PROPERTIES
The Company's corporate and administrative headquarters, which is owned
by the Company, is located in Columbia, South Carolina and is subject to a
mortgage in the amount of $6.4 million as of December 31, 1998. This facility
comprises a building having approximately 120,000 square feet which houses its
loan production and administrative operating groups and 16.5 acres of land. The
Company purchased an additional 17.9 acres of land adjacent to the above
property in January 1996. In addition, the Company leases a 56,000 square foot
facility in Columbia, South Carolina which houses its loan servicing operations.
The Company has leased smaller amounts of office space in Columbia, South
Carolina and in 23 other states, consisting primarily of its leasing, commercial
mortgage, wholesale and retail branch offices and regional underwriting centers.
The Company's primary computer data system is provided through ALLTEL
Information Services, Mortgage Division (ALLTEL) (formerly Computer Power, Inc.
of Jacksonville, Florida). Company personnel enter data on computer hardware
located in-house. The data is transmitted directly to ALLTEL where it is
processed.
Item 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company and its
subsidiaries are from time to time subject to litigation. The Company and its
subsidiaries are not parties to any material pending legal proceedings other
than ordinary routine litigation incidental to their respective businesses.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ. Additional
information required by this item is set forth under the captions "Stock Data"
and "Corporate Information" in the Company's accompanying 1998 Annual Report to
Shareholders and is hereby incorporated herein by reference.
23
27
Item 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial
Highlights" in the Company's accompanying 1998 Annual Report to Shareholders is
hereby incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" (including all
tables presented under that caption) in the Company's accompanying 1998 Annual
Report to Shareholders is hereby incorporated herein by reference.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth under the caption "Quantitative and
Qualitative Disclosure About Market Risk" in the Company's accompanying 1998
Annual Report to Shareholders is hereby incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information set forth in the Company's accompanying 1998
Annual Report to shareholders is hereby incorporated herein by reference:
The Consolidated Financial Statements of Resource Bancshares Mortgage
Group, Inc., together with the report thereon of PricewaterhouseCoopers LLP
dated January 29, 1999, including all Notes to such Consolidated Financial
Statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements with
accountants on accounting and financial disclosure matters that require
disclosure pursuant to Item 304 of Regulation S-K.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information set forth (i) under the caption "Proposal No. 1: Election
of Directors" in the definitive 1999 Proxy Statement of the Company furnished to
shareholders in connection with its 1999 Annual Meeting (the "1999 Proxy
Statement"), with respect to the name of each nominee or director, his age, his
positions and offices with the registrant, his business experience, his
directorships in other public companies and his service on the registrant's
Board of Directors, and (ii) under the caption "Section 16 (a) Beneficial
Ownership Reporting Compliance" in the 1999 Proxy Statement with respect to
Section 16 matters is hereby incorporated herein by reference. Information with
respect to executive officers is set forth in Item 1 of this Report on Form 10-K
under the caption "Executive Officers of the Registrant."
24
28
Item 11. EXECUTIVE COMPENSATION
Information with respect to the remuneration of executive officers and
directors and certain other matters set forth in the 1999 Proxy Statement (i)
under the caption "Compensation of Officers and Directors" and (ii) under the
caption "Compensation Committee Interlocks and Insider Participation" to the
extent such information is required by Item 402 of Regulation S-K to be set
forth herein is hereby incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of (i) persons who
beneficially own 5% or more of the outstanding shares of the Company's common
stock, par value $.01 per share, (ii) directors, nominees and named executive
officers individually and (iii) directors and executive officers as a group set
forth in the 1999 Proxy Statement under the caption "Beneficial Ownership" is,
to the extent such information is required by Item 403 of Regulation S-K to be
set forth herein, hereby incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to relationships and related transactions
between the Company and any director, nominee for director, executive officer,
security holder owning 5% or more of the Company's voting securities or any
associate or member of the immediate family of any of the above, as set forth in
the 1999 Proxy Statement under the caption "Compensation Committee Interlocks
and Insider Participation" is, to the extent such information is required by
Item 404 of Regulation S-K to be set forth herein, hereby incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. The following documents are filed as part of this report:
Page In Annual Report*
(1) Consolidated Financial Statements as of December 31, 1998:
Consolidated Balance Sheet at December 31, 1998 and 1997 .......................
Consolidated Statement of Income for each of the three years in the period ended
December 31, 1998 .....................................................
Consolidated Statement of Changes in Stockholders' Equity
for each of the three years in the period ended December 31, 1998 .....
Consolidated Statement of Cash Flows for each of the three years in the period
25
29
ended December 31, 1998 ...............................................
Notes to Consolidated Financial Statements .....................................
* Incorporated by reference from the indicated pages of the 1998 Annual
Report to Shareholders.
(2) All other schedules are omitted because they are not applicable, or the
required information is shown in the consolidated financial statements
or notes thereto.
(3) The exhibits filed as part of this report and exhibits incorporated
herein by reference to other documents are listed in the Index to
Exhibits to this Annual Report on Form 10-K (pages A to F).
b. Not applicable
c. The exhibits filed as part of this report and exhibits incorporated herein
by reference to other documents are listed in the Index to Exhibits to this
Annual Report on Form 10-K (pages A to F).
d. Not applicable
With the exception of the information herein expressly incorporated by
reference, the Company's 1998 Annual Report to Shareholders and 1999 Proxy
Statement shall not be deemed filed as part of this Annual Report on Form 10-K.
26
30
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Date: March 30, 1999 By: s/ Edward J. Sebastian
----------------------------------------------
Edward J. Sebastian
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------------------------------------------------------------------------------------
s/ Edward J. Sebastian Chairman of the Board and Chief March 30, 1999
- -------------------------------- Executive Officer and Director
Edward J. Sebastian (principal executive officer)
s/ Steven F. Herbert Senior Executive Vice President March 30, 1999
- -------------------------------- and Chief Financial Officer (principal
Steven F. Herbert financial and accounting officer)
s/ David W. Johnson, Jr. Vice Chairman of the Board, March 30, 1999
- -------------------------------- Managing Director and Director
David W. Johnson, Jr.
s/ John W. Currie Secretary and Director March 30, 1999
- --------------------------------
John W. Currie
s/ John C. Baker Director March 30, 1999
- --------------------------------
John C. Baker
Director
- --------------------------------
Stuart M. Cable
s/ Boyd M. Guttery Director March 30, 1999
- --------------------------------
Boyd M. Guttery
Director
- --------------------------------
Robin C. Kelton
s/ John G. Wolcott Director March 30, 1999
- --------------------------------
John O. Wolcott
27
31
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- ----------- ----
3.1 Restated Certificate of Incorporation of the Registrant incorporated by reference to *
Exhibit 3.3 of the Registrant's Registration No. 33-53980
3.2 Certificate of Amendment of Certificate of Incorporation of the Registrant incorporated *
by reference to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997
3.3 Certificate of Designation of the Preferred Stock of the Registrant incorporated by *
reference to Exhibit 4.1 of the Registrant's Form 8-A filed on February 8, 1998
3.4 Amended and Restated Bylaws of the Registrant incorporated by reference to *
Exhibit 3.4 of the Registrant's Registration No. 33-53980
3.5 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. dated January 28, 1999 _____
4.1 Specimen Certificate of Registrant's Common Stock incorporated by reference *
to Exhibit 4.1 of the Registrant's Registration No. 33-53980
4.2 Rights Plan dated as of February 6, 1998 between the Registrant and First Chicago *
Trust Company of New York incorporated by reference to Exhibit 4.1 of the Registrant's
Form 8-A filed on February 8, 1998
4.3 Third Amended and Restated Secured Revolving /Term Credit Agreement dated as of July *
28, 1998, 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
4.3 of the Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1998.
4.4 Second Amended and Restated Revolving/Term Security and 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 28, 1998 to Second Amended and Restated *
Revolving/Term Security and Collateral Agency 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 incorporated by reference to Exhibit 4.5 of the
Registrant's 10-Q for the period ended September 30, 1998.
4.6 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 10Q for the period ended June 30, 1997
10.1 Employment Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. as amended by amendment dated October 22, 1993
incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
A
32
Exhibit No. Description Page
- ----------- ----------- ----
10.2 (A) Stock Option Agreement between the Registrant and David W. Johnson, Jr. *
incorporated by reference to Exhibit 10.8 (A) of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
(B) Stock Option Agreement between the Registrant and Lee E. Shelton incorporated *
by reference to Exhibit 10.8 (B) of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
10.3 Termination Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. incorporated by reference to Exhibit 10.9 (A) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
10.4 (A) Deferred Compensation Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. incorporated by reference to Exhibit 10.10 (A) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
(B) Deferred Compensation Rabbi Trust, for David W. Johnson, dated January 19, 1994, *
between Registrant and First Union National Bank of North Carolina incorporated by reference
to Exhibit 10.10 (C) of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993
10.5 Employment Agreement dated June 30, 1995, between the Registrant and Steven F. Herbert *
incorporated by reference to Exhibit 10.34 of the Registrant's Quarterly Report on
Form 10-Q for the period ended September 30, 1995
10.6 Employment Agreement dated September 25, 1995, between the Registrant and Richard M. *
Duncan incorporated by reference to Exhibit 10.38 of the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1995
10.7 Office Building Lease dated March 8, 1991, as amended by Modification of Office *
Lease dated October 1, 1991, incorporated by reference to Exhibit 10.5 of the Registrant's
Registration No. 33-53980
10.8 Assignment and Assumption of Office Lease incorporated by reference to Exhibit 10.6 *
of the Registrant's Registration No. 33-53980
10.9 Governmental Real Estate Sub-Lease-Office, between Resource Bancshares Mortgage *
Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation
incorporated by reference to Exhibit 10.19 of the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 1994
10.10 First Sub-Lease Amendment to Governmental Real Estate Sub-Lease-Office, *
between Resource Bancshares Mortgage Group, Inc. and the South Carolina Department
of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1994
10.11 Request for Extension of Governmental Real Estate Sub-Lease-Office, between the Registrant *
and the South Carolina Department of Labor, Licensing and Regulation dated
December 12, 1995 incorporated by reference to Exhibit 10.39 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
10.12 Section 125 Plan incorporated by reference to Exhibit 10.17 of the Registrant's Annual *
Report on Form 10-K for the year ended December 31, 1993
10.13 Pension Plan incorporated by reference to Exhibit 10.18 of the Registrant's Annual *
Report on Form 10-K for the year ended December 31, 1993
10.14 Amendment I to Pension Plan incorporated by reference to Exhibit 10.21 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
B
33
Exhibit No. Description Page
- ----------- ----------- ----
10.15 Amendment II to Pension Plan incorporated by reference to Exhibit 10.22 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.16 Amendment to Pension Plan effective January 1, 1995 incorporated by reference *
to Exhibit 10.42 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995
10.17 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
10.18 Resource Bancshares Mortgage Group, Inc. Supplemental Executive Retirement Plan *
incorporated by reference to Exhibit 10.14 of the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1998.
10.19 First Amendment to Resource Bancshares Mortgage Group, Inc. Supplemental Executive
Retirement Plan dated October 28, 1998 ____
10.20 Pension Restoration Plan incorporated by reference to Exhibit 10.25 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.21 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the Registrant's *
Registration No. 33-87536
10.22 Amendment I to Stock Investment Plan incorporated by reference to Exhibit 10.27 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.23 Amendment II to Stock Investment Plan dated November 30, 1998 incorporated by *
reference to Exhibit 4.1(c) of the Registrant's Registration Statement No. 333-68909
10.24 Employee Stock Ownership Plan incorporated by reference to Exhibit 10.29 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.25 First Amendment to Employee Stock Ownership Plan dated October 31, 1995 *
incorporated by reference to Exhibit 10.41 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
10.26 Second Amendment to Employee Stock Ownership Plan dated August 12, 1996 *
incorporated by reference to Exhibit 10.45 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1996
10.27 Amended Resource Bancshares Mortgage Group, Inc. Successor Employee Stock *
Ownership Trust Agreement dated December 1, 1994, between the
Registrant and Marine Midland Bank incorporated by reference to Exhibit
10.30 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994
10.28 ESOP Loan and Security Agreement dated January 12, 1995, between the Registrant *
and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust
incorporated by reference to Exhibit 10.31 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994
C
34
Exhibit No. Description Page
- ----------- ----------- ----
10.29 ESOP Loan and Security Agreement dated May 3, 1996, between the Registrant and *
The Resource Bancshares Mortgage Group, Inc. Employee
Stock Ownership Trust incorporated by reference to Exhibit 10.36 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996
10.30 ESOP Loan Agreements dated January 20, 1998, April 1, 1998, July 1, 1998, October 1,
1998 between the Registrant and The Resource Bancshares Mortgage Group, Inc.
Employee Stock Ownership Trust _____
10.31 Formula Stock Option Plan incorporated by reference to Exhibit 10.36 of the Registrant's *
Quarterly Report on Form 10-Q for the period ended September 30, 1995
10.32 Amendment to Resource Bancshares Mortgage Group, Inc. Omnibus Stock Award Plan, *
Formula Stock Option Plan and Non-Qualified Stock Option Plan as incorporated by
reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form 10-Q for the
period ended March 31, 1997
10.33 First Amendment to the Formula Stock Option Plan incorporated by reference to *
Exhibit 99.8 of the Registrant's Registration No. 333-29245 as filed on December 1, 1997
10.34 Second Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock Option Plan _____
dated October 28, 1998
10.35 Amended and Restated Omnibus Stock Award Plan incorporated by reference to Exhibit 99.10 *
of the Registrant's Registration No. 333-29245 filed on December 1, 1997
10.36 First Amendment to Omnibus Stock Award Plan and form of Incentive Stock Option *
Agreement and Release to the Omnibus Stock Award Plan incorporated by reference to
Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1998.
10.37 Second Amendment to Resource Bancshares Mortgage Group, Inc. Omnibus Stock Award Plan _____
dated October 28, 1998
10.38 Form of Incentive Stock Option Agreement (Omnibus Stock Award Plan) *
incorporated by reference to Exhibit 10.40 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1997
10.39 Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option Plan *
dated September 1, 1996 incorporated by reference to Exhibit 10.33 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996
10.40 Form of Non-Qualified Stock Option Agreement (Non-Qualified Stock Option Plan), *
incorporated by reference to Exhibit 10.41 of the Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1997
10.41 First Amendment to Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock _____
Option Plan dated January 29, 1997
10.42 Second Amendment to the Non-Qualified Stock Option Plan dated February 6, 1998 *
incorporated by reference to Exhibit 10.40 of the Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1998
D
35
Exhibit No. Description Page
- ----------- ----------- ----
10.43 Third Amendment to Resource Bancshares Mortgage Group, Inc. Non-Qualified _____
Stock Option Plan dated October 28, 1998
10.44 Agreement and Release Form of Non-Qualified Stock Option Agreement incorporated by *
reference to Exhibit 10.41 of the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 1998
10.45 Amended and Restated Retirement Savings Plan dated April 1, 1996 *
incorporated by reference to Exhibit 10.34 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996
10.46 First Amendment to Amended and Restated Retirement Savings Plan dated as of *
November 8, 1996 incorporated by reference to Exhibit 10.35 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996
10.47 Second Amendment to Amended and Restated Retirement Savings Plan dated *
January 1997, incorporated by reference to Exhibit 10.38 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1997
10.48 (A) Agreement of Merger dated April 18, 1997 between Resource Bancshares *
Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation
incorporated by reference to Annex A of the Registrant's Registration No.333-29245
(B) First Amendment to Agreement of Merger dated April 18, 1997 between Resource *
Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and
Resource Bancshares Corporation incorporated by reference to Exhibit
10.42 of the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1997
(C) Second Amendment to Agreement of Merger dated April 18, 1997 between Resource *
Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource
Bancshares Corporation incorporated by reference to Annex A of the Registrant's
Registration No. 333-29245
10.49 (A) Mutual Release and Settlement Agreement between the Registrant, Lee E. Shelton *
and Constance P. Shelton dated January 31, 1997 incorporated by reference to Exhibit
10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997
(B) Amendment to Mutual Release and Settlement Agreement between Registrant, Lee *
E. Shelton and Constance P. Shelton dated January 31, 1997 incorporated by reference to
Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1997
10.50 Preferred Provider Organization Plan for Retired Executives incorporated by reference to *
Exhibit 10.43 of the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1998
10.51 Resource Bancshares Mortgage Group, Inc. Flexible Benefits Plan Amended _____
and Restated as of January 1, 1998
E
36
Exhibit No. Description Page
- ----------- ----------- ----
11.1 Statement re: Computation of Net Income per Common Share _____
13.1 1998 Annual Report to Shareholders _____
21.1 Subsidiaries of the Registrant _____
23.1 Consents of PricewaterhouseCoopers LLP _____
27.1 Financial Data Schedule (for SEC use only) _____
- ----------------------------------
* Incorporated by reference
F